Follow-Up: Professor Chien’s More Nuanced Arguments

Following my discussion of Professor Colleen Chien’s WSJ essay on “ignoring patent demand letters, Professor Chien pointed me back to her 2014 article titled Holding Up and Holding Out that served as the basis for the WSJ essay.

In the hold-out article, Chien explains that, although patentee hold-ups are a systematic problem, so are hold-outs where infringers refuse to deal.

In the abstract, Chien explains:

Patent “hold-out” is a term I use to describe the practice of companies routinely ignoring patents and resisting patent owner demands, because the odds of getting caught are small. . . . When large companies systematically “hold out” [patentees] have no choice but to work with efficient patent enforcers or “trolls.” . . . I argue that considering ‘hold-out” and “hold-up” together provide a more complete picture than focus on either story alone, and that doing so reveals surprising pathways to a better patent system – focused on the design, rather than the doctrine of patent law. Instead of trying to eliminate all technology patents, or to enforce all of them, we should try to price them appropriately and reduce the distortions they produce. Instead of trying to make patent law perfect, we should make it cheaper, more streamlined, and more equitable.

The Chien article particularly addresses the concerns that I had with WSJ essay, which is why I was surprised to see the completely different focus of that WSJ essay.  I thought she had also changed course. According to Chien, the emphasis and framing in the WSJ essay were the result of heavy WSJ editing rather than any backtracking from her prior work.  In particular, Chien noted that the title “do nothing” was not her selection of terms – she suggested at least an internal analysis, forming an opinion, an filing the letter away.  In addition, Chien noted that the essay was geared towards small companies seeking self help, not on the oped page.

That is all-and-good. Unfortunately, tens of thousands of people read the one-sided essay while only a couple hundred have read the nuanced article.


Why We Need a Federal Civil Claim for Trade Secret Misappropriation

Guest Post by James Pooley, former Deputy Director General of the World Intellectual Property Organization.  Pooley makes his full argument in a forthcoming George Mason Law Review article available here.

Trade secret theft has been a federal crime since 1996, covered by the Economic Espionage Act (“EEA”). But civil misappropriation claims remain limited to state court filings under common law or local variants of the Uniform Trade Secrets Act (“UTSA”). Calls for federal jurisdiction have grown with the increasing importance of information as a business asset and with the emergence of technology that makes theft of these assets almost infinitely easier. Recent examples involving international actors have galvanized the business community to request a straightforward solution: amend the EEA to provide a federal option for private claims.

Several bills were introduced in the 113th Congress to accomplish this, and to authorize provisional remedies for seizure of relevant property to prevent secret technology from being transferred out of the jurisdiction. The 2014 legislation was not acted on before Congress adjourned.  A revised version is pending now, the Defend Trade Secrets Act of 2015 (“DTSA”), reflected in identical House (H.R.3326) and Senate (S.1890) bills.

The approach of the DTSA is fairly simple: use existing language of the EEA where appropriate, such as the definition of a trade secret, and where other language is required to define the civil aspects, such as misappropriation and damages, use language taken from the UTSA. Indeed, the only meaningful departure from the UTSA is to add a section allowing ex parte seizures of the misappropriated property. But even that portion draws from established provisions of the Lanham Act, tightened up considerably from the 2014 bills in order to discourage abuse.

The DTSA has received virtually unanimous support from industry, and also enjoys unusually bipartisan political sponsorship, with 65 cosponsors in the House (45 Republican and 20 Democrat) and ten in the Senate (six Republican and four Democrat). The only organized opposition has come from a group of law professors who published an “open letter” in 2014 criticizing the previous draft legislation, and who have recently released another letter describing their concerns. Mainly, they argue that we don’t need federal legislation because state laws are uniform enough; that the seizure provisions are too broad; and that the DTSA would limit labor mobility by approving the so-called “inevitable disclosure doctrine.”

As I will explain below, on each of these points the professors are wrong, misled by incorrect assumptions or unjustified speculation. Indeed, in a recent journal article two of them have predicted that the legislation would unleash a never-seen-before class of commercial predator, the “trade secret troll,” who they claim would “roam free in a confused and unsettled environment, threatening or initiating lawsuits for the sole purpose of exacting settlement payments, just like patent trolls.”

This apocalyptic scenario is not only fanciful; it is absurd. While patents are exclusive rights that operate against the world, trade secrets provide no exclusivity and depend on a confidential relationship. The image of a “trade secret troll” may help draw attention to a political argument, but it is a myth, and deserves no serious consideration.

The reality of this legislation is simple and compelling. Giving trade secret owners the option to sue in federal court would fill a critical gap in effective enforcement of private rights against cross-border misappropriation that in the digital age has become too stealthy and quick to be dealt with predictably in state courts. The bills would accomplish this by effecting only very modest changes, relying heavily on existing laws and rules. The seizure provisions in particular are so narrowly drawn that only the most clearly aggrieved plaintiffs would risk invoking the procedure. Having no pre-emptive effect, the federal law would leave in place all relevant state laws and policies, including those relating to mobility of labor.

U.S. trade secret law emerged in the nineteenth century to accommodate the shift from agrarian and cottage production to larger-scale industry, in which the secrets of production would have to be shared with workers or with business partners. Court decisions sought to enforce the confidence placed in those who were given access to valuable information about machines, recipes and processes. At the core of every case was a confidential relationship. Protecting this trust, the courts explained, was a simple matter of enforcing morality in the marketplace.

The common law origins of trade secrets – in contrast to the federal patent statute – meant that the majority of cases were heard in state court. Even when a federal court took diversity or supplemental jurisdiction over a trade secret dispute, it applied the law of the state in which it sat. And at first there was little variation, with most states looking to the Restatement of Torts § 757 as a guide. But as industrial development continued through the middle of the twentieth century, legal foundations shifted, and the reporters of the Second Restatement dropped the subject completely.

Meanwhile, a school of thought had developed among commentators that trade secret law should be abolished altogether because it was inconsistent with, and therefore preempted by, federal patent law. This argument was famously rejected by the U.S. Supreme Court in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974). Two important public interests, the Court explained, were served by trade secret law: the “maintenance of standards of commercial ethics and the encouragement of invention.” Without guaranteed secrecy, businesses would be left to expensive self-help security measures that would disadvantage smaller competitors and discourage dissemination of information through sharing. And as a practical matter, there was no conflict between the two systems because they operate so differently: patent law is strong, providing an exclusive right “against the world;” while trade secret rights are “far weaker,” because they do not protect against reverse engineering or independent development.

With the Second Restatement’s decision not to treat the issue, some were concerned that trade secret law would become too fractured and inconsistent for companies which had been increasingly doing business across state lines. Therefore, in 1979 the National Conference of Commissioners on Uniform State Laws issued the first of two versions of the UTSA, proposing harmonized rules on establishing and enforcing trade secret rights. Measured by adoption rates, the UTSA has been a great success, with 47 of the 50 states so far embracing it (New York is the leading holdout). However, measured by its objective of uniformity, the law has been a disappointment. Unlike the UCC, the UTSA has frequently been enacted with customized features.

A few examples will help illustrate the scope of the problem. California dropped the language requiring that a trade secret be not “readily ascertainable,” with the result that the defendant is required to specially plead that circumstance as an affirmative defense. Illinois also eliminated the “readily ascertainable” language, and it prohibits royalty injunction orders, sets a different limitations period and allows permanent injunctions. Idaho requires that computer programs carry a “copyright or other proprietary or confidential marking” to qualify for protection.  Georgia limits protection of customer lists to physical embodiments, in effect allowing employees to appropriate such information in (human) memory. South Carolina’s version of the UTSA requires a court hearing an injunction request to consider “average rate of business growth” in determining a head start period, and prescribes very particular rules for discovery of trade secret information, even for local discovery in aid of an action pending in another jurisdiction.

When Congress considered the EEA in 1996, there was some discussion of adding a civil right of action, but this was deemed impractical in view of the need for swift legislative action. In the years since its enactment, the EEA has had a mixed record of success. As reported by one veteran prosecutor, the average of about eight prosecutions per year is a “languid pace” that probably has done little to create a deterrent effect. In part this may be due to a reluctance of victims to bring cases to the prosecutor, either because of a loss of control or Fifth Amendment effects on civil claims, or it may be due to a lack of resources or interest within the various offices of the U.S. Attorneys, who have discretion whether to accept qualifying cases.

Calls for a federal trade secret law with a private right of action had already begun before the EEA was passed. After it became law, a number of scholars noted the anomaly and suggested that, because the national economy had become primarily knowledge-based, and because even with the UTSA state law was far from uniform, a federal civil law should be enacted. More recent commentary, while continuing to emphasize the drawbacks of variations in state law, also has pointed out the economic advantages of federalization, particularly for small businesses, which rely more heavily on secrecy than on patenting, as well as the procedural advantages for trade secret owners, including national service of process.

The highly-publicized cyberattacks of recent years have exposed not only the precarious security of personal financial and health information, but also the vulnerability of American corporate secrets. Thirty years ago information security consisted mainly of guarding the photocopier and watching who went in and out the front door. Now, with the Internet connected to millions of smartphones, and with electronic storage devices the size of a coin, information assets (which account for over 80% of the value of U.S. public companies) can be moved quickly and silently across state and international borders. In that context, existing procedures at the state level seem impossibly quaint. If a case in Illinois requires testimony of a witness in California, the plaintiff has to petition its home court to authorize a deposition, and then file an action in California based on the Illinois order, to secure the required subpoena. During the weeks or months of this process, the witness could easily have left the country, with the secrets in her pocket.

In other words, the time-critical nature of interstate and international misappropriation of valuable digitized data requires an immediate and sophisticated response mechanism, and neither state law nor the EEA criminal framework provides a satisfactory solution. Federal courts, however, can provide the necessary resource. First, they will be operating under a single, national standard for trade secret misappropriation and a transparent set of procedural rules, offering predictability and ease of use. Second, they will provide nationwide service of process and a unified approach to discovery, enabling quick action by trade secret owners even when confronted with actors in multiple jurisdictions. Third, as a result of their extensive experience with complex cross-border litigation involving intellectual property, they will be able to resolve ex parte matters fairly and jurisdictional issues quickly and efficiently. Fourth, their generally more predictable discovery procedures will serve the legitimate needs of trade secret plaintiffs, who typically must develop most of the facts to prove their case through defendants and third parties.

In this context, the objections raised by the law professors are not convincing. First, it is not fair to describe existing state law as “coherent,” “robust and uniform,” so that U.S. businesses already enjoy “a high level of predictability.” The rhetoric does not obscure the reality of a patchwork of differing standards and rules – in some ways more divergent than before enactment of the UTSA – that necessarily creates friction and inefficiency for companies with interstate operations.

Second, while admitting that the current language on ex parte seizure is “more limited in scope” than the 2014 legislation (for example, only property “necessary to prevent the propagation or dissemination of the trade secret” can be seized), the professors think this tightening is not enough and that the provision “may still result in significant harm.” No evidence is provided, but only speculation that mere invocation of the procedure might cause small businesses to “capitulate,” and that the “chilling effect on innovation and job growth . . . could be profound.” Again, the reality could hardly be more different. The DTSA is loaded with limitations making seizure very difficult to achieve, and with liabilities making it prohibitively expensive to be wrong in asking for it. In the unusual case where the plaintiff has no substantial basis for the claim, the defendant will simply file an opposition, the seizure will be dissolved, and the plaintiff will pay for the harm. Surely the benefits of the DTSA are worth that occasional risk.

Third, the professors assert that new language, added to the DTSA to ensure that mobility of labor is respected, embraces the so-called “inevitable disclosure doctrine,” which they view as the equivalent of a judge-made noncompetition agreement. In fact, that “doctrine” is nothing more than a method of analysis under the common-sense UTSA provision allowing injunctions against “threatened misappropriation.” This method has been applied thoughtfully in a majority of jurisdictions, resulting in a wide range of conditional remedies, and has only rarely been applied in a way that stops anyone from taking a new job.

The DTSA is sorely needed to fill a gap in remedies available to U.S. businesses that now operate in an information-based, globalized economy. This is one of those instances where federal structures are required to address a critical set of interstate and international problems. The DTSA has been carefully constructed to deter and punish abuse. Using well-established definitions and norms, it provides a choice to file a familiar claim in an effective forum. And there is absolutely no danger that enacting this statute will generate some new form of “troll” behavior to this point unknown in trade secret law.

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James Pooley was most recently Deputy Director General of the World Intellectual Property Organization in Geneva, where he was responsible for managing the international patent system. For 37 years before that he was a trial lawyer in California, handling primarily trade secret and patent disputes. He taught trade law and litigation as an adjunct professor at the University of California, Berkeley, and at Santa Clara University. He is the author of the treatise “Trade Secrets” (Law Journal Press, updated 2014) and a co-author of the Patent Case Management Judicial Guide (Federal Judicial Center 2009, 2015). His most recent business book is Secrets: Managing Information Assets in the Age of Cyberespionage (Verus Press 2015).  Mr. Pooley currently serves as Chairman of the Board of the National Inventors Hall of Fame.

Notes from the PPAC Meetings

  1. Global Dossier has now been released (November 2015).
  2. USPTO Collected over $3 billion in user fees in FY2015. That figure was below budget. Spending limit is around $3.5 billion, but is limited by revenue.  As a benchmark, in FY2010 USPTO collected $2.1 billion in revenue.
  3. USPTO is proposing increase in fees
    1. Ex parte prosecution: filing fee up $120 (filing+search+exam) to $1,720; Independent claims (more than three) up $40 to $460; RCE up $300 to $1,500 or $2,000 for 2nd+ RCE; late IDS – $300 after First Action; $600 after Notice of Allowance; Notice of Appeal – up $200 to $1,000; Appeal – up $500 to $2,500; However, no proposed increase in maintenance fees or extension-of-time fees.
    2. Post Grant: Inter partes review up $7,500 to $30,500 (request + institution fee); Decrease in fee – reduced fee for reexaminations with <45 pages.
  4. Median first action pendency is now 17-months.
  5. Design patent filings continue to steadily rise – as does the backlog of unexamined design patent applications.
  6. USPTO Ex Parte Appeals Backlog Continues to Decline – down to 21,000 pending appeals.

Ignoring Patent Demand Letters

by Dennis Crouch

Professor Colleen Chien has published an unfortunate new Wall Street Journal essay titled “The Best Way to Fight a Patent Demand May Be to Do Nothing.”  Chien’s factual bases appears spot-on: a large and increasing percentage of companies are refusing to even respond to patentee correspondence. The unfortunate aspect of the Chien’s essay is her suggestion that this really may be “the best way to deal with a patent demand.”

To be clear, Chien notes that a company will likely need to respond to letters by a “larger competitor,” a “patent bully,” or a well funded patent troll.  Those entities are apparently serious and are ready and willing to use the court system to achieve their goals. What is left-over are patentees who lack the fortitude or desire to pursue a long court battle — especially where the potential damage award is less than six-figures.  Those patentees are safe to ignore.

An unfortunate aspect of Chien’s suggested triage system is that it does not focus on merits – is the patent actually being infringed; is the patent valid?  Rather, the focus is simply whether the patentee has the wherewithal and propensity to sue and whether the triaging-company can slide under the radar.  Professor Chien’s suggested best practice approach moves us further away from any respect for patent rights and toward a more extreme system of litigation enforcement.


First AIA Lawsuits

OG exemplary drawingby Dennis Crouch

In one of the first lawsuits involving an AIA patent is Tinnus Enterprises, LLC et al v. Telebrands Corporation et al., 15-cv-00551 (E.D.Tex. 2015).  In that case, Tinnus alleges that Telebrands’ Baloon Bonanza infringes its U.S. Patent No. 9,051,066 – covering a “system and method for filling containers with fluids.” Bed Bath & Beyond is also a defendant.

The utility application was filed in September 2014 (claiming priority to a pair of February 2014 provisional applications) and issued in June 2015.  As part of the Track-One filing, the PTO issued the first office action within three months of filing of the non-provisional application.

There may be interesting issues raised in the case. My understanding is that the utility application includes some amount of disclosure and claim structure not found identically in the original provisional applications.  After the provisional was filed but before the non-provisional filing, the patentee admittedly (1) “began taking steps to manufacture the Bunch O Balloons product using certain Chinese contractors. The first batch of product was manufactured [and sales began] in June 2014.”  In addition, the patentee publicly launched a successful Kickstarter campaign prior to the non-provisional filing.  A number of questions arise if we assume (or it turns out) that those disclosures included information different from the provisional application.  Will the Chinese-contracting, delivery, and sales count as prior art under 102(a)(1); and are the disclosures covered by the grace period found in 35 U.S.C. 102(b)(1)?

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35 U.S.C. 102

(a) NOVELTY; PRIOR ART.–A person shall be entitled to a patent unless– (1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention …

(b) EXCEPTIONS.– (1) DISCLOSURES MADE 1 YEAR OR LESS BEFORE THE EFFECTIVE FILING DATE OF THE CLAIMED INVENTION.–A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if– (A) the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or (B) the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.

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Another AIA-patent case captioned Likwid Concepts v. Linzer (D.N.J.) was voluntarily dismissed without prejudice.  (U.S. Patent No. 9,084,474).

AIA Patents: 20% of Newly Issued Patents

By Dennis Crouch

The percentage of AIA-patents continues to rise. The chart below shows the percentage of newly issued patents that are AIA utility patents – with about 36,000 AIA utility patents issued so far. I expect that by August 2016, the bulk of newly issued patents will be AIA patents. Under the statute, AIA patents include those patents whose applications ever included a claim with an effective filing date on or after March 16, 2013. [updated to correct an error in dates].  This dividing line is easy for applications filed before that date (not AIA patents) and for applications filed after that date without any priority claims (AIA patents). The only complicated set are those applications filed post-AIA but that claim priority to a pre-AIA application. For those transition cases, applicants are asked to indicate which category is proper.

I will note that none of the provisions of the totally revised Section 102 have seen any court or PTAB decisions – those are likely still at least one year away – especially since the PTO is favoring applicants in regard to secret sales, offers for sale, and commercial uses (thus, those issues won’t be challenged until enforcement-time). Up-to-now, the USPTO has not altered its patent document to include any indication of which law was applied during prosecution.

Note: The statute reads as follows:  (1) IN GENERAL.—Except as otherwise provided in this section, the amendments made by this section shall take effect
upon the expiration of the 18-month period beginning on the date of the enactment of this Act, and shall apply to any application for patent, and to any patent issuing thereon, that contains or contained at any time— (A) a claim to a claimed invention that has an effective filing date as defined in section 100(i) of title 35, United States Code, that is on or after the effective date described in this paragraph; or (B) a specific reference under section 120, 121, or 365(c) of title 35, United States Code, to any patent or application that contains or contained at any time such a claim.

Apple v. Samsung – Appeal Number XXXIII

by Dennis Crouch

Without substantive opinion or dissent, the Federal Circuit has denied Samsung’s en banc request — setting up a last-ditch and low-probability effort for Supreme Court review.   Decision: SamsungEnBancDenial.

In its latest decision (October 2015) the appellate court summarily dismissed Samsung’s appeal — refusing to even hear Samsung’s collateral estoppel arguments associated with the PTO’s final decision in a parallel ex parte reexamination.  According my LexisNexis search, this is at least the 33rd Federal Circuit opinion stemming from the Apple-Samsung Patent Wars — all within the past four years.


Cuozzo Amicus Briefs from IPO, AIPLA, BIO, et al., all arguing against Broadest Reasonable Interpretation of Claims During IPR proceedings

By Dennis Crouch

Following a 6-5 split by the Federal Circuit, Cuozzo filed a petition for writ of certiorari – asking two important questions (as paraphrased by me):

  1. During a post-issuance inter partes review (IPR) proceeding, is it proper for the Patent Trial & Appeal Board (PTAB) to construe claims according to their “broadest reasonable interpretation” rather than their proper construction being applied in court?
  2. Is the PTAB’s decision whether to institute an IPR proceeding judicially unreviewable even if the PTAB exceeds its statutory authority in instituting the IPR?

See Cuozzo Takes IPR Challenge to the Supreme Court.

Eight different friend-of-the-court briefs have now been filed and the U.S. Government’s responsive brief is due December 9, 2015.

The majority of the briefs focus solely on the claim construction issue and make three basic arguments:

  1. Policy: IPRs are designed as validity judgments rather than a new examination of the patent; and claim amendments are almost always prohibited. Because IPRs are acting in parallel with court proceedings, the different standards create instability and uncertainty while using the same claim construction as an infringement-court would promote efficiency. All this undermines the PTO’s reasons justifying application of BRI construction rather than standard construction.
  2. Deference: Congress did not give the PTO rulemaking authority to decide to implement BRI in these Inter Partes Review proceedings and as a result, the agency’s interpretation should not be given administrative law deference.
  3. Conflict: The broad standard effectively negates the presumption of validity associated with each and every patent right. The broad standard subtly justifies the PTO to avoid the preclusive effect of prior court decisions.

One amicus brief (NYIPLA) also argued that the Federal Circuit should be able to review whether the PTO exceeded its authority in instituting an IPR, despite statutory language stating that the decision is not appealable. NYIPLA argues that the statute simply bars interlocutory appeals, but that the statute does not “narrow the issues that can be raised in an appeal” of a final written decision under §319.

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I’ll note here that none of the briefs at the petition stage raise the MCM/Cooper/Affinity arguments that the whole IPR proceedings are unlawful because “a patent, upon issuance, is not subject to revocation or cancellation by any executive agent, including by any part of the USPTO.” Citing McCormick Harvesting Mach. Co. v. Aultman, 169 U.S. 606 (1898). In McCormick, the Supreme Court wrote:

[W]hen a patent has … had affixed to it the seal of the Patent Office, it has passed beyond the control and jurisdiction of that office, and is not subject to be revoked or cancelled by the President, or any other officer of the Government. It has become the property of the patentee, and as such is entitled to the same legal protection as other property. . . . The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever [without the patentee’s consent], is vested in the courts of the United States, and not in the department which issued the patent.

I would expect that, if the petition here is successful, some parties will file briefs that collaterally attach the IPR framework and to soften the Supreme Court for the eventual petitions.

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Claim Construction Moot Court: Mizzou’s Fifth Annual Patent Law Moot Court Competition

Later today here at the University of Missouri School of Law, we are hosting the Fifth Annual Patent Law Moot Court sponsored by McKool Smith and part of the activities of our Center for Intellectual Property and Entrepreneurship (CIPE).  (Tonight’s winner gets $1,000).

The setup this year is a revival of the LightingBallast case that we argued a few years ago.  Earlier this year, the Federal Circuit again changed course in that case — finding that the patentee’s claimed “voltage source means” connotes structure to one skilled in the art (based upon expert testimony) and therefore is not interpreted under 112(f) [112,p6] (and therefore is not automatically invalid for failing to provide any structure description of the claimed means in the written description).

In the moot-court world, the Federal Circuit has granted en banc rehearing by the defendant on the following three questions:

  1. Should claim limitations using the term “means” be presumed to fall under the purview of 35 U.S.C. Section 112¶6 and, if so, what level of presumption should apply?
  2. Should a district court’s fact finding regarding commonly understood terms be entitled to deference on appeal?
  3. Did the district court correctly construe “voltage source means” as used in claim 1 of U.S. Patent No. 5,436,529?

What do you think?


Federal Circuit to Wait on Carnegie Mellon Willfulness Case until the Supreme Court Decides Halo and Stryker

Carnegie Mellon University v. Marvell Tech (Fed. Cir. 2015) [CMUMarvellEnBanc]

The Federal Circuit has issued an interesting en banc order in this billion-dollar-case between the university patentee and the storage/chip maker Marvell. The Pennsylvania district court had originally awarded $1.5 billion to the university based upon a judgment of willful infringement. On appeal, however, the Federal Circuit panel reduced that award to a still-healthy but much smaller $278 million. The reduction was based upon (1) elimination of punitive damages for willfulness since Marvell had an objectively reasonable argument of invalidity; and (2) potential elimination of foreign sales from the award calculation – sales contracts were apparently “inked” in the US but then manufactured and delivered abroad. Regarding this cross-border infringement, the panel did not fully deny the availability of damages but instead remanded for further development as to whether the chips made and used outside of the U.S. could be considered “sold” in the U.S. based upon the contracting location.

After cross en banc petitions by Carnegie Mellon and Marvell, the court now writes:

Carnegie Mellon’s petition for rehearing en banc is denied in part and held in abeyance in part. The court will hold in abeyance any decision on the request for rehearing en banc with respect to the first issue raised in Carnegie Mellon’s petition, which seeks review of the panel’s ruling on the enhancement of damages issue. The court will hold Carnegie Mellon’s petition as to that issue pending the Supreme Court’s decision in Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371 (Fed. Cir. 2014) cert. granted, No. 14-1513, 2015 WL 3883472 (U.S. Oct. 19, 2015) and Stryker Corp. v. Zimmer, Inc., 782 F.3d 649 (Fed. Cir. 2015) cert. granted, No. 14-1520, 2015 WL 3883499 (U.S. Oct. 19, 2015).

Carnegie Mellon’s petition for rehearing en banc is otherwise denied. Marvell’s petition for rehearing and rehearing en banc is denied.

A partial mandate will issue returning the case to the district court, which shall have discretion to determine how and when best to handle the proceedings on remand.

Willfulness at the Supreme Court: In my view, there is a good chance that the Supreme Court will dramatically change course on willfulness doctrine. The history of patent law had given broad discretion to district courts to determine the appropriate circumstances for awarding punitive damages. And, that history fits well with other areas of law as well as with the Patent Act that broadly and simply states that “the court may increase the damages up to three times the amount found or assessed.” 35 U.S.C. §284. Note here, that the statute does not even require willful infringement as a prerequisite and certainly does not delve into the layered subjective/objective approach currently required by the Federal Circuit. Rather, the only statutory limitation on enhanced damages is that they
“shall not apply to provisional rights under §154 (d).”

In Carnegie Mellon’s case, the enhanced damages were about 20% of the total $1.5 billion (updated by 1000x).

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Generally, the Federal Circuit’s strategy here is interesting and overall I like it. In the past there have been times where the Federal Circuit silently delayed its decision making. This case is also big-money, I wonder wither the Federal Circuit will be willing to delay all of its willfulness cases pending the outcome of Halo and Stryker. And, is this a suggestion to district courts to also delay? An important element of the decision here is that there is a parallel remand and so the willfulness issue is not the last remaining issue in the case and so the court’s delay is likely not delaying the final outcome.

Patentlyo Bits and Bytes by Anthony McCain

Get a Job doing Patent Law

Federal Circuit Finally Sends Akamai Back to District Court with Orders to Finish It

Akamai v. Limelight (Fed. Cir. 2015) (AkamaiV)

When it sat en banc in this case, the Federal Circuit found sufficient evidence to find Limelight liable as a direct infringer under 35 U.S.C. § 271(a). The noted that an entity can be held liability as a direct infringer based upon another’s actions “in two sets of circumstances: (1) where that entity directs or controls others’ performance, and (2) where the actors form a joint enterprise.” The court held that “liability under § 271(a) can also be found when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.”

In Akamai, the accused infringement – Limelight – performed the bulk of the steps of Akamai’s patented method, and then provided instructions to its customers on how to complete the remaining steps. Completion of those steps are a necessary element of obtaining Limelight’s services. The en banc panel found “In sum, Limelight’s customers do not merely take Limelight’s guidance and act independently on their own. Rather, Limelight establishes the manner and timing of its customers’ performance so that customers can only avail themselves of the service upon their performance of the method steps.” That relationship thus constituted being “directed and controlled” by the accused infringer.

Because some potential issues remained, the en banc court then remanded the case back to the original Federal Circuit panel for clean-up. On remand, the panel has rejected a set of arguments brought by Limelight in a cross-appeal – finding them to “have no merit.”

On remand, the district court has thus been ordered to reinstate the 2008 jury verdict of infringement and the $40 million+ lost profit award. Its hard to believe that this case has been pending since 2006!

En Banc: Should there be a Supplier Exception to the On Sale Bar?

The Federal Circuit has granted a petition for en banc rehearing in The Medicines Co. v. Hospira and requested briefing on the following questions:

(a) Do the circumstances presented here constitute a commercial sale under the on-sale bar of 35 U.S.C. § 102(b)? (i) Was there a sale for the purposes of § 102(b) despite the absence of a transfer of title? (ii) Was the sale commercial in nature for the purposes of § 102(b) or an experimental use?

(b) Should this court overrule or revise the principle in Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001), that there is no “supplier exception” to the on-sale bar of 35 U.S.C. § 102(b)?

En banc Order.

In the original opinion, penned by Judge Hughes and joined by Judges Dyk and Wallach, the Federal Circuit reversed a district validity determination — holding on appeal that the “district court clearly erred in finding that the bivalirudin batches prepared by Ben Venue Laboratories before the critical date were not sold to The Medicines Company and were prepared primarily for an experimental purpose.”  This is one of a series of cases where the patent has been invalidated based upon a private supplier arrangement that counts as a “sale” or being “on sale” even though there is no public notice of the sales activities.

Although the “on sale” language in Section 102  is identical post-AIA, many believe that the structure of the first-to-file provisions of the AIA should be interpreted to narrow the definition of the term to only include sales and offers to sale that are themselves available to the public.  In that situation, the sale that seemingly occurred here would likely not be seen a prior art.

There are a number of ways that large companies benefit from the patent system (apart from having more money).  In a addition, the laws negate a substantial amount of what would otherwise be prior art if it was created within the company.  Larger companies have more activity going on within their company and thus benefit from this network effect.  In this case, the patentee went outside its company to order supplies for further testing and ran afoul — there would have been no problem if it had first purchased the supplier and then obtained the supplies.  The court is considering a supplier-exception that would eliminate this as prior art — that probably works post-AIA, but not pre-AIA.


Personalized Medicine May be Patentable, but Not for Prometheus

By Dennis Crouch

Prometheus Labs v. Roxane Labs (Fed. Cir. 2015)

In this case, the Federal Circuit has affirmed the district court’s holding that that Prometheus’ asserted patent claims are invalid as obvious. The district court had also rejected the claims as invalid based upon the doctrine of obviousness-type double-patenting, however that issue was not reached in the appeal.

The patent at issue is U.S. Patent No. 6,284,770 and claims a method of treating “diarrhea-predominant female IBS” by giving the patient “an effective amount of alosetron or a pharmaceutically acceptable derivative thereof.”

At a bench trial, the district court held that the elements of the claim were found in the prior art – with “insubstantial” differences.” In particular, the prior art taught treating IBS using alosetron, but apparently not particularly treating “female IBS.”

In the appeal, the Federal Circuit recognized the starting-point rule in genus-species patenting – that a particular species (adding new limitations) may be patentable even if the broader genus is in the prior art. Eli Lilly & Co. v. Bd. of Regents of Univ. of Wash., 334 F.3d 1264 (Fed. Cir. 2003). And here, in the somewhat-personalized-medicine context, the court wrote that these additional limitations may be quite important because it represents focusing treatment on populations where it works best (and causes the least harm).

After reciting the potential for patentability, the court then found that the case at hand failed to present non-obvious subject matter. Notably, the court found that the “female” limitation was simply obvious since women represent half of the population and the majority of IBS patients, and the prior art taught differences in male/female reaction to the proposed treatment:

The first limitation of asserted claim 5 of the ‘770 patent pertains to treating women. Prometheus argues that the district court erred in framing its inquiry as whether alosetron was administered to women with IBS-D in the prior art, rather than as whether it was obvious to focus on treating women rather than men. It is not disputed that it was well known in 1997 that a majority of IBS patients were women. As the district court found, it was well known that “approximately 75% to 80% of IBS-D patients . . . have always been[] women.” For example, the 1992 Thompson article reported that female IBS patients predominate in Western countries. Even if the claims should be read as focusing treatment on women, as Prometheus urges, the district court found the prior art taught precisely that. The Hysu study (1995) taught that females taking alosetron “had higher concentrations of alosetron in their blood and total amount of the drug absorbed compared to [males taking alosetron]” and the district court found that “[t]his could reasonably suggest that women would have a greater response to the drug than men.” At the time of the ‘770 patent’s priority date, it would have been obvious to a person having ordinary skill in the art to treat women as a separate group of IBS patients.

With this reading of the prior art, it was an easy conclusion for the Federal Circuit that the patent was invalid.

Double Patenting: The patent at issue in this case (U.S. Patent No. 6,284,770) was originally owned by Glaxo as was the primary prior art reference (U.S. Patent No. 5,360,800). Because the ‘800 patent was public well before the priority filing of the ‘770 it was clearly prior art. The non-statutory obviousness type double patenting doctrine is generally designed for a different situation – one derived from a judicial pushback against the statutory limitation on counting certain actions of the patentee as prior art. Because OTDP is a non-statutory action by the courts, it was appropriate here for the Federal Circuit to focus on statutory obviousness as the issue and not reach the alternative non-statutory OTDB issues.

Of course, it remains to be seen whether OTDP remains in post-AIA world.

Correcting your Patent Based upon Later Advances in Science

Cubist Pharma v. Hospira (Fed. Cir. 2015)

An interesting aspect of this Hatch-Waxman decision involves the question of whether the PTO properly issued a certificate of correction.

Justification for a Certificate of Correction: The Patent Act authorizes the issuance of a certificate of correction when “a mistake in a patent, incurred through the fault of the USPTO, is clearly disclosed by the records of the Office” 35 U.S.C. § 254 or “a mistake of a clerical or typographical nature, or of minor character, which was not the fault of the USPTO, appears in a patent and a showing has been made that such mistake occurred in good faith.” 35 U.S.C. § 255.

In this case, the original patent filing included a structural diagram of the claimed daptomycin compound that was inaccurate because it misidentified a stereoisomer of asparagine. It was only after the patent issued that researchers discovered that the compound contained the D-isomer rather than the L-isomer. To be clear, when the patent issued, scientists thought that the compound actually had the L-isomer but then later learned that it had the D-isomer.

Seeing that mistake, the applicant petitioned the PTO for a certificate of correction to correct the error in the specification and the PTO agreed. Now, Hospira argues that the correction unduly broadens the scope of the claims and thus should be stricken.

Impact of Striking a Certificate of Correction: I’ll pause here to note that the Patent Act does not directly identify any remedy associated with improper issuance of a certificate of correction. Generally, the only result is that an improperly issued certificate will be stricken – and only after clear and convincing evidence showing the improper issuance. Following this line of cases, the defendant Hospira is asking for here is simply that the patent be returned to its original pre-amended state.

On appeal, however, the Federal Circuit sided with the USPTO and district court – holding that the amendment was proper.

[T]he [district] court characterized the PTO’s action as simply correcting an error in the diagram … without changing the scope of the patent. The court agreed with Cubist that the specification made clear that the patent claimed the daptomycin compound all along; the pre-correction version merely misidentified the stereoisomer of the asparagine amino acid found in that compound. . . .

Contrary to Hospira’s argument, the original structural diagram … did not establish that the patent was directed to a compound other than daptomycin. As this court has noted, a chemical structure is “simply a means of describing a compound; it is not the invention itself.” UNM v. Knight (Fed. Cir. 2003).

In light of the heavy burden on a party seeking to invalidate a certificate of correction, we uphold the district court’s conclusion that the certificate of correction did not alter the scope of the patent, but merely corrected an error as to the chemical structure of daptomycin.

As noted above, the statute provides for correction of “a mistake of a clerical or typographical nature, or of minor character.” Here, the correction was deemed to fit within the “minor character” prong of the test. The decision itself is quite fact specific, but it does highlight the general fact that the “error” being corrected need not be simply a typo.

The Divide between a Covenant and a License

A few weeks ago, I wrote about the pending Supreme Court petition in Meso Scale v. Roche that asks the question of whether a covenant … not to sue for the infringement of a federal patent is a license of that patent as a matter of federal law.

Roche has waived its right to respond, but at least two friend-of-the-court briefs have been filed in the case.

Spectrum Five is a satellite broadcast company and is concerned that its covenants not-to-sue will not be treated as license rights: “Although [the Supreme] Court has held that licenses and covenants not to sue are the same, lawyers who draft intellectual-property licenses recognize that lower courts have reached conclusions inconsistent with this Court’s. The Delaware courts here have added to those inconsistent conclusions.”

Verato, Inc. indicates its concern that exhaustion principles are greatly muddied if a covenant-not-to-sue isn’t treated as a license because it leaves an open question as to whether a patent is considered exhausted as to third-party-manufactured goods if the manufacturer operates under a covenant-not-to-sue but is not otherwise licensed.

The case still has fairly low odds of being heard by the court, but the potential of having a huge impact – especially if the court distinguishes between a license and a covenant.

No Deference for Misquoting your Sources

By Dennis Crouch

I already wrote about the holding in yesterday’s ClearCorrect decision – transmission of an electronic communication cannot be considered importation of an “article” and thus is not within the USITCs Section 337 jurisdiction. I wanted to focus here for a few minutes on Chief Judge Prost’s remarks regarding the USITC’s problematic citations ITC in its final decision. In particular, it appears that the commission altered the Senate Report in a way that supports the commission’s ultimate conclusion that non-good electronic transmission count as “articles” under the statute.

The Commission’s Opinion cites the Senate Report, S. Rep. 67-595, as authority for this conclusion and then quotes it as follows: “The provision relating to unfair methods of competition is broad enough to prevent every type and form of unfair practice and is, therefore, a more adequate protection to American industry than any antidumping statute the country ever had.”

However, the actual quote reads as follows: “The provision relating to unfair methods of competition in the importation of goods is broad enough to prevent every type and form of unfair practice and is, therefore, a more adequate protection to American industry than any antidumping statute the country ever had.”

As you can see, the actual quote from the senate report is tied to importation of goods, and that segment of the report was simply left-out when relied upon in the ITC Decision. The Chief Judge Prost writes:

The Commission’s omission of the phrase, “in the importation of goods” is highly misleading; not only was a key portion of the quote omitted, but it was omitted without any indication that there had been a deletion. Furthermore, while we may agree that the quote, as incorrectly stated by the Commission, would indicate a broad authority for the Commission, the phrase “in the importation of goods” clearly limits the Commission’s authority. And as we discussed above, it limits it in such a way as to exclude non-material things. Because the Commission uses this misquote as its main evidence that the purpose of the act was to cover all trade, independent of what form it takes, the Commission’s conclusion regarding the purpose of the Act is unreasonable.

Chief Judge Prost also highlights a second important citation problem in Footnote 21:

It is noteworthy that this is not the Commission’s only failure to cite evidence correctly. The Commission additionally states that “goods, commodities, and merchandise” have the same definition as “articles” as defined in the second edition of BLACK’S LAW DICTIONARY. Final Comm’n Op. at 43. However, BLACK’S LAW DICTIONARY does not provide the cited definition.

Taking this “in sum”, Chief Judge Prost writes that the Commission’s opinion “represents a systematic pattern of the Commission picking the wrong conclusion from the evidence.”

Although somewhat unclear, it looks like the patentee (who benefits from the misinterpretation) promoted the misinterpretation. In its Federal Circuit brief the patentee Align Tech repeated the misquotation. Align writes:

From its inception, section 337 has afforded U.S. holders of intellectual property rights broad protection against unfair trade practices, including *22 importation that infringes U.S. patents and copyrights. See, e.g., S. Rep. No. 67-595, at 3 (1922) (“[t]he provision relating to unfair methods of competition is broad enough to prevent every type and form of unfair practice”).

When the actual quote includes a particular limitation to the “importation of goods” and thus suggests that electronic transmissions are not included within the scope. I have not yet obtained the original briefing to the USITC on the issue to uncover the original source of the misquotes.

Federal Circuit Bites Back against USITC Expansion into Electronic Importation

By Dennis Crouch

In ClearCorrect v. ITC and Align Tech, the Federal Circuit reversed the ITC’s prior determination – holding instead that the Commission’s jurisdiction over the importation of “articles that infringe” does not extend to the “electronic transmission of digital data”. Rather, the court holds that the Section 337 of the Tariff Act is limited to “material things” as used in common parlance (i.e., beyond an “electron’s invariant mass” that may be associated with a digital transmission).

The opinion by the court was filed by Chief Judge Prost, although not strictly a majority opinion. Judge O’Malley joined in the holding that the ITC lacks jurisdiction over the case, but wrote a concurring opinion that differed as to issues of administrative law deference. Judge Newman wrote in dissent – arguing that the decision guts the future of Section 337 cases.

This is a 3D printer case involving teeth aligners. In this case, the accused infringer’s has a four-step process:

  1. Make a physical model of a US patient’s teeth;
  2. Use a 3D scanner to digitally recreate the patient’s initial tooth arrangement;
  3. Transmit the digital file to Pakistan where workers digitally determine a final tooth placement and generate the set of sequential aligners (digital files) to reach that result;
  4. Transmit the digital files of the aligners to the US; and
  5. Print the aligners out with a 3D printer and given to the patients.

Align alleged violation based upon a set of seven different patents, including U.S. Patent No. 6,217,325.

19 U.S.C. § 1337(a)(1)(B) provides the USITC with authority to take action against the the “importation … of articles that (i) infringe a valid and enforceable U.S. patent.” The only importation here was the set of digital 3d blueprints, but the USITC found that a digital article counts as an article and thus within the ambit of USITC authority.

The three opinions can roughly be characterized as follows:

Chief Judge Prost: Since Congress delegated authority to the USITC to resolve any ambiguity in Section 337, then the court must give deference to agency interpretations. However, there is no ambiguity about the definition of “articles” in that it should be interpreted to mean “material things” – and thus no reason to move to Chevron step two. Still, under a step-two analysis, the agency’s interpretation is unreasonable and not a permissible construction.

Judge O’Malley: This is an attempt by the USITC to regulate the Internet – an area over which it has no authority and thus need not be given deference.

Judge Newman: The ITC is designed to regulate unfair competition coming from foreign sources – that is what is going on here and should be within the agency’s authority.

= = = = =

The case had potential major importance in the copyright realm. The ITC also has jurisdiction to act against importation of articles that infringe US copyrights. Allowing the ITC to take action against digital importers would create a heyday for copyright owners going after foreign streamers – especially because the USITC procedures are designed to handle the situation where the defendant is abroad.

= = = = =

One thing to keep in mind is that the USITC’s jurisdiction is entirely duplicative of the federal district courts – it is simply an alternative (friendly) jurisdiction when the accused infringement involves the importation of articles. Here, the parallel lawsuit against ClearCorrect is still pending in the Southern District of Texas. That case has been stayed since 2012 pending the outcome of the USITC investigation.

A monkey, an animal-rights organization and a primatologist walk into federal court . . .

Patent Litigator Andy Dhuey is also representing Photographer David John Slater who has been sued by the monkey Naruto for copyright infringement. In the 9th Circuit Brief, Dhuey writes:

A monkey, an animal-rights organization and a primatologist walk into federal court to sue for infringement of the monkey’s claimed copyright. What seems like the setup for a punchline isreally happening. It should not be happening. Under Cetacean Community v. Bush, 386 F.3d 1169 (9th Cir. 2004), dismissal of this action is required for lack of standing and failure to state a claim upon which relief can be granted. Monkey see, monkey sue is not good law – at least not in the Ninth Circuit. 

Certificates of Correction

The chart above shows the number of certificates of correction issued by the USPTO each year with a forecast through the end of 2015. After a patent issues, a patentee can petition for a correction of “clerical or typographical nature, or of minor character” or mistake by the USPTO. There is no fee if the error is a USPTO mistake and currently a $100 fee for correcting applicant-mistakes.

The number of corrections has remained relatively steady over the past 15 years. Since the number of patents issued has risen so dramatically, this steady-state of correction filings means that the average number of corrections per recently issued patent has dropped significantly since 2001.