All posts by Jason Rantanen

About Jason Rantanen

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

Federal Circuit Statistics Update – September 2020

By Jason Rantanen

Last week we released version 1.16 of the Compendium of Federal Circuit Decisions, which is a publicly-available dataset containing information about all documents published by the Federal Circuit on its website since 2004 (which includes all opinions and, since 2007, all Rule 36 summary affirmances).  The Compendium was designed from the ground-up to be used for empirical research rather than as a conventional legal research tool.

Generally, there haven’t been any striking changes in the statistics for the court’s opinions and Rule 36 summary affirmances so far in 2020.  The below two graphs are the basic ones that I usually show: opinions and Rule 36 affirmances by the Federal Circuit in appeals arising from the PTO and district courts.

The Federal Circuit’s decision output for appeals arising from the USPTO and District Courts for the first eight months of 2020 looks similar to the last few years.  Currently, the court is on track to write few more opinions in cases arising from the district courts and a few less in cases arising from the PTO, but both numbers are similar to last year (so far).  It’s worth noting that COVID-19 hasn’t really affected the court’s decision output.

One noteworthy shift is the relative drop in Rule 36’s.  So far in 2020, the court has decided more appeals via the mechanism of nonprecedential opinion and fewer through summary affirmance–especially in appeals arising from the PTO.

Affirmance rates continue to be in line with the past: the vast majority of decisions result in the affirmance of the lower tribunal.*  Over the last few years, the court has consistently affirmed the PTO outright about 80% of the time, and affirmed-in-part another 7% of the time.  The district courts have been affirmed a bit less often: about 70% of the time the court is affirmed entirely, and another 13% of the time it has been affirmed-in-part.  The court’s decisions in 2020 have been consistent with these metrics.

Who’s written the most majority opinions in patent case so far this year?  For appeals arising from the PTAB, it’s been Chief Judge Prost at 14, followed by “Per Curiam” at 12.  This isn’t a new development: panels have been issuing opinions Per Curiam at a rate of about 8-16 per year for the past five years.  For appeals arising from the district courts, Judge Lourie has written the most at 16 opinions so far this year; Judge Moore has written the second-most at 11 (also joined by the panel writing Per Curiam.)

You’re welcome to play around with the data on your own here: https://empirical.law.uiowa.edu/compendium-federal-circuit-decisions.  Keep in mind that with any empirical data project, it’s important to be mindful of what the data means, as well as its limitations (many of which I discuss here and here).

*For those wondering how this data relates to the statistics on the Federal Circuit’s webpage, the Federal Circuit reports reversal rates based on Financial Year (10/1 – 9/30) rather than Calendar Year, only considers complete reversals as reversals (i.e.: an affirmance-in-part is not a reversal), and calculates its reversal rate as a function of appeal docket numbers rather than decisions (for example, a single decision can, in rare instances, involve 10 or more appeal docket numbers).  See id. at 260, 263, 278.

Thanks to Meddie Demmings IV, Dan Kieffer, Lindsay Kriz, Ryan Meger, and Madison Murhammer Colon for assistance in collecting this data.

Guest Post: How the West Became the East: The Patent Litigation Explosion in the Western District of Texas

Guest post by Paul R. Gugliuzza & J. Jonas Anderson.  Paul Gugliuzza is Professor of Law at Temple University Beasley School of Law. Jonas Anderson is Associate Dean for Scholarship and Professor of Law at American University Washington College of Law.

Move over Marshall. The new capital of American patent litigation is Waco, Texas. Waco’s sole federal judge, Alan Albright—who took the bench less than two years ago—now hears more patent cases than any other judge in the country.

It’s all happened quickly. As recently as 2018, the Western District of Texas, which spans from Waco, Austin, and San Antonio in the central part of the state to El Paso in its far western reaches, received only 90 patent cases, a mere 2.5% of patent cases filed nationwide. Two years later, the Western District is on pace to receive 850 patent cases by year’s end, roughly 22% of patent cases filed nationwide and more than any other district in the country.

Practically all of those cases are on Judge Albright’s docket. As the figure below shows, the Waco Division received a mere 28 patent cases in 2018, the year he took the bench. If current trends hold, Judge Albright alone will receive 779 patent cases in 2020, an increase of 2682%!

The explosion of patent cases in Waco—the vast majority of which are filed by non-practicing entities—is fueled by Judge Albright’s concerted efforts to attract patent plaintiffs. He has been explicitly advertising his district—through presentations to patent lawyers, comments to the media, procedures in his courtroom, and decisions in patent cases—as the place to file your patent infringement lawsuit.

In a draft article, now available on SSRN, we identify five reasons why the Western District is attractive to patentees and explain why they are problematic:

1. The Western District’s case assignment practice enables plaintiffs to predict—with absolute certainty—that Judge Albright, not any of the 16 other judges sitting in the district, will hear their case. All they have to do is select “Waco” from the drop-down menu on the court’s electronic filing system and the case is automatically assigned to Judge Albright.

2. Judge Albright has adopted a fast-track scheduling order that sets deadlines useful to patentees seeking to elicit quick settlements and avoid PTAB review.

3. Venue transfer decisions: Judge Albright rarely transfers cases out of the Western District of Texas (only 3 of 14 inter-district transfer motions have succeeded to date), a practice also used by judges in the Eastern District of Texas during its heyday as the go-to district for patent litigation. More remarkably, Judge Albright regularly transfers cases filed in the Western District’s Waco Division to its Austin Division while retaining the case on his own docket (50 cases and counting so far).

It’s worth pausing to emphasize what this means: patentees are filing in Waco to guarantee Judge Albright is assigned to the case. But they do not actually have to litigate in Waco to keep the case in front of Judge Albright. Rather, they can ask him to transfer the case to the more desirable locale of Austin and he will do it as a matter of course—even though, if the case had been filed in Austin originally, there is zero chance Judge Albright would have been assigned to it.

4. Judge Albright seems reluctant to stay litigation pending related disputes in other forums, such as the PTAB, not just because of the aggressive schedule he sets but also because of a normative belief that patentees have a constitutional right to have a jury decide patent validity.

5. Judge Albright has never invalidated a patent on eligibility grounds (10 motions, 10 denials), even though many of the patents being asserted are the “do it on a computer” patents at which the Supreme Court’s Alice decision was most directly targeted.

Though many reforms could help solve these problems, we focus on two.

First, there’s surprisingly no law that requires cases to be randomly assigned among judges of a particular district. Mandating random assignment would curb the judge shopping that incentivizes judges to distort procedures and the law for the specific purpose of attracting litigation.

Second, venue in patent cases should be tied to geographic divisions within a judicial district, not just the district as a whole. As applied to the Western District of Texas, that reform would thwart the tactic of using a defendant’s activities in Austin to establish venue in Waco for the sole purpose of shopping for the Waco division’s only judge.

Read the full article at https://ssrn.com/abstract=3668514.

 Edit: updated with a more recent graph.

New PatentlyO Law Journal Essay: Two Errors in the Ninth Circuit’s Qualcomm Opinion

New PatentlyO Law Journal article by Thomas F. Cotter, Taft Stettinius & Hollister Professor of Law, University of Minnesota Law School, and Innovators Network Foundation Intellectual Property Fellow.  Professor Cotter is also the author of the Comparative Patent Remedies blog

Abstract: On August 11, 2020, the Ninth Circuit handed down its opinion in Federal Trade Commission v. Qualcomm Inc., reversing the district court’s judgment in favor of the FTC. This essay argues that the Court of Appeals made two significant errors in its analysis. The first relates to the court’s failure to understand how Qualcomm’s conduct in the market for patent licenses affects competition in the complementary market for smartphone chips. The second concerns the court’s statement, at odds with the D.C. Circuit’s landmark decision in Microsoft, that if conduct “is not anticompetitive under § 1, the court need not separately analyze conduct under § 2.”

From the Introduction: 

On August 11, 2020, the United States Court of Appeals for the Ninth Circuit handed down its opinion in one of the most closely-watched, and potentially consequential, antitrust decisions in recent years, Federal Trade Commission v. Qualcomm Inc.[1] The opinion, authored by Judge Consuelo Callahan and joined by Judges Johnnie Rawlinson and Stephen Murphy III, reversed the district court’s judgment in favor of the Federal Trade Commission (FTC).[2]  Whether the FTC will pursue any further relief, by way of a petition for rehearing en banc or for certiorari, remains (as of this writing) uncertain.  Regardless of whether it does or not, however, it is important to note two fundamental errors in the court’s analysis which, if not corrected or limited by subsequent case law, could lead to serious problems in future litigation.

Read Thomas F. Cotter, Two Errors in the Ninth Circuit’s Qualcomm Opinion, 2020 Patently-O Patent Law Journal 1 (2020).

Prior Patently-O Patent L.J. Articles:

  • Jasper L. Tran & J. Sean Benevento, Alice at Five, 2019 PatentlyO L.J. 25 (2019) (Tran.2019.AliceatFive.pdf)
  • Bernard Chao, Implementing Apportionment, 2019 PatentlyO L.J. 20 (Chao.2019.ImplementingApportionment)
  • Jeremy C. Doerre, Is There Any Need to Resort to a § 101 Exception for Prior Art Ideas?, 2019 PatentlyO L.J. 10. (2019.Doerre.AnyNeed)
  • Colleen V. Chien, Piloting Applicant-Initiated 101 Deferral Through A Randomized Controlled Trial, 2019 Patently-O Patent Law Journal 1. (2019.Chien.DeferringPSM)
  • 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)

 

“No License, No Problem” – Is Qualcomm’s Ninth Circuit Antitrust Victory a Patent Exhaustion Defeat?

Guest post by University of Utah College of Law Professor Jorge L. Contreras

The Ninth Circuit’s recent decision in FTC v. Qualcomm (9th Cir., Aug. 11, 2020) is generally viewed as a resounding victory for Qualcomm.  In a strongly worded opinion, the Ninth Circuit reversed the entirety of the district court’s holding, which found that Qualcomm violated Sections 1 and 2 of the Sherman Act.  The Ninth Circuit exonerated Qualcomm with respect to each of its allegedly anticompetitive practices, concluding that these practices merely reflected the flexing of Qualcomm’s “economic muscle” with admirable “vigor, imagination, devotion, and ingenuity” (slip op. at 55).

Among Qualcomm’s challenged practices was its refusal to license rival chip makers under patents that are essential to one or more wireless telecommunications standards (standards-essential patents or SEPs).  While the District Court found that this refusal violated Qualcomm’s antitrust duty to deal under Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985), the Ninth Circuit disagreed.  It reasoned that Qualcomm did not violate any duty to deal because it uniformly refused to grant patent licenses to chip makers and did not “single[] out any specific chip supplier for anticompetitive treatment” (slip op. at 35).

In praising Qualcomm’s egalitarian approach toward rival chip makers, the Ninth Circuit points out that instead of granting licenses to these rivals, Qualcomm merely “declines to enforce its patents” against them “even though they practice Qualcomm’s patents” (id). As such, the Ninth Circuit quips that Qualcomm’s “policy toward rival chipmakers could be characterized as ‘no license, no problem’” (id., emphasis added).  Yet, as I discuss below, this approach could actually be a very big problem, not only for Qualcomm, but for all patent licensors seeking to extract revenue from the most lucrative point in the supply chain.

The Patent Exhaustion Doctrine and Chip Sales

As the Supreme Court explained in Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008), “The longstanding  doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item.”  That is, once the patent holder or its authorized licensee sells a product covered by a patent, that patent can no longer be asserted against a downstream buyer or user of the product. The patent is “exhausted” with respect to that particular product.

In Quanta, LG licensed three patents to Intel.  Intel manufactured chips allegedly covered by the patents, then sold the chips to Quanta for incorporation into Quanta’s PCs. LG then attempted to assert the patents against Quanta.  The court held that so long as the Intel chips “substantially embodied the patent[s]”, they were exhausted upon Intel’s sale of the chips to Quanta (553 U.S. at 633).  LG had no right to assert the patents against Intel’s customer Quanta.

Level Discrimination and SEPs

To grossly oversimplify, the supply chain for standardized wireless telecommunications functionality can be divided into three relevant tiers: (1) standards developers, (2) chip manufacturers, and (3) end user device (e.g., smartphone) manufacturers.  Standards developers like Qualcomm cooperate within standards-development bodies to create telecommunications standards like 4G LTE. Chip manufacturers then implement these standards in chipsets, which they sell to device manufacturers for incorporation into smartphones and other consumer devices.

What happens, however, when a standards developer like Qualcomm holds patents (SEPs) that cover a standard like LTE?  In theory, both the chips embodying the standard and the smartphones incorporating those chips infringe its SEPs.  Thus the SEP holder could choose to license those SEPs at either Tier 2 (chip manufacturers) or Tier 3 (device manufacturers). How to choose?

If a SEP holder licenses a chip manufacturer, then its SEPs covering a particular chip will be exhausted as soon as the manufacturer sell that chip to a device manufacturer, just as LG’s patents were exhausted in Quanta.  This means that if the SEP holder licenses a Tier 2 chip manufacturer, it cannot separately license, or collect royalties from, Tier 3 smartphone manufacturers for the same SEPs.  Qualcomm was keenly aware of the risk of patent exhaustion, which is why it refused to grant “exhaustive” licenses to chip makers like Intel. 411 F.Supp.3d at 748, 761.

If SEP royalties were standardized on a per-unit basis (e.g. $0.50 per product embodying the standard), then it would not matter whether the SEP holder licensed its SEPs at Tier 2 or Tier 3.  In either case it would receive the same payment.  However, due to longstanding industry practice, that is not how SEP royalties are calculated. Instead, they are usually based on some percentage (say 2.5%) of the price of the product embodying the standard.  So for a 4G LTE wireless radio chipset priced at $30, the royalty would be $0.75.  But for a $600 iPhone incorporating that chipset, the royalty would be $15.  For this reason, SEP holders strongly prefer to license their SEPs to end device makers (Tier 3).  As explained by one Ericsson licensing executive, “we choose to license the patents as late in value chain as possible …. One big advantage with this strategy is also that it is likely that the royalty income will be higher since we calculate the royalty on a more expensive product.” Or, as more succinctly expressed by a Qualcomm attorney at trial, licensing SEPs to device makers is “humongously” more lucrative than licensing  them to chip makers. 411 F.Supp.3d at 754, 758, 796.  The practice by which a SEP holder licenses its SEPs at only one tier of the supply chain is sometimes called “level discrimination.” (Courts and commentators disagree whether level discrimination is permitted under the nondiscrimination prong of a FRAND commitment – see this article for a discussion).

Pseudo-Licensing Deals with Chip Makers

If a SEP holder licenses its SEPs at Tier 3, what happens to the Tier 2 chip manufacturer? Does the chip that embodies the standard infringe the SEPs?  Yes, probably. Patent exhaustion only works downstream, not upstream.  That is, a smartphone manufacturer can’t infringe a SEP if it purchases a chipset from a licensed chip maker.  But a chip manufacturer can infringe a SEP even if its customer (the smartphone maker) has a license to use it.  Without a license, the Tier 2 chip maker is exposed to infringement claims by the SEP holder.

So what’s a chip maker to do?  Should it manufacture and sell chipsets that embody a standard even though it knows that it is infringing a host of SEPs?  Wouldn’t this infringement be willful, subjecting the chip maker to a risk of treble damages (see Sec. 5.2.1(1) of this chapter for a discussion of willful infringement of SEPs)?  It seems like an untenable situation for a chip maker.

To address this situation, Qualcomm appears to have developed various strategies.  In the 1990s, it granted chip makers purportedly “non-exhaustive licenses” that permitted them to manufacture chipsets covered by Qualcomm’s SEPs (in exchange for a royalty), but which explicitly excluded any license rights for the purchasers of those chipsets (9th Cir., slip op. at 14 n.7).  In Quanta, the Supreme Court rejected such a “non-exhaustive” arrangement between LG and Intel, holding that LG’s patent rights were exhausted upon Intel’s sale of covered chips to Quanta.  After this, Qualcomm amended its practices and began to enter into “CDMA ASIC Agreements” with chip makers. Under these agreements, “Qualcomm promises not to assert its patents in exchange for the company promising not to sell its chips to unlicensed [smartphone manufacturers]” (9th Cir., slip op. at 14, emphasis added).  According to the Ninth Circuit, these agreements “allow Qualcomm’s competitors to practice Qualcomm’s SEPs royalty-free” (id.).  Or, as the court pithily observed, Qualcomm’s “policy toward rival chipmakers could be characterized as ‘no license, no problem’” (id. at 35).

The Ninth Circuit found that because Qualcomm applied its “no license, no problem” policy uniformly toward all rival chip makers, it did not violate the antitrust laws.  But did Qualcomm, instead, open the door to a finding that its patents are exhausted at the chip maker level?

Do SEP Makers Inadvertently Grant Exhaustive Licenses to Chip Makers?

As observed by the Ninth Circuit, Qualcomm “promises not to assert” its SEPs against chip makers.  Its CDMA ASIC Agreements allow chip makers “to practice Qualcomm’s SEPs royalty-free”.  Ericsson, which employs a similar form of level discrimination, has referred to the result as “indirect licensing” of chip manufacturers (see Ericsson v. D-Link, 2013 U.S. Dist. LEXIS 110585, *80 (E.D. Tx. 2013)).

In assessing whether a patent has been licensed, courts have generally looked beyond the language used by the parties.  As the Supreme Court reasoned in De Forest Radio Telephone Co. v. United States, 273 U.S. 236, 241 (1927), “No formal granting of a license is necessary in order to give it effect. Any language used by the owner of the patent, or any conduct on his part exhibited to another from which that other may properly infer that the owner consents to his use of the patent in making or using it, or selling it, upon which the other acts, constitutes a license”.

A number of lower court cases have equated a license to a ‘covenant not to sue’.  As the Federal Circuit held in Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1031 (Fed. Cir. 1995), “A license may amount to no more than a covenant by the patentee not to sue the licensee for making, using or selling the patented invention.”

Given this precedent, SEP holders’ practice of tacitly permitting chip manufacturers to operate under their patents, whether by promising not to assert or “indirectly” licensing, looks suspiciously like licensing.  And, if SEP holders are granting chip manufacturers licenses to make and sell chips under their SEPs, then those SEPs should, by rights, be exhausted upon the sale of those chips to smartphone and other device manufacturers.  And this exhaustion should thereby prevent SEP holders from seeking to license and collect royalties from Tier 3 device manufacturers who incorporate those chips into their smartphones and other products.

This result should come as no surprise to anyone, least of all Qualcomm.  According to the District Court, a Qualcomm executive admitted to the IRS in 2012 that “if Qualcomm licensed a rival [chip manufacturer] … ‘[W]hen [the rival] sell[s] that chip to somebody who’s going to put the chip in a cell phone, okay, the licensee’s sale of that chip will exhaust our rights and then we won’t be able to collect a royalty on a cell phone that’s based on the price of the cellphone’” (411 F.Supp.3d at 796).  When Huawei apparently asserted that Qualcomm’s SEPs were exhausted after selling chips to Huawei, Qualcomm allegedly “threatened to cut off [Huawei’s] chip supply” (id. at 712).

These statements and actions indicate that Qualcomm was well-aware of the threat of patent exhaustion, and actually took measures to avoid the appearance of exhaustion (e.g., by converting its chip maker license agreements into CDMA ASIC Agreements).  Yet in trying to rebut the antitrust allegations made against it, and to overturn the District Court’s antitrust holdings, Qualcomm seems to have persuaded the Ninth Circuit that it effectively grants licenses to rival chip manufacturers. And, in doing so, Qualcomm may have armed its next smartphone licensee with a potent exhaustion defense to any claim of infringement.  Ultimately, “no license, no problem” may cause big problems for Qualcomm and other SEP holders that seek to license only at the most lucrative level of the supply chain.

The UK Supreme Court’s Re-interpretation of FRAND in Unwired Planet v. Huawei

Guest post by University of Utah College of Law Professor Jorge L. Contreras

In its Judgment of 26 August 2020, [2020] UKSC 37, the UK Supreme Court affirms the lower court decisions ([2017] EWHC 711 (Pat) and [2019] EWCA Civ 38) in the related cases Unwired Planet v. Huawei and ZTE v. Conversant [I discuss the High Court’s 2017 decision here].  The judgment largely favors the patent holders, and holds that a UK court may enjoin the sale of infringing products that incorporate an industry standard if the parties do not enter into a global license for patents covering that standard. The court covers a lot of important ground, including the parties’ compliance with EU competition law under Huawei v. ZTE (CJEU, C-170/13, 2015) (¶¶ 128-158) and the appropriateness of injunctive remedies under UK law (¶¶ 159-169). But in this post, I will focus on what I consider to be the most significant aspect of the court’s judgment – its interpretation of the patent policy of the European Telecommunications Standards Institute (ETSI), an interpretation that largely determines the outcome of the case and could have far-reaching ramifications for the technology sector.

Background

The case began in 2014 when Unwired Planet, a U.S.-based patent assertion entity (PAE), sued Huawei and other smartphone manufacturers for infringing UK patents that it acquired from Ericsson (other suits were brought elsewhere). The patents were declared essential to the 2G, 3G and 4G wireless telecommunications standards developed under the auspices of ETSI, an international standards-setting organization (SSO).  A companion case was brought by another PAE, Conversant, with respect to similar patents that it acquired from Nokia.

Because Ericsson and Nokia participated in standards-development through ETSI, they were bound by ETSI’s various policies, including its patent policy.  Accordingly, when the patents were acquired by Unwired Planet and Conversant, these policies continued to apply.  The ETSI patent policy requires that ETSI participants that hold patents that are essential to the implementation of ETSI standards (standards-essential patents or SEPs) must license them to implementers of the standards (e.g., smartphone manufacturers) on terms that are “fair, reasonable and non-discriminatory” (FRAND).

Huawei and ZTE are China-based smartphone manufacturers with operations in the UK.  Unwired Planet and Conversant offered to license the patents to them on a worldwide basis, but the manufacturers objected to their proposed royalty rates, claiming that they were not FRAND. Among other things, Huawei argued that any license entered to settle the UK litigation should cover only UK patents.  After numerous preliminary proceedings, in 2017 the UK High Court (Patents) held that a FRAND license between large multinational companies is necessarily a worldwide license. Moreover, if Huawei did not agree to such a worldwide license incorporating FRAND royalty rates determined by the court, the court would enter an injunction against Huawei’s sale of infringing products in the UK. The Court of Appeal largely affirmed the High Court’s ruling.

The UK Supreme Court Embraces SSO Policy Interpretation

In its judgment, the UK Supreme Court gives significant weight to the language and intent of the ETSI patent policy – far more than either the High Court of the Court of Appeal.  This approach contrasts starkly with that of the U.S. Court of Appeals for the Ninth Circuit, which decided another FRAND case, FTC v. Qualcomm (9th Cir., Aug. 11, 2020), just a fortnight earlier.  The Ninth Circuit explicitly dodged any interpretation of the SSO policies at issue in that case (those of the Telecommunications Industry Association (TIA) and Alliance for Telecommunications Industry Solutions (ATIS)), focusing solely on the antitrust issues raised by the parties.  The UK Supreme Court, in contrast, appears to have embraced the exercise of SSO policy interpretation, focusing intently on the language and drafting history of the ETSI policy, as well as its own conclusions about the intent of that language.  This judicial interpretive exercise leads to three key holdings in the case:

ETSI’s Policy Compels a Worldwide License

In determining that a FRAND license between Unwired Planet and Huawei should be global in scope, rather than limited to the UK, Mr Justice Birss of the UK High Court looked to industry practice and custom. He first noted that “the vast majority” of SEP licenses in the industry, including all of the comparable licenses introduced at trial, were granted on a worldwide basis, and both Unwired Planet and Huawei are global companies.  He then reasoned that “a licensor and licensee acting reasonably and on a willing basis would agree on a worldwide licence” (¶543).  In contrast, he regarded the prospect of two large multinational companies licensing SEPs on a country-by-country basis to be “madness” (¶543). Accordingly, the High Court held that  a FRAND license, under these circumstances, must be a worldwide license.

The UK Supreme Court acknowledges the industry practices referenced by the High Court, but bases its reasoning much more heavily on ETSI’s patent policy. First the Supreme Court recognizes the inherent territorial limitations on the jurisdiction of national courts (¶58). However, it is the ETSI patent policy, adopted by the SSO and accepted by its participants, that opens the door both to the consideration of industry practices (¶61) and the extension of national court jurisdiction to the determination of global royalty rates. The Court concludes, “[i]t is the contractual arrangement which ETSI has created in its patent policy which gives the [English] court jurisdiction to determine a FRAND licence” for a multi-national patent portfolio (¶58).  Thus, the Supreme Court affirms the decisions of the lower courts, but grounds its decision more firmly in the ETSI patent policy.

ETSI’s Policy Contemplates Injunctions

The Supreme Court also relies on the ETSI patent policy to support its conclusion that SEP holders may seek injunctions against standards implementers who do not enter into FRAND license agreements. The availability of injunctions in FRAND cases has been the subject of considerable debate in jurisdictions around the world. The UK court comes down in favor of allowing such injunctions, not on the ground that patent holders can do whatever they like, but because “[t]he possibility of the grant of an injunction by a national court is a necessary component of the balance which the [patent] policy seeks to strike, in that it is this which ensures that an implementer has a strong incentive to negotiate and accept FRAND terms for use of the owner’s SEP portfolio” (¶61).

This conclusion is striking in two regards.  First, it largely omits the analysis of EU competition law that typically accompanies the consideration of injunctive relief in EU FRAND cases.  While the Court later discusses Huawei v. ZTE at length (¶¶ 128-158), it does so while analyzing whether the parties violated applicable competition law, not whether competition law itself establishes a basis for seeking injunctive relief.

Second, and more surprisingly, the Court imputes to the ETSI patent policy an affirmative authorization to seek injunctive relief that is found nowhere in the policy itself.  From the fact that the patent policy includes provisions that are favorable to both implementers and SEP holders, the Court finds that the policy intended to establish a “balance” between these two groups, and that a “necessary component” of that balance is the ability of the SEP holder to seek an injunction against the implementer.

This is a surprising result that was not forecast in either of the decisions below. It is particularly significant because it may influence other courts’ interpretations of the ETSI patent policy.  It may also encourage other SSOs, if not ETSI itself, to adopt policy language expressly prohibiting participants from seeking injunctive relief against adopters of their standards (as IEEE has already done).

 Non-Discrimination is Not a Stand-Alone Commitment

The third significant aspect of the judgment relates to the non-discrimination (-ND) prong of the ETSI FRAND commitment.  At the High Court, Mr Justice Birss held that the -ND part of a FRAND commitment does not have a “hard edge”, which would mandate that every FRAND license must be priced at exactly the same rate. Instead, based on EU competition law, he found that differences in pricing should not be objectionable unless they distort competition.  As such, he did not fault Unwired Planet for pricing some FRAND licenses below the rates that it offered to Huawei.

I disagreed with Justice Birss’s reasoning on this point in 2017, arguing that it “conflate[s] two issues: the competition law effects of violating a FRAND commitment, and the private “contractual” meaning of the FRAND commitment itself.” I was thus pleased to see that the UK Supreme Court looks not to competition law, but to the content of the ETSI patent policy, to define the scope of the SEP holders’ non-discrimination obligation.

This being said, the Court’s interpretation of “non-discrimination” is novel and somewhat radical.  Rather than considering the -ND prong of FRAND to be an independent commitment of the SEP holder – that the licenses it grants not discriminate (however that is defined) — the Court blends the -ND prong  together with the “fair and reasonable” (FRA-) prong to form a “general” obligation.  It explains,

Licence terms should be made available which are ‘fair, reasonable and non-discriminatory’, reading that phrase as a composite whole. There are not two distinct obligations, that the licence terms should be fair and reasonable and also, separately, that they should be non-discriminatory. Still less are there three distinct obligations, that the licence terms should be fair and, separately, reasonable and, separately, non-discriminatory” (¶113 (emphasis added)).

As evidence for its interpretation, the Court points to ETSI’s rejection, in 1993, of a ‘most-favored license’ clause in its patent policy.  Interpreting the policy’s non-discrimination commitment as a ‘hard edged’ commitment would, in the Court’s view, re-introduce most-favored treatment “by the back door” (¶116).  As a result, the Court concludes that the non-discrimination prong of ETSI’s FRAND commitment merely “gives colour to the whole and provides significant guidance as to its meaning. It provides focus and narrows down the scope for argument about what might count as ‘fair’ or ‘reasonable’ for these purposes in a given context” (¶114).

As far as I am aware, the elimination of non-discrimination as a separate pillar of the FRAND obligation is at odds with both U.S. case law and the academic literature that address this issue (an overview can be found here).  The Court’s reasoning also contradicts the explicit concerns of the European Commission, which emphasized the importance of non-discrimination during debates over the ETSI patent policy in 1992:

Terms and conditions applied to participants and non-participants should not significantly discriminate against the latter. A fortiori where the standard-making body acts in an official or quasi-official standard-making capacity and where its standards are recognized and even made compulsory by virtue of legislation, access to the standard must be available to all without a precondition of membership of any organization (Communication from the Comm’n, Intellectual Property Rights and Standardization at p. 19, 27 Oct. 1992).

Clearly, the Commission did not view non-discrimination simply as giving color to the meaning of ‘fair and reasonable’.  On the contrary, non-discrimination, standing alone, is among the most important features of the FRAND commitment.  The UK Supreme Court’s interpretation to the contrary is thus highly problematic.

Conclusions

While I applaud the UK Supreme Court’s shift from a focus on competition law to the language and intent of the ETSI patent policy, I am concerned about its conclusions regarding the authority of one country’s courts to determine global FRAND rates, the availability of injunctive relief against standards implementers and the demotion of non-discrimination as an independent prong of the FRAND analysis.

One silver lining in this cloud, perhaps, is that the Court’s judgment, which relies so heavily on the particulars of the ETSI policy, is thus limited to the ETSI policy.  It is unclear how much weight its findings would have for a court, whether in the UK or elsewhere, assessing participants’ obligations under FRAND policies adopted by different SSOs such as TIA and ATIS (as in FTC v. Qualcomm), not to mention SSOs such as IEEE that have adopted language expressly contravening some of the interpretations that the Court makes with respect to ETSI.

In fact, the Court seems to invite SSOs to re-evaluate their patent policies.  Huawei objected to the UK court’s determination of global FRAND rates because, among other things, permitting a national court to resolve a global dispute could promote “forum shopping, conflicting judgments and applications for anti-suit injunctions” (¶90).  The Court tacitly agrees, but then pushes back, seeming to blame SSOs for allowing this to happen:

“In so far as that is so, it is the result of the policies of the SSOs which various industries have established, which limit the national rights of a SEP owner if an implementer agrees to take a FRAND licence. Those policies … do not provide for any international tribunal or forum to determine the terms of such licences. Absent such a tribunal it falls to national courts, before which the infringement of a national patent is asserted, to determine the terms of a FRAND licence. The participants in the relevant industry … can devise methods by which the terms of a FRAND licence may be settled, either by amending the terms of the policies of the relevant SSOs to provide for an international tribunal or by identifying respected national IP courts or tribunals to which they agree to refer such a determination” (¶90).

In this regard, I wholeheartedly agree with the Court. I have long advocated the creation of an international rate-setting tribunal for the determination of FRAND royalty rates.  I continue to believe that such a tribunal, if supported by leading SSOs, would eliminate much of the inter-jurisdictional competition and duplicative litigation that currently burdens the market.  If the UK Supreme Court’s judgment in Unwired Planet encourages ETSI and other SSOs to endorse such an approach, then this could be the most significant outcome of the case.

Our Summer Speaker Series: COVID-19 and Innovation Policy

By Jason Rantanen

The Iowa Innovation, Business & Law Center is hosting a summer speaker series featuring 30-minute talks by some of the leading legal scholars writing on innovation and COVID-19.  All talks will be via Zoom webinar on Thursdays at 3:30 ET/2:30 CT/ 1:30 MT/12:30 PT. (starting this Thursday).
Our speakers are:
The link for these talks is https://uiowa.zoom.us/j/98761682648
I hope you’ll mark your calendars and are able to join us!

 

Odyssey Logistics v. Iancu: Two of the three bears in an APA challenge

By Jason Rantanen

Odyssey Logistics and Technology Corporation v. Iancu (Fed. Cir. 2020) Download opinion

Panel: Lourie, Reyna and Hughes (author)

Some of my biggest head-scratchers when I studied administrative law in law school were the timing rules for bringing challenges under the Administrative Procedures Act.  It wasn’t because of a lack of comprehension, but instead due to the way these rules can block off judicial review of agency action.  Individually the timing rules make sense, but collectively they produce a Three Bears-type situation: the timing of challenges has to be just right, or the challenge will get tossed for being either too early or too late.

This case involves two challenges to actions taken by the PTO and one challenge to a set of rules published by the PTO in 2011.  The first two challenges were dismissed as two early and the third was too late.

Count I involved a request for rehearing by the relevant Technology Center Director following the Patent Trial and Appeal Board’s (PTAB) reversal of the examiner’s objections to Odyssey’s application.  The request for rehearing was filed about five months after the PTAB decision.  Odyssey challenged the propriety of the request on procedural grounds at the PTO, which were rebuffed, and then filed a challenge in the Eastern District of Virginia before the PTAB issued its decision on the substantive merits raised by the rehearing.  The Federal Circuit affirmed the district court’s holding that there was not yet a “final agency action” under the APA.  Nor did the Federal Circuit see this as a situation involving an abusive use of agency rules to delay proceedings that justified compelled action by the court.

In Count II, Odyssey challenged what it argued were new grounds for rejection by the examiner.  However, the PTAB had not yet issued a decision at the time Odyssey brought the challenge.  The result: dismissal for non-finality.  Odyssey argued that the district court should have instead dismissed on mootness grounds, but the Federal Circuit said that wasn’t necessary: “[A] federal court has leeway to choose among threshold grounds for denying audience to a case on the merits….The district court did not err by “tak[ing] the less burden-some course.”  Slip Op. at 11.

The final count was a challenge to certain amendments that the PTO made to its rules on practice for ex parte appeals in 2011.  Odyssey argued that these amendments were facially invalid–that the regulations were unlawful generally.  However,  28 U.S.C. § 2401 bars claims that are not brought within 6 years of the date the action accrues.  Odyssey argued that the relevant triggering date was the effective date of the regulation (January 23, 2012) rather than the date it was published in the Federal Register (November 22, 2011), but the Federal Circuit disagreed: under both Fourth and Federal Circuit law, the relevant date for substantive facial challenges is the date of publication.  Substantive facial challenges are different from “as applied” challenges, which accrue as of “the time of an adverse application of the decision against the plaintiff.”  Id. at 13, quoting Hyatt v. U.S. Pat. & Trademark Off., 904 F.3d 1361, 1372 (Fed. Cir. 2018).  The result was that Odyssey’s challenge, which was filed in district court on January 23, 2018, was time-barred by § 2401.

Edit: Shortly after I posted this, counsel for appellant contacted me to inform me that the statement “Odyssey challenged the propriety of the request on procedural grounds at the PTO, but then filed a challenge in the Eastern District of Virginia before the PTAB ruled on the request for rehearing” was incorrect: in fact, the lawsuit was filed after the petition for rehearing was granted but before the PTAB had issued a decision on the merits on the substantive issues raised by the rehearing.  I’ve changed the above post to specifically refer to the “decision on the substantive merits raised by the rehearing.”   I also made a few other edits to clarify the issue raised in Count I.  

 

 

 

Guest Post: Spurring and Clearing the Path for Open COVID Innovation Through Contextual Patent Disclosure

Guest Post by Colleen V. Chien and Evan Hastings, Santa Clara University School of Law*

The COVID pandemic has created an urgent need for innovation to protect against, treat, test for, and eventually, inoculate against the virus. To save time and lives requires collaboration, making it an opportune time to strengthen the capacity of the patent system, as one part of the much larger innovation ecosystem,[1] to coordinate and include, among multiple innovators, not only to protect and exclude.

A few years ago, one of us wrote a pair of articles[2] about the importance of contextual patent disclosure (meaning information about, for example, patent ownership, licenses and pledges, and government interests in patented innovation) for open innovation and argued for greater investments and attention to such non-traditional forms of “patent disclosure.” During the COVID crisis, the demand for just this sort of contextual information – most recently by Reps. Lloyd Doggett and Rosa DeLauro, who have asked Gilead for a detailed breakdown of remdesivir patents, applications, and licenses supported with government funding – underscores its usefulness for government accountability as well, especially as the US government commits billions of dollars (some of which is already bearing fruit) to fund COVID innovation. Contextual information can also facilitate voluntary licensing, a market-based “third” way in the access v. innovation debate.[3]

The USPTO’s recently-launched Patents 4 Partnerships platform, the US-based Open Covid Pledge, and Japan-based Open Covid-19 Declaration represent important efforts to provide contextual information about patent owner intents (to share and license technology) to the public. These efforts, as well as others to provide immunity to makers of personal protective equipment (PPE) and supplies are profiled below. Building on previous work, here are several other steps that could bolster collaborative innovation and patent disclosure, on coronavirus and in general. Many could be taken by the USPTO and other agencies as executive actions and do not require Congressional authority:

  • Early Publication: to enable faster tech transfer and licensing, patent offices could encourage the publication of applications prior to the 18-month mark (as permitted by 37 C.F.R. § 1.219), to support a potential move to a default to open that applicants could opt-out of.
  • Improve reporting of government interests and patent owners: collaboration, licensing, and tracking of taxpayer investment depends on complete and consistent patent ownership information which, for a variety of reasons, is lacking. Using AI and other approaches, the USPTO could work, independently and with other agencies, to improve the accuracy and completeness of patent ownership as well as government ownership and government inventorship information, as called for by Professor Arti Rai and her co-authors as well as previous USPTO rulemakings.[4]
  • Patent-product data: the product to which a patent is associated provides crucial context for understanding the technology. Since the America Invents Act authorized virtual marking, companies have put product-patent information on company websites (see this disclosure by 3M of relevant respirator patents) to put potential infringers on notice in accordance with the virtual patent marking doctrine. The FDA’s Orange and Purple Books list the patents associated with FDA-approved pharmaceutical products. Consolidating (and even enhancing, as Professor Jeanne Fromer has called for) patent-product information in the patent registry could reduce the considerable search costs associated with discovering the products associated with patents and vice versa[5]and enhance technology learning made possible by but not necessarily through the patent. (See Professor Jason Ratanen’s theory of peripheral disclosure.)
  • Federating and encouraging license, pledge, defensive-only, and other contextual patent disclosures: public companies are required to publicly disclose material technology licenses with the SEC in often the only public disclosure of these agreements. Moderna’s multi-million dollar agreement with BARDA to hasten a COVID vaccine, which has reported early promising results, for example, is slated to be released with this process. Making it easier to find such licenses would help drive greater accountability and market transparency. Extending the Patents 4 Partnerships platform to include pledges or otherwise making it easier to record them, by patentees or third parties would help preserve them and document reliance, enhancing their enforceability. (See also Professor Jorge Contreras’ “Patent Pledges” database) Going further and offering a “defensive-only” patent option or other disavowal of patent enforcement similar to existing license of right schemes, for example in exchange for a fees discount, could vastly expand the size of technology “whitespaces.” (See also Professor Toshiko Takenaka’s idea of Inclusive Patents for open innovation).

Like the initiatives described below, these steps would help unify a fragmented, noisy landscape of innovation information supporting open innovation within, not outside of, the existing patent system.

Open Covid Patent Pledge / Covid-19 Declaration

Adoptees of the US-based Open Covid Pledge, created by Professors Jorge Contreras, Mark Lemley, and others,  promise to share their patents and related intellectual property on non-exclusive, royalty-free, worldwide terms for the purpose of ending the COVID pandemic. To do so, an adoptee makes a public announcement of intent and then implements one of the three licenses, all of which grant rights to patent and regulatory exclusivities until one year after the WHO declares the end of the pandemic or Jan 1, 2023, whichever comes earlier or a compatible variant and notifies the Pledge. Nearly 20 companies, including tech giants Microsoft and IBM have signed on, with details about each company’s commitment linked to from the Pledge website. Most members have provided access to their entire patent portfolio; while others have instead pledged a particular technology, such as the New Jersey Institute of Technology, or copyrights, like Skopos Labs. Over twenty of Japan’s major corporations have made a similar commitment to not assert some 300,000 patents through the Open Covid-19 Declaration, including two leading suppliers of COVID tests, LSI Medience and SRL Inc, and Teijin Limited, a Japanese pharmaceutical and information technology company. IAM has reported that the initiative, led by Canon, has reached out to thousands of Japanese companies and intends to expand to companies in China and Korea as well. Though no contract is ever signed, the pledges rely on estoppel and implied license theories for enforceability. For an analysis under US law, see Pledge Co-founder and Creative Commons GC Diane Peters’ whitepaper.

With permissions secured, the next question is how to find technologically relevant IP. The lightweight nature of the Open Covid Pledge makes it, as founder Jorge Contreras has described, “a start” at doing so. Innovators can use traditional search tools, but without context, in particular reliable assignee or product information, may be hard-pressed to find relevant technology. A few pledging companies have supplied some contextual disclosure – Hewlett Packard Enterprises, for example, has highlighted the use of wifi technologies to create a floating hospital in Italy and Sandia National Labs has a search database that is broken down by technology – but the task of finding relevant, safe-from-suit technology remains with the innovator. Due to these features, the Open Covid Pledge is likely to serve primarily as a useful non-assertion covenant that helps to clear the path for innovation, at least until Jan 1, 2023.

Patents 4 Partnerships

While the Open Covid Pledge and Non-Assertion Declaration described above provide freedom to operate in view of hundreds of thousands of patents, the USPTO’s recently launched Patents 4 Partnerships platform makes it easier for potential technology partners to find one another, as one of us previously called for. It does so by enabling patentees to indicate, and enabling the public to discover, the availability of technology for licensing, currently of about ~200 assets. Director Iancu described the platform as “a meeting place that enables patent owners who want to license their IP rights to connect with the individuals and businesses who can turn those rights into solutions for our health and wellbeing.” In this initial launch, the platform includes a searchable repository of patents and published patent applications related to the COVID-19 pandemic available for licensing. In the future, the USPTO intends to consider expanding to other areas of technology.

Platform listings link to license information pages such as this one; most patent assets have been filed within the past 5 years. Currently, the majority of available listings are from universities and federal labs such as the Federal Laboratory Consortium for Technology Transfer, the AUTM Innovation Marketplace, the National Institutes of Health, NASA, and other government agencies. Neither the idea of hastening commercialization of government inventions, nor the idea of a licensing registry are new. Several years ago, the World Intellectual Property Organization established a marketplace for green technologies called WIPO Green. In 2008, the Eco-Patent Commons was established to facilitate green technology transfer from firms pledging their technology. Unfortunately, the Common was shut down in 2016 with Professors Bronwyn Hall and Christian Helmers finding no evidence that it increased the diffusion of pledged innovation. A 2019 study in the Houston Law Review by the authors and Professor Jorge Contreras based on numerous interviews identified several structural issues, providing an excellent background read for designers of licensing or pledge platforms seeking to learn from the past. One concrete step would be to ensure that there is a mechanism for tracking usage, to drive iteration and improvement. IP owners are encouraged to submit via a form technologies related to COVID-19 that are available for licensing.

 Good Samaritan and Other Immunities

The maker movement has made extraordinary contributions to the COVID response. Timothy Kroninger and Edward H. Rice suggest that good samaritan law, stemming from “public necessity” doctrine, can immunize makers from claims of infringement during the COVID crisis due to the imminent need for medical supplies. Additionally, attorneys from Arnold & Porter have identified the Public Readiness and Emergency Preparedness (PREP) Act and Defense Production Act (DPA) as the source of several, limited regulatory immunities for innovators. These cover approved and unapproved medical supplies made for emergency use, and government contractors for any act or failure to act resulting directly or indirectly from compliance with a rule, regulation, or order, respectfully.

Conclusion

As innovators around the world rise to the challenge of collaboratively finding Covid solutions, the

Patents 4 Partnerships platform, Open Covid Pledge, and Open Covid-19 Declaration demonstrate the clarifying and coordinating informational role the patent system can also play. Four additional steps that deserve consideration during this unprecedented moment include: encouraging early publication; improved reporting of government interests, inventors and patent owners; consolidating patent-product data; and enabling and federating license, pledge and other contextual patent disclosures. Such investments in contextual patent information, like the Patents 4 Partnerships platform, can help accelerate not only Covid innovation, but open innovation in general.

*Evan Hasting is a Graduate Fellow and 2019 graduate of Santa Clara School of Law, and Colleen V. Chien is a Professor at Santa Clara University School of Law.

[1] Professor Lisa Ouellette’s Written Description blog is providing excellent coverage of innovation developments related to COVID by a team of Professors including, in addition to Professor Ouellette, Jake Sherkow, Rachel Sachs, and Nicholson Price.

[2] Colleen V. Chien, Contextualizing Patent Disclosure, 69 Vand. L. Rev. 1849 (2016); and Colleen V. Chien, Opening the Patent System Diffusionary Levers in Patent Law, 89 S. Cal. L. Rev. 793 (2016).

[3] Activated, for example, in the recent call by world leaders for a “patent-free” People’s Vaccine.

[4] The Global Patent Registry developed by IPwe is attempting to use blockchain to solve the ownership tracking problem.

[5] It appears that this site http://www.iproduct.io/data by Professor Gaétan de Rassenfosse will at some point release such a database, at this point, it says, “the data will be released as the underlying papers get published.”

 

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Sarnoff on After-Arising Technologies and the Doctrine of Equivalents

By Jason Rantanen

DePaul Professor Joshua Sarnoff has a new article addressing a recently reinvigorated subject: the doctrine of equivalents.  In Correcting Misunderstandings of Literal Infringement Scope Regarding After-Arising Technologies Protected By the Doctrine of Equivalents, forthcoming in the Akron Law Review, Professor Sarnoff argues that while it is conventional wisdom that, for purposes of ‘literal’ infringement, interpreted claim meaning and the application of such meaning can expand over time to encompass after-arising, equivalent technologies, this conventional wisdom is wrong: “current case law regarding literal infringement does not authorize claims to literally encompass or apply to after-arising technologies.” Id. at 6.

The term “after-arising technologies” refers to the idea that there are technologies that are developed after an application is filed or a claim is written.  Due to the centrality of time to patent law, a central question in patent law is whether a patent’s claims can (and should) encompass technologies that were unknown–and indeed may have been unforseeable–at the time the claim was drafted.  Excellent examples of this problem can be found in Kevin E. Collins, The Reach of Literal Claim Scope into After-Arising Technology: On Thing Construction and the Meaning of Meaning, 41 Conn. L. Rev. 493 (2008) and Robert P. Merges & John F. Duffy, Patent Law and Policy: Cases and Materials, 7th ed. (2017), at 273-277 (discussing the “temporal paradox” mostly in the context of enablement).

Professor Sarnoff advances his premise through several arguments, drawing from the Federal Circuit’s precedent in Schering Corp. v. Amgen, which “limits the temporal meaning and scope of application for literal infringement to equivalent technologies known to be embodiments of the claim language as of effective filing date of the claim,” as well the statutory interpretive rule of § 112(f).  Sarnoff at 3.

Central to Professor Sarnoff’s premise is the corollary that:

If claim meaning or the scope of application of such meaning can expand over time for literal infringement purposes, then there is less need to resort to the doctrine of equivalents to protect against after-arising technologies.  However, if claim meaning or application scope is limited to technologies that were known as of the filing date to be claim embodiments, then the doctrine of equivalents is necessary for any such protection. 

Id. at 1. Thus, Professor Sarnoff argues, decreased ability to rely on literal claim scope to reach after-arising technologies puts more pressure on the doctrine of equivalents–indeed, it’s ability to encompass after-arising technologies has been offered as a primary justification for the doctrine.  But this additional pressure creates its own problems given the fuzziness of scope that the doctrine of equivalents allows.  Restricting literal claim scope to known embodiments may also conflict with the ‘”pioneering invention patent doctrine,” to the except that doctrine continues to be viable.

Read the whole article here: http://ssrn.com/abstract=3549932

3D Printing, Patent Infringement, and the Coronavirus

Guest post by Prof. Lucas Osborn, Campbell University School of Law.

Never waste an opportunity in a pandemic to incur a PR disaster. That appears to be the mantra – if initial reports are believed – of an Italian company who holds a patent on a valve used in breathing machines that are critical for coronavirus patients. The company could not meet the surging demand for its valves. In response to the shortage, two engineers used 3D printers to make these essential devices locally near Brescia in northern Italy, a region the coronavirus has hit particularly hard. In response, the patent holder allegedly threatened a patent infringement lawsuit against them.

In a remarkable testament to the speed and flexibility of 3D printing technology, on the same day the engineers learned about the shortage of valves, they were able to create a digital version of the valve and 3D print working valves. Within a day they had made over 100. (As an aside, 3D printing is at the core of a rapid move to create an open source ventilator to combat shortages.)

To be fair, the company, and one of the individuals doing the 3D printing, denies a threat was made. Although the company did refuse to share the design file with the individuals, forcing them to create a 3D printable digital file from scratch.

Regardless, this episode represents the first widely publicized instance of 3D printing technology being used to (arguably) infringe a patent on a medical device. Patent infringement and 3D printing involves several interesting patent issues on which I have previously written here (with Professor Tim Holbrook) and here.

The key to appreciating the unique patent infringement issues with 3D printing is to keep in mind the difference between the digital and physical version of the patented device. In just about every case, the patent covers only the tangible object, not the digital version of it. Therefore, merely creating a 3D printable file of the device is not an act of direct infringement.

Direct Infringement

On the other hand, anyone who prints the physical valve commits direct infringement for “making” the patented device. But even the issue of who performs the actual printing will not always be clear. For instance, assume that X makes the digital file, but does not have the appropriate 3D printer. X takes the file to Y, an on-demand 3D print shop, who prints the object on X’s behalf. Did X or Y “make” the invention? In the copyright context, companies like YouTube have avoided liability for direct infringement by arguing they are passive conduits for their users’ actions. Perhaps 3D print shops will be able to make the same argument.

Indirect Infringement

Getting back to the digital file, although the engineers printed lots of valves for local use, they declined to share the file with others out of fear of patent liability. Their fear was not misplaced. A person can be liable for indirect patent infringement for helping or inducing others to commit direct patent infringement. And the person can be potentially liable in any and all countries where the direct infringement occurred or was facilitated (unlike the US, many other countries do not require a specific act of direct infringement as a precursor to indirect liability).

In the US, the relevant indirect liability would be inducement under 35 U.S.C. § 271(b), which states simply that, “Whoever actively induces infringement of a patent shall be liable as an infringer.” Although the statute does not say so, liability for inducement requires that the accused have knowledge of the specific patent and that the induced acts constitute patent infringement. Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 765-68 (2011). If the engineers in Italy were in fact warned of a specific patent, that would likely be enough to meet the knowledge requirement.

Knowledge can be negated by a good faith belief of noninfringement, but it cannot be negated by a good faith belief in the patent’s invalidity. Commil USA, LLC v. Cisco Sys., Inc., 135 S. Ct. 1920, 1928 (2015). Courts have not had an opportunity to explore what is required for an individual, as opposed to a company, to form a good faith belief of noninfringement. Would a layperson’s study of the patent suffice, or must they incur the huge expense of a formal legal opinion?

In most European countries, indirect liability applies where someone

supplies or offers to supply in [the country] . . . with any of the means, relating to an essential element of the invention, for putting the invention into effect when he knows, or it is obvious to a reasonable person in the circumstances, that those means are suitable for putting, and are intended to put, the invention into effect in the [the country].

See, e.g., UK Patent Act § 60(2). (Most European countries have similar provisions because their statutes are all based on the 1975 Community Patent Convention.) Although the statute requires actual or constructive knowledge, the details of that knowledge requirement are unsettled: must the infringer have knowledge of the specific patent or merely knowledge of the acts that the direct infringer will take. If courts only require knowledge of the induced acts, liability would attach regardless of any specific knowledge of the patent.

In short, creators of 3D printable files, especially those with knowledge of a relevant patent, should be wary of making them available for others on the internet.

Love Your Neighbor, or At Least Your Reputation

Although the coronavirus pandemic inflames passions when needed medical equipment is in short supply, it is important to remember that in emergencies Article 31 of TRIPS, the key international patent treaty, provides flexibilities for governments to use – and authorize others to use – patents without the consent of patent holders.

The above analysis focuses only on the legal issues. Even if the patent holder is more interested in making money than saving lives, it may be wise to consider the reputational and other costs associated with denying live saving equipment to hospitals in need. Others, including patent holders relating to vaccine development, have initially threatened patent infringement suits only to backtrack after a storm of public outrage. So even if the patent holder made a threat to someone in Italy (and it is not at all clear that it did), it would be no surprise that it decided to change tactics.

Oracle’s brief: More competing questions

By Jason Rantanen

Yesterday, Dennis wrote about competing questions in a Supreme Court cert petition.  In its merits brief in Google LLC v. Oracle America, Inc., filed on Wednesday, Respondent Oracle also frames the issues a bit differently than Google did.

Google Questions presented

Oracle Questions presented

1. Whether copyright protection extends to a software interface. 1. Under §102(a), computer programs, like all “works of authorship,” have “[c]opyright protection,” as long as they are “original.” The merger doctrine does not make any expression unprotectable except in the rare circumstance where there were very few ways to express the idea. Does the Copyright Act protect the code and organization that Google concedes were original and creative and that Oracle could have written in countless ways to perform the same function?
2. Whether, as the jury found, petitioner’s use of a software interface in the context of creating a new computer program constitutes fair use. 2. Was the Court of Appeals correct in holding that Google’s copying was not fair, where Google conceded it copied for commercial purposes and that the code it copied serves the same purpose and has the same meaning, and Google did not dispute the evidence that Android competes directly with Oracle’s work, harming its actual and potential markets?

Read Google’s brief here: Brief of Petitioner (Google)

Read Oracle’s brief here: Respondent Brief (Oracle)

We’re reading the Google and Oracle briefs in my Introduction to Intellectual Property class this semester as part of the concluding exercise for the unit on copyright.  On Monday we’ll discuss and debate the two positions in small groups then see which is most persuasive to a group of smart law students with a few weeks of copyright law.

Guest Post by Prof. Holbrook: Whose Law Controls On Sale Prior Art in Foreign Countries?

Guest post by Timothy R. Holbrook, Vice Provost for Faculty Affairs and Asa Griggs Candler Professor of Law, Emory University.

The America Invents Act (AIA) effected a sea change in U.S. patent law.  One of the most significant changes was to shift the U.S. from a “first to invent” to a “first inventor to file” system for allocating priority.  This move is reflected in the restructuring of 35 U.S.C. § 102, the provision that defines prior art for assessing whether an invention is novel and non-obvious.

Aside from the shift in assessing priority, some contended that, by amending § 102, Congress had rejected long-standing Supreme Court precedent that allowed secret uses and sales of the invention to trigger the statutory bars under the 1952 Patent Act.  In Helsinn Health Care S.A. v. Teva Pharmaceuticals USA, Inc., the Supreme Court, in its first case addressing the AIA’s § 102, rejected this argument.

The AIA did more than shift the United States to a first-inventor-to-file system, however.  The AIA also eliminated geographic limits on prior art.  Under the 1952 Patent Act, activities triggering the public use and on-sale bars under then-35 U.S.C. § 102(b) had to take place “in this country.” The elimination the geographic limit greatly expands what qualifies as prior art under the AIA.  Moreover, the Supreme Court’s interpretation of the AIA in Helsinn makes that even more sweeping as secret sales activity that may not be accessible to the broader public can now qualify as prior art.

The removal of the territorial limits, however, also presents a different question: whose law will govern whether an invention is deemed “on sale”?  Under the 1952 Patent Act, to be on sale, an invention (1) had to be the subject of a formal commercial offer for sale and (2) had to be ready for patenting.  Whether the invention is subject to a formal commercial offer is assessed from basic contract principles.

In the foreign context, however, what constitutes a formal commercial offer may vary from U.S. law. Because these proposed or completed sales transactions could take place outside of the United States, the law of another country generally would govern any potential or actual agreements.

The elimination of the geographic limits to on-sale activity now presents a choice of law problem.  On one hand, one could argue that the law of the relevant country should control: the parties in the transaction have that law in mind and not necessarily U.S. patent law.  On the other, if the courts were to rely on foreign law to assess whether the invention is “on sale” under § 102(a) of the AIA, then what qualifies as on-sale prior art would vary widely, depending on the law of the country in which the commercial activity took place.  The same activity might qualify as prior art in one context and not in another.  Courts, therefore, would be better of creating U.S. law defining triggers on-sale prior art regardless of where the activity occurred.

So what route will the courts take?  I suspect it will be the latter, using Federal Circuit law to define the contours of on-sale prior art even when the activity arises overseas.

The Federal Circuit addressed an analogous situation in interpreting the statutory bars under § 102(b) of the 1952 Patent Act.  After the Supreme Court reworked the on-sale bar test in Pfaff v. Wells Electronics, Inc., the Federal Circuit in Group One, Ltd. v. Hallmark CardsInc., clarified step one of the two-part test by requiring a formal commercial offer for sale.  In so doing, the court confronted a similar choice of law issue: should the law of the state governing the transaction dictate whether the invention was on sale, or should Federal Circuit law?

The court opted for the latter, rejecting the district court’s use of Missouri law to determine whether the invention was on sale.  The court reasoned that reliance on state law would create variability in interpreting a federal statute and emphasized “the importance of having a uniform national rule.” As the court stated:

To hold otherwise would potentially mean that a patent could be invalid in one state, when the patentee’s actions amounted to an offer under the laws of that state, and valid in a second state, when the same actions did not amount to an offer under the laws of that second state. Such a result is clearly incompatible with a uniform national patent system.

If past is prologue, one could easily see the court reaching the same conclusion with respect to the use of foreign law to interpret § 102(a) of the AIA.  Applying the law of various countries where commercial activities arise could lead to widely varying standards for on-sale prior art.  Indeed, the situation would be fare more complex than applying state law not only because of differing legal standards but also differing legal systems.  It is a more complicated analysis for U.S courts to discern foreign law than to discern the law of a given state.  It seems highly likely, therefore, that the Federal Circuit choose to apply its own law, using basic contract principles, in interpreting § 102(a) on-sale prior art that arises in foreign countries.

The situation at the international level, however, is far more complex than refusing to apply state law.  Activities in a foreign country would be assessed, and indirectly regulated, through the application of a U.S. legal standard, implicating concerns of the extraterritorial application of U.S. law.  Unlike the state law situation – where state law is subordinate to federal law – the Federal Circuit will be applying the law of the United States to acts in a co-equal sovereign. Actors in the relevant country may be unaware that their commercial behavior is violating U.S. patent law if there are significant substantive differences. That said, I would be surprised if courts consider this activity to trigger the presumption against extraterritoriality, in the same way they failed to truly account for the presumption in the patent exhaustion context.

The removal of geographic limits on public uses and on-sale prior art is a rather sweeping change.  As yet, the importance of the removal of these territorial limits has not been explored by the courts.  Particularly as it relates to on-sale prior art, courts likely will be applying U.S. law to activities arising in foreign countries in the interest in having a uniform standard.

Tim Holbrook is Vice Provost for Faculty Affairs and Asa Griggs Candler Professor of Law at Emory University.  This essay is drawn from part of his article, What Counts As Extraterritorial in Patent Law?, 25 B.U. J. SCI. & TECH. L. 291 (2019).

A Decade of Federal Circuit Decisions

By Jason Rantanen

While most commentators are focusing on year-in-reviews, I thought it would be fun to do a decade-in-review using data from the Compendium of Federal Circuit Decisions, the publicly-accessible dataset that we’ve developed at Iowa Law containing information about all decisions by the Federal Circuit since 2008.  You can access the Compendium via empirical.law.uiowa.edu/.

1. Decisions by origin

Recently, we updated the Compendium to include all decisions arising from origins other than the District Courts and USPTO.  This lets us compare decisions across all origins along a variety of dimensions.

Figure 1 shows the distribution of Federal Circuit decisions by major source.  A “decision” in the Compendium is defined as an opinion or Rule 36 affirmance.  I’ve grouped origins with small numbers of appeals, including the Board of Contract Appeals, Department of Justice, and Department of Veterans’ Affairs, into the “other” category. (The figures link to larger versions.)

Figure 1

Or if strata are more your thing:

Figure 2

These graphs show the well-known increase in decisions arising from the USPTO (mostly from inter partes review proceedings), but also a decline in decisions arising from the MSPB. (These outputs match the inputs: the Federal Circuit’s statistics page indicates a decline in the number of docketed appeals arising from the MSPB.)  While decisions arising from the district courts and the USPTO have crossed paths over the past few years, the number of decisions originating from the district courts is about where it began the decade. Overall, the court’s total output has risen by about 100 decisions/year during this time.

2. Precedential opinions by origin

Another way to assess a court’s output is in terms of its precedential opinions, as these constitute law on which future courts and parties rely.  Below is a chart showing the Federal Circuit’s annual number of precedential opinions by major source of origin.  The “other” group here includes the “other” category from the above graphs plus the Court of Appeals for Veterans’ Claims, Court of International Trade, and International Trade Commission.

Figure 3

Figure 3 shows precedential opinions in appeals arising from the district courts peaking at about 100 in 2014 and 2015, before falling to about 75 for the last few years. At the same time, the number of precedential opinions in appeals arising from the USPTO has risen substantially, from under 20 in 2013 to about 50-60 for the last few years.

3. Types of Decision by Origin

The below pie charts show the distribution of precedential opinions, nonprecedential opinions and summary affirmances under Rule 36.  by source of origin for the entire period 2010-2019.  About 30% of the Federal Circuit’s decisions consist of Rule 36 affirmances.

Figure 4

The lion’s share of precedential opinions and Rule 36 affirmances come from appeals from the District Courts and USPTO, nearly all of which involve patent issues.  For nonprecedential opinions, it’s the opposite: about half of these of these are written in appeals from the MSPB and CAVC.

One other way of looking at the data on decision types by court of origin for the entire decade:

Figure 5

  1. District court and PATO opinions: precedential, Rule 36 and nonprecedential

The final set of graphs for today are annual decisions from the USPTO and District Court by decision type.

Figure 6

Figure 7

If there are particular graphs of Federal Circuit decisions from the last decade that you’d like to see, send me an email and if we have the data I’ll try to generate them.

You’re welcome to play around with the data on your own.  If you do use it for something that you publish, please include a citation to the Compendium.  There’s a convenient cite form on the landing page for the database.  You’re also welcome to use the above graphs in presentations, provided that you give credit to PatentlyO and the Compendium of Federal Circuit Decisions (https://empirical.law.uiowa.edu/compendium-federal-circuit-decisions).

More reading on the Compendium of Federal Circuit Decisions and methodology & cautions for case count data generally:

Thanks to my research assistants for their work on the Compendium, especially Will O’Brien, Lindsay Kriz, Madison Murhammer-Colon, John Miscevich and Joseph Bauer.

Guest post by Profs. Yu and Contreras: The Uncertain Criminal Status of PAE Litigation in China

Guest post by Professor Jorge L. Contreras and Associate Professor Yang Yu of Shanghai University of International Business and Economics.  Professor Yu has graciously provided translations of core parts of the court’s judgment and Prosecutor’s protest.

On September 30, 2019, the Shanghai Pudong New Area People’s Court (court of first instance) ruled that an individual, Mr. Li Xingwen, was guilty of criminal extortion for asserting patents against a number of Chinese companies shortly before their initial public offerings (IPOs). The case was widely reported in the international press (see here, here and here) before the official release of this first-instance judgment, and gave rise to concern about the risks of asserting patents in China. The full text of the Shanghai court’s decision was finally released on September 30, 2019 and reveals several interesting details about the case. In particular, Mr. Li’s conduct giving rise to the judgment of extortion involved the falsification and backdating of a license agreement with a related company in order to extract additional royalties from a company with which Li had already settled.  However, most of Mr. Li’s other patent assertions, notwithstanding their strategic filing prior to the defendants’ IPOs, were viewed as legitimate.  Then, on October 18, 2019, the Shanghai Pudong New Area People’s Procuratorate lodged a protest with the Shanghai No.1 Intermediate People’s Court, arguing that the judgment against Mr. Li was too lenient.  Below, we summarize the facts of the case and the findings of the court of first instance, then assess the implications of the People’s Prosecutor’s protest.

The Patent Assertions

According to one news report, Mr. Li was a prolific inventor and patent agent. Beginning as a university student, he reportedly applied for over 1,000 patents, more than 600 of which had issued at the time of the case. These patents covered a diverse range of products including “a folding bicycle, a flushing water tank, a self-filtering aquarium, [and] an insecticidal device” (IAM, Oct. 1, 2018).  In addition to these, Mr. Li filed numerous patents covering aspects of electrical equipment. Working with his brother, Li established several holding companies to which he transferred some of these patents.

Beginning in 2015, Li’s companies sued four Chinese electronics firms for patent infringement in the Beijing, Xiamen and Shanghai courts. In several cases, the litigation was brought as the defendant companies were in the process of registering their securities in IPOs on the Shanghai or Shenzhen stock exchanges.  In all cases, the alleged infringers settled the cases brought by Mr. Li’s companies, committing to pay him a total of RMB 2.163 million (RMB 1.163 million of which had been paid at the time of his prosecution).

Some cases involved the assertion of two Chinese patents claiming methods for data transmission and image acquisition against Zhang Yue Technology Inc., a manufacturer of e-book readers. A series of cases were brought from March 2017 to  July 2017 by Mr. Li’s company Shanghai Ke Dou Electronic Technology Co. Ltd. (Ke Dou) in the Beijing Intellectual Property Court and Shanghai Intellectual Property Court.  Zhang Yue settled with Ke Dou on 15 July 2017, agreeing to pay a total of RMB 800,000.

Then, at the end of 2017, Li’s holding company Ke Dou entered into an agreement with another Li company called Shanghai Bu Dao Industrial Co., Ltd. (Bu Dao).  Under this agreement, Ke Dou purported to grant Bu Dao an exclusive license to a data transmission patent (Patent No. ZL201010523269.X “Method and system for initiating data transmission between devices through image acquisition”). What’s more, the Ke Dou – Bu Dao agreement was back-dated so that it appeared to pre-date the license that Ke Dou granted to Zhang Yue.

Armed with this exclusive license, Bu Dao sued Zhang Yue in the Beijing IP Court under the same patent. To exert even greater pressure, Bu Dao reported the lawsuit to the China Securities Regulatory Commission (CSRC), which had oversight over Zhang Yue’s pending IPO.  In an attempt to avoid interference with the IPO, Zhang Yue agreed to settle the lawsuit with Bu Dao for an additional RMB 800,000.

Arrest and Charges

After signing the second license agreement, Zhang Yue reported Mr. Li and his brother to the police (IAM, Jul. 23, 2018). The case was investigated by the securities crime unit of the Shanghai Public Securities Bureau.  Mr. Li and his brother were arrested in January 2018 and prosecutors charged them with extortion on August 24. As reported by IAM (Oct. 1, 2018) the Shanghai Public Security Bureau explained the charges as an effort to preserve order in China’s capital markets, and justified them on the basis that the purpose of Li’s litigation was not to protect his patented technology but simply to earn large sums of money. This behavior, one official noted, “is in line with the characteristics of extortion”.

The Court’s Decision

The Shanghai Pudong New Area People’s Court rendered its decision in Mr. Li’s case on September 30, 2019. It evaluated the conduct of Mr. Li and his brother with respect to four different defendants that had been sued for patent infringement, including Zhang Yue.  In three of the cases, Mr. Li’s lawsuits were timed to coincide with the defendant’s preparation for or execution of an IPO.  Unlike the Public Securities Bureau, however, the court did not consider this fact to be dispositive.  In order to prove the crime of extortion, the court explained that the accused must have illegally obtained payment by means of threats and intimidation.

The court then noted that the patents asserted by Mr. Li’s companies against the four defendants were either recognized as valid by the China National Intellectual Property Administration (CNIPA) or were, at worst, of uncertain validity. As a result, seeking and obtaining license fees for such patents was not illegal. It was not relevant that Mr. Li’s demands for royalties came at sensitive times when the defendant companies were preparing for stock listing or financing.  Moreover, the court did not find evidence that Mr. Li’s companies carried out “threats or blackmail” simply by demanding payment for its patents.  Rather, it was possible that the defendants decided to pay the requested amounts for legitimate business reasons.  Accordingly, extortion was not found in these instances.

However, with respect to the second demand made against Zhang Yue, Mr. Li and his brother colluded “in bad faith” to fabricate an exclusive license agreement between their companies Ke Dou and Bu Dao. Bu Dao then sought additional royalties from Zhang Yue after it had already paid Ke Dou for the same patent.  Moreover, when Mr. Li reported Zhang Yue’s infringement of the patents to the CSRC, he did so only to pressure Zhang Yue to pay Bu Dao for these patents.  This action constituted coercion, and Zhang Yue’s payment to Bu Dau was made out of fear of the effect that nonpayment might have on its pending stock offering.  As a result, the court found that the Lis’ behavior toward Zhang Yue constituted criminal extortion.

The convictions required the Lis to refund the payment improperly paid by Zhang Yue, as well as additional fines of RMB 50,000 and 20,000 for Mr. Li and his brother, respectively.  In addition, Mr. Li and his brother were sentenced to four years and six months, and two years, imprisonment, and the unspecified “tools” used to commit the extortion were confiscated.

The Prosecutor’s Challenge to the Judgment

On October 18, 2019, the Shanghai Pudong New Area People’s Procuratorate (the local prosecutorial authority) lodged a protest with the Shanghai No.1 Intermediate People’s Court, arguing that the judgments against Mr. Li and his brother were too lenient, in that no extortion judgment was imposed with respect to their patent demands against the companies other than Zhang Yue. In its protest, the Prosecutor has argued that having the right to bring a patent enforcement action under the civil patent law does not necessarily exonerate a patentee from a criminal judgment of extortion. That is, civil and criminal offenses must be judged independently, and in this case, whether or not the Li brothers had patents, their conduct amounted to extortion.  The Prosecutor also questions the legitimacy of Mr. Li’s  enforcement actions under the patent law, arguing that the patents were not clearly valid or enforceable, were based on minor modifications to prior art technology, and involved extremely low R&D costs – all of which make the basis for his patent claims dubious.  What’s more, the settlement payments made by the alleged infringers were not related to the number, content or value of the patents, but were instead paid unwillingly in order to avoid litigation that could scuttle their other financing and corporate transactions. The Prosecutor points to Mr. Li’s deliberate targeting of companies that were in the process of obtaining financing and failure to make substantial preparations for litigation as further evidence of his malicious intent.  For all of these reasons, the Prosecutor has petitioned the court to extent its extortion judgment to the Li brothers’ other patent assertions.

Conclusions

It not clear when the People’s Court will rule on the Prosecutor’s protest, or when (or whether) a written decision will be issued in response. However, the outcome of this protest could be important for all firms considering the initiation of patent infringement litigation in China. While one can assume that few legitimate patent holders will resort to the clearly deceptive tactics adopted by the Li brothers (e.g., creating backdated licensing agreements between related shell companies), the Prosecutor seeks to impose criminal penalties on behavior that is far more common in the business environment:  asserting patents without certainty regarding their validity, confronting an infringer prior to or in the midst of a financing transaction, or obtaining a settlement payment that is not directly related to the number or value of the asserted patents. In the U.S. and other Western countries, tactics like these have generally been accepted as permissible, so long as a patent has been validly issued by the relevant granting authority.  But if the Shanghai Pudong New Area People’s Procuratorate has its way, an entirely new level of intent-based scrutiny could be applied to patent litigation.

Guest Post by Prof. Rai: In the Constitutional Cross-Hairs: PTAB Judges and Administrative Adjudication

Guest post by Arti K. Rai, Elvin R. Latty Professor of Law and Faculty Director, The Center for Innovation Policy, at Duke Law.

Last Thursday, in Arthrex v. Smith & Nephew (Fed. Cir. 2019), a panel of the Federal Circuit held that the administrative patent judges (APJs) at the PTAB are “principal officers” who must, under the Appointments Clause of the Constitution, be appointed by the President and confirmed by the Senate.  In contrast, the current patent statute provides for APJs to be appointed by the Secretary of Commerce in consultation with the PTO Director.  The panel further determined that it could remedy the constitutional defect by severing APJ removal protections, thereby rendering them inferior officers who can be appointed by “Heads of Departments” like the Commerce Secretary.

As this post details, the panel did a careful job of addressing one of the most knotty constitutional issues raised by PTAB adjudication.  But precisely because the issue is knotty, the panel’s decision is unlikely to represent the last step in the road.  Indeed, the USPTO has already indicated that it may seek en banc review.

All parties agreed, as did the panel (citing Professor John Duffy’s prominent 2007 Patently-O paper), that APJs are officers within the meaning of the Appointments Clause.  The only question was whether APJs are principal or inferior officers.

The panel’s conclusion regarding principal officer status rested on Justice Scalia’s 1997 opinion for the Court in Edmond v. United States.  In that case, the Court held that inferior officers must be “directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.”

According to the panel, PTAB judges lack adequate direction and supervision for two reasons: first, “presidentially appointed officers” cannot “review, vacate, or correct decisions by the APJs”; and, second, these presidentially appointed officers (specifically the Secretary of Commerce and Director) have only “limited removal power.” Although severing APJ removal protections would not give the Director review power over individual decisions, it would, according to the panel, be sufficient to demote APJs to inferior status.

The road ahead will likely be tumultuous.  At the Supreme Court, administrative law has long been a battlefield between various flavors of formalist and functionalist reasoning about how agencies fit into the executive branch and interact with the legislative and judicial branches.  Indeed, in taking its relatively formal approach to the distinction between principal and superior officer, the Edmond Court had to distinguish the considerably less formalist opinion in Morrison v. Olson, written only 9 years earlier.  In Morrison, Justice Scalia had written a stinging dissent, castigating the majority for relying on multiple indicia of inferiority, including limited responsibility, and for not recognizing that “inferior” necessarily means subordinate. Nine years later, Justice Scalia was able to secure 8 votes for his position. (Justice Souter concurred only in part.)

The Arthrex decision also comes during a period of even greater-than-usual Supreme Court turmoil over administrative adjudication.  Most relevant for present purposes, the Court has already decided a steady stream of constitutional and nonconstitutional cases involving the PTAB.  In the most prominent of these cases, Oil States Energy Services v. Greene’s Energy Group, an ideologically diverse coalition of seven Justices ultimately concluded that administrative adjudication of granted patents survived constitutional scrutiny.  But Justice Gorsuch, joined by Chief Justice Roberts, dissented in strong terms, warning against the perils of adjudication by judges who don’t enjoy Article III protections.

Of course, as the Arthrex opinion illustrates, under more formal versions of Appointments Clause jurisprudence, decisions made by actors who are not subject to significant direction and control by a presidentially appointed official may themselves be unconstitutional.  The Supreme Court’s 2018 decision in Lucia v. SEC makes it clear that the Court’s more formalist Justices, including Justices Gorsuch and Roberts, continue to take the Appointments Clause very seriously.  In that decision, all of the Justices who tend to embrace formalism, joined by Justice Kagan, held that as a constitutional matter the administrative law judges of the SEC were officers (albeit inferior officers) who had to be appointed by the politically accountable Commission.

As commentators have discussed, the juxtaposition of Oil States and Lucia in the 2018 term illuminates potential constitutional tensions in administrative adjudication.  Some formalist academics who are particularly concerned about the tension have suggested simply removing large swaths of adjudication from the administrative state and placing it instead in Article III.

Conventional administrative law has taken a different, but still relatively formal, approach.  Conventionally, whether the judge is an administrative law judge (ALJ) (a specific type of judge who enjoys very strong protections against removal) or some other type of administrative judge, she has some level of decisional independence and protection against firing.  However, the judge’s decisions are subject to a right of review by a politically appointed agency head.

What about the patent statute? The statute gives the Director overall responsibility for USPTO “policy direction and management supervision” as well as power to promulgate regulations by which the PTAB is bound.  As for specific PTAB decisions, it provides for “rehearing” of such decisions.

Consistent with the academic literature (for example, this article I coauthored) suggesting that the rehearing mechanism be used to distill from the hundreds of PTAB opinions issued each year certain precedential opinions that bind the agency, the Director has set up an elaborate “Precedential Opinion Panel” (POP) process to rehear PTAB cases that raise important issues. The POP is selected by the Director and by default consists of the Director, the Commissioner for Patents, and the Chief Judge.

The Arthrex panel did note the Director’s general supervisory powers over the PTAB, his regulatory authority, the rehearing provision, and the POP procedure. It emphasized, however, that neither the statute nor the POP procedure explicitly provide for a right of rehearing over specific cases by the Director only.  Presumably, any functional ability the Director might have to persuade the Commissioner for Patents and the Chief Judge is insufficient.

If the Supreme Court were to take the case, what it might decide is anyone’s guess. The cleanest path forward is therefore surgical Congressional intervention that gives the Director an explicit, unilateral right of review.  This approach would cure any perceived constitutional infirmity without subjecting APJs to at-will firing.  If subordination is the key to inferior status, then both formalists and functionalists might agree that, for adjudication, subordination through transparent and reasoned review of the adjudicator works better than subordination through firing.

New PatentlyO Law Journal Article: Alice at Five

New PatentlyO Law Journal article by Jasper L. Tran (Jones Day) and J. Sean Benevento. This article builds on Mr. Tran’s prior work Two Years After Alice v. CLS Bank. 98 Journal of the Patent and Trademark Office Society, 354 (2016).

Abstract: This paper updates the statistics on the five years after Alice v. CLS Bank and discusses 19 Federal Circuit cases (including their exemplary patent claims) that found eligibility upon Alice challenges. The Alice invalidation rate at the Federal Circuit and district courts has lowered over time, averaging cumulatively 56.2% at its near-five-year mark.

From the Introduction:

Alice Corp. v. CLS Bank Int’l (commonly known as “Alice”) is no stranger to IP readers and needs little introduction. Briefly, the Supreme Court five years ago decided Alice and raised the patentability standard for (mostly) computer-implemented inventions under 35 U.S.C. § 101, such that implementing an abstract idea on a computer is insufficient to transform that idea into patentable subject matter.  At the time, a Supreme Court justice even considered Alice a “minor case” in following its prior § 101 framework set forth in Mayo Collaborative Servs. v. Prometheus Labs., Inc. two years earlier.

But the reality has been the opposite – Alice has been a major force in patentability determinations under § 101.

For example, in the first month and a half following Alice’s release, 830 patent applications were withdrawn from the USPTO. At Alice’s one-year anniversary (June 19, 2015), lower courts (namely district courts, the Patent Trial and Appeal Board (“PTAB”), and the Federal Circuit) applied Alice to invalidate or reject software-based patent claims at an average invalidation rate of 82.9%: 69.7% at the district courts and 94.1% at the Federal Circuit. At Alice’s two-year mark (June 19, 2016), the numbers were slightly lower, at an average cumulative invalidation rate of 78.2%: 66.5% at the district courts and 92.3% at the Federal Circuit. Near the five-year mark (as of March 1, 2019), the cumulative numbers, as shown in Table 1, were even lower (though still the majority); the average cumulative invalidation rate was 56.2%: 53.7% at the district courts and 76.3% at the Federal Circuit.

Read Jasper L. Tran & J. Sean Benevento, Alice at Five, 2019 PatentlyO L.J. 25 (2019).

Prior Patently-O Patent L.J. Articles:

  • Bernard Chao, Implementing Apportionment, 2019 PatentlyO L.J. 20 (Chao.2019.ImplementingApportionment)
  • Jeremy C. Doerre, Is There Any Need to Resort to a § 101 Exception for Prior Art Ideas?, 2019 PatentlyO L.J. 10. (2019.Doerre.AnyNeed)
  • Colleen V. Chien, Piloting Applicant-Initiated 101 Deferral Through A Randomized Controlled Trial, 2019 Patently-O Patent Law Journal 1. (2019.Chien.DeferringPSM)
  • 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 Emil J. Ali and David E. Boundy: Executive Orders 13891 and 13892: changes we can expect at the USPTO

Guest Post by Emil J. Ali and David E. Boundy.  Emil J. Ali is a partner at Carr Butterfield, LLC, and David Boundy is a partner at Cambridge Technology Law.  More detail about the authors is provided at the end of the post.

On October 9, 2019, the White House issued two executive orders, Promoting the Rule of Law Through Improved Agency Guidance Documents, (E.O. 13891), reprinted at 84 Fed. Reg. 55235 (Oct. 15, 2019), and Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication (E.O. 13892), reprinted at 84 Fed. Reg. 55239 (Oct. 15, 2019). Both Executive Orders are generally directed to requiring federal agencies to “act transparently and fairly with respect to all affected parties … when engaged in civil administrative enforcement or adjudication.” E.O. 13892 goes on to explain that individuals should not be subject to enforcement actions without “prior public notice of both the enforcing agency’s jurisdiction over particular conduct and the legal standards applicable to that conduct.”

Executive Orders 13891 and 13892—in General

For the most part, Executive Orders 13891 and 13892 are simple reminders and restatements of long-standing requirements of the Administrative Procedure Act (APA). For example, E.O. 13891 § 1 and E.O. 13892 § 3 remind agencies that they may not enforce “rules” against the public unless those rules are promulgated as “regulations,” in full compliance with the APA and similar laws. E.O. 13892 § 3 and § 4 remind agencies that the APA allows agencies to use sub-regulatory guidance documents to “articulate the agency’s understanding” of other law, or announce tentative positions, but may not apply those soft-edged understandings as if they were hard-edged enforcement standards, unless the agency has followed certain procedures required by the APA. E.O. 13891 and 13892 each state that agencies have sometimes inappropriately exerted authority, without following statutorily-required procedures.

In addition, Executive Orders 13891 and 13892 go above statute to add a few additional requirements for fairness and transparency.  These above-statutory requirements ask agencies to give notice of all their sub-regulatory guidance documents. Covered guidance documents are defined to include anything to which the agency intends to give prospective effect, that is promulgated without the formality of “regulation” (E.O. 13291 § 2(b)). That class includes the Manual of Patent Examining Procedure, the Patent Trial and Appeal Board’s Trial Practice Guide, and the Manual of Trademark Examining Procedure, and likely includes decisions of the Patent Trial and Appeal Board, Trademark Trial and Appeal Board, and OED on which the agency intends to rely for future effect, including ones the USPTO considers “precedential.” (These decisions are excluded from coverage to the extent they decide past issues in specific cases, E.O. 13892 § 2(c)(iv); they’re covered only to the extent an agency relies on them for future effect.) For example, E.O. 13892 requires agencies to “afford regulated parties the safeguards described in this order, above and beyond those that the courts have interpreted the Due Process Clause of the Fifth Amendment to the Constitution to impose” (emphasis added). E.O. 13892 explains that agencies, like the USPTO, must work to “foster greater private-sector cooperation in enforcement, promote information sharing with the private sector, and establish predictable outcomes for private conduct.”

Among the new requirements added by Executive Orders 13891 and 13892 to promote transparency and predictability are the following:

  • Each agency must list all its sub-regulatory guidance documents in one consolidated database of its web site, which must be indexed and searchable. The public should be able to rely on two sources, the Federal Register and one web page, rather than being in a sports bar confronted with twenty screens following twelve simultaneous games. Agencies should avoid relying on guidance documents that pop up without prior notice, or confound the public with fragmented guidance flowing through dozens of web pages, the Official Gazette, the Federal Register, several manuals and guides that are updated without statutorily-required notice, several email lists, web widgets, and the like.
  • After the Office of Management and Budget issues further implementing guidance, agencies will have a year to purge guidance documents of invalidly-promulgated requirements. We expect that, by the end of 2020, MPEP §§ 714.14, 802.01, 819, 1207.04, the 2015 rewrite of MPEP § 601.05(a), and Ex parte Quayle, among others, will be reviewed. They must either be repromulgated as regulation with full cost-benefit analysis, or else dropped.
  • The orders set additional procedures to promulgate, and provide ongoing periodic review, of various sub-regulatory guidance documents.

The Orders then return to statutory underpinnings, and require agencies to apply them in a consistent and predictable fashion.

“Unfair surprise”

“When an agency takes an administrative enforcement action, engages in adjudication, or otherwise makes a determination that has legal consequence for a person, it may apply only standards of conduct that have been publicly stated in a manner that would not cause unfair surprise.” E.O. 13892 § 4. Anyone that has ever phoned the USPTO and been told that words on a page don’t mean what the words look like they mean will be reassured that that is never supposed to happen again after October 9, 2019.

Moreover, the definitions section of E.O. 12892 highlights the breadth of what it means for an Agency’s position to be an “unfair surprise,” as discussed in Christopher v. SmithKline Beecham Corp., 567 U.S. 142 (2012). In Christopher, the Supreme Court noted that agencies are required to provide fair warning regarding the conduct that a regulation requires or prohibits and can’t rely on principles of judicial interpretation to save an unfairly-vague rule or give it enforceable “teeth” ex post. See 567 U.S. at 156. E.O. 13892 explains that agencies “must avoid unfair surprise not only when it imposes penalties but also whenever it adjudges past conduct to have violated the law.” E.O. 13892 appears to be a step in the right direction to help inform practitioners (and others) about the practical implications of otherwise innocuous conduct.

When an agency states a position in sub-regulatory guidance, the law has long recognized that the agency may not stand on that guidance as the last word; rather, the agency must entertain alternative positions. “Interpretive rules do not have the force and effect of law and are not accorded that weight in the adjudicatory process.” Perez v. Mortgage Bankers Ass’n., 135 S.Ct. 1199, 1204 (2015). E.O. 13892 § 6 requires the agency to give an aggrieved person an opportunity to be heard to contest an agency guidance position, and give a written decision that articulates a basis for its action.

Example: the Office of Enrollment and Discipline

The Office of Enrollment and Discipline (OED) may be considered as one example office within the USPTO, which may have to retool to comport its conduct to the new Executive Orders. Simply reading 37 C.F.R. Part 11 and the Final Orders issued by  OED does little to instruct practitioners of the practical standards applied by OED, or implications of practitioners’ conduct. While OED appears to attempt to provide helpful guidance to practitioners into Final Orders, much of this guidance is after the USPTO has already disciplined others, who themselves likely were not aware of the ramifications of their own acts, omissions, or mistakes. While OED may inform individual practitioners that their response to a Request for Information is an opportunity under 5 U.S.C. § 558(c) to demonstrate compliance with the USPTO Rules of Professional Conduct, OED often finds that compliance to be “too little too late,” leaving practitioners subject to discipline.

Of course, many practitioners claim they either never heard of OED because they practice only in trademark law, or they were not properly informed that their conduct, including outside of patent and trademark law, implicated OED’s interpretation of the USPTO Rules of Professional Conduct. Many practitioners, on first hearing of an OED position asserted against them in a Request for Information and Evidence (the typical “first knock at the door” from OED), complain of unfair surprise, because the USPTO does not give practitioners fair advance notice of its standards. That is truly a fair criticism, often not understood by OED.

Case in point—OED’s “publication” of decisions does not comport with legal requirements set by the APA, at least if the agency intends to rely on these past decisions as precedent for future decisions. 5 U.S.C. § 552(a)(1) and (2) (and now E.O.s 13891 and 13892) require agencies to publish their adjudicatory decisions in the Federal Register, and/or provide useful indexing on their websites (depending on the level of future reliance the agency intends to apply to its own past decisions). Admittedly, OED does publish its decisions on its website and in the Official Gazette, but only those who know where to look can find them, and they aren’t “indexed” as required by law. Truly, it is troubling to see the “enforcement arm” of the USPTO, which has the power to end careers, exercise discretion without careful observance of statutory due process. Furthermore, many such practitioners are caught in the reciprocal discipline web, as we described in an earlier post on Mr. Ali’s blog, which could result in double disbarment by the USPTO.

Implementation for the USPTO

The USPTO faces a scramble to clean up decades of noncompliance with law. With very few exceptions, Executive Orders 13891 and 13892 are simply restatements of principles that have been in effect for decades, under the Administrative Procedure Act (in effect since 1948), Regulatory Flexibility Act (since a large statutory amendment in 1996), Paperwork Reduction Act (1995), Executive Order 12866 (1992), prior Executive Orders 13258 and 13422 (which were in effect until 2009, and significantly overlap with E.O. 13891), and the Bulletin on Agency Good Guidance Practices, 72 Fed. Reg. 3432 (2007). The USPTO has on occasion expressed overt hostility to Presidential authority. For example, in 2011, one of the USPTO’s senior-most officials plainly refused to implement one of these predecessor orders of the President of the United States.[i] Because of these decades of what appears to be noncompliance, what should be a straightforward addition to various pages of the USPTO’s website may require a ground-up rebuild of the USPTO’s compliance/regulatory function, and review of the entirety of the USPTO’s regulatory corpus.

Long-standing statutory requirements that might now be implemented because of the two Orders, and corrective action we may expect from the USPTO, include:

  • Agencies must observe requirements of the Paperwork Reduction Act (E.O. 13892 § 8(b)) and Regulatory Flexibility Act (E.O. 13892 § 10), two statutes of which the USPTO has been particularly dismissive. For example, the Regulatory Flexibility Act requires agencies to avoid imposing costs on small entities. The USPTO’s analyses have historically only considered the effect on small entity applicants, and ignored to effects on small entity law firms. The USPTO’s Paperwork Reduction Act filings fail to reflect the regulations that define scope of coverage, e.g., 5 C.F.R. § 1320.3(b)(1) and (c)(4)(i). The USPTO should, by new regulation that restates existing law for guidance of USPTO staff, require staff to perform required cost-benefit analyses.
  • PTAB decisions, to be “precedential” or otherwise relied on, must be published in the Federal Register. 5 U.S.C. § 552(a)(1); E.O. 13892 § 3. In winter 2018-19, when one of the Vice Chief APJ’s was answering Q&A questions at a conference, one of the authors, Mr. Boundy asked why the PTAB did not publish its precedential decisions as required by statute. The answer was “Mr. Boundy, aren’t you elevating form over substance?” Mr. Boundy pointed out that the requirement was statutory. Mr. Boundy indicated several similar anecdotes in his brief to the Federal Circuit in Facebook v. Windy City. We have now had nearly a year to see how much weight statutes carry with the PTAB, if a reminder comes from a member of the public. Perhaps a reminder coming from the President will be more effective.
  • O. 13891 § 4 requires all agencies to promulgate regulations governing promulgation and amendment of guidance documents. One of the key requirements required by E.O. 13891 is that the agency must inform all its employees that guidance documents do not bind the public. See also E.O. 13892 § 3. That’s always been the law; now the USPTO will be obligated to inform and train its examiners and petitions decision-makers that they are not to cite the MPEP in any manner adverse to applicants. (The USPTO may use guidance to give tentative resolutions of ambiguity, but not to create new obligations or attenuate rights.) One of our recent articles, Agency Bad Guidance Practices at the Patent and Trademark Office: a Billion Dollar Problem, laid out the magnitude of the problem.  Another recent article, The PTAB is Not an Article III Court, Part 3, spelled out a good first draft of the necessary regulations.

Practical implementation for the public

Some practical implications for practitioners are immediately clear, as the White House reminds parties of rights they’ve had under statute and regulation for decades. Others will become clearer over time, as the Office of Management and Budget issues implementing guidance, as the USPTO implements the Orders and guidance, and as OED and the rest of the USPTO issue decisions. Practitioners should review forthcoming regulations and notices published in the Federal Register. For example, going back to our case study with OED, the office may propose procedures under this Executive Order, which discusses self-reporting, voluntary information setting, and other actions related to practitioners. Of course, those practitioners currently facing OED proceedings may benefit from this Executive Order by offering an explanation that the public was not properly put on notice of OED’s newfound interpretations of its rules.

We hope to see the USPTO create a dialogue with stakeholders of all shapes and sizes, and institute a new commitment to the rule of law, with predictable compliance with statutes, regulations, and Executive Orders. We’re available to help in any way we can. Director Iancu, you know where to find us.

 

[i] Then-Acting Associate Commissioner for Patent Examination Policy Robert Bahr, Decision on Petition, 10/113,841 (Jul. 14, 2011) at pages 19-20, refusing to implement the Bulletin for Agency Good Guidance Practices, OMB Bulletin 07-02 (Jan. 18, 2007), reprinted in 72 Fed. Reg. 3432-40 (Jan. 25, 2007). The Bulletin carries the same binding effect against agencies as an executive order.

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Emil J. Ali is a partner at Carr Butterfield, LLC where his practice includes advising and representing intellectual property attorneys in ethics investigations and litigation matters before the Office of Enrollment and Discipline (OED), as well as various state bars. Mr. Ali also provides conflicts and compliance advice to various law firms and in-house departments regarding managing effective compliance policies, and transitioning intellectual property professionals.

Mr. Ali is active in several intellectual property and ethics associations, and serves as the Vice-Chair of the ABA-IPL Ethics & Professional Responsibility Committee as well as being part of the Oregon State Bar Unlawful Practice of Law Committee. In addition to being a Registered Patent Attorney, Mr. Ali is admitted to practice in California, the District of Columbia, and Oregon. Emil writes about intellectual property legal ethics and OED procedure at www.oedethicslaw.com/blog.

David Boundy is a partner at Cambridge Technology Law. Mr. Boundy practices at the intersection of patent and administrative law, and consults with other firms on court and administrative agency proceedings, including PTAB trials and appeals. In 2007–09, Mr. Boundy led teams that successfully urged the Office of Management and Budget to withhold approval of the USPTO’s continuations, 5/25 claims, information disclosure statements, and appeal regulations under the Paperwork Reduction Act. In 2018, the Court of Appeals for the Federal Circuit asked Mr. Boundy to lead a panel of eminent administrative law academics and the President’s chief regulatory oversight officer in a program at the court’s Judicial Conference on administrative law issues. Judge Plager recommended Mr. Boundy’s article published in ABA Landslide, The PTAB is Not an Article III Court, Part 1: A Primer on Federal Agency Rulemaking, to the patent bar. Another recent article, The PTAB is Not an Article III Court, Part 3: Precedential and Informative Opinions explains the role of sub-regulatory guidance. He may be reached at DBoundy@CambridgeTechLaw.com.

 

2019 Iowa Law Review Issue: Administering Patent Law

By Jason Rantanen

I’m thrilled to announce the publication of the articles from the Iowa Law Review’s symposium, Administering Patent Law.  (Although Chris Walker beat me to the punch by a mile.)  It’s a terrific group of articles that focus on issues at the intersection of patent law and administrative law.  Here’s the abstract of my introduction to the issue:

Ten years ago, few people—with the exception of a handful of visionary academics—spent much time thinking about the significance of administrative law to the patent system. Today, administrative law issues pervade the patent system, from examiners and patent judges up to the United States Supreme Court. At the same time, modern administrative law itself faces a series of challenges that call into question its fundamental premises, such as the degree of deference that courts should grant agencies and the amount of political control that is constitutionally permissible or required. What does all this mean for the future of patent law?

Thanks to the support of the David F. Hellwege fund at the Iowa Law School Foundation, this issue of the Iowa Law Review contains an amazing array of scholarship on these topics from some of today’s brightest and most prominent patent law thinkers.

And the articles themselves:

Administering Patent Law, Jason Rantanen

Rigorous Policy Pilots: Experimentation in the Administration of the Law, Colleen V. Chien

Reasoned Decisionmaking vs. Rational Ignorance at the Patent Office, John F. Duffy

A Functional Approach to Judicial Review of PTAB Rulings on Mixed Questions of Law and Fact, Rebecca S. Eisenberg

Patent Trial and Appeal Board’s Consistency-Enhancing Function, Michael D. Frakes & Melissa F. Wasserman

PTO Panel Stacking: Unblessed by the Federal Circuit and Likely Unlawful, John M. Golden

Elite Patent Law, Paul R. Gugliuzza

Patent Court Specialization, Sapna Kumar

Institutional Design and the Nature of Patents, Jonathan S. Masur

The Hamiltonian Origins of the U.S. Patent System, and Why They Matter Today, Robert P. Merges

Statutes, Common Law Rights, and the Mistaken Classification of Patents as Public Rights, Adam Mossoff

Machine Learning at the Patent Office: Lessons for Patents and Administrative Law, Arti K. Rai

Renewed Efficiency in Administrative Patent Revocation, Saurabh Vishnubhakat

Constitutional Tensions in Agency Adjudication, Christopher J. Walker

Prior Art in Inter Partes Review, Stephen Yelderman

All of the articles are available through direct links above.  If you would like a physical copy of the issue, the Iowa Law Review editors have told me that you should contact the printer at on.demand@christensen.com and request a copy of Volume 104, Issue 5.  I’m not sure what the exact price is, but it’s likely be about $30 including shipping. (The whole volume is $53).

Executive Orders on Agency Practice

By Jason Rantanen

Yesterday, the President issued two significant executive orders relating to agency practice: the “Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents” and the “Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication.”

The order on guidance documents requires agencies to provide their guidance documents on easily searchable websites along with disclaimers about their legal effect.  In addition, for new guidance documents that are “significant,”  the order requires public notice and comment of at least 30 days and approval by “the agency head or by an agency component head appointed by the President, before issuance.”   “Significant guidance document” is defined as including the usual >$100 million effect on the economy, but also encompasses guidance documents that raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles of [EO] 12866.”

The order on adjudications seeks to require greater public notice of both agency jurisdiction and the relevant legals standards applied by agencies in enforcement actions and adjudications.  Provisions include the requirement that “When an agency takes an administrative enforcement action, engages in adjudication, or otherwise makes a determination that has legal consequence for a person, it may apply only standards of conduct that have been publicly stated in a manner that would not cause unfair surprise.”  The order also limits the use of guidance documents by the agency:

Sec. 3Proper Reliance on Guidance Documents.  Guidance documents may not be used to impose new standards of conduct on persons outside the executive branch except as expressly authorized by law or as expressly incorporated into a contract.  When an agency takes an administrative enforcement action, engages in adjudication, or otherwise makes a determination that has legal consequence for a person, it must establish a violation of law by applying statutes or regulations.  The agency may not treat noncompliance with a standard of conduct announced solely in a guidance document as itself a violation of applicable statutes or regulations.  When an agency uses a guidance document to state the legal applicability of a statute or regulation, that document can do no more, with respect to prohibition of conduct, than articulate the agency’s understanding of how a statute or regulation applies to particular circumstances.  An agency may cite a guidance document to convey that understanding in an administrative enforcement action or adjudication only if it has notified the public of such document in advance through publication, either in full or by citation if publicly available, in the Federal Register (or on the portion of the agency’s website that contains a single, searchable, indexed database of all guidance documents in effect).

The orders include several limitations on their scope and effect, but overall they’re very wide-reaching.  I’m especially interested in the ways in which they might affect the USPTO, but really need to spend some time thinking through the implications.  For example, on the one hand, the MPEP is specifically directed to examiners, not patent applicants.  On the other hand, it’s often quoted directly by examiners in office action responses and relied on fairly heavily by applicants.   Lots to unpack here.

There are some great posts over at the Notice and Comment blog about the two orders.  Thanks to Chris Walker for pointing these out.

Guest post by Prof. Chien: Comparative Patent Quality and the Prior Art Gap

Guest post by Colleen V. Chien, Professor, Santa Clara University Law School. This post is the third in a series about insights developed based on USPTO data.

“If we could further narrow this gap in prior art between examination and litigation, then the accuracy of the patent grant – and therefore, its reliability – would increase.”

Director Andrei Iancu

As Congress charts its path for the rest of the year, many in the patent community are eagerly awaiting new legislation on patentable subject matter. But to the extent that the Supreme Court’s jurisprudence can be understood as a clumsy response to the proliferation of weak patents, reversing these decisions will not address the underlying root causes of poor patent quality. It is therefore crucial to address the question raised at a recent Hearing before the Senate Subcommittee on Intellectual Property: how can the quality of US patents be ensured?

This post focuses on an aspect of patent quality that, though receiving scant focused attention by scholars (with some exception, such as the excellent work of Professor Steve Yelderman, now clerking at the Supreme Court), comes up in the examination of over 90 percent of all patent applications.[1] No other issue comes close: the USPTO reports that only about a third of office actions include a rejection based on 35 U.S.C. § 112 and just 11% percent receive a rejection based on § 101. The aspect is the robustness of prior art vetting under §§ 102 (novelty) and 103 (nonobviousness). Below I argue that policymakers should pay more attention to the patent system’s most important tool for ensuring a patent’s quality: not § 101 or inter partes review, but prior art.

The task of vetting inventions in view of the prior art is old, but there are a number of new challenges. As Director Iancu has repeatedly acknowledged, the “ever-accelerating publication and accessibility explosions” strain the ability of examiners to find the best prior art during examination. Foreign patenting, which creates harder-to-evaluate foreign language prior art, is on the rise. In areas of rapid development like artificial intelligence, not unlike the early days of software in which a President’s Commission recommended prohibiting software patents because of the inability to vet them, prior art is being generated at an extraordinary rate – but in repositories like arxiv.org or Google scholar, not necessarily in filings at the Patent Office. As part of its continued focus on prior art, the Office has multiple initiatives to improve access to prior art, including the Collaborative Search and Search Feedback Pilots. It’s asked about prior art in its recent call for comments about patenting artificial intelligence (deadline extended to 11/8). But how can we know if current or piloted approaches are enough?

In a recent paper, Comparative Patent Quality, I argue that the age-old tool of benchmarking can yield valuable insights for tracking quality in patent examination, and in particular the robustness of considered prior art. In it, I describe and apply an approach for benchmarking examiner citation patterns exploiting the natural experiment that occurs when the same application is filed in the USPTO and a foreign patent office (such as the European Patent Office (EPO)). The paper specifically considers the extent to which examiners are considering the full range of prior art—not just patents but also non-patent literature (NPL)—when vetting applications.

A second project, Rigorous Policy Pilots, considers two other prior art benchmarks. The first is the patent applicant’s Information Disclosure Statement (IDS), in which an applicant must disclose to the USPTO all of the prior art or other information of which she is aware material to her application. Another is the Patent Trial and Appeals Board’s inter partes review decisions, in which administrative law judges cite what they believe to be the most relevant prior art.

These papers validate and quantify what Director Iancu has called, the “gap between the prior art found during initial examination and the prior art found,” in this case, in inter partes review. Non-patent literature (NPL) is not being cited by US examiners in the majority of cases, and US examiners are citing it less than European examiners. Within a random sample, 3.2% of the prior art relied upon by a U.S. Examiner (as provided in an 892 Form) was non-patent literature while the comparable rate in European Patent Office cases (as an X or Y reference in the search report) was 20%.[2]

Figure 1 shows the gap in NPL citation rates among Examiners, PTAB judges, and applicants vetting the same invention (906 patents whose claims have been invalidated in inter partes review). While US Examiners cited non-patent literature on average 13% of the time, the PTAB was more than three times more likely to do so (41%). (Figure 1) Applicants were more than five times (66%) more likely to include NPL in an IDS than Examiners (13%) were to cite it. Though the sample size does not permit fine-grained comparisons, the basic finding – that US examiners are citing NPL far less frequently than PTAB judges or applicants – held across all technical centers.[3]

These comparisons have their limits: in inter partes review, the challenger, not Examiner supplies the prior art, and the patents of IPR are not representative of patents in general. An applicant’s inclusion of a reference in an IDS is very different than an Examiner’s consideration, then application of a reference. European examination is closer to US examination, however, and there’s also a gap, though it’s smaller: among the patents analyzed above that had a European counterpart, EPO examiners cited NPL at a 34% rate, more than double the US examiner rate on the same applications of 14% of the time.[4] But applicants do not necessarily treat European and US “twin” applications identically, and European patent law is not identical to US patent law. Perhaps most importantly, correlation does not imply causation, and it can’t be assumed from these contrasts that a lack of robust vetting is responsible for the issuance of patents later proved to be invalid.[5]

Still, because inter partes review only revisits the patent’s validity in light of the prior art under §§ 102 (novelty) and 103 (obviousness), it squarely presents the question, were there references that the examiner missed? This analysis suggests that the robustness of examiner-cited prior art in general, and the consideration of NPL in particular, deserves attention. Work is ongoing to tease out the differences and their relationship to quality not only according to this metric, but also other aspects of robustness pertaining for example to foreign patents and the classes from which patent citations are drawn.

What can the USPTO do now to pay more attention to the robustness of prior art and narrow the gap? I recommend a few steps. First, the Office should make the “robustness of the prior art considered,” whether measured by NPL citation, foreign patent citation, diversity of references, or other measure, an explicit quality metric within existing and future prior art initiatives, consistent with the Office’s commitment to continuous improvement. Studying the link between the robustness of cited prior art and quality and tracking this explicitly as a quality metric would signal the importance of this aspect of prosecution.

Second, the USPTO, as it seeks to leverage artificial-intelligence to improve examination, should take into account the “bias” against non-patent literature currently embedded in examiner citations. If a tool is trained primarily on examiner citations it will reinforce this bias, growing, not narrowing, the gap. As to artificial intelligence applications in particular, the USPTO should also work to ensure that US examiners have access to the same references and resources (including time and information) that those in industry[6] and their international counterparts do. With many AI patent applications coming from non-US sources, high patent quality now can protect freedom to operate later, for US innovators.

Second, as the USPTO continues to evolve its approach towards prior art, including through pilots, it should do so with an eye towards rigorous evaluation. This means explicitly identifying the goal of the piloted policy (the “treatment,” like enhanced search capabilities or examiner collaboration), the theory of change behind it, and a way to measure whether or not the approach being tested has succeeded in increasing the robustness of prior art cited, using experimental or quasi-experimental approaches. To see if a new approach is working, the Office would compare the robustness of art in applications receiving and not receiving the treatment.

While treating otherwise identical applications differently can present non-trivial challenges, existing caselaw and the experiences of agencies including the USPTO, in its own randomized trademark audits, suggest that they are surmountable and the resulting knowledge, well-worth pursuing. The “hard evidence” generated by a rigorous policy pilot, implemented with sufficient power and controls, could be particularly important for justifying changes, perhaps costly, to examination and prior art processes. More importantly, applying rigorous approaches to prior art pilots would do more to support the discovery of what works to advance patent quality, using the patent system’s most important tool for doing so: prior art vetting.

Thanks to research assistant Nick Halkowski, 3L at SCU Law, for providing excellent data support.

[1] Author’s analysis, using the USPTO Office Action Dataset.

[2] Comparative Patent Quality, n 239.

[3] Across all TCs except TC2800, where the gap was 17%, the gap between Examiner and PTAB NPL citation among the 906 invalidated patents was of 20% or more . (N=74-186).

[4] Rigorous Policy Pilots, appendix Figure 2.

[5] While several excellent studies of patent quality have considered the role of prior art including Wasserman and Frakes’ studies of the time devoted to patent examination, and work by my colleagues Professors Brian Love and Christian Helmers uncovering the determinants of quality, none of that I am aware has explicitly considered the “gap”, or “relative” citation of non-patent literature citation by US examiners, as compared to PTAB judges, judges, applicants, and EPO examiners as is contemplated by this analysis. Some evidence suggests that the robustness of US examiner vetting, relative to EP examiner vetting, may have implications for outcomes. Among the US patents granted by the USPTO but fully invalidated in IPR, 202 had an EPO counterpart application. Of these, approximately 1/3 of the EPO applications never matured into patents, primarily because they were withdrawn or revoked. But while applications that did not proceed in the EPO but were granted in the US were 30% more likely to have NPL cited in the search report than their US counterpart, the difference in non-patent literature citation among cases where both offices granted the patent was much smaller, a third of that or 10%.

[6] These sources include, based on my conversations with researchers:  DeepMind ResearchPapers with Code,  and conference proceedings from NIPSKDDISLVRC, and many others.