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

Apple-logo[1]by Dennis Crouch

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

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

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

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

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

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

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

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

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

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

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

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

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






Current U.S. Patent Practitioner Trends

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

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

Registration timing data also shows:

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


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

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


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

A simple proportion is used as follows:


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

Weak Correlation between Law School Enrollees and New Patent Practitioners


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

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

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

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

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

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

 Month To Month Registration Frequency Shifts with Changes in Patent Law

Fig5 Since the start of online testing, registrations are more evenly spread through the year.  However there are still outlier months, and recently these outlier months correspond almost perfectly to follow the timing of the phases of AIA changes were set to be added the patent bar.  The slight delay from implementation month is likely explained by processing times at the USPTO of registration paperwork after passing the patent bar.  Unsurprisingly, the months immediately following the large increases show dramatic drops in the number of freshly registered practitioners.

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

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


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


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

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

Future Analysis

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

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

by Dennis Crouch

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

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

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

The relevant timeline in the case is as follows:

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

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

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

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

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

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

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

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

Hyatt’s Family Tree

by Dennis Crouch

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

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


Status of USPTO’s Withdrawn Abstract Idea Patents

by Dennis Crouch

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

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

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

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

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

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

FTC’s Power to Investigate Settlements

by Dennis Crouch

The Federal Trade Commission (FTC) monitors litigation settlements for their potentially anti-competitive results.  Most settlements are kept confidential by the parties, but certain settlements are automatically required to be submitted for review and, in any event, the FTC has subpoena power.

When the German pharmaceutical company Boehringer Ingelheim settled with generic manufacturer Barr, the FTC opened an investigation looking at the settlement document and also subpoenaed further documents relating to the settlement.  In particular, the FTC demanded the financial analyses used to evaluate the potential settlement terms. Boehringer has begrudgingly turned over 270,000 pages of documents prepared in the ordinary course of business, but refused to turn-over those that were prepared as part of the litigation and settlement.  Those documents are obviously relevant to whether there was any anticompetitive intent, but Boehringer has argued that they are protected by both attorney-client privilege and the attorney work-product doctrines.

One problem with discovery-disclosure fights is that the legal ruling typically depends upon the document contents, but the content cannot be judged or argued-about without its disclosure.  Further, modern litigation typically involves an overwhelming number of documents – making their review logistically difficult.  Here, the district court solution was to select a small sample of contested documents and then review them in camera. The district court found that the vast majority of the sample documents were properly withheld.

On appeal, the DC Circuit has reversed in-part — finding that the district court overly protected documented “facts” that were sufficient distinct from the type of attorney-opinion protected under the attorney work-product doctrine.

[W]here a document contains both opinion and fact work product, the court must examine whether the factual matter may be disclosed without revealing the attorney’s opinions. . . . Much of what the FTC seeks is factual information produced by non-lawyers that, while … attorneys, does not reveal any insight into counsel’s legal impressions or their views of the case.

Here, the requested information was simply “the sort of financial analyses one would expect a company exercising due diligence to prepare when contemplating settlement options” and thus not protectable as attorney work-product.

[Read the decision].


Supreme Court Denies Appeal on Constitutionality of First-to-File Patent System

by Dennis Crouch

The Supreme Court has denied MadStad Engineering’s petition for writ of certiorari in its case arguing that the first-to-file patent system is unconstitutional because the new law awards rights for the filing of a patent application and no longer requires invention.

Rather than reaching the merits, the district court found that MadStad lacked standing to file the lawsuit because the plaintiff could not prove any particular injury due to the law’s enactment. That decision was then affirmed by the Federal Circuit.  The denial of certiorari here appears to end this particular lawsuit. However, I expect that another party – perhaps one whose patent application has been rejected under the new law – will take-up the mantle and force a court to address the real issue.

Getting SAWS Data from the USPTO

DoubleSecretProbationThe USPTO operates a Sensitive Application Warning System (SAWS) that internally flags pending applications that include “highly controversial” claims or that might create “unwanted media coverage” for the USPTO or the Administration.  Those flagged applications are apparently tiered and then, before allowance, must be approved by either a technology center director or upper PTO management.

In general, I agree with the USPTO’s policy of attempting to apply more examination firepower in areas where it is needed, either because of the difficulty of examination or a likelihood that issued patents will be highly disruptive to settled expectations.  However, I have concerns as to how the policy is being carried-out here, in the SAWS program. And, because the USPTO is ordinarily very forthcoming with its examination process and results, its attempts to hide its actions here tend to suggest that it has reasons to hide.

In January 2015, the USPTO denied my request for a list of all published patent applications that had been flagged for the SAWS program (as well as reasons for the flag), and whether USPTO political-appointees were reviewing particular applications.  I then appealed that decision internally to the USPTO general counsel’s office and that appeal has now been denied. [FOIA Appeal Denial A-15-00008].

The Freedom of Information Act requires Federal Agencies to, “upon any request for records … shall make the records promptly available to any person.”  5 U.S.C. 552(a)(3).   However, the law also includes a set of exceptions. Notably, the statute indicates that the agency is not required to disclose “(5) intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency.”  5 U.S.C. 552(b)(5).  The statutory exception is a bit oblique, but has been interpreted as a sort of privilege for executive agencies.  

Citing Exception 5, the USPTO has rejected my appeal – arguing that the requested list of applications is protected by both “quasi-judicial privilege” and “deliberative process privilege.”  [FOIA Appeal Denial A-15-00008]. In general, I do not believe that the USPTO’s list of SAWS applications fits into these definitions of privilege as defined by the case law.

The next step is to file a civil action, although I have not yet decided upon that course.

A Patent on the Internet

Guest Post by Professor Marketa Trimble (UNLV). 

Imagine that someone had a patent on the internet and only those who had a license from the patent holder could, for example, do business on the internet. This internet patent would not need to concern the internet protocol, the domain name system, or any other technical features of the network; the patent could, in fact, cover something else – a technology that everyone, or almost everyone, who wants to do business on the internet needs, a technology that is not, however, a technical standard. There might be one such patent application – the patent application discussed below – that could be approaching this scenario.

We must accept, however reluctantly, that activities on the internet will not be governed by a single internet-specific legal regime or by the legal regime of a single country. Although countries might agree on an internet-specific regime for the technical features of the internet, and might even adopt some uniform laws, countries want to maintain some of their country-specific national laws. People and nations around the world are different, and they will always have diverse views on a variety of matters – for example, online gambling. Online gambling might be completely acceptable in some countries, completely unacceptable in others, or somewhere in between; likewise, countries have different understandings of privacy and requirements for the protection of personal data. Therefore, countries now have and likely always will have different national laws on online gambling and different national laws on privacy and personal data protection. Compliance with multiple countries’ laws regarding the internet is nonnegotiable, certainly for those private parties who wish to conduct their activities on the internet transnationally and legally. Nevertheless, in practice and for some matters, the number of countries whose laws are likely to be raised against an actor on the internet may be limited, as I discussed recently.

For some time the major excuse for noncompliance with the laws of multiple countries on the internet was the ubiquitousness of the network. The network’s technical characteristics seemed to make it impossible for actors to both limit their activity on the internet territorially, and also to identify with a sufficient degree of reliability the location of parties and events on the internet, such as customers and their place of consumption. However, as geolocation and geoblocking tools developed, location identification and territorial limitation of access became feasible. Of course the increase in the use of geolocation tools generated more interest in the evasion of geolocation, and increased evasion has prompted even further improvements of the tools. The argument that we cannot limit or target our activity territorially because we don’t know where our content is accessed or consumed no longer seems valid. (Also – at least in some countries – courts and agencies have permitted internet actors to employ low-tech solutions as sufficient territorial barriers, for example, disclaimers and specific language versions.)

The multiplicity of applicable laws that originate in different countries and apply to activities on the internet is more troubling in some areas of law than in others. One area of law that permeates most internet activity is data privacy and personal data protection. Any internet actor who has customers and users (and therefore probably has user and traffic analytics) will likely encounter national data protection laws, which vary country-by-country (even in the EU countries, which have harmonized their personal data protection laws, national implementing regulations may impose country-specific obligations). Therefore, compliance with the varying national data protection laws will become one of the essential components of conducting business and other activities transnationally. If someone could patent a method for complying simultaneously with multiple countries’ data privacy laws on the internet and claim the method broadly enough to cover all possible methods of achieving compliance with the national privacy laws, that patent owner might just as well own a patent on the internet, or at least on a very large percentage of internet activity.

A U.S. patent application that seeks a patent on simultaneous compliance with multiple countries’ data privacy laws on the internet through broad method claims is application No. 14/266,525, which concerns “Systems and Methods of Automated Compliance with Data Privacy Laws,” meaning “laws of varying jurisdictions” (the title and the “Abstract”). The invention is designed to facilitate an automatic method of complying with the data privacy laws of various jurisdictions, which are, as the “Introduction” notes, “complicated, diverse, and jurisdiction specific.” The method envisions that once “person-related data” are requested from a data provider, a “filter is the [sic] automatically applied to the person-related data to restrict transfer of person-related data [that] does [sic] not meet the data privacy regulations applicable to the jurisdiction” (the “Introduction”); the filter also checks for any consents by the data subject if the particular regulations require them. The method also foresees, for example, the possibility of “identif[ying] different origins of the person-related data sources” in terms of their geographical location (“Trust Object and Trust Data”).

The patent application still must be prosecuted, and the – undeniably useful – invention will be subject to scrutiny as to its compliance with the requirements of statutory subject matter, novelty, and non-obviousness. A patent on the application may not issue at all, or the language of the application may be amended and the claims narrowed. Whatever the future might bring for the claimed invention, this patent application serves as a useful prompt for thinking about the components that have been or are becoming essential to conducting business and other activities on the internet.

Cisco Argues that the Inducement Mens Rea Should Focus on Knowledge of Wrongdoing Rather than Merely Infringement

by Dennis Crouch

In the pending appeal of Commil v. Cisco, the Supreme Court is further honing-in on the knowledge aspect of induced infringement.  In particular, the court is addressing whether a defendant’s reasonable and good-faith (but ultimately incorrect) belief that a patent is invalid can be used to prove that the defendant did not knowingly induce infringement.

As background, the patent statute indicates that “[w]hoever actively induces infringement of a patent shall be liable as an infringer.”  In its 2011 Global-Tech decision, the Supreme Court ruled that inducement requires that the alleged inducer have acted with knowledge that the induced acts constituted patent infringement.

The patentee, Commil, argues that both statute and tradition distinguish between the doctrines of infringement and validity.  See 35 U.S.C. 282(b). In Commil’s construct, someone might infringe the patent, but not be held liable if the patent is found invalid or otherwise unenforceable.  Applying that distinction directly to Global-Tech knowledge-of-infringement requirement suggests that knowledge-of-invalidity is irrelevant. [I should note that Commil actually suggests that the court should relax its Global-Tech rule to only require knowledge of the patent’s existence and its potential relevance.]

Briefing is ongoing in the case with Cisco having now filed its responsive brief on the merits.  Oral arguments are now scheduled for March 31, 2015. The other patent case of the term – Kimble v. Marvel will also be heard that day.

In its brief, Cisco argues that a  good-faith but incorrect belief of non-infringement should excuse liability for inducement.  [Cisco Merits Brief]. As its central evidence, Cisco points to other language in Global-Tech that provides support for its infringement.  In particular, the Supreme Court noted that the case might turn the “probability of wrongdoing.” Further, the doctrinal statement from Global Tech does not merely focus on knowledge of infringement but instead whether the defendant will be “liable as an infringer.”  That liability element appropriately sweeps in the potential that the patent is invalid or otherwise not enforceable.  For support, Cisco cites to a series of other decisions where the scienter requirement’s purpose is tied to the moral justification of culpability. See, e.g., MGM v. Grokster, 545 U.S. 913 (2005) (copyright inducement).  Cisco plays upon the contemporary Supreme Court’s bent toward patent non-exceptionalism by citing to various tort and criminal inducement doctrines whose scienter requirements turn on belief of wrondoing.

Cisco also argues that the invalidity-belief-defense is good policy — especially because so many patents are actually invalid and because willful infringement already allows such a defense.  And, as might be expected based upon the Cisco CEO’s recent WSJ editorial, the brief also complains about the problem of patent trolls.

But a recent study shows that a record 5,411 patent infringement cases were filed in 2013, with the number of suits brought by nonpracticing entities growing by almost 20% over the previous year. . . . It is unrealistic to believe that inducement suits are not part of this problem and would not dramatically multiply if Commil obtains the change in law it seeks.

Although Cisco’s legal and policy arguments have merit, I suspect that the hundred-billion-dollar company’s attempt to play the victim here will be unsuccessful. At the very least though, this may be the first time in recent memory that the company has agreed that willful infringement is a ‘wrongdoing.’

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An important subtext here is that the knowledge requirement becomes a critical defense only when it turns out that the patent actually is valid, enforceable, and being practiced based upon the active inducement of the defendant.  From a practical standpoint, the belief-of-invalidity-defense could short-circuit inducement cases when the defendant has a solid written opinion of counsel.  However, that presumably only saves an inducer from past-infringement and once validity is confirmed, any ongoing acts will lead to liability.

You are Invited to Mizzou!

We’re hosting a March 13, 2015 event here at the University of Missouri School of Law along with Missouri’s Center for Intellectual Property and Entrepreneurship and would enjoy seeing you. The focus is on Intellectual Property issues in the University Setting and should include interesting discussions that bring together thoughts from the legal, business, and academic perspectives.  [online brochure].

In addition to a smart program, we’re able to secure 5 hours of CLE credit, lunch, and a reception afterwards — all for no charge.   The event is free and open to the public, but we do have some space limitations and would like you to register by contacting Laura Coleman at or 573-882-5969.

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If you are looking for CLE before March, you might try the PTAB webinar put on by Andrew Williams and Jay Schafer on February 25, 2015. [LINK]

Construing Claims: Independent Claim Preamble is Limiting when Used in the Body of Dependent Claims

ScreenShot156by Dennis Crouch

In Pacing Tech v. Garmin, the Federal Circuit has affirmed a summary judgment of non-infringement — holding that Garmin’s fitness watches do not infringe U.S. Patent No. 8,101,843.

Although captioned as a decision on infringement, the defendants were able to shift the focus to claim construction.  Here, the Federal Circuit found the claim-preamble limiting in such a way that avoids infringement.

One well-known secret of patent interpretation is that, a claim preamble will not be seen as limiting unless it “breathes life and meaning into the claim” In re Wertheim, 541 F.2d 257 (CCPA 1976).  The rule here is essentially a particular application of the general thought that statements of the invention’s intended purpose are not limiting. Expanding upon Wertheim, however, the Federal Circuit has also ruled that the preamble can be limiting when elements in the preamble serve as an antecedent basis for limitations in the claim body. See Eaton Corp. v. Rockwell Int’l Corp., 323 F.3d 1332 (Fed. Cir. 2003).

The strategy used by some patent applicants is to include preamble terms that make the claim scope seem reasonable and well grounded, but with the hope that those limitations will not be given effect later in enforcement proceedings.

Here, the claim at issue is:

25. A repetitive motion pacing system for pacing a user comprising: . . .

a web site adapted to allowing the user to pre-select [activities]…

a data storage and playback device; and

a communication device adapted to transferring data [between the web site and data storage and playback device].

The ‘preamble’ of claim 25 is the portion coming before the word ‘comprising:’ i.e., ‘A repetitive motion pacing system for pacing a user.’ Although not used in the body of claim 25, the ‘repetitive motion pacing system’ phrase is found in the body of dependent claim 28 with the following clause: ‘wherein the repetitive motion pacing system can determine a geographic location of the data storage and playback device.’ Further, the preamble term ‘user’ was also relied upon in the body of claim 25.

Taking a whole-patent analysis approach, the Federal Circuit found the claim preamble limiting because the core terms served generally served an antecedent basis:

Because the preamble terms “user” and “repetitive motion pacing system” provide antecedent basis for and are necessary to understand positive limitations in the body of claims in the ’843 patent, we hold that the preamble to claim 25 is limiting.  

After finding that the preamble requirement of a “repetitive motion pacing system” was limiting, the court then took the next step of giving meaning to the term through the construction process.

Object of Invention Disavows Scope: The patent application describes several ‘objects of the invention’ – all of which include ‘a repetitive motion pacing system for pacing a user that includes a data storage playback device adapted to produce a sensible tempo.’  The asserted claim 25 does not expressly state that the pacing system needs to ‘produce a sensible tempo’, but the Federal Circuit here found that the stated object of the invention represented ‘a clear and unmistakable disavowal’ of scope and requires that the term be interpreted to require the tempo. As the final step of the analysis, the court made the easy conclusion that – since Garmin’s accused devices do not produce a sensible tempo, they do not infringe.

Of interest, the patent does include several embodiment where there was no discussion of whether or not the tempo feature was included.  In its decision, the Federal Circuit found those statements insufficient to overcome the object-of-the-invention statements. “Just because an embodiment does not expressly disclose a feature does not mean that embodiment excludes that feature.”

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I. In my mind, the right decision is that the claim preamble should be limiting in this case — and in all cases. Claims need no extraneous elements but instead each claimed phrase should be included for a legally cognizable purpose and interpreted as such.  Additional descriptions, statements of purpose, and the like are helpful, but belong in the specification unless they are intended to be limiting.

II. Here, the court took a statement-of-purpose from the specification and deemed it a clear disavowal of claim scope.  That approach makes logical sense because it truly limits the claim to the subject matter that the inventor believed she had invented.  However, my problem with the approach is that patent attorneys will walk away with the solution of avoiding any discussion of the purpose of the invention or else choose to provide discussion of purpose so full of caveats and exceptions so as to eliminate the potential for clarity in understanding the technological advance being disclosed.


Who is to Blame for High Litigation Costs: Plaintiffs for filing the lawsuits or Defendants for refusing to deal and instead fighting?

The recent WSJ op-ed by John Chambers (CEO Cisco) and Myron Ullman (CEO JCPenny) is interesting, but largely not compelling. What the article does do is indicate (1) that patent litigation is the monetization avenue being used by non-practicing patent holders and (2) that it is pretty clear that manufacturers and retailers would be better off (at least in the short term) without being charged with patent infringement.

The core of their argument is here:

A 2012 study by Boston University researchers estimated that companies spent upward of $29 billion a year defending patent lawsuits, and the problem has not let up. According to RPX Corp., more than 3,600 companies and named defendants were sued by so-called patent-assertion entities in 2014, triple the number in 2006. Patent-assertion entities—aka nonpracticing entities, or as some would call them, trolls—that own patents but do not make products or sell services based on them file more than 60% of patent litigation in the U.S.

A civil lawsuit generally comes about based upon a failure of the parties to negotiate a just solution.  Of course, for any given lawsuit, we don’t know beforehand whether it is the plaintiff or the defendant who is being more unreasonable.

The op-ed suggests that the plaintiffs are to blame for filing the lawsuits, but there is also a strongly compelling case for arguing that the defendants are to blame for refusing to deal and instead fighting every lawsuit tooth-and-nail. When reach a point where out-of-litigation resolutions are rare, we should recognize that it is a systemic problem.  And, at this point – where the primary complaint is high litigation costs – the solution is not to favor one side or the other, but instead to look for systemic changes that substantially decrease the cost of resolution.

Gene Quinn provides his take on the op-ed at IP Watchdog.

The Federal Circuit’s New “Authorized Acquirer” Restriction on Patent Exhaustion

The following is a guest post by Professor Samuel F. Ernst of Chapman University’s Dale E. Fowler School of Law.  I asked Prof. Ernst to add his insight to the Helferich case and how it relates to his interesting 2014 article on Contracting Around Exhaustion.  — Dennis

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by Samuel F. Ernst

Under the “first sale” or “exhaustion” doctrine, when a patent holder authorizes another party to sell a patented item, the patent holder’s right to exclude with respect to that item is exhausted, and the patent holder cannot pursue the licensed device down the stream of commerce to restrict subsequent parties from using the device for its intended purpose.  “[W]hen the machine passes to the hands of the purchaser, it is no longer within the limits of the monopoly.  It passes outside of it, and is no longer under the protection of the Act of Congress.”  Bloomer v. McQuewan, 55 U.S. 539, 549 (1852). The Federal Circuit’s panel opinion in Helferich Patent Licensing v. NYTimes and JCPenney (Fed. Cir. 2015) imposes a wholly novel restriction on the exhaustion doctrine by holding that the doctrine only protects “authorized acquirers” of a device.  Exhaustion no longer adheres in the licensed device itself as it moves in the stream of commerce.  Hence, although Helferich authorized the cell phone industry to sell handsets that practice its patents – indisputably a “first sale” – the exhaustion doctrine did not prevent Helferich from pursuing the New York Times and other content providers for infringement based on the delivery of messages and content to those cell phones.  The new “authorized acquirer” requirement directly carves out of the exhaustion doctrine protection for the very third party downstream uses of a licensed device that the doctrine is intended to protect.  The panel opinion is directly contrary to Supreme Court precedent and represents a fundamental misunderstanding of one of the core purposes of the exhaustion doctrine.  As I point out in my recent article, Patent Exhaustion for the Exhausted Defendant: Should Parties be able to Contract Around Exhaustion in Settling Patent Litigation?, 2014 U. Ill. J.L. Tech. & Pol’y 445 (2014), the exhaustion doctrine promotes the policy against servitudes attaching to goods in commerce in restraint of the free trade and use of those goods.  Exhaustion is intended to prevent a situation where a patent holder can “send its machines forth into the channels of trade of the country subject to conditions as to use or royalty to be paid, to be imposed thereafter at the discretion of the patent owner.”  Motion Picture Patents Co. v. Universal Film Manufacturing Co., 243 U.S. 502, 518 (1917).

Helferich Patent Licensing LLP owns a portfolio of more than fifty patents related to mobile communications devices and the provision of media and content to such devices.  Helferich sold a license to its patents “to what, at least at one time constituted most – we may assume all – of the manufacturers of mobile handsets for sale in the United States,” according to the Federal Circuit.  Helferich thereby authorized cell phone manufacturers to make phones that practice its patents and send them out into the stream of commerce.  But after brokering these licenses, Helferich sought to pursue the phones down the stream of commerce.  It sued the New York Times and other content providers for infringing their patents by alerting cell phone users in a certain fashion that content is available for download on the devices. Helferich’s licenses to cell phone makers contain various carve-outs and exceptions, according to the Federal Circuit, including a recitation of claims that would not be infringed by a handset manufacturer (but are nonetheless licensed), and a disclaimer of any grant of rights to content providers to practice Helferich’s patents.  Under current law, it is uncertain whether such provisions are sufficient to “contract around” exhaustion or if they are ineffective “post-sale restrictions.”  This is a topic I scrutinize in detail in Patent Exhaustion for the Exhausted Defendant, and which could have been a narrower basis for reversing (or affirming) the district court’s grant of summary judgment.  But the Federal Circuit does not address the relevance of these license provisions to the exhaustion doctrine, saying only that there can be no claim of implied license due to these provisions.

Instead, the court bases it reversal of summary judgment on the broad and novel pronouncement that patent exhaustion only shields an “authorized acquirer” from liability, and does not follow the licensed device down the stream of commerce to protect all users of the device for its intended purpose.  The court states, “[t]he doctrine has never applied unless, at a minimum, the patentee’s allegations of infringement, whether direct or indirect, entail infringement of the asserted claims by authorized acquirers.”  Exhaustion only applies as to these “certain persons,” and does not exhaust the patent holder’s rights in the device itself.  Hence, although there was indisputably an authorized first sale of the devices, the New York Times and other defendants were not “authorized acquirers” of the patented devices.  Indeed these defendants never acquired the devices at all; they merely sent messages to consumers who happened to be using the devices.  For this reason, the court held, the defendants were not relieved from liability by the fact that Helferich had exhausted its patent rights in the licensed cell phones.  The court concludes that it will not “expand” the exhaustion doctrine “to hold that authorized sales to persons practicing the handset claims exhaust the patentee’s rights to enforce the asserted content claims against different persons.”  Helferich is free to pursue the devices down the stream of commerce.

Contrary to the panel’s pronouncements, the exhaustion doctrine has frequently applied to shield from liability persons who were not “authorized acquirers” of the licensed devices.  That is the very purpose of the exhaustion doctrine – to shield licensed devices from infringement claims as they move down the stream of commerce.  Hence, in Quanta Computer v. LG Electronics, 553 U.S. 617 (2008), LGE authorized Intel to make and sell microprocessors that practiced LGE’s method claims, but prohibited third parties from purchasing the microprocessor for use in combination with non-Intel parts.  LGE sued Quanta for using the licensed microprocessors under the theory that Quanta was not authorized to use the parts in Quanta computers.  The Supreme Court held that LGE’s patent rights in the microprocessors were exhausted as to downstream users, whether “authorized” or not, because “[o]n LGE’s theory, although Intel is authorized to sell a completed computer system that practices the LGE Patents, any downstream purchasers of the system could nonetheless be liable for patent infringement.”  553 U.S. at 630.  This, said the Court, would be contrary to the longstanding principle that “once lawfully made and sold, there is no restriction on [the licensed product’s] use to be implied for the benefit of the patentee.”  Id. (quoting Adams v. Burke, 84 U.S. 453, 457 (1873)) (emphasis in original).

A case very close to the facts of Helferich is Motion Picture Patents v. Universal Film, 243 U.S. 502 (1917).  The patentee in that case granted a third party a license to manufacture and sell its patented film projectors, but inserted a provision in the license provision stating that the projectors could only be used to display certain films.  When Universal Film supplied to the purchaser of a licensed projector films that were not authorized for use on the machine, Motion Picture Patents sued Universal for patent infringement.  The Court held that Motion Picture’s patent rights in the projectors were exhausted by their authorized sale.  Motion Picture could not thereafter sue a third party, Universal, for a use of the machine that it believed constituted patent infringement, anymore than Helferich can sue the New York Times for the use of cellular phones in a way that it believes infringes its patents.  This is because the cell phones, like the film projectors at issue in Motion Picture Patents, are licensed, and Helferich’s patent rights in those phones are thereby exhausted.  Most critically, Universal, like the New York Times, was not an “authorized acquirer” of the patented projectors; like the New York Times, Universal had not acquired the licensed items at all.  Patent exhaustion adheres in the patented device, not in “certain persons” who are authorized to use the device.

A primary reason why patent exhaustion liberates the patented device from infringement claims (and not “certain persons”) is to promote the policy against restraints on alienation.  In Kirtsaeng v. John Wiley & Sons, 133 S.Ct. 1351 (a copyright case), the Supreme Court recognized that the “[t]he ‘first sale’ doctrine is a common-law doctrine with an impeccable historic pedigree.”  The Court grounded the doctrine in “the common law’s refusal to permit restraints on alienation of chattels.”  In Lifescan Scotland v. Shasta Technologies (Fed. Cir. 2013), the Federal Circuit extended this analysis to the patent exhaustion context.  The court concluded that if patent exhaustion is easily evaded, “consumers’ reasonable expectations regarding their private property would be significantly eroded.”  Hence, a rule restricting the protections of patent exhaustion to “authorized acquirers,” rather than grounding it in the licensed device, threatens to impose a servitude on devices as they pass down the stream of commerce.  In this case, Helferich licensed the making and selling of cell phones for their intended purposes, including consumers receiving notifications and content from content providers such as the New York Times.  Now Helferich seeks to extract an additional royalty from content providers for sending those notifications and content to the licensed cell phones.  The Federal Circuit’s new “authorized acquirer” exhaustion restriction thereby improperly allows a patentee to “send its machine forth into the channels of trade of the country subject to conditions as to use or royalty to be paid, to be imposed thereafter at the discretion of such patent owner.  The patent law furnishes no warrant for such a practice, and the cost, inconvenience, and annoyance to the public which the opposite conclusion would occasion forbid it.”  Motion Pictures Patent Co., 243 U.S. at 518.

Fenner v. Cellco: Judge Newman Speaks on Claim Construction

By Jason Rantanen

Fenner Investments, Ltd. v. Cellco Partnership (Fed. Cir. 2015) Download Fenner v Cellco
Panel: Newman (author), Schall, Hughes

In Fenner v. Cellco Partnership, Judge Newman adds another voice to the chorus of Federal Circuit judges reading Teva v. Sandoz as having little effect on the court’s routine review of district court claim constructions.  Here, the panel affirms the district court’s construction of the term “personal identification number” under what appears to be a de novo standard of review   Frustratingly, the opinion never states which standard of review it is applying either generally or to any given issue, but I read all of the issues it addresses as either consisting of intrinsic evidence or going to the “ultimate question” of claim construction.

Judge Newman’s Articulation of the Post-Teva standard of review.  The appellate analysis begins with the established reading of Teva as reinforcing a largely de novo standard of review for claim construction:

 We review de novo the ultimate question of the proper construction of patent claims and the evidence intrinsic to the patent. Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831, 841 (2015); id. (“[W]hen the district court reviews only evidence intrinsic to the patent (the patent claims and specifications, along with the patent’s prosecution history), the judge’s determination will amount solely to a determination of law, and the Court of Appeals will review that construction de novo.”). The district court’s determination of subsidiary facts based on extrinsic evidence is reviewed for clear error. Id. at 835, 841.

After noting that the appellant’s argument rested on a plain meaning versus the specification & prosecution history tension, the opinion summarizes the claim construction process:

The terms used in patent claims are not construed in the abstract, but in the context in which the term was presented and used by the patentee, as it would have been understood by a person of ordinary skill in the field of the invention on reading the patent documents. See Biogen Idec, Inc. v. GlaxoSmithKline LLC, 713 F.3d 1090, 1095 (Fed. Cir. 2013) (“[A] term’s ordinary meaning must be considered in the context of all the intrinsic evidence, including the claims, specification, and prosecution history.”). Thus, a claim receives the meaning it would have to persons in the field of the invention, when read and understood in light of the entire specification and prosecution history. Phillips v. AWH Corp., 415 F.3d 1303, 1312– 1317 (Fed. Cir. 2005) (en banc). Any explanation, elaboration, or qualification presented by the inventor during patent examination is relevant, for the role of claim construction is to “capture the scope of the actual invention” that is disclosed, described, and patented. Retractable Techs., Inc. v. Becton, Dickinson & Co., 653 F.3d 1296, 1305 (Fed. Cir. 2011).

In this articulation of the process, both the specification and the prosecution history play an important role.  But Judge Newman does not stop with this summary; she digs into the meaning of claim construction itself:

Words are symbols, linguistic embodiments of information sought to be communicated, and, as such, can be imperfect at representing their subject. The Supreme Court recently observed this challenge to patent claim interpretation, stating in Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120, 2128-29 (2014), that “the definiteness requirement must take into account the inherent limitations of language,” and that clarity is required although “recognizing that absolute precision is unattainable.” When the disputed words describe technology, the terse usage of patent claims often requires “construction” in order to define and establish the legal right. Judicial “construction” of patent claims aims to state the boundaries of the patented subject matter, not to change that which was invented.

Beginning with the written description issue, the opinion concludes that the district court used that portion of the patent properly:

The foundation of judicial claim construction is the “written description” in the specification. The patent statute requires that the claims “particularly point[] out
and distinctly claim[] the subject matter” that the applicant regards as the invention. 35 U.S.C. §112(b). The district court appropriately consulted the description in the ’706 specification “for the purpose of better understanding the meaning of the claim.” White v. Dunbar, 119 U.S. 47, 51 (1886).

The prosecution history further bolstered the district court’s construction even though the examiner did not appear to have relied upon the relevant statements by the applicant in granting the patent:

Fenner argues that these purportedly limiting statements he made during prosecution do not limit the claims, arguing that the statements and the limitations discussed were not the basis for grant of the patent. However, the interested public has the right to rely on the inventor’s statements made during prosecution, without attempting to decipher whether the examiner relied on them, or how much weight they were given. See Microsoft Corp. v. Multi-Tech Sys., Inc., 357 F.3d 1340, 1350 (Fed. Cir. 2004) (“[A] patentee’s statements during prosecution, whether relied on by the examiner or not, are relevant to claim interpretation.”); Laitram Corp. v. Morehouse Indus., Inc., 143 F.3d 1456, 1462 (Fed. Cir. 1998) (“The fact that an examiner placed no reliance on an applicant’s statement distinguishing prior art does not mean that the statement is inconsequential for purposes of claim construction.”)

The court also rejected the appellant’s arguments based on interoperability (concluding that the district court’s construction did not render the claim inoperable) and claim differentiation:

Although claim differentiation is a useful analytic tool, it cannot enlarge the meaning of a claim beyond that which is supported by the patent documents, or relieve any claim of limitations imposed by the prosecution history. See, e.g., Retractable Techs., 653 F.3d at 1305 (“[A]ny presumption created by the doctrine of claim differentiation ‘will be overcome by a contrary construction dictated by the written description or prosecution history.’” (quoting Seachange Int’l, Inc. v. C-COR, Inc.,413 F.3d 1361, 1369 (Fed. Cir. 2005))); Toro Co. v. White Consol. Indus., Inc., 199 F.3d 1295, 1302 (Fed. Cir. 1999) (“[T]he doctrine of claim differentiation does not serve to broaden claims beyond their meaning in light of the specification, and does not override clear statements of scope in the specification and the prosecution history.” (citation omitted)).




Law Update: Changes to Design Law coming May 13, 2015

In 2012, the US enacted the Patent Law Treaties Implementation Act designed to enact national laws sufficient to allow the US to become a member of the Hague Agreement for the registration of industrial designs (i.e., design patents).  The treaty was previously ratified but not put into law.

Now, the US has deposited its ‘instruments of ratification’ with the World Intellectual Property Organization (WIPO), which is the final formal step for becoming a member.  Under the rules of membership there will be a three-month delay and the US will become a member on May 13, 2015.

The benefits for design patent applicants: (1) the Hague Union offers an easy-to-use international design application that can contain up to 100 designs in a single application. (2) US design patent term will move from 14 years to 15 years.   Although the USPTO has not released its final rules, it appears that these changes will only be effective for applications filed on or after the May 13 date.  It is unclear to me at this point whether a continuation application of an already pending design application would be able to take advantage of the extra year.

Although the US will continue to examine design applications under the design patent regime, many countries do not conduct any substantive examination.

The US move to join Hague has been a catalyst for other countries as well with South Korea, Japan, Canada, and China, all expected to join in the near future. Most European countries (and the EU) are already members.


Patent Exhaustion: Licensing Handset Manufacturers Did not Exhaust Patent as to Downstream Content Providers

by Dennis Crouch

A patent holder has exclusive rights in the patented invention and a cause of action against “whoever without authority makes, uses, offers to sell, or sells” the invention. 35 U.S.C. 271(a). One limit on those rights is the non-statutory doctrine of patent exhaustion. Under exhaustion, after a patentee authorizes the making/sale of a particular individual article, the patentee no longer has any further exclusive patent rights in association with that authorized article.  Thus, the when the authorized product is later used or re-sold, the patentee could not claim further damages for infringement.  In other words, the power of the patent is ‘exhausted’ by the first authorized sale. As noted, the exhaustion doctrine is non-statutory, but the Supreme Court has repeatedly supported its existence as a parallel the statutory version found in copyright law. 17 U.S.C. 109.

In Helferich Patent Licensing v. NYTimes and JCPenney (Fed. Cir. 2015), the Federal Circuit (Judge Taranto) has narrowly construed the exhaustion doctrine – finding that the district court erred in holding that the patentee’s claims were barred due to exhaustion.

Helferich’s 30+ patents all relate to wireless handsets and related communication methods.  All the patents stem from a common original application and are thus closely related, although the PTO did not find obviousness-type double patenting.

Helferich has licensed its portfolio to essentially all handset makers selling in the U.S.  However, those licenses expressly carves-out activity by “content providers” — stating particularly that the licenses do not grant any rights for content providers to practice the claimed methods.

When Helferich then brought suit against content providers (NYTimes & JCPenny), those accused infringers argued exhaustion — namely that the manufacture and sale of the phones had been licensed under the now-asserted patents and that, as a consequence, the exhaustion doctrine blocks any there is no use of the phones that could now be seen as infringing.

[T]he premise of defendants’ exhaustion defense is that all handsets in the United States are licensed and that the asserted claims contemplate a use of handsets by handset owners/possessors.

However, in the appeal, the Federal Circuit found that the exhaustion doctrine does not bar Helferich’s claims here.

The Federal Circuit identifies exhaustion as a personal defense held by the acquirer of an authorized article (here, a handset).  However, according to the court, exhaustion does not apply to protect other parties. This distinction here is important because the accused infringers are content providers and – apparently – the content claims do not require any proof that the handset acquirers are practicing any aspects of the claims.  Secondly, the court also identifies the content claims being asserted here as separate and distinct inventions from the licensed handset claims.

In short, the decisions finding exhaustion (or relying on exhaustion to reject an antitrust defense) have done so only when the patentee’s assertion of infringement was, or depended on, an assertion that an authorized acquirer was using the same invention by infringing the asserted claims.

The closest case-on-point found by the Federal Circuit is Morgan Envelope Co. v. Albany Perforated Wrapping Paper Co., 152 U.S. 425 (1894) where the court wrote (in dicta?) that that exhaustion would not apply to excuse infringement of related – but distinct – patents.

The Morgan Court thus indicated that, even though an authorized buyer of product X was free of the patent owner’s patent on that product, the buyer could not, by virtue of his purchase, prevent the patent owner from enforcing his patent as to product Y, even though Y was specifically designed to be used with X and, at a minimum, made X more useful than it otherwise would be and, indeed, was essential to X’s utility.

Of course, a major difference with the old cases is that the added-element being supplied here is in the form of information rather than a tangible product.

In considering the impact of the 1952 and 2011 patent reforms on the judge-made law of exhaustion, the court writes “[w]e presume, from Congress’s refusal to disturb the existing decisional law of this doctrine (which predated the 1952 Act by nearly a century), an implicit authorization to continue applying the doctrine within its familiar boundaries. . . . But we do not think that Congress has granted the courts a license to erase those boundaries and expand the doctrine into difficult new territory unmapped by lines drawn, or even sketched, by Congress.” Thus, the court refused to consider policy considerations that would suggest doctrinal expansion.

The decision winding here by Judge Taranto is well supported, but I would also expect a strong challenge to be mounted for Supreme Court review.

Fee Shifting Provision in the Innovation Act

by Dennis Crouch

In his discussion of the Fee Shifting provision in the Innovation Act, Chairman Goodlatte argues that the law would not create any presumptive shifting of fees but instead, the that law simply clarifies when fee shifting will and won’t occur.

Under the current rule, the first question is whether the case is ‘exceptional’ and then, if so, the court ‘may’ award fees.  In Octane Fitness (2014), the Supreme Court re-construed the meaning of exceptional, but not in any way that offers clarity or predictability but rather the new determination provides wide discretion to district court judges to determine whether to make an award.

Under the new rule, the first question would be whether the losing party’s “position and conduct . . . were reasonably justified in law and fact?” If they were reasonably justified, then no fee award.  If not reasonably justified, then the court will award fees absent ‘special circumstances.’

Tying these first-steps together, it does make sense that “exceptional cases” should roughly correlate times when the losing party’s position or conduct was not reasonably justified.   In my mind there is a linkage here between FRCP 11 and the provision here. Rule 11 requires that any legal contention made to court be “warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law” and that factual contentions or denials “have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery.”  An important question is whether following those guidelines set out by Rule 11 would also safeguard a party from an unreasonableness finding.

Back to the Presumption: The weight of the presumption does come in at the next step of the analysis. Under the current rule, an exceptional case finding does not create a presumption of fee-award, but rather only provides the district court with discretion to make such an award.  The new law would require a fee award after the not-reasonably-justified finding (absent “special circumstances).

Increase in Costs Available: A second major change in the provision is a shift from awarding “reasonable attorney fees” in the old law to “reasonable fees and other expenses incurred by [the prevailing] party in connection with a civil action.”  Presumably, the award under the new law could be substantially greater.

For its part, the Intellectual Property Owners Association (IPO) supports the proposed change and argues that the Supreme Court’s recent decisions are insufficient.