On April 4th and 5th, the University of San Diego School of Law will host PatCon 4, the largest annual conference for patent law scholars. Over 60 patent law, economics, and business professors—as well as Federal Circuit Judge Kathleen O’Malley, USPTO Chief of Staff Andrew Brynes, and several district court patent pilot judges—will be participating.
In addition to panels on patent law doctrine, pharmaceutical & biotech patents, empirical studies of patents and litigation, remedies, commercialization, economic theory of patents, international patent law, and the history of patent law, PatCon will feature a “patent trolls” debate pitting Mark Lemley (Stanford) & Michael Meurer (BU) against John Duffy (Virginia) & David Schwartz (IIT-Chicago) on whether “hostility to patent trolls is not well justified theoretically or empirically and will likely result in bad law.” (I’ll be there as well, presenting on a project that I’m working on that’s tentatively called “A Law and Economics Approach to Patent Assertion Entities.”)
PatCon offers up to 12.5 hours of CLE credit for attorneys. More information on PatCon can be found here.
Guest Post by Prof. Ted Sichelman, University of San Diego School of Law
The standard justification for patents is that they are necessary to allow inventors to recoup R & D costs in the presence of low-cost copying. As the Supreme Court stated in Kewanee Oil, “The patent laws . . . offer[] a right of exclusion . . . as an incentive to inventors to risk the often enormous costs in terms of time, research, and development.” Yet, if patent law is designed to provide a “reward” for R & D related to the invention—rather than the commercialization of the invention—then why do these rewards depend on whether the inventor is an operating company that makes and sells the invention or a non-practicing entity (NPE) that does not?
In a recent article in the Texas Law Review (here), I argue that if patent law is truly concerned about R & D, then remedies should generally be the same for operating companies and NPEs for a given patented invention, because the “reward” necessary to induce the R & D for that invention should generally be the same regardless of the business model of the underlying inventor.
One reason commonly offered for varying awards is that commercializing entities should be provided an additional reward for bringing inventions to market as commercial products (or, conversely, NPEs should be penalized for not doing so). Although I am quite sympathetic to this view—and have argued as much several years ago (here)—this is decidedly not the reason the courts have used to distinguish between operating companies and NPEs.
Rather, the distinction arises historically from patent law’s importation of traditional tort law principles into remedies law. Like traditional tort remedies, a patentee who wins in court is typically entitled to be returned to the status quo ante—in other words, the state of the world that existed prior to when the infringement occurred. For money damages, this means that operating companies are generally entitled to “lost profits” on sales forgone from the infringement of the patented invention and NPEs are entitled to “reasonable royalties” for forgone licensing revenue (which, typically, are less than lost profits awards). For injunctive relief, the historical practice was to assume that all patentees were entitled as a matter of course to choose who could (or couldn’t) practice their patents. Yet, relying on the status quo ante principle, scholars and policymakers argued that NPEs—at least ones that license non-exclusively—should not be entitled to injunctions as a matter of course, because such an equitable remedy is unnecessary to return an NPE patentee to the status quo (and additionally generates a host of social costs). Such views ultimately influenced Justice Kennedy’s prominent concurrence in eBay, which has since led to the routine denial of injunctive relief for NPEs.
In my article (here), I argue that these hoary tort law principles do not achieve optimal incentives for engaging in innovative activity, because they differentiate among patentholders in ways that are entirely unrelated to the value of the underlying invention. Indeed, as soon as a patent is assigned from an NPE to an operating company its value increases because of patent remedies doctrine—an odd result. Rather than aiming to restore the patentee to the status quo, remedies law should instead provide those incentives necessary to induce a sufficient level of R & D in order to generate the invention in the first instance—perhaps with some modification if the patent-in-suit is shown to be integral to undertaking post-R & D commercialization activity (such as FDA clearance or unpatentable market testing).
This innovation-centric approach would lead to some immediate changes in remedies law. As an initial matter, the baseline assumption should be that remedies should be the same for operating companies and NPEs alike. This would entail rejecting the current statutory scheme for injunctive relief—and, hence, much of the reasoning in the majority and concurring opinions in eBay. Under my proposal, in some situations—like those involving multi-component products and high switching-costs—I argue that injunctions should be routinely denied both to NPEs and operating companies. In other situations, such as those involving simple mechanical inventions or discrete pharmaceutical chemical compositions, courts should typically issue injunctions to any type of patentholder.
As for money damages, the lost profits-reasonable royalty framework should be discarded entirely in favor of an approach that assesses the incremental economic value of the patented invention in relation to R & D costs actually expended by the patentees (and potentially third parties), taking into account failure rates, technological and market risk, and in some cases, commercialization and testing costs and risks, for the invention and similar types of inventions. This alternative framework would better align rewards with the actual costs and risks undertaken by the inventor. In circumstances in which a patent played an important role in the commercialization process, the remedy could be adjusted to further reward operating companies (or penalize NPEs).
I realize that implementing such an approach to remedies is not an overnight fix and could take many years to implement in a feasible manner. In the meantime, rather than attempting to restore inventors to the status quo, remedies law should generally ensure that the same invention yields the same reward. Doing so would better promote the innovation-centric aims of the patent system.
My Patent Law class just finished up anticipation, which included a discussion of the on-sale bar issues in Pfaff v. Wells Electronics, 525 U.S. 55 (1998). Footnote 11 always makes me laugh (and sometimes even my students) given what was to come in the decade and a half after Pfaff in opinions such as KSR, eBay, Bilski, etc.:
Petitioner correctly argues that these provisions identify an interest in providing inventors with a definite standard for determining when a patent application must be filed. A rule that makes the timeliness of an application depend on the date when an invention is “substantially complete” seriously undermines the interest in certainty.11
11The Federal Circuit has developed a multifactor, “totality of the circumstances” test to determine the trigger for the on-sale bar. See, e. g., Micro Chemical, Inc. v. Great Plains Chemical Co., 103 F. 3d 1538, 1544 (1997) (stating that, in determining whether an invention is on sale for purposes of § 102(b), “`all of the circumstances surrounding the sale or offer to sell, including the stage of development of the invention and the nature of the invention, must be considered and weighed against the policies underlying section 102(b)’ “); see also UMC Electronics Co. v. United States, 816 F. 2d 647, 656 (1987) (stating the on-sale bar “does not lend itself to formulation into a set of precise requirements”). As the Federal Circuit itself has noted, this test “has been criticized as unnecessarily vague.” Seal-Flex, Inc. v. Athletic Track & Court Construction, 98 F. 3d 1318, 1323, n. 2 (1996).
Danisco US Inc. v. Novozymes A/S (Fed. Cir. 2014) 13-1214.Opinion.3-7-2014.1 Panel: Lourie (author), Prost, O’Malley
On August 28, 2012, Patent No. 8,252,573 issued to Novozymes. That same day, Danisco filed a Declaratory Judgment action in federal district court seeking a judgment that its Rapid Starch Liquefaction (“RSL”) product did not infringe the single claim of the ‘573 patent and that the claim was invalid. The district court dismissed Danisco’s actions, concluding that it “was filed prior to the time Novozymes took, or even could have taken, any affirmative action to enforce its patent rights.” Novozyme’s only conduct, the court observed, was prior to the issuance of the patent and while that could support a conclusion that an actual controversy exists, jurisdiction could not be based on those acts alone.
On appeal, the Federal Circuit (channeling, perhaps, the Supreme Court) treated the district court’s ruling regarding pre-issuance activity as an improper bright-line rule:
The district court’s categorical distinction between pre- and post-issuance conduct is therefore irreconcilable with the Supreme Court’s insistence on applying a flexible totality of the circumstances test, its rejection of technical bright line rules in the context of justiciability, and our own precedent.
Slip Op. at 10. The Court itself has declined to develop a bright line rule for determining whether there is an Article III case or controversy and the Federal Circuit judges “are likewise not inclined to do so now.” Rather, the existence of a justiciable controversy involves a flexible totality of the circumstance analysis.
Examined in that light, the Federal Circuit concluded that this case satisfied the case or controversy requirement. The parties were close competitors in the same field and Novozymes had twice sued Danisco or its predecessors in interest for patent infringement over related products. But for Novozymes’ behavior during the prosecution of the ‘573 patent and Danisco’s own patent on a RSL product, however, the totality of the circumstances test would probably not have been met. Novozymes repeatedly sought interferences between them, contending that its patent application covered the same subject matter as Danisco’s patent and that it was entitled to priority. When the examiner twice rejected Novozyme’s request for an interference, Novozyme took one more action:
Although under no regulatory obligation to do so, Novozymes then submitted public comments to the PTO “in order to clarify [for] the record” its belief that the α-amylase variant claimed by Danisco’s ’240 patent “fall[s] within the scope” of its own claim, which later issued to Novozymes as the sole claim of U.S. Patent 8,252,573 (the “’573 patent”) on August 28, 2012, claiming the benefit of priority from a provisional application filed June 7, 2001. Id. at 456–59. Novozymes further commented that it refused to “acquiesce” to or otherwise be “estopped” by what it deemed to be the examiner’s erroneous and “overly narrow” view of Novozymes’s claim scope, which consequently did not allow Novozymes to invalidate Danisco’s ’240 patent or to claim priority over the ownership of the BSG E188P α-amylase variant invention. Id.
Slip Op. at 4. The Federal Circuit viewed this as an “allegation that Danisco’s α-amylase variant is encompassed by and would infringe the claim that issued in Novozymes’s ’573 patent.” Id. at 9. The court also noted that there was no Already v. Nike-style covenant not to sue that might moot the controversy. Considering all the circumstances, the panel concluded that the case or controversy requirement was met here, and returned the case to the district court for proceedings on the merits.
Although not a new holding, the Federal Circuit also ruled that the fact that Novozyme had never affirmatively accused Danisco’s products of infringing the patent was not dispositive on the question of whether an actual controversy exists.
Spring is the time for IP law conferences…and fortunately, spring is almost here. (I’m trying to be willfully blind to forecasters’ projections that it’s going to be -5 here in Iowa in a few days). Two conferences coming up next week:
Summit on Law in the Global Marketplace:
On Monday, February 24, the University of California Hastings College of the Law, the Berkeley Center for Law and Technology, and Hogan Lovells are hosting a one-day summit on Law in the Global Marketplace: Intellectual Property and Related Issues at UC Hastings. Speakers include Judge Rader, the Hon. Sung-Mei Hsiung, High Court Judge, Taiwan Intellectual Property Court, and Mark Jackson, Senior Patent Counsel for Genentech. Details are available here: [Law and the Global Marketplace Registration]
(I’m told that the event is currently sold-out, but they’re keeping a waitlist. Folks interested in the program can contact Chris Mammen at chris.mammen@hoganlovells.com for more details.).
Northwestern Journal of Technology & Intellectual Property Symposium 2014
Next Thursday and Friday, the Northwestern Journal of Technology & Intellectual Property is hosting its annual symposium. They have a great lineup of speakers, including F. Scott Kieff of the International Trade Commission, Michael Friedman of Ocean Tomo, Kevin Noonan of MBHB (and one of the coauthors of PatentDocs, Jane Ginsburg of Columbia Law School, and many others. The Friday program will provide 3.75 CLE credits. More information is available here: http://scholarlycommons.law.northwestern.edu/njtip_symposium/SCHEDULE/Schedule_2014/
Ring & Pinion Service Inc. v. ARB Corporation Ltd. (Fed. Cir. 2014) Opinion Panel: Moore (author), Clevenger, Reyna
One of the main justifications for the doctrine of equivalents is that it prevents patents from becoming worthless as a result of unforeseeable changes in technology. As Judge Rader observed in his concurrence in Festo:
A primary justification for the doctrine of equivalents is to accommodate after-arising technology. Without a doctrine of equivalents, any claim drafted in current technological terms could be easily circumvented after the advent of an advance in technology. A claim using the terms “anode” and “cathode” from tube technology would lack the “collectors” and “emitters” of transistor technology that emerged in 1948. Thus, without a doctrine of equivalents, infringers in 1949 would have unfettered license to appropriate all patented technology using the out-dated terms “cathode” and “anode”.
This case deals with the inverse: whether the doctrine of equivalents can apply when a technology was foreseeable at the time of patenting.
R&P sought a declaratory judgment that its product did not infringe ARB’s patent. The parties agreed that R&P’s product literally met all of the limitations of claim 1 of the patent except for one, which they agreed was present as an equivalent in R&P’s product. However, they disagreed over whether the doctrine of equivalents could apply since the equivalent would have been foreseeable to a person having ordinary skill in the art at the time the application was filed. The parties thus stipulated that infringement in this case turned on the legal question of whether “foreseeability of an equivalent at the time of application prevents use of the doctrine of equivalents.” The district court ruled that foreseeability did not preclude application of the doctrine of equivalents, but granted summary judgment to R&P on a vitiation theory.
On appeal, the Federal Circuit agreed with the district court that forseeability is not a limitation on the DOE:
There is not, nor has there ever been, a foreseeability limitation on the application of the doctrine of equivalents. It has long been clear that known interchangeability weighs in favor of finding infringement under the doctrine of equivalents. [the CAFC cites a number of cases discussing interchangeability, including Warner-Jenkinson and Graver Tank]. Excluding equivalents that were foreseeable at the time of patenting would directly conflict with these holdings that “known interchangeability” supports infringement under the doctrine of equivalents. We conclude that the foreseeability of an equivalent at the time of patenting is not a bar to a finding of infringement under the doctrine of equivalents.
Slip Op. at 4-5.
Nor did it matter that the claim element involved was drafted in means-plus-function terms. The doctrine of equivalents applies equally to these types of claim terms, and there is no “partial” foreseeability limitation here. “Nothing in Chiuminatta or in any other case cited by R&P supports its assertion that there exists a foreseeability exception to the doctrine of equivalents that applies to means-plus-function or any other claim terms.” Slip Op. at 7.
The defendant here thus lost on infringement because there is no foreseeability limitation on the use of the doctrine of equivalents. Furthermore, the stipulation that the parties entered into precluded consideration of other potential issues: the district court erred by not enforcing that stipulation.
Policy rationale: Given that a primary rationale for the doctrine of equivalents is to address the problem of after-arising technology, what is the basis for concluding that the DOE also extends to foreseeable technologies, i.e.: those that the patent drafter could have included in the patent. While Ring & Pinion v. ARB does not offer an explanation, the Supreme Court’s opinion in Festo does:
“The language in the patent claims may not capture every nuance of the invention or describe with complete precision the range of its novelty. If patents were always interpreted by their literal terms, their value would be greatly diminished. Unimportant and insubstantial substitutes for certain elements could defeat the patent, and its value to inventors could be destroyed by simple acts of copying. For this reason, the clearest rule of patent interpretation, literalism, may conserve judicial resources but is not necessarily the most efficient rule. The scope of a patent is not limited to its literal terms but instead embraces all equivalents to the claims described.”
Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd., 535 U.S. 722, 731-32 (2002).
In other words, patent drafters are not omniscient; they are human beings who are using an imperfect tool (language) to describe an intangible concept. In addition, patent drafters are only one person or a few people, whereas competitors seeking to design around the patent may be numerous (the game show 1 vs. 100 was premised on a concept like this). Under this view, the doctrine of equivalents tries to level the playing field.
Furthermore, although not discussed by the court, foreseeability remains an important component of the prosecution history estoppel analysis. Under Festo, the presumption arising from a narrowing amendment can be rebutted if the patentee can show that the equivalent was unforeseeable at the time of amendment. 535 U.S. at 741. But Ring & Pinion did not assert that there was a narrowing amendment, so this application of foreseeability was irrelevant.
Normally, a denial of a petition for rehearing and rehearing en banc would be a non-event. As Hal Wegner pointed out in his email newsletter, however, Judge Plager’s dissent from the rehearing in Middleton v. Shinseki is worth noting. (Link: 13-7014.Order.1-31-2014.1)
Background: Judge Plager was a member of the three-judge panel that decided the original opinion (he dissented there as well). Under Federal Circuit rules, he may participate in the panel rehearing and on the court sitting en banc if en banc review is granted, but may not participate in the vote whether to grant en banc review. (You may have noticed that at the bottom of denials of petitions for rehearing and rehearing en banc there is sometimes the language “Senior Judge X, who was on the original panel, participated only in decision on the petition for panel rehearing.”).
Judge Plager’s words express his own views most directly. In a footnote to his brief dissent to the panel rehearing, Judge Plager wrote:
The Chief Judge advises that the rule in this circuit, recently pronounced by a majority of the judges of the court in regular active service, is that judges in senior status, of which I am one, are prohibited from joining another judge’s dissent from a denial of en banc, or authoring their own dissent expressing on record a criticism of the judges in regular active service for the failure to take a case en banc. This apparently is the rule even in this case, though as a member of the original panel I am expressly authorized by law to have sat on the en banc panel if the court had agreed to have one, see 28 U.S.C. § 46(c), so that the failure to take the case en banc has denied me an opportunity to try to correct what I consider to be a miscarriage of justice. However, my compliance with this rule, prohibiting circuit judges, because they are in senior status, from expressing an opinion on this aspect of the decisional work of the court, should not be taken as agreement with this rule, its purpose, effect, or for that matter its constitutionality.
Why this matters: Practically speaking, as Hal Wegner notes this is a non-issue in this case, since Judge Plager can express his reasons for disagreeing in his dissent to the panel rehearing. However, that Judge Plager chose to write about this minor internal procedural disagreement suggests that there are tensions within the court.
Surging Dissents: Lee Petherbridge and I recently revised our study of Federal Circuit dissents based on many of the comments we received on PatentlyO. Below are some figures that did not make it into the revision but which are nonetheless quite striking.
The first is a graph that combines data from Table II of Professor Jeffrey Lefstin’s 2005 study of Federal Circuit dissents with our own data. The usual caveats about cross study comparisons apply (although the data should be pretty comparable as it ultimately came from the same source). These are absolute numbers of dissents, not frequencies; the frequency chart indicates an even more striking difference.
The second item is a pair of pie charts showing the numbers of alternate writings (mainly dissents and concurrences) for each judge for the first and second parts of our period, using January 1, 2011 as a break point. While Judge Newman is the most frequent author of alternate writings, she only accounted for about a quarter of the alternate writings for the first period, and since 2011 her relative frequency of alternate writings declined. In other words, these alternate writings aren’t simply the work of a single judge; they’re being written by a significant number of judges on the court.
The legends in the above figures identify the judges with more than 5% of the total share of alternate writings for that period. I haven’t yet broken out dissents alone, but my suspicion is that they aren’t going to be meaningfully different.
As I mentioned a few weeks ago, next week The Sedona Conference will be presenting a major webinar entitled Patent Litigation Best Practices: A Matter for Congress or for Bench and Bar? This webinar will discuss discuss patent law legislation that is currently pending before Congress and the Patent Pilot Program launched two years ago as part of the AIA’s reform of U.S. patent law. Faculty include former Chief Judge Paul R. Michel and Judge Kathleen O’Malley of the Federal Circuit, Tina Chappell of Intel Corporation, Philip S. Johnson of Johnson & Johnson, and Alexander Rogers of Qualcomm Incorporated.
This webinar is being developed in conjunction with an introductory chapter for a Patent Litigation Best Practices document. This document has the potential to impact judicial decisionmaking at the trial and appellate levels (Judge Taranto referenced The Sedona Conference Glossary: E-Discovery & Digital Information Management (3rd ed. 2010) numerous times in the CBT Flint Partners, LLC v. Return Path, Inc. opinion), and the panel will take questions by text and telephone during the program.
For information on how to register, click here, or copy and paste the following link into a web browser: https://thesedonaconference.org/VD012214. Free registrations are available to courts, government agencies, and law schools on a first-come, first-serve basis. To receive a discount code, email igg@sedonaconference.org.
Nazomi Communications, Inc. v. Nokia Corp. (Fed. Cir. 2014) Download 13-1165.Opinion.1-8-2014.1 Panel: Lourie (concurring), Dyk (author), Wallach
Nazomi is a small software and semiconductor development company that sued a set of large technology companies for patent infringement in a series of lawsuits. This appeal involved the district court's initial claim construction order in one of these suits and its grant of summary judgment of noninfringement in favor of Western Digital and Sling Media.
Two of Nazomi's patents were at issue in this appeal: Nos. 7,225,436 and 7,080,362. During the district court proceeding, the defendants moved for a "preliminary" construction of the asserted claims, arguing that all the claims "require that the processor of the claimed apparatus, when operated, will perform the recited functions related to the processing of stack-based instructions without modification." The court analyzed the issue in the context of representative claim 48 of the '362 patent
48. A central processing unit (CPU) capable of executing a plurality of instruction sets comprising:
an execution unit and associated register file, the execution unit to execute instructions of a plurality of instruction sets, including a stack based and a register-based instruction set;
a mechanism to maintain at least some data for the plurality of instruction sets in the register file, including maintaining an operand stack for the stack-based instructions in the register file and an indication of a depth of the operand stack;
a stack control mechanism that includes at least one of an overflow and underflow mechanism, wherein at least some of the operands are moved between the register file and memory; and
a mechanism to generate an exception in respect of selected stack-based instructions.
Nazomi contended that the claim required only hardware that was capable of performing the claimed functionalities (here, indicated by italics). The district court concluded, however, that the asserted claims required a combination of hardware and software capable of performing the functional limitations.
To understand why this distinction matters, some background in the defendants' products is useful. Western Digital and Sling Media use a processor designed by another company, ARM. In 2000, ARM developed a design involving a hardware component called "Jazelle." However, recognizing that not every product would use every circuitry feature in its processors, ARM also designed its processors so that unused functionality would remain dormant unless activated (and thus not unnecessarily drain resources). In order to activate the Jazelle circuitry, it is necessary to first install a software package called "JTEK." In both the accused Western Digital and Sling Media products, Jazelle is dormant and there was no evidence that any end user had installed JTEK. Nazomi's argument, however, was that Jazelle's presence in the accused products was sufficient sufficient for a finding of infringement (i.e.: hardware "capable").
On appeal, the Federal Circuit agreed with the district court's construction as requiring both hardware and software. It reasoned that because hardware cannot meet the functional limitations in the absence of enabling software, "the claims are properly construed as claiming an apparatus comprising a combination of hardware and software capable of practicing the claim limitations." (my emphasis). In reaching this conclusion, it distinguished cases involving "programmable" language, such as Intel Corporation v. U.S. International Trade Commission, 946 F.2d 821, 832 (Fed. Cir. 1991). Here, the claims did not merely cover hardware that could be programmed to perform the claimed functionality; they required that the processor be capable of executing the stated instruction sets. Since hardware alone cannot do that in the absence of enabling software, the only possibility was that the claims required both hardware and software.
The panel also affirmed the district court's grant of summary judgment of noninfringement (Judge Lourie agreed with outcome, but did not join as to the bulk of the court's reasoning), drawing on precedent that "“an apparatus claim directed to a computer that is claimed in functional terms is nonetheless infringed so long as the product is designed in such a way as to enable the user of that [product] to utilize the function without having to modify the product.” Silicon Graphics, Inc. v. ATI Technologies, Inc., 607 F.3d 784, 794 (Fed. Cir. 2010). The critical issue was thus whether the installation of the JTEK software would constitute a "modification" of the accused product.
The Federal Circuit concluded that installation of the software would constitute a modification because in the asserted claims the software is part of the claimed structure. In other words, this is not a case where the software component already resided on the hardware and could be unlocked by using a key, or where the claims recited programable software that also resided on the hardware. Rather, the software was a necessary structural component of the claimed invention and its addition would constitute the addition of functionality that is not currently present.
By: Michael Risch, Professor of Law, Villanova University School of Law
Read the whole draft here, forthcoming in the George Mason L. Rev. It is about half the length of a typical law review article, so I call it an essay.
Back in October, I presented at the Center for the Protection of Intellectual Property Conference on The Commercial Function of Patents in Today’s Innovation Economy. I spoke on a panel entitled “Patent Licensing: New Business Models and New Opportunities.” I decided to focus on the commercialization benefits of licensing patents purchased from another – thus, my highly creative title: Licensing Acquired Patents.
This was actually a tall order. On the one side, licensing has been around for 150 or more years, so arguing that licensing acquired patents is a new opportunity took some work. On the other side, economic theory holds that late stage licensing (that is, ex post licensing) offers the least commercialization benefits, so convincing skeptics (read: licensees) that there are commercial benefits to the practice was also no easy task. This is why acquisition is important. Original owners usually have a chance at early stage licensing. Acquirers almost never do.
I begin the essay with a short section on the stages of patent licensing, but I’ll start here with the historic part. There’s no real dispute that there has long been licensing, sale, and other secondary market activity for patents, dating into the early 1800’s. Economic historians have done a great job of tracing this history, and I cite several articles and books in my essay. But a sustained business model of acquiring patents and licensing them was not really common. For the most part, secondary markets involved inventors attempting to sell or license patents to those who would practice the invention, not to those who would – in turn – license others.
Of course, there were exceptions, and I focus on them in the essay. The big ones were railroad, agriculture, and dental patents. In each case, there were a few higher profile non-producer patent buyers who attempted to license others (and sued those that refused). While there is a smattering of other activity, licensors aren’t discussed by name in the press and they did not buy and license more than two or three patents each. In the essay, I discuss what we might learn from the rise and fall of these patent “sharks,” which appeared to thrive only in limited industries at a very particular time in our patent history. Both laws and producer behavior were part of the equation.
Following the history discussion, I turn to commercialization benefits of licensing. I make some key assumptions in the paper about such licensing – most primarily that pricing is negotiated in good faith. In other words, if a patent owner refuses to acknowledge low quality patents and insists on too high prices, then commercial benefits are unlikely. Similarly, if manufacturers refuse to acknowledge high quality patents and insist on too low prices, then commercial benefits are unlikely. And finally, I note that there may be private commercial benefits that are not socially beneficial (that is, they enhance private but not total welfare).
I discuss several commercialization benefits. The first is a signaling benefit. There are a lot of patents, and even if a company attempted to find all of them associated with a complex product (which often doesn’t happen), it likely will not. But owners know what patents they have. Thus, owners are the least cost information producers, and informing manufacturers of relevant patents can have some commercialization benefits. Even if the patents are of low quality, the manufacturer is in a better information position than before; it can buy, license, or challenge the patents.
This signaling leads to a second benefit: some freedom to operate that was unavailable before, assuming a reasonable license is entered. At least one study shows that litigation costs more than simply “litigation costs.” Litigation can also hamper investment in the product itself. This is not surprising, of course: litigation is a drag, literally and figuratively. So avoiding litigation can enhance commercialization of the accused product. I acknowledge that investment would be really enhanced if nobody enforced their patents, but that’s an unlikely scenario and this is an essay about licensing.
I make a few other suggestions of commercialization benefits, and finally discuss how licensing acquired patents may help drive licensing toward the earlier, more beneficial stages of licensing – where technology licenses predate investments in products, even if it winds up cutting out the acquirers. I give a few examples of how this might happen and how the process has already begun.
There is more in the essay than I can write about here. If you are interested, please take a look at the full version.
In this case, the Federal Circuit determined—as a matter of first impression—that “the principles of prosecution history estoppel apply to design patents.” This case has a number of implications for design patent application strategy, including for applications filed under the Hague System.
Pacific Coast Marine Windshields Limited (“PCMW”) accused Malibu Boats (“Malibu”) of infringing U.S. Patent No. D555,070 (the “D’070 patent”). Here is a comparison of the patent drawings and the accused design, as shown in PCMW’s opening appellate brief:
As can be seen from this illustration, a major difference between these two designs is that the patented design features four circular vent holes while the accused design has three roughly rectangular-shaped holes.
The D’070 patent matured from a patent application filed (apparently pro se) by PCMW’s owner and CEO, Darren Bach. In the original design patent application, Bach claimed an “ornamental design of a marine windshield with a frame, a tapered corner post with vent holes and without said vent holes, and with a hatch and without said hatch, as shown and described.” The submitted figures included the following:
A design patent may contain only one claim. It is possible to claim multiple embodiments—but only if those embodiments involve the same inventive concept. The question of whether a claimed embodiment satisfies this standard is left largely to the examiner’s discretion.
In this case, the examiner decided that Bach’s application included five “patentably distinct groups of designs” and issued a restriction requirement. Bach did not challenge the restriction requirement. He elected to prosecute the design shown in Figure 1 above—i.e., the version with “four circular holes and a hatch.” He also amended the claim language, deleting the reference to any hole and hatch variations. So when the D’070 patent issued, it simply claimed “[t]he ornamental design for a marine windshield, as shown and described.” Bach later filed a divisional application for the no-holes-with-hatch variant, which matured into U.S. Pat. No. D569,782. But he did not pursue design patents for any of the other variations, including the two-hole variation shown above.
Malibu moved for partial summary judgment, arguing that PCMW’s infringement claim was barred by prosecution history estoppel. Malibu argued that PCMW surrendered the two-hole design during prosecution and that the accused three-hole design fell within the territory surrendered “between the original claim and the amended claim.” The district court agreed and entered judgment of noninfringement based on prosecution history estoppel.
On appeal, PCMW argued that the principles of prosecution history estoppel should not apply to design patents at all. It argued, among other things, that there was no good policy reason to extend the doctrine to design patents. The Federal Circuit did not agree, noting that “[t]he same principles of public notice that underlie prosecution history estoppel apply to design patents as well as utility patents.”
The Federal Circuit then considered whether prosecution history estoppel barred PCMW’s infringement claim. That issue “turn[ed] on the answers to three questions: (1) whether there was a surrender; (2) whether it was for reasons of patentability; and (3) whether the accused design is within the scope of the surrender.” The court concluded Bach did surrender the cancelled figures and that the surrender was done for reasons of patentability. In doing so, the Federal Circuit rejected PCMW’s argument that the restriction requirement was merely “administrative” or “procedural.” The court concluded “that, in the design patent context, the surrender resulting from a restriction requirement invokes prosecution history estoppel if the surrender was necessary . . . ‘to secure the patent.’”
However, the Federal Circuit decided that the accused design was not within the scope of the surrender. It rejected Malibu’s argument that “by abandoning a
design with two holes and obtaining patents on designs with four holes and no holes, the applicant abandoned the range between four and zero.” The court noted that “[c]laiming different designs does not necessarily suggest that the territory between those designs is also claimed.” Moreover, according to the Federal Circuit, neither party claimed that the three-hole design was a colorable imitation of the surrendered two-hole design. (The Federal Circuit expressly avoided answering “whether the scope of surrender is measured by the colorable imitation standard”—an interesting issue for another day.) Therefore, prosecution history estoppel did not bar PCMW’s claim.
On remand, it will be interesting to see how PCMW argues its infringement case. It seems difficult to argue that the accused three-rectangular-hole design is not a colorable imitation of the surrendered two-rectangular-hole design but that it is a colorable imitation of the claimed four-round-hole design.
This decision also has important implications for other cases. Design patent applicants often claim multiple embodiments. If the examiner approves those embodiments, the resulting patent will be (at least arguably) stronger and more flexible. Following Pacific Coast Marine, however, this is a riskier—or, at least, potentially more expensive—strategy. If an applicant claims multiple variations on a design and the examiner decides they are patentably distinct, the applicant must file divisional applications for the unelected variants to avoid prosecution history estoppel. And more applications means more fees.
This case also will be important when the United States becomes a party to the Hague System for the International Registration of Industrial Designs. The Hague System allows applicants to file up to 100 designs in a single registration, as long as the designs are all in the same Locarno class. But the PTO has indicated that it will apply its single-invention rule to any applications it receives via the Hague System. So applicants who include multiple designs in their Hague applications should expect restriction requirements, with all the attendant estoppel risks.
Guest Post by Jason J. Du Mont, Microsoft IP Fellow at the Indiana University Maurer School of Law and Mark D. Janis, Robert A. Lucas Chair of Law at the Indiana University Maurer School of Law.
In Pacific Coast Marine Windshields Ltd. v. Malibu Boats, the Federal Circuit addressed a question of first impression: whether an applicant’s actions taken during prosecution of a design patent should be available for use when determining the design patent’s scope in subsequent litigation. The court’s answer was yes. While the answer may be unremarkable, the court’s unusual journey from question to answer raises broader questions about the wisdom of absorbing utility patent law’s judicially-derived doctrines into design patent law.
The applicant had filed a design patent application claiming “an ornamental design of a marine windshield with a frame, a tapered corner post with vent holes and without said vent holes, and with a hatch and without said hatch, as shown and described.” The application included eleven drawings showing windshields with various numbers of vent holes, with and without hatches. During prosecution, the examiner imposed a restriction requirement and identified five patentably distinct groups in the application: windshields having “(1) four circular holes and a hatch; (2) four circular or square holes and no hatch; (3) no holes and a hatch; (4) no holes and no hatch; and (5) two oval or rectangular holes and a hatch” (internal citation omitted):
The applicant elected group one without traverse (which showed four circular holes and a hatch), deleted the figures not associated with this embodiment, and eventually rewrote the claim in a more conventional form, claiming “[t]he ornamental design for a marine windshield, as shown and described.” The application issued as D555,070. The applicant later filed a divisional directed to group three, which issued as D569,782, but there were apparently no further divisionals.
Pacific Coast subsequently asserted the ‘070 patent against Malibu Boats, which was producing a windshield having three square vent holes, as depicted below:
Malibu Boats moved for summary judgment of non-infringement based on prosecution history estoppel. The district court granted the motion and Pacific Coast appealed.
No Distinct Doctrine of Equivalents for Design Patents
Prosecution history estoppel is a limitation on the doctrine of equivalents, so before it reached the district court’s prosecution history estoppel analysis, the Federal Circuit first had to determine whether the design patent law should recognize a doctrine of equivalents. The court concluded that for design patents, literal infringement and infringement under the doctrine of equivalents are “intertwined,” pointing to the statute (35 U.S.C. § 289, which provides a remedy when another party “applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale” (emphasis added)), and the Gorham v. White case (which holds that infringement is based on substantial similarity).
The court could have been more forthcoming as to what it means for the two infringement standards to be intertwined, but the key takeaway is clear: the design patent infringement analysis isn’t bifurcated into a literal infringement prong requiring identicality and an equivalency prong. It relies on a test of substantial similarity based on the design’s overall impression. The court’s analysis signals that there’s no longer a need to speak of a distinct “equivalents” concept in design patent law; concepts of equivalency are built into the substantial similarity test.
So Why Incorporate Prosecution History Estoppel?
Having recognized that design patent law includes no distinct doctrine of equivalents, the Federal Circuit could have declared that design patent law need not incorporate the utility patent law’s prosecution history estoppel jurisprudence. The court could have formulated a prosecution history-based limiting doctrine that was customized to connect to design patent law’s “intertwined” infringement standard. Or, the court could have even analogized to prosecution disclaimer, a simpler concept which limits literal claim scope and avoids entanglement with the presumptions and rebuttal routes of a post-Festo prosecution history estoppel doctrine. See, e.g., Trading Techs. Intern., Inc. v. Open E Cry, LLC, 728 F.3d 1309 (Fed. Cir. 2013) (discussing the distinction).
Instead, the court stated that the “principles” of prosecution history estoppel applied to design patents, and resolved those principles into a three-step test: “(1) whether there was a surrender; (2) whether it was for reasons of patentability; and (3) whether the accused design is within the scope of the surrender.” It then relied on Festo and other utility patent cases in applying its test, concluding that “no presumption of prosecution history estoppel could arise” because there wasn’t any showing that the third part of the test was met.
Whatever this presumption is, it surely isn’t the Festo presumption. Festo holds that a narrowing amendment that is substantially related to patentability triggers a presumption that the applicant surrendered all territory between the original and amended claim scope with regards to the claim limitation in question. See, e.g., Duramed Pharma. v. Paddock Labs., Inc., 644 F.3d 1376 (Fed. Cir. 2011). There isn’t any third step calling for scrutiny of the accused device. That inquiry would only be relevant to determining the scope of the estoppel—and that only comes into issue once it’s determined that the presumption of estoppel applies, and that the presumption hasn’t been rebutted.
The court’s approach is likely to lead to confusion in design patent cases about how much utility patent doctrine really has been borrowed. (It may also create some confusion in utility patent cases if it’s invoked there. Doing so would be erroneous, in our view.) This illustrates why it’s not always so easy, or desirable, to fling utility patent doctrine into design patent law. The court could have avoided all of these doctrinal convolutions by steering clear of prosecution history estoppel jurisprudence and either drawing on simpler analogies or developing a test specific to design patents.
Applying the Court’s Three-Step Test
The Federal Circuit’s application of its three-step test further illustrates why borrowing from prosecution history estoppel doctrine may have been a bad idea. In addition to diverging from the Festo presumption, the court’s rhetoric slips towards the element-by-element conceptions of equivalency and estoppel that govern in utility patent law, and away from conceptions of the design’s overall impression that design patent law mandates.
The court concluded that steps one and two of its test were met. As for step (1), the applicant had deleted drawings directed to the patently distinct two-hole and no-hole embodiments, resulting in a surrender of scope, according to the court; and, as for step (2), deletions made in response to a restriction requirement were made for purposes of patentability and thus could trigger estoppel. As the court pointed out, however, this latter point hasn’t been resolved in utility patent law.
Nevertheless, the court decided that step (3) (whether the accused design was within the scope of the surrender) wasn’t met, and that was enough for a reversal. The defendant had chosen not to argue that the accused three-hole design was within the scope of the patentee’s non-elected designs. Instead, the defendant asserted that because the patentee had elected designs having four holes (in the ‘070 patent-in-suit) and zero holes (in the ‘782 divisional), the patentee had surrendered any designs having a number of holes between zero and four. The court was not persuaded, reasoning that the notion of surrendering an entire range “does not work in the context of design patents where ranges are not claimed, but rather individual designs. Claiming different designs does not necessarily suggest that the territory between those designs is also claimed.” These are crucial observations for limiting the impact of prosecution history estoppel, especially since the court didn’t address any other way of rebutting this presumption.
But the court left unaddressed the key question about applying step (3): what is the standard for determining whether an accused design falls within the scope of the surrender? Some raw notion of “colorable imitation”? A fully elaborated substantial similarity analysis in view of the prior art as per Egyptian Goddess? Something else?
Moreover, by framing its analysis of the designs at issue by reference to the number of holes, the court encourages a mode of analysis that rests on individual design features, rather than the design’s overall impression. There’s a deep disconnect here between utility and design patent law. Equivalency (and, correspondingly, prosecution history estoppel) in utility patent law is to be applied on an element-by-element basis, but that doesn’t translate neatly to design patent law. Here, where the embodiments differed by discrete, readily-identifiable features (such as the number of holes or hatches), perhaps the presence or absence of the features dictate one’s conclusions about the design’s overall impression. We think this will not be so easy in most cases involving visually-complex designs.
More to Come …
The prospect that restriction and election practice will give rise to estoppel in design matters has significant practical consequences. First, the implementation of the Hague will unquestionably lead to an influx of international applications that often contain plural embodiments—either explicitly allowed or because they are filtered from registration systems. When coupled with distinctions in the determination of scope, between offices, the USPTO can expect to receive higher volumes of applications that may necessitate restrictions. Second, the Federal Circuit’s In re Owens decision, and the USPTO’s apparent turn towards a more aggressive application of the written description requirement in design cases, may force design patent applicants to submit applications including large sets of drawings that depict numerous implementations of a design concept. To the extent that these implementations are deemed patentably distinct embodiments, many applicants will find themselves facing restriction requirements.
That leads to the case’s key practical point: if courts choose to apply Pacific Marine’s estoppel rule aggressively, practitioners may need to advise their clients to expect to file more divisionals—and, consequently, face higher prosecution costs.
First, thank you for all the terrific comments I received in response to the Top 10 Patent Cases post. There were some great ideas there and after substantial reflection I decided that my final list this year will be:
Bowman v. Monsanto, 133 S.Ct. 1761 (2012) O’Reilly v. Morse, 56 U.S. 62 (1853) Diamond v. Chakrabarty, 447 U.S. 303 (1980) Egbert v. Lippmann, 104 U.S. 333 (1881); City of Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126 (1878) Graham v. John Deere, 383 U.S. 1 (1966); KSR v. Teleflex, 550 U.S. 398 (2007) The Incandescent Lamp Patent case, 159 U.S. 465 (1895) Phillips v. AWH, 415 F.3d 1303 (Fed. Cir. 2005) (en banc) Graver Tank v. Linde Air Products, 339 U.S. 605 (1950) Gorham v. White, 81 U.S 511 (1871) Bonito Boats v. Thunder Craft Boats, 489 U.S. 141 (1989)
While it's hard to do justice to patent law with just 10 or 12 cases, because this is an Introduction to Intellectual Property class the amount of classroom discussion that can be devoted to individual cases is limited. Additional cases are discussed in the mini-treatise the students read and I'll cover them in the lecture component as well. Fortunately, I also teach Patent Law which allows a much more substantive exploration of specific issues in patent law. Also, the above list is a combination of importance and teaching value: some cases are on there more because they're both reasonably significant and useful teaching tools.
Second, for those of you who are interested in textualism and claim construction, Landslide recently published my review of Justice Antonin Scalia and Professor Bryan A. Garner's Reading Law: The Interpretation of Legal Texts from a patent law perspective. A copy of the review is available on Landslide's website and I've archived a copy on ssrn.
I'll also note that Professor Tun-Jeng Chiang wrote to me yesterday to share that his recently published article The Interpretation-Construction Distinction in Patent Law, 123 Yale Law Journal 530 (with Lawrence B. Solum) relates to many of the issues that I discuss in the review, taking on in particular the "argument that the high reversal rate belies the certainty of textualism or suggests that claim interpretation typically involves hard cases from a linguistic standpoint." While I ultimately don't agree with many of Professor Chiang's arguments, his work is always insightful and worth reading. His article is available here.
I teach the Introduction to Intellectual Property course each spring here at Iowa. Because this is a survey course that covers multiple areas of law that themselves each can be covered in an intermediate-level course, I always find it a fascinating challenge to balance breadth and depth in a way that maximizes students' ability to learn and apply the law.
This coming semester I'm trying something new: rather than use a regular casebook, I'm taking a "top 40" cases approach combined with a hornbook. The idea here is to use the hornbook together with lectures to cover the breadth of intellectual property while using discussion of the cases to dig more deeply into particularly significant or interesting moments in patents, copyrights, trademarks, trade secrets, and associated areas of law. (For those of you not familiar with conventional casebooks, they're typically structured so that preparing for a single class involves reading 2-4 opinions plus associated casenotes.)
My current "top 10" list of patent cases is:
Bowman v. Monsanto, 133 S.Ct. 1761 (2012) Diamond v. Chakrabarty, 447 U.S. 303 (1980) Bilski v. Kappos, 561 U.S. __ (2010) Egbert v. Lippmann, 104 U.S. 333 (1881); City of Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126 (1878) (taught together; yes, this technically makes it 11 cases) KSR v. Teleflex, 550 U.S. 398 (2007) The Incandescent Lamp Patent case, 159 U.S. 465 (1895) Phillips v. AWH, 415 F.3d 1303 (Fed. Cir. 2005) (en banc) Therasense v. Becton Dickinson, 649 F.3d 1276 (Fed. Cir. 2011) (en banc) Global-Tech Appliances v. SEB, 563 U.S. __ (2011) Bonito Boats v. Thunder Craft Boats, 489 U.S. 141 (1989)
These cases track the subject matter I cover in the classroom, so while there are more great cases in each area, I've limited it to just the top case or cases in each. Also, I recognize that Bowman v. Monsanto is probably not on most folks' top 10 lists; however, I think it's a great way to introduce students to patent law and is particularly relevant here in the midwest.
Are there other cases that you think are even more important or interesting? Keep in mind that adding cases also requires removing an equivalent number of cases from the list.
CBT Flint Partners, LLC v. Return Path, Inc. (Fed. Cir. 2013) Panel: Dyk, O'Malley (concurring-in-part and dissenting-in-part), Taranto (author)
This is an important pair of opinions that anyone interested in the fee-shifting proposals currently pending before Congress should read. Two aspects are worth noting. First, the court rejects the argument that Congress's 2008 amendment to section 1920(4) implemented a dramatic change in terms of e-discovery costs. Second, it implements a granular framework for analyzing e-discovery cost requests that requires complex and careful line-drawing. In addition, both the majority and dissent address the policy concerns implicated in this area.
CBT sued Cisco Ironport Systems and Return Path (who I'll refer to collectively as Cisco, since most of the costs incurred here were sought by Cicso) for patent infringement. Following claim construction, CBT stipulated to noninfringement and Cisco obtained summary judgment of indefiniteness on one asserted claim. Cisco moved to recover its costs under 28 U.S.C. § 1920, including $243,453.02 in fees it paid to a company that handled electronic discovery. The district court granted Cisco's request. On appeal, the Federal Circuit reversed summary judgment of indefiniteness, construed the claim in question, and remanded for further proceedings. The district court subsequently granted summary judgment of noninfringement to Cisco, which the Federal Circuit summarily affirmed.
After granting Cisco's motion for summary judgment of noninfringement, the district court again awarded Cisco the fees it paid to an e-discovery vendor.
The district court's reasoning: The district court's award of costs was implicitly based on 28 U.S.C. § 1920(4), which states:
A judge or clerk of any court of the United States may tax as costs the following:
…
(4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case;
The Federal Circuit described the district court's reasoning as follows:
Based on a “careful review” of the vendor’s invoices to Cisco, the court characterized the services rendered as “highly technical” and “not the type of services that attorneys or paralegals are trained for or are capable of providing.” The court concluded that the fees Cisco sought to recover were “the 21st Century equivalent of making copies” (although Cisco had not categorized them as such) and held them to be recoverable….In awarding Cisco the requested amounts, the court said that the “enormous burden and expense of electronic discovery are well known” and that “[t]axation of these costs will encourage litigants to exercise restraint in burdening the opposing party with the huge cost of unlimited demands for electronic discovery.”
Slip Op. at 3 (internal citations omitted). On appeal, the Federal Circuit reversed in part, vacated in part, and remanded the matter to the district court for further proceedings.
The Narrow Scope of Section 1920: In 2008, Congress amended section 1920(4) to remove a specific reference to "papers." While the Eleventh Circuit (whose law applied in this case) has not addressed section 1920(4) as amended, its prior caselaw had interpreted section 1920 as being limited to the "reasonable costs of actually duplicating documents, not [] the costs of gathering those documents as a prelude to duplication." The Federal Circuit concluded that the amendment did not change that interpretation:
[W]e conclude that recoverable costs under section 1920(4) are those costs necessary to duplicate an electronic document in as faithful and complete a manner as required by rule, by court order, by agreement of the parties, or otherwise. To the extent that a party is obligated to produce (or obligated to accept) electronic documents in a particular format or with particular characteristics intact (such asmetadata, color, motion, or manipulability), the costs to make duplicates in such a format or with such characteristics preserved are recoverable as “the costs of making copies . . . necessarily obtained for use in the case.” 28 U.S.C. § 1920(4). But only the costs of creating the produced duplicates are included, not a number of preparatory or ancillary costs commonly incurred leading up to, in conjunction with, or after duplication.
Slip Op. at 10.
Three stages of e-discovery: To analyze whether the costs fell into the category of producing duplicates versus preparatory or ancillary activites, the court divided the e-discovery process into three stages: imaging and extraction (where source media is copied as a whole and individual documents are extracted), database creation and document identification (where extracted documents are organized into a database and searched), and production copying (where the documents selected for production are copied onto memory media).
Comment: The opinion specifically refers to this as "the document production process used in this case." However, these stages are common enough that the court's framework can be applied to most cases involving e-discovery.
However, while they provide a framework, these categories do not answer the question of whether costs may be awarded for the respective activies. Rather, the court's opinion envisions a careful line-drawing process, in which the specific activities and their context plays a substantial role in determining whether individual costs may be awarded. For example, in some circumstances, costs for extraction can be recoverable under section 1920 "where they are, in fact, necessary to make copies of information required to be produced and not incurred just to make copies for the convenience of the producing party." Slip Op. at 13. However, "if metadata can be preserved without first using imaging and extraction techniques, then those steps are outside section 1920(4)." Id. at 13-14. The opinion contains numerous examples of hypotheticals and considerations to take into account, while noting that it is "an inquiry that the district court should perform in the first instance." Id. at 15.
Comment: One thing to keep in mind with this opinion: the flexibility that the majority perceived in Eleventh Circuit law here is not uniform across the circuits. The court's opinion specifically recognizes that its approach to stage one costs is at odds with the Third and Fourth Circuits. This variation should be kept in mind when applying this opinion.
Judge O'Malley's Separate Opinion: Writing separately, Judge O'Malley agreed with most of the majority's discussion but disagreed with respect to one category: the pre-duplication expenses that the majority described as "stage one costs." In her view, the majority's approach, which allows some of these costs to be awarded, improperly broadens the scope of section 1920(4), is inconsistent with the Eleventh Circuit's prior approach to section 1920(4), and creates an unnecessary circuit split.
References to the Sedona Conference: The opinion references the The Sedona Conference Glossary: E-Discovery & Digital Information Management (Sherry B. Harris et al. eds., 3rd ed. 2010) numerous times. As I've written before, this is a worthwhile program to consider becoming involved in.
There are three main isues addressed in this opinion:
1) Collateral Estoppel based on similar claims in a different patent;
2) Obviousness involving the addition of numerical limitations in dependent claims; and
3) Inequitable conduct: reversal of SJ of no IC.
Background: The Ohio Willow Wood Company (OWW) asserted Patent No. 5,820,237 against Alps South. The '237 patent relates to directed to cushioning devices that go over the residual stumps of amputated limbs to make the use of prosthetics more comfortable. The district court granted summary judgment that OWW was collaterally estopped from challenging the invalidity of set of claims in the '237 patent, that the second set of asserted claims was invalid for obviousness, and that there was no inequitable conduct. OWW appealed the collateral estoppel and obviousness issues while Alps cross-appealed the inequitable conduct issue. Collateral Estoppel: The collateral estoppel issue in this case is notable because it involves a separate (albeit related) patent. OWW sued Thermo-Ply, Inc. for infringement of Patent No. 7,291,182, which issued from a continuation of the '237 patent, in a separate proceeding. The court in that litigation held the claims of the '182 patent invalid for obviousness, a ruling that was affirmed on appeal. Based on this previous disposition, the district court in the OWW v. Alps litigation ruled that a set of claims from the '237 were invalid due to collateral estoppel.
The Federal Circuit affirmed, holding that collateral estoppel can apply across patents. "Our precedent does not limit collateral estoppel to patent claims that are identical. Rather, it is the identity of the issues that were litigated that determines whether collateral estoppel should apply….If the differences between the unadjudicated patent claims and adjudicated patent claims do not materially alter the question of invalidity, collateral estoppel applies." Slip Op. at 11.
Here, the differences between the patent claims did not materially alter the question of invalidity:
As reflected in the claim language above, these patents use slightly different language to describe substantially the same invention. For example, where the ’237 patent recites a “tube sock-shaped covering,” an “amputation stump being a residual limb,” and “fabric in the shape of a tube sock,” the ’182 patent analogously recites the same claim scope in the form of a “cushion liner for enclosing an amputation stump, said liner comprising a fabric covering having an open end for introduction of said stump and a closed end opposite said open end.” Thus, the mere use of different words in these portions of the claims does not create a new issue of invalidity.
Id. at 12.
Obviousness – Exercise of Ordinary Skill: OWW also challenged the district court's summary determination that a second set of claims was invalid for obviousness. The crux of OWW's argument was based on the addition of numerical limits on certain characteristics of the "gel composition" and "fabric" elements in dependent claims. The CAFC agreed with the district court that the addition of these numerical limits was nothing more than the exercise of ordinary skill in the art:
[N]othing in the record indicates that confining the otherwise obvious “gel composition” and “fabric” limitations to the recited numerical limits in the disputed dependent claims was anything other than the exercise of routine skill. Each of these features were well-known in the prior art and their use would have been predictable by one of ordinary skill in the art.
Slip Op. at 15. Nor did the analysis fo secondary indicia of non-obviousness change the outcome. OWW failed to show the requisite nexus between the secondary indicia and the patented invention (which in this case was specifically the claimed invention with the numerical limitations as distinguished from the invention minus the numerical limitations). Furthermore, "where a claimed invention represents no more than the predictable use of prior art elements according to established functions, as here, evidence of secondary indicia are frequently deemed inadequate to establish non-obviousness."
Inequitable Conduct: While the litigation was pending, Alps initiated two ex parte reexaminations of the '237 patent. Alps supported its second ex parte reexam request with the testimony of a Mr. Comtesse, who had been affiliated with the company that produced the prior art product that Alps relied upon. The examiner accepted this testimony as evidence that the prior art possessed certain characteristics, resulting in the rejection of all of the claims of the '237 patent.
In its appeal to the BPAI, OWW argued "that the examiner’s rejection was improper because it relied on the uncorroborated testimony of Mr. Comtesse, whom OWW characterized as a highly interested party." Slip Op. at 7. OWW denied the existence of any other evidence that would support the relevant testimonty of Comtesse. The BPAI subsequently reversed the examiner, finding that Comtesse was an interested third party and that his testimony was uncorroborated.
During the district court proceeding, Alps argued that there was contrary evidence that became known to OWW during the course of the litigation and should have disclosed to the PTO. Applying Therasense, however, the district court granted summary judgment in favor of OWW.
On appeal, the Federal Circuit reversed, finding that when viewing the evidence in a light most favorable to Alps, genuine issues of material fact remained. Here, the allegedly material information went to the issue of whether disclosure would have led the BPAI to credit Comtesse's testimony. The CAFC concluded that there was at least a genuine issue of fact. Furthermore, the CAFC concluded that viewing the facts in a light most favorable to Alps, OWW's (allegedly false and unfounded) assertions regarding the interested nature of Mr. Comtesse "would be tantamount to the filing of an unmistakably false affidavit."
Guest Post by Michael Risch, Professor of Law, Villanova University School of Law
Read the whole draft here, forthcoming in the Stanford Tech. L. Rev.
Before I was a patent guy, I was a copyright guy, and I did much of my work and research in user interfaces. In the 1980’s and 1990’s, there was a lot of uncertainty about how user interfaces would be protected by copyright. The latest version of the Copyright Act had just become effective, and graphical user interfaces (GUIs) were just taking off. Following a lot of litigation, and despite seemingly contradictory appellate rulings and an equally divided Supreme Court in one case, things eventually settled down.
It is against this backdrop that I took great interest in the Apple v. Samsung case, which is in trial right now on damages issues. Buried in all the talk about rectangles with rounded corners and pinch to zoom is a graphical user interface design patent.
Several of Samsung’s phones infringed this patent. In my article, I consider the implications of design patents, functionality, and graphical user interfaces. This is a realm previously limited to copyright. The difference in protection is important because design patents do not traditionally allow the same defenses — like fair use — associated with copyright.
The article answers three emerging questions:
1. Aren’t GUIs something that should be protected by copyright only? Why should there be a patent? The answer is relatively simple: the law has, since 1870, contemplated dual protection. The article traces the history to explain why the law could have evolved differently, but simply did not.
2. Display screens change, both before and after sale. How can someone patent an ephemeral screen design? It also turns out that ephemeral designs have been protected for some time. Even so, the article proposes some limitations on the protection of GUIs that should address the special nature of GUI design patents.
3. There are many differences between Apple’s patent and Samsung’s product. How can Apple own the idea of square icons in a grid with a dock bar at the bottom? This last question is the most intractable: determining when a design is infringing, and the role that functionality should play in that consideration. The bulk of the article is dedicated to answering this question.
To answer the third question, the article draws on lessons from prior copyright disputes about GUIs. It first suggests that courts must act as gatekeepers, rather than allowing juries to determine which elements to disregard as functional. It then develops economic factors that can help the court determine whether a design element is functional, and whether to allow reuse by a competing program.
While the economic factors, such as consumer switching costs, apply to both copyright and design patents, the legal doctrine to achieve economic ends will necessarily differ. As noted above, there is no fair use doctrine in design patent law. Even so, there is a form of filtration, and the article proposes that such filtration be expanded to exclude functional elements from infringement analysis. The full article is available here.
Guest Post by Christopher A. Cotropia, Professor of Law and Austin Owen Research Fellow, University of Richmond School of Law; Jay P. Kesan, Professor and H. Ross & Helen Workman Research Scholar, University of Illinois College of Law; and David L. Schwartz, Associate Professor and co-Director of the Center for Empirical Studies of Intellectual Property at Chicago-Kent College of Law
Today, a certain type of patent litigant—the non-practicing entity (“NPE”), also known as a patent assertion entity (“PAE”), patent monetization entity (“PME”), or simply patent troll—is the target of much public debate, if not venom. Indeed, President Obama himself got involved in this debate, with his Council of Economic Advisers preparing a report this summer entitled “Patent Assertion and U.S. Innovation.” The Executive Summary of the President’s report sounds the following alarm about PAE suits:
Suits brought by PAEs have tripled in just the last two years, rising from 29 percent of all infringement suits to 62 percent of all infringement suits.
This asserted explosion in PAE-initiated litigation has fed into a wider perception that PAEs are out of control and need reining in by Congress. But is the factual assertion by the President’s report an accurate characterization of total PAE litigation activity?
We address this important issue in our new article, Patent Assertion Entities (PAEs) Under the Microscope: An Empirical Investigation of Patent Holders as Litigants. To investigate PAE litigation, we personally hand-coded all 7,500+ patent holder litigants in 2010 and 2012. In our coding, we finely classified the nature of the litigants, going beyond the simple PAE / non-PAE label. Specifically, we coded each patent holder as one of the following: (1) a University; (2) an Individual Inventor/Family Trust; (3) a large Patent Aggregator (e.g., Acacia); (4) a Failed Operating Company or Failed Start-up; (5) a Patent Holding Company that appears unaffiliated with the original inventor or owner; (6) an Operating Company; (7) an IP Holding Company affiliated with an operating company; or (8) a Technology Development Company (e.g., Walker Digital).[1]
Based on our data, and contrary to the assertions in the President’s report, we do not find an explosion in PAE litigation between 2010 and 2012. In particular, the President’s report considered only the raw number of lawsuits filed in 2010 and 2012. By limiting its analysis to numbers of cases filed, rather than the underlying parties involved, the President’s report was incomplete and led to an erroneous conclusion.
To understand the reason for this error in the President’s report, one must consider an important change to patent litigation made by the America Invents Act (AIA). The AIA, adopted in 2011, changed the joinder rules relating to patent litigation by prohibiting patent holders from including multiple, unrelated defendants in a single lawsuit based on commonly-asserted patent(s). Instead, after the AIA, patent holders must file separate lawsuits against each unrelated defendant. Thus, rather than focusing on the raw number of lawsuits as the President’s report did, a more appropriate inquiry should focus on the totalnumber of patent litigants, both patent holders and accused infringers, in order to gauge more accurately the actual number of patent disputes between parties. Using this approach, we found almost no difference between 2010 and 2012 in the number of litigants in patent cases. In other words, the “explosion” of PAE litigation between 2010 and 2012 is simply a mirage.
First, in terms of raw number of patent lawsuits, our study reveals that the number of lawsuits did increase between 2010 and 2012, with a substantial increase in the raw number filed by non-operating companies (by which we mean the sum of all categories except operating companies). Our first finding therefore is similar to the President’s report. For example, while what we coded as “Patent Holding Companies” (“PHCs”) suits comprised 16% (400) of cases filed in 2010, they comprised 38% (1,959) in 2012, and this is in comparison to “Operating Companies” suits comprising 69% (1,750) of cases in 2010 to 45% (2362) of cases in 2012. The bar chart below reports these findings along with those for all of the categories we coded:
However, when we evaluated the number of litigants, rather than just the number of cases, the picture changed substantially. We considered separately both the number of unique patentees alleging infringement in 2010 and 2012 and the total number of alleged infringers in those years. For both, we found little difference between 2010 and 2012. Our second finding therefore directly contradicts the statement in the President’s report that there was an explosion of PAE lawsuits in that time period.
Specifically, concerning the number of unique patentees starting litigation, the total number barely changed between the studied years, increasing from 1,610 unique patentees in 2010 to only 1,696 in 2012. Further, the distribution among types of patentees stayed almost the same, with the unique number of PHC patentees slightly increasing from 13% (214) of all patentees in 2010 to 16% (266) in 2012, while Operating Company patentees dropped slightly, from 72% (1,156) of all patentees in 2010 to 69% (1,165) in 2012. The graph below reports all of the unique patentee numbers for the various categories.
And the number of infringement defendants (perhaps the best measure of the impact of patent litigation) corresponding to each category of patent holder also did not vary much from 2010 to 2012. In particular, the overall litigation exposure from Operating Company suits compared to other types of patentee suits remained almost constant. The number of defendants in Operating Company suits slightly dropped from 49% (5,708) of the total number of defendants in 2010 to 48% (5,611) in 2012. And while the number of alleged infringers for other categories changed, the changes were slight. For example, the number of defendants in PHCs suits rose from 27% (3,179) of all defendants in 2010 to 32% (3,698) in 2012 while the number in Individual/Family Trust dropped from 11% (1,320) in 2010 to 8% (927) in 2012. The complete comparison of total number of parties excluding the patentee in 2010 versus 2012 is set forth in the graph below.
From this data, the only real change between 2010 and 2012, the increase in the raw number of lawsuits, is most likely driven almost entirely by a procedural rule change relating to joinder passed with the 2011 patent reform. These results call certain findings in the President’s report into serious question.
Information about lawsuit filings, obviously, cannot answer all questions about PAEs. There are other serious questions relating to PAEs that demand an empirical answer. For instance:
What is the volume of patent demand letters? How many of those assert frivolous claims?
Of the litigated cases, how many of the PAE (and non-PAE) cases are frivolous?
We do not know the answers to these questions (yet), and further rigorous empirical research is needed.
To aid the effort in understanding the patent litigation landscape, we have decided to release the underlying data—our specific classifications of the litigants in all patent lawsuits filed in both 2010 and 2012—to the public. We believe that releasing this data to the public, which unpacks the definition of PAE, provides better illumination to policy makers, researchers, and others interested in the patent litigation system. This data is available to everyone to examine and evaluate at www.npedata.com.
The full paper is available for download here. It provides a detailed analysis of the distribution of the 2010 and 2012 patent cases, including information based upon technology and litigant type.
We welcome any comments and suggestions on the article or the dataset.
[1] A more detailed description of the categories can be found on pages 13-14 of our draft article.
Lee Petherbridge and I recently completed a draft of our empirical study of Federal Circuit doctrinal uniformity, a topic that ties in nicely with the recent debate over the Federal Circuit's exclusive jurisdiction over in patent cases. The piece is called Disuniformity and is available here.
The central finding of our study is a remarkable downward trend in decisional agreement between Federal Circuit judges over the past several years. Figure 1 from the study shows the degree to which all panel members agreed in precedential opinions in appeals arising from the district courts, presented as a 30-unit lagged average.
While it is clearly the case that the rate at which these Federal Circuit opinions are unanimous exhibits some variation, the trend line suggests an over 20% drop in the rate at which panels were unanimous in precedential opinions between the end of 2004 and September 2013.
In the full article, available here, we dig deeper into what we think might be going on and offer some suggestions about what this growing trend of doctrinal disuniformity might mean for the debate over the court's exclusive jurisdiction in patent cases.
The article is still in the drafting stage, so any comments and critiques are welcome!
Here's the full abstract:
The Federal Circuit is a response to a failure in judicial administration that produced a fractured, unworkable patent law; one that Congress concluded ill-served entrepreneurship and innovation. The purpose of the response – vesting exclusive jurisdiction for patent appeals in the Federal Circuit – was to permit that court to develop patent law in the direction of greater clarity and uniformity. Both at the time of the Federal Circuit’s creation and more recently, scholars, judges, and practitioners have waged great debates over whether patent law uniformity furthers the ultimate goals of entrepreneurship and innovation. These debates have rested on a largely untested empirical proposition: that the Federal Circuit’s patent law jurisprudence embodies a move towards doctrinal uniformity. This paper reports an empirical study that examines patent law uniformity through the measure of open decisional disagreement between Federal Circuit judges. Its central empirical observation is a remarkable increase in decisional disagreement – indicative of a decline in doctrinal uniformity – among Federal Circuit judges over the past several years. The paper raises and discusses several possible explanations for its surprising observations, including, inter alia, the Supreme Court and personnel changes at the Federal Circuit. It also considers what the observations and explanations might contribute to a current debate over the merits of Congress’s decision to unify patent jurisdiction in the Federal Circuit.
Guest Post by Megan M. La Belle, Assistant Professor at Catholic University of America, Columbus School of Law
Yesterday, the Supreme Court heard oral argument in Medtronic v. Boston Scientific, the first patent case of the term. The issue before the Court is whether the burden of proof in a declaratory judgment action should be on the patent owner to prove infringement or on the accused infringer to prove noninfringement. Ordinarily, the patent owner bears the burden of proving infringement, and the declaratory posture of a suit does not shift that burden. In Medtronic, however, the Federal Circuit created an exception for “MedImmune-type” cases since the patent owner cannot counterclaim for infringement. “Because the declaratory judgment plaintiff is the only party seeking the aid of the court,” the Federal Circuit reasoned, it should bear the burden of proving noninfringement.
Seth Waxman, on behalf of Medtronic, started his argument with the non-controversial proposition that patent law places the burden of proving infringement on the patent owner. Mr. Waxman went on to argue that the burden should not shift when the infringement question is raised in a declaratory judgment action – including MedImmune-type suits – because the Declaratory Judgment Act is merely a procedural device that does not alter substantive rights. For the most part, the justices appeared to agree with Mr. Waxman. However, a few questions were raised by Chief Justice Roberts, Justice Kagan, and Justice Kennedy about the fairness of allowing an accused infringer to enter into a license and then turn around and sue the patent owner for declaratory relief. In the Chief Justice’s words: “The idea is you’re moving along with the license, everybody’s happy. All of a sudden you jump into court. Why shouldn’t you have the burden as the party who seeks to disturb the status quo?”
Both Mr. Waxman and Curtis Gannon, arguing on behalf of the government as amicus curiae, addressed these questions of potential unfairness to the patent owner. They asserted that shifting the burden of proof was not the appropriate way to address the problem. Mr. Waxman suggested, instead, that patent owners could take certain steps to protect themselves, for instance by including specific contractual provisions in the license that contemplate a declaratory judgment action by the licensee. Mr. Waxman proposed a number of possible license provisions, including one that would increase the royalty rate if the accused infringer brings a declaratory judgment action, or a provision that makes the filing of a declaratory judgment action a breach of the license agreement. Mr. Gannon agreed with Mr. Waxman, and made one additional point. He said this problem of potential unfairness to the patent owner – assuming it is a problem – should be addressed by estoppel, not by shifting the burden of proof:
But even if there were some concern about the licensee turning around and challenging the agreement that it had previously made, it seems like the problem there is either that they should be estopped by what they already said in the agreement or Lear [v. Adkins] needs to be extended to keep them from being estopped in that way. But shifting the burden of proof seems like an odd way to get at solving whatever the quandary there might be.
The looming question since MedImmune is whether Lear allows patent owners to “license around” this problem as suggested, or whether such provisions undermine Lear’s policy of encouraging patent challenges. Unfortunately, Medtronic is unlikely to answer that question, so licensing parties will to continue to wonder if these types of provisions are in fact valid and enforceable.
Arguing on behalf of the patent owner, Mirowski Family Ventures, Arthur Neustadt defended the Federal Circuit’s decision in Medtronic. Mr. Neustadt contended that the Federal Circuit correctly applied the “default rule,” which allocates the burden of proof to the party seeking relief. Because Medtronic was the only party seeking relief in this case, Mr. Neustadt reasoned, it should bear the burden of proving noninfringement. Justice Scalia began the questioning by stating that this default rule generally doesn’t apply to declaratory judgment actions. So, Justice Scalia asked, “[w]hat’s different here?” Mr. Neustadt responded that this case is different because the patent owner could not assert a counterclaim for infringement due to the license. Justice Scalia was not persuaded by that argument because, as he explained, defendants in declaratory judgment actions often cannot counterclaim:
The whole purpose of the declaratory judgment statute is to enable you to sue before the other side has a cause of action against you. That’s the whole purpose of it. So – so why should the fact that the other side doesn’t have a counterclaim change anything? That’s usually the situation.
Following up on this line of questioning, Justice Ginsburg asked whether Mr. Neustadt was saying that the burden of proof should shift in every declaratory judgment action where only one party is seeking relief. Mr. Neustadt confirmed that that was his position; in his view, the burden shifting rule established in Medtronic should not be limited to patent cases. This question of how far the Medtronic rule might extend is also explored in an essay I recently published.
Throughout his argument, Mr. Neustadt made the point that this isn’t a dispute about infringement, it’s a dispute about claim coverage under the license agreement. In other words, because there’s a license in place, Medtronic cannot be infringing the patent. The justices seemed to think this was a distinction without a difference, however. At one point Justice Breyer said: “[Y]ou want to call that a claim coverage. I would call it no infringement. Call it what you wish.” Later in the argument, Justice Kagan disagreed with Mr. Neustadt’s characterization more directly: “You keep on saying it’s a question of claim coverage, but the question of claim coverage, all that is, is part of an infringement analysis.”
One issue the Court did not ask many questions about at oral argument was subject matter jurisdiction. While subject matter jurisdiction was not raised by the parties, an amicus brief filed by Tessera Technologies argued that the case does not arise under the patent laws because it’s really a contractual royalty dispute, not a dispute about patent infringement. Tessera relied heavily on the Supreme Court’s recent decision in Gunn v. Minton, which concerned the question of jurisdiction over patent malpractice actions. Yet, at yesterday’s argument, the only question raised on the topic was by Justice Ginsburg who asked the government for its views on subject matter jurisdiction. Mr. Gannon stated that the government believes this case arises under the patent laws. He explained that, in declaratory judgment actions, subject matter jurisdiction is determined by considering what claims would be asserted in the hypothetical coercive action brought against Medtronic. In other words, if Medtronic were to stop paying royalties and breach its license agreement, the patent owner would sue not only for breach of contract, but for patent infringement as well. Although the Court did not devote much time to subject matter jurisdiction, the issue was discussed at some length at a post-argument discussion hosted yesterday afternoon by the American University Washington College of Law. It will be interesting to see to what extent the Court addresses this jurisdictional question in its final decision.
On April 4th and 5th, the University of San Diego School of Law will host PatCon 4, the largest annual conference for patent law scholars. Over 60 patent law, economics, and business professors—as well as Federal Circuit Judge Kathleen O’Malley, USPTO Chief of Staff Andrew Brynes, and several district court patent pilot judges—will be participating.
