US Government Volunteers to Pay for Infringement by Japan Airlines

by Dennis Crouch

The US Federal Government does not get a free-pass on patent infringement.  Rather, the Government’s unlicensed use of a privately held patent constitutes infringement and is actionable. However, Congress created a special court to hear the cases (the Court of Federal Claims), and implemented a number of restrictions on both the adjudication process and the substantive rights that all tend to favor the government as defendant.  See 28 U.S.C. § 1498.  Generally, patentees would prefer to litigate in Federal District court.

Further, Congress created a special indemnity that bars lawsuits against government contractors and others doing the work of the Government. Under the statutory indemnity, when a patented invention “is used or manufactured . . . for the United States [Government] . . . the owner’s [only] remedy shall be by action against the United States in the [US] Court of Federal Claims.” 28 U.S.C. § 1498(a).

In Iris Corp. v. Japan Airlines Corp. (Fed. Cir. 2014), the patent at issue basically covers the method of manufacturing an identification document (such as a national Passport) with an in-laminated RFID chip.  US Patent No. 6,111,506.  As required by US Law, Japan Airlines examines passports before allowing its passengers to board international flights leaving the US  The patent holder here is the Malaysian company Iris Corp. who competes in the market for this type of ID technology.

Iris sued in Federal District Court under 271(g) for using the electronic passports that had been made abroad (namely Japan) but in a manner within the scope of the patented claims.  In response, Japan Air and the US Government (as amicus) argue that the indemnity provision of Section 1498 eliminates both (a) the jurisdiction of the District Court and also (b) the liability of Japan Airlines.

Infringement Done for the United States: The legal question on appeal is whether’s Japan Airline’s alleged use of the patented invention was done “for the United States.” The statute spells out a partial definition of “for the United States” as being done “for the Government and with the authorization or consent of the Government.” In its 2009 decision, the Federal Circuit further explained that the infringement must be “for the benefit” of the US and that benefit may not be merely “incidental.”  Advance Software.  The court here finds that, under this framework, Japan Airline’s activities were done for the Government and thus the case falls under Section 1498.

Is Infringement Required?: A critically element of the court’s decision (in my view) was the court’s factual conclusion that “JAL cannot comply with its legal obligations without engaging in the allegedly infringing activities.”

At first this statements appears at odds with the reality that, although the law requires Japan Air to inspect passports, it does not require that the e-chip be used.  Rather, it appears that manual inspection without reliance on the e-chip is also fully acceptable under the law.  The US Government writes: “While there may be some ability for the airline to determine the best way to make the needed comparison, it may not decline to examine the passport.”

One way to reach the court’s conclusion that infringement is required is to recognize that the case is a 271(g) infringement action that would create liability for any use of a product made by the patented process even if the particular-use does not take advantage of the product benefits.  Under that theory, every US-inspection of an e-chipped-passport, regardless of how it is conducted and even if manual, constitutes infringement.

In addition to the fact that infringement was required by federal law in order to participate in the marketplace element, the court here also found it relevant that border security is a core role of the federal government and that Japan Air’s actions here are quasi-governmental. That finding led to the conclusion that the alleged infringement was done for the non-incidental benefit of the US.

Although in this case the US Government agreed that it should be the defendant, and important take-away from this decision is that the company infringing need not have any contractual relationship with the US Government or that the US Government be given any notice of the ongoing infringement.  Rather, under the law, a private company (her Japan Air) is able to decide to conduct its business in a way that infringes a patent but that only creates liability for the Government.

Next stop Court of Federal Claims?: One reason why the patentee sued in district court was that – at the time of the filing – it appeared that 271(g) actions could not be brought against the US under 1498.  The Federal Circuit changed that rule in Zoltek Corp. v. United States, 672 F.3d 1309, 1323 (Fed. Cir. 2012) (en banc).  One question is whether the long delay in filing in the CFC has tripped some statute of limitations for filing suit.

This case would be much more interesting (from my academic perspective) if Japan Air could carry out its required function without infringing, but had made the business decision to inspect the passports in a way that infringed.

The Number of U.S. Patents In Force

[Update: I found a small error in my data that will push the numbers up a little bit for the past decade (2003-2014). I will re-post the charts and data when this is corrected.]

by Dennis CrouchPatentsInForce

The chart above shows the number of patents in-force at any given point over the past forty years.  Each bar represents a snapshot taken on January 1* of the stated year and totals-up the number of issued but not-yet-expired patents.  The data for each year is divided-up into four groups categorized according to age (years-from-issuance).  You’ll note the growth in young patents and a temporary decrease in older-patents.  The decrease is due to primarily to the establishment of maintenance fees for patents whose applications were filed after December 1980.

There have been a number of studies on the growth of patent enforcement litigation in recent years and some use the number of issued patents in order to calculate a litigation rate.  The problem with that approach is that that the number of patents potentially available for lawsuits in 2014 are not simply the number of patents issued that year, but rather include all patents in-force during the relevant time.

To make the chart, I first found the expected expiration date of each US utility patent going back to the 1950s, taking account of the 1995 changes in patent term calculation and the addition of patent-term-adjustment.  Then, I pulled-in data from the maintenance fee payment system and identified patents that expired early for failure to pay the maintenance fees due. Patent applications filed prior to December 1980 were not required to pay maintenance fees. I also identified patents that were associated with a terminal disclaimer and shortened the term where appropriate.  To do this, I actually guessed at which parent-patent was the likely relevant term — generally using the one with an earlier expiry date — because the actual link is buried in the prosecution history files.  I also did not have data on terminal disclaimers associated with pre-1976 patents. Using an automated process, I went through each of these steps with each patent in order to identify the years where it was in-force.  I should note, however, that I did not account regulatory-approval related patent term extensions or the impact of litigation/reexamination/review/reissue.  Although those processes are very important for particular patent rights, they are very unlikely to impact the general statistics presented here. Mike Brown (Brown & Michaels) has a good overview on his informative website.

* The final bar (2015) is a snapshot for October 23, 2014 (the day that the data was collected).

Upcoming Events and Recent Job Postings

  • HOUSTON: November 5, 2014 – One night only. I will be delivering the University of Houston’s IPIL Annual Fall Lecture at the Four Seasons Hotel in Houston (Sponsored by the Katz Foundation). My talk will be on incentives (current and future) for patent clarity. [LINK]. Thank you to the University of Houston Law Center for hosting this event.
  • AUSTIN: November 6-7, 2014, I will be speaking at the Advanced Patent Law Institute along with Professors Golden (UT Austin), Lemley (Stanford), Wegner (formerly with GWU), and Hricik (Mercer); the Hon. Terry Rea and Randy Rader; Rob Sterne, et al.
  • NEW YORK CITY: November 6-7, 2014, the IP Dealmakers Forum [] is looking to connect investors with IP monetization experts.  Jay Walker, founder of will serve as keynote. Other speakers include dealmakers from Acacia, American Express, Cantor Fitgerald, Evercore, Fortress Investment Group, Interdigital, IP Navigation Group, Qualcomm, Marathon Patent Group, and Vringo . Patently-O readers get a $200 discount with code: PATO200.
  • SILICON VALLEY: December 3-5, 2014, IQPC’s Global Patent Strategies Summit [] will focus on patent strategies for litigation, prosecution and portfolio management.  Patently-O readers get a 25% discount with code: GPS_POBD.
  • VAIL: January 7-11, 2015, I will be part of the faculty for the Intellectual Property Program of the National CLE Conference in Vail, Colorado.  [].  The Conference include eight different subject-matter tracts and obviously reserves substantial time for enjoying the Colorado Rocky Mountains. Patently-O readers get a $100 discount using the code: FACULTYINSIDER.
  • While you are clicking links, take time to visit the site Patently-O’s longtime sponsor: MBHB and also Juristat.

Job Postings from the past week on Patently-O Jobs:


Sorting Out Sections 284 and 285

By Jason Rantanen

Halo Electronics, Inc. v. Pulse Electronics, Inc. (Fed. Cir. 2014) Halo v Pulse
Panel: Lourie (author), O’Malley (concurring opinion), Hughes (joining concurrence)

This opinions contains two important parts: a discussion of 271(a) in the context of multi-national transactions and Judge O’Malley’s concurrence on the issue of willful infringement.  I’ll write more about the 271(a) issue in a separate post, but for now I wanted to focus on the points Judge O’Malley raises.

In this case, Halo accused Pulse of willfully infringing its patent, thus paving the way for enhanced damages under 35 U.S.C. § 284.  That statute reads in relevant part:

When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154 (d).

The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.

Under longstanding Supreme Court precedent, enhancement of damages under this provision requires either willful or bad-faith infringement.

In countering the infringement claim, Pulse argued that the asserted patent was obvious.  Ultimately, the jury rejected Pulse’s argument and found that the “it was highly probably that Pulse’s infringement was willful.”  Slip Op. at 7.  However, both the district judge and the Federal Circuit panel concluded that Pulse’s obviousness defense was not objectively unreasonable, thus precluding a finding of willfulness under In re Seagate‘s two-prong approach (which contains both objective and subjective components).

While concurring as to the panel outcome, Judge O’Malley (joined by Judge Hughes) wrote separately to issue a public call to “the full court to reevaluate our willfuness jurisprudence in light of the Supreme Court’s decisions in Highmark and Octane Fitness.

Judge O’Malley’s concurrence first notes the linking of the standards for exceptional case and willful infringement.  Under Federal Circuit precedent, the test for willful infringement under § 284 parallels that for exceptional case determinations under § 285.  The court has stated this explicitly: “The objective baselessness standard for enhanced damages and attorney’s fees against a non-prevailing plaintiff under Brooks Furniture is identical to the objective recklessness standard for enhanced damages and attorneys’ fees against an accused infringer for § 284 willful infringement actions under [Seagate].”  iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1377 (Fed. Cir. 2011).

This linkage leads Judge O’Malley to three observations:

1) Both the test for willful infringement and the test for exceptional case determinations were based on the Federal Circuit’s interpretation of Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993).  But, in Octane Fitness, the Supreme Court rejected the Federal Circuit’s interpretation of PRE in the exceptional case determination contextIf the two tests are truly in parallel, then the Federal Circuit should revisit the test for willful infringement.

2) The evidentiary standard for willful infringement should also be revisited. “In Octane Fitness, the Supreme Court also rejected the requirement that patent litigants establish their entitlement to attorneys’ fees under § 285 by ‘clear and convincing evidence’.  Id. at 1758.  As we used to do for attorneys’ fees, we currently require patentees to prove willfulness by clear and convincing evidence. See Seagate, 497 F.3d at 1371. As the Supreme Court explained in Octane Fitness, however, the ordinary rule in civil cases, and specifically patent infringement cases, is proof by a preponderance of the evidence.”  Concurrence at 4.

3) The Supreme Court also rejected a de novo standard of review for exceptional case determinations in Highmark.  This is important because, although Judge O’Malley doesn’t directly state it, the “objective” prong of willful infringement is currently treated as a question of law, meaning that it is reviewed under a de novo standard.  If the two standards are truly parallel, this is inconsistent with Highmark.

Finally, under both §§ 284 and 285, “the court” is the entity that makes the determination.  However, the Federal Circuit’s caselaw currently sends some issues of willful infringement to a jury.  In Judge O’Malley’s view, whether this is actually correct as a statutory matter should also be addressed by the court en banc.


I’m largely in agreement with Judge O’Malley.  Like the judge, I see a tremendous tension between the existing willful infringement caselaw and Octane Fitness/Highmark that flows from the treatment of §§ 284 and 285 as being in parallel.

I also think the history here is important – and my sense is that much of the mucky precedent in this area actually comes from the just the last decade.   One important piece of context to keep in mind is the totality of the circumstances analysis that comes after the threshold determination.  Attorney’s fees and enhanced damages are not a binary question, but rather a multi-step inquiry where the initial determination is just the first part.

Supreme Court: A Good-Faith-But-Incorrect-Belief that the Patent is Invalid

by Dennis Crouch

Someone who induces infringement is just as liable for infringement as the one who actually commits the underlying act of direct infringement. 35 U.S.C. § 271(b).  However, unlike direct infringement, inducement has a substantial mens rea or scienter requirement that the inducer knew at-the-time that the induced conduct would infringe the particular patent. In Global Tech (2011), the Supreme Court held that the knowledge element can be satisfied by proof that the inducer was willfully blind to the risk of infringement.

In Commil v. Cisco, the Federal Circuit addressed a slightly different question — and that question is now pending before the US Supreme Court:

Does an inducer’s good faith belief that a patent is invalid negate inducement liability?

One way to think about this is to go back to Global Tech and ask what the Supreme Court meant when it said “infringement.”  Was the Court referring only to the elements of proving direct infringement under 271(a) or instead was the Court referring more generally to infringement liability.  While 271(a) is a narrower concept that generally ignores validity issues, the broader concept of infringement liability draws-in defenses that may be available such as invalidity or unenforceability.

An important consideration here is that this good-faith-belief of invalidity is only critical for the discussion if it turns out that the asserted claims are actually valid and enforceable. So, we’re really talking about a good-faith-but-incorrect-belief that the claims are invalid. In this type of situation, I worry about the generation of self serving evidence that fall under the CYA/BS classification.

In any event, the Federal Circuit panel here ruled that “evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.”  [See Rantanen on Commil]. The patentee (Commil) then petitioned for Supreme Court review and the Court asked for the views of the US Government.

In its newly filed amicus brief, the US Goverment (through the Solicitor General) has agreed with the patentee that the Federal Circuit is wrong and that the accused’s invalidity belief is irrelevant to the question of inducement liability.

This Court should grant Commil’s petition for certiorari (No. 13-896) with respect to the first question presented. The court of appeals erred in holding that a person who knowingly induces another to engage in infringing conduct may avoid liability under Section 271(b) by demonstrating that it had a good-faith belief that the infringed patent was invalid. This Court’s review is warranted to prevent defendants from avoiding inducement liability on a ground that is inconsistent with the text, structure, and purposes of the relevant Patent Act provisions.

In its analysis, the SG basically walks through the statute (that separates the notion of infringement from invalidity defenses) and the key cases of Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964) (Aro II) and Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011).  In particular, with Aro II, the patentee had mailed a pre-suit notice letter to the defendant and the Supreme Court in that case seems to have treated that communication as conclusively satisfying the mens rea requirement.

Commil’s petition included a second question and Cisco also submitted its own question – both of these involved the necessity and propriety of ordering a new trial.  The US Government amicus brief recommend that neither of those questions be reviewed.

Read the USG amicus brief here.


Considerations for International Inventions – Foreign Filing Licenses

Guest Post by Brent M. Dougal and Philip M. Nelson.  Dougal and Nelson are IP Attorneys with Knobbe Martens Olson & Bear LLP.

In today’s age of international commerce, product development often takes place on an international scale.  Many companies have design centers in multiple countries, with design teams that span the globe.  What are the patent implications if an invention is developed in China or some other country outside the U.S. and the company wants to obtain international patent protection?

U.S. law requires that inventors obtain a “foreign filing license” before filing foreign patent applications on inventions that occur in the U.S.  This allows the government to assess, for example, whether the technology could threaten U.S. national security.  Some other countries such as Spain (Article 119-122), Italy, and India also require foreign filing licenses for inventions developed domestically but for which foreign patent protection is sought.  In countries that provide foreign filing licenses, these licenses generally do not issue quickly or efficiently.  Thus, it is advisable to file first in the country of invention to avoid the delay and difficulty of obtaining the foreign filing license. (The US and Canada are notable exceptions to this general rule.)

By contrast, other countries, such as China (Article 20) and Vietnam, have no provisions for obtaining a foreign filing license. These countries require that patent applications on domestic inventions be filed first domestically.  In China, domestic inventions include all inventions occurring in China, whether or not funded by a foreign company.  Failure to file in China may lead to invalidity of a corresponding Chinese application and criminal penalties if the invention relates to security or other vital state interests.  One way a U.S. or English-language company can deal with this requirement is to file a Patent Cooperation Treaty (PCT) application in English with the Chinese Patent Office as the PCT receiving office.

Canada has one of the most unique foreign filing laws.  There a foreign filing license is only required—and indeed, only available—if the inventor is an employee of the Canadian government. Instead of review by a separate government entity as in the U.S., Canadian government employees must obtain permission of the minister of his or her department.

Other countries, including the U.K. and Germany, have limited restrictions related to national security and military applications (requirements for EPO countries can be found here).  Thus, a foreign filing license is only required for select technologies.

The table below summarizes many of the current restrictions, breaking down the listed countries into four main groups:


Foreign Patent Filing Restrictions


Limited to National Security and Military Applications

License Required 

First Filing Must be Domestic


Argentina, Australia, Austria, Brazil, Hong Kong, Indonesia , Ireland, Japan, Liechtenstein, Mexico, Monaco, New Zealand, Philippines, Poland, Portugal, South Africa, Sri Lanka, Switzerland, Taiwan, Thailand, Venezuela

Belgium, Czech Republic, Denmark, Finland, Germany, Israel, Korea, Luxembourg, Netherlands, Slovak Republic, Sweden, United Kingdom

Canada1, France2, India, Italy, Malaysia, Singapore, Spain, United States

Belarus, China, Cyprus3, Greece3, Hungary3, Kazakhstan, Russia, Vietnam4

1 Only required for government employees.

2 Only applies where inventors are French nationals or the company’s principle place of business is France (Article L. 614-18, 614-20). A European patent application can also be filed as the first filing without obtaining a foreign filing license.

3 First filing must be domestic where inventors are nationals (and in some cases permanent residents).

4 Also requires Vietnamese inventors without an obligation to assign to file first in Vietnam.

Though only a limited number of countries have foreign filing restrictions, those that do include many significant markets, not to mention the world’s most populous countries.  As companies continue to expand internationally, their attorneys will need to take an international perspective.  In order to preserve international rights, attorneys should explore inventorship and the foreign filing laws of the country of invention early on in the disclosure and application preparation process.


This discussion is provided without guarantees and is not to be considered legal advice. We highly recommend seeking legal counsel in the country of invention.  The information has been compiled with the assistance of foreign associates from various countries, with some independent verification.

Any invention which may have a military application or could be considered important to national security is likely restricted not only by a country’s patent laws, but also by export laws, which are not addressed here.  We highly recommend seeking legal counsel in the country of invention.

Proving Non-Obviousness with Ex-Post Experimental Evidence?

by Dennis Crouch

The Federal Circuit has rejected BMS’s petition for en banc rehearing in its chemical compound obviousness case. However, four additional opinions either concurring or dissenting show that the court does not speak with one-mind on the issue. Obviousness is the central patentability doctrine and thus, even small modifications to the doctrine can have important systemic impacts. En Banc Denial Opinions.  The patent in question – if valid – is worth hundreds of millions of dollars and so we can expect a petition for writ of certiorari to the Supreme Court.

In Bristol-Myers Squibb Company v. Teva Pharmaceuticals USA, Inc., the Federal Circuit panel affirmed a lower court finding that BMS’s patent covering the Hep-B drug entecavir is invalid as obvious. Patent No. 5,206,244. Judge Chen drafted the original opinion that was signed by Chief Judge Prost and Judge Plager.  Prof Rantanen covered the original decision here.

The obviousness approach for newly invented chemical compounds typically involves identifying the closest analog compound (lead compound) and then determining whether it would have been obvious to create that new compound based upon the lead prior art.  Here, the basic holdings of the Federal Circuit were: (1) affirming that “those of ordinary skill in the art would have selected 2′-CDG, a carbocyclic analog, as a lead compound for further development efforts;” (2) affirming that the same PHOSITA would have been motivated to modify the lead compound; and (3) holding that the secondary indicia of non-obviousness were insufficient to transform the obviousness determination.

In its petition for rehearing, BMS presented two primary arguments:

  • That the court improperly refused to consider post-invention discoveries regarding the invention and prior art that showed significant differences between the two.  In particular, the appellate panel found it irrelevant that the lead-prior art compound is highly toxic to humans since – at the time of the invention – the compound was generally regarded as safe.
  • With regard to objective indicia of non-obviousness – that the court improperly separated the analysis on a property-by-property basis (finding each merely difference-in-degree) rather than looking at the alleged dramatic (difference-in-kind) impact of the drug when considered as a whole.

In his opinion discussed below, Judge Taranto sets the stage:

In short, the Bristol-Myers compound, which is a novel molecule, is dramatically different from the prior-art compound in providing practical human benefits: one provides such benefits, the other does not. But that difference was identified only after Bristol-Myers filed for its patent, because the prior-art compound, not having been tested in animals or humans, was not then known to be toxic.

A number of Amici supported the petition, including BIO, Pfizer, Eli Lilly, PhRMA, IPO, and Merck.

The basic issue here is that pharmaceutical companies regularly perform tests to compare their newly-invented drug treatment to the prior art in order to prove that the two are quite different.  However, as a general matter, those tests are performed after the invention and application is already on file.  The companies then have a major concern that this decision will deny the relevancy of those objective but ex post results.

The trouble for the patentee in this case is the statute — that expressly calls for considering what was known by PHOSITA at the time of the invention (pre-AIA; in future we the time is at the effective filing date of the patent application).  Under the statute it seems that post-filing information should only be relevant to showing what PHOSITA would have been thinking back at the critical date.

Although the entire court did not explain its reasons for denying the rehearing, Judges Dyk (joined by Judge Wallach) and Judge O’Malley wrote separate opinions concurring in the denial.

Judge Dyk:

This case presents a question of obviousness, in particular whether evidence postdating the invention can be used to establish unexpected results. The panel holds that it cannot be considered in the circumstances of this case. That position is correct. It is mandated by the statute, which provides that an invention is not patentable if it “would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains.” 35 U.S.C. § 103 (emphasis added).

The patent applicant’s discovery of unexpected results at the time of the invention can help to establish that the invention would not have been obvious to another skilled person. But hindsight bias must be avoided in determining obviousness. And under longstanding Supreme Court authority, the pertinent knowledge is that possessed at
the time of the invention.

You will note that Judge Dyk cites the new-103 rather than pre-AIA 103(a), but that does not significantly change the point he is making here.

Judge O’Malley:

I write to assuage Bristol-Myers Squibb Co.’s (“BMS”) and the amici’s1 fears that this panel decision has rewritten the test for obviousness for pharmaceutical patents. In my view, the concerns expressed are unjustified and mischaracterize the opinion. This case does not forge new ground or set down immutable principles. It simply decides that, on the record before it, the district court did not err in finding the asserted claim of the ’244 Patent invalid as obvious. . . .

Our case law clearly allows the consideration of later discovered differences between the prior art and the invention. . . . These differences inform the obviousness analysis and thus can be considered when assessing what was understood by one of skill in the art at the time of the invention and what expectations may have been reasonable. . . . Like all evidence of objective indicia, the point of considering later-understood evidence regarding the properties
of the invention is to guard against hindsight bias by assessing claims of a motivation to combine as of the time of invention in light of later surprises or developments.

Judge Newman dissented from the denial with an opinion joined by Judges Lourie and Reyna.  Judge Newman, inter alia, walks through the lengthy list of cases that where ex post evidence was relied upon to prove non-obviousness and sees the panel decision here as a major departure.

Judge Taranto’s dissent basically argues that the panel decision was sloppy and, because it can be read in the extreme way suggested by the petitioner, that it should be modified.

The Vast Middle Ground of Hybrid Functional Claim Elements

FunctionalClaimsby Dennis Crouch

In Robert Bosch v. Snap-On (Fed. Cir. 2014), the Federal Circuit has held that two different claim elements “lack sufficiently definite structure” that must be interpreted under 35 U.S.C. 112(f) as means-plus-function elements and, because corresponding structures were not sufficiently disclosed in the patent document (as required by 112(f)), the associated claims were held invalid as indefinite.  Here the claim elements in question are a ‘program recognition device’ that plugs into a car motor to see if its control software is out of date and also a ‘program loading device’ that updates the control software if necessary.  U.S. Patent No. 6,782,313.

Functional claim limitations are in vogue.  Part of the reason is that the current generation of computer-focused engineers have been trained in an object oriented approach that discusses solutions more in terms of results than in detailed algorithmic steps.  That approach makes it easier to create new tools and devices by relying upon the building blocks created by others.  But, the carryover to patent law remains somewhat tenuous.

Functional claim terms also offer a mechanism for achieving broader claim coverage and claim coverage that is more aligned with the scope of potential competitor activities and follow-on innovation.  The use of functional language for that purpose has a century-long history in U.S. patent law and has been much debated at all levels, including the U.S. Supreme Court.

When the Supreme Court discussed the topic in its landmark 1946 decision of Halliburton v. Walker, the Court described functional claim terms as those that focus on results – “what it will do” – and not on the actual physical implementation.  In Halliburton, the court held:

A claim which describes the most crucial element in a “new” combination in terms of what it will do, rather than in terms of its own physical characteristics or its arrangement in the new combination, is invalid.

Id. The result in Halliburton was that the claim was found invalid under as indefinite because the functional language there (an “echo receiving means”) did not provide sufficient notice of the scope of patent rights.

The Patent Act of 1952 left intact a strong definiteness requirement but overturned Halliburton by enacting what is now known as 35 U.S.C. 112(f).  That provision expressly allows for an element to be claimed as a “means” for performing a “specified function” but without actually specifying the physical characteristics of how it works.  However, 112(f) has an important and significant limitation that cabins-in the scope of any such means limitation to only cover corresponding embodiments described in the patent document, and their equivalents.

(f) Element in Claim for a Combination.— An element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof.

A second limitation on 112(f) is the court interpretation that purely functional claim elements that are not physically described in the specification are deemed indefinite and the corresponding claim invalid.

US patent attorneys have taken notice of these legal limits on means-plus-function claiming and have largely abandoned the form. Twenty years ago, most patents included claim terms written in means-plus-function form. Today, that figure is under 5%.  But the strategy for many does not eschew functional claim elements, but rather to integrate functional limitations together with structural limitations with the result being broadly defined claim elements that avoids the limitations of 112(f).

The Big Middle Ground

Partially Functional Elements: The rules are clear for claim elements written in purely functional terms  such as a ‘means for communicating’ without any claimed physicality. However, there exists a vast middle-ground for claim limitations that include some functionality and some physicality.  These might include a ‘circuit for communicating’ or – as in the recent Bosch Case – a ‘program recognition device.’

In Robert Bosch v. Snap-On (Fed. Cir. 2014), the Federal Circuit has affirmed a lower court determination that two different functional claim elements are indefinite and thus that the associated claims are invalid.  The patents relate a motor vehicle software-update tool.  The claims include a ‘program recognition device’ that plugs into the motor control unit to see if the software is out of date and also a ‘program loading device’ that plugs into the motor control unit to upload new software. Easy enough.    But, the specification includes no diagrams and no real structural detail about these ‘devices.’

The Federal Circuit has a fairly straightforward algorithmic approach to functional claims elements. The first step it to determine whether the element qualifies as “functional” and, if so, interpret the limitation under the rubric of Section 112(f).  For the court, a functional claim element is one recites a functional limitation without “reciting sufficient structure for performing that function” or that fails to “recite sufficiently definite structure.” EnOcean GmbH v. Face Int’l Corp., 742 F.3d 955 (Fed. Cir. 2014). The court also uses a linguistic shortcut — claim elements drafted in the form “means for [performing a specified function]” are also presumed to be functional.   Similarly, elements that do not use the word “means” are presumed to be structural.  Importantly, Federal Circuit precedent indicate that these presumptions are “strong.” See Lighting World, Inc. v. Birchwood Lighting, Inc., 382 F.3d 1354 (Fed. Cir. 2004).

Here, although the terms were not claimed in “means” form, the court found that they lacked structure and therefore were functional.  In walking through its analysis, the court first looked at the claim words ‘program recognition device’ and ‘program loading device’ and found no structure other than the ‘nonce’ word device.  Then, looking at the specification, the court found:

[The] ‘313 patent’s specification does not contain a single reference to the structure of the “program recognition device” itself; all of the proffered citations from the specification merely explain its function. For example, the statement that the external diagnostic tester is “equipped” with the “program recognition device” that “querie[s] and recognize[s]” program versions in the control unit is nothing more than a functional description. This passage is devoid of structure. Likewise, the passage that explains how the external diagnostic tester uses the “program recognition device” to automatically check which program version is currently on the control unit only describes the connection of the external diagnostic tester to the control unit in the vehicle. The specification is, therefore, also silent about any interaction between the “program recognition device” and other components of the system, including the external diagnostic tester. Contrary to what Bosch contends, the specification does not teach how the “program recognition device” receives and processes signals, as the words “signal” and “process” are not even in the specification. . . .

Because the claim terms lack structure, the court determined that they fall under the rules of 112(f) [112p].

The claim terms, construed in light of the specification, fail to provide sufficiently definite structure to one of skill in the art. The claim terms “program recognition device” and “program loading device” invoke § 112, ¶ 6.

The problem for Bosch in this case is that the same analysis of the specification above also supports the conclusion that the claimed function lacks structural description in the specification. And, as a result, the court found the claims invalid as indefinite.

Since we have concluded that both claim terms invoke § 112, ¶ 6, we now must attempt to construe the terms by identifying the “corresponding structure … described in the specification” to which the claim term will be limited. Welker Bearing Co., 550 F.3d at 1097. “If there is no structure in the specification corresponding to the means-plus-function limitation in the claims, the claim will be found invalid as indefinite.” Biomedino, LLC v. Waters Techs. Corp., 490 F.3d 946, 950 (Fed.Cir.2007). On this point, however, little needs to be said. Bosch did not argue to this court that, even if the claim language at issue is within § 112, ¶ 6, the language is definite because the specification sufficiently discloses corresponding structure. See Appellant’s Br. 51–52. And we also see no such disclosure.

Indeed, as already discussed in Part III.B, in the limited number of instances that the specification even mentions these claim terms, it offers no further guidance about their structures. Therefore, we conclude that “program recognition device” and “program loading device” are indefinite. Since these terms are found in the only independent claim of the ‘313 patent, we conclude that all claims in the ‘313 patent are invalid.

An important element of the court’s analysis here is that it is all seen as a question of law reviewed de novo on appeal. Thus, although the appellate panel largely agreed with the lower court’s original decision in this case, that decision was given no deference in the analysis. Further, the strong presumption of validity requiring clear and convincing evidence was also entirely ignored here because that evidentiary requirement is directed toward questions of fact not questions of law.

A second important and interesting element of the court’s decision here is that it does not cite the Supreme Court’s most recent foray into indefiniteness – Nautilus v. BioSig (2014) (requiring reasonable certainty).  Likewise, the court did not cite Halliburton. In fact, the court has not cited Halliburton for almost 20 years and it has never cited the case other than to criticize the decision or indicate that it has been legislatively overruled by 112(f).

The case here is also in tension with those cited above: EnOceanLighting World, and Inventio. however, the court here took steps to distinguish those cases based upon the ‘fact’ that Bosch’s patent application failed to provide structure in the specification to guide one skilled in the art in understanding the ‘device’ limitation.  In the other cited cases, the specification included examples and diagrams sufficient to transform the seeming ‘nonce’ words into ones with structural meaning.

What will be interesting here will be to see whether this case is the beginning of a movement in a new direction.  This case’s path to the Supreme Court is most likely if the Federal Circuit first grants an en banc rehearing request.

Another Prosecution Bar Case, but With a Twist

As I’ve pointed out elsewhere here, the adoption of the AIA has created various issues for existing prosecution bars: if you are using a pre-AIA form, consider whether it applies to the new post-grant proceedings.  Courts are splitting on whether bars that don’t mention them can, or should, apply.  My article on the broad topic of prosecution bars is here.

In this recent case, Voice Domain Techn. LLC v. Apple, Inc. (D. Mass. Oct. 8, 2014), the court faced a couple of unique circumstances, while also addressing whether post-grant proceedings were “competitive decision-making” within the meaning of prosecution bars.  Specifically, the patentee was essentially a one-man company and that one man was also the named inventor on the patents-in-suit.  Apple sought to exclude him from having access to key information, asserting that, no matter his best intentions, he would at least likely inadvertently misuse the information.  Apple asserted that his involvement in licensing, patent acquisition, and prosecution all made inadvertent disclosure possible.

The court agreed, holding that, though not doubting his integrity, “it questions whether it is possible to avoid the subconscious use of Apple’s confidential material in his future endeavors.”  Thus, as a competitive decision-maker he was subject to a bar unless Voice Domain showed that the prejudice to it of a bar outweighed any potential harm.  The court found it did not, concluding that because trial counsel and experts could have access, this outweighed the potential harm.

That aspect of the case — the sole-employee patentee — is fairly rare in my research, and this case discusses a few other similar cases.

The case addresses various other issues, but whether reexamination and other post-grant proceedings should be covered was a key issue. The court held that although courts had usually held reexamination proceedings were not subject to a prosecution bar, “a newer line of cases recognizes that even in a reexamination proceeding, a patent owner can use confidential information to restructure or amend its claims so as to improve its litigation position against alleged infringers.” (citing several cases from 2013 and 2014). The court adopted the approach of these more recent cases, but entered an order that allowed for court permission for counsel to participate.

Takeaways:  (1)  don’t assume post-grant proceedings are covered, or not, by a bar and make it clear; (2) be sure that any of your lawyers who are subject to a bar comply with it and (3) figure out who on the other side needs to be barred.  As my paper points out, with respect to that last point, some courts hold that the party seeking the bar has to show that a lawyer on the other side is likely engaged in competitive decision-making; that is not practicable.  Finally, and again, double-check any old form and be sure you update it, as appropriate.

How is Patent Litigation like Baseball?

By Jason Rantanen

I’m a moderately-dedicated baseball fan*, so I’ve been listening** to quite a few baseball games over the past few weeks.  And as I’ve been listening to the games, it’s struck me that in many ways, patent litigation is a lot like a baseball game well beyond the Cubs reference.  Both are a game of one against many on a field where the participants operate under asymmetric rules.  For both, too, the individual success rate in an active contest isn’t all that high.

One of the most distinguishing aspects of baseball is the challenge an individual batter faces in actually achieving a positive result at the plate.  Most of the time, players don’t actually get a hit; a batting average of over .300 is considered exceptional.  This statistic has sparked the idea that baseball is a game of failure: there are numerous references to even the greatest baseball legends being failures 7 times out of 10.  Even when other measures of success are taken into account (such as drawing a walk), it’s still the case that most of the time a batter will make an unproductive out.

But, as other folks have pointed out, a batter’s performance is not so much a question of the individual triumph (or failure) of the batter; rather, it is a contest between the batter and the pitcher.  When the batter loses, the pitcher wins.

Or more accurately, when the batter loses, the other team wins.  This is a large part of what makes baseball so fascinating to me: it’s a lone batter facing off against a whole squad of nine opponents.  One against many.  Even the best players in the world are still the underdog here: Ted Williams, the all-time leader in getting on base, did so about 48% of the time over his career.

So too in patent law.  A patent holder is only one against many.  True, like a batter, the patent holder has an advantage: the patent, with its presumption of validity.  But there is only one patent holder and there is a whole world of potential infringers.  Including many creative, knowledgeable, and smart players who can develop arguments and theories and ideas that the patent holder could never have anticipated.

The end result is that perhaps we shouldn’t be all that surprised when patent holder success rates in infringement litigation tend to look a lot like batting averages.  Added to the challenge of one patent holder against many possible infringers is the difficulty of actually winning a patent suit: there are a multitude of possible validity challenges that an alleged infringer might raise and the patent holder must win on them all – and prove infringement – in order to prevail.   As in baseball, patent infringement litigation is an asymmetric contest with different rules for the batting team and the fielding team.***

None of this is to discount the very real challenges that our patent system faces, particularly when it comes to anything other than substantive merits determinations by a court.  We don’t really have a good sense from an empirical standpoint about the nature of post-filing settlements, let alone those that occur prior to the filing of the complaint.  And none of this should suggest that patent litigation is working as optimally as it might; it’s still extremely costly, complex litigation and there’s always room for improvement in patent law.  But thinking of patent litigation as akin to a baseball game also might help to put the Allison/Lemley/Schwartz study I posted about earlier this week in some context.

*By which I mean that I watch a fair number of Giants games via MLB TV, listen to many more, and have been to a dozen games or so over the last seven years.  Of course, it’s easy being being a fan when the team you follow makes it to the World Series three times out of the past five years…

**A cost of getting rid of cable tv is that one can only listen to postseason baseball games that are currently being played.  Which is actually my preferred way to follow the game.  Except for the constant repetition of political advertisements directed at a state in which I do not live.

***There are another analogies I could draw, such as the role of money in paying for players in the game.  Of course, that didn’t work out to well for the Dodgers this year…

Also, at some point the analogy stops working; a baseball game in its entirety is not all that asymmetric.  The team that bats will get its turn in the field.  The team that fields will get its turn at bat.  The analogy works best when talking about batting success.

Director Michelle Lee

The White House has announced President Obama’s plans to nominate Michelle Lee for the position of Undersecretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office.  Although Lee is already the de facto Director of the office, this move has important political implications because it will help to better ensure both USPTO autonomy and USPTO influence within the Beltway.  Congratulations to Michelle Lee and the Patent Office on this important move forward.

It was almost one year ago that Michelle Lee was appointed as deputy director and de facto director.  At the time, I praised the selection of Lee, but questioned both the legality and the wisdom of appointing a prominent deputy director while leaving the slot of director still vacant.   Because of legal limitations, Lee has not be identified as the “Acting Director” but only “acting as Director.”

Part of the willingness of the White House to now appoint Lee may have come from the country’s new Chief Technology Office Megan Smith who is a former Google executive. (Lee led Google’s patent strategy for a decade).

Up to now, Lee has largely followed the lead set by former Director Kappos and Acting Director Rea. The unanswered question is whether the new role will now embolden and empower Lee to shift USPTO policies in a new direction.


Guest Post by Prof. Shubha Ghosh: Are South African Yellow Canaries a Question of Law or Fact?

Guest Post by Professor Shubha Ghosh.  Prof. Ghosh is the Vilas Research Fellow & George Young Bascom Professor in Business Law at the University of Wisconsin Law School, where he is also the Associate Director of the Initiatives for Studies in Transformational Entrepreneurship (INSITE).  

I was fortunate to be able to attend oral argument in Teva v Sandoz before the Supreme Court on October 15. At issue was a highly technical issue at the intersection of civil procedure and patent law: Is the standard of appellate review for patent claim construction de novo or clearly erroneous? The Justices’ engagement with this dry, but fundamental, question extended from hypos about bus crashes and South African Yellow Canaries (don’t ask) to elusive distinctions between facts and law in construing scientific terms like “average molecular weight.”

While the discussion was lively, the big question of what is the appropriate methodology for claim construction was avoided. The Federal Circuit presumably answered that question in Phillips v. AWH, but the Supreme Court has never addressed that issue. Even a lively oral argument cannot cure the failure to address claim construction methodology. I will address that problem at the end of this post after setting forth these highlights.

(1) Justice Alito stated the issue as one of whether a patent is analogous to a statute (for which there is no deference to legislative facts) or to a private contract (for which there is deference on factfinding).  That may be just restating the question, but gives some indication on how some of the justices are approaching the matter. The question of right analogy is a bit of a red herring. Which analogy you choose depends on how you view the mix of law and fact in patent claims.

(2) Justice Roberts came out clearly, from my listening, on the side of patent as statute and emphasized the importance of uniformity (and implicitly the need to avoid forum shopping).  Go Federal Circuit!  Justice Scalia was hard to read although he did make a comparison between a patent and a deed. Also, given his opinion in Medimmune in 2007, he may come out on the side of a patent as a statute.

(3) Justice Breyer came out on the side of 52(a) and pushed back on Sandoz’ argument that the Court had already resolved the question of deference in Markman by concluding that claim construction is a matter of law. Justice Ginsburg pointed out the different context of the 7th Amendment in Markman. I think there were at least four Justices (Breyer, Ginsburg, Kagan and Kennedy) who seemed to be skeptical about special rules regarding fact finding for Markman hearings (which is one way of phrasing Sandoz’ argument). In addition, Justice Scalia’s strict constructionism would lead him to agree with Justice Breyer. Justice Sotomayor’s questions were more searching, but indicated some skepticism with Sandoz’ position.

(4) Even when there was sympathy for the Teva argument, there seemed to be some pushback on how to separate subsidiary facts from legislative facts (a big distinction for Teva and for the SG).  I did not find a completely great answer although the SG brief and argument came close to a methodology for parsing facts.

Based on this reading of the oral arguments, I would predict a victory for Teva on the 52(a) issue with Justices Breyer, Ginsburg, Kagan, Kennedy and possibly Scalia or Sotomayor voting for a reversal. The open question is how to distinguish facts and law in patent claims. This question may just be left for another day.

Looming in the background of this case is the issue of how claim construction should be done. Although Philips offers the accepted methodology (and one that seems to have reduced the reversal rate on claim construction by the Federal Circuit), the Supreme Court has neither endorsed the decision nor addressed how district courts should construe claims. But the law/fact question is intimately connected with the methodology of construction.

Treating claim construction as purely a question of law is consistent with the plain meaning approach to construing claims, as endorsed by the Philips decision. The more courts rely on sources other than the words of a claim, such as prosecution history or expert witnesses, the more fact-based claim construction becomes. It is no coincidence that Teva in its arguments emphasized the role of experts and prosecution history in construing the meaning of “average molecular weight.” A ruling in favor of Teva would suggest that claim construction relies more heavily on factors extrinsic to the language of the claims, a position different from the plain meaning approach of Philips.

Of course, the ruling in Teva will just be the start and perhaps the first step in the Supreme Court examining claim construction methodology head on.


Teva v. Sandoz and Claim Construction Deference

By Dennis Crouch

In Teva v. Sandoz, the Supreme Court is focused-in on the appellate rules that should apply to claim construction decisions. Namely, if a district court makes factual conclusions that underpin a claim construction determination, should those factual conclusions be given deference on appeal or instead reviewed de novo on appeal. The Federal Circuit’s practice is to follow the latter approach while Federal Rule of Civil Procedure 52(a)(6) suggests the former.

The issue as presented to the Supreme Court:

Whether a district court’s factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires (and as the panel explicitly did in this case), or only for clear error, as Federal Rule of Civil Procedure 52(a) requires.

Here, the district court may several explicit factual findings, including resolution of conflicting expert testimony regarding how a figure should be interpreted and how one of ordinary skill in the art would understand the term “average molecular weight” in the context of size-exclusion chromatography.  These findings served as precursors to the lower court’s ultimate clam construction determination. On appeal, the Federal Circuit expressly reviewed and rejected those determination — but gave them no deference in the appeal. I should note here that there is disagreement about what should count as a factual finding — the PTO suggests that anything that relies at all upon patent or prosecution related documentation is legal textual analysis and not fact finding. Teva agrees that deference should be reserved to “classic fact­finding,” but that would include factfinding that also draws some inferences from patent documents in conjunction with other evidence.

The Supreme Court recently heard oral arguments, and the transcript is available online. In the case, Rising Star William Jay of Goodwin Procter argued for the patentee Teva who won at the district court but lost on appeal at the Federal Circuit. Carter Phillips of Sidley argued for Sandoz and Ginger Anders represented the Solicitor’s Office as Amicus.

Much of the of debate focused on the best analogy for patent claims — should they be interpreted as we interpret statutes (fully de novo review)? Or should they instead be interpreted as we do contracts (deference for underlying factual conclusions)? Jay attempted to argue that statutes are different because they are always designed to be read by the general public whereas patents are focused on those skilled in the art.

JUSTICE ALITO: If a patent is like public law, if it’s like a statute or like a rule, then factual findings regarding the meaning of that patent are not entitled to clear error review. . . Now, on the other hand, if a patent is private law, if it’s like a deed or if it’s like a contract, then Rule 52(a) comes into play. . . .

MR. JAY: Terms of art in statutes, Justice Alito…are nonetheless written to be read by the general public. And … when they have a legal meaning, the determination of that legal meaning is still a question of law. . . .

I think when you’re interpreting a statute that it s generally clear at least what the right frame of reference is Now in the in the patent case what the frame of reference is is itself a question of fact as this Court said in Graham v John Deere. Ascertaining the level of skill in the art who is the skilled artisan who is this patent written for that is itself a factual question and then figuring out what that what that person knows is also a factual question. . . .

MR. PHILLIPS: But actually, I think Markman
answered that, because I think Markman recognized that this is a public document that is going to be binding on third parties, and that therefore ought to be construed as a matter of law in order to ensure the stare decisis component of it.

Justice Breyer seemingly announced his position in favor of deference:

JUSTICE BREYER: And [the direct viewing of witness testimony], I think, is a very powerful reason for saying in a technical case, don’t overturn the judge’s factual findings whether they are ­­ particularly scientific matters, but no particularly here ­­ unless those three judges who will not even read the whole record normally and certainly won’t hear those witnesses, don’t let them do it unless they are convinced that it is clearly erroneous. Now, that’s the argument, and I would like to say that’s different from a statute.

Of course, in this particular case there was no live testimony for the district court Markman “hearing”, but rather only submissions in briefs and declarations.

A second analogy proffered is to the patent issue of obviousness that is also a question of law but is generally based upon underlying factual findings.  To that, Sandoz response is largely that claim construction should be considered unique.  On that point, a number of Justices seemed to question the fundamental Markman decision and its impact on Seventh Amendment rights.

Policy goals at stake: Uniformity and Consistency?

JUSTICE SOTOMAYOR: If you and the government can’t agree, why should we defer to a district court? Why don’t we defer, as has been done now forever, to the Federal Circuit and let them review these things de novo? . . .

CHIEF JUSTICE ROBERTS: [With deference,] two different district courts construing the same patent could come out to opposite results based on a subsidiary factual finding, and neither of those would be clearly erroneous, and yet on a public patent that is going to bind a lot of other people, people won’t know what to do.

. . . .

MR. PHILLIPS: It’s not ­­ it’s not worth the candle because all you’re going to do is create a cottage industry of trial lawyers fighting with the judge about which bucket some particular evidence fits into.

In my view, Mr. Phillips is right that the relative impact of deference for factual findings is relatively small.  The larger potential impacts will be seen if the court remarks more generally on what should count as a factual finding; whether claim construction methodology should be more aligned with statutory construction vs contract construction; and how the factual findings for claim construction might impact later parallel jury determinations.

Inventing Solutions to Global Disease & Poverty

Guest Post By David Kappos and Quentin Palfrey  

In April 2013, the Obama Administration announced the first wave of winners of the Patents for Humanity competition, an innovative program to provide recognition and incentives to companies that use their patented technologies to help the world’s poorest people. The winners and honorable mentions were diverse and impressive. For example, Gilead Science was recognized for making HIV/AIDS drugs available through innovative licensing mechanisms.The University of California at Berkeley developed lower cost ways to product anti-malarial compounds. DuPont developed an improved strain of sorghum that was fortified with more protein and vitamins for use among starving populations in sub-Saharan Africa. Procter & Gamble removed impurities from drinking water. Nokeros delivered solar light bulbs and phone chargers for off-grid villages through local entrepreneurs. In addition to well-deserved recognition for these and other laudable initiatives, companies recognized through the Patents for Humanity program received something else: a voucher to accelerate applications in one of several processes at the U.S. Patent & Trademark Office (USPTO).

This February, the White House reaffirmed its commitment to the Patents for Humanity program, removing it from pilot status and making it an annual program. The second wave of applications is due at the end of this month and we are sure to see another impressive group of innovators seeking recognition. But the program could be even more impactful in incentivizing humanitarian uses of patented technology if awardees were free to transfer their acceleration vouchers to other companies. This would increase the incentive effect of the program by making the vouchers more valuable. That is the idea behind the Patents for Humanity Program Improvement Act, introduced by Senator Patrick Leahy, the chair of the Senate Judiciary Committee, and Senator Chris Coons. The Obama Administration has supported this common sense, cost-neutral measure to strengthen an innovative program.

The challenges facing the world’s poor are daunting. One in eight people on the planet suffers from malnutrition. AIDS, tuberculosis, and malaria kill more than 6 million people a year. More than a billion lack access to safe drinking water. To overcome these challenges will require a sustained commitment, as well as many new ideas and inventions. The global fight against disease, hunger, poor sanitation, and other development challenges is urgent and bipartisan, and we hope Congress will act without delay to pass Senator Leahy’s and Senator Coons’ bill.

David Kappos is the former Under Secretary of Commerce and Director of the United States Patent & Trademark Office. Quentin Palfrey, a special counsel at the law firm WilmerHale, is a former Senior Advisor for Jobs & Competitiveness in the White House Office of Science & Technology Policy.

Allison, Lemley & Schwartz on Patent Litigation

By Jason Rantanen

In 1998, John Allison and Mark Lemley published a groundbreaking empirical study of patent litigation, Empirical Evidence on the Validity of Litigated Patents.  Allison and Lemley’s focus in that article was on written, final validity decisions by either district courts or the Federal Circuit from 1989 through 1996.  The basic study design philosophy was to look at patent case outcomes; that is, what was the final outcome for patents that were litigated.  That study is still widely cited.

Working with Dave Schwartz, Allison and Lemley recently completed an updated (and much expanded) version of their 1998 study.  The results of that study are being published in several articles, but the one that links most closely with the earlier study is Understanding the Realities of Modern Patent Litigation.

Their undertaking in this project is truly quite impressive.  The authors expanded their scope to all available decisions (not just those that were published in the U.S.P.Q., as in the earlier study) for utility patent infringement suits filed in 2008 and 2009, and personally coded the relevant case information from the docket sheets, district court opinions, briefs, and Federal Circuit decisions for hundreds of cases.  As in the earlier study, the record unit they used were patent cases, with only final decisions for a given patent being counted; in other words, where there was more than one decision in a case, they reported the last final decision on the validity of the patent.  Thus, if there was a final Federal Circuit decision, it superceded a previous district court decision; if there was a remand and subsequent final decision by the district court, it superceded the Federal Circuit ruling, and so on.  Within this set of cases, Schwartz and Lemley coded information about the cases while Allison coded patent-specific information.

Study Findings

The vast majority of patent cases still settle: Out of the roughly 5,000 patent infringement suits filed in 2008 and 2009, only 290 patents went to trial.  All together, less than 10% of the patent suits filed in these years resulted in any merits decision (that is, a summary judgment ruling or trial).  The remainder settled before that point (although, the authors note, there are a small number of cases still pending that may add another 2-3% to the number of suits resulting in a merits decision).

More indefiniteness challenges: One notably change from the 1998 study was the dramatically grater number of indefiniteness challenges.  Out of the 555 summary judgment motions brought on validity issues by either the patent challenger or the patent holder, 176 decided summary judgment motions involved the issue of indefiniteness, a dramatic increase from the 1998 study.  And the authors observed a less substantial, but still noticeable, increase in summary judgment decisions based on patentable subject matter (26), a category that has likely continued to experience growth.  For context, there were 149 decided summary judgment motions on obviousness and 154 on anticipation.

Many arrows in the challenger’s quiver: In terms of the success rates on motions for summary judgment of invalidity, challengers tended to lose on individual issues: with the exception of patentable subject matter challenges, the percentage of successful summary judgment motions of invalidity was 20% or below for each individual issue (102, 103, indefiniteness, enablement, written description).  But, the overall rate of invalidation on summary judgment was 30% and the overall rate at which patent challengers successfully won on invalidity was 42%.  This is an example of what Lemley has called the “fractioning” of patent law; that is, the idea that a patentee must win every issue in a case while the accused infringer must prevail on only one issue; a particular challenge with patent law and its multiple grounds for invalidation.

Overall, patent challengers tend to win: Overall, patent holders tended not to win in cases that went to a definite merits resolution.  Overall, patentees won only about 26% of the time (164/636 definitive merits rulings).  In addition to invalidity, patent holders lost on frequently-brought motions for summary judgment of noninfringement 54% of the time (257/473) and infrequently obtained summary judgment on more rarely-brought motions for summary judgment of infringement (41/128).  Thus, although patentees had a fairly high success rate at trial (winning on 59% of patents when juries made the decision and 64% when the bench did), the 1-2 punch of summary judgment followed by trial meant that most patent cases that went to judicial resolution were resolved in favor of the patent challenger.

I’ve only covered some of the data presented in the paper and barely scratched the surface of the authors’ analysis.  If you’re interested in reading more, the article can be downloaded directly from the Texas Law Review’s website or via ssrn: 

The Role of Patents in the Emerging Market for Venture Lending

by Dennis Crouch

A new article out from Yael Hochberg, Carlos Serrano, and Rosemarie Ham Ziedonis looks at how patents are increasingly being used as collateral for start-up ventures.  Generally, this area is being termed “venture lending.”  Article: Patent Collateral, Investor Commitment, and the Market for Venture Lending.

Conventional wisdom in the area has been that new ventures are typically too risky to allow for loans to finance research, development, and commercialization projects.  Bronwyn Hall and Josh Lerner (2010) and others have suggested that instead venture capital is the ‘more natural’ solution for financing entrepreneurship.  However, work by Alicia Robb & David Robinson and others have recently found that a substantial large percentage start-up companies also rely upon loans in order to finance their work.

Hochberg’s team looked to see the extent that patent rights are being used as collateral for these start-up companies.  A nice data feature here is that security interests in patents are normally recorded with the USPTO.  Using those records, the research team found that a substantial percentage (36%) of venture-backed startups in their study also relied upon loans for financing.  The sample here is fairly small (1,500 companies) and I suspect some potential selection bias, but still interesting results.

The authors also suggest that the market for patents is “thicker” and more liquid than many economists previously assumed.   That result is important because a more robust market for patents should mean that lenders are more willing to take patent rights as collateral.

If these intermediaries [such as Intellectual Ventures] increase the salability of patent assets, by increasing liquidity in the market, innovation-oriented companies could find it easier to borrow against their patents. This ex ante effect on innovation financing should be weighed, ideally with evidence from more companies and sectors, against the ex post distortions that may arise from patent trading and enforcement.

Although the article does not spell this out fully, one point that the authors are making here is that any study reporting on the cost/benefit of the patent system and transferability of patent rights should consider this financing benefit rather than simply the costs caused by enforcement.

The work here also builds upon Professor William Mann’s research that I previously highlighted here.


Nobel Prize in Patent Law

Professor Thomas Cotter (Minnesota) has two Nobel Prize related posts on his Comparative Patent Remedies blog.

First, Professor Cotter writes about physics Nobel prize winner Shuji Nakamura who was part of the Japanese team that first developed an efficient blue LED which turned out to be a major stepping stone for the now popular general use of LED lighting for a variety of applications.  Japanese law requires that inventors of high-value inventions be reasonably compensated and Professor Nakamura was able to receive about $8 million from his former employer Nichia Corp. (but only after suing).  Apparently, Japan is in the process of removing this law so that corporate owners can retain a higher profit.

Second, Professor Cotter writes about the economics Nobel prize going to Jean Tirole who has written a number of important patent related articles — focusing primarily on patents relating to technology standards and network impacts.  Most recently, Tirole and Josh Lerner have distributed their article titled “Standard-Essential Patents“.-

NYU Engelberg Center on Innovation Law and Policy looking for Executive Director

By Jason Rantanen

Continuing the string of high-profile center director openings, the Engelberg Center on Innovation Law & Policy at NYU School of Law is searching for a new executive director.   From the posting:

The Engelberg Center on Innovation Law & Policy sponsors legal and interdisciplinary work in the area of innovation law and policy, including but not limited to intellectual property. It draws together legal scholars and practitioners, economists, historians, social scientists, and representatives of the innovation industries to study the legal regimes and cultural forces that influence innovation, to explore methods for optimizing the exploitation of intellectual products, and to search for new ways to facilitate the transfer of technology from creator to end-user, across fields, and among nations. The Center produces scholarship and regularly hosts speakers, conferences, workshops, and other events, around these central themes.

The Executive Director oversees all aspects of the Center, and works closely with Faculty Co-Directors Professors Barton Beebe, Rochelle Dreyfuss, Jeanne Fromer, Jason Schultz, Christopher Sprigman, and Katherine Strandburg.

Read more here:

What is the Particular ‘Value’ of FaceTime?: Thoughts Provoked by Discussion of VirnetX v. Cisco and Apple

Guest Post by Jacob Jacoby, Merchants Council Professor of Consumer Behavior, New York University and President, JacobyIP Research (

When claiming patent infringement due to an individual component of a multi-component product, patent attorneys confront a fundamental problem, namely, determining with a reasonable degree of precision the extent to which the patented feature creates the basis for customer demand.  The purpose of this post is to apprise patent attorneys of a research-based approach capable of doing so with precision, while being able to pass Daubert requirements.

Jason Rantanen’s September 16, 2014 post described the kind of evidence considered (and rejected) by the Federal Circuit in arriving at its VirnetX, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2014)  Virnetx v Cisco opinion.  As Jason pointed out:

A key issue in calculating the infringement damages for complex technological products is whether it is appropriate to use the value of the entire device in the damages calculation.  Generally speaking it is not appropriate to do so: “when claims are drawn to an individual component of a multi-component product, it is the exception, not the rule, that damages may be based upon the value of the multi-component product.”  Slip Op. at 27.  Rather, “‘[a] patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.’” Id., quoting Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1268 (Fed. Cir. 2013) (emphasis added by court).  This is due to the general requirement that damages must be actually attributable to the infringing features within a reasonable degree of precision.

The Federal Circuit rejected use of the Nash Bargaining Solution as a model for determining reasonable royalty damages.  This was not surprising, given that a key premise (namely, “where two person bargain over a matter, there is a ‘solution’…in which ‘each bargainer get[s] the same money profit”) could not possibly apply.  Customers purchasing smart phones, computers, TVs, etc. in the real-world marketplace typically are not “bargainers,” nor do they realize “the same money profit” from their purchases as do the sellers.

Subsequent discussion of Jason’s post yielded interesting perspective, especially the exchange between iwasthere and Curmudgeon.  When the former asked “So how would you propose breaking out the ‘value’ of FaceTime?…. What do you think [of] consumer survey data?”, the latter replied “Yes, I think customer surveys, akin to those used in trademark litigation, could make sense.”  As a proponent of surveys and author of the ABA’s 1000-plus page treatise, Trademark Surveys (2013), it might be surprising to see me assert: In my professional opinion, traditional survey research is not capable of providing a scientifically reliable and valid basis to be used when assessing damages. Consider some of the problems.

Suppose one asked past purchasers questions regarding the factors led them to make their purchase.  Considerable research shows that asking questions a point in time after the item has been purchased — especially for surveys conducted weeks, months or years after the purchase — is likely to generate answers subject to faulty memory.  Another problem is that the answers are likely to be colored by post-purchase experiences. Although a product feature may not have played a role in their pre-purchase deliberations and decision, positive post-purchase experiences can cause them to overestimate the value of the feature, to the point where they believe they must have considered it prior to purchase.  The reverse effect due to experiencing a disappointing feature is also possible.

Asking prospective purchasers to indicate the factors they think will influence their purchase decision can generate other problems.  Most importantly, prospective customers may not be aware of some product features until they begin seriously considering whether to purchase the product; hence, they could not possibly report on the materiality of these features to their purchase decision.

Consider iwasthere’s critical question “So how would you propose breaking out the ‘value’ of FaceTime?”  The answer is by using behavioral simulations such as those I developed and used for defendants in two matters, Polaroid Corporation v. Hewlett-Packard Company, U.S.D.C.  D. Delaware, C.A. No 06-738 (SLR) (2007) and John Taylor, et al. v. JVC Americas Corporation. U.S.D.C.  D. New Jersey, Civ. No. 2:07 Civ. 4059 (FSH/PS).  Such simulations measure actual information acquisition behavior not before or after the fact, but as it occurs, identifying the specific features potential purchasers of the goods at issue actually do consider and consider important (and those they ignore and obviously not consider important) while reaching a purchase decision.  In part based upon the research findings, both matters quickly settled out of court.  To illustrate, consider the following findings from one of the above mentioned cases which breaks out consumer demand for the contested feature, Feature P, as well as all the other features associated with this product. (Note: The names of the features have been redacted, which is why the features only have letters.)


Many contemporary products have numerous features and components.  The Federal Circuit has called for evidence quantifying the extent to which allegedly infringing components or features drive customer demand.  The output from such simulations are capable of doing so better than are any other extant procedures, thereby making it easier for damages to be attributable to the infringing feature(s) within a reasonable degree of precision.  Moreover, given their realistic nature and clear-cut findings, such simulations are likely to be more readily understood and accepted by triers of fact, especially juries, than are intricate damages theories, especially those involving questionable premises or arcane mathematical formulas.

Unfortunately, we cannot go back in time to determine to determine how the parties would react to each other under a hypothetical negotiation at the time of the infringement, a Georgia Pacific factor.  We can only test consumers who are in the process of reaching a purchase decision now.  That said, plaintiffs, defendants and triers of fact may find being able to identify the extent to which a feature or component drives current customer demand is preferable to relying on hypothetical negotiations that would have taken place at the time of the infringement.

Status of US Patent Applications


The chart above shows the current prosecution status of U.S. patent applications as either patented (blue), abandoned (red), or still pending (green). As you might expect, more recently filed applications have a greater percentage of applications still-pending, while fewer than 10% of those filed before 2009 are still pending.  You’ll note that the percentage of issued-patents appears relatively steady at about 60% over the filing-years 2005-2010. However, we can expect that figure to rise for the later-years in that group as the still pending cases are finally decided.

The applications here were considered through actions on October 1, 2014.  Thus, the 2012 applications have been pending between 1-year-9-months and 2-years-9-months.

The chart below looks at the same data, but limits it to only fully decided cases – those that are either patented or abandoned.