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In an email distribution regarding their upcoming Chisum Patent Academy, Don Chisum and Janice Mueller opine on the upcoming Supreme Court case of SAS v. Lee.
They write:
The Court will address, at least indirectly, the PTO’s rule 37 CFR § 42.108(a). The rule allows the Patent Trial and Appeal Board (PTAB) to institute inter partes review (IPR) on (and, implicitly, to adjudicate) only some of the claims of a patent challenged in a petition (and, also, only on some of multiple grounds of unpatentability). . . .
More likely than not, the Supreme Court will invalidate the practice that rule 108(a) makes possible as contrary to the governing statutes. 35 USC Section 318(a) requires that the PTAB “issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” If the PTAB must rule on all claims challenged in a petition in its final decision, it makes no sense to allow the PTAB (per Rule 108(a)) to “institute” review on fewer than all those claims. (NOTE: the statute on institution, 35 USC 314(a), sets a reasonable-likelihood-of-unpatentability “threshold” for “at least 1 of the claims challenged in the petition.” That can easily be read as contemplating that only one of the challenged claims must meet the threshold and that all challenged claims will be carried into a review upon institution, whether or not they met the threshold standard.)
Briefing in the case will go through the summer.
by Dennis Crouch
Joseph Phelps Vineyards v. Fairmont Holdings (Fed. Cir. 2017)
Phelps Vineyards has been selling its INSIGNIA wine for the past 40 years — often at $200+ per bottle. In 2012, Fairmont received its federal registration for the mark ALEC BRADLEY STAR INSIGNIA for cigars. Phelps Vineyard petitioned for cancellation before the Trademark Trial and Appeal Board (TTAB). 
Although different market areas, Phelps Vineyards argued that the fame of its mark increased the likelihood of confusion. However, the TTAB rejected that argument – finding that “Petitioner’s mark is not famous” and thus gave that DuPont factor no weight. On appeal, the Federal Circuit has vacated that decision – finding that “fame” in the likelihood of confusion analysis is not a binary yes/no consideration but rather “varies along a spectrum” from not famous at all to extremely famous: think Chester Arthur to Donald Trump. Note here – the DuPont factor of fame is totally different from dilution fame, which is a yes/no question.
In looking at the facts of the case here, the appellate panel noted substantial evidence that INSIGNIA wine “is renowned in the wine market and among consumers of fine wine. . . . We are perplexed at the Board’s finding that INSIGNIA wine has no ‘fame,’ giving no discernable weight to this factor. . . . The factor of ‘fame’ warrants reasonable weight, among the totality of the circumstances.”
On remand, the TTAB will take-up the case again and determine whether this change impacts the results in any way. Of course, a conclusion that INSIGNIA is famous in the wine business certainly does not directly lead to the conclusion that the mark ALEC BRADLEY STAR INSIGNIA is confusingly similar when used to sell cigars.
An interesting aspect of the decision is that it was written as a per-curiam opinion of the court (Judges Newman, Dyk, and Wallach). However, Judge Newman also penned a concurring opinion noting two additional errors made by the board:
Since these notations are in the concurring opinion, the TTAB is not directly bound to follow Judge Newman’s suggestions, but will do well to given them full consideration on remand.
Further thoughts on the Defend Trade Secrets Act and inevitable disclosure
Guest post by Maxwell Goss. Dr. Goss is a business litigator with Rossman Saxe, P.C. in Troy, Michigan. His practice focuses on non-compete, trade secret, intellectual property, and shareholder law and litigation. Dr. Goss blogs at Law and the Creative Economy.
Last week I wrote about the doctrine of “inevitable disclosure” as it relates to the Defend Trade Secrets Act of 2016 (DTSA), the statute that created a general, private cause of action for trade secret misappropriation under federal law. Because inevitable disclosure is of continuing importance and controversy, I wanted to unpack the issues further here. As discussed below, the DTSA leaves room for trade secret plaintiffs to assert inevitable disclosure.
Trade secret plaintiffs frequently face problems of proof. Gathering evidence that a suspected individual or company has actually misappropriated trade secrets, or legitimately threatens to misappropriate trade secrets, can be a substantial hurdle to getting a lawsuit off the ground.
Take a typical scenario where an employee of company A goes to work for company B, and A alleges that the employee is using its trade secrets on behalf of B. In some cases, company A will have evidence that the employee swiped its secrets before leaving, perhaps by emailing himself a customer list or downloading technical specifications onto a flash drive. Company A might even have evidence that company B is now using the secrets, perhaps because it is soliciting A’s customers or has launched a product based on A’s specifications. In many cases, though, the activities of the employee and the new employer are a black box. The employee was exposed to trade secrets at Company A, and is now working for Company B, but Company A has not uncovered evidence of specific disclosures to Company B. Company A may have reason to believe the employee must be disclosing secrets to B, or threatens to do so, but has no way to confirm this directly prior to filing suit and obtaining discovery—a catch-22. Is company A without recourse?
Enter the “inevitable disclosure” doctrine. Under this common-law doctrine, a trade secret plaintiff may base a claim for trade secret misappropriation on a showing that disclosure of trade secrets is “inevitable.” In PepsiCo, Inc. v. Redmond, the landmark Seventh Circuit case on inevitable disclosure, a former employee of PepsiCo went to work for a competing beverage company. Notably, there was no allegation that the employee had stolen specific information and given it to the competitor. Instead, PepsiCo argued that the employee could not help but use the company’s trade secrets to help its competitor “achieve a substantial advantage” and “respond strategically” through his knowledge of PepsiCo’s pricing, distribution, and marketing information. Because his reliance on such information was inevitable, the court affirmed an injunction barring the former employee from assuming his position at the competitor company.
The doctrine of inevitable disclosure is controversial, and is only recognized in some jurisdictions. One objection is that it essentially allows courts to impose a non-compete on those who never signed a non-compete agreement. Another objection is that it facilitates abusive lawsuits against former employees based on flimsy evidence. Yet another objection is that it can enable a company to obtain an injunction that damages a competitor without any evidence of wrongful conduct by the competitor itself. Unsurprisingly, then, inevitable disclosure was frequently discussed in the lead-up to the passage of the Defend Trade Secrets Act. As enacted, the DTSA did ultimately limit the application of the doctrine. Though the language of the DTSA largely tracks that of the Uniform Trade Secrets Act (UTSA), which has been enacted in some form in nearly all states, the DTSA departs from the UTSA in that it expressly disallows injunctions that “prevent a person from entering into an employment relationship” and prohibits any conditions placed on a person’s employment in an injunction based “merely on the information the person knows.”
In light of this language, many observers have concluded that inevitable disclosure is a dead letter under the DTSA. For example, one article states that the DTSA “explicitly rejects the inevitable disclosure doctrine under federal law.” To take another example, I recently attended a (very good) presentation in which it was stated that inevitable disclosure is “foreclosed” by the DTSA. And I would be remiss not to mention that I myself declared in a CLE presentation last year that “[t]he DTSA seemingly rejects inevitable disclosure by dictating that conditions on employment in an injunction may not be based merely on information the person knows.”
But the doctrine of inevitable disclosure lives on under the DTSA, albeit in a diminished form. As explained in my previous post, the court in Molon Motor and Coil Corp. v. Nidec Motor Corp. recently held that a plaintiff had successfully stated a claim for trade secret misappropriation under the DTSA where it had pled allegations supporting an inference that a former employee who went to work for a direct competitor would inevitably have disclosed the plaintiff’s trade secrets to the competitor during the period in which the DTSA has been in effect. The court added: “Of course, further discovery could upend any or all of this, but at this stage, continued use beyond the May 2016 effective date [of the DTSA] is plausible.” Notably, the court then ordered the parties to discuss a “discovery plan on the trade secret claims.” In short, the plaintiff’s allegations of inevitable disclosure entitled it to move forward on both its federal and state trade secret claims.
It would be easy to dismiss Molon as dealing only with a narrow issue of limited importance. The Court’s principal concern, after all, was how the DTSA applies where the alleged theft at issue preceded its passage—an issue relevant in only a few and declining number of cases. But the ruling should not be dismissed so quickly. In reaching its holding, an essential part of the Court’s analysis was that was that inevitable disclosure can in fact support a DTSA claim. This conclusion has at least two potential implications applicable beyond the specific procedural posture of the case.
First, the DTSA could be used to secure jurisdiction in federal court and then state law could be used to secure an injunction based on inevitable disclosure. Consider companies A and B again. Company A wants to sue an employee of company B in federal court—for instance, because of perceived advantages in bringing the case before a federal judge or because of the streamlined process for obtaining discovery across state lines under the federal rules. But suppose the parties are citizens of the same state. Prior to passage of the DTSA, unless there had been some hook other than diversity jurisdiction for bringing the case in federal court, company A would have been forced to bring the case in state court. Under the DTSA, diversity of citizenship does not matter. Company A can bring the case in federal court regardless of the parties’ citizenship.
If company A goes this route, is it stuck with the DTSA’s strict limitations on injunctive relief, including the prohibition of injunction based “merely on the information the person knows”? Very arguably not. By its own terms, the DTSA does not preempt state trade secret law, and state law claims will nearly always be available in cases where the DTSA applies. Assuming the applicable state law permits injunctive relief based on inevitable disclosure, company A could file a concurrent claim for trade secret misappropriation under state law and obtain an injunction based on an inevitable disclosure theory. In such a case, the DTSA would be used to obtain federal court jurisdiction while state law would be used to obtain the desired relief.
Second, the DTSA stops well short of barring all injunctive relief based on inevitable disclosure. The limitations on injunctions under the statute apparently extend only to employment relationships: An injunction may not “prevent a person from entering into an employment relationship,” and any conditions on employment must be based on “evidence of threatened misappropriation and not merely on the information the person knows.” This suggests that an injunction that does not impact employment may still be based on inevitable disclosure.
For example, if company A can offer evidence that an employee who departed for company B will inevitably disclose A’s trade secrets to B, a court conceivably might grant an injunction prohibiting B from using or disclosing A’s trade secrets. For companies that believe their trade secrets are being misused but cannot get into the “black box” of the competitor’s activities prior to discovery, this could be a major advantage. More controversially, a court could grant an injunction directly against the employee based on inevitable disclosure, provided the injunction does not prevent the employee from working for company B or impose conditions on his or her employment.
If the Molon opinion is any indication, the DTSA giveth but the DTSA does not taketh away. That is, a trade secret owner can use the DTSA to bring its case in federal court, and can avail itself of the distinctive benefits and relief available under the DTSA, without losing its ability to assert inevitable disclosure in jurisdictions recognizing the doctrine under state law. Of course, it is unknown how other courts would address similar issues. (As far as I can determine, while a few opinions have made passing reference to inevitable disclosure in DTSA cases, Molon is the first to directly address the applicability of the doctrine under the DTSA.) At a minimum, though, the opinion indicates that rumors of the demise of inevitable disclosure are greatly exaggerated.
by Dennis Crouch
Rivera v. ITC and Solofill (Fed. Cir. 2017)
After conducting an investigation, a divided majority of commissioners of the USITC found no-violation of Adrian Rivera’s U.S. Patent No. 8,720,320 directed toward a re-usable K-cup that work with coffee pods. Investigation No. 337-TA-929. In particular, the decision found all asserted claims invalid for lack of written description. On appeal, the Federal Circuit has affirmed — finding substantial evidence supported the Commission’s holding.
The original set of claims focused on a cup (brewing chamber) designed to hold a “pod” using a “pod adaptor assembly.” However, during prosecution, the patentee cancelled those original claims and replaced them with ones more broadly directed to a “container . . . adapted to hold brewing material.” The expansion captured within its scope competitors who created reusable K-cups that hold loose grounds (instead of pods) that include a filter integrated into the cup.
Section 112 of the Patent Act requires the patentee to submit “a written description of the invention.” Timing-wise, this Written Description Requirement is been interpreted require the full description at the time of filing of the application. The difficulty for many patent applicants is that the scope of the claimed invention can change significantly during prosecution through the amendment process. Problems arise both when patentees attempt to narrow claims to overcome prior art and also (as here) expand claim scope to capture market developments. During prosecution, a written description problem is usually identified as improper “new matter” and is correctable. During infringement litigation, however, a claimed invention lacking sufficient description in the specification will be found invalid and unenforceable.
The test for written description is an objective inquiry that considers whether the original specification “shows that the inventor actually invented the invention claimed.” Ariad Pharm., Inc. v. Eli Lilly & Co., 598 F.3d 1336, 1351 (Fed. Cir. 2010) (en banc). The Federal Circuit considers written description a question of fact. This means that the appellate court gives deference to the lower court/agency determination on appeal.
Focus on the Infringement: At the litigation stage, courts (including the Federal Circuit) considering the written description requirement have a tendency to shift its gaze from the claims and instead also include the accused device in the analysis. Here, the court looked at the accused Solofill cups that include the particular differences from Rivera’s original disclosure: (1) Solofill cups use loose grounds rather than coffee-pods; and (2) Solofill cups include a filter integrated into the cup itself.
Taking this infringement-focused approach, the claimed “container . . . adapted to hold brewing material” can only work with loose grounds if the container includes a filter of its own. And, the patent specification does not indicate that configuration is part of the invention. As such, the claims fail the written description requirement and therefore are invalid.
The outcome here is similar to that of ICU Medical v. Alaris Medical System (Fed. Cir. 2009) and Liebel-Flarsheim v. Medrad (Fed. Cir. 2007) (though an enablement case).
Not Enablement: One of Rivera’s failed arguments is that a person of skill in the art could quite easily make the integrated filter since they were already known in the art. On appeal, the Federal Circuit rejected that argument — holding that this argument goes toward enablement, which is separate and distinct from written description. For its part, the purpose of the written description requirement is to prove that the inventor actually possessed the invention – and thus requires disclosure in the specification.
Omitted Element: This case is similar to other omitted element cases. In his email, Prof Wegner writes: “The patented claims were broader than all disclosed embodiments: The claims omitted one of the features common to all embodiments of the patent application as filed.”
by Dennis Crouch
In TC Heartland LLC v. Kraft Foods Group Brands LLC, the Supreme Court has significantly shifted the balance away from the geographically fringe Eastern District of Texas – holding that the residence requirement of 28 U.S.C. § 1400(b) refers only to a defendant’s State of Incorporation for patent infringement venue purposes.
Read the Decision: 16-341_8n59.
The short (10-page) unanimous opinion authored by Justice Thomas reaffirms the court’s prior decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222, 226 (1957) — holding again that “for purposes of §1400(b) a domestic corporation ‘resides’ only in its State of incorporation” and rejecting the notion that a much broader definition of venue (found in §1391) applies.
Although the Supreme Court law appears continuous. The Federal Circuit created a major blip in its 1990 decision of VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990). In that case, the appellate court held that patent infringement venue is proper in any court having personal jurisdiction over the defendant. That expansive change allowed for the rise of patent-focused venues such as the Eastern District of Texas where the majority of infringement lawsuits have been filed over the two decades (heat map below). 
What next: Section 1400(b) limits patent cases to the judicial district (1) “where the defendant resides,” or (2) “where the defendant has committed acts of infringement and has a regular and established place of business.” This means a likely large boost of lawsuits in Delaware. National retailers will still be amenable to suit essentially everywhere, but many would-be defendants will be able to avoid E.D.Texas at least. There will also be new litigation on the implications for foreign companies with no established place of business in the US. The decision here expressly refuses to address that question other than noting that it did previously decide that foreign corps can be an exception to 1400(b). Although possible, it is unlikely the court will adapt the “established place of business” to include the internet, although that portion of 1400(b) has not been explored since the e-tailing explosion. With less concentrated venue, I we can also expect a rise in multi-district litigation. For more, consider Prof Janicke’s article on the Imminent Outpouring from the Eastern District of Texas.
by Dennis Crouch
The Supreme Court has agreed to hear a new AIA-trials case: SAS Institute v. Lee
The inter partes review appeal focuses on the procedural question of whether the America Invents Act permits the USPTO to partially institute IPR proceedings – as it has been doing. SAS argues instead that the statute requires a full up/down vote on a petition and, if granted, the Patent Trial and Appeal Board (PTAB) must then pass final judgment on all petitioned claims:
Whether 35 U.S.C. § 318(a) … requires [the] Board to issue a final written decision as to every claim challenged by the petitioner, or whether it allows that Board to issue a final written decision with respect to the patentability of only some of the patent claims challenged by the petitioner, as the U.S. Court of Appeals for the Federal Circuit held.
As I previously wrote,
The basic setup here is that SAS argues that the PTO cannot partially institute IPR proceedings since the statute requires that PTO “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” 35 U.S.C. § 318(a)
Although a somewhat sideline issue, it will likely have its biggest impact on estoppel resulting from AIA trials and, as a result, may also shift filing strategy.
AIA Trial Docs:
Guest Post by Prof. David Opderbeck (Seton Hall), originally published on his blog The CyberSecurity Lawyer.
Introduction
Trade secrets are important to cybersecurity because many data breaches involve trade secret theft. The Defend Trade Secrets Act of 2016 (DTSA) amended the Espionage Act of 1996 to provide a federal private right of action for trade secret misappropriation. Some commentators opposed the DTSA in part because it seems redundant in light of state trade secret law and could lead to unnecessary litigation and restrictions on innovation. Now that the DTSA has been in effect for nearly a year, I conducted an empirical study of cases asserting DTSA claims (with the able help of my research assistant, Zach Hansen). This post summarizes the results of that study.
Methodology
We ran keyword searches in the Bloomberg Law federal docket database to identify cases asserting DTSA claims in federal courts. It is not possible to search only on the Civil Cover Sheet because there is no discrete code for DTSA claims. Our search ran from the effective date of the DTSA (May 26, 2016) through April 21, 2017 (just prior to our symposium on the DTSA at Seton Hall Law School). After de-duping, we identified 280 unique Complaints, which we coded for a variety of descriptive information. Our raw data is available online.
Findings
This chart shows the number of filings by district:
We were not surprised to see that the Northern and Central Districts of California, Southern District of New York, or District of Massachusetts were among the top five. We were surprised, however, to see the Northern District of Illinois tied for first. This could reflect the influence of the financial services industry in Chicago, but further research is required.
The next chart shows the number of filings by month:
It is interesting to note the decline in filings following the initial uptick after the May 26, 2016 effective date. Perhaps this reflects a slight lull during the summer months. Filings then remained relatively steady until March, 2017, when they increased significantly. This could have something to do with the quarterly business cycle or bonus season, since many of the cases (as discussed below) involve employment issues. Or, it could reflect a random variation given the relatively small sample size.
We next examined other claims filed along with the DTSA counts in these Complaints:
We excluded from this chart related state law trade secret claims. Not surprisingly, nearly all the cases included claims for breach of contract. As noted above, trade secret claims often arise in the employment context in connection with allegations of breach of a confidentiality agreement or covenant not to compete. Another finding of note was that a fair number of cases assert Computer Fraud and Abuse Act claims, although the number is not as high as expected. Most trade secret cases today involve exfiltration of electronic information, but perhaps many cases do not involve hacking or other access techniques that could run afoul of the CFAA.
We also noted a smaller but not insignificant number of cases asserting other intellectual property claims, including trademark, copyright and patent infringement. Since many documents taken in alleged trade secret thefts are subject to other forms of intellectual property — particularly copyright — this may show that some lawyers are catching on to the benefit of asserting such claims along with DTSA claims.
Finally, our review of case status revealed the following:
At first blush, the number of cases dismissed seems high, given that none of the cases have been pending for more than a year. We assume the vast majority of these cases settled, though further investigation is required. In contrast, the number of preliminary injunctions granted seems very low. Again, further investigation is required, but so far it does not seem that the DTSA is resulting in the kind of preliminary injunction practice we expected to see under a federal trade secret statute.
The Supreme court has relisted SAS Institute Inc. v. Lee, 16-969 – an important step in the progress toward grant of certiorari. The inter partes review case presents the following question:
Whether 35 U.S.C. § 318(a) … requires [the] Board to issue a final written decision as to every claim challenged by the petitioner, or whether it allows that Board to issue a final written decision with respect to the patentability of only some of the patent claims challenged by the petitioner, as the U.S. Court of Appeals for the Federal Circuit held.
The basic setup here is that SAS argues that the PTO cannot partially institute IPR proceedings since the statute requires that PTO “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.”
Although the Department of Justice has sided with the PTO’s approach here, in a prior filing the DOJ argued that the PTO erred in “picking and choosing some but not all of the challenged claims in its Decision.” See Department of Justice v. Discovery Patents, LLC, Case IPR2016-01041 (Patent Trial & Appeal Bd., Nov. 29, 2016).
The outcome of a rule-change here is unclear – while the patent challenger (SAS) is petitioner here. Patentees may prefer the all-or-nothing approach that would hopefully result in final judgments confirming patentability as well as the resulting estoppel.
When Can a Company That Hires its Competitor’s Former Employee Be Sued in Federal Court?
Guest post by Maxwell Goss. Dr. Goss is a business litigator with Rossman Saxe, P.C. in Troy, Michigan. His practice focuses on non-compete, trade secret, intellectual property, and shareholder law and litigation.
The Defend Trade Secrets Act (DTSA) was enacted a year ago, on May 11, 2016. One of the most sweeping changes in intellectual property law in recent years, the statute creates a private cause of action for trade secret misappropriation under federal law.
For trade secret owners, the advantages of the DTSA include access to nationwide discovery and enhanced remedies such as ex parte seizure of property to prevent propagation of stolen trade secrets. For those accused of trade secret theft, the DTSA provides substantial protections including strict limitations on the injunctive relief available and entitlement to a hearing no later than seven days after a property seizure.
An open question has been the status of the controversial “inevitable disclosure” doctrine under the DTSA. Under state law in some jurisdictions, courts will enjoin a company’s former employee from working for a competitor if the company establishes that the employee would “inevitably” use its trade secrets in his or her new position. Trade secret owners like the doctrine of inevitable disclosure because actual misappropriation can be hard to prove. At the same time, the doctrine has been criticized as effectively allowing courts to impose a non-compete on someone who never signed a non-compete agreement.
How does inevitable disclosure fare under the DTSA? The statute provides that an injunction to prevent misappropriation may not “prevent a person from entering into an employment relationship,” and that any conditions placed on a person’s employment in an injunction must be based on “evidence of threatened misappropriation and not merely on the information the person knows.” In light of this language, some have concluded that the inevitable disclosure doctrine is a dead letter under the DTSA.
But a recent court opinion indicates otherwise. Interestingly, the opinion was issued on May 11, 2017, the one-year anniversary of the DTSA, by the United States District Court for the Northern District of Illinois, a federal court in the Seventh Circuit, where inevitable disclosure was first definitively recognized. In Molon Motor and Coil Corp. v. Nidec Motor Corp., the plaintiff, a maker of bespoke motors and gearmotors, sued a competitor after an employee who had allegedly downloaded the plaintiff’s designs and technical data went to work for the competitor.
The defendant moved to dismiss the case, arguing (among other things) that the DTSA did not apply because the alleged acts at issue occurred before the DTSA was enacted in May 2016. The court rejected this argument. Noting that the “key question is whether the inference of inevitable disclosure reasonably extends to continued use beyond the Act’s effective date,” the Court reasoned:
At least on the limited record—the Third Amended Complaint—the alleged trade secrets are not of the nature that would necessarily go stale in the course of a couple of years. A motor design, and the quality control data associated with it, plausibly would retain its trade secret value well into the future. If it is plausible that some of the alleged trade secrets maintain their value today, then it is also plausible that Nidec would be continuing to use them. Of course, further discovery could upend any or all of this, but at this stage, continued use beyond the May 2016 effective date is plausible.
In short, even though the plaintiff company’s former employee had allegedly downloaded the files and gone to work for the competitor before the DTSA went into effect, the court found it plausible that there was a “continuing use” of the information by the competitor after the statute went into effect. Based on this finding, the court allowed the plaintiff to go forward on its DTSA claim.
How does this ruling square with the DTSA, which requires that an injunction be based on “evidence of threatened misappropriation and not merely on the information the person knows”? Though the Molon opinion does not connect the dots, the answer, in part, seems to be that the opinion was addressing a motion to dismiss, not a motion for injunction. A court may not be able to enjoin someone based on inevitable disclosure under the DTSA, but this does not mean a plaintiff may not sue someone based on inevitable disclosure under the DTSA. That is, even where injunctive relief may not be available as an initial matter, a trade secret owner might nevertheless file a claim and move forward with discovery—which could ultimately turn up the evidence necessary to fully substantiate a claim.
Molon represents a significant development in the body of law unfolding under the DTSA. In jurisdictions where inevitable disclosure is recognized, the ruling could help trade secret owners get a case off the ground even where information obtainable in a pre-suit investigation is necessarily limited. On the other hand, defendants will be quick to point out that Molon does not alter the specific allegations needed to plead a trade secret claim premised on an inevitable disclosure theory. Moreover, where an injunction is sought, it should be emphasized that any conditions placed on employment under the statute must be based on evidence of threatened misappropriation and not merely information the person knows.
What the Defend Trade Secrets Act Means for Trade Secret Defendants
The AIPLA has now offered its legislative proposal for rewriting 35 U.S.C. § 101 that is quite close to that offered by the IPO:
Inventions Patentable
(a) Eligible Subject Matter.—Whoever invents or discovers any
new anduseful process, machine, manufacture, composition of matter, or any useful improvement thereof,may obtainshall be entitled to a patent therefor, subject only to the conditions and requirementsofset forth in this title.(b) Sole Exceptions to Subject Matter Eligibility.—A claimed invention is ineligible under subsection (a) only if the claimed invention as a whole exists in nature independent of and prior to any human activity, or can be performed solely in the human mind.
(c) Sole Eligibility Standard.—The eligibility of a claimed invention under subsections (a) and (b) shall be determined without regard to the requirements or conditions of sections 102, 103, and 112 of this title, the manner in which the claimed invention was made or discovered, or whether the claimed invention includes an inventive concept.
AIPLA statement. The AIPLA proposal is strikingly similar to that of the IPO’s (although not acknowledged by the AIPLA statement).
[DOCX File of Table: Comparing101Proposals] 
In Shore v. Lee, the Federal Circuit affirmed a PTAB finding without opinion. Shore’s petition to the Supreme Court asks whether “the Federal Circuit’s affirmance without opinion of the PTO’s rejection of Petitioner’s patent application violate 35 U.S.C. § 144?” In its first opportunity to support the Federal Circuit’s R.36 jurisprudence, the Department of Justice has passed – instead waiving its right to offer any argument in support. The Supreme Court will consider the petition later this month.
= = = = =
Similarly in Broadband ITV v. Hawaiian Telecom, respondents have waived their right to respond to Broadband’s challenge to quick-look eligibility denials.
ArcelorMittal v. AK Steel Corp. (Fed. Cir. 2017)
In a split decision, the Federal Circuit has affirmed a district court judgment invalidating ArcelorMittal’s U.S. Patent No. RE44,153 (claim 24 and 25). The primary disputed issue was whether the district court possessed subject matter jurisdiction when it granted summary judgment of invalidity and non-infringement. The majority (Huges + Moore) found a sufficient case-or-controversy, while the dissent (Wallach) would have found appellant’s covenant-not-to-sue sufficient to moot the dispute.
A fundamental Constitutional limitation on the power of American courts is the requirement of a “proper case and controversy.” US Courts only have jurisdiction over cases that involve “a substantial controversy, between [the] parties having adverse legal interests, of sufficient immediacy and reality.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007) (focusing on declaratory jurisdiction).
The district originally invalidated all the claims of the ‘153 patent, but that holding was vacated in a prior appeal as to claims 24 and 25. On remand, the patentee moved to dismiss the case for lack-of-jurisdiction since all it wasn’t asserting those claims in the lawsuit and all its asserted claims had been found invalid. At the same time, however, Defendant moved for summary judgment of non-infringement of claims 24 and 25. Seeking to avoid such a judgment, the patentee then executed and delivered a covenant not to sue Defendants and their customers under the RE’153 patent. Although “facially unconditional,” the delivery included a statement that the covenant was tendered on condition that its motion to amend was resolved. (That motion would amend the complaint to totally remove assertion of claims 24 and 25 from the patent). Importantly, the delivery included a statement that the patentee would be “ready to deliver the covenant unconditionally” upon resolution of the motion and also that the point of the conditional delivery was to ensure that the district court maintained jurisdiction over the case. Following all that posturing, the district court went ahead an held the claims invalid and denied the motion to amend as moot.
On appeal, the Federal Circuit has agreed with the district court that it still held subject matter jurisdiction over the case since the covenant-not-to-sue wasn’t fully delivered.
Although a patentee’s grant of a covenant not to sue a potential infringer can sometimes deprive a court of subject matter jurisdiction, the patentee “bears the formidable burden of showing” “that it ‘could not reasonably be expected’ to resume its enforcement efforts. . . In this context, that requires ArcelorMittal to show that it actually granted a covenant not to sue to Defendants, and that the covenant enforceably extinguished any real controversy between the parties related to infringement of the RE’153 patent. . . .
At no time before the court entered summary judgment did ArcelorMittal unconditionally assure Defendants and their customers that it would never assert RE’153 claims 24 and 25 against them. ArcelorMittal certainly had ample opportunity to provide the unconditional assurances required to defeat jurisdiction. It did not. . . . The district court, well within its discretion in managing its docket, resolved the … summary judgment motion without having first resolved the motion to amend.
As the court notes, the outcome here was fully within the patentee’s control and for strategic reasons it chose not to actually issue the covenant-not-to-sue.
Writing in Dissent, Judge Wallach disagrees with the majority’s interpretation of the cover-letter as creating a condition precedent that must be met before the covenant takes effect. Rather, Wallach focused on the language of the covenant that was appropriately signed and submitted and its terms extinguish “any substantial controversy of sufficient immediacy between the parties concerning the RE153 patent, the only patent at issue in the instant action.”
In discerning a covenant’s scope and effect, we rely on its terms, not evidence extrinsic to the stipulation such as terms in an accompanying cover letter. See Already v. Nike. . . . When as here a covenant’s terms are unambiguous, we may not interpret those terms using extrinsic evidence, such as a cover letter. See, e.g., Coast Fed. Bank, FSB v. United States, 323 F.3d 1035, 1040 (Fed. Cir. 2003) (en banc) (contract analogy); see also Restatement (Second) of Contracts § 285 (Am. Law Inst. 1981) (describing a covenant not to sue as a “contract”).
My take is that Judge Wallach is substantially on the right path here, but he also misses important issues by focusing on the content of the covenant rather than its mechanism of delivery. An alternative way to see the facts is that the covenant was wrapped in a separate contract that required resolution of the motion-to-amend prior to the covenant becoming effective. In the property context, there are differences between the states as to whether conditional-delivery is permissible (outside the escrow context).
The following is an excerpt from PTO Director Michelle Lee’s keynote address today, at George Washington University Law School. Read the full remarks here.- DC
How do we continue to incentivize … incredible innovations? First, we must ensure that the USPTO issues the highest quality patents as quickly and efficiently as possible. This means, at a minimum, continuing to bring down our backlog and pendency so that good ideas can be patented quickly. Which is why I am proud to report that we’ve reduced our backlog of unexamined patent applications by almost 30 percent from its peak in January 2009, despite a 32 percent increase in applications over this time period. Our so-called first action pendencies – that measure the time from filing an application to the time of obtaining an initial decision from the examiner— are down by 43 percent—from 28 months in 2011 to 16 months today. Our total pendencies – the time from filing an application to the time of obtaining a final office action, such as an allowance—are down by 26 percent—from 35 months in 2010 to 26 months today. Our backlog of Ex Parte Appeals – that’s not AIA proceedings, but our internal appeal process to the Board after the examiner issues her decision – has also gone down. We have reduced our inventory of ex parte appeals by 45 percent from a high of about 26,000 in 2012 to about 15,000 today. And, we have reduced the average pendency for appeals by 30 percent from 28 months in 2016 to 19 months today. In short, our backlog and pendencies are now lower than they’ve been in more than a decade, and they will continue to go down. Simply stated, this means more inventors are obtaining more patents more quickly. . . .
We constantly welcome—in fact, we solicit—feedback and input. And we have shown that we are willing to refine and improve as many times as needed. For example, we’ve provided applicants with more access to examiner interviews more than doubling the number of interview hours in just eight years. We’ve had more RFC’s, Proposed Rules, and public roundtables than ever before – including on such topics as our Enhanced Patent Quality Initiative, our 101 guidance, and our Patent Trial and Appeal Board proceedings. We’ve also brought a broader range of services to support American innovators where and when needed, including through four regional offices across the country, and through over a dozen IP attaches across the globe. For those of you who may not know, our attaches in China, the EU, India, Brazil, and other locations help U.S. innovators obtain and enforce IP rights outside the US, and also help advocate for improved IP laws outside the U.S. . . .
Examining patents quickly and efficiently is only part of the job. The public relies on us to issue quality patents. Today, we have about a dozen programs underway that we believe will meaningfully improve patent quality. These include programs for making sure we’re getting the most relevant prior art before our examiners as early as possible by making prior art cited in our PTAB proceedings available to examiners handling related applications, and transitioning all our examiners from the decades old, antiquated U.S. Patent Classification System to the updated, increasingly global Cooperative Patent Classification System. Developing best practices such as for enhancing the clarity of the record. And developing new and better ways to measure our progress. For example, with our Master Review Form, we are now processing twice as many reviews, and capturing data not only about the correctness of our actions, but also about the clarity of our actions. This helps us identify trends, and helps us pinpoint very specific areas for training. Finally, and, importantly, for the first time in 40 years, we are doing a comprehensive review of the amount of time our examiners need to do their work in light of the many recent changes within the patent system. We are already seeing measurable and statistically significant results in our patent quality efforts even in the short amount of time since we began the Enhanced Patent Quality Initiative. And you can look forward to more improvements in the future. In sum, the USPTO is operating well, and is issuing more, higher quality patents than ever. …
What work lies ahead? Our top priority today is to make sure the Patent Trial and Appeal Board’s AIA proceedings are as effective and as fair as possible–within our Congressional mandate. Now is the right time to examine and make any needed reforms to these proceedings, because we have five years of data and experience to guide us. …
Let’s take a look at where we are with the AIA trials today. We have shared regular updates on the number of cases and the results of those cases, but we want to break down the numbers even further so that everyone has the facts, as there have been many numbers cited – some of which are accurate, some of which are not.
This waterfall slide is our attempt to present even more data in a more accessible and transparent format. According to waterfall slide data, which shows the status of every petition filed since beginning of AIA, of those petitions that have reached some sort of final disposition (i.e., are not pending), about one third of all petitions are denied institution and do not go to trial; about one third of all petitions settle either before or after the decision to institute; and only about one third of all petitions ever reach final written decision. It is only at that point of reaching final written decision is it relevant to talk about the patentability or unpatentability of the claims of a patent. And, at that point, it is true that 66 percent of petitions will find all instituted claims of the patent unpatentable, 17 percent of petitions will find all instituted claims of the patent patentable, and an additional 17 percent will have mixed results (some instituted claims will be found to be patentable and some will be found to be unpatentable). So statements that “all” or 95 percent or even 80 percent of patents are found unpatentable are not supported by the data and do not account for prior disposition by settlement or by denial of institution.
Drilling down further on the institution rate, here is some helpful data from the years the AIA trials have been in effect. As you can see, the institution rate in our proceedings has been steadily declining from a high of 87 percent in the beginning, to about two thirds today. These are the numbers, and these are the facts. Now, our stakeholders have understandably asked how the rates of unpatentability in AIA proceedings, reflect on the quality of all of the other patents we’ve issued. . . . [T]here are almost 2.8 million patents in force. Incredible. Of those 2.8 million about 4,000 patents have been challenged in AIA trials. This represents less than 0.2 percent of the patents currently in force. …
As I have said many times in the past, the USPTO is constantly looking for ways to make the AIA trials as effective and as fair as possible within our Congressional mandate. And we welcome your suggestions and ideas, the more specific, the better. To this end, we’ve set up a mailbox where you can submit your ideas at PTABProceduralReformInitiative@uspto.gov. This is an early opportunity to provide input. Your feedback here will help form the basis for our recommendations to the administration on next steps.
In fact, we have already heard from a number of you regarding a number of issues. As discussed:
[W]e are [also] streamlining the way the Board identifies and designates opinions as precedential, with the goal of designating more opinions precedential. Why? Because doing so 1). Improves the consistency across panels of the Board, and 2). Provides greater notice to the public to help you make better informed decisions on how to manage your Board proceedings. . . .
Fees: Finally, we are also proposing increases to our AIA trial fees. . . . We believe, as many of you do, that these proceedings should be self-funded. I commend our team for making thoughtful initial cost projections and for recommending revisions to ensure that these proceedings are fully self-funded. There is much to do on AIA proceedings, patent quality, and in many other areas, and I promise you that we are working diligently, with a sense of purpose, every day.
In closing, we all want what’s best for this country’s inventors, innovators and entrepreneurs. Because it is through their efforts that our country remains at the forefront – economically and globally. Simply stated—and I think President Trump and Secretary Ross would agree—we want the United States to out-innovate and out-perform our global competitors, producing new jobs and new technologies and new industries that benefit all Americans, including individual inventors and those in our small businesses and startups. Let’s not forget that the modest businesses and unknown inventors of today may become the largest and most well-known drivers of our economy tomorrow. To make that happen, Congress, the courts, the administration (especially the USPTO), and even all of you here today, must all work together to make sure the system envisioned by our Founding Fathers lives up to its purpose to promote innovation. You have the commitment of the entire USPTO team that we will play our part to ensure that we continue to incentivize the kind of innovations that make our lives better and safer And that put men and women—like Mr. Iver Anderson with his lead-free solder—in the National Inventors Hall of Fame. Our future depends upon it. Thank you.
Aylus Networks v. Apple (Fed. Cir. 2017)
The court here holds that claim construction “prosecution disclaimer” applies to statements made by the patentee in a preliminary response to an IPR proceeding. This holding makes sense and was entirely expected — however it also sets yet another trap for patentees seeking to enforce their patent rights.
The appeal here involves Aylus infringement lawsuit against Apple that alleges AirPlay infringes U.S. Patent No. RE 44,412. After Aylus sued Apple for infringement, Apple responded with two inter partes review (IPR) petitions challenging all of the patented claims. However, the Director (via the PTAB) refused to grant the petition as to several claims, including 2, 4, 21, and 23.
Back in the litigation, Aylus amended its complaint to only allege infringement of those non-instituted claims. In its subsequent motion for summary judgment of non-infringement, Apple argued for a narrow interpretation of the claimed use of “CPP logic . . . negotiate media content delivery between the MS and the MR.” As evidence for the narrow interpretation, Apple and the district court focused on statements by the patentee (Aylus) in its preliminary response to Apple’s IPR petition. On appeal here, the Federal Circuit has affirmed:
[S]tatements made by a patent owner during an IPR proceeding, whether before or after an institution decision, can be relied on to support a finding of prosecution disclaimer.
Those of us closely following IPR doctrine will raise some hairs at this statement since the Federal Circuit has previously held that “IPR does not begin until it is instituted.” Shaw Indus. Grp., Inc. v. Automated Creel Sys., Inc., 817 F.3d 1293, 1300 (Fed. Cir. 2016). Here, the court recognized that general holding, but found that it dies not apply “for the purposes of prosecution disclaimer.” Rather, for this situation, the court found that the proceedings begin with the IPR petition.
If I were writing the opinion, I would have come to the same result – that statements by the applicant to the PTO can form prosecution disclaimer. However, I would have reached the conclusion without upsetting and further complicating the definition of an IPR proceeding.
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An oddity of all of this is that the Federal Circuit appears quite concerned in this case about the linkages between claim construction during inter partes review and subsequent litigation, but previously ignored that issue during the prior cuozzo debate. My take has long been that we should be applying the actual claim construction in both situations.
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This case focused on prosecution disclaimer and the finding of a clear and unmistakable disclaimer of claim scope. However, the same approach should also apply in applying IPR statements as primary intrinsic evidence used in the claim construction analysis even when short of disclaimer.
EasyWeb v. Twitter (Fed. Cir. 2017) (nonprecedential opinion)
In this case, the appellate court affirmed summary judgment that all of the asserted claims of five EasyWeb patents are ineligible under the Mayo/Alice interpretation of 35 U.S.C. 101 and therefore invalid.
Representative Claim 1 of U.S. Patent No. 7,685,247 is directed to a message-publishing-system that “accepts messages in multiple ways, such as by fax, telephone, or email” then verifies the message as being sent from an authorized sender, converts the message to a web format, and publishes the message on the Internet. Although claim 1 is directed to a computer system, it includes a functionally claimed software component:
A message publishing system (MPS) operative to process a message from a sender in a first format, comprising:
a central processor;
at least one sender account;
at least one storage area configured to store at least a first portion of the message;
and software executing in the central processor to configure the processor so as to:
- identify the sender of the message as an authorized sender based on information associated with the message in comparison to data in the sender account, wherein the identification is dependent upon the first format;
- convert at least a second portion of the message from the first format to a second format; and
- publish the converted second portion of the message so as to be viewable in the second format only if the sender has been identified as an authorized sender.
Following the now standard two-step eligibility analysis, the court first found the claim directed toward an abstract idea.
Claim 1 merely recites the familiar concepts of receiving, authenticating, and publishing data. As we have explained in a number of cases, claims involving data collection, analysis, and publication are directed to an abstract idea.
Of import here for the abstract idea finding is that the claim simply uses generic computer technology rather than improving-upon the technology or designing particularized components.
Moving to step-two, the court looked – but could not find – an “inventive concept” beyond the claimed abstract idea sufficient to “transform the nature of the claim’ into a patent-eligible application.” (quoting Alice).
Although EasyWeb argues that an inventive concept arises from the ordered combination of steps in claim 1, we disagree. Claim 1 recites the most basic of steps in data collection, analysis, and publication and they are recited in the ordinary order. In sum, all the claims are directed to the abstract idea of receiving, authenticating, and publishing data, and fail to recite any inventive concepts sufficient to transform the abstract idea into a patent eligible invention.
Its decision is not quite correct, the Federal Circuit does not find abstract ideas simply because a claim involves “data collection, analysis, and publication.” However, when (as here), the claim is directed toward these activities at a high level of abstraction, then the Alice/Mayo approach easily fits.
Analytically, the decision adds further weight to the theory that steps 1 and 2 are closely linked and are highly likely to correlate with one another.
Once initiated, CBMs are identical to post-grant reviews (PGR) – allowing for patents to be challenged on any patentability grounds. As implemented, this includes 101 and 112 challenges in addition to the more traditional obviousness and novelty grounds. PGRs, however, are limited to only AIA-patents and must be filed within a 9-month window from issuance. Those caveats have severely limited the number of PGR petitions filed thus far. For CBMs, the AIA-patent restriction and 9-month window are both eliminated. However, the statute creates a subject-matter limitation that restricts CBMs to only non-technological financial-services business method patents.
Another feature of the CBM program is that it is “transitional” – i.e., it sunsets in 2020 and no petitions will be accepted after that date.
Last week, I hosted a quick anonymous survey on the transitional Covered Business Method Review program — asking whether the CBM program should be allowed to sunset or somehow extended. 240 Patently-O readers responded with results shown in the chart below. About 44% of responses favored ending of the program outright — allowing it to sunset. About 29% favored extending the program as-is, with the narrow financial-services scope. The remaining favored extension and expansion: 17% would expand the scope to include all information processing patents, and the remaining 10% would extend the program to include all patents. This final option would essentially mean ending the 9-month window for PGR filing.
The survey also offered (but did not require) an explanation of the answer. A variety of themes emerge from that explanation. The following are a few examples.
For patent challengers, the key response is that “it works” as a mechanism for cancelling patents, and could be extended to other technology areas.
The historic problem associated with poor business method examination quality has now been fixed.
Patents need to be strengthened, not weakened.
The PTAB process is either corrupt or incompetent.
The approach should be ended because it violates the constitutional rights of patent owners.
Of course, there are other responses as well (perhaps more below in the comments).
The bottom line here, as you might expect, is that there is not yet any consensus on whether to extend the CBM program. My own general framework begins with the recognition that CBM does no longer adds much value post Alice/Mayo and with district court eligibility determinations being done on the pleadings. However, I would like to see the empirical evidence. The point of creating legislation that sunsets is that it effectively places the burden of proof on anyone wanting to continue the program. That work has not yet been done.
Oil States v. Greene’s Energy (Supreme Court 2017).
After receiving party briefs in this case, the Supreme Court requested a responsive brief from the Michelle Lee in her role as PTO Director on the constitutionality of the AIA trial system. That brief has now been filed by the new acting Solicitor General Jeff Wall who handled a number of patent cases in private practice. Despite the regime change, the SG’s office continues to strongly support the AIA Trial system and the brief argues strongly that patents are public rights that may be subject to administrativ review:
Patents are quintessential public rights. Pursuant to its constitutional authority to “promote the Progress of Science and useful Arts” by establishing a patent system, U.S. Const. Art. I, § 8, Cl. 8, Congress created the USPTO, an agency with “special expertise in evaluating patent applications.” Kappos v. Hyatt, 566 U.S. 431, 445 (2012). Congress directed that agency to issue a patent if “it appears that the applicant is entitled to a patent” under standards set by federal law, 35 U.S.C. 131. Patents accordingly confer rights that “exist only by virtue of statute.” Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 229 n.5 (1964). . . . Petitioner’s constitutional arguments do not warrant this Court’s review.
[Read the Brief: 16-712_oil_states_energy_servs._llc_opp] The Supreme Court has already denied certiorari in three prior constitutional challenges to the AIA trial mechanisms. MCM Portfolio v. Hewlett-Packard; Cooper v. Lee; and Cooper v. Square. If Oil States is denied here, there are also several more cases waiting in the wings to raise the challenge again.
The Covered Business Method Review program is a transitional program that sunsets in 2020. These AIA trails have been extremely effective at knocking-out patents that qualify for review. The question of the day is whether Congress should extend and possibly expand the program beyond the 2020 deadline and beyond the non-technological financial services limitations.