In my Patent Law Year in Review talk this morning at the Wisconsin Bar Association’s Tenth Annual Door County Intellectual Property Law Academy, I touched briefly on ex parte reexamination filings. With the heavy interest in inter partes reviews, ex parte reexam filings probably haven’t been on most people’s radar. And until recently, data from the past year wasn’t available on the PTO’s website. Recently, though, the PTO updated the data on ex parte reexamination filings (available here: http://www.uspto.gov/learning-and-resources/statistics/reexamination-information). As the below figure shows, although there was a drop-off following the steep increase in the fee for filing ex parte reexamination and launch of inter partes review proceedings, parties are still filing about 50-100 requests for ex parte reexamination per quarter. (For comparison, there are about 400-450 requests for inter partes review filed per quarter).
I’d also like to give a shoutout for the assistance I received from calling the PTO’s ex parte reexamination hotline (571-272-7703). It’s always great when a helpful voice is on the other end of the line.
Guest post by David Bohrer, Patent Trial Practice, Valorem Law Group.
OIP Technologies v. Amazon.com and IPC v. Active Network are the most recent of a growing number of decisions dismissing software and business method patent lawsuits on the pleadings. In these decisions, the courts are finding that the invention alleged in the complaint is an abstract idea that is not eligible for patent protection.
While early resolution of patent litigation is laudable, motions directed to the pleadings generally may not consider matters outside what is pled in the complaint. Yet this is what courts are doing — they have been coloring outside the lines when deciding whether a patented software or business method is an ineligible abstraction. They are looking beyond the allegations in the complaint to discern “fundamental economic concepts.” Independent of anything pled in the complaint, they are making historical observations about alleged longstanding commercial practices and deciding whether the claimed invention is analogous to such practices.
Coloring outside the lines may not be acceptable. The benefit of providing an early exit from otherwise expensive and burdensome patent litigation may be outweighed by the prejudice to all parties of eroding the rules regarding the matters that may be considered before throwing out a lawsuit. Perhaps there is a better solution. Perhaps pleading motions challenging patent subject matter eligibility should be converted to expedited and limited scope summary judgment motions, thereby allowing the parties to present declarations, testimony and other extrinsic evidence that better address whether a claimed economic practice is an unpatentable idea or a patentable invention.
Alice is being used to obtain early dismissal of lawsuits based on software and business method patents
Courts granting patent ineligible subject matter motions are using the Supreme Court’s 2014 Alice decision as an effective weapon to combat vexatious patent litigation brought by non-practicing entities (NPEs). SeeCuriouser and Curiouser Is Alice the Long Sought Troll Killer _ The Legal Intelligencer. Alice provides relatively easy to satisfy requirements for demonstrating that an asserted software patent is claiming an “abstract idea” and therefore is not eligible for patent protection under section 101 of the patent statute.
Not only have courts found in Alice the tools necessary to dispose of vexatious patent lawsuits asserting software and business method patents, they also are willing to entertain an Alice challenge at the pleadings stage. The procedural posture of a pleading motion is key to using Alice to “kill trolls.” Defendants can challenge the merits of the patent lawsuit at the pleadings stage and before having to incur significant expenses associated with discovery, claim construction, experts and summary judgment. The nuisance value of the lawsuit goes way down. Defendants are less likely to feel they have to pay a distasteful settlement or else bear the much greater expense of defending on the merits.
Recent Federal Circuit decisions continue the trend
On June 11, 2015 and again on June 23, 2015, the Federal Circuit affirmed decisions by the Northern District of California dismissing software patent lawsuits at the pleading stage. In each of these cases, OIP Technologies v. Amazon.com (underlying patent claimed offer-based price optimization) and IPC v. Active Network(retaining information lost in the navigation of online forms) the district courts granted Rule 12(b)(6) motions to dismiss on the grounds that the patents claimed abstract ideas ineligible for patent protection.
In each case, the Federal Circuit approved the resolution of 101 eligibility at the pleading stage with little to no analysis. In IPC, the Federal Circuit’s opinion includes one sentence in which the court states that claim construction (which had not yet occurred) is “not an inviolable concept.” In OIP, the lead opinion does not address how early in litigation alleged ineligibility may be resolved, but in a concurring opinion Judge Mayer supports addressing eligibility at the motion-to-dismiss stage.
Failure to recite statutory subject matter is the sort of “basic deficiency,” that can, and should, “be exposed at the point of minimum expenditure of time and money by the parties and the court,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007) (citations and internal quotation marks omitted). Addressing 35 U.S.C. § 101 at the outset not only conserves scarce judicial resources and spares litigants the staggering costs associated with discovery and protracted claim construction litigation, it also works to stem the tide of vexatious suits brought by the owners of vague and overbroad business method patents. Accordingly, where, as here, asserted claims are plainly directed to a patent ineligible abstract idea, we have repeatedly sanctioned a district court’s decision to dispose of them on the pleadings. See, e.g., Content Extraction & Transmission LLC v. Wells Fargo Bank, 776 F.3d 1343, 1349 (Fed. Cir. 2014); Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 717 (Fed. Cir. 2014); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1352 (Fed. Cir. 2014). I commend the district court’s adherence to the Supreme Court’s instruction that patent eligibility is a “threshold” issue, Bilski v. Kappos, 561 U.S. 593, 602 (2010), by resolving it at the first opportunity.
Contrary to the suggestion made by Judge Mayer, the Supreme Court has not addressed whether it is appropriate to address a 101 challenge at the pleading stage. Bilski’s characterization of patent eligibility as a “threshold” issue was made with reference to the 102 and 103 invalidity defenses and did not address the procedural issue. Bilski also cites to extrinsic economic treatises and other evidence of economic practice in support of the decision reviewing the denial of a patent application. Alice did NOT address patent eligibility in the context of a pleadings motion, but instead reviewed a patent eligibility ruling that was made at summary judgment. Alicecites to the same extrinsic economic evidence relied upon in Bilski.
There is not supposed to be any coloring outside the lines on pleadings motions
The well-established general rule is that Rule 12(b)(6) motions to dismiss as well as Rule 12(c) motions for judgment on the pleadings are limited to the well-pled factual allegations made in the complaint. “A court generally cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits or discovery materials).” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012); In re American Cont’l Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir. 1996) (As recognized in OIP and IPC, the Federal Circuit applies regional circuit law in deciding motions to dismiss.).
Yet this is what is happening
Notwithstanding these rules, OIP and IPC each looked beyond the complaint in determining whether the asserted claims are directed to ineligible abstract ideas. In OIP, the asserted price optimization claims were deemed “similar to other ‘fundamental economic concepts’ found to be abstract ideas.” In IPC, the asserted online information retention claims were deemed “well-understood, routine, conventional activities previously known.” In each instance, the court is looking at practices and activities outside of anything alleged in the complaint.
These Federal Circuit cases teach that it is acceptable to consider matters outside of the complaint, as confirmed by Affinity Labs of Texas v. Amazon.com (June 12, 2015 WD Tex.), in which the magistrate judge, applying 101 precedent from OIP and other Federal Circuit decisions, says that it is making “general historical observations that come to mind.” Based on such extrinsic “historical observations,” the court finds that the claimed invention of delivering selectable media content and subsequently playing the selected content on a portable devices is a “long-standing commercial practice and is therefore abstract.”
The Court notes that the first transistor radio, which delivers selectable audio media to a portable device, was developed in the late 1940s and was immensely popular in the succeeding decades. Similarly, the first portable televisions, another form of delivering “selectable” media content to a portable device, were introduced in the 1980s and 1990s. The above examples represent just a few of the many general historical observations that come to mind as evidence of the long-standing commercial practice of delivering selectable media content and subsequently playing the selected content on a portable device.
Reliance on extrinsic evidence of economic practices and concepts found in precedent
OIP and IPC support their abstract idea findings by equating the economic purpose of the asserted patent with the economic concepts successfully challenged in other cases. For example, in OIP, the Federal Circuit says offer-based price optimization (at issue in OIP) is analogous to using advertising as an exchange or currency (deemed an abstract idea in the earlier Federal Circuit decision Ultramercial v. Hulu). Likewise, in IPC, the Federal Circuit said that recent precedent illustrates the boundary between abstraction and patent eligible subject matter. But how is the court in a position to make the connection between the asserted claims and prior precedent on its own observation and independent of expert testimony or other relevant extrinsic evidence? Judge Mayer and many other respected judges might reply that it is acceptable to make this connection because it is “plain” or “obvious.” Yet this seems to invite the application of 20-20 hindsight and of the “I know it when I see it” standard.
Can’t take judicial notice of truth of findings made in other decisions
Furthermore, while a court may take judicial notice of another court’s opinion in ruling on a motion to dismiss, it may do so only as to the existence of the opinion and not for the truth of the facts recited therein. Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001). It appears that cases such as OIP and IPC are relying on the truth of factual findings made in other decisions regarding whether certain economic concepts are “conventional” or “well-known” – such matters appear outside the scope of what may be judicially noticed in a motion to dismiss.
Possible solution is expedited and limited scope summary judgment motions
A court’s consideration of information outside the four corners of the complaint, assuming it does not fall within exceptions such as judicial notice, converts a motion to dismiss into a summary judgment motion. Lee, 250 F.3d at 688. True enough, this raises the specter of time-consuming discovery and case development (see the criticism of ED Texas Judge Gilstrap’s requirement that the parties demonstrate that there is a good faith basis for such a motion). This said, district courts have the discretion to expedite such motions as well as limit their scope. They could, for example, specifically require the responding party to submit to expedited discovery on the issue whether the asserted patent claims eligible subject matter followed by expedited briefing and submission of evidence on both the question whether the purpose of the asserted claims is a conventional economic concept and therefore an ineligible abstract idea, and if so, whether there is an inventive concept that saves the claim from dismissal. They could stay other case development or discovery during the expedited resolution of the motion. It does not necessarily follow that the court would have to conduct claim construction as part of the process. The parties, as they do now, could brief whether claim construction is necessary, but would also have greater flexibility in terms of their ability to submit proofs in support of their claim construction arguments. Woe unto the party who purports without any reasonable basis to have compelling extrinsic evidence that they are not asserting a conventional economic concept or that their patent is directed to a protected inventive concept– the district courts have ample support in High Octane and its progeny for awarding fees under such circumstances.
If courts are going to color outside the lines, then let the parties do the same thing
Courts are willing to color outside the lines and consider extrinsic evidence upon addressing motions to dismiss challenging alleged ineligible patent subject matter. This contravenes well-established rules and policies regarding pleading challenges and may cause undue prejudice by denying a party the ability to submit extrinsic evidence in support of a well-pled claim. A possible solution is for the court to allow the parties to color outside the lines as well. The court has the discretion to impose time and scope limits on discovery and briefing without opening the door to prolonged, vexatious litigation.
Opinion by Justice Kagan. Justice Alito filed a dissenting opinion joined by Chief Justice Roberts and Justice Thomas.
Drawing heavily on stare decisis, the Supreme Court has declined to overrule the rule in Brulotte v. Thys that a patentee cannot continue to receive royalties for sales made after the expiration of the patent based on principles of stare decisis. However, the Court leaves open the possibility of creative license drafting. From the opinion:
Patents endow their holders with certain superpowers, but only for a limited time. In crafting the patent laws, Congress struck a balance between fostering innovation and ensuring public access to discoveries. While a patent lasts, the patentee possesses exclusive rights to the patented article—rights he may sell or license for royalty payments if he so chooses. See 35 U. S. C. §154(a)(1). But a patent typically expires 20 years from the day the application for it was filed. See §154(a)(2). And when the patent expires, the patentee’s prerogatives expire too, and the right to make or use the article, free from all restriction, passes to the public. See Sears, Roebuck & Co. v. Stiffel Co., 376 U. S. 225, 230 (1964). This Court has carefully guarded that cut-off date, just as it has the patent laws’ subject-matter limits: In case after case, the Court has construed those laws to preclude measures that restrict free access to formerly patented, as well as unpatentable, inventions.
***
Brulotte was brewed in the same barrel. There, an inventor licensed his patented hop-picking machine to farmers in exchange for royalties from hop crops harvested both before and after his patents’ expiration dates. The Court (by an 8-1 vote) held the agreement unenforceable—“unlawful per se”—to the extent it provided for the payment of royalties “accru[ing] after the last of the patents incorporated into the machines had expired.” 379 U. S., at 30, 32. To arrive at that conclusion, the Court began with the statutory provision setting the length of a patent term. See id., at 30 (quoting the then-current version of §154). Emphasizing that a patented invention “become[s] public property once [that term] expires,” the Court then quoted from Scott Paper: Any attempt to limit a licensee’s post-expiration use of the invention, “whatever the legal device employed, runs counter to the policy and purpose of the patent laws.” 379 U. S., at 31 (quoting 326 U. S., at 256).
***
As against this superpowered form of stare decisis, we would need a superspecial justification to warrant reversing Brulotte. But the kinds of reasons we have most often held sufficient in the past do not help Kimble here. If anything, they reinforce our unwillingness to do what he asks.
Slip Op. at 3-4, 6, 10. Nonetheless, wary license drafters can work around Brulotte:
Yet parties can often find ways around Brulotte, enabling them to achieve those same ends. To start, Brulotte allows a licensee to defer payments for pre-expiration use of a patent into the post-expiration period; all the decision bars are royalties for using an invention after it has moved into the public domain. See 379 U. S., at 31; Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S. 100, 136 (1969). A licensee could agree, for example, to pay the licensor a sum equal to 10% of sales during the 20-yearpatent term, but to amortize that amount over 40 years.That arrangement would at least bring down early outlays, even if it would not do everything the parties might want to allocate risk over a long time frame. And parties have still more options when a licensing agreement covers either multiple patents or additional non-patent rights. Under Brulotte, royalties may run until the latest-running patent covered in the parties’ agreement expires. See 379 U. S., at 30. Too, post-expiration royalties are allowable so long as tied to a non-patent right—even when closely related to a patent. See, e.g., 3 Milgrim on Licensing §18.07, at 18–16 to 18–17. That means, for example, thata license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone). Finally and most broadly, Brulotte poses no bar to business arrangements other than royalties—all kinds of joint ventures, for example—that enable parties to share the risks and rewards of commercializing an invention.
Slip Op. at 6. Tom Cotter has already provided his own insightful commentary on the opinion over on ComparativePatentRemedies.
Side note: this may be the only judicial opinion ever to quote both my colleague Herb Hovenkamp and Stan Lee & Steve Ditko.
Guest post by Professor Kevin Emerson Collins, Professor of Law at Washington University Law School.
In its en banc decision in Williamson v. Citrix Online, the Federal Circuit held that there is no “strong” presumption that functional claim limitations that do not use the term “means” are not subject to the rules of means-plus-function claim construction laid out in section 112(f). There is still a presumption that claims that do not employ the term “means” are not means-plus-function claims, as Jason Rantanen explains in his earlier PatentlyO post on Williamson, but, in theory, this only requires the patent challenger to satisfy a more-likely-than-not burden of persuasion.
I understand Williamson to shift Federal Circuit case law on two distinct axes at the same time. First, as a matter of substance, it makes broad, functionally defined claims more difficult to obtain. The scope-narrowing rules of 112(f) now apply to a larger number of functionally defined limitations: a limitation that not employ the term “means” should now be governed by 112(f) whenever it “fails to ‘recite sufficiently definite structure’ or else recites ‘function without reciting sufficient structure for performing that function.’” Second, as a matter of form, Williamson makes patent law less rule-like and more standard-like. Courts may no longer use the rule-like, strong presumption that 112(f) does not apply when functional limitations do not employ the term “means.” Rather, whenever prompted to do so by a patent challenger, they must scrutinize the claim language on a case-by-case basis to see if it recites a sufficient quantum of structure in order to determine whether section 112(f) applies.
In my opinion, all things being equal, the substantive shift discussed above is a positive development. Unbridled functional claims over-reward an inventor and impose undue costs on society.[i] The strong presumption that functional claim limitations not using “means” avoided the scope-narrowing rules of 112(f) made such functional claims too easy to obtain. However, there is more work to be done to fully effectuate this substantive shift. For example, it is far from clear that the Federal Circuit will ever apply 112(f) to a method claim, despite the express mention of “step for” claims in the text of the statute. So, patentees can perform an end-run around Williamson and obtain broad, functionally defined claims simply by seeking a method claim rather than a product claim—a tactic that is particularly useful in the software arts where claims can be easily transformed from systems to methods and back again.
Nevertheless, being in a charitable mood, let’s assume all of the loopholes get closed and that all claims reciting “function without reciting sufficient structure for performing that function” are really subject to 112(f) after Williamson. It is at this point that we have to roll up our sleeves and begin the truly hard part of the work that is needed to reform functional software patents.
Bringing 112(f) to bear on software patents is tricky because the statute depends on a dichotomy between structure and function that simply does not exist in the software arts as a matter of fact. Although there is unquestionably a gray area, the structural and functional properties of a technology in the mechanical arts are, at their core, ontologically distinct to a philosopher and intuitively distinct to the rest of us. The description “coiled spring” denotes structure; the description “capable of generating kinetic energy when jostled” denotes function. However, this distinction vanishes in the software arts: most software inventions are function all the way down.[ii] Software is a powerful technology precisely because a programmer can remain ignorant of the physical, structural properties of a computer while specifying the functions that the software performs. Software functionality is therefore like a never-ending set of nested Russian dolls: you open up one more general functional description to look for structure, and all you find is another, more specific functional description. Patent law can, and does, identify an “algorithm” for performing a function as structure for legal purposes in a software claim, but it is importantly only metaphorical structure. An algorithm is a series of more specific steps for performing a more general function, but each of the steps in an algorithm is, in turn, specified only in functional terms. What is an algorithm as the term is used in patent law? It is a functional description of a software program that is specific enough that we are willing as a matter of patent policy to treat it like we treat a structural description in other arts. That is, the function-structure distinction in software is not a difference of kind but a difference of degree. Structure in the law of software patents is a legal fiction that has been manufactured to achieve patent policy goals.
The true challenge post-Williamson will therefore be identifying the level of specificity at which a functional description should count as metaphorical structure. Michael Risch alludes to this problem in his blog post on Williamson when he asked “[H]ow much structure is enough?” However, I think that a question precedent to Risch’s question is both more difficult and fundamental, namely “When is there any structure at all?” What level of specificity in a functional description counts as metaphorical structure?
To date, the Federal Circuit has answered this question with another layer of formalism that Williamson does not touch: any functional description in the specification that is more specific than the functional description in claims is likely to be metaphorical structure and thus an algorithm. This rule makes no sense from a policy perspective because the level of generality specified in a claim is often arbitrary. If a claim recites function A and the specification recites algorithmic steps 1, 2, and 3 for function A, a valid claim encompasses steps 1, 2, and 3 and their equivalents. However, if the claim were to directly recite functions 1, 2, and 3 (which are identical to steps 1, 2, and 3) without a more specific set of algorithms for those functions in the specification, then the claim is invalid for indefiniteness.[iii] The Federal Circuit’s approach to identifying algorithms is more like ducking the important question than providing an answer to it.
To be honest, I still waffle in my opinion on how hard the challenge of assessing the validity and permissible scope of functional software claims will be after Williamson. Some days, the problem seems difficult but tractable (although maybe not by an Article III court). Perhaps what we need to do is get patent lawyers, software engineers, and economists around a table. Perhaps they can articulate clear guidelines identifying a level of specificity at which functional software claims should be upheld, i.e., a level that identifies an algorithm and thus metaphorical structure. But, on other days, I’m less convinced that there is a tractable solution. Maybe the difference between a functional description of software and a software algorithm is like the difference between ideas from expression in copyright law, given that both differences are based on a levels-of-generality problem. Maybe therefore “[n]obody has ever been able to fix that boundary, and nobody ever can.”[iv] While the amount of uncertainty that follows from the idea/expression dichotomy may be acceptable in copyright law, the same amount of uncertainty in a function/algorithmic-step dichotomy in the law of software patents may not be.
In sum, although I believe that Williamson shifts the substantive reach of patent protection in the right direction, the costs of the inextricably linked shift toward a standard and away from a rule may, or may not, turn out to be too much to bear. If they are too much, then the need for a more rule-like patent regime will force us to choose doctrine that is either quite over-protective (e.g., that returns to the pre-Williamson strong presumption) or quite under-protective (e.g., that eliminates pure software patents altogether) as a substantive matter. Yet, despite the existence of these many possible futures, at least one thing is clear in the immediate aftermath of Williamson: the hard work of reforming functional software patents can now begin.
[i] The normative argument here is more complicated than is often presumed. For my take on why functional claiming should not be allowed, see Kevin Emerson Collins, Patent Law’s Functionality Malfunction and the Problem of Overbroad, Functional Software Patents, 90 Wash U. L. Rev. 1399, 1411–24 (2013).
[ii] To be clear, software only works because a programmed computer has certain physical, structural properties. But, the physical, structural properties of the programmed hardware are irrelevant to the definition of what constitutes a software invention. For more on what it means to say software is “function all the way down,” or to call software a purely functional technology, see id. at 1440–43.
Richard A. Williamson v. Citrix Online, LLC (Fed. Cir. 2015) Download Opinion Panel: Moore, Linn (author), and Reyna. Part II.C.1. decided by the court en banc.
Judge Reyna concurred as to the conclusion of indefiniteness, but maintained his dissent as to a claim construction issue decided by the panel. Judge Newman dissented as to Part II.C.1.
In the original panel opinion in Williamson v. Citrix (discussed here), the majority held that the use of the word “module” does not invoke the means-plus-function language of 35 U.S.C. § 112, para. 6, and thus the claim was not indefinite under the Federal Circuit’s § 112, para. 6 precedent. In reaching that conclusion, the majority held that because the claim did not use the word “means,” there was a “strong” presumption that § 112, para. 6 does not apply. Citrix sought en banc review. (Disclosure: I joined an amicus brief encouraging the court to grant en banc review due to the intra-circuit split on this issue).
This morning the Federal Circuit withdrew the earlier opinion and substituted a new one, with an en banc section addressing the means-plus-function issue. The en banc court reversed the precedent creating a “strong” presumption, holding that the standard is “whether the words of the claim are understood by person of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.” Slip Op. p. 16. If the words of the claim do not meet that standard, § 112, para. 6 (now § 112(f)) applies.
35 U.S.C. § 112, para. 6 states:
An element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding
structure, material, or acts described in the specification and equivalents thereof.
Although there is a presumption based on the presence or absence of the word “means,” that presumption is rebuttable:
In making the assessment of whether the limitation in question is a means-plus-function term subject to the strictures of § 112, para. 6, our cases have emphasized that the essential inquiry is not merely the presence or absence of the word “means” but whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.
Id. at 14. Under Federal Circuit precedent from the 1990’s, “the presumption can be overcome and § 112, para. 6 will apply 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.” Id. (citingWatts v. XL Sys., Inc., 232 F.3d 877, 880 (Fed. Cir. 2000).
Subsequent cases raised that presumption first to a “strong” one (Lighting World), then to a “strong one that is not readily overcome” (Inventio), and then to an even higher bar: “[w]hen the claim drafter has not signaled his intent to invoke § 112, ¶ 6 by using the term ‘means,’ we are unwilling to apply that provision without a showing that the limitation essentially is devoid of anything that can be construed as structure” (Flo Healthcare Solutions) (emphasis added by court).
The court considered this heightened standard and eliminated it:
Our consideration of this case has led us to conclude that such a heightened burden is unjustified and that we should abandon characterizing as “strong” the presumption that a limitation lacking the word “means” is not subject to § 112, para. 6. That characterization is unwarranted, is uncertain in meaning and application, and has the inappropriate practical effect of placing a thumb on what should otherwise be a balanced analytical scale. It has shifted the balance struck by Congress in passing § 112, para. 6 and has resulted in a proliferation of functional claiming untethered to § 112, para. 6 and free of the strictures set forth in the statute. Henceforth, we will apply the presumption as we have done prior to Lighting World, without requiring any heightened evidentiary showing and expressly overrule the characterization of that presumption as “strong.” We also overrule the strict requirement of “a showing that the limitation essentially is devoid of anything that can be construed as structure.”
The standard is whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning as the name for structure. Greenberg, 91 F.3d at 1583. When a claim term lacks the word “means,” the presumption can be overcome and § 112, para. 6 will apply 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.” Watts, 232 F.3d at 880. The converse presumption remains unaffected: “use of the word ‘means’ creates a presumption that § 112, ¶ 6 applies.” Personalized Media, 161 F.3d at 703.
Applying the pre-Lighting World standard, the court concluded that the term “distributed learning control module” was governed by § 112, para. 6. That term is part of a larger passage that is “in a format consistent with traditional means-plus-function limitations. It replaces the term ‘means’ with the term ‘module’ and recites three functions performed by the ‘distributed learning control module.'” Slip Op. at 17. That term – module – is “a well-known nonce word that can operate as a substitute for ‘means’ in the context of § 112, para 6.” Id. “Generic terms such as ‘mechanism,’ ‘element,’ ‘device,’ and other nonce words that reflect nothing more than verbal constructs may be used in a claim in a manner that is tantamount to using the word ‘means’ because they ‘typically do not connote sufficiently definite structure’ and therefore may invoke § 112, para. 6.” Id. And here, “the word ‘module’ does not provide any indication of structure because it sets forth the same black box recitation of structure for providing the same specified function as if the term ‘means’ had been used.” Id. at 19. Nor was there any other evidence that indicated that the term recited sufficiently definite structure.
The consequence of concluding that § 112, para. 6 applies was that the court moved to the second step of the means-plus-function construction: looking to the specification for corresponding structure. Because the specification did not disclose adequate corresponding structure, the claim was indefinite.
Judge Reyna concurred in the conclusion reached by the court en banc, but expressed concern that the court’s approach sidesteps “underlying fundamental issues involving the development of functional claiming law since 1952 when 35 U.S.C. § 112, paragraph 6 was passed.” Concurrence at 3-4. Judge Reyna also dissented as to a claim construction issue decided by the panel.
Judge Newman dissented from the en banc ruling in Section II.C.1. In Judge Newman’ view, the result of the court’s decision is clear: “additional uncertainty of the patent grant, confusion in its interpretation, invitation to litigation, and disincentive to patent based innovation.”
Guest post by Jeffrey A. Lefstin, Professor of Law at the University of California Hastings College of Law. Professor Lefstin’s forthcoming article, Inventive Application: a History, was cited by Judge Linn in his concurrence in Ariosa.
The Federal Circuit has issued its decision in a closely-watched biotechnology case, Ariosa Diagnostics v. Sequenom. The opinion clarifies several aspects of the patent-eligibility inquiry in the wake of Mayo v. Prometheus, and has significant long-term implications for patent-eligibility not only in biotechnology, but in other fields where invention is based primarily on discovery.
The invention in the case derived from the inventors’ discovery that the cell-free fractions (serum and plasma) of a pregnant woman’s blood contain surprisingly large amounts of DNA from the fetus. Based on this discovery, the Sequenom patents claimed methods for prenatal diagnosis of fetal abnormalities, the methods comprising amplifying paternally-inherited sequences from the cell-free fractions of the mother’s circulation.
Applying Mayo, the Federal Circuit held all the claims in suit ineligible. In step one of the Mayo inquiry, the court found that the claims were all directed to a natural phenomenon: the existence of paternally-inherited cell-free fetal DNA (cffDNA) in the maternal bloodstream. In step two, the search for an ‘inventive concept,’ the court invoked Parker v. Flook for the following proposition:
For process claims that encompass natural phenomenon [sic], the process steps are the additional features that must be new and useful.
Because methods of amplifying DNA were well-known at the time of the invention, the court determined that the claims disclosed only well-understood, routine, conventional activity beyond the underlying natural phenomenon. The claims therefore lacked an inventive concept sufficient to transform the natural phenomena into a patent-eligible application. So Ariosa makes clear that the test for patent-eligibility is whether a claim represents an ‘inventive’ application of an underlying natural phenomenon, at the time the invention was made.
Another notable aspect of the case is the court’s discussion of preemption. After Mayo and Alice, some district courts have treated preemption as an operative test for patent-eligibility, while others have regarded preemption as the underlying justification for the doctrine. In Ariosa, the Federal Circuit seemed to adopt the latter view, stating that once claims are determined to disclose only ineligible subject matter under the Mayo test, “preemption concerns are fully addressed and made moot.” However, the court also wrote that “[w]hile preemption may signal ineligible subject matter, the absence of complete preemption does not demonstrate patent eligibility.” So the Federal Circuit seems to be suggesting that arguments regarding preemption can be taxed against the patentee in the § 101 inquiry, but not counted in the patentee’s favor.
In Ariosa, the Federal Circuit has endorsed a highly restrictive interpretation of the test for patent-eligibility, one that was not mandated by Mayo itself. A test for ‘inventive’ application was only one of several possible analytical approaches set forth in Mayo. Mayo also suggested a test of non-generic application for patent-eligibility: that a claim must do more than state a law of nature or abstract idea, and append an instruction to ‘apply it.’ That was the aspect of Mayo stressed by Alice, which emphasized generic application far more than inventive application.
As I argued in a recent paper, under a test of generic application, the claims in Ariosa might fare differently than the claims in Mayo. The claims in Mayo represented generic applications, because they did no more than reveal the results of the underlying relationship between 6-thioguanine levels and therapeutic efficacy. Arguably, at least some of the Ariosa claims do more than that: rather than claiming the natural phenomenon (cffDNA in the maternal circulation) itself, they employ the natural phenomenon as a means to a achieve a different end (diagnosing a genetic condition of the fetus).
Moreover, the Ariosa opinion appears to endorse dissection of the claim to a degree not only contrary to Diehr, but beyond that suggested by Flook itself. While Flook explained that “the process itself” must be new and useful, Ariosa suggests that the individual steps of the process must be new and useful, and identifies the discovery of cffDNA as “[t]he only subject matter new and useful as of the date of the application.” Given that most inventions consist of rearrangements of old elements, it is difficult to understand how the court can refrain from addressing the claim steps as an ordered whole, as mandated by Mayo itself.
And that highlights what is perhaps the most puzzling (or disturbing) aspect of Ariosa. According to Judge Linn’s concurrence, the steps of the method were new: at the time of the invention, no one was amplifying paternally-inherited sequences from maternal serum or plasma, because no one thought that those fractions contained significant amounts of fetal DNA. That contrasts with Mayo, where the acts recited in the method were identical to those performed in the prior art. Yet Judge Linn believed that the Supreme Court’s “blanket dismissal of conventional post-solution steps” in Mayo left no room to distinguish the Ariosa claims on those grounds.
If the step of amplifying paternally inherited DNA from serum or plasma was new, by what analysis could the court could regard it as “well-understood, routine, and conventional activity”? One way would be to sub-dissect that step into the conventional step of obtaining a cell-free fraction, and the conventional step of amplifying a sample containing DNA. That approach seems to lead to the reductio ad absurdum that most biotechnology processes are patent-ineligible, because they consist of the conventional steps of transferring drops of fluid from one tube to another.
The alternative way would be to ask if the step of amplifying paternally inherited DNA would be obvious once it was known that there was cffDNA in the maternal bloodstream. In other works, assume the patentee’s discovery to be already known, and ask if the invention is obvious once the discovery is assumed away. If that is truly the interpretation of Mayo signaled by Ariosa, then the case promises to cast a long shadow on the patent-eligibility of inventions based on discovery in the future.
Guest Post by Christian E. Mammen. Dr. Mammen is a litigation partner in the San Francisco office of Hogan Lovells.
The recently-introduced PATENT Act (S. 1137) tracks, in substantial part, many of the reforms proposed in the House’s Innovation Act (H.R. 9). However, the PATENT Act differs in several ways from the Innovation Act. Many of the differences between the two bills have been discussed elsewhere at length. This article focuses on just one feature of the PATENT Act, which has some potentially far-reaching implications for patent litigation in the Eastern District of Texas, the nation’s most popular patent litigation forum.[1]
Discovery is one of the most costly and time-consuming phases of patent litigation. In patent litigation brought by NPEs, the burdens of discovery are asymmetrical, with the burden falling more heavily on the accused infringer. Particularly where the NPE-plaintiff acquired the patent on the secondary market, it will have few or no documents to produce relating to the invention process, patent-related products, or the like. The cost of discovery, which falls disproportionately on accused infringers, can motivate those accused infringers to settle patent litigation for valuations based on the cost of avoiding further litigation, rather than on the value of the patented technology.
To address this issue, the Innovation Act initially proposed that discovery be stayed until the court issues a claim construction ruling. However, this proposal was in tension with widely accepted practices concerning discovery prior to claim construction. For example, a 2008 Federal Judicial Center report indicated that most courts surveyed held claim construction after at least some fact discovery, and Berkeley Law Professor Peter Menell’s Patent Case Management Judicial Guide (2d ed. 2012), explains, “it is only by knowing the details of the accused product and the relevant prior art that the parties are able to determine which claim terms need construction.” Further, many courts have now adopted Patent Local Rules that require early production of infringement contentions and related documents, and invalidity contentions and related documents, and it is not clear whether those disclosures would also be stayed under the Innovation Act.[2]
Presumably in order to balance these competing concerns, the PATENT Act also includes the idea of a discovery stay in early phases of patent cases, but changes the triggering event. Rather than staying discovery until claim construction, the PATENT Act would stay discovery only while any one of three pre-answer motions is pending: (1) motions to dismiss, (2) motions to transfer venue, or (3) motions to sever accused infringers.
At first glance, this proposed scheme is a bit puzzling, since all three types of motions are typically filed – and resolved – early in the case, generally before discovery even starts.[3] Under the Federal Rules of Civil Procedure, discovery is stayed until the parties have held an initial conference concerning case management under Fed. R. Civ. P. 26(f). The Rule 26(f) conference generally happens about 3-4 months after the case is filed.
However, on closer examination, the PATENT Act’s proposed discovery stay has the potential to disrupt the status quo in one important circumstance. While there is a general preference that motions to transfer venue be brought as quickly as possible (generally before the answer is filed—indeed, the PATENT Act would only stay discovery when such motions are “filed prior to the first responsive pleading”), some courts delay resolution of these motions, and the PATENT Act’s stay of discovery would remain in place until the court rules on the motion. Furthermore, if the motion to transfer venue were filed sequentially after a motion to dismiss—a not implausible scenario under plausible readings of the PATENT Act—the filing date of the venue transfer motion could approach the date of the Rule 26(f) conference, thus extending the discovery stay well into the case’s discovery period. And if the court delays ruling on the motion, the commencement of discovery could be significantly delayed as well.
Famously, the Eastern District of Texas has gained a reputation for deferring rulings on venue transfer motions until the case is substantially advanced. As the Federal Circuit observed in one recent case challenging the Eastern District of Texas’ ruling on a transfer motion, “This case is a prime example of the importance of addressing motions to transfer at the outset of litigation … Congress’ intent to prevent the waste of time, energy and money and to protect litigants, witnesses and the public against unnecessary inconvenience and expense may be thwarted where, as here, defendants must partake in years of litigation prior to a determination on a transfer motion.” In re EMC Corp., 501 Fed. Appx. 973, 975-976 (Fed. Cir. 2013) (citations omitted).
Data recently obtained from Lex Machina indicates that, on average, when motions to transfer cases out of the Eastern District of Texas are granted, the ruling comes in 143 days, or about 4½ months. But when such motions are denied (meaning the case remains in the Eastern District of Texas), the ruling languishes for an average of 225 days, or 7½ months. According to Lex Machina, there were 33 cases in the Eastern District of Texas between January 1, 2010 and May 1, 2015 in which a venue transfer motion was pending for over a year before being ruled on – and only five of those longest-pending motions were ultimately granted in whole or in part. [4]
Particularly for Eastern District of Texas cases in which transfer is denied, the PATENT Act’s proposed discovery stay would prevent the start of discovery for up to 7-10 months from filing. This could have several effects. Without any other changes to the status quo, it could significantly clog the docket with discovery-stayed cases. Additionally, it will provide defendants with a strong incentive to file venue transfer motions, probably as late as possible before the start of discovery, in order to maximize the discovery-stay effect. Alternatively, the court could respond by substantially speeding up its rulings on venue transfer motions.
It is difficult at this time to say whether the drafters of the PATENT Act intended this particular scenario. But if they did, it is very clever indeed, and it will be interesting to watch it play out.
UPDATE: On June 10, Rep. Goodlatte introduced a Manager’s Amendment to the Innovation Act that scales back its proposed discovery stay. Like the PATENT Act, it would stay discovery during the pendency of pre-answer motions[5] to transfer venue or to sever claims or dismiss parties (but it does not provide for a stay pending motions to dismiss).[6] Additionally, the Manager’s Amendment would require the court to rule on any such motion before the court issues a case management order under Federal Rule of Civil Procedure 16. In view of the deadlines specified in the Federal Rules of Civil Procedure, the discovery stay in the Manager’s Amendment would normally only last for a maximum of three to four weeks (from the Rule 26(f) conference until the case management order issues). But it would also (albeit in a roundabout way) require courts to provide timely rulings on venue motions.
[1] In 2014, an estimated 32% of all patent infringement cases, and 48% of all NPE patent cases, were filed in the Eastern District of Texas.
[2] The Innovation Act is silent on whether early Patent Local Rule disclosures would be blocked by such a stay. However, the PATENT Act explicitly exempts from its proposed discovery stay early exchanges of infringement and invalidity contentions (whether by local rule or interrogatory).
[3] “Motions to dismiss” presumably refers primarily to pre-answer motions brought pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, including motions based on lack of jurisdiction, failure to state a claim, improper venue or improper service. Such motions must be brought within 21 days of service of the summons and complaint, and are frequently resolved substantially before the Rule 26(f) conference. Actually, though, “motion to dismiss” is ambiguous, and could also refer to other procedures, such as a motion to dismiss brought by a plaintiff pursuant to Rule 41(a)(2). It is not immediately clear, however, what purpose would be served by staying discovery pending a plaintiff’s Rule 41 motion to dismiss.
“Motions to sever accused infringers” evidently refers to motions to sever a claim or drop a party for misjoinder under Rule 21. While such motions should ordinarily be brought as soon as practicable, on its face, Rule 21 motion permits the court to provide such remedies “at any time, on just terms.” Although not fully analyzed here, motions to sever could potentially provide leeway for the same kind of procedural gamesmanship described in this article in relation to venue transfer motions.
[5] During the committee markup on June 11, the committee approved a further amendment, permitting stays to be triggered by such motions if they are filed “within 90 days of service of the complaint” rather than “before a responsive pleading is due.”
[6] The Manager’s Amendment remains silent on the status of early disclosures under Patent Local Rules.
Virginia Innovation Sciences, Inc. v. Samsung Electronics Co., Ltd. (Fed. Cir. 2015) (nonprecedential) Download opinion Panel: Wallach, Taranto, Chen (author)
In the wake of the Supreme Court’s opinion in Teva v. Sandoz, the Federal Circuit repeatedly obversved that the Phillips hierarchy of intrinsic over extrinsic evidence remains the law for claim construction. Applying that framework, the Federal Circuit has systematically resolved claim construction appeals based on intrinsic evidence alone, allowing it to effectively maintain de novo review. Although a nonprecedential opinion, and thus not binding on future panels, VIS v. Samsung offers the first glance of how extrinsic evidence can play a meaningful role of extrinsic evidence in the post-Teva/still-Phillips world. Here, the court not only concludes that the extrinsic must be consulted because the term meaning remains ambiguous after examining the intrinsic evidence, but finds that the intrinsic evidence affirmatively indicates that the term has a particular technical meaning, thus directing consideration of the extrinsic evidence.
The technology at issue involved “a device that converts compressed video content received by a mobile phone from a wireless network into a video signal format ready for display on a larger external display such as a television.” Slip Op. at 2. At issue were two claim terms: “display format” and “converted video signal.” Based on its construction of these terms, the district court granted Samsung’s motion for summary judgment of invalidity on some asserted claims and summary judgment of noninfringement on the others.
The Federal Circuit first reviewed the construction of “display format.” In a classic application of intrinsic context, the court first rejected VIS’s proposed construction of “display format” as “simply an uncompressed video signal” because that construction “would essentially read the word ‘display’ out of the term and is inconsistent with the surrounding limitations of the asserted claims.” Slip op. at 9-10. However, the court could not resolve claim meaning further based on the intrinsic evidence alone:
In short, although the intrinsic evidence strongly suggests that the claimed “display format” must be a video signal that is “ready for use” by a conventional external monitor, the intrinsic evidence before us does not provide a complete understanding of the term. Thus, while review of the intrinsic evidence is commonly dispositive in understanding the ordinary meaning of a claim, such is not the case in this particular instance.
Slip Op. at 13. Instead, the specification indicates that the term “display format” has a particular meaning to persons of skill in the art:
As a result, our review of the record suggests that one of skill in the art understood a “display format” to have particular technical characteristics describing its compatibility and operational interaction with an external monitor. What those characteristics are, however, has not been established in the record on appeal.
In other words, the extrinisic evidence of record, too, was insufficient to determine that technical meaning. This necessitated a remand:
We therefore remand to the district court with instructions to further develop the record and to determine the meaning of the “display format” to one of skill in the art at the effective filing date of the patents-in-suit, whether by whether by further examination of the prosecution history, evaluation of direct and cross-examination testimony from experts showing and explaining usage in the field, or consultation of other relevant sources as set forth in Phillips.
The Federal Circuit also remanded on “converted video signal.” Here, the district court failed to “explain how the claims or specification provided a clear understanding of ‘converted’.” Id. at 17. Nor could the Federal Circuit discern a meaning based on the intrinsic evidence alone—indeed, it specifically commended the Patent Office’s reliance on extrinsic evidence in its construction of the same term in rejecting a petition for inter partes review:
While we emphasize that the district court is not bound by determinations of the Patent Office, our review of the record suggests that the Patent Office’s approach to rely on relevant treatises and other extrinsic evidence may be more illuminating than the specification in this particular instance.
Apple Inc. v. Samsung Electronics Co., Ltd. (Fed. Cir. 2015)Download Opinion Panel: Prost (author), O’Malley, Chen
Apple prevailed at the district court on trade dress, design patent and utility patent claims, with a total award of almost a billion dollars. On appeal, the Federal Circuit reversed on trade dress but affirmed on the design and utility patents. The big winner in this case, though, are design patents: the Federal Circuit rejected Samsung’s attempt to exclude functional features from the infringement analysis and affirmed the district court’s award of Samsung’s total profits from the sale of the phones with the infringing design.
Trade Dress: Samsung challenged Apple’s unregistered and registered trade dresses on the ground that they were functional. Applying the Ninth Circuit’s law on Lanham Act claims, the Federal Circuit agreed that Apple’s asserted trade dresses possessed utilitarian functionality. In reaching this conclusion, it placed particular weight on the “product configuration” nature of the trade dress. “[C]ourts have noted that it is, and should be, more difficult to claim product configuration trade dress than other forms of trade dress.” Slip Op. at 8, quoting Leatherman Tool Grp., Inc. v. Cooper Indus., Inc., 199 F.3d 1009, 1011-12 (9th Cir. 1999). Here, all factors weighed in favor of the trade dresses being functional and thus unprotectable under trademark law.
Design Patents: A substantial portion of Apple’s billion dollar verdict were based on the infringement of its design patents and Samsung attacked that issue with an array of arguments. The Federal Circuit rejected all of them.
Functionality and infringement: Samsung argued that “the district court erred in failing to exclude the functional aspects of the design patents either in the claim construction or elsewhere in the infringement jury instructions.” Slip Op. at 20. “For example, Samsung contends that rectangular form and rounded corners are among such elements that should be ignored in the infringement analysis.” Id. But, the court held, the precedent cited by Samsung did not support a rule “to eliminate elements from the claim scope of a valid patent in analyzing infringement.” Id. at 21 Nor did the district court err in its construction of the patent: the principle that “it is the non-functional, design aspects that are pertinent to determinations of infringement” was properly reflected in “the district court’s construction
of the design patents as claiming only ‘the ornamental design’ as shown in the patent figures.” Id.
Actual deception not required and the role of prior art: In its instruction on infringement, the district court stated: “You do not need, however, to find that any purchasers actually were deceived or confused by the appearance of the accused Samsung products.” Samsung argued that this instruction misled the jury; the Federal Circuit disagreed. “[T]he jury instruction simply clarified that actual deception was not required, which is an accurate reflection of the analysis in Gorham.” Id. at 23. Nor did the jury instructions reduce the consideration of the prior art to a mere option.
Samsung also argued that infringement was not supported by substantial evidence, but its substantive arguments were essentially the same as its challenges to the jury instructions. The court rejected these and Samsung’s argument that the district court abused its discretion in precluding certain testimony.
Damages: This is the section of the opinion that will probably get the most attention. The damages statute for design patent infringement, 35 U.S.C. § 289 states:
Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties.
Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement
In other words, “Section 289 explicitly authorizes the award of total profit from the article of manufacture bearing the patented design.” Slip Op. at 25 (emphasis added). That is, Samsung’s total profit from its sales of phones with the infringing designs.
Samsung raised two primary arguments. First, it argued in favor of apportionment based on a causality theory; that is, that the only profits attributable to the infringement be allowable as damages. But the statute says “total profit,” and the statutory history contained an express removal of a prior apportionment requirement in the Act of 1887. Second, Samsung argued that the “article of manufacture” should be limited to the infringing “article of manufacture” and not the entire infringing product. Again, the Federal Circuit disagreed, distinguishing Samsung’s citation to a 1957 Second Circuit case involving pianos and piano cases. The Federal Circuit did not substantively engage with the statutory language on this issue.
The bottom line is that high damages 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 manufacturer 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 explosion of design patent assertions and lawsuits.
Utility Patents: Samsung raised an indefiniteness argument based on the claim term “substantially centered;” unsurprisingly, the Federal Circuit rejected it. There is one interesting little nugget, though: Samsung lost because it “points to no evidence showing that skilled artisans would find the element ‘substantially centered’ as lacking reasonable certainty in its scope.” Slip Op. at 29. This language is notable because it reflects the court’s waffling between indefiniteness as an evidentiary question and indefiniteness as question of law. The former expressly involves testimony about what one of skill in the art would understand; the latter is a question for the court.
Utility Patent Damages: Lost profits for utility patent infringement does require a showing of causality and Samsung argued that there was an acceptable noninfringing substitute. But “the ‘[m]ere existence of a competing device does not make that device an acceptable substitute.’” Id. at 31, quoting precedent. All Samsung pointed to was the “mere existence” of a noninfringing phone. This was not enough, and “there was substantial evidence to support the jury’s refusal to consider the two phones asserted by Samsung as non-infringing substitutes.” Id. at 32. The Federal Circuit also rejected Samsung’s challenges to the reasonable royalty award on the set of phones for which Apple was not entitled to lost profits.
Guest Post by Gary L. Griswold. 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.
Last summer I wrote a paper[1] with this same title explaining why now is the time to commence universal publication of all design patent applications filed in the United States. Indeed, recent events have made this the perfect time to legislate such transparency.
The United States has now deposited its instrument of ratification of the Geneva Act of the Hague Agreement Concerning International Registration of Industrial Designs. The Geneva Act will enter into force, in respect to the United States, on May 13, 2015. The Final Rules were published by the USPTO on April 2, 2015. U.S. applicants will be able to file under Hague, have their Hague-filed applications published by the International Bureau of the World Intellectual Property Organization at 6 months from filing, and be eligible following such international publication for provisional rights to recover a reasonable royalty under 35 U.S.C. 154(d).
For the reasons stated in my earlier paper, all U.S. design applicants—not just Hague applicants—should have the benefits that come from this type of universal examination transparency. Transparency places design patent applicants into the driver’s seat, able to head off those that may be tempted to copy a product incorporating the published design. They can develop a filing plan which meets their circumstances and know exactly when their application will be published making provisional rights available.
Importantly, the published application will produce an immediate prior art effect retroactive to its filing date once published—for both anticipation and obviousness purposes. Thus, those who would subsequently seek to obtain patents on the same design or obvious variants would be blocked.
Armed with the knowledge from published pending patent filings, competitors will have the opportunity at an early point in their commercialization process to design away from designs covered by published claims. They can thereby avoid the potential exposure under provisional rights, as well as the potential for post issuance infringement liability for the infringer’s total profits (35 U.S.C. 289).
The public will benefit from the opportunity to provide input into the examination process. Public input during the examination phase carries with it the promise of a higher quality examination and more certain patent validity. Competitors will have the ability to provide patent examiners with prior art that might otherwise not surface or be overlooked.
This is possible because the America Invents Act (AIA) offers a brief time window after publication of an application for public submissions of prior art to patent examiners. The limited duration of this opportunity assures that the speed of examination is not negatively impacted. Public input of this type can have the collateral benefit of lessening the likelihood that a PGR or IPR will be initiated based upon missed or overlooked prior art during the patent application filing and examination process.
Publication of domestic design patent applications should occur, as it does for international design patent applications under Hague, six months after the U. S. filing. In my earlier paper, I explained the reasons that 18 month publication used for utility patent application publication is inappropriate for design applications. The short examination pendency before design applications mature into issued patents dictates that design patent applications be published at six months.
Understandably, concerns over this move to transparency have been expressed by those who have grown comfortable with the pre-Hague status quo. Adapting to any new regime requires adjustments to new opportunities and new challenges. Utility patent practitioners have blazed the trail here, having gone through a major change-in-practice drill with the America Inventor’s Protection Act (AIPA) and AIA. In the end, the transparency that early publication would provide and the benefits that it would offer to clients argue strongly for professionals to embrace this change.
An important goal of the patent system is to promptly and efficiently grant valid patents on inventions that stimulate marketplace innovation. Publishing design patent applications advances that goal.
[1]Griswold, Gary L., Publishing Design Patent Applications: Time to Act¸ Patently-O (August 24, 2014), available at https://patentlyo.com/patent/2014/08/publishing-design-applications.html and IPO L.J. (August 26, 2014), available at http://www.ipo.org/wp-content/uploads/2014/08/design_patent_gg_article.pdf
Biosig Instruments, Inc. v. Nautilus, Inc. (Fed. Cir. 2015) (on remand from the Supreme Court) [2015 WL 1883265] Download Opinion Panel: Newman, Schall, Wallach (author)
About a month ago, I wrote an essay entitled “Teva, Nautilusand Change without Change.” To the extent that anyone still harbored doubts about that premise in the context of Nautilus, the Federal Circuit’s opinion on remand should dispel them. (Caveat: As I discussed in the essay, means-plus-function claims, such as the claims in Eon that Dennis will post about shortly, are a whole different ball of wax. To me one of the most fascinating issues in patent law right now is whether the court will expand that framework to function-claiming more broadly. The revised Nautilus opinion leaves that door a little more open than the original opinion.)
This dispute is well-known, so I’ll just summarize the procedural posture. The district court granted summary judgment that the claims were indefinite. On appeal, the Federal Circuit reversed, holding the claims not indefinite. The Supreme Court granted certiorari to address the legal standard the Federal Circuit referenced on indefiniteness: that a claim is indefinite “only when it is ‘not amenable to construction’ or ‘insolubly ambiguous.'” 715 F.3d 891, 898 (2013). In Nautilus, the Supreme Court rejected this standard:
Those formulations can breed lower court confusion, for they lack the precision § 112, ¶ 2 demands. It cannot be sufficient that a court can ascribe some meaning to a patent’s claims; the definiteness inquiry trains on the understanding of a skilled artisan at the time of the patent application, not that of a court viewing matters post hoc. To tolerate imprecision just short of that rendering a claim “insolubly ambiguous” would diminish the definiteness requirement’s public-notice function and foster the innovation-discouraging “zone of uncertainty,” United Carbon, 317 U.S., at 236, 63 S.Ct. 165, against which this Court has warned.
Nautilus, 134 S.Ct. at 2130 (2014). The Court did not, however, resolve the overall dispute, instead returning the appeal to the Federal Circuit.
On remand the parties disputed “whether the Supreme Court articulated a new, stricter standard or whether, in rejecting the phrases ‘insolubly ambiguous’ and ‘amenable to construction,’ the Court was primarily clarifying that a patent’s claims must inform those skilled in the art with “reasonable certainty” of what is claimed.” Slip Op. at 7-8. The Federal Circuit did not directly answer this question, but suggested the latter through a nautical metaphor: “The Court has accordingly 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. at 9. The implication of this metaphor, combined with the passage preceding it, is that the problem the Court perceived was not that the insolubly ambiguous standard allowed too much imprecision in patent claims; the problem was that the insolubly ambiguous standard itself was too imprecise: “The Court found too imprecise our “insolubly ambiguous” standard,” Id. at 8. The implication that Nautilus simply clarified, rather than raised, the standard for indefiniteness is further supported by an extensively-footnoted discussion of “reasonably certainty” as a “familiar standard,” one that “In the wake of Nautilus II, judges have had not problem operating under.” Id. at 12. The takeaway is that Nautilus offers a more precise standard, but not one that moves the target.
With this clarification in place, the panel concluded that its prior decision was correct: Biosig’s claims inform those skilled in the art with reasonable certainty about the scope of the invention.” Id. at 14. The court’s revised analysis turns entirely on the intrinsic evidence (“We revisit the intrinsic evidence here to make clear that a skilled artisan would understand with reasonable certainty the scope of the invention.”) Notably missing from this discussion is any mention of Halliburton, which the court distinguished at length in the original opinion. To the contrary: the description of the indefiniteness standard at the beginning of the opinion expressly quotes from that case: “Moreover, when a claim limitation is defined in ‘purely functional terms,’ a determination of whether the limitation is sufficiently definite is ‘highly dependent on context (e.g., the disclosure in the specification and the knowledge of a person of ordinary skill in the relevant art area).’ Halliburton Energy Servs., Inc. v. M-I LLC, 514 F.3d 1244, 1255 (Fed. Cir. 2008).” Function-claiming remains an area to watch.
Guest Post by Jeffrey A. Lefstin, Professor of Law at the University of California, Hastings College of Law.
The Supreme Court’s decision in Alice v. CLS Bank resolved the easy cases: claims that merely recite a mode of organizing activity coupled with a generic instruction to “do it on a computer” or “do it on the Internet.” The key question left open by Alice is whether claims to specific information-processing techniques represent ineligible abstract ideas or eligible applications. Answering that question will be critical to resolving cases like California Institute of Technology v. Hughes Communications, Inc., and McRO v. Activision, discussed in Robert Stoll’s Patently-O post last month.
The patents in Caltech were directed to a method of generating error correction codes in digital transmissions. They described a method of generating parity bits by accumulating previously generated parity bits, and a sum of randomly chosen irregular repeats of message bits. Notwithstanding that the patents claimed only information-processing steps, Judge Pfaelzer of the Central District of California ruled that the claims were patent-eligible: while the claims were directed to the abstract idea of error correction, the algorithm for generating parity bits represented an inventive application of the underlying idea.
As Judge Pfaelzer recognized, that holding might be in tension with Digitech Image Technologies v. Electronics for Imaging, where the Federal Circuit, relying on Benson and Flook, suggested that any claim merely transforming information with “mathematical algorithms” is not patent-eligible. So Caltech squarely raises the question of whether specific information-processing algorithms are patent-eligible after Alice.
More generally, the significance of Benson and Flook after Alice is a critical question for future § 101 jurisprudence: much of the difficulty faced by the lower courts and the USPTO arises from attempts to reconcile the Supreme Court’s earlier caselaw with its decisions since Bilski.
It is time to acknowledge that they cannot be reconciled, and they need not be. While the Court maintains a pretense that all its opinions are coherent with each other, the regime the Court has crafted since Bilski represents a sharp break from its earlier decisions. Courts that continue to rely on Benson and Flook have not recognized the significance of Alice’s reaffirmation of the Mayo framework for patent-eligibility. For Mayo established both a different structure and a different rationale for subject matter eligibility than the Court had employed in its prior cases.
First, Mayo provided a new structure for the § 101 inquiry: step one is to identify an abstract idea or law of nature underlying the claim, and step two asks whether the claim further recites an ‘inventive concept’ that transforms the abstract idea or law of nature into a patent-eligible application. If that was not the analytical framework employed in the Court’s earlier cases, then the analysis and holdings of those cases are not necessarily relevant after Mayo and Alice. The Court itself told us in Bilski that its earlier opinions represented nothing more than explanations of the basic exceptions for laws of nature and abstract ideas.
Second, Mayo and Alice reoriented the rationale for subject-matter exclusions. Benson and Flook were premised in large part on the exclusion of subject matter not expressly authorized by Congress, the restriction of patents to tangible processes, or the exclusion of preexisting truths that exist apart from human action. Those premises were rejected in Chakrabarty, Bilski, and Alice, respectively. Instead, Mayo and Alice grounded subject matter exclusions on the ‘building-block’ concern: that patents on fundamental principles risk foreclosing more innovation than they promote.
Given the Court’s reorientation of the doctrine, Benson and Flook’s focus on ‘algorithms’ is no longer relevant. Abstract ideas, after Bilski, Mayo, and Alice, are not characterized by intangibility or field of invention. They are characterized by ‘fundamentalness’ – the concern that patents on basic concepts will foreclose too much further development. In this framework, a specific information-processing algorithm, such as an algorithm for generating parity bits, does not qualify as an abstract idea.
Caltech defined the abstract idea as the purpose of the claim, recited at a reasonably high level of generality: error correction, in the claims at issue. Identifying the abstract idea with the purpose or effect of the claim follows from the structure of the Mayo/Alice test. Step one defines the abstraction (if any) underlying the claim, while step two asks whether the application of that abstraction contains an inventive concept. The object of step one must therefore be to separate the idea of the invention from the means of application, which will be the subject of step two.
We already differentiate between idea and means of application in the law of inventorship: courts have long distinguished between formulating a goal, effect or result – which is not a contribution to conception – and formulating the means of attaining that result – which is a contribution to conception. So the Caltech analysis merely maps that long-standing distinction onto the subject-matter inquiry under § 101.
I discuss these ideas further, and develop a framework of ‘inventive concept’ applicable to both abstract ideas and laws of nature, in a forthcoming paper available here.
Earlier today, Senator Grassley (R-Iowa) introduced the bipartisan Protecting American Talent and Entrepreneurship Act of 2015 (PATENT) Act. The PATENT Act is a revised version of prior proposed legislation that addresses some of the most severe criticisms of those proposals. It’s also well situated to move forward, as it’s supported by leaders from both parties. From the bill’s summarv (Sec. 1 is the title and table of contents; Sec. 2 are definitions; if the formatting is messed up, click the link for the original source):
SEC. 3. PLEADING AND EARLY DISCLOSURE REQUIREMENTS: Form 18 is
eliminated. Plaintiffs must identify each patent and claim allegedly infringed,
which products or processes are infringing, and describe the alleged infringement.
Allows plaintiffs to describe information in general terms if it is not accessible to
them. Clarifies that pleadings can be amended and allows for confidential
information to be filed under seal. Exempts 271(e) (Hatch-Waxman and biosimilars)
proceedings. Requires plaintiffs to make additional disclosures to the court and the
PTO about the plaintiff and the asserted patents shortly after filing.
SEC. 4. CUSTOMER STAY: Allows a case against a customer to be stayed while
the manufacturer litigates the alleged infringement, provided that the
manufacturer is involved in a lawsuit in the US involving the same issues. The
customer stay is available only to those at the end of the supply chain, who are
selling or using a technology that they acquired from a manufacturer, without
materially modifying it. Allows for a stay to be lifted where it would cause undue
prejudice or be manifestly unjust.
SEC. 5. DISCOVERY LIMITS: Requires a court to stay expensive discovery
pending resolution of preliminary motions—specifically motions to dismiss, transfer
venue, and sever accused infringers. Gives a court discretion to allow limited
discovery necessary to resolve these motions or a motion for a preliminary
injunction, or if it finds that additional discovery is necessary to preserve evidence
or otherwise prevent specific prejudice to a party. Allows parties to consent to be
excluded from discovery limitations. Exempts Section 271(e) (Hatch-Waxman and
biosimilars) cases. Clarifies that timelines for responsive pleadings provided by the
Federal Rules of Civil Procedure are not altered, and nothing prohibits a court from
ordering or local rules from requiring the exchange of contentions.
SEC. 6. JUDICIAL CONFERENCE DISCOVERY REFORMS: Requires the
Judicial Conference to develop rules or procedures to address additional issues
involving discovery in patent cases. These include to what extent each party is
entitled to “core documentary evidence” and if they should be responsible for the
costs of production, and other issues involving discovery sequence and scope. Asks
the Judicial Conference to implement case management procedures for patent
cases.
SEC. 7. FEES AND RECOVERY: Provides that reasonable attorney fees will be
awarded if a court determines the position or conduct of the non-prevailing party
(plaintiff or defendant) was not objectively reasonable, unless special circumstances
make an award unjust. The winner must show that the non-prevailing party’s
position was not objectively reasonable and the judge must make a ruling for fees to shift – this is not a presumptive fee shifting rule. Fee shifting extends to cases
where a party attempts to unilaterally withdraw from a case on the eve of a trial.
Keeps 271(e) (Hatch-Waxman and biosimilars) proceedings under current law.
Fee Recovery: Requires a plaintiff to identify interested parties in the litigation,
and provides a process for a court to recover fees where the abusive litigant is
judgement-proof. If a plaintiff cannot certify it has sufficient funds to satisfy a fee
award, it must notify interested parties, who can opt out of their interest. Permits a
court to exempt institutions of higher education and qualifying parties in the
interest of justice.
SEC. 8. PRE-SUIT NOTICE/DEMAND LETTERS: Prevents vague patent
infringement demand letters from being preludes to litigation by requiring that
certain information be included in order for the letter to be considered evidence that
subsequent infringement was “willful”. If the required information is not in the
written notice, the recipient’s time to respond to a later complaint is extended by 30
days.
SEC. 9. ABUSIVE DEMAND LETTERS: Provides that, if someone violates Section
5 of the FTC Act in connection with patent assertion and has engaged in
widespread demand letters abuse, civil penalties for FTC rule violations will attach.
The provision does not impinge on legitimate licensing activity or expand the
authority of the FTC.
SEC. 10. TRANSPARENCY: Requires patent holders to disclose to the PTO
whenever there is an assignment of interest in the patent that results in a change of
ultimate parent entity. If a patent holder fails to disclose, it will not be able to
recover increased damages of attorney fees (unless this would be manifestly unjust).
SEC. 11. IP LICENSES IN BANKRUPTCY: Makes clear that as a matter of public
policy, US courts will not recognize the action of a foreign court to unilaterally
cancel a license to a US patent or trademark if the licensor goes bankrupt. Extends
current protection of licensees of US patents in bankruptcy to trademarks.
SECTION 12. SMALL BUSINESS PROVISIONS: Directs the PTO to develop
educational resources for small businesses targeted in patent suits and to provide
support to companies named in infringement actions. Instructs PTO to create a
section on its website that will list pending patent cases, so that recipients of
demand letters and defendants in lawsuits can more easily identify ongoing
litigation that may relate to their case.
SEC. 13. STUDIES: Provides for three studies on 1) the secondary market for
patents; 2) the possibility of a pilot program for a patent small claims program: and
3) business method patent quality.
SEC. 14. TECHNICAL CORRECTIONS: Technical corrections and improvements
to the AIA.
SEC. 15. EFFECTIVE DATE: Date of enactment except as otherwise provided.
SEC 16. SEVERABILITY: Should any portion of the law be held invalid, this
provision allows the rest to stand.
(Entirely unrelated but also in Sen. Grassley’s Instagram feed: a few hours later he met with my Dean and the Deans of the University of Iowa College of Engineering and Division of Continuing Education.)
Ineos USA LLC v. Berry Plastics Corporation (Fed. Cir. 2015) Download Opinion [2015 WL 1727013] Panel: Dyk, Moore (author), O’Malley
It is bedrock patent law that while a species anticipates a genus, a genus does not necessarily anticipate a species. That axiom does not mean, however, that a genus may not anticipate a species. Here, the Federal Circuit affirms the district court’s grant of summary judgment that the prior art, which disclosed a broader range that overlapped with the range claimed in the patent-in-suit, anticipates. The court’s opinion also involves an interesting shift of the burden of production, one that parties litigating this issue should take into consideration.
Ineos alleged that Berry Plastic infringes several claims of Patent No. 6,846,863 and Berry argued that the ‘863 patent is invalid. The key part of the court’s analysis focuses on claim 1:
1. Composition comprising at least [1] 94.5% by weight of a polyethylene with a standard density of more than 940 kg/m3,
[2] 0.05 to 0.5% by weight of at least one saturated fatty acid amide represented by CH3(CH2)nCONH2 in which n ranges from 6 to 28[,]
[3] 0 to 0.15% by weight of a subsidiary lubricant selected from fatty acids, fatty acid esters, fatty acid salts, mono-unsaturated fatty acid amides, polyols containing at least 4 carbon atoms, monoor poly-alcohol monoethers, glycerol esters, paraffins,
polysiloxanes, fluoropolymers and mixtures thereof, and
[4] 0 to 5% by weight of one or more additives selected from antioxidants, antacids, UV stabilizers, colorants and antistatic agents.
(bracketed numbers inserted by the court). The district court granted summary judgment for Berry on the basis that the asserted claims were anticipated by U.S. Patent No. 5,948,846. (The court refers to this prior art reference as the ‘846 patent, which makes it unnecessarily confusing given its similarity to the abbreviation of the patent in suit, the ‘863 patent. I’ll refer to the prior art as the ‘846 reference and the patent in suit as the ‘863 patent for clarity purposes.) The pre-America Invents Act version of the anticipation statute (35 U.S.C. § 102) applied, but the difference is irrelevant for the issue on appeal.
Genus-Species Problem: The parties did not dispute that the ‘846 reference contained many of the elements elements of claim 1. Of the disputed elements, limitation [2] involves the genus-species problem. With respect to that limitation, the ‘846 reference disclosed steamramide, a compound within the relevant class of saturated fatty amino acid amides, in amounts from 0.1 to 5 parts by weight, in contrast with the limitation 2 of the ‘863 patent, which claimed 0.05 to 0.5% by weight of at least one of that type of saturated fatty acid amides. The prior art reference and the claimed range thus overlapped. (The opinion notes that “The parties agree for purposes of this appeal that measurements in “% by weight” are equivalent to measurements in “parts by weight.”)
“When a patent claims a range, as in this case, that range is anticipated by a
prior art reference if the reference discloses a point within the range. Titanium Metals Corp. v. Banner, 778 F.2d 775, 782 (Fed. Cir. 1985).” Slip Op. at 6. However, “If the prior art discloses its own range, rather than a specific point, then the prior art is only anticipatory if it describes the claimed range with sufficient specificity such that a reasonable fact finder could conclude that there is no reasonable difference in how the invention operates over the ranges. Atofina, 441 F.3d at 999; ClearValue, Inc. v. Pearl River Polymers, Inc., 668 F.3d 1340, 1345 (Fed. Cir. 2012).” Id. And since “the disclosure of a range…does not constitute a specific disclosure of the endpoints of that range,” id. citing Atofina, 441 F.3d at 1000, the fact that the ‘834 reference disclosed an endpoint within the range claimed by the ‘863 reference meant that the species-genus rule did not apply.
Burden-shifting or not? The Federal Circuit nonetheless affirmed the district court because it concluded that Ineos had no evidence that the range claimed by the ‘863 patent was critical to the operability of the invention. In Atofina, for example, “the evidence showed that a person of ordinary skill in the art would have expected the synthesis reaction to operate differently, or not all, outside of the temperature range claimed in the patent-in-suit.” Id. at 7. Thus, it was the criticality of the range in the ‘863 patent relative to the ‘846 reference that mattered.
While Ineos did present evidence, the Federal Circuit disagreed that it was relevant. “even if true, this has nothing to do with the operability or functionality of the claimed invention. Ineos has not established any relationship between avoided cost and prevention of undesirable blemishes, and the claimed invention’s slip properties or elimination of odor and taste problems. Ineos does not suggest that the claimed invention’s slip properties or improved odor and taste properties would not have been expected based on the prior art. Because Ineos failed to “raise a genuine issue of fact about whether the range recited in limitation 2 of the patent is critical to the invention,” the court concluded that limitation 2 was present in the ‘846 reference.
This raises an interesting issue of burden-shifting. Because a patent is presumed valid, an accused infringer bears the burdens of persuasion and production. By requiring that Ineos show how the ‘863 limitation was different from what was found in the prior art, the criticality rule shifts the burden of production, placing it on Ineos to prove that the ‘846 reference does not contain the disputed limitation. This makes me think of the burden-shifting discussed in Mahurkar v. C.R. Bard, 79 F.3d 1572 (Fed. Cir. 1996. In Mahurkar, there was no dispute that the prior art reference contained all the elements of the claimed invention; that shifted the burden of production to Dr. Mahurkar to come forward with evidence of prior invention even as the burden of persuasion always remained with the patent challenger. Shifting the burden of production is noteworthy because it only occurs in the face of very strong evidence: evidence so strong that no reasonable jury could find otherwise. Further complicating the analysis, the result here flows from what looks like a legal rule: because the claimed range overlapped with the range in the prior art, the consequence was that Ineos now needed to prove criticality.
But is this really burden shifting? Or is it instead an articulation of the anticipation inquiry itself? From a burden-shifting perspective, the rule would be that the burden of production shifts to the patent holder when the challenger brings forth a reference that contains a range that overlaps with the claimed range; that overlapping range is itself extremely strong evidence of anticipation. From this perspective, this case is interesting because it is the evidentiary value of the overlapping range that is so high as to shift the burden. From the perspective of articulating the anticipation inquiry, the rule would be that a reference that contains a range that overlaps with the claimed range anticipates unless the patent holder can prove criticality. This perspective is interesting because it seemingly places the burden of a factual element of the anticipation inquiry squarely on the patent holder at the outset.
Shubha Ghosh is the Vilas Research Fellow & George Young Bascom Professor in Business Law at the University of Wisconsin Law School. He is currently serving as the inaugural AAAS Science, Technology, and Policy Fellow at the Federal Judicial Center in Washington, D.C.
I attended the oral arguments on March 31 in the Kimble v Marvel case, in which the Court considers whether to overrule Brulotte v. Thys. A 1964 precedent authored by Justice Douglas, the Brulotte decision employs an amalgam of preemption and patent misuse analysis to hold that post-expiration royalty payments for patent licensing are invalid.
Judging from the oral arguments, the Court is grappling with two issues. The first is that of stare decisis. The second is what standard should replace the per se rule articulated in Brulotte if it is overruled.
Stare Decisis and Living Economists
The divisions on the Court parallel that of Leegin v Creative Products, a 2007 decision in which the Court overruled the 95 year old per se rule against minimum resale price maintenance. The Court was split five to four with Justices Kennedy writing for Justices Roberts, Thomas, Scalia, and Alito. Justice Breyer wrote in dissent with Justices Ginsburg, Souter, and Stevens signing onto his defense of precedent.
During the Kimble oral arguments, Justice Breyer defended Brulotte with an elaborate hypo involving a patent owner that locks in all potential licensees with obligations for royalty payments going beyond the term of the patent. His point: contracts can extend the exclusivity of a patent beyond its limited time. Questioning from Justices Sotomayor and Kagan suggested that they may follow the reasoning of their predecessors Justices Souter and Stevens from the Leegin decision. Justice Sotomayor wondered why changes in the viewpoint of economists should guide precedent. “What if fifty years from now economists agree that Brulotte was correct?,” she asked. Justice Kagan adopted a similar tack by asking petitioners what problems Brulotte caused that would require overruling. Even if a bad rule, she implied, knowledgeable parties can readily contract around it.
My prediction is that the final vote will parallel that in Leegin for an overruling of Brulotte. Whatever one thinks of the result, the opinion itself is not clearly reasoned with a mix of preemption and patent misuse analysis. The problem with Brulotte is that the 1979 Aronson v. Quick Point decision tempers its reasoning by allowing parties flexibility in contracting over patentable subject matter.
While there has been much criticism from economists about the rationality of the Brulotte per se rule, from a transactional perspective the real problem is that the rule provides a trap for the unwary. Justice Scalia pointed out that the beneficiaries of the rule are licensees who knowingly enter into licenses with post-expiration payment obligations hoping that the licensor does not know of Brulotte. Such seemed to be the case in the Kimble case. Such opportunistic licensees can obtain lower royalty payments knowing that any post expiration obligation would be invalid. The Brulotte rule can be transacted around or used opportunistically. In order to avoid the latter possibility, the decision should be overruled.
After Brulotte: A Reasonable Rule or a Rule of Reason?
Harder to predict is how the Justices will overrule Brulotte. The Court had an easier choice in Leegin which was a pure antitrust case. Once the Court rejects a per se rule, it is replaced with the rule of reason in antitrust cases. Petitioners were advocating a rule of reason approach as has been adopted in patent misuse cases. Justice Sotomayor questioned why antitrust principles should be introduced into patent law. If there is an antitrust problem, the licensee can just bring an antitrust claim, she suggested. Justice Breyer raised the specter of administration costs that a rule of reason approach would imply. Other justices were less vocal about what could replace Brulotte.
It is true that Brulotte is not an antitrust case. But patent misuse tracks antitrust law (for example, see the treatment of tying as misuse under 35 USC 271(d)). So the petititoners’ advocating for a rule of reason approach is appropriate and perfectly consistent with any accompanying antitrust claims to a defense of patent infringement.
What is interesting to me is how the Court might address issues of preemption. The Court has not considered an intellectual property preemption cases since 1989 even though the issue has been percolating in the lower courts in the context of licensing and contract. Part of me hopes that the Court resolves the lower court’s treatment of preemption. Realistically, neither the briefs nor the argument address the preemption issue head on. The issue should await more careful consideration of the relationship between patents and contracts.
However, if the Court does address the preemption issue, then the 1979 Aronson issue should be its guide. In that case, the Court addressed the validity of an escalator clause which created two tiers of royalties based on whether a patent was granted on an invention. When the licensee ended up paying royalties for an invention which was found to be unpatentable, it raised preemption of the escalator clause under Brulotte. The reasoning was straightforward: if royalties after patent invalidity are preempted because of conflict with the limited terms of patents, then royalties on an invention for which a patent was denied should also be in conflict. The licensee reasoned that if such contracts were upheld, an inventor would not need to seek a patent since contract could provide equivalent protection.
The Court correctly rejected the reasoning. Patents offer benefits beyond contract. Furthermore, contracting supplements patenting and does not interfere with it. So the escalator clause was upheld. But Justice Blackmun in concurrence wondered about the conflict with Brulotte. As he wrote in 1979:
[As in Brulotte], Mrs. Aronson has used the leverage of her patent application to negotiate a royalty contract which continues to be binding even though the patent application was long ago denied. The Court… asserts that her leverage played “no part” with respect to the contingent agreement to pay a reduced royalty if no patent issued within five years. Yet it may well be that Quick Point agreed to that contingency in order to obtain its other rights that depended on the success of the patent application. The parties did not apportion consideration in the neat fashion the Court adopts.
Justice Blackmun reconciles the two cases by saying that Brulotte is solely about leveraging that allows the patent owner to extend the patent term through contract. Perhaps a better reconciliation would have been to temper the leveraging analysis, grounded in patent misuse, through application of a rule of reason analysis. That course should be the one the Court adopts in Kimble after it overrules the pre se rule of Brulotte.
Rather than just write short blog posts about the Federal Circuit’s recent claim construction decisions, I put together a longer piece that examines both indefiniteness after Nautilus v. Biosig and claim construction after Teva v. Sandoz. In the essay, I argue that despite an expectation that Nautilus and Teva would have a substantial impact on the Federal Circuit’s jurisprudence in these areas, very little has actually changed either in outcome or in the court’s formal analytical framework.
Nevertheless, I conclude, the potential for substantial change still remains, both for claim construction and indefiniteness. In a nutshell, I suggest that Teva’s real effect may be to expose a fundamental crack in the Federal Circuit’s claim construction methodology, one that could ultimately result in meaningful change. And while indefiniteness might appear frozen, there are cracks beneath the surface on which perceptive advocates will inevitably push.
The essay is available here. As this is a draft, I welcome reasonable comments.
Halo Electronics, Inc. v. Pulse Electronics, Inc. (Fed. Cir. 2015) (denial of rehearing en banc) Halo Order
The Federal Circuit denied Halo’s petition for rehearing en banc today over the dissent of Judges O’Malley and Hughes. (For background, Dennis and I previously wrote about the opinion and the petition for rehearing). The concurrence and dissent focused solely on the issue of willfulness, which Halo had framed as:
Willfulness: Whether an infringer who subjectively knew pre-suit that it was infringing a valid patent (after being given notice of the patent, and failing to design around, seek a license, or stop infringing) can use an unsuccessful defense developed post-suit as a per se bar to liability for pre-suit willful infringement, despite the flexible text of 35 U.S.C. § 284.
This is not the right case: Concurring in the denial of the rehearing en banc, Judge Taranto, joined by Judge Reyna, wrote separately to explain that the denial was appropriate because “Halo raises only one question about the enhanced-damages provision of the Patent Act, 35 U.S.C. § 274, and I do not think that further review of that question is warranted.” Concurrence at 4. In the concurrence’s view, “[t]he only enhancement-related question that Halo presents for en banc review is whether the objective reasonableness of Pulse’s invalidity position must be judged only on the basis of Pulse’s beliefs before the infringement took place.” Id. at 5. In Judge Taranto’s view, “Halo has not demonstrated the general importance of that question or that the panel’s assessment of objective reasonableness is inconsistent with any applicable precedents or produces confusion calling for en banc review.” Id. Nor is the requirement of objective recklessness affected by Octane Fitness.
Nevertheless, the concurrence observed, there are many aspects of the court’s § 284 jurisprudence that could bear revisiting en banc, including “whether willfulness should remain a necessary condition for enhancement under § 284’s “may” language,”” the proper standards for finding willfulness,” “who makes which decisions and what standards of proof and review should govern those decisions,” whether “a judge or jury decide willfulness, in full or in part,” whether “willfulness (or, rather, its factual predicates) have to be proved by clear and convincing evidence,” and “what standards govern appellate review”? In Judge Taranto’s words, “Whether such questions warrant en banc review will have to be determined in other cases.” Id. at 1.
The Willfulness Jurisprudence Should be Reevaluated: Judge O’Malley, joined by Judge Hughes, disagreed for the same reasons provided in her dissent to the original opinion (discussed here). The court’s “jurisprudence governing the award of enhanced damages under § 284 has closely mirrored our jurisprudence governing the award of attorneys’ fees under § 285.” Dissent at 2. But “[w]e now know that the artificial and awkward construct we had established for § 285 claims is not appropriate. We should assess whether the same is true with respect to the structure we continue to employ under § 284.” Id. at 4. Both the court’s framework for assessing willfulness and the framework for attorneys’ fees were predicted on its interpretation of Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993). But in Octane Fitness, the Supreme Court held that the Federal Circuit had misunderstood PRE for its attorneys’ fees inquiry. Consequently “[w]e should now assess whether a flexible test similar to what we have been told to apply in the § 285 context is also appropriate for an award of enhanced damages.” Id. at 5.
Beyond the effect of OctaneFitness, Judge O’Malley identifies additional issues with the current willfulness framework: its requirement of clear and convincing evidence, the court’s imposition of de novo review, which was rejected for fee awards by the Court in Highmark, and who should be making the decision to enhance damages: the judge or the jury?
The Unsettled Standard of Review: Shortly after releasing its denial of rehearing en banc in Halo, the court issued a revised opinion in Stryker v. Zimmer, in which it added a new footnote:
6 This court has not yet addressed whether Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), or Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1746 (2014), altered the standard of review under which this court analyzes the objective prong of willfulness. However, as the district court failed to undertake any objective assessment of Zimmer’s specific defenses, the district court erred under any standard of review and thus this court need not now address what standard of review is proper regarding the objective prong of willfulness.
Combined with the additional language in Stryker v. Zimmer, the court may be gearing up to take on a compromise issue in willfulness: namely, whether a modified standard of review is appropriate. That said, it is entirely possible that the Supreme Court will take on the bigger question that Judge O’Malley raises in dissent. Halo remains an appeal to watch.
Guest post by Michael Risch, Professor of Law, Villanova University School of Law. Professor Risch also recently joined the Written Description blog as a regular author. The full article, forthcoming in the Iowa Law Review, is available here.
This follows my last guest post about my article A Generation of Patent Litigation and is the third in my Patent Troll Myths series of studies of the ten most litigious NPEs from 2000-2010. To recap, I gathered data on 1313 randomly selected patent cases distributed over a 25 year period in roughly the same proportion as the 917 cases filed by the most litigious NPEs over the same time period. The number of cases grew substantially starting in 2004. This led to 792 nonNPE patents versus 352 NPE patents, which indicates that the NPEs asserted the more patents per case. This article expands on the last one by looking at the technology categories for each patent as well as the initial source of the patent that wound up in litigation.
The results of my analysis confirmed much of what we already knew, but the data allowed me to demonstrate it. In short, patent litigation is a complex system made up of at least three layers: inventors and their assignees, patent plaintiffs, and technology. There are surely more layers, like defendants and licensees, but these three layers have some of the most relevance to patent quality. The problem is that most of our discourse examines one—or maybe a second—layer at a time, but rarely all three. Thus, we have NPEs versus producers, software versus pharma, individuals versus corporations. We rarely have data that includes all three of these layers in one place. When they are included, they are usually considered control variables rather than additional explanatory measures.
This study seeks the interconnection between the layers. I’ll give a few examples in this post, but there is a lot more detail in the paper.
Consider, for example, initial assignees. Both the random plaintiffs and the most litigious NPEs obtained a majority of their patents from product companies. And a substantial percentage of those companies were public for both groups (though about twice as many for the random plaintiffs). But not all product companies are created equal. Among the random companies, the initial assignees were bigger, better funded by venture and stock market investors, had more employees, and earned greater sales.
What does this mean? Any quality differences we might see between the NPEs and random plaintiffs might relate to the size and types of companies obtaining those patents. It also means that the technologies we see the NPEs enforcing might be the types of technologies that require less investment.
In fact, we do see different types of technologies. The following table shows the top five patent classes for each group with a comparison to the percentage held by the other group. The differences are stark. The paper shows the top 13 categories, and shows that 66% of the NPE patents are in the top 13 classes, while only 30% of the random group’s patents are in the top 13 classes.
Top NonNPE Classes
Top NPE Classes
Class
NonNPE
NPE
Class
NonNPE
NPE
514
Drug
4.17%
0.28%
379
Telephonic Comm.
2.40%
17.05%
362
Illumination
4.17%
0.28%
360
Mag. Info. Storage
0.00%
8.24%
348
Television
3.66%
6.53%
705
Fin. Bus. Meth.
1.01%
6.82%
424
Drug
3.54%
0.00%
348
Television
3.66%
6.53%
349
Liquid Crystal
2.53%
0.00%
709
Data Process. Trans.
1.89%
4.55%
When we break down by technology and by plaintiff type (two different layers), we see differences that weren’t apparent before. The graphs below show two categories, e-commerce, which has higher invalidation rates, and electric circuits, which has lower.
In electronic commerce, the nonNPE group saw no challenges – at all. Among the litigious NPEs, however, nearly half of the patents were challenged. When there was a decision on the merits, patents were completely invalidated about half as often as they were held valid. But much of the time, challenges were denied or pending at dismissal.
For electric circuits, however, patents were challenged at about the same rate. But this time it was the nonNPE group that was more likely to reach a decision on the merits – with validation more than twice as much as invalidation when there was a decision on the merits, but also a decision on the merits almost three-fourths of the time. Among the litigious NPE group, however, all of the challenges were denied or pending at settlement, and none went through to final judgment.
These are just two technology categories. The paper compares several others, including optics, chemistry, and medical instruments. It also considers results for different types of software (and for non-software).
As a final test, I ran a series of regressions to test the likelihood that a patent would be adjudicated to have any invalid claim. The full model is presented in the paper, but a few of findings stood out.
First, patents coming from failed startups had the highest correlation with invalidity, regardless of who enforced the patent.
Second, patents left unassigned at issuance were more likely to be invalidated whether asserted by either group (though individual obtained patents fared better when asserted by the random plaintiffs). However, the same was not true of patents assigned to inventor-owned companies. The data does not allow a causal inference, but there appears to be something about inventors starting their own companies that improves validity outcomes later.
Third, once source of the patent and type of plaintiff is controlled for, invalidity differences appear for only some types of technology. This is consistent with the graph I show above, but more rigorous. Thus, for example, cryptography patents are invalidated about one-third as often when we consider the source of the patent and type of plaintiff as compared to just looking at the average cryptography patent without patentee/plaintiff type. On the other hand, optics patents are invalidated at about the same rate, whether or not we consider the source or plaintiff type.
Fourth, these findings continue for software. Though software patents are, on average, invalidated more often than other patents (a finding consistent with other studies), when the type of patentee and plaintiff is considered, whether the patent covers software is no longer statistically significant.
This last point is ultimately the point of the article. When we consider all of the layers of the system rather than just the averages on any one layer, the picture gets far more complex. My data can’t answer every question, of course. After all, I only studied the most litigious NPEs. But even this sample shows the complexity. There’s much more I could write, but I’m out of space. The full article is here if you are interested in reading more.
One of the main pieces of empirical data being drawn upon by folks arguing for and against various patent law reform proposals is the rate of new patent lawsuit filings. As the intellectual property scholars’ letter to Congress recently observed, while there were fewer patent lawsuits filed last year than in 2013, that year was itself a record-setting year for patent lawsuit filings. Professor Matthew Sag’s new study, IP Litigation in the United States District Courts: 1994 to 2014, illustrates the point of rising patent litigation dramatically: in the sixteen years from 1994 until 2010, the annual number of patent lawsuit filings doubled; it doubled again in the three years from 2010 to 2013.
While Professor Sag’s study provides a comprehensive empirical look at intellectual property litigation rates across all areas, over at Lex Machina legal data scientist Brian Howard has dug deeply into the patent lawsuit filing rate numbers to examine whether the America Invents Act led to a reduction in patent lawsuit filings once the anti-joinder provision of the AIA is accounted for. Even when controlling for the disaggregation of multi-defendant suits, he finds a rise in patent lawsuit filings during the two years after the enactment of the AIA. While the more recent period has seen filings turn downward, his findings about the short term effects of the AIA are surprising and worth thinking about further.
Finally, as I’ve noted in the past, I find it useful to think not just about new patent lawsuit filings, which can provide a barometer of future patent litigation activity, but also about currently pending patent litigation and lawsuit termination rates. In my view, these provide a better (although still imperfect) gauge of what kind of patent activity courts are presently seeing. Figures 1 and 2 below are updated versions of the pending patent lawsuit data that I’ve previously written about.
Figure 1
Figure 2
The bottom line for this data is that while pending patent litigation remains below the all-time highs of the late 2013’s and early 2014, this activity has plateaued over the last few months and even rose slightly in February. Digging a bit under the hood of the data, this rise appears due an increase in filings over that month as opposed to a drop in terminations, with February 2015 seeing about 500 new patent cases filed—a rise of 69 over January despite the shortness of the month. Given the close attention that is paid to patent lawsuit filing rates, I suspect that this is a point that will be jumped on by many. The below graph shows the number of patent actions filed, using LexMachina data, on a monthly basis from August 2014 – February 2015.
Ted Sichelman is a Professor of Law and Director of the Technology Entrepreneurship and Intellectual Proerty Clinic and Center for Intellectual Property Law & Markets at the University of San Diego School of Law.
Representative Bob Goodlatte’s bill, HR 9 (the “Innovation Act”), has been receiving much attention in the press and on the Hill. The Innovation Act is largely identical to the one (HR 3309) that passed the full House in late 2013, so of all the pending patent reform bills, it is likely to receive the most play in Congress this term.
The Innovation Act includes what seems to be a neutral fee-shifting provision. Specifically, it would require a court to “award, to a prevailing party, reasonable fees and other expenses … unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.”
Unfortunately, many commentators have focused the issue of whether this provision creates a presumption in favor of fee-shifting without carefully considering the many affiliated provisions in the bill. These additional provisions are particularly important because—contrary to the language quoted above—they significantly skew the effects of fee-shifting against patent holders. Given this lopsided effect, the fee-shifting provisions would probably increase patent assertion entity (PAE) activity. As I explain further below, this is because the provisions would most likely substantially reduce PAEs’ costs of acquiring patents.
A close reading of these additional fee-shifting provisions makes their skewed nature readily apparent. Take, for instance, the provision for “interested” third-party liability. It essentially makes those with a “direct financial interest in the patent . . . damages [award] or . . . licensing revenue” liable in the event a losing patent holder cannot pay a fee award (subject to certain exclusions). By its terms, the third-party liability provision only benefits “a prevailing party defending against an allegation of infringement of a patent claim” (emphasis added). So while third-party liability is quite expansive for those affiliated with losing patent holders, it is nonexistent for those affiliated with losing accused infringers.
Beyond discriminating against patent holders, the third-party liability provision further discriminates against non-practicing patent holders. Third-parties may only be joined in the event that the “prevailing party shows that the nonprevailing party has no substantial interest in the subject matter at issue other than asserting such patent claim in litigation.” This limitation would clearly capture non-practicing entities (NPEs), at least those who do not perform any R&D—although whether and when R&D is sufficient to meet the “substantial interest” threshold is undefined in the statute and thus unclear. If fee-shifting is truly designed to reduce low-quality suits, there is little basis to limit third-party liability only to NPEs. Anyone who has litigated knows that practicing entities, like NPEs, bring both strong and weak suits. There is a substantial economic interest in preventing frivolous suits regardless of the plaintiff’s business model.
Another example of the skewed nature of HR 9 is that settlement counts as a win for the accused infringer when the patentee “unilaterally extends to [the accused infringer] a covenant not to sue for infringement,” unless the patentee could have voluntarily dismissed the action without a court order. My understanding from experienced litigators is that these unilateral covenants tend to occur when the patent holder simply runs out of money and cannot continue to litigate. In this case, courts will often force the patent holder to provide a covenant not to sue in exchange for allowing it to drop the action. Presumably a patent holder providing such a covenant would sometimes not be able pay a fee award, which—if the patent holder is non-practicing—would allow the court to impose judgment on qualifying “interested” third-parties. On the other hand, if an accused infringer goes bankrupt, leading to a default judgment, the patent holder cannot join interested third-parties of the accused infringer when attorneys’ fees are owed.
The upshot of these provisions is to massively skew fee-shifting against the interests of patent holders, leading to an asymmetric risk that would very likely cause risk-averse inventors and assignees to avoid directly enforcing their patents, sometimes even strong ones. This is especially so because patent litigation is highly uncertain and costly, and the relevant test in the provision is the fairly open-ended “reasonably justified in law and fact” standard. Indeed, “reasonable fees and other expenses” in patent cases can be quite high—in large cases, well over $5 million—which would generally be a huge sticker shock to small companies and individual inventors with limited resources. Even a small percentage chance of a paying these fees could deter risk-averse inventors and assignees. In my personal experience running and dealing with many startups and individual inventors, they often are very risk averse when it simply comes to paying their own litigation expenses, much less the opposing party’s fees.
Oddly, the asymmetric nature of the Innovation Act’s fee-shifting provision may have the very opposite effect of what it purports to achieve by reducing so-called “patent troll” suits. As others have argued, the reason is straightforward: PAEs can more easily absorb the risk of bringing suit in the face of potential fee-shifting than startups and individuals. As I already pointed out, startups, individual inventors, and small companies are generally highly risk-averse patent holders. They would therefore fear liability being imposed on them for the direct enforcement of their patents (or if they simply retained an “interest” in a patent that was enforced by a third-party). As such, they would be more likely to sell their patents outright to PAEs instead of retaining a percentage in the litigation (as is standard today).
In fact, PAEs and their funders have already become savvy in this regard and often use single-purpose litigation entities with passive equity investors who cannot “influence, direct, or control” the litigation, removing these investors from liability under the Innovation Act. This approach makes the risk that the plaintiff would not be able to pay fee awards even more acute, leaving the original inventors on the hook if they retain a percentage stake of the proceeds (or probably even an equity stake in the single-purpose entity, because arguably the inventors can “influence” the litigation via their direct involvement). Indeed, even large companies and universities that monetize their patents via PAEs may decide to sell their patents outright to these PAEs, rather than retain a percentage stake, because of the unnecessary risk of placing their assets on the line. (Although the Innovation Act contains an escape valve whereby third parties can renounce all interest in the patents and avoid liability, it must be done very soon after a complaint is filed, which makes it of little use in a typical PAE deal.)
This shift from percentage deals to outright purchases would likely substantially drive down PAE patent acquisition costs. Because independent inventors and startups are risk averse—and some larger companies and universities likely are as well—these entities would expand the number of patents available for direct purchase by PAEs. This would likely push costs low enough that PAEs could afford to acquire much larger pools of patents, thereby increasing PAE assertions and reducing funds remitted back to original inventors and assignees.
Conversely, even though the Innovation Act is highly biased in favor of accused infringers, a risk-neutral PAE or large practicing patentee may be able to extract greater settlements from risk-averse accused infringers, such as startups and small companies, by credibly threatening to take a strong case to trial. This is contrary to the poorly reasoned analysis by organizations such as the Electronic Frontier Foundation, which wrongly assumes that PAEs are “patent trolls” that file “weak” suits and also seemingly forgets small companies are regularly sued by larger competitors. Thus, the Innovation Act’s fee-shifting provisions could very well hurt small companies and startups that are defendants accused of infringement.
In sum, the gains from the Innovation Act’s fee-shifting provision, may simply go to large, risk-neutral companies, regardless of whether they are the Intellectual Ventures or Ciscos of the world, just as scholarly analysis has shown how fee-shifting operates in other areas of the law. Perhaps that is why it is not a coincidence that the Intellectual Property Owners Association , which is dominated by large companies, does not oppose it, while the National Venture Capital Association effectively does oppose it. Like the America Invents Act, the Innovation Act’s fee-shifting provisions would probably shift today’s innovation footprint away from the radical and disruptive (associated more with startups and individuals) towards the incremental (associated more with large, established companies).
There is no solid evidence that the potential benefits of the Innovation Act’s biased fee-shifting provision would outweigh its likely substantial costs. These costs could be so large that that even if we include the touted benefits from all of the other provisions in the Innovation Act, some of which could prove useful, I doubt the Act is worth it. In the very least, we should not impose radical and potentially very costly changes in the patent system without very good evidence. As such, anyone who cares about innovation as a whole should oppose the Innovation Act as it stands.
