November 2007

Patent Law News

Patent
  • Help prepare the next GSK brief with Michael Alexander’s WikiBriefs.
  • PatentLawPic112Intellectual Ventures plans to spend $2 billion over the next several years on patent rights. The ‘non-producing entity’ has been largely shut-out from top US university technology transfer deals because many universities and is now refocusing on doing deals with non-US universities and researchers.  US universities are not interested in selling because they want their licensees to develop the technologies. IntVen CEO Nathan Myhrvold told the WSJ that his company has not yet sued anyone for patent infringement. (See WSJ Blog).
  • PatentDocs blog is one year old. Congratulations on a great start! [Link] (The senior patent doc – Dr. Kevin Noonan – is pictured at right).
  • Patent Troll Tracker also provides a milestone — his 100th post. In that post, PTT calls for patent reform. He’s upset by “the numerous multi-defendant patent litigation cases being brought by non-practicing entities and patent trolls in the Eastern District of Texas.” [Link]
  • David Donoghue posts his “Blawg Review.”

Recent Jobs:

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CAFC Reaffirms that Doctrine of Equivalents Applies to Ranges

Patent, Patent Cases 2007, Vitiation, ,

US Philips v. Iwasaki (Fed. Cir. 2007)

Philips sued Iwasaki for infringement of its patents covering mercury-tungsten halogen light. The district court awarded summary judgment of non-infringement to Iwasaki.

Vitiation and the Doctrine of Equivalents: The asserted patent claims a target concentration of 1.6 ± 0.4 × 10-4 µmol/mm3. Based on that claim language, the district court ruled that the claim was “intended to establish the demarcation of boundaries [with] the type of precision that is closely analogous to the metes and bounds of a deed of real property.”  Thus, according to the court, allowing the claim to cover any concentration outside of the clearly claimed limits would vitiate the limitation.

On appeal, the CAFC rejected the notion that an expanded numerical range would vitiate the claim language.

“A reasonable juror could make a finding that a quantity of halogen outside that range is insubstantially different from a quantity within that range without “ignore[ing] a material limitation” of the patent claim.”

This decision conforms to prior decisions that allow equivalents for numerical ranges, but not for other limits (such as a claimed “majority.” Moore).

Notice of Infringement: 35 U.S.C. § 287(a) provides that damages for patent infringement only begin to accrue once the infringer was “notified of the infringement.” (Marking constitutes constructive notice). Notice requires a charge of infringement directed to a specific product, device, or action. The notice must also normally include the patentee’s identity. Here, the infringement letter (sent by “Mr. Rolfes”) did not specifically indicate that Philips was the assignee, but the court found notice sufficient because (1) Philips was correctly listed as the assignee of the patent and (2) Philips had granted the sending party the “responsibility for licensing and enforcing” the patent. Thus, Philips may collect damages from the date of receipt of the letter.

Notes:

  • Rounding in Claim Construction: “‘1.0’ may be said to have more significant digits than ‘1’ with no decimal point. Because [the claimed] ‘10-6’ and ‘10-4’ are simply the numbers 0.000001 and 0.0001 expressed as powers of ten, the claim language provides no basis for inferring any level of precision beyond the single digit ‘1.’ The way that power-of-ten quantities are used in the specification, discussed supra, confirms that the quantities of halogen described by the claims are not intended to be more precise.” — Why does this matter — Less precision means that the accused product may still literally infringe due to rounding.
  • Approximately: “[T]erms like ‘approximately’ serve only to expand the scope of literal infringement, not to enable application of the doctrine of equivalents.”

PTO Publishes Comments on Proposed BPAI Rules

Patent

Because of the expected increase of appeals to the Board of Patent Appeals and Interferences (the “Board”), the Patent Office has proposed a new set of rules governing practice before the Board. [Proposed Rules]. The PTO received over fifty comments from the public — mostly negative.  As it turns out, the rules appear to primarily serve as a roadblock to appeals — either by raising costs or creating procedural stumbling blocks.  The extra rules are especially shocking when you consider that the vast majority of appeals filed never reach the BPAI. Rather, even after the applicant files an appeal brief, most cases are re-opened by the Examiner who either allows the case or re-opens prosection. [cite]

In its letter to the PTO, the AIPLA noted problems with the new rules:

Some of these new requirements … do not appear to address any specific problem being experienced by the Board, and would simply add additional formal requirements that would increase the burden and costs of preparing an appeal brief, and lead to even more disputes over compliance of an appeal brief with the many formalities already required.

Intellectual Ventures said it more forcefully:

The proposed new rules are onesided and will serve as a significant hurdle to a patent applicant in pursuing their statutory right of an appeal to the BPAI. Many of the proposed changes run counter to the patent statute and improperly attempt to transfer responsibilities and shift burdens of proof from the USPTO to applicants. … Since the agency is forcing more appeals, the appeal process should be reformed to make appeals easier and less expensive to prepare rather than make appeals more expensive and burdensome as in the proposal.

Some Examples:

  • Proposed Rule 41.37(q) and (r): would require applicants to identify for every argued claim where every claim limitation finds support in the specification and is illustrated in the drawings — even where a claim limitation is not at issue in the appeal. This requirement only raises the cost of preparing an appeal brief.
  • Proposed Rule 41.37(o)(7): Would require applicant to provide an explanation of patentability when obviousness is asserted. There may be some policy reasons for requiring this. However, under current law, the applicant is not required to prove patentability — rather, the applicant only needs to poke holes in the Examiner’s prima facie case of obviousness.  

In its comments, the Adams law firm of New Mexico noted a recent Patently-O posting on BPAI delay — and suggested that briefs should be submitted directly to the BPAI — not to examiners for their initial review.  

David Boundy – writing for CantorFitz – debated whether these rules are actually ‘procedural.’

When combined, the various limits imposed in the propped Appeal Rule accumulate to a substantive denial of an applicant’s right to a fair and efficient appellate review. Increased fonts [14 point], decreased page limits [25 pages], added material that must be included, no limits on the amount of material that an Examiner can present, and a draconian remedy for failing to address every point raised by an Examiner – all make one question the motivation for these proposed changes. At some point, a collection of “procedural” limits becomes so stringent that they amount to a “substantive” limit on the ability to prosecute an application.

A. Intellectual Property Organizations and Government Agencies

  1. American Bar Association (ABA) [PDF]
  2. American Intellectual Property Law Association (AIPLA) [PDF]
  3. Bar Association District Columbia (BADC) [PDF]
  4. Intellectual Property Owners Association (IPO) [PDF]
  5. BIOCOM [PDF]
  6. Minnesota Intellectual Property Law Association (MIPLA) [PDF]
  7. National Association of Patent Practitioners (NAPP) [PDF]
  8. Washington State Patent Law Association [DOC]

B. Corporations and Associations

  1. 3M Innovative Properties Company (3M IPC) [PDF]
  2. Alkermes, Inc. [PDF]
  3. Amylin Pharmaceuticals, Inc. [PDF]
  4. Intellectual Ventures (IV) [PDF]
  5. Ceres [PDF]
  6. Cantor Fitzgerald L.P. [PDF]
  7. Eastman Kodak Company [PDF]
  8. Eli Lilly and Company [PDF]
  9. IBM Corporation [DOC]
  10. Microsoft Corporation [DOC]
  11. Wyeth [DOC]

C. Law Firm

  1. Adams Law Firm Co. [PDF]
  2. Greenblum & Bernstein, P.L.C. [PDF]

D. Individuals

  1. Aaronson, Larry [DOC]
  2. Alstadt, Lynn, J. [DOC]
  3. Baker, Daniel [DOC]
  4. Calvert, Ian, A. [DOC]
  5. Cermank, Adam, J. [DOC]
  6. Dolce, Marcus, P. [PDF]
  7. Golladay, James, E., II [PDF]
  8. Haynes, Michael [PDF]
  9. Hoover, Allen, E. [DOC]
  10. Hyatt, Gilbert P. (comments) [PDF]
  11. Hyatt, Gilbert P. (appendix) [PDF]
  12. Hyatt, Gilbert P. (comments) [PDF]
  13. Hyatt, Gilbert P. (appendix) [PDF]
  14. Hyatt, Gilbert P. [PDF]
  15. Jocke, Ralph, E. [PDF]
  16. Keegan, Robert, R. [DOC]
  17. Katznelson, Ron, D. [PDF]
  18. Marshall, Bob [DOC]
  19. Meirs, Raymond, C. Jr.. [DOC]
  20. Miller, Jerry, A. [PDF]
  21. Moore, Steven, J. [DOC]
  22. Moore, Steven, J. [DOC]
  23. Mullen, James, J. [PDF]
  24. Murashige, Kate, H. [PDF]
  25. Paul, Scott, D. [PDF]
  26. Reeves, Nancy, L. [DOC]
  27. Schideler, Blynn, L. [DOC]
  28. Steinkraus, Walter, J. [PDF]
  29. Svensson, Leonard [PDF]

Patent Family Tree: Grandparent Invalidates Grandchild

Patent,

PatentLawPic104Zenon Environmental v. United States Filter (Fed. Cir. 2007)

At a bench trial, Zenon’s microfiltration patents were found not invalid but also not infringed. Both parties appealed, but the CAFC only needed to decide half the case — After deciding that Zenon’s asserted patent was anticipated one of Zenon’s prior patent, the issue of infringement became moot.  

The particular issue on appeal was whether Zenon’s asserted patent (the ‘319 patent) properly claimed priority to an earlier Zenon patent (the ‘373 patent).

Chain of Reference: The ‘319 patent claims to be a continuation of No. 6,294,039, which is a divisional of No. 6,042,677, which is a divisional of No. 5,910,250, which is a CIP of No. 5,783,083, which is a CIP of the ‘373 patent.

The claims in the asserted patent were disclosed in the original filing — the dispute arose because an intervening patent included only a reduced disclosure.

“In order to gain the benefit of the filing date of an earlier application under 35 U.S.C. § 120, each application in the chain leading back to the earlier application must comply with the written description requirement of 35 U.S.C. § 112.” Lockwood v. Am. Airlines, 107 F.3d 1565 (Fed. Cir. 1997).

Of course, the written description requirement can be satisfied by incorporating information by reference. That incorporation must, however, be explicit.  In one of the intervening patents, Zenon did include a reference to the ‘373 patent. However, the CAFC found that reference fell short because it did not explicitly state that it was incorporating the earlier patent by reference. (The reference was stated as follows: “details relating to … a most preferred skein are found in the parent U.S. Pat. No. 5,639,373.”).

Without the incorporation by reference of the proper written description, the asserted patent cannot claim priority to the filing date of the earlier patent. And, that lack of continuity of disclosure means that the early patent now serves as § 102 prior art.

Because it is undisputed that the ’373 patent discloses each and every limitation of the claims of the ’319 patent, and the ’373 patent was filed more than one year prior to the filing of the ’319 patent, we thus conclude that the ’319 patent is anticipated by the ’373 patent and hence invalid.3

In dissent, Judge Newman found it silly that the grandparent application would invalidate the grandchild. In addition to being silly, Newman argued that 35 U.S.C. § 120 requires that the later filing is “entitled to the benefit of the [earlier] filing date” so long as the family relationship is properly disclosed.

Ferguson Challenges PTO’s Hardened Line on Business Method Patents

Patent

PatentLawPic103In re Ferguson (Fed. Cir. 2007) (on appeal)

Scott Harris is one of the named inventors on U.S. Patent Application No. 09/387,823. He is also representing his fellow inventors in their Federal Circuit appeal — asking the court to explicitly define patentable subject matter to include business methods.** Ferguson’s claimed invention focuses on the “concept of a marketing company devoted to selling/marketing products produced by other companies in return for a share of their profits.”  Claim 24 is representative:

24. A paradigm for marketing software, comprising: a marketing company that markets software from a plurality of different independent and autonomous software companies, and carries out and pays for operations associated with marketing of software for all of said different independent and autonomous software companies, in return for a contingent share of a total income stream from marketing of the software from all of said software companies, while allowing all of said software companies to retain their autonomy.

The application also includes method claims of using the paradigm.

The BPAI (Board) found that the claims satisfied the requirements of 35 USC 102, 103, and 112, but that they were not patentable subject matter under 35 USC 101.

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

Although difficult to find within the text of the statute, the Board found that Section 101 requires that a claim either have a “useful, concrete, and tangible result” or “transform” something into a new physical state. Because Ferguson’s claims don’t fit either of these categories, the Board held that the claims were abstract and thus unpatentable. In its decision, the Board followed the rules set forth in the PTO’s Interim Guidelines on Subject Matter Eligibility.

Ferguson’s appeal is a head-on challenge to the PTO’s guidelines — arguing that the limited tests proposed by the PTO were never intended by courts to be ‘exclusive test’ and that his claims are, in fact, patentable subject matter. 

Oral arguments are set for December 5th, and a decision likely in February or March of 2008. That decision may finally provide a clear analysis regarding the patentability of business methods.

Notes:

  • ** People Magazine Byline: If you remember, Scott Harris is a former major partner at Fish & Richardson. He left the patent litigation giant after some of Fish’s larger clients (Google) complained about being sued for infringement of patents invented (but no longer owned) by Harris.  Fish has been sued by owners of a Harris patent (and now Harris himself). Their allegations against the firm include tortious interference, defamation, and the wrongful witholding of wages. Interestingly, Jenner & Block is representing another non-practicing patent plaintiff, PA Advisors, who is suing Fish clients (Google). . . [PTT] [Patently-O][Harris Counterclaims]. Interestingly, Tom Woolston (owner of MercExchange) was also a Fish & Richardson patent attorney and prosecuted his patents while at that firm. John Phillips, managing partner of Fish & Richardson’s San Diego office is a co-owner of that company.
  • Bilski: Bilski also involves business method patenst and was argued on October 1, 2007. In the audio, Judge Moore takes seriously the seemingly novel concept that Design Patents must also fit within the the 101 guidelines.
  • LINK: At his excellent blog, Peter Zura uncovers three recent BPAI decisions that limit the patentability of software.
  • Ex Parte Yang-Huffman (link) (Software ‘per se’ is not patentable subject matter)
  • Ex Parte Kinzhalin et al. (link) (“Automated” procedure is not technical enough)
  • Ex Parte Rodriquez et al. (link) (Computer instructions are not patentable as instructions (dicta)).

ITC Section 337 Case Requires Showing That Imports Threaten US Market for Articles Protected by Asserted Patent

Patent

OSRAM v. ITC (Fed. Cir. 2007) (non-precedential) 

Many patent litigators see the International Trade Commission (ITC) as the preferred forum for stopping imports of infringing products. In particular, when compared with district court litigation, Section 337 ITC actions move to conclusion much more quickly; offer a better chance of immediate preliminary relief; and allow for “general exclusion orders” to stop imports industry-wide (i.e., those injunctions cover particular accused infringers as well as other non-parties).  The ITC has no power to award damages — However, injunctive relief does not require that the patentee prove-up the eBay factors.

One limitation of Section 337 ITC actions is that they can only be pursued when the imports threaten a US industry for the protected article. (US industry must either exist or be “in the process of being established.”  19 USC 1337(a)(2). This ‘domestic industry test’ has been interpreted to require that the domestic product also infringe the patent. Alloc v. ITC, 342 F.3d 1361 (Fed. Cir. 2003).

In this case, the ITC’s original claim construction of a term limiting the size of luminous pigment grains resulted in a finding that OSRAM’s US sales were not covered by the patent. On appeal, the CAFC modified the claim construction holding — and consequently found that OSRAM’s products are covered by their own patent.

Judge Dyk dissented on the claim construction issue.

Notes:

  • Prosecution thoughts: This case provides a concrete example of one reason why the most important claims in a patent are usually directed at covering the client’s actual (or expected) product.
  • The claim construction issue here is actually quite interesting. The disputed limitation reads as follows: “a mean grain diameter d50 # 5 μm”. The appeal focused on whether the mean grain diameter should be calculated on a number-based average (average diameter) or a volume basis (diameter of grain with average volume). This analysis is complicated by the fact that the claimed d50 term generally indicates a median – not a mean.  Judge Dyk sided with the ITC holding that the volume based average should be used because that is the “commercial standard.” The majority chose the number based diameter calculation for reasons well-dissected by Judge Dyk.

Patent Law News

Patent
  • PTO Battle over Rules: PTO Director Jon Dudas and Deputy Director John Doll have now been served with deposition notices from Mr. Tafas’ attorneys. The Dudas deposition is scheduled for Friday, December 7, 2007 at the law office of Kelley Drye in DC.  Deposition dates are rarely firm.
  • E.D.Texas Not Waning: Patent Troll Tracker provides more stats in response to my post suggesting that the “magnetism of the Eastern District of Texas may be beginning to wane.” (Of course, TT’s work looks to the past, and my post was primarily thinking about the future).
  • S.1145: As the Senate Judiciary committee gets rolling again. Now is the time to contact your Senator to discuss the pros and cons of various aspects of patent reform.  [Contact] Interestingly, the Senate has disbanded its Judiciary subcommittee on Intellectual Property [Link]
  • Tafas v. Dudas et al Documents: My friends at Justia have agreed to provide links to all the court documents for the Tafas case: Justia on Tafas.  On November 5, 2007, the PTO withdrew its motion for partial summary judgment under Rule 12(b)(6).
  • Be a Fellow at Princeton: Those of you ready to spend time thinking and writing about patent law might consider a Fellowship in Princeton’s Program in Law and Public Affairs. One of the six fellowships is slotted to be awarded to an IP scholar. (funded by Microsoft). “Outstanding faculty, independent scholars, lawyers, and judges” are all invited to apply. Info: http://lapa.princeton.edu. [Other patent law jobs]

The GSK Case: An Administrative Perspective

Patent

Rai_portraitBy, Arti K. Rai*

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The already voluminous discussion of GSK[1] has not focused sufficiently on the court’s reasons for concluding that the PTO continuation rules (for reasons of brevity, I focus here only on continuation rules) probably violate the patent statute.  This reasoning is important because the court ruled against GSK’s argument that the rules were a bad idea as a policy matter (or, in the language of administrative law, “arbitrary and capricious”).  The court’s reasoning about the alleged conflict between the statute and the rules contains several errors of administrative law. 

 

With respect to the prospective application of the continuation rules (the very thorny issue of retroactivity in administrative law is best left for another day), analysis of whether the rules are contrary to the patent statute turns on two issues that should be decided sequentially.  First, do the rules fall within the scope of the PTO’s procedural rulemaking authority?  Second, do the rules violate the statute?

 

One mistake in the court’s opinion is that it appears to assume that analysis of the second question can be done without a complete answer to the first.   After equivocating briefly on the first question, the court jumps immediately to the alleged inconsistency with section 120 of the Patent Act.  In agreeing that GSK has “raised serious concerns” about whether the restrictions on continuations conflict with the Act, the court’s opinion relies heavily on In re Henriksen.[2]  That 1968 decision by the CCPA overturned a PTO limit on the number of continuation applications entitled to an earlier filing date under Section 120.

 

But Judge Cacheris should not have avoided deciding the question of substance vs. procedure.  If the PTO’s rules are in fact procedural, then the question of alleged inconsistency with statutory language does not turn on a 1968 CCPA case that makes no mention of administrative law principles (and, indeed, was decided at a time before it was clear that the Administrative Procedure Act even applied to the PTO).  Rather, it turns on the enormous case law that the Supreme Court has developed under its 1984 decision in Chevron v. Natural Resources Defense Council.[3]  Under Chevron and its progeny, an agency acting pursuant to authority delegated to it by Congress (here, procedural rulemaking authority under Section 2(b)(2) of the Patent Act) is entitled to interpret its organic statute so long as Congress has not “directly spoken to the precise question at issue” (Chevron step 1) and the agency’s interpretation is reasonable (Chevron step 2).

 

Assuming that Chevron applies, it is far from clear that Section 120 “speaks directly” to the limits enunciated in the PTO’s continuation rules.  Even if we assume that Section 120 does speak directly to the issue of whether the PTO can impose a bright-line bar, the PTO has argued that it does not intend an absolute limit.  According to the PTO, it will evaluate requests for a third continuation application on a case-by-case basis. Importantly, the PTO interpretations of its own regulations are entitled to very strong deference under the Supreme Court decision in Bowles v. Seminole Rock.[4]  Seminole Rock deference, which was recently reaffirmed in the 1997 Supreme Court case Auer v. Robbins,  says that an agency interpretation of its own rule is “controlling unless plainly erroneous or inconsistent with the regulation.”[5]

 

Indeed, the very strong deference of Seminole Rock is relevant even if the rules in question are substantive and thus not entitled to the application of Chevron.  Yet the opinion by Judge Cacheris does not even cite Seminole Rock.

 

These are more than fine lawyerly arguments about details.  Given the highly uncertain prospects for patent reform, and the reality that Section 2(b)(2) already gives it some rulemaking authority, the PTO has an understandable desire to engage in “self-help.”  Its current and future efforts at self-help must be judged according to the appropriate legal standards.


* Professor, < ?xml:namespace prefix ="" st1 ns ="" "urn:schemas-microsoft-com:office:smarttags" />Duke Law School.  Professor Rai’s 2003 Columbia Law Review article on patent reform focused on the balance of power between the PTO and the Federal Circuit. Arti K. Rai, Engaging Facts and Policy: A Multi-Institutional Approach to Patent System Reform, 103 Colum. L. Rev. 1035 (2003).

 

Preferred citation: Arti K. Rai, The GSK Case: An Administrative Perspective, 2007 Patently-O Patent L.J. 36, https://patentlyo.com/lawjournal.

 

[1] Tafas v. Dudas, 2007 U.S. Dist. LEXIS 80474 (E.D. Va. Oct. 31, 2007).

[2] In re Henriksen, 399 F.2d 253 (C.C.P.A. 1968).

[3] Chevron U.S. A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984).

[4] Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945).

[5] Auer v. Robbins, 519 U.S. 452 (1997)

PTO Rule Challenge

Patent

Some food for thought:

  • GSK made two successful legal arguments against the new rules: (1) that the limitations on continuations are substantively contrary to 35 USC 120 and associated precedent; and (2) that the retroactive nature of applying the new rules to already pending applications exceeds PTO authority.
  • Even if the rule challengers win on those two arguments, the PTO would still be able to implement portions of the new rule that limit the number of claims in newly filed applications. 
  • Furthermore, the retroactive nature of the claim rules is less compelling than for the continuation rules.  The proposal does not truly limit the number of claims. Rather it only requires an “examination support document” be filed if the claim count exceeds the 5/25 limit.  While many have noted these so called ESD’s are onerous, at least one company claims an automated approach (Link).  This would increase applicant’s cost, but arguably would not harm any property rights.  Modestly increasing regulatory cost does not constitute an unlawful retroactive effect.

Notes:

The Waning of the Eastern District of Texas (as a Patent Venue)

Patent

Although still the most popular district court for new patent cases. The magnetism of the Eastern District of Texas may be beginning to wane. Two recent cases:

  • Weinstein v. UGS Corp: This is not a patent case — however it may be indicative of the court’s new favorite word: Transfer. Here, the court transferred a civil case back to Michigan were the best locus of facts and witnesses could be found.

    • TGIP v. AT: TGIP won a $156 million patent infringement verdict — the largest patent verdict ever in the Eastern District of Texas. After the verdict, the district court erased the award — awarding judgment as a matter of law for AT&T. Apparently, the jury decision did could not properly account for technical details regarding the call authorization code timing.

Michael Smith calculates the 2007 patentee win rates at 28% (2 of 7). If Patent Reform 2007 becomes law, new filings will likely dry up quickly (becaues the venue will be improper for most cases).

Some evidence to the contrary —over 15% of new patent lawsuits filed between August 1, 2007 and November 1, 2007 were filed in the Eastern District of Texas (Westlaw Docket Reports). 

Documents:

 

 

Failure to Conduct Pre-Suit Investigation of Title Does Not Create Exceptional Case

Patent

PatentLawPic100Digeo v. Audible (Fed. Cir. 2007)

Digeo bought its patent out of bankruptcy and sued Audible for infringement. A bit of background on the patent: Two of the named inventors are brothers – Edward and Oliver Chang. Oliver signed the assignment and power of attorney forms on behalf of the estate of his “deceased brother Edward.” During litigation, the facts revealed that Edward is alive and thus, not deceased.  Digeo’s case was therefore dismissed for lack of title. (The bankruptcy purchase did not convey legal title because the assignment was forged.)

The appeal here focuses on the sole question of whether the district court properly denied Audible its attorney fees. Under Section 285 of the Patent Act, attorney fees may be awarded in exceptional cases. The CAFC has limited those exceptional cases to “bad faith” litigation that is “vexatious, unjustified, or frivolous.” 

Rule 11 Sanctions and Exceptional Case: FRCP Rule 11 has an interesting burden shifting procedure. Once a movant establishes non-frivolous allegations of Rule 11 violations, the burden shifts the the accused violator to show the reasonableness of its actions. Section 285 operates differently — there is no burden shifting and the exceptional case must be proven by clear and convincing evidence.  The two rules are linked in that a court’s finding of a Rule 11 violation can be then used to prove that the case is exceptional.  Here, there was no finding of a Rule 11 violation and Audible’s plea for a burden shifting procedure were denied.

“Therefore, the burden here is not on Digeo to show it conducted a reasonable pre-suit investigation into … its legal title…. Instead, the burden is on Audible to prove by clear and convincing evidence that the case is exceptional by showing that Digeo brought a frivolous lawsuit because it knew or should have known that it lacked legal title.”

No Heightened Standard for Bankruptcy Purchases: When you buy something “as is,” a smart buyer conducts a more thorough pre-purchase check. Audible here argued that plaintiffs who purchase patents “as is” should also live under heightened pre-filing investigation requirements because of the greater likelihood that the patent is faulty. The court disagreed with that argument — noting that even “negligent conduct does not suffice to establish that a case is exceptional.”

Walking away, the rule is that a patentee has no duty to conduct a pre-litigation title search unless he “knew or should have known its legal title was defective.”  Of course, Digeo won this battle, but lost the overall case because of the faulty title.

The court also denied Audible’s motion for additional discovery to examine any pre-filing misconduct by Digeo. Audible was unable to establish the requisite “reasonable probability that the outcome [of its Section 285 motion] would have been different had discovery been allowed.”

CAFC Finds Washington DC Drug Price Law to be Unconstitutional

Patent

BIO and PhRMA v. District of Columbia (Fed. Cir. 2007).

Earlier in 2007, the CAFC found a the District of Columbia’s new Drug Price Law to be unconstitutional as preempted by the patent laws. The law would have prohibited a manufacturer from enforcing a minimum retail price restriction or from charging “excessive prices” for patented drugs. (I.e., not more than 30% more than is charged in Canada or the UK). The appellate panel found that those limits conflicted with the incentive goals of the patent laws because they would limit the “full exercise of market power.”  In October 2007, the CAFC also denied a rehearing en banc. That denial includes two interesting opinions:

Judge Dyk in Favor of Rehearing: Judge Dyk recognizes the broad holding of the original CAFC opinion — that “any state law regulating the prices of patented pharmaceutical products would likely be preempted as a result of the panel’s holding.”  In Judge Dyk’s opinion, a rehearing is not necessary to change the outcome — but rather to change misguided language in the decision.  In particular, Judge Dyk notes that the majority’s discussion of the “full exercise of market power” is overly broad:

“A patent grant is designed not to allow the patent holder to exploit the grant for the maximum profit that the market will bear, but merely to confer a right of exclusivity.”

There are many proper state activities that limit a patentee’s market power. These include:

  • Taxing the sale of patented products;
  • Regulating the sale of patented products (such as tobacco formulations and unsafe lamp oil);
  • Prohibiting the sale of patented products (such as casino games); and
  • Prohibiting price-fixing agreements on patented products.

Judge Dyk argues that like these, price regulation — especially the prohibition on international price discrimination — are not preempted by the Patent Act (even though they may be bad policy).

Judge Gajarsa argued against Judge Dyk’s position — In the process, however, Judge Gajarsa essentially rewrote the panel decision. Arguing that the decision is not based on a requirement that a patentee have full market power but rather, that the DC act is preempted because it upsets the careful balance of rights and incentives created by the US Government in the area of pharmaceutical development.

This case could easily go to the Supreme Court.