Patentees are continuing to move away from the single-patent model toward a model that involves multiple patents in multiple jurisdictions. Today, over 75% of patent applications rely upon at least one prior patent filing as a priority document. I expect that figure to grow based upon incentives coming from the recently implemented first-to-file regime. Over the past 10 years, most of the change has been in increased PCT filing and increased use of US provisional patent applications. In the US, the largest users of the provisional patent applications are some of the largest strategic users of the patent system, including Qualcomm, LG, Broadcom, Marvell, Google, Apple, Samsung, Univ of California, and Texas Instruments. More than 40% of patents with a US assignee (or US inventor owned) claim priority to a provisional application. Expect that figure to rise as well.
Courts have often identified patent rights as a form of monopoly. Perhaps this stretches back to the 17th century Statute of Monopolies that ended all letters patents and other government granted monopolies except for those covering novel inventions. Economists typically reject the categorization because modern patent rights by themselves do not create market power nor even the right to sell or use the invention. (Patent rights only grant the right to exclude others).
Interesting aspect of the Supreme Court’s decision in Medtronic v. Mirowski (U.S. 2014), is the way that the court subtly revives this prior form of thinking by quoting older precedent:
The public interest, of course, favors the maintenance of a well-functioning patent system. But the “public” also has a “paramount interest in seeing that patent monopolies . . . are kept within their legitimate scope.” Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U. S. 806, 816 (1945). A patentee “should not be . . . allowed to exact royalties for the use of an idea . . . that is beyond the scope of the patent monopoly granted.” Blonder-Tongue Laboratories, Inc. v. University of Ill. Foundation, 402 U. S. 313, 349-350 (1971).
Now, the use of the monopoly term here does not appear carelessly placed but instead intentionally designed to link patent rights with the monopoly problem. This connotation is important for the Court’s policy argument that, like monopolies, patent rights need to be controlled. This follows Thomas Jefferson’s famous thoughts against monopolies but eventual support for patent rights that were limited in both scope and duration.
In a recent article addressing this issue from a European perspective, Sven Bostyn and Nicolas Petit argue that continued rhetoric linkage of patents with monopolies is problematic and may well serve “a hidden bureaucratic agenda, that of limiting patent protection through the backdoor, by using ex post antitrust remedies to alter the protective – and innovation-incentivising – patent statutes adopted ex ante by elected democratic organs.” See Bostyn & Petit, Patent=Monopoly: A Legal Fiction (December 31, 2013). The Bostyn-Petit characterization is likely relevant to US policymakers as well. I looked through the few years of Federal Circuit cases that mentioned “patent monopoly.” Time and again the court used the phrase as part of its explanation why patent rights should be limited with the excepting being cases that quote the Georgia Pacific factors. See, e.g., LifeScan Scotland, Ltd. v. Shasta Technologies, LLC, 734 F.3d 1361 (Fed. Cir 2013) (Judge Dyk); CLS Bank Intern. v. Alice Corp. Pty. Ltd., 717 F.3d 1269 (Fed. Cir. 2013) (en banc; Judge Lourie opinion); Brooks v. Dunlop Mfg. Inc., 702 F.3d 624 (Fed. Cir. 2012) (Judge Prost); Ritz Camera & Image, LLC v. SanDisk Corp., 700 F.3d 503 (Fed. Cir. 2012); SanDisk Corp. v. Kingston Technology Co., Inc., 695 F.3d 1348 (Fed. Cir. 2012) (Judge Reyna in Dissent); Akamai Technologies, Inc. v. Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012) (Judge Linn in Dissent); Therasense, Inc. v. Becton, Dickinson and Co., 649 F.3d 1276 (Fed. Cir. 2011) (Judge Bryson in Dissent); Micron Technology, Inc. v. Rambus Inc., 645 F.3d 1311 (Fed. Cir. 2011) (Judge Gajarsa in Dissent).
Earlier I wrote about Judge Grewal’s order concerning the disclosure of an unredacted expert report in the Apple v. Samsung suit. Yesterday, the judge held that Quinn should reimburse Apple for its expenses, and imposed some other remedies, but largely declined the sanctions sought by Apple. The order is here.
In my own view, the remedies might be right if all that had happened was a mistake, but, and as the judge wrote, what happened here was a mistake followed by what, in his view, was a failure to correct it.
35 U.S.C. 101 is a foundational patent law statute that defines the scope of patent eligibility. The statute states that:
Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.
Section 101 is written in broad and open terms and has been seen as providing notice that patent law is not intended to be limited to any particular forms of technology.
In interpreting the statute, the Supreme Court has added an additional set of subject matter eligibility restrictions only nominally grounded in the statute. Most notable, these include proscriptions against the patenting of abstract ideas, natural phenomenon, and products of nature. Also excluded from eligibility are “mental processes.” It is somewhat unclear from precedent whether these mental processes are whole included within the abstract idea construct or whether instead there are some mental processes that would be excluded even though not considered abstract ideas.
Here, ABL’s patents cover a diagnostic method that basically pulls information from three separate knowledge bases, ranks the results and provides advisory information related to those results. As claimed these steps use a “computing device” to generate and provide the results. The patents also include computerized “system” claims; computer program claims; and sorage-medium claims that are all designed to facilitate the practice of the method. See U.S. Patent Nos. 6,081,786 and 6,188,988.
In 2008, SmartGene filed for declaratory judgment of invalidity and also filed a reexamination request with the USPTO. The PTO considered the prior art and confirmed patentability. However, the District Court ruled that all of the patented claims were invalid as ineligible under Section 101. Rather than walking through each claim of each patent, the District Court (1) first held that, for eligibility purposes, Claim 1 of the ‘786 patent (the method claim) was representative of all claims in the patents and (2) then found that claim ineligible under § 101. The district court wrote that the claim does “no more than describe . . . an abstract mental process engaged in routinely, either entirely within a physician’s mind, or potentially aided by other resources in the treatment of patients.”
On appeal, the Federal Circuit has affirmed in a non-precedential decision written by Judge Taranto and joined by Judges Lourie and Dyk. Famed eligibility defender Robert Sachs of Fenwick represented the Patentee whkle Fred Samuels (Cahn & Samuels) represented the DJ Plaintiff.
The Federal Circuit first considered the district court’s process in holding all claims from both patents ineligible based only upon consideration of one claim from one patent. The court affirmed the district court finding based upon a waiver principle.
On to the meat of the 101 analysis, the Federal Circuit began with a citation to CyberSource:
This conclusion [of ineligibility] 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.
The court went on to write that mental processes are not eligible nor are processes that use basic computer functionality to implement mental processes unless the invention specifies “new physical components” or other steps “defined other than by the mentally performable steps.”
For these princples, the court relied heavily on Supreme Court precedent of Benson, Flook, and Mayo as well as the appellate decisions of CyberSource as well as In re Grams, 888 F.2d 835, 840-41 (Fed. Cir. 1989) and In re Meyer, 688 F.2d 789, 794-95 (C.C.P.A. 1982).
The discussion of Mayo in the decision is interesting in the way that the court draws close parallels between the way laws of nature and abstract ideas should be interpreted:
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.
It appears from Myriad, that the process for determining the product-of-nature exclusion is somewhat different since there, the court allowed the patentee to obtain protection for a DNA sequence whose physical differences from the naturally occurring sequence were due to well-understood, routine, and then conventional laboratory processes.
Is a mental step an abstract idea?: The court punts on this question and instead writing that:
[M]ental processes and abstract ideas (whatever may be the precise definition and relation of those concepts) are excluded from section 101. 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.
The analysis here pessimistically fits the approach leading abstract idea jurisprudence that traditionally fails to explain the scope and bounds of the abstract idea category but finds that the particular invention in question fits within the category.
Judge Taranto: This decision is important because it was written by Judge Taranto. Although there was not tremendous doubt in his position, Judge Taranto did not participate in the CLS Bank en banc fiasco that resulted in no majority opinion. Judge Taranto’s participation would have likely shifted the balance in favor of a majority opinion ruling strongly against subject matter eligibility of software claims that do not add new “technology.”
Judge Taranto is also important because, of all the Federal Circuit judges, he likely best understands the pulse of the Supreme Court and I will not be surprised when the Supreme Court decision in CLS Bank parallels this one.
There’s a great post by Oblon here discussing Atlanta Gas Light Company v. Bennett Regulator Guards Inc., (IPR2013-00453, Paper 31, January 22, 2014). The PTAB did not hold that privity existed solely because of an indemnity obligation (and didn’t need to under the particular facts), but (a) it recognized that “in privity” must mean more than “real party in interest,” and (b) at least implies that an indemnity obligation might fit within the scope.
I’ve advised a lot of lawyers over the years who are pondering leaving one firm for another, or for a solo career. There are a lot of “do’s and don’ts” that are pretty common, and a nice summary, under Illinois law, is here.
Philadelphia’s bar association recently addressed whether the firm from which a lawyer had left could, or must, monitor the departed lawyer’s email or, instead, had to set it up so that emails automatically bounced. Opinion 2013-4 (Sept. 2013) is here. Boiled down, it says that the firm has to monitor but also has to watch out for email that it needs to forward to the lawyer, or otherwise take action on.
President Obama provided a one-liner on patent law in his recent State of the Union address:
We know that the nation that goes all-in on innovation today will own the global economy tomorrow. This is an edge America cannot surrender. Federally-funded research helped lead to the ideas and inventions behind Google and smartphones. That’s why Congress should undo the damage done by last year’s cuts to basic research so we can unleash the next great American discovery – whether it’s vaccines that stay ahead of drug-resistant bacteria, or paper-thin material that’s stronger than steel. And let’s pass a patent reform bill that allows our businesses to stay focused on innovation, not costly, needless litigation.
The USPTO (as part of the Obama Administration) has already thrown its weight behind new patent reform efforts as well. The Goodlatte Innovation Act (H.R. 3309) has already passed in the house with a 325-91 vote. In the Senate, Judiciary Committee Chair Leahy has proposed the Patent Transparency and Improvement Act (S. 1720) and that proposal is currently in committee. The proposals would include a number of reforms designed to hamper patent enforcement; provide transparency of ownership; and force more targeted early disclosures in patent cases.
Consumer Watchdog v. WARF, Reexam No. 95/000,154 (Fed. Cir. 2014)
Several years ago Consumer Watchdog (previously known as the Foundation for Taxpayer and Consumer Rights) filed an inter partes reexamination proceeding against a human-stem-cell patent owned by the Wisconsin quasi-government entity WARF. CW does not work with the technology, but filed the reexamination request as part of its public service mission.
In the reexamination, the USPTO confirmed that the patent was properly issued and CW subsequently asserted its statutory right to appeal. See 35 U.S.C. § 141.
Before delving into the appeal’s substance, the Federal Circuit halted progress on the case to particularly probe the question of whether the court has jurisdiction over the dispute – i.e., whether there exists a constitutionally sufficient “case or controversy” between the parties. At base, the question is whether any CW can claim the “injury in fact” that serves as a “hard floor of Article III jurisdiction.” See Summers v. Earth Island Institute, 555 U.S. 488, 497 (2009).
The Federal Circuit requested briefing from the parties as well as the USPTO and those have now been filed. Most importantly, the US Government (USPTO/DOJ joint brief) has sided with WARF with a conclusion that it would be unconstitutional for the Federal Circuit to fulfill the statutory promise (of a right to appeal) by hearing CWs appeal.
Potential Impact: Although the case is focused on CW as a non-profit, the potential outcome here is important for several reasons. Obviously, the ruling would disenfranchise public interest groups, not-for-profits, and industry organizations and instead provide full litigation rights primarily to parties with substantial likelihood of reaching collusive settlements that leaves would-be invalid patents intact. In an email to me, Dan Ravicher (CWs counsel) wrote:
Without a full and fair right to challenge patents at the PTO, including an equal right to appeal, the public interest community will have no avenue to rid the system of bogus patents, and we will be 100% reliant on commercial entities, which often do not have the same incentive to prove patents are invalid, as they, too, have bogus patents themselves.
Although somewhat hyperbolic, Ravicher’s comment raises real policy concerns.
At a more general level, the issue here represents an important shot in the battle for power and authority in the setting of patent law policy that is ongoing between the Patent Office and the Judiciary. The USPTO is newly emboldened with unreviewable authorities granted by the AIA; likely generous Chevron deference for those decisions that are reviewable; and has pushed for a statutory amendment that would eliminate the ability of a patent seeker to file a civil action to receive a patent. Adding to that list, this case appears to be headed in the direction of yet another non-appealable agency activity.
Mid-Level Injury: Although the US Government argues that CW lacks injury-in-fact, it also argues that the injury requirement in this situation is categorically less than what would be required for a declaratory judgment action in Federal Court. The US Government writes:
Organizations such as Consumer Watchdog, who cannot claim any concrete and particularized interest in the validity of the challenged patent, will normally lack standing to appeal. [H]owever, it does not necessarily follow that the same Article III inquiry that governs declaratory judgment relief in the district courts — under which judicial relief is normally available unless the declaratory plaintiff can show that the patentee has asserted infringement, threatened litigation, or otherwise affirmatively acted to impair the declaratory plaintiff’s freedom in the marketplace, see, e.g., Prasco LLC v. Medicis Pharmaceutical Corp., 537 F.3d 1329 (Fed. Cir. 2008) — will also govern appeals from PTO decisions in post-grant proceedings. . . .
Indeed, Congress enacted the AIA’s expanded procedures for post-grant patentability challenges partly in response to concerns that, under prior law, it was not reasonably possible for a company weighing whether to enter a particular market to test the validity of a potential competitor’s patent without first incurring the substantial costs and risks of developing a suitable — and potentially infringing — product.
. . . . Although such an interest would normally lack the immediacy required for declaratory judgment jurisdiction, the Supreme Court has explained that, in some circumstances, “[t]he person who has been accorded a procedural right to protect his concrete interests can assert that right without meeting all the normal standards for redressability and immediacy.” Lujan; Massachusetts v. EPA. Similarly, while a prospective interest in invalidating a competitor’s patent might normally implicate prudential considerations of fitness for judicial review, an explicit congressional authorization to appeal a particular category of legal determinations “eliminates any prudential standing limitations.” Raines. For these reasons, the Court could conclude in an appropriate case that the Article III inquiry governing direct appeals from the PTO differs from the inquiry that governs declaratory judgment actions in district court.
In the prior arguments, Dan Ravicher (for CW) raised an analogy to FOIA where the Supreme Court has allowed a seemingly noninterested third party to bring court challenges. The US Government brief argues that those cases as well as related fair housing cases are different and distinguishable because Congress created “substantive legal rights that entitle a party to receive concrete and individualized benefits — access to specific government records, for example, or freedom from racial discrimination in housing. A wrongful denial of those rights thus inflicts on the plaintiff a concrete and particularized injury-in-fact.”
In its responsive brief, CW argues that the statute creating the right of judicial review to requesters of agency action provides standing even if the requesters lack “statute-independent injury.” On that point, CW writes: “The government does not reference a single case in which a denied requester who cited a statute granting judicial review to such denied requesters needed to prove injury to show standing.” For its side, CW references FOIA cases as well as FEC and prior inter partes review cases that all fit this model.
Public interest groups such as PubPat, EFF, and others have shown their strength in the intellectual property law sphere and this is an important case from that regard. The importance is such that if the Federal Circuit sides against CW here to deny standing, I suspect that the Supreme Court will be ready to hear the case.
Sheridan’s Patent No. 7,415,982 covers a pipe for smokeless tobacco that he alleges is being infringed to the tune of $20 billion over the past several years. Now, rather than filing suit against the infringers, Sheridan wrote-off the loss and then claimed that loss on his income tax returns. The IRS disagreed – finding that Sheridan had failed to establish any loss actually sustained and served him with a notice of deficiency for taxes owed of $40k.
Sheridan then filed a pro se complaint in federal court seeking an injunction against the IRS from any further audits or tax collection and an order directing a refund. District court sided with the IRS – finding that it lacked subject matter jurisdiction over the case. On appeal, the 3rd Circuit affirmed – citing the Anti-Injunction Act.
The Anti–Injunction Act, 26 U.S.C. § 7421(a), states that, with limited exceptions not applicable here, “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.” Although the Act does not apply if it is clear that under no circumstances could the Government ultimately prevail in its claim of tax liability, Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7 (1962), the exception does not apply to Sheridan’s case. The Act likewise would not apply if Sheridan had no alternative remedy, see South Carolina v. Regan, 465 U.S. 367, 378 (1984), but he could either petition the Tax Court pursuant to 26 U.S.C. § 6213 or, after paying the assessed taxes, file a refund suit under 26 U.S.C. § 7422(a). Thus, the Act applies in this case, and the District Court lacked subject matter jurisdiction to entertain Sheridan’s claims regarding the tax deficiency identified in his 2009, 2010, and 2011 returns.
The court also ridiculed Sheridan – calling his claim of “$20 billion in losses constitutes a tax for which he is owed a refund is nonsensical.”
I don’t know the facts here, but Sheridan’s claim of $20 billion in losses for the smokeless tobacco pipe may well be nonsensical. However, what’s not so nonsensical is the general notion that written-off patent infringement constitutes a business loss that could serve as the basis of a tax deduction. Would an opinion of counsel with supporting documents be sufficient to establish that the loss (past infringement) was real?
Last summer, the President’s Council of Economic Advisers issued a report arguing that Patent Assertion Entities (PAEs) are responsible for a major harmful increase in patent litigation. That report was based, among other things, on roughly twenty academic studies.
But recently, David Kappos, former Director of the US Patent and Trademark Office, declared that, to the contrary, “the building is not on fire,” in an article titled “Facts Show Patent Trolls Not Behind Rise In Suits.” Kappos dismissed the academic studies as “unhelpful” and “badly distorted” because they did not make all of their underlying data publicly available. Instead he relied only on “facts” from a recent paper by three academics, Christopher Cotropia, Jay Kesan and David Schwartz (CKS) as well as a strained interpretation of one finding in a GAO report (which also did not make its underlying data publicly available).
The CKS paper does, indeed, identify a minor error in the President’s report affecting the period from 2010 to 2012. But the paper does not challenge the data showing that PAEs are responsible for a very large increase in the number of companies sued for patent litigation over the last decade. Nor does the paper’s “granular and transparent” data appear to make any significant difference despite the assertion that it calls prior research into “serious question”: CKS find more or less the same numbers of lawsuits as other studies using comparable definitions of PAEs, despite their claims to the contrary. The CKS paper makes a contribution and it is great that the authors are able to make their data public, but it is dangerous for policy makers to base judgments on highly selective “cherry picked” data that cover only two unrepresentative years or to dismiss a large number of careful studies just because they have not disclosed all of their data.
The CKS paper targets the claim in the President’s report that “Suits brought by PAEs have tripled in just the last two years, rising from 29 percent of all infringement suits to 62 percent of all infringement suits.” While this statement is factually correct, given the definition of PAE used, it could be easily misinterpreted. That is because that two year period from 2010 to 2012 also saw a significant change in the law: the America Invents Act, passed in 2011, has a joinder provision that prevents patent holders from suing multiple, unrelated defendants in a single infringement lawsuit. This is important because prior to this change, PAEs tended to sue more unrelated defendants in each lawsuit. In other words, the 29 percent figure for 2010 represented more than 29 percent of the distinct defendants, while the 2012 figure more or less does represent 62 percent of the distinct defendants. The 29 percent figure is too small for an apples-to-apples comparison.
Ideally, one would want to compare the number of unrelated defendants in different years in order to eliminate the bias introduced by the change in the joinder provision. To make a comparison of that sort, CKS collected patent lawsuit data for 2010 and 2012, categorizing each suit by the nature of the patent holder. A patent holder could be: (1) a University; (2) an Individual Inventor/Family Trust (e.g, GeoTag); (3) a large Patent Aggregator (e.g., Acacia); (4) a Failed Operating Company or Failed Start-up; (5) a Patent Holding Company that appears unaffiliated with the original inventor or owner; (6) an Operating Company; (7) an IP Holding Company affiliated with an operating company; or (8) a Technology Development Company (e.g., Walker Digital).
Although CKS are not the first researchers to categorize different types of NPEs, they seem to think no one else has done it correctly. Specifically, they claim that “Our most basic descriptive findings are inconsistent with and call into serious question the summary data provided by RPX, Patent Freedom, and other academics.” Kappos goes slightly further, completely dismissing all previous research studies, calling them “unhelpful at best, and more likely hurtful by representing as ‘data-driven’ a picture that is actually badly distorted.” However, these charges are simply not true.
Although Kappos claims that previous studies lack a “transparent and appropriately scoped definition of ‘patent troll,'” almost all the previous research papers have extensive discussions of how they identify PAEs. Moreover, using these definitions, it turns out that summary statistics from these sources are rather close to the corresponding estimates from CKS. For example, Patent Freedom counts “non-practicing entities” (NPEs) using a definition that corresponds roughly to CKS categories 2 through 5. RPX uses a definition that includes the first five CKS categories plus category 7 plus operating companies that sue outside of their industry (not counted in CKS). Feldman et al. count patent monetizers corresponding to CKS categories 2 through 5, and 7. We can compare the number of NPE lawsuits reported by these different sources to the roughly corresponding category totals reported in the CKS paper:
Estimates of Lawsuits Filed by NPEs
Estimate from Other Research
Estimate Using CKS Data For Corresponding Categories
Feldman et al.
Do these differences show that previous research is so inconsistent with the CKS estimates as to call that research into “serious question”? Hardly. First, there is no evidence of any consistent bias in the comparisons. Indeed, while some of the estimates are greater than the CKS estimates, the Patent Freedom data generate smaller estimates than the CKS data.
Second, the differences are small, especially considering that these different researchers use somewhat different concepts of what they mean by “patent troll.” Although reasonable people might disagree about which actors to include in their studies, the studies still provide helpful guidance about trends and the extent of patent litigation. But the crudeness of these measures means that 10 or 20 percent differences are not significant. Such differences are certainly no excuse to dismiss most of the prior literature on this subject.
More important, such differences are not economically important. For example, as we shall see, PAE litigation has increased by an order of magnitude over the last decade. A 10 or 20 percent difference does not change this conclusion. Nor does such a difference fundamentally alter estimates of the economic impact of PAEs. For example, one of my studies with Mike Meurer found that PAEs cost defendants $29 billion in 2011. If the true cost were $26 billion or even $23 billion, this would not change the conclusion that PAEs impose substantial costs on defendants. These findings cannot be dismissed, as Kappos does, just because he doesn’t have access to the underlying data.
CKS have not shown any actual evidence that their data are significantly inconsistent with other studies. Nor have they shown anything that calls other research into “serious question” despite the gravity of that charge. Nor have they shown any evidence of actual bias in the previous research. Kappos and CKS dismiss a large body of prior research without showing any substantive reason to do so. While much of the prior research is based on private data, researchers have checked these data against other sources. What matters in science is not the access to the data, but the replicability of the results. Without actual evidence of a bias or major inconsistencies across different data sets, there is no reason to dismiss these studies.
CKS’s findings do show that the figures cited in the President’s report are misleading, but, as we shall see, that evidence exists in other sources as well. Recall that we need to compare the number of unrelated defendants sued in different years. To address this, CKS count the number of parties to the lawsuit excluding the patentee, the “other parties” to the lawsuit. They find that between 2010 and 2012 the number of these other parties in lawsuits filed by non-operating companies changed little. For example, in categories 2 through 5 the number of “other parties” in PAE suits went from 5,515 to 5,554.
However, the number of “other parties” listed in lawsuit filings is not an accurate measure of the unique unrelated defendants. For example, a parent company will often be listed as a defendant along with one or more subsidiaries. Fortunately, Patent Freedom has done the hard work of tracking down unique operating company defendants (and, yes, our researchers checked their work) as have several of the other researchers.
Figure (Above): Number of operating company defendants in PAE suits. Source: Patent Freedom
The Patent Freedom counts of unique NPE defendants are shown in the figure along with a trend line. The counts of defendants are much smaller than CKS’s “other parties.”
Several findings are apparent. First, there appears to be a surge in multi-party PAE lawsuits prior to passage of the America Invents Act in September 2011. Apparently, some PAEs wanted to get their suits in prior to the new joinder rules that made it more expensive to sue multiple parties.
Because of this surge, any comparison between 2010 and 2012 is bound to be highly misleading. In the Patent Freedom data, the number of unique defendants actually declined during this interval. But it is equally clear that 2010 and 2011 are exceptions to an otherwise steady, increasing trend from 2001 through last year. Claiming that patent trolls have not contributed to the rise in patent defendants by looking only at 2010 and 2012 is a serious misrepresentation.
Moreover, this finding of a large shift is supported by a large number of studies, including research by one of the CKS authors. Jay Kesan (with co-author Gwendolyn Ball) previously estimated that only 4 percent of patent lawsuits were filed by “patent licensing firms” at the beginning of the decade. To compare, the CKS data find that 21 percent of lawsuits were filed by patent licensing firms in 2010 (categories 3-5 and 7). That is a fivefold increase over the decade. The share of lawsuits grew to 45 percent of lawsuits in 2012, after the change in the joinder rule; if we add individuals & family trusts, such as the notorious GeoTag, then the share rises to 52 percent, over half of all patent lawsuits. So these data show not only a dramatic rise in the share of lawsuits filed by patent licensing firms, but also a large share of the lawsuits come from these parties in 2010 and even more in 2012. Given the earlier paper, does Professor Kesan really believe that this latest paper calls into “serious question” the findings of many other researchers that patent trolls have contributed substantially to the rise in patent litigation?
Nor does the GAO report contradict the basic trend seen here. Kappos asserts that the GAO found no “statistically relevant” change in the percent of lawsuits filed by trolls. Those words are very carefully chosen “lawyer words.” In fact, the GAO found a 40 percent increase in the PAE share of lawsuits from 2007 to 2011. However, that difference was not statistically significant given the small size of the GAO sample. The GAO also reported that the number of PAE defendants tripled during these years and PAEs accounted for half of the large increase in patent defendants during these years. The GAO report is entirely consistent with the other evidence that the share of PAE lawsuits and defendants have been rising.
Finally, the figure shows that the PAE litigation has continued to increase after the America Invents Act, more or less right on the trend line established since 2001. The Act has been touted as the solution to the problems of the patent system; the data from 2013 suggest otherwise.
The bottom line is this: based on the overwhelming weight of the evidence, including that in CKS itself, PAEs are filing dramatically more lawsuits against very many more defendants than they did at the beginning of the last decade. This is true despite the decline in defendants between 2010 and 2012; the GAO report further supports this finding. The conclusion based on all the evidence is that the building is indeed burning. Policymakers are right to take action.
= = = = = =
Allison, John R., Mark A. Lemley & Joshua Walker Extreme Value or Trolls on Top? The Characteristics of the Most Litigated Patents, 158 U. Pa. L. Rev. 1 (2009)
In reply to a prior post, one comment asked about the whether US patents tend to have claims directed to both an apparatus and to a method or instead are those types of claims separated out into separate patents. To answer that question, I parsed through a set of recently issued utility patents – looking only at the claim preambles to see whether the claim could be classified as either a “method” claim or a “non-method” claim. My search pattern was simplistic. If the preamble included the word “method” or “process” then I defined the claim as a method claim. I then compared the independent claims within each patent to see whether the patent includes only method claims, only non-method claims, or both types. The results are as follows: 17% included only method claims; 51% include only non-method claims; and 32% include both method and non-method claims. I ran a time series and found that these ratios have changed only slightly over the past decade with the trend moving toward more combined patents and fewer method-only patents
As part of this little project, I also pulled up the preambles themselves. Of the four million independent claims in the data set, there were more than two million different preambles. The most common are listed below:
These charts are based upon an analysis of all 4.7 million patents issued between January 1976 and January 2014. I basically tallied the number of independent claims in each patent and grouped those according to the patent issue date. Throughout this time, patents have only issued on Tuesdays each week.
The first chart shows the average number of independent patent claims issued each week. Readers will notice a fairly steady rise in claim-count until around 2004 and a significant drop following that. The second chart uses this same data but adds a finer analysis. The second chart shows the proportion of patents having a given number of independent claims. This chart shows the steady rise in claim-count from the 1970s through 2004 is largely explained by a shift away from patents having only one single claim and toward patents with more than three claims. Since 2004, the tide has changed. There are now many fewer patents with more than three claims and a substantial increase in the number of patents with exactly three independent claims.
From Michelle Lee who is Deputy Under Secretary of Commerce for Intellectual Property; Deputy Director of the USPTO; and is de Facto Director of the USPTO. [Link]
Over the last five years . . . the agency’s senior leadership has made good progress to ensure our country has a strong and robust patent and trademark system for the 21st century.
. . . Going forward, the USPTO will continue to actively engage with our stakeholders, members of Congress from both political parties, as well as with others in the administration, to further improve our patent and patent litigation systems. That includes supporting Congress’ current consideration of legislation to target abusive patent litigation tactics and speed resolution of disputes over IP rights. And the USPTO will work to further the U.S. Department of Commerce’s vital role in ensuring the effective protection of IP to encourage innovation and retain America’s global competitiveness in a rapidly evolving online marketplace. I am especially eager to work with Commerce Secretary Penny Pritzker to “foster a more innovative U.S. economy—one that is better at inventing, improving and commercializing products and technologies that lead to higher productivity and competitiveness,” one of the key strategic goals articulated in the Commerce Department’s “Open for Business Agenda.” . . .
Having been born and raised in Silicon Valley—one of the most innovative regions in our nation—and having built my 25-year career as an engineer and IP attorney there, I have spent most of my life focused on creating innovative technologies and/or supporting and enabling those who do. It is indeed an honor to be able to continue on this path at the USPTO in my new role as Deputy Director of the agency. I am committed to working together with all our stakeholders to advance our shared goal of fueling the unique American ingenuity that fuels our nation’s job growth and economy.
In a prior post, I included a chart showing a recent rise in the use of the functional claim phrase “configured to.” See Crouch, What Does it Mean for a Device to be “Configured To” Perform a Particular Function, Patently-O (2014). Here, I have updated the data to also add information regarding claims that include the term “means” (the traditional primary trigger for §112(f) analysis) and those that include the phrase “for …ing” (such as “for calculating”) without reciting the term “means.” I see these chosen categories as indicia of the existence of functional claim elements. However, I recognize that my rigid automated approach is both somewhat under and over inclusive. However, the results (below) are so dramatic that it is difficult to argue that nothing is going on here. Complicating this, a legal definition of functional claim language (outside the scope of §112(6)) is difficult to nail down. Working a bit on this definition, the Supreme Court in 1946 wrote that a “claim which describes the most crucial element in a ‘new’ combination in terms of what it will do, rather than in terms of its own physical characteristics or its arrangement in the new combination, is invalid as a violation of [the indefiniteness requirement].” Halliburton v. Walker, 329 U.S. 1 (1946).
For the analysis here, I first downloaded the text of all U.S. utility patents issued between 1976 and 2014. I then wrote a script that parses through the independent claims of each patent to determine whether any of the aforementioned phrases are found within those claims. Because the worry with functional claim elements tend to be their over breadth, I looked only at independent claims rather than the naturally more narrow dependent claims. With those results in-hand, I then calculated the frequency-of-appearance in a week-by-week time series. The chart is slightly smoothed by reporting a 10-week moving average – that smoothing largely imperceptible because the time series encompasses almost 2,000 weeks of data). A nice element of using the entire population of utility patents is that there is no need to include significance levels or confidence intervals.
The basic results are apparent from the chart below. The use of traditional Means-Plus-Function (MPF) language in patent claims has dropped dramatically since the early 1990’s and continues to drop. (Blue data series). In the 1980’s most patents included an independent claim written in MPF form. Today, that frequency is less than 10%. The decline in the use of MPF claim language corresponds roughly with a set of cases that cabined-in the construed scope of MPF elements and also bolstered the doctrine that an MPF claim is invalid if the patent document lacks an affirmative statement showing a structure that performs the claimed function. See In re Donaldson Co., 16 F.3d 1189 (Fed. Cir. 1994) (en banc). Although patentees have eschewed the statutory sanctioned MPF format, they have not given up the use of functional claim limitations. In the chart below, I pick up on two particular common approach. One approach has been to replace the term “means for” with a more structural noun such as “circuit for” or “instructions for.” Those types of claim elements are shown in the green data series below and show a rise in that claim format in the 1990s that matches the decline in MPF usage. The red data series shows the use of “configured to/for” language in independent claims as discussed in the prior essay.
As patentees moved away from the use of means-plus-function claim language, they could have conceivably chosen either to focus more particularly on structural elements or instead to continue with an approach of claiming according to the function of the unspecified structure. The chart above graphically suggests that patentees have chosen the latter – replacing means-plus-function claim elements with functional claim elements carefully designed to avoid the statutory trap of §112(6).
The sheer number of patents at issue here is impressive. To be clear, we are talking about millions of patents that are caught-up in this transition. Thus, if we think that it’s a problem to have functional claim limits written outside of the safeguards of §112(6), then what we have here is a big problem.
In Medtronic CoreValve LLC vs. Edwards Lifesciences Corp. (Jan 22, 2014), the Federal Circuit gave a gentle reminder to all U.S. patent practitioners (and a not so gentle reminder to Medtronic CoreValve) that patentees, as the parties in the best position to have intimate knowledge of their invention, will be held accountable for the accuracy and completeness of their disclosure, even down to the minute details of a priority claim.
In Medtronic, the Federal Circuit took on the issue of whether omission of reference to a priority application in an application forecloses a later right to file a subsequent application claiming through to the earliest priority application. For ease, and by way of example, the Federal Circuit in essence has stated today that if Application B claims priority to Application A, it must say so clearly and with all applicable details. More to the point, and much to Medtronic’s disappointment, if Application C claims through Application B back to Application A, not only must Application C say so, but Application B must also have said that it claimed through to Application A, and so on.
While the Federal Circuit’s pronouncement today is not a new concept to most of us and is in fact dictated by statute (see e.g. 35 U.S.C. § 119 and 35 U.S.C. § 120), Medtronic provides an important reminder to those of us who practice patent law that “the devil is in the details” and “an ounce of prevention is worth a pound of cure”!
In the US patent applicants and patent attorneys operate under a duty to disclose to the USPTO “all information known to that individual to be material to patentability.” 37 C.F.R. 1.56. Here, material to patentability is defined as non-cumulative information that either (1) “establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim” or (2) is inconsistent with a position taken by the applicant before the USPTO. Id. Typically, the duty of disclosure is fulfilled through the process of submitting information disclosure statements (IDSs) to the USPTO along with copies of the actual material information (such as prior art references).
Over the past 13 years, the number of references cited per patent has grown dramatically as shown in the chart below that shows the average number of references cited both by Applicants and Examiners as seen on the face of issued patents.
Medtronic v. Mirowski, ___ U.S. ___ (2014) [CaseText]
In a unanimous opinion, the US Supreme Court has reversed the Federal Circuit – holding that the patentee has the burden of proving infringement even in declaratory judgment actions by a licensee in good standing. I had previously noted that the Federal Circuit decision here was “odd” and likely to be rejected by the Supreme Court. The case should generally be seen as further emboldening licensees to challenge their licensed patents.
Medtronic has licensed a number of implantable heart stimulator patents from Mirowski. While still paying royalties (into an escrow account) and remaining in good-standing as a licensee, Medtronic filed a declaratory judgment action asserting that its products were not covered by the patent and that it therefore owed no contract damages. Prior to 2007, the Federal Circuit had ruled that a licensee in good standing had no declaratory judgment standing. However, in MedImmune, Inc. v. Genentech, Inc., 549 U. S. 118 (2007), the Supreme Court held that Article III’s case-or-controversy requirement can be satisfied by the fact that a licensee faced the threat of suit if it ceased making payments).
The district court sided with Medtronic – finding that Mirowski failed to prove infringement. However on appeal, the Federal Circuit vacated – holding instead the ordinary burden of proving infringement shifted in declaratory judgment cases a licensee in good standing. On writ of certiorari the Supreme Court has decided that the district court’s analysis is the better course of action and now holds that:
[W]hen a licensee seeks a declaratory judgment against a patentee to establish that there is no infringement, the burden of proving infringement remains with the patentee.
The Supreme Court based its decision on three notions: (1) the Patentee ordinarily bears the burden of proving infringement; (2) the Declaratory Judgment Act is only procedural; and (3) the burden of proof is a substantive aspect of the claim. Following this triple premise, the court concluded that the filing of a declaratory judgment action could not shift the burden of proof.
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The decision is fairly short, but has a few interesting aspects.
First, the court provided a policy-based analysis that calls-to-mind the problems faced by many accused infringers who receive a demand letter or broadly written complaint alleging infringement:
[The Federal Circuit rule can] create unnecessary complexity by making it difficult for the licensee to understand upon just what theory the patentee’s infringement claim rests. A complex patent can contain many pages of claims and limitations. A patent holder is in a better position than an alleged infringer to know, and to be able to point out, just where, how, and why a product (or process) infringes a claim of that patent. Until he does so, however, the alleged infringer may have to work in the dark, seeking, in his declaratory judgment complaint, to negate every conceivable infringement theory.
It is this same sentiment that has been driving a movement to increase the pleading standards in patent cases.
Second, the court re-iterated its historic position that patent rights should be open to challenge as a mechanism for maintaining a well-balanced patent system.
The public interest, of course, favors the maintenance of a well-functioning patent system. But the “public” also has a “paramount interest in seeing that patent monopolies . . . are kept within their legitimate scope.” Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U. S. 806 (1945). A patentee “should not be . . . allowed to exact royalties for the use of an idea . . . that is beyond the scope of the patent monopoly granted.” Blonder-Tongue Laboratories, Inc. v. University of Ill. Foundation, 402 U. S. 313 (1971). And “[l]icensees may often be the only individuals with enough economic incentive” to litigate questions of a patent’s scope. Lear, Inc. v. Adkins, 395 U. S. 653, 670 (1969). The general public interest considerations are, at most, in balance. They do not favor a change in the ordinary rule imposing the burden of proving infringement upon the patentee.
Can License Terms Privately Change The Baseline Rules Set Here?: An ongoing and open question is whether the rules regarding licensee standing and burdens are hard-and-fast or instead whether they should are to be treated as default rules that can be altered by contracting parties. As an example, a licensee could agree (as part of a license agreement) not to file a declaratory judgment action challenging patent rights while in good standing or could agree that in a DJ action the licensee had the burden of proving non-infringement. The open question is whether these private contractual provisions would be deemed unenforceable on public policy grounds. Although open, the implicit suggestion from the decision is that those provisions would be unenforceable. I draw that conclusion from the court’s positive citation of Lear, Precision, and Blonder-Tongue.
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Standing: The Supreme Court began the opinion with a discussion of jurisdiction that seems to step-back somewhat from its recent decision in Minton v. Gunn. The particular question raised was whether the case was a patent lawsuit or instead merely a contract dispute. If the former, then the case is heard in Federal Court and by the Federal Circuit. If the latter, then the case would be in state court unless there the parties exhibit diversity jurisdiction and, a diversity case would have been appealed through a regional circuit court of appeals rather than to the Federal Circuit.
Subject matter jurisdiction over a declaratory judgment action is ordinarily based upon whether the complementary coercive action brought by the DJ defendant would necessarily present a federal question. Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U. S. 1 (1983).
Here, the Supreme Court determined that the potential coercive action was patent infringement. The court based its conclusions upon its reading of the license that gave power to Mirowski to terminate the contract and sue for patent infringement if Medtronic stopped paying royalties. According to the Supreme Court, it is of no matter that Mirowski could instead sue for contract damages – a result that would have been much more likely. In its Amicus Brief, Tessera wrote:
Because there was simply no chance that the licensee suddenly would abandon the contractual dispute resolution procedure after nearly twenty years when it could resolve the very same patent issues within the contractual framework, and when both licensed patents were, in any event, set to expire within a year, a coercive patent infringement action by the licensor cannot reasonably be said to have been anticipated or threatened at the time of the initial filing.
The Supreme Court here rejected Tessera’s argument:
The relevant question concerns the nature of the threatened action in the absence of the declaratory judgment suit. Medtronic believes—and seeks to establish in this declaratory judgment suit—that it does not owe royalties because its products are noninfringing. If Medtronic were to act on that belief (by not paying royalties and not bringing a declaratory judgment action), Mirowski could terminate the license and bring an ordinary federal patent law action for infringement. Consequently this declaratory judgment action, which avoids that threatened action, also “arises under” federal patent law.
With this ruling, the Supreme Court has thrown another wrench in federal patent jurisdiction doctrine.
By Dennis Crouch Chief Judge Rader recently argued that no patentable weight should be given to claim terms focusing on how a device is “configured to” perform a particular task. See Superior Industries v. Masaba (Fed. Cir. 2014) (concurring opinion). The Chief writes:
A system claim generally covers what the system is, not what the system does. Hewlett–Packard Co. v. Bausch & Lomb Inc., 909 F.2d 1464 (Fed.Cir.1990). Thus, it is usually improper to construe non-functional claim terms in system claims in a way that makes infringement or validity turn on their function. Paragon Solutions, LLC v. Timex Corp., 566 F.3d 1075 (Fed. Cir. 2009).
In Superior Industries, the patentee had claimed a dump truck with a “support frame . . . configured to support an end of an earthen ramp.” On remand, the district court will need to determine again whether that language should be interpreted as a positive claim limitation.
One problem with Judge Rader’s opinion is that other judges do not uniformly agree with his perspective. The diversity of court opinion compounds an already difficult process of understanding what potential structures are covered by function-focused claim terms. A third compounding difficulty is the rapid rise in the use of functional claim terms.
The Patent Act expressly provides for the use of functional claim language — written in means-plus-function format. 35 U.S.C. §112(f). The statutory requirements of §112(f) began being more strictly enforced in the mid-1990s and, as a consequence, means-plus-function limitations have fallen from favor. Meanwhile, patentees have caught-on to using “configured to” language as a rough equivalent of a means-plus-function claim term but carefully drafted in order to avoid actually falling under the ambit of that provision. The benefit then for patentees is that the functional language is broad and not limited to particular structural embodiments.
The chart below shows the percentage of issued patents that include at least one “configured to” claim limitation within an independent claim. This dramatic transformation of claiming strategy raises the importance of cases such as Nautilus v. Biosig Instruments (pending Supreme Court case on the proper standard for indefiniteness) and Lighting Ballast (pending en banc decision on claim construction deference with a focus on functional claim terms should be interpreted as falling within 112(f)).
In Ex Parte Miyazaki, 89 USPQ2d 1207 (B.P.A.I. 2008), the Board of Patent Appeals revived the old precedent of Halliburton Oil Well Cementing Co. v. Walker, 329 U.S. 1 (1946) in holding that purely functional claim language is not allowable unless done within the scope of 112(f).
This general prohibition against the use of “purely functional claim language” (and the more specific Halliburton rule) has not been completely eliminated. Rather, “purely functional claim language” is now permissible but only under the conditions of 35 U.S.C. § 112, sixth paragraph, i.e., if its scope is limited to the corresponding structure, material, or act disclosed in the specification and equivalents thereof.
In Miyazaki, the problematic claim language was “a sheet feeding area operable to feed at least one roll of paper, at least one sheet of paper and at least one stiff carton toward a printing unit.” In Halliburton, the problematic claim language was “a tuned acoustical means which performs the functions of a sound filter.” In each case, the claims were found indefinite.
The following is a list of the patents issued in 2013 with the most claims.
8,401,902: 404 claims covering a "method for using computers to facilitate and control the creating of a plurality of functions;" invented by Lucinda Stone and Michael Dean of Tyler Texas see Function Media LLC. (Family claims priority back to 2000, prosecuted by Grant Rodolph at Conley Rose).
8,404,693: 372 claims covering a set of compounds that impact human opioid receptors; Owned by Adolor Corporation (now owned by Cubist Pharma) (Prosecuted by Walter Frank).
8,437,669: 322 claims covering a toner cartridge; Owned by Canon. (Prosected by Donald Heckenberg)
8,562,424: 319 claims directed to a portable online gambling device; Invented by Jay Walker and now owned by IGT.
8,585,593: 243 claims directed to diabetes monitoring software owned by the University of Virginia.
8,389,958: 223 claims covering a physical mechanism using nanoparticles to alter the wavelength of light emissions; Owned by Duke University and Immunolight.
8,599,764: 222 claims directed to the use of "overhead information" transmissions as to help remote devices keep track of multiple data streams on multiple data channels; Owned by Qualcomm.
8,598,516: 220 claims directed to a new method of mass-spectrometry seemingly owned by the father-son Sapargaliyev team from Kazakhstan. (Prosecuted by Michael Feigin).
8,355,982: 220 claims covering a token-transaction system ownedy by VeriFone. (Prosecuted by Daniel Yannuzzi).
8,538,123: 213 claims covering a system of imaging check and cash deposits and associating those with the customer making the deposit; patent owned by Cummins-Allison Corp. File wrapper is so clean — first action allowance.
8,520,023: 209 claims covering an image transformation method that improves image color and lighting; owned by EEColor. (Prosecuted by John Hammond)
8,467,354: 203 claims covering some aspect of VoIP software (claim 1 spans 80+ lines in the patent); owned by Boris Jerkunia’s company Vocalocity. (Prosecuted by John Harris)