October 2013

Intellectual Ventures and its 80,000 Patents

by Dennis Crouch

On Friday, Greg Gorder led a great discussion here at the University of Missouri School of Law as part of our symposium on Resolving IP Disputes. Gorder is a co-founder of the patent-law giant Intellectual Ventures. The focus of Gorder’s talk was on incremental invention and the “invention gap” associated with most products on the market. Intellectual Ventures basically defines this invention gap as the number of patents that a company is infringing when it makes or sells its products. The key figure that I walked away with was 80,000. Intellectual Ventures now owns over 80,000 patents and pending patent applications.

Later this week we should have video of the conference available for viewing.

While Mr. Gorder was speaking here at Mizzou, his company attorneys were busy filing a host of patent infringement lawsuits against the mobile carrier industry, including AT&T, Leap Wireless, Nextel, T-Mobile, and US Cellular. The patents in suit include U.S. Patent Nos. 6,640,248; 5,602,831; 6,023,783; 6,952,408; 6,370,153; 5,963,557; 8,310,993; 7,269,127; 7,848,353; 8,396,079; and 7,787,431. In typical aggregator form, the patents come from a diverse array of sources including Malibu Networks (a failed company with “promising technology” that “entered the market about two years too early”); Seiko (an ongoing company that wanted to monetize its invention surplus); California Institute of Technology (a large non-practicing entity); AirNet Communications; John Eng; IPWireless; Georgia Tech; and Neocific.

Supreme Court Action Today

By Dennis Crouch

Supreme Court Action on 10/7/2013

Extraterritorial Application of US Patent Law: The Supreme Court has issued an invitation to the Solicitor General to file the Views of the Obama Administration (CVSG) in Maersk Drilling USA, Inc. v. Transocean Offshore Deepwater Drilling, Inc., Sct. No. 13-43 (2013). The focus of the case is location – and, what is meant by an “offer to sell . . . within the United States” under 35 U.S.C. § 271(a). The Federal Circuit held that the actual location of the offer is immaterial so long as the offer contemplated performance within the United States.

Subject Matter Eligibility: The Supreme Court has denied certiorari in the § 101 case challenging PerkinElmer’s patented “method for determining whether a pregnant woman is at an increased risk of having a fetus with Down’s syndrome.” Intema Ltd. v. PerkinElmer, Inc., Supreme Court No. 12-1372. The case with a much greater shot is Alice v. CLS Bank and perhaps its companion WildTangent v. Ultramcercial. Briefing of the petition continues in those cases.

False Marking: The Supreme Court has denied certiorari in PubPat’s False Marking case. PubPat had challenged the AIA’s retroactive rejection of non-competitor qui tam suits for false marking. Public Patent Foundation, Inc. v. McNeil-PPC, Inc., Sct. No. 13-161.

Prior Art Presumed Enabling: The Supreme Court has denied certiorari in the Finjan’s challenge to the PTO’s presumption that prior art is enabling. Finjan, Inc. v. U.S. Patent and Trademark Office, Sct. No. 12-1245.

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Patent Cases Where Petition for Certiorari has been Filed:

Limelight v. Akamai, Sct. No. 12-786, is still pending at the Supreme Court and awaiting comments from the US Solicitor General (CVSG) before the court decides whether to grant the petition for writ of certiorari. The question presented in that case is whether indirect infringement (inducement) requires underlying direct infringement by a single actor. The Federal Circuit says “no.”

Hyundai Motor America, Inc. v. Clear with Computers, LLC, Sct. No. 13-296. This pending case is a follow-up to the Supreme Court’s 2011 decision in Microsoft v. i4i where the court held that invalidity defenses must be proven with clear and convincing evidence. That decision included a concurrence by Justice Breyer indicating that questions of law (such as obviousness) need not be proven with clear and convincing evidence. “The question presented is whether, following i4i, a district court may … instruct a jury to apply the heightened ‘clear and convincing’ standard not only to disputed factual aspects of an invalidity claim, but also to the legal aspects of such a claim – including the ultimate question of a patent’s invalidity?”

The petition for writ of certiorari in Sony v. 1st Media, Sct. No. 12-1086, is fully briefed but has not yet been decided. That case involves the extent of district court discretion in evaluating the equitable doctrine of patent unenforceability. The case largely challenges the strict requirements of Therasense.

In Fox Group, Inc. v. Cree, Inc., Sct. No. 12-1378, the asserted patent was found invalid under 35 U.S.C. § 102(g)(2) since the subject matter of the patent had previously been invented. The statute only works if the prior inventor did not abandon, suppress, or conceal the prior invention and here the prior inventor concealed how to make the invention, did not commercialize it, and did not apply for a patent. However, the prior inventor did disclose the fact of the invention and publicly offered some non-enabling clues to the invention. Although briefing is now complete, the Supreme Court took no action in this case yet.

Nautilus v. Biosig is pending at the Supreme Court and awaiting a response from Biosig. The case questions whether the “Insolubly Ambiguous” standard for indefiniteness is overly strict.

Another pending petition is Nokia v. v. International Trade Commission, Sct. No. 12-1352. The case focuses on patent enforcement entities and the “domestic industry” requirement for USITC jurisdiction.

Organic Seed Growers and Trade Ass’n v. Monsanto Co, Sct. No. 13-303, is also pending as a petition for writ of certiorari. The case argues that organic farmers have jurisdiction to challenge Monsanto’s GMO seed patents.

Saffran v. Johnson & Johnson, Sct. No. 13-405. In this case, the patentee essentially asks the Supreme Court to decide the issue before the en banc Federal Circuit in Lighting Ballast Control. I.e., “Whether the Federal Circuit should have given deference to the district court’s factual findings in construing the patent claims.” This petition is something of a place-holder to give the patentee time to see the outcome of Lighting Ballast.

Artesyn Technologies, Inc. v. SynQor, Inc., Sct No. 13-375. In this pending case, the losing defendant has asked that the Supreme Court tell the Federal Circuit to “Follow KSR” and also “Follow Global-Tech” rather than recreating the formal TSM test and allowing recklessness serve as proof of knowledge for induced infringement. In the similar pending petition of Arthrex, Inc. v. Smith & Nephew, Inc., Sct. No. 13-290, the petitioner asks for a further definition of “willful blindness” for inducement.

Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., Sct. No. 13-269. This damages case focuses on when lost-sales outside of the US can be captured under US law. Here, the patentee argues that those sales should be accounted-for when they are “direct and foreseeable result of patent infringement inside the United States.” Briefing is ongoing at the petitions stage.

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Patent cases where the Supreme Court has granted certiorari and will be hearing the case this term:

Medtronic Inc. v. Boston Scientific Corp., Sct. No. 12-1128 (Does a Declaratory Judgment plaintiff who is also an ongoing licensee of the patent have the burden of proving non-infringement?).

Highmark Inc. v. Allcare Health Mgmt. Sys., Sct. No. 12-1163 (When must deference be given to a lower court judgment regarding an exceptional case finding under §285?).

Octane Fitness, LLC v. Icon Health and Fitness, Inc., Sct. No. 12-1184 (What is the proper definition of an “exceptional case”?).

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Hal Wegner follows these developments closely and his Top-Ten lists are available through the LAIPLA website: http://www.laipla.net/hal-wegners-top-ten-patent-cases/

Patent Law Federalism (Part II): Protecting the Free Speech Interest of Patent Owners to Conduct an Out-of-Court Patent Enforcement Campaign

By Dennis Crouch

Activision TV v. Pinnacle Bancorp (D.Neb 2013)

In a second opinion in as many weeks, Federal Judge Bataillon (D.Neb.) has again ruled against the Nebraska State Attorney General and the state’s campaign against patent enforcement activities. [Link to Decision] Activision holds several patents that essentially cover the operation of a digital menu board with photographs. See U.S. Patent Nos. 8,330,613 and 7,369,058. And the company has sued a host of defendants and has sent out cease-and-desist letters to an even larger group, including some in Nebraska.

In response to those enforcement activities, the Nebraska Attorney General sent a letter to Activision’s litigation counsel ordering the firm to “immediately cease and desist the initiation of any and all new patent infringement enforcement efforts within the State of Nebraska pending the outcome of [the Attorney General] office’s investigation.”

In the first opinion, Judge Bataillon held that the firm could continue to represent Activision in Federal Court patent litigation by enjoining enforcement of that aspect of the Attorney General’s order. Following that order, Activision pressed on – asking the court to also enjoin the entire Attorney General order so that the firm could continue to pursue new out-of-court enforcement activities – such as contacting infringers and demanding that they pay for licenses. The Court has now sided with the patentee and against the Attorney General – finding that the restriction on enforcement activities likely operate as a prior-restraint on speech in violation of Activision (and its Attorneys) First Amendment rights of Free Speech and their Due Process rights.

The court finds the cease and desist order in this case is akin to a prior restraint. . . . The court finds Activision is likely to win on the merits as there is no claim or evidence to date of bad faith. Further, as there is no claim of bad faith, federal law governing these patents, including sending initial letters to businesses believed to violate a patent owned by Activision, is preempted by the federal government. Also, Activision has a First Amendment right to associate with counsel of its choosing without interference from the state of Nebraska. In addition, the cease and desist order operates in this case as a prior restraint on Activision’s speech and association rights. For these reasons, the court finds Activision is likely to win on the merits. . . .

The court is deeply concerned about the ability of the Attorney General to issue cease and desist orders, prior to the conclusion of the investigation, prior to any negative findings, prior to any hearings, and prior to permitting submission of documents and evidence by the Farney Daniels law firm. On the contrary, the Attorney General sent a request for information to Farney Daniels the same day it sent the cease and desist order, and gave Farney Daniels until August 18, 2013, to respond. Farney Daniels responded, and no further actions have been taken. The inability of Farney Daniels to submit such letters to businesses in Nebraska clearly infringes on the First Amendment rights of Activision to be represented by the counsel of their choice.

This opinion comes as a result of Activision’s motion for preliminary injunction (that has now been granted). Thus, the court found that the patentee was likely to win its case on the merits and that the Attorney General order was causing immediate irreparable harm. Under the laws of Appellate Procedure, the Attorney General has the right to immediately appeal this decision to the Court of Appeals to the Federal Circuit (where he would lose).

An important aspect of this decision is that it is not limited to patent law issues. Rather, the same First Amendment and Due Process claims here would apply any time the Attorney General issues a cease-and-desist order prior to conducting any investigation.

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To be clear, the court did not shut-down the Attorney General’s investigation but instead found that it is improper for the Attorney General to compel silence without even conducting an investigation. “The court notes, there is no doubt the Attorney General generally has the power to investigate activity that it believes violates state law. . . . If … at some point during the investigation evidence supports a claim of bad faith, the Attorney General is free to revisit this preliminary injunction with the court.”

What is an Exceptional Case such that Court Should Award Attorney Fees?

By Dennis Crouch

Earlier this week, I commented on the two attorney-fees cases pending before the US Supreme Court:

  • Octane Fitness, LLC v. ICON Health & Fitness, Inc., Docket No. 12-1184; and
  • Highmark Inc. v. Allcare Health Management Sys., Docket No. 121163.

Both cases stem from the same perspective that the “exceptional case” requirement for attorney fees is too narrowly construed by the courts and especially by the Federal Circuit. See 35 U.S.C. § 285.

I noted in the prior post that the predecessor of Section 285 was first enacted in a 1946 Patent bill. The 1946 law was substantially similar to the current law (enacted in 1952) with the major difference that the 1946 act expressly gave the court “discretion” to award attorney fees to the prevailing party while the 1952 act removed that “discretion” term and instead indicated that the fee may be awarded “in exceptional cases.”

The Senate Report associated with the 1946 statute indicates that the statute is not intended to make fee awards an “ordinary thing in patent suits” but instead to reserve such awards for “gross injustice.”

It is not contemplated that the recovery of attorney’s fees will become an ordinary thing in patent suits, but the discretion given the court in this respect, in addition to the present discretion to award triple damages, will discourage infringement of a patent by anyone thinking that all he would be required to pay if he loses the suit would be a royalty. The provision is also made general so as to enable the court to prevent a gross injustice to an alleged infringer.

S. Rep. No. 1503, 79th Cong., 2d Sess. (1946), reprinted in 1946 U.S. Code Cong. Serv. 1386, 1387.

When the 1952 act was passed, the House Committee Report briefly mentioned the “exceptional case” amendment to the statute – indicating that the phrase “‘in exceptional cases’ has been added as expressing the intention of the present statute as shown by its legislative history and as interpreted by the courts.”

In several cases, the Federal Circuit has considered the standard and, after some debate, decided in Eltech Systems Corp. v. PPG Industries, Inc., 903 F.2d 805 (Fed. Cir. 1990), that the exceptional case standard should be the same for both prevailing plaintiffs and for prevailing defendants – writing: “we now reach the question and determine that there is and should be no difference in the standards applicable to patentees and infringers who engage in bad faith litigation.” The Eltech Systems case was then cited positively by the Supreme Court in Fogerty v. Fantasy, 510 U.S. 517 (1994) as justification for a party-neutral approach to fee shifting in copyright cases.

We note that the federal fee-shifting statutes in the patent and trademark fields, which are more closely related to that of copyright, support a party-neutral approach. Those statutes contain language similar to that of [17 U.S.C.] § 505, with the added proviso that fees are only to be awarded in “exceptional cases.” 35 U.S.C. § 285 (patent) (“The court in exceptional cases may award reasonable attorney fees to the prevailing party”); 15 U.S.C. § 1117 (trademark) (same). Consistent with the party-neutral language, courts have generally awarded attorney’s fees in an evenhanded manner based on the same criteria. For patent, see, e.g., Eltech Systems Corp. v. PPG Industries, Inc., 903 F.2d 805, 811 (Fed. Cir. 1990) (“[T]here is and should be no difference in the standards applicable to patentees and infringers who engage in bad faith litigation”). For trademark, see, e.g., Motown Productions, Inc. v. Cacomm, Inc., 849 F.2d 781, 786 (2nd Cir. 1988) (exceptional circumstances include cases in which losing party prosecuted or defended action in bad faith); but see Scotch Whisky Assn. v. Majestic Distilling Co., 958 F.2d 594 (4th Cir.) (finding in the legislative history that prevailing defendants are to be treated more favorably than prevailing plaintiffs), cert. denied, 506 U.S. 862 (1992).

Fogerty at note 12.

Of course, the problem with a party-neutral approach is that it can only be applied at a certain high level of granularity or abstractness. Since patentees and accused infringers make systematically different argument and have systematically different strategies, the particular causes of exceptional case findings tends to be different. Thus, losing infringers most often pay fees based upon ongoing willful and reckless infringement while losing patentees most often pay fees for suing on patent obtained through inequitable conduct or for bringing baseless lawsuits. At that low level of granularity, the differences are such that it is difficult to compare whether a party-neutral approach is being applied.

Notes:

Thanks to John Pinkerton at Thompson & Knight for providing me with this legislative history from the 1946 Act.

Government Shutdown & Patent Law Practice

  • Federal Courts (including the Federal Circuit) are continuing to operate on remaining budget surplus;
  • USPTO is continuing to Operate on Remaining Revenues, although the agency is taking cost cutting measures and the 18th Annual Independent Inventors Conference has been cancelled.
  • The FDA is largely closed and is not accepting filings that require FY2014 fees.
  • FTC is closed and has postponed its patent troll investigation until further notice; and
  • USITC has closed and is postponing its patent infringement investigations until further notice (all case deadlines are tolled).

 

Prior Art for Obviousness

In re Winslow, 365 F.2d 1017 (C.C.P.A. 1966)

In the 1966 decision Judge Rich described the scope of prior art for §103 using the tableau framework:

We think the proper way to apply the 103 obviousness test to a case like this is to first picture the inventor as working in his shop with the prior art references — which he is presumed to know — hanging on the walls around him.

I wonder if today, the proper legal analysis would begin with a Google’s search engine that has indexed the prior art references?

Also, did the AIA eliminate the “pertinent art” requirement?

Supreme Court’s New Patent Cases

By Dennis Crouch

The Supreme Court today granted writs of certiorari in two patent-related cases appealed from the Court of Appeals for the Federal Circuit and one copyright case out of the Ninth Circuit.

  • Octane Fitness, LLC v. ICON Health & Fitness, Inc., Docket No. 12-1184;
  • Highmark Inc. v. Allcare Health Management Sys., Docket No. 121163; and
  • Petrella v. MGM, Docket No. 12-1315.

The patent cases fit as a pair and both ask questions regarding the award of attorney fees to a prevailing party. In the US, each party to a litigation ordinarily pays its own attorney fees. Thus, although an accused infringer who successfully raises an invalidity defense will not pay damages to the patentee, that prevailing defendant will still need to pay its attorneys and experts for the thousands of hours spent defending the lawsuit. Likewise, a patentee who wins an infringement lawsuit generally takes a substantial portion of any award and turns it over to the attorneys and experts who turned the patent into cash.

Rule 11(c) of the Federal Rules of Civil Procedure offers sanctions for litigation abuses and indicates that reasonable attorney fees can serve as one form of sanctions. In addition, the section 285 of the Patent Act provides that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. The language of Section 285 was first included in the 1946 statutory revision of damage calculations. However, that rather than limiting the award to “exceptional cases” the 1946 statute provided that “[t]he court may in its discretion award reasonable attorney’s fees to the prevailing party.” I have not researched the legislative history behind this particular

In general, accused infringers who win patent cases have three particular complaints regarding the “exceptional case” limitation: (1) that the court has too narrowly interpreted the statute so that attorney fees are rarely awarded; (2) The second complaint is that fees are more likely to be awarded to a prevailing patentee (typically based upon willful infringement) than to a prevailing defendant despite Supreme Court precedent that suggests “prevailing plaintiffs and prevailing defendants are to be treated alike.” (quoting the Supreme Court copyright case of Fogerty v. Fantasy). (3) Finally, the parties complain that the Federal Circuit is too quick to overturn fee-awards rather than providing substantial deference to the district court judgment. I should point out here that – at this point – these arguments do not have strong empirical support.

Over the years, there has been substantial academic debate on the policy potential of a more rigorous loser-pay rule. The primary idea is that the loser-pays rule reduces speculative litigation and would “limit the tactical leverage gained by a party with a weak case threatening a defendant with costly litigation.” At the same time, the created-risk may also over-deter by also discouraging valid claims. As Jay Kesan explains, in general, the outcome of a balanced fee shifting regime is difficult to predict since parties who believe they have a strong case are more likely to sue (with the belief they will both compensatory recover damages and recoup attorney fees). “If both parties are pessimistic, settlement will likely occur under either system. However, if the plaintiff is optimistic, he is more likely to litigate because he will get a judgment without incurring costs.” Jay P. Kesan, Carrots and Sticks to Create a Better Patent System, 17 Berkeley Tech. L.J. 763 (2002). By making more at-stake in the lawsuit, we also likely shift the rate of appeal upward for cases that do not settle.

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In Octane Fitness, the petition challenges the “rigid and exclusive” test that the Federal Circuit uses to determine whether a case is “exceptional.” A common theme of recent Supreme Court patent cases is a holding that challenged Federal Circuit rule is too rigid and should instead be more flexible. The second theme in recent Supreme Court patent cases is a holding that, when appropriate, patent law should fall in step with all other areas of law. The petition latches onto these theme and essential says “the Federal Circuit has done it again…” The particular question raised by Octane Fitness is as follows:

Whether the Federal Circuit’s promulgation of a rigid and exclusive two-part test for determining whether a case is “exceptional” under 35 U.S.C. § 285 improperly appropriates a district court’s discretionary authority to award attorney fees to prevailing accused infringers in contravention of statutory intent and this Court’s precedent, thereby raising the standard for accused infringers (but not patentees) to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlements from defendants.

Icon rephrased as follows:

Patent infringement claims between industry competitors, ICON Health & Fitness, Inc. and Octane Fitness, LLC, were decided below on summary judgment. Both lower courts held that this case was not an “exceptional” patent case that would warrant the award of attorney fees to the prevailing party. Should this Court reverse the lower courts through judicial expansion of the attorney fee-shifting statute found in 35 U.S.C. § 285?

In the particular case, the district court conducted a Markman hearing and, based upon its claim construction, held that Octane’s products did not infringe Icon’s patent covering its elliptical exercise machine.

For its part, Octane writes that the “most compelling reason[] to grant certiorari …. [is that] the Federal Circuit’s current exceptional case standard is squarely in conflict with this Court’s holding in Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994) … Fogerty mandates that plaintiffs and defendants be treated alike under an analogous fee-shifting provision in the Copyright Act.” Of course, one problem with the even-handed mandate is that plaintiffs and defendants lose cases for different reasons. Within this framework, a party’s status actually does make some difference for fee-shifting. Findings of willful infringement, for instance, favor only patentees, while findings of inequitable conduct during patent prosecution favor only accused infringers. Either party can be awarded attorney’s fees based on the bad faith assertion of objectively baseless claims or other litigation misconduct.

In the background are a variety statutory proposals that would accomplish much of what Octane seeks. However, a Supreme Court decision in the case is likely to arrive before any Congressional action. See Congressing.

In Highmark, former Acting Solicitor General Neal Katyal (now at Hogan Lovells) has asked the Supreme Court to focus on whether the Federal Circuit must give deference to a lower court award of attorney-fees to a prevailing party.

The petition asks:

The Patent Act provides that A case is “exceptional” if it is objectively baseless and brought in bad faith. After living with this case for more than six years, the District Court found that it was objectively baseless and brought in bad faith, and it awarded fees. Over a strong dissent, a Federal Circuit panel reversed, holding that a district court’s objective baselessness determination is reviewed “without deference.” The Federal Circuit denied rehearing en banc by a vote of six to five. One of the two pointed dissents from that denial accurately observed that the decision below “deviates from precedent *** and establishes a review standard for exceptional case findings in patent cases that is squarely at odds with the highly deferential review adopted by every regional circuit and the Supreme Court in other areas of law.”

The question presented is: Whether a district court’s exceptional-case finding under 35 U.S.C. § 285, based on its judgment that a suit is objectively baseless, is entitled to deference.

Undoubtedly, the Supreme Court will reverse in Highmark and the reasons are well understood by the Federal Circuit judges. In all likelihood, a GVR without opinion would provide sufficient instruction to the Federal Circuit in this case. However, I suspect that we will see these two cases argued and decided in parallel with a roughly identical timeline. One important aspect of the Highmark case is the question of whether attorney fees can be awarded as a deterrent against other parties’ bad behavior.

The copyright case is Petrella v. MGM and focuses on the doctrine of laches as it applies to copyright enforcement – with a particular focus on what might be termed “rolling infringement.” The copyright holder in the case is Paula Petrella whose father Peter Petrella wrote two 1970s screenplays (one titled The Raging Bull) and a book about the life of boxer Jake LaMotta. A few years later(1980), Raging Bull became an Oscar winning movie. In 2009, Petrella sued MGM for copyright infringement. Now, both MGM and Petrella claim ownership over the copyrights being asserted and MGM claims that the movie does not infringe the Petrella copyrights. However, the focus of the case at the Supreme Court is whether the doctrine of laches can block a copyright holder from suing for a new act of infringement (such as distributing another copy of the movie).

Petrella presents the question as follows:

The Copyright Act expressly prescribes a three-year statute of limitations for civil copyright claims. 17 U.S.C. § 507(b). The three-year period accrues separately for each act of infringement, even if it is one of a continuing series of acts of infringement.

The federal courts of appeals have divided 3-2-1 over whether the nonstatutory defense of laches can bar a civil copyright suit brought within the express three-year statute of limitations. Three circuits forbid any application of laches or restrict the remedies to which it can apply. Two other circuits strongly disfavor laches and restrict it to exceptional circumstances. The Ninth Circuit not only does not restrict laches or the remedies to which it can apply, but has also adopted a presumption in favor of applying laches to continuing copyright infringements.

The question presented is: Whether the nonstatutory defense of laches is available without restriction to bar all remedies for civil copyright claims filed within the three-year statute of limitations prescribed by Congress, 17 U.S.C. § 507(b).

The case has obvious implications for patent law since patent law doctrine includes a similar non-statutory laches doctrine and six-year statute of limitations. It is possible that the Supreme Court will essentially eliminate the laches doctrine (but leave a claim of equitable estoppel).

It should be an interesting year in patent law.