All posts by Dennis Crouch

About Dennis Crouch

Law Professor at the University of Missouri School of Law.

Federal Circuit: No Deference to PTO Factual Findings from Prosecution

Patent,

By Dennis Crouch

Novo Nordisk v. Caraco Pharma (Fed. Cir. 2013)

In a divided opinion, the Federal Circuit has affirmed a lower court trial ruling that Novo’s diabetes treatment patent is invalid as obvious. The patent covers the use of a combination of repaglinide and metformin to stabilize a patient’s glucose level. U.S. Patent No. 6,677,358. (Branded as PrandiMet)

At the time of Novo’s application filing in 1997, it was known that both repaglinide and metformin were useful for treating unstable glucose levels. Repaglinide is a secretagogue and combination drug therapies using metformin other secretogogues were already known to be successful. With those factual findings, the district court made the legal conclusion that the combination would have been obvious to one skilled in the art at the time of the invention. On appeal, the Federal circuit affirmed and rejected

We have an interesting setup in that Novo did not challenge the proposition that the combination was obvious to try. Still, the patentee argued that the synergy of the combination was unexpected and that, therefore, the combination was nonobvious. That argument has the potential of winning. However, in this case the Federal Circuit agreed with the lower court that Caraco had established “that the results of the claimed combination therapy said by Novo to be unexpected and unexplainable were, to the contrary, expected and explainable in light of the state of the art as of the critical date.”

A key element of the Federal Circuit’s decision is that the result flows from the findings-of-fact and findings-of-fact are reviewed for clear error on appeal. Thus, although Novo provided credible evidence that a skilled artisan would have been surprised by the synergistic effect of the proposed combination of drugs, that evidence was insufficient to overcome the clear-error standard.

Of course, this lawsuit is occurring long after the patent issued. However, one quirky element of the case is that the examiner stated in the prosecution history that the evidence of synergy presented during prosecution was the basis of the decision on allowance. In the later lawsuit, Novo argued that the examiner’s factual findings (based upon the same studies presented in court) should be given administrative deference. On appeal, the Federal Circuit rejected that argument and flatly concluded that the PTO findings should be given no deference during later litigation.

The initial determinations by the PTO in determining to grant the application are entitled to no deference as they would be in an appeal to this court under 28 U.S.C. § 1295(4)(A) or (absent new evidence) in a district court proceeding under 35 U.S.C. § 145. Rather, we treat the issued patent as having a presumption of validity that must be overcome by clear and convincing evidence. No decision of the Supreme Court or this court has ever suggested that there is an added burden to overcome PTO findings in district court infringement proceedings, and we reject Novo’s contrary assertion. Neither are we persuaded that the presence or absence of PTO findings on particular issues affects the basic presumption of validity.

This administrative deference issue is one that is ripening for further Supreme Court review and follows in the wake of the Supreme Court’s decision in Kappos v. Hyatt, 132 S. Ct. 1690 (2012).

The majority opinion was written by Judge Prost and signed by Judge Dyk.

Writing in dissent, Judge Newman argued that Novo’s “discovery of the synergistic combination of metformin and repaglinide meets the criteria of patentability, and was incorrectly held to be unpatentable on the ground of obviousness, 35 U.S.C. §103.”

The combination described and claimed in the patent in suit, U.S. Patent No. 6,677,358 (“the ‘358 patent”), is eight-fold more effective than the additive properties, and is now apparently a treatment of choice for persons whose Type II diabetes had previously been untreatable. It is a lifesaving combination for such persons, and is valuable to other diabetics, for it permits a more flexible treatment regimen than prior products. The Novo inventors pursued this combination despite the advice of other “experts” that they were wasting time and money. Nonetheless the district court, and now my colleagues on this panel, find the combination obvious to them, and invalidate the patent. I respectfully dissent.

One of Judge Newman’s major points here is that – if anything – patents should offer legal protection for practical advances in science and medicine that actually save lives. That patent guarantee in turn would serve to encourage investment in achieving those advances.

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The case is interesting to read for the legal-technical arguments made by the patentee against a finding of obviousness. After KSR and the fall of the teaching-suggestion-motivation test it appeared that obviousness had moved to a much more flexible analysis guided by common sense rather than bright line rules. Although unsuccessful here, the patentees arguments are interesting because they show ways in which that flexibility can be corralled.

Supreme Court Adds Antitrust Consideration to Patent Settlements.

Patent,

By Dennis Crouch

FTC v. Actavis, Inc. (Supreme Court 2013)

In a 5-3 Decision authored by Justice Breyer, the US Supreme Court has held that a rule-of-reason analysis applies to determine whether a reverse-payment patent settlement violates federal antitrust laws. The FTC had asked the court to go further and rule that reverse payments are presumptively unlawful. A major factual question going forward in patent-settlement antitrust cases will be whether the patentee settled its lawsuit in order to avoid testing a patent’s weakness. Without additional pro-competitive benefits, such a settlement can be deemed anticompetitive under a rule-of-reason.

The conservative dissent written by Chief Justice Roberts argued that patent rights should be seen as an exception to the antitrust laws and that a patentee should have the right to enforce its patents and to settle its patents without regard to the anti-competitive nature of any settlement.

The result here is that the antitrust implications should be considered for any major patent settlement. In addition, the decision opens the door further for antitrust action against patent enforcement entities willing to settle cases at rates below the likely litigation costs of the accused infringers.

As my law school antitrust professor Randy Picker notes on twitter, the decision admittedly does not offer any clear guidance for how the rule of reason will apply in cases moving forward. Picker writes: applying the “rule-of-reason [on] remand, with the patent overlay and Hatch-Waxman present, will be brutal.” The majority opinion says go-to-it: “We therefore leave to the lower courts the structuring of the present rule-of-reason antitrust litigation.”

Read the opinion: /media/docs/2013/06/12-416_m5n0.pdf

Twenty Thoughts on the Importance of Myriad

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By Dennis Crouch

I asked a number of colleagues for their thoughts on the Supreme Court’s recent Myriad Decision. However, I only allowed a 40 word statement from each.

Most patent law specialists look at Supreme Court review with some trepidation. For many, the split decision comes with a sigh of relief. Gregory Dolin (U Baltimore) writes that “the decision could have been much worse. The decision could have been much worse. After all, the petitioners argued that neither isolated DNA nor cDNA should be patent eligible. So the fact that the Supreme Court concluded that cDNA is patent eligible is a victory for Myriad.” Jorge Contreras (American) calls the decision a “common sense” application focused on “the fundamental purposes of the patent system.” Professor John Duffy (UVA) sees the decisions as “a half-loss to inventors, a half-loss to advocates for a broader public domain but, unfortunately, a full victory for patent lawyers, who will have lots of business opining on, and litigating, the complexities of this decision.” Barbara Rudolph (Finnegan) notes that the decision “could have an immediate [negative] effect on existing patent portfolios of some biotech companies, particularly those in the fields of diagnostics and personalized medicine. . . . It is, however, a positive development for companies that rely on [non-patented] cDNA for the development and manufacture of novel therapeutic proteins.”

The decision is in some tension with the Court’s most recent prior section 101 case of Mayo. Jeffrey Lefstin (UC Hastings) queries “is Mayo‘s ‘inventive concept’ still required for patent-eligibility? The Court’s endorsement of cDNA relies on cDNA being ‘new’ within the meaning of § 101, not whether creation of cDNA involved anything beyond the ‘routine and conventional’ activity disparaged in Mayo.” David Berry (Cooley Law) praised this aspect of the decision because the Court “didn’t concoct a new, off-the-cuff standard; punt on fashioning a useful test, confuse ‘eligibility’ with ‘patentability;’ use the word ‘obvious’ to mean something else again; disparage the art of claim drafting; or leave a whole industry up in the air about the limits of patent protection.” Along these lines but in a lamenting tone, Timothy Holbrook (Emory) that “sadly the Court provided very little guidance as to future issues relevant to biotech, such as isolated/purified proteins or other organic chemicals. The Court took pains to make the decision narrow, but for the first time since JEM, it did find something to be patent eligible.” Mark Lemley (Stanford) argues that Mayo still holds weight: “if I were a biotech patent owner I wouldn’t be celebrating just yet. cDNA patents are easier to design around, and under Prometheus v. Mayo they are probably obvious once we assume knowledge of the naturally-occurring gene sequence.”

Moving forward, we have a question of whether the reduced coverage of patent law will still provide sufficient incentive to invest in biotech focused research. Jonathan Masur, professor at The University of Chicago School of Law says yes: “This is the rare case in which the Court’s reflexive tendency to split the baby worked well. Biotech companies should have sufficient research incentives going forward, without firms like Myriad exerting too much control over consumers and future R&D.”

One problem with Supreme Court review of Section 101 cases is the risk of alienating entire market areas from patent protection. That is why many of us support a broader fair-use regime that could be used as a lever for protecting public interest uses of inventions without eliminating the market value of innovation. Along this line Thomas Cotter (Minnesota) writes: “Ultimately the merits depend on whether the benefits of access outweigh the costs to incentives. The ideal policy solution would be for DNA to be patent-eligible, coupled with an experimental use defense and a guarantee of universal health care.” Andrew Chin (UNC) agrees here that the scientific and medical progress are not served by this decision. Chin writes: “Patents on DNA probes are problematic for § 101 doctrine and for DNA research regardless of whether the probes are produced by isolation or synthesis. The distinction will distort scientific and medical progress and ultimately prove to be doctrinally unstable.” Former Lead House Staffer in the IP area, Christal Sheppard (U Nebraska) agrees that “Naturally occurring versus synthetic is a ridiculous outdated distinction.” Her approach, however, would not be to create a fair-use but instead to fall back on the old rules of novelty. Sheppard writes “The proper distinction should be new-ness (novelty) irrespective of origin.”

For innovative companies the first question is how they can take advantage of the Opinion. Eileen Kane (Penn State) offers a clue in the distinction as between genetics and chemistry. Kane writes that “the decision recognizes the complexity of DNA for a patent eligibility analysis and finds that genetics trumps chemistry in establishing the isolated gene as an unpatentable natural product.” Dan Burk (UC Irvine) nails this further by noting that the “opinion seems to say that had the gDNA claims been drafted in terms of the chemical structure rather than genetic information, Judge Lourie’s view from the opinion below might prevail. Perhaps future claim drafters should think like biochemists and not like geneticists.” Professor Kane also notes that the decision reaffirms the non-statutory principle that “discovery does not equal invention.”

For the past several years, Myriad (and many others) have been relying on trade secrets as part of their intellectual property scheme. Thus, although Myriad disclosed the BRCA1/BRCA2 gene sequences in their patent applications, the company holds a vast amount of information (such as the genetic code of all of its customers) as trade secrets. Brenda Simon (Thomas Jefferson School of Law) notes that Myriad “does not impact one of the most valuable aspects made possible through Myriad’s patent protection: a private biobank of patient data containing information about additional mutations that Myriad can maintain as a trade secret.” Barbara Rudolph (Finnegan) agrees that the decision “may presage a shift towards more reliance on trade secret protection for DNA-based inventions.”

Looking at the trend over the past decade, Andrew Torrance (Kansas) writes: “For better or worse, the Supreme Court’s AMP v. Myriad decision caps a decade-long trend away from the patentability of the human body, human embryonic stem cells, human physiology, diagnosis of human disease, human thoughts, and, now, human genes.”

Coming Soon: What does Myriad Say about Software Patents? And, in the words of Professor Holbrook “Will they take CLS?” Professor Srividhya Ragavan (Oklahoma) writes that “Too much of anything – even patents – is good for nothing. Charkabarty exemplified patent law’s ability to spur invention while Myriad represents the end of an out-of-control patenting phenomenon which became increasingly disconnected with the system’s objectives. Time for software patent-holders to take notice.”

Finally, Megan Labelle (Catholic University) highlights the value that Dan Ravicher and PubPat have brought to the table. Professor Labelle writes: “The patent community will rightfully spend much time debating the merits of Myriad. While that debate is important, let’s remember that there would be nothing to debate if the ACLU and PubPat hadn’t filed this suit in the first place. Myriad has, and should continue to, inform the discussion about the role public interest organizations ought to play in our patent system.”

Monsanto Wins Again in Federal Circuit: Organic Farmers Have No Standing to Challenge Patent

Patent,

By Dennis Crouch

Organic Seed Growers and Trade Ass’n v. Monsanto Company (Fed. Cir. 2013)

In 2011, Dan Ravicher at PubPat led a group of 23 plaintiffs in a lawsuit against Monsanto seeking declaratory judgment of non-infringement and invalidity of Monsanto’s genetically modified seed patents. Although not directly related, the patents challenged here are the same as those that Monsanto has asserted against dozens of farmers for growing unlicensed versions of its Round-Up Ready Soybeans. See, e.g., Bowman v. Monsanto (2013). In the present case, however, none of the plaintiffs want to grow genetically modified crops. Instead, the case asserts that the organic and heritage seed growers are in fear of becoming liable for inadvertently growing patented seeds. In many ways, patent infringement can be considered a strict liability tort and, as such, the unknowing use of another’s patented invention still creates liability for patent infringement. Thus far, Monsanto has promised that it will not sue farmers who inadvertently grow its patented crops so long as the farmers do not take advantage of their glyphosate resistant properties and so long as the farmer’s do not intentionally re-plant GM progeny. However, Monsanto has not offered any clear covenant-not-to-sue for inadvertent growing. Recent news that Monsanto’s experimentally genetically modified and non-FDA approved wheat has inadvertently spread even though Monsanto had attempted to destroy all of the crops.

The district court dismissed the case for lack of subject matter jurisdiction – finding that there was “no justiciable case or controversy” as required under Article III of the U.S. Constitution. On appeal, the Federal Circuit has now affirmed — holding that “appellants have not alleged any circumstances placing them beyond the scope of [Monsanto’s] assurances.”

In dicta, the court spelled out the no-fair-use doctrine of patent law – writing that even trace amounts of infringing material can still constitute infringement. See SmithKline Beecham Corp. v. Apotex Corp., 403 F.3d 1331 (Fed. Cir. 2005); Abbott Labs. v. Sandoz, Inc., 566 F.3d 1282 (Fed. Cir. 2009); and Embrex, Inc. v. Serv. Eng’g Corp., 216 F.3d 1343 (Fed. Cir. 2000) (Rader, J., concurring). The court also recognized that it is “likely inevitable” that conventional crops are contaminated with genetically modified crops. However, the fact that someone is likely infringing does not create declaratory judgment jurisdiction. Rather, the patentee must have taken some additional step to create some threat of enforcement and here, Monsanto has only stated that it will not sue unless the farmers take advantage of the patented seeds unique properties. The plaintiffs case here fails because they “have not made any allegations that they fall outside Monsanto’s representations.”

In sum, Monsanto’s binding representations remove any risk of suit against the appellants as users or sellers of trace amounts (less than one percent) of modified seed. The appellants have alleged no concrete plans or activities to use or sell greater than trace amounts of modified seed, and accordingly fail to show any risk of suit on that basis. The appellants therefore lack an essential element of standing. The district court correctly concluded that it lacks Declaratory Judgment Act jurisdiction.

Dismissal Affirmed

Fight Litigation Misconduct, But Not Through Hyperbole

Patent,

By Dennis Crouch

In a recent NYTimes op-ed, Chief Judge Randall Rader joined professors David Hricik and Colleen Chien in calling for judicial action in awarding attorney fees under Section 285 of the Patent Act as well as Rule 11 of the Federal Rules of Civil Procedure. See “Make Patent Trolls Pay in Court.” The Op-Ed’s focus is on the problem of nuisance suits brought by patent licensing companies against a large number of entities – many of which include small companies.

In addition to being more aggressive in awarding attorney fees under the rules, the authors suggest particular factors that may lead to awards against patent trolls:

One sign of potential abuse is when a single patent holder sues hundreds or thousands of users of a technology (who know little about the patent) rather than those who make it — or when a patent holder sues a slew of companies with a demand for a quick settlement at a fraction of the cost of defense, or refuses to stop pursuing settlements from product users even after a court has ruled against the patentee.

Other indications of potential bullying include litigants who assert a patent claim when the rights to it have already been granted through license, or distort a patent claim far beyond its plain meaning and precedent for the apparent purpose of raising the legal costs of the defense.

One of the bases for the article is that the patent trolls face very low risk in filing lawsuits since they can’t be countersued for infringement (they don’t make anything) and, unlike a university, they typically have no ancillary reputation that can be tarnished by the suit. Moreover, the cost of discovery for trolls is typically very low and they typically work through contingency fee litigators. The result here is “trolls can afford to file patent-infringement lawsuits that have just a slim chance of success. When they lose a case, after all they are typically out little more than their own court-filing fees.”

It is often true that the marginal cost of filing a thirty first lawsuit on the same patent can be quite small – especially when the new defendant is using the invention in the same way that other defendants are using the invention. However, the Op-Ed fails to mention the great risk of preclusion associated with each lawsuit. Under the law, each and every defendant has the opportunity to fully challenge the patent before either a judge or jury and, if the patent is ever found invalid then that ruling will preclude the patentee from ever enforcing the same patent rights again against any party. Even apart from preclusion, the organization of a patent enforcement campaign is not a simple endeavor, but rather an expensive process that involves extensive analysis of potential patent rights, an exhaustive search for financial backing and litigation counsel, and a one-business-at-a-time analysis to ensure that the patentee has a reasonable basis to believe that any accused infringers actually is infringing. In a typical case, the would-be troll follows thousands of dead leads and failed negotiations before ever filing a single infringement lawsuit. The point here is one that every patent litigator understands – enforcing patents is an expensive proposition and the notion that a patentee only risks $350 to file a lawsuit is ridiculous. Now, we can debate whether all this expense is a waste of resources that should be avoided as a matter of public policy. On that point I will only note the reality that the rise of patent enforcement and patent licensing companies has revived the market for buying and selling of patents from small companies and individuals in a way that allows those entities to actually monetize their innovations.

All this is a bit of an aside because I agree completely that courts should exercise their discretion to deal harshly with litigation misconduct both through Rule 11 and Section 285.

The European Unitary Patent System – 5 things Patent Attorneys need to know now

Patent,

US patentees have many questions regarding the new Unitary Patent system in Europe. Gwilym Roberts of Kilburn & Strode in the UK offers this brief post on practical issues to and immediate action items. – DC

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There has been a lot of talk about the new Unitary Patent system in Europe. As there are so many unknowns at the moment, it is sometimes difficult to work out what the practical implications now are. This brief post highlights the main points.

Overview

The proposed Unitary Patent system has two main components:

Firstly, for patents issued by the EPO, patentees will be able to choose between a) the existing system of multiple national validations from a European Patent, wherein separate renewal fees are paid for each national validation nationally or b) designating the Unitary Patent covering multiple EU countries, wherein a single renewal fee will be payable to the EPO and a single translation required.

Secondly, and separately, a Unified Patent Court will be established, alongside existing national courts, allowing a single action to cover multiple jurisdictions providing wider injunctive and damages type relief than the current fragmented system.

Things you need to understand now

1. The system isn’t here yet. The most optimistic predictions are for early 2015.

2. Any European patent or application (whether or not it designates a “Unitary Patent”) will then be under Unified Patent Court jurisdiction by default. Although details are not known yet, it will however be possible to opt patents back out for at least seven years from entry into force of the new system. This may well be attractive, given that it will then be possible to opt back in. Fees to opt out and to opt back in will be applicable but are not yet known.

There is one key thing that not everyone is understanding: if you designate a Unitary Patent then you are tying yourself into the Unified Patent Court system, but possibly making a saving on translation and renewals. However, the Court will have jurisdiction over both types of patents that are issued by the EPO. Even if you do not designate a Unitary Patent, the Unified Patent Court will still apply to your patent unless you opt out.

Action now: Monitor for further details of the opt out process and consider opting -out.

3. As the Unified Patent Court system will apply to all European patents and applications, whether or not a Unitary Patent has been designated, then there is an opportunity to target competitor patents in Europe for multi jurisdiction revocation in a single action, even if the 9 month post grant opposition period has expired. However, you will need to do this before the patentee opts out and there may therefore be a race on day one.

Action now: Monitor updates on how opt out timing will work, if you see revocation opportunities.

4. A lot of the uncertainty arises because we don’t know how good the Unified Patent Court itself will be. But given that the judges are likely to be the same people who are already operating in Europe – and some of these judges are fantastic – let’s assume that the courts are going to work. That makes the question much simpler – do I want to enforce a patent in multiple jurisdictions in a single action, balanced against the risk of central revocation?

Action now: Start thinking about the tactical pros and cons of multi jurisdiction enforcement and revocation – assume the courts will be good!

5. If you like the idea of the Unified Patent Court and wish to obtain coverage for multiple EU countries, then the Unitary Patent designation may be attractive to you. You cannot request it now, but it will be available for European patents that are granted after the new system enters into force. Given the backlog in prosecution at the EPO at the moment, you may well have applications which are pending now which could grant after the new system comes into force.

Action now: Consider whether it is worth delaying any key patent applications, if you definitely want Unitary Patent protection.

Conclusion

There has been nothing here about costs, languages, translations, procedure etc. – these are important details, but shouldn’t affect your basic decisions. There is not a lot to do now; consider delaying, keep watching and start thinking.

Bits and Bytes by Dennis Crouch

Patent, ,
  • Kevin Noonan at PatentDocs reviews the recent Special 301 report by the U.S. Trade Representative focusing on the protection and enforcement of Intellectual Property Rights. "The Priority Watch List in the Report lists Algeria, Argentina, Chile, Chine, India, Indonesia, Pakistan, Russia, Thailand, and Venezuela."
  • Eric Goldman review's Vermont's "First Anti-Patent Trolling Law." Prof. Goldman highlights a key problem for all nuanced anti-abusive-litigation statutes. He writes: "I'm skeptical of this attempt to distinguish legitimate from illegitimate patent assertions."
  • Michael C. Smith writes on a recent court ruling that allows expert testimony that applies the "entire market value rule" in calculating damages.
  • Bill Vobach highlights the fact that Raymond Chen's nomination to the Federal Circuit has been voted out of the Judiciary Committee and now moves to the full Senate for Consideration.
  • The ELS Blog calls for papers on Trademark Data.
  • Job: Berkeley needs a new Associate Director of its IP Law Clinic [Link]

Upcoming Events:

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Patent Reform 2013: Adding Clarity and Transparency to the System

Patent,

By Dennis Crouch

President Obama today released information on planed executive orders and push for new legislation that will attempt to block companies from asserting their patents unless they are also manufacturing a product based upon the patented design. And at the same time, the President’s National Economic Council and Council of Economic Advisers released a report a report titled “Patent Assertion and U.S. Innovation.” The report generally takes the viewpoint that Patent Assertion Entities are bad for the US Economy and makes the bold claim that, in the past year PAE’s have threatened “over 100,000 companies with patent infringement.” The bulk of the report that identifies the “problem” is based upon the work of professor Colleen Chien (Santa Clara); Jim Bessen & Mike Meurer (BU); Mark Lemley (Stanford) and Michele Boldrin (WUSTL) & David K. Levine (WUSTL).

Despite the unknowing hyperbole of the report, the suggested actions are, for the most, welcome and will benefit the patent system as a whole. In fact, this move to finally address the problem of predictability of patent scope and patent validity hits the sweet spot of where problems emerge in the system. Of course, the devil will be in the details of these approaches.

Executive Actions:

1. Knowing Who Owns the Patents: Through the PTO a new rule will require patent applicants and owners to regularly update ownership information with the “real party of interest” so that the assignment records are accurate complete.

2. Tightening Functional Claiming. The PTO will provide new targeted training to its examiners on scrutiny of functional claims and will, over the next six months develop strategies to improve claim clarity, such as by use of glossaries in patent specifications to assist examiners in the software field.

In my view, these two elements are sorely needed and will generally improve the patent system without actually limiting the ability of patent assertion entities to derive value from their innovations through patent assertion. In addition, the PTO will begin a number of outreach mechanisms intended to provide assistance to non-patent-insiders who receive patent demand letter.

Legislative Actions:

1. Require patentees and applicants to disclose the “Real Party-in-Interest,” by requiring that any party sending demand letters, filing an infringement suit or seeking PTO review of a patent to file updated ownership information, and enabling the PTO or district courts to impose sanctions for non-compliance. [DC: This would add statutory back-up for the PTO rulemaking]

2. Permit more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award attorney’s fees under 35 USC 285 as a sanction for abusive court filings (similar to the legal standard that applies in copyright infringement cases). [DC: This can be helpful if allowed to go both-ways, although courts generally find that patent litigators are the most well-prepared and honorable of any that they see in court.]

3. Expand the PTO’s transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB). [DC: This has the potential of capturing a substantial percentage of issued patents, but that may be fine.]

4. Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use. Also, stay judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer. [DC: We are on our way here toward a fair use of patents.]

5. Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts. [DC: The focus here is to get patent assertion entities out of the ITC]

6. Use demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public. [DC: This sounds good, I wonder how those writing demand letters would respond.]

7. Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges. [DC: However, must ensure that the flexibility is not used to hire because of particular political bent.]

Small Entity Patenting

Patent

The chart above is based primarily on maintenance fee data that includes statements regarding whether the patentee is a "small entity" and also from the recent inclusion of small entity information in the USPTO annual reports. 

Judge Mayer: Subject Matter Eligibility Must be Decided First Even if Not Raised by Either Party on Appeal

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By Dennis Crouch

Alexsam, Inc. v. IDT Corp. (Fed. Cir. 2013)

I recently posted on Alexsam’s pending litigation in the Eastern District of Texas. In that case, the jury sided with the patentee Alexsam and rejected the defendants’ arguments that the patent was invalid. The appeal here involves the same patents directed to a system for activating gift cards at the time that they are purchased. See U.S. Patent No. 6,000,608. The most interesting aspect of the decision comes from Judge Mayer’s dissent where he argued that asserted patent claims “disclose nothing more than an abstract idea for making a business run more efficiently, thereby failing to meet the subject matter eligibility requirements set forth in 35 U.S.C. § 101.”

The claim issue (Claim 57) reads as follows:

A multifunction card system comprising:

a. at least one card having a unique identification number encoded on it, said identification number comprising a bank identification number approved by the American Banking Association for use in a banking network;

b. a transaction processor receiving card activation data from an unmodified existing standard retail point-of-sale device, said card activation data including said unique identification number;

c. a processing hub receiving directly or indirectly said activation data from said transaction processor; and

d. said processing hub activating an account corresponding to the unique identification number, thereby permitting later access to said account.

To reach his conclusion that the claim fails to disclose eligible subject matter, Judge Mayer first began by identifying the core inventive concept of the claim. Here, the idea behind the patent is that it allows a card to be activated by swiping it through the terminal used for processing credit card transactions rather than having a dedicated activation terminal. The benefit of that approach is that no special equipment is needed for activating gift cards and the patent application states that no new technology is required in order to allow standard point-of-sale devices to activate gift cards.

The way Judge Mayer describes this setup immediately raises novelty and obviousness concerns in my mind. Indeed, Judge Mayer writes that the case “presents the anomalous situation in which a patentee attempts to preserve the validity of his claims by arguing that they contain nothing new.” Ordinarily, when patent claims “contain nothing new,” they are found invalid for lacking novelty or nonobviousness. Indeed, millions of patent claims are rejected each year by the USPTO for this very reason. And, the primary thrust of the US patent examination system is to ensure that patents are only issued for inventions that are sufficiently new. In this case, the defendants argued that claims were obvious and anticipated as a matter of law. However, instead of addressing that issue that was actually appealed, Judge Mayer focused on the Subject Matter Eligibility that was not raised on appeal – seeing subject matter eligibility as a threshold issue that must be decided first:

Whether claims are directed to statutory subject matter is a “threshold” question, Bilski v. Kappos, 130 S. Ct. 3218, 3225 (2010), which must be addressed before this court can consider subordinate issues related to obviousness and infringement. See Parker v. Flook, 437 U.S. 584, 593 (1978) (“Flook”) (emphasizing that “[t]he obligation to determine what type of discovery is sought to be patented” so as to determine whether it falls within the ambit of section 101 “must precede the determination of whether that discovery is, in fact, new or obvious” (emphasis added)); In re Comiskey, 554 F.3d 967, 973 (Fed. Cir. 2009) (“Only if the requirements of § 101 are satisfied is the inventor allowed to pass through to the other requirements for patentability, such as novelty under § 102 and . . . non-obviousness under § 103.” (citations and internal quotation marks omitted)).

In our 2010 article, Professor Robert Merges and I argued that the law does not require the “threshold” question be decided in any particular order. See Dennis Crouch & Robert P. Merges, Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making, 25 Berkeley Tech. L.J. 1673 (2010). Indeed, thresholds are crossed all throughout a journey. Judge Mayer is in the minority on this point of doctrinal ordering. Although rejecting some of our arguments, the CLS Bank plurality opinion agreed with Merges and myself that “district courts may exercise their discretion to begin elsewhere when they perceive that another section of the Patent Act might provide a clearer and more expeditious path to resolving a dispute.” (Citing Merges & Crouch).

The second major problem with Judge Mayer’s dissent is the implicit ruling that Subject Matter Eligibility is not waivable and instead should be raised sua sponte by an appellate court. Here, the §101 eligibility question was not raised by the defendant-appellants in the appeal, nor were they discussed in oral arguments. In the past, both Judges Mayer and Dyk have raised §101 issues sua sponte on appeal — essentially finding that subject matter eligibility questions are on par with the issue of a court’s subject matter jurisdiction.

Finally, Judge Mayer’s decision highlights the failure the CLS Bank decision – because there was no majority opinion in that case, Judge Mayer did not feel the need to even cite that recent pronouncement by the court that directly relates to the case at hand.

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Sanctions: The district court awarded sanctions to the patentee for the defendants’ litigation misconduct in failing to provide to satisfy the appropriate discovery requests regarding the accused systems. The sanction was quite harsh. In particular, the district court deemed several accused systems were infringing as a sanction for ITD’s failure to disclose the fact that its cards contain BINs in their card numbers. On appeal, the Federal Circuit affirmed the sanction. I suspect that the “Patent Abuse Reduction Act” would further embolden accused infringers to play discovery games by avoiding disclosing key information or admitting key facts that would greatly simplify the litigation.

= = = = =

Unpaid License Still a License: Some of IDTs systems use the MasterCard computer network. That is important because MasterCard has obtained a license from Alexsam to practice the invention. The agreement specifically states that other parties (such as IDT) that are using the MasterCard computer network will be “deemed sublicensed under an implied sublicense.” As part of the agreement, MasterCard is also required to report the total number of licensed transactions to Alexsam at the end of each month, and to pay a fee for each transaction. In this case, however, MasterCard never reported IDT as a sublicensee or paid the required royalties. On appeal, the Federal Circuit agreed with IDT that the MasterCard related sales were licensed and that IDT is therefore not liable for those. In reaching its conclusions, the court noted that the MasterCard agreement did not condition the sublicense on payment of the royalties. Further, the court the cited to its decision in Tessera, Inc. v. Int’l Trade Comm’n, No. 2010-1176, 2011 WL 1944067 (Fed. Cir. 2011) where it held that failure to pay royalties “did not convert authorized sales into unauthorized sales.”

= = = = =

What Is Happening In Vermont? Patent Law Reform From The Bottom Up

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Guest post by Camilla A. Hrdy, Resident Fellow at the Yale Law School Information Society Project.

Although there have been various proposals for curbing abusive threats of patent litigation by Patent Assertion Entities (PAE’s), or so-called patent “trolls,” and the Federal Circuit appears willing to sanction PAE’s for baseless lawsuits, the U.S. Patent Act does not directly address the problem. Dissatisfied with this situation, the state of Vermont has just passed a new and innovative law amending its Consumer Fraud statute to prohibit “bad faith assertions of patent infringement” against individuals or companies based in Vermont. The law creates a factor-based test for courts to determine when acts constitute “bad faith assertions,” and lists several non-exhaustive factors that courts may consider as evidence of bad faith, including sending demand letters that lack basic information about the infringement claim or that seek payment of unreasonable royalty fees. Targets of bad faith assertions can bring actions (in state or federal district court1) to obtain compensatory damages and exemplary damages, plus costs and fees. Vermont’s Attorney General simultaneously filed a complaint under existing Vermont consumer protection law against a PAE that sent out demand letters to thousands of small businesses in Vermont and around the country.

Some commentators suggest Vermont’s new law is preempted by federal patent law. This is not necessarily the case – so long as courts apply the law in a way that satisfies the Federal Circuit’s standard for a finding of “bad faith.” This requires, at minimum, “clear and convincing evidence” that the infringement assertions are “objectively baseless” to avoid dismissal on summary judgment or a motion to dismiss. As the Federal Circuit explained in Globetrotter, the idea is that patent holders should not be penalized simply for asking the government to enforce their patent rights. That said, as Vermont Attorney Justin McCabe points out, if courts do adhere to the Federal Circuit’s current standard, this will certainly weaken the Vermont law’s utility as a supplement to current options.

Putting aside the question of whether the Vermont law will be preempted, should it be? According to Eric Goldman, we should be wary of state-by-state contributions to patent law (and IP law in general) for numerous reasons, including higher costs for patent owners to enforce their rights and comply with different or inconsistent state standards. Goldman concludes that while he would “enthusiastically favor a nation-wide threats action,” if the choice is between no threats action at all versus state-level threats actions, he might favor the former.

I disagree.

There are certainly costs to introducing decentralization into the patent system, just as there are for any area of law where state and federal governments have concurrent power (immigration, tax, corporate law, to name just a few). But the creation of a novel, state-level solution to the problem of unfounded patent assertions highlights the reasons we accept some of these costs by continuing to support a system of dual sovereignty. Robust federalism can produce a range of benefits, including involvement from local officials in designing policies to support their jurisdictions’ development goals, promoting intergovernmental competition and experimentation, and diffusing authority among different sovereigns in order to avoid consolidation of power in a single lawmaking body or administrative agency (i.e. the U.S. Patent & Trademark Office).

But for federalism to actually benefit patent law and innovation policy generally, states require some autonomy to disagree with federal patent policy and to use state law to grow local innovation ecosystems, like California has with Silicon Valley. According to the preamble of the new law, Vermont is “striving to build an entrepreneurial and knowledge based economy.” State representatives decided the law will facilitate their goal of attracting IT and other knowledge based companies facing costly threats of litigation from PAE’s. Vermont has every right to make this attempt, and we should encourage other states to do the same.

Obviously, as the Supreme Court has made clear, state laws should be preempted when they interfere with the goals and objectives of federal patent law. But Vermont’s law doesn’t: like U.S. patent law, it strives to promote innovation and does not interfere with inventors’ decision to file for U.S. patents and disclose information about their inventions to the public.2 Far from needlessly raising the cost for patent owners to enforce their rights, Vermont’s local solution to a national problem is a prime example of how federalism is supposed to work.

As I argue in a forthcoming article and a recent essay, given the benefits of state involvement in patent law and innovation policy, federal courts should be wary of preempting state laws that attempt to influence national patent policy. I hope the Vermont law is the first, not the last, of its kind, and that it inspires other states to take a greater role in helping federal institutions fix the patent system’s problems. Meanwhile, innovators themselves – whether businesses aggrieved by PAE’s or inventors who are dissatisfied with patent law’s emphasis on propertization versus free access to knowledge – should begin to actively encourage their state and local governments to dissent against federal patent norms by experimenting with laws to make the system work better for everyone. We may ultimately decide that some, or even all, state patent policy innovations are not workable in practice. But the results of a bottom up reform movement will inevitably surprise us. And this is the point.

= = = =

1. Federal district courts have exclusive jurisdiction over patent cases, and the jurisdiction statute was recently amended to clarify that “[n]o State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.” 28 U.S.C. §    338(a). However, if none of the claims for relief under the Vermont law necessarily requires the resolution of a patent law issue, then federal district courts would not have jurisdiction absent diversity citizenship. See ClearPlay, Inc. v. Nissim Corp., 602 F.3d 1364, 1369 (Fed. Cir. 2010).

2. The same cannot be said for state trade secret laws, which we permit despite the risk that inventors of patentable inventions will keep their inventions secret, due to the independent benefits derived from more information sharing within companies and protection of valuable, if not always patentable, information from misappropriation by competitors. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 490-93 (1974).

Patent Abuse Reduction Act of 2013 (S.1013)

Patent,

By Dennis Crouch

If it exists, the patent heat in Congress right now is focused on “curbing abusive patent litigation.” A variety of bills have been introduced, including the SHIELD Act that would introduce a one-way fee shifting system that would require losing plaintiffs to pay the attorney fees of successful defendants. H.R. 845. The Bill also requires that the patentee plaintiff (or DJ Defendant) post a bond early in the lawsuit to ensure that the fees will be paid. Under its current structure, the bill is limited to cases where (1) the party asserting the patent is not the original inventor or original assignee; (2) the party asserting the patent is not exploiting the patent “through production or sale of an item covered by the patent” and (3) the party asserting the patent is not a University or the US Government. If the patentee meets any one of those prongs then they escape the fee shifting. At the conclusion of the case if the patentee loses then the court must award the prevailing party “full costs … including reasonable attorney’s fees.”

Senator Cornyn this week introduced another bill – the Patent Abuse Reduction Act of 2013 (S.1013). According to Cornyn’s press release, the bill “would require plaintiffs to disclose the substance of their claim and reveal their identities when they file their lawsuit; allow defendants to hale into court interested parties; bring fairness to the discovery process; and shift responsibility for the cost of litigation to the losing party.”

Transparency In Enforcement: S.1013 proposes that the initial complaint must also “the identity of any person with a direct financial interest in the outcome of the action, including a right to receive proceeds, or any fixed or variable portion thereof; and a description of any agreement or other legal basis for [the] financial interest.”

Presumption of Attorney Fees: As with the SHIELD Act, S.1013 would more readily shift attorney fees. This time, however, the fees would be balanced and awarded to the prevailing parties regardless of whether that be a plaintiff or defendant. However, no attorney fees would be awarded when the non-prevailing party’s “position and conduct … were objectively reasonable and substantially justified” or where the exceptional circumstances make the award unjust. If the patent plaintiff cannot pay the attorney fees, the bill would allow for those fees to be paid by others with an interest in the litigation. Defendants would also be permitted to join interested parties into the litigation.

Heightened Pleading Requirements: S.1013 proposes that a complaint must draw a link between particular asserted patent claims and any accused products if such a link “is known.” In addition, the bill would require a complaint to include “detailed specificity” as to “how the terms in each asserted claim[s] … correspond to the functionality of the accused instrumentality.” The Bill would also require the Supreme Court to review model complaint Form 18 to ensure that it conforms with the law.

Discovery After Claim Construction: S.1013 proposes to limit discovery until after claim construction has been complete.

Additional Major Limits on Discovery: Perhaps the most dramatic changes proposed in the bill would be statutory limits on discovery and a cost-shifting regime.

It will be interesting to see how these develop moving forward.

Sample Civil Procedure II Exam

Patent,

In CivPro II (a 2-hour course), we covered civil procedure issues related to class actions, discovery, summary judgment, JML, new trial, appellate jurisdiction, and preclusion. Here is the two-hour exam. – Dennis

052213_1918_SampleCivil1=====

Dent sued Baker in the United States District Court for the Eastern District of Missouri alleging patent infringement. After receiving the complaint, Baker had his production manager (Morgan) review the product sales history. Morgan delivered an internal memorandum to Baker indicating that Baker sold 10,000 allegedly infringing sunglasses in the past year for a total revenue of $85,000. The report was marked "Confidential."

a) What information regarding the sales must Baker include in his initial disclosures under Rule 26(a)? (5 points)

b) Under what circumstances would a Court Order Baker to turn over the report to Dent? (10 points)

c) Assuming that the court has issued what Baker believes is an erroneous order forcing Baker to turn-over the report to Dent. Can Baker appeal that order? (5 points)

= = = =

After trial, a jury returns a verdict for Dent and against Baker (finding infringement). Dent then sues Campbell in the same court also alleging patent infringement.

d) Can Dent assert either claim preclusion or issue preclusion in the case against Campbell? (10 points)

= = = =

In the patent case against Campbell, patent infringement must be proven by a preponderance of the evidence. During discovery, Dent's expert provides testimony that Campbell's products infringe the patent while Campbell does not provide any competing evidence of non-infringement. Dent then moves for summary judgment of infringement. In response, Campbell only argues that a jury will find the expert testimony untrustworthy.

e)     Should the court order summary judgment? (15 points)

= = = =

The United States later brings a criminal prosecution against Baker for criminal counterfeit in United States District Court for the Western District of Missouri.

f) Can the US Government assert either claim preclusion or issue preclusion in the case against Baker? (5 points)

= = = =

Assume that Dent lost the lawsuit against Campbell based on a jury finding that Dent's patent was invalid. Thus, there is one case where the patent was enforced (against Baker) and another where the patent was found invalid (against Campbell). Dent then sued Haseltine in Federal Court in the Eastern District of Texas again alleging infringement of the patent.

g)     Can Haseltine rely on either claim preclusion or issue preclusion in the case against Dent? (10 points)

h)     How can we know if the court was correct to send the question of validity to a jury rather than have that question be decided by the judge? (5 points)

= = = =

The patent right is later fully and finally revoked by the US Patent Office. This means that the knock-off versions are actually legal to manufacture and sell in the US. In reaction, Vincent then files a class action lawsuit on behalf of all sellers of knock-off versions of Dent's sunglasses. The complaint alleges unfair competition based upon Dent's assertion of invalid patent rights and demands that the court force Dent to stop all enforcement activity and compensate businesses who suffered under the enforcement strategy. Vincent's information shows that there are more than 1,000 companies that stopped selling knockoffs because of Vincent's enforcement activities even though Baker, Campbell, and Haseltine were the only entities actually sued.

i)     What are the two most likely sections of Rule 23 that would be used to deny class certification in this case? (15 points)

Guest Post: Monopoly Without Apology

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By Shubha Ghosh

Without any surprise, even to those who wrote amici in support of the farmer in Bowman v. Monsanto, the Supreme Court ruled in favor of Monsanto last week. During oral arguments in February, the Court made it clear that it would find against Bowman because he had made an unauthorized copy of Monsanto’s patented seed. Since oral argument, the focus has been on how the Court would rule in favor of Monsanto. The final ruling, while narrow in its language, is a potentially confusing one. In this post, I write about the implications of Bowman for the future.

Towards the end of her opinion for a unanimous court, Justice Kagan states that the ruling applies only to the facts at hand. The Court leaves open how the exhaustion doctrine applies to other self-replicating technologies. As a co-author of an amicus for the American Antitrust Institute on behalf of Bowman, I was relieved to read Justice Kagan’s rejection of the broad exception to the exhaustion doctrine for self-replicating technologies adopted by the Federal Circuit. Such a broad holding would mean that first sale and other applications of exhaustion would have no place in biotechnology or digital technologies. Contrary to the Federal Circuit, and citing treatment of software under copyright, the Court acknowledges that patent rights may not extend to necessary, but incidental copying, or to situations where copying occurs outside the control of the purchaser. Similar limitations may exist for making under patent law in the exhaustion doctrine.

What is more troubling, and somewhat confusing, is the Court’s treatment of making under the patent act. Bowman’s act of infringement was simply the act of planting the seed for another generation. This broad construal of infringement expands the scope of patent infringement to include the sort of incidental infringement that the Court acknowledges as possibly protected by exhaustion. During oral argument, the Court asked Monsanto’s counsel about inadvertent infringement, but there was no engagement. Whether inadvertent or not, it appears from the Court’s decision is that planting by itself is infringement. That conclusion is inconsistent with precedent and with previous cases.

The Court cites its 1962 decision, Wilbur-Ellis Co. v. Kuther, for the proposition that a purchaser cannot make another version of the patented item under the exhaustion doctrine. However, the Court did not mention that Kuther involved a situation in which the purchaser was not found liable for patent infringement. Specifically, the purchaser retrofitted a patented sardine-canning machine so that it could handle larger sizes of cans. Although the patent owner claimed this retrofitting to be an unauthorized reconstruction of the patented machine, the Court held that in adjusting and putting together the unpatented parts the purchaser was engaging in authorized repair.

Bowman argued that by planting the seed, he was harnessing the unpatented reproductive capacity of the seed. The Court dismissed this argument as the “blame the bean defense.” Admittedly, the argument might mean a broad exhaustion doctrine for self-replicating technologies, a conclusion that is equally troubling as the Federal Circuit’s broad exemption from exhaustion for such technologies. But the Court dismissed this argument too quickly. By concluding that planting is by its very nature reconstruction, the Court ignores the unpatented natural processes that are embodied in the act of planting. The use of the unpatented natural processes is discounted completely. In ruling against Bowman, the Court relied on a precedent that in some of its elements favored the purchaser.

The Court also relied on its 1882 decision, Cotton-Tie Company v. Simmons. In this case, the patentee distributed its patented tie for bundles for free with the cotton bales it sold under the express licensing term that the ties be used only once. The defendant collected the used ties and reconstructed them. The Court held that the defendant infringed the patent. The facts of Bowman are similar to that of Simmons. Both bought used versions of the patented product and reused them. But there are key differences. The Court’s finding of infringement in Simmons rested on a clear application of the claims of the patent which covered precisely the reconstruction of the patented ties. In Bowman, however, the Court relies on a dictionary definition of the work make to conclude that since the patented gene was part of the next generation of seeds grown by Bowman, the farmer had made the patented invention. The Court does not consult the language of the claims. Instead the Court concludes that planting is making and, under the Patent Act, any making is an infringement.

But the Bowman Court seems to be confused on when exactly making is infringement. In footnote 3, the Court considers the hypothetical of a farmer buying the patented seeds from Monsanto without an express licensing term that allowed the farmer to plant the seeds. The Court says that in such a scenario, the farmer would have an implied license to plant the seed once. But if planting is infringement, from where does this implied license arise? The Court seems to be saying that the implied license is inherent to the transaction. Why else would a sane farmer buy the seed from Monsanto except to plant?, the Court implicitly asks. The Court, of course, gives an answer to this question when it acknowledges that there are uses of the seed that would be protected from infringement under patent exhaustion: as feed for livestock or even for personal consumption. The Court’s hypothetical raises the question of when the license to plant is implied and when it is not. This confusion raises the question of the legal basis for determining when a planting of a seed is a making of the patented gene.

The Court’s legal basis ultimately rests in policy. It states that its concern is with the unlimited reproduction of the patented gene which would prevent Monsanto from developing a meaningful business model for the distribution of its seed after the first sale. But exhaustion does not remove all remedies for patent owners. Breach of contractual restrictions can give rise to contract remedies, ones that may be less draconian than a patent injunction or treble damages. During oral arguments, the Court characterized this argument as having contract substitute for patent. That is a mischaracterization. Contract remedies can supplement patent remedies, particularly in cases of exhaustion. Contract remedies do not eviscerate a patent, and they do not serve as a poor substitute for a patent. Instead, contract remedies in the case of exhaustion serve to balance the rights of patent owners with those of consumers, business people, and inventors that make use of patented articles. The Court affirmed this notion in footnote 7 of its 2008 Quanta decision, which remains good law after Bowman.

What is the most revealing about the Court’s opinion is its frequent reference to the “patent monopoly.” When I first read that phrase, which appears four times in a ten page opinion, I kept thinking of the bad old days of Justice Douglas, who viewed patents as inherently anti-competitive. The Court in Bowman, however, uses the term of patent monopoly to refer to the patentee’s exclusive rights in the specific patented article that is sold. According to the Court, the monopoly in that particular article is broad and is compromised if unauthorized making is allowed. The Court sees that threat in Bowman. Unfortunately, in reaching its decision the Court based its decision almost exclusively on the interests of the patent monopolist without thorough consideration of its own precedent, the analysis of the underlying unpatented natural processes, and the relationship among planting, making, and implied license. With the patent at issue about to expire, perhaps the impact of the decision is minimal. However, with the next generation of Round Up Ready and genetically modified seed currently under review in the USPTO, the impact of the decision will undoubtedly be felt by the next generation of inventions and users.

Shubha Ghosh is The Vilas Research Fellow & Professor of Law at the University of Wisconsin Law School.

Supreme Court to hear another Case Involving Licensees in Good Standing who Challenge Patent Rights

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By Dennis Crouch

Medtronic Inc. v. Boston Scientific Corp., Docket No. 12-1128 (Supreme Court 2013)

The Supreme Court has granted a writ of certiorari in a license dispute involving giants of the medical device world – Medtronic and Boston Scientific. Medtronic has licensed defibrillator patents owned by Mirowski Family Ventures and now controlled by Boston Scientific as exclusive licensee. U.S. Reissue Patent Nos. RE38,119 and RE39,897. Medtronic’s license gives it the right to challenge the patent in court even while still under license. That right to challenge is also supported by the Supreme Court’s 2007 decision in MedImmune. And, in a 2007 court filing, Medtronic did challenge the license – alleging that its new products did not infringe the patents in question.

Normally, the patentee has the burden of proving infringement. The odd ruling in this case came when the Federal Circuit flipped that normal approach and held instead that the burden shifts to the DJ plaintiff when the case involves a licensee-in-good-standing suing for declaratory judgment of non-infringement. The Supreme Court will now consider whether that burden shift is appropriate – and in all likelihood will reject the Federal Circuit’s decision 9-0.

Medtronic asks the following question:

In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is “not required … to break or terminate its … license agreement before seeking a declaratory judgment in federal court that the underlying patent is … not infringed.”

The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.

One question that the court needs to answer is whether its rules regarding licensee standing and burdens are hard-and-fast or instead whether they should be treated as default rules that can be altered by contracting parties.

Hal Wegner of Foley writes that the case will be briefed over the summer and heard early in the October 2013 Term.

Patent

Alexsam, Inc. v. Best Buy, Barnes & Noble, Gap, JC Penney, McDonalds, et al.(E.D. Tex. 2013)

Alexsam has asserted its gift-card patents against a host of accused infringers. U.S. Patent Nos. 6,000,608 and 6,189,787. These patents have been the subject of multiple reexamination requests but the USPTO has repeatedly confirmed patentability and refused to re-re-examine. Here again a jury has confirmed that the patent is valid. In the case against the defendants here, the court held a single trial for validity and will next hold separate trials on infringement for each accused infringer. Meanwhile, Best Buy settled after losing on validity.

The company Alexam was founded by the inventor Robert Dorf who filed for patent protection back in 1997. Asserted Claim 1 of the ‘787 patent reads as follows:

1. A multifunction card system, comprising:

a. at least one electronic gift certificate card having a unique identification number encoded on it, said identification number comprising a bank identification number approved by the American Banking Association for use in a banking network, said identification number corresponding to said multifunction card system;

b. a bank processing hub computer under bank hub software control and in communication over a banking network with a pre-existing standard retail point-of-sale device, said bank processing hub computer receiving electronic gift certificate card activation data when said electronic gift certificate card is swiped through said point-of-sale device, said electronic gift certificate card activation data comprising said unique identification number of said electronic gift certificate card and an electronic gift certificate activation amount; and

c. a gift certificate card computer under gift certificate card software control and in communication with said bank processing hub for activating a gift certificate card account in a gift certificate card database corresponding to said electronic gift certificate card, said gift certificate card account comprising balance data representative of an electronic gift certificate activation amount.

After Final Consideration Pilot 2.0

Patent,

From the PTO:

Using information gathered from the After Final Consideration Pilot (AFCP), as well as input from stakeholders and examiners obtained through the RCE outreach initiative, the USPTO will launch the After Final Consideration Pilot 2.0 (AFCP 2.0) on May 19, 2013. Designed to be more efficient and effective than the AFCP, AFCP 2.0 will be part of the USPTO’s on-going efforts towards compact prosecution and increased collaboration between examiners and stakeholders.

“Compact prosecution remains one of our top goals,” said Teresa Stanek Rea, Acting Under Secretary of Commerce for Intellectual Property and Acting Director of the USPTO. “As with the original AFCP pilot, the new AFCP 2.0 pilot allows additional flexibility for applicants and examiners to work together and provides even greater opportunity for communication after final than the original pilot.”

Like AFCP, AFCP 2.0 authorizes additional time for examiners to search and/or consider responses after final rejection. Under AFCP 2.0, examiners will also use the additional time to schedule and conduct an interview to discuss the results of their search and/or consideration with you, if your response does not place the application in condition for allowance. In this way, you will benefit from the additional search and consideration afforded by the pilot, even when the results do not lead to allowance.

In addition, the procedure for obtaining consideration under AFCP 2.0 has been revised. The revised procedure focuses the pilot on review of proposed claim amendments and allows the USPTO to better evaluate the pilot.

To be eligible for consideration under AFCP 2.0, you must file a response under 37 CFR §1.116, which includes a request for consideration under the pilot and an amendment to at least one independent claim that does not broaden the scope of the independent claim in any aspect. Please see the notice published in the Federal Register at 78 Fed. Reg. 29117 for a complete description of how to request consideration under AFCP 2.0. As was the case with the AFCP, examiners will continue to use their professional judgment to decide whether the response can be fully considered under AFCP 2.0. This will include determining whether any additional search is required and can be completed within the allotted time, in order to determine whether the application can be allowed.

As always, the option to request an interview with the examiner, consistent with MPEP 713, is available to you irrespective of whether the submission was considered under AFCP 2.0.

If you are considering filing a response to a final rejection under 37 CFR 1.116 that you believe will lead to allowance of your application with only limited further searching and/or consideration by the examiner, you should consider requesting consideration of the response under AFCP 2.0.

AFCP 2.0 is scheduled to run through September 30, 2013, i.e., any request to consider a response after final rejection under AFCP 2.0 must be filed on or after May 19, 2013, and on or before September 30, 2013. AFCP, which began on March 25, 2012, will terminate on May 18, 2013.

Supreme Court Looks More Closely at Reviewing Therasense

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By Dennis Crouch

Sony Computer v. 1st Media LLC, Docket No 12-1086 (on petition for writ of certiorari 2013)

In a recent order, the Supreme Court has asked the Solicitor General to file a brief in this expressing the views of the United States in this pending inequitable conduct case. (CVSG). The case is essentially a challenge of the Federal Circuit’s en banc decision in Therasense that strongly cabined-in the doctrine of inequitable conduct. In this case, the Federal Circuit rejected a district court holding of inequitable conduct in a failure-to-submit case. According to the lower court, three references used to reject the equivalent foreign cases were never submitted for consideration by the US examiners. Nevada district court Judge Mahan found that both the patent attorney and the listed inventor were at fault for failing to submit the references and consequently held the patent unenforceable due to inequitable conduct.

On appeal, the Federal Circuit reversed – making clear (again) that in a failure-to-disclose situation, the defendant must prove that individuals with a Rule 56 duty “made a deliberate decision to withhold” the references. Further, that deliberate decision element must be proven with clear and convincing evidence and that proof of intent cannot be inferred merely from the fact that the individuals had knowledge of the references and their materiality. The Federal Circuit wrote:

A court can no longer infer intent to deceive from non-disclosure of a reference solely because that reference was known and material. Moreover, a patentee need not offer any good faith explanation for his conduct unless and until an accused infringer has met his burden to prove an intent to deceive by clear and convincing evidence. . . . Moreover, it is not enough to argue carelessness, lack of attention, poor docketing or cross-referencing, or anything else that might be considered negligent or even grossly negligent. To sustain a charge of inequitable conduct, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference. Whatever one might conclude about Lewis’s and Sawyer’s conduct and interactions relating to the Bush reference, and the nature of Sawyer’s practice at the relevant time, the record does not support the inference that Lewis and Sawyer deliberately chose to withhold Bush.

Because one element of the inequitable conduct charge is missing, the court concluded that the charge cannot be proven. Of course, “carelessness, lack of attention, [or] poor docketing” will still lead to malpractice claims.

In the petition for writ of certiorari, the accused infringer asks the following question:

Did the Court of Appeals for the Federal Circuit err in restricting district courts’ equitable discretion in evaluating patent unenforceability, contrary to this Court’s precedent in Keystone Driller, Hazel-Atlas, and Precision Instrument, by applying a rigid test that (a) forecloses district courts from considering the entire circumstantial record; and (b) precludes district courts from granting equitable remedies where a patent applicant has violated the PTO’s duty of candor.

In Therasense, the Federal Circuit added some flexibility to its analysis in cases involving sufficiently egregious misconduct. Sony responds that the limited carve-out “is flawed because it creates a rigid threshold [of an egregious affirmative act of misconduct] as a prerequisite to the equitable discretion called for by this Court’s precedent. The flexibility embodied in this Court’s precedent should apply in all cases, not just those involving affirmative egregious misconduct.”

Supreme Court has a history of hearing fraud cases and this CVSG adds to the likelihood that it will hear this case.

Expanding Post-Grant Business Method Reviews: S. 866

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By Dennis Crouch

Senator Chuck Schumer has proposed a short bill entitled the “Patent Quality Improvement Act of 2013.” S. 866. The purpose of the bill is to expand the scope of the transitional covered business method review. First, the S. 866 would eliminate the sunset provision of the bill making it permanent rather than transitional in nature. Second, the bill would expand the scope of covered business methods by eliminating the “financial product or service” limitation. This expansion should be seen as the next step toward expanding post-grant review to cover all patents throughout their lifespan.

Background: The American Invents Act created several new mechanisms for challenging patents through the Patent Trial and Appeal Board (PTAB). One of the most powerful of these is the new post-grant review (PGR) proceeding that allows patent challenges on any validity ground, including issues arising from 35 U.S.C. §§ 101, 102, 103 or 112.. However PGR is only available for first-to-file patents (i.e., patents relating to applications filed since March 16, 2013) and a PGR request must be filed within nine-months of the patent issuance. In addition to PGR, the AIA provides a special provision to allow expanded challenges of certain business method patents covered by the statutory definition. As with PGR, the covered business method review allows challenges for any validity ground. Although covered business method reviews are not limited by the timing requirement the statute does provide a set of important limitations.

Under the AIA:

  • Covered business methods are limited to those used in delivering “a financial product or service” and not be for a “technological invention.” The PTO rules provide that a “technological invention” is one that “recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution.”
  • The Petitioner must either have been sued by the patentee or have Article III declaratory judgment standing in order to file the petition.
  • The transitional provisions are set to sunset after eight years.

The Patent Quality Improvement Act would expand the scope of Covered Business Methods in two manners: (1) by eliminating the sunset provision and (2) by eliminating limitation that covered business methods be directed toward a “financial product or service.” The new definition would read as follows:

IN GENERAL- For purposes of this section, the term ‘covered business method patent’ means a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or an enterprise, product, or service, except that the term does not include patents for technological inventions.

If bill passes, the PTO would then have the opportunity to provide its definitions for the terms used here. At its broadest, the provision would make-available business-method reviews for new any patent that includes at least one claim that itself does not include a “technological invention.” If that is the purpose, we should wholly rewrite the provision to make it clear and straightforward: “IN GENERAL – For purposes of this section, the term ‘covered business method patent’ means a patent that includes a claim that is not directed to a technical invention.”

The Current USPTO Fees for filing a covered business method review is $30,000. However, since these claims are all associated with actual disputes that fee does not likely represent the most significant barrier to filing. In the nine-months since CBM reviews became available, petitions have filed a total of 25 reviews against a total of 18 patents.