October 2014

The Vast Middle Ground of Hybrid Functional Claim Elements

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FunctionalClaimsby Dennis Crouch

In Robert Bosch v. Snap-On (Fed. Cir. 2014), the Federal Circuit has held that two different claim elements “lack sufficiently definite structure” that must be interpreted under 35 U.S.C. 112(f) as means-plus-function elements and, because corresponding structures were not sufficiently disclosed in the patent document (as required by 112(f)), the associated claims were held invalid as indefinite.  Here the claim elements in question are a ‘program recognition device’ that plugs into a car motor to see if its control software is out of date and also a ‘program loading device’ that updates the control software if necessary.  U.S. Patent No. 6,782,313.

Functional claim limitations are in vogue.  Part of the reason is that the current generation of computer-focused engineers have been trained in an object oriented approach that discusses solutions more in terms of results than in detailed algorithmic steps.  That approach makes it easier to create new tools and devices by relying upon the building blocks created by others.  But, the carryover to patent law remains somewhat tenuous.

Functional claim terms also offer a mechanism for achieving broader claim coverage and claim coverage that is more aligned with the scope of potential competitor activities and follow-on innovation.  The use of functional language for that purpose has a century-long history in U.S. patent law and has been much debated at all levels, including the U.S. Supreme Court.

When the Supreme Court discussed the topic in its landmark 1946 decision of Halliburton v. Walker, the Court described functional claim terms as those that focus on results – “what it will do” – and not on the actual physical implementation.  In Halliburton, the court held:

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.

Id. The result in Halliburton was that the claim was found invalid under as indefinite because the functional language there (an “echo receiving means”) did not provide sufficient notice of the scope of patent rights.

The Patent Act of 1952 left intact a strong definiteness requirement but overturned Halliburton by enacting what is now known as 35 U.S.C. 112(f).  That provision expressly allows for an element to be claimed as a “means” for performing a “specified function” but without actually specifying the physical characteristics of how it works.  However, 112(f) has an important and significant limitation that cabins-in the scope of any such means limitation to only cover corresponding embodiments described in the patent document, and their equivalents.

(f) Element in Claim for a Combination.— An element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof.

A second limitation on 112(f) is the court interpretation that purely functional claim elements that are not physically described in the specification are deemed indefinite and the corresponding claim invalid.

US patent attorneys have taken notice of these legal limits on means-plus-function claiming and have largely abandoned the form. Twenty years ago, most patents included claim terms written in means-plus-function form. Today, that figure is under 5%.  But the strategy for many does not eschew functional claim elements, but rather to integrate functional limitations together with structural limitations with the result being broadly defined claim elements that avoids the limitations of 112(f).

The Big Middle Ground

Partially Functional Elements: The rules are clear for claim elements written in purely functional terms  such as a ‘means for communicating’ without any claimed physicality. However, there exists a vast middle-ground for claim limitations that include some functionality and some physicality.  These might include a ‘circuit for communicating’ or – as in the recent Bosch Case – a ‘program recognition device.’

In Robert Bosch v. Snap-On (Fed. Cir. 2014), the Federal Circuit has affirmed a lower court determination that two different functional claim elements are indefinite and thus that the associated claims are invalid.  The patents relate a motor vehicle software-update tool.  The claims include a ‘program recognition device’ that plugs into the motor control unit to see if the software is out of date and also a ‘program loading device’ that plugs into the motor control unit to upload new software. Easy enough.    But, the specification includes no diagrams and no real structural detail about these ‘devices.’

The Federal Circuit has a fairly straightforward algorithmic approach to functional claims elements. The first step it to determine whether the element qualifies as “functional” and, if so, interpret the limitation under the rubric of Section 112(f).  For the court, a functional claim element is one recites a functional limitation without “reciting sufficient structure for performing that function” or that fails to “recite sufficiently definite structure.” EnOcean GmbH v. Face Int’l Corp., 742 F.3d 955 (Fed. Cir. 2014). The court also uses a linguistic shortcut — claim elements drafted in the form “means for [performing a specified function]” are also presumed to be functional.   Similarly, elements that do not use the word “means” are presumed to be structural.  Importantly, Federal Circuit precedent indicate that these presumptions are “strong.” See Lighting World, Inc. v. Birchwood Lighting, Inc., 382 F.3d 1354 (Fed. Cir. 2004).

Here, although the terms were not claimed in “means” form, the court found that they lacked structure and therefore were functional.  In walking through its analysis, the court first looked at the claim words ‘program recognition device’ and ‘program loading device’ and found no structure other than the ‘nonce’ word device.  Then, looking at the specification, the court found:

[The] ‘313 patent’s specification does not contain a single reference to the structure of the “program recognition device” itself; all of the proffered citations from the specification merely explain its function. For example, the statement that the external diagnostic tester is “equipped” with the “program recognition device” that “querie[s] and recognize[s]” program versions in the control unit is nothing more than a functional description. This passage is devoid of structure. Likewise, the passage that explains how the external diagnostic tester uses the “program recognition device” to automatically check which program version is currently on the control unit only describes the connection of the external diagnostic tester to the control unit in the vehicle. The specification is, therefore, also silent about any interaction between the “program recognition device” and other components of the system, including the external diagnostic tester. Contrary to what Bosch contends, the specification does not teach how the “program recognition device” receives and processes signals, as the words “signal” and “process” are not even in the specification. . . .

Because the claim terms lack structure, the court determined that they fall under the rules of 112(f) [112p].

The claim terms, construed in light of the specification, fail to provide sufficiently definite structure to one of skill in the art. The claim terms “program recognition device” and “program loading device” invoke § 112, ¶ 6.

The problem for Bosch in this case is that the same analysis of the specification above also supports the conclusion that the claimed function lacks structural description in the specification. And, as a result, the court found the claims invalid as indefinite.

Since we have concluded that both claim terms invoke § 112, ¶ 6, we now must attempt to construe the terms by identifying the “corresponding structure … described in the specification” to which the claim term will be limited. Welker Bearing Co., 550 F.3d at 1097. “If there is no structure in the specification corresponding to the means-plus-function limitation in the claims, the claim will be found invalid as indefinite.” Biomedino, LLC v. Waters Techs. Corp., 490 F.3d 946, 950 (Fed.Cir.2007). On this point, however, little needs to be said. Bosch did not argue to this court that, even if the claim language at issue is within § 112, ¶ 6, the language is definite because the specification sufficiently discloses corresponding structure. See Appellant’s Br. 51–52. And we also see no such disclosure.

Indeed, as already discussed in Part III.B, in the limited number of instances that the specification even mentions these claim terms, it offers no further guidance about their structures. Therefore, we conclude that “program recognition device” and “program loading device” are indefinite. Since these terms are found in the only independent claim of the ‘313 patent, we conclude that all claims in the ‘313 patent are invalid.

An important element of the court’s analysis here is that it is all seen as a question of law reviewed de novo on appeal. Thus, although the appellate panel largely agreed with the lower court’s original decision in this case, that decision was given no deference in the analysis. Further, the strong presumption of validity requiring clear and convincing evidence was also entirely ignored here because that evidentiary requirement is directed toward questions of fact not questions of law.

A second important and interesting element of the court’s decision here is that it does not cite the Supreme Court’s most recent foray into indefiniteness – Nautilus v. BioSig (2014) (requiring reasonable certainty).  Likewise, the court did not cite Halliburton. In fact, the court has not cited Halliburton for almost 20 years and it has never cited the case other than to criticize the decision or indicate that it has been legislatively overruled by 112(f).

The case here is also in tension with those cited above: EnOcean, Lighting World, and Inventio. however, the court here took steps to distinguish those cases based upon the ‘fact’ that Bosch’s patent application failed to provide structure in the specification to guide one skilled in the art in understanding the ‘device’ limitation.  In the other cited cases, the specification included examples and diagrams sufficient to transform the seeming ‘nonce’ words into ones with structural meaning.

What will be interesting here will be to see whether this case is the beginning of a movement in a new direction.  This case’s path to the Supreme Court is most likely if the Federal Circuit first grants an en banc rehearing request.

Another Prosecution Bar Case, but With a Twist

Ethics, Patent, Reexamination

As I’ve pointed out elsewhere here, the adoption of the AIA has created various issues for existing prosecution bars: if you are using a pre-AIA form, consider whether it applies to the new post-grant proceedings.  Courts are splitting on whether bars that don’t mention them can, or should, apply.  My article on the broad topic of prosecution bars is here.

In this recent case, Voice Domain Techn. LLC v. Apple, Inc. (D. Mass. Oct. 8, 2014), the court faced a couple of unique circumstances, while also addressing whether post-grant proceedings were “competitive decision-making” within the meaning of prosecution bars.  Specifically, the patentee was essentially a one-man company and that one man was also the named inventor on the patents-in-suit.  Apple sought to exclude him from having access to key information, asserting that, no matter his best intentions, he would at least likely inadvertently misuse the information.  Apple asserted that his involvement in licensing, patent acquisition, and prosecution all made inadvertent disclosure possible.

The court agreed, holding that, though not doubting his integrity, “it questions whether it is possible to avoid the subconscious use of Apple’s confidential material in his future endeavors.”  Thus, as a competitive decision-maker he was subject to a bar unless Voice Domain showed that the prejudice to it of a bar outweighed any potential harm.  The court found it did not, concluding that because trial counsel and experts could have access, this outweighed the potential harm.

That aspect of the case — the sole-employee patentee — is fairly rare in my research, and this case discusses a few other similar cases.

The case addresses various other issues, but whether reexamination and other post-grant proceedings should be covered was a key issue. The court held that although courts had usually held reexamination proceedings were not subject to a prosecution bar, “a newer line of cases recognizes that even in a reexamination proceeding, a patent owner can use confidential information to restructure or amend its claims so as to improve its litigation position against alleged infringers.” (citing several cases from 2013 and 2014). The court adopted the approach of these more recent cases, but entered an order that allowed for court permission for counsel to participate.

Takeaways:  (1)  don’t assume post-grant proceedings are covered, or not, by a bar and make it clear; (2) be sure that any of your lawyers who are subject to a bar comply with it and (3) figure out who on the other side needs to be barred.  As my paper points out, with respect to that last point, some courts hold that the party seeking the bar has to show that a lawyer on the other side is likely engaged in competitive decision-making; that is not practicable.  Finally, and again, double-check any old form and be sure you update it, as appropriate.

How is Patent Litigation like Baseball?

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By Jason Rantanen

I’m a moderately-dedicated baseball fan*, so I’ve been listening** to quite a few baseball games over the past few weeks.  And as I’ve been listening to the games, it’s struck me that in many ways, patent litigation is a lot like a baseball game well beyond the Cubs reference.  Both are a game of one against many on a field where the participants operate under asymmetric rules.  For both, too, the individual success rate in an active contest isn’t all that high.

One of the most distinguishing aspects of baseball is the challenge an individual batter faces in actually achieving a positive result at the plate.  Most of the time, players don’t actually get a hit; a batting average of over .300 is considered exceptional.  This statistic has sparked the idea that baseball is a game of failure: there are numerous references to even the greatest baseball legends being failures 7 times out of 10.  Even when other measures of success are taken into account (such as drawing a walk), it’s still the case that most of the time a batter will make an unproductive out.

But, as other folks have pointed out, a batter’s performance is not so much a question of the individual triumph (or failure) of the batter; rather, it is a contest between the batter and the pitcher.  When the batter loses, the pitcher wins.

Or more accurately, when the batter loses, the other team wins.  This is a large part of what makes baseball so fascinating to me: it’s a lone batter facing off against a whole squad of nine opponents.  One against many.  Even the best players in the world are still the underdog here: Ted Williams, the all-time leader in getting on base, did so about 48% of the time over his career.

So too in patent law.  A patent holder is only one against many.  True, like a batter, the patent holder has an advantage: the patent, with its presumption of validity.  But there is only one patent holder and there is a whole world of potential infringers.  Including many creative, knowledgeable, and smart players who can develop arguments and theories and ideas that the patent holder could never have anticipated.

The end result is that perhaps we shouldn’t be all that surprised when patent holder success rates in infringement litigation tend to look a lot like batting averages.  Added to the challenge of one patent holder against many possible infringers is the difficulty of actually winning a patent suit: there are a multitude of possible validity challenges that an alleged infringer might raise and the patent holder must win on them all – and prove infringement – in order to prevail.   As in baseball, patent infringement litigation is an asymmetric contest with different rules for the batting team and the fielding team.***

None of this is to discount the very real challenges that our patent system faces, particularly when it comes to anything other than substantive merits determinations by a court.  We don’t really have a good sense from an empirical standpoint about the nature of post-filing settlements, let alone those that occur prior to the filing of the complaint.  And none of this should suggest that patent litigation is working as optimally as it might; it’s still extremely costly, complex litigation and there’s always room for improvement in patent law.  But thinking of patent litigation as akin to a baseball game also might help to put the Allison/Lemley/Schwartz study I posted about earlier this week in some context.

*By which I mean that I watch a fair number of Giants games via MLB TV, listen to many more, and have been to a dozen games or so over the last seven years.  Of course, it’s easy being being a fan when the team you follow makes it to the World Series three times out of the past five years…

**A cost of getting rid of cable tv is that one can only listen to postseason baseball games that are currently being played.  Which is actually my preferred way to follow the game.  Except for the constant repetition of political advertisements directed at a state in which I do not live.

***There are another analogies I could draw, such as the role of money in paying for players in the game.  Of course, that didn’t work out to well for the Dodgers this year…

Also, at some point the analogy stops working; a baseball game in its entirety is not all that asymmetric.  The team that bats will get its turn in the field.  The team that fields will get its turn at bat.  The analogy works best when talking about batting success.

Director Michelle Lee

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The White House has announced President Obama’s plans to nominate Michelle Lee for the position of Undersecretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office.  Although Lee is already the de facto Director of the office, this move has important political implications because it will help to better ensure both USPTO autonomy and USPTO influence within the Beltway.  Congratulations to Michelle Lee and the Patent Office on this important move forward.

It was almost one year ago that Michelle Lee was appointed as deputy director and de facto director.  At the time, I praised the selection of Lee, but questioned both the legality and the wisdom of appointing a prominent deputy director while leaving the slot of director still vacant.   Because of legal limitations, Lee has not be identified as the “Acting Director” but only “acting as Director.”

Part of the willingness of the White House to now appoint Lee may have come from the country’s new Chief Technology Office Megan Smith who is a former Google executive. (Lee led Google’s patent strategy for a decade).

Up to now, Lee has largely followed the lead set by former Director Kappos and Acting Director Rea. The unanswered question is whether the new role will now embolden and empower Lee to shift USPTO policies in a new direction.

 

Guest Post by Prof. Shubha Ghosh: Are South African Yellow Canaries a Question of Law or Fact?

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Guest Post by Professor Shubha Ghosh.  Prof. Ghosh is the Vilas Research Fellow & George Young Bascom Professor in Business Law at the University of Wisconsin Law School, where he is also the Associate Director of the Initiatives for Studies in Transformational Entrepreneurship (INSITE).  

I was fortunate to be able to attend oral argument in Teva v Sandoz before the Supreme Court on October 15. At issue was a highly technical issue at the intersection of civil procedure and patent law: Is the standard of appellate review for patent claim construction de novo or clearly erroneous? The Justices’ engagement with this dry, but fundamental, question extended from hypos about bus crashes and South African Yellow Canaries (don’t ask) to elusive distinctions between facts and law in construing scientific terms like “average molecular weight.”

While the discussion was lively, the big question of what is the appropriate methodology for claim construction was avoided. The Federal Circuit presumably answered that question in Phillips v. AWH, but the Supreme Court has never addressed that issue. Even a lively oral argument cannot cure the failure to address claim construction methodology. I will address that problem at the end of this post after setting forth these highlights.

(1) Justice Alito stated the issue as one of whether a patent is analogous to a statute (for which there is no deference to legislative facts) or to a private contract (for which there is deference on factfinding).  That may be just restating the question, but gives some indication on how some of the justices are approaching the matter. The question of right analogy is a bit of a red herring. Which analogy you choose depends on how you view the mix of law and fact in patent claims.

(2) Justice Roberts came out clearly, from my listening, on the side of patent as statute and emphasized the importance of uniformity (and implicitly the need to avoid forum shopping).  Go Federal Circuit!  Justice Scalia was hard to read although he did make a comparison between a patent and a deed. Also, given his opinion in Medimmune in 2007, he may come out on the side of a patent as a statute.

(3) Justice Breyer came out on the side of 52(a) and pushed back on Sandoz’ argument that the Court had already resolved the question of deference in Markman by concluding that claim construction is a matter of law. Justice Ginsburg pointed out the different context of the 7th Amendment in Markman. I think there were at least four Justices (Breyer, Ginsburg, Kagan and Kennedy) who seemed to be skeptical about special rules regarding fact finding for Markman hearings (which is one way of phrasing Sandoz’ argument). In addition, Justice Scalia’s strict constructionism would lead him to agree with Justice Breyer. Justice Sotomayor’s questions were more searching, but indicated some skepticism with Sandoz’ position.

(4) Even when there was sympathy for the Teva argument, there seemed to be some pushback on how to separate subsidiary facts from legislative facts (a big distinction for Teva and for the SG).  I did not find a completely great answer although the SG brief and argument came close to a methodology for parsing facts.

Based on this reading of the oral arguments, I would predict a victory for Teva on the 52(a) issue with Justices Breyer, Ginsburg, Kagan, Kennedy and possibly Scalia or Sotomayor voting for a reversal. The open question is how to distinguish facts and law in patent claims. This question may just be left for another day.

Looming in the background of this case is the issue of how claim construction should be done. Although Philips offers the accepted methodology (and one that seems to have reduced the reversal rate on claim construction by the Federal Circuit), the Supreme Court has neither endorsed the decision nor addressed how district courts should construe claims. But the law/fact question is intimately connected with the methodology of construction.

Treating claim construction as purely a question of law is consistent with the plain meaning approach to construing claims, as endorsed by the Philips decision. The more courts rely on sources other than the words of a claim, such as prosecution history or expert witnesses, the more fact-based claim construction becomes. It is no coincidence that Teva in its arguments emphasized the role of experts and prosecution history in construing the meaning of “average molecular weight.” A ruling in favor of Teva would suggest that claim construction relies more heavily on factors extrinsic to the language of the claims, a position different from the plain meaning approach of Philips.

Of course, the ruling in Teva will just be the start and perhaps the first step in the Supreme Court examining claim construction methodology head on.

 

Teva v. Sandoz and Claim Construction Deference

Patent,

By Dennis Crouch

In Teva v. Sandoz, the Supreme Court is focused-in on the appellate rules that should apply to claim construction decisions. Namely, if a district court makes factual conclusions that underpin a claim construction determination, should those factual conclusions be given deference on appeal or instead reviewed de novo on appeal. The Federal Circuit’s practice is to follow the latter approach while Federal Rule of Civil Procedure 52(a)(6) suggests the former.

The issue as presented to the Supreme Court:

Whether a district court’s factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires (and as the panel explicitly did in this case), or only for clear error, as Federal Rule of Civil Procedure 52(a) requires.

Here, the district court may several explicit factual findings, including resolution of conflicting expert testimony regarding how a figure should be interpreted and how one of ordinary skill in the art would understand the term “average molecular weight” in the context of size-exclusion chromatography.  These findings served as precursors to the lower court’s ultimate clam construction determination. On appeal, the Federal Circuit expressly reviewed and rejected those determination — but gave them no deference in the appeal. I should note here that there is disagreement about what should count as a factual finding — the PTO suggests that anything that relies at all upon patent or prosecution related documentation is legal textual analysis and not fact finding. Teva agrees that deference should be reserved to “classic fact­finding,” but that would include factfinding that also draws some inferences from patent documents in conjunction with other evidence.

The Supreme Court recently heard oral arguments, and the transcript is available online. In the case, Rising Star William Jay of Goodwin Procter argued for the patentee Teva who won at the district court but lost on appeal at the Federal Circuit. Carter Phillips of Sidley argued for Sandoz and Ginger Anders represented the Solicitor’s Office as Amicus.

Much of the of debate focused on the best analogy for patent claims — should they be interpreted as we interpret statutes (fully de novo review)? Or should they instead be interpreted as we do contracts (deference for underlying factual conclusions)? Jay attempted to argue that statutes are different because they are always designed to be read by the general public whereas patents are focused on those skilled in the art.

JUSTICE ALITO: If a patent is like public law, if it’s like a statute or like a rule, then factual findings regarding the meaning of that patent are not entitled to clear error review. . . Now, on the other hand, if a patent is private law, if it’s like a deed or if it’s like a contract, then Rule 52(a) comes into play. . . .

MR. JAY: Terms of art in statutes, Justice Alito…are nonetheless written to be read by the general public. And … when they have a legal meaning, the determination of that legal meaning is still a question of law. . . .

I think when you’re interpreting a statute that it s generally clear at least what the right frame of reference is Now in the in the patent case what the frame of reference is is itself a question of fact as this Court said in Graham v John Deere. Ascertaining the level of skill in the art who is the skilled artisan who is this patent written for that is itself a factual question and then figuring out what that what that person knows is also a factual question. . . .

MR. PHILLIPS: But actually, I think Markman
answered that, because I think Markman recognized that this is a public document that is going to be binding on third parties, and that therefore ought to be construed as a matter of law in order to ensure the stare decisis component of it.

Justice Breyer seemingly announced his position in favor of deference:

JUSTICE BREYER: And [the direct viewing of witness testimony], I think, is a very powerful reason for saying in a technical case, don’t overturn the judge’s factual findings whether they are ­­ particularly scientific matters, but no particularly here ­­ unless those three judges who will not even read the whole record normally and certainly won’t hear those witnesses, don’t let them do it unless they are convinced that it is clearly erroneous. Now, that’s the argument, and I would like to say that’s different from a statute.

Of course, in this particular case there was no live testimony for the district court Markman “hearing”, but rather only submissions in briefs and declarations.

A second analogy proffered is to the patent issue of obviousness that is also a question of law but is generally based upon underlying factual findings.  To that, Sandoz response is largely that claim construction should be considered unique.  On that point, a number of Justices seemed to question the fundamental Markman decision and its impact on Seventh Amendment rights.

Policy goals at stake: Uniformity and Consistency?

JUSTICE SOTOMAYOR: If you and the government can’t agree, why should we defer to a district court? Why don’t we defer, as has been done now forever, to the Federal Circuit and let them review these things de novo? . . .

CHIEF JUSTICE ROBERTS: [With deference,] two different district courts construing the same patent could come out to opposite results based on a subsidiary factual finding, and neither of those would be clearly erroneous, and yet on a public patent that is going to bind a lot of other people, people won’t know what to do.

. . . .

MR. PHILLIPS: It’s not ­­ it’s not worth the candle because all you’re going to do is create a cottage industry of trial lawyers fighting with the judge about which bucket some particular evidence fits into.

In my view, Mr. Phillips is right that the relative impact of deference for factual findings is relatively small.  The larger potential impacts will be seen if the court remarks more generally on what should count as a factual finding; whether claim construction methodology should be more aligned with statutory construction vs contract construction; and how the factual findings for claim construction might impact later parallel jury determinations.

Inventing Solutions to Global Disease & Poverty

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Guest Post By David Kappos and Quentin Palfrey  

In April 2013, the Obama Administration announced the first wave of winners of the Patents for Humanity competition, an innovative program to provide recognition and incentives to companies that use their patented technologies to help the world’s poorest people. The winners and honorable mentions were diverse and impressive. For example, Gilead Science was recognized for making HIV/AIDS drugs available through innovative licensing mechanisms.The University of California at Berkeley developed lower cost ways to product anti-malarial compounds. DuPont developed an improved strain of sorghum that was fortified with more protein and vitamins for use among starving populations in sub-Saharan Africa. Procter & Gamble removed impurities from drinking water. Nokeros delivered solar light bulbs and phone chargers for off-grid villages through local entrepreneurs. In addition to well-deserved recognition for these and other laudable initiatives, companies recognized through the Patents for Humanity program received something else: a voucher to accelerate applications in one of several processes at the U.S. Patent & Trademark Office (USPTO).

This February, the White House reaffirmed its commitment to the Patents for Humanity program, removing it from pilot status and making it an annual program. The second wave of applications is due at the end of this month and we are sure to see another impressive group of innovators seeking recognition. But the program could be even more impactful in incentivizing humanitarian uses of patented technology if awardees were free to transfer their acceleration vouchers to other companies. This would increase the incentive effect of the program by making the vouchers more valuable. That is the idea behind the Patents for Humanity Program Improvement Act, introduced by Senator Patrick Leahy, the chair of the Senate Judiciary Committee, and Senator Chris Coons. The Obama Administration has supported this common sense, cost-neutral measure to strengthen an innovative program.

The challenges facing the world’s poor are daunting. One in eight people on the planet suffers from malnutrition. AIDS, tuberculosis, and malaria kill more than 6 million people a year. More than a billion lack access to safe drinking water. To overcome these challenges will require a sustained commitment, as well as many new ideas and inventions. The global fight against disease, hunger, poor sanitation, and other development challenges is urgent and bipartisan, and we hope Congress will act without delay to pass Senator Leahy’s and Senator Coons’ bill.

David Kappos is the former Under Secretary of Commerce and Director of the United States Patent & Trademark Office. Quentin Palfrey, a special counsel at the law firm WilmerHale, is a former Senior Advisor for Jobs & Competitiveness in the White House Office of Science & Technology Policy.

Allison, Lemley & Schwartz on Patent Litigation

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By Jason Rantanen

In 1998, John Allison and Mark Lemley published a groundbreaking empirical study of patent litigation, Empirical Evidence on the Validity of Litigated Patents.  Allison and Lemley’s focus in that article was on written, final validity decisions by either district courts or the Federal Circuit from 1989 through 1996.  The basic study design philosophy was to look at patent case outcomes; that is, what was the final outcome for patents that were litigated.  That study is still widely cited.

Working with Dave Schwartz, Allison and Lemley recently completed an updated (and much expanded) version of their 1998 study.  The results of that study are being published in several articles, but the one that links most closely with the earlier study is Understanding the Realities of Modern Patent Litigation.

Their undertaking in this project is truly quite impressive.  The authors expanded their scope to all available decisions (not just those that were published in the U.S.P.Q., as in the earlier study) for utility patent infringement suits filed in 2008 and 2009, and personally coded the relevant case information from the docket sheets, district court opinions, briefs, and Federal Circuit decisions for hundreds of cases.  As in the earlier study, the record unit they used were patent cases, with only final decisions for a given patent being counted; in other words, where there was more than one decision in a case, they reported the last final decision on the validity of the patent.  Thus, if there was a final Federal Circuit decision, it superceded a previous district court decision; if there was a remand and subsequent final decision by the district court, it superceded the Federal Circuit ruling, and so on.  Within this set of cases, Schwartz and Lemley coded information about the cases while Allison coded patent-specific information.

Study Findings

The vast majority of patent cases still settle: Out of the roughly 5,000 patent infringement suits filed in 2008 and 2009, only 290 patents went to trial.  All together, less than 10% of the patent suits filed in these years resulted in any merits decision (that is, a summary judgment ruling or trial).  The remainder settled before that point (although, the authors note, there are a small number of cases still pending that may add another 2-3% to the number of suits resulting in a merits decision).

More indefiniteness challenges: One notably change from the 1998 study was the dramatically grater number of indefiniteness challenges.  Out of the 555 summary judgment motions brought on validity issues by either the patent challenger or the patent holder, 176 decided summary judgment motions involved the issue of indefiniteness, a dramatic increase from the 1998 study.  And the authors observed a less substantial, but still noticeable, increase in summary judgment decisions based on patentable subject matter (26), a category that has likely continued to experience growth.  For context, there were 149 decided summary judgment motions on obviousness and 154 on anticipation.

Many arrows in the challenger’s quiver: In terms of the success rates on motions for summary judgment of invalidity, challengers tended to lose on individual issues: with the exception of patentable subject matter challenges, the percentage of successful summary judgment motions of invalidity was 20% or below for each individual issue (102, 103, indefiniteness, enablement, written description).  But, the overall rate of invalidation on summary judgment was 30% and the overall rate at which patent challengers successfully won on invalidity was 42%.  This is an example of what Lemley has called the “fractioning” of patent law; that is, the idea that a patentee must win every issue in a case while the accused infringer must prevail on only one issue; a particular challenge with patent law and its multiple grounds for invalidation.

Overall, patent challengers tend to win: Overall, patent holders tended not to win in cases that went to a definite merits resolution.  Overall, patentees won only about 26% of the time (164/636 definitive merits rulings).  In addition to invalidity, patent holders lost on frequently-brought motions for summary judgment of noninfringement 54% of the time (257/473) and infrequently obtained summary judgment on more rarely-brought motions for summary judgment of infringement (41/128).  Thus, although patentees had a fairly high success rate at trial (winning on 59% of patents when juries made the decision and 64% when the bench did), the 1-2 punch of summary judgment followed by trial meant that most patent cases that went to judicial resolution were resolved in favor of the patent challenger.

I’ve only covered some of the data presented in the paper and barely scratched the surface of the authors’ analysis.  If you’re interested in reading more, the article can be downloaded directly from the Texas Law Review’s website or via ssrn: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2442451 

The Role of Patents in the Emerging Market for Venture Lending

Patent, ,

by Dennis Crouch

A new article out from Yael Hochberg, Carlos Serrano, and Rosemarie Ham Ziedonis looks at how patents are increasingly being used as collateral for start-up ventures.  Generally, this area is being termed “venture lending.”  Article: Patent Collateral, Investor Commitment, and the Market for Venture Lending.

Conventional wisdom in the area has been that new ventures are typically too risky to allow for loans to finance research, development, and commercialization projects.  Bronwyn Hall and Josh Lerner (2010) and others have suggested that instead venture capital is the ‘more natural’ solution for financing entrepreneurship.  However, work by Alicia Robb & David Robinson and others have recently found that a substantial large percentage start-up companies also rely upon loans in order to finance their work.

Hochberg’s team looked to see the extent that patent rights are being used as collateral for these start-up companies.  A nice data feature here is that security interests in patents are normally recorded with the USPTO.  Using those records, the research team found that a substantial percentage (36%) of venture-backed startups in their study also relied upon loans for financing.  The sample here is fairly small (1,500 companies) and I suspect some potential selection bias, but still interesting results.

The authors also suggest that the market for patents is “thicker” and more liquid than many economists previously assumed.   That result is important because a more robust market for patents should mean that lenders are more willing to take patent rights as collateral.

If these intermediaries [such as Intellectual Ventures] increase the salability of patent assets, by increasing liquidity in the market, innovation-oriented companies could find it easier to borrow against their patents. This ex ante effect on innovation financing should be weighed, ideally with evidence from more companies and sectors, against the ex post distortions that may arise from patent trading and enforcement.

Although the article does not spell this out fully, one point that the authors are making here is that any study reporting on the cost/benefit of the patent system and transferability of patent rights should consider this financing benefit rather than simply the costs caused by enforcement.

The work here also builds upon Professor William Mann’s research that I previously highlighted here.

 

Nobel Prize in Patent Law

Patent

Professor Thomas Cotter (Minnesota) has two Nobel Prize related posts on his Comparative Patent Remedies blog.

First, Professor Cotter writes about physics Nobel prize winner Shuji Nakamura who was part of the Japanese team that first developed an efficient blue LED which turned out to be a major stepping stone for the now popular general use of LED lighting for a variety of applications.  Japanese law requires that inventors of high-value inventions be reasonably compensated and Professor Nakamura was able to receive about $8 million from his former employer Nichia Corp. (but only after suing).  Apparently, Japan is in the process of removing this law so that corporate owners can retain a higher profit.

Second, Professor Cotter writes about the economics Nobel prize going to Jean Tirole who has written a number of important patent related articles — focusing primarily on patents relating to technology standards and network impacts.  Most recently, Tirole and Josh Lerner have distributed their article titled “Standard-Essential Patents“.-

NYU Engelberg Center on Innovation Law and Policy looking for Executive Director

Patent

By Jason Rantanen

Continuing the string of high-profile center director openings, the Engelberg Center on Innovation Law & Policy at NYU School of Law is searching for a new executive director.   From the posting:

The Engelberg Center on Innovation Law & Policy sponsors legal and interdisciplinary work in the area of innovation law and policy, including but not limited to intellectual property. It draws together legal scholars and practitioners, economists, historians, social scientists, and representatives of the innovation industries to study the legal regimes and cultural forces that influence innovation, to explore methods for optimizing the exploitation of intellectual products, and to search for new ways to facilitate the transfer of technology from creator to end-user, across fields, and among nations. The Center produces scholarship and regularly hosts speakers, conferences, workshops, and other events, around these central themes.

The Executive Director oversees all aspects of the Center, and works closely with Faculty Co-Directors Professors Barton Beebe, Rochelle Dreyfuss, Jeanne Fromer, Jason Schultz, Christopher Sprigman, and Katherine Strandburg.

Read more here: http://www.nyuengelberg.org/ed-apply

What is the Particular ‘Value’ of FaceTime?: Thoughts Provoked by Discussion of VirnetX v. Cisco and Apple

Patent,

Guest Post by Jacob Jacoby, Merchants Council Professor of Consumer Behavior, New York University and President, JacobyIP Research (jj@jjri.com)

When claiming patent infringement due to an individual component of a multi-component product, patent attorneys confront a fundamental problem, namely, determining with a reasonable degree of precision the extent to which the patented feature creates the basis for customer demand.  The purpose of this post is to apprise patent attorneys of a research-based approach capable of doing so with precision, while being able to pass Daubert requirements.

Jason Rantanen’s September 16, 2014 post described the kind of evidence considered (and rejected) by the Federal Circuit in arriving at its VirnetX, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2014)  Virnetx v Cisco opinion.  As Jason pointed out:

A key issue in calculating the infringement damages for complex technological products is whether it is appropriate to use the value of the entire device in the damages calculation.  Generally speaking it is not appropriate to do so: “when claims are drawn to an individual component of a multi-component product, it is the exception, not the rule, that damages may be based upon the value of the multi-component product.”  Slip Op. at 27.  Rather, “‘[a] patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.’” Id., quoting Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1268 (Fed. Cir. 2013) (emphasis added by court).  This is due to the general requirement that damages must be actually attributable to the infringing features within a reasonable degree of precision.

The Federal Circuit rejected use of the Nash Bargaining Solution as a model for determining reasonable royalty damages.  This was not surprising, given that a key premise (namely, “where two person bargain over a matter, there is a ‘solution’…in which ‘each bargainer get[s] the same money profit”) could not possibly apply.  Customers purchasing smart phones, computers, TVs, etc. in the real-world marketplace typically are not “bargainers,” nor do they realize “the same money profit” from their purchases as do the sellers.

Subsequent discussion of Jason’s post yielded interesting perspective, especially the exchange between iwasthere and Curmudgeon.  When the former asked “So how would you propose breaking out the ‘value’ of FaceTime?…. What do you think [of] consumer survey data?”, the latter replied “Yes, I think customer surveys, akin to those used in trademark litigation, could make sense.”  As a proponent of surveys and author of the ABA’s 1000-plus page treatise, Trademark Surveys (2013), it might be surprising to see me assert: In my professional opinion, traditional survey research is not capable of providing a scientifically reliable and valid basis to be used when assessing damages. Consider some of the problems.

Suppose one asked past purchasers questions regarding the factors led them to make their purchase.  Considerable research shows that asking questions a point in time after the item has been purchased — especially for surveys conducted weeks, months or years after the purchase — is likely to generate answers subject to faulty memory.  Another problem is that the answers are likely to be colored by post-purchase experiences. Although a product feature may not have played a role in their pre-purchase deliberations and decision, positive post-purchase experiences can cause them to overestimate the value of the feature, to the point where they believe they must have considered it prior to purchase.  The reverse effect due to experiencing a disappointing feature is also possible.

Asking prospective purchasers to indicate the factors they think will influence their purchase decision can generate other problems.  Most importantly, prospective customers may not be aware of some product features until they begin seriously considering whether to purchase the product; hence, they could not possibly report on the materiality of these features to their purchase decision.

Consider iwasthere’s critical question “So how would you propose breaking out the ‘value’ of FaceTime?”  The answer is by using behavioral simulations such as those I developed and used for defendants in two matters, Polaroid Corporation v. Hewlett-Packard Company, U.S.D.C.  D. Delaware, C.A. No 06-738 (SLR) (2007) and John Taylor, et al. v. JVC Americas Corporation. U.S.D.C.  D. New Jersey, Civ. No. 2:07 Civ. 4059 (FSH/PS).  Such simulations measure actual information acquisition behavior not before or after the fact, but as it occurs, identifying the specific features potential purchasers of the goods at issue actually do consider and consider important (and those they ignore and obviously not consider important) while reaching a purchase decision.  In part based upon the research findings, both matters quickly settled out of court.  To illustrate, consider the following findings from one of the above mentioned cases which breaks out consumer demand for the contested feature, Feature P, as well as all the other features associated with this product. (Note: The names of the features have been redacted, which is why the features only have letters.)

RelativeImportanceEvidence

Many contemporary products have numerous features and components.  The Federal Circuit has called for evidence quantifying the extent to which allegedly infringing components or features drive customer demand.  The output from such simulations are capable of doing so better than are any other extant procedures, thereby making it easier for damages to be attributable to the infringing feature(s) within a reasonable degree of precision.  Moreover, given their realistic nature and clear-cut findings, such simulations are likely to be more readily understood and accepted by triers of fact, especially juries, than are intricate damages theories, especially those involving questionable premises or arcane mathematical formulas.

Unfortunately, we cannot go back in time to determine to determine how the parties would react to each other under a hypothetical negotiation at the time of the infringement, a Georgia Pacific factor.  We can only test consumers who are in the process of reaching a purchase decision now.  That said, plaintiffs, defendants and triers of fact may find being able to identify the extent to which a feature or component drives current customer demand is preferable to relying on hypothetical negotiations that would have taken place at the time of the infringement.

Status of US Patent Applications

Patent

ApplicationStatus

The chart above shows the current prosecution status of U.S. patent applications as either patented (blue), abandoned (red), or still pending (green). As you might expect, more recently filed applications have a greater percentage of applications still-pending, while fewer than 10% of those filed before 2009 are still pending.  You’ll note that the percentage of issued-patents appears relatively steady at about 60% over the filing-years 2005-2010. However, we can expect that figure to rise for the later-years in that group as the still pending cases are finally decided.

The applications here were considered through actions on October 1, 2014.  Thus, the 2012 applications have been pending between 1-year-9-months and 2-years-9-months.

The chart below looks at the same data, but limits it to only fully decided cases – those that are either patented or abandoned.

DecidedApps

 

 

New Jobs

Patent

Law firms are hiring! We’ve had a rush of job postings this month – find yours!

 

Right Round: Comparing US and European Software Patent Eligiblity

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Guest Post by Michael Williams. Williams is a UK and European Patent Attorney and Partner at the London based Cleveland-IP firm.

In the book “Through tAlicehe Looking-Glass”, Alice compares her drawing room to the one reflected in the mirror.  She notes that everything is the same “only the things go the other way”.

In the recent Alice Corp[1] decision, the US Supreme Court set out a framework for assessing whether claims are patent eligible under 35 U.S.C. § 101.  In this article I shall compare this framework with that used by the European Patent Office, and consider the similarities.

The US Alice Approach

In a memorandum dated June 24, 2014, the USTPO has set out its Preliminary Examination Instructions to the Patent Examining Corps in view of the Alice Corp decision[2].   In the Instructions, a three stage framework is set out which is summarized below:

  1. Determine whether the claim is directed to one of the four statutory categories of invention, i.e., process, machine, manufacture, or composition of matter. If the claim does not fall within one of the categories, reject the claim as being directed to non-statutory subject matter (§ 101).
  2. If the claim does fall within a statutory category, determine whether the claim is directed to an abstract idea. If not, proceed with examination of the claim for compliance with other statutory requirements.
  3. If an abstract idea is present in the claims, determine whether any element, or combination of elements, in the claim is sufficient to ensure that the claim amounts to significantly more than the abstract idea itself. If there are no meaningful limitations in the claim, reject the claim as being directed to non-statutory subject matter.

The Examiner should then proceed to examine the claim for other patentability requirements, whether or not a rejection under § 101 has been raised.

I have illustrated the three-stage “Alice” approach in Figure 1.

Fig1

The EPO approach

The approach of the EPO to claims with potentially excluded subject matter is summarised below.

  1. Examine the claim to establish whether it relates to excluded subject matter as such. This is done by assessing whether the claim has a technical character.  If there is no technical character at all, the claim is rejected under Article 52 EPC for relating to excluded subject matter as such[3] .
  2. If the claim has technical character, it is examined for novelty and inventive step. In the case of inventive step, it is determined whether the invention involves an inventive step in a technical field.  If the claim lacks an inventive step in a technical field it is rejected under Article 56 EPC.

In the case of a claim with a mix of technical and non-technical features, the following steps are followed when assessing inventive step[4]:

  1. Identify the non-technical aspects of the claim,
  2. Select the closest prior art on the basis of the technical aspects,
  3. Identify the technical differences from the closest prior art,
  4. Determine whether or not the technical differences are obvious.

If there are no technical differences, or if the technical differences are obvious, the claim is rejected for lack of inventive step.

I have illustrated the overall approach in Figure 2.  In order to facilitate comparison, I have separated the approach into stages which correspond roughly with those of the USPTO approach.  I have also assumed that there are differences between the claimed invention and the prior art (otherwise there would be lack of novelty).

Fig2

Comparison of the two approaches

A comparison of the flow charts in Figures 1 and 2 shows a striking similarity between the first stages of each approach.  In each case, it is in effect determined whether the claim relates to no more than excluded, or ineligible, subject matter.  In both cases this acts as a filter to weed out claims which do not have any technical subject matter.

The second stages of each approach also bear comparison.  In the case of the EPO, it is determined whether or not the claim includes both technical and non-technical features.  In the case of the USPTO it is determined whether the claim is directed to a (non-technical) abstract idea.  However, since the claim must contain some technical subject matter (or it would have been weeded out at stage one), this is akin to determining whether there is a mix of technical and non-technical features. In both cases, the second stage flags up cases where there might still be a problem with excluded subject matter.

In the third stage of each approach we come to the nub of the matter.  It is here that borderline cases will stand or fall.  It is therefore worthwhile analysing this stage of each approach.

In the case of the EPO approach, the technical and non-technical features of the claim are first separated out.  The technical features which are not present in the prior art are then identified.  It is then determined whether or not those technical features are non-obvious.  In doing so, it is assumed that the non-technical features are already present in the prior art.  If the technical features which are not present in the prior art are obvious, the claim is rejected for lack of inventive step.

In the case of the USPTO approach, stage three involves determining whether there are any elements in the claim which amount to significantly more than the abstract idea itself.  This in effect requires two steps, as follows:

  1. Identify the elements which are not an abstract idea, and
  2. Determine whether those elements amount to significantly more than the abstract idea itself.

It is notable that step a is similar to the EPO approach of identifying the non-technical aspects of the claim.

With regard to step b, this begs the question: how much more is “significantly more”?  According to the Instructions there must be “meaningful limitations” in the claim, but how meaningful do they have to be?

We can assume that the elements which must be “significantly more” than the abstract idea are technical (since otherwise the claim would have been weeded out at stage one).  It is also the case that, in order to be “significantly more”, those technical elements must be meaningful.  If they must be meaningful, does this mean they must contain the inventive concept?

My guess is that, in practice, persuading the USPTO to allow claims of this type is probably going to involve arguing that the elements which are significantly more than the abstract idea are somehow tied in with the inventive concept.  Otherwise they would not be “meaningful”.  This then starts looking very much like arguing for non-obvious technical subject matter; in other words, an inventive step in a technical field.

There will of course be differences between the two approaches, not least due an imprecise alignment of the concepts of “abstract” and “non-technical”.  However it seems to me that both approaches are seeking to achieve something similar, namely, an assessment of whether the innovation itself lies in a non-excluded field.

Thus, to my mind, we are now in a situation where, in practice, the two approaches are considerably aligned, albeit “the other way round”.

Alice2Conclusion

As readers of the book will recall, when Alice actually goes through the looking glass, she finds it to be completely different from what she first saw.  I suspect that, as case law and practice develop, we will find that USPTO and EPO practice will differ.  However it is notable that, at least on the face of it, there are now considerable similarities.

= = = = =

[1] Alice Corporation Pty. Ltd. V CLS Bank International, et al

[2] http://www.uspto.gov/patents/announce/alice_pec_25jun2014.pdf

[3] Guidelines for Examination in the European Patent Office G-II, 2.

[4] Guidelines G-VII, 5.4

ABA IP Scholarship Symposium: Call for Papers

Patent

By Jason Rantanen

Dennis highlighted two calls for papers below.  In addition, the American Bar Association’s Intellectual Property Section will be holding an IP scholarship symposium in late March 2015 and is seeking scholars interested in presenting their works.  The full description:

The ABA Section of Intellectual Property Law will host its second annual Intellectual Property Law Scholarship Symposium during the ABA-IPL Section’s 30th Annual Intellectual Property Law Conference, March 25-27, 2015. IP Scholars are encouraged to submit an abstract describing a current scholarship project by December 12, 2014, for a chance to present their work during the Intellectual Property Law Scholarship Symposium at the 30th Annual Intellectual Property Law Conference. The symposium seeks authors and papers for three simultaneous sessions (each of which attracted 50-70 attendees in 2014): patent/trade secret; copyright; and trademark/unfair competition.

For more details see the Call For Papers posted here: http://www.americanbar.org/content/dam/aba/administrative/intellectual_property_law/Call%20for%20Papers%20on%20Letterhead.authcheckdam.pdf or contact one of the three Symposium co- organizers:

•        Susan Barbieri Montgomery, Northeastern University School of Law
•        Andrew Beckerman-Rodau, Suffolk University Law School
•        June M. Besek, Columbia Law School

 

Call for Papers

Patent

Akron IP Journal is hosting a symposium issue on Patentable Subject Matter and welcomes academic papers on the topic with a deadline of December 1, 2014.  Submit in Word format to lawreview@uakron.edu attn: Jarrett Wyatt (Managing Editor).

The Patent Information Users Group (PIUG) is calling for papers for its 2015 Annual Conference held this year in the Chicago area. The conference focuses on patent search strategies & technology but the group is also looking to hear from attorneys on their application in support of patent drafting, prosecution, opposition or litigation matters. [LINK].

 

A Major Drop in Patent Infringement Litigation?

Patent,

New patent litigation (original complaint filing) is down 40% from this time last year. The chart below comes from LexMachina whose founder, Mark Lemley, offers the speculation that the drop is largely due to the Supreme Court’s recent patent law activity — especially the fall-out from Alice Corp.  Along with Alice, we have a set of additional legal issues that favor accused infringers, including indefiniteness (Nautilus) and fee shifting (Octane Fitness).  Further, we are also well into the reign of post-issuance reviews (IPR, CBM, and now PGR) and the vast majority of repeatedly-asserted patents are involved in a parallel administrative review.  All these factors come together to provide plenty of reason for patent holders to slow-down on complaint filings. Of course, the change and the purported cause cannot be said to be ‘significant’ in the statistical sense.

PatentCases

We previously discussed the jump in April 2014 as a likely artifact caused by a threatened retroactive fee-shifting legislation.

In thinking about this issue, I was surprised to see HP’s most recent lawsuit as a plaintiff where it asserted three seemingly weak patents. U.S. Patent Nos. 6,089,687, 6,264,301, and 6,454,381.  These patents serve as HP’s attempt to control the market for replacement ink cartridges for its printers and have titles such as “providing ink container extraction characteristics to a printing system”; “identifying parameters in a replaceable printing component”; and “specifying ink volume in an ink container.”  The defendant in this case is Chinese ink-knockoff manufacture Ninestar.

The claims of these patents are clearly susceptible to Alice Corp in that the seeming points of novelty are basically very simply data structures.

The following is claim 1 of the ‘687 patent:

1. An ink-jet printing system comprising:

a printer portion for depositing ink on media in response to control signals, the printer portion configured for receiving a supply of ink;

a replaceable ink container for providing a supply of ink to the printer portion, the replaceable ink container including an electrical storage device for providing parameters to the printer portion, the electrical storage device containing:

an ink container scale parameter for selecting an ink container volume range from a plurality of ink container volume ranges,

a fill proportion parameter for specifying a fill proportion for the selected ink volume range;

wherein the printer portion determines an ink volume associated with the ink container based on the fill proportion parameter and the selected ink volume range.

Here, my understanding is that the hardware components were all known prior to the application here and the invention is simply to store two parameters on the cartridge (ink container scale parameter (specifying container volume) and fill proportion parameter (specifying how full it is)). The use of these parameters was also well known prior to the invention, but (apparently) they had never been put on an ink cartridge before.  Until recently, we would think this claim has an obviousness problem.  Now, it looks like it has patent eligibility problems as well. See HP v. Ninestar, 14 cv 4473 (N.D. Cal., complaint filed October 6, 2014).

STC.UMN v. Intel: Co-owners are necessary parties but may not be involuntarily joined

Patent,

By Jason Rantanen

STC.UMN v. Intel Corp. (Fed. Cir. 2014)

Original panel: Rader (author), Dyk, Newman (dissenting)
Denial of rehearing en banc: Dyk, concurring (joined by Moore and Taranto); Newman, dissenting (joined by Lourie, O’Malley, and Wallach); O’Malley, dissenting (joined by Newman, Lourie and Wallach)

Panel opinion

Denial of rehearing en banc

The issue at the core of this appeal was whether a co-owner of a patent can be forced to join an infringement lawsuit brought by another co-owner or instead effectively block the suit by refusing to participate. The Federal Circuit is deeply split on this issue, as evidenced by both the June 2-1 panel opinion  and the 6-4 refusal to rehear the decision en banc. The panel majority held that a co-owner may not be forced to join the infringement suit and because the full court denied rehearing en banc, that holding stands unless the Court grants cert. Judge Newman and Judge O’Malley both wrote dissenting opinions.

The patent right and co-owners. Co-owners of a patent may separately exercise all the rights of a patent owner: they may make, use, offer for sale, and import the patented invention without needing the permission of the other co-owner. They may also grant a license to the patent. Importantly, they may do all of this without giving the other co-owner a dime; unlike for copyrighted works, there is no right of accounting for patents.

A consequence of this is that if there are co-owners of a patent, a prospective infringer need only obtain a license from one co-owner. This makes unity of patent rights important for any party who wishes to actually enforce those rights as against future conduct.

This rule is clear as to future conduct; the complexity comes about when dealing with past infringing activities. A patent co-owner may only grant a prospective license to the patent and a release as to its own claims for liability for past infringing conduct; it may not release infringers from liability to the other co-owner for past infringement. However, it is also blackletter law that all owners of a patent must be parties to an infringement suit for there to be standing. But not all co-owners may cooperate with the party wanting to bring the suit. Perhaps they have some contractual obligation to the accused infringer; perhaps they are even directly connected to the accused infringer. Or perhaps, as in this case, the co-owner just wants to remain “neutral.” Does the uncooperative co-owner have the right to do so?

This case can be seen as an old fight renewed. The origins of the split go back to the Federal Circuit’s 1998 decision in Ethicon v. United States Surgical, 135 F.3d 1456. The majority opinion, written by Judge Rader, dismissed the suit on the ground that a co-owner could not and did not consent to the infringement. This conclusion followed the following statement of law:

Further, as a matter of substantive patent law, all co-owners must ordinarily consent to join as plaintiffs in an infringement suit.9 Consequently, “one co-owner has the right to impede the other co-owner’s ability to sue infringers by refusing to voluntarily join in such a suit.” Schering, 104 F.3d at 345.

Footnote 9 referred to two exceptions: where the co-owner has waived its right to refuse to join the suit and where there is an exclusive licensee, the exclusive licensee may sue in the owner’s name.

Judge Newman dissented in Ethicon. While much of her dissent focused on the issue of whether an inventor on only some of the claims is a co-owner of the patent as a whole (Judge Newman would have held no), she also pointed out that Rule 19’s involuntary joinder rule should apply here.

Involuntary Joinder Does Not Apply: Drawing heavily upon Ethicon, the panel opinion in this case – also written by Judge Rader -extended the rule that co-owners of a patent may refuse to voluntarily join an infringement suit to preclude operation of Federal Rule of Civil Procedure 19(a). The relevant portion of that rule states:

(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:

(A) in that person’s absence, the court cannot accord complete relief among existing parties; or

(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may:

(i) as a practical matter impair or impede the person’s ability to protect the interest; or

(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

(2) Joinder by Court Order. If a person has not been joined as required, the court must order that the person be made a party. A person who refuses to join as a plaintiff may be made either a defendant or, in a proper case, an involuntary plaintiff.

A few things to note: First, no one appears to be disputing that Rule 19 has the force of law or that a co-owner may refuse to voluntarily participate in a patent infringement suit. Rather, the disagreement boils down to (1) whether the co-owner has a “substantive right” not to participate in a patent infringement suit and (2) if there is such a right, whether it preclude the application of Rule 19.

Unfortunately, as Judge O’Malley’s dissent points out with particular rigor, the panel majority opinion is is quite short on the basis for this “substantive right.” The basic legal move the majority makes is to rely on precedent holding that a co-owner may refuse to voluntarily participate in a patent suit as providing the basis for a substantive right not to join an infringement suit, with the policy basis that the anti-involuntary joinder rule ” protects, inter alia, a co-owner’s right not to be thrust into costly litigation where its patent is subject to potential invalidation.”

Concurring in the denial of en banc review, Judge Dyk’s opinion fleshes out the argument in more detail. In Judge Dyk’s articulation, the question is whether there is a “substantive obligation” for the co-owner of a patent to join the suit; in the absence of a “substantive obligation,” the co-owner cannot be forced to join through the operation of procedural rules, such as Rule 19. Judge Dyk thus flips the question: while he points to cases where the co-owner did not consent, and thus the suit was dismissed, he also points out the lack of patent cases imposing a “substantive obligation on a patent co-owner to consent to the assertion of an infringement claim.” This allocation of substantive rights cannot be changed by application of Rule 19.

Writing in dissent to the denial of rehearing en banc, Judge O’Malley challenged both the basis for the substantive right as well as way such a “right” interacts with Rule 19. Walking through Ethicon and the other cases cited by Judges Rader and Dyk, Judge O’Malley challenges the precedential basis for such a “right.” Nor, Judge O’Malley argues, is there any basis in statute for this “right;” indeed, it is directly contradicted by other statutory “rights,” particularly Section 154(a)(1), “the right to exclude others.” And in any event, Rule 19 is *mandatory.* “By its terms, therefore, when a person satisfies the requirements of Rule 19(a), joinder of that person is required.”

So what’s going to happen? As Hal Wegner has noted in his email newsletter, a petition for certiorari is expected in this case. And, given that the core issue is one of civil procedure, albeit intertwined with an issue of the nature of the patent right, it may be particularly appealing for the Court – especially coupled with the deep split and thoughtful opinions of two of the Federal Circuit’s sharpest thinkers.

An odd issue raised by the majority rule here: What happens when one co-owner sends out threatening letters to an accused infringer but the other does not. Can the accused infringer bring a declaratory judgment action against both co-owners? If not, must the declaratory judgment action be dismissed for lack of standing? Or is this sufficiently different from an affirmative suit for infringement as to make the “all parties required” rule not apply?

The New Role for Post Grant Review Proceedings (PGR)

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by Dennis Crouch

It has now been just over 18-months since we started filing patent applications under the new first-to-file patent system mandated by the America Invents Act (AIA) of 2011.  And, slowly but surely, FTF patents are now beginning to issue.  Those new patents also bring us into a new era of Post-Grant-Review-Proceedings (PGR).

My expectation is that PGR will quickly prove itself as an incredibly powerful tool for challenging patents. Importantly, PGR proceedings allow a third party to challenge the validity of a patent on any of the validity grounds that could be raised in court as a defense under 35 U.S.C. 282 – these include novelty, obviousness, written description, enablement, indefiniteness, utility, and subject matter eligibility. This list represents a major expansion of challenge-justifications over inter partes review (IPR) proceedings or reexaminations. These same doctrines have already been available for covered-business-method review (CBM) proceedings and have been used successfully if only on a narrow class of patents (those covering financial business methods).

Two recent PGR proceedings have been filed.  In one case, LaRose Indus. has challenged Patent No. 8,684,420 that covers the popular children’s “Rainbow Loom.”  Although the patent claims a 2010 priority date, the particular application was filed as a continuation in July 2013 and, at least according to the petitioner, added new mater to the claims at that point.  The second case PGR case involves Patent No. 8,598,291 that covers a liquid formulation of a particular nausea control drug used by chemotherapy patients. The petition argues that the claims fail the requirements of written description, enablement, and definiteness.

The most important limitation on the PGR process is the relatively short 9-month window for filing a PGR petition. Namely, the petition must be filed within 9-months of the patent issuance.  This puts some pressure on parties to monitor competitor patents and patent families.  It also provides patent owners at least some incentive to hold-off asserting their patent until after that window has closed (unless the patentee would welcome the review).  I suspect that the set-up in the LaRose Rainbow Loom market will be fairly common. The patentee (Choon) had previously sued LaRose on a previous patent and so LaRose has been closely monitoring the continuation applications.

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In thinking about how soon the AIA cases will come on-board, I created the chart below. The chart provides some information on the timing of patent issuance — showing the percentage of patents issued with 18-months of filing and 36-months of filing respectively.  A big caveat for this particular chart is that it looks at the actual application filing date and does not consider the priority date that will typically control whether a patent will be examined under the AIA. Thus, even at the three-year date (March 2015), I would expect that significantly less than half of the recently issued patents would be FTF patents.

You’ll note the trend beginning in FY2011 of issuing more patents more quickly.  I largely attribute the change to two initiatives pushed by David Kappos during his term as PTO Director that resulted in (1) more funding to hire more examiners; and (2) a greater allowance rate.  Those factors have continued through the succeeding interim leadership terms of Terry Rea, Peggy Focarino, and now  Michelle Lee.

TimingOfPatentIssuance