The USPTO broke a new record in March 2014 — issuing more than 6,000 utility patents in a single week. Overall, 2014 appears slightly behind the record issuance numbers for 2013, but well above the prior record set in 2012. The projected number of issued design patents (<21,000) is significantly down from its 2008 high of 25,000.
The article by Robert Swanson, published in the Stanford Law Review, is here. The abstract:
This Comment empirically investigates the doctrine of inequitable conduct in patent law. Inequitable conduct is a defense to patent infringement that accuses the patent holder of committing fraud on the U.S. Patent and Trademark Office to secure the patent. Before the Federal Circuit’s recent Exergen and Therasense decisions, the defense was seen as chronically overused. As a result, patent applicants cited more prior art in their applications to avoid later being charged, during litigation with fraudulent omissions. The Federal Circuit responded with Exergen and Therasense, which heightened the pleading standard and raised the legal proof required for inequitable conduct, respectively.
Many commentators, and especially members of the patent defense bar, now feel that the Federal Circuit has gone too far in restricting the inequitable conduct defense, to the point that it is essentially a dead doctrine. This Comment informs the debate by adding comprehensive data. To better comprehend the effects of the Exergen and Therasense cases, this Comment calculates the rates at which accused infringers plead and prove inequitable conduct—for every patent case over the periods in question. The results show that the inequitable conduct defense is used significantly less often than many assume, contradicting assertions by the Federal Circuit’s Therasense majority. Moreover, the data indicate that Exergen and Therasense have both contributed to an even further decline in accused infringers’ use of the inequitable conduct defense. Based on a full exploration of the data, the Comment concludes that the Federal Circuit went too far in Therasense (but not in Exergen). A better formulation of inequitable conduct doctrine would be the test advocated by the dissent in Therasense, which embraced the U.S. Patent and Trademark Office’s lower standard of materiality.
By Dennis Crouch
University of Pittsburgh v. Varian Medical Systems (Fed. Cir. 2014)
Pitt won its infringement lawsuit against Varian with a $100 million verdict. The patent basically covers a digital image processor that watches surgical patients and provides a warning signal if the patient moves. U.S. Patent No. 5,727,554.
A divided Federal Circuit has affirmed – with the division being over the construction of the claimed “processing means comprising means determining movement of said patient from digital image signals, including movement associated with breathing by said patient.”
The patent statute permits patentees to claim elements according to their function using so-called means-plus-function language. 35 U.S.C. § 112(f). However, the properly interpreted scope of the means-plus-function claim terms is limited to corresponding structures found in the patent specification and their equivalent.
Here, the claim construction debate is on whether the corresponding structure for the processing means is a computer processor programmed to perform either (a) a two-step process or (b) a thirty-two step algorithm. The difficulty in interpretation is that the patent does not affirmatively link the claim language with either structure but instead leaves readers to their own conclusions. On appeal, a two judge majority (Judges O’Malley and Lourie) agreed with the lower court that the proper interpretation was the broader two-step requirement while the dissent (Judge Dyk) would have chosen the more narrow interpretation that would have likely led to a non-infringement determination. To the dissent, the “two-step process” disclosed in the specification only offers more functional language – not structure. The dissent explains his position:
The majority’s identification of structure—the two steps of detecting and tracking fiducials—relies on a single statement in the specification that “[a]s will be discussed fully, the patient motion detector 47 detects and identifies the fiducials 39 and then tracks their movement.” The majority concludes that this disclosure identifies the corresponding structure as a two-step algorithm because the specification “links this algorithm to the function of determining patient movement.” But the statement in the specification does not explain how the fiducials are detected and tracked or how performing those steps accomplishes the function of determining a patient’s movement during radiation treatment.
One rule that would likely flip this decision would be if ambiguity in claim language were construed against the drafter (i.e., the patentee).
= = = = =
The majority did reverse the willfulness finding that almost tripled the damage. On that issue, the court found that the infringer’s non-infringement and invalidity defense were reasonable (or at least not objectively unreasonable).
It’s the annual two-day Springposium. You should go! Brochure and details are here.
by Dennis Crouch
Michael de Angeli is a long time patent attorney with his own Rhode Island firm. However, his most recent venture is as an author of the new Sci-Fi Drama titled Building Better Babies: A novel of law, science, and suspense (2014). I am about half-way through the 450 page novel and am really enjoying it. Patently-O readers may relate well with Henry Hannah, the handsome patent attorney protagonist.
de Angeli offers the following summary:
Patent lawyer Hank Hannah is hired by Jean-Luc Rameau, CEO of World BioTech, to protect a process for building better babies. Sections of the DNA of athletes, scientists, musicians and beautiful people can be transplanted into the parents’ genes, and hereditary disease eliminated. All goes well until the babies start getting sick. Chief inventor David Alexander develops a vitamin cocktail that can save them, and a disaster is averted. Then the US government learns of the development, and decides that it wants control of the technology. Rameau and Alexander are arrested. Only Hank Hannah has the keys to the jail. But can he save them?
Enjoy.
The program is here. I’m excited to speak at this conference, and have been spending a huge amount of time reading up on this area of the law and technology. I’ve dealt with the issues some, but the future looks fascinating!
There’s an article here suggesting that, if the Senate doesn’t move now, this bill will die (because of the election and so on). I’m not sure why the Senate would move on things like fee-shifting with Octane and all up there – I’m hopeful they’ll get this matter of statutory interpretation right; meaning, they’ll agree with me (see post below).
By Dennis Crouch
An ever increasing proportion of US-based patent applicants rely upon provisional patent applications. For many, a provisional application is seen as a low-cost mechanism for claiming a priority date and for delaying the eventual higher cost of drafting and filing a non-provisional application. More sophisticated parties also use a provisional application as a way to shift the patent term back by one year. One problem with the cost-savings approach is that provisional applications only serve their purpose if they include a sufficient disclosure to protect the eventual claims.
One question that I’ve had for a while is whether patentees ordinarily add new matter when filing a non-provisional application that follows a provisional priority document. New matter might be needed because the original provisional application was filed hastily without sufficient time to marshal and understand the important facts. Similarly, new matter might also be wanted if additional technological progress occurred during the interim. The question has been difficult to ascertain because the USPTO does not make its database of about 2,000,000 provisional applications publicly available other than the individual files in PAIR. This, despite the law that provisional applications count as prior art in many situations. Additionally, the USPTO does not ordinarily ask the applicant to identify whether any new matter (additional disclosure) has been added to the formalized non-provisional or, if so, what that new matter might be. Rather, applicants merely “claim priority” to the provisional without saying more. The AIA first-to-file transition offers an opportunity to shed some light on industry practice in this area.
As part of a project on the impact of the America Invents Act, I looked up a set of about 2,000 recently published patent applications that were each filed on or after the March 16, 2013 but that claim direct priority to a provisional patent application filed before that date. This cohort is interesting because the applications span the transition from the pre-AIA invention-date focus to the post-AIA filing-date focus. The cohort is particularly interesting for the provisional-priority question because applicants must declare whether the claims in the newly filed application are fully supported by the provisional.
Some Background: Under the new law, the filing-date focused (first-to-file) patent regime applies to patent applications filed on or after March 16, 2013 – with the caveat that these post-AIA application filings will be examined under the pre-AIA regime if each claim (ever) in the application has an “effective filing date” that is pre-AIA. In other words, a later-filed application will be judged under the first-to-invent rules if it properly claims priority to a pre-AIA application that sufficiently discloses the claimed invention. See AIA, Section 3(n). Under the plain language of the law, the regime used is done on a patent-by-patent basis rather than claim-by-claim or family-by-family.
Ask the Patentee Whether AIA Applies: Now, you might expect that the USPTO would be charged with examining the priority documents to ensure that the newly filed applications properly claim priority. That is not really done on a systematic basis. Rather, the Patent Office simply asks the applicant whether the new claims are fully supported by the priority document. For several reasons, I believe that the vast majority of applicants will be truthful in their response. People do lie, but attorneys strongly shy away from on-the-record lies that – if discovered – would lead to potential charges of inequitable conduct, violation of the rules of professional ethics, and malpractice. While attorney bars severely frown upon attorney dishonesty, patent prosecutors are held to an even higher standard that requires both “candor” and “good faith.”
Findings: Looking at post-AIA non-provisional applications that each claim priority to a pre-AIA provisional application: I find that the files of more than 80% of those applications assert that all claims in the non-provisional are fully supported by priority provisional application.
More on Methodology: For the study, I randomly selected a cohort of about 2000 recently published patent applications that were each filed on or after March 16, 2013 but that claim priority to a provisional application filed within 12-months before that changeover date. For each of those applications, I then used PAIR to determine whether the patent applicant indicated that all of the claims in the non-provisional application were effectively disclosed by the provisional filing. The result was that 1,743 out of 2,097 (83%) assert full disclosure by the provisional whereas 354 (17%) assert that the claims were not fully disclosed by the pre-AIA priority documents. Of some interest, large entities were much more likely to claim full priority than are small or micro entities. I also found nuance within firms that had multiple applications in my sample – i.e., some firms claimed full priority for certain applications but not for others.
Caveats and Conclusions: There are a few potential conclusions to draw from this result. My best guess: These results suggest that provisional applications are ordinarily being drafted with care and purpose to ensure sufficient disclosure. At the same time, I suspect that attorneys are also purposefully limiting invention scope so that full priority can still be claimed. As suggested above, I my guess is that few if any attorneys are improperly claiming full priority. Although not sufficient to claim statistical significance, my perusal of a handful of applications support these conclusions in that applications that claimed full priority were extremely similar to the associated provisional while the new matter was fairly quickly identifiable for those applications who admitted to new matter.
There are two important caveats to using this study to reflect more fully on the practice of provisional patent applications. First, the AIA changeover has likely impacted applicant behavior – making them potentially more careful than they would be in the ordinary situation. In particular, in the AIA changeover situation, adding new matter to the non-provisional claims does more than simply shift the effective filing date. Rather, it also alters the rules applied when judging novelty and obviousness. As I wrote in a prior post, depending upon their situation some applicants may prefer the old rule while others prefer the new. See Dennis Crouch, Should you Transform Your Pre-AIA Application to an AIA Application? (November 2013).
In addition, we also have a general data problem in that a substantial number of provisional patent applications expire without ever being claimed as a priority document. In a prior post, I wrote that: “48% of provisional applications filed in FY2011 were abandoned without being relied upon as a priority document.” Crouch, Abandoning Provisional Applications (January 2013). The point here is that we have no information regarding whether these abandoned provisionals applications are substantially more sloppy and poorly drafted – I suspect that they are.
By Dennis Crouch
Digitech v. Electronics v. Imaging (Fed. Cir. 2014)
Today, the Federal Circuit held oral arguments in this Section 101 case involving Digitech’s U.S. Patent No 6,128,415 that claims a “device profile” and a “method of generating a device profile.” The invention is basically the idea of tagging images with particular information about the camera and its color/spatial image qualities. Asserted claims:
1. A device profile for describing properties of a device in a digital image reproduction system to capture, transform or render an image, said device profile comprising:
first data for describing a device dependent transformation of color information content of the image to a device independent color space; and
second data for describing a device dependent transformation of spatial information content of the image in said device independent color space.
10. A method of generating a device profile that describes properties of a device in a digital image reproduction system for capturing, transforming or rendering an image, said method comprising:
generating first data for describing a device dependent transformation of color information content of the image to a device independent color space through use of measured chromatic stimuli and device response characteristic functions;
generating second data for describing a device dependent transformation of spatial information content of the image in said device independent color space through use of spatial stimuli and device response characteristic functions; and
combining said first and second data into the device profile.
The district court found that the “device profile” was merely a bit of data that did not fit within the literal requirements of the statute that an eligible invention must be “a process, machine, manufacture, or composition of matter.” The district court also concluded that the method claim encompassed an abstract idea.
Mark Lemley argued on behalf of the accused infringers and the court seemed agree with many of his arguments – especially with the notion that a claim to a data structure (claim 1) is not itself patentable. The method step involved more questioning and Judge Moore rightly challenged Lemley’s argument that “A method of generating an unpatentable idea is itself unpatentable.” Later, Lemley pulled-back from that statement somewhat and instead more particularly argued that mere generation and transformation of data should be unpatentable either as not-a-process or else unduly abstract.
Two potentially interesting questions for the case: (1) how to treat expert testimony stating that claims require technologically sophisticated computer and (2) whether the concrete and practical purposes of the invention needs to be recited in the claims.
This case may well be impacted by CLS Bank, but I would suspect the only impact will be on the language that the court uses to affirm. The politics of the outcome may be interesting. Although I would not be surprised with an affirmance without opinion, Judge Moore may want to hold this case until after CLS Bank in order to make the first post-SCOTUS comment on the issue. (Judges Moore, Reyna and Hughes were on the panel).
The patent was originally owned by Polaroid who assigned rights in 2010 to the British Virgin Islands entity known as Mitcham Global Investments – seemingly as part of the bankruptcy proceedings. Then, in 2012, rights were transferred to Digitech which is an Acacia company. The USPTO records also show a security interest held by a Saudi investment company.
Listen to oral arguments: http://www.cafc.uscourts.gov/oral-argument-recordings/all/digitech.html
GUEST POST by Ken Salazar, WilmerHale Partner & Former US Secretary of the Interior and Quentin Palfrey, WilmerHale Senior Counsel and Former Senior Advisor for Jobs & Competitiveness in the White House Office of Science & Technology Policy
Patent politics have not always been front page news. Last year, the hilarious faux newspaper The Onion quipped that “Expansive Obama State Of The Union Speech To Touch On Patent Law, Entomology, The Films Of Robert Altman”.
While still not exactly sexy, patent policy has steadily emerged as a major economic policy issue on the national stage over the past few years. After nearly a decade of debate, Congress passed the America Invents Act in in 2011 – a major piece of reform legislation that was also notable for the bipartisan nature of its backers. In addition to President Obama and Senator Patrick Leahy (D-VT), America Invents benefited greatly from the support of a number of influential Republicans. At a time when entrenched partisan divisions have made meaningful legislative reforms nearly unthinkable in most areas, patent policy stands as a notable and nearly unique exception.
With the ink barely dry on the America Invents Act, President Obama remarked that “[o]ur efforts at patent reform are only about halfway to where we need to go.” Obama twice followed this statement up by issuing a series of executive actions and legislative recommendations in June 2013 and February 2014. While it is doubtful that the President was inspired by The Onion’s coverage, President Obama did indeed use the occasion of his 2014 State of the Union speech to call on Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation.” Meanwhile, the House of Representatives passed a patent litigation reform bill at breakneck speed in December 2013, and the Senate has taken up a parallel measure.
Whatever the merits of various proposals, it is clear that patent policy and politics are experiencing a dynamic renaissance that creates challenges and opportunities for companies and individuals at every level of the economy. President Obama and Congress are not alone in seeing patent reform as an important policy area. Last week, Wisconsin joined Oregon and Vermont in passing a bill touted as a measure to crack down on demand letter abuses by patent trolls. The Federal Trade Commission has launched a study of patent litigation abuses and is reportedly pursuing investigations against entities it believes have committed unfair and deceptive trade practices. Beyond implementing the America Invents Act, the U.S. Patent & Trademark Office has launched a series of initiatives that it says will improve patent quality and provide tools to help those facing litigation abuses. Not to be overlooked are important U.S. Supreme Court cases such as CLS Bank and Octane Fitness that could significantly affect the patent litigation landscape by altering the circumstances under which software patents can be granted and fees can be awarded to prevailing parties, respectively.
Last month, our firm was proud to host a roundtable featuring Vermont Attorney General William Sorrell, who has emerged as a leader in state law enforcement efforts to combat unfair and deceptive trade practices in the patent space. Along with his colleagues from across the country, AG Sorrell has investigated and sued the notorious MPHJ Technology Investments, a company that reportedly acquired a number of scanner patents for the purpose of sending thousands of demand letters to small businesses and nonprofits. MPHJ claimed to hold a patent that covers scanning a document and attaching it to an email — a function common to numerous “off the shelf” technology products — and demanding a licensing fee of $1,000 or more per worker.
The state AG’s efforts in this space highlight the complexity of the patent policy efforts in this dynamic time. To understand developments that are proceeding at a dizzying pace, it is now imperative for policymakers, innovators, and the attorneys who advise them to constantly stay abreast of issues unfolding in all three branches of the federal government, at the state level, and even internationally.
By Dennis Crouch
Others have pointed this out in the past, but today’s NYTimes editorial on fee shifting is fairly low in truthiness.
Today’s major debate in the Senate is whether judges should be given discretion in the choice of whether to award attorney fees at the conclusion of patent litigation. The basic idea is that the threat of fee shifting will discourage a party from filing a claim or defense that has only a low chance of winning. That idea makes sense, but it turns out that the actual impact of fee shifting is not well understood – especially if it is balanced (awarded to prevailing party, regardless of whether that is plaintiff or defendant) and if done on a case-by-case (entire lawsuit) basis rather than claim-by-claim.
In essence, the fee shifting substantially increases the litigation-stakes – in the end, this may well favor plaintiffs so long as they can engineer a financing structure to manage the risk and essentially take advantage of typical risk adversity of accused infringers.
By Jason Rantanen
Microsoft Corporation v. Datatern, Inc. (Fed. Cir. 2014) 13-1184.Opinion.4-1-2014.1
Panel: Rader (dissenting-in-part), Prost, Moore (author)
This case relates to one of the most common criticisms of the patent system raised today: infringement suits and threats of enforcement made against end users. If yesterday’s order in In re Toyota represented the Federal Circuit’s first venture in this area, Microsoft v. DataTern is the followup expedition.
DataTern sued several Microsoft and SAP customers, alleging that they infringed Patents No. 5,937,402 and 6,101,502 based on the customers’ use of Microsoft and SAP products. DataTern’s claim charts extensively referred to the functionality of the Microsoft and SAP products and in most cases cited to Microsoft and SAP documentation for each claim limitation. The exception was the ‘402 patent claim charts: they cited to non-Microsoft documentation for some claim limitations.
Based on this activity, Microsoft and SAP filed declaratory judgment actions against DataTern. The district court rejected DataTern’s motion to dismiss for lack of subject matter jurisdiction and granted summary judgment of noninfringement to Microsoft and SAP. DataTern appealed.
On appeal, the Federal Circuit agreed that the district court possessed subject matter jurisdiction over Microsoft and SAP’s declaratory judgment action in three of the four scenarios in play. On the fourth scenario (Microsoft and the ‘402 patent), the majority concluded that the district court lacked jurisdiction while Judge Rader would have found jurisdiction across the board. (As a reminder, subject matter jurisdiction in declaratory judgment actions asks “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007).)
In reaching this conclusion, the majority rejected two important arguments raised by Microsoft/SAP: (1) that suing customers can provide a basis for subject matter jurisdiction by supplier for direct infringement and (2) that suing customers necessarily creates jurisdiction for induced or contributory infringement:
To the extent that Appellees argue that they have a right to bring the declaratory judgment action solely because their customers have been sued for direct infringement, they are incorrect. DataTern has accused customers using Appellees’ software packages of infringing the asserted method claims, but there are no arguments that there is a case or controversy between DataTern and Appellees on direct infringement.
…
To the extent that Appellees argue that DataTern’s suits against its customers automatically give rise to a case or controversy regarding induced infringement, we do not agree. To prove inducement of infringement, unlike direct infringement, the patentee must show that the accused inducer took an affirmative act to encourage infringement with the knowledge that the induced acts constitute patent infringement. Global–Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011). Absent the knowledge and affirmative act of encouragement, no party could be charged with inducement.
Slip Op. at 7-8. However, the court did hold that declaratory judgment jurisdiction could be based on an inducement of infringement or contributory infringement claim. Here, DataTern’s charts were sufficient to raise this issue for Microsoft and the ‘502 patent and SAP and both patents.
The claim charts provided to the SAP customers allege direct infringement of the ’402 and ’502 patents based on SAP’s customers’ use of BusinessObjects. Moreover, these claim charts cite to SAP-provided user guides and documentation for each claim element. In other words, DataTern’s claim charts show that SAP provides its customers with the necessary components to infringe the ’402 and ’502 patents as well as the instruction manuals for using the components in an infringing manner. Providing instructions to use a product in an infringing manner is evidence of the required mental state for inducing infringement.
Id. at 9 (comment: of course, knowledge (or at least willful blindness) that the acts infringe is also required under Global-Tech v. SEB, but there doesn’t seem to be a dispute about that here).
But, the claim charts were insufficient for Microsoft and the ‘402 patent:
The ’402 patent claim charts as they relate to Microsoft’s customers, however, are substantively different. They cite exclusively to third-party—not Microsoft provided— documentation for several key claim limitations. While these claim charts allege the customers’ direct infringement of the ’402 patent based on its use of Microsoft’s ADO.NET, they do not impliedly assert that Microsoft induced that infringement. Nothing in the record suggests that Microsoft encouraged the acts accused of direct infringement, and simply selling a product capable of being used in an infringing manner is not sufficient to create a substantial controversy regarding inducement.
Slip Op. at 10.
Judge Rader dissented, expressing concern that the majority’s opinion gave patent holders whose enforcement strategy involved suing end users who could not afford to litigate a roadmap for avoiding triggering declaratory judgment jurisdiction for manufacturers. This, Judge Rader contends, is a problem:
Of course, DataTern and other potential patent litigants would like to find a way to keep Microsoft or other major corporations on the sidelines while seeking numerous settlements with their customers who cannot afford the cost of a major lawsuit. Thus, this decision takes on special importance because it shows DataTern and its successors a way to achieve that lucrative objective.
The roadmap comes about because all a patent holder needs to do to avoid triggering declaratory judgment jurisdiction is to make sure to cite to non-manufacturer documentation for several “key” claim limitations.
The court determines in this case that jurisdiction is not available over Microsoft’s action on the ’402 patent because DataTern “cite[d] exclusively to third party—not Microsoft-provided—documentation for several key claim limitations” in its charts. Majority Op. at 10. For this reason alone, the court denies Microsoft declaratory judgment jurisdiction to resolve these issues in a single focused lawsuit. This lone detail, within the control of the patent owner, should not defeat an otherwise valid declaratory judgment action. The practical effect of this holding creates a roadmap to allow DataTern and its successors to keep Microsoft on the sidelines while running up wins against customers, who are often smaller and less-equipped to defend themselves.
Slip Op. at 25.
Comment: One way that this opinion may be limited by future courts is to focus on the “several key claim limitations.” It may be that transparent attempts to avoid creating jurisdiction by token references to non-manufacturer documentation will not suffice.
Reminder: The USPTO is beginning to examine post-AIA applications. Anyone with a transition case should be cautious about amendments. These transition cases are ones that were filed on or after March 16, 2013 but that claim priority to a prior filing. The application will be examined under pre-AIA rules so long as all of the claims that were ever in the application can properly claim priority to the priority filing.
Below is my account of the Patent Troll debate at PatCon 4. As those who were in attendance know, it was a dynamic, insightful, and interesting discussion about a very complex issue.
Resolved: That hostility to patent trolls is not well justified theoretically or empirically and will likely result in bad law.
Pro: David Schwartz, John Duffy
Con: Michael Meurer, Mark Lemley
***
John: Hostility to patent trolls unfounded as a theoretical matter. Patent trolls rely on two fundamental features of the patent system, and that defines their business model.
1) Alienability of patent rights: this should not be changed. This is something that should be kept, not just because of property rights theory generally, but also because of patent rights in particular. This is because inventors are generally not people who are good at business. So you need to allow these people to transfer their patent rights to others.
Consider AT&T research labs: better to have everything integrated into a massive corporation or to have rights spread out among lots of people.
2) Litigation costs are high. We should generally not be happy about this generally. We can all agree that this is a problem. But patent trolls are more efficient at dealing with this type of litigation. They’re more capable of asserting of asserting these rights. Also, keep in mind that if you have relatively narrow patent rights, you’re going to need an efficient market for those narrow rights. This is the role that patent trolls offer. This allows for the valuation of patents.
Mike – Three observations:
1) Relatively little troll activity at the start of the 20th century
2) Small businesses have motivated Congress and the White House to pursue a variety of reforms
3) Peter Detkin thinks that there is a lot of evidence that some folks are gaming the system.
Empirical research shows that patent trolls impose a tax on innovation. This hazard increases with R&D investment. Other research supports this conclusion. Patent defense imposes a cost on companies’ Research and Development. Patent defense has a negative effect on small firm R&D persisting for up to three years. This harm was present even if the defendant won the lawsuit. This is particularly concerning since there’s evidence indicating that patent trolls frequently lose their lawsuits.
This produces a chilling effect, that is strongest among small, high-tech firms. New research by Catherine Tucker showing patent troll litigation “was associated with a loss of roughly $21.8 billion of VC investment over the course of five years.”
Dave: Theory that NPEs can be good for the system because they’re specialist. Prof. Meuer system seems to be arguing that the whole patent system doesn’t work. Dave can’t address all that; the debate here is just over whether the specific entity that holds the patent matters. And he’s not convinced.
Dave might be persuaded if the suits were mainly frivolous, then there might be a big problem. But there’s not clear evidence of this. Going to lay out some guideposts about what he thinks are the right way to think about this issue:
1) Critical issue of what a PAE is. This definitional problem needs to be overcome first. Anyone that doesn’t practice the patent? Too broad; encompasses universities, individual inventors, aggregators.
2) Need to have a baseline to compare to. If the type of entity is the problem, then it can’t just be problems endemic to the patent system that matters.
3) Need to fundamentally we as academics approach research into patent litigation. Can’t keep all this research private. Data needs to be publicly available, for many reasons. For example, the definitional issue: does this change the outcome? Very hard to have a meaningful discussion about all this when the data is proprietary and held by corporations with skin in the game.
Mark: His position is that trolls aren’t necessarily the problem with the patent system. But while trolls themselves are not the problem, trolls are a symptom of real problems with the patent system. They’re a symptom of long tendency times, unclear claims, incentives to write broad functional claims. As a result of these things, anyone can easily and cheaply stand up and make a plausible claim that I’m entitle to a portion of your company’s profits. The result is a development of the ‘bottom feeder’ model, where at least some entities are pursuing a strategy of extorting nuisance value settlements. Trolls can make use of high discovery costs and asymmetries.
Is hostility to trolls making bad law? Let’s look at developments:
1) eBay: you get an injunction when you’re entitled to one.
2) We got more sophisticated with our damages arguments
3) Eliminated the willfulness infringement letter game
4) Reduced the cost of addressing patent validity by inter partes review
5) Started to eliminate forum shopping
What is Congress/Courts doing?
1) Give district courts discretion to punish frivolous suit
2) Forcing patent holders to be more clear in their claims in Biosig v. Nautilus
3) Considering reducing the cost of discovery by addressing e-Discovery
4) Considering making patent holders sue the manufacturer, rather than the downstream users or mom and pop merely as a way of increasing the royalty base.
Mike: Rebuttal to Dave and John – There are many instances of small entities – such as biotech or pharma startups – that were able to enforce their patents without the need of intermediaries. Doesn’t see a major role for tech transfer via intermediaries in the pharma and biotech areas because there is a lot of tacit information. So very skeptical were going to facilitate much transfer of technology by facilitating PAE practices.
John:
Rebuttal to Mike’s invocation of the precautionary principle: we should welcome innovation. The rise of patent trolls is a rise of innovation in law. We should not be afraid of this; we should embrace it. Also, in every other field where there are property rights, there is a robust secondary market. Consider used car markets. It’s an oddity that we don’t have one in patent law.
Rebuttal to Mark’s point on taking advantage of asymmetries. But this is something that defendants do as well – defendants are perfectly willing to take advantage of independent inventors.
Rebuttal to Mike’s event studies data. [Had to talk real fast because he was running out of time so I didn’t get it, but the button line was that Mike’s studies have flaws[
Mark: John says we have to welcome innovation. But the kind of innovation that John wants to encourage are different from the innovation that Mark wants to encourage. The type of innovation that John wants to encourage is innovation in extracting value from the patent system; innovation in the legal models. And this imposes a tax on the innovation in the technical areas. John says that this is a property system, and any property system has a robust secondary market. But this is actually an instance that shows why patent rights are not property. Patent trolls are taking rights that are lying fallow and bringing them into the marketplace. But is this possibility really providing the primary incentive for folks to engage in technological innovation.
Also, let’s think about the change. We’ve moved from a world where 2% of all patents are being enforce to perhaps a world where we’re in 50-60-70% of all patents are being enforced. That doesn’t seem like technological transfer but something else.
Dave: Going to focus just on the bottom feeder point. He’s against suits that are frivolous. But this is where the data is weakest. And this is the linchpin of the argument. Mark suggests that there are a lot of these “bottom feeder” cases. But the main study here (Lemley, Allison & Walker, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1677785) isn’t really enough.
That study looks at the most litigated patents of all time. And it finds that 90% of the patents that go to final judgment by NPEs do not win. But the problem with this study is that is relatively limited, so it may just be outliers. Also, this study appears to involve independent inventor patents, which should be kept in mind. Third, we’re equating unsuccessful with frivolous suits. But that may not be the case. Finally, there’s the problem of selection effects. Only about 10% of cases reach final judgment. There are many reasons to think that the 90% are not like the 10%. Consider two possibilities:
1) The possibility of an injunction affects settlement negotiations. Since post-eBay, it’s extremely likely that a non-practicing entity will be able to get an injunction (unlike practicing entities)
2) Practicing entities have other things that they can offer in settlement other than just money – such as business relations, etc.
David McGowan – moderator:
For Mark & Mike: Isn’t John right to say that whatever else you do, you don’t want patent law to have effects on efficient firm size?
For John & Dave: Hypothetically, let’s suppose that the choice that a sophisticated NPE is a patent portfolio, where the transaction isn’t really about whether a patent is infringed, but the aggregate possibility that there’s something in the portfolio that is infringed.
Mark: The right way to think about nondiscrimination is to think about whether we treat like situated people differently. In other words, should we single you out for no other reason than you’re a NPE? No. But that leaves a lot of room to apply rules in other ways that depend on particular characteristics or attributes of the entity.
John: Since they sort of largely agreed with me, I’m going to declare victory on a theoretical level. No one is defending that we should treat inventors in these transactions differently depending on whether they are integrated into a large firm or not.
Dave: On the portfolio point. Serially asserting patents against companies. This is not unique to PAEs. This is a general problem having to do with aggregation. In Mark’s Forest for the Trolls argument, he can see some benefits from aggregation in solving the royalty stacking problem. There’s still potential for mischief with these portfolio structures, although there may be solutions.
John: Tremendous incentive for parties to come to an agreement on these portfolios unless all the patents are junk. And if all the patents are junk, then we have a bigger problem with the patent system. Both plaintiffs and defendants lose value when suits are filed; so both parties have a strong incentive to settle. I’m going to continue to file suit against you and lose. That’s not a very strong negotiating strategy.
Mike: One thing you should have told them, John, is that when a pharma company loses value when it files a lawsuit is because the shareholders realize that the patents are not as incontestable as they thought.
Basic economics of assertion by PAEs is, if we listen to John and Dave, is that they’re more efficient in enforcing patents. The effect of this is to shift the borderline patents that are being assert to lower quality patents. The result is that we’re going to have a marginal shift to lower quality patents.
In addition, the problem with the PAEs is that they aggravate the harms from notice failure. Greater bargaining power of PAEs makes innovation tax bigger. The size of problems with the patent system is exacerbated by PAEs.
David McGowan – moderator:
For John/Dave: Why did we see a spike in NPE suits from 2001-2009?
John: Innovation in patent monetization taking place. This is good. When people game the system, they show us new things to do. Some we might want to adjust in response to. But throw the entire innovation out? No.
David: Also, a growing view that patents can be a valuable asset, combined with a larger number of firms that were willing to take patent cases on contingency fees. But the real question is whether these are frivolous cases or cases that really are meritorious
For Mike/Mark: How are we going to get information that we can be confident in?
Mark: Going back to the study that Dave talked about. Fair to say that for various structural reasons it’s hard to know much about the confidential settlements. So what can we know?
We can look at cases that go to summary judgment and trial. Invokes weak version of Priest-Klein here to respond to the selection effect point. Also, these are a substantial chunk of the cases in the system as a whole. So when we tell you that 90% of those cases are losers for PAEs, that tells us something. Also, consider Colleen Chien survey on payouts, which indicates that most of these case are settling for the cost of litigation. Ultimately, though, we really need to have more transparent settlement data, not just for studying it, but also for creating a thick secondary patent market.
Finally, if the way that things work is that the more innovative a firm is, the more it gets sued: there’s a real problem with our patent system and a fundamental disconnect be the way that incentives are aligned.
Oskar: Consider this problem: let’s imagine two inventors who come up with a process patent that they’re never going to patent. So what we hope they’re going to do is ex ante licensing. You go around to the industry and try to get everyone to adopt it. Another road that could be adopted is to get the patent and put it in a drawer and wait until someone else comes up with the process and then go out an sue them (i.e.: engage in ex post licensing.)
In between this distinction, we can say that the inventor who actually pushes the invention out is socially better than the inventor who engages in ex post licensing.
John: Patents don’t get put in drawers these days. They get put on the internet. So not really as big a concern about ex post licensing. Also, see my recent article on the Paper Patent Doctrine in Cornell Law Review.
Mark: Oskar makes a really important point. We want technology transfer. Used to be a time when we got tech transfer through the patent system because diffusion was slow and patents made it faster. But diffusion of tech as sped up and the patent system has slowed down. The key here is a distinction between patent rights transfer and technology transfer. But in a world in which most patent lawsuits are filed against independent inventors not against copiers.
For another take, see Prof. Tom Cotter’s summary of the debate: http://comparativepatentremedies.blogspot.com/2014/04/patcon-4-patent-troll-debate.html
The order in Technology Innovations, LLC v. Amazon, Inc., 2014 WL 1292093 (D. Del. March 31, 2014) is here. It’s a nice order addressing what appears to be a very overly aggressive claim construction position by the patentee, where it asserted that its patent covered Amazon’s Kindle. This picture perhaps explains the result:
The opinion points out that Amazon in its brief had cited the NYT Op-ed I co-wrote with Chief and Prof. Chief to support the argument that section 285 sanctions may be proper where a litigant “distorts a patent claim far beyond its plain meaning and precedent for the purpose of raising the legal costs of the defense.”
The opinion by Magistrate Beeler in Evolutionary Intelligence, LLC v. Foursquare Labs, 2014 WL 1311970 (N.D. Cal. March 29, 2014) is here. The lawyer had not been exposed to actual CBI but, nonetheless, was not permitted to participate in post-grant proceedings to the extent they involved claim amendments.
By Dennis Crouch
As the House of Representatives did, the Senate’s approach is clearly bipartisan. The Senate Judiciary Committee is moving forward with the Leahy-Lee patent bill. The whole focus of the Senate is to find “meaningful but targeted reform” that addresses patent troll activities. Amendments to the originally proposed bill are being hashed out this weekend and the Judiciary Committee is tentatively scheduled to vote on both the amendments and the final bill on Tuesday, April 8, 2014. The committee members have requested input from constituents over the weekend on particular aspects of the bill that could be changed/improved.
Senator Charles Schumer spelled out his view on patent trolls in this week’s committee business meeting:
Patent trolls are destroying the lifeblood of America. Companies are getting snuffed out by these patent trolls. They are like the old hook worm. They do nothing; they attach themselves to the inside of the body and eat the food that other people have worked to cultivate and digest.
Other’s on the committee appear to share Senator Schumer’s views, but there continues to be little agreement on what it means to be a patent troll. Schumer also blames the PTO for continuing to grant ridiculous patents.
Senator Durbin and others expressed concern that the current bill (as well as the House Goodlatte bill) goes too far in making patents difficult to enforce across the board rather than targeting abusive behavior. Some companies have complained that the proposal would “move us toward a business model that does not rely upon patents.” (Arguing that such a result is a bad thing.)
The current debate on fee shifting and pleading requirements is basically a matter of degrees. Senator Lee and his cohort would prefer automatic fee shifting to the prevailing party while Senator Leahy would require some additional showing of misconduct before shifting fees. The ownership transparency elements have proven a bit difficult because many of the 1% want to keep their ownership interests secret.
It appears that there is not significant weight behind a proposal to expand the covered business method review program beyond the current financial services limitation.
Only four years in, the 2010s have seen more Supreme Court patent cases than any decade since the 1960s. And, by the end of 2015, I expect that 1960 mark will also be surpassed. The record actually stretches back to the 1880s when the Court decided 145 patent cases. It was in that golden era of patent law that the Supreme Court defined many of the fundamental patent law doctrines that were later codified by Congress and that still exist in the law today. Almost every patent law question that arises today has already been addressed, in some way, by a 19th-century court.
More here in my LinkedIn Influencer post: Crouch, Supreme Court versus Patent Law.
Their web page is here. It is interesting to me in that it has members from diverse industries (Pfizer, Apple, DuPont to name a few). Kappos is its senior advisor.
Guest post by Sarah Burstein, Associate Professor of Law at the University of Oklahoma College of Law
MRC Innovations, Inc. v. Hunter Mfg., LLP (Fed. Cir. April 2, 2014) 13-1433.Opinion.3-31-2014.1
Panel: Prost (author), Rader, Chen
MRC owns U.S. Patent Nos. D634,488 S (“the D’488 patent”) and D634,487 S (“the D’487 patent”). Both patents claim designs for sports jerseys for dogs—specifically, the D’488 patent claims a design for a football jersey (below left) and the D’487 patent claims a design for a baseball jersey (below right):
Mark Cohen is the principal shareholder of MRC and the named inventor on both patents. Hunter is a retailer of licensed sports products, including pet jerseys. In the past, Hunter purchased pet jerseys from companies affiliated with Cohen. The relationship broke down in 2010. Hunter subsequently contracted with another supplier (also a defendant-appellee in this case) to make jerseys similar to those designed by Cohen.
MRC sued Hunter and its new supplier for patent infringement. The district court granted summary judgment to the defendants, concluding that the patents-in-suit were invalid as obvious in light of the following pieces of prior art:
The Federal Circuit uses a two-step test to determine whether a design is obvious. First, the court must identify a proper primary reference—i.e., a “something in existence” that has “basically the same” appearance as the claimed design. Second, other references can be used to modify the primary reference “to create a design that has the same overall visual appearance of the claimed design.” Any such secondary references must be “so related [to the primary reference] that the appearance of certain ornamental features in one would suggest the application of those features to the other.”
Step One – Primary References
On appeal, MRC argued that the district court erred in identifying the Eagles jersey as a primary reference for the D’488 patent. The Federal Circuit disagreed, stating that either the Eagles Jersey or the V2 jersey could serve as a proper primary reference for the D’488 patent.
MRC also argued that the Sporty K9 jersey could not serve as a proper primary reference for the D’487 patent. Again, the Federal Circuit disagreed, stating that the Sporty K9 jersey had “basically the same” appearance as the patented design.
Step Two – Secondary References
In its analysis, the district court used the V2 jersey and Sporty K9 jersey as secondary references for the D’488 patent and the Eagles jersey and V2 jersey as secondary references for the D’487 patent. On appeal, “MRC argue[d] that the district court erred by failing to explain why a skilled artisan would have chosen to incorporate” features found in the secondary references with those found in the primary references. The Federal Circuit did not agree, stating that:
It is true that “[i]n order for secondary references to be considered, . . . there must be some suggestion in the prior art to modify the basic design with features from the secondary references.” In re Borden, 90 F.3d at 1574. However, we have explained this requirement to mean that “the teachings of prior art designs may be combined only when the designs are ‘so related that the appearance of certain ornamental features in one would suggest the application of those features to the other.’” Id. at 1575 (quoting In re Glavas, 230 F.2d 447, 450 (CCPA 1956)). In other words, it is the mere similarity in appearance that itself provides the suggestion that one should apply certain features to another design.
The Federal Circuit noted that in Borden, it found that designs for dual-chambered containers could be proper secondary references where the claimed design was also directed to a dual-chambered container. And in this case, “the secondary references that the district court relied on were not furniture, or drapes, or dresses, or even human football jerseys; they were football jerseys designed to be worn by dogs.” Accordingly, the Federal Circuit concluded that they were proper secondary references.
Secondary Considerations
MRC also argued that the district court failed to properly consider its evidence of commercial success, copying and acceptance by others. The Federal Circuit disagreed, concluding that MRC had failed to meet its burden of proving a nexus between those secondary considerations and the claimed designs.
Comments
The Federal Circuit hasn’t actually reached the second step of this test in a while. That’s because it has been requiring a very high degree of similarity for primary references (see High Point & Apple I). For a while there, it looked like it was becoming practically impossible to invalidate any design patents under § 103. Now we at least know that it’s still possible.
But we don’t have much guidance as to when it’s possible. In particular, it’s difficult to reconcile the Federal Circuit’s decision on the primary reference issue with its decision in High Point. The Woolrich slipper designs that were used as primary references by the district court in High Point were, at least arguably, as similar to the patented slipper design as the Eagles and Sporty K9 jerseys are to MRC’s designs. But in High Point, the Federal Circuit suggested that there were genuine issues of fact as to whether the slippers were proper primary references.
And unfortunately, the Federal Circuit seems to have revived the ill-advised Borden standard. As I’ve argued before, the second step of the § 103 test has never made much sense. Even the judges of the C.C.P.A., the court that created the test, had trouble agreeing about how it should be applied. But the Borden gloss—that there is an “implicit suggestion to combine” where the two design features that were missing from the primary reference could be found in similar products—is particularly nonsensical. At best, this Borden-type evidence suggests that it would be possible to incorporate a given feature into a new design, from a mechanical perspective—not that it would be obvious to do so, from an aesthetic perspective.
All in all, this case provides an excellent illustration of the problems with the Federal Circuit’s current test for design patent nonobviousness. Perhaps now that litigants can see that § 103 challenges are not futile, the Federal Circuit will have opportunities to reconsider its approach.