Are Specific Information-Processing Claims Abstract Ideas?

Guest Post by Jeffrey A. Lefstin, Professor of Law at the University of California, Hastings College of Law.

The Supreme Court’s decision in Alice v. CLS Bank resolved the easy cases: claims that merely recite a mode of organizing activity coupled with a generic instruction to “do it on a computer” or “do it on the Internet.” The key question left open by Alice is whether claims to specific information-processing techniques represent ineligible abstract ideas or eligible applications. Answering that question will be critical to resolving cases like California Institute of Technology v. Hughes Communications, Inc., and McRO v. Activision, discussed in Robert Stoll’s Patently-O post last month.

The patents in Caltech were directed to a method of generating error correction codes in digital transmissions. They described a method of generating parity bits by accumulating previously generated parity bits, and a sum of randomly chosen irregular repeats of message bits. Notwithstanding that the patents claimed only information-processing steps, Judge Pfaelzer of the Central District of California ruled that the claims were patent-eligible: while the claims were directed to the abstract idea of error correction, the algorithm for generating parity bits represented an inventive application of the underlying idea.

As Judge Pfaelzer recognized, that holding might be in tension with Digitech Image Technologies v. Electronics for Imaging, where the Federal Circuit, relying on Benson and Flook, suggested that any claim merely transforming information with “mathematical algorithms” is not patent-eligible. So Caltech squarely raises the question of whether specific information-processing algorithms are patent-eligible after Alice.

More generally, the significance of Benson and Flook after Alice is a critical question for future § 101 jurisprudence: much of the difficulty faced by the lower courts and the USPTO arises from attempts to reconcile the Supreme Court’s earlier caselaw with its decisions since Bilski.

It is time to acknowledge that they cannot be reconciled, and they need not be. While the Court maintains a pretense that all its opinions are coherent with each other, the regime the Court has crafted since Bilski represents a sharp break from its earlier decisions. Courts that continue to rely on Benson and Flook have not recognized the significance of Alice’s reaffirmation of the Mayo framework for patent-eligibility. For Mayo established both a different structure and a different rationale for subject matter eligibility than the Court had employed in its prior cases.

First, Mayo provided a new structure for the § 101 inquiry: step one is to identify an abstract idea or law of nature underlying the claim, and step two asks whether the claim further recites an ‘inventive concept’ that transforms the abstract idea or law of nature into a patent-eligible application. If that was not the analytical framework employed in the Court’s earlier cases, then the analysis and holdings of those cases are not necessarily relevant after Mayo and Alice. The Court itself told us in Bilski that its earlier opinions represented nothing more than explanations of the basic exceptions for laws of nature and abstract ideas.

Second, Mayo and Alice reoriented the rationale for subject-matter exclusions. Benson and Flook were premised in large part on the exclusion of subject matter not expressly authorized by Congress, the restriction of patents to tangible processes, or the exclusion of preexisting truths that exist apart from human action. Those premises were rejected in Chakrabarty, Bilski, and Alice, respectively. Instead, Mayo and Alice grounded subject matter exclusions on the ‘building-block’ concern: that patents on fundamental principles risk foreclosing more innovation than they promote.

Given the Court’s reorientation of the doctrine, Benson and Flook’s focus on ‘algorithms’ is no longer relevant. Abstract ideas, after Bilski, Mayo, and Alice, are not characterized by intangibility or field of invention. They are characterized by ‘fundamentalness’ – the concern that patents on basic concepts will foreclose too much further development. In this framework, a specific information-processing algorithm, such as an algorithm for generating parity bits, does not qualify as an abstract idea.

Caltech defined the abstract idea as the purpose of the claim, recited at a reasonably high level of generality: error correction, in the claims at issue. Identifying the abstract idea with the purpose or effect of the claim follows from the structure of the Mayo/Alice test. Step one defines the abstraction (if any) underlying the claim, while step two asks whether the application of that abstraction contains an inventive concept. The object of step one must therefore be to separate the idea of the invention from the means of application, which will be the subject of step two.

We already differentiate between idea and means of application in the law of inventorship: courts have long distinguished between formulating a goal, effect or result – which is not a contribution to conception – and formulating the means of attaining that result – which is a contribution to conception. So the Caltech analysis merely maps that long-standing distinction onto the subject-matter inquiry under § 101.

I discuss these ideas further, and develop a framework of ‘inventive concept’ applicable to both abstract ideas and laws of nature, in a forthcoming paper available here.

Louisiana Challenge’s AstraZeneca on Antitrust Claims for Asserting Invalid Drug Patents

In March 2015, the state of Louisiana filed suit against AstraZeneca alleging antitrust violations based upon the company’s actions of using its patent rights to keep generic versions of Toprol-XL off the market in Louisiana.  AstraZeneca does have patent coverage, but the state argues that the patents are both invalid and unenforceable. Read the Original State Law Complaint filed in the Parish court of East Baton Rouge.

Now, AstraZeneca has filed a notice-of-removal of the state court lawsuit to Federal Court. The plea for removal argues that the case requires determination of a substantial question of patent law (as well as other federal questions).   Under 28 U.S.C. 1441(a), removal is allowed for “any civil action brought in a State court” so long as the Federal District Court has “original jurisdiction” over the case.  In general, this is thought of as “federal question jurisdiction.”

Since Louisiana is not alleging a federal cause of action, the courts will look to the Supreme Court’s analysis in Gunn v. Minton, 133 S.Ct. 1059 (2013) to determine whether the implicit Federal Questions are substantial enough to warrant divesting jurisdiction from the state court.  Gunn was a patent law malpractice action that required determination of a number of patent law issues (such as the experimental use exception to Section 102). In that case, however, the Supreme Court found that the the patent questions were not of sufficient importance to “the federal system as a whole.”

There are a number of ways to distinguish this case from Gunn. In particular, in Gunn the Supreme Court found it important that the outcome of the legal malpractice claim would have “no broader effects.”

[A state court decision on malpractice] will not stand as binding precedent for any future patent claim; it will not even affect the validity of Minton’s patent. Accordingly, there is no “serious federal interest in claiming the advantages thought to be inherent in a federal forum.”

Gunn (quoting Grable).

Here, the outcome of the Louisiana case could have a major impact on how courts across the country handle AstraZeneca and its patents, and how courts will consider allegations of patents improperly listed in the Orange Book.  This leads me to the tentative conclusion that the patent (and other federal) questions may well be substantial enough to allow for a Federal Question.  If so, the colorful Attorney General Buddy Caldwell may soon be face-to-face with the Federal Circuit. (Read the Notice of Removal).

New Job Postings on Patently-O Jobs

The PATENT Act of 2015

Earlier today, Senator Grassley (R-Iowa) introduced the bipartisan Protecting American Talent and Entrepreneurship Act of 2015 (PATENT) Act.  The PATENT Act is a revised version of prior proposed legislation that addresses some of the most severe criticisms of those proposals.  It’s also well situated to move forward, as it’s supported by leaders from both parties.  From the bill’s summarv (Sec. 1 is the title and table of contents; Sec. 2 are definitions; if the formatting is messed up, click the link for the original source):

SEC. 3. PLEADING AND EARLY DISCLOSURE REQUIREMENTS: Form 18 is
eliminated. Plaintiffs must identify each patent and claim allegedly infringed,
which products or processes are infringing, and describe the alleged infringement.
Allows plaintiffs to describe information in general terms if it is not accessible to
them. Clarifies that pleadings can be amended and allows for confidential
information to be filed under seal. Exempts 271(e) (Hatch-Waxman and biosimilars)
proceedings. Requires plaintiffs to make additional disclosures to the court and the
PTO about the plaintiff and the asserted patents shortly after filing.

SEC. 4. CUSTOMER STAY: Allows a case against a customer to be stayed while
the manufacturer litigates the alleged infringement, provided that the
manufacturer is involved in a lawsuit in the US involving the same issues. The
customer stay is available only to those at the end of the supply chain, who are
selling or using a technology that they acquired from a manufacturer, without
materially modifying it. Allows for a stay to be lifted where it would cause undue
prejudice or be manifestly unjust.

SEC. 5. DISCOVERY LIMITS: Requires a court to stay expensive discovery
pending resolution of preliminary motions—specifically motions to dismiss, transfer
venue, and sever accused infringers. Gives a court discretion to allow limited
discovery necessary to resolve these motions or a motion for a preliminary
injunction, or if it finds that additional discovery is necessary to preserve evidence
or otherwise prevent specific prejudice to a party. Allows parties to consent to be
excluded from discovery limitations. Exempts Section 271(e) (Hatch-Waxman and
biosimilars) cases. Clarifies that timelines for responsive pleadings provided by the
Federal Rules of Civil Procedure are not altered, and nothing prohibits a court from
ordering or local rules from requiring the exchange of contentions.

SEC. 6. JUDICIAL CONFERENCE DISCOVERY REFORMS: Requires the
Judicial Conference to develop rules or procedures to address additional issues
involving discovery in patent cases. These include to what extent each party is
entitled to “core documentary evidence” and if they should be responsible for the
costs of production, and other issues involving discovery sequence and scope. Asks
the Judicial Conference to implement case management procedures for patent
cases.

SEC. 7. FEES AND RECOVERY: Provides that reasonable attorney fees will be
awarded if a court determines the position or conduct of the non-prevailing party
(plaintiff or defendant) was not objectively reasonable, unless special circumstances
make an award unjust. The winner must show that the non-prevailing party’s
position was not objectively reasonable and the judge must make a ruling for fees to shift – this is not a presumptive fee shifting rule. Fee shifting extends to cases
where a party attempts to unilaterally withdraw from a case on the eve of a trial.
Keeps 271(e) (Hatch-Waxman and biosimilars) proceedings under current law.
Fee Recovery: Requires a plaintiff to identify interested parties in the litigation,
and provides a process for a court to recover fees where the abusive litigant is
judgement-proof. If a plaintiff cannot certify it has sufficient funds to satisfy a fee
award, it must notify interested parties, who can opt out of their interest. Permits a
court to exempt institutions of higher education and qualifying parties in the
interest of justice.

SEC. 8. PRE-SUIT NOTICE/DEMAND LETTERS: Prevents vague patent
infringement demand letters from being preludes to litigation by requiring that
certain information be included in order for the letter to be considered evidence that
subsequent infringement was “willful”. If the required information is not in the
written notice, the recipient’s time to respond to a later complaint is extended by 30
days.

SEC. 9. ABUSIVE DEMAND LETTERS: Provides that, if someone violates Section
5 of the FTC Act in connection with patent assertion and has engaged in
widespread demand letters abuse, civil penalties for FTC rule violations will attach.
The provision does not impinge on legitimate licensing activity or expand the
authority of the FTC.

SEC. 10. TRANSPARENCY: Requires patent holders to disclose to the PTO
whenever there is an assignment of interest in the patent that results in a change of
ultimate parent entity. If a patent holder fails to disclose, it will not be able to
recover increased damages of attorney fees (unless this would be manifestly unjust).

SEC. 11. IP LICENSES IN BANKRUPTCY: Makes clear that as a matter of public
policy, US courts will not recognize the action of a foreign court to unilaterally
cancel a license to a US patent or trademark if the licensor goes bankrupt. Extends
current protection of licensees of US patents in bankruptcy to trademarks.

SECTION 12. SMALL BUSINESS PROVISIONS: Directs the PTO to develop
educational resources for small businesses targeted in patent suits and to provide
support to companies named in infringement actions. Instructs PTO to create a
section on its website that will list pending patent cases, so that recipients of
demand letters and defendants in lawsuits can more easily identify ongoing
litigation that may relate to their case.

SEC. 13. STUDIES: Provides for three studies on 1) the secondary market for
patents; 2) the possibility of a pilot program for a patent small claims program: and
3) business method patent quality.

SEC. 14. TECHNICAL CORRECTIONS: Technical corrections and improvements
to the AIA.

SEC. 15. EFFECTIVE DATE: Date of enactment except as otherwise provided.

SEC 16. SEVERABILITY: Should any portion of the law be held invalid, this
provision allows the rest to stand.

The full text of the bill is available here: http://www.judiciary.senate.gov/imo/media/doc/PATENT%20Act.pdf

(Entirely unrelated but also in Sen. Grassley’s Instagram feed: a few hours later he met with my Dean and the Deans of the University of Iowa College of Engineering and Division of Continuing Education.)

S.A.W.S. Class Action Lawsuit

eVideo v. U.S.A. (Ct. Fed. Clm. 2015)

In an interesting Section 1491 class-action, eVideo has filed a class-action lawsuit against the U.S. government asking for damages based upon the harm caused by the Patent Office’s S.A.W.S. program. The Sensitive Application Warning System (S.A.W.S) is the now-defunct U.S.P.T.O. program that gave double-top-secret scrutiny to applications designated as “sensitive.”  The Agency has – up to now – refused to identify which applications fell into the program (even to the applicants themselves), although a examiners inadvertently told applicants about the designation.

The harm here alleged is all USPTO and prosecution costs in applications after they were designated under the S.A.W.S. program. Joseph Zito is the lead attorney on the case.

Docs: eVideo Complaint

Commissioner Focarino Set to Retire

Margaret (Peggy) Focarino is the Commissioner for Patents for the United States Patent & Trademark Office.  She joined the USPTO in 1977 as a patent examiner and joined the Senior Executive team in 1997 under Bruce Lehman. Throughout this time, Focarino has continued as a much admired and trusted administrator of the agency.  In many ways, her role has been that of a strong stabilizing force within an office facing a rise in political pressure on a variety of fronts.  Although the job does involve setting policies regarding patent policies, much of the work is centered around operations — running a 10,000+ member governmental organization.

This week, Focarino announced her upcoming retirement scheduled for early July 2015.  Congratulations Peggy on your commitment and service to the office!

I suspect that Director Michelle Lee will name Focarino’s successor quickly.  There is a natural chain of succession that would raise one of the deputy commissioners to the role of commissioner.  Current deputies include Deputy Commissioner for Patents Operations Andrew Faile; Deputy Commissioner for Patent Examination Policy Andrew Hirshfeld; Deputy Commissioner for Patent Quality Valencia Martin-Wallace; Deputy Commissioner for Patent Administration Bruce Kisliuk; and Deputy Commissioner for the Office of International Patent Cooperation Mark Powell.  Of these, Faile and Hirshfeld are the most likely candidates. Of course, there is no requirement that Director Lee follow this order of succession or even that she appoint a “career” patent office employee to the position.

 

Pitfalls in Trademark Prosecution

Guest Post by James Major.

In a post entitled “Trademark: Registration Void if Completed Prior to Actually Rendering Services in Commerce,” Prof. Crouch asserted that “[o]ne of the traditional benefits of trademark law is that it has fewer disastrous pitfalls for the uninformed (as compared with patent law).”[1]  This guest post respectfully disagrees with Prof. Crouch and asserts that trademark law contains administrative traps for the unwary not commonly found in patent law.

Of course, a patent prosecutor and a trademark attorney can each make substantive and procedural errors; creating an estoppel and blowing a deadline, respectively, are just two.  But, substantive and procedural errors are hardly unique to patent and trademark law.  This post argues that there is the possibility of what I will call “administrative” errors that are unique to trademark law. These administrative errors arise partly because of the ease of submitting documents to the United States Patent and Trademark Office (the “USPTO”) through the Trademark Electronic Application System (“TEAS”),[2] and partly because of the fundamentals of U.S. trademark law.

1)         The Risk of Inadvertent Factual Assertions

Imagine the following scenario: the client asks the trademark attorney to submit an application for U.S. trademark registration based on a bona fide intent to use the trademark in commerce.[3]  The trademark attorney completes the form on TEAS, signs where instructed, and submits the form.[4]  Simple as that, right?  In a way, yes.  But, there’s a problem here: in submitting the intent‑to‑use application, the trademark attorney has just asserted that he or she knows the client has a bona fide intent to use the trademark in commerce.  Does the trademark attorney have first‑hand knowledge of that?  Is there evidence of “circumstances showing the good faith” of the client?[5]  A deposition would resolve those issues nicely.  And, the opposing party in a dispute could move to disqualify the trademark attorney and his or her firm from representing the client to boot.  After all, the trademark attorney is now a fact witness.

The TEAS system has a neat way round this administrative problem: the trademark attorney can e‑mail the application to the client to sign electronically.[6]  And, the signatory will hopefully have the first‑hand knowledge necessary to make the assertion under “circumstances showing the good faith” of the client.

2)         Use of the U.S. Acceptable Identification of Goods and Services Manual Can Be Dangerous

Now imagine the trademark attorney is working on behalf of a client that performs trademark searches, and only trademark searches.  The client instructs the trademark attorney to prepare an application for U.S. service mark registration of the client’s service mark, XXXXX.  The U.S. Acceptable Identification of Goods and Services Manual helpfully gives the trademark attorney plenty of options as to what recitation of services to choose, including:

  1. “Legal services”;
  2. “Legal services, namely, trademark searching and clearance services”; and
  3. “Legal services, namely, intellectual property consulting services in the field of identification, strategy, analytics, and invention.”[7]

So, the trademark attorney chooses recitation (2), e‑mails the application to the client for signature, and ultimately submits the application.  After all, the USPTO has approved all of these recitations.  But, the USPTO states:

You must ensure that statements made in filings to the USPTO are accurate, as inaccuracies may result in the cancellation of a trademark registration.  The lack of a bona fide intention to use the mark with all goods and/or services included in an application, or the lack of use on all goods and/or services for which you claim use, could jeopardize the validity of the registration and result in its cancellation.[8]

Because the client is not using the XXXXX service mark in commerce in connection with “trademark clearance services,” the client has made an inaccurate statement that could be grounds for cancellation of any service mark registration.

This administrative error may come as a surprise to patent attorneys, who typically write as broader claims as possible.  But, in U.S. trademark registration practice, there is a danger in unwitting over‑breadth.

Neither point (1) nor point (2) is a criticism of TEAS overall, nor should either be deemed so.  In some ways, TEAS is a victim of its own success.  In making trademark filing and prosecution so straightforward, it is easy to forget that one is submitting a legal document.

3)         The Joys of Good Will

Patents have the attributes of personal property.[9]  So do trademarks, inasmuch as the owners can buy them, sell them, transfer them, securitize them, etc.[10]  So, the trademark attorney take a patent assignment form and simply replace the word “patent” with the word “trademark,” right?  Wrong again, because, by making an administrative error with the form, the trademark attorney has just separated the trademark from the good will.  Prof. McCarthy defines good will as “a business value that reflects the basic human propensity to continue doing business with a seller who has offered goods and services that the customer likes and has found adequate to fulfill his needs.”[11]  And, it’s the good will that gives the trademark value.  An assignment that transfers trademark ownership but leaves the good will behind is a naked assignment that effectively destroys the value of the trademark.[12]

The solution to this administrative problem is relatively straightforward: use a form that assigns the trademark and the associated goodwill.

4)         More Assignment Antics

Now, the trademark attorney has the correct form, and assigns the intent‑to‑use application to a third party.  But, again, there’s a problem: in most cases, the statute forbids the assignment of intent-to-use applications.[13]

Given its statutory origin, there is no easy way to circumvent this administrative problem.  But, this problem is certainly an issue in trademark due diligence.

This post describes some of the administrative traps for the unwary trademark attorney.  There are probably others, only I haven’t found them (or worse, fallen into them).  But, to say that “[o]ne of the traditional benefits of trademark law is that it has fewer disastrous pitfalls for the uninformed (as compared with patent law),” hasn’t been my experience, at least on the administrative level.

= = = = = =

[1]               Dennis Crouch, Trademark: Registration Void if Completed Prior to Actually Rendering Services in Commerce, Patently-O (Mar. 2, 2015), http://patentlyo.com/patent/2015/03/trademark-registration-rendering.html.

[2]               U.S. Patent & Trademark Office, http://www.uspto.gov/trademarks-application-process/filing-online (last visited Mar. 9, 2015).

[3]               See 15 U.S.C. § 1051(b) (2012).

[4]               See generally Trademark/Service Mark Application, Principal Register, U.S. Patent & Trademark Office, 1‑21, http://www.uspto.gov/sites/default/files/documents/new_teas.pdf (last visited Mar. 9, 2015) [hereinafter TEAS Regular Form] (providing a preview of a “TEAS Regular” form).

[5]               15 U.S.C. § 1051(b).

[6]               TEAS Regular Form, supra note 4, at 18‑19.

[7]               U.S. Patent & Trademark Office, U.S. Acceptable Identification of Goods and Services Manual (ID Manual), http://tess2.uspto.gov/netahtml/tidm.html (enter “legal services”) (last visited Mar. 9, 2015).

[8]               TEAS Regular Form, supra note 4, at 15 (underlining added).

[9]               35 U.S.C. § 261.

[10]             See 1 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 2:14 (4th ed. 2014).

[11]             Id. § 2:17.

[12]             Id. § 2:15 (“Trademarks, unlike patents and copyrights, have no existence independent of the good will of the products or services in connection with which the mark is used.”).

[13]             15 U.S.C. § 1060(a)(1).

FDA Law: You’re Invited . . . To a Dance Party! Will You Dance the Amgen Waltz, or the Sandoz Shuffle?

DancePartyInvite

Guest Post By Kurt R. Karst.  Mr. Karst runs the excellent FDA Law Blog and is also a director at Hyman, Phelps & McNamara. The following was originally published on the FDA Law Blog.  

As you enter the Courtroom 402 “dance hall” at the U.S. Court of Appeals for the Federal Circuit on Wednesday, June 3, 2015, you’ll have to decide whether to take an initial right step and join the Amgen Inc. (“Amgen”) crowd, or move to the left and side with the folks from Sandoz Inc. (“Sandoz”) as the two sides battle over the applicability and correct interpretation of various provisions of the the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”) in the context of Sandoz’s biosimilar version of Amgen’s NEUPOGEN (filgrastim), ZARXIO (filgrastim-sndz), which FDA licensed on March 6, 2015 under BLA 125553.  You’ll need to RSVP soon, however, because space is filling up fast!  There’s already a lineup of parties who want to be at the “must attend” BPCIA event of the year.

The party at the Federal Circuit was kicked off after Judge Richard Seeborg of the U.S. District Court for the Northern District of California ruled on March 19, 2015 in a 19-page decision that, among other things, the BPCIA’s reticulated information exchange and patent resolution procedures are not mandatory for Section 351(k) biosimilar applicants, and that the plain language of the statute allows for the 180-day notice of commercial marketing to come well before the licensure of a Section 351(k) application (see our previous post here).

The decision was a total victory for Sandoz, and thus, a total defeat for Amgen, which promptly appealed the decision to the Federal Circuit (see our previous posthere).  Meanwhile, back in District Court, Amgen filed a Motion for Injunction Pending Appeal.  But Judge Seeborg denied that motion as well, saying that Amgen’s “tenuous and highly contingent showing of irreparable harm forecloses injunctive relief.”  Undeterred, and facing a possible launch of ZARXIO as early as Monday, May 11, 2015, Amgen is now asking the Federal Circuit for an Injunction Pending Appeal.  Sandoz recently filed its Opposition to Amgen’s motion, saying that “Amgen’s appeal involves no claim of patent infringement,” and instead, “Amgen seeks to enjoin launch of Sandoz’s FDA-approved biosimilar filgrastim product based solely on Sandoz’s purported violations of procedures of the [BPCIA],” which “contains no mechanism for Amgen to preclude Sandoz from launching absent a showing of patent infringement.”

Briefing on Amgen’s appeal is nearly complete.  As we previously reported, Amgen filed its Opening Brief on April 3, 2015 laying out the company’s arguments as to why Judge Seeborg erred in ruling on all fours for Sandoz.  Not long thereafter, Amgen received support from several parties that filed amicus briefs.  (Amgen’s Reply Brief is due on April 28, 2015.)

Janssen Biotech, Inc. (“Janssen”) urges the Federal Circuit in its amicus brief to “clarify that the statutory patent dispute resolution procedures are intended to be followed as written, and are not merely optional choices or empty formalities, as Sandoz contends.”  Janssen is currently challenging, in the U.S. District Court for the District of Massachusetts, Celltrion, Inc.’s (“Celltrion’s”) and Hospira, Inc.’s (“Hospira’s”) decision to exit from the BPCIA’s patent dance procedures in the context of a biosimilar version of Janssen’s REMICADE (infliximab) (see our previous post here).

AbbVie Inc. (“AbbVie”), which markets HUMIRA (adalimumab), among many other products, has not yet had to engage in litigation over the BPCIA’s information exchange and patent resolution provisions, but weighs in for Amgen in an amicus brief.  According to AbbVie, absent a reversal of Judge Seeborg’s decision, biosimilars patent litigation will devolve into chaos:

The outcome of this appeal will have a profound effect on the transparency, efficiency, and fairness of the legal process going forward. If Amgen’s positions are adopted—and Congress’s directives are enforced—parties will enter the litigation process well informed; they will be able to identify the patents truly at issue, engage in good-faith negotiations, narrow their disputes, and litigate only those issues that warrant the courts’ time and attention.  If Sandoz were to prevail, the entire biosimilar litigation process would become a free-for-all, where biosimilar companies would utilize the data and work of innovator companies but refuse to provide basic information about their products, including their compositions, indications, formulations, and manufacturing processes, as well as the timing of their planned launches, leaving innovators to blindly guess as to which patents they should sue on and when.  The first option will lead to more focused cases, more transparency, and more frequent and earlier settlements; the second will burden the courts with inefficient and protracted litigation for years to come.

Finally, the Biotechnology Industry Organization (“BIO”), whose members include both Amgen and Sandoz, says in its amicus brief that “the BPCIA patent dispute resolution process must be interpreted in accordance with its purpose — to provide a significant and real opportunity to resolve patent issues prior to the launch of the biosimilar,” which requires, in turn, “notice to the reference product sponsor of the initial submission of the biosimilar application and notice of potential commercial marketing upon approval.”

Sandoz, in the company’s April 21, 2015 Non-Confidential Brief, does an excellent job of laying out why the waltz preferred by Amgen and its supporters is not the only move on the dance floor, and why a shuffle (or perhaps a side step?) is perfectly reasonable under the BPCIA.  According to Sandoz:

Read in the context of the BPCIA as a whole, the “shall” provision in Section 262(l)(2)(A) is a mandatory condition precedent to engaging in the patent-exchange process, not a mandatory requirement in all circumstances. . . .  This interpretation is consistent with uses of “shall” in other provisions in subsection (l), as well as with uses of “shall” in other statutory schemes.  It also gives full effect to both “shall” and “may” in subsection (l)(2)(A). . . .  Congress carefully balanced the interests between sponsors and applicants, determined what the consequences should be at each step of the process for not completing it, and allowed the parties to weigh the benefits of proceeding against the consequences of not.

With respect to notice, says Sandoz, “[t]he plain terms of the ‘[n]otice of commercial marketing’ provision are satisfied when an applicant provides notice at least 180 days before it commercially markets its product.”  “If, as Amgen argues, a biosimilar must be licensed before notice may be given, that would transform this mere ‘[n]otice’ provision into an automatic, six-month bar against marketing of every licensed biosimilar product. Had that been Congress’s intent, it would have said so.”

Sandoz’s arguments are reinforced in an amicus brief filed by the Generic Pharmaceutical Association (“GPhA”), which recently announced the launch of a new division, called the Biosimilars Council.  According to GPhA:

The question here is whether the BPCIA’s patent dispute resolution provisions should be interpreted according to the statute’s clear structure, which in turn supports Congress’s overarching goals of increased competition and consumer access to affordable biologics.  The answer, as the district court found, is yes.  The contrary readings advanced by Amgen and its amici depend on illogical, context-free interpretations of selected individual words that if read as Amgen suggests would render superfluous important sections of the BPCIA, undercut the statute’s overarching purposes, and produce results that Congress could not possibly have intended.

According to a recent docket entry, Celltrion and Hospira also tendered an amicus brief that has only just been made public and is available here.

Blocking Torrents in the UK

I enjoy teaching a variety of law related courses. Thus, in addition to our more standard IP offerings, I have also taught property law, civil procedure, licensing, etc. One of my favorite courses is Internet Law. I enjoy that class because I end up learning a tremendous amount from students as both the technology and culture of our electronic society continues to change.

In an important internet and copyright law case, the English Court has just ordered a host of internet service providers to shut-down access to a set of websites that facilitate online copyright infringement.  20th Centruy Fox v. Sky UK, 2015 EWHC 1082. (High Court of Justice for England and Wales).  The action pits media companies (who are the copyright holders) against internet service providers who provide internet access to both home and business users.  The reality, however, is that the ISPs appeared to ready to concede and comply with the court order that effectively removes this black-market access from UK consumers.  It was only Judge Birss who forced the parties to prove their case.

Section 97A of the UK Copyright, Designs, and Patents Act of 1988 provides for “injunctions against service providers” who have “has actual knowledge of another person using their service to infringe copyright.” Here, service providers includes anyone providing “any service normally provided for remuneration, at a distance, by means of electronic equipment for the processing and storage of data, and at the individual request of a recipient of a service.”

The court breaks down the statute as having for elements:

  1. that the ISPs are service providers,
  2. that the users and/or operators of the target websites infringe copyright,
  3. that users and/or the operators of the target websites use the services of the ISPs to do that, and
  4. that the ISPs have actual knowledge of this.

Here, the only real issue is whether the new model of torrent-streaming known as “Popcorn Time” was a form of infringement (2) and whether it used the ISP services to accomplish that end (3).

To operate the Popcorn Time system, a user must install a client-program on his computer (from a Popcorn-Time-Application-Source (PTAS) website) the client-program then looks to another site as a Source of Update Information (SUI) that includes indexes of available content.  The actual streaming then occurs in a peer-to-peer scenario as well as from some “host websites” that are not part of the action here.

The alleged-infringing sites here are either PTAS sites (providing the popcorn-time client application download) or SUI sites (providing an index listing of content available) or both.

No Direct Infringement: In reviewing whether these sites infringe a copyright, Justice Birss found no direct infringement under the UK exclusive rights of “communicating copyright works to the public” because none of the sites actually cause the transfer of copyrighted material. Section 20(2)(b) of the 1988 Act.

No Authorisation: The UK copyright law makes it unlawful to “authori[se] an act restricted by copyright.”  Here, Judge Birss also found no “authorisation” because there was no evidence of any direct connection between the PTAS sites and SUI sites and the host websites.

Yes Joint Tortfeasor Liability:  The final theory of infringement turned out to be a winner for the copyright holders – that of joint tortfeasance.  Under the law previously developed by Justice Kitchen, joint tortfeasor liability in copyright law can occur:

[M]ere (or even knowing) assistance or facilitation of the primary infringement is not enough. The joint tortfeasor must have so involved himself in the tort as to make it his own. This will be the case if he has induced, incited or persuaded the primary infringer to engage in the infringing act or if there is a common design or concerted action or agreement on a common action to secure the doing of the infringing act.

Quoting Sabaf v.Meneghetti, 2002 EWCA Civ 976.

Applying this doctrine to the facts at hand, Justice Birss concluded that the suppliers of the Popcorn Time applications meet the requirements for joint liability with the operators of the host websites:

The Popcorn Time application is the key means which procures and induces the user to access the host website and therefore causes the infringing communications to occur.  The suppliers of Popcorn Time plainly know and intend that to be the case.  They provide the software and provide the information to keep the indexes up to date.  I find that the suppliers of Popcorn Time have a common design with the operators of the host websites to secure the communication to the public of the claimants’ protected works, thereby infringing copyright.

In making this decision, Justice Birss also noted the importance that the software lacks significant and practical non-infringing uses.

To be clear here, the ruling is not that the ISPs are joint tortfeasors but instead that the suppliers of the Popcorn Time application and the indexing websites are joint tortfeasors with the sites that actually host and distribute the infringing content.

Home Delivery: On question (3) above – are the ISP services being used to infringe – the court also sided with the media companies – finding that the provision of internet services to users serves “an essential role in the infringements. . . . It is through the use of the ISPs’ services that the operators of the Popcorn Time websites carry out their acts.”

ALthough the services must now be blocked in the UK – I did check and “http://afdah.com/” is still available from my Columbia Missouri Starbucks office.

Read the decision here: 20th Century Fox v Sky – Popcorn Time Approved Judgment dated 280415.

= = = = =

In the U.S., we tend to look less favorably on this style of blacklisting.  However, our culture is changing as media companies increasingly control user’s internet connection.

 

Do Limits on Trademarks-that-Disparage Violate Freedom-of-Speech?

by Dennis Crouch

In re Tam (Fed. Cir. 2015) (en banc order)

Simon Tam has been attempting to register the name of his band “The Slants” as a trademark.  However, registration has been denied under Section 2(a) of the Lanham Act as a disparaging mark.  In particular, Tam’s band is an Asian-American band and the term “slant” (according to the Urban Dictionary) is “A derogatory term used to refer to those of Asian descent. More accurately, it tends to refer to anybody with slanted eyes.”  In a decision last week, the Federal Circuit affirmed the PTO’s denial.  Judge Moore penned the original unanimous opinion, but also penned an addendum opinion that added a few additional nuggets.  One of those nuggets has caught the eye of the Federal Circuit as a whole and is now the subject of a sua sponte en banc rehearing.  Question presented:

Does the bar on registration of disparaging marks in 15 U.S.C. § 1052(a) violate the First Amendment?

The panel opinion – following prior precedent – answered that question “no.” However, Judge Moore recognized some amount of tension – especially in view of the rise in protections for commercial speech and in the power of the “unconstitutional conditions doctrine.”

Grace Period Restoration Act of 2015

In the move to a first-to-file patent system, the U.S. narrowed its pre-filing grace period previously codified under 35 U.S.C. 102(b)(2010).  The new law enacted as part of the Leahy-Smith America Invents Act (AIA) continues to permit a one-year grace period but limits the scope of coverage only to a pre-filing “disclosure . . . of a claimed invention” (A) “made by the inventor or joint inventor or by another who obtained the subject matter directly or indirectly from the inventor” or (B) made subsequent to an (A) disclosure.  35 U.S.C. §102(b)(1)(A) and (B)(2015).  There are a number of questions up for interpretation regarding the AIA grace period. Examples: Does the grace period apply when the inventor’s initial disclosure is slightly different than the invention being claimed? Does the grace period apply when a third party publishes a modified version of the inventor’s original disclosure?

The proposed Grace Period Restoration Act of 2015 (H.R. 1791 / S. 926) is designed to “correct the drafting problem in the Leahy-Smith America Invents Act relating to the grace period.”  In particular, the bill would add a new section 102(b)(3) that creates a stronger first-to-disclose system.

The general hypothetical setup here is that we have a pending patent application or perhaps an issued patent (the claimed invention) that is being challenged based upon prior art whose effective date is less than one year before that of the claimed invention in question.  Pre-AIA, the applicant might be able to negate the that reference by showing prior-invention through a process often termed “swearing behind” the asserted art. However, under a first-to-file system, invention-date is no longer directly relevant.

The proposed AIA-amendment here would allow the patentee to negate the prior art so long as the claimed invention had been previously – but still within the one-year timeline – “publicly disclosed in a printed publication by a covered person in a manner that satisfies the relevant section 112(a) requirements.”

Thus, if the inventor (1) first discloses the invention in a way that satisfies the enablement and written description requirements of section 112(a) and (2) subsequently files the patent application within one-year of the disclosure; then the inventor will be immunized against any prior art whose effective date follows that disclosure.  To be clear here, the immunizing would require “public disclosure in a printed publication” and could either be done by an inventor or someone who obtained the information an inventor (either directly or indirectly).

The proposed language:

102(b)(3)(b) PUBLIC DISCLOSURE.—A disclosure by any person shall not be prior art to a claimed invention under subsection (a) or section 103 if

(i) the disclosure is made under subsection (a)(1) or effectively filed under subsection (a)(2) 1 year or less before the effective filing date of the claimed invention; and

(ii) before the disclosure described in clause (i) is made or filed, and 1 year or less before the effective filing date of the claimed invention, the claimed invention is publicly disclosed in a printed publication by a covered person in a manner that satisfies the relevant section 112(a) requirements.

Here, I have only excerpted the most relevant portions of the statutory proposal. In his remarks, Professor Hal Wegner has identified the proposed amendment as largely serving the purpose of “expand[ing] the definition of novelty under 35 U.S.C. 102 to roughly 1200 words, an unreasonable mass of verbiage that the sponsors couldn’t figure out.”

As proposed, the new grace period definition serves as a layer in addition to the grace period already available under 102(b).  The grace period already in existence is narrower in some ways but broader in others.  For instance, the triggering initial public disclosure need have been disclosed in a printed publication.

Time will tell whether the proposal has legs. It it does, I hope that we will first see a less cumbersome rewrite.

Patent Quality Plans and Submissions

Earlier this week I wrote about the upcoming deadline for comments on the USPTO’s patent quality initiative as well as the Berkeley Technology Law Journal’s parallel publication process.  Although the BTLJ’s project is not sanctioned by the PTO, we are working to coordinate our efforts in order to help the PTO evaluate the proposals and suggestions. Along that line, I wanted folks to be aware that, although the BTLJ will not publish all submissions, all submissions will be provided to the USPTO for their consideration.  (Thus, by submitting to BTLJ, you can’t expect that your work will remain confidential).  I believe that the PTO will add all these suggestions to its online docket of comments.

More Info: BTLJ/USPTO Quality Initiative

Moving Forward: Judge Stoll

On a voice-vote, the Senate Judiciary Committee has unanimously approved President Obama’s nominee Kara Stoll to be the next addition to the Court of Appeals for the Federal Circuit.  Now that the log-jam over Loretta Lynch’s nomination as attorney-general is coming to a close, I would expect full Senate approval within the next few weeks.

See: Nomination memo;

The following are a few responses to Questions For the Record asked by some members (Grassley/Cruz) of the Senate Judiciary Committee:

What role, if any, should the constitutional rulings and doctrines of foreign courts and international tribunals play in the interpretation of our Constitution and laws

Response: None.

What is your definition of natural law, and do you believe there is any room for using natural law in interpreting the Constitution or statutes?

Response: Commentators have defined natural law as a system of rights or justice held to be common to all humans and derived from nature. Natural law is not precedent, nor is it constitutional or statutory text. If confirmed, I would not rely on natural law to interpret the Constitution or statutes.

Our Expanded Regime of Submarine Prior Art

by Dennis Crouch

The general rule in our new first-to-file patent system is that your effective application filing date* is of utmost importance.  In general that date is the trigger-date for prior art.  Prior Publications count as prior art (102(a)(1) prior art) as do Patents and Patent Applications filed prior to the trigger-date (102(a)(2) prior art).  To be clear, publications are generally thought of as prior art as of their date of publication, but we have a special rule for U.S. patent filings — once published or patented they become prior art as of their effective filing date. [Note, the statute stretches the date back to the “earliest [priority] application that describes the subject matter”].

I have identified these 102(a)(2) prior art patent documents as “submarine prior art” because they are kept secret (usually for 18-months) and then suddenly emerge as back-dated prior art.  Pre-AIA law included the submarine prior art under what was then known as 102(e) (2010).  However (and in my view) the new law expands the scope of submarine prior art in a few ways. First, under the new law applicants can no longer swear-behind prior art based upon their prior invention date.  Second, under the new law the submarine prior art will stretch back further in many cases to encompass (for instance) the original foreign-priority filing date. [As with the old rule, a prior application by the identical inventor does not create submarine prior art].

A Company’s Own Prior Patent Filings: One exception to the submarine-prior-art issue is 35 U.S.C. §102(b)(2)(C). That sub-section indicates that neither prior-filed patent application publications nor their resulting patents will be deemed prior art if:

(C) the subject matter disclosed [in the prior document] and the claimed invention . . . were owned by the same person or subject to an obligation of assignment to the same person [as of the claimed invention’s effective filing date].

The basic idea here is that a company’s own secret-filed applications will not serve as prior art against the company itself.**

The Pre-AIA statute included a similar exception codified in 35 U.S.C. 103(c). However, the new exception is more powerful in several ways.  Most notably from the face of the statute is that the old law only excused prior art for obviousness purposes but not for novelty purposes while the new law negates the references for seemingly any prior art purpose.  Second, the expansion of submarine prior art (noted above) makes the exception relatively more important. As more applications continue to be filed in crowded technology spaces, I expect that the exception will continue to rise in importance.

Questions that I would like to pursue is how important this expanded submarine prior art is to the system and likewise the relative importance of the intra-company-exception.***  Theoretically, the exception favors (a) larger entities who file many incremental patent applications with a variety of inventorship team combinations as well (b) as applicants who file applications under non-publication requests.  For examiners, do you consider whether an applicant can claim the exception before issuing a rejection or do you wait for the applicant to claim the exception.

This question will be part of one project that I’m planning to pursue this summer that will provide some initial studies on how the AIA has impacted patent prosecution.

On-point comments are very welcome.

*****

* The effective filing date is defined on a claim-by-claim basis as “the filing date of the earliest application for which the patent or application is entitled, as to such invention, to a right of priority under section 119, 365(a), or 365(b) or to the benefit of an earlier filing date under section 120, 121, or 365(c).” 35 U.S.C. 100(i).

** Patents associated with inventions developed via a Joint Research Agreement (JRA) can also be avoided by parties to the Agreement.  35 U.S.C. 102(c).

*** I should note here that all countries have some form of submarine prior art, but many follow the European approach that the submarine art is not considered for obviousness (inventive step) purposes because of the reality that the secret prior art would not have been within the grasp of a person of skill in the art (since it was secret at the time).

 

Of Printer Cartridges and Patent Exhaustion: The En Banc Federal Circuit is Poised to Clarify Quanta

Guest post by Samuel F. Ernst, Assistant Professor of Law at the Chapman University Dale E. Fowler School of Law.

Lexmark International, Inc. sells its patented printer cartridges directly to customers and indirectly through authorized resellers.  Ordinarily these authorized “first sales” would exhaust Lexmark’s patent rights in the cartridges, such that Lexmark could not sue third parties, such as Impression Products, Inc., for patent infringement when they refill and resell the spent cartridges at a reduced price.  However, after Lexmark’s authorized and indiscriminate first sale occurs, the end user finds that Lexmark has printed a proposed license agreement on the outside packaging providing that by opening his or her printer cartridge, the customer “agree[s] to return the empty cartridge only to Lexmark for recycling.  If you don’t accept these terms, return the unopened package to your point of purchase.  A regular price cartridge without these terms is available.”  In patent parlance, this provision is known as a “post-sale restriction” – an attempt to restrict the use of a patented item for its intended purpose after the patent holder has authorized a first sale.  The Federal Circuit has granted en banc review in the case of Lexmark v. Impression Products to settle once and for all whether such post-sale restrictions are effective to prevent patent exhaustion, allowing the patent holder to pursue the patented item down the stream of commerce to prevent resale price competition or collect infringement damages above and beyond the monopoly price it earned at the first sale.[1]

One would have thought the question settled by the Supreme Court long ago.  In 1917 the Court decided in Motion Picture Patents Co. v. Universal Film Manufacturing Co. that such post-sale restrictions are ineffective to prevent patent exhaustion.[2]  In that case Motion Picture Patents held a patent on film projectors and granted a license to a third party authorizing the manufacture and sale of the projectors.  The licensee was required to affix a plate to the projectors it sold purporting to impose a post-sale restriction very similar to the restriction Lexmark affixes to its printer cartridge packaging: “The sale and purchase of this machine gives only the right to use it solely with moving pictures containing the invention of reissued patent No. 12,192, leased by a licensee of the Motion Picture Patents Company…. The removal or defacement of this plate terminates the right to use this machine.”[3]  Despite authorizing the sale of its patented projectors and collecting a full monopoly price for its invention, Motion Pictures Patent Company sought to restrict end users from using the projectors with film reels other than those licensed under its separate patent on film reels, just as Lexmark seeks to use the patent law to prevent the reuse and resale of its spent cartridges with unauthorized ink.  When Universal Film supplied end users of the projectors with film reels that were not authorized for use with the machines, Motion Pictures Patent Company sued for infringement.[4]  The Court held that the post-sale restriction was invalid and did not prevent the exhaustion of Motion Picture Patent Company’s rights in the machine.  The Court held that “the right to vend is exhausted by a single, unconditional sale, the article sold being thereby carried outside the monopoly of the patent law and rendered free of every restriction which the vendor may attempt to put upon it.”[5]

The Supreme Court grounded its holding in two policies that are central to the exhaustion doctrine.  First, because the patent law attempts a delicate balance between encouraging innovation and allowing free market competition, the patent holder should not be overcompensated for a license to its intellectual property beyond the free market value of the invention as determined by the free market at the first sale.  “[T]he primary purpose of our patent laws is not the creation of private fortunes for the owners of patents, but is ‘to promote the progress of science and the useful arts.’”[6]  Accordingly, a right to exclude, exercised and exhausted with a single sale or license of a patented product on the open market is the appropriate compensation to reward the value of the invention; nothing more should be given:

This construction gives to the inventor the exclusive use of just what his inventive genius has discovered.  It is all that the statute provides shall be given to him and it is all that he should receive, for it is the fair as well as the statutory measure of his reward for his contribution to the public stock of knowledge.  If his discovery is an important one, his reward under such a construction of the law will be large, as experience has abundantly proved; and if it be unimportant, he should not be permitted by legal devices to impose an unjust charge upon the public in return for the use of it.  For more than a century this plain meaning of the statute was accepted as its technical meaning, and that it afforded ample incentive to exertion by inventive genius is proved by the fact that, under it, the greatest inventions of our time, teeming with inventions, were made.[7]

Hence, the exhaustion doctrine and the invalidity of post-sale restrictions prevent overcompensation, or “double recovery,” for patent holders.

Second, the Motion Picture Patents Court reasoned that the exhaustion doctrine is grounded in the policy against restraints on the alienation of chattels – i.e., servitudes that run with personal property.  Once a patent holder has authorized the sale of its product, downstream purchasers of the item, including competitors in the used resale market, have a reasonable expectation that the product they buy can be used for its intended purpose.  The Supreme Court explained that a ban on post-sale restrictions avoids 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 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.[8]

The Supreme Court relied on this same policy against restraints on alienation in the recent Kirtsaeng decision, where it decided that the authorized first sale of a copyrighted article overseas exhausts the copyright owner’s right to prevent the used resale of that item.[9]  The Court stated that the exhaustion doctrine is grounded in “the common law’s refusal to permit restraints on the alienation of chattels.”[10]  And the Federal Circuit has recently relied on this policy in support of its decision that giving away a patented product in exchange for no consideration (rather than selling it) can trigger patent exhaustion.  The Circuit reasoned that if patent exhaustion were easily evaded, “consumers’ reasonable expectations regarding their private property would be significantly eroded” and it would “offend against the ordinary and usual freedom of traffic in chattels.”[11]  Nor is the policy against restraints on alienation an outmoded relic of the common law having no justification in the modern economy.  As Professor Molly Shaffer Van Houweling argues in her compelling article, The New Servitudes, personal property servitudes result in notice and information costs for consumers, result in the underuse or inefficient use of resources subject to the restriction (such as the spent printer cartridges at issue here), and waive the limitations built into intellectual property law that are intended to strike the delicate balance between encouraging innovation and allowing for the dissemination of new technology.[12]

In its opening Federal Circuit brief, Lexmark relies heavily on a different Supreme Court case to argue for the validity of its post-sale restriction, the 1938 case General Talking Pictures Corp. v. Western Electronic Co.[13]  But General Talking Pictures does not deal with a post-sale restriction imposed after an authorized first-sale releases a product into the stream of commerce.  Rather, General Talking Pictures recognizes the validity of a pre-sale restriction, whereby a patent holder expressly limits the parties to whom its reseller may sell the patented product in the first place.  In General Talking Pictures, the plaintiff licensed the American Transformer Company to make and sell its patented vacuum tube amplifiers, but stated in the license that American Transformer was only authorized to sell the amplifiers to private consumers “for radio amateur reception, radio experimental reception, and home broadcast.  [American Transformer] had no right to sell the amplifiers for use in theaters as a part of talking picture equipment.”[14]  American Transformer then made an unauthorized sale to the defendant for use in movie houses, even though the defendant “had actual knowledge that [American Transformer] had no license to make such a sale.”[15]  The Court held that the plaintiff could sue for patent infringement because it did not authorize American Transformer to make the sale, and the first requirement of patent exhaustion was therefore not satisfied – there was no authorized first sale: “[t]he Transformer Company could not convey to petitioner what both knew it was not authorized to sell.”[16]  Hence, the Supreme Court drew a distinction between (1) a post-sale restriction, which attempts to impose restrictions on the patented item after an authorized sale; and (2) a pre-sale restriction, which limits the scope of the authority to sell, authorizing sale for only particular uses or to particular customers.  Post-sale restrictions are clearly ineffective to prevent patent exhaustion because the patented item has already passed out of the patent monopoly at the time of sale.  The effectiveness of pre-sale restrictions, and the wisdom of enforcing them, is an interesting and novel question, which I explore in the context of licenses to settle patent litigation in Patent Exhaustion for the Exhausted Defendant: Should Parties be able to Contract Around Exhaustion in Settling Patent Litigation?.[17]  But the adhesion contract Lexmark prints on its cartridge packaging is plainly a post-sale restriction, rendering the General Talking Pictures case inapposite to the Lexmark case.  After Lexmark indiscriminately sells or authorizes the sale of its printer cartridges to all comers, it tries to prevent their resale through the use of a post-sale restriction, but it cannot do so under the patent law because the authorized sale means that the cartridges have already passed out of the patent monopoly.

If the Supreme Court decided this question in the 1917 Motion Picture Patents case, then why is this even an issue for en banc review?  It is because a panel of the Federal Circuit, in Mallinckrodt v. Medipart, held that post-sale restrictions similar to Lexmark’s adhesion contracts can, in fact, prevent patent exhaustion.[18]  In that case Mallinckrodt sold its patented aerosol mist delivery devices to hospitals, stamped with the legend, “Single Use Only,” and a package insert “instruct[ing] that the entire contaminated apparatus be disposed of in accordance with procedures for the disposal of biohazardous waste.”[19]  Many hospitals did not heed the restriction, however.  Instead, they sold the spent devices to the defendant Medipart, who refurbished them and returned them to the hospitals for additional use.[20]  Mallinckrodt sued Medipart for patent infringement and indirect patent infringement, and the Federal Circuit held that the “single use” restriction prevented patent exhaustion.  The court achieved this by cabining the holding of Motion Pictures Patents to circumstances where patent holders attempt to enlarge the scope of their monopoly by tying the use of their patent to the use of unpatented or separately patented items, in violation of antitrust laws or constituting patent misuse.  Hence, the court distinguished Motion Picture Patents and other Supreme Court exhaustion precedent on the basis that “[t]hese cases established that price-fixing and tying restrictions accompanying the sale of patented goods were per se illegal.  These cases did not hold, and it did not follow, that all restrictions accompanying the sale of patented goods were deemed illegal.”[21]  The Federal Circuit then limited the ineffectiveness of post-sale restrictions to circumstances where the patent holder causes anticompetitive effects under the antitrust laws:

Unless the [post-sale restriction] violates some other law or policy (in the patent field, notably the misuse or antitrust law) private parties retain the freedom to contract concerning conditions of sale.  The appropriate criterion is whether Mallinckrodt’s restriction is reasonably within the patent grant, or whether the patentee has ventured beyond the patent grant and into behavior having an anticompetitive effect not justifiable under the rule of reason.[22]

But why should the patent laws be relegated to the shadows of antitrust policy? Intellectual property law is not solely concerned with preventing supra competitive prices or keeping licensing practices within the “rule of reason,” like some shambling poor relation to antitrust law.  Rather, intellectual property laws promote wholly different policies in wholly different ways, such as by balancing the incentive to innovate against the harm of a limited monopoly.  That is why the policies supporting patent exhaustion enunciated by the Supreme Court in Motion Pictures Patent Company were not limited to preventing illegal patent tying (although the Court did mention as one of the supports for its decision a concern with patent holders enlarging the effective scope of their patent claims beyond the claimed invention).  As discussed above, the Court also invoked the policy against servitudes running with personal property and the need to ensure that the exclusionary right is narrowly tailored to achieve the incentive to innovate.  And these policies in support of patent exhaustion have been repeated by the Court in Kirtsaeng and by the Federal Circuit in cases such as LifeScan.  Hence, under Supreme Court precedent, a post-sale restriction is ineffective to prevent patent exhaustion whether or not it has “anti-competitive effects” or the patent holder has “market power.”

If there were any doubt as to this proposition, it should have been settled by the Supreme Court’s 2008 decision in Quanta Computer Inc. v. LG Electronics, Inc.  In Quanta, LG granted Intel the unconditional right to manufacture and sell its patented microprocessors.[23]  But the license also had a provision in which LG “disclaimed” that it granted a license to downstream purchasers of the microprocessors allowing them to combine the devices with non-Intel parts and resell them.[24]  And by separate agreement, Intel was required to notify purchasers of the microprocessors that they were not authorized to combine the microprocessors with non-Intel parts for resale,[25] similar to the notice Lexmark gives its customers that they are not authorized to return the spent printer cartridges to anyone other than Lexmark.  Intel made the patented processors and sold them to Quanta, which then practiced LG’s patent claims by inserting them into computers and reselling them to customers.[26]  And so LG sued Quanta for patent infringement.  The Federal Circuit held that LG had not exhausted its patent rights, because “[a]lthough Intel was free to sell its microprocessors and chipsets, those sales were conditional, and Intel’s customers were expressly prohibited from infringing LG’s combination patents.”[27]

The Supreme Court reversed the Federal Circuit, holding that LG unconditionally authorized the sale of the chips, despite the contract’s language disclaiming a license to third parties and the notice Intel gave purchasers that they could not combine the chips with non-Intel parts.[28]  Although the contract purported to put restrictions on what Intel’s customers could do with the chips once they bought them, these restrictions came only after an authorized sale, and “[n]othing in the License Agreement restricts Intel’s right to sell its microprocessors and chip sets to purchasers who intend to combine them with non-Intel parts.  It broadly permits Intel to ‘make, use, [or] sell’ products free of LGE’s patent claims.”[29]  The Court dispensed with LG’s language disclaiming an implied license by holding that “the question whether third parties received implied licenses is irrelevant because Quanta asserts its right to practice the patents based not on implied license but on exhaustion.  And exhaustion turns only on Intel’s own license to sell products practicing the LGE patents.”[30]  In other words, once LG authorized Intel to sell the chips to third parties, the patent rights were exhausted, and LG had no more patent rights to license or refrain from licensing.  Quanta could use the microprocessors without a license.  Similarly, once Lexmark sold directly or authorized the sale of its cartridges to customers, its patent rights in the cartridges were exhausted, and Lexmark retained no patent rights in the cartridges to license or refrain from licensing beyond the single use.  Significantly, the Supreme Court makes no mention of market power, the “rule of reason,” or any other antitrust policy as the basis for its decision in Quanta.  Patent exhaustion is not merely a reiteration of antitrust law.

Some commentators have noted that the Quanta decision is arguably ambiguous with respect to whether it did away with post-sale restrictions altogether or whether it was simply the particular way in which the LG-Intel license was drafted that failed to overcome patent exhaustion.  Perhaps the post-sale restriction was ineffective simply because it was drafted in the language of a disclaimer of implied license, separate from the unconditional grant to Intel of the right to sell the microprocessors.  The lower courts, including the Federal Circuit, have rejected this unlikely reading of the Quanta case.

In TransCore, LP v. Electronic Transaction Consultants Corp., the Federal Circuit addressed the issue indirectly.  In that case, the patent holder had entered into a settlement agreement with a third party, Mark IV, in which it covenanted not to sue Mark IV for infringement when it sold the licensed products.[31]  Subsequent to the settlement, TransCore sued Mark IV’s downstream customers for infringement after they purchased the licensed products.  The holding of the case is that a covenant not to sue for patent infringement is no different from an affirmative license to practice patents; both trigger patent exhaustion.[32]  There was no express provision in the settlement license purporting to contract around patent exhaustion.  However, TransCore sought to rely on extrinsic evidence to the contract showing “the parties’ intent not to provide downstream rights to Mark IV’s customers….”[33]  The Federal Circuit held that the district court’s exclusion of the extrinsic evidence did not affect a substantial right of TransCore because “[t]he only issue relevant to patent exhaustion is whether Mark IV’s sales were authorized, not whether TransCore and Mark IV intended, expressly or impliedly, for the covenant to extend to Mark IV’s customers.”[34]  In other words, once the sales are authorized, an express or implied provision purporting to limit the effect of patent exhaustion (such as the product label at issue in Lexmark) has no effect.

In Tessera, Inc. v. International Trade Commission, the Federal Circuit held that a licensee’s authorized sale of an item resulted in patent exhaustion, shielding purchasers of the patented product from an ITC exclusion order.[35]  Moreover, the authorized sales did not retroactively lose their authorization due to the licensee’s failure to pay the patentee its royalties.[36]  The Federal Circuit rejected this argument because “[t]hat absurd result would cast a cloud of uncertainty over every sale, and every product in the possession of a customer of the licensee, and would be wholly inconsistent with the fundamental purpose of patent exhaustion – to prohibit post sale restrictions on the use of a patented article.[37]

Finally, the Eastern District of Kentucky explicitly rejected Lexmark’s post-sale restriction as effective to prevent patent exhaustion in Static Control Components, Inc. v. Lexmark International, Inc.[38]  The court noted that there was a debate among academics as to whether the Supreme Court had broadly rejected post-sale restrictions as sufficient to defeat patent exhaustion, or if “the Quanta holding is limited to the very specific facts, and the very specific license agreement, that confronted the Court.”[39]  The court concluded “that Quanta overruled Mallinckrodt sub silentio.  The Supreme Court’s broad statement of the law of patent exhaustion simply cannot be squared with the position that the Quanta holding is limited to its specific facts.”[40]  One might add that even if one did suppose that the Supreme Court granted certiorari in Quanta to opine on the details of the language of a particular license agreement, it had already ruled that post-sale restrictions are ineffective altogether to avoid patent exhaustion in the 1917 Motion Pictures Patent Co. case.

And so Lexmark’s post-sale notices to customers that they must return their spent printer cartridges to Lexmark are ineffective to prevent patent exhaustion.  This does not mean that Lexmark is without a remedy to quell competition from the used resale market – only a remedy under the Patent Act.  For example, Lexmark spills much ink in its opening Federal Circuit brief arguing that the single-use restriction printed on its product packaging is “an enforceable contract” in the Ninth Circuit.  Accordingly, Lexmark could attempt to sue its customers for their alleged breaches of the adhesion contract (despite the customer relations difficulties this might cause).  As a further example, Lexmark complains in its brief that the used cartridges refilled by third parties are susceptible to malfunctions and poor performance, and that customers often blame Lexmark rather than the supplier of the used cartridge.  If customers are indeed susceptible to such source confusion, then the remedy would appear to sound in trademark law, not patent law.  Finally, Lexmark could pursue non-legal strategies, such as making its prices more competitive with the used resale market, or competing based on quality, which it apparently already does, given the supposed malfunctions of the used cartridges.  It would be a fine world if refilling the ink in one’s printer did not cost nearly so much as the printer itself.

Hence, Lexmark has other avenues to pursue to prevent the resale of its used cartridges.  But patent law has its own requirements and its own remedies, separate from the rules and remedies of contract law and trademark law.  This is appropriate, because patent law promotes different policies than those other branches of law.  These include the rules and policies of patent exhaustion, which prohibit a patent holder from pursuing an item down the stream of commerce once the patent rights in that item have been exhausted.

=====

[1] The Federal Circuit’s en banc order, available here, also asks the parties to brief the separate question of whether the authorized first sale of a patented item overseas gives rise to patent exhaustion, a topic not treated in this post.

[2] 243 U.S. 502 (1917).

[3] Id. at 506-07.

[4] Id. at 508.

[5] Id. at 452.

[6] Id. at 511 (quoting U.S. Const. art. I, § 8).

[7] Id. at 513.

[8] Id. at 518.

[9] Kirtsaeng v. John Wiley Sons, Inc., 133 S. Ct. 1351, 1363 (2013).

[10] Id.

[11] LifeScan Scotland, LTD v. Shasta Techs., 734 F.3d 1361, 1363, 1376 (Fed. Cir. 2013) (internal quotation marks and citation omitted).

[12] Molly Shaffer Van Houweling, The New Servitudes, 96 Geo. L. J. 885, 932-46 (2008).

[13] 304 U.S. 175 (1938).

[14] Id. at 180.

[15] Id.

[16] Id.

[17] 2014 U. Ill. J.L. Tech. & Pol’y 445 (2014).

[18] 976 F.2d 700, 709 (Fed. Cir. 1992).

[19] Id. at 702.

[20] Id.

[21] 976 F.2d 700, 704 (Fed. Cir. 1992).

[22] Id. at 708.

[23] 553 U.S. 617, 636 (2008).

[24] LG Elecs., Inc. v. Bizcom Elecs., Inc., 453 F.3d 1364, 1370 (Fed. Cir. 2006), rev’d sub nom., Quanta, 553 U.S. at 638.

[25] Id.

[26] Quanta, 553 U.S. at 624.

[27] LG Elecs., 453 F.3d at 1370.

[28] Quanta, 553 U.S. at 635-37.

[29] Id. at 636.

[30] Id. at 637.

[31] 563 F.3d 1271, 1276 (Fed. Cir. 2009).

[32] Id. at 1276-77.

[33] Id. at 1277.

[34] Id. (emphasis added).

[35] 646 F.3d 1357, 1370 (Fed. Cir. 2011).

[36] Id.

[37] Id. (emphasis added).

[38] 615 F. Supp. 2d 575, 585 (E.D. Ky. 2009).

[39] Id.

[40] Id. at 585-86.

USPTO Patent Quality Call for Papers

The USPTO has an outstanding request for comments on its patent quality initiatives and many participants in the patent system will be submitting comments and proposals for improving patent quality.  I have been working with a group of academics to create a second channel for submissions that will also open the door for further vetting and commentary to help the USPTO get a better sense of what ideas might work well.  Of course, we would like input to go well beyond submissions from academics.

To that end:

 

+ + + + + +

The Berkeley Technology Law Journal (BTLJ) welcomes submissions on Patent Quality in parallel with the USPTO’s Request for Comments on Enhancing Patent Quality. BTLJ will publish selected Comment submissions in a special volume of our rapid publication, online-only Commentaries. BTLJ is seeking Comments on Quality submissions of under 1000 words. All sources should be cited but need not be formally Bluebooked. Comment submissions ideally should reflect the author’s parallel submissions to the USPTO Request for Comments, but may be revised for length and form as needed. Comments need not be novel ideas (although those are welcome as well), but rather can reflect the best known proposals for improving patent quality that may have already appeared in a full-length law review article. BTLJ will strive to post all submitted Comments that meet our standards of quality.

BTLJ seeks to cover a wide range of the three patent quality pillars and their six included proposals that have been outlined in the USPTO Request. Specifically, the first pillar, excellence in Work Products, includes (1) applicant requests for prosecution review of selected applications, (2) automated pre-examination search, and (3) clarity of record. The second pillar, excellence in measuring patent quality, includes (4) review of and improvements to quality metrics. The third pillar, excellence in customer service, includes (5) review of current compact prosecution model and the effect on quality, and (6) in-person interview capability with all examiners.

BTLJ requests that authors of Comments on Quality contact us by April 27, 2015 to express their intent to submit. Drafts of Comments on Quality, ready for publication, must be submitted by May 15, 2015.

Reviews of Comments on Quality

Additionally, BTLJ invites commentators to provide Reviews on the Comments on Quality submissions. Reviews should be under 3000 words. Preference will be given to those Reviews that address a wide range of the submitted comments, can provide some clarity and order to the submissions, and can impart insight on one or more of the Patent Quality Pillars outlined in the USPTO’s Request for Comments.

BTLJ requests that authors of Reviews contact us by April 25, 2015 to express their intent to submit. Drafts of Reviews must be submitted by June 5.

Submission Standards

All submissions should be in Word doc/docx format. Preference will be given to those submissions exhibiting a high level of clarity and persuasive prose. Grammar and style should conform to the Chicago Manual of Style, and all citations should provide a hyperlink (if possible) and/or a clear, usable reference to the source material. All quotations must be accurate and attributed. If any portion of a manuscript has been previously published (aside from a submitted Comment to the USPTO for this initiative), the author must so indicate.

Link with the USPTO

Although this project is not officially sanctioned by the USPTO, all submissions received (not only those published) will be forwarded to the USPTO for its consideration. We expect that those forwarded comments will then be republished by the USPTO on its online docket of responses to the request for comments.

Contact Information

Expressions of interest, questions, and submissions can be sent to btlj-patentquality@law.berkeley.edu

Ineos v. Berry: Anticipation by an Overlapping Range

By Jason Rantanen

Ineos USA LLC v. Berry Plastics Corporation (Fed. Cir. 2015) Download Opinion [2015 WL 1727013]
Panel: Dyk, Moore (author), O’Malley

It is bedrock patent law that while a species anticipates a genus, a genus does not necessarily anticipate a species.  That axiom does not mean, however, that a genus may not anticipate a species.  Here, the Federal Circuit affirms the district court’s grant of summary judgment that the prior art, which disclosed a broader range that overlapped with the range claimed in the patent-in-suit, anticipates.  The court’s opinion also involves an interesting shift of the burden of production, one that parties litigating this issue should take into consideration.

Ineos alleged that Berry Plastic infringes several claims of Patent No. 6,846,863 and Berry argued that the ‘863 patent is invalid.  The key part of the court’s analysis focuses on claim 1:

1. Composition comprising at least [1] 94.5% by weight of a polyethylene with a standard density of more than 940 kg/m3,

[2] 0.05 to 0.5% by weight of at least one saturated fatty acid amide represented by CH3(CH2)nCONH2 in which n ranges from 6 to 28[,]

[3] 0 to 0.15% by weight of a subsidiary lubricant selected from fatty acids, fatty acid esters, fatty acid salts, mono-unsaturated fatty acid amides, polyols containing at least 4 carbon atoms, monoor poly-alcohol monoethers, glycerol esters, paraffins,
polysiloxanes, fluoropolymers and mixtures thereof, and

[4] 0 to 5% by weight of one or more additives selected from antioxidants, antacids, UV stabilizers, colorants and antistatic agents.

(bracketed numbers inserted by the court).  The district court granted summary judgment for Berry on the basis that the asserted claims were anticipated by U.S. Patent No. 5,948,846.  (The court refers to this prior art reference as the ‘846 patent, which makes it unnecessarily confusing given its similarity to the abbreviation of the patent in suit, the ‘863 patent.  I’ll refer to the prior art as the ‘846 reference and the patent in suit as the ‘863 patent for clarity purposes.)  The pre-America Invents Act version of the anticipation statute (35 U.S.C. § 102) applied, but the difference is irrelevant for the issue on appeal.

Genus-Species Problem: The parties did not dispute that the ‘846 reference contained many of the elements elements of claim 1.  Of the disputed elements, limitation [2] involves the genus-species problem.  With respect to that limitation, the ‘846 reference disclosed steamramide, a compound within the relevant class of saturated fatty amino acid amides, in amounts from 0.1 to 5 parts  by weight, in contrast with the limitation 2 of the ‘863 patent, which claimed 0.05 to 0.5% by weight of at least one  of that type of saturated fatty acid amides.  The prior art reference and the claimed range thus overlapped.  (The opinion notes that “The parties agree for purposes of this appeal that measurements in “% by weight” are equivalent to measurements in “parts by weight.”)

“When a patent claims a range, as in this case, that range is anticipated by a
prior art reference if the reference discloses a point within the range. Titanium Metals Corp. v. Banner, 778 F.2d 775, 782 (Fed. Cir. 1985).”  Slip Op. at 6.  However, “If the prior art discloses its own range, rather than a specific point, then the prior art is only anticipatory if it describes the claimed range with sufficient specificity such that a reasonable fact finder could conclude that there is no reasonable difference in how the invention operates over the ranges. Atofina, 441 F.3d at 999; ClearValue, Inc. v. Pearl River Polymers, Inc., 668 F.3d 1340, 1345 (Fed. Cir. 2012).”  Id.  And since “the disclosure of a range…does not constitute a specific disclosure of the endpoints of that range,” id. citing Atofina, 441 F.3d at 1000, the fact that the ‘834 reference disclosed an endpoint within the range claimed by the ‘863 reference meant that the species-genus rule did not apply.

Burden-shifting or not? The Federal Circuit nonetheless affirmed the district court because it concluded that Ineos had no evidence that the range claimed by the ‘863 patent was critical to the operability of the invention.  In Atofina, for example, “the evidence showed that a person of ordinary skill in the art would have expected the synthesis reaction to operate differently, or not all, outside of the temperature range claimed in the patent-in-suit.”  Id. at 7.  Thus, it was the criticality of the range in the ‘863 patent relative to the ‘846 reference that mattered.

While Ineos did present evidence, the Federal Circuit disagreed that it was relevant. “even if true, this has nothing to do with the operability or functionality of the claimed invention. Ineos has not established any relationship between avoided cost and prevention of undesirable blemishes, and the claimed invention’s slip properties or elimination of odor and taste problems. Ineos does not suggest that the claimed invention’s slip properties or improved odor and taste properties would not have been expected based on the prior art.  Because Ineos failed to “raise a genuine issue of fact about whether the range recited in limitation 2 of the patent is critical to the invention,” the court concluded that limitation 2 was present in the ‘846 reference.

This raises an interesting issue of burden-shifting.  Because a patent is presumed valid, an accused infringer bears the burdens of persuasion and production.  By requiring that Ineos show how the ‘863 limitation was different from what was found in the prior art, the criticality rule shifts the burden of production, placing it on Ineos to prove that the ‘846 reference does not contain the disputed limitation.   This makes me think of the burden-shifting discussed in Mahurkar v. C.R. Bard, 79 F.3d 1572 (Fed. Cir. 1996.  In Mahurkar, there was no dispute that the prior art reference contained all the elements of the claimed invention; that shifted the burden of production to Dr. Mahurkar to come forward with evidence of prior invention even as the burden of persuasion always remained with the patent challenger.  Shifting the burden of production is noteworthy because it only occurs in the face of very strong evidence: evidence so strong that no reasonable jury could find otherwise.  Further complicating the analysis, the result here flows from what looks like a legal rule: because the claimed range overlapped with the range in the prior art, the consequence was that Ineos now needed to prove criticality.

But is this really burden shifting?  Or is it instead an articulation of the anticipation inquiry itself?  From a burden-shifting perspective, the rule would be that the burden of production shifts to the patent holder when the challenger brings forth a reference that contains a range that overlaps with the claimed range; that overlapping range is itself extremely strong evidence of anticipation.  From this perspective, this case is interesting because it is the evidentiary value of the overlapping range that is so high as to shift the burden.   From the perspective of articulating the anticipation inquiry, the rule would be that a reference that contains a range that overlaps with the claimed range anticipates unless the patent holder can prove criticality.  This perspective is interesting because it seemingly places the burden of a factual element of the anticipation inquiry squarely on the patent holder at the outset.

(Post revised on 4/20/2015)

At Stanford: PTO and the Courts

I’m looking forward to participating in this week’s Stanford Law School conference focusing on the interplay between the USPTO and the Courts. [Event Website]. On April 17 (Friday), I will be introducing the topic with a discussion of the rise of administrative review proceedings under the America Invents Act of 2011. On the 18th (Saturday), I will be discussing my proposals for claim construction within the USPTO as part of Director Lee’s quality initiative.

In general, the 17th is designed as a practical-focused day with a number of practitioners and judges speaking along with a handful of academics and Judge Moore as the Keynote Speaker.  The 18th is the “academic day” and will include presentations from many of the leading patent scholars in the country.

See you there!