May 2014

UseNet is Prior Art

Anticipation, Novelty, Patent, Prior Art

By Dennis Crouch

Suffolk Tech v. AOL and Google (Fed. Cir. 2014)

This is a prior art case. Suffolk’s patent application was filed back in 1996, but it turns out that the invention was described in a 1995 UseNet newsgroup post posted by a college student. The question on appeal is whether that posting counts as prior art under 35 U.S.C. 102(a) (pre-AIA).

Under the statute, a patent is invalid if “(a) the invention was … described in a printed publication … before the invention thereof by the applicant for a patent.” Courts have repeatedly found that online content fits within the definition of printed publication. Rather, the touchstone question is whether the material was sufficiently publicly accessible. Public accessibility looks to the ability of persons who would be interested or skilled in the subject matter to locate the reference using only reasonable diligence. If a reference is sufficiently disseminated at time of original publication then the ability to later locate the reference is irrelevant.

Today, UseNet materials are indexed by various search engines and would clearly be considered prior art. In 1995 the indexing was not so strong, but the appellate panel here affirmed that the postings clearly fall within the scope of printed publications. For that legal conclusion, the court relied upon a handful of facts:

  • The record indicated that those of ordinary skill in the art were using the UseNet newsgroups in 1995, including Suffolk’s own technical expert.
  • Although not fully indexed, the UseNet group was structured in a hierarchical manner that would have allowed someone interested in the topic to identify the particular group and read the posts.
  • The post in question resulted in at least six responses in the week following the publication – indicating that the post was likely sufficiently distributed at publication.

Invalidity affirmed.

The case was discussed in an earlier Patently-O Posting titled Structuring a Privateering Contract (2012).

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Note – although this case was decided under pre-AIA rules, its holding should apply equally to the restructured Section 102 that also identifies “printed publications” as a form of prior art.

Guest Post: Defend Trade Secrets Act — A Primer, an Endorsement, and a Criticism

Patent, Trade Secret, , , ,

Guest Post by David S. Almeling, a partner in the San Francisco office of O’Melveny & Myers LLP. Almeling specializes in patent and trade secret litigation.

It’s been an exciting month for trade secret law. Senators Christopher Coons (D-Delaware) and Orrin Hatch (R-Utah) introduced the Defend Trade Secrets Act, a bill that would, for the first time, provide a federal right of civil action for trade secret theft. And the Judiciary Committee held a hearing during which speakers expressed support for the DTSA, including Eli Lilly’s VP and General Patent Counsel, Douglas Norman, who stated that the DTSA “will establish the gold standard for national trade secret laws globally.”

The DTSA is a game changer. If enacted, it would constitute the most dramatic rethinking of trade secret law since 1979, when the National Conference of Commissioners on Uniform State Laws approved a model statute called the Uniform Trade Secrets Act. Since then, 48 states have adopted the UTSA in some form, replacing their common-law regimes with statutory ones.

The DTSA isn’t perfect — I’ll explain why in a moment — but it’s the best bill of its kind introduced to date, and it should be enacted.

A Primer

The DTSA authorizes a trade secret owner to bring a civil cause of action in federal court for either (1) a violation of the Economic Espionage Act, which criminalized certain types of trade secret misappropriation, or (2) a “misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce.” The DTSA’s definition of misappropriation tracks closely the UTSA’s definition.

The DTSA would also:

Grant courts the power to issue ex parte orders “for the preservation of evidence” and “for the seizure of any property used…to commit” the alleged misappropriation. This is similar to the relief available under the Lanham Act for counterfeit goods.

Allow courts to award injunctions; damages for actual loss or unjust enrichment; a reasonable royalty “in lieu of damages”; exemplary damages up to treble the amount of compensatory damages, as opposed to the UTSA, which permits courts to award only double damages; and attorneys’ fees.

Establish a five-year statute of limitations, two years longer than the UTSA’s provision.

Decline to preempt any other law.

An Endorsement

The DTSA is not the first bill in recent years to propose a federal cause of action for trade secret theft.

Other recent efforts include: Senator Coons’s prior bills in 2011 and 2012; the proposal by Rep. Zoe Lofgren, the Silicon Valley–based Democrat, to enact PRATSA (Private Right of Action Against Theft of Trade Secrets Act of 2013); and the 2013 introduction of FAIR (Future of American Innovation and Research Act) by Republican Senator Jeff Flake of Arizona. These attempts all failed, never making it out of committee.

The reasons they fell short varied; I won’t rehash them here. But the DTSA is the most comprehensive bill to date, as it addresses a broad swath of trade secret theft and encompasses a robust range of remedies.

The DTSA is better than the current system — one in which each state has its own autonomous civil trade secret law. Today, 48 states have enacted some form of the UTSA, with New Jersey (in 2012) and Texas (in 2013) being the latest adherents. New York and Massachusetts are the only remaining holdouts.

Despite the UTSA’s widespread adoption, the “U” — Uniform — hasn’t lived up to its name. State legislatures often modify the UTSA. And even if every state enacted the same UTSA, there would still be a patchwork because state courts often issue different interpretations of the same UTSA provision.

Trade secret owners, employees, and others in the knowledge economy incur the costs of this state-by-state approach. Facing different laws in different states, they are left to deal with the resulting complications that come with attempts to comply with each state’s laws. And once a dispute arises, these differences also impose costs on courts and litigants, who wage needless battles over forum shopping and choice of law. A federal statute would eliminate these differences and achieve other benefits, such as easing nationwide service of process and discovery.

This isn’t the first time I’ve endorsed some form of a federal trade secret statute. I did so in a 30-page law review article in 2009 and in a five-page Law 360 article in 2013.

I’m not alone in my support of a federal trade secret statute generally and the DTSA specifically. Senator Coons’s April 29, 2014 press release notes that the DTSA has the backing of the National Association of Manufacturers, the U.S. Chamber of Commerce, and dozens of companies, including 3M, GE, Microsoft, and P&G. The AIPLA’s Trade Secret Law Committee recently voted to endorse the DTSA (disclaimer: I was one of the voting members). And other organizations, including the ABA’s IP Section and the Commission on the Theft of American Intellectual Property, announced support for some form of a federal trade secrets act in 2013.

A Criticism

Where the DTSA stumbles is in its promise not to “preempt any other provision of law.” This causes two problems.

First, the need for the DTSA stems in part from state-by-state variations in trade secret laws and the transactional and substantive problems that such variations impose. The DTSA leaves those variations in place. Worse, the DTSA adds another law to the already cluttered landscape of 48 UTSA states (with their variations), two non-UTSA states, the federal Economic Espionage Act, and a federal common trade secret law.

Second, the DTSA opens a backdoor to common-law and other causes of action that are precluded in most states. The UTSA “displaces tort, restitutionary, and other laws…providing civil remedies for misappropriation of a trade secret.” The DTSA doesn’t displace anything.

Under the DTSA, trade secret plaintiffs would have the option of pursuing their claim in state or federal court and, if they choose federal court, the additional option of asserting duplicative causes of actions that aren’t available in state courts.

Why I Still Endorse the DTSA

Trade secrets are the only major type of intellectual property (i.e., copyrights, patents, trademarks, and trade secrets) not governed primarily by a federal statute. Copyrights and patents got theirs in the 1700s. Trademark got its in the 1800s. Now that we’re firmly in the information age, it’s time for trade secrets to join their peers.

True, the DTSA is only a partial step toward uniformity, as it leaves the current state-law regime in place and doesn’t preempt overlapping causes of action. But in the absence of a complete transition from a state-based trade secret regime to a federal one, the DTSA is an important step in the right direction.

This post by David S. Almeling does not purport to represent the views of O’Melveny or its clients.

K/S HIMPP v. Hear-Wear Technologies: Common Sense and Claim Elements

Patent

By Jason Rantanen

K/S HIMPP v. Hear-Wear Technologies, LLC (Fed. Cir. 2014) Download Opinion
Panel: Lourie (author), Dyk (dissenting), Wallach

This nonobviousness case is significant because it illustrates an important way that some Federal Circuit judges are pushing back against KSR v. Teleflex (2007): by focusing the analysis on the presence or absence of individual limitations in the prior art and limiting what can be considered in establishing the presence of that limitation.  Here, the majority holds that while common sense or basic knowledge may provide a reason to combine elements present in the prior art, it cannot establish the presence of an element itself.

Background: Hear-Wear is the owner of Patent No. 7,016,512, which relates to hearing aid technology.  At issue in the appeal were dependent claims 3 and 9 (Hear-Wear did not appeal the BPAI’s ruling that the remaining claims of the ‘512 patent, including the claims from which 3 and 9 depended, were invalid in light of the prior art).  Claim 3 of the ‘512 patent states:

3. The at least partially in-the-canal module for a hearing aid of claim 2 wherein said insulated wiring portion is terminated by a plurality of prongs that provide a detachable mechanical and electrical connection to an audio processing module.

Claim 9 similarly depends from claims 7 and 8, adding the identical “wherein said insulated wiring portion is terminated by a plurality of prongs that provide a detachable mechanical and electrical connection” language.

Patent Office Proceedings: During prosecution of the ‘512 patent, the Examiner rejected all claims as obvious, and further stated with respect to claims 3 and 9 that “providing a plurality of prongs for the electrical connections or for the plugs is known in the art.” Slip Op. at 3, quoting office action.  In response, the applicant amended independent claims 1 and 7 to expand on the “cushion tip” element and the Examiner allowed all the claims.

HIMPP subsequently instituted an inter-partes reexamination, challenging the validity of claims 1-12 of the ‘512 patent (note that the reexamination request was filed pre-AIA).  In that proceeding, the Examiner concluded that all of the claims of the ‘512 except claims 3 and 9 were invalid in light of the prior art.  The BPAI disagreed with the Examiner’s basis for rejecting claims 1, 2, 4-8, and 10-12, but nevertheless concluded that these claims were invalid in light of prior art.  The BPAI declined, however, to reverse the Examiner’s decision not to reject claims 3 and 9 because there was no factual support in the record for the plurality of prongs element.  HIMPP appealed the BPAI’s refusal to reject claims 3 and 9; Hear-Wear did not appeal the rejection of the remaining claims.

Result: The only issue on appeal was whether the additional limitation in dependent claims 3 and 9, viz: that the “insulated wiring portion is terminated by a plurality of prongs that provide a detachable mechanical and electrical connection,” was sufficient to render the claims nonobvious.  Writing for himself and Judge Wallach, Judge Lourie affirmed the BPAI.  Writing in dissent, Judge Dyk would have reversed the BPAI and rejected claims 3 and 9 for obviousness.

What’s going on here? At the outset, it’s important to recognize what this appeal is not about.  It is not about whether or not electrical plugs were actually known in the art as of 2001, except to the extent that the court might take de novo judicial notice of that fact.  Nor is it about whether, assuming that electrical plugs were present in the prior art, common sense could provide a reason to combine plugs with the other elements of claims 1 and 2 of the ‘512 patent.

Instead, K/S HIMPP v. Hear-Wear highlights two important tensions in nonobviousness jurisprudence that are now bubbling to the surface: first, whether the standard for nonobviousness under KSR is so flexible as to allow common sense or basic knowledge to provide an element of the claimed invention, and second, the degree to which Examiners and the BPAI/PTAB may rely upon their own technical expertise.  Here, the majority embraces a strict evidentiary approach: a claim element must be present in the record and if it is not, the PTO may only consider it in narrow, peripheral circumstances.  The dissent criticizes the majority for adopting an overly rigid approach that denies examiners recourse to common sense.

Strong Evidentiary Requirements for “Core Factual Findings”: In Judge Lourie’s view, KSR does not dispense with the need to have evidence in the record disclosing each claim limitation, particularly where those limitations are “important structural limitations”:

“Here the Board refused to adopt HIMPP’s proposed rejection of claims 3 and 9 because it found that there was not a suitable basis on the record “for concluding that the particular structural features of claims 3 and 9 [were] known ‘prior art’ elements.” Board Opinion at 24. The Board’s decision was correct because an assessment of basic knowledge and common sense as a replacement for documentary evidence for core factual findings lacks substantial evidence support.”

Rather, there must be “evidence on the record, particularly where it is an important structural limitation that is not evidently and indisputably within the common knowledge of those skilled in the art.”  Slip Op. at 7 (more on the emphasized text in a moment).  KSR does not require otherwise:  “[T]he Board’s holding is not inconsistent with KSR’s caution against the overemphasis on publications and patents for combining or modifying prior art that are already on the record….In contradistinction to KSR, this case involves the lack of evidence of a specific claim limitation, whereas KSR related to the combinability of references where the claim limitations were in evidence.”  Id. (internal citations omitted).

Nor may employees of the PTO rely on their own technical knowledge.  Examiners should only do so in narrow circumstances, i.e., where the facts asserted to be well known are not capable of instant and unquestionable demonstration as being well-known), and even then must “provide an affidavit or declaration setting forth specific factual statements and explanations to support that finding,” if challenged by the applicant.  Slip Op. at 8, citing 37 C.F.R. § 1.104(d)(2) and the M.P.E.P.  And while the court recognizes that the BPAI has subject matter expertise, it “cannot accept general conclusions about what is “basic knowledge” or “common sense” as a replacement for documentary evidence for core factual findings in a determination of patentability.”  Id.

Common sense and Agency Expertise: Judge Dyk disagreed.  “In my view, the majority’s holding is inconsistent with the Supreme Court’s decision in KSR International Co. v. Teleflex Inc., 550 U.S. 398 (2007), and will have substantial
adverse effects on the examination process.”  Dissent at 2.

Here, the majority’s imposition of a rigid evidentiary standard for the presence of claim elements in the prior art goes too far.  To the extent In re Zurko, 258 F.3d 1379 (Fed. Cir. 2001) (the primary case relied upon by the majority) held otherwise, it is inconsistent with KSR:

In Zurko, we held that, as to core (as opposed to peripheral) issues, “the Board cannot simply reach conclusions based on its own understanding or experience—or on its assessment of what would be basic knowledge or common sense.” Id. That statement is contrary to the Court’s holding in KSR that “[o]ften[] it will be necessary for a court to look to . . . the background knowledge possessed by a person having ordinary skill in the art” when examining obviousness, 550 U.S. at 418 (emphasis added), and that “[r]igid preventative rules that deny factfinders recourse to common
sense . . . are neither necessary under our case law nor consistent with it.” Id. at 421. The majority’s approach here is inconsistent with KSR itself and also with our post-KSR approach. Following KSR, we recognized that the Court “expanded the sources of information for a properly flexible obviousness inquiry to include . . . the background knowledge, creativity, and common sense of the person of ordinary skill.” Perfect Web Techs., Inc. v. InfoUSA, Inc., 587 F.3d 1324, 1329 (Fed. Cir. 2009). Consequently, obviousness inquiries “include recourse to logic, judgment, and common sense available to the person of ordinary skill that do not necessarily require explication in any reference.” Id.

Furthermore, the PTO should be able to rely on its own expert knowledge when addressing issues of patentability:

Deference to the agency’s expert knowledge is particularly important with respect to obviousness. Throughout [the Supreme] Court’s engagement with the question of obviousness, [its] cases have set forth an expansive and flexible approach . . . .” KSR, 550 U.S. at 415. The Court emphasized that “[r]igid preventative rules that deny factfinders recourse to common sense . . . are neither necessary under our case law nor consistent with it.” Id. at 421. The Court specifically rejected the approach that
the majority adopts here, stating that “[t]he obviousness analysis cannot be confined by . . . overemphasis on the importance of published articles and the explicit content of issued patents.” Id. at 419. Publications and patents are not sufficient by themselves because “[i]n many fields it may be that there is little discussion of obvious techniques or combinations.” Id.

Dissent at 5.  This approach – of allowing examiners and the BPAI to rely on their own technical expertise, is consistent with the approach of the predecessor to the Federal Circuit, the Court of Customs and Patent Appeals.  It also maintains  safeguards to prevent its abuse: specifically, the requirement that Examiners “state on the record that they are relying on a fact well known in the art and provide their rationale for doing so” and the opportunity that applicants have to challenge the Examiner’s “determination that particular features were common knowledge in the art.”  Dissent at 7, 8.

No Judicial Notice: Is the presence of a plug in the prior art as of 2001 a “core factual finding” related to an “important structural limitation” that is “not evidently and indisputably within the common knowledge of those skilled in the art”?  Judge Lourie thought so, and further declined to take judicial notice of the presence of electrical plugs in the art as of 2001 for the same reason that it was reasonable for the Board and Examiner to decline to take official notice (i.e.: that these facts were “not capable of instant and unquestionable demonstration as being well-known.”).   Slip Op. at 8.  On this point, Judge Dyk jabs back: “Every purchaser of electrical devices in the United States for the past 50 years or more is familiar with multipronged electrical connections.”  Dissent at 4.

 

 

Guest Post: PTAB Partial Institution of IPR and CBM Review Violates the AIA– But There Is a Simple Fix

CBM, IPR, Patent, PGR, PTAB, , ,

Guest Post by Timothy K. Wilson, Senior IP Counsel, and John S. Sieman, Patent Counsel, SAS Institute Inc.

In the provisions of the America Invents Act (AIA) governing inter partes review (IPR), post-grant reviews (PGR), and transitional covered business method review (CBM), Congress provided the Patent Trial and Appeal Board (PTAB) with a binary choice: to either institute or not institute a review of the challenged claims, i.e., the claims identified by the petition.  Rather than pursue one of these two options, however, the PTO took a different path in its implementation of the AIA, permitting the PTAB to select only some challenged claims for review.  The excluded claims receive no further review and the final written decision does not address the patentability of those claims.  Worse, because a decision whether to institute a review is not subject to appeal, this practice (which we refer to as “partial institution”) strips petitioners of their statutory appeal right as to the excluded claims.  The PTAB has already followed the partial institution practice for dozens of IPR and CBM trials.  There is, however, a simple fix for future reviews.

The binary nature of the decision whether to institute review arises from the plain language of the statute, which includes section 314 entitled “Institution of inter partes review”:

(a) Threshold.— The Director may not authorize an inter partes review to be instituted unless the Director determines that the information presented in the petition filed under section 311 and any response filed under section 313 shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.

(b) Timing.— The Director shall determine whether to institute an inter partes review under this chapter pursuant to a petition filed under section 311 within 3 months after—

(1) receiving a preliminary response to the petition under section 313; or

(2) if no such preliminary response is filed, the last date on which such response may be filed.

(c) Notice.— The Director shall notify the petitioner and patent owner, in writing, of the Director’s determination under subsection (a), and shall make such notice available to the public as soon as is practicable. Such notice shall include the date on which the review shall commence.

(d) No Appeal.— The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.

35 U.S.C. § 314 (emphasis added).

Under the AIA, petitioners choose which claims of a patent to include in a petition.  The statute refers to these as the “challenged” claims.  35 U.S.C. § 312(a)(3) (requiring an IPR  petition to “identif[y], in writing and with particularity, each claim challenged”); 35 U.S.C. § 314(a) [fn1] (referring to “claims challenged in the petition”).

The PTAB may institute an IPR if “there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition.”  35 U.S.C. § 314(a).  Because the determination “whether to institute” the IPR is a preliminary decision, the statute makes it “final and nonappealable.”  35 U.S.C. § 314(d).  Congress chose to make appeals available only at the conclusion of the IPR proceeding, after the PTAB issues a final written decision.  35 U.S.C. § 319 (permitting “[a] party dissatisfied with the final written decision [to] appeal the decision pursuant to sections 141 through 144”); 35 U.S.C. § 141 (permitting “[a] party to an inter partes review … who is dissatisfied with the final written decision … [t]o] appeal the Board’s decision only to the United States Court of Appeals for the Federal Circuit”).

The statute further requires the PTAB to issue a final written decision “with respect to the patentability of any patent claim challenged by the petitioner.”  35 U.S.C. § 318(a) (emphasis added).  The set of “claim[s] challenged by the petitioner” depends on which claims the petitioner includes in the petition, not on a later decision by the PTAB.  The statutory language leaves little doubt the final written decision—the appealable one—must address the patentability of every claim challenged in the petition.

This is not how the PTAB has implemented IPR and CBM.  For example, in the very first IPR, the PTAB reviewed a petition that challenged claims 1-20 of a patent, instituted review only on three claims, and did not address the patentability of the other 17 challenged claims in the final written decision.  Garmin Int’l Inc. v. Cuozzo Speed Techs. LLC, Case IPR2012-00001, paper 59, pp. 2, 49  (Final Written Decision of Nov. 13, 2013).   Even the PTO’s regulations that govern IPR trials contradict the statute. These regulations permit the PTAB to “authorize [inter partes] review to proceed on all or some of the challenged claims” 37 C.F.R. § 42.108(a).  Because the regulations violate the statute, the PTO exceeded its authority in promulgating them, opening up the PTO to a potential challenge under the Administrative Procedures Act.

While the PTAB’s practice of partial institution may help complete trials within the required one-year period, the practice violates the statute and strips petitioners of a statutory appeal right as to excluded claims.  In addition, the problems arising from partial institution of IPR and CBM review will spill over into litigation, as excluded claims return to district courts, presumably without estoppel.  35 U.S.C. § 318(e)(2) (limiting estoppel in civil actions to “an inter partes review of a claim in a patent under this chapter that results in a final written decision”).  Partial institution also complicates decisions on whether to stay a litigation pending the PTO proceeding.  And even if a court does stay a an infringement suit to let the PTAB resolve the petitioner’s arguments, the court may later need to review the same arguments as to the non-instituted claims, and may reach a different or even inconsistent result.

Fortunately, the PTAB can address this problem without impairing its ability to quickly resolve cases.  Even under current partial institution practice, decisions whether to institute review already address all challenged claims, identifying some claims that are likely invalid and other claims for which the petitioner has not met its burden.  If the PTAB instituted on all challenged claims as it should, that would allow the parties to decide how much of the existing page and time limits to use on each challenged claim.  These limits would still prevent trials from ballooning out of control.  PTAB judges can continue to focus their efforts on the claims identified as likely unpatentable.  And by the end of the trial, if the PTAB judges have not changed their opinions that some claims should survive, they would only need to carry the analysis about those claims forward from the institution decision into the final written decision.  By instituting review of all challenged claims and including patentability analysis of all challenged claims in the final written decision, the PTAB would restore the right to appeal the final written decision as to all challenged claims.

[fn 1] Citations provided here are for IPR proceedings; the parallel sections governing CBMs and PGRs contain similar language.

A Risk of Moonlighting

Inventors, Ownership, Patent, Trade Secret, ,

by Dennis Crouch

Despite California’s policies limiting non-compete agreements, the law still lays an implicit powerful fiduciary duty on employees. The (proposed) Restatement (Third) of Employment Law indicates that competition by current managerial employees violates the duty of loyalty but that a manager has the right to “prepare to compete.”  One question that arises from the facts of the case below is whether an employee who obtains patents on-the-side in preparation to compete is somehow violating his fiduciary duty.

Robert Kulakowski v. Verimatrix, Inc. (Cal. Appellate Ct. 2014) Decision Text

Back in 2000, Kulakowski helped to found Verimatrix – acting as the company’s chief technology officer (CTO) and directing product development. The company makes video encryption security systems known as Conditional Access Systems or CAS.

In his last year with the company, Kulakowski began working on side projects. As part of that process, he was able to modify his IP and non-compete agreement with Verimatrix to clarify that he did not need to disclose to Verimatrix any inventions “conceived, reduced to practiced or developed by [Kulakowski] in [his] own time; without using the Company’s equipment, facilities, or trade secret information; and which is not the result of work performed by me for the Company.”  Meanwhile, Kulakowski founded a new company (Secure TV) in May 2010 also operating in the CAS market but then expressly denied to his Verimatrix boss that the new company was in the CAS market.  In September 2010 Kulakowski left Verimatrix and then filed a patent application known as Dynamic Obfuscation Processing.

This case arose when Kulakowski filed a declaratory judgment action in California state court asking for a ruling that Verimatrix held no right to title or interest in the new patents.

Following a bench trial, the lower court ruled in favor of Verimatrix — holding (1) that declaratory relief is not called for at this time because the patent applications are pending and may still be amended; and, alternatively, (2) that Kulakowski’s claim for equitable relief should fail because of his unclean hands based upon his breach of fiduciary and contractual duties owed to the company while he was still employed.

Seeing some of the logic of the lower court, Kulakowski accepted that the DJ action was not ripe appeal. However, he appealed the unclean portion of the opinion — arguing particularly that the lower court’s DJ decision was effectively jurisdictional with the consequence that the court lacked jurisdiction to then decide the unclean hands defense.  That conclusion follows from the notion that a court who lacks subject matter jurisdiction has no power to make any findings on the merits of a proceeding.

On appeal, the California appellate court rejected Kulakowski’s arguments and affirmed  the lower court ruling.  Here, the appellate court found that the lower court’s first ruling on the DJ action for practical reasons, not for jurisdictional reasons.

If a court decides for practical reasons it is not necessary or proper to grant declaratory relief, there is no jurisdictional prohibition to the court making alternate findings based on the evidence before it.

The case may be revived once the patents issue or a more concrete dispute arises at that point the court will need to address whether the unclean hands decision here has a preclusive effect.  The appellate court expressly refused to “offer any opinion on the extent to which the court’s alternative findings are binding on either party under res judicata or collateral estoppel doctrines.”

Patently-O Bits and Bytes by Dennis Crouch

Patent

 

 

SmartGene v. Advanced Biological Laboratories

Patent, , ,

By Jason Rantanen

Earlier this month, I posed a question relating to the patent eligibility of the following claim:

  1. A method for guiding the selection of a therapeutic treatment regimen for a patient with a known disease or medical condition, said method comprising:

 (a) providing patient information to a computing device comprising:

 a first knowledge base comprising a plurality of different therapeutic treatment regimens for said disease or medical condition;

a second knowledge base comprising a plurality of expert rules for evaluating and selecting a therapeutic treatment regimen for said disease or medical condition;

 a third knowledge base comprising advisory information useful for the treatment of a patient with different constituents of said different therapeutic treatment regimens; and

 (b) generating in said computing device a ranked listing of available therapeutic treatment regimens for said patient; and

 (c) generating in said computing device advisory information for one or more therapeutic treatment regimens in said ranked listing based on said patient information and said expert rules.

This claim was a real one, from a real case.  It’s Claim 1 from U.S. Patent No. 6,081,786, and in a January 2014 nonprecedential opinion the Federal Circuit affirmed a district court’s ruling that it and claims from related patent No. 6,188,988 were ineligible for patent protection under 35 U.S.C. § 101.  Here’s the core of the court’s reasoning:

The district court correctly held that the claim 1 method falls outside the eligibility standards of section 101 as that provision has been construed. This conclusion follows from CyberSource Corp. v. Retail Decisions, Inc., where, based on earlier precedents, this court held that section 101 did not embrace a process defined simply as using a computer to perform a series of mental steps that people, aware of each step, can and regularly do perform in their heads. 654 F.3d 1366, 1373 (Fed. Cir. 2011); see also In re Grams, 888 F.2d 835, 840-41 (Fed. Cir. 1989); In re Meyer, 688 F.2d 789, 794-95 (C.C.P.A. 1982). As CyberSource explains, those precedents rest on Supreme Court decisions indicating that section 101 covers neither “mental processes”—associated with or as part of a category of “abstract ideas”—nor processes that merely invoke a computer and its basic functionality for implementing such mental processes, without specifying even arguably new physical components or specifying processes defined other than by the mentally performable steps. See Gottschalk v. Benson, 409 U.S. 63, 67-68 (1972); Parker v. Flook, 437 U.S. 584, 589 (1978).

***

The Supreme Court’s post-CyberSource decision in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012), reinforces the application of Cyber-Source to decide the present case. The Supreme Court in Mayo, though addressing a case involving the “law of nature” exclusion from section 101, recognized that “mental processes” and “abstract ideas” (whatever may be the precise definition and relation of those concepts) are excluded from section 101. See 132 S. Ct. at 1289, 1293, 1297-98 (quotation marks omitted). Whatever the boundaries of the “abstract ideas” category, the claim at issue here involves a mental process excluded from section 101: the mental steps of comparing new and stored information and using rules to identify medical options. Mayo demanded that, when a claim involves an abstract idea (or, in Mayo itself, a law of nature), eligibility under section 101 requires that the claim involve “enough” else—applying the idea in the realm of tangible physical objects (for product claims) or physical actions (for process claims)—that is beyond “well-understood, routine, conventional activity.” 132 S. Ct. at 1294, 1298, 1299. The claim here does not do so. It calls on a computer to do nothing that is even arguably an advance in physical implementations of routine mental information comparison and rule-application processes. In this context, the concern about preempting public use of certain kinds of knowledge, emphasized in Mayo, is a grave one. See id. at 1301-02.

Our decisions since Mayo do not undermine Cyber-Source or its application here…..

You can read the entire opinion here: SmartGene v ABL.

ABL has since filed a petition for certiorari, as well as an amicus brief in Alice v. CLS.  Its position is that SmartGene should be GVR’d regardless of the outcome in Alice v. CLS (which might issue as soon as tomorrow).  From the introduction:

Judge Pauline Newman recently characterized the Federal Circuit as being in a state of jurisprudential “deadlock,” making patent eligibility under 35 U.S.C. § 101 a question “whose result will depend on the random selection of the panel.” CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1280 (Fed. Cir. 2013) (hereinafter CLS Bank) (en banc) (Newman, J., dissenting), cert granted, Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S.Ct. 734 (2013) (hereinafter Alice). No better case illustrates the panel-dependent crapshoot that Section 101 jurisprudence has become than this one. Although it is impossible to predict the Court’s forthcoming opinion in Alice, there is little doubt that it will significantly impact the law in this area and break the deadlock in the Federal Circuit.

The decision below is a prime example of the
current dysfunctional state of the law in the Federal Circuit.

You can read the petition here: ABL v. SmartGene petition for writ of certiorari.

Patent Application Pendency (Timing from Priority Date)

Patent

In a prior post, I provided data on patent application pendency — looking at applications from their filing date to the issue date. The chart adds an additional perspective — also calculating the pendency beginning with the application priority date. Looking simply at filing-date to issue-date, average pendency is hovering just over three years. However, the average U.S. patent issues more than five years after its original priority application filing date. The chart below presents the information in the form of a histogram showing the distribution of pendency for patents issued thus far in 2014.

What is a Fair Share for Inventors?

Patent

By Dennis Crouch

Ian Shanks v. Unilever, [2014] EWHC 1647 (England & Wales High Court of Justice, Patents Court) [Shanks v Unilever judgment]

Ian Shanks invented the disposable personal glucose meter back in the 1980s while an employee of Unilever and wants his just compensation. At the time, his salary was £29,000 and a BMW to use with no bonus for successful inventing. However, as in a number of countries, a UK employee-inventor’s compensation is not solely governed by an employment agreement. Rather, the 1977 Patents Act additionally requires that the compensation be “just” and that the employee be given a “fair share” when the employee’s patented invention results in an “outstanding benefit” to the employer.

The Statute provides:

40(1): Where it appears … that the employee has made an invention belonging to the employer for which a patent has been granted, that the patent is (having regard among other things to the size and nature of the employer’s undertaking) of outstanding benefit to the employer and that by reason of those facts it is just that the employee should be awarded compensation to be paid by the employer, the court or the comptroller may award him such compensation of an amount determined under section 41 below. . . .

41(1) An award of compensation to an employee … shall be such as will secure for the employee a fair share (having regard to all the circumstances) of the [monetary] benefit which the employer has derived, or may reasonably be expected to derive, from the patent for the invention or from the assignment, assignation or grant to a person connected with the employer of the property or any right in the invention or the property in, or any right in or under, an application for that patent. . . .

(4)     In determining the fair share of the benefit to be secured for an employee in respect of a patent for an invention which has always belonged to an employer, the court or the comptroller shall, among other things, take the following matters into account, that is to say –

(a)     the nature of the employee’s duties, his remuneration and the other advantages he derives or has derived from his employment or has derived in relation to the invention under this Act;

(b)     the effort and skill which the employee has devoted to making the invention;

(c)     the effort and skill which any other person has devoted to making the invention jointly with the employee concerned, and the advice and other assistance contributed by any other employee who is not a joint inventor of the invention; and

(d)     the contribution made by the employer to the making, developing and working of the invention by the provision of advice, facilities and other assistance, by the provision of opportunities and by his managerial and commercial skill and activities.”

Here, the Comptroller-General of patents (UKIPO) took the case originally and determined that Unilever’s monetary gain from the patents Shanks patents was £24.5 million and that a fair compensation for Shanks was 5% of that – resulting in £1.2 million. Not bad, but a fairly small amount of the multi-billion-dollar industry that Shanks invention helped to spark. However, the Comptroller also held that the contribution was not of “outstanding benefit” to the company as required by the statute – the result then was that Professor Shanks received nothing.

Shanks then took his case to the High Court in London, but Mr. Justice Arnold has now rejected the appeal affirming that the “the Shanks Patents were not of outstanding benefit to Unilever, and therefore Prof Shanks is not entitled to an award of employee compensation under section 40(1).”

Not outstanding?: To be clear, Shanks invention here was not directly related to any ongoing Unilever project, but one that he figured out on his own initiative and that was aided by the use if his daughter’s toy microscope in his home. The result here is that, without Shanks, Unilever’s profits on this invention would have been none and this particular innovation had a very high rate of return.

Of course, Unilever’s profits overall are in the billions of pounds per year. A £25 million project is so small that it does not even reach Unilever company management – how then could it be outstanding? Here, the judge agreed that Unilever’s size was important – confirming that:

£50,000 would be an excellent return for a small company to get from licensing its patents. Clearly, that would not be an excellent return for Unilever, which by its nature, for example by being able to contemplate greater expenditure on litigation, is able to get higher returns in negotiations than a smaller entity would, as Mr Emanuel conceded. So it seems totally logical to me that a given monetary benefit might be outstanding for a small entity, but not for a larger one.

Shanks will now have an opportunity to appeal this judgment.

A Warm Welcome to Chief Judge Prost

Patent

By Dennis Crouch

Chief Judge Randall Rader has announced that he is stepping down from his position as Chief Judge – effective May 30, 2014. According to the Federal Circuit’s rules of succession, Judge Sharon Prost will succeed Judge Rader as the next Chief.

Judge Rader is a longtime member of the court and has been a gregarious Chief Judge. His willingness to have frank and open discussions on a variety of patent law issues has been welcomed by the bar as has his work to build ties with patent law authorities from around the globe. Those connections will continue to serve the court well into the future. However, this outgoing approach has also been criticized as contrary to the traditions of judicial detachment and seclusion. Judge Rader is eligible to take senior status (and thus retain his full salary of approximately $170k). However, he has indicated that he will remain in active service for now. Although it is unclear whether related, Judge Rader’s transition comes amidst a potential brewing mini-scandal involving a public endorsement for veteran Federal Circuit litigator Ed Reines. There were three years remaining in his seven-year term as Chief.

Judge Prost has been on the court since 2001. During that time she has authored hundreds of patent law opinions, including the recent en banc decision in Bosch v. Pylon and a dissent in Apple v. Motorola. Prior to joining the court, she worked as the Senate Judiciary Chief Counsel under Orrin Hatch and has worked in the Federal Government since her graduation from Cornell in 1973. She was appointed to the court by President George W. Bush. Judge Prost is also known as a litigant – her early 1990’s custody battle resulted in a D.C. Court of Appeals opinion that continues to be taught in law schools. Link.

Moving forward, Chief Judge Prost’s history in government will be instrumental in considering the new administrative-law battles arising from the USPTO’s Patent Trial & Appeal Board.

= = = =

Succession: According to the rules of succession, the next Chief Judge is designated as the most senior judge on the court who is in regular active service but who is also not yet aged 65 and who has not previously served as Chief Judge.

= = = =

Update: Judge Rader has distributed an open letter that provides an explanation and appears to fully confirm the story that regarding his recent recusals and vacatur of his position as Chief Judge.

In particular, Judge Rader confirms that he previously emailed noted attorney Ed Reines of the Weil firm praising his advocacy and suggesting that the email could be used as a client development tool.  The letter then became public as Reines was arguing before the court.  Judge Rader now writes:

I have come to realize that I have engaged in conduct that crossed lines established for the purpose of maintaining the judicial process whose integrity must be beyond question. It is important to emphasize that I did not and would never compromise my impartiality in judging any case before me. But avoiding even teh appearance of partiality is a vital interest of our court, and I compromised that interest by transgressing limits on judges’ interaction with attorneys who appear before the court. I was inexcusably careless, and I sincerely apologize.

5-23-14_RRR _Letter

As I highlighted above, Judge Rader’s demeanor is gregarious and he is open with his praise. I have seen him publicly praise many different attorneys. In fact, I remember a couple of times where he praised my work — suggesting to me that his praises should generally be taken with a grain of salt.  I also don’t believe that this activity warrants him stepping down from his position as chief, but it appears he is going the extra mile to ensure that the court’s integrity is above question. 

I should also add that I also believe Ed Reines is a great appellate advocate. (Yes, you may show this to your potential clients.)

Patent

Most patents issue within three years of their respective filing dates with the median for patents issued in 2014 sitting at 34 months. In 2010, that median pendency rose to a decide-high of 41 months. Since that time, the USPTO has been working steadily to reduce its large backlog of pending cases. An item of concern is that about 15% of recently issued patents have a pendency of more than five years.

For patents issued thus far in 2014, the one with the longest pendency is U.S. Patent No. 8,688,181 issued to IBM and with a US filing date of 09/09/1994. The application actually claims priority through a chain of abandoned continuation applications back to a 1987 EPO Filing by Nobel Prize winning physicists Johannes Georg Bednorz and Alex Mueller. While working for IBM Bednorz and Mueller discovered “high-temperature” superconductivity in ceramics. The patent claims:

A method, comprising:

forming a composition including a transition metal, a rare earth or rare earth-like element, an alkaline earth element, and oxygen,

where said composition is a mixed transition metal oxide having a non-stoichiometric amount of oxygen therein and exhibiting a superconducting state at a temperature greater than 26°K,

maintaining said composition in said superconducting state at a temperature greater than or equal to 26°K, and

passing an electrical current through said composition while said composition is in said superconducting state.

 

Patents Issuing with No Assignee

Patent, Stats, USPTO News

This is a follow-up post from a recent discussion of assignee-applicants. About 40% of recently filed patent applications are filed without listing any particular assignee in the patent document. One comment queried what percentage of those cases are actually assigned. To start on an answer to that question, I pulled up data on patents issued over the past 10 years and identified the percentage of patents that issue with no assignee designated at the time of patent issuance. The chart below shows that this percentage is now well under 10%.

Patent Reform 2015

Patent

According to The Hill, Patent Reform has been taken off the agenda of the judiciary committee. Senator Leahy is quoted as saying “Because there is not sufficient support behind any comprehensive deal, I am taking the patent bill off the Senate Judiciary Committee agenda.”

With election season now moving into high-gear, the issue is unlikely to be revived this session.

Fee Shifting as a Risk Management Exercise

Fee Shifting, Patent, ,

By Dennis Crouch

I have written before that patent plaintiffs may welcome more fee-shifting so long as they are balanced in the way that they apply both to plaintiffs and defendants. In Octane Fitness, the Supreme Court followed this pathway – giving trial court judges discretionary authority to determine which cases are sufficiently “exceptional” to warrant an attorney fee award.

Because of the expense, unpredictability, and potential delays of patent litigation, patent assertion entities spend a considerable amount of time managing and hedging against downside risks. They do this by finding contingency fee attorneys and partners willing provide substantial up-front monies in order to fund an enforcement campaign. Still, in the wake of Octane Fitness, some assertion entities have at least informed their investors of potential risk. Spherix Inc, for instance, recently filed a quarterly report remarking on the topic:

Recent rulings also create an increased risk that if the Company is unsuccessful in litigation it could be responsible to pay the attorney’s fees and other costs of defendants by lowering the standard for legal fee shifting sought by defendants in patent cases.

Link.

Of course, for masters-of-risk-management, the increased risk of owing attorney fees upon losing a case is just another risk to be managed.

Athena Fee Shifting Protection (FSP): A new product being offered by Athena FSP is designed to help in this regard. In return for a percentage share of any eventual award or settlement, Athena FSP will promise to pay any attorney fee award lodged against their partner. For patent assertion entities, this model eliminates the downside risk of losing a fee shifting award by reducing the potential upside by a few points. (Note: the standard policy limit is $3m).

Although Athena FSP’s product looks like insurance, the company wants to ensure that its product is not regulated as insurance. One difficulty with insurance is that state regulators typically enforce a rule against providing insurance for intentional torts — and losing on an exceptional-case finding has many parallels to intentional torts. Because of the upside-only payout, a better analogy may be to think of Athena FSP as an investor who, instead of paying cash for shares, takes a percentage of revenue in return for co-signing the loan.

I asked Athena’s Director Ashley Keller whether there is some fear that judges will be more likely to award fees in their cases since the partnership with Athena FSP seems designed as a plan toward malfeasance. The well-considered retort is twofold: Athena’s approach is to conduct an extensive deep dive into the potential lawsuit as a way to vet the case and only partner in situations where an exceptional case award is quite unlikely. That vetting process can then serve as evidence that an outside entity was willing to put significant money at risk based upon its thorough analysis that the case was not exceptional. In other words, if this was an insurable risk then it shouldn’t be seen as exceptional.

Applicant-Assignees

Patent, Stats, USPTO News

One aspect of the America Invents Act of 2011 was to allow patent owners to directly file patent applications as the named “applicant.” Under the prior rule, only inventors could be applicants except in unusual circumstances where the inventor was proven to be unavailable or unwilling to cooperate with the rights-holder. This change simplifies the process for corporate patent owners — especially in dealing with continuation applications and former employees. The chart above shows information gleaned from recently published patent applications and shows that most assignees are now naming themselves as the applicant rather than the inventors.

Trade Secret Subject Matter Eligibility

Patent, Trade Secret,

By Dennis Crouch

While the U.S. Supreme Court contemplates its most recent case on patent subject matter eligibility, a California appellate court has just decided a case on trade secret subject matter eligibility – finding that ideas are protectable under California trade secret laws, but that the protectable information must be sufficiently specific and secret. Altavion, Inc. v. Konica Minolta Systems Laboratory Inc., — Cal.Rptr.3d —-, 2014 WL 1846104 (Cal.App. 1 Dist. 2014). Oddly, KMSL’s MoFo attorneys argued (without citation to precedent) that “[g]eneralized ideas and inventions are protectable by patents and thus cannot be trade secrets.” That argument was soundly rejected by the Altavion court, who held instead that a trade secret can include “any unpatented idea which may be used for industrial and commercial purposes.” Quoting Sinclair v. Aquarius Electronics, Inc., 42 Cal.App.3d 216 (1974). This follows the general and longstanding principle that an inventor may choose to keep her idea as a trade secret rather than file for patent protection. “[I]f a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law.” In particular, the court here upheld the trade secret rights to “design concepts” such as process flows and conceptual methods that were not tied to any particular product or software.

In trade secret law, subject matter eligibility often begins with the notion it can be “any information” that confers some economic benefit on its holder by virtue of being kept secret and is the subject of reasonable efforts to maintain secrecy. One limit on the scope of trade secret rights is that the secret must be described “with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit [an accused infringer] to ascertain at least the boundaries within which the secret lies.” Diodes, Inc. v. Franzen 260 Cal.App.2d 244 (1968).

Of the various forms of alleged trade secret misappropriation, two scenarios are likely most common. The first involves former employees who join competitor firms and share secret information with their new employers. The second involves secret information shared with partner firms or potential affiliates who then abuse their relationship to unduly profit from the information. A common theme with both of these scenarios is a preexisting relationship between the trade secret holder and the alleged wrongdoer. That relationship is often bound by a contract that speaks specifically to rights and duties associated with secret information. Thus, in these cases, the same action that appears as trade secret misappropriation is often a breach of contract as well. Regarding this contract-law phenomenon, the court here started its decision with a quote of Mark Lemley’s 2008 article on trade secret law:

Trade secret protection promotes the sharing of knowledge, and the efficient operation of industry by permitting the individual inventor to reap the rewards of his labor by contracting with a company large enough to develop and exploit it. Trade secret law allows the inventor to disclose an idea in confidential commercial negotiations certain that the other side will not appropriate it without compensation. The holder of the secret, may disclose information he would otherwise have been unwilling to share, and this permits business negotiations that can lead to commercialization of the invention or sale of the idea, serving both the disclosure and incentive functions of intellectual property law.

Lemley, The Surprising Virtues of Treating Trade Secrets as IP Rights, 61 Stan. L.Rev. 311 (quotations and citations omitted).

The story of this case began with Altavion’s idea for “digital stamping technology” involving bar-codes that include encrypted information about the contents of the underlying document being stamped. Altavion disclosed the idea to KMSL – Konica Minolta’s research subsidiary – as part of a failed negotiation between the companies. That negotiation was, however, governed by a non-disclosure agreement agreed-to by KMSL. Later, Altavion learned that KMSL had filed twenty four separate patent applications on digital stamping technology stemming from the Altavion idea. Altavion, on the other hand, had decided to keep its idea as a trade secret.

Following a bench trial, the district court found that KMSL had misappropriated the Altavision trade secret and awarded $1.5 million in damages and $3.2 million in attorney fees. The trial court found that KMSL “had no idea, interest or information about DST … or use of bar codes prior to their dealings with [Altavion].” On appeal, that decision has now been affirmed.

In its appeal, KMSL argues that the lower court’s protection of digital stamping technology as a trade secret was improper and that, instead, the lower court should have focused on the particular and specific algorithms and software concepts that Altavion had created. The court agreed with this, in-part, but responded by dividing the claimed information into three tiers grouped according to both their specificity and secrecy.

The least specific and least secret level of information is Altavion’s general idea for a barcode allowing for self-authentication of documents with identification of alterations. This level of information is not a protectable trade secret because the general idea was disclosed to other companies without the benefit of an NDA. At the other extreme, the most specific and secret level of information is Altavion’s algorithms and source code that execute Altavion’s DST. Such information is unquestionably protectable by trade secret law, but it could not form the basis for Altavion’s misappropriation claim because Altavion did not share its algorithms and source codes with KMSL.

The middle tier of information is comprised of the design concepts that underlie Altavion’s DST, many of which might be evident to a software end user. There is no evidence such information was disclosed to anyone other than KMSL, pursuant to an NDA, and, thus, misappropriation of these secret design concepts (separately and in combination) provide a basis for Altavion’s claim.

Here, the court finds “design concepts” – similar to what are found in patent drawings – to be protectable trade secrets.

Read the court decision here: Altavion

For further background on this topic, readers may want to read: Andrew Schwartz, THE CORPORATE PREFERENCE FOR TRADE SECRET, 74 Ohio St. L.J. 623 (2013) (arguing that, where protectable, corporations should prefer trade secret protection over patent protection)

Supreme Court: In Copyright, Laches Cannot Preclude Actions Taken Within Three Year Statute of Limitations

Copyright, Laches, Patent, Patent Cases 2014, Supreme Court, , ,

By Dennis Crouch

Petrella v. MGM (Supreme Court 2014)

Frank Petrella wrote a screenplay back in 1963 based on the life of Jake LaMotta and assigned rights to UA/MGM who made the movie Raging Bull. Under the old renewal system, renewal rights went to Petrella’s heir, Paula Petrella, who renewed the copyright in 1991 in a fashion that (seemingly) eliminates the prior license. In 1998 she informed MGM that its continued exploitation of the Raging Bull movie violated her copyright. Finally, in 2009, she did sue – alleging copyright infringement.

Copyright infringement has a three-year statute of limitations indicating that “No civil action shall be maintained under the [Act] unless it is commenced within three years after the claim accrued.” 17 U.S.C. §507(b). However, as in patent law, copyright follows a “separate-accrual rule” that sees each successive violation of a copyright as a new infringing act with its own statute of limitations. Thus, under the statute of limitations, MGM could be liable for its post-2006 actions such as copying and distributing the work.

In the lawsuit, MGM separately asserted the equitable defense of laches based upon the long and unreasonable delay in bringing suit.

In a 6-3 decision, the Supreme Court has sided with Petrella – finding that the statute of limitations does all the work on the question of liability – leaving latches only to potentially shape the remedy.

Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window. As to equitable relief, in extraordinary circumstances, laches may bar at the very threshold the particular relief requested by the plaintiff. And a plaintiff’s delay can always be brought to bear at the remedial stage.

The court was clear that equitable estoppel may also apply, but that generally requires some affirmative act by the rights-holder (that leads to

In a footnote, the court draws some parallels with the six-year statute of limitations for collecting back-damages in patent law. 35 U.S.C. § 286. In a 1992 en banc decision, the Federal Circuit held that laches can be an additional bar to collecting back-damages even within the six-year limit. A. C. Aukerman Co. v. R. L. Chaides Constr. Co., 960 F. 2d 1020 (Fed. Cir. 1992) (en banc). Noting that decision, the Supreme Court here only remarked that “We have not had occasion to review the Federal Circuit’s position.”

One interesting aspect of the decision was the unusual split between the majority and dissent. Justice Ginsburg penned the majority opinion that was joined by Justices Scalia, Thomas, Alito, Sotomayor, and Kagen.  Justice Breyer dissented and was joined by Chief Justice Roberts and Justice Kennedy.

PTO: Business Method Patent in 100 Days

Academic Studies, Accelerated Examination, Patent

by Dennis Crouch

A couple of weeks ago, the USPTO issued U.S. Patent No. 8,712,797 to the drug-price-shopping company named GoodRX. The patent appears to be a typical business-method type invention based on the idea that automated internet communications can help solve consumer information problems. Here, the basics are to obtain a price list from two different pharmacy benefit managers and then display “at least a portion” of those prices through a user interface.

What is unusual is that the patent issued only 98 days after its filing date. The notice-of-allowance was mailed 44 days after filing.  (Note – this is not a continuation or divisional but it does claim priority to a provisional application.)  The application included a track-one request ($2,000 for small entity) filed by Knobbe. This is an incredibly short timeline for issuing a broad business-method patent that is very likely invalid.

Claim 1 is listed as follows:

1. A method of displaying prices for drugs … comprising:

providing a user interface using a computer processor;

receiving from the user interface information identifying a first drug;

obtaining a first set of prices for the first drug that is associated with a first pharmacy benefit manager (PBM), wherein a pharmacy benefit manager processes a claim relating to a drug and has an agreement with a pharmacy relating to a price of one or more drugs, the first set of prices comprising at least one price for the first drug and each price in the first set of prices being determined by an agreement between the first PBM and a pharmacy;

obtaining a second set of prices for the first drug that is associated with a second pharmacy benefit manager, the second set of prices comprising at least one price for the first drug and each price in the second set of prices being determined by an agreement between the second PBM and a pharmacy; and

displaying in the user interface at least a portion of the first set of prices and the second set of prices.

As mentioned above, the patent claims priority to a provisional filing. One interesting aspect of this case is that the provisional was filed pre-AIA and the application was filed post-AIA. For these transitional applications, the USPTO asks applicants to declare whether new matter was added to the non-provisional application and the applicant here indicated that answer was no. The problem is that the provisional application is actually quite sparse and – at least to my eye – there are a number of claims that were not described by that document.  Of course, we would need to ask whether there is any remedy for failing to accurately answer the AIA-Transition question.

To the extent you are concerned about GoodRX patent viability, the company does have two additional applications pending that claim priority to the same provisional application.

Kelley Drye Misses First Step in Collecting $14 Million Fee from Client

Ethics, Patent

By Dennis Crouch and David Hricik

Kelley Drye & Warren, LLP v. Orbusneich Med. Co. Ltd., BVI, 2014 WL 1814204 (Conn. Super. Ct. Apr. 4, 2014). KDW Decision

In this case, the law firm of Kelley Drye (KDW) has sued Orbus to collect the $14,000,000 that it claims to be owed as part of its alternative fee arrangement for handling litigation on behalf of its then-client, Orbus, against Boston Scientific.

The basics: Orbus hired KDW to litigate its patent infringement and related common law claims against Boston Scientific. Orbus was advised that the suit would go quickly on the rocket docket of the Eastern District of Virginia. The fee-setup was a hybrid-contingency-fee arrangement with a guaranteed payout of $375,000 for pre-trial work and another $325,000 for the trial, if necessary. In the event of a settlement, the agreement called for KDW to then receive the full hourly rate for their work plus a “success fee” based on the settlement amount.

The case was filed in the Eastern District, but then was transferred to Massachusetts. Then, Boston Scientific moved for reexam and the suit was stayed. Thus, things were in a ditch:

At this point the exchange of correspondence between the parties (Defendants’ Exhibits B, C & D) make clear that: (1) the U.S. litigation begun by KDW on behalf of Orbus was stayed for possibly several more years; (2) no leverage whatsoever of the kind envisioned in Attorney Moore’s engagement letter (Plaintiff’s Ex. 2) had been brought to bear on Boston Scientific; (3) the settlement value of the U.S. litigation had minimal or no cash value at all; and (4) Orbus’ patents had possibly been placed in jeopardy by the continuing reexaminations. In reviewing the results obtained by counsel when determining the reasonableness of fees charged, the court cannot find on these facts that KDW added substantial value to Orbus’ legal interests as of July of 2012, after three years of litigation and millions of dollars of time expended.

Orbus then turned to replacement counsel. Their strategy had Orbus file a number of European actions, including ones in Germany, UK, Ireland, and the Netherlands. KDW was not much involved.

In 2013, Orbus and Boston Scientific came to a settlement resulting in a one-time payment to Orbus and a worldwide patent license for Boston Scientific. KDW then added-up its fees thus far in the litigation ($2.8 million) and added on its success fee bonus before sending its $14 million bill to Orbus.

When the (now former) client balked, KDW filed suit. In this decision, the trial court rejected KDW’s argument that it was entitled to pre-judgment relief, apparently in the form of some sort of state law attachment of Orbus’ assets. The question the court had to decide was whether KDW was likely to prevail on the merits.

Attorney fee arrangements are treated somewhat differently from ordinary commercial contracts – here the court indicated in can only enforce attorney fee arrangements to the extent that they are reasonable. All state professional responsibility rules prohibit the collection of unreasonable fees. Regarding reasonableness, a major question is whether the attorney exerted substantial effort and/or added substantial value.

Here, the European cases began after the US case was stayed. That fact aided Orbus’s argument that KDW added no value to the European cases. In addition, Orbus argued that the terms of the fee arrangement do not extend to those cases. And, if it had to pay KDW for the European monies then Orbus would effectively be paying “twice for the same legal service” since its European attorneys must also be paid.

Based upon these facts, the trial court stated:

[T]he court is unable to find even a reasonable suspicion that KDW would prevail on the merits at trial, and that the trier of fact would find the superseding contingent fee agreement enforceable in the full amount of $14,560,000.00.

At this point, the court has denied preliminary relief, but KDW still has the opportunity to prove its case at the trial.