December 2015

Short Fiction for IP Attorneys

Patent

I enjoyed SciFi author Kim Stanley Robinson’s new short essay Oral Arguments.

Quoting precedent is not usually characterized as sarcasm, Your Honor. The patent law is broadly written, and your decisions concerning it haven’t helped to narrow or clarify it. Some people call that body of precedent kind of ad hoc-ish and confusing, not to say small-minded. Whatever keeps business going best seems to be the main principle, but the situation is tricky. It’s like you’ve been playing Twister and by now you’ve tied yourselves into all kinds of contortions. Cirque du Soleil may come knocking any day now . . .

Greg Aharonian identifies the story as both “utterly hilarious” and “utterly sad.”

 

IPR: Proving Patentability before Amendment

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By Dennis Crouch

In Prolitec, Inc. v. ScentAir Technologies,[1] the Federal Circuit has affirmed a USPTO inter partes review (IPR) decision cancelling Prolitec’s air-freshener diffuser claims.  The patent at issue[2] is the subject of a co-pending lawsuit between the parties that was stayed in 2013 — awaiting the IPR outcome.[3]

Here, the patent included a claim limitation requiring a diffusion head “mounted to” a reservoir.  The patentee wanted that term to be limited to require permanent joining of the head to the reservoir.

Too Clever Specification Drafting?: To achieve that permanent-joining result, the patentee first argued for a narrow claim construction of the “mounted term.”  That approach failed at the PTAB and has been affirmed on appeal.  The failure is to the ordinary patent drafting strategy, employed by the patentee, of using non-definite and non-limiting terms such as “may” to describe the role of various embodiments in the specification so as to not unduly limit claim scope. Here, in particular, the specification had indicated the possibility of a permanent joining in a disposable fashion, but, by clever specification drafting, had not foreclosed the potential for non-permanent mounting.  Thus, that narrowing argument was foreclosed by the patentee’s own prior actions.

No Amendment without Major Proof: As an alternative approach, the patentee also requested permission to amend its claims to replace “mounted” term with “permanently joined.”  As per its usual modus operandi, the Patent Trial and Appeal Board (PTAB) denied the motion to amend.  In particular, the PTAB found that Prolitec had failed to prove that its proposal was patentable over the prior art of record.  On appeal, the Federal Circuit affirmed – first reiterating its prior statement in Microsoft Corp. v. Proxyconn, Inc.[4] that the Board can require a patentee to establish patentability before allowing an amendment.  Here, the Federal Circuit extended that doctrine to affirm the PTAB rule that, prior to amendment, patentability must be established over all prior art of record (in both the IPR and prosecution history). That rule, according to the Federal Circuit, is not contrary to any statute and is also “reasonable.”  Further, the court held that the requirement of “establishing patentability” includes both novelty and nonobviousness.  On the merits, the court affirmed that the patentee had failed to show that its amended claims were non-obvious over the combination of references cited in the IPR petition and found in the prosecution history file.

The majority opinion was written by Chief Judge Prost and joined by Judge Taranto.

Writing in dissent, Judge Newman argued that the refusal to allow an amendment was “contrary to both the purpose and the text of the America Invents Act. . . . [E]ntry of a compliant amendment is [a] statutory right, and patentability of the amended claim is properly determined by the PTAB during the IPR trial, not for the first time at the Federal Circuit.”

= = = =

[1] Prolitec, Inc. v. ScentAir Technologies, App. No. 15-1020, (Fed. Cir. Dec. 4, 2015) (slip opinion available at http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/15-1020.Opinion.12-1-2015.1.PDF)

[2] U.S. Patent No. 7,712,683.

[3] Prolitec, Inc. v. ScentAir Technologies, Civil Action #: 2:12-cv-00483-RTR, Docket No. 62 (E.D. Wisc., May 17, 2013).  The IPR petition was filed in May 2013 but not instituted until August 2013. See IPR2013-00179. The claims of a second patent in the lawsuit were also largely been cancelled and was the subject of a separate appeal. That PTAB decision was affirmed without opinion in June 2015. See Prolitec, Inc. v. ScentAir Technologies, App. No. 15-1017 (Fed. Cir. June 9, 2015) (R. 36 affirmance without opinion).

[4] 789 F.3d 1292 (Fed. Cir. 2015).

PTAB Allows Filing of Motion for Sanctions for Alleged Protective Order Violation

Ethics

Lately I’ve had a lot of calls about ethical issues in IPR proceedings. The rules are not clear in a number of instance and the case law is sparse and not always easily harmonized with the plain text of the rules.  This case caught my eye, though, for a different reason.

The order is paper 23 in RPX Corp. v. Applications on the Internet Time, LLC, IPR 2015 (Dec. 4, 2015).  The actual order itself grants the petitioner authority to file a motion for sanctions for alleged violations of the Standing Default Protective Order.  Obviously, parties need to police against such violations.

What the case reminds us is that the Standing Default Protective Order is not… a standing default protective order.  Instead, it is entered only by motion of the parties, and that motion must include the proposed protective order.

Here, the parties had previously agreed to be bound by the protective order, and so the fact that they had not requested entry of any protective order did not matter. However, remember that there really is no default standing protective order… a misnomer that can hurt you.

The First Patent Litigation Explosion

Patent

Professor Christopher Beauchamp has released his interesting new article titled The First Patent Litigation Explosion.[1]

The twenty-first century “patent litigation explosion” is not unprecedented. In fact, the nineteenth century saw an even bigger surge of patent cases. During that era, the most prolific patent enforcers brought hundreds or even thousands of suits, dwarfing the efforts of today’s leading “trolls.” In 1850, New York City and Philadelphia alone had ten times more patent litigation, per U.S. patent in force, than the entire United States in 2013. Even the absolute quantity of late-nineteenth-century patent cases bears comparison to the numbers filed in recent years: the Southern District of New York in 1880 would have ranked third on the list of districts with the most patent infringement suits filed in 2014 and would have headed the list as recently as 2010.

This Article reveals the forgotten history of the first patent litigation explosion. It first describes the rise of large-scale patent enforcement in the middle of the nineteenth century. It then draws on new data from the archives of two leading federal courts to trace the development of patent litigation from 1840 to 1910 and to outline the scale, composition, and leading causes of the litigation boom. Finally, the Article explores the consequences of this phenomenon for the law and politics of the patent system. The effects of the litigation explosion were profound. The rise of large-scale patent assertion provides a new explanation for patent law’s crucial shift from common law to equity decision making in the middle of the nineteenth century. And at its height, the litigation explosion produced a political backlash that threatened to sweep away the patent system as we know it. Recovering the history of patent law during this formative and turbulent era offers fresh perspectives on the patent reform debates of today.

Read the article on SSRN: http://ssrn.com/abstract=2699964.

[1] Forthcoming in 125 Yale Law Journal ____ (2016).

Guest Post by Prof. Contreras – CSIRO v. Cisco: The Convergence of RAND and non-RAND Royalties for Standards-Essential Patents

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Guest Post by Jorge L. Contreras, Associate Professor, University of Utah College of Law. 

In Commonwealth Scientific and Industrial Research Organisation v. Cisco Systems, Inc. (Fed. Cir., Dec. 1, 2015), the Federal Circuit established important new guidelines for the calculation of “reasonable royalty” damages for standards-essential patents (SEPs), even in the absence of the patent holder’s commitment to license on reasonable and nondiscriminatory (RAND) terms. Chief Judge Prost, writing for a panel that also included Judges Dyk and Hughes, found that Chief Judge Leonard Davis of the Eastern District of Texas erred by failing, among other things, to account for the “standard-essential status” of a Commonwealth Scientific (CSIRO) patent infringed by Cisco. The decision signals another important step toward the convergence of “reasonable royalty” damages in RAND and other patent cases.

Background

CSIRO is a leading Australian governmental research organization. In 1996 CSIRO obtained U.S. Patent 5,487,069, claiming techniques for addressing “multipath” problems in wireless signal processing. These techniques were later incorporated into IEEE’s 802.11a (“Wi-Fi”) standard, first published in 1999. In connection with the approval of 802.11a, IEEE requested, and CSIRO provided, a Letter of Assurance under which CSIRO committed to license the ‘069 patent to manufacturers of 802.11a-compliant products on “reasonable and nondiscriminatory” (RAND) terms. When later versions of 802.11 were developed, IEEE again requested that CSIRO commit to license the ‘069 patent on RAND terms. CSIRO, however, refused to issue such additional assurances.

In 2001, Cisco acquired Radiata, Inc., a company founded by a former CSIRO scientist to manufacture wireless chips. Radiata had entered into a Technology License Agreement (TLA) with CSIRO in 1998, under which Radiata paid CSIRO royalties for use of the ‘069 patent based on a percentage of Radiata’s chip sale prices. These royalties ranged from 1% to 5% of the chip price, depending on sales volume. When Cisco acquired Radiata, it inherited the TLA and paid CSIRO approximately $900,000 in royalties over the next several years. Cisco stopped paying royalties under the TLA in 2007, when it discontinued the use of Radiata chips in its products. Cisco and CSIRO negotiated for several years regarding an ongoing license for the ‘069 patent, but could not reach agreement and CSIRO sued Cisco for infringement in 2011.

After a four-day bench trial, the District Court determined that the “reasonable” range for royalties for the ‘069 patent was between $0.90 (based on an “informal suggestion” made by Cisco’s chief patent counsel during negotiations in 2005) and $1.90 (based on the maximum rate that CSIRO offered to potential licensees in 2003). CSIRO v. Cisco, 2014 WL 3805817 (E.D. Tex. 2014). (The Court made a slightly different calculation with respect to products sold by Cisco’s Linksys subsidiary, but we will not consider that here). With these ranges in mind, the District Court developed a volume-based royalty table and assessed damages of approximately $16 million against Cisco. Cisco appealed, arguing that the District Court erred in three major regards: (1) by failing to begin its royalty analysis with the price of a Wi-Fi enabled chip, representing the smallest salable patent-practicing unit (SSPPU) in Cisco’s Wi-Fi enabled products, (2) by failing to adjust its reasonable royalty analysis to account for the essentiality of the ‘069 patent to the 802.11 standard, and (3) by basing its royalty determination on the parties’ negotiation positions rather than the TLA. The Federal Circuit found that the District Court erred as to points (2) and (3), vacating the decision below and remanding for recalculation of the damages award.

Apportionment and the Smallest Saleable Patent-Practicing Unit (SSPPU)

In CSIRO, the Federal Circuit reiterated the century-old rule, now embodied in Section 284 of the Patent Act, that patent infringement damages “must reflect the value attributable to the infringing features of the product, and no more.” Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014). It went on to explain that “[t]his principle—apportionment—is the governing rule where multi-component products are involved” (slip op. at 10, internal quotations omitted). The Court noted, however, that the rule of apportionment may be supplemented by additional tools to help determine the incremental value of the patented invention. One of these tools is the SSPPU model: when “a damages model apportions from a royalty base, the model should use the smallest salable patent-practicing unit as the base” (slip op. at 12).

Cisco argued that the District Court erred by beginning its reasonable royalty analysis using rates derived from inter-party negotiations rather than the SSPPU. The Federal Circuit disagreed, holding that the SSPPU model was inapplicable in the case, as the District Court did not determine a royalty “base” (i.e., the price that is multiplied by a royalty expressed in percentage terms) at all. Instead, the Court used so-called per-unit royalties (i.e., a specific dollar amount per end product). As such, there was no call for use of the SSPPU model, and the District Court did not err by avoiding its use.

Comparable Licenses

As noted above, the District Court determined the applicable range of royalties on the ‘069 patent to be between $0.90 and $1.90 based on figures introduced by the parties at different stages during their licensing negotiations. Cisco argued, however, that the appropriate royalty range should be based on the rates set forth in the TLA entered into by Radiata and CSIRO, as to which Cisco later succeeded. Under the TLA, the royalty rates for Cisco products would have been $0.03 to $0.33 (rates for Linksys products would have been slightly different, but I will disregard these for the sake of simplicity).

The District Court rejected any application of the TLA in its reasonable royalty analysis, reasoning, among other things, that (a) the TLA was a related-party agreement between CSIRO and one of its former scientists, rendering it not comparable to the proposed arm’s length agreement between Cisco and CSIRO, (b) the TLA was entered in 1998, long before any hypothetical negotiation between Cisco and CSIRO, and (c) the TLA royalty rates were based on the price of chips sold by Radiata rather than the value of the invention embodied by the ‘069 patent. To this last point, the District Court reasoned that “[b]asing a royalty solely on chip price is like valuing a copyrighted book based only on the costs of the binding, paper, and ink needed to actually produce the physical product. While such a calculation captures the cost of the physical product, it provides no indication of its actual value” (CSIRO, 2014 WL 3805817 at *11).

The Federal Circuit rejected most of the District Court’s reasoning regarding the TLA, largely because Cisco and CSIRO renegotiated numerous terms of the TLA following Cisco’s acquisition of Radiata. This renegotiation demonstrated both that the TLA did not embody a “special relationship” between CSIRO and the licensee (as Cisco presumably negotiated at arm’s length) and the timing of the amendments coincided with any hypothetical negotiation that would have been conducted between Cisco and CSIRO. As for the District Court’s discomfort with the TLA’s use of chip prices as the base upon which royalties would be calculated, the Federal Circuit quoted its recent decision in Ericsson, 773 F.3d at 1228,

in which it held that a comparable license may not be excluded from the fact finder’s consideration “solely because of its chosen royalty base.” Given this reasoning, the Federal Circuit held that the District Court erred by excluding the TLA from its analysis and directed the Court on remand to “reevaluate the relevance of the as-amended TLA in its damages analysis” (slip op. at 22).

Interestingly, this case represents the second appellate decision this year in which the admissibility of comparable license agreements has been challenged in RAND royalty determinations. In the prior case, Microsoft v. Motorola, 795 F.3d 1024 (9th Cir. 2015), the Ninth Circuit was more deferential to the District Court’s exclusion of potentially comparable license agreements. In Microsoft, the Circuit Court upheld the District Court’s exclusion of three arm’s length license agreements to which Motorola was a party for reasons including the fact that some agreements were entered into to settle or forestall litigation, they included patents other than the patents at issue, they included cross-licenses and they included royalty caps. It will be interesting to see how the Circuits reconcile their interpretations of this key evidentiary standard in future cases.

Impact of Standardization

Perhaps the most far-reaching implication of CSIRO arises from the Federal Circuit’s holding regarding the impact of standardization on a patent. In the case, the District Court determined a “reasonable royalty” using the well-known framework established in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). Cisco argued that the District Court erred by failing to modify the Georgia-Pacific factors to account for the fact that the ‘069 patent was essential to the 802.11 standard. In particular, the Court failed to disregard any additional compensation that CSIRO might have been able to extract in a hypothetical negotiation solely as a result of the ‘069 patent’s essentiality to the 802.11 standard. This additional compensation, Cisco argued, is not indicative of the incremental value of the patented technology, but of the significant costs that manufacturers would have to incur if forced to switch to an alternative technology (so-called “switching costs”). For this reason, such adjustments to the Georgia-Pacific factors were made by prior courts determining reasonable royalty rates for standards-essential patents (e.g., Microsoft, Ericsson, and In re Innovatio IP Ventures, LLC, 956 F.Supp.2d 925 (N.D.Ill. 2013)).

But CSIRO pointed to a significant distinction with these prior cases. As noted above, CSIRO agreed to license the ‘069 patent on RAND terms to manufacturers of 802.11a-compliant products. But by the time of CSIRO’s suit, 802.11a was largely obsolete and represented only 0.03% of Cisco’s accused products (slip op. at 8). Thus, CSIRO argued and the District Court agreed that CSIRO had no obligation to offer RAND terms to Cisco with respect to its products implementing later versions of 802.11. And because no RAND obligation was implicated, no adjustment to the Georgia-Pacific factors was warranted.

The Federal Circuit disagreed, holding that the incremental value of a standard-essential patent (SEP) should be determined independently of manufacturer switching costs, whether or not the SEP was RAND-encumbered (slip op. at 17). Citing Ericsson, the Court reasoned that “damages awards for SEPs must be premised on methodologies that attempt to capture the asserted patent’s value resulting not from the value added by the standard’s widespread adoption, but only from the technology’s superiority” (id.) The Federal Circuit thus found that the District Court erred by failing to consider the extent to which the value of standardization may have impacted the calculated compensation range for the ‘069 patent, and remanded for further consideration of this issue.

Implications for RAND and Standards

The Federal Circuit’s analysis of the third factor in CSIRO is sensible, but does raise some interesting questions about standards and SEPs. In rejecting CSIRO’s argument that the royalty damages analysis should not be adjusted because the ‘069 patent was not RAND-encumbered, the Federal Circuit noted first that Ericsson distinguished between RAND-encumbered SEPs and SEPs generally (slip op. at 17). On this basis, the court reasoned that even though the ‘069 patent might not be encumbered by a RAND commitment, the court’s reasonable royalty analysis must take into account the fact that the patent was a SEP (and thus correct for excess compensation that could be extracted based on broad industry adoption of the standard).

If this is the case, then what is the difference in the royalty payable with respect to a RAND-encumbered SEP and the royalty payable with respect to an unencumbered SEP? The result in CSIRO suggests that there is no difference at all. In the case of RAND-encumbered SEPs, the patent holder agrees to charge a “reasonable royalty”, which the courts have calculated using a modified version of the Georgia-Pacific framework. But Section 284 of the Patent Act establishes a “reasonable royalty” as the baseline measure of damages for all patents. Accordingly, a similar reasonable royalty calculation, also using the Georgia-Pacific framework should be used for unencumbered SEPs. And, as held by the Federal Circuit in CSIRO, that calculation must avoid the inclusion of switching costs in the “reasonable” royalty.

In a recent paper, A Unified Framework for RAND and other Reasonable Royalties, 30 Berkeley Tech. L.J. 1447-1499 (2015), Richard Gilbert and I predict this result: namely, the convergence of reasonable royalty damages for RAND-encumbered and unencumbered patents. As we have written, and as the Federal Circuit has repeatedly confirmed, the appropriate measure of damages in patent cases, whether or not involving SEPs, is the incremental value of the patented invention to the product in which it is incorporated.

But if royalty rates for RAND-encumbered SEPs are no lower than royalty rates for unencumbered SEPs, then what is the point of making a RAND commitment? Does it have any effect at all? Professor Gilbert and I argue that RAND commitments are meaningful even without this royalty differential. Most importantly, a SEP holder that makes a RAND commitment severely limits its ability to obtain an injunction to prevent infringement by manufacturers of standardized products. Holders of unencumbered SEPs, on the other hand, have not committed to license their patents, and may not face the same hurdles to obtaining injunctive relief. Then, as predicted by Farrell, Lemley, Shapiro and others, they could use the leverage conferred by the threat of an injunction to extract a higher (unreasonable?) royalty from manufacturers of standardized products without having to resort to a judicial damages determination (which, as we have seen, will be limited to a “reasonable” royalty). This possibility has significant implications, particularly given the increasing acquisition and assertion of SEPs by patent assertion entities that do not make RAND commitments, a complex topic well beyond the scope of this note, but which I have written about here. For these and other reasons, RAND commitments, and the encouragement of RAND commitments by SSOs and market participants, will continue to play an important role in fostering standardization and innovation.

Pending Supreme Court Patent Cases

Patent, , , , , , ,

by Dennis Crouch

1.   Petition Granted:

2.   Petition for Writ of Certiorari Pending:

  • Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (Can an entity “induce itself” under 271(f)(1)?)(CVSG)
  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538 (“Do patent claims addressed directly to software that is inherently in a computer-readable medium qualify as a ‘manufacture’ under 35 U.S.C. § 101 without express recitation of the medium?”)
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642 (Do the rules of civil procedure apply when defendant raises a Section 101 eligibility “defense” in a motion-to-dismiss for failure to state a claim upon which relief can be granted?)
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381 (What is the proper role of intrinsic evidence in claim construction?)
  • Medtronic Sofamor Danek USA, Inc., et al. v. NuVasive, Inc., No. 15-85 (Commil re-hash – mens rea requirement for inducement)
  • SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kessler doctrine – enhanced preclusion)
  • Cuozzo Speed Technologies, LLC v. Michelle K. Lee, No. 15-446 (BRI construction in IPRs; institution decisions unreviewable).
  • Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567 (If patent ownership is fixed after the filing of a complaint, can jurisdiction be cured by a supplemental complaint)
  • STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Media Rights Technologies, Inc. v. Capitol One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies)
  • Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on)
  • Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602 (unclear)
  • Arunachalam v. JPMorgan Chase & Co., No. 15-691 (unclear)

S.D. Florida shifts fees from date of claim construction onward

Ethics,

Advanced Ground Info. Sys., Inc. v. Life360, Inc. (S.D. Fla. Civ. A. No. 14-cv-80651), is an interesting case .  The patent-in-suit covered some sort of smart phone app (it’s not clear what).  The key dispute over infringement centered on whether the end user, alone, performed each step of the patented method.  Of course, a method claim cannot be infringed without preponderant evidence of direct infringement by someone.

Here, the asserted method claims survived the accused infringer’s motion for summary judgment of non-infringement, but were found by the jury to be not infringed.  Even though the case got to a jury, the district court awarded fees to the prevailing accused infringer, rejecting the argument that simply because the case got to trial meant it was not subject to shifting.

Instead, the court emphasized that after Akamai and the district court’s claim construction, it had been clear that there could be no infringement.  To oppose fees, the accused infringer pointed out that the court had denied the defendant’s motion for summary judgment after both Akamai and claim construction.

Why then, did the district judge deny the motion for summary judgment?

In granting fees in its November 30, 2015 order, the judge explained that he had “considered granting” the motion but had not done so because of the patentee’s explanation of how the app worked. Specifically, the judge stated that he denied summary judgment of non-infringement of the method claims based on the patentee’s argument that when the end user used the app was used, the app “automatically,” performed the remaining steps and so directly infringed the method claims.  That turned out to be untrue, and so the denial of summary judgment, alone, was insufficient to avoid an exceptional case finding.

In addition, the judge in granting fees also mentioned that the patentee had never sold any products, sued a start-up that had never made a profit, and yet the patentee argued that it had suffered irreparable harm.  Given the facts, the judge awarded fees from claim construction onward.

The lessons are several, but not unusual or new.  One is obviously to have a viable infringement claim and evidence of it; lawyer argument is not evidence.  The other is to keep in mind that, post-Octane it is important to evaluate infringement and other arguments carefully after claim construction (and any other similar event) and advise the client on, not just whether the case is meritorious, but whether it is marginally so and thus continued litigation puts the client at risk of fee shifting.

Trade Secret Law

Patent, ,

The Senate Judiciary Committee moved forward with hearings on the Defend Trade Secret Act (DTSA) that would, inter alia, create a Federal cause of action for trade secret misappropriation.  The intent would not be to preempt state laws but instead to provide an additional layer of protection for trade secret owners. That said, the new law could be used to overcome limits and defenses available in some states (such as California).  Although still objectionable to some, the current bill is a toned-down version of the parallel bill from last term.  The current approach also has bipartisan support from leaders of the Judiciary Committee (Senators Grassley and Leahy).

Statements and Written Testimony from the Hearing:

Of those testifying, only Prof Sandeen called for a slowdown in the legislative approach.

 

Petition of the Day: Does the Statute Allow Section 101 Challenges in CBM/PGR proceedings?

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Retirement Capital Access Mgm’t Co. v. U.S. Bancorp and Michelle Lee, on petition for writ of certiorari 2015.

The question presented here stems directly from the posts that Prof Hricik and I wrote back in 2012 and 2013.

RCAM presents the following question:

The AIA limits the [PTAB’s] jurisdiction with respect to CBM review to challenges based on any ground that could be raised under paragraph (2) or (3) of 35 U.S.C. § 282(b). Paragraph 2 provides that a party may seek to invalidate a patent or claim on any ground specified in part II of Title 35 as a condition for patentability.

The questions presented arise from the Federal Circuit affirming, without comment, the Board’s holding that 35 U.S.C. § 101 is a ground specified in part II of Title 35 as a condition for patentability and therefore constitutes a proper basis for review in a CBM proceeding, and from the Federal Circuit affirming the Board’s application of § 101 to the patent claims at issue.

They are:

1. Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2).

2. Whether the Board errs when it invalidates issued patent claims posing no risk of pre-emption under the abstract idea exception to patent eligibility.

Read the petition: Petition101.

Judge Real Enters Default Against Infringement Defendant for Discovery and Other Abuses

Ethics

On December 1 in United Construction Products, Inc. v. Tile Tech, Inc. Judge Real of the Central District entered terminating sanctions — default judgment admitting patent infringement, inducement, and more — and found a case exceptional.  Among other things, the judge found that defendant’s counsel, among other things, missed pretty much every deadline, made misrepresentations to the court about meeting deadlines, and more.

No, this sort of conduct isn’t common in federal litigation (to this degree), but terminating sanctions are rare.

Petition of the Day: Medtronic v. NuVasive

Patent

by Dennis Crouch

In this pending certiorari petition, Medtronic directly asks for the Supreme Court for a GVR – Grant-Vacate-and-Remand order for the Federal Circuit to reconsider its prior decision in light of Commil USA, LLC v. Cisco Systems, Inc., 135 S. Ct. 1920 (2015). [Read the petition petition.nuvasive.]

The primary holding of Commil is that belief-of-patent-invalidity is not a defense to allegations of infringement.  Relevant for Medtronic, the Supreme Court also indicated in Commil that inducement requires proof that the accused inducer knew that the actions being induced constituted patent infringement.  Those statements from the Supreme Court have been seen as clearing up uncertainty following Global-Tech.

Here, Medtronic argues that it had no knowledge of infringement – even after being sued for infringement. In particular, Medtronic argues that “[t]here is not a shred of evidence that Medtronic knew surgeons using its NIM-Eclipse medical device during spinal surgery would infringe NuVasive’s patent. . . . Since first learning of NuVasive’s patent, Medtronic reasonably believed using its NIM-Eclipse device during surgery did not infringe under a proper reading of the patent claims.”  [query whether someone can “know” something is true while also “believing” that it is false]

Initially, NuVasive did not provide a responsive brief to the petition.  However, the Supreme Court has requested responsive briefing and set an extended deadline of December 9, 2015 for that submission.  In its appellate briefing, NuVasive had explained the following:

Medtronic’s intent is a question of fact, and the jury reasonably found that Medtronic intended to induce infringement. NuVasive notified Medtronic of its likely infringement in a June 2009 letter, and then counterclaimed for infringement in August 2009. Despite these warnings, Medtronic continued to instruct surgeons to use the “Nerve Proximity Mode” of NIM-Eclipse in an infringing manner. The jury was correctly instructed on the law and therefore understood that Medtronic could be liable for inducement only if Medtronic knew that it was both inducing these acts and inducing infringement (or was willfully blind). Substantial evidence supports the jury’s inference that Medtronic had the requisite knowledge and intent based on these facts.

My money is on NuVasive here, but a GVR is so easy for the Supreme Court to issue.

 

Federal Circuit Asked on Mandamus to Recognize Patent Agent Privilege

Ethics

In In re Queen’s University at Kingston (App. No. 2015-0145), the court yesterday heard oral argument on whether to recognize the patent agent privilege.  The oral argument is here.

Judges Lourie and O’Malley (if I’m recognizing their voices by memory correctly) seemed to believe that the court should recognize the privilege, but judge Reyna was skeptical of using mandamus to reach the issue.

This issue does need resolution by the court.  The amount of money cost fighting over whether this privilege exists is money spent not addressing the merits, and whether this privilege exists comes up fairly frequently (and will more so in future cases, since patenting has become more of an international endeavor since the mid-1990s).  I’ve written about this issue (and other patent agent ethics issues) here.  The petitioner pretty much echoed my argument in the paper!  Hopefully Judge O’Malley will quote me in her decision.

The USPTO also held some roundtables on the privilege (see here).

Federal Circuit Reluctantly Affirms Ariosa v. Sequenom and Denies En Banc Rehearing

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Ariosa v. Sequenom (Fed. Cir. 2015) (en banc petition denied)

The Federal Circuit has denied Sequenom’s petition for en banc rehearing – reconfirming the panel holding that the claimed “method of detecting paternally inherited nucleic acid” is unpatentable as a law of nature.  Patent No. 6,258,540.  Following this case, the USPTO may finally begin applying the law-of-nature exception in a major way. The decision also sets up a petition for writ of certiorari to the Supreme Court with several members of the Federal Circuit expressly calling for review.

As I previously wrote, the invention at issue here solves a very practical problem accessing fetal DNA without creating a major health risk for the unborn child.  The big idea was the hypothesis that fetal DNA might be floating around in the mother’s blood and that the fetal DNA could be selectively amplified by focusing on the paternally inherited portion of its DNA (rather than the maternally inherited).

The claim itself has two simple steps: (1) amplifying paternally inherited DNA from a plasma sample taken from a pregnant female and then (2) detecting the presence of the DNA. As I mentioned, the big idea was understanding where the baby-DNA could be found (in the mother’s blood plama) and that it could be separated from the mother’s DNA by linking it to the father’s sequence. The technology for amplifying and detecting was already well known at the time of the invention here.  Further, these two steps – amplifying and detecting – are the ones always almost used to detect particular DNA sequences.

The district court found the patent invalid under Section 101.  That decision was affirmed by a Federal Circuit panel in an opinion written by Judge Reyna and a concurrence by Judge Linn.  Now, in the 11-1 en banc denial, we add three more opinions – Judge Lourie (joined by Judge Moore) and Judge Dyk, both concurring in the denial as well as Judge Newman dissenting.

The basic controlling precedent in this case is Mayo v. Prometheus. In that case, the Supreme Court held that the discovered therapeutic efficacy and toxicity of a particular administered drug to be an unpatentable natural law and that the patented testing and dosage methods were also unpatentable as effectively claiming the same law of nature. In particular, the court noted that the claimed steps were not “genuine applications of those laws[, but] rather … drafting efforts designed to monopolize the [unpatentable] correlations.” As in Ariosa, the testing and determination steps were well known in the art and relied upon well-understood, routine, and conventional activity known to those in the field. As such, those additional steps were insufficient to transform the unpatentable law of nature into a patent eligible application of the natural law.  

In Ariosa, the Federal Circuit stands almost unanimously in the conclusion that Sequenom’s invention is not patent-eligible under the Mayo precedent (only Judge Newman disagrees).  There is, however, substantial disagreement about whether the Supreme Court was correct in its Mayo analysis.

Judge Dyk: I share the concerns of some of my colleagues that a too restrictive test for patent eligibility under 35 U.S.C. § 101 with respect to laws of nature (reflected in some of the language in Mayo) may discourage development and disclosure of new diagnostic and therapeutic methods in the life sciences, which are often driven by discovery of new natural laws and phenomena. This leads me to think that some further illumination as to the scope of Mayo would be beneficial in one limited aspect. At the same time I think that we are bound by the language of Mayo, and any further guidance must come from the Supreme Court, not this court.

Judge Lourie: [I]t is unsound to have a rule that takes inventions of this nature out of the realm of patent-eligibility on grounds that they only claim a natural phenomenon plus conventional steps, or that they claim abstract concepts. But I agree that the panel did not err in its conclusion that under Supreme Court precedent it had no option other than to affirm the district court.

Judge Linn:  In my view, the breadth of the second part of the test was unnecessary to the decision reached in Mayo. This case represents the consequence—perhaps unintended—of that broad language in excluding a meritorious invention from the patent protection it deserves and should have been entitled to retain.  (Note, Judge Linn participated in the original panel decision but could not dissent here because of his Senior Status).

It will be interesting to see how this proceeds, but my view is that the case has a low-chance for certiorari.  In Mayo, the Supreme Court indicated its understanding that the case would halt patenting of many diagnostics, but expressly called on Congress to “craft[] more finely tailored rules where necessary.”  In the 3 1/2 years since the Mayo decision, the diagnostic industry has not been able to get a bill even proposed in Congress that would so-tailor these rules (at least that I know of).

 

Goldman on Ex Parte Seizures in Trade Secret law

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Prof Eric Goldman has released his new article titled Ex parte Seizures and the Defend Trade Secrets Act.  The article dives into what Goldman calls the “quirky and unprecedented ex parte procedure” included within the proposed legislation that would allow “trade secret owners to obtain a seizure order.”  The ex parte portion is important — the seizure order would allow an owner to take action without giving the accused violator a chance to respond. Goldman acknowledges that the provision is much weaker than its 2014 version, but still argues that ex parte seizure is problematic:

More generally, the fact-based disputes that inevitably must be resolved in trade secret litigation make trade secrets an especially poor basis for ex parte actions. As a result, we should be nervous about the proposed seizure provision in the Defend Trade Secret Act—and all other ex parte seizure procedures in trade secret cases.

Documents:

Goldman notes that, on this particular issue, the DTSA is certainly an expansion of rights since “[n]o state trade secret law has a trade secret-specific ex parte seizure process similar to the Seizure Provision.” (To be clear, seizures go a major step beyond emergency temporary-restraining-orders).

Of course, a difference with the DTSA its national level implementation.  That difference could be relevant to the seizure provisions — since it is the federal government (not individual state governments) that have an extensive customs and homeland security regime and it is the federal government (not individual state governments) that has expertise in espionage.  In my mind, these distinctions do make some difference – until you realize that criminal espionage and foreign export of trade secret information are already covered by Federal Criminal Trade Secret laws. The DTSA is about civil law — and largely about large companies trying to control the flow of information, control former employees, and skirt restrictions in-place in California law.

I expect that before it passes that Prof. Goldman’s arguments will be heard and the Seizure provision removed — of course, that decision is well above my pay grade.

 

 

 

Federal Circuit: The IPR System is Constitutional

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by Dennis Crouch

In a precedential opinion, the Federal Circuit has rejected MCM’s foundational challenges against the Inter Partes Review (IPR) system implemented as a result of the America Invents Act of 2011 (AIA).

MCM Portfolio v. HP (Fed. Cir. 2015) (MCM.decision)

In particular, the court held that the IPR system does not violate Article III of the U.S. Constitution nor does it violate the Seventh Amendment of the U.S. Constitution.  On the merits, the court then affirmed the PTAB’s decision cancelling MCM’s challenged claims as obvious.  The court writes:

The teachings of the Supreme Court in Thomas, Schor, and Stern compel the conclusion that assigning review of patent validity to the PTO is consistent with Article III. . . . . [Furthermore we] are bound by prior Federal Circuit precedent. . . . We see no basis to distinguish the reexamination proceeding in Patlex from inter partes review. . . .

Because patent rights are public rights, and their validity susceptible to review by an administrative agency, the Seventh Amendment poses no barrier to agency adjudication without a jury.

The decision here also essentially forecloses Carl Cooper’s parallel proceedings. However, both parties are likely to request rehearing en banc followed by petitions for writ of certiorari.

New Rules of Civil Procedure 2015

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The amendments to the Federal Rules of Civil Procedure took effect December 1, 2015.  The primary focus on the amendments is to move toward proportionality and also the elimination of the bare-bones form patent complaint. (Leading to something of a rush on filing on November 30).

One hope is that the amendments will reduce discovery costs  — leading to a “just, speedy, and inexpensive” process as required by FRCP R. 1.  Changes include:

  • Eliminating the provision allowing for discovery of information “that may lead to the discovery of admissible evidence.”
  • Emphasis on a balancing test to limit the scope of discovery.
  • Requirement for more details when documents are being withheld due to an objection.

Patent cases are typically seen as “big” cases, however, there is a possibility that some judges will begin teasing out the big cases from the small cases and apply the proportionality construct in that context.

 

Guest Post: Seeing Trade Secret Law Through the Lens of Information Diffusion

Patent

On December 2, 2015 the Senate Judiciary Committee is holding hearings on whether it is time to move forward national-level trade secret protection. Those testifying include three pro-reformers, including Jim Pooley and one on the other side – Prof. Sharon Sandeen.  The following guest post comes from Prof. Sandeen and is a response to Jim Pooley’s recent Trade Secret post. – DC. 

Sharon SandeenGuest Post by Sharon K. Sandeen

As a person who has been researching, writing and speaking about trade secret law for nearly twenty-five years, I am very happy that it is finally getting the attention it deserves, both in terms of increased scholarship and legislation introduced in the U.S. Congress. Thus, I read James Pooley’s recently released article, The Myth of the Trade Secret Troll: Why We Need a Federal Civil Claim for Trade Secret Misappropriation,[1] with great interest, particularly since it provides a critique of some of the arguments that David S. Levine and I discuss in our article, Here Come the Trade Secret Trolls.[2]

In truth, Jim and my views on trade secret law do not vary much. We both believe that trade secrets are important assets and that a robust and largely uniform set of laws is needed to protect legitimate trade secrets from misappropriation. However, we do tend to see trade secret law from different perspectives. Whereas Jim, and many others who advocate for ever-stronger intellectual property rights, primarily views trade secret issues from the perspective of IP owners and the asserted need for incentives to encourage innovation and creativity, my principal perspective is through the lens of information diffusion. Consistent with the longstanding policy of the United States, including the disclosure purpose of patent law, I do not think it is possible to have the optimal amount of innovation and creativity without the diffusion of information and knowledge. Call me old-school, but I am also concerned about the use of putative IP rights for anticompetitive purposes.

The difference in perspectives manifests itself in a number of ways, raising along the way many issues that are deserving of more scholarly attention. For instance, in his recent article, Jim argues that the existing system of state trade secret laws is not uniform, thereby justifying federal legislation. While I acknowledge that various differences in state laws do exist, I believe that those differences are minor, particularly as the laws are actually applied and that differences in application are often due to the fact-specific application of the elements of a trade secret claim. We also disagree on the likely impact of a federal civil cause of action. Jim thinks it is only a modest change, whereas I think it will mark a major disruption in U.S. trade secret law because there is no existing federal jurisprudence related to civil trade secret claims.

Jim’s article does highlight two issues, in particular, that I believe need to be discussed and addressed directly; differences that arise when one looks at trade secret law from the perspective of information diffusion instead of through the eyes of trade secret owners.

The first issue concerns the purpose of trade secret laws. In addition to the traditional purpose of maintenance of business ethics, Jim correctly points out that the U.S. Supreme Court in Kewanee cited the incentive purpose, recognizing trade secret law as a supplement to the incentives provided by patent protection. However, he downplays the third purpose cited by the Supreme Court; namely, the disclosure purpose. I happen to believe that this purpose is very important with respect to the diffusion of information and knowledge in our society.

Second, and related to the disclosure purpose of trade secret law, is the fact that trade secret protection is intentionally limited. This too is a point upon which Jim and I apparently disagree since he repeats the oft-stated claim that the UTSA expanded trade secret rights. However, my research into the drafting history of the UTSA reveals a more nuanced story, one that limited the scope of trade secret protection for at least three reasons.[3] First, trade secret rights were limited out of concern that they would conflict too much with patent law, including its disclosure purpose. Trade secret rights are also weak, and therefore limited, because society benefits when trade secrets (i.e., information and knowledge) leak out. Third, trade secret protection is weak (or balanced) due to concerns that trade secret litigation can be used for anticompetitive purposes.

Jim and others can disagree with the conclusions I have drawn after my evaluation of scores of source documents, but the more important point is that we need to have an open and honest debate about the extent to which trade secret law should be used to restrict the free flow of information and knowledge that is needed for innovation, creativity, and competition. Jim, at least, is the first proponent of the federal legislation to acknowledge that one of its purposes is the desire of some companies to protect more of their inventions as trade secrets instead of pursuant to patent law. If this is a purpose of the Defend Trade Secrets Act, it is time that we have an open and honest debate about whether it is wise to drive more and more companies toward trade secret protection instead of patent protection and , thereby, locking down more and more information.

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[1] 23 George Mason L. Rev. ___ (forthcoming 2016).

[2] 71 Wash. & Lee L. Rev. Online 230 (Jan. 21, 2015).

[3] Sharon K. Sandeen, The Evolution of Trade Secret Law and Why Courts Commit Error When They Do Not Follow the Uniform Trade Secrets Act, 33 Hamline L. Rev. 493 (2010).

Blog Updates: ABA Blawg 100

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The ABA Journal is again running its Blawg 100 edition noting interesting and worthy legal blogs. Patently-O and Gene Quinn’s IP Watchdog were perennial contenders but were ‘retired’ from the list after being inducted into the ABA’s Hall of Fame in 2012 and 2013 respectively.

Patent Related Blawgs this year include Ross Dannenberg’s Patent Arcade, Courtenay Brinkerhoff’s PharmaPatents, Scott McKeown’s Patent Post Grant, and Kurt Karst’s FDA Law Blog.  I would have also included the Written Description blog and PatentDocs. Non-patent sites of interest to me include Jotwell, PrawfsBlawg, and Eric Goldman’s Tech & Marketing Law Blog, among others.

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CityGardenSchool_logo-1Help us in Missouri: My son’s upstart “City Garden School” is having a fundraiser for scholarships, materials, and teacher education.  The Waldorf educational goals focus on nurturing ‘whole child’ development and making intercultural links within polarized communities (something that we need here in Missouri).  Donate here (tax deductible). – Dennis

AIA Patent Updates

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The chart above shows the percentage of published US patent applications that are classified as post-AIA applications. These are grouped by application publication date. Thus, for recently published applications, about 60% are AIA applications while 40% are pre-AIA. The Sept/Oct 2014 jump occurred 18-months from the March 2013 AIA changeover date. Under US law, an application is ordinarily published “18 months from the earliest filing date for which a benefit is sought under this title.” 35 U.S.C. § 122. I expect that we will be seeing another jump in the percentages next month as US versions of post-AIA PCT applications begin to be published. (A PCT application can delay national stage filing by 30 months, and once the US national stage application is filed it takes the US a bit over 3-months to publish the application. December 16, 2015 represents the 33-month date if counting from the March 2013 AIA changeover date).

So far, there have been no PTAB or court decisions interpreting the first-to-file rules of the AIA – those issues are still churning within the examiner corps.