March 2009

Federal Circuit Affirms $4.6 million award for litigation misconduct

Attorney Fees, Damages, Patent, Patent Cases 2009

ICU Medical v. Alaris Medical System pic-14.jpg (Fed. Cir. 2009)

ICU’s patents covers technology for using syringes to add drugs to an IV. The district court granted summary judgment of invalidity and also awarded attorney fees and found a violation of Rule 11 of the Federal Rules of Civil Procedure. Alaris was awarded $4.6 million in attorney fees and sanctions. On appeal, the Federal Circuit affirmed.

Section 285 of the Patent Act provides for the award of attorney fees to the winning party in “exceptional cases.” In Brooks Furniture, the Federal Circuit discussed a two-part test for whether attorneys fees may be awarded due to litigation conduct. The test requires that “both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” A district court fee award will be affirmed absent clear error.

The problem – ICU argued that the claim term “spike” could be a non-pointed structure such as a tube even though the specification “repeatedly and uniformly describes the spike as a pointed instrument.” The claim construction was not ICU’s only problem:

For example, the district court found that ICU made “multiple, repeated misrepresentations . . . to the Court regarding its own patents in an effort to conceal what are now characterized as errors in order to rescue the TRO/PI from denial.” These misrepresentations related to (1) ICU’s assertion of claims in the ’509 patent that were identical to claims in the ’592 patent (i.e., assertion of double-patented claims); (2) ICU’s assertion of more double-patented claims from the ’509 patent even after Alaris and the district court warned ICU of the double-patenting issue; (3) ICU’s misrepresentation of Federal Circuit authority; (4) ICU’s representation that figures 13 and 20–22 of the common specification “clearly” disclosed a spikeless embodiment, only to later acknowledge that these figures do not disclose such an embodiment and state that its representation was an “honest mistake.”

Although the Brooks Furniture rule discusses objectively baseless “litigation,” that rule is not construed to focus on the litigation as a whole. Rather, attorney fees may be assessed if any portion of the litigation is brought in bad faith and in an objectively baseless manner. Here, the Federal Circuit found that the lower court had “appropriately exercised its discretion in awarding attorney fees only for [a] portion of the litigation.”

Notes:

  • Federal Circuit Decision 08-1077.pdf
  • District Court award of Fees: 232495.pdf. Bottom line: “The Court finds that Alaris is due $4,587,622.44 in attorney fees and $164,721.19 in costs for the reasons set forth below. . . . This represents a reasonable lodestar calculation for Alaris’ work . . . , and it constitutes a reasonable pro rata amount of Alaris’ total expenditure of $11,000,000 in attorney fees and $2,000,000 in costs overall in this case.”
  • District Court decision to find a Section 285 exceptional case and Rule 11 sanctions. 232494.pdf. Money Quote: “[The submitted declarations] do not substantively justify or excuse ICU’s litigation tactics or show its good faith. These declarations were prepared by ICU’s litigation counsel for the purpose ofopposing the Rule 11 and Fees Motions, and comprise mostly self-serving assertions of good faith by interested witnesses, such as ICU’s CEO (Dr. George Lopez), trial counsel (Fulwider, Patton, Lee & Utecht; Paul Hastings; or Pooley & Oliver), patent counsel (Knobbe Martens) and its paid experts (Dr. Maureen Reitman and Bob Rogers). These materials lack the indicia of credibility provided by declarations or opinions from outside, independent counsel or experts, particularly outside patent, as opposed to litigation, counsel. Most of the materials appear to have been “memorialized” in retrospect, providing marginal support compared to, for example, an ex ante documented and vetted analysis that preceded the litigation or that, al minimum, preceded the TRO/PI request and the inclusion of the “spike” claims in the amended complaint.”
  • Although the district court decision appears to identify the Fulwider firm as “trial counsel,” that appears to have been a mistake made by the court. A Fulwider attorney has indicated that their firm “was never one of ICU’s trial counsel in that matter, and thus made no representations to the court on ICU’s behalf.” In fact, ICU appears to be somewhat of a toxic client. According to the court documents, Fulwider represented ICU in the 1990’s. At some point ICU dropped the firm as a client and sued for malpractice based on Fulwider’s representation of alleged ICU competitors. Fulwider did not admit wrongdoing, but a 2007 press release by ICU claims that ICU “will be paid $8 million in settlement of its claims against Fulwider.”

Federal Circuit Affirms $4.6 million award for litigation misconduct

Attorney Fees, Damages, Patent Cases 2009

ICU Medical v. Alaris Medical System pic-14.jpg (Fed. Cir. 2009)

ICU’s patents covers technology for using syringes to add drugs to an IV. The district court granted summary judgment of invalidity and also awarded attorney fees and found a violation of Rule 11 of the Federal Rules of Civil Procedure. Alaris was awarded $4.6 million in attorney fees and sanctions. On appeal, the Federal Circuit affirmed.

Section 285 of the Patent Act provides for the award of attorney fees to the winning party in “exceptional cases.” In Brooks Furniture, the Federal Circuit discussed a two-part test for whether attorneys fees may be awarded due to litigation conduct. The test requires that “both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” A district court fee award will be affirmed absent clear error.

The problem – ICU argued that the claim term “spike” could be a non-pointed structure such as a tube even though the specification “repeatedly and uniformly describes the spike as a pointed instrument.” The claim construction was not ICU’s only problem:

For example, the district court found that ICU made “multiple, repeated misrepresentations . . . to the Court regarding its own patents in an effort to conceal what are now characterized as errors in order to rescue the TRO/PI from denial.” These misrepresentations related to (1) ICU’s assertion of claims in the ’509 patent that were identical to claims in the ’592 patent (i.e., assertion of double-patented claims); (2) ICU’s assertion of more double-patented claims from the ’509 patent even after Alaris and the district court warned ICU of the double-patenting issue; (3) ICU’s misrepresentation of Federal Circuit authority; (4) ICU’s representation that figures 13 and 20–22 of the common specification “clearly” disclosed a spikeless embodiment, only to later acknowledge that these figures do not disclose such an embodiment and state that its representation was an “honest mistake.”

Although the Brooks Furniture rule discusses objectively baseless “litigation,” that rule is not construed to focus on the litigation as a whole. Rather, attorney fees may be assessed if any portion of the litigation is brought in bad faith and in an objectively baseless manner. Here, the Federal Circuit found that the lower court had “appropriately exercised its discretion in awarding attorney fees only for [a] portion of the litigation.”

Notes:

  • Federal Circuit Decision 08-1077.pdf
  • District Court award of Fees: 232495.pdf. Bottom line: “The Court finds that Alaris is due $4,587,622.44 in attorney fees and $164,721.19 in costs for the reasons set forth below. . . . This represents a reasonable lodestar calculation for Alaris’ work . . . , and it constitutes a reasonable pro rata amount of Alaris’ total expenditure of $11,000,000 in attorney fees and $2,000,000 in costs overall in this case.”
  • District Court decision to find a Section 285 exceptional case and Rule 11 sanctions. 232494.pdf. Money Quote: “[The submitted declarations] do not substantively justify or excuse ICU’s litigation tactics or show its good faith. These declarations were prepared by ICU’s litigation counsel for the purpose ofopposing the Rule 11 and Fees Motions, and comprise mostly self-serving assertions of good faith by interested witnesses, such as ICU’s CEO (Dr. George Lopez), trial counsel (Fulwider, Patton, Lee & Utecht; Paul Hastings; or Pooley & Oliver), patent counsel (Knobbe Martens) and its paid experts (Dr. Maureen Reitman and Bob Rogers). These materials lack the indicia of credibility provided by declarations or opinions from outside, independent counsel or experts, particularly outside patent, as opposed to litigation, counsel. Most of the materials appear to have been “memorialized” in retrospect, providing marginal support compared to, for example, an ex ante documented and vetted analysis that preceded the litigation or that, al minimum, preceded the TRO/PI request and the inclusion of the “spike” claims in the amended complaint.”
  • Although the district court decision appears to identify the Fulwider firm as “trial counsel,” that appears to have been a mistake made by the court. A Fulwider attorney has indicated that their firm “was never one of ICU’s trial counsel in that matter, and thus made no representations to the court on ICU’s behalf.” In fact, ICU appears to be somewhat of a toxic client. According to the court documents, Fulwider represented ICU in the 1990’s. At some point ICU dropped the firm as a client and sued for malpractice based on Fulwider’s representation of alleged ICU competitors. Fulwider did not admit wrongdoing, but a 2007 press release by ICU claims that ICU “will be paid $8 million in settlement of its claims against Fulwider.”

Rooklidge: Patent Reform Damages Provision Violates Seventh Amendment

Academic Studies, Articles and Publications, Damages, Patent, Patent Legislation, , ,

The following post is by Bill Rooklidge. Rooklidge is a patent litigator and former head of the AIPLA. He clerked at the Federal Circuit in the early 1980’s.

Richard Cauley’s March 14, 2009 guest post accurately characterized the damages reform provision of the Patent Reform Act of 2009 as “a judicial nightmare” because of its procedural complications, attendant delay and reversal potential. Two additional problems with that provision merit note: it perpetuates prior art subtraction and introduces into jury trial multiple potential violations of the Seventh Amendment.

Fact-finding and the Seventh Amendment. The Supreme Court coined the term “gatekeeper” in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), to describe the trial court’s obligation to “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” In addition to rulings on Daubert motions, courts also fulfill their gatekeeper role by ruling on motions for summary judgment and judgment as a matter of law, motions in limine, evidentiary objections, and jury instructions. The bills’ damages section would enhance the courts’ gatekeeper role, but in doing so unconstitutionally invade the jury’s province as fact finder.

The bills would add to 35 U.S.C. §284 paragraph (c)(1), which would require the court to select from three methods for calculating a reasonable royalty “based on the facts of the case and after adducing any further evidence the court deems necessary.” A procedural rule requiring the court to weigh evidence to select from alternate theories would be void for depriving the patentee of its right to jury trial. See Fidelity & Deposit Co. of Maryland v. United States, 187 U.S. 315, 320 (1902). A genuine issue of material fact, that is, a dispute over facts that might affect the outcome, requires the issue to go to the jury. See generally Anderson v. Liberty Lobby, 477 U.S. 242 (1986). Similarly, the trial court’s exclusion of the entire market value rule under paragraph (c)(1)(A) for the patentee’s failure to make “a showing to the satisfaction of the court,” would violate the Seventh Amendment in a jury trial in which the patentee presents enough evidence to create a genuine issue of material fact. See Minks v. Polaris Indus., Inc., 546 F.3d 1364, 1372 (Fed. Cir. 2008) (vacating because trial “court necessarily engaged in an independent review of the evidence and substituted its conclusion for that of the jury on the factual issue of compensatory damages”).

The first section of the bills’ section (c)(1)(B) authorizes trial courts to exclude the patentee’s prior licenses for failure to make a “showing to the satisfaction of the court” of three facts regarding the claimant’s other licenses:

“the claimed invention has been the subject of a nonexclusive license for the use made by the invention by the infringer”;

the licenses have been extended “to a number of persons sufficient to indicate a generally marketplace recognition of the reasonableness of the licensing terms”; and

“the license was secured prior to the filing of the case before the court.”

The court also must determine whether the infringer’s use is “of substantially the same scope, volume, and benefit of the rights granted under such license. The second sentence of paragraph (c)(1)(B) requires a similar procedure for noninfringing substitutes for the infringing product or process. And paragraph (c)(1)(C) likewise requires the court to “conduct an analysis to ensure that a reasonable royalty is applied only the portion of the economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art.” A court making these findings would invade the province of the jury where the patentee presents substantial evidence on these issues.

Prior Art Subtraction. Section (c)(1)(A)’s requirement for application of the entire market value rule that the “claimed invention’s specific contribution over the prior art” be the “predominant basis for market demand” is just the latest form of “prior art subtraction.” Use of “specific contribution over the prior art” is an attempt to separate the “gist” or “heart” of the invention from the patent claims, and would introduce the extra step of subjectively redefining the scope of a patent. The Federal Circuit long ago rejected using the “gist” or “heart” of the invention to determine obviousness, see Para-Ordnance Mfg. v. SGS Importers Int’l, Inc., 73 F.3d 1085 (Fed. Cir. 1995), and recently rejected using the “point of novelty” in design patent law. Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 678 (Fed. Cir. 2008). Stripping the prior art elements out of the claimed invention that has been examined by the USPTO, construed by the federal district court, and relied upon to determine validity and infringement, in no way approximates the “heart” or “gist” of the invention, and that inherently subjective process would be unfair to the patent owner, and would eliminate application of the entire market value to inventions consisting entirely of prior art elements, arguably the vast majority.

Paragraph (c)(1)(C) would limit the reasonable royalty base to the “economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art,” replacing apportionment with prior art subtraction. This analysis is no substitute for the sophisticated and nuanced apportionment approach available under existing case law such as Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1133-37 (S.D.N.Y. 1970). Paragraph (c)(1)(C) would address the combination invention problem by stating that for combination inventions “the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.” This analysis, which finds no precedent in existing case law and lacks any readily definable economic standards, does not even begin to address the problem that subtracting the prior art elements simply does not approximate what the inventor really invented.

Replacement of “contribution over the prior art” with the “essential features” language from the Supreme Court’s recent Quanta Computer, Inc. v. LG Electronics, Inc., 128 S. Ct. 2109 (2008), would just put another label on prior art subtraction. Regardless of label, the bills’ damages provision would drastically reduce patent owners’ ability to obtain reasonable royalty damages, which could not be less fair to those, like independent inventors, research institutions and universities, that have no ability to obtain lost profits damages.

Notes

Spangenberg on Apportionment, Obviousness and Anonymous Comments

Patent,

On Feb 12, 2009, I published “Orion and Taurus: NPE’s at the Federal Circuit” in which I discussed Erich Spangenberg’s cases now pending at the Federal Circuit. In the note, I referred to the $34 million verdict that his company won against Hyundai and noted that the patent may well serve as the “poster child for damages reform.” Erich Spangenberg recently sent me a note regarding his appeals now pending at the Federal Circuit. He makes several important points:

On apportionment: As to being a “patent reformer’s poster child for damage reform,” I take it that this statement by you has two elements: (i) you put some credence in the musings of anonymous comment posters about the state of the art and (ii) the apportionment provisions set forth in the proposed patent reform legislation. In various ways, both of these were put to test at trial. . . . As to the apportionment point, I believe the problem with this point is that a similar non-infringing substitute system [did] not exist at the critical date and on the date of the hypothetical negotiation a similar system would be an enterprise system with a double digit million price tag.

On Obviousness: Every major auto manufacturer produced mountains of prior art (including Mercedes) and not a one of them claimed to have a computerized sales system in operation on the critical date as described by your poster. The art relied on turned on a system known as the IDB 2000—which was developed by Bell+Howell in the late 1980’s at the request of GM. The co-inventor of the IDB 2000 was Dr. Donald Frey. Dr. Frey was the CEO at Bell+Howell during the time the IDB 2000 was initially developed and implemented—a BA, MA and PhD in metallurgic engineering out of Michigan and a long-term employee of GM and Ford, whose credits include being one of the “fathers” of the Mustang while at Ford and a National Medal of Technology recipient. Dr. Frey was not paid for any of the information he provided. In an affidavit he provided that was discussed at trial (Dr. Frey did not testify)—he stated “I have reviewed United States Patent Number 5,283,865 entitled “Computer-Assisted Parts Sales System” (the ‘865 patent) and United States Patent Number 5,367,627 entitled “Computer-Assisted Parts Sales Method (the ‘627 patent) along with the file history for each of these patents.” While there are several points in his affidavit that are important, the most critical is the concluding paragraph in his affidavit that states, “The’627 and the ‘865 patent differ from the IDB2000 in that, among other things, they describe novel parts systems that were not contemplated, designed or implemented as part of the IDB2000.”

I am fascinated by the reverse prognosticators that claim it is “obvious to me” as they sit in their chairs today reflecting on the state of the art in 1989—most of whom posses even less experience at the critical date than the anonymous comment poster who had a summer job in a Mercedes parts bay. In this golden age of modern cynicism is it really so hard to believe that the examiner got it right?

On Anonymous Comments: I am not a fan of—and heavily discount views expressed in—anonymous commentaries. The discipline of providing your verified name gives one pause before you hit the “send” button. One idea you may wish to consider to raise the level of the discourse on your blog is to have an “anonymous” comment section (sometimes this is the only way to get valuable information) and a verified name comment section.

Erich’s points on apportionment are well taken. Apportionment does not make sense when at the time of the infringement there were no suitable substitutes. As has been discussed on the blog, even if you believe that damages should be apportioned according to the incremental value of the claimed innovation, the apportionment method proposed in the Patent Reform Act of 2009 is clearly problematic based upon its proposed procedures.

Patent Reform 2009: More on Damages

Damages, Patent, Patent Legislation, , ,

Guest Post by Richard Cauley. Cauley is the author of the recent Oxford Press book titled Winning the Patent Damages Case: A Litigator’s Guide to Economic Models and Other Damage Strategies. I asked him to provide some thoughts on the damages proposals in the Patent Reform Act of 2009. Cauley.jpg

The damages provisions of the Patent Reform Act of 2009 are not new, nor, in an economic sense, are they particularly controversial. Although their introduction in this legislation may create a political firestorm among those who wish to artificially maximize the economic leverage of patentholders both in court and across the bargaining table, the solutions proposed in the latest attempt at patent reform merely reflect – and attempt to measure – the true economic worth of a patent and the reasonable return to which an inventor is entitled.

What these damages provisions (all of which were contained in the various versions of the failed Patent Reform Act of 2007) attempt to accomplish is to force the court to limit the patentholder’s recovery to the real economic worth of an invention – for example, to a company who might want to license that invention to use in another product or to a consumer who might purchase a product because of that very invention.

Thus, the section limiting the application of the entire market value rule to situations in which the actual invention – the advance over the prior art – forms the basis of consumer demand compensates the inventor only to the extent his invention produces something that people actually want to buy.

This section also ensures that patents on relatively minor components are not given a value in excess of their real economic worth. Where the patent does not cover something critically important to the consumer, the provision limits the patentholder’s recovery to the value of that component to the customer – and precludes a recovery based on the entire product, which may include many other patented components.

Likewise, the section requiring the court to determine whether there is already a “market price” for licensing the patent – in the form of pre-existing licenses for similar patent rights – simply measures how much a prospective licensee would be willing to pay on the open market for the right to use the patent. Of course, this is what the reasonable royalty remedy is supposed to measure.

The purpose of these provisions is obvious. First, they will limit the ability of patentholders, primarily patent trolls, to recover damages in patent litigation far in excess of the actual economic value of those patents. More importantly, however, they will reduce the threat of such inflated damages awards – a threat such plaintiffs use as leverage in licensing campaigns and settlement negotiations to secure recoveries far exceeding the worth these patents really have to the prospective licensees.

The problem with these proposed statutes, then is not their objective – to give patents the value they actually deserve – but the implementation. As written, these provisions are a judicial nightmare. They require the court to conduct a kind of “damages Markman” in which the court must decide, before giving the case to the jury, the economic value of the patent’s “specific contribution over the prior art,” the “basis” for the “market demand” for an infringing process, the “relevant market” for a claimed invention and whether that market has “similar noninfringing substitutes” for the claimed invention. Apparently, the court is also supposed to make the economic decision of which Georgia Pacific factors the jury is allowed to consider.   

The delay which will be caused in an ongoing trial will inevitably be substantial and the opportunities for reversible error in this process will be legion. Although the intent of the drafters of these provisions was certainly praiseworthy– to codify limits on jury’s overvaluing patents in awarding damages – the byzantine rules they set up to implement these objective shows that they certainly have never tried a patent case. Indeed, if the courts would simply follow the judicially- established guidelines already in place, this complex set of regulations would not be necessary.

Hopefully, calmer heads will prevail before these rules are actually imposed on the patent litigation bar and on the courts. There are better and more effective ways of reaching these objectives.

Indeed, it is not surprising that, in another section of the bill – limiting venue for patent cases to districts in which the defendant has a facility – there appears to be no appropriate venue for a patent case against an infringing foreign defendant with no facilities in the United States. Thus, a plaintiff might have jurisdiction over an infringer, but nowhere to sue the company – all dressed up and no place to go.

Links:

In re Nature’s Remedies: Foreign Regulatory Submission Invalidates Patent Under 102(b)

Anticipation, Patent, Patent Cases 2009,

In re Natures Remediesssp_temp_capture.jpg (Fed. Cir. 2009) (nonprecedential)

In October of 2005, a third party (Jemo-Pharm) submitted a request for ex parte re-examination of Natures Remedies patented claim covering an herbal composition of guarana, damiana, and yerbe-mate claimed to cause weight loss. More than one year before Remedies’ filing date, an anticipating composition had been submitted to a Danish regulatory organization as part of a request for approval for clinical testing. (The decision is unclear, but implies that the submission was done by Remedies).

A Danish official provided testimony that the submission was a public record and was open for inspection since its date of submission. Remedies’ expert, however, argued that a Danish trade-secrecy law would have prevented such inspection. The BPAI accepted the open-access line of argument and found the submission invalidating prior art under 35 USC 102(b). The patentee appealed – arguing that the official submission was not sufficiently publicly accessible to be considered 102(b) prior art.

On appeal, the Federal Circuit affirmed – finding that the regulatory submission was publicly available more than one year before Remedies filed its application. The court began by recognizing that the official’s testimony created a prima facie case that the submission was publicly accessible – shifting the burden to the patentee. Of course, BPAI factual findings such as this will be affirmed with a finding of “substantial evidence.”

Because [the Danish Official’s] declaration established a prima facie case of public availability, the onus was on Remedies to demonstrate that the [regulatory submission] was not accessible to interested members of the public. Remedies, however, failed to carry its burden.

Under the Danish trade-secrecy law, the regulatory submissions are kept secret when they are of “material importance” to a company’s “economy.” It appears that Remedies could have proven its case but failed to provide evidence to the Board.

Attorney argument, however, cannot take the place of record evidence. See In re Geisler, 116 F.3d 1465, 1470 (Fed. Cir. 1997); Johnston v. IVAC Corp., 885 F.2d 1574, 1581 (Fed. Cir. 1989). Here, the evidence of record does not establish that Remedies intended to keep the formulation of the Medi-Tab capsule confidential until after the study had been completed and a patent application had been filed.

Rejection affirmed

Notes:

  • 102(b) looks at prior art that was “described in a printed publication” more than one year prior to the date of application for the US patent. Implicit within ‘publication’ is a notion that the material is publicly accessible. Notably, however, there is generally no need to prove that the material was actually accessed. Thus, in this case, there is no discussion of whether the regulatory submission was ever seen by anyone.
  • Read the case
  • Reexam No. 90/007,785 (look it up in PAIR).
  • In some ways, this case is simply an extension of the Pivonka v. Axelrod case where the Federal Circuit held that the applicant has waived arguments by failing to present them at the Board of Patent Appeals.

In re Ferguson: Patentable Subject Matter

BPAI, Patent, Patent Cases 2009, Patentable Subject Matter, Software, , ,

In re Ferguson (Fed. Cir. 2009)

Scott Harris has been discussed several times on Patently-O. Harris is a former Fish & Richardson partner. Fish handles the most patent litigation of any firm in the country. In addition to being a patent attorney, Harris is an inventor. He has contracted with the plaintiffs firm Niro Scavone in several actions to enforce patents against Google and other companies. Harris is one of the named inventors of the Ferguson application and he handled the [futile] appeal.

The claimed invention focuses on a “method of marketing a product” and a “paradigm for marketing software.” These claims focus on methods and structures for operating a business.

Methods Under Bilski: Claim 1 reads as follows:

A method of marketing a product, comprising:

developing a shared marketing force, said shared marketing force including at least marketing channels, which enable marketing a number of related products;

using said shared marketing force to market a plurality of different products that are made by a plurality of different autonomous producing company, so that different autonomous companies, having different ownerships, respectively produce said related products;

obtaining a share of total profits from each of said plurality of different autonomous producing companies in return for said using; and

obtaining an exclusive right to market each of said plurality of products in return for said using.

Under Bilski, this case is open and shut. The claim is not even arguably tied to a machine — especially under the Nuijten construction of machine to be a “concrete thing, consisting of parts, or of certain devices and combination of devices [including] every mechanical device or combination of mechanical powers and devices to perform some function and produce a certain effect or result.” (Quoting Burr v. Duryee, 68 U.S. (1 Wall.) 531, 570 (1863)). Thus, the 1863 touchability definition of machine appears to hold weight. On the second Bilski prong, the claim does not require transformation of any article into a different state or thing. The only transformation is that of legal rights and organizational relationships that were explicitly excluded in the Bilski decision: “transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.”

Harris asked the court to consider a different test of patentable subject matter: “Does the claimed subject matter require that the product or process has more than a scintilla of interaction with the real world in a specific way?” The CAFC panel rejected that proposal primarily based on the precedential value of Bilski: “In light of this court’s clear statements that the “sole,” “definitive,” “applicable,” “governing,” and “proper” test for a process claim under § 101 is the Supreme Court’s machine-or-transformation test, see Bilski, passim, we are reluctant to consider Applicants’ proposed test.” The court went on to determine that the “scintilla” test would create too much ambiguity as well.

Non Method Claims: The application also included claims directed to a “paradigm for marketing software” made up of a marketing company that markets software in return for a contingent share of income. Although “instructive,” the Federal Circuit did not directly follow Bilski. Rather, the court looked to determine whether the claimed paradigm fit within one of the four statutory classes listed in Section 101:

Inventions Patentable: “… any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof…”

In a gentle Koan, the Court stated that it “need not resolve the particular class of statutory subject matter into which Applicants’ paradigm claims fall, [however], the claims must satisfy at least one category.” In fact, the court did attempt to resolve the particular class, but was unable to fit the paradigm claim into any of the four.

Applicants’ paradigm claims are not directed to processes, as “no act or series of acts” is required. Nuijten, 500 F.3d at 1355. Applicants do not argue otherwise. Applicants’ marketing company paradigm is also not a manufacture, because although a marketing company may own or produce tangible articles or commodities, it clearly cannot itself be an “‘article[]’ resulting from the process of manufacture.” Nuijten, 500 F.3d at 1356. Again, Applicants do not argue otherwise. And Applicants’ marketing company paradigm is certainly not a composition of matter. Applicants do not argue otherwise.  

Again applying the touchability notion of machine, the Court also rejected the notion that the company paradigm could be a machine:

Applicants do assert, however, that “[a] company is a physical thing, and as such analogous to a machine.” But the paradigm claims do not recite “a concrete thing, consisting of parts, or of certain devices and combination of devices,” Nuijtent, and as Applicants conceded during oral argument, “you cannot touch the company.”

Ending in a flourish, the court found that in fact, the Ferguson paradigm claims are “drawn quite literally to the paradigmatic abstract idea.” (quoting Warmerdam).

Judge Newman offers a poignant concurring opinion.  

Threading Comments on Patently-O

Patent

Typepad (the blog host) has new software for threading comments. I like the idea because it allows for better direct arguments and may make it easier to follow a line of reasoning. At times, the comments turn into a back-and-forth between two or three readers that goes wildly off topic. The threads could allow that comment chain to continue while non-parties could just skip over it. The new software also allows more of an “identity.” You can create a user ID and picture – and then never again be forced to read numbers and letters in fuzzy images. Anonymous comments will still be available. The software also gives the commenter a few minutes to edit comments before they become ‘permanent.’

Test it out here (https://patentlyo.com/test/2008/07/monop1.html) and let me know if we should make the switch.

Guest Post: Hot Topics in US Patent Reexamination

Academic Studies, Articles and Publications, Guest Post, Patent, Reexamination, , ,

By Robert Greene Sterne. Rob Sterne is a founding director of the IP firm Sterne Kessler Goldstein & Fox. I asked him to write about current ‘hot topics’ in patent reexamination.

pic-11.jpg

The marked increase in the use of reexamination has naturally caused more frequent and closer evaluation and scrutiny of its unique procedures by involved parties and the courts. In FY2008, according to official USPTO (PTO) statistics, 168 inter partes reexams and 680 ex parte reexams were instituted. Compare this to FY2005, where 59 inter partes reexams and 524 ex parte reexams were instituted just three years ago. In short, it is becoming one of the faster developing areas of intellectual property law and, in the words of top PTO officials, it is a true “work in progress.”

Developed in conjunction with the Sedona Patent Litigation Conference and a team of my colleagues (and incorporating feedback of dozens of sources including judges, senior officials from the PTO, patent litigators, patent prosecutors, academics, bloggers, and interested members of the public), a comprehensive and neutral white paper overview of this subject matter provides an in-depth review of hot issues currently confronting parties that find themselves in the “parallel universe” of patent reexamination and concurrent litigation in the district courts and USITC. The hot topics addressed include (A) impact of PTO decisions on stock price, (B) reexamination pendency, (C) substantial new questions of patentability, (D) real party in interest, (E) duty of disclosure, (F) protective orders, (G) stay of litigation in view of reexamination, (H) appeals from the Central Reexamination Unit to the Board of Patent Appeals and Interferences, (I) the impact of reexamination on settlement, and (J) page and time limits in reexamination proceedings.

Here is a closer look at three of these topics:

  • Litigation Stays: Reality or Myth – The percentage of reexams that are in the ‘parallel universe’ of district court or USITC patent litigation continues to climb. For example, in FY2008, 62% of current inter partes reexams and 30% of ex parte reexams were in parallel litigation. Judges have wide latitude in granting or denying stays and litigants must carefully evaluate prior stay decisions from their judge and the court they are in to effectively prognosticate how the judge will rule. Especially with respect to inter partes reexams, the grant of a stay can effectively be “game over” for the patent owner.
  • Stock Fluctuation: Impact of PTO and Court Decisions on Stock Price – The practical impact of reexam on patent owners can be enormous. There are recent celebrated examples of stocks dropping 40% in hours after the release of a non-final office action rejecting claims in a suit, even though this development is not controlling on a court case because the reexam is not final. Third party requestors engage in litigation in the press by issuing inflammatory press releases that spin the truth. Patent owners need to be prepared for this media battle to protect their stock price. Moreover, the PTO mails decisions to parties in the reexam, putting the patent owner at a real disadvantage in dealing with the potential reexam media war.
  • Reexamination Pendency: So How Long Does it Take? – The stated goal of the PTO CRU is 24 months from the time the reexam is instituted to a Final CRU office action or action closing prosecution. By statute, the CRU must handle reexams with “special dispatch.” However, there are no definitive statistics on how long it takes for a reexam to be handled to completion by the CRU and then through appeal at the BPAI. Our current best estimate is that it takes approximately two to four years for the CRU to complete a reexam, typically a little faster for ex parte reexams, and two to four years for the BPAI to complete a reexam appeal. Thus, the reexam process could take four to eight years before it arrives at the US Court of Appeals for the Federal Circuit on appeal. This is a significant amount of time and requires additional strategy and tactical decisions by the parties.

For additional insight into patent reexamination, download recent podcasts – “2008 Patent Reexamination Trends” (Episode #1) here and “The Parallel Universe of Patent Reexamination and Litigation” (Episode #2) here.Download the latest version of the Sedona Conference related paper referenced above here, where you can read in-depth about the full list of hot topics identified above.

Patent Law Professors on the Move

Academic Studies, Bits and Bytes, Patent

The lateral market for patent law professors is alive and steaming ahead.

  • Scott Kieff has accepted a position at GW law school in DC and will be moving from Washington University in St. Louis. GW may well have the best patent focused program in the country. At any opportunity, Kieff promotes the notion that strong property rights almost always lead to the best outcome.
  • Tim Holbrook is off a recent stint at Stanford Law school and is taking a position at Emory in Atlanta. Emory's patent space has been vacant since Margo Bagley left for UVA several years ago. Holbrook is leaving his fulltime position at Chicago-Kent.
  • Also leaving Chicago is Katherine Strandburg (from Depaul). Strandburg is taking a position at NYU where she will join Richard Epstein and my undergraduate classmate Troy McKenzie. McKenzie is a chemical engineer, but does not do patent law. Instead he focuses on bankruptcy.
  • In a coup, Mark Janis is headed home to Indiana (Bloomington) – leaving his longtime post at Iowa. Janis largely focuses on the interplay between trademark and patent rights.
  • Dave Schwartz is moving from John Marshall to fill Holbrook's position at Kent. Before moving into academia, Dave was a partner at a firm handling patent litigation and prosecution.

Each of these individuals have been helpful to me at some point during the past few years. Thank you, and good luck in your new positions!

Forward Looking Patent Damages

Articles and Publications, Damages, Injunctions, Patent,

In the wake of eBay, courts and scholars have been working to figure out what to do after denying injunctive relief. A common suggestion is to award an ongoing royalty – often termed a compulsory license. In an impressive body of research stretching back to the year 1660, Lewis & Clark professor Tomás Gómez-Arostegui concludes that “federal courts lack the authority, in either law or equity, to award prospective compensation to plaintiffs for post-judgment copyright or patent infringements.”

Until such time as Congress creates a new form of compulsory licensing, future-damage awards and continuing royalties can only be granted in lieu of a final injunction by consent of the parties.

In non-patent cases, such as accidental death, courts regularly calculate future damages – such as earning capacity. However, in those cases, the award is based on a past tort. In patent cases, prospective damages are based upon future infringing actions.

Looking historically, Gómez-Arostegui could not find a single instance prior to 1789 where the Chancery “awarded a continuing royalty in lieu of a final injunction in infringement cases.” In cases where no injunction was granted, the court did “nothing at all” about ongoing infringement.

How does this cut:

Read the paper here.

Stays Pending Inter Partes Reexamination

Articles and Publications, Patent, Reexamination

In an earlier post I indicated my suprise that courts continue to “grant stays of litigation pending re-examination – especially inter partes reexaminations which tend to be incredibly slow.” In thumbing through Matthew Smith’s new book on Inter Partes Reexaminations, the following statements caught my attention and reaffirmed my conclusion that stays do not make sense here:

“A fully contested proceeding, therefore, could consume six to seven years. . . . [However t]here is as yet no reliable data available to estimate the total time of the proceeding. As of the end of 2008, the only cases with issued reexamination certificates were those in which technical mistakes were made, or in which at least one party chose not to contest the proceedings.”

The first request for inter partes reexamination was made in 2001 and still no contested inter partes reexamination has completed its course. Mr. Smith’s suggestion of “six to seven years” may well be optimistic.

Part of the Patent Reform Act of 2009 would be to take inter partes reexaminations out of the hands of the examination corps and put it under the direction of “an administrative patent judge.” Under the proposal, the PTO is given authority to spell out the actual procedures. Of course, the Board of administrative patent judges has been handling this sort of trial-in-the-first-instance for many years in the form of interference proceedings. The board already has a trial division that is ready to go. Although there are some outliers, interference proceedings are generally terminted within less than two years. For the Oct-Dec 2009 period, 13 interference proceedings were terminated with an average pendency of 9.5 months. 100% of those cases were terminated in less than two years. See 37 C.F.R 41.200(c) (“Patent interferences shall be administered such that pendency before the Board is normally no more than two years.”)

Notes:

Cardiac Pacemaker v. Jude: En Banc Challenge to 271(f) Liability for Components of a Method

Patent

Cardiac Pacemakers v. St. Jude Medical (en banc 2009)

Patent law is ordinarily considered territorial. Infringement of a US patent normally requires practicing an entire patent claim within the US. 35 U.S.C. § 271(f) details an exception to the rule that creates a cause of action for patent infringement for the action of supplying components of a patented invention to be assembled abroad. The Court of Appeals for the Federal Circuit has announced that it will hear a 271(f) case en banc to determine whether “35 U.S.C. § 271(f) appl[ies] to method claims, as well as product claims.”

The case is set for the Court to provide a resounding answer: “No, Section 271(f) does not apply to method claims.”

The statute in question reads as follows:

271(f)(1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

In the 2005 Union Carbide decision, the Federal Circuit interpreted 271(f) to encompass method claims. Thus, in that case, Shell was properly held liable for exporting a catalyst to be used abroad to practice the method in a foreign facility Union Carbide is the specific precedent followed by the three member Cardiac Pacemaker panel. Then, in the 2007 Microsoft v. AT&T decision, the Supreme Court found that 271(f) does not extend to cover foreign duplicated software – i.e., that the software in the abstract is not a “component.” Part of the Supreme Court’s justification for its narrow interpretation of 271(f) was based on the traditional presumption against extraterritorial application of US laws.

The court welcomes Amicus briefs on the subject.

Patently-O Bits and Bytes No. 95

Bits and Bytes, Injunctions, USPTO News,
  • Injunctive Relief: I re-read Michelle Lee’s (Google) statement about the need for patent reform. One issue that jumped-out this time: No mention of injunctions. Money is still at stake, but Google appears confident that it won’t face a shut-down even if it loses a patent case. In that sense, Google is lucky that it is being sued by non-practicing entities who as a de facto rule don’t get injunctive relief against infringers who have a major market share.
  • Benefit of Trade Secrets: Avoid Charges of Infringement. In some senses, google is very public. Yet, its actual operation is quite secretive. One benefit of that type of operation is that it helps avoid charges of patent infringement. If patentee’s can’t tell how you operate, it makes it much more difficult to assert charges of infringement.
  • Warranties and Copyright: My colleague Marc Roark has an interesting new paper: Limitation of Sales Warranties as an Alternative to Intellectual Property Rights: An Empirical Analysis of Iphone Warranties’ Deterrent Impact on Consumers.
  • The BPAI Watchdog: http://bpaiwatchdog.blogspot.com/. So far, Leigh Martinson is focusing on the BPAI’s application of Bilski.
  • European Bilski: The Enlarged Board of Appeal of the EPO is looking for third-party input on four issues:
    1. Is it only proper to exclude patents covering computer programs as such when explicitly claimed as a “computer program”?
    2. Does a claim avoid the computer program as such exclusion by mentioning a computer or data storage medium? (If not, what technical effect is needed?)
    3. Can a technical effect be non-physical? Is it sufficient if the physical entity is an unspecified computer?
    4. Does the activity of programming a computer necessarily involve technical considerations?
  • Input on the European questions are due by the end of April. http://www.epo.org/topics/news/2009/20090219.html.
  • Application for the job of PTO Director (by Prof Morris) http://www.stanford.edu/~rjmorris/pto.htm. I maintain that it is possible to find an excellent nominee who is not a patent attorney. However, any nominee who does not have extensive experience with the patent prosecution process will face an uphill credibility battle from day one.

What is a troll patent and why are they bad?

Academic Studies, Articles and Publications, Patent,

By TJ Chiang (Professor at George Mason Law School). Professor Chiang wrote the following squib after reading yet another article complaining about patent trolls.

There is much debate and controversy over the term "patent troll." Let me suggest a fairly narrow definition, but one that identifies a category of patents with distinct problems. Moreover, let me suggest that we should talk about individual patents as "troll patents," rather than entire entities as patent trolls. A troll patent is one that:

  1. Is owned by someone that does not practice the invention.
  2. Is infringed by, and asserted against, non-copiers exclusively or almost exclusively. By copying I mean any kind of derivation, not just slavish replication.
  3. Has no licensees practicing the particular patented invention except for defendants in (2) who took licenses as settlement.
  4. Is asserted against a large industry that is, based on (2), composed of non-copiers.

The problem with a patent troll—or, more accurately, the particular troll patent—that fits all four conditions above is that the troll patent does only two things. First, it gathers dust in the patent office. Second, it inflates prices on products. The patent itself contributes nothing useful to society, in so far as the people who actually make anything useful would have done it equally in the absence of the patent.

These four conditions also rule out a few non-practicing entities; or, rather, many of the patents held by these entities. University-held patents are largely not troll patents, in so far as they are often on substantial advances where the infringers copy. Individual inventors are also not always trolls. An individual inventor that licenses others to commercialize the invention is not a troll; nor where the inventor actually has something significant that gets pirated. But a patent owner who sits in wait to ambush an industry later, with a patent that does nothing otherwise except gather dust, is a troll.

One hypothetical that will surely be thrown at me is the individual inventor who tries to commercialize the invention, but fails, and then sues the industry years later. This inventor is a visionary ahead of his time who was merely unlucky. On the other hand, this inventor still contributed nothing useful to society. It is worth emphasizing the fact that, by my hypothetical, the industry produced the same technology independently, without copying anything from the patent. In the absence of copying by someone else or the commercialization of the product through the patent, I do not see the inventor as having done society much of a favor.

Guest Post: Monsanto Company’s View on Patent Reform – Protect Innovation:

Articles and Publications, Guest Post, Patent, Patent Legislation, , ,

PatentLawPic699 David Snively is Monsanto's General Counsel. He read Google's calls for patent reform and penned the following response. Monsanto's business model relies heavily on its ability to protect its innovations through intellectual property and contract in the US and Globally. Monsanto has also been the defendant in numerous patent battles.

Dr. Alan Greenpan's keynote speech on "Markets and the Judiciary" noted that "critical to economic growth is a rule of law, particularly protection of the rights of individuals and property". His remark that for IP law, the constancy of the protection afforded under the Constitution of the United States and our fully-functioning legal system is the basis for the U.S. economy's sustaining lead – even in difficult economic times with broken markets. Our patent system is the envy of the globe and while capable of thoughtful adjustment should not be hijacked by international pirates or corporations seeking to dilute legitimate protection that breeds investment and jobs. This is why Monsanto Company, as a global leader for innovation and technology in agriculture, is joined by trade unions and countless other groups who strive to assure Greenspan's voice is not lost in the din from hedge funds, offshore interests or others seeking short term gain by weakening our great patent system.

I respectfully disagree with the recent blog post by Google's Head of Patents and General Counsel, commenting on the perceived risks from damage awards in patent cases. Monsanto has faced billion dollar damage claims as a wrongly sued patent defendant and also knows the true benefits from avoiding the encouragement of willful infringement based on a smaller party's calculated gain in the face of limited risk of a meaningful award of damages if infringement is established. With full knowledge of all these issues and our substantial alignment with Google and the information technology industry over the legitimate need to curtail patent trolls and a myriad of other concerns – we encourage thoughtful reform. Last year Congress passed without public objection Public Law 110-403 the "Prioritizing Resources and Organization for Intellectual Property Act of 2008" which was designed to significantly enhance government law enforcement resources for combating certain kinds of intellectual property (IP) theft, e.g. criminal counterfeiting and infringement of computer software. The law helps protect investments in the research, development and marketing of certain kinds of innovative American products and services. The information technology industry was rightly bothered that its intellectual property rights were being trampled on by "pirates".

But, according to the financial sector and the information technology industry it seems that too many other people have too many patents that get in the way of too much "innovation" that is being marketed by an industry that doesn't own the rights to the "innovation". Some say that innovation can't stand still while somebody does a patent search to make sure that the "innovation" that is being marketed won't infringe any of those too many patents. So the complaint is "we are getting sued too much by these innovators who are stifling our innovation". Unlike the solution for rampant copyright infringement the perverse solution for rampant patent infringement is to propose "reforms" that would both reduce incentive to invest in research, development and marketing of innovative American products and services and provided impediments for improving patent quality. Dr. Greenspan's Georgetown keynote aptly recalled the copyright situation when he quoted Stephen Breyer from the Harvard Law Review decades prior to becoming a Justice "the case for copyright…rests not upon the proven need, but rather upon the uncertainty as to what would happen if protection were removed. One may suspect the risk of harm is small, but the world without copyright is nonetheless [in the words of Hamlet] 'undiscover'd country' which 'puzzles the will,/And makes us rather bear those ills we have/Than fly to others that we know not of.'

The problems posed by the patent reform bill are many:

  • It would change the calculation of damages that an infringer (pirate) would pay as compensation for trampling on patent rights, encouraging only more callous disregard of patent rights and piracy.
  • It would change the venue provisions in a way that would impose a substantial burden and inconvenience on patent owners by limiting access to the judicial system, encouraging only more callous disregard of patent rights and piracy.
  • "Technical" changes would weaken protection and encourage piracy via removing the estoppels provisions and expanding the prior art basis for engaging in inter partes re-examination, in effect providing a system of post grant review that will serve only to harass patent owners by effectively taking patents out or service for the duration of unlimited re-examinations, encouraging only more callous disregard of patent rights and piracy.

Transparency is critical to society today yet the patent reform bill would not require publication of all patent applications at 18 months reducing the public knowledge of prior art making it harder to avoid investment in patent-free technology and reducing the likelihood that quality patents will issue.

Thoughtful patent reform is needed. There are things to support in the House version of the patent reform bill. For example, the House bill while strangely modifying the damages calculation would authorize a study to see if such a modification is needed. Such studies are available and do not support the anecdotes that say damage awards are out of control.

Patent Reform that discourages investment in research and development and the job growth and economic stimulus that is spawned by thousands of small companies as well as large companies that rely on a robust and strong patent system is bad for America. Monsanto invests over $2M every day in research and is committed publicly to helping double food yield in corn, soy and cotton by 2030 while using 1/3 fewer natural resources and improving the lives of farmers globally. Accomplishing this task of sustainable agriculture requires a patent system and rule of law that Dr. Greenspan says has always been found in the Constitution of the United States.

Patent Reform 2009: Damages

Articles and Publications, Damages, Patent, Patent Legislation, ,

The most contentious portion of the Patent Reform Act of 2009 is the damages provision. The current damages statute gives little guidance to a court. Damages must be “adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer.” 35 U.S.C. §284. The Court may “increase the damages up to three times the amount found or assessed.” Id. The courts have given some flesh to the rough skeleton created by these statutes. One construct is the hypothetical negotiation – asking the counterfactual question of what licensing scheme would these dueling foes have agreed to if they had actually come to a licensing agreement. The Georgia Pacific factors guide the process of deternining a reasonable royalty. In some cases, courts allow a patentee to recover lost profits.

As it turns out, the damages actually awarded in patent cases are generally thought to be much higher than negotiated license agreements.  Part of the difference stems from the reality that patent damages are awarded only on patents that are known to be valid, infringed, and enforceable, and after the risk and expense of litigation have already been taken. In ordinary license negotiations, these risks lower the potential royalty rate and – in contrast – should increased the level of compensation in post-trial damages.  There is some evidence that juries simply tend toward large damage awards.

Stacking Problem: In some technology areas – such as electronics – this creates a potential problem known as royalty stacking. Most electronics products are covered by multiple patents – often dozens of patents. CDMA2000 communication standard, for instance, reportedly invringes at least 924 patents. [LINK] When each patentee is awarded a 5% royalty, it does not take long before the entire revenue is taken just to pay for intellectual property rights. If everyone has blocking rights then no business can get done, and we see the tragedy of the anti-commons. Of course, stacking is only a problem in theory. CDMA2000 is a standard actually used around the world. Producers are making (some) money. Multiple patents covering products have causes prices to be raised, but it is not clear than any market has been destroyed or even that the royalty payments outway the benefit of the innovation.

Uncertainty Problem: Jury verdicts are quite unpredictable, and because the royalty rules are so loose, damages appeals are rarely successful.

The new legislation appears to take on these problems in a way to (1) reduce the average damage award; (2) make damage awards more rational and predictable; and (3) make damages judgment more subject to appellate review.

The practical approach of the legislation is to create a “standard for calculating reasonable royalty” which require a determination of the “specific contribution over the prior art” to determine damages. Some courts already follow the rules set out in the proposed legislation. Thus, legislation advocates may refer to the damages reforms as simply a clarification that limits the actions of rogue courts.

The proposed text reads as follows:

35 USC 284(c)(1) IN GENERAL.-The court shall determine, based on the facts of the case and after adducing any further evidence the court deems necessary, which of the following methods shall be used by the court or the jury in calculating a reasonable royalty pursuant to subsection (a). The court shall also identify the factors that are relevant to the determination of a reasonable royalty, and the court or jury, as the case may be, shall consider only those factors in making such determination.

”(A) ENTIRE MARKET VALUE.-Upon a showing to the satisfaction of the court that the claimed invention’s specific contribution over the prior art is the predominant basis for market demand for an infringing product or process, damages may be based upon the entire market value of that infringing product or process.

”(B) ESTABLISHED ROYALTY BASED ON MARKETPLACE LICENSING.-Upon a showing to the satisfaction of the court that the claimed invention has been the subject of a nonexclusive license for the use made of the invention by the infringer, to a number of persons sufficient to indicate a general marketplace recognition of the reasonableness of the licensing terms, if the license was secured prior to the filing of the case before the court, and the court determines that the infringer’s use is of substantially the same scope, volume, and benefit of the rights granted under such license, damages may be determined on the basis of the terms of such license. Upon a showing to the satisfaction of the court that the claimed invention has sufficiently similar noninfringing substitutes in the relevant market, which have themselves been the subject of such nonexclusive licenses, and the court de termines that the infringer’s use is of substan tially the same scope, volume, and benefit of the rights granted under such licenses, damages may be determined on the basis of the terms of such licenses. ”

(C) VALUATION CALCULATION.-Upon a determination by the court that the showings required under subparagraphs (A) and (B) have not been made, the court shall conduct an analysis to ensure that a reasonable royalty is applied only to the portion of the economic value of the infringing product or process properly at tributable to the claimed invention’s specific contribution over the prior art. In the case of a combination invention whose elements are present individually in the prior art, the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.

”(2) ADDITIONAL FACTORS.-Where the court determines it to be appropriate in determining a reasonable royalty under paragraph (1), the court may also consider, or direct the jury to consider, any other relevant factors under applicable law.

Notes:

  • I’ll use this opportunity to plug a new book by Richard Cauley: Winning the Patent Damages Case (Oxford 2009). Great book, the only problem is the $185 price tag.
  • The Bills have received numbers: H.R. 1260 is sponsored by Rep. Conyers (MI) and co-sponsored by Reps. Berman (CA), Goodlatte (VA), Jackson-Lee (TX), and Smith (TX). S. 515 is sponsored by Sen. Leahy and co-sponsored by Sens. Crapo (ID), Gillibrand (NY), Hatch (UT), Risch (ID), Schumer (NY), and Whitehouse (RI). Both Bills have been referred to their respective Judiciary Committee which are headed by the Bill sponsors.

Back Reading

Patent Reform Act of 2009

Damages, Patent, Patent Legislation, Reexamination, , , , , ,

Patent reform legislation has now been introduced in both the House and the Senate. The provisions call for major reforms and mirror much of the proposed legislation from 2008. If anything, this is not a consensus Bill. File Attachment: SenateBill.pdf (116 KB) File Attachment: HouseBill.pdf (180 KB)

Proposed changes in the Senate Bill include:

  • First to File: Moving to a first-to-file system that credits invention based on the filing date of the patent application rather than on the date of actual invention.   The provision eliminates the one-year grace period for most cases. Thus, any independent third-party publication prior to filing is considered prior art regardless of the date of invention. Likewise, secret prior art (102(e)) cannot be ‘sworn behind’ based on prior invention. This provision obviously hurts folks who delay in filing patent applications.
  • Damages: Must look to the invention’s “specific contribution over the prior art” to determine damages. There is an interesting provision that a reasonable royalty may be calculated as the price of licensing a “similar noninfringing substitute in the relative market.” In some cases, this could push damages to zero if the noninfringing substitute is in the public domain. The provision also codifies that treble damages are limited to instances where a judge finds that an adjudged infringer recklessly continued to infringe after receiving particularly specified written notice sufficient to create declaratory judgment jurisdiction and without relying on reasonable advice of counsel.
  • Expanded Reexamination Proceedings: Reexaminations may be requested based on published prior art, or evidence of prior public use or sale in the US. Inter partes reexaminations would begin to look more like court cases and would be heard by administrative patent judges. The Bill would clarify that parties would be estopped from filing inter partes reexamination requests after a district court judgment.
  • Additional Post Grant Review: Within 12 months of issuance, a third party can file a cancellation petition based on any ground of invalidity (rather than simply prior art). The post grant reviews would also be conducted by the administrative patent judges.
  • Pre-Issuance Submissions: Third parties can submit prior art during examination of the patent as well as a statement regarding the relevance of the art. The art should be submitted the latter of (1) six months after publication or (2) before the first office action on the merits.
  • Patent Litigation Venue: “A party shall not manufacture venue by assignment, incorporation, or otherwise to invoke the venue of a specific district court.” Venue is only proper were (a) defendant is incorporated; (b) defendant has its principle place of business; (c) where the defendant is permanently located and has committed substantial acts of infringement; or (d) where the plaintiff resides if the plaintiff is a nonprofit or individual inventor. The court should transfer venue to avoid evidentiary burdens when transfer can be accomplished without causing undue hardship to the plaintiff.”
  • Interlocutory Appeals: The Federal Circuit will have jurisdiction over interlocutory appeals of claim construction when approved by the lower court.
  • Administrative Patent Judges: The BPAI would become the Patent Trial and Appeal Board (PTAB). Interferences would be gone, however they would be replaced by derivation proceedings as well as reexamination and post-grant trials.
  • PTO Powers: The PTO has power to set its fees, including reducing fees.
  • Oath: Easing the rules to more easily allow rights-holders to file patent applications on behalf of the inventor.
  • Federal Circuit Judges: Making legal it for a Federal Circuit judge to reside more than 50 miles from DC.

As you can see, this is very much the type of reform that companies like Google would like to see. Google is regularly faced with charges of patent infringement and rarely sues for infringement. Some of these changes will benefit the system as a whole, but it is clear that this is not “balanced” reform. The damages provision will almost certainly reduce patent awards. And, perhaps equally important, the damages provision provides adjudged infringers a real cause to appeal jury awards if they did not directly follow the expert testimony.

I believe that the expanded use of reexaminations and post grant review and prior art submissions will be beneficial, and I have faith that the administrative patent judges will be able to handle their newfound responsibilities. That said, these provisions provide challengers with new ways to attack patent rights.

The plaintiff bar in the Eastern District of Texas is quite good, and defendants are doing what they can to escape from their grasp. The venue provision moves in that direction and would thus weaken the value of patents.

The trick with the first to file system is to realize that it is not about some mythical race to invent between competitors. Rather, it is about keying the priority on the date of filing the application rather than the date of invention or even one year prior to filing. This provision weakens patent rights because more materials will be considered prior art. It is possible to switch to a first-to-file system without eliminating the grace period so dramatically – this legislation does not, however meet that standard.

The Bill is sponsored by both Senators Leahy (D-VT) and Hatch (R-UT). Representative Conyers (D-Mich) introduced parallel legislation in the House, the legislation is largely similar, but does contain some differences. (I have not reviewed the House version in detail). Some opposition has already formed. Reps Manzullo (R-IL) an Michaud (D-ME) issued a joint press release titled “New patent bill encourages IP theft, destroys American jobs.” Their focus was on the damages provision.

There are some changes from the 2008 legislation.

  • The Bill does not require that all applications be published at 18 months.
  • Applicants would not be required to search prior art.
  • The 2009 Bill allows public use or sale in the US to be reasons for challenging patents.
  • CHECK 21 provisions are gone.
  • Fee Diversion is allowed in the 2009 Bill. (Oddly, Leahy explained that PTO Examiners perfer a system of fee diversion)
  • The 2009 Bill does not address inequitable conduct.

Links:

Google Patent Chief: Patent reform needed more than ever

Patent, Patent Legislation
A patent reform bill is expected to be introduced today in the Senate and House. Below is a (yet unauthorized reproduction and) editorial by Michelle Lee, Head of Patents and Patent Strategy at Google (Originally posted here)
After the last time I blogged about patent reform in late 2007, the House went on to approve the Patent Reform Act. The bill unfortunately got bogged down in the Senate the following year. Since then the problems of the current system — and the need for reform — have only grown.
Consider this: Of the 20 patent lawsuits filed against Google since late 2007, all but two have been filed by plaintiffs who don’t make or sell any real product or service — in other words, by non-practicing entities or “patent trolls.” Most of these cases seem to feature the same small set of contingent fee plaintiff’s lawyers asserting patent claims against the same small set of companies. We’ve also noticed a more disturbing trend: in many of these cases, the patents being asserted against us are owned by — and in a surprising number of cases, are even “invented” by — patent lawyers themselves.
Unfortunately, the temptations and opportunities for abuse have gotten too high. Lawyers and plaintiffs have seen the potentially huge payoffs available in patent litigation. Before 1990, there had been just one patent damage award of over $100 million. Since 1990, there have been at least 15, with at least five topping $500 million.
That’s why I’m excited that patent reform legislation is slated to be reintroduced today by Senators Patrick Leahy and Orrin Hatch and Representatives John Conyers and Lamar Smith. Once a driver of creativity, our patent system now poses a hurdle for innovation. All too often, Google and other companies face mounting legal costs to defend against questionable patent claims from speculators gaming the system to reap windfall profits. And those lawsuits make it more difficult and costly to introduce the next revolutionary product.
I wrote a bit last Congress about the reform provisions that Google cares the most about. The most pressing of those is ensuring fair damage awards. The current system too easily allows damages to be assessed based on the value of the whole product often containing many features — not just the value of the innovation of the allegedly infringed patent — which means the threat of potentially massive awards forces defendants to settle. Balance should be restored by requiring damages to be based on the value of the innovation’s contribution to the product.
As members of the Coalition for Patent Fairness, we’re optimistic that patent reform faces better odds in 2009 than it has before — not least because President Obama has pledged his support. Passage of patent reform is long overdue.

Eastern District of Texas as the Best Venue

Jurisdiction, Patent, Patent Cases 2009

Mayer Lebowitz was a noted inventor of security technology. He died in 2005, but the trustee of his estate (Gellman) sued to enforce patent rights against various security companies including ADT, Diebold, Digital Security, Europlex, NAPCO, Numerex, Protection One, and Telular. Gelman lives in Texas and brought suit on behalf of the estate in the Eastern District of Texas – alleging infringement of U.S. patent No. 6,075,451. The ‘451 patent covers the method and electronics for sending alerts via a cellular network. That way, the lines can’t be cut, and installation may be much cheaper.

Judge Ward rejected the defendants motion to transfer Venue to the Northern District of Illinois – finding that the Plaintiff’s Texas location weighed heavily in favor of keeping the case in Texas. Gellman v. ADT Sec. Services, Inc., 2008 WL 4280351 (E.D.Tex. 2008). Following In re TS Tech, Telular has now moved for mandamus – asking the Federal Circuit to order that venue be transferred. In a preliminary ruling on the Motion, Judge Dyk demanded that Gellman brief the matter.

In a parallel case, Judge Ward recently refused to transfer a case that had been filed against a dozen auto manufacturers. MHL TEK, a Texas corporation, sued Audi, VW, Nissan, Hyundai, Kia, BMW, Porsche, Isuzu, etc. The defendants asked that the case be sent to the Eastern District of Michigan, Judge Ward found numerous reasons why Michigan was a poor choice of venue. MHL TEK, LLC, v. NISSAN MOTOR COMPANY, 2009 U.S. Dist. LEXIS 13676 (E.D. Tex. 2009). In his opinion, Judge Ward made the law on venue look quite silly when applied to major multi-party patent cases. For instance, the convenience factor looks at distance to the forum: “For defendants flying in from Germany, the Detroit airport would possibly be closer than the Shreveport airport. For defendants flying in from Asia over the Pacific, the Shreveport airport would possibly be closer than the Detroit airport.” As in the Gellman case, at least one defendant here (VW) has asked for the Federal Circuit to rule on mandamus. Briefing on that motion continues.

Both cases are easily contrasted with Odom v. Microsoft. (AKA Patent Hawk) In Odom’s case, both the patent holder and defendant were located in the Pacific Northwest, and the defendant asked that the case be transferred to the Plaintiff’s home jurisdiction. In both Gellman & MHL TEK, the plaintiffs are located in Texas and the multiple defendants are located throughout the country and the world without any particular site of nexus.