Searching for a Lien on a Patent

Does someone have a checklist that they could share with me on the due diligence that you may go through in the process of purchasing a patent? In particular, I’m thinking about the title search to ensure that the seller is in fact the owner and that there are no liens on the patent – e.g., that the patent is not currently being used as a security interest. How do you go about doing those searches? – Dennis

Preliminary Injunction Can Issue Even Though Patentee Does not Practice the Invention

By Dennis Crouch

Trebro Mfg. v. FireFly Equipment and Steven Aposhian (Fed. Cir. 2013)

Here, the Federal Circuit holds that the district court abused its discretion in denying Trebro’s motion for preliminary injunction to stop ongoing infringement of its U.S. Patent No. 8,336,638. The patent covers sod harvesters and FireFly’s ProSlab 150 is said to infringe. This is an interesting case in terms of “troll” identity. Trebro did not itself invent the patented equipment and does not actually practice the invention. However, Trebro does compete directly with FireFly in the sod harvester business. Although the “troll” status of the plaintiff is generally irrelevant to patentability questions, many believe it is directly relevant to questions of injunctive relief.

The patented invention appears to have stemmed from an off-shoot of the Canadian sod harvester company BrouwerTurf. Trebro purchased the patent in 2013 as payment for a past debt but allowed Brower to retain a full license. Trebro then sued FireFly for infringement.

The money quote from the Federal Circuit decision is as follows: “[A] party that does not practice the asserted patent may still receive an injunction when it sells a competing product.”

Decisions like this serve as a boon for operating companies whose patent portfolios are largely based upon acquisition – such as Google.


In denying the patentee’s preliminary injunction motion, the district court made three findings. First, that the accused product did not include a vertically moveable “horizontal conveyor” as required by the asserted patent; Second that the vertical moveability limitation was of questionable novelty. Finally, the district court found ongoing competition harms (lost customers and market share) did not create any irreparable harm. On appeal, the Federal Circuit disagreed with each of these conclusions because involving misreading the patent and misapplying the law. The decision here might be seen as a contrast to the Federal Circuit’s other recent preliminary injunction decision where the court found fault with the grant of a PI. See Crouch, Substantial Unresolved Issues Unravel Preliminary Injunction.

The patent statute does not expressly permit preliminary injunctions, but does generally provide courts with authority to “grant injunctions in accordance with the principles of equity.” 35 U.S.C. § 283. The U.S. Supreme Court has discussed preliminary relief in a number of contexts and the statutory language suggests that principles from other contexts should apply in the patent situation as well. See Ebay v. MercExchange, 547 U.S. 388 (2006) and its progeny. A key to preliminary injunctive relief is that the movant is asking the court to award a remedy before making a determination of the merits of the case. That reversal of common chronology is only done with reluctance. Thus, the ordinary rule for preliminary injunctive relief is judged by the difficult-to-prove four factor test that it is (1) likely to eventually succeed on the merits of the case; (2) is to suffer irreparable harm absent an injunction; (3) that the balance of equities favor the movant; and (4) that the public interest favors injunctive relief. The requirement of “a likelihood of success on the merits” has always been confusing to me. A 10% chance of winning is still “a likelihood.” That is not how the court intends the rule to be seen. Rather, the Federal Circuit (and other courts) interprets this term as meaning the movant will more-likely-than-not win the case. A defendant can escape preliminary injunctive relief by poking holes in the case – such as demonstrating a substantial question as to whether the patent is valid or infringed.

The preliminary injunction factors have two distinguishing features when compared to the eBay factors designed for permanent injunctive relief. First, preliminary injunctions require proof of a likelihood of success on the merits. That factor tends to be heavily considered and thus makes preliminary relief more difficult to obtain. The likelihood of success factor is not considered in the context of permanent injunctive relief because that issue is generally only decided after a merits decision finding for the patentee. The eBay factors also include an additional element not found in the preliminary relief construct. That factor—that remedies available at law are inadequate to compensate for the injury—has caused some amount of academic consternation because of its extensive (perhaps entire) overlap with the irreparable harm factor. For preliminary relief, its absence of little importance because preliminary relief was not typically available in the courts of law.

Guest Post by Prof. Sichelman: Stop Bashing Academics: Why Mark Lemley, Peter Menell, and Rob Merges are Highly Qualified to Teach and Write about Patent Law

Guest Post by Prof. Ted Sichelman, University of San Diego, School of Law

Recently, Hal Wegner has been circulating and commenting upon the qualifications of patent law professors. For example, he lists whether patent law professors at the Top Ten IP programs as ranked by US News & World Report are licensed to practice at the USPTO, have an “understanding” of international/comparative patent law, or clerked at the Federal Circuit (see below). According to Wegner, these “credentials” are “particularly” and “uniquely” valuable (in some cases, “essential”) for professors to make “optimum” patent policy reform proposals, especially those concerning PTO practice and international harmonization.

(To provide some background, I provided Wegner a list of names of all professors in the U.S. who currently teach and write about patent law at US News ranked and unranked IP programs, with the understanding that he would circulate the list to his readers. After I sent Wegner my list, without my input, he annotated it (along with other names) with various credentials and provided commentary and alternative lists, such as the one reproduced below. Because I believe Wegner’s analysis is flawed—and given my initial participation—I feel personally obligated to respond.)

NaplesNotably absent on Wegner’s list above are any professors from Stanford, Berkeley, and George Washington (GW), the top ranked IP programs in the nation. (The same holds true for many other schools, both in and outside of the top 10. I focus on the top three schools to underscore the problems with Wegner’s approach.) Rather than effectively denigrate these programs, Wegner should have recognized the transformative role that these schools have played historically (for GW) and more recently (for all three schools) in elevating patent law to a prominent place in the academy and developing unparalleled educational opportunities for future patent professionals and scholars.

Importantly, an unintended implication of Wegner’s discussion is that patent law professors without the stated qualifications—particularly, a patent bar registration number—are unfit to teach and write about patent law more generally. For instance, on his e-mail blog, Greg Aharonian recently circulated the comments of an anonymous patent lawyer who referred to Stanford’s Mark Lemley as “one of a small army of law school academics that have built very successful . . . careers studying intellectual property law, especially patent law, albeit without ever actually having practiced before a patent office, done research, or even studied science or engineering.”

These sorts of criticisms are misguided. First, many patent law professors have extensive patent litigation experience, including on-going experience as “of counsel” lawyers, experts, and consultants. Although having patent prosecution experience is clearly beneficial for teaching and writing about patent law, patent litigation is as well and should not have been disregarded. For instance, Wegner and Aharonian presumably know well that Mark Lemley is a partner at a top-tier IP litigation boutique, Durie Tangri, and spends numerous hours on real-world matters. In fact, he has argued or is scheduled to argue three Federal Circuit patent cases so far this year, has argued before the Federal Circuit eleven times (in addition to four arguments in the regional circuits), and has represented another ten parties on briefs in the court. Additionally, he has been counsel for a party in the Supreme Court twice in patent cases (both patentees, incidentally). Lemley has been the lead author or co-author on 40 amicus briefs in the Supreme Court and the courts of appeals. And if that were not enough, his articles have been cited nine times in Supreme Court opinions and 145 times by courts overall. Finally, he’s conducted extensive empirical analyses of USPTO and judicial practice in many academic papers. (Ah, I forgot to mention that he’s represented parties in 85 cases in the district courts, too.)

So Lemley clearly is highly qualified (in fact, uniquely qualified) to write about and teach patent law. Nonetheless, Lemley often is maligned by practitioners because of a proposal he made (along with now Federal Circuit Judge Kimberly Moore) about a decade ago to restrict continuation practice. Yet, regardless of whether you agree with his views—and I often disagree with him—he’s clearly well-situated to write about and suggest reforms concerning PTO practice, the Federal Circuit, the Supreme Court, and the Patent Act more generally. In this regard, Lemley has written over 125 articles, many of them offering outstanding suggestions to reform the patent system, such as his idea for “gold-plated” patents. Lemley should not be unfairly singled out for one unpopular proposal or simplistic mischaracterizations of his views.

In a response to e-mails Wegner received asking why patent litigation was not listed in his chart, including one of my own, he responded that while patent litigation “may well be the best practice background for a patent academic . . . . no patent faculty seeking to make an optimum contribution to patent policy or harmonization can do so without  someone on the faculty having expertise in international/comparative and Agency practice.” Wegner’s position is too sweeping. Although it is certainly useful to have faculty members who have prosecution experience—and Wegner’s criterion of simply having a patent bar number is in any event not too indicative of such experience—it isn’t necessary to have such experience to make outstanding policy proposals, even when it comes to PTO practice. Indeed, only a few judges at the Federal Circuit itself would meet such criteria. It seems hard to fathom that Wegner believes that the Federal Circuit cannot make an “optimum” contribution to patent policy, including practices at the PTO, given their lack of such credentials. The same should hold true for academics. And to go one step further—as does the anonymous lawyer’s blanket assertion on Aharonian’s e-mail blog that a professor cannot sucessfully “study,” write about, or presumably teach patent law without having worked as a patent prosecutor or an engineer—is simply preposterous.

Second, many patent law professors, such as UC Berkeley’s Peter Menell and Rob Merges (also absent on Wegner’s chart)—in addition to having extensive prior and on-going experience as experts and consultants in patent litigation matters—have spent numerous hours writing casebooks and patent law practice guides. Rob Merges and John Duffy’s Patent Law and Policy is the leading patent law casebook, and contains extensive commentary from its authors. Merges is also co-founder and Senior Policy Advisor of Ovidian LLC, a Berkeley-based consulting and informatics company specializing in assessing and valuing patent portfolios. That experience is invaluable for the next generation of patent law professionals working in the emerging patent “marketplace.” Finally, because Berkeley—like GW and Stanford—offers separate courses in patent prosecution and patent litigation taught by prominent practitioners, it is hard to see how its students are not getting broad, deep, and practical exposure to patent law.

After co-founding the Berkeley Center for Law & Technology (BCLT) in 1995, Peter Menell soon began working with a team of top patent and other IP litigators to provide an annual four-day intensive training program on IP law and case management for federal judges, as well as numerous other national and regional events. That work led to the development of the Patent Case Management Judicial Guide, a comprehensive treatise that has been referred to as “the bible” for judges and litigators. Menell has also worked with district courts on the development and revision of patent local rules and filed amicus briefs in important IP cases. He also served as one of the PTO’s inaugural Edison scholars. His empirical research on patent claim construction with Jonas Anderson, a former BCLT Fellow—in which they reviewed every claim construction order issued by the Federal Circuit since 2000—was cited numerous times in the Federal Circuit’s recent en banc Lighting Ballast decision. Any comprehensive evaluation of patent law programs would value these qualifications.

The same holds true for professors who write about specific topics in patent law, but do not teach it. For instance, Berkeley’s Pam Samuelson is a world-renowned copyright expert and a winner of the “genius” grant from the John D. & Catherine T. MacArthur Foundation. She occasionally writes about software patents, including for her column in the Communications for the Association for Computing Machinery (ACM) journal, which is mainly read by software and computer science professionals. As Professor Samuelson’s work shows, one need not be an expert on every nuance of the patent system, especially the nitty-gritty of prosecution, to make sound reform proposals.

Other academics are permanent and full-time but not on the “tenure-track.” For example, BCLT Executive Director Robert Barr—who directs the Berkeley IP program and organizes numerous IP events there—is former chief patent counsel at Cisco, is licensed to practice before the PTO, and has long been a leader in the Silicon Valley and national patent law community. Along with John Whealan—former Solicitor at the PTO and another highly-regarded national leader in patent law who directs GW’s IP program—Wegner left Barr off the list.

Finally, many patent law professors have significant industry experience. For example, blog commenters on a recent Patently-O post of mine referred to me as “ivory tower” and as having “a lack of ‘real world’ experience.” In fact, before becoming a law professor, in addition to practicing patent litigation for four years, I founded three tech companies, raising nearly $5 million in financing, including being CEO of Unified Dispatch, a software company that makes innovative speech recognition systems for ground transportation companies. At Unified Dispatch, I designed and oversaw most of the company’s software products, which included writing detailed specifications and managing programmers and other engineers, and was the lead inventor on several patent applications and one patent. As part of that process, I also managed our outside patent counsel for several years during prosecution. Before attending law school, I earned an M.S. in Physics. Since becoming a patent law professor, I’ve consulted and served as an expert on an-going basis in patent litigation matters and related projects. So not only is the “ivory tower” label is inaccurate, it also misapprehends the often close ties between academia and practice.

The same sorts of backgrounds and relevant experience hold true for many other academics who teach and write about patent law. For example, Donald Chisum—yes, the author of the leading patent law treatise—is not registered to practice before the USPTO (he majored in philosophy). Granted, practicing before the PTO is helpful to writing about PTO practice, but would anyone doubt that Chisum is sufficiently knowledgeable to do as much?

I commend Hal Wegner’s efforts in calling attention to the patent law programs and scholars (which is why I assisted him in the process). There are clearly limitations to the US News ranking system, and I agree it’s valuable to see the credentials of those teaching at patent law programs across the country. However, it was irresponsible for him to omit the founders and leaders of many of the most important IP programs on his list of academics with “practical experience” in “key areas” merely because they don’t have a patent bar reg #, don’t have a deep understanding of comparative patent law, didn’t clerk for the Federal Circuit, or aren’t technically “tenure-track.” Patent litigation, industry experience, and other credentials are just as relevant.

Even more troubling is Wegner’s assertion that having someone on the faculty with one of his criteria is “essential” for making “optimum” policy proposals. And most troubling is that Wegner provides fodder for commenters such as those on Aharonian’s e-mail blog that professors without such credentials cannot successfully write about or apparently teach patent law more generally, not to mention commenters on this blog calling professors like me “ivory tower,” when it is simply not the case. Wegner and the commenters should do their homework. Otherwise, their “analysis” remains at best misguided and at worst scapegoating.

Berkeley and Stanford serve—and, historically, GW has served (and soon again will serve)—as model programs for training patent practitioners, scholars, and judges. The same holds true for many law schools I have omitted in this short blog post. Rather than denigrate these schools, Wegner would have done better to highlight the tremendous value offered to students and the patent law community more generally from this talented and highly qualified group of scholars.

Curbing Trolls by Reforming the Patent Marking Statute

Guest Post by François deVilliers, Chief IP Counsel, Plantronics, Inc.

35 U.S.C. 287(a) provides that constructive notice of a patent may be given by marking the patented article with the patent number, and that “In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.”

This section is badly structured – instead of affirmatively specifying the requirements for infringement damages to accrue, the drafters addressed this issue in the negative sense only after specifying first that an article may be marked. This of course begs the question, what if there is no article to mark?

There is no duty to mark or to give notice in lieu thereof “if there is no product to mark,” as held by the Supreme Court in Wine Railway Appliance Co. v. Enterprise Railway. Equipment Co. (1936)(interpreting the predecessor statute) and by the Federal Circuit in Texas Digital Systems., Inc. v. Telegenix, Inc. Damages accrue from the moment infringement of the issued patent commences, with a six year “statute of limitations” provided in 35 U.S.C. 286.

The logic is supposedly that “[t]wo kinds of notice are specified–one to the public by a visible mark, another by actual advice to the infringer. The second becomes necessary only when the first has not been given; and the first can only be given in connection with some fabricated article. Penalty for failure implies opportunity to perform.” (Wine Railway.)

This has led to the odd situation in which a company that is vigorously engaged in the rough and tumble of commerce with its patented product, benefiting consumers, creating jobs and increasing GDP, is in a less favorable position than an entity that does nothing. What was intended to be beneficial (notice is deemed to be given by marking) has advanced the interests of the patent troll over those of the operating company.

Trolls exploit this odd situation by waiting for industries or standards to become established, or for sales to accrue, before presenting their now-inflated licensing demands. Finding a previously ignored or forgotten asset, the clichéd “Rembrandt in the attic,” is similarly rewarded. “The patent might be expiring, but we’ve got ya going back six years, buddy!”

By the time this delayed claim is presented, the alleged infringer or standards-setting body has had no opportunity to mitigate the effect of the claim by adopting different technology or taking other steps. They’re stuck with the cost and disruption of trying to resolve a claim that might not have existed, or might have existed on a much smaller scale, had they received timely notification of the patent. Dubious claims are also more intimidating, merely because of the amount at issue. The alleged infringer is penalized by the delay, while the idle or covert or brand-new patent owner benefits.

Such exploitation also contravenes a fundamental goal of the marking statue, which is to protect against innocent infringement. Nike, Inc. v. Wal-Mart Stores, Inc. (Fed Cir 1998).

But, you may say, what of the inventor in the garage, who doesn’t have the needed capital or expertise to commercialize their patent? What if a company is exploiting the patented technology in a faraway city? Shouldn’t this inventor be entitled to fair compensation? Of course. But that is what the internet and its search engines are for. Times have changed – if someone is making money off a patented product, a patentee will be able to find it and send a notice letter. At a minimum, even if the patent is not directed to a findable product, it is easy enough to identify likely infringers or companies that might be interested in licensing the patent.

The onus should be on the patent owner to assert their rights – use it or lose it. A simple patent reform could affirmatively specify that damages only accrue after actual or constructive notice, and that constructive notice can be given by marking. If it is not possible to mark, then actual notice should be required. Patent numbers for method patents can be included on products produced by the method, on devices that practice the method, in documentation accompanying software that practices the method, or on websites or in apps that practice the method. If it is really impossible to avail yourself of the benefit of constructive notice by marking, then the onus is on you to police your rights.

It is amazing that nobody has addressed this issue in current patent reform efforts directed to curbing the patent troll problem. The marking statute should protect innocent infringers and it doesn’t. Marking should benefit those who practice the patent, but the current state of the law benefits those who don’t.

 

Off-the-Record Examination: Is Conventional Wisdom Wrong?

By Dennis Crouch

Interview summaries. In a recent post, Professor Chao discussed the common practice of examiner interviews where the patent attorney discusses outstanding issues with the patent examiner. No transcript or recording of the discussion is kept, although there is a requirement that a summary of the interview and its results be written and placed within the file history. Professor Chao argues that the summaries are insufficient because all-too-often, a seemingly valid rejection simply vanishes following an examiner interview. For evidence, Chao also cites discussions at a recent Stanford Law School conference “where two prominent professors separately complained about how opaque the interview process was.”

Although Chao’s proposal has significant practicality problems, I also had the same sense of the problem — that the interview summaries create opacity in a process where transparency should rule. However, since Chao’s essay was posted, I have followed up with two “reality checks” that have raised my optimism on interviews.

First the rule — MPEP §713.04 walks through a number of elements that are required as part of an interview summary. These requirements include a fairly detailed list:

The complete and proper recordation of the substance of any interview should include at least the following applicable items:

(A) a brief description of the nature of any exhibit shown or any demonstration conducted;

(B) identification of the claims discussed;

(C) identification of specific prior art discussed;

(D) identification of the principal proposed amendments of a substantive nature discussed, unless these are already described on the Interview Summary form completed by the examiner;

(E) the general thrust of the principal arguments of the applicant and the examiner should also be identified, even where the interview is initiated by the examiner. The identification of arguments need not be lengthy or elaborate. A verbatim or highly detailed description of the arguments is not required. The identification of the arguments is sufficient if the general nature or thrust of the principal arguments can be understood in the context of the application file. Of course, the applicant may desire to emphasize and fully describe those arguments which he or she feels were or might be persuasive to the examiner;

(F) a general indication of any other pertinent matters discussed;

(G) if appropriate, the general results or outcome of the interview; and

(H) in the case of an interview via electronic mail a paper copy of the contents exchanged over the internet MUST be made and placed in the patent application file as required by the Federal Records Act in the same manner as an Examiner Interview Summary Form, PTOL-413, is entered.

The requirement is detailed, and the point is that interviews are not “off the record” even if not audio-recorded or transcribed. One problem with these requirements is that they lack an enforcement mechanism other than the examiner’s “careful review.” There is no direct way to challenge a patent issued because of an inadequate interview summary other than inequitable conduct — a defense that requires substantial proof of intent to commit fraud. Still, patent attorneys are bound by the ethics requirements to comply with the law in good faith and act with candor in all dealings with the USPTO — the result is that we should largely expect compliance with the required standards. Helping this along, the interview summary form now particularly asks applicants to describe the issues discussed, claims discussed, prior art discussed, and the interview substance.

Looking at the Interview Summaries: After reading through the rule, I then thumbed through a handful of interview summaries and have been happy to see that, in fact, the invention summaries are generally detailed pointing to the particular issues discussed and the resolution of those discussions. Now, the summaries are not as detailed as you might see in an office action rejection or subsequent response, but they do provide substantial context, meaning, and understanding.

To find these, I first downloaded the PAIR files for a random set of recently issued patents and then sorted them to find file histories where issuance/notice of allowance occurred fairly quickly following the interview since that represents the complained-of situation. The four below are simply the first for interview summaries that I looked-at:

Application No. 13/308105:

Attorney had proposed more restrictive claim language in accord with examiner’s determination of un-obvious claims over the prior art and also proposed withdrawn subject matter directed to encapsulated forms. Examiner to enter the amendment over currently pending claims with consideration to be given to a divisional for the encapsulated invention when presented. See examiner’s amendment for allowed claims of current case.

Application No. 12/875,772:

The examiner indicated amending the claims to more clearly identify “the first processor,” “the second processor”, and the “processing components” as depicted in figure 2 would overcome the prior art rejection in Key in view of Fukushima.

Application No. 13/117,944:

Prior art discussed: Bednar

Applicant called to discuss the invention and potential differences between the prior art and the disclosed invention. Applicant discussed a couple of amendments to the independent claim to attempt to overcome the current prior art. It was suggested to the Applicant to add a limitation to further define the spacer to be vibration dampening or made of a vibration dampening material in addition to the spacer extending past or beyond the cable slot toward the riser so that it is not only present in the cable slot and so it may support also add support the barrel. These limitations appear to be fully supported by the figures and do not appear to be present in the prior art reference as Bednar only shows the spacer/dampeners to be present in the cable slot portion of the barrel. These limitations will also require an updated search and therefore no determination of patentability has been made. When these amendments are filed the examiner will update the prior art search and reconsider the currently applied rejection.

Application No. 13/685,368

The examiner and applicant’s representative discussed a set of proposed Examiner’s amendments to place the application in condition for allowance. The amendments set forth clarity, proper antecedent basis, and suitable claim structure to overcome any issues with respect to 35 U.S.C. 101 and 112. The specifics of agreements reached are incorporated in the replacement listing of the allowed claims as set forth in the examiner’s amendment section of the attached notice of allowability. Consequently, the discussion and agreements reached resulted in the allowance of the instant application.

To my eyes, these interview summaries do a very good job of providing information to the world regarding the issued discussed, the conclusion drawn, and the reasoning for those conclusions. Of course, more detail is possible and may be preferable, but this small sample has gone a significant way toward changing my view of the off-the-record nature of examiner interviews.

Why No Patent Revivals?

By Dennis Crouch

Once a patent issues, the patentee must pay a regular maintenance fee to keep the patent in force. The PTO offers a six-month grace period following the due date where the maintenance fee can still be paid (plus a surcharge) without justifying the delay. At that point, the patent is deemed expired. However, the USPTO allows subsequent revival under either the (low) unintentional or (high) unavoidable standard.

The chart above shows data for patents that were revived (data through April 8, 2014). The chart shows a steep decline in revival that began in 2011. If Q1 of 2014 is indicative, this year there will be fewer than 200 of these revivals. At this point, I don’t know the cause of the steep decline – thoughts on why?

Substantial Unresolved Issues Unravel Preliminary Injunction

By Dennis Crouch

Vasculary Solutions v. Boston Scientific (Fed. Cir. 2014)

In a one-paragraph non-precedential decision, the Federal Circuit has vacated the district court’s preliminary injunction.

A preliminary injunction is a ‘drastic and extraordinary remedy that is not to be routinely granted.’ Nat’l Steel Car, Ltd. v. Canadian Pac. Ry., Ltd., 357 F.3d 1319, 1324 (Fed. Cir. 2004) (citing Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1568 (Fed. Cir. 1993)). As evidenced by the extended argument before this court, there are too many unresolved issues at this stage of the case and the record is too incomplete on issues of claim construction, infringement, and ultimate validity to warrant the grant of a preliminary injunction. For these reasons, we vacate the preliminary injunction.

A preliminary injunction requires that the movant (typically the patentee) show a likelihood of success on the eventual merits of the case. Here, the court’s basic take-away is that the “likelihood of success” should be based on a substantially complete understanding of the merits and not merely a guess.

Individual Inventors, Corporate Owners

By Dennis Crouch:

Professor Orly Lobel has an excellent Op-Ed in today’s New York Times titled “My Ideas, My Boss’s Property” that highlights her work on how non-compete agreements stifle performance. This work follows the work of AnnaLee Saxenian who’s 1994 book explained why Boston fell behind Silicon Valley in the tech race. Regional Advantage: Culture and Competition in Silicon Valley and Route 128. Saxenian’s 2006 book takes a further step and further explores how “brain circulation” is a key to regional success. See, The New Argonauts: Regional Advantage in the Global Economy.

Medtronic: Patent Enforcement will Kill Patients

By Dennis Crouch

[Update - In an order released only hours after Medtronic's emergency motion, the Federal Circuit has asked for immediate briefing on whether to grant a stay of preliminary relief - a decision is expected by the expiry of the district court's seven business day temporary reprieve.]

Edwards Life Scoence v. CoreValve and Medtronic (Fed. Cir. 2014)

In an emergency motion, Medtronic has asked the Federal Circuit to stay a preliminary injunction blocking sale of the Medtronic’s CoreValve aortic heart valve replacement system. Delaware district court Chief Judge Gregory Sleet ordered the preliminary injunction and would enforce the injunction pending outcome of the appeal did grant a seven–business-day stay to allow for an emergency appeal.

Medtronic writes:

A stay should be entered and this appeal expedited because, if the injunction were permitted to go into effect, treatable patients may unnecessarily die in the name of already expired patent rights. Put simply, the calamity to public health that would result from the injunction is premised on a legally improper extension of patent rights. The injunction bans the sale of Medronic’s life-saving CoreValve system (“MCS”) and precludes the training of additional hospitals and other medical care facilities to use MCS. MCS is a unique and revolutionary minimally invasive aortic heart valve replacement system that is fundamentally different than the only similar product in the U.S. market, which is the Sapien product line of Plaintiffs-Appellees Edwards Lifesciences AG and Edwards Lifesciences LLC’s (collectively, “Edwards”). The MCS replaces diseased aortic heart valves in dying patients who may not survive traditional surgery.

There are basically two arguments here: (1) that the public interest weighs in favor of denying injunctive relief and (2) that the patent is not enforceable because it has expired (infringement has already been determined).

The district court agreed that some lives may be lost and attempted to mitigate that damage by ordering the parties to find some resolution so that “patients who cannot be helped by Edwards’ devices” can receive the CoreValve system since it is “a safer device and … patients in whom it is implanted have better outcomes with a lower risk of death.” Medtronic argues that the order is not enough to save lives.

Wall-street analysts are not known for their humanity, but in their note on the case, even the JP Morgan Analysts questioned: “How does a judge take a product off the market that has shown an ability to reduce mortality?”  Of course, Medtronic has not been giving these away but instead sells the valves for $30,000 each.

The enforceability question is interesting the patent expired in May 2012, but the FDA has granted an interim extension of patent rights under 35 U.S.C. § 156 (for delays in FDA approval). One limitation of a patent term extension is that ordinarily, the extension does extend the term of the entire patent, but instead is “limited to any use approved for the product.” In Merck v. Kessler (Fed. Cir. 1996), the court interpreted this as extending only to “the product on which the extension was based.” Here, Medtronic argues that its product – although perhaps covered by the original patent – is different from Edwards approved product (Sapien) and therefore is not covered by the term extension.

The district court considered these issues and decided that the clear language of Section 156(b) was limited approved uses not approved products. And, since the accused infringing product has the same use (valve transplant), then the patent covers it as well.

= = = = =

The case highlights an important strategic concern for injunctive relief, although district court judges have the power to stay injunctive relief pending appeal, there is no right to such a stay and courts regularly refuse to grant stays pending appeal.

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Documents

Making Examiner Interviews Transparent

Guest Post By Bernard Chao, Assistant Professor, Sturm College of Law University of Denver

Patent law seeks to provide the public with notice of a patentee’s property rights by requiring that a patent’s claims “distinctly point out what the inventor . . . regards as the invention.” 35 U.S.C. § 112 (b). However, both the Federal Trade Commission and the White House have noted that far too many patents contain claims that fail to provide adequate notice of what they cover. The Patent Office has recently adopted two initiatives to address these complaints. One program seeks to curb functional claims, a type of claim that is accused of often having uncertain boundaries. A second program encourages patent attorneys to include a glossary in their applications that will define the terms used in the claims. Help may also be coming from the Supreme Court which is reviewing § 112′s “insolubly ambiguous” standard in Nautilus v. Biosig. To varying degrees, these solutions all show some promise. But they are unlikely to solve the problem of unclear claims by themselves. More is needed. This post proposes another approach that should
help clarify claims.

The patent office should bring transparency to patent examiner interviews by recording them. Current patent office rules allow applicants to have face to face interviews with patent examiners. Although these rules also require that the examiner and the applicant summarize the substance of the interview, typically these summaries only identify the prior art discussed, parrot the claim language and provide the most skeletal description of the interview. This problem is well known. I recently attended a patent conference at Stanford Law School where two prominent professors separately complained about how opaque the interview process was. Indeed, patent prosecutors are clearly aware of the minimal record made after patent examiner interviews and view this as an advantage of the procedure.

But concealing the examiner/applicant dialog leads to unclear claims in two ways. First, claim interpretation is more uncertain. Courts rely on the prosecution history as one of the primary sources of evidence to interpret claims. Statements that distinguish an application’s claims from the prior art can play a key role in claim interpretation. By explaining how the prior art is different, such statements necessarily say what the claim does not cover. However, when these statements are made verbally during interviews, they do not appear in the prosecution history. Consequently, courts must interpret claims without the benefit of statements that should delineate the boundaries of the claim. Absent this evidence, claim interpretation will inevitably be less accurate and less predictable.

Second, the failure to know what was said during patent examiner interviews renders any doctrine of equivalents analysis less predictable. Under Festo v. Shoketsu,
535 U.S. 722 (2002), a narrowing amendment estops a patentee from asserting infringement under the doctrine of equivalents unless the patentee can establish that the amendment was made for one of three reasons. One of the reasons is that the rationale underlying the amendment bears no more than a tangential relation to the equivalent in question. The examiner interview is the most likely place to discuss the reason for an amendment. Without a record of the interview, anyone is free to speculate about why an amendment might have been made. A good example of this phenomenon can be seen in a case I teach in my patent law class, Unique Concepts v. Brown, 939 F.2d 1558 (Fed. Cir 1991). In Unique Concepts, different Federal Circuit judges could not agree about the reason for amendment because “the record contain[ed] no indication of what transpired in the interview.” Making audio recordings of patent examiner interviews would prevent this kind of dispute and clarify what claims cover.

Some patent prosecutors may worry that recording patent examiner interviews will have a chilling effect on the interview process. Patent attorneys may be reluctant to have a frank discussion about what their claims cover. Alternatively, because interviews happen in real time, without time to reflect and choose words, attorneys might refrain from having interviews. All that may be true. But if a patent attorney is unwilling to make a statement on the record, why should the patent office allow the claims? The public is entitled to know why a claim should be allowed before the applicant receives the monopoly rights that come with an issued patent.

The idea of recording patent examiner interviews is hardly revolutionary. In an era, where people post their most trivial thoughts, pictures and videos on Twitter, Instagram and Facebook, it’s clearly time for the Patent Office to record some of patent law’s most important conversations, examiner interviews.

Patent Grant Numbers

The USPTO broke a new record in March 2014 — issuing more than 6,000 utility patents in a single week. Overall, 2014 appears slightly behind the record issuance numbers for 2013, but well above the prior record set in 2012. The projected number of issued design patents (<21,000) is significantly down from its 2008 high of 25,000.

Means Plus Function: What Structure are you Referring To?

By Dennis Crouch

University of Pittsburgh v. Varian Medical Systems (Fed. Cir. 2014)

Pitt won its infringement lawsuit against Varian with a $100 million verdict. The patent basically covers a digital image processor that watches surgical patients and provides a warning signal if the patient moves. U.S. Patent No. 5,727,554.

A divided Federal Circuit has affirmed – with the division being over the construction of the claimed “processing means comprising means determining movement of said patient from digital image signals, including movement associated with breathing by said patient.”

The patent statute permits patentees to claim elements according to their function using so-called means-plus-function language. 35 U.S.C. § 112(f). However, the properly interpreted scope of the means-plus-function claim terms is limited to corresponding structures found in the patent specification and their equivalent.

Here, the claim construction debate is on whether the corresponding structure for the processing means is a computer processor programmed to perform either (a) a two-step process or (b) a thirty-two step algorithm. The difficulty in interpretation is that the patent does not affirmatively link the claim language with either structure but instead leaves readers to their own conclusions. On appeal, a two judge majority (Judges O’Malley and Lourie) agreed with the lower court that the proper interpretation was the broader two-step requirement while the dissent (Judge Dyk) would have chosen the more narrow interpretation that would have likely led to a non-infringement determination. To the dissent, the “two-step process” disclosed in the specification only offers more functional language – not structure. The dissent explains his position:

The majority’s identification of structure—the two steps of detecting and tracking fiducials—relies on a single statement in the specification that “[a]s will be discussed fully, the patient motion detector 47 detects and identifies the fiducials 39 and then tracks their movement.” The majority concludes that this disclosure identifies the corresponding structure as a two-step algorithm because the specification “links this algorithm to the function of determining patient movement.” But the statement in the specification does not explain how the fiducials are detected and tracked or how performing those steps accomplishes the function of determining a patient’s movement during radiation treatment.

One rule that would likely flip this decision would be if ambiguity in claim language were construed against the drafter (i.e., the patentee).

= = = = =

The majority did reverse the willfulness finding that almost tripled the damage. On that issue, the court found that the infringer’s non-infringement and invalidity defense were reasonable (or at least not objectively unreasonable).

Book Review: Building Better Babies by Michael de Angeli

by Dennis Crouch

Michael de Angeli is a long time patent attorney with his own Rhode Island firm. However, his most recent venture is as an author of the new Sci-Fi Drama titled Building Better Babies: A novel of law, science, and suspense (2014). I am about half-way through the 450 page novel and am really enjoying it. Patently-O readers may relate well with Henry Hannah, the handsome patent attorney protagonist.

de Angeli offers the following summary:

Patent lawyer Hank Hannah is hired by Jean-Luc Rameau, CEO of World BioTech, to protect a process for building better babies. Sections of the DNA of athletes, scientists, musicians and beautiful people can be transplanted into the parents’ genes, and hereditary disease eliminated. All goes well until the babies start getting sick. Chief inventor David Alexander develops a vitamin cocktail that can save them, and a disaster is averted. Then the US government learns of the development, and decides that it wants control of the technology. Rameau and Alexander are arrested. Only Hank Hannah has the keys to the jail. But can he save them?

Enjoy.

Claiming Priority to Provisional Applications

By Dennis Crouch

An ever increasing proportion of US-based patent applicants rely upon provisional patent applications. For many, a provisional application is seen as a low-cost mechanism for claiming a priority date and for delaying the eventual higher cost of drafting and filing a non-provisional application. More sophisticated parties also use a provisional application as a way to shift the patent term back by one year. One problem with the cost-savings approach is that provisional applications only serve their purpose if they include a sufficient disclosure to protect the eventual claims.

One question that I’ve had for a while is whether patentees ordinarily add new matter when filing a non-provisional application that follows a provisional priority document. New matter might be needed because the original provisional application was filed hastily without sufficient time to marshal and understand the important facts. Similarly, new matter might also be wanted if additional technological progress occurred during the interim. The question has been difficult to ascertain because the USPTO does not make its database of about 2,000,000 provisional applications publicly available other than the individual files in PAIR. This, despite the law that provisional applications count as prior art in many situations. Additionally, the USPTO does not ordinarily ask the applicant to identify whether any new matter (additional disclosure) has been added to the formalized non-provisional or, if so, what that new matter might be. Rather, applicants merely “claim priority” to the provisional without saying more. The AIA first-to-file transition offers an opportunity to shed some light on industry practice in this area.

As part of a project on the impact of the America Invents Act, I looked up a set of about 2,000 recently published patent applications that were each filed on or after the March 16, 2013 but that claim direct priority to a provisional patent application filed before that date. This cohort is interesting because the applications span the transition from the pre-AIA invention-date focus to the post-AIA filing-date focus. The cohort is particularly interesting for the provisional-priority question because applicants must declare whether the claims in the newly filed application are fully supported by the provisional.

Some Background: Under the new law, the filing-date focused (first-to-file) patent regime applies to patent applications filed on or after March 16, 2013 – with the caveat that these post-AIA application filings will be examined under the pre-AIA regime if each claim (ever) in the application has an “effective filing date” that is pre-AIA. In other words, a later-filed application will be judged under the first-to-invent rules if it properly claims priority to a pre-AIA application that sufficiently discloses the claimed invention. See AIA, Section 3(n). Under the plain language of the law, the regime used is done on a patent-by-patent basis rather than claim-by-claim or family-by-family.

Ask the Patentee Whether AIA Applies: Now, you might expect that the USPTO would be charged with examining the priority documents to ensure that the newly filed applications properly claim priority. That is not really done on a systematic basis. Rather, the Patent Office simply asks the applicant whether the new claims are fully supported by the priority document. For several reasons, I believe that the vast majority of applicants will be truthful in their response. People do lie, but attorneys strongly shy away from on-the-record lies that – if discovered – would lead to potential charges of inequitable conduct, violation of the rules of professional ethics, and malpractice. While attorney bars severely frown upon attorney dishonesty, patent prosecutors are held to an even higher standard that requires both “candor” and “good faith.”

Findings: Looking at post-AIA non-provisional applications that each claim priority to a pre-AIA provisional application: I find that the files of more than 80% of those applications assert that all claims in the non-provisional are fully supported by priority provisional application.

More on Methodology: For the study, I randomly selected a cohort of about 2000 recently published patent applications that were each filed on or after March 16, 2013 but that claim priority to a provisional application filed within 12-months before that changeover date. For each of those applications, I then used PAIR to determine whether the patent applicant indicated that all of the claims in the non-provisional application were effectively disclosed by the provisional filing. The result was that 1,743 out of 2,097 (83%) assert full disclosure by the provisional whereas 354 (17%) assert that the claims were not fully disclosed by the pre-AIA priority documents. Of some interest, large entities were much more likely to claim full priority than are small or micro entities. I also found nuance within firms that had multiple applications in my sample – i.e., some firms claimed full priority for certain applications but not for others.

Caveats and Conclusions: There are a few potential conclusions to draw from this result. My best guess: These results suggest that provisional applications are ordinarily being drafted with care and purpose to ensure sufficient disclosure. At the same time, I suspect that attorneys are also purposefully limiting invention scope so that full priority can still be claimed. As suggested above, I my guess is that few if any attorneys are improperly claiming full priority. Although not sufficient to claim statistical significance, my perusal of a handful of applications support these conclusions in that applications that claimed full priority were extremely similar to the associated provisional while the new matter was fairly quickly identifiable for those applications who admitted to new matter.

There are two important caveats to using this study to reflect more fully on the practice of provisional patent applications. First, the AIA changeover has likely impacted applicant behavior – making them potentially more careful than they would be in the ordinary situation. In particular, in the AIA changeover situation, adding new matter to the non-provisional claims does more than simply shift the effective filing date. Rather, it also alters the rules applied when judging novelty and obviousness. As I wrote in a prior post, depending upon their situation some applicants may prefer the old rule while others prefer the new. See Dennis Crouch, Should you Transform Your Pre-AIA Application to an AIA Application? (November 2013).

In addition, we also have a general data problem in that a substantial number of provisional patent applications expire without ever being claimed as a priority document. In a prior post, I wrote that: “48% of provisional applications filed in FY2011 were abandoned without being relied upon as a priority document.” Crouch, Abandoning Provisional Applications (January 2013). The point here is that we have no information regarding whether these abandoned provisionals applications are substantially more sloppy and poorly drafted – I suspect that they are.

Patenting a Data Structure?

By Dennis Crouch

Digitech v. Electronics v. Imaging (Fed. Cir. 2014)

Today, the Federal Circuit held oral arguments in this Section 101 case involving Digitech’s U.S. Patent No 6,128,415 that claims a “device profile” and a “method of generating a device profile.” The invention is basically the idea of tagging images with particular information about the camera and its color/spatial image qualities. Asserted claims:

1. A device profile for describing properties of a device in a digital image reproduction system to capture, transform or render an image, said device profile comprising:

first data for describing a device dependent transformation of color information content of the image to a device independent color space; and

second data for describing a device dependent transformation of spatial information content of the image in said device independent color space.

10. A method of generating a device profile that describes properties of a device in a digital image reproduction system for capturing, transforming or rendering an image, said method comprising:

generating first data for describing a device dependent transformation of color information content of the image to a device independent color space through use of measured chromatic stimuli and device response characteristic functions;

generating second data for describing a device dependent transformation of spatial information content of the image in said device independent color space through use of spatial stimuli and device response characteristic functions; and

combining said first and second data into the device profile.

The district court found that the “device profile” was merely a bit of data that did not fit within the literal requirements of the statute that an eligible invention must be “a process, machine, manufacture, or composition of matter.” The district court also concluded that the method claim encompassed an abstract idea.

Mark Lemley argued on behalf of the accused infringers and the court seemed agree with many of his arguments – especially with the notion that a claim to a data structure (claim 1) is not itself patentable. The method step involved more questioning and Judge Moore rightly challenged Lemley’s argument that “A method of generating an unpatentable idea is itself unpatentable.” Later, Lemley pulled-back from that statement somewhat and instead more particularly argued that mere generation and transformation of data should be unpatentable either as not-a-process or else unduly abstract.

Two potentially interesting questions for the case: (1) how to treat expert testimony stating that claims require technologically sophisticated computer and (2) whether the concrete and practical purposes of the invention needs to be recited in the claims.

This case may well be impacted by CLS Bank, but I would suspect the only impact will be on the language that the court uses to affirm. The politics of the outcome may be interesting. Although I would not be surprised with an affirmance without opinion, Judge Moore may want to hold this case until after CLS Bank in order to make the first post-SCOTUS comment on the issue. (Judges Moore, Reyna and Hughes were on the panel).

The patent was originally owned by Polaroid who assigned rights in 2010 to the British Virgin Islands entity known as Mitcham Global Investments – seemingly as part of the bankruptcy proceedings. Then, in 2012, rights were transferred to Digitech which is an Acacia company. The USPTO records also show a security interest held by a Saudi investment company.

Listen to oral arguments: http://www.cafc.uscourts.gov/oral-argument-recordings/all/digitech.html

High Level Patent Reform

GUEST POST by Ken Salazar, WilmerHale Partner & Former US Secretary of the Interior and Quentin Palfrey, WilmerHale Senior Counsel and Former Senior Advisor for Jobs & Competitiveness in the White House Office of Science & Technology Policy

Patent politics have not always been front page news. Last year, the hilarious faux newspaper The Onion quipped that “Expansive Obama State Of The Union Speech To Touch On Patent Law, Entomology, The Films Of Robert Altman”.

While still not exactly sexy, patent policy has steadily emerged as a major economic policy issue on the national stage over the past few years. After nearly a decade of debate, Congress passed the America Invents Act in in 2011 – a major piece of reform legislation that was also notable for the bipartisan nature of its backers. In addition to President Obama and Senator Patrick Leahy (D-VT), America Invents benefited greatly from the support of a number of influential Republicans. At a time when entrenched partisan divisions have made meaningful legislative reforms nearly unthinkable in most areas, patent policy stands as a notable and nearly unique exception.

With the ink barely dry on the America Invents Act, President Obama remarked that “[o]ur efforts at patent reform are only about halfway to where we need to go.” Obama twice followed this statement up by issuing a series of executive actions and legislative recommendations in June 2013 and February 2014. While it is doubtful that the President was inspired by The Onion’s coverage, President Obama did indeed use the occasion of his 2014 State of the Union speech to call on Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation.” Meanwhile, the House of Representatives passed a patent litigation reform bill at breakneck speed in December 2013, and the Senate has taken up a parallel measure.

Whatever the merits of various proposals, it is clear that patent policy and politics are experiencing a dynamic renaissance that creates challenges and opportunities for companies and individuals at every level of the economy. President Obama and Congress are not alone in seeing patent reform as an important policy area. Last week, Wisconsin joined Oregon and Vermont in passing a bill touted as a measure to crack down on demand letter abuses by patent trolls. The Federal Trade Commission has launched a study of patent litigation abuses and is reportedly pursuing investigations against entities it believes have committed unfair and deceptive trade practices. Beyond implementing the America Invents Act, the U.S. Patent & Trademark Office has launched a series of initiatives that it says will improve patent quality and provide tools to help those facing litigation abuses. Not to be overlooked are important U.S. Supreme Court cases such as CLS Bank and Octane Fitness that could significantly affect the patent litigation landscape by altering the circumstances under which software patents can be granted and fees can be awarded to prevailing parties, respectively.

Last month, our firm was proud to host a roundtable featuring Vermont Attorney General William Sorrell, who has emerged as a leader in state law enforcement efforts to combat unfair and deceptive trade practices in the patent space. Along with his colleagues from across the country, AG Sorrell has investigated and sued the notorious MPHJ Technology Investments, a company that reportedly acquired a number of scanner patents for the purpose of sending thousands of demand letters to small businesses and nonprofits. MPHJ claimed to hold a patent that covers scanning a document and attaching it to an email — a function common to numerous “off the shelf” technology products — and demanding a licensing fee of $1,000 or more per worker.

The state AG’s efforts in this space highlight the complexity of the patent policy efforts in this dynamic time. To understand developments that are proceeding at a dizzying pace, it is now imperative for policymakers, innovators, and the attorneys who advise them to constantly stay abreast of issues unfolding in all three branches of the federal government, at the state level, and even internationally.

Fee Shifting

By Dennis Crouch

Others have pointed this out in the past, but today’s NYTimes editorial on fee shifting is fairly low in truthiness.

Today’s major debate in the Senate is whether judges should be given discretion in the choice of whether to award attorney fees at the conclusion of patent litigation. The basic idea is that the threat of fee shifting will discourage a party from filing a claim or defense that has only a low chance of winning. That idea makes sense, but it turns out that the actual impact of fee shifting is not well understood – especially if it is balanced (awarded to prevailing party, regardless of whether that is plaintiff or defendant) and if done on a case-by-case (entire lawsuit) basis rather than claim-by-claim.

In essence, the fee shifting substantially increases the litigation-stakes – in the end, this may well favor plaintiffs so long as they can engineer a financing structure to manage the risk and essentially take advantage of typical risk adversity of accused infringers.

Microsoft v. DataTern: Declaratory Judgment Jurisdiction and End User Lawsuits

By Jason Rantanen

Microsoft Corporation v. Datatern, Inc. (Fed. Cir. 2014) 13-1184.Opinion.4-1-2014.1
Panel: Rader (dissenting-in-part), Prost, Moore (author)

This case relates to one of the most common criticisms of the patent system raised today: infringement suits and threats of enforcement made against end users. If yesterday’s order in In re Toyota represented the Federal Circuit’s first venture in this area, Microsoft v. DataTern is the followup expedition.

DataTern sued several Microsoft and SAP customers, alleging that they infringed Patents No. 5,937,402 and 6,101,502 based on the customers’ use of Microsoft and SAP products.  DataTern’s claim charts extensively referred to the functionality of the Microsoft and SAP products and in most cases cited to Microsoft and SAP documentation for each claim limitation.  The exception was the ’402 patent claim charts: they cited to non-Microsoft documentation for some claim limitations.

Based on this activity, Microsoft and SAP filed declaratory judgment actions against DataTern.  The district court rejected DataTern’s motion to dismiss for lack of subject matter jurisdiction and granted summary judgment of noninfringement to Microsoft and SAP.  DataTern appealed.

On appeal, the Federal Circuit agreed that the district court possessed subject matter jurisdiction over Microsoft and SAP’s declaratory judgment action in three of the four scenarios in play.  On the fourth scenario (Microsoft and the ’402 patent), the majority concluded that the district court lacked jurisdiction while Judge Rader would have found jurisdiction across the board.  (As a reminder, subject matter jurisdiction in declaratory judgment actions asks “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007).)

In reaching this conclusion, the majority rejected two important arguments raised by Microsoft/SAP: (1) that suing customers can provide a basis for subject matter jurisdiction by supplier for direct infringement and (2) that suing customers necessarily creates jurisdiction for induced or contributory infringement:

To the extent that Appellees argue that they have a right to bring the declaratory judgment action solely because their customers have been sued for direct infringement, they are incorrect. DataTern has accused customers using Appellees’ software packages of infringing the asserted method claims, but there are no arguments that there is a case or controversy between DataTern and Appellees on direct infringement.

To the extent that Appellees argue that DataTern’s suits against its customers automatically give rise to a case or controversy regarding induced infringement, we do not agree. To prove inducement of infringement, unlike direct infringement, the patentee must show that the accused inducer took an affirmative act to encourage infringement with the knowledge that the induced acts constitute patent infringement. Global–Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011). Absent the knowledge and affirmative act of encouragement, no party could be charged with inducement.

Slip Op. at 7-8.  However, the court did hold that declaratory judgment jurisdiction could be based on an inducement of infringement or contributory infringement claim.  Here, DataTern’s charts were sufficient to raise this issue for Microsoft and the ’502 patent and SAP and both patents.

The claim charts provided to the SAP customers allege direct infringement of the ’402 and ’502 patents based on SAP’s customers’ use of BusinessObjects. Moreover, these claim charts cite to SAP-provided user guides and documentation for each claim element. In other words, DataTern’s claim charts show that SAP provides its customers with the necessary components to infringe the ’402 and ’502 patents as well as the instruction manuals for using the components in an infringing manner. Providing instructions to use a product in an infringing manner is evidence of the required mental state for inducing infringement.

Id. at 9 (comment: of course, knowledge (or at least willful blindness) that the acts infringe is also required under Global-Tech v. SEB, but there doesn’t seem to be a dispute about that here).

But, the claim charts were insufficient for Microsoft and the ’402 patent:

The ’402 patent claim charts as they relate to Microsoft’s customers, however, are substantively different. They cite exclusively to third-party—not Microsoft provided— documentation for several key claim limitations. While these claim charts allege the customers’ direct infringement of the ’402 patent based on its use of Microsoft’s ADO.NET, they do not impliedly assert that Microsoft induced that infringement. Nothing in the record suggests that Microsoft encouraged the acts accused of direct infringement, and simply selling a product capable of being used in an infringing manner is not sufficient to create a substantial controversy regarding inducement.

Slip Op. at 10.

Judge Rader dissented, expressing concern that the majority’s opinion gave patent holders whose enforcement strategy involved suing end users who could not afford to litigate a roadmap for avoiding triggering declaratory judgment jurisdiction for manufacturers.  This, Judge Rader contends, is a problem:

Of course, DataTern and other potential patent litigants would like to find a way to keep Microsoft or other major corporations on the sidelines while seeking numerous settlements with their customers who cannot afford the cost of a major lawsuit. Thus, this decision takes on special importance because it shows DataTern and its successors a way to achieve that lucrative objective.

The roadmap comes about because all a patent holder needs to do to avoid triggering declaratory judgment jurisdiction is to make sure to cite to non-manufacturer documentation for several “key” claim limitations.

The court determines in this case that jurisdiction is not available over Microsoft’s action on the ’402 patent because DataTern “cite[d] exclusively to third party—not Microsoft-provided—documentation for several key claim limitations” in its charts. Majority Op. at 10. For this reason alone, the court denies Microsoft declaratory judgment jurisdiction to resolve these issues in a single focused lawsuit. This lone detail, within the control of the patent owner, should not defeat an otherwise valid declaratory judgment action. The practical effect of this holding creates a roadmap to allow DataTern and its successors to keep Microsoft on the sidelines while running up wins against customers, who are often smaller and less-equipped to defend themselves.

Slip Op. at 25.

Comment: One way that this opinion may be limited by future courts is to focus on the “several key claim limitations.”  It may be that transparent attempts to avoid creating jurisdiction by token references to non-manufacturer documentation will not suffice.

Reminder on AIA-Transition Applications

Reminder: The USPTO is beginning to examine post-AIA applications. Anyone with a transition case should be cautious about amendments. These transition cases are ones that were filed on or after March 16, 2013 but that claim priority to a prior filing. The application will be examined under pre-AIA rules so long as all of the claims that were ever in the application can properly claim priority to the priority filing.

PatCon 4: The Patent Troll Debate

Below is my account of the Patent Troll debate at PatCon 4.  As those who were in attendance know, it was a dynamic, insightful, and interesting discussion about a very complex issue.

Resolved: That hostility to patent trolls is not well justified theoretically or empirically and will likely result in bad law.

Pro: David Schwartz, John Duffy

Con: Michael Meurer, Mark Lemley

***

John: Hostility to patent trolls unfounded as a theoretical matter.  Patent trolls rely on two fundamental features of the patent system, and that defines their business model.

1) Alienability of patent rights: this should not be changed.  This is something that should be kept, not just because of property rights theory generally, but also because of patent rights in particular.  This is because inventors are generally not people who are good at business.   So you need to allow these people to transfer their patent rights to others.

Consider AT&T research labs: better to have everything integrated into a massive corporation or to have rights spread out among lots of people.

2) Litigation costs are high.  We should generally not be happy about this generally.  We can all agree that this is a problem.  But patent trolls are more efficient at dealing with this type of litigation.  They’re more capable of asserting of asserting these rights.  Also, keep in mind that if you have relatively narrow patent rights, you’re going to need an efficient market for those narrow rights.  This is the role that patent trolls offer.  This allows for the valuation of patents.

Mike – Three observations:

1) Relatively little troll activity at the start of the 20th century

2) Small businesses have motivated Congress and the White House to pursue a variety of reforms

3) Peter Detkin thinks that there is a lot of evidence that some folks are gaming the system.

Empirical research shows that patent trolls impose a tax on innovation.  This hazard increases with R&D investment.  Other research supports this conclusion.  Patent defense imposes a cost on companies’ Research and Development.  Patent defense has a negative effect on small firm R&D persisting for up to three years.  This harm was present even if the defendant won the lawsuit.  This is particularly concerning since there’s evidence indicating that patent trolls frequently lose their lawsuits.

This produces a chilling effect, that is strongest among small, high-tech firms.  New research by Catherine Tucker showing patent troll litigation “was associated with a loss of roughly $21.8 billion of VC investment over the course of five years.”

Dave: Theory that NPEs can be good for the system because they’re specialist.  Prof. Meuer system seems to be arguing that the whole patent system doesn’t work.  Dave can’t address all that; the debate here is just over whether the specific entity that holds the patent matters.  And he’s not convinced.

Dave might be persuaded if the suits were mainly frivolous, then there might be a big problem.  But there’s not clear evidence of this.  Going to lay out some guideposts about what he thinks are the right way to think about this issue:

1) Critical issue of what a PAE is.  This definitional problem needs to be overcome first.  Anyone that doesn’t practice the patent?  Too broad; encompasses universities, individual inventors, aggregators.

2) Need to have a baseline to compare to.  If the type of entity is the problem, then it can’t just be problems endemic to the patent system that matters.

3) Need to fundamentally we as academics approach research into patent litigation.  Can’t keep all this research private.  Data needs to be publicly available, for many reasons.  For example, the definitional issue: does this change the outcome?  Very hard to have a meaningful discussion about all this when the data is proprietary and held by corporations with skin in the game.

Mark: His position is that trolls aren’t necessarily the problem with the patent system.  But while trolls themselves are not the problem, trolls are a symptom of real problems with the patent system.  They’re a symptom of long tendency times, unclear claims, incentives to write broad functional claims.  As a result of these things, anyone can easily and cheaply stand up and make a plausible claim that I’m entitle to a portion of your company’s profits.  The result is a development of the ‘bottom feeder’ model, where at least some entities are pursuing a strategy of extorting nuisance value settlements.  Trolls can make use of high discovery costs and asymmetries.

Is hostility to trolls making bad law?  Let’s look at developments:

1) eBay: you get an injunction when you’re entitled to one.

2) We got more sophisticated with our damages arguments

3) Eliminated the willfulness infringement letter game

4) Reduced the cost of addressing patent validity by inter partes review

5) Started to eliminate forum shopping

What is Congress/Courts doing?

1) Give district courts discretion to punish frivolous suit

2) Forcing patent holders to be more clear in their claims in Biosig v. Nautilus

3) Considering reducing the cost of discovery by addressing e-Discovery

4) Considering making patent holders sue the manufacturer, rather than the downstream users or mom and pop merely as a way of increasing the royalty base.

Mike: Rebuttal to Dave and John -  There are many instances of small entities – such as biotech or pharma startups – that were able to enforce their patents without the need of intermediaries.  Doesn’t see a major role for tech transfer via intermediaries in the pharma and biotech areas because there is a lot of tacit information. So very skeptical were going to facilitate much transfer of technology by facilitating PAE practices.

John:
Rebuttal to Mike’s invocation of the precautionary principle: we should welcome innovation.  The rise of patent trolls is a rise of innovation in law.  We should not be afraid of this; we should embrace it.  Also, in every other field where there are property rights, there is a robust secondary market.  Consider used car markets.  It’s an oddity that we don’t have one in patent law.

Rebuttal to Mark’s point on taking advantage of asymmetries.  But this is something that defendants do as well – defendants are perfectly willing to take advantage of independent inventors.

Rebuttal to Mike’s event studies data. [Had to talk real fast because he was running out of time so I didn’t get it, but the button line was that Mike’s studies have flaws[

Mark: John says we have to welcome innovation.  But the kind of innovation that John wants to encourage are different from the innovation that Mark wants to encourage.  The type of innovation that John wants to encourage is innovation in extracting value from the patent system; innovation in the legal models.  And this imposes a tax on the innovation in the technical areas.  John says that this is a property system, and any property system has a robust secondary market.  But this is actually an instance that shows why patent rights are not property.  Patent trolls are taking rights that are lying fallow and bringing them into the marketplace.  But is this possibility really providing the primary incentive for folks to engage in technological innovation.

Also, let’s think about the change.  We’ve moved from a world where 2% of all patents are being enforce to perhaps a world where we’re in 50-60-70% of all patents are being enforced.  That doesn’t seem like technological transfer but something else.

Dave: Going to focus just on the bottom feeder point.  He’s against suits that are frivolous.  But this is where the data is weakest.  And this is the linchpin of the argument.  Mark suggests that there are a lot of these “bottom feeder” cases.   But the main study here (Lemley, Allison & Walker, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1677785) isn’t really enough.

That study looks at the most litigated patents of all time.  And it finds that 90% of the patents that go to final judgment by NPEs do not win.  But the problem with this study is that is relatively limited, so it may just be outliers. Also, this study appears to involve independent inventor patents, which should be kept in mind.  Third, we’re equating unsuccessful with frivolous suits.  But that may not be the case.  Finally, there’s the problem of selection effects.  Only about 10% of cases reach final judgment.  There are many reasons to think that the 90% are not like the 10%.  Consider two possibilities:

1) The possibility of an injunction affects settlement negotiations.  Since post-eBay, it’s extremely likely that a non-practicing entity will be able to get an injunction (unlike practicing entities)

2) Practicing entities have other things that they can offer in settlement other than just money – such as business relations, etc.

David McGowan – moderator:

For Mark & Mike: Isn’t John right to say that whatever else you do, you don’t want patent law to have effects on efficient firm size?

For John & Dave: Hypothetically, let’s suppose that the choice that a sophisticated NPE is a patent portfolio, where the transaction isn’t really about whether a patent is infringed, but the aggregate possibility that there’s something in the portfolio that is infringed.

Mark: The right way to think about nondiscrimination is to think about whether we treat like situated people differently.  In other words, should we single you out for no other reason than you’re a NPE? No.  But that leaves a lot of room to apply rules in other ways that depend on particular characteristics or attributes of the entity.

John: Since they sort of largely agreed with me, I’m going to declare victory on a theoretical level.  No one is defending that we should treat inventors in these transactions differently depending on whether they are integrated into a large firm or not.

Dave: On the portfolio point.  Serially asserting patents against companies.  This is not unique to PAEs.  This is a general problem having to do with aggregation. In Mark’s Forest for the Trolls argument, he can see some benefits from aggregation in solving the royalty stacking problem.  There’s still potential for mischief with these portfolio structures, although there may be solutions.

John: Tremendous incentive for parties to come to an agreement on these portfolios unless all the patents are junk. And if all the patents are junk, then we have a bigger problem with the patent system.  Both plaintiffs and defendants lose value when suits are filed; so both parties have a strong incentive to settle. I’m going to continue to file suit against you and lose.  That’s not a very strong negotiating strategy.

Mike: One thing you should have told them, John, is that when a pharma company loses value when it files a lawsuit is because the shareholders realize that the patents are not as incontestable as they thought.

Basic economics of assertion by PAEs is, if we listen to John and Dave, is that they’re more efficient in enforcing patents.  The effect of this is to shift the borderline patents that are being assert to lower quality patents.  The result is that we’re going to have a marginal shift to lower quality patents.

In addition, the problem with the PAEs is that they aggravate the harms from notice failure.  Greater bargaining power of PAEs makes innovation tax bigger.  The size of problems with the patent system is exacerbated by PAEs.

David McGowan – moderator:

For John/Dave: Why did we see a spike in NPE suits from 2001-2009?

John: Innovation in patent monetization taking place.  This is good.  When people game the system, they show us new things to do.  Some we might want to adjust in response to.  But throw the entire innovation out?  No.

David: Also, a growing view that patents can be a valuable asset, combined with a larger number of firms that were willing to take patent cases on contingency fees.  But the real question is whether these are frivolous cases or cases that really are meritorious

For Mike/Mark: How are we going to get information that we can be confident in?

Mark: Going back to the study that Dave talked about.  Fair to say that for various structural reasons it’s hard to know much about the confidential settlements.  So what can we know?

We can look at cases that go to summary judgment and trial.  Invokes weak version of Priest-Klein here to respond to the selection effect point. Also, these are a substantial chunk of the cases in the system as a whole.  So when we tell you that 90% of those cases are losers for PAEs, that tells us something.  Also, consider Colleen Chien survey on payouts, which indicates that most of these case are settling for the cost of litigation. Ultimately, though, we really need to have more transparent settlement data, not just for studying it, but also for creating a thick secondary patent market.

Finally, if the way that things work is that the more innovative a firm is, the more it gets sued: there’s a real problem with our patent system and a fundamental disconnect be the way that incentives are aligned.

Oskar:  Consider this problem: let’s imagine two inventors who come up with a process patent that they’re never going to patent.  So what we hope they’re going to do is ex ante licensing.  You go around to the industry and try to get everyone to adopt it.  Another road that could be adopted is to get the patent and put it in a drawer and wait until someone else comes up with the process and then go out an sue them (i.e.: engage in ex post licensing.)

In between this distinction, we can say that the inventor who actually pushes the invention out is socially better than the inventor who engages in ex post licensing.

John: Patents don’t get put in drawers these days.  They get put on the internet.  So not really as big a concern about ex post licensing.  Also, see my recent article on the Paper Patent Doctrine in Cornell Law Review.

Mark: Oskar makes a really important point.  We want technology transfer.  Used to be a time when we got tech transfer through the patent system because diffusion was slow and patents made it faster.  But diffusion of tech as sped up and the patent system has slowed down.  The key here is a distinction between patent rights transfer and technology transfer.  But in a world in which most patent lawsuits are filed against independent inventors not against copiers.

For another take, see Prof. Tom Cotter’s summary of the debate: http://comparativepatentremedies.blogspot.com/2014/04/patcon-4-patent-troll-debate.html