Federal Circuit Reminds Courts of Discretion on Fee Awards

By Jason Rantanen

Icon Health & Fitness, Inc. v. Octane Fitness, LLC (Fed. Cir. 2014) (nonprecedential) Octane Fitness Remand
Panel: Newman, Mayer, and Lourie

In Octane Fitness v. Icon the Supreme Court rejected the “objectively baseless” legal standard that the Federal Circuit had been applying in exceptional case determinations.  Procedurally, the appeal was of the district court’s ruling that this case was not exceptional under 35 U.S.C. § 285, which the Federal Circuit had affirmed under its then-authoritative standard.  Following remand by the Supreme Court, the Federal Circuit has itself now remanded the case back to the district court for further proceedings consistent with the new legal standard.

Most of the nonprecedential opinion involves a straightforward recitation of portions of the Court’s holding:

The Supreme Court abrogated both the clear and convincing evidence standard and the two-part test for objective baselessness and subjective bad faith of Brooks Furniture. Octane, 134 S. Ct. at 1757–58. The Court held that within the context of § 285 “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Id. at 1756. The Court further concluded that “[d]istrict courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Id. The Court explained that there is no precise rule or formula for making those determinations and noted that district courts should exercise “equitable discretion” in considering a nonexclusive list of factors that could include “‘frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.’” Id. at 1756 n.6 (quoting Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994)). The Supreme Court also observed that “a case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award.” Id. at 1757.

Slip Op. at 5-6. However, the Federal Circuit also took the opportunity to remind district court judges that the inquiry does not end with the exceptional case determination.  Specifically, under earlier Federal Circuit precedent, the court held that district courts can continue to apply their discretion even after a case is determined to be exceptional:

The Supreme Court’s decision in Octane did not, however, revoke the discretion of a district court to deny fee awards even in exceptional cases. Long before Brooks Furniture, we held that “an exceptional case does not require in all circumstances the award of attorney fees.” S.C. Johnson & Son, Inc. v. Carter-Wallace, Inc., 781 F.2d 198, 201 (Fed. Cir. 1986); see also Gardco Mfg., Inc. v.
Herst Lighting Co., 820 F.2d 1209, 1215 (Fed. Cir. 1987) (“After the district court determines that a case is exceptional, there remains in every case its freedom to exercise its discretion informed by the court’s familiarity with the matter in the litigation and the interest of justice.” (internal quotations omitted)). Indeed, in the companion case Highmark, the Court held that “[b]ecause § 285 commits
the determination whether a case is ‘exceptional’ to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion” and that
district courts should have discretion in “all aspects of [the] § 285 determination.” Highmark, 134 S. Ct. at 1748–49.

Slip Op. at 6.  The court goes on to remand the whole mess back to the district court to apply its discretion under the new standard (and presumably, to also apply its discretion to the award of fees).

What I find particularly fascinating about this whole area of law is that there is a substantial line of intertwined Section 284 and 285 cases that deal with the district court’s discretion on fee awards after a finding of willful infringement or that a case is exceptional.  These cases (which often involve an analysis under the factors set out in Read Corp. v. Portec, Inc., 970 F.2d 816, 826–27 (Fed.Cir.1992) are essentially a totality of the circumstances analysis.  This produces two interesting results.  First, although I haven’t fully thought through whether two issues are sufficiently parallel, it seems that there’s a relevant body of law on totality of the circumstances analyses in this context that already exists that courts will be able to draw upon when applying the Court’s new standard for exceptional case determinations.  Second, how should the analysis play out if both the exceptional case determination and the decision to award fees (and how much those fees should be) involve essentially the same totality of the circumstances inquiry?  Does it make sense to retain a formal distinction between the exceptional case determination and the amount of the fee award?  My sense is that the answer is yes, particularly since there will inevitably be factors in the amount-of-fee determination that are not relevant in the is-the-case-exceptional determination (for example, I have seen a district judge apportion fees based on what happened with which patents, with fees being granted for attorney activity in connection with one patent but not when the activity was solely related to other patents involved in the litigation).

Guest Post by Prof. Risch: A Generation of Patent Litigation: Outcomes and Patent Quality

By Michael Risch, Professor of Law, Villanova University School of Law.

Full article available here.

Almost three years ago, I guest posted here about Patent Troll Myths, my study of the ten most litigious NPEs at that time. One of my great regrets in that study was that I did not have a control set—a randomly matched sample to compare against the studied NPEs. Thus, in that paper, I tried to compare with other people’s outcome data. In the years since much has happened. First, most of the cases I studied came to resolution. Second, I collected data on nonNPE litigation to compare with my NPE litigation. I gathered data on 1313 cases distributed over a 25 year period in roughly the same proportion as the 917 cases filed by NPEs over that time. The numbers grow substantially starting in 2004. This led to 792 nonNPE patents versus 352 NPE patents, which indicates that the NPEs asserted the same patents in more cases.

The result is my new paper, A Generation of Patent Litigation: Outcomes and Patent Quality, which is forthcoming in San Diego Law Review. This is the first of at least two papers; the next one will focus on innovation and markets. The paper is full of comparative data about number of defendants, number of patents, choice of districts, complexity of litigation, etc. I don’t have enough room here to describe all of it, so I want to point out some of the key takeaways.

First, the data confirms the conventional wisdom: that NPEs prefer to settle earlier. There were more settlements among NPEs, many fewer trials, and durations were shorter even when holding things that lengthen cases constant, like appeals, merits rulings, and stays. There was one effect that bears further mention, though: NPEs filed more cases that were transferred or consolidated, and transfer/consolidation tended to lengthen cases.

Percentage of Cases Transferred or consoldiated

Even this, however, was not enough to make NPE cases longer. First, NPE transferred cases were shorter than nonNPE transferred cases (some might argue because NPEs dropped many cases if they were transferred, but the data doesn’t show that either way). Second, NPE cases were so much shorter that the average NPE case – including all those that were transferred or consolidated—was only 20 days longer than the average nonNPE case – excluding transferred cases. Once the transferred cases were added back to the nonNPE total, the average difference grew much longer. Full regressions are presented in the paper.

Second, when adjudicated on the merits, NPE patents were invalidated about 3 times as often as nonNPE patents. However, this was only about 12% of all the patents asserted by NPEs. Furthermore, this 12% was invalidated in less than 3% of the cases. For nonNPEs, it was about 4% of the patents in about 1.8% of the cases.

Percentage of cases adjudicated on invalidity merits, NonNPE v. NPE

Percentage of cases adjudicated on invalidity merits, NonNPE v. NPE

That is, of the patents asserted by NPEs, 88% were never tested on the merits, and 97% of the cases did not involve a patent invalidation. Most studies only report invalidity rates once a patent is adjudicated (and it’s bad for NPEs, like 91% of adjudicated patents because patents are only validated after trial, and NPEs never go to trial). This study asks what about the other 97% that are never adjudicated? I suspect the answer will vary depending on who you talk to, though I give some clues based on procedural dismissals, etc. The full paper includes reexamination results as well. Interestingly, reexaminationrs were only lightly correlated with litigation results.

Third, because I had data about all of the cases involving each of the patents, as well as the outcomes in each of those cases, I was in a unique position to test something I don’t think anyone else has been able to test: what causes a patent to by invalidated? The problem with just focusing on those patents that are adjudicated is that you lose most of the data in the set – data about the very same patents asserted by the same parties against potentially similar parties. The question is why does a patent eventually get invalidated?

It turns out that there is nothing on the face of the patent that will tell you. All of the traditional patent metrics, like future citations, number of claims, continuations, etc. are not statistically significant. (It turns out that this is true even if you look at adjudicated patents). Instead, aside from unobserved features of the patent (perhaps it’s “true” quality) and technology (which will be addressed in a later paper), the factors that most correlate with invalidation in court are those that relate to whether the defendant is more likely to challenge the patent in the first place. Thus, the number of defendants, number of times the patent has been asserted, the number of reexaminations (but, interestingly, not the results of the reexaminations), etc., are most predictive of invalidation. Now, to be sure, the NPEs in the study were more likely to do these things, but once the regression corrected for these choices and other selection variables, the NPE dummy variable added zero explanatory power in the model. Invalidation was a function of suing too often, suing the wrong parties, suing too many parties, or suing on too many patents at once, regardless of NPE status.

There was one further surprising result in all of this. Backward citations, or the number of other references cited in the patent, had a significant effect on invalidity. But the sign was wrong! The more citations, the more likely a patent is invalid. This is contrary to the conventional wisdom that “gold plating” with more references can help the patent. My interpretation is that more references means that the patent was one more likely to be asserted in a high impact way (thus, reexamined, etc.), and that backward citations is merely another variable that identifies likelihood of a challenge. I do not think it is about crowded art, because forward citations do not have the same result, which you would expect in a crowded art.

That’s all I can write in a guest post, but there is much more in the paper, including examination of infringement, reexamination outcomes (and their correlation to litigation outcomes), choice of district over time, etc. This is prepublication, so comments appreciated.

Giving Effect to the Order of Steps in a Method Claim

Mformation Tech v. Research-in-Motion (Fed. Cir. 2014)

Although several important patent litigation procedure issues are embedded here, the most important legal outcome of this case is the Court’s construction of the method claim to require a particular stepwise order – even though the order is not express in the claim itself.

Mformation’s Patent No. 6,970,917 claims a client-server method for managing a wireless device’s mailbox. The steps include:

transmitting registration information relating to the wireless device from the wireless device to the server;

verifying the registration information at the server; and

without a request from the wireless device, performing the steps of:

establishing a mailbox for the wireless device at the server,

placing a command for the wireless device in the mailbox at the server,

delivering the command from the mailbox at the server to the wireless device by establishing a connection between the wireless device and the server, transmitting the contents of the mailbox from the server to the wireless device, and accepting the contents of the mailbox at the wireless device, and

executing the command at the wireless device;

wherein the connection is established based on a threshold condition.

After for years of litigation, the jury found that BlackBerry infringes ($200 million verdict), but the federal district court rejected the people’s verdict on motion for JMOL.

The basic question at issue is claim construction – and whether the step of “establishing a connection between the wireless device and the server” must occur prior to the step of “transmitting the contents of the mailbox from the server to the wireless device.”  Apparently, in the blackberry device, a connection to the mobile device is established contemporaneously with the transmission of contents.

In finding a required order of operations, the Federal Circuit writes:

We agree … that claim 1 requires that a connection be established before transmission. We are persuaded … that the separate sub-step for establishing a connection would become “superfluous” if we concluded that a connection did not have to be established (completed) before transmission. That is because, under such construction of the claim, establishing a connection is necessarily encompassed in transmitting a command.

Further, we note that other sub-steps in claim 1 inherently require an order-of-steps. . . . And while it is true that “we have expressly rejected the contention that if a patent describes only a single embodiment, the claims of the patent must be construed as being limited to that embodiment,” Phillips v. AWH, we do note that our conclusion is consistent with the sole embodiment in the specification.

Thus, the basic idea here is not that the listing of steps in a particular order necessarily means that the claims require that particular order.  What is implicit here, however, is that the listing order is important and will be given limiting effect when additional factors corroborate that result.

= = = = =

An odd element of the case is that the district court’s JMOL determination (rejecting the jury verdict) was based upon its post-verdict “clarification” of the claim construction. There is some prior precedent barring district courts from altering claim construction post-verdict. Thus, here it was important that the Federal Circuit found that the claim meaning had only been “clarified” rather than substantively modified.

During the trial, the patentee’s infringement testimony and evidence relied upon the original claim construction that did not expressly require the stepwise ordering. Thus, it is not surprising that evidence presented fails to prove infringement under the new construction.  What is surprising, however, is that the Federal Circuit did not order a new trial based upon the modification.

Guest Post: Publishing Design Patent Applications: Time to Act

Gary L. Griswold

Mr. Griswold is a Consultant residing in Hudson, WI and was formerly President and Chief Intellectual Property Counsel for 3M Innovative Properties Company. The essay reflects the views of the author. He wishes to thank Bob Armitage and Mike Kirk for their excellent contributions to the essay.

Overview

Design patenting has come of age. According to a recent World Intellectual Property Organization (WIPO) study, the filing of design patent applications more than doubled between 2004 and 2011.[1] The stakes in design patent litigation today can be enormous. One commentator on the recent Apple-Samsung iPhone IP wars noted, “After operating in the intellectual property backwaters for years, design patents took center stage in the epic battle.”[2]

Enterprises of all sizes have come to recognize the value to be had from securing patents on their innovative designs. This also means that more businesses now need to consider whether design patents of others might impair their freedom to operate when placing a new product on the market.

Unlike conventional (“utility”) patent applications, design patent applications are not subject to the “publication” provisions that were placed in the U.S. patent law in 1999 with the enactment of the American Inventors Protection Act (AIPA). Utility patent applications, with a few exceptions, must all be published and made publicly available within 18 months after filing.[3]   However, all design patent applications are required to be kept in secret in the United States Patent and Trademark Office (USPTO) until the patent issues on the application.

Today this secrecy can have significant and negative consequences – for the design’s creator and for those who commit resources to manufacture a similar product before the issuance of the design patent. Unlike most utility patents today, the first inkling that a patent is being sought on a new product’s design may come with grant of a design patent, in other words come at the end of the examination process in the USPTO.

The growing importance of design patents suggests that this exclusion from publication with respect to design patent application publication should be rectified by Congress. This can best be done by requiring that all pending design patent applications be made available to the public by publishing these applications at 6 months after the date that they were originally filed.

Doing so would put the public on notice, shortly after the design patent application is filed, that a new product’s design may be protected. The growing prominence of design patenting, as well as other developments in the law since 1999, now make it timely for Congress to act.

Background

Two major pieces of patent legislation over the past 15 years have worked to make the U.S. patent law operate with vastly greater transparency, predictability and simplicity. The AIPA, with its requirement that most new non-design patent filings must be published at 18-months after their original filing dates was followed by a host of even more significant patent reforms. These were contained in the Leahy-Smith America Invents Act (AIA) of 2011.[4]

Key provisions of the AIA were designed to allow inventors to accurately assess whether they could secure – or had secured – a valid patent. For utility patents, access to earlier-filed patent applications comes though the AIPA’s publication provisions. Clearly, since some patents can take years to issue, holding earlier-filed patent applications in secrecy in the United States Patent and Trademark Office (USPTO) until a patent issued meant that an inventor might mistakenly invest based on the apparent validity of a patent that might then evaporate upon the issuance of a patent on a never-published, earlier-filed patent application.

The AIA also sought to assure that members of the public could more effectively participate in the patenting process. It allowed members of the public to be involved in the determination of whether a claimed invention in a patent application can be validly issued as a patent, both before the patent issues and after the patent issuance.

If action is taken promptly after a pending patent application is published, the AIA permits a member of the public to make a “pre-grant submission” of relevant prior art that the patent examiner handling the patent application must consider in deciding whether a patent should issue on the application.[5] These submissions, most notably include the earlier-sought patent applications of other inventors that have been published under the AIPA’s provisions.

In addition, the new “post-grant review” or “PGR” provisions of the AIA permit a member of the public to raise in a USPTO proceeding any issue of a patent’s validity that could be raised in court by someone accused of infringing the patent. However, these PGR provisions, like the pre-grant submission provisions, require that an individual act promptly. In this case, the PGR petition must be filed within nine months of the issue date of the patent that is being opposed.

Given the formidable requirements for requesting a PGR, most individuals making a PGR request will benefit from advance notice that a patent is about to issue. This notice, of course, is automatic when the patent application has been published under the AIPA’s provisions.

The manner in which the AIA built upon the AIPA’s provisions, both with pre-grant submissions and with post-grant review, work to benefit patent owners and their potential competitors alike. However, while these new pre-grant and post-grant provisions technically apply both to design and utility patents, the lack of any “publication provision” for design patents means that these provisions are now significantly less effective for designs.

The Rationale for Excluding Design Patents from the AIPA Publication Provisions No Longer Makes Sense

When the AIPA was enacted, there were two significant exceptions to the rule that pending applications for patent would be published and made publicly accessible. First, these provisions allowed inventors seeking only U.S. patents to opt-out of the publication requirement. This was done for inventors interested in patent protection only for the U.S. market on the assumption that at least some of them might not want their inventions publicly disclosed if they were ultimately not going to be able to receive a valid patent. However, for almost all such inventions, marketing the invention necessarily discloses to the public what the invention is and, in fact, discloses much more about the invention to the public than would normally be found in an inventor’s patent application if published.

Thus, this rationale, particularly today, makes little sense. The inventor can be “protected” from public disclosure by opting-out of the publication provisions of the AIPA only in the situation where the invention is never commercialized and essentially has no economic value, or in the limited situations where the invention can be effectively practiced as a trade secret. Consequently, it is a protection that seldom affords any economic value to the inventor.

Under the AIA, the publication of an invention in a pending patent application provides an inventor with a guarantee that no one else will be able to successfully secure a patent on the same or a similar invention based on an application filed after the inventor’s patent filing. Where someone subsequently files for a patent, the earlier-filed application limits the later-filing inventor to validly patenting only subject matter both novel and non-obvious over what was disclosed in the earlier-filed application.

Design patents were totally excluded from the 18-month publication provisions. The rationale for the design patent exclusion can be found in the legislative history of the AIPA: “Since design applications do not disclose technology, inventors do not have a particular interest in having them published.” That statement, whatever its validity then, was made before design patenting came of age and has little relevance today, as evidenced by the litigation between Apple and Samsung.

Another reason given for the design exception was that “The Hague Agreement Concerning the International Registration of Industrial Designs” was being revised and that any change to the design patent law should await the outcome of that exercise. That outcome is now clear; Congress has acted to remove the exception for design patents filed under The Hague Agreement.[6]

Yet another reason that design patents may have been left out of the mix when the publication provisions of the AIPA were being drafted was the short pendency of a design patent application. “Pendency” is the time taken by a patent examiner between filing and issuance of the design patent. With pre-grant submissions of prior art and post-grant review under the AIA now in place, that relatively shorter pendency before the Patent Office for design applications versus utility applications makes it much more important to have design applications not only published, but published quite promptly, i.e., at six months from the patent filing.[7]

The last reason Congress may have excepted design patents from publication is that some manufacturers may not have wanted the designs for new products to be prematurely disclosed, prior to market introduction.[8] Under the AIA, however, the filing of a design patent application assures that no similar designs can be patented based upon a later-filed design patent application. In addition, early publication puts competitors on notice that there is a “patent pending” on the design so that they dare not copy the design without the risk of infringing a subsequently issued design patent. Instead of a problem for manufacturers, pre-grant publication carries with it undeniably important benefits.

In addition to the “notice” function that arises from publishing a design patent application, inventors whose design patent applications publish secure yet another benefit under the AIPA. They can qualify for “provisional rights” – that is the right to collect reasonable royalty damages from anyone who uses the design during the period from the date the user received notice of the published design application until issuance of the patent on the design.[9] This again reflects the upsides of publication, much potential gain with a negligible prospect of incurring any pain.

Conclusions

The AIA increased the openness and transparency of the patent system by providing for pre-grant submissions and post- grant review. These provisions work to protect the public against patents that lack valid claims – and similarly protect the inventor from making investments in reliance on patents that could never be successfully enforced. Those aspects of the AIA are premised in part on the publication of pending patent applications.   Whatever reasons can be cited for excluding design patent applications from these important provisions of the AIPA, such reasons now have only historic significance. Today, all design patent inventors deserve equal treatment. The availability of the benefits of publishing pending design patent applications should not depend on where a design patent inventor seeks patent protection.

In sum, the agreement to allow publication of design patent applications filed by U.S. inventors under The Hague Agreement represents a significant step by the United States toward achieving the open, transparent 21st century patent system contemplated by the AIPA and AIA. The increase in design patent application activity – and the prominence of design patent enforcement efforts – renders this a perfect time to remove the exclusion from publication of those design patent applications filed only in the United States.

 

[1] According to WIPO, in 2012, “the 1.22 million industrial designs contained in applications grew by 17%—the highest growth on record.” http://www.wipo.int/export/sites/www/freepublications/en/statistics/943/wipo_pub_943_2013.pdf, at p. 4.

[2] See http://designpatentattorney.com/wp-content/uploads/2013/01/Carani-Lanslide-Article-Design-Patents-Take-Center-Stage-Jan-Feb-2013.pdf.

[3] Most utility patent applications must be published under the AIPA’s publication provisions. The time period set for publishing utility patents is 18 months after the initial patent filing date. 35 U.S.C. § 122(b).

[4] The United States adopted a so-called first-inventor-to-file system as the principle for determining what subject matter can represent “prior art” to a claimed invention. Also, a number of subjective and non-transparent aspects of the rules on patenting were removed.

[5] Because prior art can be submitted to the USPTO anonymously, members of the public and competitors of the applicant are normally comfortable in making such submissions. Since the processing time is shorter for design patent applications than that of utility patent applications, a narrower time window (e.g., before the earlier of a notice of allowance and the later of (1) the first rejection or (2) 2 months after publication) would be necessary for submitting third party submissions.

[6] The implementing legislation for the Geneva Act of The Hague Agreement has been enacted by the United States and rules for its implementation are being finalized by the USPTO. Once the rules are completed, the formal process for membership will be initiated and completed. The Common Regulations Under the 1999 [Geneva] Act and the 1960 Act of The Hague Agreement provide for publication of international applications six months after the date of the international Registration (which occurs upon receipt by WIPO of the international application). This publication of the international application will be considered a publication in the U.S. under 35 USC 390. The U.S. will not allow deferral of publication. Thus, any concerns related to the early publication of design patent applications as a policy matter have already been decided by Congress in favor of publication.

[7] As with utility patent applications, the public may well be aware of better prior art for design patent applications than the USPTO. If design patent applications were published, interested members of the public could submit prior art to the USPTO with the result that any issuing design patents would have been more thoroughly examined, benefiting both the applicant and public.

[8] Because of the speed of issuance, design applications filed only in the U.S. would need to be published 6 months after their U.S. filing date. Any concern with timing of publication relative to commercialization would seem to be handled by a 6 month period between filing and publication, which mirrors The Hague Agreement, and the relatively rapid grant (typically 15 months) of design patents.

[9] By providing that publication under The Hague Agreement will be deemed a publication under 35 USC 122(b), the implementing legislation (35 U.S.C. 390) makes such design patent applications eligible for provisional rights under 35 USC 154(d).

Accelerating ex parte PTAB Appeals: For a Fee

By Dennis Crouch

The Patent Trial and Appeal Board (PTAB) is burdened with a statutory mandate to quickly reach final determination in its post-issuance review trials. To meet that requirement, the PTAB has put tremendous resources into its trial teams to ensure sufficient bandwidth to handle the hundreds of inter partes trials. At the same time, a 25,000 case backlog of pending ex parte appeals persists at the Patent Trial and Appeal Board.  Those cases do not have as clear of a statutory-mandate for rapid processing and, as a result, have clearly languished as the Board developed its post-issuance review trial program with most cases now waiting more than three years for a decision from the Board. (Notice-of-Appeal to Board Decision).  Rather than dealing with its poor statistics, the PTAB appears to have simply stopped publishing them.

For many patent applicants (though certainly not all), the appeal delay is costly because it extends a period of ambiguity and it delays issuance of the patent rights.  Certainly, the vast majority of long-pendency patent applications (those that issue more than 7 years after filing) spent considerable time in the appeal queue awaiting a reversal of an examiner rejection. Those late-issued patents have the potentially of being disruptive to marketplaces that have developed and grown in the absence of an issued patent.

A few months ago, I conducted what I called a “10-second”survey on Patently-O regarding the potential market for accelerated PTAB decisions in ex parte cases.  I asked:

Would you pay an extra $5,000 for accelerated PTAB decisions in ex parte cases that issue[] within nine months rather than waiting the standard 2 1/2 years?

I should note that the 2 ½ year figure had increased. The results are instructive and somewhat fit the model seen with the $4,000 fee for prioritized “track one” examination, although the market for accelerated appeals seems somewhat greater.  The vast majority of the 614 responses indicated that they would use the fast track in at least some cases – with most indicating that the fast track would be used in >5% of cases.

AcceleratedAppeals

Although not any final word on the market for accelerated appeals, the chart is indicative of a demand for accelerated appeals.  And, although not a solution to the docket problem, acceleration of a subset of appeals offers the potential of alieviating the most some of the more pointed needs.

I should note here that a subset of accelerated examination cases (“made special”) are also accelerated when pending before the PTAB. However, those do not include prioritized examination cases under the pay-for-speed program.  I do not have any statistics on how that acceleration impacts the timing of appeals.

Court Finds Patent Invalid; Then Orders Defendant to Stop Infringing

By Dennis Crouch

Following the Supreme Court’s equitable relief decision in eBay, many patentees have found it difficult to obtain injunctive relief to stop ongoing infringement – even after final judgment that the patent is both valid and infringed.

In a recent decision, the District Court Judge Blake (D.Md.) seemingly flipped eBay on its head by enjoining TWi Pharma from making or selling a generic version of Par’s patented Megace ES formulary. The upside-down element of the decision is that the order granting the injunction issued only after the court found the patent claims invalid as obvious. Par Pharma v. TWi Pharma, 1-11-cv-02466 (MDD August 12, 2014, Order). To be clear, the order here is not for permanent relief, but only relates to injunction pending appeal.

The doctrine involving the grant of equitable relief pending appeal is a bit squirrelly – especially at the district court level because the general setup involves the court deciding that its decisions are likely wrong. Recognizing that, the law does not require the moving party to show that its case is a likely winner but only a substantial likelihood that the requested equitable relief will be entered as a result of the appeal. Applying this standard, the district court writes:

Par claims that it will succeed on the merits because this court erred in its application of the law with respect to motivations to combine the prior art and inherency. Although the court stands by its judgment, it recognizes that the case presents a close call. Further, the Federal Circuit will conduct a de novo review of whether the ’576 patent is obvious, including whether this court properly interpreted the law regarding motivation and inherency. . . . The court is not persuaded Par has demonstrated a “strong” likelihood of success on appeal—especially given that most of its dispute with this court’s earlier decision is only rehashing the legal arguments it has already made. Par has, however, made a showing of a substantial case.

The district court joined this “substantial case” on appeal with strong evidence of irreparable harm absent relief in its decision to grant the injunction pendente lite.

Regarding the ‘public interest’ element of equitable relief, the court found that element neutral.

The court recognizes that the public is served by the availability of low-cost generic medications, especially where an invalid patent has previously barred their entry into the market. On the other hand, the public also has an interest in the protection of valid patents because it promotes innovation. This factor, therefore, is neutral.

An interesting and problematic element of the court’s decision here is that the doctrinal approach makes it easier for a patentee to obtain temporary relief following an adverse final judgment (of invalidity) than prior to such a judgment. The doctrinal difference highlighted by the court between preliminary injunctive relief pending final judgment and post-decision relief pending appeal is simply that the proof of likelihood-of-success is reduced for relief pending appeal. This is obviously problematic because in the second case, the court will have already reached a final judgment that the patentee loses.

In making its decision, the district court applied Federal Circuit precedent regarding relief pending appeal. However, those cases relate generally to the asymmetrical situation of staying-injunctive relief pending appeal rather than, as here, granting injunctive relief pending appeal.

There is a better approach that still recognizes the potential need for injunctive relief pending appeal and that is simply requiring a greater showing of need for relief (irreparable harm; balance of hardships; public interest) when the likelihood-of-success element is reduced.

Myriad Patents Now Challenged at the PTO

Myriad v. Gene Dx, Inc.

In 2013, the US Supreme Court invalidated Myriad’s patent claims covering isolated DNA coding for the cancer causing BRCA1/BRCA2 by ruling that those isolated genes were unpatentable products of nature. However, the Supreme Court also ruled that the ‘created’ cDNA versions of the genes were patent eligible – or at least not excluded by the product-of-nature exception to subject matter eligibility.

Following that decision, a number of companies indicated that they would enter the market and begin BRCA1/BRCA2 diagnostic genetic testing in violation of the patents. Myriad responded aggressively by filing lawsuits against several companies, including Gene Dx for patent infringement. The case against Gene DX alleges infringement of sixteen different Myriad patents and is still pending in Federal Court in Utah where the parties have jointly agreed that settlement prospects are “low.” The case has been centralized before a multidistrict panel that is handling parallel cases against Gene DX, Quest Diagnostics, Ambry, and Counsyl.

In a bold move, Gene DX has now filed a set of inter partes review (IPR) requests – challenging 11 of the Myriad (or Myriad Licensed) patents. I should note, these challenged patents are different from the ones ruled-upon by the Supreme Court. In the IPR regime, patents can only be challenged on prior art grounds. Here, each of these patents have been challenged on either 103 (obviousness) or 102 (novelty) grounds.

USPTO RCE Backlog Coming Down

In its most recent annual report, the USPTO indicated that 560,000 non-provisional utility patent applications were filed during the fiscal year. (FY2013). The report fails to mention that 30% of those “new” filings were not actually new, but rather were merely Requests for Continued Examination (RCEs) filed by applicants in already pending cases. For many patent applicants, RCEs have become an expected element of the prosecution process in order to provide for a third-round of communication with the examiner.

Over the years, the USPTO has vacillated on its view of applicant Requests for Continued Examination (RCEs). In 2009, the office began a program to delay further consideration of RCE’d applications. That action resulted the rapid growth of a backlog of RCE filings awaiting examination. The USPTO is now addressing that backlog and appears to have it largely under control.

As part of its program to reduce RCE filing, the USPTO is pushing several of its initiatives including Quick Path Information Disclosure Statement (QPIDS) and After Final Consideration Pilot (AFCP 2.0).

Upcoming Events

By Dennis Crouch

I’m looking forward to a few upcoming events for patent law professionals:

  • September 7-9, 2014, the Intellectual Property Owners Association (IPO) will hold its annual meeting in beautiful Vancouver BC. I’ll be there joining a panel discussing the impact of recent US Supreme Court patent cases. [LINK]. The IPO event again has a great line-up, including Professor Hricik, Nathan Myhrvold, and many more.
  • On the evening of November 5, 2014, I will be delivering the University of Houston’s IP IL Annual Fall Lecture at the Four Seasons Hotel in Houston (Sponsored by the Katz Foundation). My talk will be on incentives (current and future) for patent clarity. [LINK]. Thank you to the University of Houston Law Center for hosting this event.
  • November 6-7, 2014, I will be down in Austin Texas participating in the annual Advanced Patent Law Institute with a talk titled Evidence Based Patent Law: Trends and Statistics, and What they Mean for Your Practice and your Patent Portfolio. [LINK]. Other speakers include Professors Golden (UT Austin), Lemley (Stanford), Wegner (formerly with GWU), and Hricik (Mercer); the Hon. Terry Rea and Randy Rader; Rob Sterne, et al.
  • January 7-11, 2015, I will be in Vail, Colorado talking about patent law as part of the 32nd National CLE Confrence where they also happen to have “amazing skiing.” Conference co-chairs are Scott Alter (Baker Daniels) and David Bernstein (Debevoise & Plimpton ). [LINK]
  • February 7-10, 2015: Hal Wegner’s annual Patent Experts Conference in Naples (FL) at the Naples Beach Hotel.

I look forward to seeing you in person.

Judge Mayer Raises 101 When Not In Issue: Other Panelists Don’t

I am sure Dennis will do his usual full and grand treatment, but this one is sort of the counter-punch to Ultramercial. In I/P Engine, Inc. v. AOL Inc. (Fed. Cir. Aug. 15, 2014) (per curiam), the court split on whether the claims were properly found by the jury to have been not obvious, with Judge Chen dissenting on that point and the per curiam opinion reversing the finding of no invalidity. (The other panel members were Judge Wallach and Judge Mayer).

Recall that in Ultramercial the court emphasized that 101 was seemingly a defense, and so evidence was needed and the usual presumption of validity applied, and so on.  Here, Judge Mayer seemed to take precisely the opposite tact, though it’s not quite clear.  In addition to writing at length about what he perceives the “technological arts” test to mean and require, he wrote:

The Supreme Court has dictated that the subject mat- ter eligibility analysis must precede the obviousness inquiry. Flook, 437 U.S. at 593 (“The obligation to determine what type of discovery is sought to be patented” so as to determine whether it falls within the ambit of sec- tion 101 “must precede the determination of whether that discovery is, in fact, new or obvious.”); Bilski, 130 S. Ct. at 3225 (explaining that the issue of whether claims are directed to statutory subject matter is “a threshold test”); see also In re Comiskey, 554 F.3d 967, 973 (Fed. Cir. 2009) (“Only if the requirements of § 101 are satisfied is the inventor allowed to pass through to the other requirements for patentability, such as novelty under § 102 and . . . non-obviousness under § 103.” (citations and internal quotation marks omitted)). To fail to address at the very outset whether claims meet the strictures of section 101 is to put the cart before the horse. Until it is determined that claimed subject matter is even eligible for patent protection, a court has no warrant to consider subordinate validity issues such as non-obviousness under 35 U.S.C. § 103 or adequate written description under 35 U.S.C. § 112.

From a practical perspective, there are clear advantages to addressing section 101’s requirements at the outset of litigation. Patent eligibility issues can often be resolved without lengthy claim construction, and an early determination that the subject matter of asserted claims is patent ineligible can spare both litigants and courts years of needless litigation. To the extent that certain classes of claims—such as claims on methods of doing business—are deemed presumptively patent ineligible, moreover, the United States Patent and Trademark Office will have more resources to devote to expeditiously processing applications which disclose truly important advances in science and technology.

Even more fundamentally, the power to issue patents is not unbounded. To the contrary, the constitutional grant of authority “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries,” U.S. Const. art. I, § 8, cl. 8, “is both a grant of power and a limitation,” Graham v. John Deere Co., 383 U.S. 1, 5 (1966); see Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 146 (1989). Section 101’s vital role—a role that sections 103 and 112 “are not equipped” to take on, Mayo, 132 S. Ct. at 1304— is to insure that patent protection promotes, rather than impedes, scientific progress and technological innovation. A robust application of section 101 ensures that the nation’s patent laws remain tethered to their constitutional moorings.

I am guessing we’ll see another en banc case soon…

Non-Patent Friday

By Dennis Crouch

UChicago Law Professors Adam Chilton and Eric Posner have a new article out that looks at political bias in legal scholarship. The basic finding is a correlation between a professor’s donation to a political party (Republican or Democratic) and that professor’s “scholarship ideology” (conservative or liberal).

We find that, at a statistically significant level, law professors at elite law schools who make donations to Democratic political candidates write liberal scholarship, and law professors who make donations to Republican political candidates write conservative scholarship. These findings raise questions about standards of objectivity in legal scholarship.

http://ssrn.com/abstract=2478908.

Areas of Disuniformity in US Inventorship

By Dennis Crouch

The chart below uses the breakdown of patent documents into their various workgroups. As shown here, the workgroups are basically an intermediary classification that falls between the micro-art-units and the macro technology centers. Dividing into workgroups is especially useful for looking at Technology Center 3600 because that center examines perhaps the widest variety of technologies. For the chart below, I collected inventor information on all U.S. patents issued from January 2010 – August 2014 and simply displayed the percent of patents whose first-listed inventor claimed a U.S. residence in the application documents.

Today, just about half of newly issued patents are non-US originated. That datum is dramatically different from historical figures where U.S. inventors dominated the U.S. patent rolls. I have written before that this change likely signals a future shift in U.S. policy as the population is less likely to support foreign-owned patent rights blocking access or raising prices for goods and services. To the extent policymakers are relying upon this concern, the chart provides some additional insight because it points to areas of technology where U.S. inventors continue to dominate in the U.S. Patent market.

Intel Successfully Defends its Patent Case but Owes its Own Attorneys $9 Million for the Defense.

By Dennis Crouch

Stragent, LLC v. Intel Corp., 11-cv-0421 (E.D. Texas). JudgeDykOpinion

Federal Circuit Appellate Judge Timothy Dyk has been sitting by designation as the trial judge in this patent infringement lawsuit over video compression technology. (U.S. Patent No. 7,302,102). A jury found Stragent’s two asserted patent claims both invalid and not infringed. And, apparently, Strategent chose not to appeal that determination.

The final issue left for Judge Dyk to decide then was attorney fees and the court has now denied Intel’s motion for fees.

The ordinary rule in American law is that each side pays its own attorney fees. For a successful defendant such as Intel here, the outcome of the lawsuit is likely still a seven-figure payout to its defense team (paid by the winning defendant). As an exception to the usual rule, the Patent Act provides that a district court judge may award attorney fees to the prevailing party in “exceptional cases.” Recently in Octane Fitness, the Supreme Court rejected the Federal Circuit’s prior strict standard and high-bar for exceptional case awards and instead put the determination within the discretion of district court judges.

Under Octane Fitness,

[An exceptional case] is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated . . . considering the totality of the circumstances . . . [and excising the court's] equitable discretion.

Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014). Despite the seeming wide decision making discretion, the Supreme Court also recognized that exceptional case awards should be “rare” and “uncommon.”

Although having a losing party is a prerequisite to an exceptional case finding, Judge Dyk here found that “the mere fact that the losing party made a losing argument is not [otherwise] a relevant consideration.” Rather, according to the opinion here focus should be on whether the arguments were “frivolous or made in bad faith.” That said, Octane does not expressly require bad faith or frivolous arguments, and that decision makes clear that exceptional case awards may be available at times when the losing parties actions are not sufficiently bad to warrant Rule 11 sanctions. A second point with regard to Rule 11 sanctions is that those sanctions tend to be focused on individualized frivolous or bad faith arguments made by parties while §285 fees are awarded with reference to the case “as a whole” and in considering “a totality of the circumstances . . . includ[ing] the conduct of the winning party.”

In considering the case at hand, Judge Dyk noted that Intel’s motion for fees “is primarily based on the fact that Stragent made losing arguments.” Although Judge Dyk agreed that Stragent’s case was “certainly a weak one,” he also noted that Intel failed to even move for summary judgment:

Stragent’s argument was certainly a weak one, but despite the alleged implausibility of Stragent’s position, Intel never sought summary judgment of non-infringement on the basis of the limitation at issue. This suggests that Intel did not always view Stragent’s infringement position as frivolous. There is little injustice in forcing Intel to bear its own attorney’s fees for defending a claim it did not challenge on summary judgment. Disposing of a frivolous claim on summary judgment would avoid a trial and have the effect of saving both parties a substantial portion of their litigation costs.

Motion for fees denied. Intel is unlikely to overturn this on appeal.

= = = = =

An interesting tidbit from the Intel’s briefs: “Intel spent approximately $9 million in legal costs.” Wow! How on earth do you spend $9 million defending a three-patent case asking only for a reasonable royalty. (By trial, the case had been narrowed to only be challenging two claims found in one of the patents.) I would really love to see the accounting for that $9 million. Of course the docket does list 17 attorneys on Intel’s side. . .

 

State of Vermont’s Demand Letter Case against MPHJ Continues

State of Vermont v. MPHJ Technology (Fed. Cir. 2014)

MPHJ has become the poster-child for bad patent trolling behavior and has been the subject of unfair-trade-practice action in several states. The basic idea is that MPHJ has mailed out more than 15,000 demand letters to small businesses who use scan-to-email technology. The set of five patents have a 1997 priority date. See patent, No. 8,488,173.

Vermont’s attorney general Bill Sorrell has been active in pushing against patent trolls and MPHJ in particular. In May 2013, Vermont sued MPHJ in State Court alleging that the company was engaging in unfair and deceptive trade practices under Vermont law and that the letters “contained threatening, false, and misleading statements.”

Up to now, the case has been in civil-procedure limbo. A major issue to be decided in the state-enforcement actions is the extent that state powers are preempted by the federal patent laws. MPHJ believes that preemption is more likely to be found if the case is decided by a federal court rather than a state court. As such, the patentee removed the case from state court to federal court on grounds of diversity and federal question. However, the federal district court remanded the case back to state court. In its recent decision, the Federal Circuit has tacitly affirmed the remand – finding that it lacks appellate jurisdiction over any appeal. In particular, the Supreme Court has held that there may be no appeal of a Federal District Court’s decision to remand under 28 U.S.C. § 1447(d).

The Vermont State Court will now handle the case and determine the extent that MPHJ’s actions violate the law.

IP Journalist Joe Mullin has written on MPHJ in several posts at ArsTechnica.

Update on Patent Grant Rates

I have updated my grant-rate chart from a prior post. For these figures, I obtained a set of 15,900 published patent applications and categorized each application according to its area of technology and also as either patented, abandoned, or still pending. The chart below shows both the grant rate (percentage of applications that have been patented) and also the still in-process rate (percentage of applications that are still in-process).

My sample of applications are a random set of published applications with filing years of 2004 through 2010. About 94% of these cases have been concluded (either patented or abandoned) and my original chart did not include the in-process numbers which, for most areas-of-technology are fairly minimal. However, on reflection, I went back and looked at these figures and found that they are important.

Notably, the eCommerce arts appear to have a low grant rate. However, a substantial percentage of applications in that area are still pending. It is almost certain that some of those still-pending applications will issue as patents and the final grant rate for the area will be higher than originally predicted.

GrantRateUpdate

Senators to Pritzker: Patent System Needs More Clarity and Transparency

In a letter last week to Secretary Pritzker (DOC), a group of five Democratic Senators have urged for administrative patent reforms to “prevent[] low-quality, vague patents from entering the market.” The group include Senators Jeff Merkley, Tom Udall, Martin Heinrich, Mark Begich and Mark Warner.

Although the letter does not provide direct policy plans, it does provide a set of guidance that should be well taken by the Patent Office:

(1) Take steps to incentivize examination quality over quantity.

(2) Direct Examiners to ensure that the patent file history is complete and resolves any ambiguities with clarified patent terms prior to issuance.

(3) Assess whether the PTO’s steps to “address functional claiming concerns . . . are sufficient to address concerns that functional claiming provides a loophole from definite, precise claims.”

(4) Expand crowdsourcing and public data analysis as a mechanism to identify problematic patents and categories of patents — then target those areas for more thorough examination.

(5) Ensure public access to information about patents and the file histories.

Read the Letter

The suggestions by the Senators are all helpful and are directed to an area of patent law ripe for reform. Lets hope that the USPTO can take these suggestions and create sensible policy.

Patent Grant Rate by Technology Area

By Dennis Crouch

The chart below shows the grant rate of US patent applications grouped by technology center sub-groups (technology area). The numbers come from a random set of 10,000 published patent applications that were filed between 2003 and 2010. Later-filed applications cannot be readily used for this exercise because most of them are still pending. The grant rate is calculated simply by counting the percentage of applications that have as patents. The areas of technology are shown with a representative technology-center (or art unit). Overall the grant rate in this population was 60%. I have also added error-bars showing the 95% CI for each group.

GrantRate

 

Telework: How much did you work? Nobody Knows!

By Dennis Crouch

In another seeming bombshell for the Patent Office, the Washington Post has published a 2012 internal USPTO memorandum on telework fraud. Lisa Rein from the post writes:

Some of the 8,300 patent examiners, about half of whom work from home full time, repeatedly lied about the hours they were putting in, and many were receiving bonuses for work they didn’t do. And when supervisors had evidence of fraud and asked to have the employee’s computer records pulled, they were rebuffed by top agency officials, ensuring that few cheaters were disciplined, investigators found.

Oversight of the telework program — and of examiners based at the Alexandria headquarters — was “completely ineffective,” investigators concluded.

Further, the report indicates that “USPTO management demonstrates reluctance to take decisive action when the misconduct is egregious and the evidence is compelling.” At the time, the USPTO was led by Director Kappos.

The original report was then substantially tamed-down (with the most damning elements removed) before it was provided to the DOC Office of the Inspector General. Based on the evidence found in the secret original document, the OIG has indicated that it will now launch a probe of the USPTO’s workforce quality control.

Production versus Hours: The facts here are disturbing. However, one underlying assumption of the report is that we should be looking to the hours-worked by examiners rather than focusing on whether the work is completed (i.e., production).  Examiner production is closely monitored and measured on a bi-weekly basis and there is no sense in the industry that examiners can avoid those production quotas without major repercussions.

 

White House Seeks Input on Innovation Strategies

A request for input was published on July 29, and is available here.  The summary states:

The Office of Science and Technology Policy and the National Economic Council request public comments to provide input into an upcoming update of the Strategy for American Innovation, which helps to guide the Administration’s efforts to promote lasting economic growth and competitiveness through policies that support transformative American innovation in products, processes, and services and spur new fundamental discoveries that in the long run lead to growing economic prosperity and rising living standards. These efforts include policies to promote critical components of the American innovation ecosystem, including scientific research and development (R&D), technical workforce, entrepreneurship, technology commercialization, advanced manufacturing, and others. The strategy also provides an important framework to channel these Federal investments in innovation capacity towards innovative activity for specific national priorities. The public input provided through this notice will inform the deliberations of the National Economic Council and the Office of Science and Technology Policy, which are together responsible for publishing an updated Strategy for American Innovation.