November 2012

Supreme Court has Granted Cert in the Myriad Case, Question: Are Human Genes Patentable

by Dennis Crouch

From the get-go, case of AMP v. Myriad appeared to be on its way to the Supreme Court. That fate was furthered by District Court Judge Sweet’s sweeping 2010 ruling in the case. As written, that ruling would have invalidated essentially all gene patents. As predicted, the Federal Circuit reversed and followed its own prior precedent that isolated genes are patentable.

Now, the Supreme Court has granted the petition for writ of certiorari and will hear the case — limited to the single question: “Are human genes patentable?”

I’m sure there will be significant amicus support on both sides.  A decision will probably not arrive until the end of the spring term.

Read more on the case.


Update on Supplemental Examination

by Dennis Crouch

Supplemental Examination has been available as a post-grant option since September 16, 2012.  I just received confirmation from the USPTO between Sept 16, 2012 and November 18, 2012, a total of four (4) request for Supplemental Examination have been filed, serial numbers 96/000,004 through 96/000,007.

I discussed the ‘007 application earlier. The remaining applications were apparently defective and thus have not yet been given a filing date. 

Patent Prosecutors Licensing of Copyrights for Prior Art Submissions

By Dennis Crouch

CCC v. Oblon Spivak (license agreement)

The Copyright Clearance Center (CCC) is a collective agent for many copyright holders and serves as a one-stop-shop for folks to license copyrights for use. CCC offers licenses to many (perhaps most) of the academic publications (non-patent literature) submitted to the USPTO under the Rule 56 duty of disclosure. In recent years, CCC has implemented a buffet license approach that allows a business to use their entire catalog for a fixed negotiated price.

Until recently, few patent law firms have seen any copyright infringement risk associated non-patent prior art because the copies are most typically obtained from a licensed database and the submission to the PTO and file-copies are both likely fair use and therefore would not constitute copyright infringement. Thus, most firms have developed their its patent prosecution practices with an implicit belief that its prosecution related uses of scientific journal articles are noninfringing uses of the articles. In the spring of 2012, the publisher John Wiley began suing patent law firms – taking the contrary view that (1) making file copies; (2) sharing copies with clients; and (3) submitting copies to the USPTO each constitute actionable copyright infringement. These lawsuits are ongoing.

The CCC license would allow both internal copying and submitting copies to the USPTO, although it does not allow the sharing copies with clients. Of course, these actions were all previously thought to be fair use. Professor Jamie Boyle has an interesting essay from 2007 discussing the problems with this license. His main point is that once we start paying for fair use material it stops being fair use going forward and moves toward a “culture of permission” that, in his view, is normatively bad.

I contacted the CCC folks and received some information from CCC’s General Counsel Frederic Haber. The first point is that the Wiley articles that are the subject of the lawsuits are included within the license (still, the blanket license still does not include sharing articles outside of the firm). The second point is costs. CCC uses a model of basically charging on a per-professional-employee basis. For patent law firms, their current negotiated going rate is around $300 per year per registered attorney. The third point is that the form license includes a waiver of any unasserted claims of past infringement (with the caveat that the waiver only takes effect after one-year of license coverage). The fourth point is that the downside of losing a lawsuit is statutory damages.

Oblon is in a special case because the firm has the highest patent throughput of any firm in the country. Because of that, the firm would have likely been part of any upcoming second round of lawsuits. On that note, Oblon’s Managing Partner Brad Lytle writes that the “license allows us to go about our business and focus our efforts on protecting the intellectual property of our clients.” In other words, the license allows the firm to avoid the annoyance of a lawsuit. The question for firms and attorneys moving forward is (1) whether the fair use argument is sufficient and (2) whether your firm is small enough to fly under-the-radar. And, of course, there is the remaining problem that the license does not allow for the sharing of the articles with folks outside of the firm.

Update: A further communication from the folks at CCC indicates that, although “the repertory license is specifically designed for the internal use of the licensed organization”, “one exception to that general rule is that the licensee may provide individual copies (paper or electronic) to prospects, clients or customers of the licensee in response to requests from those outside people.”

Top 100 Law Blogs and the Law Blog Hall of Fame

By Dennis Crouch

112912_1724_Top100LawBl1 I am happy to announce that Patently-O has once again been selected by the ABA Journal as one of the top 100 law blogs. This is the sixth year that the ABA has compiled this list and Patently-O is one of the handful of sites that have made the list each and every year. For the first time, the ABA Journal also created a "Hall of Fame" for law blogs and selected Patently-O as one of the ten introductory members. In my view, we've done an amazing job of improving the level of content and discussion over the past year. With the addition of Professors Rantanen and Hricik (on leave) and a number of other guest authors, Patently-O has more depth and breadth of coverage than ever before. MBHB has agreed to continue its exclusive sponsorship of the site. This means we can continue operating almost ad-free. And, hundreds of folks have found new jobs and connections through the Patently-O jobs site that is run by Ryan Swartz.

Although the ABA Journal top-100 list necessarily excludes a number of excellent IP law blog, the listed IP blogs are of a special caliber and I am honored that Patently-O is listed alongside. Other IP blogs on the list include:

  1. Noonan & Zuhn's Patent Docs;
  2. Gene Quinn's IPWatchDog;
  3. Eric Goldman's Technology & Marketing Law Blog;
  4. Groklaw now managed by Mark Webbink;
  5. Hollywood Esq from the Hollywood Reporter; and
  6. Rebecca Tushnet's 43(B)log

Congratulations to each of you! Blogging is really a community experience and I have a long connection with almost all of these listed blogs and their authors. I read Gene's impressive site (before it was a blog) even as a law student in Chicago. Gene also helped teach my patent bar review course (although I largely played hooky). I helped the Docs (Noonan and Zuhn) get started with their site while we were colleagues at MBHB. As he has been for many, Prof Goldman was instrumental in helping me find a job as a hopeful academic and then graciously welcoming me into the academy. Webbink and I continue to communicate regularly about ways to improve the patent system and both of us have the belief that broader participation and transparency will have important long term benefits. And, for several months each year I intensively read Prof. Tushnet's site (along with Prof Goldman's) as I teach my internet law course.

There is an ongoing popularity contest vote that Patently-O has won twice in the past. This year I have been discouraging folks from voting for Patently-O because there are so many other excellent IP blogs that also deserve to win.

Ranking company Cision just published its list that ranks Patently-O as No. 12 on the list of top law blog. BlogRank also just published its list that put Patently-O as No. 9 in its list of all law blogs. Professor Paul Caron rates Patently-O as No. 6 amongst faculty law blogs according to blog traffic. In his citation analysis, Professor Jay Brown ranks Patently-O as the third most cited law blog (in law journals).

I'll do a post soon on some of my favorite IP blogs, feel free to post your ideas in the comments.





Patent Term Adjustment

by Dennis Crouch

vast majority of newly issued patents are granted some amount of patent term adjustment (PTA) — often more than 18 months — added to the end of the patent to account for delays in the issuance of the patent. In the rececent case of Exelixis v. Kappos, the E.D.V.A. district court held that the PTO has been undercalculating PTA for (in my estimate) more than 10% of all recently issued patents. The PTO has not yet challenged that decision but it has also not taken action to correct its calculations.

The following survey is intended to get a feel for how the patent community is responding.

Patent Term Adjustment

by Dennis Crouch

vast majority of newly issued patents are granted some amount of patent term adjustment (PTA) — often more than 18 months — added to the end of the patent to account for delays in the issuance of the patent. In the rececent case of Exelixis v. Kappos, the E.D.V.A. district court held that the PTO has been undercalculating PTA for (in my estimate) more than 10% of all recently issued patents. The PTO has not yet challenged that decision but it has also not taken action to correct its calculations.

The following survey is intended to get a feel for how the patent community is responding.

Patent Term Adjustment

by Dennis Crouch

vast majority of newly issued patents are granted some amount of patent term adjustment (PTA) — often more than 18 months — added to the end of the patent to account for delays in the issuance of the patent. In the rececent case of Exelixis v. Kappos, the E.D.V.A. district court held that the PTO has been undercalculating PTA for (in my estimate) more than 10% of all recently issued patents. The PTO has not yet challenged that decision but it has also not taken action to correct its calculations.

The following survey is intended to get a feel for how the patent community is responding.

Federal-circuit-ism: Defining the relationship between the Federal Circuit and its Regional Sister Courts

By Dennis Crouch

Revision Military, Inc. v. Balboa Manufacturing Co. (Fed. Cir. 2012)

In the US, federalism is the term that we generally use to highlight the complex relationship between state governments and the federal government. In patent litigation we might use the expanded term federal-circuit-ism to describe the Federal Circuit's relationship with both state courts and the regional circuit courts of appeal. Here, the Federal Circuit applied its principles of federal-circuit-ism to hold that preliminary injunctions in patent cases are patent specific and therefore require application of Federal Circuit law rather than the law of the relevant regional circuit court of appeal.

The Case: Revision's design patents are directed toward protective eyewear for hunting and other gun sports. Patent Nos. D. 537,098 and D. 620,039. Revision sued Balboa and requested a preliminary injunction to stop the ongoing alleged infringement. After a hearing, the district court sided with Balboa – holding that Revision had not provided a "clear and substantial" likelihood of success on the merits as required under the Second Circuit law of preliminary injunctive relief. The Federal Circuit has an easier standard for approving preliminary relief in patent cases – requiring only a preponderance of the evidence – and the lower court erred in not applying that standard.

112912_0502_Federalcirc1 112912_0502_Federalcirc2

The district court found that the patentee's infringement case lacked sufficient merit to meet the "clear and substantial" standard. On remand, the lower court will be asked to decide whether it meets the Federal Circuit's lower standard.

= = = = =

While the appellate court does a fine job of criticizing the district court judgment, one interesting optical mote in Judge Newman's written opinion is that it fails to mention the leading Supreme Court case on injunctive relief, eBay v. MercExchange. That case is important here. A major element of eBay is the Supreme Court's suggestion that the law of injunctive relief in patent cases should be the same law that is applied in other areas of law.

According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. . . . These familiar principles apply with equal force to disputes arising under the Patent Act. As this Court has long recognized, "a major departure from the long tradition of equity practice should not be lightly implied." Nothing in the Patent Act indicates that Congress intended such a departure.

Federal Circuit precedent on applying its own law to preliminary injunction standards reaches back at least to Hybritech Inc. v. Abbott Labs., 849 F.2d 1446 (Fed. Cir. 1988). In that case, the Federal Circuit held that its own law (rather than that of a regional circuit) controls the grant or denial preliminary injunctions. In my view, eBay places this notion in serious question.

= = = = =

The second half of the opinion looks at the methodology for judging infringement. Here, the appellate court criticized the lower court's decision for unduly focusing on individual elements that "stand out as dissimilar" rather than how those differences would impact an ordinary observer considering the design as a whole and its similarity to the accused device and with reference to the closest prior art.

USPTO Director Kappos will Leave in January 2013

by Dennis Crouch

112612_1747_USPTODirect1A source at the USPTO has confirmed that the David Kappos will step down from his post as USPTO Director in late January 2013 – concluding four years as the US Undersecretary of Commerce for Intellectual Property and the President's chief advisor on intellectual property matters. Kappos will be remembered for guiding the America Invents Act through Congress and an intense focus on practical implementation of the new provisions. Kappos has pushed a paradigm shift that focuses on mechanisms for improving patent quality by working with applicants rather than against applicants. This approach and his understanding of the business of patent law has allowed Kappos to remain well respected amongst patent attorneys and intellectual property professionals throughout a turbulent four year term.

In an effort to eliminate the patent prosecution backlog, Kappos has led the charge to greatly increase the number of patent examiners over the past two years. During this time, the number of examiners has swelled to over 8,000 – a more than 30% increase from two years before. A future concern will be legacy problems of overstaffing once the backlog has been sufficiently reduced.

USPTO Deputy Director Teresa Stanek Rea is in position to assume the role of acting Director. There is a strong likelihood that she will be nominated to more permanently fill the post.

Congratulations to Director Kappos. You will be missed.

Two Minute Survey:

Provisional Patent Applications as a Flash in the Pan: Many are Filed and Many are Abandoned

By Dennis Crouch

Provisional patent application (PPA) filings continue to rise with over 160,000 filed in FY2012. Despite the relatively large number of filings, more than half of these applications are abandoned without ever reaching the non-provisional application stage. And, it appears that this rate-of-abandonment is growing. At the same time (and because of the growing absolute number of provisional filings), a larger percentage of non-provisional applications claim priority to a provisional filing than ever before.

The chart above shows the number of provisional patent applications filed each fiscal year for 1995-2012. 1995 is a partial year because provisional patent applications were created as an option as part of the 1995 GATT Uruguay Round implementation and only became available mid-year. Since then, over 1.7 million provisional applications have been filed. A provisional application is essentially a one-year place-holder offering no rights other than the filing-date priority claim. During that year, the USPTO ignores the application until the applicant takes some additional step – typically filing a non-provisional application or an international PCT application. At the end of the year, the provisional application is automatically abandoned. [But see, two year provisional].

By design, the vast majority of provisional patent applications are filed on US-originated inventions.

For most, provisional applications are seen as a low-cost mechanism for claiming a priority date and for delaying the eventual higher cost of drafting and filing a non-provisional application. Others (especially those in the pharmaceutical industry) use provisional applications as a way to shift the patent term back by one year.

The cost-savings is quite apparent once you consider the reality that most provisional applications are abandoned and never result in a non-provisional application. One problem with the cost-savings approach is that provisional applications only serve their purpose if they include a sufficient disclosure. In a small study of provisional applications, I found around 35% do not include even a single claim, and about 15% are essentially a stack of presentation materials.

The large number of abandoned provisional applications leads to several important results. First, the two-step filing process likely helps applicants do a better job of weeding out lower-quality inventions by the time examination begins. On the flip side, more weeding is probably necessary because the low cost and formality of provisional applications likely induce the filing of more weeds. Second, because the USPTO never makes-public the non-relied-upon applications, hundreds of thousands of patent applications are kept secret and their disclosures never made public. Although the information may still be useful for the applicant as a trade secret, the abandonment most likely means that the idea has been shelved and likely lost.

Director Kappos’s Speech on Software Patents, the PTO, and Innovation

By Jason Rantanen

Last week, Director of the USPTO David Kappos delivered a keynote address to the Center for American Progress that focused on software patents and the smartphone "patent wars."  The speech is noteworthy for the Director's strong defense of software patents. The entire speech is worth reading – here are a few excerpts to induce you to read the full speech:

Software patents, like all patents, are a form of innovation currency. They are also ecosystem enablers, and job creators. The innovation protected by software patents is highly integrated with hardware. All of it must remain eligible for protection. The current software patent “war” is hardly the first patent war—and unlikely to be the last in our nation’s patent history. Whenever breakthrough technologies come onto the scene, market players find themselves joined in the marketplace by new entrants. The first instinct of the breakthrough innovators is to bring patents into play. This is not only understandable, it is appropriate. Those who invest in breakthrough innovation have a right to expect others to respect their resultant IP. However, in the end, as history has shown time and time again, the players ultimately end up agreeing to pro-consumer solutions via licenses, cross-licenses or joint development agreements allowing core technologies to be shared.


So does that mean we’re done? End of speech? Should we just accept the problems, given the importance of the innovation and the illogic of discriminating against great technology that happens to be implemented in software? Of course not. The right point of inquiry is quality. By getting that right, we grant patents only for great algorithmic ideas worthy of protection, and not for everything else. This administration and its innovation agency understand that low-quality patents do no good for anyone. Low quality patents lead to disputes, uncertainty, and lost opportunity. Quality is central to our mission. All of this especially for software.

So we’ve been working on the underlying drivers for software patent quality from the beginning. Knowing that you get what you measure, starting in the summer of 2009 we assembled a taskforce to devise a comprehensive new set of quality metrics. That work culminated in 2010, when we rolled out the most complete, broad, objective patent quality measurement system on the planet – seven metrics, which we report eagerly to the public. The Lexus of quality metrics. And what do those metrics show? Patent quality isn’t broken at all. In fact, our decisions on both allowances and rejections correctly comply with all laws and regulations over 96 percent of the time.


You know, the history of software patents is not a perfect one, although things are improving. Some of the most troublesome patents have expired; others can be challenged with new post-grant proceedings; and newer patents are quantifiably clearer, and aligned with current legal standards. But it’s important to note that, during the so-called smartphone patent wars, innovation continues at breakneck pace. A system like ours, in which innovation is happening faster than consumers can keep up, cannot fairly be characterized as “broken”. Nor can it be said that the U.S. is just a receiver of all this innovation. Most of the innovation is taking place right here. Broken? What?

The fact is, the explosion of innovation—and follow-on litigation—that we see across consumer electronics hardware and software is a direct reflection of how our patent system wires us for innovation. It's both natural and reasonable that in a fast-growing, competitive market, innovators would seek to protect their breakthroughs using our patent system.

The full version of Director Kappos's speech is available here:



Guest Post: Territorial Thinking Misguides on International Exhaustion Doctrine

Guest Post by John Rothchild, Associate Dean and Associate Professor at Wayne State University Law School. Rothchild's 2011 article Exhausting Extraterritoriality is published in the Santa Clara Law Review.

The Supreme Court granted certiorari in Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697, to settle the question whether exhaustion of a copyright owner's public distribution right results from a first sale of a copy or phonorecord that was manufactured, with the authorization of the copyright owner, outside the territorial limits of the United States. The outcome of the case, however, could have broader ramifications: in particular, it could bear upon an analogous international exhaustion issue with respect to patents.

Under § 109(a) of the Copyright Act, a copyright owner's right to control public distribution of a physical embodiment of a copyrighted work — such as a book, a music CD, the label attached to a shampoo bottle, or a brand-signifying logo engraved on the back of a watch — is exhausted once there has been an authorized first sale of that object. In international contexts application of this rule presents some special issues. One of those is how the first-sale rule interacts with the copyright owner's right to control importation of copies of her work under § 602(a) of the Copyright Act. The Supreme Court largely resolved that issue in Quality King Distributors, Inc. v. L'anza Research Int'l, Inc., 523 U.S. 135 (1998), holding that the first-sale rule is a limitation on the importation right. The remaining issue, and one with enormous practical consequences, is how the first-sale rule applies to copies that are manufactured abroad. The issue turns on the interpretation of critical language in § 109(a), which provides that the distribution right is exhausted only with respect to a copy "lawfully made under this title." This is the issue facing the Court in Kirtsaeng, which was argued on October 29.

One possible outcome of Kirtsaeng is a rejection of the holding of the court below that "lawfully made under this title" means "made, with the authorization of the copyright owner, at a location within the territorial limits of the United States." The petitioner, who invoked (so far unsuccessfully) the first-sale rule in an effort to justify his unauthorized importation and resale in the United States of textbooks manufactured and first sold abroad, urges that the Court instead interpret that language along the lines suggested by Judge Murtha's dissent in the case below, as meaning something like "made with the authorization of the U.S. copyright holder." See John Wiley & Sons, Inc. v. Kirtsaeng, 654 F.3d 210, 226 (2d.Cir.2011) (Murtha, J., dissenting). Following such an interpretation, "lawfully made under this title" would not speak to the geographical provenance of the copy, but would refer only to whether the making of the copy was permissible as judged by the Copyright Act's allocation of rights.

Such a holding would deflate the mistaken view that giving legal significance, with respect to the operation of a U.S. law, to conduct occurring outside the United States inevitably amounts to impermissible extraterritorial application of that law. This view underlies the holdings of some courts that a sale of a patented article that occurs outside the United States does not exhaust the patentee's rights with respect to that article. The Court's resolution of this issue in Kirtsaeng therefore could have a significant impact on international exhaustion of patent rights.

A misguided application of the rule that the patent and copyright laws do not apply extraterritorially underlies holdings of the courts in both of these subject matters. Consider copyright first. In the first case addressing international exhaustion, a federal district court interpreted "lawfully made under this title" as if it read "lawfully made within the United States," concluding that no exhaustion occurs by virtue of the sale of copies that were manufactured outside the United States. It justified this result as necessary to avoid extraterritorial application of the Copyright Act, explaining: "The protection afforded by the United States Code does not extend beyond the borders of this country unless the Code expressly states." Columbia Broadcasting System, Inc. v. Scorpio Music Distributors, Inc., 569 F. Supp. 47, 49 (E.D.Pa.1983), aff'd mem., 738 F.2d 424 (3d Cir.1984). The Ninth Circuit subsequently arrived at the same outcome in several cases of its own, which were likewise predicated on an overly expansive view of what constitutes extraterritorial application of a statute. See Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982, 987 (9th Cir.2008) ("applying § 109(a) to foreign-made copies would violate the presumption against the extraterritorial application of U.S. law"), aff'd by an equally divided Court, 131 S.Ct. 565 (2010).

That same mistaken view of what constitutes extraterritorial application of U.S. law underlies the doctrine that a first sale abroad cannot exhaust a U.S. patent. The Federal Circuit adopted this doctrine in the Jazz Photo case, setting it forth as if it were self-evident but offering no justification for it. See Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094, 1105 (Fed.Cir.2001) (exhaustion occurs "when a patented device has been lawfully sold in the United States"). Four years later, in a follow-on case, the Federal Circuit court offered this rationale for its holding in Jazz Photo:

[T]his court in Jazz stated that only [single-use cameras] sold within the United States under a United States patent qualify for the repair defense under the exhaustion doctrine. Moreover, Fuji's foreign sales can never occur under a United States patent because the United States patent system does not provide for extraterritorial effect.

Fuji Photo Film Co., Ltd. v. Jazz Photo Corp., 394 F.3d 1368, 1376 (Fed.Cir.2005).

If the Supreme Court decides Kirtsaeng in favor of the interpretation of "lawfully made under this title" urged by the petitioner and dissenting Judge Murtha, this rationale goes out the window. In other words, the Court will have declared that it is not an extraterritorial application of the Copyright Act for the scope of a copyright owner's public distribution right to depend on the transfer of ownership of an article that was manufactured outside the territorial limits of the United States. That conclusion would likewise undermine the rationale of the Federal Circuit's rejection of international exhaustion in the patent context, since it would then not be an extraterritorial application of the Patent Act for exhaustion to depend on a first sale that occurred abroad. One court has declared that the Jazz Photo rejection of international patent exhaustion has already been overruled sub silentio by the Supreme Court's decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008). See LG Electronics, Inc. v. Hitachi, Ltd., 655 F. Supp. 2d 1036, 1044-45 (N.D.Cal.2009). The outcome of Kirtsaeng could resolve the issue.

Rejection of a geographical limitation on what conduct results in exhaustion of rights would be a welcome return to first principles under both patent and copyright law. The relevant first principle is that the owner of an intellectual property right, whether a patent or a copyright, is entitled to only a single reward attributable to the sale of an article that embodies the protected intellectual property: "[T]he ultimate question embodied in the 'first sale' doctrine [is] 'whether or not there has been such a disposition of the article that it may fairly be said that the patentee [or copyright proprietor] has received his reward for the use of the article'. . . ." (third alteration in original) (quoting United States v. Masonite, 316 U.S. 265, 278 (1942)). Platt & Munk Co. v. Republic Graphics, Inc., 315 F.2d 847, 854 (2d Cir. 1963). An overly expansive application of the rule that the patent and copyright laws do not have extraterritorial effect has allowed patent and copyright owners to extract greater rewards from their intellectual property rights than Congress intended.


By Jason Rantanen

A few months ago Polk Wagner, Lee Petherbridge, and I circulated an early draft of our empirical study on the characteristics of patents that the Federal Circuit has held to be unenforceable due to inequitable conduct.  In response to comments, including many from this site, we have substantially revised the piece (now called simply Unenforceability). We've also put together a 4 page Research Report version that summarizes the key findings.  Here's the abstract:

There has been no systematic attempt to determine whether the patent doctrine of inequitable conduct is or is not working as theorized. This study fills that gap. We find that patents held unenforceable have clear hallmarks of risky prosecution behavior, such as longer pendency and fewer disclosures of prior art as compared to other types of litigated patents. The results indicate that the doctrine is likely to be operating better than the conventional wisdom would suggest.

The shorter Research Report is available here.   For those interested in the full-length version, it can be downloaded here. As always, comments are welcome.

Ritz Camera v. SanDisk: Expansion of Standing for Walker Process claims

By Jason Rantanen

Ritz Camera & Image, LLC v. Sandisk Corporation (Fed. Cir. 2012) Download 12-1183
Panel: Bryson (author), Dyk, and Moore

In Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the Supreme Court held that a party who uses a patent procured through intentional fraud on the PTO to obtain or preserve a monopoly may be subject to antitrust liability.  Ritz Camera addresses an important standing issue for Walker Process claims: whether a direct purchaser of goods covered by the patent has standing to bring a Walker Process antitrust claim against the patentee even if the purchaser would not be entitled to seek declaratory relief against the patentee under the patent laws.  In an opinion authored by Judge Bryson, the court held that such direct purchasers do have standing. 

Background: SanDisk is a major producer of NAND flash memory; allegedly, SanDisk controls about three-quarters of the market.  It holds several patents relating to the memory products under which it sells and licenses flash memory technology.  Ritz is a retailer that purchases flash memory products from SanDisk and its licenses. 

In 2010, Ritz filed suit alleging that SanDisk had violated Section 2 of the Sherman Act.  Ritz contended that SanDisk had fraudulently procured two patents central to its flash memory business by failing to disclose known prior art and making affirmative misrepresentations to the PTO, that SanDisk established its monopoly position by enforcing those patents and by threats of enforcement, and that these actions caused direct purchasers to pay supra-competitive prices for NAND flash memory products.  SanDisk sought to dismiss the complaint on the ground that Ritz lacked standing, an argument that the district court rejected.  The appeal arrived at the Federal Circuit on a petition for interlocutory review.

Antitrust Standing Even When No Patent Law Standing: The sole question at issue was:

Whether direct purchasers who cannot challenge a patent's validity or unenforceability through a declaratory judgment action (have not been sued for infringement, and so cannot assert invalidity or unenforceability as a defense in the infringement action) may nevertheless bring a Walker Process antitrust claim that includes as one of its elements the need to show that the patent was procured through fraud.

Slip op. at 5.  The Federal Circuit held that direct purchasers do have such standing and, more broadly, that antitrust standing is not limited by the rules of patent standing.  Rather, "[t]he “full play” of antitrust remedies encompasses the standing requirements that apply in the antitrust setting,… including the recognition that direct purchasers are not only eligible to sue under the antitrust laws, but have been characterized as “preferred” antitrust plaintiffs." Slip Op. at 6 (internal citations omitted).  In Walker Process itself, "[t]he Court did not suggest that the class of “those injured by any monopolistic action” should be limited to those within that class who would have standing to bring an independent challenge to the patents at issue."  Id.

In reaching this conclusion, the court expressly rejected SanDisk's argument "that allowing direct purchasers to bring Walker Process claims would allow an intolerable end-run around the patent laws because parties unable to pursue invalidity claims could achieve the same result by way of a Sherman Act claim."  Slip Op. at 9.  The court noted that a Walker Process claim "is a separate cause of action from a patent declaratory judgment action."  Id. It is governed by antitrust law, and the patent issue is only one of several elements that must be proven by the claimant.

Nor did the court agree that the result here "would trigger a flood of litigation and stem innovation," particularly given the demanding proof requirements of a Walker Process claim.  Walker Process claims involve patents procurred through intentional fraud, which "cannot well be thought to impinge upon the policy of the patent laws to encourage inventions and their disclosure."  Id., quoting Walker Process, 382 U.S. at 176 (Harlan, J., concurring). 

Note: Judge Bryson recently annouced his move to senior status, effective January 7, 2013.  He has written a number of significant opinions over his tenure, including Phillips v. AWH.  Once he assumes senior status, he will have a likely have a reduced caseload and will no longer be eligible to participate in en banc decisions unless he is part of the original panel that heard the case.  I will certainly miss reading his opinions as often as I was previously able.

Guest Post: The RCE Cliff

Guest post by Dr. Kate S. Gaudry of Kilpatrick, Townsend & Stockton LLP and Dr. Joseph J. Mallon of Knobbe, Martens, Olson & Bear LLP. 

A recent PatentlyO posting noted that the growth in Request for Continued Examination (RCE) filings has leveled off.  It appears that RCE filings have become less desirable, at least in part because the PTO is now responding to them much more slowly.  Changes to the "count" system and RCE docketing implemented by the PTO in 2009 have resulted in significant increases in both the RCE backlog and the pendency from RCE filing to the next Office Action.  The PTO dashboard shows a near doubling in two years, with the RCE backlog increasing from under 50,000 in October 2011 to over 95,000 in September 2012, and pendency from RCE filing to the next Office Action going from an average of 2.7 months in October 2011 to 5.9 months in September 2012 (see and  The current 5.9 month pendency from RCE filing to the next Office Action may not seem particularly long to many. However, anecdotally, we are aware of an increasing number of cases in which the pendency is over two years, suggesting a significant increase in post-RCE-pendency variability as well.

To quantify and expand on our anecdotal observations about the increase in pendency, we turned to PatentCoreTM, which is a database that provides a variety of statistics derived from file histories of more than 6 million applications. PatentCoreTM provided us with a list of all utility applications in each of five art units (1618 – Organic compounds; 1644 – Drug, bio-affecting and body treating compositions; 2161 – Data processing: database and file management or data structures; 2822 – Semiconductor device manufacturing: process; and 3622 – Data processing: financial, business practice, management or cost/price determination) in which an RCE was filed between October 1, 2002 and October 1, 2012. For each of these applications, the following information was collected: the date of the RCE, the date of the next PTO action and the type of the next PTO action (Office Action, Notice of Allowance, or Notice of Abandonment). Next-action Notice of Abandonments were rare and seemed to follow unusual fact patterns, so we excluded these cases from our data set.

For each art unit, we asked the following question for each fiscal year (FY) between 2003 and 2012: what percentage of the applications having RCEs filed in the given FY received a next Action (i.e., an Office Action or Notice of Allowance) within 3 months, 6 months, 1 year, 2 years or 3 years from the RCE filing?1

The Figures accompanying this post show the results of our analysis. Each subplot corresponds to a different art unit. The x-data indicates the FY of RCE filings. The y-data (% Examined) indicates the percentage of the applications with RCE filings in the fiscal year that received a next Action within a given time period following the RCE filing. The color of the data symbols indicates the duration of that time period.  Thus, the first red data point in the top graph indicates that, for applications in art unit 1618 for which an RCE was filed in fiscal year 2003, 64.6% of those applications received an Office Action or Notice of Allowance within 3 months from the RCE filing. Not surprisingly, for a given fiscal year the percentage examined increases as longer durations are considered.

Of note, however, is how dramatically the data changes across fiscal years. For example, averaging across the five art units, the percentage of applications examined within three months in FY 2012 was less than half (43.7%) the percentage of applications examined within three months in FY 2003. The trends are most striking in the business-method art unit (3622) and the chemistry art unit (1618). For example, in FY 2011, only 52% (art unit 3622) and 25% (art unit 1618) of RCE filings received a next Action within two years of the RCE filing. 

Ideally, the PTO will address this type of art unit-specific pendency data in its approach to tackling the increasing RCE-backlog problem. In the meantime, practitioners should be prepared to adjust prosecution strategies in view of the trends. In instances in which fast patent procurement is desirable, several options exist to attempt to avoid potential long RCE backlogs. First, in view of this data, practitioners may wish to be more conscientious about how they respond to first Office Actions (e.g., entering amendments less cautiously).

Second, practitioners can use services such as PatentCoreTM to review art-unit- or examiner-specific data identifying RCE backlogs and determine whether appealing a rejection is a more desirable (and potentially faster) way to respond to a final rejection as opposed to filing an RCE. Third, practitioners can consider filing a continuation instead of an RCE. Finally, while expensive, the Track One prioritized examination initiative by the PTO provides an opportunity for examination of an application to be accelerated following an RCE filing.

1 For recent years, this query entailed identifying all applications for which sufficient time had passed since the RCE filing to answer the query. For example, if a set of applications had RCE filings in September 2012, it would be too soon to calculate what percentage of these applications received a next Action within 6 months from the RCE filings.

Transocean v. Maersk, Part II: Secondary Indicia of Nonobviousness Outweigh Prima Facie Case of Obviousness

Guest post by Professor Lucas Osborn, Campbell University School of Law.  Before joining the academy in 2009, Professor Osborn worked on the Transocean case while at Fulbright & Jaworski, which represented Transocean.

Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc. (Fed. Cir. 2012)

Panel: Prost, Wallach, Moore (author)

This is the second Federal Circuit opinion in this litigation.  Jason Rantanen wrote about the first opinion in 2010.  The patented technology involves offshore deepwater drilling vessels have "dual activity" capability, which is roughly a vessel with two advancing stations that can cooperate together to drill and finish a single oil well at the ocean floor.  The technology decreases the time it takes to drill and complete an oil well compared to the prior art.  Since offshore drilling rigs rent for around $500,000 a day, every time savings counts.  In Transocean I, the Federal Circuit overturned the district court's summary judgment finding of obviousness, noting that although Maersk provided prior art that made a prima facie case of obviousness, the summary judgment was improper in view of Transocean's significant secondary indicia of nonobviousness.  On remand, the trial jury found Transocean's patents were not obvious and awarded Transocean $15,000,000 in damages.  The district court granted Maersk's motion for JMOL notwithstanding the jury's verdict.

Obviousness – Secondary Considerations and Weighing the Strength of the Prima Facie Case

In Transocean I, the Federal Circuit found Maersk had made a prima facie case of obviousness based on two prior art references, and thus the remand was focused on secondary indicia of nonovbiousness.  On remand, the parties fought over whether the jury could consider the two prior art references in addition to the secondary indicia evidence.  Transocean, apparently believing the prima facie case was weak, wanted the jury to consider the two prior art references for two purposes: (1) to determine whether the references taught each limitation of the claims and provided a motivation to combine, and (2) to consider the strength of the prima facie case.  Maersk opposed both, insisting that the only issue was the secondary indicia of non-obviousness.  The district court allowed the jury to review the prior art references for both purposes.  The Transocean II panel said it was error to allow the jury to reconsider whether the references taught each limitation of the claims and provided a motivation to combine: because that issue was decided in Transocean I, it was the "law of the case."  On the other hand, the court held it was not error to allow the jury to weigh the strength of the prima facie case together with the objective evidence of nonobviousness.

This presents a nice strategy for patentees to (essentially) re-litigate the prima facie obviousness determination.  While the jury technically does not get to decide whether a prima facie case of obviousness exists, it might be difficult for jurors to avoid forming their own opinion about the prima facie obviousness issue if it is allowed to learn about the prior art in detail. 

On the ultimate issue of nonobviousness, the court reinstated the jury verdict as supported by substantial evidence.  The evidence of nonobviousness included evidence of commercial success (including customers willing to pay a premium or even requiring rigs with the patented features), industry praise and unexpected results, copying (including by Maersk itself), industry skepticism, licensing, and long-felt but unsolved need.  The court concluded that "Few cases present such extensive objective evidence of nonobviousness, and thus we have rarely held that objective evidence is sufficient to overcome a prima facie case of obviousness. . . . This, however, is precisely the sort of case where the objective evidence establishes that an invention appearing to have been obvious in light of the prior art was not."

The panel also held that substantial evidence supported the jury's finding of enablement. 

Infringement and Damages – Option to Modify to Avoid Infringement

The court also reiterated its Transocean I holding that Maersk may have infringed even though its original contract for "sale" of the rig contained an option to modify the rig before delivery if any patent infringement was likely.  The jury found that Maersk committed infringement when it "offered to sell" and "sold" its rig to Statoil.  The contract evidencing the sale/offer expressly indicated that Maersk could modify the final rig design based on the outcome of then-pending district court litigation between Transocean and a third party based on the same patents.  Before actually delivering the rig, Maersk modified it to avoid infringement.  But the Federal Circuit reiterated that the option to modify and subsequent modification could not save Maersk.  The jury found that the specifications of the rig offered and sold met all the claim limitations.  Post-offer/sale modifications did not matter even though they occurred before actual delivery.

Moving to damages, the panel reinstated the jury's award, but it was sympathetic to Maersk's apparent good intentions to avoid infringement.  The court stated, "We are sympathetic to Maersk's arguments. It offered drilling services which would use an infringing drill, but expressly reserved the right to modify the drill to avoid infringement. It did then modify the drill prior to delivery to avoid infringement – hence never actually using an infringing dual-activity drill."  Nevertheless, the court held that the $15,000,000 reasonable royalty verdict was supported by substantial evidence. 

What can defendants take away from this?  A contract with an option to modify the product will not avoid infringement.  It would seem defendants in situations like Maersk's (i.e., watching a patent to see if it issues or is held valid) should contract not for an "option" to modify, but for a mandatory modification to avoid infringement upon the triggering event (patent issuance or litigation upholding the patent's validity).

The Ignored Issue – When is a "Lease" a "Sale" Under Section 271?

As in Transocean I, the court did not reach a potentially dispositive issue that the parties strongly contested at times in the litigation.  Section 271(a) provides that "sales" and "offers to sell" can be acts of infringement.  Here, however, Maersk did not offer to sell or sell its drilling rig.  Rather, it "leased" and offered to "lease" its rig to a third party.  While previous cases have found that some leases can be tantamount to a sale (and thus infringe under 271), those cases primarily involved the transfer of property indefinitely or for its entire useful life (think of your typically software "license").  See Minton v. Nat'I Ass'n. of Secs. Dealers, Inc., 336 F.3d 1373, 1378 (Fed. Cir. 2003).  This case presented a closer issue:  Here, Maersk argued that it (1) the lease did not last for the entire useful life of the drilling rig, and (2) the contract was for the provision of drilling services and at all time Maersk maintained possession of the rig.  The court ignored this issue and, as it did in Transocean I, referred to the transaction as a "sale" without comment.   

From an economic perspective, "sales" and "leases" would seem to present the same harm to the patentee.  On the other hand, the statute only mentions sales, not leases.  For whatever reason, the Federal Circuit didn't want to touch this issue.  Maybe we will have to wait for Transocean III to know the answer?

Supplemental Examination: Looking at the First Supplemental Examination Request

By Dennis Crouch

Supplemental examination has been seen by many as a complete replacement for the filing of ex parte reexaminations. The process offers an added level of legal benefits to patentees for a relatively small additional cost and no change to the timing structure. The America Invents Act of 2011 (AIA) created the supplemental examination option but delayed implementation until the one-year anniversary of AIA enactment in order to allow the USPTO sufficient time to finalize its procedures and prepare for the influx of supplemental examination requests. Thus, on September 16, 2012 (the one-year anniversary) supplemental examination became an option available to all patent owners.

Supplemental examination requests become public as soon as they are given a filing date by the USPTO. However, prior to today, no supplemental examination request has been given a filing date. The first public request is 96/000,007, filed on October 31, 2012 by a company known as "Merchandising Technologies" asking for supplemental examination of its U.S. Patent No. 7,909,641 that claims a cable-management system that swivels, extends, and retracts. The product is used for electronic device displays in retail stores such as Best Buy and Target. Earlier this year, a competitor sued MTI asking for a declaratory judgment of noninfringement, invalidity and unenforceability. Invue Security Products Inc v. Merchandising Technologies, Inc,.C. Docked No. 3:12cv88 (filed February 9, 2012, W.D. N.C). The judge dismissed that case without prejudice for lack of case or controversy. If the same case arises again, this supplemental examination should prevent a recurrence of the unenforceability claim.

Now, it appears from the serial number given to this particular supplemental examination number that it was the seventh one filed by now – at the two month point – we may be up to ten on file. In its final rules, the USPTO had estimated a filing rate more than twenty-times this. See Changes To Implement the Supplemental Examination Provisions of the Leahy-Smith America Invents Act and To Revise Reexamination Fees; Final Rule, 77 Fed. Reg. 48827 (2012) (Estimating 1,430 supplemental examination requests per year). The seemingly low number of actual filings may be due, in part, to the glut of ex parte requests filed just before the seven-fold fee increase in September 2012. Other explanations involve the high cost of supplemental examination; novelty of the program; and weakening of the inequitable conduct doctrine by the courts.

A second concern is why this supplemental reexamination is the first to publish. I have communicated with attorneys who filed some of the non-published cases. Apparently many of those are being rejected for failing to comply with the supplemental examination rules. I don't have any further information at this point on why those were rejected. Unfortunately we may never have that information if the PTO continues its practice of providing no public access to supplemental examinations prior to awarding a filing date.

The petition filed in this case is quite simple:

  • $21,260 filing fee ($16,120 reimbursed if there is no reexamination ordered);
  • Submission of seven prior art documents;
  • An explanation of what is provided by the prior art with relation to the patent and a claim chart showing that relationship; and
  • An explanation of how the claims are still valid over the prior art.

The request itself is six pages long. [Download 96000007]. There is no admission that these references were improperly withheld during prosecution since that statement is not called for even if it were true.

Now, the USPTO has until December 31, 2012 to determine whether the identified references raise a substantial new question of patentability and, if so, order a reexamination. If not, the PTO will issue the first supplemental examination certificate.

Director of the Silicon Valley United States Patent & Trademark Office

The USPTO continues to move toward opening its full complement of four satellite offices in Detroit, Dallas, Denver, and San Jose. Detroit is up and running with about ½ staff of 50 patent examiners and 10 administrative patent judges.

Today, the PTO announced that Google deputy GC Michelle Lee is taking on the role of Director of the Silicon Valley United States Patent and Trademark Office. Lee has been a leader of the Silicon Valley patent bar for a number of years and is a current member of the USPTO’s Patent Public Advisory Committee (PPAC).

This is another excellent hire by the USPTO.