January 2015

Patent Law Jobs

Patent

Patent firms are hiring and posting jobs on patentlyo.com/jobs.  Here is a list of jobs posted over the past four days.  Employers say the best patent-focused candidates come from Patently-O.  Good luck with the job hunt!

Questions?: Email jobs@patentlyo.com

 

Binding Teams in Silicon Valley

Patent,

After seeing his interesting new article, I asked Professor Andres Sawicki (University of Miami School of Law) to draft this short essay about his work. — Dennis.

by Andres Sawicki

In a recently published article, I report preliminary evidence supporting a novel view of what patents can do: keep inventive teams together. This evidence suggests that, in addition to their traditional role as incentives for innovation, patents may be doing important work in fostering collaboration in high tech industries.

To see how this works, suppose you’re the founder of a Silicon Valley start-up. After a few years, you’ve found modest success—a product launch, a small core of devoted customers. But it seems clear at this point that there’s no massive IPO exit on the horizon. Instead, your capital is running low and the venture capitalists who financed your firm are getting impatient.

Now Facebook shows up at your door: it wants to hire you and your team of engineers. The catch is that it wants the whole team. Facebook knows how hard it is to find talent that works well together. Plus, both you and Facebook know that if your team doesn’t go as a group, any team member that strikes off on her own is likely to soon become a competitor. What do you do?

One possibility is that you convince Facebook not only to hire your team, but also to buy the entire start-up. That way, Facebook can acquire the rights to any patents flowing from the work the team did at the start-up. These patents can then bind the team together by raising the costs to members of leaving—a departing team member won’t be able to continue working in the path set out by the team’s patents. Thus, while intellectual property is traditionally thought to prevent the entire public from freeriding on a creator’s investment in producing a public good, it can also regulate relationships among team members, as Robert Merges and Paul Heald have separately argued in the patent context, and as Tony Casey and I have jointly argued in the copyright context.

In my most recent article, I support this team-binding view of patents with data from Silicon Valley acqui-hires. Those transactions, illustrated by the founder-Facebook scenario posed above and explored in illuminating detail by John Coyle and Gregg Polsky, are understood to be driven by Silicon Valley norms of cooperation. Facebook and the engineers agree to send some money to the start-up’s equity holders to ensure that the VCs will be open to another pitch from the engineers a few years down the road. This usual understanding of the acqui-hire has little room for IP.

But sending money to the VCs may also be a way to ensure that the start-up’s IP follows the team from the start-up to the buyer. Before the transaction, the start-up will ordinarily have claims to the IP generated by its engineers. Diverting some of the purchase price to the VCs and other equity holders enables the buyer to obtain those claims.

To test the plausibility of this hypothesis, I examined a set of 63 acqui-hires over a two-year period, to see whether: (1) the start-up assigned some of its patents to the buyer; (2) the start-up assigned some of its pending patent applications to the buyer; or (3) the buyer filed, after the transaction, a patent application naming one of the start-up’s principals as an inventor. In 29 of the 63 acqui-hires, at least one of those three kinds of patent transfers occurred. In many of the remaining 34 acqui-hires, there were simply no pre- or post-transaction patents to speak of, indicating that patents cannot completely account for the acqui-hire trend. Still, there was only one transaction in which the start-up retained all of its existing patents and pending applications, and none of the start-up’s principals had been listed as an inventor on one of the buyer’s post-transaction patent applications. In short, when the start-up has rights to existing or future patents, the buyers consistently obtain those rights. This data thus indicates that patents are in fact an important part of the acqui-hire trend, without which it may be difficult for the founders and Facebook to consummate the deal. And, more generally, it suggests that patents are not only rewards for lone inventors, but also tools for keeping groups of inventors together.

Octane as Creating Conflicts Between Lawyers and Clients and Undermining the Duty of Zeal

Ethics

Curious what you all think.

Under Rule 11, of course, a lawyer is entitled to argue anything that is non-frivolous. Under the ethics rules, lawyers are to represent their clients competently and within the law, subject to many limitations but, at the outside, also this same barrier:  a lawyer can’t make frivolous claims or arguments.

Prior to Octane, a lawyer could push to the limits of Rule 11 and the ethical rules without risking (in the abstract, of course) fee shifting under Section 285.  This is because Section 285 had been interpreted (wrongly, I think) to require proof by clear and convincing evidence of both subjective and objective frivolousness.

Now, fees can be shifted if the case is merely out of the ordinary — even if it complies with Rule 11.  This could have a remarkable chilling effect on litigation:  we want lawyers to challenge bad patents, for example.

In thinking about this, it seems to me that lawyers should be regularly counseling their clients about important developments in litigation that, while not risking Rule 11 sanctions (or under 1927, inherent power, etc.) nonetheless risk fee shifting.  “I can do this, and I may have a duty to do this, but it creates risk for you.”

Thoughts?

Even under BRI, A Wired-Connection is not “Wireless”

Patent,

by Dennis Crouch

In re Imes (Fed. Cir. 2015)

The Federal Circuit has again rejected USPTO’s broadest reasonable claim construction as unduly broad.  The Federal Circuit here maintains the BRI standard, but suggests that more emphasis should be placed on the ‘reasonable’ prong and less on ‘broadest.’

More formal claim construction is becoming a common aspect of ordinary patent prosecution. However, rather than applying the “correct” claim construction that would be applied to an issued patent, the USPTO examiners are tasked with construing pending patent claims according to their Broadest Reasonable Interpretation (BRI).  By design, BRI is intended to be broader than the interpretation given by a court. The purpose of this approach is to offer an additional buffer zone between the prior art and the issued patent and to give the USPTO stronger tools to ensure that claims are not ambiguously written.

In the present case, Imes is attempting to patent a device for certain types of wireless communication and the applied-for claim includes a “wireless communication module.”  Imes argues that that term should be construed as a module that communicates without wires using electromagnetic waves.  The claim construction debate over that term stems from the USPTO’s position that the broadest reasonable construction of “wireless communication” includes communication with wires. In particular, the PTO argued that “wireless communication” between two devices could be accomplished with a removable flash-drive — i.e., by saving information from a first computer on a flash drive then physically moving the flash drive to the second computer. Boom!

Siding with Imes, the Federal Circuit writes:

The Patent Office’s construction of “wireless” to include communications along metal contacts of the removable memory card and the computer system is inconsistent with the broadest reasonable interpretation in view of the specification. The construction of “wireless” is straightforward. The ’423 application expressly and unambiguously defines wireless: “[w]ireless refers to a communications, monitoring, or control system[] in which electromagnetic or acoustic waves carry a signal through atmospheric space rather than along a wire.” ’423 application. The ’423 application consistently uses the term “wireless” to refer to methods and devices that carry waves through atmospheric space, such as Bluetooth and various cellular protocols. The metal contacts of a removable memory card do not carry a signal through atmospheric space using electromagnetic or acoustic waves, and thus removable memory card 35 is not a wireless communication module under the broadest reasonable interpretation of that term in view of the specification.

USPTO Solicitor had identified the error in the PTAB ruling and attempted to shift the argument on appeal.  However, the Federal Circuit refused to hear the new theory as not properly on appeal.

= = = = = =

Imes’ pending application also requires streaming video. In its rejection of the claims, the USPTO concluded that one of the references taught streaming video by teaching the ability to send a series of emails that each include an image attachment.  The USPTO determination here looks like a factual conclusion regarding the scope-and-content-of-the-prior-art — the type of determination that is generally given substantial deference on appeal.  On appeal, the Federal Circuit gave that deference, but found the conclusion still unreasonable:

Sending a series of e-mails with attached still images is not the same as streaming video. Such a construction is unreasonable as it comports with neither the plain meaning of the term nor the specification. Streaming video is the continuous transmission of video. A series of e-mails with attachments does not meet the definition of “streaming” and still images do not meet the definition of “video.”

On remand, the USPTO’s solution will likely be to search for better prior art.

Opportunity for Latino Law Students Interested in Intellectual Property

Patent

By Jason Rantanen

The Hispanic National Bar Association and Microsoft are once again sponsoring their week-long HNBA/Microsoft Intellectual Property Law Institute (IPLI).  One of my students participated in the 2013 IPLI and raved about it for months afterwards.

From the IPLI website:

The “HNBA/Microsoft IP Law Institute” will provide opportunities for Latino students interested in intellectual property law, including patents, copyrights, trade secrets and trademarks. This summer, up to twenty-five Latino law students from law schools across the country will be chosen to participate in an IP immersion program in Washington, DC with all necessary expenses covered. Candidates will be selected in a highly competitive process, and the selected students will be provided substantive instruction, the opportunity to observe first-hand U.S. IP institutions at work, and the chance to meet leading members of the IP legal community who will serve as mentors and potentially provide pathways for future job opportunities.

For more details, check out the website: http://www.hnba.com/main/view_event/18/1

A Constitutional Challenge to Inter Partes Review

Patent, ,

by Dennis Crouch

The America Invents Act (AIA) created a set of new administrative review procedures (IPR, PGR, CPR) that allow third-parties to challenge already issued patents.  This new approach takes a power that was previously held by courts and gives it instead to the USPTO. From a separation-of-powers perspective, the new law shifts power from the Article III courts in favor of the Article I executive-controlled agency.

After losing on the merits of the inter partes review brought by HP, patentee MCM has now appealed to the Federal Circuit — asking the court to find the inter partes review statute unconstitutional for violation of the Seventh Amendment right to a jury trial.

Question Presented:

Whether actions to cancel or revoke a patent must be tried in Article III Courts with access to a jury under the Seventh Amendment to the United States Constitution.

Ned Heller, author of the brief, reaches back to Marbury v. Madison, 5 U.S. 137 (1803), for the standard and accepted principle that “the question whether a property right may be revoked lies within the exclusive province of the Courts.” In 1893 the court explained further that:

The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.

McCormick Harvesting Machine Co. v. Aultman, 169 U.S. 606 (1898).

The largest hurdle for MCM is that the Federal Circuit decided the parallel issue with regard to reexaminations in Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985). In Patlex, the Federal Circuit found that rexaminations did not violate Seventh Amendment.  In response, MCM argues (1) Patlex is wrongly decided; and (2) Patlex was effectively overruled by the Supreme Court in Stern v. Marshall, 564 U.S. 2 (2011) (although bankruptcy judge had statutory authority, it lacked Constitutional authority).

Notes:

  • Read the Brief: MCMBrief
  • In the Alternative: MCM also argues its case on the merits of obviousness and that the case is time–barred under 35 U.S.C. 315(b) since one of HP’s affiliates (Pandigital) was served with an infringement complaint more than one year before the IPR request was filed. Thus, it is possible that the court will rule in MCM’s favor without reaching the Constitutional question.
  • The patent at issue is US Patent No. 7,162,549 that broadly claims a controller chip for interfacing with a flash memory card used in many devices, such as digital photo frames.  More than 100 companies have been sued for infringement over the past six years, but no court has yet found the claims invalid.

 

35 U.S.C. 101

Patent

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

Obviousness: Cannot modify Prior Art a way that Disrupts the Reference’s Contribution to the Art

Patent, , ,

by Dennis Crouch

Plas-Pak Indus v Sulzer Mixpac (Fed. Cir. 2015) (non-precedential)

In 2011, Plas-Pak requested an inter partes reexamination of Sulzer’s paint-mixing Patent No. 7,815,384.  After considering the prior art, the examiner refused to issue the proposed obviousness rejection and that determination was affirmed by the PTAB. The proposed obviousness rejection involved two prior patents: Fukuta and Morris (inter alia).  Although the two references taught all of the Sulzer claim limitations the USPTO found that it would be improper to combine the references in an obviousness rejection.  In particular, the PTO found that the central feature of Fukuta involved the prevention of back-flow and the proposed combination with Morris would eliminate that core feature.  That required “substantial reconstruction” that so greatly impacts the “principle of operation” led to the Board’s conclusion that the combination would not have been obvious to one of ordinary skill in the art.

In most cases USPTO does not appeal an adverse PTAB decision. Here, however, the third party requester has appellate standing.

Under the rules of administrative procedure, factual findings made by the PTAB are reviewed by the Federal Circuit for “substantial evidence.” Under that low standard, the Federal Circuit will affirm factual conclusions so long as the evidence is sufficient such that “a reasonable mind might accept” that the conclusion is supported by the evidence.  Legal conclusions, on the other hand, are reviewed de novo by the Federal Circuit.

As with many areas of patent law, obviousness involves mixed questions of law and fact. On point here, questions of fact include (1) what a reference teaches; and (2) whether a proposed combination of references would impact a reference’s “principle of operation” while the ultimate conclusion as to whether an invention is obvious is seen as a question of law.  Of course another fundamental question of law is interpretation of the statute and precedent.

At first cut, the Federal Circuit appeared to follow these rules of review and gave deference to the PTAB’s principle of operation ruling. And, as a consequence affirmed the refusal to reject.

I see some error in the Federal Circuit’s approach.  In particular, the challenger’s argument here was not simply that the PTAB erred in reading the prior art to discover its principle of operation.  Rather, Plas-Pak argued that the PTAB erred by ruling that a prior art’s principle of operation should be limited to its innovative contribution to the art.  That general question of “how do we define a principle of operation” is a question of law and should be reviewed de novo by the court.  In its brief, Plas-Pak argued this particular point – that the appeal is focused on whether the Board applied the correct legal definition of a “principle of operation” — particularly “that a reference’s principle of operation is not equivalent or limited to its alleged contribution to the art.”

The decision here was authored by Judge Lourie and joined by Judges Moore and Reyna. However, because it was non-precedential, the standard operating procedures of the Federal Circuit do not require that it be first distributed to the other appellate judges prior to release.

Foreign Agent-Client Privilege?

Patent

by Dennis Crouch

A bedrock of U.S. legal practice is attorney-client privilege that allows a party to keep certain communications secret.  This is an important exception to the broad discovery that is ordinarily permitted in U.S. civil litigation.

In U.S. patent prosecution, a number of privilege issues have arisen – particularly when the communication is not between a client and a U.S. attorney, but rather with a non-lawyer patent agent or a non-U.S. legal service provider.

The USPTO is considering whether to provide a set of best practices as advice to U.S. courts.  Taking the first step in that direction, the USPTO has published a Federal Register notice asking for comment on the following questions:

Whether and to what extent U.S. courts should recognize privilege for communications between foreign patent practitioners and their clients; the extent to which communications between U.S. patent applicants and their non-attorney U.S. patent agents should be privileged in U.S. courts; and whether and to what extent communications between U.S. patent practitioners and their clients should receive privilege in foreign jurisdictions.

A Roundtable will be held on February 18, 2015 and written comments can be submitted to ACPrivilege@uspto.gov by February 25, 2015.

LINK: http://www.gpo.gov/fdsys/pkg/FR-2015-01-26/pdf/2015-01241.pdf

 

Interesting, Problematic Prosecution Bar Case

Ethics

I can’t find this case, Velocity Patent LLC v. Audi of Am., Inc (N.D. Ill. Jan. 21, 2015) online (other than Pacer), but this is the essential analysis:

Audi argues that there is a significant risk of disclosure because Thomas C. Mavrakakis is Velocity’s sole member and the named partner at the law firm representing Velocity in the investigation, Mavrakakis Law Group LLP. Audi further argues that Velocity’s attorneys are involved in Velocity’s patent licensing and business decisionmaking.

Audi has not met its burden to show good cause for its proposed modification of the Protective Order. Mavrakakis is the sole manager of Velocity, but he is not one of the prosecuting attorneys in the case. James Shimota, one of the actual prosecuting attorneys, was involved in a related entity in the past but is not alleged to be a current member or manager of Velocity. Audi has not shown that Mavrakakis is involved in patent prosecution or that Shimota is involved in competitive decisionmaking.

Audi points to a prior decision of this court that found litigation attorneys to be competitive decisionmakers when they were “deeply involved in a [patentee’s] business decisionmaking in the area of intellectual property” and “involved in representing the client in multiple, related infringement cases.” Interactive Coupon Mktg. Grp., Inc. v. H.O.T.! Coupons, LLC., Case No. 98–CV–7408, 1999 WL 618969, at *3–4 (N.D.111.Aug. 9, 1999). However, in that case, the law firm was likely to represent the patent holder “in the prosecution of numerous related patents … in the context of a fluid, developing technology.” Id. at *3. Here there is only one patent at issue; and this area is not a fluid, developing technology. And as previously stated, Audi has not shown that the litigation attorneys are involved in business decisionmaking.

Why do I think it’s troubling? First, it puts the burden on the party seeking the bar to show what the other lawyers are doing.  How’s that practicable?  Second, in these one-owner entities, unless the sole “business” of the entity is suing his particular defendant, how can there not be involvement in competitive decision-making?

Next Up: Lighting Ballast

Patent

In Teva v Sandoz, the Supreme Court held that a district court’s factual conclusion supporting a claim construction determination should be reviewed with deference on appeal.  In the expected follow-up, the Supreme Court has now acted on a hadful of cases riding in Teva‘s wake. In particular, the Court has issued “GVR” decisions in the pending cases of Lighting Ballast v. Universal Lighting; Gevo v. Butamax, and Shire v. Watson Pharma.  In a GVR, the Supreme Court Grants certiorari, but, rather than deciding the case in the merits, immediately Vacates the appellate court holding and Remands for further consideration — Grant-Vacate-Remand.  For these cases, the Supreme Court wrote simply:

 The petitions for writs of certiorari are granted. The Judgments are vacated, and the cases are remanded to the United States Court of Appeals for the Federal Circuit for further consideration in light of Teva Pharmaceuticals USA, Inc., v.
Sandoz, Inc., 574 U. S. ___ (2015).

On remand, these cases will each challenge aspects of the new deferential review standards and, once they are decided, district courts will then understand whether the game has truly changed.

Delano Farms v. California Table Grape Commission (Fed. Cir. 2015)

Patent, ,

by Dennis Crouch

Like their utility and design patent brethren, plant patents must also satisfy the patentability requirements of Section 102 and 103 of the Patent Act. In Delano Farms v. California Table Grape Commission (Fed. Cir. 2015), the plant patents at issue relate to Scarlet Royal and Autumn King table grapes. Plant Patent Nos. PP16,229 and PP16,284.  The declaratory-judgment plaintiffs are grape growers seeking to invalidate the patents so that they can grow the grapes without continuing to pay a license fee.

Public Use: Under pre-AIA law, Section 102(b) renders patents invalid if the claimed invention was “in public use” more than one year before the application priority filing date and here, the question is whether certain proven third-party uses count under the law.

Interesting Factual Story: The patented grapes here were created through a USDA project and the patents are owned by the USDA. More than one year before filing the patent applications, the USDA held an open house where it displayed the two varieties.  At the event, a USDA employee (Klassen) gave some of the plants to a local grower (Ludy) but asked Ludy not to sell the grapes he might grow.  Ludy also apparently understood at the time that Klassen had no authority and should not have given out the plants.  Nevertheless, Ludy did grow the variety and also gave some buds to his cousin for him to grow.  However, Ludy testified that his cousin also understood that he should keep the variety secret until it was commercially released by the USDA.  (However, there was nothing written regarding the secrecy needed).   The cousin grew several hundred plants but did not sell any of the resulting grapes before the one-year critical 102(b) date.  Finally, Ludy also showed the plants to Sandrini who was an outside marketer of grapes for both Ludy and his cousin.

Public Use: In interpreting the public use prong of 102(b), the Federal Circuit has focused on whether the invention was either accessible to the public or commercially exploited.  Importantly, the court has previously held that “secret or confidential third-party uses do not invalidate later-filed patents.” Dey v. Sunovion.  But the Leading public use case continues to be Egbert v. Lippmann, 104 U.S. 333 (1881).  In that case, the inventor gave an under-garment corset to his love (who was not yet his wife) who wore it in various forms for 11 years before the patent application was filed.  Even though there was no evidence that anyone in the public saw the corset, the Supreme Court found an impermissible public use and the patent void writing:

If an inventor, having made his device, gives or sells it to another, to be used by the donee or vendee, without limitation or restriction, or injunction of secrecy, and it is so used, such use is public, even though the use and knowledge of the use may be confined to one person.

The challengers in the grape case here latched onto Egbert and argued that there was no real secrecy limitation here despite the fact that only a few individuals actually knew of the public use.

Siding with the USDA Patentee, the Federal Circuit affirmed the district court’s factual findings that the patentee did not authorize Klassen to facilitate third party use of the invention and that Ludy understood that he should keep the variety secret until publicly released by the USDA. “The findings of the district court clearly establish, therefore, that both Ludys knew that they were not authorized to have the plants and that they needed to conceal their possession of the plants.”

Distinguishing Egbert, the Federal Circuit noted that case turned on the inventor’s lack of effort to maintain secrecy.  Here, the USDA made attempts to keep secrecy and, to a large extent, was successful.  The tale here is interesting because of the way it softens the otherwise harsh limits under Section 102(b).

Impact of the AIA: This case was decided under pre-AIA law because the patent application was filed prior to March 2013.  The AIA rewrote much of the novelty provision of Section 102, but included the limit on patenting inventions already “in public use.”  I would expect that under the new law, these same activities would likewise not be seen as being in public use. One difference with the AIA is that the critical date for public use is no longer one-year prior to the application filing date, but instead is moved-forward the actual filing date itself.  In this case, that change would likely have made a difference because the third-parties were less private in the year leading up to the application filing, including commercial sales of the grapes.

Dr. Sheppard Selected as Director of USPTO’s Detroit Office

Patent,

By Jason Rantanen

Congratulations to my colleague at the University of Nebraska College of Law, Dr. A. Christal Sheppard, who I understand has been selected as the first Director of the PTO’s Detroit satellite office.  From her biography at the College of Law:

Dr. Sheppard began her career as a scientist earning a M.S. and Ph.D. in Cellular and Molecular Biology from the University of Michigan.  After receiving a J.D. from Cornell University Law School and interning with Judge Rader at the Court of Appeals for the Federal Circuit and the Executive Office of the President’s Office of Science and Technology Policy, she was a practicing attorney at the law firm of Foley & Lardner earning extensive experience in patent prosecution, client patent counseling and ligation. She then served in the Office of the General Counsel of the United States International Trade Commission working on Section 337 matters, arguing before the United States Court of Appeals for the Federal Circuit. In 2005, Dr. Sheppard also completed Harvard University’s John F. Kennedy School of Government’s Executive Education for Senior Managers in Government program.

Her successful career in intellectual property law and policy included her tenure as Chief Counsel on Patents and Trademarks for the United States House of Representatives Committee on the Judiciary where she was integral in many endeavors including the Leahy-Smith America Invents Act, the most comprehensive change to this nation’s intellectual property laws in over 60 years.

 

Director Lee: Next Step is to Focus on Patent Quality Initiatives

Patent,

by Dennis Crouch

In her confirmation hearings on January 21, Michelle Lee reported to the Senate that both the USPTO and the Courts have taken significant steps in addressing problems in the patent system following enactment of the AIA. However, Lee supports further “balanced” statutory reform to particularly address patent litigation abuses.  However, Lee was unwilling to take a stance on any particular reform, such as the automatic-fee-shifting  that was a central aspect of the Goodlatte patent reform bill in 2014.  Republicans now control the Senate, and thus Republican support is a necessary element of the confirmation hearings.  However, it appears that Lee will garner full support from the committee. A letter sent the same-day to senate leaders signed by 200+ entities also calls for balance and moderation in any patent reforms. [Inventing America Patent Letter]

Lee did take more of a stand in her speech at the Brookings Institute on the 22nd in explaining her major top priority of enhancing the quality of patents issued by the USPTO to reduce the cost associated with issuing patents that should not have issued.  As part of that goal, the agency will soon announce a set of proposed quality initiatives and look for input from stakeholders.  In addition, Director Lee has appointed Valencia Martin Wallace as the first Deputy Commissioner for Patent Quality. Martin Wallace was already an Assistant Deputy Commissioner focused on Electrical Disciplines after rising through the ranks of the PTO.

Giving Deference to the Supreme Court in Teva v. Sandoz

Patent, ,

by Dennis Crouch

In Teva v. Sandoz, the Supreme Court raised the standard of appellate review of a district court’s factual conclusions regarding extrinsic evidence relied upon during claim construction proceedings.  Although the decision represents a relatively small change in procedural law, it is important, both because claim construction has become such a major element of patent litigation and because the Court of Appeals for the Federal Circuit has a history of reversing a high percentage of claim construction decisions.

I asked a handful of patent law experts for their instant thoughts on the decision (and gave them strict word limits). Douglas Kline, Chair of Goodwin Procter’s IP Litigation Group spells out the basic first-order result of the case:

From now on, when a district court resolves factual disputes concerning extrinsic evidence bearing on patent claim construction, the Federal Circuit will review those subsidiary factual findings for clear error.  This should result in the Federal Circuit affirming some claim construction decisions it might have overturned under the old standard.

Thinking forward about how parties will react, MBHB Partners Joshua Rich and Andrew Williams suggest higher reliance on expert testimony and thus higher litigation costs:

Today’s decision is likely to increase the cost and complexity of claim construction because it encourages parties to introduce extrinsic evidence, especially expert testimony, in an attempt to maximize deference to a favorable decision.  And some trial courts may end up relying on that extrinsic evidence to insulate their decisions.

Joshua Rich & Andrew Williams, partners at McDonnell Boehnen Hulbert & Berghoff.  “At the district court level, the new standard of review will likely mean more reliance on experts in interpreting the claims.” Dominick Conde, partner at Fitzpatrick, Cella, Harper & Scinto LLP.

Providing Guidance: The decision itself does a nice job of detailing the level of review for each different aspect of a claim construction ruling.  Paul Hughes from Mayer Brown LLP comments that “the Court provided unusually robust prospective guidance to aid the Federal Circuit in distinguishing questions of fact from questions of law.”

As usual, Professor Lefstin’s comments are both insightful and linked to historic evidence. Here, Lefstin disagrees slightly with Hughes in that some surprising aspects of claim construction should also be considered extrinsic evidence.

As Justice Traynor pointed out long ago, sources of meaning such as dictionaries and the judge’s personal linguistic experience are ‘extrinsic.’ Under Justice Breyer’s holding, the act of consulting a dictionary – which is how a court might determine “the meaning of a term in the relevant art during the relevant time period” – seems entitled to deference.

Jeffrey A. Lefstin, Professor of Law, UC Hastings College of Law.  However, Lefstin – along with others – believes that the ultimate change in the law is too slight to make much difference. Or, perhaps more pointedly, Lefstin’s argument is that the Teva decision leaves the Federal Circuit with power to continue reviewing claim construction without deference.

Ultimately it will make no difference, since the CAFC can review without deference the district court’s assignment of that meaning “in the context of the specific patent claim under review.”  The opportunities for the CAFC to frame construction as a contextual inquiry are so pervasive that Teva will serve only to generate pointless disputes over the extrinsic/intrinsic and isolated/contextual boundaries.

Lefstin. Recognizing this same point, Professor Liivak explains that a legal analysis is still required for claim construction which will be reviewed de novo.

There is still ample room for de facto de novo review.  The district court “must” conduct a “legal analysis” on whether the factual determination is relevant in the “context of the specific patent claim under review.”  This is where all the maneuvering will be.

Oskar Liivak, Professor of Law, Cornell Law School.  With reference to the disputed “molecular weight” claim term in this case, Liivak foresees that the Federal Circuit could fairly easily modify its opinion to satisfy the Supreme Court without changing its ultimate determination.

On remand as to this claim term, a very few words have to change but the outcome need not:  the factual determination about SEC is quite plausibly irrelevant to interpretation of the intrinsic evidence in Fig. 1.

Liivak.  The question – in Professor David Berry’s mind is whether the CAFC will “flex its muscles” on the issue.  If not, we can “look for more expert testimony, especially on the crucial question of what the claim meant to those in the art. That finding frequently will be dispositive, and may insulate the whole construction from de novo review.”  Professor David C. Berry, Western Michigan University – Cooley Law School.

Fallacy of Predictability: One of the key policy goals of deference is to provide predictability – at least once the district court construes the claims.  Professor Mark Janis sees the potential that this particular outcome will, unfortunately, not aid that goal. Still, Janis has some optimism. He writes:

A long-overdue ruling.  But it’s one that leaves CAFC judges ample room to defer (or not) in any given case.   The CAFC’s challenge is to demonstrate that it can implement Teva in the service of better predictability – which may require some CAFC judges to set aside cherished views about who really gets to call the shots in claim construction.

Mark D. Janis, Robert A. Lucas Chair of Law, Center for Intellectual Property Research, Indiana Univ. Maurer School of Law.  I agree with the fallacy of predictability given by deference, but at an even deeper level.  If I may quote myself:

My problem with the decision is that giving deference on review only masks the major problem that claim scope is not well understood until decided by a court.  Claim scope should be clearly understood at the time of issuance.

Dennis Crouch, Professor at the University of Missouri School of Law.

Who Benefits?: Erich Spangenberg is the CEO of nXn Partners and founder and former CEO of IPNav. He has been on the patent-owner side of a very large number of patent lawsuits and he tends to provide insight that is spot on. In my prior article on Teva, I suggested that patentees will prefer the new rule and Spangenberg agrees, with caveats:

The appellate reversal rate was too high and created far too much uncertainty.  If what Teva means is that we are going to have greater certainty, faster resolution as a result of fewer reversals and the occasional district court decision that gets it wrong—I am in favor.  My enthusiasm is tempered by the likelihood that there are a few years of disputes as the new boundaries are defined—but longer term, this is a positive.

Erich Spangenberg.

Professor Roger Ford recognizes that “who benefits” may well depend upon the case:

How [Teva] will play out is unclear, since litigants don’t always know, before construction, what review standard they’d prefer. Optimistic parties may prefer deferential review, assuming they’ll win; risk-averse ones may prefer having two chances to win.

Roger Ford is Assistant Professor of Law at the University of New Hampshire School of Law.

Evidentiary Hearings: Few courts conduct evidentiary hearings as part of claim construction. Going against the tide, Michael Risch doesn’t foresee any change in that reality:

A key question after Teva will be whether District Courts are more likely to hear extrinsic evidence just because findings get deference. Given likely reversal if the intrinsic evidence is clear, I don’t see why they would waste their time that way.

Michael Risch, Professor of Law, Villanova University School of Law.  Implicit in Professor Risch’s remarks is the conclusion that the Phillips “intrinsic first” approach continues to reign. Dean Holbrook believes that conclusion is correct:

The Federal Circuit will continue to use the Phillips hierarchy, turning to extrinsic evidence only when the intrinsic evidence is ambiguous. I think, in the main, the Federal Circuit will view the intrinsic evidence as determinative, retaining de novo review in the vast majority of cases.

Timothy R. Holbrook, Associate Dean of Faculty and Professor of Law, Emory University School of Law.

Changing Claim Construction: Dean Holbrook’s conclusion is not universally supported.  Professor Jason Rantanen argues instead that Teva may have more generally changed the nature of claim construction:

As I read Teva, the Court endorses a claim construction process where the judge begins with the extrinisic evidence about a claim term, decides what the extrinsic evidence establishes for that term and then determines whether the way the patent uses the term is inconsistent with the established ordinary meaning of the term.  This approach is more consistent with Texas Digital than Phillips.

Jason Rantanen, Associate Professor of Law, University of Iowa College of Law.  Rantanen does fully agree with others that significant power is now in the Federal Circuit’s hands — in particular, he “fully expects the Federal Circuit to disagree with [his] reading” of the case.  Eileen M. Herlihy, a da Vinci Fellow at George Mason CPIP, recognizes a particular evidentiary focus here – the person having ordinary skill in the art. She notes that the court once again “reemphasizes the patent law specific importance of the PHOSITA, thereby adds to recent Supreme Court cases asserting this perspective.”

Although Rantanen in his claim-construction-shift compares precedent, Professor Shubha Ghosh encourages creative lawyering in suggesting alternative “styles of claim construction”

Teva teaches that patent claims consist of law, reviewed de novo, and evidence, reviewed for clear error.  Unanswered is what mix of law and evidence forms the basis for claim construction.  The Federal Circuit’s and rulings favored strict constuction.  The Court’s decision here opens the floodgates for experimentation by advocates and judges  in different styles of claim construction.

Shubha Ghosh, Vilas Research Fellow and George Young Bascom Professor
of Intellectual Property and Business Law, University of Wisconsin,
Madison, Law School.

Exceptionality: One theme of Supreme Court patent cases over the past decade is that patent law need not always be so exceptional – i.e., different from other areas of law.  Rather, when traditional principles apply across doctrines, then they should apply to patent law as well. Referencing eBay, an early case in this trend, Professor Clifford writes:

Patent law is not unique when balancing must be done before granting equitable relief. Now, as is required for other legal documents such as contracts, we must separate interpretation of the words used (a matter of fact) from the meaning and effect they have (a matter of law).

Ralph D. Clifford, Prof., Univ. of Massachusetts School of Law. Similarly, Professor Landers writes that “Teva underscores the Supreme Court’s view that (like eBay and Holmes v. Vorando) the procedural aspects of patent cases are not exceptional.” Prof. Amy Landers, Drexel University Kline School of Law.  “Teva has broad significance because it … conforms patent law to other areas of the law on a matter of proper appellate function.”  Eileen M. Herlihy, da Vinci Fellow at George Mason CPIP.

Indefiniteness and ambiguity have been important topics in recent patent law cases.  Profesor Laakmann reminds us that the setup for the Teva case is not so-much claim construction but instead the lower court determination that the claim was unduly ambiguous and therefore invalid as indefinite.

The case turns on whether there is cognizable distinction between a claim term being factually ambiguous (and thus amenable to extrinsic evidence under a “clearly erroneous” standard of review) and legally indefinite (and thus invalid under 112 under a de novo standard of review).  This is the crux of the disagreement between the majority and the dissent – the majority says “yes” and the dissent says “no.”

Anna Laakmann is an Assistant Professor at Lewis and Clark Law School.  On remand, an important feature of the case is that the lower courts will also now need to work-in the new standard of indefiniteness from Nautilus.

At the PTO: For the most part, we’re talking about patent litigation.  However, Professor Joe Miller thinks that there may be a broader impact on USPTO practice as well:

Justice Breyer, speaking for a split Court’s majority, set aside a Federal Circuit patent validity determination. According to the Court, the Federal Circuit had not reviewed the lower tribunal’s key factual findings with the greater deference the controlling rule requires. Today’s decision in Teva v. Sandoz? Sure. But also 1999’s Dickinson v. Zurko, 527 U.S. 150 (1999). Teva’s main effects may well be felt at the PTO.

Joe Miller, Professor, University of Georgia Law School.

Although there are differing perspectives here, the overarching thought is that we’ll have to wait to see what the Federal Circuit does — which is exactly the result deference is supposed to avoid.

– Dennis

* Thanks to my colleagues for providing their interesting input on this article.

 

Using 35 USC 285 to Impose Fees on Patentee’s Counsel

Ethics, , ,

When Dreams Come True? Using Section 285 to Impose Fees against a Losing Patentee’s Lawyers

By David Hricik

[This article first appeared in Landslide Magazine.]

 

A patentee can use the extraordinary costs of defense to extract settlements that far exceed the value of the technology to the defendant. Further, if the patentee’s business is asserting patents, it likely will have, compared to a manufacturer-defendant, fewer documents, fewer employees, and less to lose in a patent case.[1] These asymmetrical costs can lead to frivolous claims being made solely to extract unreasonable settlements.

Defense counsel has some tools, imperfect as they are, to shift those costs, including Federal Rule of Civil Procedure 11, 28 U.S.C. § 1927, and a court’s inherent power.[2] But only one tool generally allows for all fees to be shifted from a prevailing defendant to a losing patentee: 35 U.S.C. § 285. Section 285 authorizes fee shifting only in an “exceptional case.” Earlier this year, the Supreme Court in Octane Fitness, LLC v. Icon Health & Fitness, Inc., made it easier to recover fees, holding that an “exceptional case” was simply that: unusual, in that it “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”[3] Presumably, Octane will result in awards of fees in a greater number of cases, because the Court rejected interpreting the statute to allow fee shifting only upon clear and convincing evidence of both objective and subjective bad faith.[4]

Yet, particularly where the patentee is an asset-less “troll,” shifting fees is a hollow victory. An uncollectible judgment is literally not worth the paper it is printed on. But often trolls are represented by plaintiffs’ counsel, who may have deep, if not the only, pockets. No court has rigorously analyzed whether fees under § 285 may be imposed on the loser’s attorneys (either singly or jointly with the patentee), though motions to shift fees onto lawyers post-Octane are already being filed.[5]

This article shows that whether § 285 authorizes a prevailing accused infringer to have fees awarded against the patentee’s lawyer, either alone or jointly with the client, is an open question with strong arguments that it does. The article concludes by explaining why, even if lawyers are not directly liable to the opposing party, ultimately much of the increase in § 285 fee awards will be borne by lawyers, not their clients.

 

History, Text, and Purpose of Section 285

Fee shifting became available in patent cases for the first time in 1946 under 35 U.S.C. § 70, which permitted a court “in its discretion” to award fees “to the prevailing party.”[6] Congress made § 70 applicable to both accused infringers and patentees. Fee shifting in favor of a patentee was deemed necessary not only to ensure that a patentee who was forced to file a suit to protect its patent would not merely receive a reasonable royalty—what it would have received had the accused infringer taken a license in the first place—but also to prevent “a gross injustice.”[7]

Of course, the primary “gross injustice” a prevailing accused infringer faces in this statute’s context is paying its defense costs. Thus, with respect to the issue here, the statute’s purpose is to compensate a prevailing accused infringer to achieve justice. Consistent with this, courts soon emphasized that the statute focused on equity, fairness, and justice, stating for example that a fee award should be “bottomed upon a finding of unfairness or bad faith in the conduct of the losing party, or some other equitable consideration of similar force, which makes it grossly unjust that the winner . . . be left to bear the burden of his own counsel fees.”[8]

Congress recodified § 70 into what is now § 285. Rather than effecting substantive change, Congress added the phrase “exceptional case” to § 285 to codify the approach of those cases that had applied § 70 between 1946 and 1952.[9] Thus, § 285 focuses on achieving fairness, justice, and equity. With respect to accused infringers, § 285 is intended to avoid the injustice of a prevailing accused infringer having to bear the cost of defense in an exceptional case.

No one doubts that an award of fees in favor of a prevailing accused infringer can be entered against the patentee. But can an award be entered against the patentee’s lawyers, either alone or jointly with the patentee? In related cases and without rigorously analyzing the statute, the Federal Circuit gave mixed signals. In a nonprecedential opinion, the court reversed a district court’s award of fees under § 285 against the patentee’s counsel, but in a later precedential opinion, over a dissent, it apparently affirmed an award jointly and severally against the patentee and its counsel.[10]

 

Arguments that Section 285 Permits Shifting Fees onto Loser’s Counsel

The text is the starting point: nothing in § 285 indicates who must pay. Instead, the statute only states that fees may be awarded to a prevailing party. Congress could have but did not specify that the losing party must pay the prevailing party its fees, only that a party must prevail to receive a fee award. When Congress has wanted to limit statutes in that way, it has done so. Foremost, the Copyright Act allows the court to award “the recovery of full costs by or against any party.”[11] Congress’s decision not to limit § 285 in this same way confirms § 285’s plain meaning: it only specifies who can win, not who must pay.

Further, rules with similar structures have been interpreted in this way. For example, Federal Rule of Appellate Procedure 38 allows an award of fees for frivolous appeals “to the appellee.” That rule has been interpreted to permit an award against counsel, the appellee, or both.[12] Section 285 is likewise open-ended with respect to who must pay.

Moving beyond the text, the purpose of § 285 and congressional intent each suggests that an award against attorneys might be proper: an uncollectible award of fees does nothing to avoid the injustice of a wrongfully accused infringer paying the cost of defense in an exceptional case. The intent of Congress and the purpose of § 285 would be frustrated by a construction that does not permit awards against attorneys, at least where they are the only real recourse for compensation.

Further, construing § 285 to not permit fee awards against counsel results in some absurdities. Foremost, that interpretation would impose costs on the patentee for decisions that it may be incapable of making and, in fact, did not make. For example, many patentees cannot assess what a claim means; yet, courts have found cases “exceptional” for unreasonable infringement claims.[13] In that circumstance, imposing costs on patentees, not lawyers, punishes the wrong party and does not deter the offensive conduct. It may in fact result in punishing the innocent patentee, and yet awarding nothing in substance to the victim, the accused infringer.

Illustrating that point further, Rule 11 does not permit sanctions to be awarded against a client where the basis for the sanction is a frivolous legal argument.[14] Where the basis of a fee is a frivolous legal argument, interpreting § 285 to not permit awards against lawyers would result in clients being on the hook for fees, which is clearly against public policy. Further, unless a lawyer can be liable under § 285, the lawyer’s interest is to characterize any legal arguments as being solely the basis for an award under that statute, rather than Rule 11. In this regard, some courts have refused to permit a client to indemnify an attorney for sanctions imposed against the lawyer, recognizing that the deterrent effect of sanctions would be diminished.[15]

Finally as a matter of policy, sanctions are generally not insurable, but damages for malpractice are.[16] Thus, by imposing fees only on the patentee, courts may indirectly allow lawyers to insure themselves for damages that otherwise would not be insurable.

 

Arguments against Interpreting Section 285 to Permit Shifting Fees onto Counsel

Some statutes do permit awards expressly against attorneys. Foremost, 28 U.S.C. § 1927 permits sanctions against “[a]ny attorney or other person admitted” to practice. The existence of these statutes suggests that when Congress wants to permit an award of fees against a lawyer, it knows how to do so, and it did not do so in § 285. Where a fee shifting statute does not mention attorneys, some courts infer that awards against counsel are improper.[17]

In addition, at least after Octane, imposing liability directly onto attorneys may chill advocacy. Specifically, an attorney may not make an argument permitted by Rule 11 in light of the potential for liability under the much lower, and amorphous, standard in Octane.

Finally, although the purpose of § 285 was to avoid an injustice to prevailing accused infringers, Congress no doubt understood that normal limitations of liability that benefit corporations would apply. What matters is what Congress intended in 1952, and nothing suggests that it was concerned about asset-less trolls enforcing patents but leaving accused infringers actually uncompensated for their loss.

 

Conclusion

It is an open question whether § 285 allows fee awards against losing counsel. Given the statute’s open-ended language and broad equitable purpose of avoiding the injustice of an accused infringer paying its own fees, the text would seem to permit such awards when justice so requires. Those circumstances may include where counsel has assisted the patentee to structure its operations to avoid having assets to pay any award of fees, or where the lawyer’s conduct causes the exceptional nature of the case. In making any award, however, courts should carefully consider any chilling effect that an award may have on advocacy.

Lawyers should carefully consider several things in the post-Octane world:

The patentee’s counsel faces different issues than the accused infringer’s. First, to some extent it may be unethical to seek indemnity or reimbursement of such claims.[18] Second, suppose the lawyer of a patentee who loses faces the motion of the prevailing accused infringer asserting that the lawyer is liable to the accused infringer for its fees. That lawyer must face the fact that the patentee’s interest is that the lawyer bears those costs, while the lawyer’s interest is the opposite. As a result, it may be necessary for the lawyer, at a minimum, to obtain the client’s informed consent to continue the representation.

Counsel for an accused infringer must determine whether to attempt to shift fees onto the patentee’s counsel, rather than the patentee. Even if the patentee has assets, an order holding the patentee and its counsel jointly liable may best serve the accused infringer.

Finally, fee awards are going to be borne largely by lawyers, not clients. A client ordered to pay the other side’s fees will often contend that the lawyer’s incompetence caused the client to bring, or defend, an exceptional case. A lawyer should consider insurance, indemnification, revisions to engagement letters to permit withdrawal, and other ways to protect the lawyer and to make the risks clear to the client.

All lawyers should analyze § 285 carefully. It may be a dream come true, or a dark nightmare.

 

BIO: David Hricik is a professor at Mercer University School of Law and of counsel at Taylor English Duma LLP in Atlanta, Georgia. He clerked for Chief Judge Rader in 2012, has written on statutory interpretation, and is nationally recognized as an expert in legal ethics in patent practice. The title is from “When Dreams Come True,” by John Wesley Harding on the CD Garden of Eden (2003).

 

[1]. See David Hricik, Legal Ethics and Non-Practicing Entities: Being on the Receiving End Matters Too, 27 Santa Clara Computer & High Tech. L.J. 793 (2010); Randall R. Rader, Colleen V. Chien & David Hricik, Make Patent Trolls Pay in Court, N.Y. Times, June 4, 2013, http://www.nytimes.com/2013/06/05/opinion/make-patent-trolls-pay-in-court.html?_r=1&.

[2]. See David Hricik, Patent Ethics: Litigation § 5.01 (LexisNexis 2014).

[3]. 134 S. Ct. 1749, 1756 (2014).

[4]. Id. at 1756–57.

[5]. See, e.g., Opinion and Order, Rates Tech. Inc. v. Broadvox Holding Co., LLC, No. 13 Civ. 0152 (S.D.N.Y. Oct. 7, 2014) (concluding without rigorous analysis that § 285 did not authorize awards against lawyers).

[6]. See Octane, 134 S. Ct. at 1753.

[7]. See S. Rep. No. 79-1503 (1946).

[8]. Park-in-Theatres, Inc. v. Perkins, 190 F.2d 137, 142 (9th Cir. 1951) (emphasis added). Courts considered all facts, including whether the patentee could have simplified the case, made unreasonable infringement claims, or delayed in suing or in dropping customer-defendants. E.g., Merrill v. Builders Ornamental Iron Co., 197 F.2d 16 (10th Cir. 1952); Aeration Processes, Inc. v. Walter Kidde & Co., 170 F.2d 437 (2d Cir. 1948); Brennan v. Hawley Prods. Co., 98 F. Supp. 369 (N.D. Ill. 1951).

[9]. See Mach. Corp. of Am. v. Gullfiber AB, 774 F.2d 467 (Fed. Cir. 1985) (explaining addition of the “exceptional case” language).

[10]. Compare Phonometrics, Inc. v. ITT Sheraton Corp., 64 F. App’x 219 (Fed. Cir. 2003) (reversing § 285 award against lawyer), with Phonometrics, Inc. v. Westin Hotel Co., 350 F.3d 1242, 1253 (Fed. Cir. 2003) (affirming an apparent award of joint and several liability against client and lawyer over the dissent of Judge Newman, who argued that awards against counsel under § 285 were permissible only for egregious conduct). See also Stillman v. Edmund Scientific Co., 522 F.2d 798, 800 (4th Cir. 1975) (opining that “it is not the purpose of [§ 285] to discipline uncooperative or overzealous counsel”).

[11]. 17 U.S.C. § 505 (emphasis added).

[12]. “[M]any cases under rule 38 assess sanctions against offending counsel, alone or jointly with the client . . . .” Coghlan v. Starkey, 852 F.2d 806, 818 (5th Cir. 1988) (citing cases).

[13]. See Hricik, Patent Ethics, supra note 2, § 5.03[5][b] (collecting cases).

[14]. Fed. R. Civ. P. 11(c)(5)(A).

[15]. See Young Apartments, Inc. v. Town of Jupiter, Fla., 503 F. App’x 711 (11th Cir. 2013) (collecting cases and discussing policy issues); N.Y. Cnty. Lawyers’ Ass’n Comm. on Prof’l Ethics, Op. 683 (Nov. 15, 1990) (analyzing propriety of clients reimbursing lawyers for sanctions).

[16]. If a lawyer brings a patent case and fees are shifted under § 285 and imposed on the patentee, the patentee can contend that that lawyer acted incompetently by pursuing the case at all, or continuing after some point. Courts have already entertained these suits. For example, in E-Pass Technologies v. Moses & Singer, LLP, fees had been imposed on a losing patentee who then brought a legal malpractice claim against its lawyers. No. C-09-5967, 2011 WL 5357912 (N.D. Cal. Nov. 4, 2011); see also Deutch & Shur, P.C. v. Roth, 663 A.2d 1373, 1375 (N.J. Super. Ct. 1995) (stating that “the client may seek indemnification against the attorney for sanctions”); In re S. Bay Med. Assocs., 184 B.R. 963 (C.D. Cal. 1995) (analyzing indemnity of sanctions orders). Of course, and particularly under the broader Octane standard, simply because fees are imposed under § 285 does not automatically evidence incompetence.

[17]. E.g., Neft v. Vidmark, Inc., 923 F.2d 746, 747 (9th Cir. 1991).

[18]. For a discussion of indemnification in the context of sanctions, see N.Y. Cnty. Lawyers’ Ass’n Comm. on Prof’l Ethics, Op. 683 (Nov. 15, 1990).

Teva v. Sandoz: Partial Deference in Claim Construction

Patent, , , ,

by Dennis Crouch

As President Clinton taught, the meaning of words is always up for debate.  In the patent realm, actual claim scope often depends upon the particular meaning given to the individual words and terms.  We have seen that claim construction can vary widely – easily flipping the outcome of cases.  Litigators know the construction is only ‘probabilistic’ until decided by the court.  And, district courts know that their decisions are likely to be overturned – at least partially because claim construction is a question of law reviewed de novo and without deference on appeal

In Teva v. Sandoz, the US Supreme Court has changed the litigation game – holding that factual conclusions that underpin claim construction rulings must be reviewed for “clear error” – i.e., given substantial deference on appeal.

Up-to-now, many litigants have not worried much about the fact/law divide because all aspects of a claim construction decision were to be reviewed de novo in the eventual appeal.  More-so, district court litigants have likely shaded toward arguments asking for legal conclusion because those conclusions do not require the same level of evidentiary support as factual conclusions.  I expect for (some) litigants and district courts to shift their behavior and focus much more on evidentiary aspects of the case — such as the understanding of a person having ordinary skill in the art at the time of the patent.  The traditional approach is for plaintiffs to focus more on facts so that the case will end if they win at the district court level and for defendants to focus more on legal issues that – in case of a loss – are more easily appealable. Thus, on balance, the outcome here likely favors patentees as compared to the prior full de novo review system.

Under the new rule, determinations regarding evidence “intrinsic to the patent” will continue to be reviewed de novo on appeal. This intrinsic evidence includes both the patent document and the prosecution history of record.  The change, is that conclusions regarding other evidence considered – so called “extrinsic evidence” – are subject to the ordinary fact-finding rules of court and will be reviewed with deference on appeal.  Finally, the Supreme Court was also clear that application of the extrinsic evidence to the patent-in-question will also be seen as an issue of law reviewed de novo.

A major open question is the extent that the decision here modifies the standard approach to claim construction that has been explained by the Federal Circuit in Phillips v. AWH Corp – namely the rule that extrinsic evidence is of secondary importance and perhaps should not be considered absent ambiguity in the intrinsic evidence.  In my view, that approach is contrary to the rule that the interpretation should be based upon the contemporary understanding of a person having ordinary skill in the art.

At the prosecution level there is a bit of a logical conundrum – parties that present factual evidence during prosecution may get the USPTO to make factual conclusions and agree with that construction. However, if the case later goes into litigation that evidence and those conclusions will be seen as purely intrinsic evidence and thus given no deference in a Federal Circuit appeal.  It will be interesting to see how this works on a contemporary basis for the administrative post-issuance review proceedings where any testimony or extrinsic evidence presented instantly becomes part of the prosecution history record.

The 7-2 majority opinion was penned by Justice Breyer and joined by Chief Justice Roberts and Justices Scalia, Kennedy, Ginsburg, Sotomayor, and Kagen. Justice Thomas wrote in dissent an was joined by Justice Alito.

Statute vs Contract: In his dissenting opinion, Justice Thomas drew an analogy between claim construction and statutory construction and found that neither involve “finding of facts” even when conclusions are drawn from extrinsic evidence.  At least at a rhetoric level, this argument makes tremendous sense – the word “patent” itself references a publicly documented grant by a sovereign – something that seems awfully close to a statute.  Replying to the dissent, Justice Breyer argues for stare decisis — pointing to the fact that the Court already ruled in Markman that claim construction can have “evidentiary underpinnings.”  Rather, the majority links claim construction to that of a deed or contract where factual conclusions are sometimes needed.

Federal Circuit Exceptionalism: A theme running through most recent Supreme Court patent cases is that, when applicable, common-law patent doctrines should follow the common law approach rather than some specialized patent rule. Here, one aspect of the majority opinion is that the process of patent claim construction should look like the process of construing a deed or contract.  As Professor Ouellette wrote this morning: “Today’s opinion joins a long line of Supreme Court decisions rebuking the Federal Circuit for patent law exceptionalism.”  Of course, the link to deeds and contracts only goes so-far because with claim construction we’re not really looking to figure out what the patentee intended by the words but rather what is the proper public understanding of the words (as J. Scalia noted). Nevertheless, it will be interesting to see how district courts fare with that analogy and the extent to which the Federal Circuit is accepting.

Cybor No Longer Subject to Challenge: The Federal Circuit’s decision in Cybor has long been subject to renewed efforts for en-banc review. This happened most recently in Lighting Ballast Control LLC v. Philips Electronics N.A. Corp. (Fed. Cir. 2014) (En banc).  Although the Supreme Court here modified Cybor and Lighting Ballast, it also foreclosed future challenges to increase the level of deference. Rather, the Court is clear in Teva that – apart from factual conclusions regarding extrinsic evidence – that no deference should be given on appeal.

 

Masking the Problem of Claim Ambiguity: My problem with the decision is that giving deference on appellate review only masks the major problem that claim scope is not well understood until decided by a court. Claim scope should be clearly understood at the time of issuance rather than years later following an expensive litigation effort.

Teva v. Sandoz: Deferential Review on Factual Issues; de novo review of final question of construction

Patent

By Jason Rantanen

Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. (2015) Download Opinion
Breyer (author), joined by Roberts, Scalia, Kennedy, Ginsburg, Sotomayor, and Kagan; Thomas (dissenting) joined by Alito.

One (or both) of us will certainly write more on this very important opinion.  The Court holds that subsidiary factual issues are reviewed for clear error while legal determinations continue to be reviewed de novo.  From the Court’s syllabus:

Held: When reviewing a district court’s resolution of subsidiary factual matters made in the course of its construction of a patent claim, the Federal Circuit must apply a “clear error,” not a de novo, standard of review.  Pp. 4–16.

***

(c) This leaves the question of how the clear error standard should be applied when reviewing subsidiary factfinding in patent claim construction. When the district court reviews only evidence intrinsic to the patent, the judge’s determination is solely a determination of law, and the court of appeals will review that construction de novo. However, where the district court needs to consult extrinsic evidence in order to understand, for example, the background science or the meaning of a term in the relevant art during the relevant time peri­od, and where those subsidiary facts are in dispute, courts will need to make subsidiary factual findings about the extrinsic evidence.  The district judge, after deciding the factual dispute, will then interpret the patent claim in light of the facts as he has found them.  The ulti­mate construction of the claim is a legal conclusion that the appellate court can review de novo. But to overturn the judge’s resolution of an underlying factual dispute, the appellate court must find that the judge, in respect to those factual findings, has made a clear error. Pp. 11–14.

(d) Here, for example, the District Court made a factual finding, crediting Teva’s expert’s account, and thereby rejecting Sandoz’s ex­pert’s contrary explanation, about how a skilled artisan would under­stand the way in which a curve created from chromatogram data re­flects molecular weights.  Based on that factual finding, the District Court reached the legal conclusion that figure 1 did not undermine Teva’s argument that molecular weight referred to the first method of calculating molecular weight. When the Federal Circuit reviewed the District Court’s decision, it did not accept Teva’s expert’s explanation, and it failed to accept that explanation without finding that the Dis­trict Court’s contrary determination was “clearly erroneous.”  The Federal Circuit erred in failing to review this factual finding only for clear error.  Teva asserts that there are two additional instances in which the Federal Circuit rejected the District Court’s factual find­ings without concluding that they were clearly erroneous; those mat­ters are left for the Federal Circuit to consider on remand.  Pp. 14– 16.

The Court provides a few examples of how this new standard is to be applied:

In some cases, however, the district court will need to look beyond the patent’s intrinsic evidence and to consult extrinsic evidence in order to understand, for example, the background science or the meaning of a term in the rele­vant art during the relevant time period.  See, e.g., Seymour v. Osborne, 11 Wall. 516, 546 (1871) (a patent may be “so interspersed with technical terms and terms of art that the testimony of scientific witnesses is indispensable to a correct understanding of its meaning”).  In cases where those subsidiary facts are in dispute, courts will need to make subsidiary factual findings about that ex­trinsic evidence. These are the “evidentiary underpin­nings” of claim construction that we discussed in Mark-man, and this subsidiary factfinding must be reviewed for clear error on appeal.

For example, if a district court resolves a dispute be­tween experts and makes a factual finding that, in gen­eral, a certain term of art had a particular meaning to a person of ordinary skill in the art at the time of the inven­tion, the district court must then conduct a legal analysis: whether a skilled artisan would ascribe that same mean­ing to that term in the context of the specific patent claim under review. That is because “[e]xperts may be examined to explain terms of art, and the state of the art, at any given time,” but they cannot be used to prove “the proper or legal construction of any instrument of writing.” Winans v. New York & Erie R. Co., 21 How. 88, 100–101 (1859); see also Markman, supra, at 388 (“‘Where tech­nical terms are used, or where the qualities of substances . . . or any similar data necessary to the comprehension of the language of the patent are unknown to the judge, the testimony of witnesses may be received upon these sub­jects, and any other means of information be employed. But in the actual interpretation of the patent the court proceeds upon its own responsibility, as an arbiter of the law, giving to the patent its true and final character and force’” (quoting 2 W. Robinson, Law of Patents §732, pp. 482–483 (1890); emphasis in original)).

Accordingly, the question we have answered here con­cerns review of the district court’s resolution of a subsidi­ary factual dispute that helps that court determine the proper interpretation of the written patent claim. The district judge, after deciding the factual dispute, will then interpret the patent claim in light of the facts as he has found them. This ultimate interpretation is a legal con­clusion. The appellate court can still review the district court’s ultimate construction of the claim de novo. But, to overturn the judge’s resolution of an underlying factual dispute, the Court of Appeals must find that the judge, in respect to those factual findings, has made a clear error. Fed. Rule Civ. Proc. 52(a)(6).

The full discussion of the Teva example makes a similar point, finding that the Federal Circuit erred because it should have determined whether the district court’s acceptance of Teva’s expert’s explanation of figure 1 in the patent was “clearly erroneous.”

 

 

Next Steps on the USPTO Sensitive Application Warning System

Patent

The USPTO has now offered some public information regarding its secretive Sensitive Application Warning System with the apt acronym: SAWS. [LINK]  SAWS came to light after it was ‘leaked’ by examiners and Devon Rolf has written about his experience with the program on IP Watchdog.

The basic idea is that examiners have been encouraged to flag applications that claim “highly controversial” or those that might create “unwanted media coverage.”  Those applications are then tiered and then before allowance must be approved by either a technology center director or upper PTO management.

A major problem with the program of course is that none of the heightened reviews are made of-record.  Thus, neither the applicants nor the public are told which applications are up for review or whether the review is following any semblance of legal process.

My position is that the USPTO is right to allocate more time and energy on applications whose claims are clearly very broad in a way that would significantly alter the marketplace.  Of course, the review cannot be directed at avoiding USPTO embarrassment but rather to ensure that the issued patent complies with the law of patentability.  Avoiding embarrassment will be a secondary benefit.  As I mentioned above, the real problem here is the Office’s continued secrecy in this front.  We do not know which applications have been chosen, why they were chosen, or whether the level of review follows the law.  Because nothing is done on record, applicants likewise have no recourse regarding potential political capture of the examination process.

After the SAWS reports were leaked (and on my private suggestion) the office finally publicly admitted that the program exists and has provided some information regarding its progress.

[SAWS] is one of many practical, internal efforts that the USPTO has in place to ensure that only the highest quality patents are issued by the Agency.  {DC What are the other internal efforsts?} By bringing an additional quality assurance check to a very small number of pending patent applications, the USPTO helps ensure that those applications that could potentially be of special interest, are properly issued or properly denied.    An application flagged for such a quality assurance check undergoes the same types of examination procedures as any other patent application, and is held to the same substantive patentability standards.

In terms of numbers, the USPTO also reported that only about 0.04% of applications fall into the program.  This is only one application out of every 2,500 considered — the message here is “trust us – we’re just dealing with the oddballs.”  Overall, it looks like about 1,000 applications have been part of this particular program.

[USPTO SAWS DISCLOSURE]

I have requested that the USPTO provide a list of publicly-available applications that have been flagged for the SAWS program. Thus far, the USPTO has refused – claiming that the list of applications is privileged under exemption (b)(5) of FOIA.  My position is that privilege is not applicable to protect this list – especially based upon the tradition and legal requirements that examination be done on the written record with proper notice. See 35 U.S.C s132 and 37 C.F.R. s1.104.

 

Subject Matter Jurisdiction in Legal Malpractice Claims: The Door Gets Slammed Shut Again

Ethics

Dennis wrote up NeuroRepair v. Nath Law Group, here.  The case to me puts another nail (probably not the last) in the coffin of the “substantial federal question” basis for asserting subject matter jurisdiction in cases based upon malpractice during patent prosecution or litigation.  Boiled down, because state law creates a malpractice claim, the fact that patent law will be an issue is not enough to convert a state law claim into one arising under federal law.

This is good, and bad. The good is that I’ve seen several of these cases bouncing around for years between state and federal systems. Having jurisdictional certainty is a good thing.  If someone files in state court, the case likely should remain there; if in federal court, it likely should be dismissed (absent independent subject matter jurisdictional grounds, obviously).

The bad news is that state judges, with no experience with patent law, are going to be deciding patent law issues.  This creates a little bit of the wild west, potentially.  I suspect overall that defense counsel would rather be in federal court, but that probably varies.