October 2012

Age of Patents when Asserted

By Dennis Crouch

The chart above is a histogram showing the age of utility patents at the time when an infringement complaint is filed. I used the Derwent LitAlert patent database and limited the search to only lawsuits filed Sept 16, 2011 – Sept 15, 2012 (this avoids false marking cases). I also excluded cases that were identified as declaratory judgment lawsuits in the LitAlert database. The data has some holes but it is roughly accurate.

Supreme Court on Patent Law 2013

The Supreme Court is scheduled to decide four intellectual property cases this term:

  • Bowman v. Monsanto (patent exhaustion in second generation of GM seeds)
  • Kirtsaeng v. John Wiley & Sons, Inc. (international copyright exhaustion)
  • Already, LLC v. Nike, Inc. (impact of limited covenant-not-to-sue on declaratory judgment jurisdiction in trademark law)
  • Gunn v. Minton (whether legal malpractice claims arising out of representation in a patent dispute should be heard by the Federal Circuit)

There are several more pending petitions for certiorari. The most notable of these is Association for Molecular Pathology (AMP) v. Myriad Genetics (patentability of isolated but naturally occurring human DNA). A second important pending petition is Retractable Technologies, Inc. v. Becton, Dickinson and Co. (de novo review of claim construction). More than a dozen other petitions have been filed or are likely within the next two months.

Mossoff and Epstein on Patent Rights

By Dennis Crouch

Professors Adam Mossoff and Richard Epstein recently had an interesting discussion on the public policy concerns over the current patent system. Both professors are active participants in Federalist Society debates, and this discussion stems out of that format.

The audio podcast is available for free at this link: http://www.fed-soc.org/publications/detail/patent-rights-a-spark-or-hindrance-for-the-economy-podcast

Duty to Use Your Property and Your Patents

By Dennis Crouch

Cornell professors Eduardo Penalver and Oskar Liivak have an interesting new essay on the absence of any use requirement in patent law. In the 1908 case of Continental Paper Bag Co. v. Eastern Paper Bag Co., the Supreme Court held that patent owners have no duty to actually practice their patent. In that case, the court tied their analysis to real property where it recognized “the privilege of any owner of property to use or not use it, without question of motive.” In their essay, Penalver and Liivak challenge this notion of real property and, in turn, challenge its use as a metaphor for patent rights. They write:

[T]he law significantly hems in the rights of owners not to use their property, employing numerous doctrines, such as nuisance, abandonment, adverse possession, and permissive waste, to ensure that owners’ decision not to use their property does not inflict harm on others. Even with respect to attentive nonuse, owners’ rights are qualified, both by common law doctrines like necessity and by the state’s power to override (or at least influence) owners’ decisions about nonuse through eminent domain, regulation and taxation.

The essay also challenges the property/patent metaphor as inapt because of the “nonrivalrous nature” of information and “because of the particularly powerful way that patent law constrains the freedom of nonowners.”

Edwardo Penalver and Liivak, Oskar, The Right Not to Use in Patent and Property Law (October 16, 2012). Available at SSRN: http://ssrn.com/abstract=2162667

Kirtsaeng v. John Wiley Oral Arguments

Kirtsaeng v. John Wiley & Sons, Docket No. 11-697 (Supreme Court 2012)

Here are a few quotes from today’s oral arguments. More discussion of the case here.


MR. ROSENKRANZ: (on behalf of accused infringer Kirtsaeng): What [copyright holders] got [with the passage of Section 602] was a much more powerful weapon than a contract. [A] copyright weapon gives you injunctive relief, gives you multiples of damages which you don’t get out of a contract remedy.

MR. ROSENKRANZ: The moment that a manufacturer learns that this Court says you get what we’ve called the Holy Grail of manufacturing, endless eternal downstream control over sales and rentals, you can ruin secondary markets that are competing with you, the moment that happens, that will be yet another reason for manufacturers silently to decide that they’re headed — that they’re sending their manufacturing overseas.


JUSTICE KAGAN: Mr. Rosenkranz, can I take you back to Justice Ginsburg’s opening question? Just as a matter of copyright theory, I had always understood [that] a copyright holder has a kind of a bundle of rights. It’s not one right that applies everywhere in the world. It’s you have your U.S. rights and you have your Chinese rights, you have your rights under each jurisdiction’s law. And your position is essentially to say that when I sell my Chinese rights to somebody, I’m also selling my U.S. rights to that same person, because the person who has the Chinese rights can just turn around and import the goods. I mean, that’s the nature of your position, isn’t it, that your U.S. rights are always attached when you sell more — your rights under the jurisdiction of another country?

MR. ROSENKRANZ: Well — so first, Your Honor, back in 1976, this notion of geographic division was very, very new, so it’s not at all clear what Congress was thinking with that — with respect to that. But secondly, no, we’re not — we’re not saying that when the owner sells his Chinese — its Chinese rights to the Chinese company, it is selling all rights. Certainly, the Chinese company cannot sell everywhere, but after that first sale, all of the manufacturer’s rights are cut off.


JUSTICE BREYER: I mean, an American copyright holder licenses a British company to publish the work under British copyright law. 602(a) says he can’t import the books into the United States, period…. The question is what happens when he sells it to his bookstore and you or I go in and buy it and we want to give a copy to our wife when we get back to the United States. The question is, … is that unlawful? … [What if] I bring back five copies and I give one to my son?

MR. OLSON (arguing on behalf of the copyright holder John Wiley): Well, there are fair use exceptions …


JUSTICE BREYER: [I]magine Toyota, all right? Millions sold in the United States. They have copyrighted sound systems. They have copyrighted GPS systems. When people buy them in America, they think they’re going to be able to resell them…. Under their reading, the millions of Americans who buy Toyotas could not resell them without getting the permission of the copyright holder of every item in that car which is copyrighted?

MR. OLSON: … that is not this case….

JUSTICE KENNEDY: You’re aware of the fact that if we write an opinion with the — with the rule that you propose, that we should, as a matter of common sense, ask about the consequences of that rule. And that’s what we are asking….

JUSTICE BREYER: I would like to know, if you were the lawyer for the Toyota distributor, and if you were the lawyer for the Metropolitan Museum of Art, or you are the lawyer for a university library, and your client comes to you and says, my God, I just read the Supreme Court opinion. It says that we can’t start selling these old books or — or lending them or putting them in our word processor or reselling the Toyota without the — without looking — displaying the Picasso without the permission of the copyright holder, who may or may not be Toyota itself. What, as their lawyer, do you tell them? Do you tell them, hey, no problem; or, do you tell them, you might become a law violator; or, do you tell them, I better litigate this? What do you tell them?

MR. OLSON: Well, each one of those situations that you posit, Justice Breyer, has a whole panoply of set of facts. With respect to the museums, with respect to the person bringing books into the United States, there are other defenses, including fair use. There are other defenses under the copyright law. But — and one of the things is that, to a certain extent, if you’re going to use the product created by someone else in a way that’s contemplated by the copyright laws, maybe it’s required that you actually comply with the copyright laws by going to the owner of the copyright and saying, look, here’s what I propose to do, can I have a license to do this?

JUSTICE GINSBURG: Mr. Olson, do you have an answer to the outsourcing problem and the charges that if you read the statute as you are urging, then you are inviting the outsourcing of manufacturing jobs?

MR. OLSON: There are several answers to that. One, that’s Congress’s concern. And — and there is no evidence that that would really actually happen. And Congress was concerned with creating a segmentation of the market. But it’s entirely speculative as to whether or not people are going to start manufacturing books or other items outside the United States. Congress can address that if that should become a problem, but it’s not something that was suggested as a part of what was taking place at that time.

JUSTICE BREYER: Well, the word has grounding. [What about the ancient principle found in] Coke on Littleton, 1628, where it says that “if a man be possessed of a chattel and give or sell his whole interest upon a condition, that condition is no good.” And Coke says, and that’s how it should be. And now that’s picked up in Bobbs-Merrill; it’s picked up in Dr. Miles. It’s been the law. Now if, in fact, there are two ways of interpreting the statute, and one is consistent with that basic principle of commercial law, and the other produces some of the complexities that you have just mentioned, isn’t it better to go with the common law and simply reaffirm a principle that’s been in the commercial law almost forever?

MR. STEWART (arguing as amicus on behalf of the US Government): I give two answers for that. And the first is that Coke was saying that, in most circumstances at least, a sale is sufficient in order to divest the owner of his prior right to control distribution, but it doesn’t say that a sale is necessary. And my point is that when Mr. Rosenkranz says the hypothetical foreign publisher who makes copies with authorization but ships … them into the United States without [authorization] could be held liable for infringement, there is nothing in section 109(a) that would allow a court to draw that distinction; that is, although 109(a) is sometimes referred to as a codification of the First Sale Doctrine, it doesn’t require an antecedent first sale. So as long as the foreign publisher was the owner of the books at the type — time they were manufactured, if those books were lawfully made under this title, under Petitioner’s reading they could be imported and distributed. We know also that this was not an oversight, that Congress didn’t intend the provision to be subject to a sort of implicit first authorized sale requirement, because the language was intended to cover copies that were made pursuant to a compulsory license.


No direct mention of patent law in the oral arguments.

International Copyright Exhaustion: Supreme Court to Decide Whether Copyright Holders Can Block Imports

By Dennis Crouch

Kirtsaeng v. John Wiley & Sons, Inc. (Supreme Court 2012)

Oral arguments are being held this morning in the Kirtsaeng copyright case involving international exhaustion. The case has direct implications on international patent law considerations.

Kirstaeng purchased legitimate copies of Wiley textbooks in various foreign countries and then imported those into the US for resale. The international versions of the textbooks vary somewhat from the US version (e.g., the foreign version covers evolution and is printed on cheaper paper). However, Kirtsaeng was able to find a substantial US market for the books and used the revenue to fund his own education. Copyright includes the exclusive right of distribution, and resale of a product is typically seen as a form of distribution. 17 U.S.C. 106. A separate provision also bars importation of copyrighted works without permission of the copyright holder. 17 U.S.C. 602(a)(1). However, the copyright statute also includes an exception known as copyright exhaustion or the first sale doctrine. 17 U.S.C. 109. The statute provides:

[T]he owner of a particular copy … lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.

Patent law has an equivalent doctrine. Notably, however, the patent law doctrine of exhaustion is not bound by any statute but does stem from parallel common law origins. The exhaustion doctrine allows for a robust secondary market for goods.

In this case, Wiley wants to use its US copyrights to block Kirtsaeng from reselling his books. Kirtsaeng argues that he purchased non-counterfeit authorized copies of the books and that Wiley’s copyrights are therefore exhausted. Wiley, in turn, focuses on the statute and argues that the US copyright is not exhausted because the foreign-made books were not “lawfully made under this title” where “this title” refers to the US Copyright Act. In its appellate decision, the Second Circuit agreed with Wiley and held that the foreign sale did not trigger the Section 109 exception. The decision supports a notion of country-by-country price discrimination of works protected by copyright (or patent). Unfortunately for US consumers, the price of these goods is typically higher in the US than abroad. In addition to price discrimination, the law is also being used to control access to goods in various countries. In many cases, these ideas have been implemented as mechanisms for preventing important of goods that do not – at first glance – appear to be protected by intellectual property. In the Supreme Court cases of Costco v. Omega and Quality King Distribs., Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998), the asserted copyrights were unrelated to the value of the product being sold. In Costco, the protected copyright was a small symbol on the under-side of the watch while in Quality King, the protected copyright was the shampoo bottle label. (On remand, the district court dismissed Omega’s action on the ground of copyright misuse.)

The Supreme Court is hearing oral arguments in the case this morning. In 2010 the court heard Costco v. Omega. In that case, however, the court was deadlocked 4-4 (thus affirming the copyright holder’s position). The ninth justice that will sit on this case is Justice Kagen who had recused herself in 2010 – apparently after working on the case as Solicitor General. In her absence, the DOJ has supported the copyright holders in arguing against international exhaustion.

In my view, Wiley likely has the better argument based on a straight reading of the statute. However, the implementation of Section 109 was largely a codification of the 1908 Supreme Court decision in Bobbs-Merrill Co v. Straus. And, it appears that international copyright exhaustion was on the mind of Congress at that time. Further, we already know that if the text of the statute is construed as copyright holders suggest, then the statute does not entirely define the scope of exhaustion. For instance, authorized sales within the US are seen as exhausting the copyright even if the work was not “lawfully made” in the US. In my mind, this opens the door to a potential atextual expansion of the exhaustion doctrine.

There are several interesting briefs filed in the case. The IPO, AIPLA, ABA all support the copyright holders rights to block importation of goods that the copyright holder sold abroad. For the most part, these organizations say that their arguments are “limited to the Copyright Act” and should not be read into “other fields, such as trademark and patent law” which “involve distinct statutory schemes and implicate separate policy concerns.”

A group of law professors led by Jason Shultz filed an amicus brief and argues that the Wiley’s argument “runs contrary to the statutory context in which § 109(a) appears, the common-law backdrop against which Congress legislated, and analogous principles of patent law as well.” Federal Circuit precedent on the topic runs parallel to the Wiley decision finding no international exhaustion. See Jazz Photo Corp. v. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001) and Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368 (Fed. Cir. 2005). Interestingly, the brief rejects the Jazz Photo cases as against the weight of past and present Supreme Court precedent on the topic.

Mark Lemley filed a brief on behalf of Powell Books, et al. that runs in parallel with a brief filed by a group of art museums. Both briefs argue that their respective operations (selling used books and showing artwork) have long relied upon international exhaustion. If copyrights are not so exhausted, both business models will suffer greatly.


Good Things Come in Threes? DOJ, FTC and EC Officials Wax Eloquent About FRAND

Guest Post By Professor Jorge L. Contreras

For years, developers of standards in the information and communications technology (ICT) sector have committed to license patents that are essential to those standards on terms that are "fair, reasonable and nondiscriminatory" (FRAND). This February, I summarized the reasons that these vague but somewhat reassuring commitments have become so prevalent in the industry. Since then, the litigation over FRAND commitments has only intensified. In April, I summarized the major pending lawsuits that revolve around allegations that FRAND commitments have been violated. One of these, Microsoft v. Motorola (W.D. Wash.) is scheduled to go to trial on this issue in November, and Judge Robart has suggested (some would say threatened) that he may define FRAND for the parties if they can't reach agreement before then.

Against this backdrop, regulators in the U.S. and Europe have actively pursued a FRAND clarification program of their own. As I noted in February, the U.S. Department of Justice (DOJ) appears to have persuaded Microsoft, Apple and Google to release a trio of "voluntary" statements describing their interpretations of FRAND. This public display occurred in connection with DOJ's review (and approval) of major patent acquisition transactions by each of these parties. The European Commission, which approved Google's acquisition of Motorola Mobility shortly thereafter, also exhibited a keen interest in Google's view of FRAND commitments.

Six months later, there has been another flurry of FRAND clarifications. This time, however, guidance is being offered not by companies, but by the regulators themselves (or, rather, by senior agency officials speaking "on the record" at public events). These include the following speeches by officials of the DOJ, FTC and EC:

  • Jon Leibowitz, Chairman of the FTC, at the Georgetown Global Antitrust Enforcement Symposium (September 19),
  • Joseph Wayland, Acting Asst. Attorney General in the Antitrust Division of DOJ, at the Fordham Competition Law Institute (September 21),
  • Joaquin Almunia, Vice President of the European Commission responsible for Competition Policy, also at Fordham (September 20),
  • Fiona Scott-Morton, DOJ Deputy Asst. Attorney General for Economic Analysis, at the National Academies of Science (NAS) Symposium on Management of Intellectual Property in Standard Setting Processes (October 3),
  • Howard Shelanski, Director of FTC Bureau of Economics, also at NAS (October 4), and
  • Renata Hesse, Deputy Attorney General in the Antitrust Division of DOJ at the International Telecommunications Union (ITU) Patent Roundtable (October 10)

It is no coincidence that these officials each came forward with comments regarding FRAND within a few weeks of each other. As suggested by Dr. Scott-Morton, this effort was at least loosely coordinated within the three agencies, each of which is actively involved in matters involving the licensing of patents essential to industry standards. For example, the FTC has initiated an investigation of Google/Motorola in relation to its FRAND licensing practices and submitted a public statement to the ITC in Microsoft's case against Motorola (now resolved), the EC has launched FRAND-related investigations of both Google/Motorola and Samsung, and the DOJ is reported to have opened an investigation into Samsung's practices in this area. But despite the clear desire by these three agencies to send a message to the industry regarding FRAND, the scope of that message is not entirely clear. Below is a brief summary of the FTC, DOJ and EC officials' statements regarding FRAND:

Injunctive Relief. If the agency viewpoints share on one thing, it is a strong aversion to injunctions that seek to block the use of a standard after a FRAND commitment has been made. However, even here the extent of agency accord is unclear. For example, Mr. Almunia declares that "the worst-case scenario is when a company willing to take a license for standard-essential patents is hit by an injunction" (Almunia, p.6), yet he does not indicate whether, or on what basis, such an injunction might be limited. The FTC's position on injunctive relief is more restrained, and Chairman Leibowitz only notes that such relief may be "in tension" with the FRAND commitment (Leibowitz, p.7). This statement is consistent with the FTC's earlier comments to the ITC, suggesting that if a patent holder has made a "reasonable royalty offer" that has subsequently been refused by an infringer, relief in the form of an exclusion order might be appropriate. The most steadfast opponent of injunctive relief in the face of a FRAND commitment appears to be DOJ, which tipped its hand back in February when it applauded Apple's and Microsoft's statements "that they will not seek to prevent or exclude rivals' products from the market", while viewing Google's more qualified commitment as "less clear". Mr. Wayland refers to these earlier statements (Wayland, p.7), and to his testimony before the Senate Committee on the Judiciary, which held hearings on ITC exclusion orders in September (Wayland, p. 10-11). With respect to ITC exclusion orders he echoes the FTC's position, which has generally disfavored injunctive relief for FRAND-committed patents due to the increased leverage that negotiating in the "shadow" of such an injunction can give to the patent holder (FTC 2011 Report, p.225-26). But like the FTC in its recent public comments to the ITC, he indicates some tolerance for such injunctions when a potential licensee has not negotiated reasonably or is beyond the reach of the U.S. courts (Wayland, p.10-11). However, it is FTC Chairman Leibowitz who makes the boldest statement regarding injunctive relief, suggesting not only that such relief should not be granted in the face of a FRAND commitment, but that even seeking such relief could amount to unfair competition under Section 5 of the FTC Act (Leibowitz, p. 9). He thus warns companies that violating their FRAND commitments could lead to enforcement actions by the agency.

Antitrust and Competition Law Claims. Several of the agency officials suggest that violation of FRAND commitments could, under certain circumstances, constitute violations of antitrust or competition law. Mr. Almunia, for example, while acknowledging that the recent smartphone patent wars are "primarily patent cases, not competition cases", goes on to suggest that "this state of belligerence may encourage a company to use its patents as weapons to harm legitimate competitors" (Almunia, p.5). Ms Hesse of DOJ notes the "risks to competition" that may arise from collaborative standards-setting and so-called "patent hold-up" (Hesse, p.5). And Mr. Wayland unambiguously states that "the [Antitrust] division is ready to enforce the antitrust laws against standard-setting activities that harm competition" (Wayland, p.8). Mr. Almunia likewise indicates that the EC is "willing to provide clarity to the market through our enforcement" (Almunia, p.6).

But perhaps the most interesting comments regarding antitrust remedies are Chairman Leibowitz's statements regarding the "unfair methods of competition" that may result from seeking an injunction in the face of a FRAND commitment (Leibowitz, p.9). As noted above, he suggests that such conduct may run afoul of Section 5 of the FTC Act "which, as all of us in this room understand, Congress intended to extend well beyond the reach of the antitrust laws" (Id.). Chairman Leibowitz thus hedges his bets: even if antitrust doctrines are not sufficient to prosecute FRAND violations, the agency has tools beyond antitrust that it may use to correct such behavior (an argument that, perhaps, arises from the FTC's 2008 reversal by the D.C. Circuit in its antitrust case against Rambus, Inc. for abuse of the standardization process).

Magnitude of FRAND Royalties. Not surprisingly, the agency representatives do not speak much about the complex question of the magnitude of FRAND royalty rates. Historically, the FTC has maintained that appropriate royalties for standards-essential patents should be based on the ex ante value of the patented technology prior to adoption of the standard (FTC 2011 Report, p.22-23). Obviously, determining such a royalty in hindsight can be challenging, and perhaps Judge Robart's upcoming judicial intervention in Seattle may shed light on how best to conduct this analysis. Another nettlesome question regarding the magnitude of FRAND royalties arises from the comparative value of the many different patents that may cover the same standard (sometimes ranging in the thousands). In this regard, Chairman Leibowitz offers an interesting observation, possibly alluding to the pending disputes over Motorola's proposed royalty: "When the allegedly infringing component is, say, only one of 15,000 patents used in a smart phone or a tablet, is it fair to demand two percent of the entire sales price? To ask that question is to answer it."

SDO-Based Solutions. Unlike the FTC and EC representatives, the DOJ officials strongly encourage SDOs to implement policies that are likely to alleviate some of the risks and uncertainty currently associated with FRAND commitments. Both Mr. Wayland and Ms. Hesse reflect favorably on DOJ's 2007/2008 Business Review Letters approving the "ex ante" licensing disclosure policies proposed by VITA and IEEE (Wayland, p.8-9, Hesse, p.7-8). Such policies permit (in the case of IEEE) and require (in the case of VITA) that patent holders disclose their "most restrictive" licensing terms (including royalty rates) before adoption of a standard. Ms. Hesse notes that "[w]e saw then, and continue to see now, the potential benefits to competition from the implementation of such an approach" (Hesse, p.8). In addition to ex ante licensing disclosure, Mr. Wayland, Ms. Hesse and Dr. Scott-Morgan of DOJ all suggest concrete steps that SDOs should consider in relation to FRAND (Wayland, p.9; Hesse p.9-10; Scott-Morgan, p.1-4). These are summarized below (based primarily on Ms. Hesse's presentation, which is the most detailed and occurred latest in time).

  1. Identify Excluded Patents. Identify patented technology that will not be offered on FRAND terms and "consciously determine" whether or not such technology should be included in a standard.
  2. Transfer. Ensure that FRAND licensing commitments bind subsequent purchasers of patents. (This requirement was also advocated by Microsoft, Apple and Google in their February statements).
  3. Cash-Only. Require that patent holders offer FRAND licenses on "cash-only" terms (presumably to eliminate (a) perceived abuses arising from "bundling" of non-essential patents with standards-essential patents, and (b) inherent barriers to entry for market entrants lacking their own patents to use as cross-licensing barter with other patent holders).
  4. Limit Injunctions. Limit participants' right to seek injunctions after a FRAND commitment has been made. (This limitation was also advocated by Microsoft, Apple and Google in their February statements).
  5. Arbitration. Set guidelines for FRAND royalty rates, or establish an arbitration or other mechanism for resolving disputes over the level of FRAND royalties.
  6. Accuracy of Disclosure. Ensure that disclosure of "essential" patents is accurate and not overly broad (only suggested by Hesse, p.10).

The "inherent ambiguity" of FRAND commitments (Hesse, p.6) undoubtedly requires clarification, either by the parties making such commitments or, lacking that, by courts and regulatory agencies. The recent statements by agency officials at the DOJ, FTC and EC represent a good first step toward such clarification. At this point, there appears to be a developing consensus among private industry and the agencies that FRAND commitments should "travel with the patents" after they are sold, and that injunctive relief should be limited after a FRAND commitment is made. In other areas, however, there does not appear to be a high degree of consensus among the agencies and additional work by all stakeholders (SDOs, patent holders, product vendors and regulators) will be required before a common understanding of FRAND is finally developed. I agree with the DOJ commenters that SDO-based solutions are the most likely avenues toward widespread alleviation of FRAND uncertainty, and have proposed a slightly different set of recommendations for SDO policy reform. Barring this, however, the decision will be left to the courts.

Should a patentee with market power be allowed to charge monopoly prices?: March-In Rights and the NIH

Patents are no longer referred to as monopolies. Rightly so because the exclusive rights granted do not normally confer monopoly power in any relevant market. However, sometimes patents do confer so much market power that the owner can charge prices that bear no relation to the cost of manufacture (except for being well above that cost). Abbott’s patents covering its antiretroviral drug ritonavir likely serve as one such example. Although not likely a true monopoly, Abbott is able to charge much more than its marginal costs. In the US, Abbott charges about $12 per 100 mg pill on its drug under the brand name Norvir. And, most patients are on a multi-pill daily regimine. In other high-income countries around the world, the drug is ordinarily sold at less than $2 per pill. Apparently to relieve political pressure, Abbott also lowers its price paid by the US Gov’t for purchases under medicare and medicaid. Abbott has also apparently refused to allow its drug to be combined with other anti-viral treatments that would reduce cost and make life generally easier for patients.

The drug is protected by U.S. Patent No. 5541206, No. 5635523, No. 5648597, No. 5674882, No. 5846987, and No. 588604. And, there is little suggestion that these patents are invalid.

In a recent filing, Knowledge Economy International (KEI) has asked the NIH to use its March-In Rights to force Abbott to lower its price charged to US consumers. http://keionline.org/node/1573. The legal hook for KEI is that the US government funded a substantial portion of the initial drug development. That initial funding was critical and Abbott only fully committed and took-over all research funding once it realized the high likelihood that the drug would be a major profit source. Under Bayh-Dole, the US government has “march-in rights” for patents such as these to ensure that the innovations are reaching the marketplace in a way that serves consumers. However, the US government has never actually used its march-in rights. Although the US Gov’t has not actually marched-in, a prior petition to the NIH is seen as one reason why Abbott reduced its price charged for the drug to the U.S. Gov’t.

The Norvir situation is one of many cases that KEI sees as problematic. More generally, the organization has asked the NIH to adopt two rules to guide the use of March-In rights.

Rule 1: Ceiling on prices to U.S. residents: The Secretary shall normally grant open licenses to third parties to use patented inventions that have benefited from federal funding, subject to the payment of a reasonable royalty and an appropriate field of use, if a product or products based upon those inventions are sold in the United States at prices [more than 10%] higher than in other high income countries. . . . A licensee may rebut the presumption of unreasonable pricing by providing evidence that its actual risk adjusted R&D costs would not be recovered, but for the charging of higher prices in the U.S. market, or other evidence specific to the risk adjusted costs for the licensed invention.

Rule 2: Use of invention for a dependent co-formulation technology: The Secretary shall grant licenses to third parties to use patented inventions that have benefited from federal funding, subject to the payment of a reasonable royalty and an appropriate field of use, if a product based on those patented inventions: (a) is a drug, drug formulation, delivery mechanism, medical device, diagnostic or similar invention, and (b) is used or is potentially useful to prevent, treat or diagnose medical conditions or diseases involving humans, and (c) its co-formulation, co-administration or concomitant use with a second product is necessary to effect significant health benefits from the second product, and (d) the patent holder has refused a reasonable offer for a license.

I expect that the NIH will again reject this petition and refuse to exercise any march-in rights or develop a framework for the future. However, you may begin to wonder why Congress included march-in rights if they are never to be used.

New Book: Law of Superheroes

102512_1352_NewBookLawo1by Dennis Crouch

The book that we've all been waiting for is finally out: The Law of Superheroes.  I am serious here — at least that I have been waiting for this book ever since I discussed the project with co-author James Dailey a few years ago when he visited the Mizzou campus.  Daily and Ryan Davidson have turned their popular blog (lawandthemultiverse.com) into book published by Gotham Books, a division of Penguin. Daily is a patent attorney and the book answers many IP questions that may have vexed comic book readers:

  • Does Batman's use of Wayne Enterprises' advanced technologies to stop crimes (at night) negate patentability?
  • Does Spiderman infringe any genetic engineering patents?
  • In our universe, the Beatles broke up and John Lennon died. However, there are other (far better) universes where that did not happen. What copyright laws would apply when someone wants distribute copies of the Beatles' 40th Anniversary Album that was brought back from that alternate universe?

One of the book's thirteen chapters focuses on intellectual property. But the book as a whole covers a host of topics ranging from Constitutional law to immigration; from criminal procedure to the legal treatment of non-human intelligence.

Great work by Daily and Davidson! I am already looking for Volume II. Law students beware: the book offers a host of original hypothetical questions that would be readily used on final examinations.

Amazon's current price is $14.60.

Top-25 Design Patent Recipients from the Past Year

  1. Samsung Electronics :See D669,432 a contactless mobile device charger
  2. Microsoft: See D669,498 a computer icon (as part of a display screen)
  3. Procter & Gamble: See D668,878 a design on paper towel
  4. LG Electronics: See D669,469 a tablet computer
  5. Apple: See D668,674 a computer icon (as part of a display screen)
  6. Research-In-Motion: See D667,807 an electronic device with a built in physical keyboard
  7. Philips Electronics: See D668,812 a lamp
  8. Nike: See D668,441 a tiny bit of a shoe
  9. Toyota: See D668,592 the front-end of a car
  10. FIH (a branch of Foxconn): See D668,648 an electronic device cover with fancy surface treatment
  11. Cheng Uei Precision Industry: See D666,579 a stereo headseat
  12. Honda Motor: See D668,594 a automobile grill
  13. Hon Hai: See D668,664 a flash drive that folds like an old Leatherman
  14. LG Innotek (Subsidiary of LG Electronics): See D667,383 packaging for an LED
  15. 3M Innovative Properties: See D668,496 a scouring pad holder
  16. Sony: See D668,637 earbuds
  17. Panasonic: See D668,702 an overhead projector
  18. Target Brands: See D668,176 a chain with the letter “E” attached
  19. Gillette: See D668,532 a package for holding personal care product
  20. S C Johnson & Son: See D668,542 the top of a plastic bottle with a closure device
  21. Karl Storz: See D668,762 a medical device handle
  22. Goodyear Tire Rubber: See D668,600 a tire
  23. Beifa Group: See D668,293 a writing pen with a cap
  24. Kohler: See D663,396 a toilet seat
  25. Daimler: See D666,957 rims

Apple Patents an Encircled Musical Note

One of Apple's most recent design patents is Patent No. D668,263. The patent claims "The ornamental design for a display screen or portion thereof with icon, as shown and described." As the image shows below, the patented ornamentation is basically the design of a musical note with a surrounding circle and roughly resembles the iTunes icon. Although design patents are purported to be examined for novelty and obviousness. In reality they are not so examined.

In my view, design patents such as these would be fine so long as they are given exceedingly narrow scope (which they often are) and if the courts allowed for some amount of fair use (which they do not).

The senate recently passed a bill that would extend the design patent term an extra year–to 15 years from patent issuance.

The question: Is Patently-O infringing the design patent by showing the image on your screen? 

Should we Move Toward More Fee Shifting in Patent Cases?

By Dennis Crouch

Icon Health & Fitness v. Octane Fitness (Fed. Cir. 2012)

Following claim construction, the district court ruled on summary judgment that Octane’s elliptical machines did not infringe Icon’s U.S. Patent No. 6,019,710. However, the district court refused to find the case “exceptional” under 35 U.S.C. § 285. Under the statute, a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” And, without that exceptional case ruling, the defendant had no opportunity to recoup the money spent defending the case.

U.S. patent cases follow the “American rule” that largely forbids fee shifting except in “exceptional” cases. In Cybor, the Federal Circuit described the adjudication process as involving two steps: First determining whether the case is “exceptional” and then determining the scope of fee shifting that is appropriate (if any). The court wrote:

The determination of whether a case is exceptional and, thus, eligible for an award of attorney fees under § 285 is a two-step process. First, the district court must determine whether a case is exceptional, a factual determination reviewed for clear error. After determining that a case is exceptional, the district court must determine whether attorney fees are appropriate, a determination that we review for an abuse of discretion. A district court abuses its discretion when its decision is based on clearly erroneous findings of fact, is based on erroneous interpretations of the law, or is clearly unreasonable, arbitrary or fanciful.

Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448 (Fed.Cir.1998) (en banc) (citations omitted). This process is akin to that used for enhanced damages where the court first considers whether the infringement was willful and then determines the scope of damage enhancement (if any). One key difference is that Section 285 provides the “exceptional” standard while the “willful infringement” requirement for enhanced damages was created by the court without any statutory key.

We call this the “American rule” of fee shifting because there is an alternate “British rule” that regularly awards fees to the prevailing party regardless of exceptionality of the case.


In a short nonprecedential opinion, the Federal Circuit affirmed the denial of Octane’s exceptional case motion. Its opinion confirms the traditional stance that an exceptional case award requires significant evidence of misconduct and that denial of a motion for attorney fees is within the discretion of the trial court. “[W]e have reviewed the record and conclude that the court did not err in denying Octane’s motion to find the case exceptional.”


Of most interest, Octane requested that the court revisit (i.e., lower) the standard for determining whether a case is exceptional. As it must, the panel here rejected that request because it is bound by prior Federal Circuit precedent. However, an en banc request on this point may garner some traction with the court.

Traditionally, there has been something of a bias relatively in favor of exceptional case findings for prevailing plaintiffs but not for prevailing defendants. The bias comes about because a prevailing plaintiff can typically include out-of-court activities such as willful infringement as part of its proof of exceptional case while a prevailing defendant can typically only prove an exceptional case based upon a patent plaintiffs activities during litigation or when securing patent rights.

I like to divide the “bad” plaintiff activities leading to an exceptional case finding into three categories: (1) inequitable conduct during prosecution; (2) litigation misconduct (such as discovery violations or destroying evidence); and (3) bringing a subjectively and objectively baseless lawsuit. Brooks Furniture Mfg., Inc. v. Dutailer International, Inc., 393 F.3d 1378 (Fed. Cir. 2005). Thus, if a prevailing defendant seeks an “exceptional case” award based upon the filing of a worthless lawsuit, the plaintiff must provide clear and convincing evidence that the infringement claims were subjectively and objectively baseless. Globetrotter Software, Inc. v. Elan Computer Group, Inc., 362 F.3d 1367 (Fed. Cir. 2004); see also Reactive Metals & Alloys Corp. v. ESM, Inc., 769 F.2d 1578 (Fed. Cir. 1985) (The person seeking attorney fees must establish the facts showing exceptionality by clear and convincing evidence.)

In its brief, Octane argued that the “subjectively and objectively baseless” requirement is unduly limiting and should be reduced to a standard that considers whether the claim was “objectively unreasonable.” Octane writes:

Patent litigation is expensive. According to a survey published in 2009 by the American Intellectual Property Law Association (“AIPLA”) the median cost for a patent litigation in which the amount in controversy is from $1-25 million, through the end of discovery, is $2.5 million (inclusive of all costs). Unscrupulous large companies know this, and, unfortunately, can use patent litigation as a weapon against competitors, especially smaller competitors. Many smaller competitors simply do not have the financial resources or wherewithal to defend a patent infringement case, no matter how spurious the contentions. Judge Story once wrote that patent litigation is the “sport of kings.” Larger companies can exploit this fact to the detriment of their smaller competitors.

Complicating matters, there is almost no economical or expeditious way for an accused infringer to extract itself from baseless litigation. Unlike certain forms of litigation ( e.g., securities litigation or antitrust litigation) rarely is a patent infringement action dismissed at the pleading stage. Rather, before a defendant accused of infringement has any hope of extricating itself from a litigation, often-times (as here) substantial discovery (both fact and expert), Markman briefing and hearing, and summary judgment briefing and hearing, must occur. By the time summary judgment is granted, substantial time is invested in the case not only by the parties, but by the district court, as well.

For their part, district court judges–who, in many instances, have no technical background and little familiarity with the patent system–are often faced with complex technology, difficult-to-read patent language and a body of case law that is both robust and nuanced. No matter how preposterous the merits of the infringement position may be, in order to reach a resolution on the merits, the district court judge must invest significant time and energy, to decipher the claim scope and understand the defendant’s position. For these reasons, no matter how unreasonable the patentee’s contentions, it is a rare district court judge who will have the courage to call a patentee’s claims “frivolous” after the investment of time and effort necessitated by these cases.

For these reasons, and because of the inconsistent application of the “exceptional case” findings by district courts, Octane proposes that in the context of a prevailing accused-infringer, the legal standard for exceptional case should be re-evaluated. Octane respectfully proposes that a case should be deemed “exceptional” if the infringement claims asserted by the patentee were objectively unreasonable. If they were objectively unreasonable (as here), then the case should be deemed exceptional, and, unless equitable considerations counsel otherwise in the context of the particular case, fees awarded. Octane’s rationale for this proposal are set forth below, as well as factors this Court might articulate to better assist district courts in identifying objectively unreasonable cases.

1. The Rationale for Fee Shifting Where a Patentee Asserts an Objectively Unreasonable Claim of Infringement Against a Competitor.

A patent grants to its holder a legalized monopoly. See Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969) (“The heart of [the patentee's] legal monopoly is the right to invoke the State’s power to prevent others from utilizing his discovery without consent”); see also Precision Instrument Mfg. Co. v. Auto. Maint. Mack Co., 324 U.S. 806, 816 (1945) (“a patent is an exception to the general rule against monopolies and to the right of access to a free and open market.”) This is permitted because the overall good of encouraging innovation and promoting disclosure is thought to outweigh the anticompetitive effects of a time-limited monopoly. See generally Bilski v. Kappos, 130 S.Ct. 3218, 3255 (2010) (“even when patents encourage innovation and disclosure, ‘too much patent protection can impede rather than ‘promote the Progress of … useful Arts’.’ “). But a patent is, nevertheless, by its nature anticompetitive, and for this reason, the ways in which a patentee may have granted, utilize and leverage a patent are not without limit and are often carefully scrutinized. See In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323, 1333 (Fed. Cir. 2008) (noting that patents are by nature anticompetitive and examining whether agreements improperly restricted competition beyond the exclusionary zone of the patent); see also Bilski, 130 S.Ct. at 3229 (noting “the tension, ever present in patent law, between stimulating innovation by protecting inventors and impeding progress by granting patents when not justified by the statutory design.”)

Title 35 of the United States Code, § 285 authorizes such scrutiny in the context of infringement litigation and specifically authorizes an award of attorney fees in “exceptional” cases. But what is an “exceptional” case? This Court has endeavored to provide guidance to district courts as to the meaning of an “exceptional” case. This Court has indicated that fees are properly awarded in a variety of contexts, including “vexatious or unjustified litigation” or “frivolous filings.” See, e.g., Takeda, 549 F.3d at 1388; Eon-Net LP, 653 F.3d at 1324; Waner v. Ford Motor Co., 331 F.3d 851, 857 (Fed. Cir. 2003); Bayer AG v. Duphar Int’l Research B.V., 738 F.2d 1237, 1242 (Fed. Cir. 1984). However, this Court has also indicated that absent litigation misconduct or fraud in securing a patent, a district court can award attorney fees only if the litigation is both: (1) brought in subjective bad faith and (2) objectively baseless. See, e.g., Eon-Net LP, 653 F.3d at 1324. These differing statements of the standard and other factors noted below, have led to inconsistent application of the exceptional case designation by district courts, particularly in the case of a prevailing alleged infringer.

Octane respectfully submits that commencement and maintenance of objectively unreasonable infringement contentions should be sufficient, standing alone, to deem a case exceptional. This standard is, in many ways, consistent with this Court’s cases holding that unjustified or frivolous suits may be deemed “exceptional.” Octane, however, advocates for reconsideration of the case precedent that indicates litigation misconduct or subjective bad faith should be required – in addition to baseless contentions – before finding a case exceptional.

Additionally, Octane proposes use of the words “objectively unreasonable” rather than “frivolous” or “baseless.” As explained in more detail below, the words “frivolous” or “baseless” often imply misconduct by counsel, and perhaps even violation of Rule 11. Octane respectfully suggests that an action should not have to rise to the level of a Rule 11 violation, before a case could be deemed exceptional; else the remedies are duplicative.

Rather, patentees (including non-practicing patentees) asserting their legal monopoly should at least have to assert objectively reasonable causes of action, or else the risk of paying for the litigation should shift to the patentee, regardless of counsel’s conduct. This is fair and consistent with the overarching goals of the patent system. The alternative–leaving patentees unchecked to assert thin-beyond-reason causes of action–has a huge anticompetitive impact on society and constitutes a gross injustice to innocent defendants.

As any defendant accused of patent infringement could attest, the mere existence of litigation typically has a detrimental impact on business, as customers become nervous about buying a product accused of infringement. This translates into higher costs for end customers as the patentee is able to prevent competition (often legitimate competition) and maintain monopoly prices. Meanwhile, the only recourse for a wrongfully accused infringer, apart from recouping fees under the present standard, is to bring a separate tort cause of action after conclusion of the Federal patent case in state court (which has even less experience with patent law than most district courts), or advance a cost-prohibitive antitrust action, if market share and other elements can be established. For these reasons, district courts need to know that they can find a case exceptional when a patentee fails to assert its legal monopoly responsibly and asserts and maintains objectively unreasonable causes of action.

Considerations a district court might consider when evaluating whether the patentee’s contentions were objectively unreasonable include: (1) more than one claim element was missing in the accused device, (2) the case was resolved on summary judgment, (3) the patentee was not practicing the claimed invention, (4) the patentee’s claim of infringement was based on a claim construction position that: (a) contradicted the prosecution history, or (b) read a limitation out of the claim entirely, or (c) was not rationally related to what was actually invented, (5) the patentee ignored or reargued the court’s claims construction, (6) the accused device incorporated technology that pre-dated the asserted patent, in lieu of the technology disclosed in the patent-in-suit, and (7) the accused infringer communicated to the patentee near the start of the case an alleged design around or element(s) not present in the accused product; the patentee proceeds forward unreasonably; and the defendant ultimately prevails on that issue.

Octane submits that the above factors are examples of factors a district court may consider when determining if a case was objectively unreasonable. These factors encourage early candid discussions between the parties and potentially fosters early settlement, which has been recognized as a laudable goal of the judicial system. Foster v. Hallco Mfg. Co., Inc., 947 F.2d 469, 477 (Fed. Cir. 1991). Moreover, the standard appropriately shifts the risk of fees to a patentee that proceeds forward with weak claims having no reasonable chance of success. Accused infringers should not have to bear the heavy cost of patent litigation where patent owners proceed forward with no more than a scintilla of hope or a desire that the accused infringer will collapse when confronted with a weak claim.

To be clear Octane is not proposing that “exceptional case” means any case in which an alleged infringer prevails. But cases that are objectively unreasonable should be “exceptional”, and not the norm. The cost of spurious infringement claims should be borne by the patentee, not the alleged infringer trying to compete fairly in the marketplace. In those instances (instances which would be even less frequent under this standard than at present), fee shifting is appropriate.

2. Exceptional Case Status Should Not Require Proof of a Rule 11 Violation.

By calling for a standard that allows for the award of fees in “objectively unreasonable” cases Octane is not necessarily arguing for a departure from the line of cases that would allow an award of fees in “frivolous” or “baseless” cases. However, Octane is proposing that the “exceptional” case standard of 35 U.S.C. § 285 should not be commensurate with a Rule 11 violation.

To begin, Rule 11 already includes provisions for sanctions, which would render Section 285 unnecessary if they require proof of the same conduct. Fed. R. Civ. P. 11. Beyond this, labeling a case “frivolous” such that it constitutes a violation of Rule 11 is not a step that most courts take lightly, not only because of the time and money investment in these cases, but also because labeling a case “frivolous” such that it constitutes a violation of Rule 11 requires condemnation of litigation counsel’s conduct. Rule 11 provides, among other things, that by signing all materials submitted to the Court an attorney is representing that “the claims, defenses, and other legal contentions are warranted by existing law or by a non-frivolous argument for extending, modifying, or reversing existing law or for establishing new law. . .” If a case is “frivolous” under Rule 11, then a patentee’s counsel must have acted inappropriately, a conclusion that most courts are loathe to reach.

A case should not have to rise to the level of a Rule 11 violation before it is deemed “exceptional.” Pursuing objectively unreasonable claims (though perhaps not rising to the level of a Rule 11 violation), should not be the norm for patentees, and when it does occur and the patentee is unsuccessful, the case should bear the moniker of an “exceptional case.”

3. Exceptional Case Status Should Not Require Litigation Misconduct Apart from Asserting an Objectively Unreasonable Claim.

Asserting an objectively unreasonable claim is a form of litigation misconduct. Nevertheless, no separate requirement for litigation misconduct should be necessary to establish an exceptional case. A patentee that pursues an objectively unreasonable claim but otherwise responds to discovery in a timely manner, does not destroy relevant documents, shows up to depositions, etc… should still bear the cost of its competitor’s fees, when the unreasonably maintained cause of action fails. No additional litigation misconduct should be necessary.

Moreover, the Federal Rules provide for sanctions for specific litigation misconduct as it occurs. See e.g., Fed. R. Civ. P. 26(g)(3) (authorizing sanctions for improper certification of disclosures and discovery responses); Fed. R. Civ. P. 30 (providing for sanctions for failure to attend a deposition); Fed. R. Civ. P. 37 (authorizing motions and sanctions if a party fails to respond or make appropriate disclosure to discovery requests); see also 28 U.S.C. § 1927 (“any attorney. . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct”). To the extent a patentee (or its counsel) takes some action in litigation that is wrongful, drives up costs, or otherwise violates litigation rules, then the alleged-infringer may bring that conduct to the district court’s attention at the appropriate time, and the district court should order appropriate sanctions, including fines. Encouraging district courts to deal with litigation misconduct in this manner, promotes professionalism and civility and better addresses the specific issues in a timely manner.

Though litigation misconduct could, of course, also be a factor in deeming a case “exceptional”, Octane propose that it should not be a requirement for finding a case exceptional in the face of objectively unreasonable claims.

4. Exceptional Case Status Should Not Require Proof of Bad Faith.

In a patent case, the most an accused infringer can ever hope for is recoupment of attorney’s fees and costs. Even in the rare cases where this is awarded, however, the accused infringer is not made whole. That party is still out the hundreds of hours dedicated by company personnel to the defense of the case (hours that could have been spent on research and development, sales efforts and other endeavors), not to mention the often-significant cost that the suit may have had on the accused infringer in the marketplace. Unlike on the patentee side, where the plaintiff may get treble damages against a willful infringer, the wrongfully-accused infringer has no such remedy against a patentee. The accused infringer is entitled to, at most, recoupment of reasonable fees.

Why is this significant? It is significant because under the law, subjective bad faith ( i.e., the willful, wonton or reprehensible nature of a party’s conduct), while the critical factor in an award of punitive damages (which an alleged infringer cannot recover), is not a pre-requisite, in most statutory schemes, to an award of reasonable attorney fees. See, e.g., 42 U.S.C. § 1988 (allowing court, in its discretion, to award attorney fees to the prevailing party in civil rights actions); 15 U.S.C. § 15 (mandating the award of reasonable attorney fees for any person injured by violation of the antitrust laws); 42 U.S.C. § 3613 (allowing court, in its discretion, to award attorney fees to the prevailing party in fair housing actions). In this instance, the statute merely requires that the court find the case “exceptional” before awarding fees. It says nothing about requiring a showing of subjective bad faith. Octane submits that in view of the differences between punitive damages and reasonable attorney fees and the ways in which these are typically dealt with in statutes and by the courts, an alleged infringer should not have to make a showing of subjective bad faith in order to show that an objectively unreasonable case is “exceptional.”

Regardless of intent (which is inevitably almost impossible to prove), a patentee that asserts an objectively unreasonable cause of action against its competitor should bear the risk of paying that competitors fees if it is unsuccessful.

This is an interesting problem. At the end of the case, a prevailing party has generally proven that the losing party’s case is without merit (i.e., it lost). In that sense, at the end of the case, the position is subjectively, reasonably, and objectively baseless. The question is, however, at the beginning of the case (and to some extent throughout the case) did the position have some merit?

At first cut the proposed fee shifting appears to be a good mechanism for shifting risk onto plaintiffs who, in turn, will avoid filing baseless claims. A benefit of the current rule (objectively baseless) is that it is fairly clear and so the self-weeding is easy. Octane’s multi-factor proposal makes this a much more difficult if not impossible task – meaning that the new rule would also end up discouraging some amount of valid patent claims.


  • Octane is represented by Rudy Telscher and Kara Fussner of Harness Dickey’s St. Louis office. Larry Laycock and his team at Workman Nydegger in Salt Lake represent Iconn.
  • There is a good chance that Octane won’t push this case any further since it won the underlying decision (non-infringement) and that decision was affirmed on appeal.

Reviewing PTO Claim Construction: Calls for De Novo Review of Proper Standard

By Dennis Crouch

Flo Healthcare v. Kappos and Rioux Vision (Fed. Cir. 2012), Inter Partes Reexamination No. 95/000,251.

In an interesting three-way opinion, the Federal Circuit has affirmed the USPTO’s rejection of Flo’s reexamined patent claims. In the process, however, the court provided significant additional guidance for the PTO on when claim elements that do not include the magical word “means” should nevertheless be interpreted as means-plus-function elements. See 35 U.S.C. 112(6). Here, the court found that the claim term “height adjustment mechanism” as used in the context of the patent specification should not be interpreted as a means-plus-function element.

Senior Judge Plager wrote the unanimous majority opinion and also filed a concurring opinion with “additional views” regarding appellate review of PTO claim construction Judge Plager argued that Federal Circuit precedent is unclear:

[W]e now appear to have two contradictory lines of authority on the question of how this court reviews Board claim constructions—a deferential “reasonable” (arbitrary/capricious-type) review, and a no-deference “pure” law type review. [Compare In re Morris, 127 F.3d 1048 (Fed. Cir. 1997) with In re Baker Hughes, 215 F.3d 1297 (Fed. Cir. 2000).] The fact that the APA now governs our review of PTO decisions does not provide guidance on which is the right standard. This is because the APA itself provides one standard for “pure” questions of law—which are reviewed without deference—and different, more deferential, standards for questions of fact and for mixed questions of fact and law.

The question then becomes whether claim construction by the Board is to be considered a question of “pure” law—the way this court treats claim construction in district court litigation under Cybor—and thus to be reviewed without deference; or whether it is something else, a blend of law and fact and judgment—as the Supreme Court said in Markman, a “mongrel practice”—in which case it is at least arguably subject to the “arbitrary and capricious” standard of APA § 706. Interestingly, none of the cases applying the Baker Hughes no-deference standard has paused to explain why that is the preferable standard as a matter of law or policy, or how it relates to the review standard that the Board uses.

Three additional factors weigh relatively in favor of deference toward PTO claim construction decisions even if court claim construction decisions continue to be reviewed de novo. First, claim construction at the PTO is decided initially by technical fact finders (patent examiners) and then by mixed fact/law specialists (PTAB judges). Second, the PTO’s form of claim construction “broadest reasonable construction” is a factual standard as is (virtually) any reasonableness judgment. Finally, the Supreme Court’s placement of decision making authority with a judge rather than a jury (Markman) that led to the Cybor no deference standard is tangential to the PTO’s role in claim construction. The decision makers in patent prosecution are defined by statute and codified rules rather than by the Supreme Court.

Judge Plager does not here suggest that one approach is correct, but does argue in favor of en banc rehearing to provide clear guidance to patentees and others concerned with patent rights. Judge Plager also offers an apology for the confusion since he authored the Morris opinion and was on the Baker Hughes panel.

This case involves a direct challenge to PTO claim construction decisions. The next step removed will involve collateral challenges during infringement litigation. In that case, what deference should be given to PTO conclusions at the time of the patent grant?

Judge Newman also agreed with the majority decision and provided her own additional views on the topic of the “broadest reasonable interpretation” standard used in patent prosecution. Judge Newman argues that the PTO should conduct claim construction applying the same standard as a court would later in litigation. The problem, according to Judge Newman is that the “broadest reasonable interpretation” is being applied as a standard of claim construction whereas it is actually merely an “examination protocol, not a rule of law.”

In its implementation, the examiner starts with a blank slate on which the applicant has described the subject matter he wishes to patent. The examiner is charged with searching the entire world knowledge, and to decide what the applicant is entitled to claim, as a matter of law. See Manual of Patent Examining Procedure §706 (“After the application has been read and the claimed invention understood, a prior art search for the claimed invention is made.”). In this demanding process, the examiner views the applicant’s presentation broadly, in order to assure that all possibly relevant prior art is explored. That is the role of “broadest reasonable interpretation”: it is an examination tool whereby the applicant and the examiner work together to determine and define the “invention” to be claimed.

Regardless of the path used to get there, Judge Newman argues, the claim construction is either correct or it is incorrect and it is the Federal Circuit’s role to make that determination accurately and uniformly. Thus, Judge Newman sees an acute problem in situations such as this case “where the same issue can be finally adjudicated to different appellate outcomes, depending on the tribunal from which it came.” An en banc hearing is also requested to remedy this “pernicious” conflict.


  • The infringement lawsuit between these parties was filed in 2007 (the same year as the inter partes reexamination request). That litigation settled in 2010, but there is not a clear mechanism for settling inter partes reexaminations once they get rolling. The new inter partes reviews can be settled.

Citing References at the PTO

So far in 2012, the USPTO has issued just about 200,000 utility patents. As part of the application process, patent applicants have a duty to identify prior art references that are material to patentability. About 13% of applicants submit no prior art. The median submission is 8 references. However, the data is highly skewed. While most entities submit a relatively small number of references, there are a few entities that submit a large number of references for consideration at the USPTO. Amazingly, the top ten percent of patents (in terms of references cited) are associated with over two-thirds of the seven million prior art citations in this set. Although the median number of references cited by applicants is 8, this skew shifts the average way up to 36 references. The submission of four or five references can be quite helpful. The submission of forty references is unlikely to be helpful (absent a second level search tool). In the past, this has prompted the USPTO to consider mechanisms to place additional burden on applicants who feel the need to submit such a large number of documents for consideration.

Citation also varies by country of origin. The chart below shows average applicant citation count according to assignee home country.

Two recent 101 Cases at the PTAB

By Dennis Crouch

Ex parte Thomsen (PTAB 2012) (App S.N. 11/314,709)

SAP’s patent claims are directed to a “method to determine statistics for a field of a database table.” In the appeal, the claim in question has three particular steps:

  • determining that the field of the table is associated with a field of a check table;
  • determining a relationship between a number of distinct values of the field in the table and a number of distinct values of the field in the check table; and
  • determining the number of distinct values of the field in the table based on the relationship and on the number of distinct values of the field in the check table.

In its recent decision, the PTAB affirmed the examiner rejection of this claim on statutory subject matter grounds. The panel wrote:

Considering the language of independent claim 1 as a whole, we agree with the Examiner that the process of claim 1 does not meet Bilski‘s “machine or transformation test” and could be performed within the human mind or by a human writing on a piece of paper. The claim recites a number of steps that are not tied to a particular machine — the claim does not recite any machine performing the functions of the steps, e.g., a processor. Nor do these steps transform data into a different state — the claim simply recites: (1) “determining that the field of the table is associated with a field of a check table;” (2) “determining a relationship between a number of distinct values of the field in the table and a number of distinct values of the field in the check table;” and (3) “determining the number of distinct values of the field in the table based on the relationship and on the number of distinct values of the field in the check table. See In re Bilski, 545 F.3d 943, 962-63 (Fed. Cir. 2008) (en banc), aff’d sub nom. Bilski v. Kappos, 130 S.Ct. 3218 (2010).

Here, to the extent any transformation takes place, the transformation is of one type of data into another type of data — (a) determining an association, (b) determining a relationship, and (c) determining a number. This is not a “transformation or reduction of an article into a different state or thing constituting patent-eligible subject matter.” In re Bilski, at 962; see id. at 963-64 (discussing patent-eligible data transformations). More importantly, the claim is entirely devoid of any mention of a “machine.” While Appellant urges that “[t]he claimed database tables, fields and values necessarily involve the use of a computer or machine” in actuality the “determining” steps could be accomplished within one’s mind or utilizing a pen and paper.

Our reviewing court guides that “a method that can be performed by human thought alone is merely an abstract idea and is not patent-eligible under § 101.” CyberSource, 654 F.3d at 1373. Because we conclude that the scope of claim 1′s method steps covers functions that can be performed in the human mind, or by a human using a pen and paper, we conclude that unpatentable abstract mental processes fall within the subject matter of claim 1.

In the past year, the BPAI has similarly cited CyberSource in several dozen cases.


Ex parte Battles (PTAB 2012) (App. S.N. 10/859,029)

HP’s patent application is directed to a “computer-readable medium that stores a program that, when executed by a digital camera causes the camera to perform” various functions associated with a histogram of light information from a photo-sensor on the camera.

The PTAB has affirmed the examiner’s Section 101 rejection – finding that the claim unduly includes patentable subject matter because the computer-readable medium might be a signal.

Appellant contends that the “computer readable medium,” as recited in claim 21, is drawn to statutory subject matter because the computer readable medium is further recited to store programs, and that transitory, propagating signals cannot store programs. We agree with the Examiner that the “computer readable medium,” as recited in claim 21 and as construed in light of the disclosure is drawn to non-statutory subject matter.

In the originally filed disclosure, Appellant discloses, “a ‘computer readable medium’ can be any means that can store, communicate, propagate, or transport the data … [and it] can be, for example, but not limited to … infrared… or propagation medium now known or later developed.” Per the originally filed disclosure, the claimed “computer readable medium” can be a transitory, propagating signal and transitory, propagating signals are ineligible. In re Nuijten, 500 F.3d 1346, 1357 (Fed. Cir. 2007).

Nuijten continues to be regularly cited by the PTAB – with almost 500 citations in the past five years.

Patent Pro Bono

By Dennis Crouch

We have begun the week designated as “National Pro Bono Week.” Most state attorney ethics rules indicate that “every lawyer has a professional responsibility to provide legal services unable to pay.” See ABA Model Rule 6.1. In its proposed ethics rules, the USPTO suggested no need to adopt the ABA Model Rules regarding public service.

The USPTO recognizes that every practitioner, regardless of professional prominence or professional workload, has a responsibility to provide legal services to those unable to pay and that every practitioner should support all proper efforts to meet this need for legal services. However, attorney practitioners’ individual state ethical rules should provide guidance and regulations regarding their respective duties to provide voluntary pro bono service, accept court appointed representation, and serve as members of legal service and legal reform organizations. The USPTO is declining to add an increased regulatory requirement on attorney practitioners.

Unfortunately, this statement by the PTO neglects the reality that a large number of PTO practitioners are not lawyers but are patent agents.

The America Invents Act (AIA) does include a directive requiring the USPTO to help establish patent pro bono programs. In their recent article, Amy Salmela and Mark Privratski go through one approach to a patent prosecution pro bono program that they helped to create in Minneapolis. See Patent Law Pro Bono: A Best Practices Handbook. The Federal Circuit Bar Association (FCBA) has also announced its new role as the “National Clearinghouse” for receiving information from individuals and businesses interested in receiving pro bono assistance in the Virginia and Maryland area. See www.fedcirbar.org/ptoprobono. Other regional patent pro bono operations are beginning around the country.

En Banc Question: Who Proves (Non)Infringement When Licensee Challenges Patent

by Dennis Crouch

Medtronic v. Boston Scientific & Mirowski Family Ventures (Fed. Cir. 2012) on request for rehearing [Download Medtronic_Petition_Rehearing_EnBanc]

Medtronic has filed an interesting request for rehearing en banc following its recent loss to Boston Scientific. In my post on that panel decision I wrote "Good-Standing Licensee Must Prove Non-Infringement in DJ Action."

During patent litigation, it is normally the patentee that has the burden of proving infringement. In this case, however, the Federal Circuit flipped the burden and instead began with a presumption of infringement. The court recognized that its decision went against the weight of precedent, but based its conclusion upon the special circumstances in this case and the Supreme Court's holding in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007).

Now, this case is different from typical patent litigation because the plaintiff who filed the case (Medtronic) is not the patentee seeking to enforce a patent. Rather, Medtronic has asked the court to issue a declaratory judgment that its operation does not infringe the Mirowski patent. U.S. Patent No. 4,928,688. Further, unlike the ordinary declaratory judgment case, Medtronic has signed the contract and given its word to pay ongoing royalties. The key holding in MedImmune is that a current patent licensee has standing to seek a declaratory judgment "that the underlying patent is invalid, unenforceable, or not infringed." Thus, under MedImmune, a licensee is not required to breach its contract before seeking declaratory relief. Prior to that case, the Federal Circuit had repeatedly ruled that a licensee in good standing could not challenge a patent because it had no apprehension of suit.

The present case falls squarely within the MedImmune expansion of declaratory judgment jurisdiction. The situation is interesting because the patentee would likely have no standing to sue for infringement even though the licensee now has standing. This situation, although unique, falls within the Supreme Court's general policy of encouraging licensees to challenge patent rights that it announced in Lear v. Adkins, 395 U.S. 653 (1969).

Because of this special factual background of the case, the patentee could not file an infringement counterclaim and therefore asked the court to place the burden of proving non-infringement onto the DJ plaintiff. Considering this issue, the Federal Circuit agreed – holding that the licensee had the burden of proving non-infringement in this situation. Writing for a unanimous panel, Judge Linn wrote:

This case requires us to determine the proper allocation of the burden of persuasion in the post-MedImmune world, under circumstances in which a declaratory judgment plaintiff licensee seeks a judicial decree absolving it of its responsibilities under its license while at the same time the declaratory judgment defendant is foreclosed from counterclaiming for infringement by the continued existence of that license. . . . [I]n the limited circumstance when an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, a licensee seeking a declaratory judgment of noninfringement and of no consequent liability under the license bears the burden of persuasion. . . .

In its petition for rehearing, Medtronic directly challenges this holding. The question presented is:

Whether a legal presumption of patent infringement should exist such that in a declaratory judgment action brought by a licensee seeking a declaration of noninfringement the burden of proof is shifted to the declaratory judgment plaintiff to prove non-infringement.

In my view, it is a bit of an overstatement to say that the court applied a presumption of patent infringement. While we usually think of a simple dichotomy between infringement and non-infringement, it is fair to say that this case presents a potential third option. Because the patentee has not alleged infringement. If the patentee wins the ultimate lawsuit, the final holding should not be that of infringement but rather should merely be a denial of the request for declaratory relief.

For its part, the challenger makes a strong case that the holding here (if overstated) still goes against the weight of Federal Circuit precedent and more than 100 years of Supreme Court precedent.

Judges Linn, Lourie, and Prost were on the original panel. It will be interesting to see how the other eight judges respond.

PTAB Backlog: Over the Hump!

By Dennis Crouch

The new Patent Trial and Appeal Board has cause to celebrate!

In 2008, the Board’s backlog of pending ex parte appeals began to rise at an alarming rate. Being a government body, the alarms did not really begin to sound until 2010 and the fire trucks only recently arrived. Since 2008, the number of pending cases has risen almost ten-fold to its current height of more than 26,000 pending appeals. During this period, the backlog rose each and every month without a single decrease.

Now, for the first time in more than four years, the monthly backlog figure has dropped. The Board’s numbers for September 2012 show that the body disposed of 311 more cases than it received for the month. The chart below shows the PTAB/BPAI backlog over the past several years. The last data point on the right hand side of the chart shows this happy decrease. Congratulations!

This transformation is due to the large number of new administrative judges at the PTAB. Although there may be a few bobbles, I expect that the backlog will begin a serious and steady decline by January 2013.

Patently-O Bits and Bytes

By Dennis Crouch

  • Germany’s Max Planck Institute for Intellectual Property and Competition Law has released a paper detailing “Twelve Reasons for Concern” with the proposed European Unitary Patent Court. Their concerns are categorized within the themes of (1) complexity of the regime, (2) imbalances in the system, and (3) lack of legal certainty for investments in innovation. /media/docs/2012/10/MPI-IP_Twelve-Reasons_2012-10-17_final3.pdf. The tone here is more of constructive criticism of the approach rather than an outright rejection of the idea. The photo of Max Planck (shown to the right) was taken just after he learned of the unitary patent system. Annsley Merelle Ward has more about the UK perspective on Unitary Patent Enforcement as part of her regular excellent IPKat coverage.
  • Malibu Media v. John Doe 16, 2:12-cv-02078 (E.D. Pa. 2012). There is a tremendous amount of unauthorized distribution of pornographic videos through various internet channels such as BitTorrent. In recent years, porn copyright holders have been fairly successful in convincing many file-sharers to settle cases. Unauthorized file sharing is much more likely to be seen as deviant behavior if the files being shared are pornographic. And so the settlements are largely for the purpose of keeping that activity hidden from public view. In this case, various anonymous Johns in Eastern Pennsylvania were sued for using BitTorrent to share the motion picture known as “Anneli Leila Menage a Trois.” It is a fairly easy process these days to identify the IP addresses of BitTorrent users. Malibu has opted to pursue its case against just one defendant who is still labeled John Doe 16 in what the court is calling a “Bellweather trial.” Trial is scheduled for early next spring.
  • “Copyright troll” stories are being chronicled by dietrolldie
  • Missouri is known for many things, including the South Butt parody apparel. In 2010 the company seemingly won the trademark lawsuit brought by the North Face. However, as part of the settlement, South Butt agreed to get permission for further parodies of North Face. Thus, when they started a new Butt Face line of clothing, the North Face filed and has won a contempt motion. In the consented court order, South But has agreed to stop its further attempts to bully the classy apparel company. Yes, you can sign away your fair use rights.