March 2011

Electronic Filing and Automatic Decisions for Common Petitions to the Patent Office

Petitions practice before the Patent Office has long been something of a quagmire. The Office has been working on several initiatives to shed more light on the process and to ensure that decisions are released in a much more timely fashion. In this vein, the Office has created a set of automated electronic forms for submitting the most common types of petitions through its new “e-Petition system.” The selected petitions are then decided automatically and the result will be almost immediately entered into the file history.

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Patent Reform 2011: House of Representatives Bill No. H.R. 1249

Representatives Lamar Smith, Bob Goodlatte, and Darrell Issa have introduced their version of the America Invents Act (AIA) to the House of Representatives. H.R. 1249. [AIA.pdf] The AIA closely tracks the Senate’s bill on comprehensive patent reform (S. 23) that was passed in the Senate earlier this year on a 95-5 vote. Parallel changes include a switch to a first-to-file system (with the retention of a limited one-year grace period); establishment of a modified inter partes reexamination and post grant opposition system; providing USPTO with fee-setting authority; neutering of the false marking provision; allowing pre-issuance submissions by third-parties; creating a supplemental examination system to correct inequitable conduct; and elimination of best mode failure as an invalidity defense.

The statute continues to include a substantial error in its codification of the grace period. Namely, the grace period only applies to “disclosures” and not to other commercialization activities such as sales and offers for sale.  In addition, it is unclear whether the grace period would apply situations such as the original public use case of Pennock v. Dialogue, 27 U.S. 1, 23, 7 L. Ed. 327 (1829).  In that case, the Supreme Court ruled that the inventor could not obtain a patent on its hose-making process because the inventor had sold the product (hoses) for several years before filing for patent protection. 

Some key differences from the Senate version that will lead to substantial debate include: 

  1. Details of the Post Grant Opposition Provisions…
  2. Prior User Rights: Whether “prior user rights” should be expanded to accompany the switch to a first-to-file regime. This issue arises when, for instance, a manufacturing company is using a particular process as a trade secret before another party invented and patented the process.  Under our current first-to-invent regime if the prior-user was sued for infringement, the patent would likely be invalidated under Section 102(g). See  Dunlop Holdings Ltd v. Ram Golf Corp., 524 F.2d 33 (7th Cir. 1975).  The invention-date priority contests of Section 102(g) are eliminated in a first-to-file system, raising the question of whether a non-patent-filing manufacturer should be given some prior user rights that would continue to allow these trade-secret uses. Currently, the patent statute also has a prior user right codified in Section 273. That section, however, is limited purely to business method patents. The proposed legislation would expand Section 273 to cover all patents.
  3. Special Business Method Proceedings, venue restrictions, interlocutory appeals, and attorney fee shifting.
  4. Automatic stay of litigation for inter partes reviews.
  5. Elimination of Tax Strategy patents (by considering the subject matter within the prior art).
  6. Codification of Knorr Bremse (failure to present advice of counsel cannot be used as evidence of willful infringement). 

Read the Bill: File Attachment: 033011_America Invents Act.pdf (266 KB)

Federal Circuit Refuses to Require Examiners to Articulate a Claim Construction as Part of the Examination/Rejection Process

In re Jung (Fed. Cir. 2011)

Ed Jung is a co-founder of intellectual ventures and Dr. Lowell Wood is a world renowned technologist. In 2004, the pair filed a patent application for a photo-detector array system. The examiner rejected the claims as obvious and the BPAI affirmed. Jung appealed to the Federal Circuit arguing that “(1) the examiner failed to make a prima facie case of anticipation, and (2) the Board acted as a ‘super-examiner’ by performing independent fact-finding and applying an improperly deferential standard of review to the examiner’s rejections.”

Prima Facie Case: The patent office has the initial burden of presenting a prima facie case of invalidity. A prima facie case is adequately articulated by notifying the applicant of the reasons for its rejections so long as the explanation is not “so uninformative that it prevents the applicant from recognizing and seeking to counter the grounds for rejection.” Chester v. Miller, 906 F.2d 1574 (Fed. Cir. 1990). This requirement comes straight from Section 132 of the Patent Act. 35 U.S.C. §132(a).

Whenever, on examination, any claim for a patent is rejected, or any objection or requirement made, the Director shall notify the applicant thereof, stating the reasons for such rejection, or objection or requirement, together with such information and references as may be useful in judging of the propriety of continuing the prosecution of his application.

Once a prima facie case is presented, the burden shifts to the applicant for rebuttal.

In Jung, the Federal Circuit ruled that the examiner presented a prima facie case of invalidity based on his explanation that Jung’s broadly drafted claim encompassed the prior art.

Here, the examiner’s discussion of the theory of invalidity (anticipation), the prior art basis for the rejection (Kalnitsky), and the identification of where each limitation of the rejected claims is shown in the prior art reference by specific column and line number was more than sufficient to meet this burden.

In the appeal, Jung argued that the articulation of a prima facie case should involve more than the notice of rejection outlined in § 132. Jung asked for a claim construction of the disputed claims – similar to what would be required of a court. The Federal Circuit rejected that argument – seeing “no reason to impose a heightened burden on examiners beyond the notice requirement of § 132.”

There has never been a requirement for an examiner to make an on-the-record claim construction of every term in every rejected claim and to explain every possible difference between the prior art and the claimed invention in order to make out a prima facie rejection. This court declines to create such a burdensome and unnecessary requirement. “[Section 132] does not mandate that in order to establish prima facie anticipation, the PTO must explicitly preempt every possible response to a section 102 rejection. Section 132 merely ensures that an applicant at least be informed of the broad statutory basis for the rejection of his claims, so that he may determine what the issues are on which he can or should produce evidence.” Chester, 906 F.2d at 1578 (internal citation omitted). As discussed above, all that is required of the office to meet its prima facie burden of production is to set forth the statutory basis of the rejection and the reference or references relied upon in a sufficiently articulate and informative manner as to meet the notice requirement of § 132. As the statute itself instructs, the examiner must “notify the applicant,” “stating the reasons for such rejection,” “together with such information and references as may be useful in judging the propriety of continuing prosecution of his application.” 35 U.S.C. § 132. Here, the examiner’s discussion of the theory of invalidity (anticipation), the prior art basis for the rejection (Kalnitsky), and the identification of where each limitation of the rejected claims is shown in the prior art reference by specific column and line number was more than sufficient to meet this burden.

Jung’s argument was clearly a long-shot in this case and not well presented if the sole intent was to make sure that Jung gets this patent. Of course, Intellectual Ventures is now one of the largest patent holders in the world and its actions are almost always strategic in nature.

MBHB Snippets

My former law firm MBHB just released its quarterly snippets Review of Developments in Intellectual Property Law. A group of new associates started snippets around the time I started at the firm nine years ago (hard to believe). I have a short article in the newest volume discussing “Patent Data, Prior Art, and Operational Transparency at the USPTO.” Kevin Noonan of Patent Docs has written an interesting discussion of the advantages of trade secret protection (in certain situations). Other articles include (1) an international comparative analysis of software patents and (2) a discussion of some limits of KSR.

snippets 9:1, Table of Contents:

  • Considerations for Software Patent Claims in the United States, Europe, and Canada by Michael S. Borella, Ph.D., Daniel R. Bestor and Alan W. Krantz
  • Where (and Even When) Does KSR Belong in Obviousness Arguments? by Daniel P. Williams and Christopher D. Butts
  • While Not Right for Every Invention, Trade Secret Protection Has Its Appeal by Kevin E. Noonan, Ph.D.
  • Patent Data, Prior Art, and Operational Transparency at the USPTO by Dennis D. Crouch

Download it while it’s hot (PDF). You can fill-out a form to receive a hard copy.

High Rate of Patent Throughput Continues in 2011

By Dennis Crouch

The chart above shows the number of original utility patents issued each calendar year. Reissue, design, and plant patents are excluded. The figures for 2011 go through March 29, 2011 and the projection assumes that the average weekly count of patent grants from Q1 2011 will continue through the rest of the year.

To be clear, the rise in patent grants does not seem to be based on PTO rubber-stamping applications.  As the chart below shows, the number of abandoned applications each year is also at an all-time high. (Chart below uses fiscal years instead of calendar years).

PatentLawImage113

Although down slightly in FY2009 – FY2010, US provisional patent applications continue to be popular for us-originated patent applicants. There are about three provisional patent applications filed for each us-originated utlility patent application.

In re Verizon Business Network Services Inc.

By Jason Rantanen

In re Verizon Business Network Services Inc. (Fed. Cir. 2011) Download 10-m956 order
Panel: Lourie, Gajarsa, and Linn (author)

The Federal Circuit continues to grant mandamus petitions relating to venue transfer where the basis for denying the request is tenuous.  In Verizon, the defendants requested a transfer from the Eastern District of Texas to the Northern District of Texas, Dallas Division.  Although several party witnesses resided within 100 miles of Dallas, and no witness resided within 100 miles of Marshall, the district court declined to transfer venue on the basis that several years earlier the court had handled a lawsuit involving the same patent and had construed 25 of the patent's terms.

Given that it was clear that trial in Dallas would be more convenient for the witnesses, the crux of the writ turned on whether the district court's familiarity with the patent was a plausible basis for denying transfer.  The CAFC concluded it was not.  Distinguishing its recent ruling in In Re Vistaprint Ltd., 628 F.3d 1342 (Fed. Cir. 2010), the panel held that "[t]o interpret § 1404(a) to hold that any prior suit involving the same patent can override a compelling showing of transfer would be inconsistent with the policies underlying § 1404(a)." Slip Op. at 6.  The court continued:

In Vistaprint, we denied mandamus to overturn a denial of transfer and determined that the district court properly considered both its previous experience construing claims of the patent at issue and co-pending litigation before the district court involving the same patent and underlying technology. In this case, there is no assertion that there is an additional pending lawsuit in the Eastern District involving the patent and technology. Absent that, we deem the Eastern District's previous claim construction in a case that settled more than five years before the filing of this lawsuit to be too tenuous a reason to support denial of transfer.

Consequently, the court granted the petition.

Improper Cross Appeals

By Jason Rantanen

Aventis Pharma S.A. v. Hospira (Fed. Cir. 2011) (precedential order) Download 11-10181047 order
Panel: Prost, Mayer, and Moore (author)

The Federal Circuit has repeatedly warned about improper cross-appeals.  Last week, the court issued a precedential order expressing its frustration with appellees who engage in this practice in violation of the court's clear rules, threatening sanctions should future parties continue to disregard its warning. 

Aventis is in the process of appealing a judgment finding all of the asserted claims of the patents involved in its infringement suits against Apotex and Hospira invalid for obviousness and unenforceable due to inequitable conduct.  In response, Apotex filed a cross-appeal to preserve its ability to challenge the district court's ruling that some of the asserted claims were not invalid on another ground, double-patenting, and to argue noninfringement.  After Apotex declined to withdraw its cross appeal, Aventis filed a motion to dismiss.

The motions panel was unsympathetic to Apotex.  "Our precedent consistently warns against the improper use of a cross-appeal to reach issues that do not otherwise expand the scope of the judgment. A cross-appeal may only be filed “when a party seeks to enlarge its own rights under the judgment or to lessen the rights of its adversary under the judgment.”"  Slip Op. at 3 (quoting Bailey v. Dart Container Corp., 292 F.3d 1360, 1362 (Fed. Cir. 2002).  Apotex's conduct was particularly egregious because it was exactly the type of cross-appeal that the court previously ruled improper in TypeRight Keyboard Corp. v. Microsoft Corp., 374 F.3d 1151, 1157 (Fed. Cir. 2004).  That rule, the CAFC noted, is clear.  "Where [] the district court has entered a judgment of invalidity as to all of the asserted claims, there is no basis for a cross-appeal as to either (1) additional claims for invalidity or (2) claims of noninfringement."  Slip Op. at 4, quoting TypeRight at 1157.

After concluding that Apotex's attempts to distinguish TypeRight were without merit, the court issued a strongly-worded warning about the practice of filing improper cross-appeals: 

As Apotex points out, we have not sua sponte struck every improperly filed cross-appeal. This infrequent leniency is not an invitation to flaunt our practice and precedent, and the improper use of a cross-appeal directly contrary to our precedent may meet with sanctions. We understand Aventis plans to seek attorneys’ fees and costs incurred in connection with the motion to dismiss Apotex’s improper cross-appeal, and will evaluate its request in due course.

Slip Op. at 5.

Why do parties file cross appeals?
Although parties may file improper cross appeals because they are legitimately concerned about waiving the ability to challenge a district court ruling, cross-appeals also give appellees procedural benefits.  In a typical Federal Circuit appeal, the appellant is permitted to file a 14,000 word opening and a 7,000 word reply brief while the appellee may file one 14,000 word opposition brief.  When a cross-appeal is involved, the appellee may file a 16,500 word opposition brief and a 7,000 word cross-appeal reply (the appellant is allotted 14,000 words for its reply).  This give the appellee an extra 9,500 words – a precious commodity – along with the last word on the cross-appeal issues.  But obtaining this advantage in contravention of the rules constitutes gaming the system – and as the court in Aventis noted, "this is neither fair to the appellant nor an efficient use of the appellate process."  Slip Op. at 3.

Apotex likely got off lucky.  If the court had waited until the briefing was complete, Apotex could have had its cross-appeal arguments disregarded altogether, even those it could have raised as alternate grounds for affirmance.  As the court noted, however, Apotex will now be able to make those arguments in its appellees' brief if it so chooses.  And should the court decline to grant Aventis's request for attorneys' fees and costs, its opinion may have little deterrant effect – unless the court steps up enforcement or imposes some noteworthy sanction for blatantly improper cross appeals, appellants may continue to flaunt its practice in order to gain the procedural advantage a cross-appeal offers.

Paying Maintenance Fees

A patent's twenty year term is cut short when a patent holder fails to pay regular maintenance fees. In the US, maintenance fees are due 3.5, 7.5, and 11.5 years after issuance. The USPTO provides an additional 6-month grace period before the patent is considered abandoned. The current fee schedule requires a payment of $980 for the first maintenance fee; $2480 for the second fee; and $4,110 for the third fee. Qualified "small entities" receive a 50% reduction in fees. Small entities typically include universities, non-profit organization, and businesses with fewer than 500 employees.

Although the USPTO does not provide any ongoing services to patent holders, the maintenance fee revenue is used to fund ongoing patent office expenses (such as the examination of new patents). In fact, more than one-third of the USPTO's two-billion-dollar annual revenue comes from maintenance fee payments. For manufacturers and non-patent-holders, the maintenance fees are useful because they encourage patent holders to drop their patent rights.

Using USPTO records of maintenance fee payments, I looked at how fee payments have varied over time. The graphs below show the percentage of patents abandoned four years after issuance. These are patents that issued and then the patentee failed to pay the first maintenance fee due. In order to better visualize the trends, I used a 12-month moving average in the charts — thus, the data point for January 2011 represents abandonments for February 2010 through January 2010. The second chart divides the results between small and large entities.

032411_2105_PayingMaint1

032411_2105_PayingMaint2

Two initial thoughts on these results:

  • Over the past two years, the abandonment rate has been rising. This rise is more notable for patents held by large entities. For large entities, the abandonment rate is the highest in the past decade.
  • Even though they have much lower maintenance fee charges, small entities are much more likely to abandon their patent applications.

American Piledriving v. Geoquip: Resolving Different Courts’ Constructions

By Jason Rantanen

American Piledriving Equipment, Inc. v. Geoquip, Inc. and American Piledriving Equipment, Inc. v. Bay Machinery Corporation (Fed. Cir. 2011) Download 10-1283
Panel: Bryson, Gajarsa, and Linn (author)

One of the Federal Circuit's primary purposes is to ensure consistent claim construction results.  American Piledriving v. Geoquip highlights this role. 

American Piledriving holds Patent No. 5,355,964, which relates to counterweights for "vibratory pile drivers."  By rapidly rotating these unevenly weighted counterweights in opposite directions, vibratory forces are generated that force the pile into the ground.  Early counterweights possessed several drawbacks that the invention of the '964 purport to solve.

The district court proceedings on appeal involved two suits brought by American Piledriving, one in the Eastern District of Virginia and the other in the Northern District of California, against distributors of vibratory pile drivers manufactured by Hydraulic Power Systems, Inc. (These two suits were part of a set of seven brought by American Piledriving, all in different districts).  The crucial portion of representative claim 1 reads:

a counterweight rotatably carried in said receiving means for rotation about a rotational axis, said counterweight having a cylindrical gear portion and an eccentric weight portion integral with said cylindrical gear portion, said eccentric weight portion having at least one insert-receiving area formed therein, said counterweight being made of a first metal;

At issue were the district courts' constructions of three claim terms, two of which the courts construed differently: "eccentric weight portion" and "insert receiving area." (The courts reached the same contruction for "integral," a construction the appellate court affirmed).  Based on their constructions of these terms, the two district courts granted summary judgment of noninfringement.

On appeal, the CAFC agreed fully with the Virgina court, affirming its constructions and grant of summary judgment.  The Calfornia court fared slightly less well: the panel disagreed with the additional limitations the trial court added but nonetheless affirmed summary judgment of noninfringement for the two products that were also involving in the Virginia litigation, reversing and remanding for further proceedings on a third product at issue only in the California litigation. 

Although much of American Piledriving comes across as a typical claim construction opinion concluding that well-established principles of claim construction supported the district courts' interpretations, the portions of American Piledriving addressing the two courts' different interpretations of "eccentric weight portion" and "insert receiving area" are somewhat noteworthy.  All three courts determined that some structure provided by the specification was required; however, the CAFC concluded that the California court's constructions went beyond what the rules permitted:

While both district courts indicated that the term should be defined as extending from the face of the gear, the California court also required that the “eccentric weight portion” extend from a particular portion of the gear, extend in a specific direction, and include a receiving area formed to receive a tungsten rod. This court agrees with American Piledriving that nothing in the specification compels the reading of these additional limitations into the construction of “eccentric weight portion.”

Unfortunately, the CAFC's discussion of the differences between these two courts' analyses of the use of the structure in the specification to limit the functional claim elements is limited to this brief passage and a similar passage in its section on "insert receiving area."  This is disappointing given the court's build-up at the beginning of the opinion, which held promise for a thorough dissection of where the cutoff might be in terms of how much structure from the specification should be part of the claim constuction.  See Slip Op. at 10 ("In the course of construing the claims in this case, the Virginia district court carefully avoided redefining the claims and reading limitations into the claims from the written description. The California district court, however, inappropriately added several limitations not contained in the inventor’s claimed definition of the scope of his invention. This disparate treatment of the same issues before two competent and capable district courts is thus instructive."

Clearing the Oldest Patent Applications

Patrick Anderson (PatentCalls and GametimeIP) pointed me to an interesting discussion on the just_n_examiner website regarding a USPTO initiative called COPA – Clearing the Oldest Patent Applications.

In a recent memorandum to examiners, USPTO Patent Commissioner Robert Stoll re-emphasized the medium-term goal of issuing an Office Action within 10 months of patent application filing. Stoll then introduced an interim goal: that by September 30, 2011 (end of FY2011), every application filed on or before June 7, 2009 should at least have received an initial Office Action.

Toward this end, we are officially starting a major initiative called “Clearing the Oldest Patent Applications” (COPA) beginning in the second half of Fiscal Year 2011 to reduce pendency by eliminating the backlog of our oldest unexamined new applications —those with filing dates on or before June 7, 2009. As of the end of February, there are still 233,780 applications in this category.

If successful, the result of COPA will be that all applications more than 28 months old will have been (at least initially) examined. One approach that the Office is taking to reach this goal is to share resources between technology centers.

Through the COPA initiative, we will carefully look at our old case backlogs, and rebalance workloads by sharing resources both within and across Technology Centers (TC). Workloads will be rebalanced by identifying technological overlaps between art units and TCs thereby matching backlog applications to available resources. Only by rebalancing the current workload can we significantly eliminate our oldest cases and move toward an average 10-month first Office action pendency.

Reshuffling the Deck Chairs: Commissioner Stoll has also directed examiners to focus attention on applications with an “actual filing date of June 7, 2009 or earlier.” Of course, the Office has a limited throughput, and simply refocusing attention on un-examined cases will take attention away from in-process applications. Thus, in the short-run, the PTO may be slower in responding to an RCE or other applicant submission.

In the longer-term, the USPTO is focusing on hiring additional examiners and information technology efficiencies – both of which are intended to increase throughput across the board. Those initiatives, however are dependent upon Congress allowing the PTO to increase its fees and corresponding budgetary expenditures.

The full memorandum follows:

MEMORANDUM

UNITED STATES PATENT AND TRADEMARK OFFICE
COMMISSIONER FOR PATENTS

TO: All Patent Employees
FROM: Robert L. Stoll, Commissioner for Patents
SUBJECT: “Clearing the Oldest Patent Applications” (COPA)
MAR 10, 2011

One of our goals set forth in the 2010-2015 Strategic Plan is to reduce pendency to 10 months for a first Office action by 2014. Toward this end, we are officially starting a major initiative called “Clearing the Oldest Patent Applications” (COPA) beginning in the second half of Fiscal Year 2011 to reduce pendency by eliminating the backlog of our oldest unexamined new applications —those with filing dates on or before June 7, 2009. As of the end of February, there are still 233,780 applications in this category.

As we looked for strategies to meet this goal, we analyzed our application distribution in relation to available resources. We found a high variability in backlog volume as compared to resources in some technology areas. Through the COPA initiative, we will carefully look at our old case backlogs, and rebalance workloads by sharing resources both within and across Technology Centers (TC). Workloads will be rebalanced by identifying technological overlaps between art units and TCs thereby matching backlog applications to available resources. Only by rebalancing the current workload can we significantly eliminate our oldest cases and move toward an average 10-month first Office action pendency.

You can help with this initiative by starting now to focus your efforts on applications within your dockets that have an actual filing date of June 7, 2009 or earlier. In the near future you will receive a questionnaire, developed in collaboration with POPA, designed to let us know if you have expertise or work experience in an area not currently in your docket, but where you can lend your expertise to areas where there may be a shortage of examiner resources. You can express your no obligation level of interest in taking on new cases in those areas where you have experience and ability. More generally, you can help us identify areas of technology that are closely related so that we can target areas for potential case transfer which will aid us in maintaining the level of quality of examination. Your assistance in completing this questionnaire will be very helpful in making the COPA initiative a success.

I want to assure you that any workload rebalancing will include appropriate goal adjustments which will be clearly communicated with you before the cases are acted on. We are also exploring the possibility of establishing a Patents-wide award if we achieve the COPA goals as an organization this year. Together we can reduce our patent backlog and achieve our Strategic Goal of 10-month First Action Pendency by 2014. Our efforts to reduce the patent backlog can have a major positive impact on our nation’s economy and technological leadership.

We are currently planning a COPA Kick-off event which will be held in the next few weeks, you will be receiving more information on this very soon. Thank you for your hard work and your dedication to the USPTO,

Using Foreign Infringement Judgment to Prove Infringement in the US

Quad/Tech v. Q.I. Press Controls (Fed. Cir. 2011)

Quad/Tech sued QI, alleging infringement of its U.S. Patent No. 5,412,577. The ’577 patent is directed to a “color registration system for a printing press.” According to the briefing, QI has already lost a parallel patent infringement lawsuit in Germany and is subject to a permanent injunction based upon a “virtually identical” patent claim. In the German case, QI lost at lower court level and then failed to appeal.

Preliminary Relief: The district court denied Quad/Tech’s motion for a preliminary injunction. Although interlocutory, the grant or denial of preliminary injunctive relief is immediately appealable. However, a district court’s decision to grant or deny a preliminary injunction is reviewed only for an abuse of discretion that requires a “showing that the court made a clear error of judgment in weighing relevant factors or exercised its discretion based upon an error of law or clearly erroneous factual findings.” Genentech, Inc. v. Novo Nordisk, A/S, 108 F.3d 1361, 1364 (Fed. Cir. 1997).

On appeal, the Federal Circuit issued a two paragraph non-precedential opinion upholding the district court conclusion that, based upon a preliminary claim construction, that the infringement claim may fail and that Quad/Tech had failed to prove likely irreparable harm absent preliminary injunctive relief.

Using Foreign Infringement Judgment to Prove Infringement in the US: An interesting aspect of this decision is the district court’s use of the German opinion. In particular, Quad/Tech requested that the court “adopt Q.I.’s acceptance of the judgment in Germany as an admission of infringement of a virtually identical claim.” The district court rejected that argument – holding that:

  1. Quad/Tech had failed to provide sufficient evidence of the German judgment (the company had only submitted an affidavit from a corporate VP); and
  2. Foreign patent determinations are not binding upon US litigation concerning US patents.

In its analysis, the district court cited several prior cases where US courts have refused to rely upon foreign analysis of family-member patents. In Medtronic, Inc. v. Daig Corp., 789 F.2d 903 (Fed.Cir.1986), the accused infringer asked the court to rely upon a German tribunal holding that the parallel family-member patent was invalid as obvious. The Federal Circuit rejected that argument – calling it “specious.” The Medtronic decision was followed in both Allen v. Howmedica Leibinger, Inc., 197 F.Supp.2d 101 (D.Del.2002) and Oki Am. v. Advanced Micro Devices, Inc., 2006 WL 3290577 (N.D.Cal. Nov. 13, 2006). In the Oki Am case, the court specifically held that the “the action taken by the European Patent Office rejecting counterpart application over the same reference is neither controlling nor persuasive.” In his patent digest, Robert Matthews concludes that:

Generally, a validity determination by a foreign patent office has little relevance or weight in considering the validity of a corresponding United States patent. The Federal Circuit has instructed that because the theories and laws of patentability vary from country to country, as do examination practices, caution must be exercised in extrapolating any consequences arising out of acts taken in a foreign proceeding.

Matthews, Annotated Patent Digest, § 15:53 (2011).

There are several important distinctions between Quad/Tech’s case and Medtronic. Perhaps most notably is the fact that Quad/Tech is requesting consideration of the foreign judgment only at this preliminary stage when the court is attempting to speculate on the likelihood of success on the merits.

Federal Circuit Rejects Narrow View of Analogous Arts Test

by Dennis Crouch

Innovation Toys v. MGA Entertainment and Wal-Mart (Fed. Cir. 2011) Download 10-1290

Panel Judges Rader, Lourie, and Whyte

The patent in suit are directed to a strategy board game that uses lasers and movable mirrored playing pieces. The winner is the first to illuminate opponent’s “key playing piece.”  See U.S. Patent No.  7,264,242. Defendant MGA’s Laser Battle board game seemed to fit the bill, and the district court granted summary judgment of literal infringement.

On summary judgment, the district court also held the patent non-obvious.  The keystone of the district court’s analysis was that  element of the district court judgment to exclude prior art related to the 1989 Atari Laser Chess video game. In particular, the district court held that the video game was not analogous art to the patented board game.

Analogous Art: Prior art is not considered in the obviousness analysis unless it can be classified as analogous art. In his treatise, Donald Chisum defines analogous art as “prior art [that] includes both references in the art in question and references in such allied fields as a person with ordinary skill in the art would be expected to examine for a solution to the problem.”  The Federal Circuit has traditionally followed a two step analysis to determine whether a reference is analogous: “(1) whether the art is from the  same field of endeavor, regardless of the problem addressed, and (2) if the reference is not within the field of the inventor’s endeavor, whether the reference still is reasonably pertinent to the particular.”  In re Bigio, 381 F.3d 1320, 1325 (Fed. Cir. 2004).  The court treates the question of whether art is analogous as a question of fact.

In KSR v. Teleflex, the Supreme Court ruled that “any need or problem known in the field of endeavor at the time of invention and addressed by the patent can provide a reason for combining [prior art] elements in the manner claimed.”  While that holding addressed a slightly different doctrinal aspect of the nonobviousness analysis, the bases for the Supreme Court’s ruling in KSR would apply for the analogous arts test. This appellate decision does not discuss KSR. However, in Wyers v. Master Lock, 616 F.3d 1231 (Fed. Cir. 2010) (Dyk, J.), the Federal Circuit opined that KSR “directs [the court] to construe the scope of analogous art broadly.”  In Wyers, Judge Dyk points to the KSR statement that “familiar items may have obvious uses beyond their primary purposes, and a person of ordinary skill often will be able to fit the teachings of multiple patents together like pieces of a puzzle.”

Here, the court did not need to use KSR to expand upon the traditional doctrinal limits of analogous arts. In reviewing the lower court decision, the Federal Circuit held that the lower court

failed to consider whether a reference disclosing an  electronic, laser-based strategy game, even if not in the same field of endeavor, would nonetheless have been reasonably pertinent to the problem facing an inventor of a new,  physical, laser-based strategy game.  In this case, the district court clearly erred in not finding the Laser Chess references to be analogous art based on this test as a matter of law.

On remand, the district court will be asked to reconsider the obviousness question after including the Laser Chess video game reference.

Patently-O Bits & Bytes by Lawrence Higgins

USPTO willing to accommodate relief those affected by the events in Japan

  • David Kappos issued a statement on March 17th stating that the “USPTO considers the events in Japan on March 11th

    to be an extraordinary situation within the meaning of 37 CFR 1.183 and 37 CFR 2.146 for affected applicants, patentees, reexamination parties, and trademark owners.” What this means is that the USPTO can and will grant some waivers and extensions to applications and patents having 1 or more inventors, an assignee, or a correspondence address in areas of Japan affected by earthquake or tsunami. While the USPTO can grant some waivers and extensions, others cannot be granted by statute. For example, the USPTO cannot grant an extension for the 3 month time period to pay the issue fee set forth in 35 USC. Kappos listed 5 other situation that no waiver or extension can be given. [Link]

MasterObjects sues Google and Amazon for patent infringement

  • MasterObjects has filed suit against Google and Amazon for infringing patent # 7,752,326, which was issued in July 2010. Patent 326 “supposedly” claims technology that presents possible complete search terms as users’ type characters into the search bar. Amazon first used this technology in 2008 with the introduction of what they called “search suggestions”. Google started using the technology in 2010 with the introduction of “Google Instant”. [Amazon Complaint]

Chrysler sues over trademark

  • Chrysler is suing several businesses in Detroit for making shirts with the slogan “Imported From Detroit”. The USPTO’s website indicates that Chrysler submitted in application on February 8th for the mark to be used in retail and on-line retail stores featuring a wide range of merchandise, like clothing. However, Chrysler also submitted an application on January 18th to use the mark on clothing. Chrysler claims the businesses started using the mark after the Superbowl aired on February 6th, in which Chrysler 1st used the mark in a commercial. [Link]

Patent Jobs:

  • Rosenbaum & Silvert is looking for a patent attorney or agent with 3 years experience for their Chicago office. [Link]
  • Harness, Dickey, & Pierce is searching for an experienced patent attorney with an electrical engineering background to work in their St. Louis office. [Link]
  • Edell, Shapiro & Finnan is seeking a patent attorney with experience in the mechanical arts. [Link]
  • Perkins Coie is searching for a patent attorney or agent with 2-4 years experience to work at their Denver location. [Link]

Upcoming Events:

  • The Franklin Pierce Center for IP at the University of New Hampshire will hold its 1st Annual Intellectual Property Café on March 26th. Guest speakers include Gordon Smith, Kirsten Koespel, Peter McGovern, and Dr. Catherine McGovern. [Link]
  • The John Marshall Law School Center for Intellectual Property Law Distinguished Professor Presentation will be held on April 1st. The Presentation entitled, “Patent Litigation and the Internet” will be given by Professor John Allison. [Link]
  • Seton Hall Law will host a seminar, examining the state of intellectual property practice in challenging economic times on April 6th. Guest speakers include David Opderbeck, Colleen Tracy, and Frank Bruno. [Link]

Patently-O Bits & Bytes by Lawrence Higgins

USPTO willing to accommodate relief those affected by the events in Japan

  • David Kappos issued a statement on March 17th stating that the “USPTO considers the events in Japan on March 11th to be an extraordinary situation within the meaning of 37 CFR 1.183 and 37 CFR 2.146 for affected applicants, patentees, reexamination parties, and trademark owners.” What this means is that the USPTO can and will grant some waivers and extensions to applications and patents having 1 or more inventors, an assignee, or a correspondence address in areas of Japan affected by earthquake or tsunami. While the USPTO can grant some waivers and extensions, others cannot be granted by statute. For example, the USPTO cannot grant an extension for the 3 month time period to pay the issue fee set forth in 35 USC. Kappos listed 5 other situation that no waiver or extension can be given. [Link]

MasterObjects sues Google and Amazon for patent infringement

  • MasterObjects has filed suit against Google and Amazon for infringing patent # 7,752,326, which was issued in July 2010. Patent 326 “supposedly” claims technology that presents possible complete search terms as users’ type characters into the search bar. Amazon first used this technology in 2008 with the introduction of what they called “search suggestions”. Google started using the technology in 2010 with the introduction of “Google Instant”. [Amazon Complaint]

Chrysler sues over trademark

  • Chrysler is suing several businesses in Detroit for making shirts with the slogan “Imported From Detroit”. The USPTO’s website indicates that Chrysler submitted in application on February 8th for the mark to be used in retail and on-line retail stores featuring a wide range of merchandise, like clothing. However, Chrysler also submitted an application on January 18th to use the mark on clothing. Chrysler claims the businesses started using the mark after the Superbowl aired on February 6th, in which Chrysler 1st used the mark in a commercial. [Link]

Patent Jobs:

  • Rosenbaum & Silvert is looking for a patent attorney or agent with 3 years experience for their Chicago office. [Link]
  • Harness, Dickey, & Pierce is searching for an experienced patent attorney with an electrical engineering background to work in their St. Louis office. [Link]
  • Edell, Shapiro & Finnan is seeking a patent attorney with experience in the mechanical arts. [Link]
  • Perkins Coie is searching for a patent attorney or agent with 2-4 years experience to work at their Denver location. [Link]

Upcoming Events:

  • The Franklin Pierce Center for IP at the University of New Hampshire will hold its 1st Annual Intellectual Property Café on March 26th. Guest speakers include Gordon Smith, Kirsten Koespel, Peter McGovern, and Dr. Catherine McGovern. [Link]
  • The John Marshall Law School Center for Intellectual Property Law Distinguished Professor Presentation will be held on April 1st. The Presentation entitled, “Patent Litigation and the Internet” will be given by Professor John Allison. [Link]
  • Seton Hall Law will host a seminar, examining the state of intellectual property practice in challenging economic times on April 6th. Guest speakers include David Opderbeck, Colleen Tracy, and Frank Bruno. [Link]

Patently-O Bits & Bytes by Lawrence Higgins

USPTO willing to accommodate relief those affected by the events in Japan

  • David Kappos issued a statement on March 17th stating that the “USPTO considers the events in Japan on March 11th to be an extraordinary situation within the meaning of 37 CFR 1.183 and 37 CFR 2.146 for affected applicants, patentees, reexamination parties, and trademark owners.” What this means is that the USPTO can and will grant some waivers and extensions to applications and patents having 1 or more inventors, an assignee, or a correspondence address in areas of Japan affected by earthquake or tsunami. While the USPTO can grant some waivers and extensions, others cannot be granted by statute. For example, the USPTO cannot grant an extension for the 3 month time period to pay the issue fee set forth in 35 USC. Kappos listed 5 other situation that no waiver or extension can be given. [Link]

MasterObjects sues Google and Amazon for patent infringement

  • MasterObjects has filed suit against Google and Amazon for infringing patent # 7,752,326, which was issued in July 2010. Patent 326 “supposedly” claims technology that presents possible complete search terms as users’ type characters into the search bar. Amazon first used this technology in 2008 with the introduction of what they called “search suggestions”. Google started using the technology in 2010 with the introduction of “Google Instant”. [Amazon Complaint]

Chrysler sues over trademark

  • Chrysler is suing several businesses in Detroit for making shirts with the slogan “Imported From Detroit”. The USPTO’s website indicates that Chrysler submitted in application on February 8th for the mark to be used in retail and on-line retail stores featuring a wide range of merchandise, like clothing. However, Chrysler also submitted an application on January 18th to use the mark on clothing. Chrysler claims the businesses started using the mark after the Superbowl aired on February 6th, in which Chrysler 1st used the mark in a commercial. [Link]

Patent Jobs:

  • Rosenbaum & Silvert is looking for a patent attorney or agent with 3 years experience for their Chicago office. [Link]
  • Harness, Dickey, & Pierce is searching for an experienced patent attorney with an electrical engineering background to work in their St. Louis office. [Link]
  • Edell, Shapiro & Finnan is seeking a patent attorney with experience in the mechanical arts. [Link]
  • Perkins Coie is searching for a patent attorney or agent with 2-4 years experience to work at their Denver location. [Link]

Upcoming Events:

  • The Franklin Pierce Center for IP at the University of New Hampshire will hold its 1st Annual Intellectual Property Café on March 26th. Guest speakers include Gordon Smith, Kirsten Koespel, Peter McGovern, and Dr. Catherine McGovern. [Link]
  • The John Marshall Law School Center for Intellectual Property Law Distinguished Professor Presentation will be held on April 1st. The Presentation entitled, “Patent Litigation and the Internet” will be given by Professor John Allison. [Link]
  • Seton Hall Law will host a seminar, examining the state of intellectual property practice in challenging economic times on April 6th. Guest speakers include David Opderbeck, Colleen Tracy, and Frank Bruno. [Link]

US DOJ: Invalidating an Issued Patent Should Require Clear and Convincing Evidence

Microsoft v. i4i (Supreme Court 2011)  Download Msftvi4i.usgovt

US Acting Solicitor General Neal Katyal took over the job after Elana Kagan was nominated to the US Supreme Court. In his role as solicitor, Katyal recently filed an amicus brief strongly supporting i4i's position that invalidity can only be proven with clear and convincing evidence "even if the defendant relies on evidence of invalidity that was not before the PTO." As a back-stop, however, the Government argues that newly presented evidence may be "given greater weight, making the defendant's burden easier to satisfy."

The brief justifies its conclusions based upon several factors:

  1. The clear and convincing standard follows longstanding Supreme Court precedent. See Radio Corp. of Am. v. Radio Eng'g Labs., Inc., 293 U.S. 1, 8-10 (1934) (RCA).
  2. The presumption of validity found in 35 U.S.C. § 282 is the result of an attempt to codify the existing judge-made presumption of validity.
  3. The Federal Circuit has a longstanding and well settled rule that clear and convincing evidence is required.
  4. The clear and convincing standard "best accommodates … the principles of deference to agency authority and expertise."
  5. The clear and convincing standard serves patent holder's property interest.
  6. Although the standard for proving invalidity is high, this is balanced by the collateral preclusive effect of an invalidity finding.

On the agency-deference issue, the government argues that a "jury should not be permitted to overturn the considered decision of the PTO when the evidence is substantially in equipoise, but rather should be allowed to take that step only if it possesses a high degree of confidence that the PTO erred."

The government also distinguished the high presumption of patent validity with the preponderance standard for registered copyrights and trademarks. The copyright and trademark statutes specifically state that registration serves as "evidence of validity" rather than bestowing a presumption of validity. In addition, the copyright and trademark systems are designed simply to encourage registration "rather than to recognize the agencies' expertise" in granting rights.

In many ways, the patent law is something of an enigma when compared with our usual approach to agency decisions. The government writes:

Ordinarily, when a court reviewing agency action concludes that the agency's decision was based on incomplete evidence, the proper course is to remand to the agency. In an infringement suit, however, that option is not available, and both of the options before the court are in some tension with usual administrative-law principles. Applying the preponderance standard that petitioner advocates would permit the jury to determine for itself what the PTO would or should have done had it considered the new evidence, while the clear-and-convincing evidence standard has the practical effect of according deference to an agency decision that did not consider potentially material facts.

As between those alternatives, applying the clear-and-convincing-evidence standard across the board reflects the better reading of Section 282 in light of that provision's text, history, and purposes.

Finally, the brief spends some time considering (and rejecting) the suggestion that a high standard be applied for evidence considered by the PTO and a low standard be otherwise applied.

[I]mportantly, the text of Section 282 does not suggest that the standard of proof governing questions of patent validity varies depending on the nature of the evidence that a challenger introduces. Such a variable-proof regime, moreover, would reflect a substantial departure from the way in which evidentiary burdens typically operate. Although juries routinely give different weight to different types of evidence, petitioner identifies no statute under which the standard of proof governing a particular determination depends on the type of evidence that the parties introduce. The Federal Circuit's longstanding approach to the question presented here, under which evidence that was not before the PTO "may * * * carry more weight and go further toward sustaining the attacker's unchanging burden," American Hoist, 725 F.2d at 1360, is thus much more consistent with the usual application of evidentiary burdens than is a regime under which the introduction of new evidence changes the standard of proof itself.

Old Reliable v. Cornell: Federal Circuit Again Rejects Award of Attorneys’ Fees

By Jason Rantanen

Old Reliable Wholesale, Inc. v. Cornell Corporation (Fed. Cir. 2011) Download 10-1247
Panel: Newman, Mayer (author), and Bryson

For the second time this year the Federal Circuit has issued a precedential decision reversing an award of attorneys' fees entered against a patentee.  Perhaps most noteworthy is the extent to which the judges on the court appear to be in agreement on the relevant standard and its application: although the panel compositions for Old Reliable and iLor v. Google do not overlap, the two opinions contain remarkably similar language and employ analogous analyses to reverse the exceptional case findings, suggesting a strong meeting of the minds on this issue.

Background
In 2006, Old Reliable filed an infringement action against Cornell, contending that one of Cornell's insulated roofing products (VT-1) infringed Patent No. 5,069,950.  Following depositions of the named inventor and Old Reliable's expert, the district court granted summary judgment of anticipation and obviousness based on based on a prior Cornell product (VT-2) and a third party product (the Air-Flo).  The Federal Circuit affirmed the invalidity judgment in December 2009 via a Rule 36 summary disposition.

Meanwhile, Cornell had moved for an exceptional case determination and requested an award of its attorneys' fees.  In February 2010, the district court granted Cornell's motion, although it limited its fee award to only the portion of the litigation following the September 2007 deposition of the named inventor, at which he admitted that the VT-2 "did the same thing as his invention."  The district court concluded that Old Reliable's decision to continue the suit following this deposition was "improper and unjustified," warranting a finding of exceptional case. Old Reliable appealed. 

Litigation Not "Objectively Baseless"
On appeal, the Federal Circuit drew heavily on its recent pronouncements in iLor v. Google, focusing its scrutiny on the "objectively baseless" element of the meritless case inquiry.  As in iLor, the CAFC began its analysis by looking to Brooks Furniture: "Absent misconduct in conduct of the litigation or in securing the patent, sanctions may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Slip Op. at 8, quoting Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).  This second element, the court noted, involves a purely objective inquiry.  "Unless an argument or claim asserted in the course of litigation is “so unreasonable that no reasonable litigant could believe it would succeed,” it cannot be deemed objectively baseless for purposes of awarding attorney fees under section 285."  Slip Op. at 8, quoting iLor, 2011 U.S. App. LEXIS 516, at *12 (Fed. Cir. 2011).   

The CAFC concluded that this "exacting standard" was not met in this case.  The inventor's testimony failed to establish anticipation, which requires that all of the claim elements and their limitations be shown in a single prior art reference.  Nor were Old Reliable's arguments distinguishing the VT-1 from the VT-2 "objectively meritless."  "There was nothing frivolous or inherently implausible about Old Reliable’s [noninfringement assertion]."  Slip. Op. at 12.  Similarly non-frivolous was Old Reliable's argument that the third party product did not anticipate. 

Effect of PTO Proceedings
On June 15, 2010 – after the CAFC's affirmance of the invalidity finding – the PTO issued a notice of intent to issue an ex parte reexamination certificate confirming the patentability of the '950 patent over references including the VT-2 and Air-Flo.  Although this notice was withdrawn shortly thereafter (citing  the CAFC affirmance), the panel nonetheless took judicial notice of the reexamination certificate and concluded that "the fact that the PTO confirmed the validity of the ’950 patent on reexamination provides probative evidence on the issue of whether Old Reliable had a reasonable basis for its assertion that its patent was not anticipated."  Slip. Op. at 19.

Comment: The court's emerging doctrine of exceptional case determinations envisions a threshold "objective" requirement that must be met, regardless of whether the underlying theory is one of willful infringement or meritless suit.  In the context of willful infringement, the infringer must have acted "despite an objectively high likelihood that its actions constituted infringement of a valid patent;" in the context of an exceptional case determination the conduct must be "objectively baseless."  Subjective considerations of bad faith play no role in this determination. An actor may have a completely wrongful intent, but if the conduct itself does not meet the objective threshold that intent just doesn't matter.  Given the extraordinarily high hurdle required to satisfy the objective standard – "Unless an argument or claim asserted in the course of litigation is 'so unreasonable that no reasonable litigant could believe it would succeed,' it cannot be deemed objectively baseless for purposes of awarding attorney fees under section 285" (Slip Op. at 8 (emphasis added) – one would expect such findings to be rare indeed. 

Update: Scott Daniels of the blog Reexamination Alert has a discussion of the implications for reexamination.

Judge O’Malley in Dissent: Patent Assignments Should be a Matter of State Law

Abraxis BioScience v. Navinta (Fed. Cir. 2011) (en Banc opinion) (original panel opinion)

New Federal Circuit judge Kathleen O’Malley has begun her tenure at the Federal Circuit by joining with Judge Newman dissenting from the court’s denial of en banc rehearing. In her first patent opinion as a full member of the court, Judge O’Malley issued a tour-de-force – arguing that the original Abraxis panel erred by creating special federal rules governing assignment of patent rights rather than relying upon the usual rule that state contract and property laws govern the assignment of patent rights.

The case centers on patents covering the anesthetic Naropin and Navinta’s attempt to begin manufacturing a generic version. Abraxis sued Navinta after that company filed its abbreviated new drug application (ANDA) with the Food & Drug Administration (FDA). See 35 U.S.C. §271(e)(2).

Problem of Ownership: In the original appeal, Judges Gajarsa and Linn found that the plaintiff, Abraxis, lacked standing because it did not own the patents in suit at the time that the complaint was filed. Although Abraxis had an asset assignment agreement from AstraZeneca with an effective date of June 2006, AstraZeneca had not actually received title from two of its subsidiaries by that date. Just before the lawsuit was filed, AstraZeneca received title to the patents from its subsidiaries and Abraxis argued that the 2006 agreement operated to automatically shift title to Abraxis. The chart below largely captures this (simplified) sequence of events.

The agreements spelled-out that New York state law should be the source of contract interpretation for these transfers. When applying New York law, the district court sided with Abraxis – holding that the circumstances in this case meant that the 2007 transfer should be deemed retroactive to 2006, nunc pro tunc.

The New York law may seem a bit strange to some, but the dispute between Judge O’Malley and the majority opinion is not about the interpretation of New York law. Rather, the questions is whether patent ownership should even be governed by New York law at all – as opposed to the federal rules of patent ownership and transfer that stem from the statutory guidance of 35 U.S.C. § 261 (both patents and applications are “assignable in law by an instrument in writing”). In several cases involving the interpretation of patent rights, the Federal Circuit has taken the opportunity to develop its own law. Examples of these include, DDB Techs., L.L.C. v. MLB Advanced Media, L.P., 517 F.3d 1284, 1290 (Fed. Cir. 2008); Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000) (stating that while the ownership of patent rights is typically a question exclusively for state courts, the question of whether contractual language effects a present assignment of patent rights, or an agreement to assign rights in the future, is resolved by Federal Circuit law); and Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583 F.3d 832, 841-42 (Fed. Cir. 2009) (cert. granted Nov. 1, 2010). The court claimed jurisdiction over the assignment/contract questions in these cases because answer to the questions would determine the plaintiff’s standing to sue for patent infringement.

Here, Judge Gajarsa also found the interpretation of the purchase agreement to be an issue of Federal Law – writing that “[n]otwithstanding New York law, it is not possible to transfer an interest in a patent unless one owns the patents at the time of the transfer.”

In dissent, Judge O’Malley would have left the interpretation of the contract and property rights transfer as a matter of state law.

[B]y virtue of this decision, this court now requires the application of Federal Circuit contract law to transfers of existing patent rights, without regard for the state law jointly chosen by the contracting parties. The consequences of this decision are not slight. This creation of a new body of law to govern transfers of patent rights – one applicable in this Circuit only – will disrupt substantial expectations with respect to the ownership of existing patents and impose unnecessary burdens on future transfers thereof. Parties may now be barred from pursuing claims for infringement of patents they indisputably own under state law, and choice of law provisions in large-scale asset purchase agreements such as that at issue here will become meaningless where patents are involved.

Because this decision conflicts with Supreme Court precedent and needlessly destabilizes parties’ expectations, we should take the opportunity to correct this flawed precedent.

This decision is important for several reasons:

  • Now, any major or complex asset purchase or corporate reorganization must be reviewed by someone familiar with Federal Circuit Patent Transfer Law in order to ensure that the patent portion of the transfer is done in accordance with federal law.
  • It is unclear whether this Federal Circuit interpretation of the law applies only when the resolution is related to a standing issue. Namely, when judging a contract dispute would a state court be required to apply this law in their interpretation of the patent ownership rights or, alternatively, do the federal courts now have federal question jurisdiction over contract cases that require resolution of this type of contract language?
  • It is interesting that Judge O’Malley’s first patent opinion is a dissent to an en banc re-hearing that is joined by Judge Newman. Is this a sign to come for her tenure?

Bilski Applied to Invalidate Computer System Claims

CLS Bank Int'l v. Alice Corp. (D.D.C. 2011)

In an interesting opinion, DC District Court Judge Rosemary Collyer has ruled Alice Corp's four asserted patents invalid under 35 U.S.C. § 101 for failing to claim patentable subject matter. This case can be seen as flowing from the Supreme Court's recent decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010).

Alice is an Australian company owned largely by the huge National Australian Bank. CLS is a UK company that works with banks to settle foreign exchange accounts – and is involved with about 95% of the global foreign exchange trading. The patents are generally directed at methods and systems for creating and settling debts that uses both credit/debit records and shadow credit/debit records. Claim 1 of Alice's Patent No. 7,149,720 might be seen as an example:

'720 Patent, Claim 1. A data processing system to enable the exchange of an obligation between parties, the system comprising:

a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and a debit record maintained by an exchange institution; and

a computer, coupled to said data storage unit, that is configured to

(a) receive a transaction;

(b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and

(c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.

As in Bilski, the district court focused on the question of whether the asserted claims constitute "abstract ideas." In doing so, the court began with an admission that "[t]here is no clear definition of what constitutes an abstract idea." Rather the approach must be by-analogy to Flook, Benson, and Diehr. In the 2010 Federal Circuit case of Research Corp. Techs. v. Microsoft Corp., 627 F.3d 859, 868 (Fed. Cir. 2010), the Federal Circuit offered the additional wisdom that to be disqualifying, the abstractness "should exhibit itself so manifestly as to override the broad statutory categories of eligible subject matter and the statutory context that directs primary attention on the patentability criteria of the rest of the Patent Act."

The court agreed with the patentee that the computer system claim (above) was directed toward a "machine" as enumerated within Section 101. However, the common law exceptions to Section 101 are overriding factors that operate regardless of whether a machine or process can be identified within the claimed subject matter. "Alice's system or product claims [cannot] be saved only by the fact they may nominally recite a 'computer' or 'manufacture.'

In its abstract-idea analysis, the court focused on preemption – holding that the claim "would preempt the use of the abstract concept of employing a neutral intermediary to facilitate simultaneous exchange of obligations in order to minimize risk on any computer which is, as a practical matter, how these processes are likely to be applied." In an apparent effort to bolster its conclusion, the court also suggested that it is likely abstract because it would be infringed by "common and everyday financial transactions."

Notes:

  • CLS filed this declaratory judgment action against Alice after Alice had warned CLS (by letter) that "every transaction involving CLS' settlement of foreign exchange transactions is impacted by [our patent] claims" and that CLS was "willfully infringing Alice's intellectual property."

CLS is represented by Kaye Scholer; Alice is represented by Williams & Connolly.

White House Recommends Increased Criminal Penalties for Intellectual Property Crimes

The White House today released a white paper on its recommendations for intellectual property enforcement legislation. The recommendations all involve increasing rights and increasing penalties “so as to more effectively address the substantial harm caused by intellectual property crimes.”

Recommended changes include:

  1. Increase prison term for counterfeit drug distributors;
  2. Increase prison terms for theft of trade secrets;
  3. Increase prison terms for intellectual property offences that risk serious bodily injury;
  4. Clarify that unlicensed streaming of copyrighted material is a felony;
  5. Provide the federal government with authority to conduct wiretaps when pursuing criminal copyright and trademark offenses;
  6. Create a new right of public performance for copyright owners for sound recordings transmitted by over-the-air broadcast stations;

As a reminder, willful copyright infringement is a crime so long as committed either (a) for commercial advantage or private financial gain; (b) by copying or distributing works with a retail value of more than $1,000 within a 180-day period; or (c) making a commercial work “available on a computer network accessible to members of the public.” 17 U.S.C. § 506. Federal law also makes it a crime to steal, appropriate, take, carry away, or conceal a trade secret or to obtain the trade secret by fraud, artifice, or deception – with intent to convert the trade secret and for the economic benefit of someone other than the trade secret owner. 18 U.S.C. § 1832. The trade secret law creates a criminal cause of action against someone “copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information” or “receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization.” Finally, the trade secret law also creates a criminal cause of action for attempts and conspiracies.

/media/docs/2011/03/ip_white_paper.pdf