All posts by Jason Rantanen

About Jason Rantanen

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

Guest Post by Walker and Wasserman: Situating PTAB Adjudication Within the New World of Agency Adjudication

Guest post by Christopher J. Walker, The Ohio State University Moritz College of Law and Melissa F. Wasserman, The University of Texas School of Law

In 2011, Congress created a series of novel proceedings for private parties to challenge issued patents before the newly formed Patent Trial and Appeal Board (PTAB). While the PTAB proceedings are immensely popular, they have also been controversial. A series of legal challenges to these new adjudicatory proceedings are working their way through the federal judiciary and up to the Supreme Court, and the latter is deciding this Term the constitutionality of PTAB adjudication. Yet to date, there has been no sustained comparison of these new adjudicatory proceedings with other agency adjudications. This comparison could be provide numerous payoffs, including highlighting the unique facets of PTAB adjudication that may serve for successful legal challenges as well as providing opportunities for improving the decisional processes of adjudicatory boards.

In The New World of Agency Adjudication, we seek to begin this endeavor by situating PTAB adjudication in the modern administrate state. Every administrative law student learns the basics of “formal” adjudication under the Administrative Procedure Act (APA). The paradigmatic APA-governed formal adjudication involves an evidentiary hearing held before an administrative law judge (ALJ) wherein parties are entitled to oral arguments, rebuttal, and cross-examination of witnesses. The ALJ’s decision is then reviewable by the agency head, who typically can reverse the decision for largely any reason. Thus, the critical difference between APA formal adjudication—also known as Type A adjudication—and the judicial model is that the agency head has final decision-making authority.

The vast majority of agency adjudications today, however, do not take the form of APA-governed formal adjudication. The new world of agency adjudication comprises agency actions that are adjudicated by non-ALJ agency personnel that have diverse titles, such as administrative judge, administrative appeals judge, hearing officer, immigration judge—just to name a few. These non-ALJ judges have less independence and protections than ALJs. A substantial portion of these proceedings are known as Type B adjudications which still require evidentiary hearings, and hence are relatively formal. In contrast to APA governed formal adjudication, however, the APA imposes virtually no requirements on these proceedings including agency head review. Yet similar to Type A adjudication, a common feature of Type B adjudication is that the agency head has final decision-making authority.

How do the PTAB proceedings fit within this modern world of agency adjudication? Although the new PTAB proceedings have many of the hallmarks of APA formal adjudication, they lack at least two features that suggest they should not receive a Type A classification. Perhaps most saliently, the Patent Act requires these proceedings to be presided over by administrative patent judges, not administrative law judges. The second critical difference is that the Director of the Patent Office does not have final decision-making authority over PTAB determinations. Although an aggrieved party to a PTAB proceeding can file a request for a rehearing by the Board, the Director does not have the authority to review PTAB determinations as a matter of right. As a result, we argue the best understanding of PTAB proceedings is that they are Type B rather than Type A adjudication. The more difficult question is how do the new PTAB proceedings stack up to its Type B adjudication peers? We conclude quite favorably. Drawing on a recent ACUS study that focuses on identifying the best practices of Type B adjudications, we find that PTAB meets the majority of these recommendations and scores as well as most Type B proceedings.

Our Article concludes by exploring one critical difference between PTAB proceedings and most Type B adjudications: the lack of agency-head review of PTAB determinations. The standard administrative model vests final decision-making authority with the agency head for a number of reasons, including providing the agency head with policy control and the ability to bring consistency to the adjudicatory board decisions. While the Director does not have the authority to directly review PTAB determinations, she does have the ability to influence PTAB outcomes. More specifically, the Director can assign APJs to a panel that share her policy views in hopes that they will vote in accordance with her preferences. This “panel-stacking” often occurs once a rehearing and an expanded panel has been granted, so that the expanded, stacked panel reverses the original three-member decision.

Although we conclude that the Director’s designation procedures are statutorily authorized, we argue this procedure raises a colorable due process violation. Case law on permissible agency-head designation procedures is relatively sparse. One exception is the Sixth Circuit’s opinion in Utica Packing Co. v. Block, in which the Secretary of Agriculture replaced an agency adjudicator with another when the initial adjudicator failed to rule as she wished. The appellate court refused to accept the argument that the Secretary, having delegated to the agency adjudicator the original authority to resolve certain matters, could reappropriate that power at will based on disagreement with the adjudicator’s conclusions. Instead, the court held, “[t]here is no guarantee of fairness when the one who appoints a judge has the power to remove the judge before the end of proceedings for rendering a decision which displeases the appointer.”

Under the reasoning set forth in Utica, there is at least a colorable argument that the Director’s designation procedures raise substantial due process violations. Similar to the Secretary of Agriculture in Utica, the Director in effect removes the original panel before the end of the proceedings when she designates an expanded panel that she hopes will arrive at a different substantive outcome. Although the Director does not technically replace any judge, the practical effect of adding a sufficient number of new members to reverse the original panel decision is functionally equivalent to the Secretary of Agriculture’s removal of the judicial officer in Utica.

Given this colorable due process concern, our Article concludes by examining alternative mechanisms the Director of the Patent Office could utilize to ensure that PTAB consistently applies the agency’s policy preferences. While a congressional grant of agency head review would be the most straightforward way to proceed, our Article also urges the Patent Office to consider an increased reliance on rulemaking and precedential PTAB decisions. With respect to the latter, our Article encourages the Patent Office to consider streamlining the process by which it designates PTAB decisions as precedential to provide the Director with more unilateral authority in making this determination.

The current draft of our article is available on SSRN here. It’s forthcoming in the California Law Review in 2019, so there’s plenty of time for us to incorporate any comments you may have.

 

Welcome to Iowa Law’s New Dean, Kevin Washburn

By Jason Rantanen

It’s an exciting time for Iowa Law–we have some phenomenal junior faculty members who joined us this past fall and, as of Tuesday, we have a new dean.  Kevin Washburn, Regents Professor of Law and former dean of the University of New Mexico School of Law, will be joining the Iowa College of Law as its 18th dean in mid-June.

Dean Washburn has an amazing professional history, including serving as the Assistant Secretary of Indian Affairs from 2012-2016 (a position for which he was confirmed unanimously by the Senate), an AUSA in the violent crimes section of the Department of Justice, and General Counsel of the National Indian Gaming Commission.   I’m ecstatic about the provost’s selection of dean Washburn and am looking forward to seeing where he leads Iowa Law.

You can read more at the University’s press release: https://now.uiowa.edu/2018/03/university-iowa-names-new-dean-college-law

Administering Patent Law: the Iowa Law Review Symposium

By Jason Rantanen

I’m thrilled to announce that this fall’s Iowa Law Review symposium will focus on one of the most significant issues of patent law today: the intersection of patents and administrative law.   The symposium, Administering Patent Law, is co-sponsored by the Iowa Law Review and the center I direct, the Iowa Innovation, Business and Law Center.  I’m looking forward to both serious debates about the impact of this term’s Supreme Court decisions (especially Oil States v. Greene’s Energy) and more wide-ranging discussions about the place of patents, the patent office and patent law itself within the broader context of administrative law.

We have a phenomenal lineup of scholars, including both Professor Chris Walker of The Ohio State University Moritz College of Law and Professor Melissa Wasserman of the University of Texas School of Law, whose post on their recent article Situating PTAB Adjudication Within the New World of Agency Adjudication, I’ll be running shortly.  You can read more about the October 5 symposium on the symposium website.  I’ll post about public registration as we get closer to the date.

PatCon 8 Conference in San Diego Next Week

By Jason Rantanen

Next week is PatCon, the largest annual gathering of patent law, economics, and business professors. This year’s conference takes place at University of San Diego on Friday & Saturday, March 2-3, and features Joe Matal, Carter Phillips, Patent Pilot Program judges, PTO economists, prominent local attorneys, and over 50 academics (providing up to 12.5 hours of CLE credit). I’ll be there, talking about the Compendium of Federal Circuit Decisions, one of my ongoing works in progress. More information on PatCon can be found here.

How Foreign Patentees Fared in Patent Litigation in China

Guest post by Renjun Bian.  Ms. Bian is a J.S.D. candidate at UC Berkeley School of Law, where she conducts research on Chinese patent law and policies. Her dissertation focuses on patent litigation and valuation. Before coming to Berkeley, Ms. Bian studied Chinese law at Peking University, where she earned an LL.B.  Ms. Bian also holds an LLM from Berkeley and interned at King & Wood Mallesons’ Silicon Valley office.  The opinions expressed are her own.  Below, she describes findings from her forthcoming article in the Berkeley Technology Law Journal.

As the Chinese government continues to stimulate domestic innovation and patent activities via a variety of policies, China has become a world leader in both patent applications and litigation. These major developments have made China an integral venue of international patent protection for inventors and entrepreneurs worldwide.

However, due to the lack of judicial transparency before 2014, we had virtually no access to Chinese patent litigation data and knew little about how Chinese courts adjudicated patent cases. Instead, we were left with a variety of impressions and guesses based on the text of Chinese law and the limited number of cases released by the press; for example, that Chinese courts have a strong bias toward domestic companies over foreign ones, to protect the local economy; that injunctions, either preliminary or permanent, are difficult to obtain under Chinese law; that monetary damages granted by Chinese courts are extremely low, and insufficient to compensate patent holders; etc.

Taking advantage of ongoing judicial reform in China, including mandated public access to all judgments made since January 1, 2014 via a database called China Judgements Online (CJO), I wrote a paper called “Many Things You Know about Patent Infringement Litigation in China are Wrong” in 2016 (available at SSRN: https://ssrn.com/abstract=3063566). It analyzes 1,663 patent infringement judgments – all publicly available final patent infringement cases decided by local people’s courts in 2014, and surprisingly finds out that most of the long-standing beliefs about patent enforcement in China cannot be supported by empirical data.

One prominent example is that foreign patent holders were as likely to litigate as domestic patent holders, as shown below:

Not surprisingly, the overwhelming majority of patent infringement cases in China (93.08%, or 1,548) were litigated by Chinese patent owners or licensees. Foreign plaintiffs accounted for only 6.92% (115) of 1,663 decisions included in the population. This percentage – although it seemed intuitively low – represented the ratio of patents granted by SIPO to international patent applicants. According to statistics released by SIPO, 93,285 patents were issued to foreign individuals and entities in 2014, making up approximately 7.16% of all 1,302,687 patents granted by SIPO that year.

Why did foreign patentees not fear enforcing their patent rights in China as the conventional wisdom suggested? The answer may be surprising: plaintiffs fared better than domestic Chinese patent holders. They had a higher win rate, injunction rate, and average damages:

Foreign plaintiffs were more likely to win and receive injunctions than their Chinese counterparts in patent infringement cases brought in China. Moreover, damages awarded to foreign patent owners (¥201,620.45, or US$32,837.21) were almost three times higher than those awarded to Chinese patent owners (¥66,217.93, or US$10,784.68). The important implication here is that Chinese courts, while not preferring foreign parties to domestic ones, certainly did not protect the local economy at the expense of foreign companies in practice.

I have also looked into many other legal and extra-legal factors in that paper and tested how the outcome of patent infringement cases – the finding of infringement, the granting of injunctions, and the awarding of damages – in China can be explained on the basis of these factors. Some of my key findings are summarized below:

(1) Plaintiffs won in 80.16% of all patent infringement cases included in the population. Such a win rate was higher than its counterparts in many major countries – Germany (approximately 66%) and the United States (approximately 60%), for example.

(2) In China, permanent injunctions were automatically granted in most cases (93.76%), based on a finding of infringement.

(3) Damages awarded by Chinese courts are frustratingly low (US$4,885.99 in median).

(4) Design patents were overrepresented in infringement litigations in China, indicating that design patent owners are more likely to enforce their patents after issuance than owners of invention patents and utility models.

(5) The overwhelming majority of patent infringement lawsuits in China involved mechanical patents (84.64%). Electrical (13.79%) and chemical (1.57%) patents made up only a rather small portion of all decisions.

(6) On average, patent owners had waited for approximately half of the protection term of their patents (48.15% for invention patents, 65.60% for utility models, and 45.50% for design patents) before enforcement.

(7) Patent infringement cases were highly concentrated in the East Coast region – the most economically developed part of China. The nine provinces in the East Coast region heard more than three quarters of all patent infringement lawsuits in 2014.

Guest Post: Deconstructing the Question Presented in WesternGeco

Guest post by Prof. Timothy Holbrook of Emory Law.  Professor Holbrook has written extensively on extraterritoriality and patents.  In the interest of full disclosure, he anticipates that this post will likely form the basis of an amicus brief.

Patent law remains hot at the Supreme Court.  The Court on January 14, 2018, agreed to review WesternGeco LLC v. ION Geophysical Corp.  WesternGeco joins two other patent cases at the Supreme Court (so far) for its October 2017 term.

WesternGeco is interesting because it is the third time in the since the October 2006 term that the Court has reviewed a fairly esoteric patent law provision, 35 U.S.C. § 271(f).  The Court addressed this provision in Microsoft Corp. v. AT & T Corp. and, just last term, in Life Technologies Corporation v. Promega Corporation. Section 271(f) creates a form of patent infringement that is extraterritorial in nature.  This provision makes a party liable for patent infringement when it exports all or a substantial portion of the components of the patented invention, or a component with no substantial non-infringing uses, where the party intends to assemble the invention outside of the United States.  Through the territorial nexus of supplying the components in the United States, the provision allows a patent owner to regulate foreign markets.

Given the extraterritorial nature of this provision, these cases fall into the line of cases at the Supreme Court addressing the extraterritorial reach of U.S. law generally, most recently in RJR Nabisco, Inc. v. European Community. The question in WesternGeco is different from all of these earlier patent and non-patent cases, however.  The issue is not liability but instead damages.  The question presented is “Whether the U.S. Court of Appeals for the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases in which patent infringement is proven under 35 U.S.C. § 271(f)?”

WesternGeco is the third in a trilogy of cases from the Federal Circuit that grafted a strict territorial limit onto patent damages doctrine.  In two earlier cases, Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. and Carnegie Mellon University v. Marvell Technology Group, Ltd., the Federal Circuit denied lost profits and a reasonable royalty, respectively, for foreseeable, overseas damages that arose from an act of domestic infringement.  Power Integreations and Carnegie Mellon both involved damages for infringement under 35 U.S.C. § 271(a), which requires the acts of infringement to take place within the United States.  The result of these casesis that the Federal Circuit created a regime of strict territoriality for patent infringement damages.

WesternGeco, therefore, reflects a direct challenge to this territorial regime.  In fact, the Solicitor General’s brief that recommended the Supreme Court take the case focused on all three of these cases, and not merely WesternGeco.  Indeed, there is a bit of dispute over how to correctly frame the questions presented, as highlighted earlier on this blog.  As such, the issue in WesternGeco bears some deconstruction to see what is truly at issue here.

The issue in WesternGeco presents two distinct, if related, issues: (1) does the presumption against extraterritoriality apply to damages and other remedial provisions generally and (2) what is the relationship between the proximate cause aspect of damages and extraterritoriality? Each of these issues bear further exploration.

Does the presumption against extraterritoriality apply to damages and other remedial provisions?  A threshold issue the Court should address is whether the presumption against extraterritoriality should apply to remedial provisions in a statute at all.  The Supreme Court has articulated a two-step process for assessing the extraterritorial reach of U.S. laws.  In RJR Nabisco, Inc. v. European Community, the Supreme Court formalized a two-step methodology for assessing the extraterritoriality reach of a statute.  At step one, a court asks “whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially.”  If the presumption has not been rebutted, a court continues to step two, where it determines the focus of the statute.  “If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad….”

The focus on conduct suggests that the concern is with liability, not remedies.   One could argue that the presumption should simply be inapplicable to damages.  If one follows RJR Nabisco’s two step analysis with respect to liability, then by definition there is no concern with extraterritoriality as it comes to remedies and damages.  As the petition for certiorari argued, requiring two-passes through the RJR Nabisco framework – one for liability and one for damages – should be unnecessary.  The Solicitor General’s brief implicitly makes this argument when it argues that background principles of proximate cause should govern the damages inquiry and not the presumption, although the Solicitor General also views the RJR Nabisco framework with being consistent with permitting the award of damages for the lost profits in this case.

The Supreme Court has never addressed whether the presumption applies to remedial provisions.  In order to address the question presented, it needs to explicitly consider whether the presumption applies to damages provisions separately from the related liability provisions in a given statute.  As Sapna Kumar recognized in a forthcoming piece, Patent Damages Without Borders, the Court in RJR Nabisco did apply the presumption twice to the same statute for the same acts in the case, suggesting that the presumption may apply to both substantive and remedial provisions of a statute separately. Consequently, WesternGeco takes on far greater significance, beyond patent law.

As I’ve argued in Boundaries, Extraterritoriality, and Patent Damages in the Notre Dame Law Review, I think the presumption should apply both to liability and to damages provisions.  The reason can be seen in the patent statute itself.  Section 284, the damages provision of the Patent Act, is silent as to any territorial limits.  Instead it refers only to “damages adequate to compensate for the infringement,” which means the provision is inextricably tethered to § 271’s definitions of infringement.  For § 271(a), there is a strict territorial requirement that the acts take place within the United States.  Such language shows the presumption has not been rebutted at step one of RJR Nabisco.  It also suggests the focus of the statute are acts within the United States, meaning that damages should be tied to those acts.  In contrast, § 271(f) satisfies RJR Nabisco’s first step because it is extraterritorial in nature.  Thus, in my view, lost profits should generally be available for infringement under that provision.  If a court declined to apply the presumption to damages, this differentiated outcome could be missed.

For example, in Carnegie Mellon, the infringing use of the patented method undisputedly was within the United States. If the presumption were applied only as to liability, then the issue of extraterritoriality in the case would would never present itself. The court would find liability then shift directly to remedies without pausing to consider extraterritoriality of the damages. If we take seriously the concern of the extraterritoriall reach of U.S. law, we should recognize that an award of damages can have similar effects as a finding of liability based on extraterritorial activity. Ultimately, the patent holder is attempting to regulate activity outside of the United States.

What is the relationship between proximate cause and territoriality?  Even if one disagrees with me and considers the presumption to be inapplicable to damages, it still is an open question as to the relationship between proximate cause and territoriality.

The Federal Circuit treated the two concepts as distinct.  In other words, even though the damages in the trilogy of cases were seemingly all foreseeable, the court nevertheless rejected extraterritorial damages.  The court viewed territoriality as an exogenous limit on damages.

But that need not be the case: perhaps foreseeability and territoriality are both part of the complex analysis involved in proximate cause.  Foreseeability, of course, is not necessarily the sine qua non of proximate cause.  The Federal Circuit articulated the foreseeability principle in its seminal en banc decision, Rite Hite Corp. v. Kelley Co., which held that patentees could recover the profits for lost sales of devices not covered by the patent.  But the court recognized that proximate cause is flexible policy lever: “the question of legal compensability is one ‘to be determined on the facts of each case upon mixed considerations of logic, common sense, justice, policy and precedent.”  Simply because certain damages may be foreseeable in an economic sense does not mandate that they should be recoverable as a matter of proximate cause in all circumstances.

As I suggested in Boundaries, Extraterritoriality, and Patent Damages, the presumption against extraterritoriality in the damages context could be considered part of the proximate cause analysis, even if the presumption does not apply to damages formally.  The impact of awarding damages for activity outside of the United States could properly be considered part of the “mixed considerations” involved in evaluating whether domestic acts of infringement are the proximate cause of damages arising outside of the United States.

Indeed, WesternGeco presents a fairly unique question of damages.  The lost profits sought are not for the lost sales of the patented invention.  Instead, the patentee is seeking profits for lost sales of services that use the patented invention.  Thus, there is an interesting proximate cause even absent any possible territorial limits on damages.

WesternGeco to some may appear to be a relatively unimportant case, with the Supreme Court addressing a seemingly narrow patent provision of little import.  Within patent law, however, WesternGeco portends some important elaborations of U.S. patent law with respect to the territorial limits on damages generally and potentially on proximate cause.  Additionally, the case likely will have significant repercussions for the Court’s development of the presumption against extraterritoriality more broadly because the Court will have to answer the question of whether the presumption applies to remedies.

Guest Post by Prof. Jorge Contreras: TCL v. Ericsson: The First Major U.S. Top-Down FRAND Royalty Decision

(Today’s guest post is by  Professor Jorge L. Contreras of the University of Utah College of Law.  Professor Contreras is known for his excellent work on remedies, particularly in the SEP and FRAND context.  I’m especially excited about today’s guest post, as it dovetails nicely into a one-week course on Remedies in Patent Law at Iowa Law in early January, taught by another leading expert on remedies law, Prof. Tom Cotter of Minnesota. – Jason) 

On December 21, 2017, the U.S. District Court for the Central District of California released its long-awaited Memorandum of Findings of Fact and Conclusions of Law in TCL Communications v. Ericsson (SACV 14-341 JVS(DFMx) and CV 15-2370 JVS (DFMx)).  In a lengthy and carefully crafted decision, Judge James Selna sets forth some important new points regarding the calculation of fair, reasonable and non-discriminatory (FRAND) royalties for standards-essential patents (SEPs).  Among other things, the decision offers a strong endorsement of “top down” methodologies for the calculation of SEP royalties, and makes significant use of the non-discrimination (ND) prong of the FRAND commitment in arriving at a FRAND royalty rate.  Equally importantly, the case establishes that, for non-discrimination purposes, even low end vendors like TCL will be considered “similarly situated” to high end vendors like Apple, giving them the benefit of the rates that high end vendors can negotiate with SEP holders for far more expensive consumer products.

Background

The case involves the sale of cellular handsets by TCL, a Chinese firm reported to be the seventh largest global manufacturer of mobile phones.  Ericsson is one of the largest holders of patents essential to the implementation of the 2G, 3G and 4G wireless telecommunications standards published by the European Telecommunications Standards Institute (ETSI) (standards-essential patents or SEPs).  Under ETSI’s policies, ETSI participants are required to grant licenses under their SEPs to implementers of ETSI standards on terms that are fair, reasonable and non-discriminatory (FRAND).

In 2007, TCL obtained a 7-year license under Ericsson’s patents covering ETSI’s 2G standards.  In 2011, the parties began to negotiate a license under Ericsson’s 3G SEPs, and in 2013, these negotiations expanded to include Ericsson’s 4G SEPs. Over the next several years, the parties were unable to reach agreement on the terms of this license, and during the course of negotiations, Ericsson sued TCL for infringement of its SEPs in six non-U.S. jurisdictions.  In March 2014, prior to the expiration of TCL’s 2G license, TCL filed an action in the Central District of California seeking a judicial declaration that Ericsson breached its obligation to offer TCL a license on FRAND terms.  TCL agreed to abide by the court’s determination of FRAND terms for a worldwide license under Ericsson’s 2G, 3G and 4G SEPs (slip op. at p.9).  Partially based on this assurance, in June 2015 the court entered an “anti-suit injunction” against Ericsson, prohibiting it from pursuing further infringement litigation against TCL until the resolution of the FRAND issues (I discuss TCL’s anti-suit injunction here). The court ruled that the nature of TCL’s claims was equitable (p.8), making it suitable for judicial (rather than jury) determination, and a 10-day bench trial was held in early 2017.  The court’s decision was rendered in November 2017, and a public version was released in December 2017 in which certain competitive information was redacted.

FRAND Royalties

Numerous U.S. cases have made clear that a FRAND royalty must be “premised on the value of the patented feature, not any value added by the standard’s adoption of the patented technology … [so that] the royalty award is based on the incremental value that the patented invention adds to the product, not any value added by the standardization of that technology” (p. 108, quoting Ericsson v. D-Link, 773 F.3d at 1232-33 (Fed. Cir. 2014)).  Unlike the recent UK decision in Unwired Planet v. Huawei ([2017] EWHC 711 (Pat), 5 Apr. 2017] (which I discuss here and here), which held that there is but a single FRAND rate applicable to any given set of parties and SEPs ((¶804(4)), Judge Selna in TCL v. Ericsson holds that there is no single FRAND rate (p. 109).

Top-Down vs. Bottom-Up Royalty Calculations

There are two general schools of thought regarding the calculation of SEP royalties subject to FRAND commitments: bottom-up and top-down.  “Bottom-up” approaches attempt to assess the value of asserted SEPs in isolation, using comparable license agreements and other methodologies, but without significant reference to other patents covering the same standard (I critique bottom-up methodologies here and here).  In contrast, top-down approaches first determine the aggregate royalty that should be paid for all SEPs covering a particular standard, and then allocate an appropriate portion of the total to the asserted SEPs (I discuss top-down royalty calculations at length here, as do Norman Siebrasse and Tom Cotter in this recent chapter).

Top-down approaches were used by the UK court in in Unwired Planet and by the Japanese IP High Court in Apple Japan v. Samsung (2014) (both discussed here).  And in November 2017, the European Commission emphasized in its Communication on SEPs that “an individual SEP cannot be considered in isolation. Parties need to take into account a reasonable aggregate rate for the standard, assessing the overall added value of the technology” (p. 7). However, with the exception of In re. Innovatio IP Ventures (N.D. Ill. 2013), most U.S. courts making FRAND royalty determinations have used bottom-up methodologies heavily dependent on an analysis of comparable licenses (e.g., Microsoft v. Motorola (9th Cir. 2014), Ericsson v. D-Link (Fed. Cir. 2014)).

In TCL v. Ericsson, Judge Selna largely adopts the top-down methodology proposed by TCL (see below). He notes that the “appeal of a top down approach is that it prevents royalty stacking”, which occurs when individual SEP holders each demand a royalty that, when combined, can be excessive (p.15).

However, the court also notes that top-down methods cannot assess whether the licensor complied with the non-discrimination prong of the FRAND commitment.  Accordingly, Judge Selna undertakes a separate non-discrimination analysis based principally on the review of comparable licenses (discussed below).  He then combines the top-down and comparables approaches to determine the appropriate FRAND royalty rate.

The Aggregate Rate

A top-down royalty calculation methodology has two steps:  determining the aggregate SEP royalty applicable to a standard, then allocating an appropriate portion of the total to the asserted SEPs.  As I have discussed before, the UK and Japanese courts that applied top-down methodologies in FRAND cases based their aggregate rates on public statements made by SEP holders and other market participants.  Judge Selna also adopts this approach, citing various public statements and press releases by Ericsson that support an aggregate royalty of 5% on the 2G and 3G standards and a rate between 6% and 10% on the 4G standard (pp.19-26). While the court acknowledges that this method “is not perfect” (p.25), one of its merits is its dependence on statements made by Ericsson itself to induce the market to adopt standards covered by its own SEPs (p.25) (for a discussion of “market reliance” on FRAND commitments, see this paper).

Allocation of Ericsson’s Proportional Share

Once an aggregate royalty rate for all SEPs covering a standard has been determined, the appropriate portion must be allocated to the SEPs asserted in the case.  In TCL v. Ericsson, this determination involved two contentious steps: determining the total number of SEPs covering each standard (the denominator), then determining Ericsson’s share of those SEPs (the numerator).  The percentage of SEPs held by the SEP holder is the quotient of the numerator divided by the denominator.

Essentiality. It is well known in the literature that many patents declared by their owners as “essential” to a particular standard are, upon closer inspection, not really essential at all (up to 80% in some cases).  This is the problem of “over-declaration”, and it occurs because there is no verification by any third party of the essentiality of patents declared by their owners to be SEPs. As a result, courts considering total royalties attributable to SEPs covering a standard must also consider how many patents are actually essential to the standard.

Optional Portions.   An initial question addressed by the court is whether patents covering optional portions of a standard should be considered “essential” to the standard.  After analyzing the specific language of the ETSI policy, the court concludes that patents covering optional portions of an ETSI standard should not count as SEPs (p.27).

Essentiality Sampling.  Instead of analyzing the essentiality of each patent declared essential to the 2G, 3G and 4G standards, TCL’s experts sampled one-third of the patents covering each standard for each of the fifteen largest patent holders.  Thus, of 7,106 declared patent families covering user equipment, TCL analyzed the essentiality of approximately 2,600 patent families.  After various forms of cross-checking, it determined that a total of 413 patent families were essential to the 2G standard, 1,076 to 3G and 1,673 to 4G (pp.28-29).  Interestingly, it appears that TCL’s experts charged approximately $100 per patent for this analysis (p.30), which is significantly lower than the $10,000 per patent that is generally acknowledged as the cost of essentiality analyses for patent pools (some figures are collected here). One of the reasons for the low cost of TCL’s analysis was that TCL’s experts reviewed only the claims of the examined patents, not the full specifications.  Given that a review of patent specifications could have resulted in additional patents being found non-essential (p.31), the court adjusts the totals downward to arrive at 365 SEPs covering 2G, 953 covering 3G and 1,481 covering 4G (p.32).

Ericsson’s Share.  To compute Ericsson’s share of SEPs covering the relevant standards (the numerator), the parties’ experts determined which of the SEPs already identified would be owned by Ericsson during the term of a 5-year (60-month) license (p. 37).  Under the holding of Brulotte v. Thys, 379 U.S. 29 (1964), which prohibits post-expiration patent royalties, the court eliminates from Ericsson’s total any patents that expired prior to the date of closing arguments (May 18, 2017) (p.36). Interestingly, the court did not require the elimination of expired SEPs from the total number of SEPs (the denominator).  It explained that “[b]ecause the total aggregate royalty represents the value of all expired and unexpired inventions in the standard, … removing an expired SEP from the denominator treats the invention as no longer having value.  The invention however still has value, that value has merely been transferred to the public domain.  To remove expired patents from the denominator (without decreasing the total aggregate royalty) would result in transferring the value from expired inventions to the remaining patents in the standard instead of the public.” (p.36).

Interestingly, while the parties agreed that Ericsson held 12 2G SEPs, they disagreed with respect to the number of 3G and 4G SEPs SEPs held by Ericsson (TCL finding 19.65 3G SEPs and 69.88 4G SEPs, and Ericsson finding 24.65 3G SEPs and 111.51 4G SEPs) (p. 37).  In any event, even using Ericsson’s estimate of approximately 150 SEPs, this is a relatively modest share of the 3,162 patent families essential to the 2G, 3G and 4G standards.

Relative Strength.  TCL argued that Ericsson’s proportionate share should be adjusted based on the relative importance of Ericsson’s SEPs compared to other SEPs covering the standards at issue (pp. 38-40) (this concept was introduced by Judge Robart in Microsoft v. Motorola, in which the court evaluated both the importance of the asserted patents to the standard and the importance of the standard to the overall product).  Though Judge Selna did not accept TCL’s methodology for gauging the importance of Ericsson’s SEPs, it did concede that “Ericsson’s patent portfolio is certainly not as strong or essential as it has claimed” (p. 43).

Geographical Variance

The court recognized that Ericsson’s patent strength was greatest in the U.S. and therefor determined that a discount rate should be applied to Ericsson’s FRAND royalty outside of the U.S.  It reasoned that “a global patent rate that does not account for differences in national patent strength provides the SEP owner a royalty based on features that are unpatented in many jurisdictions” (p. 44). For the sake of simplicity, the court divided the world into three regions: U.S., Europe and Rest of World (ROW) and established precise discounts for non-U.S. regions for each standard (e.g., for ROW, Ericsson’s 2G value share is 54.9% of the U.S. value)  (p. 45). This approach is significantly more fine-grained than that taken by the UK court in Unwired Planet, which divided the world into just two categories: Major Markets (U.S., Japan, Korea, India and several European countries) and all other countries, including China.  The FRAND rate for non-Major Market countries was simply 50% of the Major Market rate.

Violation of “Fair and Reasonable” Prong of FRAND

Even though the court does not accept each of TCL’s methodological steps in its top-down royalty analysis, the court finds, on the basis of those portions of the analysis that it accepts, that Ericsson’s offers to TCL are not “fair and reasonable” under its ETSI FRAND commitment.

Non-Discrimination

The court next analyzes whether Ericsson’s offers to TCL complied with the non-discrimination prong of its FRAND commitment.

Similarly Situated. As noted above, a FRAND license must be non-discriminatory.  This means that the licensor must not discriminate against similarly-situated licensees (p. 54). In TCL v. Ericsson, the court undertakes the most detailed analysis to-date to identify which firms are similarly situated with the potential licensee.  First, it concludes that the basis for comparison must be “all firms reasonably well-established in the world market” [for telecommunications products] (p. 56).  The court expressly excludes from this group “local kings” – firms that sell most of their products in a single country (e.g., India’s Karbonn and China’s Coolpad) (p. 59).  The firms that the court finds to be similarly situated to TCL are Apple, Samsung, Huawei, LG, HTC and ZTE (p. 58). Ericsson argued that Apple and Samsung are not similar to TCL given their greater market shares and brand recognition, but the court rejects that argument, reasoning that “the prohibition on discrimination would mean very little if the largest, most profitable firms could always be a category unto themselves simply because they were the largest and most profitable firms” (p. 61).

 The court found Ericsson’s licenses to Apple and Huawei to be suitable benchmarks for comparison to its offers to TCL (p. 91).  This conclusion is critical, because it establishes that low end vendors like TCL will be compared with high end vendors like Apple as to FRAND rates, giving low end vendors the benefit of favorable rate packages that high end vendors have been able to negotiate with respect to far more expensive products.

Competitive Harm.  Ericsson argued that in order for an instance of discrimination to violate Ericsson’s FRAND commitment, it must have the effect of “impairing the development of standards” (p. 91).  A similar systemic approach was taken in Unwired Planet, in which the UK court held that a violation of FRAND would not arise unless discriminatory treatment of licensees would “distort competition” (¶501). Judge Selna in TCL v. Ericsson takes a different view, holding instead that  discrimination in violation of a FRAND commitment can be found so long as an individual firm is harmed.  He expressly rejects the application of an antitrust-based standard, which requires harm to competition rather than harm to a competitor, to the analysis of a FRAND commitment (p. 91).

Comparison to Ericsson’s Offers. Though the options offered by Ericsson were complex and involved both lump sum payments and royalty floors within certain ranges (making them difficult to compare to other licenses), the court estimated that under one option, Ericsson’s offer to TCL translated to a running royalty on handsets of approximately 1% for 2G, 3G and 4G, and under another option 0.8% – 1.0% for 2G, 1.2% for 3G and 1.5% for 4G with a $2.00 per unit floor and a $4.50 per unit cap (p. 90).  The royalty floor proposed by Ericsson was apparently intended to address TCL’s low selling price for handsets, so that Ericsson would receive an assured royalty stream no matter how cheaply TCL priced its handsets.  Slightly different royalty schedules were proposed for external modems (p.90).

Discrimination.  Based on this analysis, the court holds that Ericsson’s offers to TCL “are radically divergent from the rates which Ericsson agreed to accept from licensees similarly situated to TCL” and that Ericsson’s offers to TCL were therefore discriminatory and noncompliant with its FRAND obligations (p. 94). In particular, the court holds that Ericsson’s proposed “floor” on royalties payable by TCL was discriminatory (p. 113).  This being said, the court also finds that Ericsson negotiated in good faith and that its conduct during the negotiations did not violate its FRAND obligations (p. 3).

 

Having concluded that Ericsson’s offers to TCL were not FRAND, the court proceeds to determine a FRAND rate for TCL’s desired license. It does so using a combination of the top-down rates derived above, as well as the comparable licenses reviewed in its non-discrimination analysis.  Below is a table containing the court’s final determination of FRAND rates for the different standards and geographic regions at issue (p. 104):

Figure - Contreras

Royalty Base and SSPPU?  It is notable that the court’s decision in TCL v. Ericsson does not discuss the often contentious issue of the appropriate royalty “base” for TCL’s products – the figure against which the percentage royalty is applied.  As explained in cases such as Ericsson v. D-Link, parties often disagree whether the SEP holder’s royalty should be applied against a component (e.g., a chip) embodying the standardized technology or against an end user product such as a smart phone.  If the percentage royalty rate is not adjusted, the choice of the royalty base could result in radically different payments to the SEP holder. This concern has led to debates over the appropriateness of using constructs such as the “smallest salable patent practicing unit” (SSPPU) as the royalty base.  I understand that this debate was largely avoided in this case because TCL conceded that the royalty would be charged against the selling price of its handset units.

Holding and Conclusions

On the basis of these findings, the court prescribes that the parties enter into a 5-year license agreement reflecting the FRAND rates described above (p. 115).  In addition, TCL must pay Ericsson approximately $16.5 million for past unlicensed sales.

While the outcome of this case will likely make it easier for firms such as TCL to compete in the U.S. and other major markets, it also establishes several important guideposts for future FRAND license negotiations. First, the case establishes that, for non-discrimination purposes, even low end vendors like TCL will be considered “similarly situated” to high end vendors like Apple, giving them the benefit of the rates that high end vendors negotiate with SEP holders for much more expensive products.  Equally importantly, it highlights the growing predominance of top-down royalty calculation methodologies for FRAND licenses.

More fun with wintry patents

By Jason Rantanen

Here’s my addition to Dennis’s holiday patent post, based off materials I used for my Patent Law exam this year.   The technology involves recent interest of mine: making clear ice cubes.  Thanks to the cocktail renaissance of the 2000’s, there’s been a new interest among home bartenders in upping their game.   And what better way to show off than with a crystal-clear sphere of ice?

A day before to the exam, students were given a packet of documents that included a copy of a 2009 weblog post by Camper English, reprinted with permission.  English’s blog post talks about using “directional freezing” (described as freezing water from the top-down) in order to produce clear ice.  Students were asked to assume the following:

Camper English was the first person to discover that clear ice could be produced in a home freezer by freezing the ice in a directional manner.  English published these findings on a weblog on December 28, 2009, a copy of which you were provided in Appendix A.  English immediately filed a patent application that contained the following claim.

I claim:

  1. A method of producing ice comprising freezing water in a directional manner in a home freezer.

Analyze the patentability of the claim under current patent eligible subject matter law.

***

The remainder of this series of questions revolved around an actual patent for producing clear ice spheres, Patent No 9,784,492, and a hypothetical infringement suit.  I found the concept embodied in the ‘492 patent quite clever: create an insulated two-part mold with a small hole in the bottom leading to a reservoir.  This setup produces clear, shaped ice. The ‘492 patent is assigned to Wintersmith (commercial embodiment).  Claim 1 reads:

1. A device for producing a piece of ice when the device is placed in a freezing environment, wherein the piece of ice has a shape, the device comprising:

an insulating vessel designed and configured to be placed into the freezing environment, the insulating vessel having an interior, an upper portion, and a lower portion and including an opening in the upper portion;

a mold designed and configured to be removably installed into the insulating vessel via the opening each time the device is used to make the piece of ice, the mold:

having an upper end and a lower end spaced from the upper end;
defining a hollow void between the lower end of the mold and the interior of the insulating vessel when mold is installed in the insulating vessel during use of the device;
defining a cavity between the upper and lower ends and having the shape of the piece of ice, the cavity designed and configured to receive a liquid to be frozen into the piece of ice during use of the device;
including an exit hole at the lower end, the exit hole designed and configured to place the cavity of the mold into communication with the hollow void so as to allow the liquid to flow into the hollow void from the cavity of the mold during use of the device; and
including a fill opening in the upper end, the fill opening designed and configured to allow the liquid to flow into the cavity of the mold, wherein the fill opening is used to fill the hollow void and the cavity with the liquid during use of the device to make the piece of ice; and

a cup designed and configured to:

receive the mold so as to laterally constrain the mold during use of the device;
be inserted into the insulating vessel during use of the device; and
include an opening in registration with the exit hole of the mold so as to allow the exit hole to fluidly communicate with the hollow void;
wherein the cup has a substantially cylindrical interior and the mold has a like-shaped exterior designed and configured to confront the cylindrical interior when the mold is fully engaged with the cup.

 

Patent 492

Fig. 1 of Patent No. 9,784,492

 

 

Guest Post by Eric Sutton: Do You Know What your Provisional Application Did Last Summer?

Eric Sutton is a senior patent counsel at Oracle and an adjunct professor at Chicago-Kent College of Law. Any views or opinions expressed by him in this article are solely his own and do not necessarily represent those of Oracle Corporation, its subsidiaries or affiliates.

As known to most patent practitioners,[i] a parent provisional does not lock in a priority date for a child non-provisional unless the parent provisional provides a written description and enablement of an invention that is claimed in the child non-provisional. This assessment is conducted on a claim-by-claim basis[ii] to see if the parent provisional adequately supports and enables the precise subject matter of each child non-provisional claim for which priority is desired. If none of the claims in the child non-provisional are fully supported and enabled by the parent provisional, then the priority date for all of the claims is the later filing date of the non-provisional. In this scenario, the provisional has no clear value.

Under our first-inventor-to-file system, references that are published or patent applications that are filed between an applicant’s parent provisional filing and the applicant’s child non-provisional filing open the door for prior art to the claims of the child non-provisional filing, if those claims are not fully supported and enabled by the parent provisional.

Patent applicants, especially for software-related technologies, often file provisionals just before product releases, presentations at conferences, or publications of white papers or marketing materials. In-house patent portfolio managers frequently reassure business leaders that the technologies are protected by the provisionals, and outside patent counsel often similarly reassure in-house patent portfolio managers. However, due to time and budget pressures that often impact provisionals, relying on a provisional for priority may be significantly riskier than relying on a non-provisional.

Consider the hypothetical example below:

image001

In the example, suppose your company files many provisionals and, on average, files many non-provisionals — each about ten months after its corresponding provisional. You file the provisionals ahead of product releases, and your competitor follows up with very similar product releases within a few months. The competitor’s product releases and several publications about the underlying technology occur during the ten-month span between provisional and non-provisional filings. Any aspects of these publications that were not completely derived from your product would serve as potentially invalidating prior art to your non-provisional filings unless your provisional filings satisfy the written description and enablement requirements with respect to your non-provisional claims. This scenario could happen over and over again, and negative effects from this scenario could even be baked into your provisional and non-provisional filing strategies in a fast-paced product development environment.

In a big data analysis of provisional application quality, focused on comparing provisional application content to non-provisional claims using Innography®, LexisNexis® PatentAdvisor®, and self-developed software, I found that many patent attorneys seemingly do rely rather extensively on their provisionals.[iii] On average, applicants rely extensively on their provisionals by allowing an average of ten months of risk for intervening prior art by filing the first-filed child non-provisional ten months after the corresponding provisional. Whether or not that intervening prior art actually shows up is beyond their control, particularly if they have already let the cat out of the bag by sharing their technology with others.

How can we know, with high probability for a large set of provisionals, whether those provisionals provide support for their child non-provisional claims? While there are many approaches available, some are more or less time-consuming, more or less subjective, more or less scalable, and more or less reproducible. I chose to analyze a large chunk of application pairs[iv] to see whether word stems present in the non-provisional claims[v] were also present in the corresponding parent provisionals.[vi] I then further excluded word stems that often appear in patent claims to produce even more interesting results that focus in on the less common word stems that theoretically would be more troubling if missing from the provisionals. The results are objective for what they show, i.e., that provisionals are, on average, missing several word stems from the broadest independent claims of the non-provisionals.

The study does not conclude missing word stems or even missing uncommon word stems necessarily mean that there is no support or enablement in the provisional. On the contrary, the conclusion of this study depends on your personal experience and judgment. Suppose you know nothing about a large set of provisionals in your portfolio other than how many unique word stems and, more specifically, how many uncommon unique word stems from the broadest child non-provisional claims were missing from the provisionals.

My guess is that most people would be very comfortable if all of the word stems or uncommon word stems were present in the provisional (0% miss rate) even though it is still possible they have not supported or enabled the claims in particular scenarios. On the other hand, I think most people would be very uncomfortable if all of the word stems or uncommon word stems were absent from the provisional (100% miss rate) even though it is still possible that they have supported or enabled the claims. Different people will have different comfort levels between 0% and 100% depending on their own experiences and understanding, but at higher percentages one would likely begin to bet against priority rather than for it.

The study evaluated 1905 pairs of parent provisionals and non-provisionals, filed between March 2012 and July 2013.[vii] In the sample, there were 16,739 unique word stems in the first claims of the 1905 non-provisionals. For the parent provisional / child non-provisional pairs, an average of 7.0 unique word stems from claim 1 were missing from the parent provisionals out of an average of 49.8 unique word stems per claim, for a 13.3% unique word-stem miss rate. As mentioned above, applicants waited an average of 10 months between filing the first-filed non-provisional from the provisionals, which means applicants relied on these provisionals by taking on unnecessary risk, despite the significant average miss rates.

The chart below shows percentages of cases at different levels of word stem miss rates.

Sutton 2As shown, about 19.3% of cases were missing 25% or more of the unique word stems, a point that is likely beyond the comfort level of most patent practitioners. That said, 21.5% of cases had a 0% miss rate, indicating that a large group of patent practitioners is avoiding the written description and enablement risk that comes with varied language.

After a careful analysis of stems at different thresholds, it turned out that the top 3% of stems (516 stems) occurred 30 or more times in the sample and included stems that, for the most part, would likely not be considered relevant to a written description analysis, whether or not a synonym was present in the provisional. The choice of a cutoff level was subjective, but the cutoff itself was objectively applied in the sense that all terms above the cutoff were removed from the study and all terms below the cutoff remained in the study. The rationale used for the subjective cutoff level was to pick a level that was just beyond any level including the most common terms occurring in computer-related claims. Although the sample of cases was not limited to computer-related cases, computer-related terms excluded as being part of the top 3% were, for example:

comput, store, storage, devic, service, server, system, machin, network, send, receiv, transmit, communic, provid, transit, instruct, engine, modul, configur, process.

Using the list above as a proxy for familiar common terms was helpful in picking a cutoff point even though a significant portion of the sample did not involve computer-related innovation. Stems beyond the top 3% boundary remained in the study. These less common stems occurred 29 or fewer times in the sample of 1905 claims.

Should the miss rates go up or down after removing the common stems? My hypothesis was that miss rates would go down because terminology such as “compris” (excluded as within the top 3%) might often be added by attorneys down the road as claims are solidified. At a minimum, more cases would have a 0% miss rate when fewer stems are searched. Others predicted that the miss rates would go up for other buckets because common terminology is usually present in the provisional, at least as boilerplate. Therefore, removing the common terminology would reveal the true incompatibility between provisionals and non-provisional claims.

I was not willing to tolerate the same miss rates as I did in the analysis for all stems. Because we are focusing on only the stems that occur relatively infrequently (in 29 or fewer out of 1905 claims), it is significantly more likely (though not certain) that these stems would reflect content that could be relevant to written description or enablement issues.

Others were right to think the results would get worse. Removing the top 3% of stems reduced the average number of unique stems per claim by 27 stems (45.8%) to 22.8 stems. Out of those 22.8 uncommon unique stems remaining, on average, provisionals were missing 5.3 for an average miss rate of 17.7%, up by 4.4%. Personally, I was shocked at this result and felt uncomfortable on behalf of the patent bar.

The chart below shows percentages of cases at different levels of uncommon word stem miss rates.

Sutton 3As shown, about 26.7% of cases were missing 25% or more of the unique word stems. The 26.7% uncommon stems mark is up from the 19.3% mark for all stems, reflecting a delta of 7.4%. If having 25% or more uncommon stems missing is beyond the comfort level of most patent practitioners, then practitioners should be uncomfortable with at least 26.7% of the provisionals being filed. I was equally as shocked to see that 9.8% (up by 5.5%) of cases were missing 50% or more of the uncommon stems. The largest cluster was 24.1% (up by 2.6%) having a miss rate of 0%, although there were a few miss rates even at 100%.

Due to the skewed distribution with miss rates falling at both ends of the spectrum, statistical metrics such as standard deviation did not provide much insight into the dataset beyond the charts shown. Nevertheless:

  • a miss rate of 21% (30% of the sample) was greater than one standard deviation away from the peak of 0%,
  • a miss rate of 34% (19% of the sample) was 1.645 times the standard deviation away from the peak (considered significantly different than the peak of 0% for a right-tailed distribution, p = .05, if the peak miss rate of 0% is considered to be the target). Note this analysis incorrectly treats the 100% miss rates as deviating from the target, when at least these cases clearly have a different target. This unnecessarily inflates the miss rate required to qualify as significantly different.
  • a miss rate of 42% (14% of the sample) was greater than two standard deviations away from the peak.

U.S. ISSUES

It turns out that, in the U.S., the patent office does not even check for provisional application priority unless there is intervening prior art. That said, priority issues do come up in courts where litigants are equipped with discovery and additional resources.[viii] Based on the results of this study, it seems that there is some low hanging fruit where the patent office could object to a priority claim that is extremely unlikely to be accurate and, after patent office review, turns out to be inaccurate regardless of whether the patent office has found intervening prior art.

INTERNATIONAL ISSUES

Although I am not qualified to opine on the laws of specific other countries, I do know that many other countries generally have a stricter view on specification support for the purposes of preserving priority. According to Heather McCann, a European Patent Attorney at EIP: “Having a mismatch in the literal terminology of the U.S. provisional and a child PCT application or a child European direct national filing could significantly reduce the possibility of obtaining patent protection and successfully defending a validity challenge, post-grant, if the contents of the U.S. provisional application were published (even by the applicant) prior to the child PCT or child direct national filing.”[ix]

Unfortunately for U.S. applicants, unless they are keen on priority issues, non-U.S. patent offices might be able to reject cases from U.S. applicants more frequently based on a difference between common U.S. practice and foreign written description and enablement laws.

INEQUITABLE CONDUCT

Because inequitable conduct involves intent, which is fact-specific, this article does not delve any deeper into this potential issue. That said, it would be interesting to hear an argument and supporting explanation against such a finding if the applicant incorrectly claimed priority even though 100% of the uncommon word stems were missing from the provisional.

GENERAL CONCLUSIONS

The study is an objective report of terminology disagreement between provisionals and non-provisionals. Individual attorneys will vary on how much terminology disagreement they find comfortable in light of their understanding of 35 U.S.C. 112(a).

With 27% of the provisionals missing a quarter or more of the broadest non-provisional claim’s uncommon unique word stems, there is much room for the patent bar to either improve provisional application quality or avoid inaccurate priority claims. Perhaps this could also be accomplished by prioritizing the conversion to a non-provisional or filing incremental provisionals as more details become available, rather than waiting 10 months for the conversion.


 

[i] For more information on the written description and enablement requirements, particularly as they apply to software-related innovation, see Sutton, E. Software Patents: A Practical Perspective (ver. 2.2, Sept. 2017), available on Amazon at http://a.co/9xcPNr9 (a software patents textbook in support of a law course offered at Chicago-Kent College of Law).

[ii] Los Angeles Biomedical Research Institute at Harbor-UCLA Medical Center v. Eli Lilly and Company, 849 F.3d 1049 (Fed. Cir. 2017) (inadequate written description in provisional); Phigenix, Inc. v. Genentech Inc., 238 F.Supp.3d 1177 (N.D. Cal. 2017) (inadequate written description in provisional); See Storer v. Clark, 860 F.3d 1340 (Fed. Cir. 2017) (provisional not enabling); Dynamic Drinkware, LLC v. National Graphics, Inc., 800 F.3d 1375 (Fed. Cir. 2015) (“priority claims are not examined by the PTO as a matter of course, and consequently are not entitled to a presumption of adequate written description support in the provisional application,” and “[a] provisional application’s effectiveness as prior art depends on its written description support for the claims of the issued patent . . . .”).

[iii] N=1905, down from an original sample of 2341 after excluding: (a) unparseable provisionals, (b) clearly incomplete claims (for example, a method claim ending at the colon), and (c) later-filed provisionals that paired with the same first-filed non-provisional; provisionals filed Mar. 2012 to July 2013 across all companies, spanning the AIA transition; raw provisional pdfs available from PAIR, provided by Innography® in Jan. 2017; filing dates provided by Innography® directly and through use of their excellent patent portfolio analytics tool; sample spread over TC 1600, 1700, 2100, 2400, 2600, 2800, 3600, and 3700.

[iv] N=1905, same sample as above, comparing claim 1 of the non-provisional to the entire contents of the provisional application pdf, drawings included, based on Official Character Recognition (OCR) performed in batch by Adobe® Acrobat® 9 Standard, version 9.0.0. Provisionals were paired up with their first-filed non-provisionals based on data provided by Innography®. The claims of the non-provisionals were downloaded from Innography®.

[v] The first claims of the first-filed non-provisionals were stemmed using a popular word stemming library to result in unique word stems.

[vi] The text of the corresponding provisionals, as a result of the Adobe® Acrobat® 9 Standard OCR (see above), was searched for any text that would match the unique word stems. Spacing issues and formatting issues were corrected before performing the comparison.

[vii] The provisionals involved were filed between March 2012 and July 2013, bridging the AIA transition. If attorneys changed practice from pre-AIA to post-AIA, those changes were not sufficiently detectable in this sample. Although I personally believe that attorneys have not changed practice post-AIA; to fully test that hypothesis, I would need a sample significantly earlier than the AIA and a separate sample significantly later than the AIA. These samples simply were not available to me when I started the study.

[viii] Los Angeles Biomedical Research Institute at Harbor-UCLA Medical Center v. Eli Lilly and Company, 849 F.3d 1049 (Fed. Cir. 2017) (inadequate written description in provisional); Phigenix, Inc. v. Genentech Inc., 238 F.Supp.3d 1177 (N.D. Cal. 2017) (inadequate written description in provisional); See Storer v. Clark, 860 F.3d 1340 (Fed. Cir. 2017) (provisional not enabling); Dynamic Drinkware, LLC v. National Graphics, Inc., 800 F.3d 1375 (Fed. Cir. 2015) (“priority claims are not examined by the PTO as a matter of course, and consequently are not entitled to a presumption of adequate written description support in the provisional application,” and “[a] provisional application’s effectiveness as prior art depends on its written description support for the claims of the issued patent . . . .”).

[ix] See, for example, European decision T 1983/14 “Purchase of mobile top-up/JANUARY PATENTS LTD.” (Nov. 23, 2015) (“The case law of the Boards of Appeal requires that the subject matter be directly and unambiguously derivable by the skilled person from the disclosure as a whole. The expressions ‘invoiced together’ and ‘charged for together’ . . . disclosed no more than that transactions could take place on the same machine[, not] multiple products being invoiced as one transaction.”); European decision T 2061/13  (June 20, 2017) (“subject-matter of claim 1 is . . . not directly and unambiguously derivable by the skilled person . . . such that . . . claim 1 does not have a right to priority from P1.”).

Federal Circuit Review of the PTAB

By Jason Rantanen

I’m presenting some data from the Compendium of Federal Circuit Decisions later today at Chicago-Kent’s terrific conference on The Power of the PTAB.  Below are a few of the graphs I’ll be showing, along with a bonus graph involving Federal Circuit review of inter partes review proceedings.  All data is through October 17, 2017.

This first graph shows the distribution of dispute types in opinions and Rule 36 summary affirmances that arise from the USPTO.  Unsurprisingly, most of the growth in these decisions comes from appeals in IPRs.  More surprising to me was that a substantial chunk of the growth from 2014-16 came from appeals from inter partes reexamaminations.  Those will drop off as the last reexaminations work through the system.

Dispute Types

This second graph shows the affirmance rates in different dispute types for the period 2012-2016.  Note the difference between affirmance rates in ex parte-type proceedings versus the rates in inter partes-type proceedings.  For the CBMR and Interference rates, keep in mind that the number of these decisions is small for this time period (CBMR, n=15, Interference, n=25).

Federal CIrcuit Review 2012-2016

Here’s the bonus graph: the affirmance rates for inter partes reviews only.  Although the affirmance rate was above 85% for 2015 (n=44), it was lower in 2016 (n=107), and so far for 2017 has been even lower (n=100 through Oct. 17, 2017).

CAFC review of IPRs

This last graph shows the frequency of the Federal Circuit’s use of Rule 36 summary affirmances.  The “post-Crouch” drop may vindicate Dennis’s February 1, 2017 post on Rule 36 affirmances.  That bar reflects the frequency of Rule 36 affirmances in these appeals since that date.

Frequency of Rule 36

Thanks to my research assistants, Louis Constantinou, Sarah Jack and Brett Winborn for their hard work on the Compendium.  If you are a researcher on the Federal Circuit and would like access to the Compendium in its beta state, please drop me an email.

 

 

 

Claim construction by any other name…

By Jason Rantanen

is still claim construction in my book.  This is true even when the claim construction focuses less on the specific meaning of individual words or phrases and more on construing the invention as a whole.

***

One of the most enjoyable things about teaching a course like Patent Law, which I’m doing again this fall, is that you get to re-read all the old classics and work through them from first principles with students who are not (yet) locked in the dogma of accepted narratives.  In other words, to see cases such as Mayo, Myriad, and Alice through fresh eyes, or to explore the evolution of post-Markman claim construction from Markman to Cybor to Phillips to Teva.  Today we worked through some of the examples that the PTO has published–for those who aren’t aware, there’s a host of them on the PTO’s website.

As I’ve read through the patent eligible subject eligibility cases again, I’m struck by the extent to which the courts engage in what I can only describe as claim construction–but a very different type of claim construction than what’s contained in the countless opinions deciding the meaning of individual claim terms over the last two decades.  Those cases address the meaning of individual terms or phrases in a patent claim, often in a way that is dispositive of an infringement, novelty or nonobviousness issue.

The different type of claim construction that I’m talking about is what courts necessarily do when conducting a patent eligible subject matter analyses (and perhaps nonobviousness and enablement as well): construe the invention from the claims rather than interpret a particular word or phrase. None of the judicial opinions talk about what they’re doing as claim construction, but that seems to me to be exactly what it is.

The idea that courts describe patent claims in words other than those of the claims themselves during patent eligible subject matter inquiries is nothing new–to the contrary, it’s a frequent complaint about the Supreme Court’s patent eligible subject matter cases.  Usually, it’s referred to as determining what the claims are “directed to,” or, in the second part of the Mayo/Alice inquiry, the search for an “inventive concept.”

But if claim construction is understood as the translation  of the words of a patent claim into text that will have meaning for the person deciding a legal issue such as infringement or validity, then discussions of the patent claims in the context of patent eligible subject matter analyses would seem to be exactly that.  Alice offers an obvious example: there, the Supreme Court explained that “[o]n their face, the claims before us are drawn to the concept of intermediated settlement,” (an abstract idea, failing Mayo step 1), and that “viewed as a whole, petitioner’s method claims simply recite the concept of intermediated settlement as performed by a generic computer” (thus failing Mayo step 2).  Put another way, the Court took the words of the claim, gave them legally operative meaning, and then assessed whether that legally operative meaning against the criteria of abstract idea and inventive concept.  That’s claim construction.

I can see some pushback here from folks who think of claim construction solely as the process of determining the meaning of individual words or phrases in a claim–in other words, as  questions of accuracy about the meaning of words.  The sharp focus on the meaning of individual claim terms has dominated thinking about patent law for the last two decades, but I think it’s a mistake to view claims only as individual limitations.  That approach is useful for inquiries such as literal infringement or novelty, but it’s of less use when conducting other types of patentability or validity analyses.  I’m not suggesting that claim term interpretation is irrelevant to patent eligible subject matter or enablement inquiries–sometimes the meaning of individual terms matters quite a bit.  But what I see courts doing again and again in the patent eligible subject matter cases is to read the claims to arrive at a construction of the invention, rather than resolve disputes about the meaning of particular terms.

My thinking in this area is heavily influenced by Andres Sawicki’s forthcoming article The Central Claiming Renaissance.  Professor Sawicki argues that the Supreme Court’s re-invigoration of patent eligible subject matter has been accompanied by a rebirth of “central claiming”: the idea that “courts use both the specification and the claims to situate the inventor’s work in the context of the technological field to understand just what it is that the inventor contributed.”  Id. at 10.  Sawicki observes that the Mayo/Alice analysis necessarily requires a determination of the inventor’s contribution–and particularly, whether that is the type of thing that is patent eligible subject matter.  Consistent with the idea of central claiming, he suggests that in identifying the inventor’s contribution, the Supreme Court looked mostly to the the specification when making this determination in Bilski, Mayo, and Alice,  even as he acknowledges the important role the claims play in what the Court was doing.  Id. at 23-35.

While I mostly agree with Professor Sawicki’s analysis of the Supreme Court’s patent eligible subject matter cases,  I think the article gets over-invests in the concept of “central claiming.”  As Sawicki recognizes, even when conducting the Mayo/Alice analysis, courts are still construing the actual claims, not the written description, to identify the invention.   They draw on the written description, but so too does conventional claim term interpretation.  I’m also hesitant because what’s involved isn’t “claiming;” it’s the process of construing an existent claim.   That said, I don’t have any sticky words to describe this alternate approach to claim construction.  The best I’ve come up with are “whole claim construction,” “invention-focused construction,” or “inventive contribution construction” as contrasted with “claim term interpretation.”

***

Why does it matter whether we call what the court’s doing “claim construction?” After all, a rose by any other name still smells as sweet.

There are a few reasons.  First, the old adage that “the name of the game is the claim” is just as true when courts are construing the claims in a general sense as it is when courts are engaged in term-based constructions.  As patent practitioners know, how the court articulates the claims for Mayo steps 1 and 2 matters–and can even be dispositive, as the recent case of Visual Memory LLC v. NVIDIA Corp. shows.  Recognizing that the courts are engaged in type of claim construction has the benefit of focusing the parties’ arguments on an issue that may determine the outcome of the case.

A second benefit from recognizing that courts are engaged in claim construction in the patent eligibility inquiry is that the discussion can then turn to what constitutes an abstract idea.  Sure, the court’s construction matters, but so too does the question of what an abstract idea actually is.  Untangling these two issues–the construction of the claim and the meaning of “abstract idea”–may bring clarity to the second one.

A third reason why we should acknowledge that there’s a type of claim construction going on in patent eligible subject matter analysis is because the Federal Circuit’s opinions don’t.  Recognizing that the courts are engaged in a type of claim construction raises an important question: we have a complex methodology and approach to interpreting claim terms; what then is the methodology for this other type of claim construction that the courts are doing?  As the patent eligible subject matter jurisprudence develops, methodological variants are emerging that reflect sharp differences in the way that claims are being construed when conducting the patent eligible subject inquiry.  Some of these divisions present the same types of issues as the conventional claim term interpretation cases raise, such as “how much weight to give the specification?,” while others present new divisions, such as the question of “at what level of generality the claims should be read?”

As a first pass at this idea, here are a few different ways that “invention-focused construction” can be done:

  • At one extreme is the ipsis verbis methodology: to repeat the words of the claim and nothing but.  Only those words, and perhaps interpretations of some key terms, suffice.  One might picture an attorney standing before a judge who repeatedly asks “what’s the invention?” while the attorney dutifully recites the words of the claim again and again, neither understanding why the other doesn’t get it.
  • At the other extreme is a claim construction untethered from the claims themselves.  An example might be to construe a claim to a typewriter as being to a hot dog.  While this example is absurd, the point is to illustrate that there is a range from ipsis verbis to a construction of the invention that has no connection to the claims.
  • Another dimension of the invention-focused construction involves the degree to which the construction hones in on the inventor’s contribution.  To borrow from the USPTO’s gunpowder example, the “inventive concept” of a claim to “an intimate finely-ground mixture of 75% potassium nitrate, 15% charcoal and 10% sulfur” isn’t the individual ingredients; those already exist in nature.  Rather, the “invention” is the combination of the ingredients, or the specific ratios, or that they are finely ground in the mixture.
  • Alternately, the court may treat the claim as a whole as the “invention,” not caring about which part of it constitutes the inventor’s contribution to the art.  I struggle with applying this approach: how do you conduct an analysis of whether the invention is eligible subject matter when you aren’t focusing in on what is new?

In my next post I’ll write more about how these different approaches recently manifested in the Visual Memory case that Dennis blogged about last month.

Data on Federal Circuit Decisions – updated

By Jason Rantanen

One of my current projects is to create a transparent and user-friendly database of information about Federal Circuit decisions–particularly, its patent law decisions–with a structure that’s useful for empirical researchers and other people who write about the court. If folks are going to throw around numbers about the court, my hope is that they have some grounding in a relatively clear and consistent methodology.

My goal in creating this database is to focus on information that’s of interest to researchers and commentators rather than to create another database for online legal research.  While Westlaw, Lexis, and the various free alternatives are great tools for finding key cases, there are lots of problems with using them for empirical research, not the least of which is the periodically changing nature of their interfaces–changes that make replication of older studies difficult. Also, since their focus is on helping practitioners do legal research, commercial databases tend not to collect and record data in a way that’s useful for empirical work.

I’ve used components of the dataset before, including in PatentlyO posts and an article on dissents at the Federal Circuit, and others have used it in their own projects (Crouch; Gugliuzza & Lemley).  Currently, coded data includes basic information about each decision arising from the district courts and PTO back to 2007, with written opinions going back to 2004.   Fields include information such as document type, precedential status (and Rule 36’s!), panel members, dissents and concurrences, and opinion authors.  I’m interested in crowdsourcing additional fields to code once I’ve published the dataset. Everything’s being done in-house at Iowa–even the R Shiny app that powers the user interface was coded as a project for a graduate statistics consulting class under the instruction of Rhonda DeCook, and my research assistant Louis Constantinou has been a huge help in getting this project finally done.

I’ll be rolling out the web-based portal in the near future, but in the meantime I’ve had requests for some of the data–particularly an update on the court’s use of Rule 36 summary affirmances.   Those charts are below.  The basic methodology employed in creating these charts is described in my earlier post on Federal Circuit appeals and decisions.

Finally, since the purpose in creating this database is to share it, students or other researchers who are interested in drawing from it for their own work are welcome to email me before it goes public.  Basically, it’s a starting point that’s flexible enough to allow future researchers to do their own coding without having to redo basic information about each decision.

Decisions by Tribunal of Origin

Given the increase in appeals from the PTO over the past few years, this graph is not all that surprising–but it’s still quite dramatic.  As of mid-2017, the number of decisions in appeals arising from the PTO has exceeded the number of decisions from the district courts for the first time in the history of the Federal Circuit to my knowledge.

The following two charts are updated versions of figures from my post from last summer on types of Federal Circuit decisions.

Types of Decisions - DCt

Types of Decisions - PTO

Patent as Credentials

By Jason Rantanen

I’ve been taking a break from blogging for the past few months to focus on teaching, research and service at the University of Iowa.  That’s allowed me to experience new aspects of technological innovation and patent law, particularly in the context of a research university.  It’s also allowed me to work on a couple of projects that are finally coming to fruition.

The first is described below.  It’s a concept that will likely feel familiar to most patent practitioners. I’ve just articulated the inchoate idea and given it structure to allow it to be weighed and debated more easily. Virtually every person connected with patent law that I’ve shown the paper to has had examples and stories of their own, some of which I’ve added. At the onset I want to make clear that while I think that the credentialing function of patents has merit on balance, in individual situations it can have substantial negative effects.

Here’s the abstract:

The conventional explanation for why people seek patents draws on a simple economic rationale. Patents, the usual story goes, provide a financial reward: the ability to engage in supracompetitive pricing by excluding others from practicing the claimed technology. People are drawn to file for patents because that is how these economic rewards are secured. While scholars have proposed variations on the basic exclusionary mechanism, and a few have explored alternate reasons why businesses seek patents, the question of whether individuals—human beings—seek patents for reasons other than the conventional economic incentive remains unexplored. As Jessica Silbey recently observed, human creativity is motivated by more than just the potential for immediate economic returns. But an individual’s motivation to create does not explain why that person would go through the trouble and expense of obtaining a patent absent the promise of economic gain.

We offer an explanation for why individuals may seek patents beyond the promise of supracompetitive pricing: patents serve as credentials. Simply put, some human beings want to be recognized by society as inventors. But claiming to be an inventor without evidence is unlikely to persuade the masses—or perhaps even friends. Patents serve as powerful evidence that an individual meets the societal definition of “inventor.” Just as a doctoral degree in history might indicate that one is an intellectual, obtaining a patent shows that the person named on its face is a real-life, government-certified inventor. Regardless of whether a particular patent conveys an economically valuable mechanism of exclusion, the inventorship recognition alone may motivate some individuals to seek patents.

Links to the draft article are here:

SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3013780

SocArXiv:  https://osf.io/edumf/

 

Impression v. Lexmark: Patent Rights Exhausted by Sale, Domestic or Abroad

By Jason Rantanen

Impression Products, Inc. v. Lexmark International, Inc. (2017) – Download opinion

In a  straightforward and almost unanimous opinion authored by Chief Justice Roberts, the Supreme Court reversed the Federal Circuit on both domestic (8-0) and international exhaustion (7-1).

The Supreme Court’s opinion is summed up by a single sentence early on. “We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.”  Slip Op. at 1.  The underlying  rationale is offered a bit later: “Patent exhaustion reflects the principle that, when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace.”  Slip Op. at 11.  With these two pronouncements, the Supreme Court has in one swoop both simplified patent law and added new complexities, challenges and opportunities to the innovation ecosystem.

Impression v. Lexmark involved, at its core, the question of whether restrictions placed on a patented product could be enforced through an infringement suit–often a more viable legal mechanism for the patent owner than an an action for breach of contract.

Under Federal Circuit precedent, the answer for over two decades was yes.  The theory relied upon by the Federal Circuit in decisions such as Malkinkrodt, and reaffirmed by the en banc court in Lexmark v. Impression, was that the patent owner could decide to give away only some of its patent rights when it sold or authorized the sale of a patented product.  As a result, the patent owner could sue a party who violated those restrictions for patent infringement because, the theory went, the purchaser did not possess the relevant set of patent permissions–the “sticks” in the “bundle of rights” that the patent owner possessed.  Thus, for example, a patent owner could place a single-use only restriction on an ink cartridge or medical device and sue for infringement if the device were reused.  In short, the exhaustion rule was effectively default rule of patent law that the parties could contract around.

The Supreme Court rejected this approach, basing its conclusion on common law principles of ownership as reflected in its 1853 decision in Bloomer v. McQuewan.  “For over 160 years, the doctrine of patent exhaustion has imposed a limit on [patentees’ right to exclude others from making, using, offering for sale, or selling their invention].”  Slip Op. at 5-6. “When a patentee chooses to sell an item, that product ‘is no longer within the limits of the monopoly’ and instead becomes the ‘private, individual property’ of the purchaser, with the rights and benefits that come along with ownership.”  Id., quoting Bloomer. While a patent owner may impose contractual restrictions, those restrictions are a matter of contract law, not patent law.  “A patentee is free to set the price and negotiate contracts with purchasers, but may not, ‘by virtue of his patent, control the use or disposition’ of the product after ownership passes to the purchaser. United States v. Univis Lens Co., 316 U. S. 241, 250 (1942) (emphasis added).”  Once  a patent owner sells a patented product, it has obtained the patent reward and may no longer rely on patent law.  Referencing its opinion in Kirsaeng v. John Wiley & Sons, Inc., 568 U.S. 519, 538 (2013), the Court observed that exhaustion has “an impeccable historic pedigree,” a backdrop against which Congress has repeatedly revised and fine-tuned the patent law.

The Federal Circuit’s error was that it started from the wrong place: interpreting the  infringement statute.  But “the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is instead a limit on ‘the scope of the patentee’s rights.'”  Slip Op. at 10, quoting United States v. General Elec. Co., 272 U. S. 476, 489 (1926) (emphasis added).   The sale transfers the foundational rights to use, sell or import the product sold; it simultaneously exhausts the patent rights:

The right to use, sell, or import an item exists independently of the Patent Act. What a patent adds—and grants exclusively to the patentee—is a limited right to prevent others from engaging in those practices. See Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U. S. 24, 35 (1923). Exhaustion extinguishes that exclusionary power. See Bloomer, 14 How., at 549 (the purchaser “exercises no rights created by the act of Congress, nor does he derive title to [the item]by virtue of the . . . exclusive privilege granted to the patentee”). As a result, the sale transfers the right to use, sell, or import because those are the rights that come along with ownership, and the buyer is free and clear of an infringement lawsuit because there is no exclusionary right left to enforce.”

Exhaustion applies regardless of whether the patent owner sells the product or a licensee–even a licensee subject to restrictions by the patent owner.  “A patentee’s authority to limit licensees does not, as the Federal Circuit thought, mean that patentees can use licenses to impose post-sale restrictions on purchasers that are enforceable through the patent laws. So long as a licensee complies with the license when selling an item, the patentee has, in effect, authorized the sale.” Slip Op. at 11-12.

“In sum, patent exhaustion is uniform and automatic. Once a patentee decides to sell—whether on its own or through a licensee—that sale exhausts its patent rights,regardless of any post-sale restrictions the patentee purports to impose, either directly or through a license.”

The Court also held that foreign sales exhausted U.S. patent rights–in other words, a system of global exhaustion.  This conclusion, too, was bolstered by a common law policy against restraints on the alienation of chattels.

Justice Ginsburg concurred with the Court’s holding on domestic exhaustion but dissented with respect to international exhaustion.  She would hold that “A foreign sale…does not exhaust a U.S. inventor’s U.S. patent rights.”

What about Contracts? The Court’s Impression decision means that post-sale restraints on products will need to be enforced via contract rather than patent law.  That matters because contract law is subject to a number of constraints, including both privity and various public policy-based limitations on enforcement.  Patent law is not so limited.  Outside of the core questions of infringement and validity, enforcement of patents is subject to relatively few such constraints–misuse being one rare (and rarely successful) exception.  In addition, enforcement under contract law means that many cases involving post-sale restrictions will ultimately be decided by state supreme courts or other federal courts of appeal rather than by the Federal Circuit.

What’s left? Lexmark strikes a powerful blow against post-sale restrictions on products by negating the threat of infringement to enforce those restrictions.  But it hardly eliminates such restrictions–to the contrary, the Court is clear that such restrictions may still be enforced under contract law.  In addition, the Court’s opinion revolves around sales of products.  Left unanswered is the role that patents will continue to play in non-complete transfers–licenses of a good or service rather than a sale.

 

Previous Patently-O Commentary:

 

 

The Last Days of Night – a brief review

By Jason Rantanen

I recently read Graham Moore’s The Last Days of Night, a tale about the patent war between Thomas Edison and George Westinghouse from the point of view of Paul Cravath, the young lawyer representing Westinghouse (and yes, that Cravath).  The book is historical fiction (which means that it consists of made up/condensed elements set within the broader landscape of historical evidence), but many of the themes within it ring true today.  Among them are divergent views of the role of patents in technological development.  Edison personifies the corporation-as-inventor, with his organized system for inventing.  Westinghouse embodies the practical aspects of invention–the need to take a technology and make it into a commercial reality.  And Nikola Tesla is the “flash of genius” inventor who invents for the love of inventing rather than for material rewards.

Here are a couple of memorable bits (and slight spoilers):

Thomas Edison was not, Paul thought, the first man to become rich by inventing something clever. Rather, he was the first man to build a factory for harnessing cleverness.  Eli Whitney and Alexander Graham Bell had each made his name by inventing one brilliant thing.  Edison had formed a laboratory that had invented many.  His genius was not in inventing; rather, it was in inventing a system of invention.  Dozens of researchers and engineers and developmental tinkerers labored beneath Edison in a carefully constructed hierarchical organization that he founded and oversaw.  (p. 172)

The “you can’t handle the truth” scene of Cravath’s deposition of Edison is a trifle over the top, but easily captures the tension between Edison and Westinghouse, inventor and improver:

“I hired the band; I booked the hall.  I advertised the show.  And you hate me because my name is on the poster.  Well, I say this: The light bulb is mine.  If the word ‘invention’ is to maintain even a semblance of rational sense, then it must be said that the light bulb was my idea.  It was my invention.  And it my patent.  Every bulb.  Every vacuum.  Every one of your piddling filaments.  And to the mute ingratitude with which you’ve repaid me, I will say only one last thing.”

Edison leaned back in his chair before he loosed his final words.

“You’re welcome.”

(p. 211)

In the author’s note at the end, Moore discusses historical sources and intentional fictionalizations for the sake of narrative.  And a few pages later, he thanks legal historians Adam Mossoff of George Mason and Christopher Beauchamp, now of Brooklyn Law School.  Professor Beauchamp will be giving a talk at the Iowa College of Law later this week about his actual-history book, Invented by Law: Alexander Graham Bell and the Patent that Changed America that I’m very much looking forward to.  If you’re looking for a work that aims for historical accuracy about patents and innovation in the late 1800’s, I recommend giving that one a read.

 

(I did not receive any compensation for writing this, even a copy of the book – which actually came from the library.)

Supreme Court Grants Cert in Amgen v. Sandoz & Sandoz v. Amgen

By Jason Rantanen

Today, the Supreme Court granted certiorari in two dueling petitions involving the Federal Circuit’s 2015 interpretation of the Biologics Price Competition and Innovation Act of 2009.  Here are the questions presented:

Amgen v. Sandoz

(1) Whether a biosimilar applicant is required by 42 U.S.C. § 262(l)(2)(A) to provide the reference product sponsor with a copy of its biologics license application and related manufacturing information, which the statute says the applicant “shall provide;” and (2) whether, where an applicant fails to provide that required information, the sponsor’s sole recourse is to commence a declaratory judgment under 42 U.S.C. § 262(l)(9)(C) and/or a patent-infringement action under 35 U.S.C. § 271(e)(2)(C)(ii).

Sandoz v. Amgen

(1) Whether notice of commercial marketing given before Food and Drug Administration approval can be effective; and (2) whether, in any event, it is improper to treat Section 262(l)(8)(A) – the Biologics Price Competition and Innovation Act of 2009’s “Notice of commercial marketing” provision which states that a biosimilar applicant shall provide notice to the incumbent seller of the biological product “not later than 180 days before the date of the first commercial marketing of the biological product licensed under” an abbreviated pathway for biosimilars – as a stand-alone requirement and as creating an injunctive remedy that delays all biosimilars by 180 days after approval.

Kevin Noonan discussed the underlying opinion on the PatentDocs blog, describing it as “a seriously fractured decision….”

You can read the Federal Circuit opinion here:  s15-1499

USPTO 2016 Performance and Accountability Report

By Jason Rantanen

Last week, the United States Patent and Trademark Office released its annual Performance and Accountability Report.  If you’ve never read this document before, I highly encourage giving it a look.  It’s chock-full of information on the PTO, from summary overviews to financials to performance metrics to changes in agency operation.  There’s also an extensive set of tables with tons of data for those who like that kind of stuff.

Law students and junior attorneys who want to quickly get up to speed on the PTO, in particular, can obtain a lot of information about the agency from the PAR.  But there’s something in there for everyone.

Here’s a link to the USPTO Chief Financial Officer’s blog post on the 2016 PAR: https://www.uspto.gov/blog/director/entry/uspto_releases_its_fy_2016

And a direct link to the 2016 PAR: https://www.uspto.gov/sites/default/files/documents/USPTOFY16PAR.pdf

Where are all the patent practitioners?

By Jason Rantanen

A question from two economist friends, Nicholas Ziebarth and Michael Andrews, got me interested in the geographic distribution of patent practitioners in the U.S. and any correlations with issued utility patents and populations.  Using the January 8, 2017 list of patent practitioners from the USPTO, the PTO’s data on utility patents issued to inventors by state, and population estimations for 2016 (wikipedia), I put together the following figures.  They show what one might expect: patents, population and patent attorneys exhibit high degrees of correlation, although there is some interesting variation.  All the linear regressions are highly significant (p<0.001).  Some data caveats follow.

patents-v-poppatents-v-practitionerpractitioners-v-popCalifornia is a clear outlier, as is probably D.C.  In the below charts I’ve removed California.  As you can see, the correlation coefficient goes down.  It’s not apparent due to the scaling of the graphs, but the slope of the line also goes down.  Removing D.C. (where there are lots of registered patent practitioners but few inventors) has the opposite effect when it comes to patents/patent practitioner.  To give another sense of the magnitude of the California effect, 19% (8124/43542) of this set of patent practitioners are California residents and 29% (40/196/140928) of this set of patents has a first named inventor who was a California resident.

patents-v-pop-no-capatents-v-practitioners-no-capractitioners-v-pop-no-ca(Iowa is marked in red.  We have a lower than average number of patent attorneys per population but a slightly higher than average number of patents with U.S. inventors per patent attorney.)

Notes on the data:

  • This analysis entirely ignores patents whose first named inventor is not resident in the 50 states and District of Columbia and patent practitioners who do not reside in those places.  When it comes to patents, this is big: since 2009, over half of issued patents have had a first-named inventor who was not a U.S. resident. It’s less of an effect with patent practitioners: of the 44,897 registered practitioners, 43,579 are U.S. residents.
  • The patent attorney list is subject to concerns about whether it is overinclusive, as discussed in Zachary Kinnaid’s previous posts, and how up-to-date the addresses are.  This comparison also involves data from different years (1/1/2017 versus patents granted in 2015), although there probably isn’t much a change in terms of geographic distribution of patent attorneys over the time. In addition, many registered patent attorneys do not currently engage in patent prosecution activities.
  • The data on patents-per-state is based on the residence of the first named inventor.   This means that the other inventors are ignored in this analysis.  It also means that assignments are not reflected.

My data file is linked if anyone wants to play around with it.  Regression outputs from Stata are here.  If you see any mistakes, I’d appreciate it if you’d let me know via email.  You are free to reuse this dataset or graphs, although I would appreciate an acknowledgement.

Power Integrations v. Fairchild Semiconductor

By Jason Rantanen

Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. (Fed. Cir. 2016) 15-1329.Opinion.12-8-2016.1
Panel: Prost, Schall, Chen (author)

This appeal is the latest in a long-running patent saga between Power Integrations and Fairchild.  Each asserted patents against the other; each won as to liability against the other. The most interesting aspect of this opinion is its discussion of inducement, in which the court rejects a jury instruction on inducement that expressly stated that the third party’s direct infringement “need not have been actually caused by the [accused inducer’s] actions.”

Background:  The complexity of this appeal is illustrated by the opinion’s 8 bullet-point summary of its holdings.   The jury found that Power Integrations’ Patent Nos. 6,107,851 and 6,249,876 were not anticipated and were directly and indirectly infringed by Fairchild and that Fairchild’s Patent No. 7,259,972 was not obvious and was infringed by Power Integrations under the doctrine of equivalents (but was not literally infringed or indirectly infringed by Power Integrations).  The jury also found Power Integrations’ Patent No. 7,834,605 neither anticipated nor obvious.  Following trial, the district court granted judgment as a matter of law that Fairchild directly infringed this patent.  The district court granted a permanent injunction against Fairchild and declined to grant an inunction against Power Integrations.

Fairchild appealed and Power Integrations cross-appealed.

Inducement: The indirect infringement issue involved 35 U.S.C. § 271(b), a one sentence provision at the heart of several significant opinions over the last few years.  Section 271(b) reads “[w]hoever actively induces infringement of a patent shall be liable as an infringer.”  Basic elements of an inducement claim include some type of action by the alleged inducer to encourage acts by a third party, an awareness that the third party’s acts would infringe a patent, and actual direct infringement by a third party.

The full jury instruction takes up almost a page and a half of the opinion.  The critical passage on appeal reads:

In order to establish active inducement of infringement, it is not sufficient that others directly infringe the claim. Nor is it sufficient that the party accused of infringement was aware of the acts by others that directly infringe. Rather, in order to find inducement, you must find that the party accused of infringement intended others to use its products in at least some ways that would infringe the asserted claims of the patent. However, that infringement need not have been actually caused by the party’s actions. All that is required is that the party took steps to encourage or assist that infringement, regardless of whether that encouragement succeeded, or was even received.

Slip Op. at 22 (emphasis in opinion).  The problem, in the court’s words, was that “[t]his instruction left the jury with the incorrect understanding that a party may be liable for induced infringement even where it does not successfully communicate with and induce a third-party direct infringer.”  Id. at 23.  Rather, inducement “requires successful communication between the alleged inducer and the third-party direct infringer.”  Id.  Quoting from Dynacore Holdings Corp. v. U.S. Philips Corp., 363, F.3d 1263, 1274 (Fed. Cir. 2004), the court observed “[w]e have further held that “[t]o prevail under a theory of indirect infringement, [plaintiff] must first prove that the defendants’ actions led to direct infringement of the [patent-in-suit].”  Id. at 24.  Thus, “a finding of induced infringement requires actual inducement.”  Id.  In terms of doctrine, the court situates this inquiry in the requirement of inducement itself.

Although the court does not come right out and say it, this is fundamentally a theory of causality in inducement.  In other words, it is not enough that the alleged inducer engage in acts intended to result in direct infringement by a third party and that the third party directly infringes.  At a minimum, there must be a successful communication between the two.  Attempted inducement is not enough; there must be “actual inducement.”  This interpretation  is further bolstered by the court’s rejection of the language in the jury instruction stating that “infringement need not have been actually caused by the party’s actions.”   That said, despite the invitation to address causality presented by the jury instruction, the court conspicuously avoids describing its holding in those terms.  Nowhere outside of the jury instruction and a few unrelated places does a permutation of “caus” appear.

Even as it recognized a requirement that there be some link between the acts of the alleged inducer and the directly infringing acts,  however, the Federal Circuit was not willing to go so far as to say that Fairchild did not induce infringement  as a matter of law.  After rejecting Fairchild’s argument on the lack of sufficiency of the evidence generally, the Federal Circuit dismissed its argument on nexus between Fairchild’s acts and the ultimate direct infringement.  Fairchild contended

that Power Integrations introduced evidence of only three acts of direct infringement—sales of an HP printer, Acer notebook computer, and Samsung notebook computer containing infringing Fairchild controller chips—and that Power Integrations was required to present evidence that Fairchild specifically induced HP, Acer, Samsung, or the retailers from which Power Integrations purchased the infringing products to incorporate the infringing controller chips into products bound for the United States.

Id. at 30.  The Federal Circuit rejected the argument that such specificity was required in the nexus.  “While none of [Power Integrations’  evidence can be directly linked to the particular HP printer, Acer notebook computer, or Samsung notebook computer Power Integrations
introduced at trial as representative acts of direct infringement, it was sufficient to allow the jury to find that Fairchild had induced its customers (including HP, Acer, and Samsung) to infringe as a class. This is all that we require.”  Id. at 31.  “Indeed, we have affirmed induced infringement verdicts based on circumstantial evidence of inducement (e.g., advertisements, user manuals) directed to a class of direct infringers (e.g., customers, end users) without
requiring hard proof that any individual third-party direct infringer was actually persuaded to infringe by that material.”  Id.

Thus, although some evidence of a link between inducer’s acts and the directly infringing acts is required, it need not be with the level of specificity that might need to be shown in other contexts.  Absolute precision of proof as to the machine in the courtroom is not necessary.  And yet, some proof of a link must be present.  Here, the court concluded, there was sufficient evidence for a reasonable jury to find that necessary link.

At this point you might be asking why all of this mattered, given that Fairchild did not appeal the jury verdict that it directly infringed the patents.  The reason is because the finding of inducement greatly expanded the scope of Fairchild’s liability beyond its direct infringement in the United States.  Based on its decision on inducement, the Federal Circuit vacated the district court’s grant of Power Integrations’ motion for a permanent injunction against Fairchild.  Of course, given that these issues are being remanded to the district court, it is conceivable that the outcomes of both could ultimately be the same.

Practice commentary: The opinion contains a simple articulation of the requirements of an inducement claim that rearranges the conventional elements.  Near the beginning of its discussion of the jury verdict, the court describes the elements as follows:

In other words, Power Integrations was required to prove that: (1) a third party directly infringed the asserted claims of the ’851 and ’876 patents; (2) Fairchild induced those infringing acts; and (3) Fairchild knew the acts it induced constituted infringement.

In my view, this version is much easier to understand than the usual way inducement is articulated.

Anticipation: The court’s review on anticipation of the ‘605 patent is also interesting as an example of a jury verdict of no anticipation being overturned on appeal.   Here, Fairchild bore a double-burden on Power Integrations ‘605 patent: not only did it bear the burden of proving that the presumptively-valid claims were anticipated, but it also had to convince the Federal Circuit on appeal that the jury’s finding to the contrary was unsupported by substantial evidence.  Fairchild was helped on appeal by the relative narrowness of the disputed evidentiary issue.  On that particular issue, the court concluded that Power Integrations’ own expert had testified that the critical element required by the claims was disclosed by the prior art reference.

Doctrine of equivalents: The main point here is Power Integrations’ successful claim vitiation argument.

Edit: Added the opinion itself.

The Federal Circuit and Appeals from the Patent Office

By Jason Rantanen

As expected, for the fiscal year ending on October 31, 2016, the Federal Circuit docketed more appeals arising from the U.S. Patent and Trademark Office than from the district courts.  This result will almost certainly hold true for the calendar year as well: from January through October of this year, the Federal Circuit received 471 appeals arising from the district courts and 560 appeals arising from the PTO.

The below chart is an updated version of a chart I’ve posted before.  It shows the annual number of appeals docketed at the Federal Circuit per fiscal year (which runs from the beginning of October to the end of September.

Appeals filed at CAFC (Fiscal Year)

Changes over smaller periods of time:  To get a sense of whether appeals from the PTO are continuing to rise, I created a chart of the number of appeals arising from the PTO on a monthly basis.  Although there’s substantial  month-to-month variation, the overall trend for the last year does not suggest to me that the appeals from this source are continuing to increase.  However they remain at a much higher level as compared with the period before 2014.

Appeals filed at CAFC (monthly)

Makeup of appeals arising from the PTO: Using data from the USPTO’s annual Performance and Accountability Report, I constructed the below pie charts to illustrate how the composition of appeals from the PTO has changed over the last several years.  These graphs provide a vivid image of how dramatically that composition has changed in a short period of time.

2012 appeals from PTO2014 appeals from PTO2016 appeals from PTO

Note that this data is not an exact reflection of the appeals that reach the Federal Circuit due to a few limitations in the underlying reported data.  In particular, there are a handful of appeals (my understanding is <10) that might be counted in multiple years due to the way the data is reported for 2016.  In addition, the data is reported for all appeals to federal appellate courts, not just appeals to the Federal Circuit.  Due to variations in appeal pathway, a handful will end up in the regional circuits (especially trademark cases for which review is sought in the district court.  Pro-Football v. Blackhorse is an example).

What will the future bring? Going forward, I’d expect the number of appeals arising from the PTO to decline to some—but not a great—extent.   Data from the USPTO’s annual Performance and Accountability Report indicates that the number of newly filed inter partes review proceedings has remained roughly constant over since 2014, with 1310 cases filed in FY 2014, 1737 cases filed in FY 2015, and 1565 cases filed during FY 2016.   (Source: USPTO Performance and Accountability Reports, Table 15).  Since most of the appeals are from inter partes review proceedings (as there are relatively few of the other types of inter partes proceedings), a modest decline in the broader pool will likely result in a modest decline in the subset.  In addition, as attorneys obtain greater information about the probability of outcomes at the Federal Circuit, it is likely that appeals will fall as parties choose not to incur the expense of an appeal, at least in cases at the extreme.