Citing References – An Alternative Look

A lot has been said for the increased number of references being submitted to patent examiners.  It is true that the average number of references submitted per application continues to skyrocket and for patents issued in 2015 that average number is 40 references.  However, the average is skewed by a relatively small number of applications with an unusually large number of references cited.

If we look at the median case — the number of references remains reasonable.  The chart below shows the median number of references submitted by patentees – grouped according to patent issue year. 1 out of every 6 recently issued patents included no prior art submissions by the patentee.


PTO Proposed Pilot Program on IPR Initiation

Inter Partes Review (IPR) Trials have become an effective tool for cancelling invalid patent claims that lack novelty or fail the nonobviousness test. The IPR process has two main stages: Institution and Trial. At the institution stage, the Patent Trial and Appeal Board (PTAB) must determine whether the third-party challenge is sufficient enough to warrant a full trial on the merits of the challenge. The institution test outlined by the statute is a “reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.”

One design choice for IPRs is whether the judges who decide to institute the IPR should be kept-on to decide the ultimate merits of the trial. In its initial design of the process, the PTO determined that keeping the same judges provided for both efficiency and internal consistency. Thus, under the current rules, the same three APJs who decide whether to institute a trial also conduct the trial and ultimately decide the trial outcome.

A number of losing-patentees have argued that the process creates an improper bias or implicit presumption against the patentee during the trial stage. The basic idea is that a judge who sides with the challenger at the institution stage will be mentally locked-in to supporting the petitioner’s case and at trial will improperly give the presumption to the challenger rather.

The USPTO is now requesting comments on a proposed pilot program that would address these concerns. In particular, the PTO’s proposal is that the institution decision would be made by a single judge. If that judge decides to institute then the trial would be held before that single judge along with two additional APJs added to the panel who were not previously involved in the decision to institute.

The statute requires the two-step process and also requires a set of three APJs to decide the trial, but gives the USPTO authority to determine additional process elements. There are a host of alternative designs and structures available, such as an entirely new panel.

The PTO’s proposal benefits the PTO by requiring only one judge at the institution stage – likely allowing it to handle more cases. Right now, the PTO is looking for comments on the proposal. If those seem favorable, the PTO is likely to move ahead with a pilot program. Comments to by October 26, 2015.

I am personally concerned about the initiation decision by a single APJ.  Generally, you might think that three-judge panels would offer more consistent decisions because more eccentric judges would be outvoted.  However, there are team-project problems that can arise with panel decision making– often one or more panel member can check-out mentally and simply rely upon the decisions by a single judge.  I do not know which of these (if either) is more likely with PTAB judges.


Patentlyo Bits and Bytes by Anthony McCain

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A few notes on USPTO Progress

  • Filings Down?: USPTO expects application filings for FY2015 to be down 1.8% from FY2014. Most of this downward trend is in Request-for-Continued-Examination (RCEs) that the office usually counts as application filings. RCEs filings are down about 6% from FY2014 meaning that actual application filings have roughly held steady from FY2014.
  • Money Still There: Despite the drop in filings, fee collections are up over $3 billion. The USPTO is on schedule to spend about $200 million more than it collects – eating away about 1/3 of its operating reserve fund.
  • Petitions: PTO Dashboard has been updated with petitions information.
  • Ex Parte Appeals Backlog: For the first time in a decade, the backlog of ex parte appeals before the PTAB have begun to drop and are now below 23,000 pending cases. The appeals process is still about 2-years too long.
  • USPTO Solicitor Nathan Kelley is serving as the Acting Chief Administrative Judge of the PTAB as the PTO searches for a replacement for Chief Judge Smith. Although it is unclear to me, I expect that Kelley did go through the Constitutionally required appointment process.

Cancellation of Progressive’s Business Method Patents Confirmed on Appeal

Progressive Insurance v. Liberty Mutual Insurance (Fed. Cir. 2015)

This case stems from a set of seven overlapping post-grant-review proceedings (CBM PGR) before the Patent Trial and Appeal Board (PTAB) that Liberty Mutual filed against Progressive’s “business method” patents. The patents relate to auto-insurance pricing based upon customer vehicle use patterns – such as the number of sudden stops over a given period of time – as well as online insurance policy adjustments. See U.S. Patent No. 8,140,358 as an example.

In the Covered-Business-Method Review, the PTAB found a number of Progressive’s claims invalid as either anticipated or obvious. On appeal, the Federal Circuit affirms in all respects.

Two different proceedings for the same patent: Liberty Mutual filed two different CBM proceedings against the ‘358 patent. In one, the Board invalidated all claims except for 1, 19, and 20 while in the other the second the Board invalidated all claims of the patent. These two decisions were released about 1-hour apart.

The first challenge on appeal was that the second judgment was improper because – according to Progressive’s theory – the Board lost jurisdiction once it issued the first decision. That theory stems from Section 325(e)(1) that prohibits a petitioner from “maintain[ing] a proceeding before the Office” on issues that “reasonably could have” been raised during a post-grant review that has already reached a final written decision. The argument here is that, once the PTO reached the first final judgment that the second case should immediately disappear. On appeal, the Federal Circuit rejected that approach finding (1) that the statute does not prevent the PTO from maintaining the proceeding and in any event (2) the PTAB indicated that the two decisions were “concurrent” even though actually made public about 1-hour apart. Finally, the Court noted that the PTO has statutory authority to decide how to deal with multiple related proceedings.

Written Description and Claiming Priority: On the merits, a substantial amount of the problem here dealt with patent families and the difficulty in understanding whether a later claim can properly claim priority to an earlier filed application. The PTO typically (except in Hyatt’s case) does not require a patentee to expressly connect each patent claim with its effective priority date. As a result, those arguments are typically saved until later in litigation (thus, the benefit of filing a CIP . . . )

Here, the claims in question included an interface module that produce a “driver safety score” – construed by the PTAB to mean a “calculated insurance risk value associated with driver safety.” The priority application disclosed “rating factors” that might include safety factors, but did not expressly disclose a risk value associated only with driver safety. (Note the seeming subtle shift in construction by the Federal Circuit). In any event, the ruling is that the priority application disclosed the genus but not the later claimed species – as such it does not meet the written description requirement. In this situation, the result is that the priority filing date for the particular patent at issue here is pushed back to the later filing and that date was predated by the intervening prior art disclosures.

= = = =

It does not appear that Section 101 was raised as a challenge:

1. A system that monitors and facilitates a review of data collected from a vehicle that is used to determine a level of safety or cost of insurance comprising:

a processor that collects vehicle data from a vehicle bus that represents aspects of operating the vehicle;

a memory that stores selected vehicle data related to a level of safety or an insurable risk in operating a vehicle;

a wireless transmitter configured to transfer the selected vehicle data retained within the memory to a distributed network and a server;

a database operatively linked to the server to store the selected vehicle data transmitted by the wireless transmitter, the database comprising a storage system remote from the wireless transmitter and the memory comprising records with operations for searching the records and other functions;

where the server is configured to process selected vehicle data that represents one or more aspects of operating the vehicle with data that reflects how the selected vehicle data affects a premium of an insurance policy, safety or level of risk; and

where the server is further configured to generate a rating factor based on the selected vehicle data stored in the database.


Naming the Rule: Anticipating the Patent

Prior to the America Invents Act of 2011 (AIA), prior art were either (1) prior in time to the invention and thus anticipated the invention (e.g., 102(a), (e), and (g)); or (2) more than one-year prior to the application filing date and thus raised a statutory bar (102(b)). Within this schema, the pre-AIA Section 102 included the title of “Novelty and Loss of Right” where novelty refers to anticipation and loss of right refers to the statutory bar.

The AIA totally rewrote Section 102 and eliminated the notion of anticipating the invention and also altered the notion of the statutory bar. The new rules focus instead on the effective filing date of the invention create what looks a lot like the statutory bar of 102(b) (except for automatic one-year grace period). The rule is not about absolute novelty in terms of invention-date (as that term has always been used in the US) but instead about filing of an application before prior art emerges. Although this seems to fit within what we used to call the statutory bar, Congress included “novelty” within the title of the new Section 102(a) and left-out loss of rights.

Although we understand how the statute is supposed to work, we’re left with the small matter of crystalizing the name for prior art that qualifies under post-AIA 102. It doesn’t necessarily anticipate the invention – and congress appeared intent on moving away from the passive loss-of-rights designation. We could spell-out “qualifies as prior art under Section 102″, but that’s not the kind of identifier that sticks. I propose using the middle ground of “anticipating the patent” or “anticipating the application,” depending upon whether a patent has yet issued. This proposal seems to fit within Congressional intent but also implicitly recognizes that we’re no longer concerned with the invention date but instead the key patent date (i.e., effective filing date). This approach seems to also roughly fits with the language used by European Courts that have long focused on filing dates. Overall, this is not a big deal, but it may end up being important to get the words right.

Federal Circuit: We don’t Decide Claim Construction in the Abstract

Personalized User Model, LLP v. Google Inc. (Fed. Cir. 2015) (Part II).

In Part I, I discussed the aspect of this decision dealing with the statute-of-limitations for dealing with an inventor who had (allegedly) breached his employment agreement by failing to assign patent rights. In Part II here I focus on the second important portion of the decision – a holding that the appellate court has no jurisdiction to address a claim construction appeal unless the result would impact the outcome of the case at hand.

At the district court, Google won the case based upon a finding of invalidity and non-infringement. The patentee (PUP) did not appeal those holdings, but did ask the court to review the lower court’s claim construction – arguing that the district court misconstrued the term “document” and that mis-construction may well impact future litigation of other claims in the patent family in the form of collateral estoppel (issue preclusion)

On appeal, the Federal Circuit refused to consider the claim construction appeal – finding that the appellate panel would be in violation of the US Constitution if it heard the case. In particular, the Federal Circuit panel held that the dispute over claim construction offered no case or controversy as required by Article III of the US Constitution.

Despite PUM’s concerns that the construction might be given preclusive effect in future litigation involving its related patents, we may not provide an advisory opinion on the meaning of a claim term that does not affect the merits of this appeal and thus is not properly before us.

Although it lost the appeal, asking the question may be good strategy on the part of the patentee here since the appellate court’s refusal to hear the appeal is potentially sufficient to negate the presumption that the patentee had a full and fair opportunity to litigate the issue. Thus, the result may be no issue preclusion.

– Dennis

Working through Old Patent Applications

The decision in Hyatt v. Lee (Fed. Cir. 2015) included a citation to a June 2013 letter submitted by then Acting Director Terry Rea to the Senate Judiciary Committee. The letter was submitted in a response to a Senate request for information regarding still pending patent applications filed pre-GATT.

Rea reported that 482 applications are still pending that were filed prior to June 8, 1995. That cutoff is important because those applications – if ever issued as patents – will be entitled to 17-year patent terms following the issue date.  Applications filed since that date are given 20-year terms that begin counting at the application filing date.

The letter goes on to list the serial number, inventor, assignee, priority date, and other information for each of the 482 applications.

Leading the pack is Gilbert Hyatt with 399 applications pending. Runner-Up is Personalized Media Communications (John Harvey) company with 38 applications pending.  The remaining ancient-application-owners are all smaller players with only one or two pending (as of 2013). These include UCB Pharma; Boeing; US Dept of HHS; Sanofi-Aventis; and US Smokeless Tobacco Company, as examples.

Although the letter does not so indicate, it is apparent to me that the data does not include applications kept from issuing due to secrecy orders.  On example is recently issued U.S. Patent No. 9,057,604 that was filed as an application in 1989 but did not issue till 2015 because of a secrecy order by the U.S. Government.  Since Rea’s letter, 30 of Harvey’s patents have issued. See link.


Federal Circuit Gives PTO “OK” to Treat Hyatt as a Special Case

Gilbert Hyatt v. Michelle Lee (Fed. Cir. 2015)

Hyatt is a highly successful patentee with more than 75 issued patents and hundreds of millions of dollars in licensing revenue. He also has over 400 patent applications pending before the USPTO that were all filed more than 20-years ago. Hyatt’s applications represent 80% of the applications still-pending that were originally filed prior to the June 1995 patent term transition. Because these old patent applications were filed under the old regime, if they ever issue they will be given a 17-year patent term extending from the issue date (barring a terminal disclaimer or prosecution laches finding). Many of these applications claim priority to much earlier filed applications – some claiming priority back in to the 1970s and most having a complex set of continuation and continuation-in-part applications.

According to the USPTO, these 400 pending applications have – on average – 300 claims each – resulting in about 120,000 pending claims – roughly the equivalent of 6,000 ordinary-sized applications.

I expect that many of Hyatt’s patent claims would cover chip and display technology that is now ubiquitous. If valid and enforceable then we’re talking billions of dollars in licensing fees. If the USPTO has anything to do about it, that result is not coming anytime soon.

Over the years, the USPTO has developed a number of special procedures for Hyatt applications. In 2013, the USPTO began issuing requirements that Hyatt limit each patent family to <600 claims absent a showing of necessity and also identify the earliest priority date for each chosen claim (along with links to the supporting disclosure).

The USPTO also indicated that it would publicize the family linkage of Hyatt’s (otherwise secret) applications. In particular, the disclosure would occur by placing the requirements in the file histories of all of Hyatt’s pending applications, some of which are public. Apparently, this requirements document includes a number of examples of how Hyatt applications overlap claim scope – relying upon specific claim texts of Hyatt’s otherwise secret applications.

In response, Hyatt filed a complaint in the E.D. Virginia asking the district court to enjoin the USPTO from disclosing information in violation of 35 U.S.C. 122(a) (“applications for patents shall be kept in confidence by the Patent and Trademark Office and no information concerning the same given without authority of the applicant or owner unless necessary to carry out the provisions of an Act of Congress or in such special circumstances as may be determined by the Director”). However, the district court dismissed the case for lack of jurisdiction and – in the alternative – held that the extraordinary nature of Hyatt’s situation created “special circumstances” that allowed for the publication.

Although the statute provides the PTO with seeming authority to determining when to disclose the confidential information (“special circumstances as determined by the director”), the Federal Circuit on appeal here found that the PTO’s power is both “narrow and reviewable.” In particular the appellate panel found that the PTO must “determine that special circumstances exist” and those special circumstances must be sufficient and particular enough to “justify the specific content to be disclosed.” However, because of the seeming discretionary nature of the statute, the Federal Circuit determined that it should review the PTO’s determination of these factors with deference and only overturn the PTO’s decision upon finding of an abuse of discretion.

In determining that the PTO had then acted within these requirements, the panel first held that the requirements were proper – given Hyatt’s unique and special status among patent applicants. The court also found that the disclosure of confidential claim scope proper.

In light of the nature of Mr. Hyatt’s applications, longstanding PTO rules justify the issuance of the Requirements. 37 C.F.R. § 1.75(b) provides that, in a patent application, “[m]ore than one claim may be presented provided they differ substantially from each other and are not unduly multiplied” The PTO issued the Requirements to ensure that Mr. Hyatt’s applications complied with § 1.75(b). Given the extraordinary number and duplicative nature of Mr. Hyatt’s various pending applications, all drawn from the same 12 specifications, it was reasonable for the PTO to be concerned that the claims did not “differ substantially from each other,” and that some claims were “unduly multiplied.” § 1.75(b). In fact, in the Requirements the PTO demonstrates that across these applications, Mr. Hyatt has in numerous cases filed identical or nearly identical claims. This sort of redundant, repetitive claiming is inconsistent with § 1.75(b).

These special circumstances, which justify issuing the Requirements, also justify the disclosure of the confidential information contained in them. . . .

We hold that the Director did not abuse her discretion when she found that the “special circumstances” exception justified the otherwise-prohibited disclosure of the Requirements

It is fairly amazing to look at the effort going-in on both sides in Hyatt’s patent applications. One that is public and available in PAIR Application No. 05/849,812 that claims priority back to 1970 through a series of 20 continuations-in-part.

It’s News to Anthony McCain

Some of you may have noted that Anthony McCain is now writing Bits and Bytes posts for Patently-O.  Anthony is a 2L at Mizzou where he also earned a degree in Mechanical Engineering.  So far, I have asked Anthony to keep his posts straightforward without much extra commentary because he is new to blogging and is only now enrolled in my Patent Law course.  Once again I’m running Patent Law as a practically oriented class with time spent primarily doing projects, writing claims, amending applications, drafting briefs, and conducting hearings.  McKool Smith has sponsored our Patent Law Moot Court competition that will take place in November — winner gets $1,000.

Back to Anthony:

— Dennis

Rarity: Federal Circuit Reverses Jury Verdict of Non-Obviousness

ABT Systems and University of Central Florida v. Emerson Electric (Fed. Cir. 2015)

The patent at issue here is owned by UCF and covers a circulating fan system. U.S. Patent No. 5,547,017. Co-Plaintiff (licensee) ABT is the company started by Armin Rudd who is the named inventor on the ‘017 patent.

Prior art systems, such as the one in my house allow for the circulation fan to be left-on even when the air conditioning system is off in order to better distribute conditioned air. The improvement offered by Rudd is to turn on the fan only periodically “after a preselected time period.” That intermittent approach would save “energy and power.”

A jury found that Emmerson’s high-end “Big Blue” thermostats infringe and awarded $300,000 in damages based upon a royalty of $2.25 per unit. The jury also held that Emerson had failed to prove the claims invalid as obvious.

On appeal, the Federal Circuit has reversed – finding that the district court should have granted JMOL on obviousness.

Invalidating a Patent on Obviousness: The question of obviousness asks whether the “differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time of the invention was made to a person having ordinary skill in the art to which said subject matter pertains.” 35 U.S.C. 103(a)(pre-AIA). In KSR v. Teleflex, the Supreme Court held that a “combination of familiar elements according to known methods” that “yield[s] predictable results” is likely invalid as obvious.

Here, elements of the patented system were all known in the art as was the motivation of improving circulation at reduced cost. Likewise, one prior art reference disclosed a “single-shot” fan operation that came on one-time after a heating/cooling cycle and another disclosed period fan-only cycles at times when there was no call for heating. The question then is whether it would have been obvious to create the claimed system of periodically activating and deactivating the fan after a predetermined time following a cooling cycle. Applying KSR, the Federal Circuit found that the law requires an obviousness finding.

Commercial Success: ABT had also argued that the commercial success and long-felt need of the invention should provide enough weight to prove the invention nonobvious. Objective evidence of nonobviousness, such as commercial success, long-felt need, failure of others, copying, and unexpected results can each provide evidence for the analysis. On appeal, however, the Federal Circuit was not persuaded that ABT had proven its case. In particular, ABT did not present evidence particularly linking product commercial success to the claimed periodic fan operation. Likewise, there was no particular evidence presented that Emerson’s infringing product market was being driven in any way by the recycling feature. ABT does have a number of patent licensees that weigh in favor of nonobviousness. However, the Federal Circuit held that those licenses were insufficient to overcome the convincing case of obviousness coming from the prior art.

Holding: Patent Claims Obvious

New Rules on PTAB Trials

Earlier this year, the USPTO released a set of ‘quick fixes‘ to AIA trial procedures before the Patent Trial and Appeal Board (PTAB) and also promised second package of rule changes. That second package has now been detailed in the USPTO’s Proposed Rule Changes now found in the Federal Register. The proposed rules focus on a number of practical changes to PTAB Trial Procedures:

  • Testimonial Evidence (Such as Expert Declarations) in Patent Owner’s Preliminary Response (to be considered but viewed in the light most favorable to the petitioner when determining whether to institute an inter partes review proceeding)
  • Claim construction standards for patents about to expire (use actual construction for patents that “will expire” before final judgment rather than broadest-reasonable-interpretation)
  • Rule-11 Requirement associated with all papers filed with the PTAB – giving the USPTO “a more robust means with which to police misconduct.”

In her blog-post on the topic, USPTO Director Michelle Lee indicated that the USPTO will also “amend its Office Patent Trial Practice Guide to reflect developments in practice before the Office concerning how the Office handles additional discovery, live testimony, and confidential information.”

As part of the process, Director Lee also offers a “where we stand” set of statistics for the past three years of AIA filings:

  • 3,655 petitions, of which 3,277 are IPRs, 368 are CBMs, and 10 are PGRs.
  • 63% focus on patents from electrical/computer technology centers (TCs) and only 9% in the the bio/pharma TC.
  • Review Institution: Trials have been instituted on 1,389 of 3,277 IPR petitions, 185 of 368 CBM petitions, and 2 of 10 PGR petitions.
  • Trial results: 12% of total claims available to be challenged (4,496 of 38,462), were determined by the PTAB to be unpatentable in a final written decision. Other claims were either not challenged, resolved by settlement, cancelled, or upheld as patentable. Of the first IPRs to reach a conclusion, 25% of claims actually challenged (4,496 of 17,675) were found to be unpatentable.

According to Director Lee, the number of petitions is “around three times more” than what were originally expected by Director Kappos.

These statistics fit with those discussed by Richard Bone in his recent post.

Comments on the proposed rules go to and discussions will be held at the upcoming roadshows: August 24, 2015 in Santa Clara, August 26, 2015 in Dallas, and August 28, 2015 at USPTO HQ.

Guest Post on Conflicting Claims: The Raw Statistics of PTAB Trials

Guest Post by Richard Bone. Mr. Bone is a partner at the VLP Law Group.

The popular view of the PTO’s new AIA reviews, or “patent trials”, is that they have been disproportionately unfavorable to patentees in their outcomes, provoking characterizations such as “patent death squad” for the Patent Trial and Appeal Board (PTAB), the body that administers the trials.

Yet the PTAB’s own statistics paint a different picture: that, in fact, as few as 25% of patent claims challenged are actually held “invalid” by the PTAB, and that figure actually represents only 11% of all of the claims in all of the patents which received at least one AIA challenge. That being the case, patent owners ought to be less fearful than most commentators suggest.

To understand the discrepancy between published statistics and public perception, it’s necessary to dissect the data. Fortunately the PTAB has made various layers of data available on its website. The data is cumulative over all petitions filed from the inception of AIA trials, in September 2012. For all data, the PTAB counts proceedings that have received a final adjudication, whether that be as a result of a settlement, or a request for adverse judgment by the patent owner, or because the PTAB issued a final written decision. Between September 2014 and April 2015, the data was presented on three occasions, as a sequence of bar-graphs condensed into a single graphic. From April 2015, the PTAB has presented the data monthly in a more informative manner, with multiple graphic representations and an accompanying narrative. From both formats, it’s possible to see what is going on, though the numbers mask a number of subtleties.

Just as patents are asserted on a claim by claim basis, so invalidity is adjudicated claim by claim. The overwhelming majority of patent trials to date have been Inter Partes Reviews (IPRs), with almost all of the remainder being “Covered Business Method Reviews” (CBMs). Although the PTAB’s data through January 2015 was presented in aggregate form for the two types of proceeding, the more recent data shows that, statistically, the outcomes of the two types of proceeding are very similar. In both an IPR and a CBM, the petitioner (party challenging the patent) must identify the claims challenged, and advance a ground of invalidity of each. The fee structure for filing an IPR or a CBM includes a challenge to up to 20 claims of a patent, but exacts an additional fee of $200 per claim challenged in excess of 20. Subsequently, if the petition is accepted and trial proceeds, the PTAB levies a further fee of $400 per claim in excess of 15 on which trial is instituted. With this type of fee structure, and accepting that – beyond the filing fees – there is an effort and therefore a cost to prepare a separate argument for each claim challenged, and that there is also an overall page limit for the petition, many petitioners may have been choosy over which claims to challenge. In some cases that choice will have been based on the patent claims asserted in litigation, which need not have been all of the claims in the patent. In others, it will have been based on an assessment that, after demolishing certain well-chosen claims, what remains of the patent is essentially toothless.

So, according to the PTO, through July 2015, in patents for which AIA petitions were filed, 47% of the claims were challenged. This number is little changed from the 45% figure from September 2014. However, the July 2015 numbers, when broken down into the different types of proceedings, show that across all CBMs 58% of patent claims were challenged. This could be because of the longer page limits for CBM petitions (80 pages vs. 60 pages for IPRs) but could equally be because Section 101 challenges are permissible in CBM’s: when arguing invalidity of an independent claim under section 101, it is not significant additional effort to argue invalidity of claims depending from it.

It has to be assumed from the way that the data is characterized that trials recently instituted that have not yet received a final adjudication are not included in the data. Because of the fact that a patent trial typically takes 18 months from filing a petition to issuance of a final written decision, any large scale trend that has happened recently will take some time to be reflected in the PTAB’s cumulative averages.

In any case, just based on claims challenged to date, patent owners could see – on average – patents surviving with more than half of their claims intact, not adjudicated as patentable per se but simply not challenged. Furthermore, the PTAB’s latest charts suggest that the numbers do not include the petitions that were wholly denied, and thus did not result in a trial. Thus, the reported data is based on petitions that resulted in a trial on at least one challenged claim. The statutes governing inter partes review state that trial should only be instituted if “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition”, and this takes into account any preliminary response filed by the patent owner. If the petition was judged not to have met that standard for any claim challenged then trial does not proceed (the petition is “denied”): those claims are not included in the PTAB’s data and hence the overall numbers of surviving claims are actually slightly more favorable to patent owners because trial is not always instituted. It is difficult to calculate this effect precisely because in many instances multiple petitions are filed against a single patent and those several petitions are consolidated into a single proceeding for trial. It is not clear from the PTAB’s data how such petitions that formally do not proceed to trial on their own because they are subsumed into another proceeding are differentiated from those petitions that fall short on all challenged claims and thus lead to no trial on the challenged patent. Nevertheless, comparing fiscal years 2013, 2014, and the first 10 months of 2015, we are seeing a growing number of petitions denied: rising from 14% in 2013 to 32% in 2015, a trend that can only be welcome to patent owners.

The statistics for those claims on which trial is instituted become more complicated, however. As of September last year, the PTO reported that trial was instituted on 66% of challenged claims. By July of this year, that number had dropped slightly to 63% of all challenged claims in all types of petitions: however, CBM’s had an institution rate that was slightly above the average, at 65%.

At this point, looking at the situation from the point of view most favorable to patent owners, trial is only being instituted on 31% of the claims in the patents that have been challenged in an AIA review (and this may be a smaller proportion overall, if it is accepted that a growing number of petitions are being denied outright). It is also fair to say that any claim whose validity was challenged in an IPR or CBM petition and on which trial was not instituted has emerged from that process as a stronger claim, unless the claim escaped that evaluation because the parties entered a settlement even before the PTAB had issued a decision on whether to institute a trial.

Once trial has been instituted, however, patent owners appreciate that the claims proceeding to trial are in considerable jeopardy. For the claims that proceed to trial, the PTAB identifies 4 distinct categories of outcome: held unpatentable (in a final written decision); held patentable (in a final written decision); cancelled (e.g., by patent owner’s amendment), or disclaimed (by patent owner); and “remaining patentable”.

The last of these categories is perhaps the most controversial in the way that the numbers are presented, and one that has been least well understood. It arises from a settlement that precludes the need for a final written decision by the Board. According to the PTAB, by July 2015, 45% of all IPR’s in which trial was instituted were terminated by settlement. One has to assume that a common form of settlement permits the patent owner to retain their patent without an adjudication of invalidity of any of the challenged claims in return for dropping a contemporaneous infringement suit against the petitioner. Claims subject to a settlement in this way have been undoubtedly weakened by the fact of there being a determination of probable invalidity (an institution of a patent trial) in the public record, but they have nevertheless “survived” a formal written judgment from the PTAB.

Claims cancelled by the patent owner are a casualty of the proceeding and arise – most likely – from a desire by the patent owner to minimize the ongoing costs of defending the patent before the PTAB. In any view of the proceedings, an instituted IPR or a CBM is, to any patent owner, an expensive way to lose a patent.

The most important two categories, those claims that are found invalid, or whose patentability is upheld, by the PTAB in a final written decision are those that grab the headlines. Respectively, 42% and 9% of claims proceeding to trial are found invalid and valid. In the grand scheme of things, these are a small fraction of the total number of claims challenged (26% and 6%), and a still smaller fraction of the total number of claims in patents receiving challenges under the AIA. However, what is clear is that patent owners who have decided to fight to the very end are on the whole being severely bruised in the process. The PTO reinforces this point with a break out of 447 IPR trials to date that have “reached final written decisions”: in 2/3rds of them (295 trials), all claims on which trial had been instituted were found unpatentable; by contrast, only in 16% of final written decisions were all claims adjudicated to be patentable. In CBM’s these numbers are even further skewed in favor of petitioners: 79% of final written decisions in CBM’s involved wholesale invalidation of the claims taken to trial, whereas in only 4% were all of the claims upheld. When considered claim by claim, in CBM’s the validity of just 2% of claims are upheld in a final written decision of the Board.

There are a number of questions that the data do not answer: for instance, how many patents sustained a challenge to all of their claims and were ultimately found invalid in their entireties.

But it is clear how the gap between perception and the actual numbers can be bridged: final written decisions are on balance unfavorable to patentees, more so in CBM’s than in IPR’s. It is likely to be the most valuable claims that are contested in this way. Even though such claims represent a tiny proportion of all patent claims that came under jeopardy in an AIA review, it may be little consolation to patent owners that the claims they are left with – if any – are those they would have least interest in enforcing.

Patentlyo Bits and Bytes by Anthony McCain

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Micro Entities Rising Popularity

The patent statute now provides for three categories of patent applicants: Large entities, Small Entities, and Micro Entities. As their names suggest, the groupings are largely defined by entity size with the exception that University-owned patents can qualify for micro-entity status despite billion dollar endowments. Entity status determines patent office fees. With a few exceptions, large entities pay full-freight, small entities receive a 50% reduction in fees, and micro entities receive a 75% reduction. I should mention also that the micro entity status became available only in 2013 as part of the America Invents Act (AIA) implementation.

The chart above groups provisional patent application filings into the various entity-sizes and includes two date-groupings: Applications filed in FY2011-2012 and those filed in FY2014-2015 (through August 4, 2015). As is apparent, a substantial percentage of provisional applications are now being filed under the micro-entity status. The pre-AIA information suggests that the rise in micro-entity status should largely be associated with a drop in small-entity status.

About 45% of provisional applications are abandoned without any further non-provisional or PCT application claiming priority.

Employment Agreement Breach: Failure to Assign Can’t be Fixed Because of Statute of Limitations

Personalized User Model and Konig v. Google (Fed. Cir. 2015)

This case involves a fascinating set of back-door dealings. While Konig was employed at the non-profit research institute SRI, he started a side project with a friend creating a personalized information service – the subject of the patent that he filed (apparently without offocially notifying SRI). It is Konig’s patent that is being allegedly infringed by Google. See U.S. Patents No. 6,981,040.

After Konig’s patent holding company sued Google for infringement, Google management then called-up SRI and obtained a quitclaim deed over “any rights” in the patent held by SRI. With those rights in-hand, Google argued in court that Konig had breached his employment agreement by failing to assign rights to the patents to SRI and that Google was now the rightful owner (of at least a right to have the patents assigned). The district court, however, found the breach-of-contract claim time-barred by its state-law statute of limitations.

Because Konig’s alleged breach-of-contract with SRI was in the 1990’s, it seems likely that the three-year statute of limitations term had passed. However, Delaware (the site of the lawsuit) has a “discovery rule” that tolls any statute of limitations for the period in which an injury is ‘inherently unknowable” and “the claimant is blamelessly ignorant of the wrongful act and the injury.” Of course, a simple search years ago of the patent database would have turned up Konig’s patent rights, but the Search Giant argued that search would have been “practically impossible.” In the appeal, the Federal Circuit agreed with the district court that Google’s arguments were not sufficient proof of the inherent unknowability of Konig’s alleged breach or proof of SRI’s blameless ignorance. In particular, SRI knew that:

Konig was leaving [SRI] to immediately work at a start-up technology company. Considering the competitiveness of companies and institutes in the technical world and, as Google has argued, that the technology was related to Konig’s work at SRI, his departure and new venture could well have been a “red flag” that should have generated an inquiry whether Konig had conceived an invention during his employment with SRI that he might intend to develop and commercialize with his new company.

More importantly, Google failed to show that SRI was blamelessly ignorant of Konig’s alleged breach of contract. Google’s attempts to dispense with its burden of proof for the blamelessly ignorant element of the discovery rule by arguing the futility of any inquiry do not compensate for its failure of proof. Despite the opportunities for SRI to have inquired about Konig’s departure and his new venture—the obvious one being an exit interview, at which an inquiry might have been made regarding whether Konig had made any inventions at SRI that had not been reported to SRI—the record is critically deficient on the minimum quantum of evidence necessary to show that SRI did anything to protect its interests. . . .

Employers do not need to track a former employee’s every movement for an indefinite period of time to look for potential claims, but there should be some basic level of diligence in looking after one’s interests.

Delaware also has a statutory tolling of causes of action when the would-be defendant is out of the state of Delaware. 10 Del. C. § 8117. Although not express in the statute, the district court held that the tolling did not apply when the cause of action had “no connection to Delaware.” On appeal, the Federal Circuit affirmed: “Although the statute on its face does not require any connection to Delaware, we agree with the district court’s disinclination to interpret the statute so broadly as to apply to any claim, claimant, or defendant.”

Recordation Prevents Straight Ownership Claim: Although the court does not go into it here, ownership of patent rights would not generally require proof of breach-of-contract. If SRI owns the patent rights then its sale of rights to Google should shift ownership, regardless of whether Konig was in breach of contract or not. One problem with that theory, however, is that the employment agreement does not appear an effective transfer of rights but only a promise to transfer. Thus, even under the employment agreement Konig remained owner until such time as he transferred ownership to the employer. A second problem with the theory involves the recordation statute – 35 U.S.C. 261, which suggests the recordation of the assignment to Konig’s company may be sufficient to extinguish Google’s purchased rights.

Federal Circuit Stops Downstream Enforcement of Standard-Essential DVD Patents

by Dennis Crouch

The case here is interesting and important – especially as it relates to patent pools and FRAND license offers.  I have posted the relevant holding, while I think more about its potential impact. 

In 2012, JVC Kenwood sued Nero, Inc. for infringing its patents relating to methods of playing and burning optical discs (DVD and Blueray).  See, for example, U.S. Patent No. 6,141,491.  These patents are considered standard-essential parts of the patent pools formed around these technology standards and all of the (legit) disc and hardware manufacturers pay the license fee.  That license is obviously designed to cover end-users as well who are the ultimate consumers of the DVD technology.

Nero sells software that helps folks play and burn discs from their computers.  As such, Nero does not directly infringe the patents under section 271(a). JVC alleges instead that Nero should be held liable for contributory and induced infringement under 271(b) and (c).

JVC’s case a number of major theoretical problems: Most important to the District Court and Federal Circuit was that the consumers are already licensed to use the discs and, as such, the alleged underlying direct infringement is actually a licensed use.

The court held, on summary judgment, that JVC is “barred from asserting claims of direct infringement against end users for use of Nero software with DVD and Blu-ray optical discs made or sold by a party whose products have been expressly released from claims of infringement by JVC with regard to the Patents.” The court held that, absent direct infringement, Nero cannot be liable for indirect infringement. . . . We affirm on that ground.

Fed Cir. Decision.

The district court also (alternatively) held that the licensed manufacture and sale of the discs exhausted the patent rights as to those discs.  On appeal, the Federal Circuit vacated that ruling – finding that the evidence was “sketchy.”  It appears to me that the court did not want to further confuse the exhaustion doctrine with this case and perhaps Judges Newman, Dyk, and Reyna could not agree on the correct formulation.


New Developments in ClearCorrect v. USITC

Guest Post by Sapna Kumar.  Prof. Kumar is an Associate Professor at the University of Houston Law Center, where she teaches patents and administrative law. Her most recent article, Regulating Digital Trade, discusses the ClearCorrect decision at length and is available on SSRN.

Some interesting developments have arisen this past week regarding ClearCorrect Operating, LLC v. USITC. In this case, the Federal Circuit will decide whether the ITC has jurisdiction over digital information (see Patently-O Archives for my previous post about this case).

The Suprema En Banc Opinion

The first development is the Federal Circuit’s en banc decision in Suprema v. USITC. Both parties in ClearCorrect will file supplemental briefs to discuss what impact Suprema has on their case.

Back in 2011, I argued in a law review article that the ITC should be entitled to Chevron deference when it determines whether an article infringes a valid and enforceable patent.  Prior to Suprema, the Federal Circuit had never granted deference to the ITC for a patent-related decision outside of dicta. In Suprema, the Federal Circuit belatedly steps on the Chevron bandwagon, granting the ITC deference for its interpretation of “articles that infringe.”

Although the Suprema decision affirmed the ITC, it nevertheless supports a reversal in ClearCorrect. The Suprema majority treats the terms “articles” and “goods” as interchangeable throughout the opinion. Black’s Law Dictionary, both at the time the Tariff Act was passed and at present, shows that “goods” generally refers to tangible property.

The four-judge dissent in Suprema was even more explicit, maintaining that “articles” refers to physical objects. This is notable, given that dissenting judges Prost and O’Malley are both on the ClearCorrect panel. Nothing from the majority’s decision will prevent the ClearCorrect panel from holding that “articles” are limited to tangible property.

Another notable feature of the Suprema decision is how the court chose to apply the Chevron test. Chevron has two steps. First, the reviewing court asks whether Congress has directly spoken to the precise question at issue. If Congress hasn’t, the court moves to Step Two, where it asks whether the agency’s answer is based on a permissible interpretation of the statute.

In most circuits, Step Two is relatively toothless, with just about any answer being treated as reasonable. The only notable exception is in the D.C. Circuit, where Step Two is a searching standard that is analogous to hard-look review. In Suprema, the court adopted an approach that is close to the D.C. Circuit, conducting a detailed review of the statutory text, policy, and legislative history of § 337. If this robust Step Two is applied in ClearCorrect, the ITC’s decision will be struck down due to liberties that the agency takes with the legislative history.

ClearCorrect Oral Argument

Also this week, a three-judge panel (Prost, O’Malley, and Newman) heard oral arguments for ClearCorrect.  The panel expressed concern about where to draw the line for electronic transmissions. The ITC’s attorney conceded that not all imports of information are under its jurisdiction, but was unable to tell the panel where the ITC believes the line should be drawn. The panel observed that the digital models in this case were not bought and sold in commerce, but were instead used to create molds that were then used to create plastic aligners.

Prost and O’Malley also scrutinized the ITC’s statutory interpretation. They noted that dictionary definitions from the 1920s seemed to support a much narrower interpretation than what the ITC was seeking.

My article Regulating Digital Trade was also discussed by the panel. Prost raised my argument that the Commission Opinion misquoted a key 1922 Senate Report. The Senate Report states:

The provision relating to unfair methods of competition in the importation of goods is broad enough to prevent every type and form of unfair practice.

The Commission Opinion quoted this language without the limiting phrase “in the importation of goods,” and failed to use an ellipses. Both Prost and O’Malley questioned whether the ITC’s position was still valid given the narrower language.

To date, the Supreme Court has never granted certiorari on a § 337 case. Given that the Federal Circuit is now grappling with important issues of jurisdiction, it may be time for the Supreme Court to get involved.

Patent Grant Rate by Technology Area


The chart above shows the USPTO patent grant rate across a variety of major technology areas. I apologize for the tightness of the lines, but there are several overall trends that are easy to discern.  In particular, the general trend reported last week – a drop in grant rate followed by a rise once Director Kappos took charge – is present in each of the major technology areas. In general, you will also see less variance between the technology areas in later years. It is unclear at this point if that coming-together is due more to USPTO practices or to applicant practices or some other unknown factor.

The major outlier in the group is electronic commerce patent applications.  Those applications continue to be granted at a rate of < 10%

Regarding the sources: The data primarily comes from the USPTO Chief Economist Alan Marco and his team [LINK].  For each year in the chart, I calculated the percentage of patent applications that were issued as patents (relative to the number disposed-of as either abandoned or issued).  Thus, a figure of 70% grant rate would indicate that, of the respective patents that were fully disposed-of during the given time period, 70% issued as patents and 30% were abandoned.  If an application is still pending at the end of the time period then it is not counted.  Likewise, the applicant’s filing of a continuation application before abandonment/issuance has no impact on the grant rate for the given year.  The technology categories here are linked to the NBER technology areas except for eCommerce that I coded (Class 705 and 701/467, corresponding to Art Units in the 3620’s, 3680’s, and 3690’s).  Of importance, the data here goes only through disposals made in September 2014.