All posts by Jason Rantanen

About Jason Rantanen

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

Proposed Changes to Federal Circuit Rules

Patent

By Jason Rantanen

Earlier this month, the Federal Circuit released a set of proposed amendments to the Federal Circuit Rules of Practice and Procedure that completely overhaul the existing rules.   These changes are extensive, with the summary alone filling six pages.  The bulk of the proposed amendments focus on the shift from paper to electronic filing, with changes in both terminology and procedure.   Other notes:

  • The proposed rules revise the court’s approach to material deemed confidential.  Parties will be able to designate up to 15 words in a brief “confidential” without needing to file a motion.  More lengthy redactions require a motion “establishing that the additional confidentiality markings are appropriate and necessary pursuant to a statute, administrative regulation, or court rule.”   (Rules 11(c), 17(e), 27(m), 28(d) and 30(h)).
  • Several of the proposed amendments add language relating to the Certificate of Interest, emphasizing the requirement that a Certificate of Interest be included when filing all motions, including motions for a stay or injunction pending appeal (Proposed Rules 8(a)(4) and 26.1).  In addition, the proposed amendments add more language requiring that Certificates be amended promptly when information changes.  (Rule 26.1 and 47.4(b)). As someone pointed out, though, the Federal Circuit Rules already require a Certificate of Interest to be filed with each motion, petition, or response.  See Fed. Cir. R. 47.4.  Rule 47.4(c) also requires that if any of the information changes, the party must file an amended certificate within 7 days of the change.  Does anyone know why all the redundant language is being added in Rules 8(a)(4), 26.1 and 47?

The court’s own summary of the proposed changes is available here: summary_of_proposed_rule_changes_dec_2015, with a redlined version of the actual edits available here: federal_circuit_rules_public_notice_dec_2015.  Given their scale, it’s difficult to get a sense of the changes from the summary alone.  I encourage folks who regularly practice before the court to read through the changes carefully, both for substance and areas of potential unintended error.  If there are any areas of potential ambiguity or overcomplexity, now is the time to point them out.  Comments on any of the proposed changes are due to the court by January 4.

In addition, the court’s website notes that “Reviewers may wish to note that the recent amendments to Rule 28(a)(12) and 28(f), and Rule 30(b)(4)(E), relating to the pagination and marking of appendices and supplemental appendices are final with an effective date of January 4, 2016.”  These rules apply to all appeals docketed on or after Monday, January 4, 2016.

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

Patent, ,

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

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

Background

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

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

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

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

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

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

Comparable Licenses

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

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

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

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

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

Impact of Standardization

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

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

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

Implications for RAND and Standards

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

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

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

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

AIPLA Patent Year-in-Review

Patent, ,

By Jason Rantanen

I’m very much looking forward to giving the Patent Year-in-Review talk at the AIPLA annual meeting tomorrow.  If you’re at the AIPLA conference, I’d love to chat with you tonight at dinner or Saturday morning.  Look for the somewhat geeky guy with glasses.  😉

In connection with that talk, AIPLA asked me to put together an essay as well.  I posted a copy of that original essay a month ago; surprisingly, there have been developments in patent law since then! So if you’re looking for the updated version, which includes the Federal Circuit’s en banc opinion in SCA Hygiene and the Supreme Court’s grant of certiorari in Halo and Stryker earlier this week, it’s here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2658737

US Patent Application Filings for FY 2015

Patent

By Jason Rantanen

The USPTO recently released the data on the number of patent applications filed in Fiscal Year 2015 via its Data Visualization Center (i.e.: the Dashboard) page.

Based on this data, the number of patent applications hasn’t taken a nosedive.  Instead, applications have remained at the same level as the preceding year.  The number of UPR (Utility, Plant and Reissue) applications did drop by about 0.5% as compared with Fiscal Year 2014, but that’s a very small change, especially when compared with the growth in UPR filings over the past several years.  In addition, when Requests for Continued Examination are broken out (the PTO includes RCEs in its numbers of UPR filings on the Dashboard spreadsheet), the number of applications actually rose by about 1%.

Figure 1 depicts the numbers of UPR applications filed per fiscal year, with and without RCEs.  (Additional note: these numbers do not distinguish between applications that do not claim the benefit of an earlier U.S. application and those that do, such as continuations and continuations in part.  Also, historically plant and reissue applications have made up a de minimus proportion of the UPR applications (about a thousand of each per year).)

UPR - FY 2015To check whether there might have been a sudden drop at the end of the year that affected these results, I also plotted the cumulative numbers of applications filed on a monthly basis for each fiscal year from 2009-2015. Fiscal year 2015 really doesn’t look all that different from Fiscal Year 2014 when viewed on a monthly basis and there’s no sudden unexpected dropoff at the end.

Applications - Time Series (2015)

Finally, I graphed the numbers of design patent applications filed each fiscal year.  I was a bit surprised that design patent applications were essentially flat as compared to FY 2014, indicating that – so far at least – there hasn’t been a huge surge in these applications.

Design applications 2015

 

Guest Post: The Blurring Of §§ 101 and 103—A Double-Edged Sword that Cuts the Other Way

Patent, ,

Guest post by Ben Roxborough.  Mr. Roxborough is one of a few dual citizens who have completed federal court clerkships in both the United States and Australia. He has clerked in the U.S. for three years and practiced in Australia for five years, writing articles on how Australian courts developed a workable doctrine for patentable subject matter. He earned an LL.M. degree at Stanford Law School, specializing in intellectual property. This is not legal advice, and he welcomes any comments or criticisms: ben.roxborough@gmail.com

To say that the sands have been shifting with respect to Section 101 jurisprudence would severely understate the seismic change that it has experienced in recent years; ever more so in recent months. The consequence is that the lines between sections 101, 102 and 103 have been blurred. This consequence appears to stem from statements in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289, 1304 (2012), where Justice Breyer suggested that the inquiries “overlap.” Indeed, three years later, the Federal Circuit panel in Internet Patents Corp. v. Active Network, Inc., 790 F.3d 1343, 1347 (2015), went as far as saying that a “pragmatic analysis of § 101 is facilitated by considerations analogous to those of §§ 102 and 103.”

Because the lines have blurred, defendants have been able to rely on 102/103 arguments to invalidate patents on 101 grounds. These arguments, which defendants tend to advance at the second step of the Mayo/Alice framework, generally state that the additional steps—beyond the putative ineligible subject matter—are conventional because they can be found in the specification or are so ubiquitous that the court can treat them as routine and well understood by those in the scientific community. In Mayo, 132 S. Ct. at 1298, for example, Justice Breyer cited admissions in the specification that the processes for determining the level of metabolites in a patient’s blood were “well known in the art.” The patent lacked inventive concept because of this. Relying on Mayo, among other cases, defendants now make a simple argument. The argument may be summed up as: “Your Honor, if you combine what’s described in the specification and prior art with the ineligible subject matter, you’ll find that the patent claims are routine and conventional and do not meet the 101 threshold.”

In effect, the 101 ineligibility defense has become a de facto 103 defense, targeting primarily combination patents. But putting aside the fact that this de facto argument reflects a conclusion (rather than any real analysis), the argument is extraordinary because prior art in the specification is used against the patentee. No evidence other than the specification is being proffered to support the defendant’s position (which may mean that the prior art in the specification is an admission, but no patentee would say that the combination of the prior art elements were well known in the art at the time of the invention). And although some district courts have acknowledged this paradox, the argument tends to be successful as it was in McRO, Inc. v. Namco Bandai Games Am., Inc., No. CV 12-10327-GW, 2014 WL 4749601, at *11 (C.D. Cal. Sept. 22, 2014).

But it doesn’t end there: the patentee’s perilous position is only compounded further when the defendant seeks dismissal of the claim pursuant to Federal Rule of Civil Procedure 12(b)(6) because the patentee generally cannot proffer evidence outside the four corners of the complaint (and patent) that could undercut the defendant’s position. This seems unfair from not only a procedural perspective, but also a substantive one. When looking at a combination patent, what courts most want to know (or should want to know) is: “Who would have thought to combine the elements of the invention in the first place, and why?”

These basic concerns are central in the 103 context. But they should be equally relevant in the 101 context. Defendants have had a field day eviscerating patent after patent since Alice using ‘obviousness-like’ arguments to show that the patent lacks inventive concept. What is required in response to these developments is judicial recognition of ‘obviousness-like’ arguments that cut the other way. The article I am writing seeks to develop these themes, so to place plaintiffs and defendants on equal footing under Section 101. They are summarized here (and, admittedly, are far from fully developed):

  1. THE SKILLED ARTISAN: To provide the 101 analysis with an objective baseline, courts need to define who the skilled artisan is—and what she knew at the time of the invention. Sometimes a plaintiff is precluded from presenting such evidence because courts now decide a significant number of 101 cases at the Rule 12(b)(6) stage. To guard against early Rule 12(b)(6) motions, the skilled artisan’s background should be described in the complaint (or even the patent itself). Or, the Defendant should be required to show ineligibility within the confines of Rule 12(b)(6). This is less of a problem at the Rule 56(a) stage because the patentee has a chance to present skilled artisan’s common general knowledge. Critically, however, in those cases now on appeal—where the district court has not properly articulated the skilled artisan’s background—the Federal Circuit should be remanding such decisions for further factual development of the record. Placing greater emphasis on the skilled artisan can only make the 101 analysis a more balanced one.
  1. SOLVE THE PROBLEM: Defendants are using the specification against the patentee. But what is referenced in the specification can actually help the patentee demonstrate that the additional steps beyond the ineligible subject matter constitute inventive concept. Specifically, plaintiffs should turn the tables and point to the specification to demonstrate the problems faced by those in the field—and why the invention provides a “new and useful” solution. 35 U.S.C. § 101. Taking a problem-solution approach to define what is “new and useful” is precisely the type of analysis that Judge Chen applied in DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014), though it has its roots in Diamond v. Diehr, 450 U.S. 175, 188 (1981) and the Supreme Court’s more recent holding in Alice also reflects this approach.
  1. TEACHING AWAY: This analysis typically applies in the 103 context. But what stops it from being relevant in the 101 context? To this point, the recent BRCA1 decision has opened the door for its application. In re BRCA1- & BRCA2-Based Hereditary Cancer Test Patent Litig., 774 F.3d 755, 764 (Fed. Cir. 2014). Just as Justice Breyer tethered the notion of what was “well known in the art” by referring to the specification for 101 purposes, the Federal Circuit in BRCA1 has tethered that same notion to “techniques that a scientist would have thought” to use when deciding to engage in experiments that were directed to the invention. But if inventors engage in activities that run counter to scientific thought, those activities can hardly be considered routine and conventional in a 101 sense, correct? While some may say that teaching away analysis should be reserved for § 103 (and to do so would otherwise conflate § 101 with §103), several reasons militate against this position. First, as stated above, the Supreme Court and Federal Circuit have said that § 101 is facilitated by considerations analogous to those of § 103. Second, teaching away analysis should not be monopolized by § 103. In fact, evidence that teaches away is already relevant to enablement (§ 112) to show that “a significant amount of experimentation would have been necessary to practice the claimed invention.” Liebel-Flarsheim Co. v. Medrad, Inc., 481 F.3d 1371, 1379-79 (Fed. Cir. 2007). Because teaching away analysis is transferable between different sections in the statute, there would seem no reason why it could not be extended to § 101 to determine whether a combination of steps is routine and conventional.
  1. HINDSIGHT: Given that Alice requires that courts look at patented elements as a whole, the concern of hindsight bias should have as much relevance to a § 101 challenge as it does a § 103 challenge. For when each of the elements of a claimed invention do not exist in the prior art, or even the ordered combination, how can a defendant rationally argue that the combination is routine and conventional without some degree of hindsight bias kicking in? Princeton Biochemicals, Inc. v. Beckman Coulter, Inc., 411 F.3d 1332, 1337 (2005). Indeed, in Mayo, 132 S. Ct. at 1298-99, Justice Breyer explained that the invention in Diehr was patentable because the “ordered combination” of the steps of the claimed invention as a whole were “nowhere suggested” to be “in context obvious, already in use, or purely conventional.” And while the Supreme Court made no express mention of hindsight in its 101 holdings, it was, at the very least, an underlying rationale in Diehr. Footnote 12 of that opinion is exemplary. Alice, too, reinforces this point when it spoke of looking at combination patents as “whole.”
  1. PREEMPTION & PIONEER PATENTS: Plaintiffs do appear to be pressing preemption arguments more heavily in recent months. The Sequenom case illustrates this: Ariosa Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371 (2015) But, sadly, the Federal Circuit panel got it wrong when it was not prepared to consider evidence that demonstrated that the invention did not foreclose the use of the discovery. The saying what’s good for the goose is good for the gander seems apt. Because of this, it will be left to the Federal Circuit en banc, or other panels to address how preemption should factor into the 101 calculus. In any case, those decisions should take a liberal approach to Mayo’s dicta and allow preemption to play a tie-breaking fact role in close cases—e., a role similar to that of secondary indicia in the 103 calculus as evidence providing a tipping point in favor of a non-obviousness determination. To this end, and in the preemption context, the patentee should be entitled to show that there are different ways of achieving the goal to which the patent is directed—not just one (preemptive) way.

In addition, the Mayo decision also spoke of “how much future innovation is foreclosed relative to the contribution of the inventor.” Mayo, 132 S. Ct. at 1303. Does this mean that a pioneer patent should be given more latitude in a 101 context than a patent that provides a mere incremental improvement? I think it does. But a workable doctrine must emerge—much like one emerged with respect to the doctrine of equivalents in the infringement context. The article will address this.

  1. DRAFT JURY 101 INSTRUCTION: Given that some 101 cases are predicated on underlying factual findings, much like 103, the article will conclude with an appendix that includes a draft jury instruction. That will be addressed in more detail later.

Will the Federal Circuit Recognize the U.S.–Foreign Tradeoff in Friday’s Lexmark Argument?

Patent,

Guest post by Daniel Hemel, Assistant Professor at the University of Chicago Law School, and Lisa Larrimore Ouellette, Assistant Professor at Stanford Law School.

On Friday, the en banc Federal Circuit will hear argument in Lexmark v. Impression Products, the printer cartridge resale case that will determine the fate of two key patent exhaustion precedents, including the current Jazz Photo rule that foreign sales do not exhaust U.S. patent rights. Despite extensive briefing (including over thirty amicus briefs), we argue in a new Essay that the key distributive tradeoffs between U.S. and foreign interests remain ignored (or misunderstood).

Both sides in Lexmark argue that their proposed rule would be more efficient. Those advocating broader exhaustion rules (including Google, Costco, EFF, and a group of IP professors) argue that the current regime is complex and uncertain. Those favoring the status quo (including PhRMA, BIO, and IPO) point to the aggregate welfare gains from geographic price discrimination. While it is possible to construct models to support both views, we argue that the efficiency question cannot be answered without first making a choice about whose welfare is aggregated.

As explained in more detail in our Essay, Trade and Tradeoffs: The Case of International Patent Exhaustion, the U.S. rule on international patent exhaustion implicates at least two tradeoffs between U.S. and foreign interests:

First, there is a tradeoff between U.S. and foreign consumers. A U.S. rule of international exhaustion would cause prices of patented products in low-income countries to increase and prices of those same products in the United States to fall. It is thus surprising to see groups focused on global access to medicines such as Public Citizen advocating for this change; we are not aware of any study suggesting that a U.S. rule of international exhaustion would decrease prices in the developing world. As counterintuitive as it may be for developing countries and global access-to-medicines proponents to take the side of pharmaceutical companies, we think that their interests are in fact aligned on this issue. Developing-world consumers and pharmaceutical companies would both be better off if the Federal Circuit sticks with its Jazz Photo rule.

Second, a U.S. rule of international patent exhaustion would make it more difficult for foreign countries to allocate access to patented goods using non-market mechanisms. Some national governments subsidize their citizens’ consumption of patented products; examples range from the UK National Health Service’s provision of pharmaceuticals to Uruguay’s one-laptop-per-child program. As we explain in our Essay, such subsidies could end up being transferred to U.S. consumers via arbitrage if the Federal Circuit overrules Jazz Photo. At the very least, the decision to overrule Jazz Photo would make it more difficult for foreign governments to subsidize access to patented goods.

We argue that one cannot answer the policy question at the heart of Lexmark without taking a position on these distributive questions. If one assigns zero value to the interests of foreigners, then the United States might well be better off if it adopted a rule of international patent exhaustion. (While international patent exhaustion would also reduce profits for U.S. patent holders, a majority of U.S. patents are issued to foreigners; if one adopts a purely nationalistic approach, the interests of most patent holders wouldn’t count in the welfare analysis.) If one assigns a high value to the interests outside the United States, particularly those in developing countries, then one should almost certainly come down against a U.S. rule of international exhaustion. (If one assigns equal weight to the interests of all individuals regardless of nationality, then the question is somewhat closer.) How much the Federal Circuit should care about foreign consumers is a question that defies easy answer, but we hope that our Essay at least brings these tradeoffs into clearer focus. We also offer some tentative suggestions as to how U.S. courts might approach questions of global distributive justice.

Fractures, Fault Lines, and the MPEP

Patent, ,

By Jason Rantanen

As part of my standard preparation for teaching a given doctrine in my patent law class, I like to review the relevant section of the Manual of Patent Examination and Procedure (MPEP).  The MPEP typically offers a relatively well-organized description of the doctrine, with critical cases referenced.  But my review leaves me frustrated almost every time.

The reason for my frustration is that the MPEP, while doing a terrific job with legal issues on which there is clear precedent, frequently elides over the doctrinal fractures and fault lines that are at the heart of contemporary patent law disputes.  Or worse, it simply does not acknowledge their existence at all.  The result is a resource that, in presenting patent law as clear and determinate on its face, masks the existence of  sharp tensions and breakpoints in patent law.

For example, today I’ll be covering § 102 “public use” and “on sale.”   A glance through the MPEP’s sections on public use under the First-to-File regieme reveals a landscape that seems dry and barren, with the only major feature being the question of whether pre- or post-AIA § 102 applies.  From reading MPEP § 2152, one gets the sense that post-AIA, the only issue once the question of regime is resolved is whether the activity was “accessible to the public.”  Secret sales or offers for sale, for example, do not place the invention “on sale”:

“AIA 35 U.S.C. 102(a)(1) does not cover secret sales does not cover secret sales or offers for sale. For example, an activity (such as a sale, offer for sale, or other commercial activity) is secret (non-public) if it is among individuals having an obligation of confidentiality to the inventor.”

MPEP § 2152.02(d).  Experimental use has been entirely dropped from the MPEP’s discussions of post-AIA public uses and sales.  It’s as if it never existed.

Yet, these are far from resolved issues.  There are plausible arguments that Congress legislatively changed the meaning of “public use” through the AIA; there are at least equally plausible arguments that Congress did not.  The PTO’s position on secret commercial activity is on even weaker footing.  Inevitably, the Federal Circuit, and likely the Supreme Court, will weigh in on this issue of statutory construction.  But the MPEP’s characterization of this issue as settled hides a very real tension in patent law, one that will really matter to inventors and patent attorneys.  It’s not difficult to imagine a hypothetical situation in which someone relies on the MPEP’s language about secret commercial activity not constituting sales for purposes of § 102(a)(1), only to be placed in a very bad position should the Federal Circuit or Supreme Court conclude otherwise.

These issues are only the most obvious fault lines hidden under the MPEP’s seemingly solid description of patent law doctrine.  But there are others, and creative, knowledgeable attorneys likely know many of them already.  One that has always fascinated me is the question of what constitutes a “use” for purposes of § 102 “public use.”  The casebook I use for patent law, Craig Nard’s The Law of Patents, does a good job of setting up this issue through Motionless Keyboard Co. v. Microsoft Corp., 486 F.3d 1376 (Fed. Cir. 2007).  The issue is whether just showing, or perhaps even demonstrating, an embodiment of the invention constitutes a public use.  Motionless Keyboard suggests that sometimes not, at least if the invention is not used for its intended purpose.  But in other cases, the Federal Circuit brushes aside the “intended purpose” language of Motionless Keyboard.  See, e.g. Pronova Biopharma Norge AS v. Teva Pharmaceuticals USA, Inc., 549 Fed. Appx. 934, 939-943 (Fed. Cir. 2013) (nonprecedential).  This question of what constitutes a use is a substantial fracture point where the law is indeterminate, but one gets no hint of this potential tension from the MPEP.  See § 2133, 2152.  Other fracture points and fault lines are apparent if one digs into the recent cases: the question of what constitutes an offer for sale versus an assignment or license is another fracture point within the § 102 space on which disputes ultimately get resolved,  See, e.g. Elan Corp. v. Andrx Pharmaceuticals, Inc., 366 F.3d 1336 (Fed. Cir. 2004), but which one gets no hint of from the MPEP.  Likewise, while there is an extensive discussion in the MPEP of whether an invention is “ready for patenting,” see § 2133.03(c),  there is no discussion about a fundamental important question: what is the invention for purposes of a product claim? Is it just an embodiment of the invention or is it the technical know-how (i.e.: what we usually think of as “the invention” when talking about patents)?

My point is not that the MPEP should definitely include extensive discussions of fault lines and fracture points within the caselaw.  Indeed, the MPEP isn’t much worse than most treatises, which similarly elide or ignore all but the most well-recognized tension points in the law.  And “on sale” and “public use” issues, which typically involve information within the inventors’ own possession rather than information that is easily found by the examiner, are perhaps not the most efficient places for the MPEP to offer substantial guidance.  Whether or not the MPEP would benefit from greater detail is a normative question that I’d be curious to hear folks’ thoughts on.  I do note, though, that on some issues, such as experimental use prior to the AIA, the MPEP goes into substantial detail already, so it’s treatment is more inconsistent than uniformly thin.

My point is simply that the MPEP’s presentation of patent law doctrine inherently implies a patent law that is far more determinate and clear than it really is.  There are hard questions in patent law, but reading the MPEP gives the impression that they are just complicated questions with definite answers.  The caselaw suggests otherwise.

Guest Post: To File a CON? Empirical Popularity and Prosecution Outcomes

Patent, , , ,

Guest Post by Kate S. Gaudry, Ph.D and Thomas D. Franklin, Kilpatrick Townsend & Stockton LLP.  The opinions expressed in this article are those of the authors and do not necessarily reflect the views of Kilpatrick Townsend & Stockton LLP or its clients. This article is not intended to be and should not be viewed as legal advice.

An increasing number of statistics are available on trends in patent application filings and prosecution outcomes. However, it is uncommon to see the data segregated based on type of application. Specifically, how frequently are continuation applications filed? And does previous prosecution experience with a parent application result in favorable prosecution outcomes?

Answers to these questions may be pertinent when developing strategies as to whether to file a continuation application. Frequent continuation filings may indicate that competitors consider it important to have the claiming flexibility of keeping a family alive or a trend toward filing omnibus applications (disclosing multiple ideas or idea aspects per specification). Meanwhile, any advantage of a continuation must be considered in view of its cost, which depend in part on prosecution expectations.

Accordingly, we requested data from the USPTO that identified, for each fiscal year and technology center (TC), the number of new applications filed (excluding RCEs) that were: (1) a continuation application; (2) a divisional application; (3) a continuation-in-part application; or (4) none of the above. Further, we requested, for each of these application types: (1) the number of patents issued and number of abandonments between July 1, 2014 and July 8, 2015 (to generate a final-disposal allowance rate for this time period); and (2) the average number of office actions issued for each application that received a notice of allowance during this time.

Continuation Applications: Increasingly Common

Overall, in fiscal year 2015, 20% of the filed applications were continuation applications. Divisionals comprised 6% of the data set, and continuation-in-part applications accounted for 3% of the applications. The remaining 72% lacked a priority claim to another non-provisional U.S. application. (FIG. 1)

FIG. 1

FIG. 1

FIGs. 2A and 2B respectively show the unnormalized and normalized distributions of filing types per fiscal year. The percentage of applications that were continuations doubled from 9% in 2005 to 18% in 2015.

Patently-O App-Type FIG 2

FIG. 2

The increased popularity of continuation applications is observed across all TCs. (FIG. 3.) The most substantial increases is observed in TCs 2100 (Computer Architecture, Software, and Information Security) and 2600 (Communications), where the contribution of continuation applications to total filings increased by 142% and 132%, respectively, between 2005 and 2015.

Patently-O App-Type FIG 3

FIG. 3

Continuation applications were most common in TCs 1600 (Biotechnology and Organic Chemistry), 2100 (Computer Architecture, Software, and Information Security) and 2400 (Computer Networks, Multiplex Communication, Video Distribution and Security), where continuation applications accounted for 29%, 28% and 30% of the applications, respectively. Continuation applications were least common in TC 3600 (Transportation, Construction, Electronic Commerce, Agriculture, National Security and License & Review), accounting for only 14% of the applications. The infrequency of TC 3600 continuation applications may be due, in part, to the rarity of allowances in the business-method art units.[1]

Continuation and Original Applications have Similar Prosecution Statistics

Potentially, experience with a parent application (and, typically, a same examiner) may guide claiming strategy for a continuation. Thus, perhaps, continuations represent a two-fold cost-savings opportunity: a savings in drafting and in prosecution costs. Assessing the latter potential savings requires evaluating allowance rates and office-action counts of continuation applications. Accordingly, we evaluated prosecution statistics from a recent time period (July 2014-July 2015) for each of the application types.

Overall, the final-disposal allowance rate for continuations is slightly higher than that for original applications (80% versus 74%). (FIG. 4A.) The average office-action count per patent is slightly lower for continuation applications (1.85 versus 1.96). (FIG. 4B.)

FIG. 44

FIG. 4

Discussion: Why and How to File Continuations

Continuation applications provide a variety of advantages, including an opportunity to seek a new scope of protection in view of business priorities and to strategically draft claims in view of ongoing or threatened challenges to a patent. This latter upside is becoming increasingly significant as the number of post-grant challenges continues to grow.

Should an applicant decide that the advantages of keeping a family alive are sufficiently important, claiming strategy for the child application must then be identified. Slightly tweaking an allowed claim may result in minimal prosecution costs. However, a fast allowance will lead to an overall cost of the family exploding (assuming repeated continuation filings). Seeking substantially broader protection, meanwhile, may lead to extended and frustrating prosecution. Our data showing that continuation and original applications have similar prosecution statistics suggest that applicants are not consistently choosing an easy or hard continuation-claiming path, though it may be explained by split uses of these types of claim-drafting techniques.

Another approach to continuations is to seek protection of a completely different idea in the specification. This could allow a resulting patent family to provide diverse protections towards different elements of an applicant’s technology. However, a new focus requires that the new idea be supported and enabled by the original specification. In an era where flat fees and legal bidding wars are common, it is our hypothesis that few applicants are willing to pay the higher drafting fees for preparation of such enhanced applications. However, we believe that this is a strategic approach and should be more frequently used.

Consider a case where an applicant is seeking patent protection of two ideas. A traditional approach is that separate patent applications be drafted for each idea. Another approach is to draft a single “omnibus” patent application that describes both ideas. One idea can be the focus of an original filing, and another the focus of a continuation filing. Then, by investing in keeping a single family alive (via the original and continuation filings and/or additional continuation applications), claiming flexibility for each idea is preserved. Further, if ideas within an omnibus application are related, drafting fees may be less than preparing two independent applications. The application may also illuminate synergies and interactions between the ideas, which may further expand claiming possibilities.

Concluding Thoughts

Our data shows that continuation-application filings are becoming increasingly common. Filing continuation applications offers many advantages, particularly now that patents are frequently challenged. However, blindly filing continuation applications will lead to an explosion in costs. Strategic filing of omnibus continuation applications, however, will offer long-term cost savings and prosecution advantages. Therefore, applicants should consider intelligently identifying and organizing sets of ideas into omnibus applications.

[1] Gaudry KS. 2015. Post-Alice, Allowances are a Rare Sighting in Business-Method Art Units. IPWatchDog. <http://www.ipwatchdog.com/2014/12/16/post-alice-allowances-rare-in-business-method/id=52675/>

Iowa Intellectual Property Law Association Annual Conference at the Iowa College of Law

Patent

By Jason Rantanen

Next Friday, October 2, the Iowa Intellectual Property Law Association will hold its annual conference.  This year’s conference is being held at the Boyd Law Building at the University of Iowa, and is being co-sponsored by the Iowa Innovation, Business & Law Center.  We’ve got a great lineup of speakers, including Profs. Dennis Crouch (Missouri) & Herb Hovenkamp (Iowa), Dr. Christal Sheppard (USPTO), Gene Quinn (IPWatchdog), Bernie Knight (McDermott Will & Emery) and David C. Hilliard (Pattishall, McAuliffe, Newbury, Hilliard & Geraldson).

Here’s the registration page.

 

Recent Developments in Patent Law – 2015

Patent

By Jason Rantanen

On October 24, 2015, I’ll be giving the “Patent Law Year in Review” talk at the American Intellectual Property Law Association’s annual meeting in Washington, D.C.  I hope to see many of you there!

In connection with that talk, I’ve put together an essay with my perspectives on developments in patent law over the past year.  Even if you’re not planning on attending the conference, you can read the essay here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2658737

Guest Post: Why the (Previously) Improving Economy Likely (Also) Reduced Patent Litigation Rates

Patent, , , ,

Guest Post by Ted Sichelman, Professor of Law and Director of the Technology Entrepreneurship and Intellectual Property Clinic and Center for Intellectual Property Law & Markets at the University of San Diego School of Law, and Shawn Miller, Lecturer in Law and Teaching Fellow in Law, Science & Technology at Stanford Law School

As Patently-O has described in detail (e.g., here and here), patent litigation rates have been in flux over the last several years. First, in 2010, rates nominally went up because of false marking suits. Then, in 2011, following passage of the America Invents Act (AIA), patent litigation rates appeared to increase (and the media made much ado over this). Yet, the only thing that changed immediately after the AIA was how we counted patent litigation numbers because of new joinder rules. Indeed, the AIA’s joinder rules actually lowered total defendant counts a bit. Next came inter partes review (IPR) and covered business method (CBM) review, which appear to have substantially decreased litigation rates in 2013 and 2014. Then came Alice Corp. v. CLS Bank and its progeny, which some have claimed decreased litigation rates throughout 2014. And now rates seem to be back up in 2015—why, nobody is sure.

To further understand the drivers of patent litigation, Alan Marco (Chief Economist at the USPTO) and the two of us recently conducted the first rigorous study of the effects of the economy as a whole (the “macroeconomy”) on patent litigation rates over the period 1970-2009 (we stopped at 2009 to avoid the counting mess I just described). The study will be published this month in the Journal of Empirical Legal Studies (a draft is available here).

As background, we examined changes in the rates of total litigation, litigation per issued patent, and litigation per in-force patent. To do so, we used a new USPTO dataset that provides the most accurate numbers on total in-force patents by year gathered to date. Figure 1 below shows the number of in-force patents between 1971 and 2009 (the vertical bars represent periods of recession).

Figure 1

Figure 1. U.S. In-Force Patents (1971-2009) [from USPTO data].

Indeed, although many have noted that the litigation rates per issued patent have been fairly stable, Figure 2 below shows that the litigation rates per in-force patent have risen quite dramatically since the early- to mid-1990s (at least from 1970s rates—Ron Katznelson has argued that rates per in-force patent in the 1920s to the mid-1930s are fairly comparable to the recent rates, at least through the 2000s).

Figure 2

Figure 2. U.S. Patent Litigation Per In-Force Patent (1971-2009)

(Total Patent Litigation in Gold (with annual filings on left y-axis) and Litigation Per In-Force Patent in Blue (with annual values on right y-axis)).

We then performed numerous time-series regressions against important macroeconomic variables like GDP, R & D spending, interest rates, and related factors, controlling for in-force patents and other key variables. Our major findings (over the last 20-25 years) are as follows:

  • In economic upswings (i.e., increasing productivity, low interest rates, low economy-wide financial risk), patent litigation rates generally fall.
  • In recessions, whether rates rise or fall depends on the availability of credit.
    • When credit is freely available in a downturn, overall patent litigation rates generally rise.
    • However, when credit is scarce (like in the most recent recession), overall patent litigation rates generally fall.

We explain the first finding on a “substitution” theory—namely, when selling products and services is highly profitable, companies and investors are less concerned about earning revenue from patent litigation. We speculate that our second finding is driven by the increasing reliance by plaintiffs on external funding. Indeed, the availability of credit has only played a significant role in patent litigation rates since roughly the mid-1990s, when licensing-driven litigation began to rise—first by practicing entities such as IBM and Texas Instruments and, later, by non-practicing entities (NPEs).

Over the last five years, the mean U.S. real GDP growth rate has been about 2-3% per year. Ignoring other factors, and assuming our model applies on a going forward basis since 2009, this increase in productivity has very roughly amounted to a 6-9% decrease in annual patent litigation counts over the same period. In general, it is likely that a sizeable portion of the decrease in patent litigation rates over the last several years has been not merely due to the rise of IPRs and CBMs, and the issuance of Alice Corp. v. CLS Bank, but also to the economy as a whole. So the next time the economy worsens, if credit remains relatively available, all other factors equal, it is likely that patent litigation rates will rise significantly—not by a huge amount, but enough to notice. Whether the current increase in patent litigation is somehow related to a declining macroeconomy, only time will tell.

Please note that the views expressed herein solely express our personal views and do not express the views of the U.S. Patent & Trademark Office.

 

Media Rights Technologies v. Capital One: Williamson v. Citrix applied

Patent,

By Jason Rantanen

Media Rights Technologies, Inc. v. Capital One Financial Corporation (Fed. Cir. 2015) Download opinion
Panel: O’Malley (author), Plager and Taranto

Earlier this summer, the Federal Circuit issued a revised opinion in Williamson v. Citrix Online.  The centerpiece of the new opinion was Part II.C.1, joined by a majority of the entire court.  That section overruled past precedent holding that non-use of the words “means” or “step” in a claim created a “strong” presumption that § 112, para. 6 does not apply, one that is only overcome by “a showing that the limitation essentially is devoid of anything that can be construed as structure.”   Instead, the en banc court held, the presumption can be overcome “if the challenger demonstrates that the claim term fails to ‘recite sufficiently definite structure’ or else recites ‘function without reciting sufficient structure for performing that function'”  Williamson, 792 F.3d 1339, 1349 (Fed. Cir. 2015) (en banc in relevant part) (quoting Watts v. XL Sys., Inc., 232 F.3d 877, 880 (Fed. Cir. 2000).

On the surface, Media Rights Technologies v. Capital One involves a relatively straightforward application of Williamson.  But there are several aspects of the decision that make it stand out: the statement of the law of indefiniteness (Judge O’Malley’s first since Nautilus), the sharpness and depth of its analysis of the § 112, para. 6 issue, the holding that the specification must disclose structure for all claimed functions, and the use of factual evidence in the indefiniteness determination.

Claim 1 of Patent No. 7,316,033 is the illustrative claim.  At issue was the term “compliance mechanism.”

A method of preventing unauthorized recording of electronic media comprising:

Activating a compliance mechanism in response to receiving media content by a client system, said compliance mechanism coupled to said client system, said client system having a media content presentation application operable thereon and coupled to said compliance mechanism;

Controlling a data output pathway of said client system with said compliance mechanism by diverting a commonly used data pathway of said media player application to a controlled data pathway monitored by said compliance mechanism; and

Directing said media content to a custom media device coupled to said compliance mechanism via said data output path, for selectively restricting output of said media content.

Multiple claim meanings: The Federal Circuit’s discussion begins with what  appears to be a routine summary of the law of indefiniteness:

A claim fails to satisfy this statutory requirement [§ 112, para. 2] and is thus invalid for indefiniteness if its language, when read in light of the specification and the prosecution history, “fail[s] to inform, with reasonable certainty, those skilled in the art about the scope of the invention.” Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120, 2124 (2014). Notably, a claim is indefinite if its language “might mean several different things and no informed and confident choice is available among the contending definitions.” Id. at 2130 n.8 (quotation omitted).

Slip Op. at 7. While the first part of this passage is well known, but the second part is interesting because it does not merely embrace the Court’s opinion in Nautilus, but goes beyond.  Footnote 8 is actually a quotation from a district court opinion, dropped in the context of pointing out that the Federal Circuit’s “insolubly ambiguous” standard “can breed lower court confusion.”  It reads:

8. See, e.g., Every Penny Counts, Inc. v. Wells Fargo Bank, N. A., ––– F.Supp.2d ––––, ––––, 2014 WL 869092, *4 (M.D.Fla., Mar. 5, 2014) (finding that “the account,” as used in claim, “lacks definiteness,” because it might mean several different things and “no informed and confident choice is available among the contending definitions,” but that “the extent of the indefiniteness … falls far short of the ‘insoluble ambiguity’ required to invalidate the claim”).

Put another way, Judge O’Malley is not merely quoting Nautilus; she is adopting a standard that is not directly mandated by the opinion.  (To be clear, I think the language adopted here is in line with Nautilus, and perhaps even indirectly mandated by the decision.  Also, it is not the first time this language has appeared in a post-Nautilus decision.  Judge Chen quoted it in Interval Licensing LLC v. AOL, Inc., 766 F.3d 1364, 1371 (Fed. Cir. 2014), but not as a firm statement of the law.)

The §112, para. 6 analysis: The appeal presented two issues related to “compliance mechanism”: whether it is a means-plus-function term and, if so, whether the specification discloses corresponding structure.  Under Williamson, the lack of the word “means” creates a rebuttable presumption that “compliance mechanism” is not a means-plus-function term.  Here, the patent holder neither contended that “compliance mechanism” had a commonly understood meaning nor that it is generally understood in the art to connote a particular structure.  Instead, Media Rights Technologies argued that “compliance mechanism” was like the term “modernizing device” found to be definite in Inventio AG v. Thyssenkrupp Elevator Ams. Corp., 649 F.3d 1350, 1357 (Fed. Cir. 2011).  Not so, said the court.

Here, unlike Inventio, the claims do not use the term “compliance mechanism” as a substitute for an electrical circuit, or anything else that might connote a definite structure. Rather, the claims simply state that the “compliance mechanism” can perform various functions. A review of the intrinsic record does not change this conclusion. The written description only depicts and describes how what is referred to as the “copyright compliance mechanism” is connected to various parts of the system, how the “copyright compliance mechanism” functions, and the potential—though not mandatory—functional components of the “copyright compliance mechanism.” See ’033 Patent col. 18:57–col. 19:5; col. 20:32–49; Fig. 3; Fig. 5B. None of these passages, however, define “compliance mechanism” in specific structural terms. And, the addition of the term “copyright compliance mechanism” in the specification only confuses the issue further. Media Rights does not contend that “copyright compliance mechanism” is the equivalent of the electrical circuit detailed in the written description at issue in Inventio. Indeed, Media Rights asserts that the “copyright compliance mechanism”—the only “compliance mechanism” referenced outside the claims and the summary of the invention, and the only one depicted in the figures to which it points—is narrower than the structure it claims as the “compliance mechanism.” Without more, we cannot find that the claims, when read in light of the specification, provide sufficient structure for the “compliance  mechanism” term.

Slip Op. at 10.  Furthermore, Inventio was a pre-Williamson decision, and was decided under now-superceded case law that imposed a “heavy presumption” against finding a claim term to be in means-plus-function format.  “Because we apply no such heavy presumption here, and the description of the structure to which Media Rights points is far less detailed than in Inventio, we do not believe Inventio carries the weight Media Rights attaches to it.”  Slip Op. at 11.

All functions must be disclosed  Since the claim was a means-plus-function term, the court turned to the question of whether the specification disclosed corresponding structure.  “Where there are multiple claimed functions, as there are in this case, the patentee must disclose adequate corresponding structure to perform all of the claimed functions.”  Slip Op. at 12 (emphasis in original).  Here, there were four claimed functions, so the specification needed to disclose adequate structure to achieve all four of the claimed functions.  And because these were computer-implemented functions, “the specification must disclose an algorithm for performing the claimed function.”  Id. at 13.  Claims that fail to disclose sufficient corresponding structure are invalid for indefiniteness.

Factual evidence in the indefiniteness determination:
Examining the question of whether such an algorithm was disclosed, the court considered the specification’s recitation of source code that Media Rights contended was sufficient.  Since the court could not read the code outright, it needed to look to “expert witness testimony to determine what that source code discloses at an algorithmic level.”  Slip Op. at 14. (Media Rights apparently conceded to this at oral argument.)  The unrebutted expert testimony was that the code returned only various error messages.  From this, the court concluded that “[t]he cited algorithm does not, accordingly, explain how to perform the diverting function, making the disclosure inadequate.”  Id.  In addition, the court held that there was no corresponding structure for another function because “the cited portion of the specification provides no detail about the rules themselves or how the ‘copyright compliance mechanism’ determines whether the rules are being enforced.”  Id.  The consequence was that all of the patent’s claims (all containing the term “compliance mechanism”) were invalid due to indefiniteness

Dow v. Nova: “Nautilus changed the law of indefiniteness”

Patent, , , , ,

By Jason Rantanen

The Dow Chemical Company v. Nova Chemicals Corporation (Fed. Cir. 2015) Download Opinion
Panel: Prost, Dyk (author), Wallach

Earlier this year in the opinion on remand in Biosig v. Nautilus, Judge Wallach rejected the argument that the Supreme Court’s opinion on the indefiniteness doctrine  “articulated a new, stricter standard.”  783 F.3d 1374, 1379 (Fed. Cir. 2015).  Instead, the Court  “modified the standard by which lower courts examine allegedly ambiguous claims; we may now steer by the bright star of ‘reasonable certainty,’ rather than the unreliable compass of ‘insoluble ambiguity.’”  Id. The thrust of Judge Wallach’s opinion was that the problem the Supreme Court saw with the Federal Circuit’s previous indefiniteness doctrine was not with the standard that the Federal Circuit was actually applying; it was that the words the Federal Circuit had been using could lead district courts astray.

Dow v. Nova presents a dramatic contrast, one that (in my view) goes a long way towards righting the boat.   Here, Judge Dyk reiterates in the strongest words since Nautilus that the Court’s opinion clearly changed the standard for indefiniteness.  There is no hint of mere Supreme clarification in this opinion, as the outcome turns entirely on whether the pre- or post-Nautilus standard applies.  Under the old standard, the result at the Federal Circuit was that the claims were definite; under the new standard, the result was that they are indefinite.  And given the purely nondeferential review applied in both cases, this pair of cases provides possibly one of the neatest examples of how a legal standard can be outcome determinative.

Background: In 2010, Dow obtained an infringement judgment against NOVA, with a jury rejecting NOVA’s indefiniteness argument.  The Federal Circuit affirmed in 2012, holding that the patents were not indefinite under its pre-Nautilus precedent.  On remand, the district court held a bench trial on supplemental damages for the period after the judgment through expiration of the patents (October 2011). While NOVA’s appeal was pending, the Supreme Court issued Nautilus.  NOVA argued that this intervening decision required the supplemental damages award to be vacated because the patents are invalid for indefiniteness.

Bars to re-litigation of indefiniteness: Nova’s challenge faced a substantial procedural hurdle, however.  Because it had litigated, and lost, its indefiniteness challenge, it would ordinarily be barred from re-litigating that issue under the doctrine of issue preclusion or law of the case.  (Claim preclusion does not apply under Federal Circuit precedent because a claim based on continuing conduct constitutes a separate claim.)     “[T]he doctrine [of law of the case] posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.”….Issue preclusion “bars ‘successive litigation of an issue of fact or law already litigated and resolved in a valid court determination essential to the prior judgment.’” Slip Op. at 11 (citations omitted).  However, “when governing law is changed by a later authoritative decision,” these two doctrines do not apply.  Id. at 12.

Nautilus and change in law: There are three requirements for the change in law exception to apply: (1) “the governing law must have been altered;” (2) “the decision sought to be reopened must have applied the old law;” and (3) “the change in law must compel a different result under the facts of the particular case.”  Slip Op. at 14-15.  Here, the court held, those requirements were met by the Nautilus opinion.  “First, there can be no serious question that Nautilus changed the law of indefiniteness. This was indeed the very purpose of the Nautilus decision.”  Slip Op. at 16.  Second, the earlier decision in Dow applied the old law:

Dow argues that our opinion in the previous appeal was not inconsistent with
Nautilus and that we did not apply the “amenable to construction” or “insolubly ambiguous standard.” But the fact that we did not include that particular language does not mean that we were not applying the prevailing legal standard. We cited Exxon, see Dow, 458 F. App’x at 917, which Nautilus specifically cited as exemplary of the rejected Federal Circuit standard…..We also explained that “the test for indefiniteness is not whether the scope of the patent claims is easy to
determine, but whether ‘the meaning of the claim is discernible, even though the task may be formidable and the conclusion may be one over which reasonable persons will disagree.’” Id. at 920 (quoting Exxon, 265 F.3d at 1375). This language corresponds exactly to the “amenable to construction” or “insolubly ambiguous” standard rejected in Nautilus.

Slip Op. at 17-18.

Third, the outcome was different under the Nautilus standard than under the pre-Nautilus caselaw.  Here, the issue was a measurement problem: which methodology should be applied to determine the “slope of strain hardening.”  “Three methods existed to determine the maximum slope, each providing, as Dow admits, “simply a different way of determining the maximum slope.”  Slip Op. at 21 (emphasis added).   None of these methods were taught in the patent, nor did it provide “any guidance as to which method should be used or even whether the possible universe of methods is limited to these four methods.”  Id. at 23.  And Dow’s expert used a fourth method, which he used after applying “only his judgment of what a person of ordinary skill would believe.”  He did not testify that one of ordinary skill in the art would choose his method over the three known methods.

Under the previous indefiniteness standard, the court observed, that Dr. Hsaio had developed a method for measuring maximum slope was sufficient.  But under the Nautilus standard, “this is no longer sufficient:

The question is whether the existence of multiple methods leading to different results without guidance in the patent or the prosecution history as to which method should be used renders the claims indefinite. Before Nautilus, a claim was not indefinite if someone skilled in the art could arrive at a method and practice that method. Exxon, 265 F.3d at 1379. In our previous opinion, relying on this standard, we held that the claims were not indefinite, holding that “the mere fact that the slope may be measured in more than one way does not make the claims of the patent invalid.” Dow, 458 F. App’x at 920. This was so because Dow’s expert Dr. Hsiao, a person skilled in the art, had developed a method for measuring maximum slope. See id. at 919–20.

Under Nautilus this is no longer sufficient.  “[A] patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.” 134 S. Ct. at 2124; see also id. at 2129 (“[W]e read § 112, ¶ 2 to require that a patent’s claims, viewed in light of the specification and prosecution history, inform those skilled in the art about the scope of the invention with reasonable certainty.”). Here the required guidance is not provided by the claims, specification, and prosecution history.

Slip Op. at 23-24. That an expert chooses to use a particular measurement technique is insufficient for meeting the requirements of indefiniteness.  “As we held in Interval Licensing, a claim term is indefinite if it “leave[s] the skilled artisan to consult the ‘unpredictable vagaries of any one person’s opinion.’”  Slip Op. at 25.  Perhaps this could have been satisfied by expert testimony as to which methodology a person of ordinary skill in the art would have used, but that will be a question for another day.

Some more thoughts on the opinion:

  • The opinion takes pains to distinguish Biosig v. Nautilus.  In Biosig, the question was how one of ordinary skill in the art would determine what “spaced relationship” meant.  There, “we held that the prosecution history, the language of the claims, and the knowledge of one skilled in the art demonstrated that “a skilled artisan would understand the inherent parameters of the invention as provided in the intrinsic evidence” and that the claim term at issue “informs a skilled artisan with reasonable certainty of the scope of the claim.”  Dow at 25, n. 10.   One way to think about Nautilus is that it’s really about figuring out the meaning of words in the claim, whereas this case and Teva are really about how to determine whether those words, with their meaning understood, are met.
  • The weird tension about indefiniteness being a question of law but involving factual determinations remains.  Here, the issue was originally tried to a jury (probably erroneously as the Federal Circuit implied in the original Dow opinion), and the Federal Circuit’s analysis here focuses less on interpreting the text of the claims and more on identifying which measurement methodology a PHOSITA would have picked (which sounds like a factual question to me).  Regardless of this tension, I’d expect that in future cases knowledgeable counsel will make sure that there’s good support for the particular measurement methodology used by their experts, with the experts also providing support for the proposition that their methodology is the one that a PHOSITA would have used.
  • Another way to think about this case is in tandem with Wiliamson v. Citrix, in which the Federal Circuit relaxed the difficulty of invoking § 112, para. 6 when the words “means” or “step” aren’t used in the claim.  The effect of that decision was to make it riskier to use functional language in a claim when no corresponding structure is disclosed in the specification.  Dow moves in a similar direction: when no measurement methodology is described or suggested in the specification, functional limitations such as the one here may render the claim indefinite, at least when a PHOSITA would not know which of several possible methods to use.
  • Lisa Larrimore Ouellette discusses the decision on the Written Description blog as well.

Guest Post by Profs. Lefstin & Menell on Sequenom v. Ariosa

Patent, , , , ,

In a parallel post, Dennis summarized the numerous amicus briefs filed in support of Sequenom’s petition for rehearing en banc.  Below, professors Jeffrey Lefstin (Hastings) and Peter Menell (Berkeley) discuss the core issues raised in their amicus brief.

Don’t Throw Out Fetal-Diagnostic Innovation with the Bathwater:
Why Ariosa v. Sequenom Is an Ideal Vehicle for Constructing a Sound Patent-Eligibility Framework

By Jeffrey A. Lefstin and Peter S. Menell
Over the past five years, the U.S. Supreme Court has reinvigorated patentable subject-matter limitations, issuing four significant decisions after nearly three decades of dormancy.  These decisions reflect justifiable concerns about the patenting of abstract business methods and laws of nature. Just as importantly, they reveal internal inconsistencies and confusion about the scope of patentable subject matter and tension with the centuries-old fabric of patent-eligibility jurisprudence. As Justice Breyer remarked at the oral argument in Alice Corp. v. CLS Bank Int’l (2014), the Mayo (2012) decision did no more than “sketch an outer shell of the content” of the patent-eligibility test, leaving much of the substance to be developed by the patent bar in conjunction with the Federal Circuit.

Two of the Supreme Court’s recent patent-eligibility decisions (Bilski and Alice) involve non-technological business methods.  Mayo glosses over several key issues, including how to reconcile prior discordant decisions (Flook and Diehr), and whether the requirement of “inventive concept” demands an unconventional application, or merely more than the generic instruction to “apply the law.” And Myriad departs from Mayo in a critical respect in that it authorizes patentability for a conventional transformation of a natural compound.

Unfortunately, the Federal Circuit’s panel decision in Ariosa v. Sequenom elides the critical questions.  In view of Congress’s reluctance to weigh in on the scope of patentable subject matter and the Supreme Court’s signals to the patent bar and the Federal Circuit to bring coherence to these rough outlines, Ariosa v. Sequenom marks a critical juncture in the development of a modern patent-eligibility framework.  Failure to vet these issues risks undermining the patent system’s role in promoting biomedical research.  Beyond Supreme Court review, which is never guaranteed (consider the havoc wreaked by the Court’s passing on State Street Bank), or corrective legislation (which is even more speculative), en banc review by the Federal Circuit presents the last clear chance to avert potentially dire consequences.

Our amicus brief urges the Federal Circuit to grant en banc review in Ariosa v. Sequenom to ventilate the critical issues left unanswered by the Supreme Court’s patent-eligibility decisions.  Although some language in Mayo could be interpreted to set forth unconventional or inventive application as a possible test for patent-eligibility, Mayo suggests two other possibilities for an “inventive concept”: non-preemptive application; and non-generic application – that is, more than a statement of a natural law coupled with an instruction to apply it.  While the panel was correct to perceive that Mayo describes preemption as the underlying justification for the patent-eligibility doctrine, not the operative test, we believe that the panel was incorrect to conclude that Mayo dictates unconventional or inventive application.

Our brief further shows that the Ariosa panel decision conflicts with several strands of prior Supreme Court decisions.  The panel decision jeopardizes valuable innovation in diagnostic research and other biomedical fields as unintended fallout of the Supreme Court’s justifiable desire to discard vague and non-technological business method patents.  The primary responsibility for developing patent-eligibility doctrine now rests with the Federal Circuit and this case presents an ideal vehicle for explicating sensible jurisprudential boundaries.

Jeffrey A. Lefstin is Professor of Law at the University of California Hastings College of Law.  Peter S. Menell is Koret Professor of Law and a Director of the Berkeley Center for Law & Technology at the University of California at Berkeley School of Law.  Their amicus brief in support of en banc review in Ariosa v. Sequenom is available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2652452

Guest Post by Gary Griswold on Design Patent Damages

Patent, , , ,

Yesterday, the Federal Circuit summarily denied Samsung’s petition for rehearing and rehearing en banc of the high profile Apple v. Samsung decision.  (The denial was per curiam and didn’t appear on the Federal Circuit’s website, so unless you follow this case very closely you may have missed it.)  In light of that development, Samsung will almost certainly file a petition for certiorari.  Below, Gary L. Griswold, former President and Chief Intellectual Property Counsel for 3M Innovative Properties Company, offers his thoughts on design patent damages following Apple v. Samsung. 

35 USC 289 – After Apple v. Samsung, Time for a Better-Crafted Judicial Standard for Awarding “Total Profits”?

Gary L Griswold[i]

In April, I published an article, 35 USC 289 – An Important Feature of U. S. Design Patent Law: An Approach to Its Application,[ii] in the IPO Law journal. A month later, the Federal Circuit handed down its decision in Apple v Samsung. An analysis of the opinion and its ramifications by Professor Rantanen subsequently appeared on Patently-O.[iii]

Rantanen concluded, “The bottom line is that high damage claims for design patent infringement are going to be much more credible in the wake of Apple v Samsung. Under the court’s ruling, it would seem entirely possible, as a hypothetical example, for an automobile manufacture to be liable for its entire profits from a particular car model if that model contained, say, an infringing tail light. Given the publicity surrounding Apple v. Samsung, my expectation is that there will be an explosion of design patent assertions and lawsuits.”[iv]

There are troubling signs that increased assertion activity has already begun. Design patents are nearly ideal assertion vehicles given that they are inexpensive to obtain with no cost to maintain, are not published prior to grant, and have a full term of protection beginning with grant rather than filing—not to mention the § 289 damages opportunity that can include total profits of the infringer.[v]

Given the good in design patents—they operate as effective and important means for protecting innovatively designed products in the marketplace—how can this good be preserved without incurring the bad— as one example, design patents becoming the next business model for patent assertion entities (PAEs)?

In my April article, I offered a proposal for judicial implementation of § 289 that would involve the court determining “if the patented design is substantially the basis for customer demand for the entire article.” If it was, § 289 total profits damages would apply to the article; if not, total profits would not be available.

The determination would involve a binary decision, not an apportionment, in keeping with the apparent Congressional intent when § 289 and its predecessors were enacted. I noted in the April paper that the “customer demand” proposal assumes that there is a presently existing basis in § 289 for the courts to evolve a practical and useful methodology to apply a “total profits” recovery that avoids clearly unreasonable results, but at the same time captures circumstances where it is sound policy to afford a total profits option for recovery.”

The court in Apple v. Samsung,[vi] in applying § 289, apparently believed its options were limited. It stated “In reciting that an ‘infringer shall be liable to the owner to the extent of [the infringer’s] total profit’, Section 289 explicitly authorizes the award of the total profit from the article of manufacture bearing the patented design…..The clear statutory language prevents us from adopting a ‘causation’ rule as Samsung urges.” The court dismissed an early 2nd Circuit decision which limited a design patent damage award to the profits realized from the sale of a piano shell or case where the shell was sold separately from the inner workings of the piano, stating that Samsung’s smartphones were not sold separately from their shells. Id. at 27-28.

If a court were to look to adopt a workable and practical application of § 289 that would work for all types of articles of manufacture, then perhaps the customer demand proposal is a pathway to a more rationally applied § 289. It is not apportionment, so does not run afoul of the Congressional intent surrounding § 289 and its predecessors. It also avoids some clearly ludicrous results. The example of a patented tire design triggering lost profit recovery on a large agricultural combine as set out my April paper would be avoided given the irrelevancy to any likely customer of the tire design as a basis for purchase of the combine.

In this example, the same outcome, of course, could be achieved by using the separate product exception. Either way, the common sense result is preferable to what otherwise would be an overly literal application of the statute.

The separate product exception, however, has serious limitations. For example, it fails to account for a situation where an inconsequential, but patented, graphical user interface design that is not sold separately is included in an electronic device. Most thoughtful commentators would agree that § 289 profits should not normally apply to these types of relatively complex electronic devices where software features of this type are typically incidental and specifically designed for the device and, thus, are integral to it.

The same issue arises for hardware components that are designed for and integrated into a consumer end product. As an example, semiconductor manufacturers are obtaining design patents on a portion of a semiconductor. Will total profits be disgorged on the entire semiconductor? Yet more troublesome, will the electronic device into which the semiconductor is incorporated be the subject of total profits recovery under § 289? Does the outcome change if the semiconductor is an internally supplied component for the electronic device, not sold separately, versus a non-custom semiconductor that is sourced from an outside vendor? By way of comparison, if there was a utility patent on the semiconductor, would it be likely that the entire device would be subject to damages under the entire market value rule?[vii]

Another example of an exception to the literal application of 35 USC § 289 is suggested by Apple in its responsive brief to “Defendant-Appellants’ Petition for Rehearing en banc.” It states: “As the panel correctly recognized, this distinctive design was not severable from the inner workings of Samsung’s smartphones, see Op. 27-28, in the way that a cupholder is analytically distinct from the overall look-and-feel of a car.”[viii] This exception could be generalized to the situation where the design-patented element is analytically distinct from the overall look-and-feel of the device for which total profits are claimed.

These are just a few of the examples which have and will surface that argue against a literal application of 35 USC § 289. What can be done?

The court in Apple v. Samsung said “policy arguments that should be directed to Congress. We are bound by what the statute says, irrespective of policy arguments that may be made against it.”[ix] Ct. Opinion at 27, fn. 1. But courts have acted or provided guidance in other instances where easily foreseeable outcomes of literal application of a statute would be unreasonable. The entire market value rule is a prime example where a literal approach could have been surfaced as a reason to deny damages for activity beyond the patent scope but within the patented invention’s influence.

Unfortunately, without a course correction we are likely headed for the explosion Professor Rantanen predicts. As noted, for example, we can expect PAE business models to adapt to new opportunities presented by the courts. The result could take design patents way beyond their intended purpose of stimulating invention. In the end, this will likely bring forward efforts to repeal § 289. This would deny a fair and reasonable remedy for those who invent new designs that are substantially the basis of customer demand. Hopefully, a judicial framework will be developed that strikes the right balance and further secures § 289 as a distinguishing feature of U.S. design patent law.

[i] Mr. Griswold is a Consultant residing in Hudson, WI and was formerly President and Chief Intellectual Property Counsel for 3M Innovative Properties Company. The paper reflects the views of the author. He wishes to thank Bob Armitage and Mike Kirk for their excellent contributions to the paper.

[ii] Gary L. Griswold, 35 USC § 289 – An Important Feature of U.S. Design Patent Law: An Approach to Its Application. IPO Law Journal, (April 6, 2015). http://www.ipo.org/wp-content/uploads/2015/04/griswold_an-approach.pdf

[iii] Rantanen, Jason, “Apple v. Samsung: Design Patents Win.” Patently-O. (May 18, 2015) https://patentlyo.com/patent/2015/05/samsung-design-patents.html

[iv] Id.

[v] Marcus, David and Shawn Leppo, “Welcome Fallout from the Smartphone Wars: Federal Circuit embraces strong protection of design patents.” Metropolitan Corporate Counsel. (July 17, 2015). http://www.metrocorpcounsel.com/articles/32603/welcome-fallout-smartphone-wars-federal-circuit-embraces-strong-protection-design-pat?utm_source=mccreview+Upload+20150106&utm_campaign=58fe4b6614-MCC_Review_07_22_20157_21_2015&utm_medium=email&utm_term=0_4624ea9f3a-58fe4b6614-236350701

[vi] Apple v. Samsung, Case No. 2014-1335; 2015-1029 (Fed. Cir. May 18, 2015). http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/14-1335.Opinion.5-14-2015.1.PDF

[vii] The impact on suppliers, manufacturers and retailers will be significant. Who will take the risk of this exposure, the supplier through an indemnity agreement who did not receive the profit on the article, the manufacturer who will need to assess the exposure for each component, or the retailer (for its profit) who sells the final product?

[viii] See Brief in Opp’n to Rhg, Apple v. Samsung, Case No. 2014-1335; 2015-1029 at 27-28 (Fed. Cir. July 20, 2015)

[ix] Apple v. Samsung, Ct. Opinion at 27, fn. 1.

Akamai v. Limelight: Federal Circuit Expands the Contours of Direct Infringement

Patent

By Jason Rantanen

Akamai Technologies, Inc. v. Limelight Networks, Inc. (Fed. Cir. 2015) (en banc)  Download Opinion

Today, a unanimous Federal Circuit (minus judges Taranto, Chen and Stoll, who did not participate) issued its opinion on remand from the Supreme Court in Limelight Networks v. Akamai Techs.  (PatentlyO discussion here.)  To the extent there is any question: when considering situations in which the acts are not actually being performed by the alleged direct infringer, the question is “whether all method steps can be attributed to a single entity.”  Slip Op. at 6 (emphasis added).  The court expanded this class to encompass two new forms of divided activity.

In its Limelight opinion, the Supreme Court held that induced infringement under § 271(b) requires a single direct infringer.  Consequently, Limelight could not be liable for indirect infringement absent the existence of that direct infringer.  Inducement was not a viable legal theory for situations where the accused party performed some of the steps and the remaining steps were performed by another party.

In its opinion on remand, the Federal Circuit expands the scope of direct infringement under § 271(a) in situations where all the steps of a claimed method are not actually being performed by the accused party.  Under the Federal Circuit’s pre-Akamai precedent, a party could be liable for direct infringement if (1) it performs all the steps itself; (2) it acts through an agent (applying traditional agency principles); or (3) it contracts with another to perform one or more steps of a claimed method.  The latter two forms of direct infringement are generally described as inquiring into whether “a single entity directs or controls the acts of another,” considering general principles of vicarious liability.

In the new Akamai opinion, the Federal Circuit adds an additional category that falls within the scope of “control or direction.”  The key language:

We conclude, on the facts of this case, that liability under § 271(a) can also be found when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance. Cf. Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005) (stating that an actor “infringes vicariously by profiting from direct infringement” if that actor has the right and ability to stop or limit the infringement). In those instances, the third party’s actions are attributed to the alleged infringer such that the alleged infringer becomes the single actor chargeable with direct infringement. Whether a single actor directed or controlled the acts of one or more third parties is a question of fact, reviewable on appeal for substantial evidence, when tried to a jury.

 Slip Op. at 5.  In addition, the Federal Circuit held participatnts in a joint enterprise can be charged with the acts of the other for purposes of direct infringement.

Alternatively, where two or more actors form a joint enterprise, all can be charged with the acts of the other, rendering each liable for the steps performed by the other as if each is a single actor. See Restatement (Second) of Torts § 491 cmt. b (“The law . . . considers that each is the agent or servant of the others, and that the act of any one within the scope of the enterprise is to be charged vicariously against the rest.”). A joint enterprise requires proof of four elements:

(1) an agreement, express or implied, among the members of the group;

(2) a common purpose to be carried out by the group;

(3) a community of pecuniary interest in that purpose, among the members; and

(4) an equal right to a voice in the direction of the enterprise, which gives an equal right of control.

Id. § 491 cmt. c. As with direction or control, whether actors entered into a joint enterprise is a question of fact, reviewable on appeal for substantial evidence. Id.
(“Whether these elements exist is frequently a question for the jury, under proper direction from the court.”).

Slip Op. at 5-6.  The Federal Circuit thus vacated all earlier precedent that limited 271(a) to principal-agent relationships, contractual arrangements, and joint enterprise.  “Rather, to determine direct infringement, we consider whether all method steps can be attributed to a single entity.”  Id. at 6.  Applying this standard to the facts of the case, the court held that there was sufficient evidence to support the jury’s verdict of infringement.

Interestingly, the consequence now seems to be that inducement can apply to situations where one party performs some of the steps and the remaining steps are performed by another.  First, under Promega v. Life Tech, a party can be liable for inducing itself.  Since Limelight is a direct infringer under the new Akamai opinion, it could be liable for inducement as well (not that this would seem to come up much in situations where the steps are being performed domestically).  Second, a party could be liable for inducement where it induced another party who itself performed some of the steps and the remaining steps were attributable to the induced party (even if performed by another).

Guest Post by Prof. Burstein: Ethicon v. Covidien — Some key design patent issues

Patent,

In this post, Sarah Burstein, Associate Professor of Law at the University of Oklahoma College of Law, examines the design patent components of the Federal Circuit’s recent Ethicon decision.  Dennis’s discussion of the utility patent’s indefiniteness issue is here.

Ethicon Endo-Surgery, Inc. v. Covidien, Inc. (Fed. Cir. Aug. 7, 2015) Download opinion
Panel:  Chen (author), Lourie, Bryson

Ethicon alleged that Covidien’s Sonicision cordless ultrasonic dissection device infringed various utility and design patents. Each of the asserted design patents claimed a portion (or portions) of a design for a surgical device. A representative image from each patent is shown below:

patents_in_suit

All of the asserted design patents claimed at least some portion of the design of the u-shaped trigger. Three of them also claimed the design of the torque knob and/or activation button.

The district court granted summary judgment that the design patents were invalid for lack of ornamentality and not infringed. Ethicon appealed.

Validity

The Federal Circuit reversed the grant of summary judgment of invalidity. A patentable design must be, among other things, “ornamental.” The Federal Circuit has interpreted this as, essentially, a type of non-functionality requirement.

In deciding that the designs were invalid as functional, the district court relied on a number of factors from Berry Sterling Corp. v. Pescor Plastics, Inc. In Berry Sterling, the Federal Circuit stated that, in addition to the existence of alternative designs:

Other appropriate considerations might include: whether the protected design represents the best design; whether alternative designs would adversely affect the utility of the specified article; whether there are any concomitant utility patents; whether the advertising touts particular features of the design as having specific utility; and whether there are any elements in the design or an overall appearance clearly not dictated by function.

In their appellate briefs, the parties disputed the relevance and relative weight of these factors. Ethicon noted the significant tension between Berry Sterling and other controlling precedents, arguing that “[b]efore and after Berry Sterling, this Court has treated the presence or absence of alternative designs that work as well as the claimed design as a dispositive factor in analyzing functionality.” Covidien, on the other hand, argued that the availability of alternative designs was not a dispositive factor.

In its decision, the panel attempted to harmonize the conflicting precedents by stating that the Federal Circuit had not, in fact, previously “mandated applying any particular test for determining whether a claimed design is dictated by its function and therefore impermissibly functional.”

The panel noted, however, that the Federal Circuit had “often focused . . . on the availability of alternative designs as an important—if not dispositive—factor in evaluating the legal functionality of a claimed design.” The panel then recast the Berry Sterling factors as only being applicable “where the existence of alternative designs is not dispositive of the invalidity inquiry.” The panel did not explain how or when the existence of alternatives would—or would not be—dispositive as to validity. However, it did make it clear that “an inquiry into whether a claimed design is primarily functional should begin with an inquiry into the existence of alternative designs.”

Although Ethicon had submitted evidence of alternative designs, Covidien argued they were not “true alternatives because, as the district court found, they did not work ‘equally well’ as the claimed designs.” The Federal Circuit disagreed with Covidien for two main reasons:

First, the district court’s determination that the designs did not work “equally well” apparently describes the preferences of surgeons for certain basic design concepts, not differences in functionality of the differently designed ultrasonic shears. . . . Second, to be considered an alternative, the alternative design must simply provide “the same or similar functional capabilities.”

The Federal Circuit also decided that, in finding the claimed designs to be functional, the district court “used too high a level of abstraction,” focusing on general design concepts—for example, on the concept of an open trigger—instead of “the particular appearance and shape” of the claimed design elements. The Federal Circuit therefore reversed the district court’s summary judgment of invalidity.

Infringement

This decision also provided some useful clarification about how to apply the design patent infringement test, as formulated by the en banc Federal Circuit in Egyptian Goddess, Inc. v. Swisa, Inc. In the wake of Egyptian Goddess, some lawyers have argued that: (1) a court must (almost) always consider the prior art when analyzing design patent infringement; and (2) in certain circumstances, the prior art can be used to broaden the scope of a patented design.

In Ethicon, the panel helpfully—and accurately—clarifies the rule of Egyptian Goddess, noting that:

Where the claimed and accused designs are “sufficiently distinct” and “plainly dissimilar,” the patentee fails to meet its burden of proving infringement as a matter of law. If the claimed and accused designs are not plainly dissimilar, the inquiry may benefit from comparing the claimed and accused designs with prior art to identify differences that are not noticeable in the abstract but would be significant to the hypothetical ordinary observer familiar with the prior art. (Citations omitted.)

In this case, the district court engaged in a “side by side comparison between the claimed designs and the design of Covidien’s accused shears” and determined that they were plainly dissimilar and, therefore, the design patents were not infringed. The Federal Circuit provided these images as a representative example:

infringementEthicon argued that they were not plainly dissimilar and that the district court erred in not considering the prior art, “which Ethicon characterizes as predominantly featuring thumb-ring and loop-shaped triggers.” Essentially, Ethicon sought to broaden the scope of its patent by showing some significant visual “distance” from the prior art.

The Federal Circuit disagreed with Ethicon, finding no genuine dispute of fact on the issue of infringement. According to the court, the designs were only similar “[o]n a general conceptual level.” And because the designs were plainly dissimilar, the court “did not need to compare the claimed and accused designs with the prior art.” The court therefore affirmed the grant of summary judgment of non-infringement.

Circuit Check v. QXQ, Inc.: Analogous Art Doctrine

Patent, , ,

By Jason Rantanen

Circuit Check Inc. v. QXQ Inc. (Fed. Cir. 2015) Download Opinion
Panel: Louie, Dyk, Moore (author)

Although it shows up only occasionally in the Federal Circuit’s opinions, the analogous arts doctrine can play an important role in structuring and limiting obviousness determinations.  Here, it is a key component of the Federal Circuit’s reversal of the district judge’s grant of Judgment as a Matter of Law that the patents-in-suit were obvious.  An important limitation of this decision, of course, is that the consequence is to reinstate the jury verdict that the patent was not obvious.  Put another way, although the Federal Circuit uses the analogous arts doctrine to restrict the scope of obviousness here, the procedural posture of its review maintains   some degree of indeterminacy.

While obviousness determinations often invoke the hypothetical person having ordinary skill in the art sitting at a lab bench on which is arrayed every existing prior art reference, the analogous art doctrine functions to limit those references.   The basic elements are well established:

To be considered within the prior art for purposes of the obviousness analysis, a
reference must be analogous. Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858, 864 (Fed. Cir. 1993). Whether a reference is analogous art is a question of fact. Wyers v. Master Lock Co., 616 F.3d 1231, 1237 (Fed. Cir. 2010). Prior art is analogous if it is from the same field of endeavor or if it is reasonably pertinent to the particular problem the inventor is trying to solve. Id.

Here, there was no question that “the disputed prior art—rock carvings, engraved signage, and Prussian Blue—is not part of the field of circuit board testers and test figures.”  Slip Op. at 6.  Thus, the issue was whether the prior art “is reasonably pertinent to the particular problem solved by the inventor.”  The Federal Circuit concluded that a reasonable jury could  have found that it was not:

Although “familiar items may have obvious uses beyond their primary purposes,” KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398, 420 (2007), a reference is only reasonably pertinent when it “logically would have commended itself to an inventor’s attention in considering his problem,” In re Clay, 966 F.2d 656, 659 (Fed. Cir. 1992). The jury heard testimony that a person of ordinary skill in the art would not have thought about rock carvings, engraved signage, or Prussian Blue in considering how to mark interface plates. J.A. 1387–88, 1397, 1430–32, 1434, 1443–44, 1447. The jury was entitled to weigh this testimony, find that an ordinarily skilled artisan would not find that the disputed prior art “logically would have commended itself to an inventor’s attention,” and thus find the disputed prior art not analogous. See In re Clay, 966 F.2d at 659.

The district judge’s opinion also referenced the idea of keying a car, noting that “any vandal who has ‘keyed’ a car knows that stripping the paint with a key will result in
the underlying metal color showing through.”  Slip Op. at 4 (quoting district court).  But

Just because keying a car, for example, is within the common knowledge of humankind does not mean that keying a car is analogous art. An alleged infringer should not be able to transform all systems and methods within the common knowledge into analogous prior art simply by stating that anyone would have known of such a system or method. The question is not whether simple concepts such as rock carvings, engraved signage, or Prussian Blue dye are within the knowledge of lay people or even within the knowledge of a person of ordinary skill in the art. Rather, the question is whether an inventor would look to this particular art to solve the particular problem at hand. Here, Circuit Check put forward evidence that an inventor would not have considered the disputed prior art when trying to improve marking. It is not hard to arrive at that conclusion. Even though an inventor may be aware of rock carvings, it is not surprising that the inventor would not have looked to rock carvings to improve the process of painting small dots on interface plates for expensive circuit board testers. And, even though an inventor may work in an office with engraved signage, the inventor would not necessarily have considered using the techniques disclosed in engraved signage to solve the problem of marking circuit board tester interface plates.

The Federal Circuit also found substantial evidence to support the jury’s presumed finding of substantial differences between the prior art and the claims, and in support that objective considerations support nonobviousness.

Patent Office Issues Updated “Interim Guidance” on Patent Subject Matter Eligibility

Patent,

By Jason Rantanen

This morning, the USPTO issued a substantial update to its December 2014 “Interim Guidance” on patent subject matter eligibility.  The update addresses comments on the 2014 Guidance and includes several new examples of eligible and ineligible claims.  The update is available here: http://www.uspto.gov/patent/laws-and-regulations/examination-policy/2014-interim-guidance-subject-matter-eligibility-0  (The title says 2014 Interim Guidance, but the contents include the 2015 update.)

The new examples are directed to abstract ideas rather than biotechnology based inventions, although the commentary notes that the office is working on additional biotech-based examples.  According to the update,

These examples provide additional eligible claims in various technologies, as well as sample analyses applying the Supreme Court and Federal Circuit’s considerations for determining whether a claim with additional elements amounts to significantly more than the judicialexception itself. The examples, along with the case law precedent identified in the training materials as pertinent to the considerations,3 will assist examiners in evaluating claim elements that can lead to eligibility (i.e., by amounting to significantly more) in a consistent manner across the corps.

While these examples will likely be welcomed by attorneys practicing in this area, a substantial limitation is that the only recent Federal Circuit opinion finding an abstract idea-based claim eligible is DDR Holdings v. Hotels.com.  Thus, while there are several other examples of claims that the PTO would find eligible, those examples are based on either (1) PTO (as opposed to Federal Circuit) precedent; (2) hypothetical situations; or (3) pre-Mayo/Alice decisions (such as Diamond v. Diehr).

A particularly interesting part of the examples are two directed to use of the “streamlined” patent eligible subject matter analysis.  Those examples analyze claims directed to an internal combustion engine and remote storage of BIOS.  For these claims, the examiner would conduct only a “streamlined” analysis that would not become part of a written rejection.

As with the earlier Interim Guidance, the PTO is seeking public feedback on the  update.  From the website:

Any member of the public may submit written comments by electronic mail message over the Internet addressed to 2014_interim_guidance@uspto.gov (link sends e-mail). Electronic comments submitted in plain text are preferred, but also may be submitted in ADOBE® portable document format or MICROSOFT WORD® format. The comments will be available for public inspection here at this Web page. Because comments will be available for public inspection, information that is not desired to be made public, such as an address or a phone number, should not be included in the comments. Comments will be accepted until October 28, 2015.

Guest Post: Digital Information at the Border

Patent,

Guest post by Sapna Kumar.  Prof. Kumar is an Associate Professor at the University of Houston Law Center, where she teaches patents and administrative law. She has written extensively about the ITC. Her most recent article, Regulating Digital Trade, discusses the ClearCorrect decision at length and is available here (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2586740).

Next week, the Federal Circuit will hear oral arguments for ClearCorrect Operating, LLC v. International Trade Commission. It will decide whether the International Trade Commission’s (ITC’s) jurisdiction extends to digital information. Much is at stake.

Background

The ITC has jurisdiction over infringing “articles” that are imported into the country, under § 337 of the Tariff Act. Patent holders use the ITC because it can grant exclusion orders that block infringing goods from entering the country and are enforced by Customs and Border Patrol at ports of entry. The ITC can also issue cease-and-desist orders.

As discussed in an earlier post, the technology at issue involves plastic dental aligners. Align Technology’s (Align’s) patents cover methods of making aligners by generating the digital data sets for the aligners and then using the data to make the aligners, generally through 3D printing. ClearCorrect found what it thought was a clever way to circumvent the patent: patients were seen in Houston (where digital scans were made of the patients’ teeth), but a Pakistani counterpart created digital models of the patients’ teeth and created digital treatment plans. These data sets were uploaded to a Houston server; ClearCorrect then used 3D printers in Houston to create physical models of the patient’s teeth, and used the models to create the aligners.

Align argues that the digital data sets are “articles,” and claims that §337 was triggered when the data was uploaded to the Houston server. In April 2014, a majority of the ITC Commissioners agreed, interpreting the term “articles” to include digital information. Although the majority conceded that the ITC doesn’t have the power to exclude digital information from the U.S., it did order ClearCorrect to cease and desist importing data sets. Commissioner Johanson vigorously dissented, maintaining that Congress failed to delegate power to the ITC to remedy the importation of digital information.

Problems and Pitfalls

On the surface, the ITC’s decision seems like the right one—ClearCorrect was clearly trying to circumvent Align’s patents. But this case raises difficult questions regarding the scope of the agency’s authority. The core of the ITC’s jurisdiction is in rem, meaning that its jurisdiction isn’t over people, but rather, the articles themselves. In rem jurisdiction has been found to exist over intangible property such as domain names. In several domain name cases, courts emphasized the fact that in rem jurisdiction was appropriate because the court could exercise exclusive control over the property at issue. But nobody can control digital information in the abstract, making in rem jurisdiction a poor fit.

Even if in rem jurisdiction exists, there is still a question of what the term “articles” means. Here, the ITC’s statutory analysis is weak. It ignores Congress’s use of restrictive terms such as “goods” in the Tariff Act’s legislative history. More importantly, the ITC fails to address how Congress could have intended the ITC to have power over intangible articles in 1930 when the ITC lacked cease-and-desist authority until 1974.

But it gets worse. The ITC claims that the Supreme Court’s decision in International News Service v. Associated Press is relevant because it involved newspaper articles that were transmitted by telegraph, disregarding the fact that the case involved a different statute and an entirely different type of article. It also attempts to interpret “articles” in light of the Driver’s Privacy Protection Act, which was passed more than 60 years after the original Tariff Act. Going forward, the Federal Circuit should consider providing guidance to the ITC on how to engage in proper statutory interpretation.

This appeal is being closely watched. After the Sony Hack, a leaked memo emerged showing that the Motion Picture Association of America (MPAA) wants the ITC to order internet service providers to block customer access to websites with pirated content. To do this, the MPAA needs the ITC to have jurisdiction over infringing digital information. Given that there is no “digital border,” this also raises questions regarding when information has entered the country and links up to issues from Suprema, Inc. v. International Trade Commission regarding when § 337 is triggered.

Furthermore, this appeal will require the Federal Circuit to grapple with the issue of proper standard of review for ITC decisions. Because the ITC was interpreting the ambiguous term “articles” during formal adjudication, it is potentially eligible for strong deference under the Supreme Court’s Chevron U.S.A. v. Natural Resources Defense Council decision. Yet, the Federal Circuit has historically resisted applying Chevron deference to ITC patent decisions.

No matter how the Federal Circuit rules, its decision will not be the final word on digital trade regulation. One attempt has already been made to expand the ITC’s jurisdiction through legislation, and more attempts will likely follow.