All posts by Jason Rantanen

About Jason Rantanen

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

Guest post: Advancing Inclusive Innovation and Entrepreneurship through the Patent System

By Colleen V. Chien, Professor of Law; and  Jonathan CollinsZachary J. Daly , and Rodney Swartz, PhD, all third-year JD students; all at Santa Clara University School of Law. This post is fourth in a series about insights developed based on data released by the USPTO.

“To truly advance innovation and human progress, we must all work to broaden the innovation community and make sure everyone knows that they, too, can change the world through the power of a single idea.”

– June 17, 2020 USPTO Director Andre Iancu

As we wait for a life-saving COVID vaccine, each new day reminds us of the inequalities that the pandemic has laid bare. 30% of public school children lack internet or a computer at home, making school reopenings an urgent priority. Black and brown people, are dying at a much higher rate from Covid due to a complex set of factors, and are at higher risk of lacking access to prescription drugs because of cost.

Though only one part of the larger innovation ecosystem, the patent system has an important role to play in advancing inclusive innovation. Below we build on the USPTO’s recent leadership and the AIA’s recent inclusionary policies (regional offices, pro se/bono supports, fee discounts) to provide a few ideas: being a beacon for the innovation needs of underrepresented populations, addressing the patent grant gap experienced by small inventors, diversifying inventorship by diversifying the patent bar, and developing and reporting innovation equity metrics. These ideas draw upon the paper by one of us, Inequalities, Innovation, and Patents and earlier work, and the ongoing efforts at the USPTO to “broaden the innovation community.”

Be a Beacon for the Unique Innovation Needs of Underrepresented People and for Tech Transfer 

Historically, innovation for underrepresented and underresourced groups has been underfunded. For example, Senator and VP candidate Kamala Harris recently introduced a bill to fund research on uterine fibroids, which, though receiving scant research attention, disproportionately impacts African-American women at a rate of 80% over their lifetimes. Closing the broadband access gap will require innovative technology solutions to deal with the “last mile” problems that face rural and underserved populations. The USPTO can use its powers to accelerate innovation to meet the unique needs of underrepresented and underresourced groups, including, as was done in the context of the Cancer Moonshot initiative, identifying relevant patents and applications and combining patent data with external data sources for example from agencies like the National Institutes of Health and Food and Drug Administration. These efforts bring connect patented inventions to “upstream funding and R&D as well as downstream commercialization efforts.” To speed COVID innovation, the agency has taken a number of other steps including deferring or waiving fees, prioritizing examination, and launching a platform to facilitate connections between patent holders and licensees. These capacities could be directed to priority equity areas, which are positioned to benefit especially when private and public funding is at stake.

Expand Equality of Opportunity by Addressing the “Patenting Grant Gap”

When startups and innovation entrants patent, good outcomes often follow: first-time patenting is associated with investment, hiring, and economic mobility. But in many cases, the applications submitted by small entity inventors don’t actually turn into patents. Using open government data helpfully made available by the USPTO Open Data Portal (beta) we find, as documented in Fig. 1 below from the paper, that small entities are less likely to succeed when they apply for patents: by our estimate, applications filed 10 years ago have turned into patents 73% of the time vs. 51% for small/micro entities, a 40%+ difference.

Others including work by former USPTO Chief Economist Alan Marco, have reached similar conclusions. Empirical studies have also found that inventors with female sounding names, or who are represented by law firms that are less familiar to patent examiners are less likely to get patents on their applications than their counterparts. (source: Colleen Chien,  Inequalities, Innovation, and Patents)

The difference in allowance rates may be due to any of a variety of factors, for example, a higher abandonment rate or differences in the types of patents sought. The possibility of implicit bias – based on inventor, or firm name – is also worth investigating further; the USPTO isn’t the only federal agency where the possibility of bias has been documented. But no matter the reason, ungranted applications to underrepresented groups present not only potential equity problems for society but also economic problems for the agency: applications that never mature into patents don’t generate issuance and maintenance fees.

One solution may be to try to improve the quality of underlying applications. As previously documented using PTO office action data, the applications of discounted entities are much more likely to have 112 rejections, and in particular 112(b) rejections. (Fig. 5A) A lack of “applicant readiness,” as described by examiners, may be one culprit. (source: Colleen Chien,  Rigorous Policy Pilots the USPTO Could Try (2019))

A promising approach as discussed previously by one of us would be to democratize access to drafting tools and aids, which are often used by sophisticated applicants to, for example, check the correspondence between claim terms and the specification. Using error correction technology to level the playing field in government filings, through public and private action, is precedented. Improved application quality advances the shared goal of compact prosecution, and to that end it is encouraging to see that the Office of Patent Quality Assurance, in their ongoing work to improve applicant readiness, is reportedly working to “identify opportunities for IT to assist with quality enhancements early in the process.” Such efforts could go a long way to address both the equity and economic challenges described above. We encourage continued investigation and prioritization of public and private efforts to address the “patent grant gap” in support of broader inventorship and participation in innovation.

Diversifying Inventorship by Diversifying the Patent Bar 

As argued in the paper, patenting is a social activity that depends on social connections -“who you know and who you can call upon.” But access to patent talent is uneven – Sara Blakely, the founder of Spanx, has reported that she could not find a single female patent attorney in the state of Georgia to file the patent upon which she built her billion-dollar undergarments empire. To sit for the patent bar generally requires a science, technology, or engineering degree. But because of their underrepresentation among STEM, engineering, and computer science graduates, women, Black and Hispanic people are disproportionately excluded from participation.  The technical degree requirement particularly disadvantages those with design experience but not engineering degrees, who are often women, and who might otherwise want to prosecute design patents over fashion or industrial design, Christopher Buccafusco and Jeanne Curtis have noted. Relaxing the technical degree requirement would enable diversification of the patent bar, in support of diversifying inventorship and entrepreneurship.

Develop and Prioritizing Innovation Equity Metrics and What Works

While each year the number of new patent grants is announced, perhaps the patent statistic that has catalyzed the most action recently is the USPTO’s groundbreaking Progress and Potential series of reports which, for the first time, officially documented that only 12-13% of American inventors are women, and Director Iancu’s leadership and his staff on the issue. This report has prompted conferences and toolkits, and spurred companies to revisit their patent programs and pipelines. As additional resources are invested into making innovation more inclusive, “innovation equity metrics” that take advantage of the granularity, quality, and regularity of patent data, and that track, for example “inventor entry” and “concentration” and the geographic distribution of patents, as demonstrated in the paper, are worth investing in. Improved data collection, for example, of race and veteran status data, and federation and coordination with other datasets, for example held by the Small Business Administration, or in connection with the Small Business Innovation Research program, and Census could go a long way. Doing so would allow for more regular reporting and analysis of the overall health of the innovation ecosystem, which, by a few measures appears to be waning: as described in the paper, patenting by new entrants is down while the concentration of patent holdings is up. Surveys of underrepresented inventors, and what have been enablers and blockers, can also lend inform the development of policies of inclusion.

Conclusion

Though only one part of the larger innovation ecosystem, the patent system’s long-standing commitment to a diversity of inventors and equal opportunity position it well to answer the call of the current moment, for greater inclusion in innovation. We encourage readers with concrete ideas about how to advance inclusion in innovation, through the patent or other governmental levers, to submit them to the DayOneProject, which is collecting ideas for action for the next administration. For more, also check out the recent Brookings Report on Broadening Innovation by Michigan State Prof. Lisa Cook, a leading economist (see, e.g. the NPR Planet Money podcast, Patent Racism, about her work).

The authors represent that they are not being paid to take a position in this post nor do they have any conflicts of interest in the subject matter discussed in this post.  Comments have been disabled at the authors’ request. 

Guest Post: Patent Prosecution Trends Following the Patent Eligibility (101) and 112 Guidelines

By: Colleen V. Chien, Professor of Law; Nicholas Halkowski, first-year associate at Wilson Sonsini and 2020 JD grad; Maria He, Masters Graduate of the Masters in Business Analytics Program at Leavey Business School, and Rodney Swartz, PhD, patent agent, Intellectual Property Associate at SRI International, and third-year JD student; all at Santa Clara University and writing in their personal capacity. This post is the third in a series about insights developed based on data released by the USPTO.

Almost two years have passed since the USPTO issued its January 2019 Patent Eligibility Guidance (PEG). As the prospect of near-term Supreme Court or Congressional action on Section 101 remains murky, it is worth taking stock of patent prosecution and application trends following the PEG, and also, the Office’s accompanying Guidance on Section 112. In this post, we report on quarterly trends in office actions and filings before and after the PEG. We build on earlier analyses reported in PatentlyO and the USPTO Office of Chief Economist’s own report from earlier this year, Adjusting to Alice, which found that the PEG was followed by decreases in both the likelihood of receiving a rejection and the uncertainty in patent examination.

It is thanks to the exciting continued releases of patent data from the Patent Office, collectively as part of the Open Data Portal (in beta), that we can follow these trends in an attempt to understand the impact of policy. We encourage the USPTO to continue providing data and improving its coverage and quality, providing the only source of data that the courts and policymakers can turn to on the prosecution impacts of their work, as well as research and patent data startups. As to the office action and appeals data, discontinuities and quality issues in currently available datasets presented challenges to our analysis, which we overcame by developing a number of computational approaches. The accompanying PatentlyO Bar Journal Article, Parsing the Impact of Alice and the PEG, (hereinafter referred to as “Article”), has the details and code we used, as well as a summary of the supporting analyses described below.

We find, following the PEG:

1. Decline in 101 Subject Matter Rejections and Stabilization of Appeals: The prevalence of 101 subject matter rejections declined by 37% after the PEG with absolute declines most dramatic among “software” applications as previously defined. (Fig. 1) Ex parte appeal decisions addressing 101 subject matter appeared to stem their rise. (Article 1A)

2. No Discernable Increase in 112 Rejections: The 112 Guidance issued by the Patent Office in January 2019 described the use of 112(a), (b), and (f) to address functional claims in computer-implemented inventions. Following the 112 Guidance, we did not discern an increase in the examiner’s application of 112 rejections, in general (Fig. 2) or at the subsection level, except in the case of 112(f) rejections as applied to “software” applications which have increased steadily since the USPTO’s February 2014 Executive Action on Claim Clarity and Federal Circuit’s June 2015 Williamson decision, both directed to functional claiming, from 2.7% in 1Q14 to 7.6% in 4Q19. (See Article 2A)

3. Leaving Small Entities Behind Through Forum Shopping?: Some applicants have responded to elevated 101 rejection rates by using analytic tools to draft their claims in order to “forum shop” out of Alice-impacted art units. Though the use of these tools is not observable, it is plausible that their cost puts them out of reach of small and micro entities, and might, as a result, lead to a greater concentration of discounted applications in these art units. However, when we looked at the data, we found that the share of applications by discounted entities over time had not increased but rather, has stayed relatively steady among applications filed from 2010 to 2018. (See Article Fig. 3)

4. No Noticeable Decline in “Medical Diagnostic” or “Software” Applications following Alice or Mayo: One limitation of focusing solely on rejection rates is that they do not capture applications “never filed” due to the changes in law or policy. To gauge whether or not there was an “Alice” or “Mayo” “effect” on the number of applications, we looked for declines, in absolute and relative terms, among medical diagnostic and software technology applications, as previously defined, but found no such declines. (See Article Fig.4) Although the PEG came out more than 18 months ago, we do not yet have a complete picture of application trends following the PEG, so cannot rule out that it was followed by increases in filings.

5. More Unique Words in Issued Patent Claims post Alice: Another limitation of focusing on examiner behavior is that it does not take into account changes in applicant behavior and the dynamic there between. With the help of Rocky Berndsen, Peter Glaser, and William Gvoth of Harrity and Harrity, we looked at the number of words included in patents filed after Alice. Applying a “differences in differences” approach, we found that the number of unique words in “software” patents relative to a baseline doubled from 10 additional to 20 additional words, consistent with the hypothesis that the Alice decision led to the addition of claim details. (See Article Fig. 5) As patents filed after the PEG are granted, it will be worth seeing whether or not outcomes along this metric have changed.

Conclusion

The data indicate that, following the PEG, the prevalence of 101 subject matter rejections, and likely frustration associated with same, declined. At the same time, we did not find that 112 rejections increased noticeably to take their place, or that caselaw or the PEG resulted in sustained diminished filings. While we are not able to report on the impact of the PEG on filings and application “quality” (words and details), due to time effects, fortunately, the USPTO’s data releases should seed continued study and analysis of the impact of it and future guidance and court decisions.

The authors represent that they are not being paid to take a position in this post nor do they have any conflicts of interest in the subject matter discussed in this post.

 

New Patently-O Law Journal Essay: Parsing the Impact of Alice and the PEG

New Patently-O Law Journal Essay by Colleen V. Chien, Nicholas Halkowski, Maria He, and Rodney Swartz.

Abstract:

Almost two years have passed since the USPTO issued its January 2019 Patent Eligibility Guidance (PEG), itself a response to the Supreme Court’s Alice decision, and what many perceived as its destabilizing impact on the certainty of patent prosecutions. Leveraging new  data releases, we report on trends in prosecution following the USPTO’s PEG and the Guidance on 112, finding 1) a decline in subject matter rejections and stabilization of subject matter appeals, 2) no discernable increase in 112 rejections, 3) no evidence that small entities were being left behind in Alice-impacted art units by forum shopping by large entities, 4) no noticeable decline in “medical diagnostic” or “software” applications following Alice or Mayo, and 5) more unique words in issued patent claims post Alice. The scripts and techniques we developed to navigate data discontinuities and a lack of labels and complete our analysis are included in this essay.

Read the Essay at: Colleen V. Chien, Nicholas Halkowski, Maria He, and Rodney Swartz, Parsing the Impact of Alice and the PEG, 2020 Patently-O Law Journal 20.

Prior Patently-O Patent L.J. Articles:

  • Paul R. Michel and John T. Battaglia, eBay, the Right to Exclude, and the Two Classes of Patent Owners, 2020 Patently-O Law Journal 11 (2020). (Michel.2020.RightToExclude)
  • Thomas F. Cotter, Two Errors in the Ninth Circuit’s Qualcomm Opinion, 2020 Patently-O Patent Law Journal 1 (2020). (Cotter.2020.TwoErrors.pdf)
  • 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)

 

Guest Post by Profs. Contreras and Yu: Will China’s New Anti-Suit Injunctions Shift the Balance of Global FRAND Litigation?

Guest post by Associate Professor Yang Yu of Shanghai University of International Business and Economics and Professor Jorge L. Contreras.

As one of us has recently observed (here and here), courts in the U.S. and UK adjudicating cases involving standards-essential patents and FRAND licensing commitments[1] have increasingly issued injunctions preventing one party from pursuing parallel litigation in another jurisdiction (anti-suit injunctions or ASIs).  In response, courts in other countries – namely Germany and France – have begun to issue anti-anti-suit injunctions (AASIs) to prevent parties from seeking ASIs that would hinder their own proceedings.  And even anti-anti-anti suit injunctions (AAASIs) have emerged as more than theoretical possibilities.  Amidst this international jockeying for jurisdiction, commentators have wondered where it will end, and whether every country involved in complex, multi-jurisdictional disputes will get into the ASI game.  In two recent cases, China has now stepped forward as another major jurisdiction in which ASIs are available to litigants.

Conversant v. Huawei Link to translation

The first case involves Chinese smartphone manufacturer Huawei and Texas-based patent assertion entity Conversant Wireless Licensing (formerly Core Wireless). Conversant holds a globe-spanning portfolio of patents that it acquired from Nokia and which it claims are essential to the 2G, 3G and 4G wireless telecommunications standards developed under the auspices of the European Telecommunications Standards Institute (ETSI).  Conversant sought to license these patents to Huawei, but negotiations broke down and in 2017 and 2018 Conversant asserted the patents against Huawei in multiple jurisdictions.  The UK suit was recently decided by the UK Supreme Court, [2020] UKSC 37, which held that a UK court has the authority to set a global FRAND royalty rate between the parties, notwithstanding its lack of jurisdiction over patents outside the UK (see discussion here).  (This case also involved an unsuccessful 2018 bid by Conversant to obtain an ASI from the UK Court of Chancery, [2018] EWHC (Ch) 2549, against the prosecution of a related suit by ZTE, Huawei’s co-defendant, in the Shenzhen Intermediate People’s Court in China – discussed here).

In response to Conversant’s initial patent assertions, in January 2018 Huawei sought declarations from the Nanjing Intermediate People’s Court of Jiangsu Province, China, that it did not infringe three of Conversant’s Chinese patents and, if it did, that it was entitled to a license on FRAND terms. On September 16, 2019, the Nanjing court declined to issue a declaration regarding infringement, but established a “top down” FRAND royalty for the three Conversant patents (discussed at length in IAM, 23 Sept. 2019 and IAM, 5 Aug. 2020). The decision is currently on appeal at the Supreme People’s Court (SPC) of China.

Meanwhile, in April 2018, Conversant sued Huawei in the District Court in Düsseldorf, Germany, alleging infringement of several European patents. On August 27, 2020, the Düsseldorf court granted Conversant an injunction against Huawei’s sale, use or importation in Germany of devices infringing patent EP1797659 (the German Patent).

On the same day, Huawei applied to the SPC seeking an “act preservation” ruling (a judicial action roughly equivalent to an ASI) to prevent Conversant from enforcing the Düsseldorf injunction until the conclusion of the Chinese proceedings.  The SPC granted the ASI after an ex parte hearing in which Conversant did not participate.  In its decision, the SPC cited a number of factors weighing in favor of granting the ASI, many of which resemble the factors considered by U.S. courts when considering ASIs (see Contreras, The New Extraterritoriality, pp. 265-67):

  • the parties to the Chinese and German actions are the same;
  • there is partial overlap between the subject matter of the cases;
  • Conversant’s enforcement of the German injunction would interfere with the Chinese action;
  • in order to avoid the effects of the German injunction, Huawei must either withdraw from the German market or accept the license offered by Conversant in Germany, which sets a global FRAND royalty rate that is 18.3 times higher than the rate set by the Nanjing court;
  • imposition of the ASI will not materially prejudice Conversant’s rights in Germany with respect to the merits decisions (as opposed to the injunction decisions) of the German courts;
  • imposition of the ASI will not harm the public interest;
  • imposition of the ASI will not affect international comity, as the Chinese actions were brought before the German action and the ASI will not affect the subsequent trial in the German case or detract from the legal validity of the German judgment.

Also relevant to the SPC’s decision, though not specifically included in its consideration of the ASI, was the fact that in August, 2018, the Chinese State Intellectual Property Office (SIPO) ruled that the Chinese counterpart to the German Patent was invalid.  Conversant brought an administrative lawsuit challenging that ruling in the Beijing Intellectual Property Court.  That matter is still pending.

Upon entry of the ASI, the SPC established a penalty of RMB 1 million per day (approximately US$150,000) if Conversant violates the ASI.  Because the ASI was issued ex parte, Conversant was entitled to apply for reconsideration within five days.  It did so, and its request was denied on September 11, leaving the ASI in force.

Interdigital v. Xiaomi Link to translation

The dispute between InterDigital, a U.S.-based patent assertion entity, and Xiaomi, a Beijing-based electronics firm, relates to five InterDigital patents covering the 3G and 4G standards.   When negotiations for a license failed, on June 9, 2020 Xiaomi sought a declaration by the Wuhan Intermediate People’s Court of the appropriate FRAND royalty rate for the patents.  On July 29, InterDigital sued Xiaomi for infringement in the Delhi High Court in India, seeking monetary damages and an injunction. In response, on August 4, Xiaomi asked the Wuhan court for an “act preservation” ruling (ASI) preventing InterDigital from enforcing the injunction while the Wuhan proceeding was in progress.

The Wuhan court granted Xiaomi’s request, reasoning that:

  • InterDigital’s filing of parallel litigation in India during the pendency of the Wuhan case showed a lack of respect for the Wuhan court and the case before it;
  • The Indian action was intended to interfere with and obstruct the Wuhan case;
  • The Indian action is likely to lead to a ruling in conflict with that of the Wuhan court;
  • The entry of an injunction in India will likely cause significant harm to Xiaomi;
  • Because InterDigital is a non-practicing entity that does not make products, but relies solely on licensing income, it would not be harmed substantially by the inability to seek an injunction against Xiaomi

Accordingly, on September 23, the Wuhan court (a) ordered InterDigital to withdraw its requests for injunctive relief in India, (b) prohibited InterDigital from seeking injunctive relief in China or any other country with respect to the 3G/4G patents currently at issue in the Wuhan case, and (c) prohibited InterDigital from asking another court in China or any other country to determine a FRAND royalty rate or resolve a FRAND dispute relating to the 3G/4G patents at issue.

As in Conversant v. Huawei, the Wuhan court established a penalty of RMB 1 million per day (approximately US$150,000) if InterDigital violates the ASI.  Because the ASI was issued ex parte, InterDigital was entitled to apply for reconsideration within five days.  It did so, and its request appears to have been denied, leaving the ASI in force.

In response to the entry of the ASI by the Wuhan court, InterDigital disclosed to the U.S. Securities and Exchange Commission (first reported by IAM) that on September 29, it filed for an anti-anti-suit injunction (AASI) in the Delhi High Court to prevent Xiaomi from enforcing its Chinese ASI.   This is the first instance of which we are aware of an AASI being sought in a FRAND case in India (prior examples being observed in Germany, France and the UK, as discussed in Contreras, Anti-Suit Injunctions All the Way Down).

Discussion

The ASIs issued by Chinese courts in Conversant v. Huawei and InterDigital v. Xiaomi signal a new willingness of Chinese courts to vie for jurisdictional authority in global battles over standard-essential patents.  To some degree, this development was entirely predictable.  Courts in the U.S. and UK have, for several years, sought to resolve global FRAND disputes being litigated on the international stage.  But there is no reason that U.S. and UK courts should be the exclusive venues for such proceedings.  The courts of every country in which the parties have sufficient assets to care about adverse rulings can exert similar authority.  As one of us has previously observed, this inter-jurisdictional competition is rapidly leading to a “race to the bottom” and a “race to the courthouse” in international FRAND disputes.

Yet even more seems to be at play in these two cases than China’s adoption of jurisdictional measures already deployed in the U.S. and UK. The ruling of the Wuhan court is far broader than the Supreme People’s Court’s ruling in Conversant v. Huawei in two major respects that are worth considering.  First, its geographic scope is not limited to the country in which InterDigital sought injunctive relief (India), but extends to all jurisdictions in the world.  As an anti-suit measure, this is more sweeping than any ASI issued in U.S. or other courts in FRAND cases.  Under U.S. and UK law, a court considering a request for an ASI must compare the action in the domestic court with the parallel action in the foreign court and determine whether they address the same matter and whether the resolution of the domestic action would dispose of the foreign action.  This type of analysis is not possible with an ASI that is not directed to a particular foreign action, but prospectively prohibits any attempt to seek an injunction anywhere in the world.

The second major addition by the Wuhan court is the prohibition on InterDigital’s ability to ask any other court in the world to determine a global FRAND rate for its 3G/4G patents.  As such, China has clearly joined the international race to be the jurisdiction of choice for determining FRAND royalty rates in global disputes involving standard-essential patents.

[1] A FRAND commitment is an obligation undertaken by a participant in a standards development organization (SDO) to grant licenses of its patents that are essential to implementation of one of the SDO’s standards on terms that are fair, reasonable and nondiscriminatory.  For a primer on standards development and FRAND commitments, see this chapter.

New PatentlyO Law Journal Essay: eBay, the Right to Exclude, and the Two Classes of Patent Owners

New PatentlyO Law Journal article by retired Chief Judge of the Federal Circuit Court of Appeals Paul R. Michel and John T. Battaglia, Esq. 

Introduction:

The entire point of a healthy patent system is on spurring invention and investment, by rewarding inventor and investor alike, big or small, with exclusive rights of limited duration, for their inventive risks and contributions. Otherwise, without such patent rights—or with fewer such rights—the incentives to invent diminish, or such inventive resources will re-locate.

Two Different Patent Laws: One for Manufacturers, Another for NPEs

With that backdrop, we address the disparate-treatment problem that currently defines the U.S. patent system. Those entities that manufacture a product claimed by a patent, and successfully enforce that patent in court, often still obtain an injunction, consistent with the “right to exclude others” that Congress granted to “[e]very patent. But for nearly 15 years, those entitles that invest in invention rights and buy and license patents—be they university research arms or non-practicing licensing entities (NPEs or so-called “trolls”)—often haven’t bothered even seeking injunctive relief in litigation. Why?

The answer is that the federal courts over time have misunderstood and misapplied the Supreme Court’s landmark 2006 decision in eBay Inc. v. MercExchange, L.L.C.

Read more at Paul R. Michel and John T. Battaglia, eBay, the Right to Exclude, and the Two Classes of Patent Owners, 2020 Patently-O Law Journal 11 (2020).

Prior Patently-O Patent L.J. Articles:

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

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.