All posts by Jason Rantanen

About Jason Rantanen

Jason is a Law Professor at the University of Iowa College of Law.

Guest Post on Patent Eligibility and Investment: A Survey

Guest Post by David O. Taylor, Associate Professor of Law at SMU Dedman School of Law. Professor Taylor recently drafted an article summarizing the results of a survey of venture capitalists and private equity investors. The survey explores how the Supreme Court’s recent patent eligibility cases have influenced firm decisions to invest in companies developing technology. -Jason

Numerous inventors, lawyers, companies, industry groups, professors, and judges have decried the Supreme Court’s recent patent eligibility cases—particularly its 2012 decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. and its 2014 decision in Alice Corp. v. CLS Bank International. These cases replaced the longstanding patent eligibility standard with a new one requiring, in particular, a so-called “inventive concept.”

Building upon judges’ views that they are bound by the Supreme Court’s new standard and their concerns that that standard is having devastating consequences, the American Intellectual Property Law Association and the Intellectual Property Owners Association believe the situation is so untenable that they have proposed that Congress overturn that standard.

Others, however, disagree. They effectively ask: To what extent have the Court’s cases shifting eligibility law actually impacted decisions to invest in the development of technology? Moreover, exactly how have these cases actually impacted investment decisions? And to the extent these cases have had a significant impact on investment decisions, has that impact proven to be positive or negative in the sense of increased or decreased investment?

Existing literature provides surprisingly little data even to begin to answer these questions. And, make no mistake, these questions are fundamental, and the accuracy of their answers is important. Answers to these questions will either support congressional intervention in the law of patent eligibility or counsel against it. Thus, the questions ought to be asked and—more importantly—answered by reference to hard data rather than gut feeling or prognostication. Quite literally, future innovation—perhaps even lifesaving innovation—hangs in the balance.

And so that is exactly what I have done: gathered data to help begin identifying accurate answers to these questions. In particular, I have conducted a survey of 475 venture capital and private equity investors to study the impact of the Court’s eligibility cases on their firms’ decisions to invest in companies developing technology. This survey is the first of its kind, and the data it has provided is sorely needed.

In an article summarizing my findings, I present detailed results of the survey and identify and consider four principal findings.

First, the investors who responded to the survey overwhelmingly believe patent eligibility is an important consideration when their firms decide whether to invest in companies developing technology. Indeed, overall 74% of the investors agreed that patent eligibility is an important consideration in firm decisions whether to invest in companies developing technology; only 14% disagreed. Likewise, investors reported that reduced patent eligibility for a technology makes it less likely that their firm will invest in companies developing that technology. For example, overall 62% of the investors agreed that their firms were less likely to invest in a company developing technology if patent eligibility makes patents unavailable, while only 20% disagreed. These results, while perhaps not surprising, nonetheless confirm one of the central premises upon which the patent system rests: that patents help to spur investment in development of technology.

Second, reduced patent eligibility correlates with particular investment behaviors in particular industries. Investors overwhelmingly indicated, for example, that the elimination of patents would either not impact their firm’s decisions whether to invest in companies or only slightly decrease investments in companies developing technology in the construction (89%), software and Internet (80%), transportation (84%), energy (79%), and computer and electronic hardware (72%) industries. But investors, by contrast, overwhelmingly indicated that the elimination of patents would either somewhat decrease or strongly decrease their firm’s investments in the biotechnology (77%), medical device (79%), and pharmaceutical industries (73%). Thus, according to these investors, on average each industry would see reduced investment, but the impact on particular industries would be different. And the life sciences industries would be the ones most negatively affected.

Third, the Supreme Court’s eligibility cases have impacted many firms’ investments and, more significantly going forward, their firm’s investment behaviors. Almost 40% of the investors who knew about at least one of the Court’s eligibility cases indicated that the Court’s decisions had somewhat negative or very negative effects on their firm’s existing investments, while only about 15% of these investors reported somewhat positive or very positive effects. On a going forward basis, moreover, almost 33% of the investors who knew about at least one of the Court’s eligibility cases indicated that these cases affected their firms’ decisions whether to invest in companies developing technology. These investors reported primarily decreased investments, but also shifting of investments between industries. In particular they identified shifting of investments out of the biotechnology, medical device, pharmaceutical, and software and Internet industries. Again, the life sciences industries represent the most negatively affected of all industries.

Fourth, investors familiar with the Supreme Court’s eligibility cases indicated different changes in firm investment behavior as compared to investors without this familiarity. As discussed above, about 33% of investors with this familiarity reported that these cases impacted their firms’ investment behavior, with these investors reporting shifting of investments away from the software and Internet industry along with the biotechnology, medical device, and pharmaceutical industries. Investors without familiarity with these cases, by contrast, overwhelmingly reported that decreased availability of patents since 2009 (prior to the Supreme Court’s eligibility cases) has not impacted their firms’ changes in investment behavior. Indeed, a full 95% indicated no impact on any change in their firm’s investments. Moreover, investors without familiarity with these cases indicated more often, as compared to investors with familiarity, that their firms have shifted investments into the software and Internet industries as compared to all other industries. In short, eligibility knowledgeable investors report the Supreme Court’s cases have resulted in reduced investment in software and the Internet, while unknowledgeable investors report increased investment in software and the Internet over the same time period. As investor’s transition from non-knowledgeable to knowledgeable (once they learn about the Court’s cases and their impact on patent eligibility), investment in software and the Internet will seemingly decrease. Thus, the life sciences industries are by no means the only industries impacted by the Court’s cases.

The results of the survey provide critical data for an evidence-based evaluation of competing arguments in the ongoing debate about the need for congressional intervention in the law of patent eligibility. Proponents of reform will no doubt tout the results of the survey as representing a clarion call for reform. The best that can be said by those that prefer the status quo is that most investors do not report changing their investment decisionmaking based upon the Supreme Court’s eligibility decisions. A significant part of this group of investors, however, represents those uninformed about the Court’s cases.

The reality is that the results of the survey highlight the importance of patent eligibility and the negative impact of the Supreme Court’s eligibility cases generally on investment, but particularly in the most important areas of technological development in terms of its impact on public health: the biotechnology, medical device, and pharmaceutical industries—the life sciences industries. That said, it is important to highlight that the results show the Court’s decisions have negatively impacted each and every area of technological development studied.

As a consequence, the results do support the idea that the time has come for Congress to at least consider overturning the Supreme Court’s new eligibility standard to prevent additional lost investment in technological development in the United States. Indeed, given the results of the survey, it seems likely that the Supreme Court’s eligibility decisions have resulted in lost investment in the life sciences that has delayed or altogether prevented the development of medicines and medical procedures.

Research funding disclosure: I prepared this Article supported by grants from Microsoft Corporation, the Tsai Center for Law, Science and Innovation, and the Clark J. Matthews, II Faculty Research Endowment Fund.

New PatentlyO Law Journal article: Colleen Chien, Deferring Patentable Subject Matter

This past fall at the Administering Patent Law symposium at Iowa Law, Professor Colleen Chien presented an argument in favor of more intentional experimentation by administrative  agencies such, as the USPTO to test policy concepts and proposed several possibilities.  Below, Professor Chien describes one such project, based on the Merges/Crouch proposal for deferring patentable subject matter analyses in prosecution.  Read the accompanying PatentlyO Law Journal article here:

Colleen V. Chien, Piloting Applicant-Initiated 101 Deferral Through A Randomized Controlled Trial, 2019 Patently-O Patent Law Journal 1. (2019.Chien.DeferringPSM)

Guest post by Colleen V. Chien, Justin D’Atri Visiting Professor of Business Law, Columbia University School of Law; Professor, Santa Clara University Law School

This post is the second in a series about insights developed based on USPTO data. An accompanying PatentlyO Patent Law Journal article includes additional data and experimental design details; both are drawn from Policy Pilots: Experimentation in the Administration of the Law,  written for the 2018 Iowa Law Review Symposium on the Administrative State.

“The journey of a thousand miles begins with a single step.” – Lao Tzu

Responding to frustration with the Supreme Court’s patentable subject matter (PSM) decisions, the Federal Circuit has issued clarifying decisions, the USPTO has released new guidance regarding applying Section 101 (and 112), and Senators Coons and Tillis have been holding roundtables. 101 appeals and rejections, including pre-abandonment rejections, have risen following Alice and Mayo, particularly within impacted technology areas. (Figs 1A and 1B, details here and here). To support tracking the impact of its own guidance and related developments, the USPTO should release updated versions of office action data (the last release was in 2017).

In this post, I propose a complementary approach that aims to conserve agency and applicant resources even while policymakers work to clarify the law. It builds on the idea of deferring 101 subject matter until other issues are exhausted first proposed by Robert Merges and Dennis Crouch, but with some important modifications. Deferral would be at applicant’s option, not mandatory, and the USPTO should roll out this intervention through a controlled trial with randomization, as the agency has done previously, to determine the practice’s effectiveness.

Experimenting with Ordering

The case for deferring subject matter builds on the insight that 101 is rarely the single dispositive issue – among office actions prior to abandonment, less than 15% of TC36BM and medical diagnostic applications and 2% applications overall are “only 101.”  Yet 101 is controversial – the rate of ex parte decisions addressing 101 has also shot up, from less than 10% to over 80% in 2018 in medical diagnostic and software technology areas, and to 26% overall. (Fig 1B)[1]

Deferring 101 would borrow from the Supreme Court doctrine of avoidance, which allows the Court to “resolve[] cases on non-constitutional  grounds whenever possible,” in order to conserve court resources and legitimacy. Other federal agencies have also used deferral, for example, in the mid to late 2000s, when the application of immigration law to same-sex couples in some cases required family separation. To avoid this harsh consequence, Department of Homeland Security prosecutors administratively closed some cases, immigration judges granted continuances for unusually long periods in hopes that the law would change, and US Customs and Immigration enforcement officials granted requests for deferred action. That is to say, they avoided the law by deferring its application.

Avoiding PSM issues would allow cases to resolve, through allowance or abandonment, on less controversial, non-101 grounds.[2]  (The USPTO’s new guidelines implement this logic to a degree, shifting focus towards 112 and away from 101). But making 101 deferral optional, at applicant’s discretion, would preserve the benefits of compact prosecution and the freedom applicants enjoy to select a fast or slow track for each application.

The Advantages of Experimentation

Trying out applicant-initiated 101 deferral through a rigorous pilot has several advantages. First, unlike changing the law or its application which requires all to adjust, only applicants dissatisfied with the status quo would see a change. 85% of office actions don’t even include a PSM rejection I’ve found previously.

Second, implementing 101 deferral as a pilot with randomization, like the USPTO did when it conducted the post-trademark registration proof-of-use pilot, will support effective policy-making through evaluation, iteration, and refinement.[3] Design (intent-to-treat), ethical (through consent) and methodological (power, randomization, etc.) concerns and details are discussed in the accompanying piece.Rigorously tracking the impact of PSM on patent prosecution over the course of a pilot can also provide much-needed empirical support to 101 policy-making in general.

Finally, my proposal preserves the benefits of the status quo, including the little-discussed incentive prosecutors now have to add details to their patent applications and claims, a good thing. In work with students that I presented at the Federal Trade Commission’s recent hearings building on an earlier analysis in IP Watchdog by Will Gvoth, Rocky Bernsden, and Peter Glaser from Harrity & Harrity LLP, I observed that there has been a “flight to quality” among patent complaints and applications. Carrying out a differences-in-differences analysis, we found that specification length and counts of words and unique words in the first claim have grown among software applications relative to others following the Alice decision. Deferring 101 would preserve this previously unexplored impact of the “Mayo-Alice effect” on software patent drafting. If 101 were eviscerated by Congress, so too could the incentive to be more concrete in describing and claiming inventions.

Conclusion

If successful, the treatment would result in the diminished presence of 101 subject matter issues within ex parte appeals and pre abandonment rejections and, potentially, resolution time, e.g. closer to pre-Mayo or Alice levels. Applicant and prosecutor satisfaction with the process, changes made to what gets filed, timelines, and such factors would also be worth tracking.

Read it here:  Colleen V. Chien, Piloting Applicant-Initiated 101 Deferral Through A Randomized Controlled Trial, 2019 Patently-O Patent Law Journal 1. (2019.Chien.DeferringPSM)

With thanks to Santa Clara Law University students Jiu-Ying Wu, Nicholas Halkowski, Marvin Mercado, and Saumya Sinha and to William Gvoth, Peter Glaser, and Rocky Bernsden of Harrity LLP for assistance with data, and Hans Sauer and Jonathan Probell for their comments on earlier drafts.

[1] Even though 101 patentable subject matter issues appear in a quarter of 2018 appeals decisions, this share is still small compared to the share of decisions that mention, for example, “102” (, “103”, or “112” issues though note that these numbers are inflated because they do not include case specific limitations that can weed out false positives based on incidental mentions (such as “ 10/282102”)

[2]  For example, if an invention is incurably anticipated, obvious or unsupported, the case will have been resolved without considering subject matter. Likewise, if the claims have been re-formulated responsive to non-101 rejections and mooted any subject matter defects in the process, PSM will not factor into the application’s outcome.

[3] In that pilot, the USPTO randomly selected 500 registrations to participate in the initial program to assess the accuracy and integrity of the trademark register. Though companies selected to participate in the pilot had to comply with additional regulatory requirements, randomization ensured that the pilot’s findings were representative and its burdens, fairly distributed. See,  77 FR 30197, 30198 (explaining that randomness in the pilot was necessary to “ensure that the resulting assessment is not skewed by consideration of registrations with particular criteria, and that implementation of the rules does not create an unfair burden on specific types of trademark owners”). The results of the test and related USPTO reports, outreach and deliberations were used to expand and make the program permanent.

Prior Patently-O Patent L.J. Articles:
  • David A. Boundy, Agency Bad Guidance Practices at the Patent and Trademark Office: a Billion Dollar Problem, 2018 Patently-O Patent Law Journal 20. (Boundy.2018.BadGuidance)
  • Colleen Chien and Jiun-Ying Wu, Decoding Patentable Subject Matter, 2018 PatentlyO Patent Law Journal 1.
  • Paul M. Janicke, Patent Venue: Half Christmas Pie, And Half Crow, 2017 Patently-O Patent Law Journal 13. (Janicke.2017.ChristmasPie.pdf)
  • Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1 (2017) (Janicke.2017.Venue)
  • Mark A. Lemley, Erik Oliver, Kent Richardson, James Yoon, & Michael Costa, Patent Purchases and Litigation Outcomes, 2016 Patently-O Patent Law Journal 15 (Lemley.2016.PatentMarket)
  • Bernard Chao and Amy Mapes, An Early Look at Mayo’s Impact on Personalized Medicine, 2016 Patently-O Patent Law Journal 10 (Chao.2016.PersonalizedMedicine)
  • James E. Daily, An Empirical Analysis of Some Proponents and Opponents of Patent Reform, 2016 Patently-O Patent Law Journal 1. (Daily.2016.Professors)
  • Tristan Gray–Le Coz and Charles Duan, Apply It to the USPTO: Review of the Implementation of Alice v. CLS Bank in Patent Examination, 2014 Patently-O Patent Law Journal 1. (GrayLeCozDuan)
  • Robert L. Stoll, Maintaining Post-Grant Review Estoppel in the America Invents Act: A Call for Legislative Restraint, 2012 Patently-O Patent Law Journal 1 (Stoll.2012.estoppel.pdf)
  • Paul Morgan, The Ambiguity in Section 102(a)(1) of the Leahy-Smith America Invents Act, 2011 Patently-O Patent Law Journal 29.  (Morgan.2011.AIAAmbiguities)
  • Joshua D. Sarnoff, Derivation and Prior Art Problems with the New Patent Act, 2011 Patently-O Patent Law Journal 12 (sarnoff.2011.derivation.pdf)
  • Bernard Chao, Not So Confidential: A Call for Restraint in Sealing Court Records, 2011 Patently-O Patent Patent Law Journal 6 (chao.sealedrecords.pdf)
  • Benjamin Levi and Rodney R. Sweetland, The Federal Trade Commission’s (FTC) Recommendations to the International Trade Commission (ITC):  Unsound, Unmeasured, and Unauthoritative, 2011 Patently-O Patent Law Journal 1 (levi.ftcunsound.pdf)
  • Kevin Emerson Collins, An Initial Comment on King Pharmaceuticals: The Printed Matter Doctrine as a Structural Doctrine and Its Implications for Prometheus Laboratories, 2010 Patently-O Patent Law Journal 111 (Collins.KingPharma.pdf)
  • Robert A. Matthews, Jr., When Multiple Plaintiffs/Relators Sue for the Same Act of Patent False Marking, 2010 Patently-O Patent Law Journal 95 (matthews.falsemarking.pdf)
  • Kristen Osenga, The Patent Office’s Fast Track Will Not Take Us in the Right Direction, 2010 Patently-O Patent L.J. 89 (Osenga.pdf)
  • Peter S. Menell,  The International Trade Commission’s Section 337 Authority, 2010 Patently-O Patent L.J. 79
  • Donald S. Chisum, Written Description of the Invention: Ariad (2010) and the Overlooked Invention Priority Principle, 2010 Patently‐O Patent L.J. 72
  • Kevin Collins, An Initial Comment on Ariad: Written Description and the Baseline of Patent Protection for After-Arising Technology, 2010 Patently-O Patent L.J. 24
  • Etan Chatlynne, Investigating Patent Law’s Presumption of Validity—An Empirical Analysis, 2010 Patently-O Patent L.J. 37
  • Michael Kasdan and Joseph Casino, Federal Courts Closely Scrutinizing and Slashing Patent Damage Awards, 2010 Patently-O Patent L.J. 24 (Kasdan.Casino.Damages)
  • Dennis Crouch, Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent L.J. 19 (2010)
  • Edward Reines and Nathan Greenblatt, Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II, 2010 Patently‐O Patent L.J. 7  (2010) (Reines.2010)
  • Gregory P. Landis & Loria B. Yeadon, Selecting the Next Nominee for the Federal Circuit: Patently Obvious to Consider Diversity, 2010 Patently-O Patent L.J. 1 (2010) (Nominee Diversity)
  • Paul Cole, Patentability of Computer Software As Such, 2008 Patently-O Patent L.J. 1. (Cole.pdf)
  • John F. Duffy, The Death of Google’s Patents, 2008 Patently O-Pat. L.J. ___ (googlepatents101.pdf)
  • Mark R. Patterson, Reestablishing the Doctrine of Patent Exhaustion, 2007 Patently-O Patent L.J. 38
  • Arti K. Rai, The GSK Case: An Administrative Perspective, 2007 Patently-O Patent L.J. 36
  • Joshua D. Sarnoff, BIO v. DC and the New Need to Eliminate Federal Patent Law Preemption of State and Local Price and Product Regulation, 2007 Patently-O Patent L.J. 30 (Download Sarnoff.BIO.pdf)
  • John F. Duffy, Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Patent L.J. 21. (Duffy.BPAI.pdf)
  • Joseph Casino and Michael Kasdan, In re Seagate Technology: Willfulness and Waiver, a Summary and a Proposal, 2007 Patently-O Patent L.J. 1 (Casino-Seagate)

Guest Post by Profs. Frakes and Wasserman: Irrational Ignorance at the Patent Office

By: Michael D. Frakes, Duke University School of Law and Melissa F. Wasserman, The University of Texas School of Law

The Patent Office, which processes over half-a-million patent applications a year, routinely faces budgetary shortfalls, high patent examiner turnover, and a crushing backlog of patent applications.  Given this challenging environment, it is not surprising that the patent examination process generates some degree of error, including errors that culminate in the issuance of a significant number of invalid patents.  Given that invalid patents impose substantial harms on society, the question is what should we do about them?

At first glance, the solution seems straightforward:   the Patent Office needs to do more to ensure it awards patents only to those inventions that deserve them.  A seemingly promising start is to give patent examiners more time to evaluate applications.  On average, a U.S. patent examiner spends only nineteen hours reviewing an application, including reading the application, searching for prior art, comparing the prior art with the application, writing a rejection, responding to the patent applicant’s arguments, and often conducting an interview with the applicant’s attorney.  If examiners are not given enough time to evaluate applications, they may not be able to reject applications by identifying and articulating justifications with appropriate underlying legal validity.  Offering validation for these concerns, our prior empirical work tested the extent to which patent examiner time allocations are causing examiners to grant invalid patents and found that examiners were indeed allowing patents of dubious quality because they are not given sufficient time.

Even in the face of this compelling evidence, however, it is not immediately clear that the solution to the patent quality crisis is to give patent examiners more time.  While increasing examiner time allocations will decrease the number of invalid patents issued by the Patent Office, it is possible that the Patent Office is, as Mark Lemley famously wrote, “rationally ignorant.”  That is, it may be rational for the Patent Office not to screen patent applications too rigorously because there is another institutional player that could weed out bad patents:  the courts.  More specifically, Lemley argued that because so few patents are litigated or licensed, it is better to rely upon litigation to make detailed validity determinations in those rare instances rather than increasing the resources to the Patent Office to provide more thorough review of all patent applications.  Lemley supports his thesis with a cost-benefit analysis wherein he concludes that the costs associated with doubling the Patent Office’s hours to review patent applications outweighs the benefits gained by the resulting decrease in the number of invalid patents the Patent Office would issue.  Although some of the numbers in his analysis reflect hard data, the dearth of empirical evidence available to the time forced him to make several critical assumptions, including assuming (rather than estimating) how many fewer patents the Patent Office would issue if examiner time allocations were doubled.

Although it has been over fifteen years since Professor Lemley wrote his influential and widely-cited article, the debate on how to best rid ourselves of bad patents continues to rage on.   In 2011, Congress enacted the most comprehensive reform bill to the patent system in decades, and arguably favored the ex-post approach by creating a new adjudicatory tribunal at the Patent Office wherein third parties can challenge the validity of issued patents.  In 2016, for the first time in forty years, the Patent Office began a comprehensive reevaluation of examiner time allocations, arguably favoring an ex-ante approach.

The time is ripe to revisit whether the Patent Office is, in fact, “rationally ignorant.”   Should we increase the resources at the Patent Office in an effort to increase the quality of issued patents or should we forego those marginal investments and reserve a larger residual role for the courts?  Our Article, begins to answer this question by employing new and rich sources of data along with sophisticated empirical techniques to form novel empirically driven estimates of the relationships that Lemley was forced to guess in his own analysis.

Armed with these new estimates, our Article demonstrates that the savings in future litigation costs and prosecution expenses associated with giving examiners additional time per application outweighs the costs of increasing examiner time allocations.  More specifically, we estimate that doubling examiner time allocations would cost the Patent Office approximately $660 million dollars in additional personnel expenses.  We also estimate that doubling the amount of hours allocated to review applications would result in $301 million in savings in prosecution expenses to the patent applicant driven by decreased rounds of review at the Patent Office.  Finally, we estimate federal litigation-related savings of $491 million and PTAB litigation savings of $112 million.   Though the $660 million increase in costs is significant, this amount is still exceeded by the $904 million that may be saved annually in (i) expenses covering litigation in federal court, (ii) PTAB-related legal expenses and (iii) potential savings in prosecution costs.  The efficiency gains from marginal investments at the Patent Office are even greater when considering a range of additional harms that may ensue from the issuance of invalid patents by the Agency, such as diminishing cumulative innovation, dead-weight loss, etc.  Thus, we conclude the opposite of Lemley:  society would be better off investing more resources in the Agency to improve patent quality than relying upon ex-post litigation to weed out invalid patents.  Given its current level of resources, the Patent Office is not being “rationally ignorant” but, instead, irrationally ignorant.

The current draft of our article is available on SSRN here. It’s forthcoming in the Vanderbilt Law Review in 2019, so there’s plenty of time for us to incorporate any comments you may have.

Guest Post by Prof. Yelderman: Which Kinds of Printed Publications Invalidate Patents in Court?

Stephen Yelderman is a Professor of Law at the University of Notre Dame Law School.

Continuing our study of prior art in the district court, in this post we’ll take a closer look at printed publications. As I discussed in my original post, around 13% of anticipation invalidations and 34% of obviousness invalidations rely on art in this category. (The numbers may be a touch higher than that, as a result of invalidations for which we could not determine the prior art supporting the court’s conclusion). For more background on this project, you can find the full paper here.

The potential sweep of this prior art category is breathtaking. By the terms of the statute—both before and after the America Invents Act—a printed publication found anywhere in the world can qualify as prior art. Moreover, under Federal Circuit precedent, this category includes a number of things that would seem to stretch the colloquial meaning of “publication.” For example, a single copy of a doctoral thesis stored in a university library, a drawing available only by travelling to another country’s patent office, and a posterboard displayed for several days at a conference have all been held to constitute “printed publications.” In dicta, the Federal Circuit has even suggested that a transient display of slides, or a billboard (!?) could, on certain facts, count as a printed publication.

When I teach patent law, our discussion of the printed publications category tends to dwell on these extreme possibilities. But how often do these non-traditional publications actually invalidate patents in practice?

To get a handle on this question, we further classified printed publication prior art into several sub-categories:

This chart illustrates the percentage of invalidations relying on printed publications in each sub-category, as a share of invalidations relying on printed publications at all. Encouragingly, the majority of invalidations based on printed publications relied on traditional reference publications. Just over half of anticipating publications were categorized as regularly published books and journals. Among obviousness invalidations citing a printed publication, 68% cited at least one regularly published book or journal. (The percentages of obviousness invalidations sum to more than 100% because of invalidations citing publications in multiple sub-categories.)  Though some of these regularly published books and journals may have come from obscure outlets, they are at least the kind of documents that a library might collect and an interested researcher might access.

The next sub-category—catalogs, manuals, and brochures—consists of documents distributed to teach the public about the features or availability of a product. This category is conceptually interesting for two reasons. First, though catalogs and manuals are typically mass-produced and widely disseminated, they are not usually collected in research libraries. By their nature, many publications in this category are intended to be transient. These characteristics suggest that publications in this sub-category would likely be much more difficult for a hypothetical prior art searcher to find than a regularly published book or journal.

The second reason that the catalog, manuals, and brochures category is conceptually interesting is that these documents are often evidence of a different kind of prior art entirely—that is, prior uses and sales. In fact, in a few cases we found it unclear whether a product manual was coming in as a distinct prior art reference, or as evidence about the features present in a prior sale. The fact that district courts sometimes rely on publications in this category suggests that activity prior art may be even more important than our top-level analysis suggested.

That said, catalog, manuals, and brochures were fairly insignificant in the larger scheme of things. About a quarter of anticipating printed publications fell into this sub-category. But since only 13% of anticipation events cited a printed publication, that means only about 3% of anticipation events overall relied on a catalog, manual, or brochure. Likewise, though 15% of obviousness events citing a printed publication relied on a catalog, manual, or brochure, that comes out to only about 5% of obviousness events overall. So whether one conceives of these cases as invalidity by prior sale or invalidity by printed publication, the high-level picture of prior art does not change very much.

The next sub-category—“other”—includes all identifiable printed publications not falling into the other two sub-categories. For example, we found patents that had been invalidated by poster board displays, industry whitepapers, proposals circulated at working group meetings of technical standards bodies, doctoral dissertations, and postings on Internet discussion forums. (We did not, for the record, find any cases of patents invalidated by billboards.) The good news was that reliance on potentially obscure or idiosyncratic documents like these appeared to be rare. About 19% of anticipating printed publications fell into this sub-category, amounting to just about 2% of anticipation events overall. A little more than a quarter of obviousness invalidations citing a printed publication included one in the “other” category. These constituted about 9% of obviousness invalidations overall.

There were, however, some publications that defied further classification—usually because sealed court records prevented us from finding more than a shorthand reference to the relevant document. For anticipation, this was rare enough that it could not change our results very much. But this happened frequently enough in cases of obviousness that we must acknowledge some potential uncertainty. If all of the unidentifiable publications turned out to be non-traditional publications, it’s possible that up to 16% of obviousness invalidations may have relied on a publication in the “other” category.

Finally, it’s important to remember that this data only tells us how district courts invalidate patents—not how many or why patents might be invalid in general. It is possible that cases involving non-traditional publications are more likely to settle than other cases, or, for that matter, that they’re less likely to settle. There is a significant possibility of selection effects here, which prevents us from making any inferences about patent quality overall. So, in the end, I’ll have to keep teaching those cases about slide presentations and unpublished college theses, even if “publications” like those only rarely invalidate patents in court.

Guest post from Prof. Yelderman: How Much Did the AIA Change Prior Art in the District Court?

Stephen Yelderman is a Professor of Law at the University of Notre Dame Law School.

This week we’ll take a closer look at “activity” prior art—prior uses, sales, and “invention by another.” As I mentioned in my last post, a little more than half the time district courts find a claim anticipated, they rely on art in this category. Activity prior art is less common for obviousness invalidations, but still quite routine: just over a quarter of obviousness invalidations cite activity prior art. (For more background on this project, you can find the full paper here.)

The 2011 America Invents Act (“AIA”) changed the rules for determining when activity qualifies as prior art in several respects. At a minimum, the AIA constricted this category of prior art by removing the “prior invention by another” path previously found in § 102(g). Arguably, the AIA trimmed the category in another way too—by imposing a new “available to the public” requirement on prior uses and sales. (Whether it did or not is the question the Supreme Court will take up next week in Helsinn Healthcare v. Teva Pharmaceuticals.) In the opposite direction, the AIA eliminated the limitation that uses and sales qualify as prior art only if they occurred in United States. Given all this, one might wonder: just how significant are the AIA’s changes when it comes to the prior art district courts actually rely on?

All of the district court invalidations in our study (except for one) involved applications of pre-AIA law, so we can use our data to predict how many cases might come out differently if the stricter aspects of the new prior art rules had applied instead. The answer is not many. For prior invention by another, this exercise was straightforward: under pre-AIA law it was its own legally distinct category, and there is no question that it was eliminated by the AIA. Based on our coding, we found that prior invention by another constituted about 8% of anticipation events relying on activity, and was a basis for roughly 1% of obviousness invalidations citing any activity. From the perspective of anticipation and obviousness overall, just a little more than 2% of district court invalidations relied on this prior art path. (And we can’t rule out the possibility that some of that art might have qualified by a different path anyway.)

The effect of requiring prior uses and sales to be “available to the public” is slightly harder to predict, since we do not yet know what that language will mean (or, until Helsinn is decided, if it applies to prior uses and sales at all). To get a bit of purchase on this question, we coded prior uses and sales that were potentially kept secret from the public: offers / sales made to an identified counterparty (fact patterns like Pfaff v. Wells), internal commercial uses (fact patterns like Metallizing Engineering), and uses by a limited and identified group of outsiders (fact patterns like Egbert v. Lippmann). It’s important to note that this classification scheme is likely overbroad: from the documents before us, we could not always determine whether a use or sale was in fact secret at the time. Instead, we categorized activity based on whether the use or sale could have potentially been secret.

Despite our likely overbroad classification scheme, potentially secret uses or sales appeared to be cited only rarely. When a court found a claim anticipated based on activity, that activity was potentially secret about 14-15% of the time. (These figures are presented as ranges because of a few cases in which we could not determine whether the cited activity was potentially secret under our framework.) When activity was cited in support of obviousness, the cited activity was potentially secret somewhere between 2-7% of the time. To look at the same data from another angle, among all the uses and sales district courts relied upon to invalidate patents, 88-90% lacked any indications of potential secrecy. As a share of anticipation and obviousness invalidity overall, potentially secret uses and sales were cited in about 4-5% of claim invalidations.

So if the past is a guide, it appears that few of the cases litigated to a decision of invalidity under the old law would be flipped under the AIA’s (purported) constriction of the activity prior art category. We must hedge a bit here, however, since we cannot say what the post-Helsinn law will be, or how inventors and litigants might adapt their behavior in light of new rules. What we can say with certainty is that, among the set of all recent court decisions invalidating patents under pre-AIA law, we find only a small number (an average of 3-4 patent invalidations a year) that would be affected by the question in Helsinn.

Unfortunately, the nature of our study does not allow us to predict the effects of the AIA’s amendments in the opposite direction—that is, the changes that made it easier for some activities to qualify as prior art. As mentioned above, the AIA eliminated the longstanding rule that uses and sales may qualify as prior art only if they were conducted in the United States. Because we were observing cases litigated under pre-AIA law, all of the activities we coded had occurred within the United States. We therefore did not observe the non-U.S. activity prior art that may have been waiting in the wings but was excluded by the pre-AIA’s domestic limitation on this category. Likewise, we cannot predict what the effect of adding “otherwise available to the public” as a distinct prior art category might be (not to be confused with the Helsinn question of whether that language modifies other categories).

Finally, some might expect the importance of activity prior art in district courts to be increasing over time, for reasons that are related to the AIA but unrelated to the prior art rules themselves. Readers of this blog do not need to be told of the overwhelming popularity of inter partes review (“IPR”) as an alternative forum for adjudicating patent validity. (By my count, in 2016, roughly 380 patents were invalidated in IPR, dwarfing the number of patents invalidated on prior art grounds by district courts.)  But activity prior art is categorically excluded from consideration in IPR, leaving district courts as the primary venue for adjudicating validity when activity prior art is at issue. It would seem logical, therefore, for the share of district court cases involving activity prior art to grow over time, as defendants challenging patents based only on non-activity art select into IPR for its speed, cost, and lower burden of persuasion.

Surprisingly, however, this is not what we found:

This chart illustrates the percentage of district court patent invalidations relying on activity prior art to invalidate any claim. As this chart shows, this number has remained remarkably stable throughout the advent of IPR. Though defendants may be opting in to IPR in large numbers, it is not the case that only activity-based invalidations remain in district court.

To be clear, the availability of IPR could still be having an effect on the kinds of cases that remain for validity decisions in district court. For example, courts may now be deciding only validity challenges in which the defendant made a strategic decision not to petition for IPR, or did petition for IPR without success. Moreover, during the time period illustrated above, the patent system was undergoing a number of changes simultaneously, so it is difficult to isolate the effects of IPR.

All of this is to say that the relationship between IPR and the work of district courts defies a simple explanation. But we can say with confidence that prior art patents and printed publications continue to play an important role in district court invalidations, notwithstanding the availability of IPR.

 

Edited 11/30: Clarified that 2% reliance on “prior invention by another” and 4-5% reliance on potentially secret uses and sales are stated percentages of claim invalidations for anticipation or obviousness. As a share of invalidations on any grounds, these numbers would be even smaller.

Guest Post by Prof. Yelderman: How Do District Courts Cite Prior Art?

Stephen Yelderman is a Professor of Law at the University of Notre Dame Law School.

Not all prior art is created equal. The ease of finding what’s been done before can vary dramatically—from a prior U.S. patent cited by hundreds of applicants, to the dusty doctoral thesis sitting on the shelf of a foreign library. So one might wonder: when district courts invalidate patents on prior art grounds, do they typically rely on prior art that the inventor, or the USPTO, or even a reasonably diligent searcher could plausibly have found? Or do courts regularly invalidate patents on the basis of art that only the most determined litigant could have possibly uncovered?

For the last year or so, I have been working with a team of research assistants to attempt to answer these and other questions. Drawing directly from district court dockets, we collected every decision invalidating a patent claim over a six-and-half-year period. We then coded these on a claim-by-claim, reference-by-reference basis to learn how district courts rely on prior art. Over the next several weeks, I’ll be highlighting some of the more interesting things we’ve uncovered. In this post, I’ll start by sharing some of our top-level findings and briefly explaining our collection methodology. (If you’d like to see our full results right away, a draft of the paper is available for download here.)

First, some may be surprised to learn that district court invalidation appears to be evenly split between anticipation and obviousness. This is true whether one measures by patents or claims:

Over our study period, the number of claims invalidated for anticipation (1,636) almost exactly equaled the number of claims invalidated for obviousness (1,620). As the chart above shows, while there was some up and down from year to year, the ratio held very close to 1 throughout our study period.

However, the similarities end there. In terms of the prior art relied upon to invalidate claims, anticipation and obviousness are two very different animals:

The black columns indicate the percentage of anticipation invalidations citing each category of prior art. As you can see, district court findings of anticipation rely predominantly on activity prior art (defined to include prior uses, sales, and invention by another—old § 102g).  After that, in descending order of frequency, come U.S. patents, printed publications, and foreign patents.

Obviousness invalidations are a bit harder to summarize concisely, since they can be based on multiple references. The hashed columns indicate the percentage of obviousness invalidations citing any art in that category; the gray columns indicate the percentage of obviousness invalidations citing art only in that category. The headline here is that U.S. patents are by far the most commonly cited category of prior art for obviousness: nearly two thirds of obviousness invalidations cite at least one U.S. patent. But less than one third of obviousness invalidations cite only U.S. patents. A similar theme bears out across the rest of the chart. When courts combine multiple references to find a claim obvious, they often do so by combining art across categories—a U.S. patent combined with a prior sale, for example, or a foreign patent combined with a printed publication.

Each of these top-level categories will be explored in more detail in subsequent posts. I’ll close this one with a bit of background about our collection methodology. For purposes of this study, our focus was limited to claim invalidity as found by district courts. Therefore, our data does not capture every distinct argument the defendant made for invalidity, or judicial findings that a claim was “not invalid.” It also does not reflect the ways these decisions may have been modified on appeal. We believe our data does capture every district court determination that a claim was invalid, whether in a published opinion, unpublished document, or jury verdict. In a few cases, these documents did not clearly specify on their face which references supported the conclusion of invalidity. When this occurred, we consulted other documents on the docket (such as post-trial briefing) to identify the prior art supporting the court’s conclusions. When we could not find a conclusive answer, we coded the prior art as “unknown” (the final category in the chart above). Additional details about how we collected and coded these documents can be found in Part II of the paper.

Finally, when interpreting all of this data, one should keep in mind that this is a study of how district courts cite prior art, not a study of patent quality overall. A tiny fraction of issued patents are ever litigated, and only a tiny fraction of those are litigated to a determination of validity. Moreover, the incentives to litigate or settle a patent dispute could very well turn on the nature of the prior art in a case, so the possibility of selection effects is real. Therefore, this data should only be used to answer questions about why patents are invalidated in district court, not why patents might be invalid in general.

Iowa Law Review Symposium guest post by Prof. Vishnubhakat: Managing the PTAB’s Legacy of Partial Institution

Guest post by Saurabh Vishnubhakat, Associate Professor at the Texas A&M University School of Law and the Texas A&M College of Engineering.  Although Prof. Vishnubhakat was an advisor at the USPTO until June, 2015, his arguments here should not be imputed to the USPTO or to any other organization.  This post is based on a paper for the Iowa Law Review symposium Administering Patent Law and is forthcoming in the Iowa Law Review.  The full draft is available at at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3237841.

It has now been four months since the Supreme Court decided SAS Institute v. Iancu, and it seems clear that ending partial institution will, indeed, be a significant disruption to the Patent Trial and Appeal Board’s administration of its docket.  As I noted on this blog just after the decision came down, the power of partial institution was at the heart of PTAB case management from the beginning, and the requirement of binary institution from now on raises several important questions.

In this post, I will offer some more detailed analysis of one of those issues in particular.  That issue is how the Patent Office should understand the stakes of binary institution—which is to say, fully appreciate how much work partial institution was truly doing.

The Stakes of Binary Institution

Now that the PTAB must either fully grant or fully deny each petition that comes before it, the stakes of accepting versus rejecting a case largely point toward rejecting.  The cases that were already being instituted in full or denied in full will be unaffected.  The cases that were being partially instituted, however, will not be accepted lightly.

Fully instituting such a case will necessarily bring significant obligations of deciding why arguments that the PTAB has already found likely to fail do, indeed, fail.  On top of that, the PTAB must also explain fully enough, under the Chenery doctrine, why these arguments lack merit.

Under partial institution, these unmeritorious portions of a petition could easily be dispensed with at the institution stage.  No judicial review was available—not even after final judgment, under Cuozzo—so Chenery obligations did not even come into the picture.  This is not to say the obligations of reasoned decision-making should not apply to the Patent Office at the institution stage.  (Judge Reyna’s concurring opinion in Shaw Industries, for example, made a persuasive case that mere nonappealability does not legitimize black box decisions such as denying “redundant grounds” without explanation.  Still, the panel majority in that case did not reverse the agency.)

Now that partial institution is unavailable, granting review will open the door to judicial scrutiny of the PTAB’s handling of the entire case, some or much of which will consist of arguments that the PTAB already had reason to think were not worth its time.  This change generally counsels against full institution of close cases.

On the other side of the agency’s choice is what effect a PTAB denial would have on the petitioner, for a denial would exclude meritorious arguments as well.  In general, the harm would be minimal, as denying review creates no estoppel and so does not prejudice the petitioner’s ability to make the same arguments elsewhere.  Under § 315(e), estoppel requires a final written decision under § 318(a), which applies only to a petition that has been “instituted and not dismissed.”  As most petitioners (about 70%) are district-court defendants seeking PTAB review in response to an infringement lawsuit (what my coauthors and I have termed standard petitioners), invalidity arguments in the district court will remain available.

The remaining petitioners (about 30%) who seek PTAB review preemptively would be similarly unharmed.  It is true that they may or may not have Article III standing to seek declaratory relief in the courts, standing that they would not have to show in the PTAB.  But they still remain free to refile their petitions in the PTAB itself, using the PTAB’s earlier denial of institution as a roadmap for filing a more successful petition.  Because these nonstandard petitioners have, by definition, not been charged with infringement, the one-year time bar of § 315(b) does not apply to them.

Thus, under the PTAB’s existing resource constraints, the burden of fully granting borderline petitions is generally higher, and the cost and prejudice on litigants inflicted by fully denying such petitions is relatively low, tilting on balance toward fully denying borderline petitions.  The next question is whether this analysis in the abstract has real-world relevance to the PTAB’s likely incentives.

The Scope of Partial Institution

The data strongly suggests that it does.  Partial institution was doing much more work than previously appreciated to filter out unmeritorious arguments and focus the PTAB’s resources on challenges that were reasonably likely to succeed.  The following two figures show why this has largely been overlooked.  Through April 2018, when SAS Institute was decided, the respective shares of petitions that were fully instituted (39.2%), partially instituted (25.8%), and fully denied (35.0%) suggest that partial institutions accounted for only a minor part of the agency’s workload.  Indeed, the trends of these shares over time suggest that partial institution was diminishing even before the Supreme Court abolished the practice.

But looking at petitions or cases as a whole misses the mark.  The legal grounds asserted vary from petition to petition.  An anticipation challenge generally relies on a single prior art reference rather than a combination of multiple references and so is less workload-intensive than an obviousness challenge.  The patent claims that a petition actually challenges vary as well, and the workload burdens posed by different petitions vary accordingly.  Taking these facts into account, the more granular and accurate measure of partial institution is the share of claim-ground pairs being challenged in the PTAB that were being granted, and the share that were being denied.

As the next three figures reveal, this share has been both large and persistent.  Through April 2018, the PTAB denied review of nearly half of all the claim-ground pairs that came before it in petitions.  This finding is robust across technologies.  It is also strikingly stable over time, starting at a rate of about 30% but quickly rising into the 40–50% range, where it has stayed for the past five years.  This evaluation shows that partial institution was a substantial filter on the challenges that were admitted into administrative review.

Confronted with the choice of full institution or full denial, therefore, the PTAB should think carefully about how much of a petition should present meritorious arguments before a panel is willing to take on the additional burden of adjudicating additional arguments that it already knows are likely to fail.

The PTAB’s treatment of transitional cases—where the PTAB had already made partial institutions but now had to be reevaluated under SAS Institute—is telling in this regard.  The agency’s April 26 Guidance on the Impact of SAS on AIA Trial Proceedings had stated it may issue a supplemental order to institute on all remaining challenges.  Though it did not say so, the agency also had the power, of course, to vacate its partial institution, effectively “deinstituting” the petition in full.  In an order earlier this month, the PTAB revealed an agency-wide thumb on the scale toward instituting-all rather than deinstituting-all:

If now faced with the Petition in the first instance, and understanding that we have only a “binary choice,” it may well be appropriate to deny the Petition in its entirety.  But we have been instructed that the Office SAS Guidance is to be interpreted with the weight of Office policy as precluding termination of a partially instituted proceeding in response to SAS Institute.

ESET LLC v. Finjan, Inc., IPR2017-01738, Paper No. 28 at 10 (Aug. 10, 2018).

This exercise of agency discretion for transitional cases is entirely sensible as a policy matter.  For cases where the PTAB has not only concluded that a patent is at least partly problematic but also invested resources to adjudicate those problems, terminating the proceeding would give the mistaken, but still potentially harmful, impression that the PTAB were actively abdicating its error-correction duties.

In future cases, evaluating petitions in the first instance, the PTAB would be much better positioned to balance its obligations with its resource constraints within its broad discretion over institution.

Conclusion

As I discuss further in the full paper, although the structural choices that lie ahead for the Patent Office are difficult, they are appropriate for the agency to have to make.  The policy judgments that are most rational for the Patent Office to reach in light of SAS Institute are likely to promote reasoned decision-making by the agency as well as more efficient substitution of administrative adjudication for judicial review.  These policy judgments, in turn, will also bring important questions—including the one-year time bar and the issuance of stays pending PTAB review—back to the Federal Circuit.  These questions are a valuable chance for the Federal Circuit to reconsider panel decisions that have largely been overtaken both by its own recent en banc decisions and by the Supreme Court.

2018 Iowa Law Review Symposium: Administering Patent Law

On October 5, the Iowa College of Law will host the 2018 Iowa Law Review symposium, Administering Patent Law.  This event is co-sponsored by the Iowa Innovation, Business & Law Center.  As an added bonus, I’ll be running guest posts by some of the speakers over the next few weeks.  We’ll also be live-streaming the symposium that day.  You can find the full agenda (and the livestream link, once it is live) on the symposium website.

USPTO China IP Roadshow at the University of Iowa College of Law

By Jason Rantanen

The Innovation, Business & Law Center at the University of Iowa College of Law is hosting the USPTO’s China Intellectual Property Roadshow next Tuesday from 8:45 – 4:15 p.m.  If you’re interested in attending this free program, you can register on the event website: https://ibl.law.uiowa.edu/event/uspto-china-intellectual-property-roadshow.   (Sorry, but we will not be recording or live streaming this program.  It’s a one-time live event.)

DATE:            Tuesday, August 28, 2018

LOCATION:  Levitt Auditorium,University of Iowa College of Law

CLE Credits:  6.25 credits for Iowa attorneys

Morning Session:

8:00 – 8:45      Check in and breakfast

8:45 – 9:15      Welcome Remarks

  • Jason Rantanen, Professor of Law and Ferguson-Carlson Fellow in Law, Director of the University of Iowa Innovation, Business & Law Program
  • Kevin Washburn, N. William Hines Dean of the University of Iowa College of Law
  • James O. Wilson, Supervisor, USPTO Midwest Regional Office
  • Cynthia Henderson, Attorney Advisor, USPTO

9:15 – 9:30      The Future of Intellectual Property in China

  •  Elaine Wu, Senior Counsel for China, OPIA, USPTO

9:30 – 10:30    Overview of Intellectual Property Protection in China

 Moderator: Cynthia Henderson, Attorney Advisor, USPTO

  • How to Protect your Trademark in China and Avoid Pitfalls: Dan Chen, Senior Partner, Unitalen
  • Patent Protection and Trade Secret Protection in China: Jay Sha, Liu Shen and Associates
  • 3 Key Differences in China’s Trademark System and How They Impact Your Business and Copyright Protection in China: Amy Hsiao, Partner, Swanson & Bratschun, LLC

10:30 – 10:45  Coffee/Tea Break

10:45 – 11:45  Intellectual Property Enforcement in China

Moderator:  Kelu Sullivan, Of Counsel, Kelly IP

  • E-Commerce Perspective – Notice and Take-Down Procedures: Dan Dougherty, Global IP Enforcement, Alibaba
  • Enforcing Trademark Rights in China: Amy Hsiao, Partner, Swanson & Bratschun, LLC
  • Enforcing Patents in China: Allen Tao, Liu Shen and Associates

11:45 – 12:00  U.S. Government Resources for China Intellectual Property Matters

  • Cynthia Henderson, Attorney Advisor, USPTO

12:00 – 13:00  Lunch

Afternoon Session:

13:00 – 14:15  Enforcing Intellectual Property Rights in the U.S.

Moderator:  Elaine Wu, Senior Counsel for China, OPIA, USPTO

  • Criminal Investigation: Jerry Wilson, Supervisor of Criminal Investigations, FBI Omaha Division
  • Criminal Investigation: Adam Marasco, Special Agent, Homeland Security Investigations, Cedar Rapids, Iowa
  • Criminal Prosecution: Tony Morfitt, Assistant U.S. Attorney, U.S. Attorney’s Office, Northern District of Iowa
  • Section 337 Investigations: Anthony Del Monaco, Partner, Finnegan, Henderson, Farabow, Garrett & Dunner
  • Federal Court Civil Intellectual Property Litigation: David Gerasimow, Associate, Husch Blackwell

 14:15 – 14:30  Coffee/Tea Break

 14:30 – 16:00  Intellectual Property Protection and China:  The IOWA Experience

 Moderator:  Jason Rantanen, Professor of Law and Ferguson-Carlson Fellow in Law, Director of the University of Iowa Innovation, Business & Law Center

  • Pioneer Seed Theft Case: Judge Stephanie Marie Rose, United States District Judge of the United States District Court for the Southern District of Iowa
  • Agricultural issues, IP and Asset Protection: Barry Nelson, Research Scientist, Global Research IP Asset Protection, Corteva Agriscience
  • China IP Protection: Donna Suchy, Rockwell Collins
  • Managing an IP Portfolio in China from a Corporate Perspective: Jim Hansen, General Counsel, Musco Lighting
  • Experience in Enforcing IP in China: Jeff Harty, Nyemaster Goode, P.C.

16:00 – 16:15  Closing Remarks

  • Molly Kocialski, Regional Director, USPTO Rocky Mountain Regional Office

Trustees of Boston University v. Everlight: (Non)enablement of permutation #6

By Jason Rantanen

Trustees of Boston University v. Everlight Electronics Co., Ltd. (Fed. Cir. 2018) Download Opinion
Panel: Prost (author), Moore, Reyna

This opinion provides an example of how Section 112 can function as a commensurability requirement.  The court’s final lines say as much:

“Having obtained a claim construction that included a purely amorphous
layer within the scope of the claim, BU then needed to successfully defend against an enablement challenge as to the claim’s full scope…Put differently, if BU wanted to exclude others from what it regarded as its invention, its patent needed to teach the public how to make and use that invention. That is ‘part of the quid pro quo of the patent bargain.'”

Slip Op. at 14 (citations omitted).

I like the opinion because the court’s analysis fits neatly with my conceptual explanation of how enablement analyses are actually performed: it’s a two-step process, with the first step being the articulation of the relevant target and the second asking whether the patentee managed to hit that target.  Here, the court defined the target as consisting of one of six possible permutations under the claim construction the patent owner had sought.  Unfortunately, the evidence did not support the conclusion that a person having ordinary skill in the art could make that permutation without undue experimentation.

In the Federal Circuit’s words, Patent No. 5,686,738 “relates to the preparation of monocrystalline GaN films via molecular beam epitaxy.”  Slip Op. at 4. These films are used in creating blue light LEDs.  The plaintiff, Trustees of Boston University (BU), sued defendants for infringing the ‘738 patent.  Following a jury trial, BU obtained a verdict of infringement and no invalidity.  The district judge subsequently denied defendants’ renewed motion for judgment as a matter of law, in which defendants had argued that the asserted claim was not enabled.  Defendants appealed.

Only claim 19 of the ‘738 patent was at issue.  That claim states:

A semiconductor device comprising:

a substrate, said substrate consisting of a material selected from the group consisting of (100) silicon, (111) silicon, (0001) sapphire, (11-20) sapphire, (1-102) sapphire, (111) gallium aresenide, (100) gallium aresenide, magnesium oxide, zinc oxide and silicon carbide;
a non-single crystalline buffer layer, comprising a first material grown on said substrate, the first material consisting essentially of gallium nitride; and
a growth layer grown on the buffer layer, the growth layer comprising gallium nitride and a first dopant material.

Two constructions were key here.  The court construed “grown on” to mean “formed indirectly or directly above” and “a non-single crystalline buffer layer” to mean “a layer of material that is not monocrystalline, namely, [1] polycrystalline, [2] amorphous or [3] a mixture of polycrystalline and amorphous, located between the first substrate and the first growth layer.”  (emphasis added).  It also understood “growth layer” as including within its scope a monocrystalline growth layer.  BU did not challenge any of these constructions on appeal.

In the Federal Circuit’s view, collectively these constructions raised six possible permutations for the relationship between growth layer and buffer layer:

  • (1) monocrystalline growth layer formed indirectly on a polycrystalline buffer layer;
  • (2) monocrystalline growth layer formed indirectly on a buffer layer that is a mixture of polycrystalline and amorphous;
  • (3) monocrystalline growth layer formed indirectly on an amorphous buffer
    layer;
  • (4) monocrystalline growth layer formed directly on a polycrystalline buffer layer; (5) monocrystalline growth layer formed directly on a buffer layer that is a mixture of polycrystalline and amorphous; and
  • (6) monocrystalline growth layer formed directly on an amorphous buffer layer.

Slip Op. at 6. Of these six permutations, defendants focused their enablement argument on #6: whether a person of ordinary skill in the art could practice the invention with a monocrystalline growth layer formed directly on an amorphous buffer layer.

With the court’s attention focused on permutation #6, the enablement analysis was relatively straightforward.  The evidence supporting enablement of #6 was weak: the only technique described in the patent, epitaxy, doesn’t work to grow a growth layer directly on an amorphous structure.  BU tried to argue that the patent didn’t actually teach epitaxy, but the court was unpersuaded: “The ’738 patent’s specification is concise—just over four columns of text—and focuses on epitaxy. Indeed, it is saturated with the word ‘epitaxy’ or variants thereof.”  Id. at 9.  BU also argued that what the patent taught could not be epitaxy “because epitaxy invovles a crystalline layer on top of another crystalline layer,” and an amorphous layer is not “crystalline.”  Id. at 10.  But regardless of whether one called it epitaxy or not, the problem was that  BU couldn’t identify anywhere in the specification that taught how to grow a monocrystalline layer directly on an amorphous layer.  Nor was the expert testimony sufficient as it consisted of conclusory statements.  Testimony that other people had successfully grown a monocrystalline layer on top of an amorphous buffer layer didn’t help either, as “[s]imply observing that it could be done–years after the patent’s effective filing date–bears little on the enablement inquiry.”  Id. at 12.

In light of how the court understood the focus of the enablement issue, BU’s final argument–that the specification enabled 5 out of the 6 permutations and that was enough–didn’t work.  The court cited the “full scope” language from precedent here, and the “gap-filling” approach didn’t work here since that concept “is merely supplemental; it cannot substitute for a basic enabling disclosure.”   Ultimately, the court concluded that the patent needed to enable all six permutations–a result consistent, the court noted, with the claim constructions that BU itself had sought.  In the end, the court saw this as being in the vein of Liebel-Flarsheim: if you get the claim scope you ask for through construction, you’re also going to need to show enablement of that scope.

For enablement-timing gurus, there’s some interesting language in the section about the post-application successes to ponder.

Saint Regis Mohawk Tribe, Allergan v. Mylan: No Tribal Immunity for IPR

By Jason Rantanen

Saint Regis Mohawk Tribe, Allergan, Inc. v. Mylan Pharmaceuticals Inc., Teva Pharmaceuticals USA, Inc., AKORN, Inc. (Fed. Cir. 2018) Download Opinion

Panel: Dyk (concurring), Moore (author), Reyna

Last fall, Allergan transferred a set of patents relating to its Restasis product (the “Restasis Patents”) to the Saint Regis Mohawk Tribe (“the Tribe”). The Tribe promptly asserted tribal sovereign immunity in the pending inter partes review proceedings involving the Restasis patents.  In February, the PTAB denied the Tribe’s motion to terminate the IPRs, a decision the Tribe appealed.  Following an expedited briefing schedule, the Federal Circuit has now affirmed the PTAB’s denial of sovereign immunity.

The panel opinion, joined by all three judges, addressed only one of the arguments against sovereign immunity: that under the Supreme Court’s analysis in Fed. Maritime Comm’n v. S.C. State Ports Auth., 535 U.S. 743 (2002), tribal sovereign immunity does not apply.  It’s important to note at the outset that “Generally, immunity does not apply where the federal government acting through an agency engages in an investigative action or pursues an adjudicatory agency action.”   Slip Op. at 5.

The Court in FMC looked to whether the adjudications at issue were “the type of proceedings from which the Framers would have thought the States possessed immunity when they agreed to enter the Union.”  Id. at 5-6. In particular, the Federal Circuit observed that “[i]n doing so, the Court recognized a distinction between adjudicative proceedings brought against a state by a private party and agency-initiated enforcement proceedings.”  Id. at 6.

This question is similar to that of whether an administrative agency can hear a dispute at all, and unsurprisingly the court looked to the Supreme Court’s recent decisions for guidance.  “IPR is neither clearly a judicial proceeding instituted
by a private party nor clearly an enforcement action brought by the federal government,” the court observed, before comparing the views offered by the Court in Oil States v. Greene’s Energy and SAS v. Iancu.  Ultimately, the court concluded, “IPR is more like an agency enforcement action than a civil suit brought by a private party….”  Thus, “we conclude that tribal immunity is not implicated.”  Id. at 8.

How is IPR more like an agency enforcement action?  For one thing, the Director chooses whether to institute an IPR.  And while that discretion is limited to an all-or-none decision under SAS, “if the Director decides not to institute, for whatever reason, there is no review.”  Id. at 8.  In addition, “the Board may choose to continue review even if the petitioner chooses not to participate,” reinforcing “the view that IPR is an act by the agency in reconsidering its own grant of a public franchise.”   Id. at 9.  There are also differences between the IPR rules of procedure and the Federal Rules of Civil Procedure; because of these distinctions “the agency procedures in FM much more closely approximated a civil litigation than those in IPR.”  Id. at 10.  Nor does the existence of more “inquisitorial” proceedings in which sovereign immunity would not apply, such as ex parte and inter parte reexamination, mean that sovereign immunity must apply to IPRs.

Judge Dyk joined the panel opinion in full, but wrote separately to describe the history of inter partes review and why those reviews are not adjudications between private parties.  His opinion is a great reference if one wants a thorough description of the history of the proceeding, complete with numerous source citations.

This dispute is clearly not at an end, and I suspect that the Tribe and Allergan will seek en banc review, if not head straight for a cert petition.  Given the expedited briefing schedule, I expect this issue to continue to move quickly.  At the same time, however, keep in mind that in the parallel infringement proceeding in the Eastern District of Texas,  Judge Bryson (sitting by designation) found the Restasis Patents obvious following a bench trial.  Allergan (now joined by the Tribe) appealed that determination.  Oral argument is currently scheduled for September.

Guest Post by Prof. Contreras: Rambus Redux? – Standards, Patents and Non-Disclosure in the Pharmaceutical Sector (Momenta v. Amphastar)

Guest post by Professor Jorge L. Contreras of the University of Utah School of Law.  Note that the author was a partner at a law firm that was involved in Rambus v. FTC and Broadcom v. Qualcomm while those cases were litigated and decided.  The author had no direct involvement in either case.

During the dozen years demarcated by the FTC’s 1996 consent decree with Dell Computer (121 FTC 616 (1996)) and the DC Circuit’s 2008 decision in Rambus, Inc. v. FTC (522 F.3d 456 (D.C. Cir. 2008)), the U.S. saw a spate of cases in which participants in voluntary standards-development organizations (SDOs) were alleged to have violated an SDO’s rules by failing to disclose patents essential to the SDO’s standards.  In addition to Dell and Rambus, highly-publicized deception cases such as Broadcom v. Qualcomm (548 F.3d 1004 (Fed. Cir. 2008)) explored what SDO policies actually required of their participants and what penalties could be imposed for their breach, whether under contract, equity, patent or antitrust law.  These questions, and the large sums at stake, generated a cottage industry of legal and economics scholarship around the law and lore of standardization.  But by the early 2010s, the information and communications technology (ICT) sector seems to have learned the lessons of Dell, Rambus and Qualcomm: SDOs improved the clarity of their internal processes, SDO participants adopted a policy of “disclose, disclose, disclose” (on the theory that it can never hurt to disclose too many patents), and the cases turned to other pressing questions like the meaning of SDO commitments to license patents on terms that are “fair, reasonable and nondiscriminatory” (FRAND), which continues to bedevil courts today. I was thus intrigued to see a case that harkens back to the heyday of the old SDO deception cases in a pair of recent decisions in Momenta Pharmaceuticals, Inc. v. Amphastar Pharmaceuticals, Inc. (D. Mass., No. 11-cv-11681, Feb. 7, 2018 and No. 16-10112-NMG, Mar, 19, 2018).  Surprisingly, this non-ICT case may give courts an unexpected opportunity to revisit the DC Circuit’s controversial decision in Rambus v. FTC, which found no antitrust liability for an allegedly deceptive failure to disclose patents to an SDO.

The ‘886 Patent Dispute

The long-running dispute in Momenta is between two generic producers of the blockbuster anticoagulant drug enoxaparin, which Sanofi-Aventis first marketed in 1993 under the brand name Lovenox (2009 U.S. sales $2.7 billion).  In July 2010, Momenta Pharmaceuticals, in conjunction with Novartis’s Sandoz division, received FDA approval for a biosimilar version of enoxaparin.  Amphastar Pharmaceuticals, another generics manufacturer, received FDA approval for its own biosimilar version of enoxaparin on September 19, 2011.  Two days later, Momenta sued Amphastar for infringement of U.S. Patent 7,575,886 (the ‘886 Patent), which claims a quality control process used in the manufacture of enoxaparin.  Momenta applied for the ‘886 Patent in 2003; it was issued in 2009 listing five inventors including Dr. Zachary Shriver. After a lengthy set of proceedings, including two separate appeals to the Federal Circuit, a jury found in 2017 that Amphastar infringed the claims of the ’886 patent, but that the claims were invalid due to lack of enablement and inadequate written description.

Dispute Over Method 207

The United States Pharmacopeial Convention (USP) is an SDO that develops standards for testing the quality and purity of foods and drugs.  In 2006, with the encouragement of Sanofi-Aventis, USP began to consider a standard for testing enoxaparin.  Beginning in 2008, Momenta’s employee Dr. Shriver participated in the USP advisory panel that developed what came to be known as USP Method 207 pertaining to enoxaparin manufacture, which USP eventually approved and adopted as a standard in 2009.  Amphastar alleges that the claims of the ‘886 patent cover key portions of Method 207.

USP has a number of written policies that are binding on individuals and firms participating in its standardization work.  Amphastar argues that USP’s written policies required Dr. Shriver to disclose the existence of Momenta’s application for the ‘886 patent to USP prior to approval of the standard, which he did not.  Due to this failure, Amphastar alleges that Momenta intentionally violated USP’s policies.  In consequence, Amphasrar argues that (1) Momenta has waived its right to enforce the ‘886 patent, (2) Momenta is estopped from enforcing the ‘886 patent, and (3) Momenta and Sandoz violated Section 2 of the Sherman Act, as well as various state antitrust and competition statutes by “wrongfully acquiring monopoly power by deceiving the USP into adopting a standard which they later claimed was covered by” the ‘886 Patent (Mar. 19, 2018, slip op. at 9).  These allegations reflect the classic SDO deception scenario, akin to those alleged in cases like Dell, Rambus and Qualcomm. In each of these cases the central issue is “the consequence of silence in the face of a duty to disclose patents in a standards-setting organization” (Qualcomm, 548 F.3d at 1008).

The USP Policies

In assessing Momenta’s obligation to disclose the ‘886 patent, Judge Nathaniel Gordon of the District Court for the District of Massachusetts considered three of USP’s written policies.  First, Section 2.05 of the Rules and Procedures of the USP Council of Experts (the “Expert Rules”) states that no advisory panel member with a “financial or other interest that may conflict, or may appear to conflict, with his or her duties and responsibilities with respect to a particular matter, shall vote on such matter.”  Dr. Shriver abstained from voting on the Method 207 standard (Feb. 7, 2018, slip op. at 10).

Second, Section 2.06(a) of the Expert Rules requires that each advisory panel member submit to USP a written statement disclosing his or her employer, sources of research funding, and “other professional or financial interests, including intellectual property rights, that may result in a conflict of interest or the appearance of a conflict of interest” (id. at 9, emphasis added).  Dr. Shriver submitted such a statement in which he identified Momenta as his employer.

Third, under a separate document known as the USP Guidelines, all “Sponsors” of USP technical proposals are requested to disclose “whether any portion of the methods or procedures submitted are subject to patent or other IP rights” (id. at 10). Momenta made no disclosure responsive to this provision.

Amphastar argued that these three provisions, individually and collectively, required Momenta, through Dr. Shriver, to disclose the existence of the ‘886 patent and its relevance to Method 207 while it was under consideration at USP.  Judge Gordon, however, disagreed.  With respect to Section 2.05 of the Expert Rules, Dr. Shriver’s abstention from the vote on Method 207 was in compliance with the Rules.  As for the Guidelines, Momenta was not formally a “Sponsor” of Method 207 (the only official Sponsor being Sanofi-Aventis), making the patent disclosure request inapplicable to Momenta.  Finally, Dr. Shriver’s conflict of interest form correctly identified Momenta as his employer.  At most, the catch-all provision requiring disclosure of “other professional or financial interests” was ambiguous in its requirements.  Accordingly, Judge Gordon found the USP policies to be ambiguous regarding Momenta’s obligation to disclose the ‘886 patent (id. at 11).

Participant Understanding of Disclosure Requirement

Notwithstanding the ambiguity of USP’s policies, Judge Gordon, citing Qualcomm (548 F.3d at 1012), went on to consider whether USP participants may have “understood the policies to include a duty to disclose” patents essential to USP standards (id. at 11-12).  A former USP employee testified that there was a “common understanding” among USP participants that patent disclosures were required (Feb. 7, 2018, slip op. at 15).  In addition, the witness described a 2008 advisory panel meeting at which USP noted that Sanofi-Aventis, the Sponsor of Method 207, had disclosed a relevant patent.  According to the witness, a representative from Momenta then requested that Sanofi-Aventis be requested to abandon the patent before the standard was approved, which it ultimately did (id. at 13).  These factors, taken together, the court reasoned, “indicate[d] that Momenta itself, a participant in the USP, acknowledged its own obligation to disclose and abandon like patents” (id.). Thus, as in both Qualcomm and Rambus, Inc. v. Infineon Techs. AG (318 F.3d 1081, 1098 (Fed. Cir. 2003)), the court found that, notwithstanding the absence of an express requirement that patents essential to an SDO’s standards be disclosed by SDO participants, such an obligation existed on the basis of unwritten participant expectations (a good example of private ordering influencing legal determinations).

Interestingly, Momenta argued that it should not be deemed to have an obligation to disclose the ‘886 patent because it opposed the approval of Method 207 at USP, principally because it used a different method for testing enoxaparin.  What’s more, Method 207 was not a compulsory standard, meaning that even if Momenta held a patent covering the standard, it could not hold the industry “hostage” (id. at 15).  The court did not find these arguments persuasive, noting in particular Amphastar’s claim that the FDA did require it to use Method 207 in order to secure approval of its biosimilar version of enoxaparin.

Waiver

Amphastar argued that Momenta’s breach of its obligation to disclose the ‘886 patent to USP should result in a waiver of Momenta’s right to enforce the patent.  The unenforceability remedy in patent law is a harsh one, usually extending not only to the infringer, but to the entire world (see Qualcomm, 548 F.3d at 1024, and this article, discussing unenforceability in earlier standards cases). In both Dell and Qualcomm, the unenforceability remedy was limited to implementations of the standards in question and, in theory, the patents could have been enforced against products that did not comply with those standards.  The court in this case likewise limited unenforceability of the ‘886 patent to Method 207.   Judge Gordon carefully analyzed the precise manufacturing processes used by Amphastar to determine which the processes the unenforceability remedy should apply to.  Momenta alleged that three different manufacturing processes used by Amphastar, referred to as the “15-25%” procedure (both original and revised) and the “DBB” procedure, infringed the ‘886 patent.  But the court concluded that the DBB procedure did not conform to Method 207.  Accordingly, the ‘886 patent was held to be unenforceable as to the 15-25% procedures, but not to DBB (Feb. 7, 2018, slip op. at 16-18).

Equitable Estoppel

Amphastar also argued that because it reasonably relied on Momenta’s misleading conduct (i.e., failing to disclose the existence of the ‘886 patent) and made investments in manufacturing capacity for enoxaparin on that basis, Momenta should be estopped from enforcing the patent against it.  Judge Gordon agreed, citing Hynix Semiconductor Inc. v. Rambus, Inc. (645 F.3d 1336, 1348 (Fed. Cir. 2011)).  But as with waiver, the remedy was applied only to the 15-25% process, and not to the DBB process.

Antitrust Claims

In addition to the waiver and estoppel defenses raised by Amphastar, Amphastar brought a separate action charging Momenta and Sandoz with violations of the Sherman Act and California antitrust and competition law based on Momenta’s failure to disclose the ‘886 patent to USP.  Amphastar argues that Momenta “wrongfully acquir[ed] monopoly power by deceiving the USP into adopting” the Method 207 standard.  This conduct, Amphastar alleges, both improperly excluded Amphastar from the market for generic enoxaparin and drove up the price of generic enoxaparin by billions of dollars over the years (Mar. 19, 2018, slip op. at 6).

In denying Momenta’s motion to dismiss, Judge Gordon looked to Broadcom Corp. v. Qualcomm, Inc., 501 F.3d 297, 314 (3rd Cir. 2007), which explains that “[d]eception in a consensus-driven private standard-setting environment harms the competitive process by obscuring the costs of including proprietary technology in a standard and increasing the likelihood that patent rights will confer market power on the patent holder”.  Accordingly, he held that Amphastar had articulated a cognizable claim for monopolization under the Sherman Act.

A jury trial in the antitrust case is currently scheduled to begin in September 2019.  While there appears to be ample basis in the record supporting Amphastar’s claims regarding Momenta’s deceptive conduct toward USP, Amphastar’s greatest challenge at trial will likely be proving the existence of an antitrust injury, particularly in view of the FTC’s case against Rambus, which faltered on this very point. As the DC Circuit explained in Rambus, Inc. v. FTC, 522 F.3d at 466, “An otherwise lawful monopolist’s end-run around price constraints, even when deceptive or fraudulent, does not alone present a harm to competition in the monopolized market.”  Rather, antitrust injury – harm to competition, rather than to a competitor – cannot be said to exist if an SDO, “in the world that would have existed but for [the patent holder’s] deception, would have standardized the very same technologies” (id.).    Thus, will Amphastar be able to show that but for Momenta’s deceptive conduct, the Method 207 standard would not have been approved by USP?

The result will be interesting, both at trial and, if appealed, at the First Circuit, which is not strictly bound to follow the DC Circuit’s precedent in Rambus v. FTC.  There are certainly many, including Commissioners at the FTC, who felt the DC Circuit’s decision in Rambus was excessively forgiving of deceptive conduct within SDOs.  Momenta, which unexpectedly raises a fact pattern that has all but disappeared from the ICT litigation landscape, may give courts an opportunity to revisit this controversial decision in a new context.

Reminder: Comments on proposed PTAB claim construction standard are due by July 9

By Jason Rantanen

In Cuozzo v. Lee (2015), the Supreme Court affirmed the USPTO’s use of the Broadest Reasonable Interpretation (BRI) approach to claim construction in inter partes review.  As Dennis wrote in May, the PTO is now considering changing the standard it uses to that of “a civil action to invalidate a patent under 35 U.S.C. 282(b), including construing the claim in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art and the prosecution history pertaining to the patent.”  Changes to the Claim Construction Standard for Interpreting Claims in Trial Proceedings Before the Patent Trial and Appeal Board, 83 Fed. Reg. 21221, 21226 (proposed May 9, 2018).  Here’s the Notice of Proposed Rulemaking.

The period for comments closes on July 9, 2018, so if you’d like to submit a comment on the proposed change, you should do so soon.  According to the Regulations.gov page for the proposed rulemaking, only 8 comments have been submitted so far.   Note that the proposed standard would apply to IPR, post grant review, and covered business method review proceedings.

 

Guest Post by Prof. Tim Holbrook: WesternGeco’s Implications for Patent Law and Beyond

Guest post by Timothy Holbrook, Asa Griggs Candler Professor of Law at Emory University School of Law.  Professor Holbrook authored an amicus brief in WesternGeco v. Ion.

When the Supreme Court agreed to review WesternGeco LLC v. ION Geophysical Corp., it was unclear how sweeping the decision would be. The case had clear implications for patent law. It would be the first time the Supreme Court had addressed patent infringement damages under 35 U.S.C. § 284 since its 1984 decision General Motors Corp. v. Devex Corp. The briefing and oral argument suggested the Court had some interest in assessing proximate cause in patent damages, an issue that has not been addressed by the Supreme Court or revisited by the Federal Circuit since its seminal en banc decision in Rite Hite Corp. v. Kelly Company Inc. Finally, beyond patent law, this case had implications for the Court’s jurisprudence on the presumption against extraterritoriality, particularly as to whether the presumption applies to remedial provisions.

Ultimately, the Supreme Court wrote a narrow decision, expressly avoiding many of these broader issues. The opinion, however, does demonstrate a methodology for addressing these issues in the future. It also leaves open the question of the viability of the Federal Circuit’s decisions in two other cases, Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. and Carnegie Mellon University v. Marvell Technology Group, Ltd., although those cases appear to have used flawed methodologies.

WesternGeco involved infringement under 35 U.S.C. § 271(f)(2), a unique provision that defines infringement as the supplying from the United States of a component or components that have no substantial non-infringing uses, so long as the infringer knows that there are no other uses and intends to assemble the complete device overseas. The only issue in this case was one of damages: could the patentee receive lost profits for foregone sales of services using the patented invention on the high seas, outside of the United States.

The Federal Circuit had concluded the damages were not available by using the strict territorial limit on patent infringement damages it had embraced in Power Integrations and Carnegie Mellon. In all three cases, the Federal Circuit rejected damages awards for foreign activities, even though there was a predicate act of infringement.

The Federal Circuit in WesternGeco did not utilize the two-step framework for assessing the extraterritorial application of U.S. laws adopted by the Supreme Court in RJR Nabisco, Inc. European Community. Under RJR, a court at step one should determine whether the presumption against extraterritoriality has been rebutted, which occurs when “the statute gives a clear, affirmative indication that it applies extraterritorially.” If the presumption is not rebutted at step one, a court then goes to step two to assess if the focus of the statute to determine if, under the facts of the case, the statute is regulating domestic conduct, even if there may be some conduct that occurred abroad. Necessarily, an analysis of the focus of the statute is contingent on the particular facts of the case.

In WesternGeco, the Supreme Court utilized this framework, although it skipped step one and jumped straight to step two. The Court concluded that damages arising from foreign activity is permitted in this case. Noting that § 284 depends on the definition of infringement at issue, the Court turned to § 271(f)(2) to perform its focus analysis, concluding that § 271(f)(2)’s focus is exportation of components from the United States. These domestic acts thus resulted in the consequences for which damages are sought, so those damages should be available, contrary to the Federal Circuit’s holding.

What are some of the key implications and open questions after this decision?

The Court technically did not answer the question of whether the presumption against extraterritoriality applies to remedial provisions. The petitioner in this case argued that the presumption against extraterritoriality does not apply to remedial provisions at all. By skipping step one of the RJR analysis, the Court avoided answering this question. The Court was concerned that “resolving that question could implicate many other statutes besides the Patent Act.”

Interestingly, this move confirms that the presumption against extraterritoriality is really only found in step one of the RJR analysis. Step two is a distinct inquiry. Moreover, it is important that the Court did utilize the RJR framework at all, lending support for the view that this methodology is one of general application, even to remedial provisions. Future cases will have to determine the applicability of step one.

The analysis of remedies under step two depends on the nature of the provision defining liability. The Court also made clear that an analysis of the remedy provision of a statute will depend on the liability-creating portion of the statute at issue. Here, the Court turned to § 271(f)(2) to assess the focus of the statute; it did not simply focus on § 284 alone, which of course contains no territorial limits.

The Court thus rejected the approach urged by the petitioner and the Solicitor General that would have ignored the infringement provision at issue. Instead, they urged that only the compensatory nature of damages should be considered.

A proper step two analysis of § 284, therefore, depends on the relevant infringement provision. As acknowledged by Professor Stephen Yelderman of Notre Dame Law School, the Court “vindicated” the methodology I suggested both in an amici brief on behalf intellectual property law professors and in Boundaries, Extraterritoriality, and Patent Damages in the Notre Dame Law Review.

Moreover, the Court declined to overrule Power Integrations and Carnegie Mellon, notwithstanding the petitioner’s and Solicitor General’s arguments that these decisions were also wrong. Instead Court focused exclusively on § 271(f)(2), which means that the continued viability of Power Integrations and Carnegie Mellon remains an open question.

Issues of proximate cause may be coming down the pipeline, and maybe in this case. Some of the amicus briefs at the Court looked at the damages issue from the perspective of proximate cause. Professor Yelderman submitted an amicus brief that drew specific reference at oral argument, focusing extensively on proximate cause as it relates to damages. Similarly, the amici brief I submitted also raised issues of proximate cause, particularly in this case where the lost profits were for foregone services and not for lost sales of the invention.

Surprisingly, given the amount of discussion at oral argument on the subject, the Court relegated proximate cause to a footnote, noting “we do not address the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases.” Aside from punting on the issue, this footnote does implicitly suggest that proximate cause and extraterritoriality concerns are properly viewed as distinct concerns.

Moreover, it is unclear whether the Court is signaling to the Federal Circuit that proximate cause could still be an issue in this case. The Court rejected the bright-line rule against these damages offered by the Federal Circuit, but one could read that footnote to say it is an open issue in this case itself. Of course, given the Federal Circuit’s capacious views of proximate cause, it seems unlikely the Federal Circuit would use the doctrine to limit the damages here.

Do Power Integrations and Carnegie Mellon survive WesternGeco? The Court did not address extraterritorial damages under § 271(a), leaving these cases untouched. But what are the implications of WesternGeco for such worldwide damages theories? Professor Tom Cotter of the University of Minnesota School of Law believes those cases are no longer good law and that such damages would be available.

I disagree, however. I specifically analyzed those two cases using the RJR framework in Boundaries, Extraterritoriality, and Patent Damages. In my view, the focus of § 271(a) is more dramatically circumscribed territorially. Although any analysis of a statute’s focus depends on the particular facts of a given case, § 271(a)’s expressly is limited to infringement within the United States. While some transnational acts could be ensnared in such a focus, such as uses of transnational systems as in NTP Inc. v. Research in Motion, Ltd. or transnational deals to sell inventions in the United States as in Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc., damages for wholly domestic acts of infringement would seem to be limited to acts within the United States. Thus, while the reasoning is wrong, the outcomes in Power Integrations and Carnegie Mellon may actually be correct. The focus of the § 271(a) is infringement only within the United States and not focused on exportation, as was the case in WesternGeco. Nevertheless, this issue remains open after WesternGeco, though we now know a court should approach the issue through the RJR framework.

For a short decision, the Court does offer some important insights relevant to its broader efforts in addressing the presumption against extraterritoriality. Nevertheless, the narrowness of the decision leaves to future cases a variety of important issues. The opinion likely will work as a roadmap for future litigants to raise them.

 

WesternGeco v. Ion: Supreme Court holds that foreign lost profits available for infringement under 271(f)

By Jason Rantanen

WesternGeco LLC v. Ion Geophysical Corp. (2018), 2018 U.S. LEXIS 3842   Download Opinion
Majority: Thomas (author), Roberts, Kennedy, Ginsburg, Alito, Sotomayor, and Kagan. Dissent: Gorsuch, joined by Breyer.

In its final patent-related opinion of this term, the Supreme Court held that 35 U.S.C. § 284 permits the award of lost foreign profits.  In reaching its conclusion, the Court rejected the position of the Federal Circuit that the presumption against extraterritoriality precluded the award.  Full disclosure: I joined an amicus brief written by Emory Professor Timothy Holbrook that argued that the presumption against extraterritoriality applied here.

From pages 7-8 of the majority opinion:

In sum, the focus of §284, in a case involving infringement under §271(f)(2), is on the act of exporting components from the United States. In other words, the domestic infringement is “the objec[t] of the statute’s solicitude” in this context. Morrison, 561 U. S., at 267. The conduct in this case that is relevant to that focus clearly occurred in the United States, as it was ION’s domestic act of supplying the components that infringed WesternGeco’s patents. Thus, the lost-profits damages that were awarded to WesternGeco were a domestic application of §284.

The Court expressly declined to address the issue of proximate causality, which as Tom Cotter points out, would seem to provide an important limitation on the abilities of patent owners to obtain lost profits for § 271(f)(2) infringement. Slip Op. at 9, n. 3 (“In reaching this holding, we do not address the extent to which other doctrines, such as proximate cause, could limit or preclude damages in particular cases.”).  Given all this, I expect that parties will now focus heavily on proximate cause issues when arguing about remedies for § 271(f)(2) liability.

Tom Cotter has a detailed post about the decision on his Comparative Patent Remedies blog.

 

Oil States and SAS are out

By Jason Rantanen

Oil States Energy Services v. Greene’s Energy Group: Inter partes review does not violate Article III or the 7th Amendment.  Patents are public rights for purposes of this question.  This holding is a self-proclaimed narrow one that “should not be misconstrued as suggesting that patents are not property for the purposes of the Due Process Clause or Takings Clause.” Thomas for the majority; Breyer with a concurring opinion (joined by Ginsburg and Sotomayor), Gorsuch dissenting (joined by Roberts).  Opinion here: Oil States v. Greene’s Energy

SAS Institute v. Iancu: When the USPTO institutes an inter partes review, it must decide the patentability of all of the claims the petitioner challenged, based on the plain text of § 318(a).  Gorsuch for the majority; Ginsburg dissenting (joined by Bryer, Sotomayor, and Kagan); Breyer dissenting (joined by Ginsburg and Sotomayor, and Kagan in part).  Opinion here: SAS v. Iancu

Off to teach Administrative Law, so more to come later.

Update: Prof. Tom Cotter has a longer summary on his Comparative Patent Remedies blog: http://comparativepatentremedies.blogspot.com/2018/04/us-supreme-court-upholds-inter-partes.html

 

 

Guest Post by Professor Chien: Inequality, Innovation, and Patents

Guest post by Colleen V. Chien, Associate Professor of Law at Santa Clara University School of Law. Thanks to the USPTO Office of the Chief Economist and Innography for sharing patent data.

Just over a week ago, the United States proposed tariffs on over 1,000 Chinese imports in response to various intellectual property grievances. China responded with a number of proposed counter-tariffs. One of the most notable, as well as unfortunate, aspects of China’s proposed tariffs—which heavily target American soybeans and pork—is that harms to U.S. producers would apparently disproportionately fall on certain Midwestern states that had previously benefited from access to Chinese markets.

I argue in a new working paper focused on the often-overlooked question of how innovation is distributed among various settings that just as trade creates winners and losers, so too does patented innovation. Advances in the accessibility and quality of open patent data, largely made possible by the USPTO’s Office of the Chief Economist, provide a way to explore distributional questions that have long been at the heart of the patent system.  Specifically, the data can give insight into the participation of small and independent innovators, the role of foreigners, and geographic and corporate concentration of patenting. It has also allowed recent discussions regarding who becomes an inventor and the extent to which innovation creates or destroys jobs.

As the paper documents, shifts in patented innovation over the last several decades have contributed to broader social and economic shifts away from manufacturing-based, domestic, and independent innovation, and towards digital, foreign, coastal, and corporate innovation – validating both optimistic accounts of immigration-driven, digital prosperity and pessimistic accounts of the shrinking role of domestic, manufacturing-based innovation. As the Figure[1] below shows, the shift in innovation towards urban and coastal locations also corresponds with, though is not necessarily caused by, the more liberal political attitudes of these areas. Also discussed in the paper are left and right wing “patent populism” – targeting both powerful IP “maximalists” and powerful IP “minimalists.”

Fig. 1F: 2015 Patents per 10K Capita                  Fig. 1G: 2016 Presidential Election Results

County Patent Density % Trump % Clinton
<3 patents 66.1% 39.9%
3+ patents 32.9% 67.1%

Data Sources: USPTO,[2] US Census,[3] Data.world (election data),[4]Author’s Analysis, Distributions calculated based on covered population in counties

However, to those of us who participate in the patent system, perhaps what is most striking is the increasingly unequal distribution of new patents to the point where 53%  of patent grants in 2016 were issued to the top 1% of grantees (up from 38% in 1986). Industry effects are strong, with some 83% of 2016 “electrical engineering” patents[5] going to the top 10% (as compared to 61% of chemistry[6] patents), but cannot explain the long-term trend. As the paper also details, while patent inequality is at a historic high, the share of small and micro entity patenting also appears to be at its lowest point in recent decades, though, not for the reasons you might suspect. (You’ll need to read the paper for the full story.)

Data Sources: USPTO PatentsView, Innography

Some of implications of the data are discussed in the paper, which raises more questions than it answers. Whatever one takes from them, however, it is clear, at least in my mind, that there is much to be learned by looking at not just the amount of patented innovation, but at how it is distributed.

[1] Produced by the talented Santa Clara Law 3L student Jerome Ma.

[2] 2015 Patent Listing by US County (available at https://www.uspto.gov/web/offices/ac/ido/oeip/taf/reports_cbsa.htm)

[3] https://www.census.gov/data/datasets/2017/demo/popest/counties-total.html

[4] https://data.world/garyhoov/2016-pres-election-by-county

[5] A category defined by the scheme used by WIPO laid out by Shmoch, as including digital communications, computer technology, communications processes, telecommunications, and semiconductors.

[6] A category defined by the scheme used by WIPO laid out by Shmoch, as including pharmaceuticals, biotechnology, chemistry and environmental innovations.

 

Congratulations to the AIPLA G.S. Rich Patent Moot Court finalists!

By Jason Rantanen

The regional round of the AIPLA Giles S. Rich Patent Moot Court competition took place last weekend.  I know how much work goes into these competitions–merits briefs on both sides plus preparation to argue both sides–so kudos to all competitors.  Particular congratulations go to the winners and runners-up, who will be competing at the Federal Courts Building in Washington D.C. on April 18-20.  The final round will be heard by Judges Prost, Reyna and Chen.

Spoiler alert: the names of the competitors and schools are listed on the next page.

(more…)

Oracle v. Google: The Federal Circuit goes all-in on copyright and software

By Jason Rantanen

Oracle America, Inc. v. Google LLC (Fed. Cir. 2018) Read opinion

Panel: O’Malley (author), Plager and Taranto*

This is a huge decision on multiple levels, and the latest exchange in the long-running battle between Oracle (the copyright owner) and Google (the alleged infringer).  In the first appeal, the Federal Circuit rejected Google’s arguments that the Java “packages” at issue were unprotectable under copyright law.  The court remanded the case for further proceedings on Google’s fair use defense.  (15 U.S.C. § 107)  On remand, the district court held a jury trial on that issue.  The jury found in favor of fair use and the district judge denied Oracle’s motion for JMOL.

Oracle appealed and the Federal Circuit reversed, essentially going all-in on the issue of copyright infringement when it comes to software. First, fair use is a question that is largely addressed de novo by appellate courts, and second, when it comes to software, the court’s analysis all but says (expressly so!) that fair use can never apply.  This opinion comes on the shoulders of the same panel’s previous opinion concluding that Oracle’s API packages meet the requirements for copyright protection.  I see the court as going “all in” here both by its adoption of a nondeferential standard of review (keeping in mind that Ninth Circuit law is controlling), as well as the combination of its conclusions on protectability and inapplicability of fair use in this context.

Standard of Review

In a detailed discussion of the standards of review, the Federal Circuit concluded that, under Ninth Circuit case law:

  • the jury role in determining whether fair use applies “is limited to determining disputed ‘historical facts’ not the inferences or conclusions to be drawn from those facts” (Slip Op. at 24); “[a]ll jury findings relating to fair use other than its implied findings of historical fact must, under governing Supreme Court and Ninth Circuit case law, be viewed as advisory only.” (id. at 26).
  • we must assess all inferences to be drawn from the historical facts found by the jury
    and the ultimate question of fair use de novo, because the Ninth Circuit has explicitly said we must do so.

This framework should be familiar: it’s essentially the same approach that the court takes in reviewing nonobviousness determination, a fact that did not escape the court’s notice.  Slip Op. at 25, n. 4.  Since the meat of the fair use analysis is in the inferences drawn from the historical facts and the balancing of all the factors, the functional result of this standard of review was that the court largely reviewed the fair use determination de novo.

Fair Use Analysis

Much will be written about the court’s fair use analysis; most of it more insightful than anything I can offer.  The court’s analysis draws heavily on Ninth Circuit caselaw.  Here’s the gist:

  • Factor 1 (Purpose and character of the use): The Federal Circuit concluded that Google’s use was (a) Commercial; (b) Non-transformative.  In addressing the “commercial” aspect, the court drew heavily on the reasoning of Harper & Row and Am. Geophysical Union, and barely mentioned Campbell.  On the question of whether Google’s use was transformative, the court applied this requirement: “To be transformative, a secondary work must either alter the original with new expression, meaning, or message or serve a new purpose distinct from that of the original work.”  Slip Op. at 31.  There’s a lot of grist to grind here in the inevitable Supreme Court appeal.  Bad faith didn’t play a role because (1) it’s one-directional, weighing only against a finding of fair use, and (2) there was no basis for disturbing the jury’s implicit finding of no bad faith.
  • Factor 2 (Nature of the copyrighted work): The Federal Circuit concluded that this factor did weigh in favor of Google, but it was the only one that did.  Here, while the Java API may have met the minimum requirements for copyright protection, “reasonable jurors could have concluded that functional considerations were both substantial and important.”
  • Factor 3 (Amount and substantiality of the portion used): The Federal Circuit concluded that Google did not duplicate “the bare minimum of the 37 API packages, just enough to preserve inter-system consistency in usage,” thus copying only “only so much as was reasonably necessary.”  Instead, the court concluded: “We disagree that such a conclusion would have been reasonable or sufficient on this record.”  (Slip Op, at 46).  Furthermore, “(e)ven assuming the jury accepted Google’s argument that it copied only a small portion of Java, no reasonable jury could conclude that what was copied was qualitatively insignificant, particularly when the material copied was important to the creation of the Android platform.” (Slip Op. at 47)  (Is the court really saying that because the copied material was functionally important, therefore its copying was not fair use?)
  • Factor 4 (Effect upon the potential market): Either the most important factor or an equally important factor; maybe we’ll get more clarity on this in a Supreme Court opinion in this case.   This is basically the derivative/licensed market issue, which commentators can go in circles about.  The short of it is that the Federal Circuit reversed the district judge, agreeing with Oracle that the market harm was “overwhelming.”

Balancing: applying its de novo standard, the Federal Circuit concluded that Google’s use was not fair use.  “There is nothing fair about taking a copyrighted work verbatim and using it for the same purpose and function as the original in a competing platform.”  (Slip Op. at 54).

All that said, the court concludes by refusing to say that fair use can never apply to software–although it’s statement simultaneously declines to cross that line while implying that’s what it’s reasoning leads to:

We do not conclude that a fair use defense could never be sustained in an action involving the copying of computer code. Indeed, the Ninth Circuit has made it clear that some such uses can be fair. See Sony, 203 F.3d at 608; Sega, 977 F.2d at 1527-28. We hold that, given the facts relating to the copying at issue here—which differ mate-rially from those at issue in Sony and Sega—Google’s copying and use of this particular code was not fair as a matter of law.

Stay tuned for the en banc petition–or perhaps direct request for certiorari.

*Note that this is the same panel as decided the earlier appeal in this case.  See 13-1021.Opinion.5-7-2014.1

Prior posts:

 

The Landscape of Modern Patent Appeals

By Jason Rantanen

For the past few years, I’ve been working on a project with the working title “the Federal Circuit Database Project.”  The goal of this project is to develop an accurate, reliable and transparent database containing information about the Federal Circuit’s patent law-related decisions that would be of interest to scholars, commentators and policymakers.  In keeping with the public nature of the University of Iowa College of Law, I wanted the database to be accessible and usable by anyone.

The first stage of that project, now called The Compendium of Federal Circuit Decisions, is complete.  The Compendium contains records for all documents released on the Federal Circuit’s website in an appeal arising from the USPTO or District Courts.  In practice, this means all written opinions back to late-2004 and all Rule 36 affirmances since mid-2007, along with a smorgasbord of orders and errata.  Each record contains multiple pieces of information about those documents, including whether the decision was precedential, who the authors are, whether there is a dissent or concurrence, the year of the decision, and more.  The data and its interface was structured from the ground-up in a format that would be useful for people seeking quantitative data about the court’s decisions, rather than for the purposes of traditional legal research.  The data export feature allows for all the information to be used in your favorite analytical toolset.

In order to kick off the Compendium, I wrote a short article describing the database and reporting some core descriptive statistics about the court’s decisions in appeals arising from the UPSTO and District Courts.  The draft of that article, called The Landscape of Modern Patent Appeals (forthcoming Am. U. L. Rev.) can be accessed here.  It’s still in production–the graphs, in particular, are low-resolution placeholders.

Below are graphs that might be of particular interest to readers of this blog: the types of nonprecedential decisions in appeals arising from the USPTO and District Courts.  The paper goes into more detail, but the short of it is that the frequency at which the court used Rule 36 affirmances fell substantially in 2017 (for district courts) and for both 2016 and 2017 (for the USPTO).  There are many more descriptive statistics and graphs in the paper, including the proportions of Federal Circuit decisions that arise from the PTAB & BPAI versus the TTAB, degree of agreement among panel members, the rate of the court’s production of precedential opinions, and even per-judge authorship data.

Although the project is now at its first milestone, there is much more to be done.  Future stages include adding new types of information to the records (such as subject-matter issues and disposition), adding documents in appeals arising from other sources, particularly the ITC, and improving the on-the-fly graphical functionality.  Comments and feedback on the project are welcome if you email me directly.

Note: In order to continue with the soft opening, and to avoid the possibility of stress-testing the Compendium, I intentionally did not include a link directly to the database in this post.  The Landscape of Modern Patent Appeals does contain the link. I’ll add it to PatentlyO in the near future.