All posts by Jason Rantanen

About Jason Rantanen

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

Arkema v. Honeywell: Declaratory Judgment Jurisdiction in the Indirect Infringement Context

Patent

by Jason Rantanen 

Arkema v. Honeywell (Fed. Cir. 2013) Download 12-1308.Opinion.2-1-2013.1
Panel: Dyk (author), Plager, O'Malley

This case addresses the justiciable controversy requirement for a declaratory judgment action involving a potential indirect infringer. 

Both Honeywell and Arkema have invested heavily in a refrigerant known as 1234yf that is now being used in many new automobile air conditioning units.  The compound was created as a response to global warming concerns associated with prior refrigerants.  Honeywell has several patents associated with the compound, including United States Patent Nos. 8,033,120 and 8,065,882, and European Patent No. 1,716,216.  The '120 and '882 patents cover methods of using 1234yf in automobile air conditioning systems. 

In 2009, Honeywell sued Arkema in Germany for infringement of the European patent.  Arkema responded with a declaratory judgment action in the US over two related patents.  Those suits are still ongoing. In late 2011, the ‘120 and ‘882 patents issued and Arkema moved to amend its declaratory judgment complaint to allege non-infringement and invalidity of those patents, premised on a concern that it would be indirectly liable for its future customers' use of 1234yf.  The district court refused to allow the amendment because it concluded that the Constitutionally mandated “case or controversy” that undergirds court power did not exist as to those new claims.

In a Rule 54(b) certified appeal, the Federal Circuit reversed the district court's denial of Arkema's motion to supplement its complaint, noting that "On its face, this is a quintessential example of a situation in which declaratory relief is warranted."  Slip Op. at 9.  The opinion sets out several useful points for evaluating declaratory judgment jurisdiction in an indirect infringement context post-MedImmune.

  
No actual acts of direct infringement or specific accusations required: the CAFC declined to impose a requirement that there must actually be acts of direct infringement or specific accusations against either the potential direct infringers or Arkema.  "There is no requirement that Arkema identify the particular manufacturers that will purchase the 1234yf or the particular automobile purchasers who will purchase the cars from the manufacturers, or the particular dates on which this will occur. [] Nor is it necessary that Honeywell have directly accused Arkema of potential indirect infringement."  Slip Op. at 11.  On the latter point, the CAFC noted that Arkema met even the now-discarded reasonable apprehension of suit test (which although not required, remains sufficient to establish jurisdiction). 

No noninfringing uses: Both parties admitted that there are no known methods of using 1234yf in  an automobile air conditioning system that do not at least arguably infringe its patents.  Given this, "there can hardly be any question that Arkema would arguably be liable for induced infringement if it sells 1234yf for use in automobile air conditioning systems. Where, as here, there is no dispute that the
intended use would be at least arguably infringing and actively encouraged by the declaratory judgment plaintiff, a controversy is “sufficiently real” for the purposes of declaratory judgment jurisdiction."  Slip Op. at 13.  The court further noted that it is not necessary for a party to concede infringement to demonstrate a justiciable controversy. 

Immediacy: the controversy was sufficiently immediate, even if any acts of direct infringement would not occur for at least a year.  Honeywell was in the process of signing long-term supply contracts that "have put Arkema in a present position of either committing to contracts that could expose it to liability for indirect infringement or abandoning its plans to supply 1234yf to automobile manufacturers in the United States.  Slip Op. at 13.  Distinguishing Ass’n of Molecular Pathology v. U.S. Patent & Trademark Office, 689 F.3d 1303, 1321 (Fed. Cir. 2012) [Myriad], the court concluded that "[t]his is not a case where the declaratory judgment plaintiff alleged that it would "consider" potentially infringing activities."  Slip Op. at 14.
 
Reality: the CAFC also disagreed with the district court's conclusion that Arkema failed to satisfy the requirement of "reality" due to the lack of fixation of its customers' final designs.  Unlike in Matthews Int’l Corp. v. Biosafe Eng’g, LLC,695 F.3d 1322, 1330-31 (Fed. Cir. 2012), in which it was unclear whether the final product would be used in a way that would allegedly infringe, the parties' contentions made clear that automobile manufacturers would use 1234yf with a lubricant in automobile air conditioning systems, thus allegedly infringing the patents.

The Federal Circuit’s New Obviousness Jurisprudence: An Empirical Study

Obviousness, Patent,

By Jason Rantanen

[Download the draft article]

Obviousness remains one of the primary issues raised in patent cases.  A few weeks ago, Dennis noted that "the vast majority of BPAI/PTAB decisions focus on the question of obviousness,"  and 5 of the 11 opinions involving utility patents issued by the Federal Circuit this past month addressed obviousness.  Many of these cases revolve around application of the Supreme Court's decision in KSR v. Teleflex, and reflect disagreements over the interpretation of the Court's opinion.   

This article presents the results of an empirical examination of the Federal Circuit's obviousness jurisprudence over a period of fifteen years, asking whether the Federal Circuit really changed its behavior as a result of KSR.  In systematically examining the court's opinions, I found the following:

  • Following KSR the Federal Circuit has become substantially less favorable to patentees on the issue of obviousness. 
  • The Federal Circuit’s ubiquitous pre-KSR requirement that patent challengers identify a “teaching, suggestion, or motivation” (“TSM”) to combine or modify the prior art has largely disappeared, at least in formal terms.
  • Although the concept underlying TSM has endured, in the form of a “reason to combine” requirement, the post-KSR form of that requirement differs substantially from its pre-KSR incarnation.
  • The Federal Circuit now routinely relies on language from KSR that “[a] court must ask whether the improvement is more than the predictable use of prior art elements according to their established functions”  and the use of “common sense” to find combinations and modifications of the prior art to be obvious.
Although there may be some disagreement within the court, taken as a whole this study provides strong evidence that the Federal Circuit has both changed what it says and does when reviewing appeals involving the issue of obviousness. The magnitude of some of my findings was particularly surprising: for example, in the five years after KSR the Federal Circuit affirmed the PTO on the issue of obviousness 91% of the time (94 out of 103 times).
 
Over the next few weeks I'll be posting some of my findings that didn't make it into the article. 

Rexnord v. Kappos

Patent, , ,

By Jason Rantanen

Rexnord Industries, LLC v. Kappos and Habasit Belting, Inc. (Fed. Cir. 2013) Download 2011-1434.Opinion.1-18-2013.1
Panel: Newman (author), Lourie, Prost

In Rexnord v. Kappos, the Federal Circuit reversed the Board of Patent Appeals and Interferences' conclusion of nonobviousness, concluding that claims 1-14 of Patent No. 6,523,680 are obvious as a matter of law.  The significant aspect of this opinion is the court's rejection of the PTO's arguments that "the Board need not consider other grounds that had been presented during the reexamination, for they had not been raised on the appeal to the Board" and that "the Board does not consider aspects
beyond those relied on by the examiner."  Slip Op. at 12.  The CAFC's ruling on the latter point, however, creates some significant tensions and does not cleanly resolve the issue. 

The '680 patent relates to a mechanical convey belt formed of rows of belt modules interlinked by transverse rods.  Rexnord filed a petition for inter partes review, arguing that claims 1-4 of the '680 patent were invalid as anticipated and obvious.  The issue on appeal focused on a limitation in representative claim 1 that required a web with a diameter of less than 10 mm. In its petition for inter partes reexamination, Rexnord included the argument that the 10mm limitation was merely a "design choice."  Slip Op. at 13.  In holding that this element was obvious in light of the prior art, however, the Examiner did not reference the "design choice" argument.  Instead, the Examiner stated that:

Thompson ’048 discloses the broad teaching of providing a corrugated intermediate portion with
an adjacent web portion to prevent objects from being pinched between adjacent modules where a
space bounded by the web, an outer end of the first link end and the sidewalls of the second link
ends is completely closed. It would have been obvious to one of ordinary skill in the art to [include
in] the modules of Horton ’248 . . . a web adjacent the corrugated portion to prevent objects from being pinched between adjacent modules as taught by Thompson ’048

Slip Op. at 9 (emphasis added).

Habasit, the patent owner, appealed the examiner's rejection to the BPAI.  In its appeal, Habasit argued that the examiner erred because none of the references disclosed a space with a diameter less than 10 mm, as required by the claims. Although only the second argument is discussed in the CAFC opinion, Rexnord raised two arguments in response: (1) both Palmaer and Thompson disclosed a completely closed space (i.e.: a space with a diameter of 0 mm) and (2)

Thompson, Jr. et al. goes beyond merely disclosing a closed space in a preferred embodiment, and teaches the exact subject matter that Habasit asserts is novel in the '680 Patent. Despite the efforts by Habasit to distort the teachings of Thompson, Jr. et al., the reference clearly teaches solving the identical problem, see col. 1, lines 26-34 of Thompson, Jr. et al. (“objects being conveyed are subject to being caught in the gaps between the links”), solved by Habasit using an identical solution, see col. 14, lines 38-41 of Thompson, Jr. et al. (“the plates 51 on the links 25 cover the gaps 37 to prevent catching articles therein, while providing movement between adjacent links so as to allow traversing of a radiused section”). Accordingly, Thompson, Jr. et al. clearly teaches one skilled in the art to prevent objects from being pinched between modules by modifying Horton to at least partially, or completely, cover a gap in which the object can be pinched.

2008 WL 8119276.

The Board ruled in favor of Habasit, holding that "the Examiner has not identified where the prior art discloses that this space has a diameter of less than 10 mm as required by the claims,"  Slip Op. at 10, quoting Board opinion at 11, and rejecting the space of 0 mm argument.  In reaching this conclusion, the Board did not discuss Rexnord's second argument above.  Slip Op. at 9. 

In its request for rehearing from the Board decision, Rexnord subsequently raised two arguments relating to the 10mm limitation: that the 10 mm spacing was inherent in the prior art and that it was merely a design choice in light of the prior art. The Board denied rehearing, stating that “Rexnord’s reasons as to why it would have been obvious to construct a space as recited in the claims (Request, 3–5) were not the rationale of the Examiner’s rejection.” Slip Op. at 11, quoting Dec. on Rehearing at 3.

On appeal, the CAFC rejected Rexnord's inherency argument but agreed with its obviousness argument.  The main aspect of the appeal, however, was the Federal Circuit's rejection of the PTO's argument that Rexnord couldn't argue grounds for affirming the rejection that were not articulated by the Examiner:

When Habasit appealed the examiner’s decision, Rexnord was not barred from presenting this argument in defense of the examiner. The PTO states in its brief on
this appeal:

Just as this Court does not entertain arguments made outside of appellant’s opening brief, see, e.g., In re Watts, 354 F.3d 1362, 1367 (Fed. Cir. 2004); In re Schreiber, 128 F.3d 1473, 1479 (Fed. Cir. 1997), the Board has a rule that similarly bars the presentation of new arguments outside appellant’s opening brief (absent circumstances not alleged here), see 37 C.F.R. § 41.79(b).

PTO Br. 24. We observe that Rexnord was not the appellant before the Board, and that the premise is an incorrect statement of the appellate process. On judicial review, the correctness of the decision appealed from can be defended by the appellee on any ground that is supported by the record, whether or not the appellant raised the argument.

While this general point seems to be solid, the opinion uses it to support two rules that are in tension: (1) that the appellee can include in its response brief arguments that it raised before the examiner but were not discussed in the examiner's decision ("When Habasit appealed the examiner's decision, Rexnord was not barred from presenting this argument in defense of the examiner," Slip Op. at 13), and (2) that the appellee before the Board does not need to raise those arguments until its request for reexamination ("The issue was fully raised before the examiner, and these references were not again a patentability issue until after the Board reversed the examiner," Slip Op. at 13; "Rexnord asked the Board on rehearing to consider the other grounds before the examiner, in support of the examiner's decision," Slip Op. at 14). 

In other words, the CAFC seems to be saying that the appellee to the board can raise these arguments in its response brief or it can wait until it files its request for rehearing (or maybe that it can only raise these arguments in its request for rehearing; I'm not sure given the court's ambiguity).  Both seem somewhat inconsistent with the way appellate practice usually works: if an appellee doesn't argue an issue in its responsive brief, it generally can't argue that issue in its request for rehearing regardless of whether it made the argument before the lower tribunal. 

Note that this opinion invovled an appeal from the BPAI, which is now the Patent Trial and Appeal Board.  If it carries over into PTAB practice, however, it could have significant consquences for how appeals are structured. 

Arbitrary $50,000 contingency payment does not prevent mootness

Patent, ,

By Jason Rantanen

Allflex USA, Inc. v. Avid Identification Systems, Inc. (Fed. Cir. 2013) Download 11-1621
Panel: Lourie, Clevenger, Bryson (author)

Allflex v. Avid involves the situation where a party to litigation settles the case but seeks to preserve its ability to appeal the district court's adverse rulings by structuring the settlement agreement to include a contingency payment that turns on the outcome of the appeal.  Here, the Federal Circuit imposes some constraints on parties' ability to avoid mootness through what effectively amounts to a "side bet."

Allflex sued Avid for, among other things, a declaratory judgment that it did not infringe several of Avid's patents.  During the litigation, it came to light that Avid and its (former) counsel "should be sanctioned" because they had failed to disclose the existence of reexamination proceedings that were pending with respect to the patents in suit.  (Due to the settlement the parties later entered into, no actual sanctions were apparently ever assessed against Avid).  The court subsequently granted partial summary judgment on Allflex's inequitable conduct claim, holding that Avid's failure to disclose information about prior public use and an offer of sale was material.  The court declined to enter summary jugment on the issue of intent, concluding that a genuine issue of fact remained.  (Note: the court's ruling issued a few months before the Federal Circuit's en banc decision in Therasense v. Becton Dickinson.) Shortly thereafter, the parties entered into a settlement agreement under which Avid agreed to pay Allflex $6.55 million.

Comment: it's noteworthy that in this case the patent holder paid the accused infringer a substantial sum of money to settle the case.  After skimming through Allflex's Complaint, this does not appear to me to be (at first glance) an instance of a reverse payment, since Allflex's complaint alleged several other claims,including breach of a settlement agreement, against Avid, and Allflex potentially stood to recover monetary sanctions.  However, those who are interested in reverse payment cases may wish to take a closer look, particularly in light of the court's statement on p. 13 that "Avid is not and never was at risk of having to pay a monetary judgment on that claim, as inequitable conduct is a defense or an equitable remedy, not a claim for damages, even when it is pleaded as an affirmative claim in a declaratory judgment action." 

The settlement agreement contained a contingency clause, however.  Avid reserved the right to appeal the district court's grant of summary judgment of noninfringement, as well as the materiality and sanction rulings, and if it was successful in overturning any or all of those three findings Allflex would pay Avid $50,000.  Avid did appeal, challenging the district court's rulings on all three issues.  Allflex declined to file a brief. 

In general, a party who is unhappy with the district court's rulings may not appeal those rulings after it has settled the litigation: the settlement agreement renders the case moot because the parties are no longer adversaries.  For example, a patent holder who enters into an agreement with its opponent to settle the case in its entirety after the district court grants summary judgment of invalidity could not subsequently appeal the invalidity ruling. 

On the other hand, where the parties agree to a sum of damages that would be paid or not paid depending on the outcome of the case on appeal, a live controversy may remain.  Avid's own past illustrates this point: in a separate litigation, it had obtained a jury verdict of $26,981 for a patent that was subsequently held by the court to be unenforceable due to inequitable conduct.  The parties settled all issues, but agreed that if Avid prevailed on its appeal of the inequitable conduct issue, it would recover the $26,981 in damages.  Avid Identification Systems, Inc. v. Crystal Import Corp., 603 F.3d 967 (Fed. Cir. 2010).  Even though the defendant in that case declined to contest the merits of the appeal, the $26,981 was "not a token or arbitrary sum introduced for the purpose of manufacturing a controversy."  Id. at 972. 

Here, however, the $50,000 did constitute such a "token or arbitrary sum introduced for the purpose of manufacturing a controversy."  It did not reflect an actual damages award, as in Crystal Import, nor was it a "reasonable estimate of the value of any of the issues on appeal."  Slip Op. at 12.  Instead, it was just a number that Avid had hoped would be large enough to persuade the court that a controversy remained.  The court found particularly problematic the fact that the $50,000 would be awarded whether Avid prevailed on any one or more of the issues: this indicated that the $50,000 was completely untethered to the value of any one of those issues. 

The court's ultimate holding on the issue: "We hold that where, as here, the appellant has identified no relationship between the valuation placed on the appeal and the issues the appellant wishes to challenge, the parties have simply placed a “side bet” on the outcome of the appeal, which is not enough to avoid a ruling of mootness."  Slip Op. at 14.  There are good reasons for this rule:

When one party wishes to maximize its prospects of prevailing on an issue that has been the subject of a settlement agreement similar to the one in this case, it would no doubt be tempting to set the contingency payment at a level that would be sufficient to avoid the mootness rule of Aqua Marine, yet low enough to avoid encouraging the adverse party to participate in the appeal. As this case demonstrates, that results in the highly unsatisfactory situation in which the court finds itself with a one-party appeal, where there is no adversarial presentation and the court consequently has reduced confidence in any ruling it might enter. In some instances, as we pointed out in Crystal Import, one-party appeals are unavoidable. But where, as in this case, the appellant has failed to satisfy us that the arrangement leading to the one-party appeal reflects the existence of a legitimate, continuing case or controversy, we decline to be a party to the exercise.

Zumbiel v. Kappos

Patent

By Jason Rantanen

The C.W. Zumbiel Company, Inc. v. Kappos (Fed. Cir. 2012) Download 11-1332
Panel: Prost (dissenting-in-part), Moore, Wallach (author)

Prior to KSR v. Teleflex, the Federal Circuit granted significant deference to the PTO on obviousness determinations; following KSR, that deference has only increased.  Zumbiel v. Kappos represents possibly one of the more extreme examples of that deference.  This appeal is unusual, however, in that it involves substantial deference to the BPAI/PTAB's finding that a claim is nonobvious, deference that is (in the dissent's view) contrary to other aspects of the Court's holding in KSR. 

639 patent

Graphic Packaging International is the assignee of Patent No. 6,715,639, which is directed to a carton or box that holds containers such as cans and bottles.  Zumbiel filed for an inter partes reexamination of the '639 patent, arguing that the claims were obvious in light of various prior art references.  The BPAI (now the PTAB) determined that some of the claims were obvious (including claim 1) and some were nonobvious (including claim 2).  Both parties appealed the adverse determinations.

Representative Claim 1:

1. An enclosed carton for carrying a plurality of containers in two rows, with a top row and a bottom row, said containers each having a diameter, the carton comprising:

a. a top panel, side panels, a bottom panel, and closed ends, at least one of which is an exiting end;
b. a dispenser which is detachable from the carton to form an opening at an exiting end through which the containers may be removed;
c. the dispenser being a unitary structure comprising a portion of the top panel, portions of the side panels, and a portion of the exiting end, said portions being defined by a tear line extending across the top panel, side panels, and exiting end;
d. means for preventing the end container in the bottom row from accidentally rolling out of the carton after the dispenser has been opened, the height of the means above the bottom panel being less than the diameter of said end container; and
e. a finger flap located along the portion of the tear line extending across the top panel for pulling the dispenser open along the tear line,
f. whereby when the dispenser is opened it may optionally remain attached to the carton
at the exiting end to form a basket at the exiting end of the carton.

Representative Dependent Claim 2:

2. The carton of claim 1, in which the finger flap is located between the first and second containers in the top row.

Prior Art Reference 1 (Ellis):

Ellis 242

Prior Art Reference 2 (German '718) (note that there were two additional prior art references):

German 718The Federal Circuit began by affirming the PTAB's determination that representative claims 1 and 13 were obvious.  Among other issues, the court employed a "predictable variations" approach to conclude that a claimed limitation would be met.  German argued that the prior art did not teach the claimed location of the finger flap; the court, however, agreed with the Board that "providing the finger opening on the top wall of the carton would be a predictable variation that enhances user convenience…and is within the skill of a person of ordinary skill in the art."  Slip Op. at 15. 

The court next turned to Zumbiel's appeal of the PTAB determination that representative claim 2 was nonobvious.  The sole additional limitation added by claim 2 is that "the finger flap is located between the first and second containers in the top row."   Thus, "the dispute lies in whether the location of the finger flap between the first and second cans is obvious in light of the prior art."  Slip Op. at 20.  Applying a substantial evidence standard, the majority affirmed the Board's determination that (1) a third prior art reference did not provide the necessary teaching for moving the tear line and (2) "there was little incentive to relocate Ellis's finger flap to a position between cans in order to provide space for the fingers."  Slip Op. at 22.  Based on these findings, the majority held that claim 2 was nonobvious.

Judge Prost's Dissent: In a plain language dissent, Judge Prost strongly disagreed with the majority's determination of nonobvious:

"Failing to apply KSR to the facts of this case, the Board has concluded that the invention recited in claim 2 is non-obvious. Because I believe that a common sense application of the obviousness doctrine should filter out low quality patents such as this one, I cannot join the majority in endorsing the Board’s incorrect approach on this question. Thus, with respect, I dissent."

…

[L]et’s be clear what claim 2 is about. The claimed invention takes the opening from Ellis, takes the stacked can configuration from another box, and puts them together. The result is—as one would expect—a box that has the known benefits of Ellis’s opening and the known benefits of a stacked can configuration.

Why is this assembly non-obvious? Because, the Board explains, the patentee has solved a difficult implementation problem, the solution to which was supposedly not obvious to box makers who lacked extraordinary skill. The secret lies in the proper positioning of the tear line. That is, according to the Board, ordinary box makers would not have put the tear line between the first two cans in the top row.

Where else could have they put it? There are just four other options: (1) above the first can, (2) above the second can, (3) in front of the first can, (4) behind the second can. The first two alternatives are just offensive to common sense: With the cans right below, there would be no room to push the flap through (the flap is positioned at the center of the tear line). The third and fourth options are not quite as illogical, but even without expertise in box making, one may intuit that they make awkward designs (the third opens too little, the fourth too much).

More importantly, however, whether some of the alternatives would work just as well or not, the patentee’s choice of tear-line-placement involves no more than the exercise of common sense in selecting one out of a finite—indeed very small—number of options. And there are no unexpected results[.]

The point here is not that the Board got the facts wrong. The point is that contrary to the Supreme Court’s instructions, an “overemphasis on the importance of [teachings of prior art]” has insulated the Board’s analysis from pragmatic and common sense considerations that are so essential to the obviousness inquiry. KSR, 550 U.S. at 419. The Board’s approach relegates one of ordinary skill to an automaton. Should this approach become commonplace, it would lower the obviousness bar and
hence hinder competition and innovation. That is why, unlike the majority, I do not see any room for deference to the Board’s determination in this case.

 

 

 

Judge Bryson Assumes Senior Status

Patent

Today, Judge William C. Bryson of the United States Court of Appeals for the Federal Circuit assumed senior status.  Judge Bryson joined the court in 1994.  A true career civil servant, his experience prior to joining the bench was extraordinary: he served as a law clerk to both Judge Friendly of the Second Circuit and Justice Thurgood Marshall, and spent seventeen years at the Department of Justice (including two stints as Acting Solicitor General) prior to his appointment to the Federal Circuit. His work ethic, keen intelligence, and sense of fairness are legendary on the court.

One short story of my own: A few hours after interviewing with Judge Bryson, I was ecstatic to receive a phone call from the judge offering me a position in his chambers.  But Judge Bryson made the offer with a  condition: he required me to wait at least a week before I could accept the offer, so that I could really think about the offer and weigh any offers from other judges.  In today's day of hour-long exploding clerkship offers, Judge Bryson's practice really stands out in sharp contrast (admittedly, I don't know whether he still follows this rule).  Of course, I accepted the offer as soon as I was permitted to!

In celebration of Judge Bryson's service on the Federal Circuit, I reached out to several of his other former clerks for their thoughts on the judge.  There were far more than I could possible include here, but the comments below are representative:

  • "The best thing I learned working for Judge Bryson is not to be so enamored of the easy parts of your case that you lose sight of the hard parts.  Work to find the hardest question that a judge or an opponent might put to your case.  If you can’t figure that out, you don’t know your case well enough.  Then work to find the best answer to that hard question.  If you don’t have a good answer, you are not doing everything that you can to win.  Surprisingly, many attorneys arguing at the Court seemed shocked to be challenged or have their arguments tested."
  • "I have had many senior partners, clients, superiors, etc. tell me over the years that they want my unvarnished views and don’t want “yes men” to just nod along.  Judge Bryson embodied the rare person who really meant that when he said it."
  • "Judge Bryson was assigned the standard floor space in the Markey courthouse — three bay windows' worth — and was allowed to configure his chambers as he saw fit.  He took none of the windows for his own office.  Instead, he sat in a windowless room and used the bay windows for a library and conference room open for use by (and frequently used by) all of chambers staff.  This unusual and perhaps unique arrangement speaks volumes to Judge Bryson's humility, collegiality, and work ethic." (This specific recollection was shared by many of Judge Bryson's former clerks).
  • "Probably every person that argues in front of Judge Bryson lives in respect of his hypotheticals.  He has a good knack for boiling down the essential point of a case into a hypothetical question or statement.  As a clerk, the amusing aspect of the hypotheticals was that many attorneys could not decide whether they should agree, or disagree, with his hypothetical.  The deer-in-the-headlights look from these attorneys was priceless."
  • "If you have a good substantive case, you want Judge Bryson on your panel.  If you don’t have a good substantive case, you don’t want to see him show up on your panel."
  • "At the end of our clerkship during a recruiting dinner, I had a very senior figure at one of the top patent firms (you’d know his name immediately) say to me  “You know… some people would say that Judge Bryson is the smartest judge on the bench.”     I’ve had this statement repeated to me many times by members of the Fed Cir bar over the last 11 years."
  • "When I brought my kids into chambers, I was worried about them overstaying their welcome and bothering Judge Bryson.  To the contrary, I think that if Judge Bryson had had his way, he would have spent the whole afternoon looking up countries on the globe and drawing on the white board with them."
  • "I think of Judge Bryson as extraordinarily dedicated to reaching the correct decision in any appeal. For patent cases, I remember that he would always spend a great deal of time attempting to understand the underlying technologies. One time, I saw him studying briefs while he was waiting for the Metro at McPherson Square."
  • "During the clerkship, I was endlessly impressed by how Judge Bryson was always able easily to pierce through a complicated record to identify what was central to the disposition of a case — and how he worked through all issues with such integrity.  Various former clerks of Judge Friendly (the Second Circuit titan for whom Judge Bryson had also clerked) have often spoken about how their judge didn't really need any law clerks, because his knowledge of the law was just so encyclopedic, and because he was so efficient and self-sufficient; I feel the same way about Judge Bryson.  And on top of it all, he is a true and kind mentor.  Those of us who have had the privilege of clerking for Judge are truly lucky."
  • "Judge Bryson's questions at argument could be difficult to deal with, even for seasoned attorneys.  In one example, an attorney attempted to sidestep one of Judge Bryson's questions (or at least buy himself time), arguing that "I'm from Texas, I think slow and I talk slow."  Judge Bryson was not so easily brushed aside, responding something like, "I'm from Texas too, but I would like you to answer my question.""
  • "Judge Bryson is easily the smartest lawyer I've ever known, and yet also one of the most unassuming people I've ever known.  I recently read a biography of Judge Bryson's former boss Judge Friendly.  I frequently recalled my year as a clerk for Judge Bryson as I read about Judge Friendly's intellect, work habits, non-ideological approach to judging, and how his clerks apparently had to work hard to come up with things that the judge hadn't already figured out on his own.   Much like Judge Friendly was, though, Judge Bryson is not the least bit pretentious or taken with his own intellect — despite having infinitely more skill and experience than his clerks, Judge Bryson treated his clerks as colleagues and was always open to hearing their ideas.  I can think of no better way to have started my legal career than the year I spent as a clerk for Judge Bryson."

As a senior judge, Judge Bryson will continue to sit regularly on the court, although with a reduced docket.  We can hope that he will do so for many years! 

Federal Circuit Statistics – FY 2012

Patent

By Jason Rantanen

Each year the Federal Circuit provides caseload statistics.  The court recently released the statistics for FY 2012 (October 2011-September 2012).  In terms of overall caseload, the number appeals filed with the court continued to rise, although it remains well below the numbers of appeals filed from 2002-2007.

Overall caseload
Source: http://www.cafc.uscourts.gov/the-court/statistics.html

As with last year's increase, this increase largely appears to be due to an increase in the number of patent infringement appeals.  The next charge shows that appeals from district courts rose while appeals from most other areas actually declined slightly. According to the court, 471 patent infringement appeals from the U.S. District Courts were filed in FY 2012, up from 426 in FY 2011.

Appeal OriginsSource: http://www.cafc.uscourts.gov/the-court/statistics.html

One question that people invariably ask about a pending appeal is "How long will it take for the court to issue its opinion?"  While there's no answer that can be offered with certainty other than "it varies," the below chart offers some guidance. It also suggests one of two things: either the court's median time to disposition in patent-related appeals is inching upward slightly, or the court is using less Rule 36 summary affirmances in those appeals. For similar reasons, the below data should be read with some caution, as it (presumably) includes two distinct cohorts: appeals disposed of through Rule 36 affirmances (which issue shortly after the scheduled date for oral argument) and appeals for which the court writes a substantive opinion (which generally issue much later).  Consequently, the median time to disposition for the cohort of summarily affirmed appeals is probably much less than the indicated median while the median for the remaining appeals is probably greater. 

Median Time to Disposition 2002-2012
Based on data obtained from http://www.cafc.uscourts.gov/the-court/statistics.html

In re Rosuvastatin Calcium Patent Litigation

Patent, ,

By Jason Rantanen

In re Rosuvastatin Calcium Patent Litigation (Fed. Cir. 2012) Download 10-1460
Panel: Newman (author), Plager (concurring), Mayer (dissenting)

This appeal arises in the context of the patent war over rosuvastatin, a multi-billion dollar pharmaceutical product sold by Astrazeneca under the name CRESTOR.  At issue on appeal was the central component of Astrazeneca's protection for rosuvastatin: the composition patent (RE 37,314).  The short version is that Astrazeneca has won for the time being: the Federal Circuit ruled in favor of Astrazeneca on all issues.  However, the composition patent is set to expire in 2016, and Astrazeneca previously failed in its bid to enforce its later-expiring method-of-use patents against the generic manufacturers.

Reissue: The '314 patent is a reissue of Patent No. 5,260,440, whose specification describes rosuvastatin as the preferred embodiment.  During the prosecution of the '440 patent, the prosecuting attorney became aware of two potentially relevant prior art references through an internal search report.  The prosecuting attorney did not disclose the references to the PTO, however (no IDS was filed at all), and when the '440 patent issued the patent contained a broad genus claim that overlapped with one of the references.

Several years after the patent issued, it was discovered during licensing negotiations that no IDS had been filed during prosecution of the '440 application and that the examiner had not cited the two references.  The patent holder initiated reissue proceedings, which ultimately resulted in the patent being limited to the specific compound rosuvastatin and its salts. 

In addition to raising an inequitable conduct argument (which the court rejected on lack of intent grounds), the defendants argued that reissue was improper because there was no error and because there was deceptive intent.  While the AIA removed the statutory requirement that the error providing the basis of the reissue occur "without any deceptive intention," this opinion is significant for its broad interpretation of what constitutes "error" in the context of a reissue, an issue that will have ongoing importance:

Precedent establishes that for reissue purposes “error is established where there is no evidence that the appellant intentionally omitted or abandoned the claimed subject matter.” Ball Corp. v. United States, 729 F.2d 1429, 1435–36 (Fed. Cir. 1984). Here, the district court found as fact that Shionogi erred by failing to file an IDS citing the Sandoz and Bayer references, and by omitting a specific claim to the preferred species. However, the court found no evidence of a deliberate choice to omit or abandon the rosuvastatin species, which was described in the specification as the most effective product. 

Slip Op. at 21.  The court further noted that past precedent supports the practice of narrowing claims through reissue. 

On deceptive intent (which will still be relevant for any reissue proceedings initiated prior to September 16, 2012), the majority held that deceptive intent for reissue purposes applies the same standard as deceptive intent in the inequitable conduct context.

Judge Mayer, writing in dissent, disagreed that reissue was proper.  "A patentee cannot establish correctible "error" under section 251 simply by demonstrating that his original patent contains a defect…Instead, reissue is warranted only where a patentee "supplies…facts indicating how…ignorance," accident, or mistake caused an error in his claims." Dissent at 6-7.  He also expressed concern about the consequences of the majority's broad reading of "error":

The claims of a validly-issued patent serve an important notice function, alerting the public of the metes and bounds of an inventor’s discovery. [] This public notice function will be subverted if the “error” requirement is read out of the reissue statute and patentees are given free reign to rewrite their claims whenever they find it expedient to do so. []

Dissent at 13 (citations omitted).

ANDA Filing by a US Subsidiary "On Behalf Of": One of the generic manufacturers, Apotex, raised a creative theory of noninfringement.  Apotex Corp. is a United States affiliate of the Canadian Company Apotex Inc.  The Abbreviated New Drug Application that triggered the infringement suit was signed and filed by the US affiliate on behalf of the Canadian company.  Given this arrangement, Apotex raised a number of arguments supporting the theory that the US affiliate did not "submit" the ANDA within the meaning of the infringement statute, 35 U.S.C. §271(e)(2)(A), and thus it could not infringe the patent.  (The Canadian company was not a party to the suit).

Judge Newman, writing for the majority, affirmed the district court's rejection of this theory without substantial analysis.  Slip Op. at 31.  Judge Plager's concurrence, however, provides a detailed analysis of why Apotex's arguments fail to preclude liability for infringement.  One key bit: 

More directly, however, in this case Apotex U.S. clearly intends to engage in, and presumably submitted the ANDA for the purpose of, selling the approved drug in the United States. The statute speaks not only in terms of engaging in commercial manufacture, but, disjunctively, in terms of engaging in the drug’s “use or sale.” As an acknowledged sales agent for the primary applicant, Apotex U.S. can be treated as simply having “submit[ted]” an application for an ANDA for the purpose of “engag[ing] in the commercial . . . sale of [the] drug . . . claimed in a patent.”  

Concurrence at 6.

Nonobviousness and No Inequitable Conduct: The Federal Circuit also affirmed the district court's ruling that the '314 patent was nonobvious and that it was not unenforceable due to inequitable conduct.  On obviousness, the defendants used a "lead compound" theory, arguing that a prior art patent publication suggested that a particular compound ("Compound 1b") would be a good "lead compound" for further research and that there was a motivation to modify that compound to arrive at the claimed invention.  The Federal Circuit affirmed the district court's conclusion that the defendants failed to demonstrate that there was a motivation for selecting Compound 1b as a lead compound or making the relevant modification.  It further agreed that the idea that it might be "obvious to try" making and testing this compound was negated by evidence of skepticism in the field. 

On inequitable conduct, the Federal Circuit affirmed the district court's finding of lack of deceptive intent.  It declined to disturb the court's finding that the withheld references were material.

CAFC Obviousness Decision Trends and KSR

Obviousness, Patent

By Jason Rantanen

Following up on Dennis's post earlier this morning, below I've provided a few charts showing the Federal Circuit's practice of citing KSR in its obviousness opinions.  The data comes from a study of the court's post-KSR obviousness jurisprudence that I'm currently writing up; as a result, it only runs through April 30, 2012.  The pattern is noticibly different from that of the BPAI/PTAB data that Dennis provided, both for all opinions involving obviousness and for just those arising from the PTO. 

The first chart shows the rate at which the Federal Circuit cited KSR at least once in an opinion addressing obviousness.  The rate at which the court cited KSR actually climbed a bit in 2011. 

CAFC KSR Citations by Year

The next chart is a moving (lagged) average, which means that each point represents the average rate that the Federal Circuit cited KSR over the 20 preceding opinions.  For example, the first point represents the average rate at which the Federal Circuit KSR in opinions 1-20 following KSR, the second point opinions 2-21, etc. The first data point thus corresponds with the Federal Circuit's 20th opinion on obviousness after KSR while the last data points corresponds with the Federal Circuit's 155th opinion after KSR.

CAFC Citations of KSR lagged
The last chart follows the same format as the first chart, limited to appeals arising from the PTO.

CAFC citations of KSR by Year - PTO only

Maintaining Uncertainty in the Standard of Review for Exceptional Cases

Patent,

By Jason Rantanen

Highmark, Inc. v. Allcare Health Management Systems, Inc. (Fed. Cir. 2012) (Order Denying Rehearing En Banc) Download 11-1219 order
Concurring opinion by Judge Dyk, joined by Judge Newman
Dissenting opinion by Judge Moore, joined by Judges Rader, O'Malley, Reyna, and Wallach
Dissenting opinion by Judge Reyna, joined by Judge Moore, O'Malley, and Wallach, and Chief Judge Rader in part

Earlier this year, a divided panel of the Federal Circuit held that the element of objective baselessness in an exceptional case determination is subject to de novo review as opposed to a more deferential form of review in Highmark v. Allcare.  Yesterday, the Federal Circuit declined to grant en banc review of that holding, a decision that spawned two dissents signed by what now constitutes half the court.  (Judge Linn assumed senior status shortly after participating the decision).  As discussed below, in declining to grant en banc review the court preserved—and arguably  increased—the uncertainty about which standard of review applies.

David Hricik previously wrote an extensive discussion of the panel decision in Highmark; background details are available there.  Following that decision, Highmark filed a petition for rehearing en banc challenging the majority's application of a de novo standard when reviewing the issue of whether the litigation was objectively baseless in connection with an exceptional case determination under 35 U.S.C. § 285.  The full court declined to rehear the appeal en banc. 

The Dissenting Judges: Objective Baselessness is Reviewed for Clear Error.  In an act that speaks volumes about the strength of the views of the dissenting judges, two separate judges, Judge Moore and Judge Reyna, each wrote dissents and also signed on to each other's opinions.  Both dissents essentially contain the same themes: that the majority's holding regarding the standard of review in Highmark is (1) contrary to the court's own precedent; (2) inconsistent with the Supreme Court's prior rulings; (3) inconsistent with other court's approaches to similar issues in the Rule 11 and Equal Access to Justice Act context; and (4) fundamentally unsound. There are nuanced differences between the opinions; for example, Judge Reyna sharply criticizes the panel majority's over-reliance on developments in the willful infringement context, a part of the opinion that Judge Rader does not join, while Judge Moore offers a milder disagreement.  The overarching point of the dissenting judges, however, is that all elements of the exceptional case determination, including that of objective baselessness, are reviewed for clear error, with deference given to the district court judge on factual determinations.

The Concurring Judges: Objective Baselessness is Reviewed De Novo.  Writing in support of the decision not to grant rehearing en banc, Judge Dyk joined by Judge Newman argued that (1) the prior opinions did not involve a dispute between the litigants as to whether objective baselessness is a question of law to be reviewed de novo on appeal; (2) that Supreme Court precedent requires objective baselessness to be treated as a question of law; (3) that sections 284 (willful infringement) and section 285 (exceptional case) should be read as involving the same inquiry with the same standard of review; and (4) that policy supports de novo review of the issue of objective baselessness.  Judge Dyk further pointed out that the court is in agreement on most of the legal issues in exceptional case determinations — just not this one. 

Substantial Implications. The opinions of the dissenting judges raise two substantial implications.  The first is the enhanced uncertainty surrounding the standard of review for exceptional case determinations.  I read the dissenting judges as saying that not only do they it think the decision not to grant a rehearing en banc was wrong, but that they view the Highmark holding as invalid.  Both dissents stress the point that the Highmark holding is inconsistent with the court's prior precedent.  Judge Reyna also points out the well-established rule that to the extent a panel's decision on a point of law is inconsistent with an earlier panel's decision on that point, the earlier holding controls.  See Reyna Dissent at 4-5.  While the court acting en banc can overrule the first panel's holding, a decision not to grant en banc review of the second panel would seem not to be the same as the en banc court actually adopting the second panel's holding.  As a result, it may be that the dissenting judges, who now comprise half the voting judges for en banc purposes (and in a month will comprise a majority when Judge Bryson assumes senior status), may not believe themselves bound by the Highmark holding.  If this is the case, the split will continue until it is eventually resolved by the en banc Federal Circuit or the Supreme Court. 

A second implication is that both Judge Moore and Judge Reyna appear to be skeptical of the court's recent holding in Bard Peripheral Vascular v. W.L. Gore that objective recklessness in a wilfulness determination is subject to de novo review, and are joined by at least two other judges in their skepticism.  See, e.g., Moore dissent at 3, n. 1 ("For reasons simlar to those discussed below, this court should also revisit Bard en banc.). 

Guest Post:Claim Construction Catch-22: Why the Supreme Court Should Grant Certiorari in Retractable Technologies

Patent, , , ,

Guest Post by Peter S. Menell (UC Berkeley School of Law) and Jonas Anderson (American University Washington College of Law).

After nearly two decades of lower court confusion, there was a glimmer of hope that the Supreme Court might intervene to clarify the standard of appellate review of claim constructions determinations.   Following strongly worded dissents from denial of rehearing en banc, the Supreme Court invited the Solicitor General’s views on the certiorari petition in Retractable Technologies, Inc. v. Becton, Dickinson and Co., 653 F.3d 1296 (Fed. Cir. 2011), denial of rehearing en banc, 659 F.3d 1369 (2012).

In its filing last week, the Solicitor General has unfortunately recommended against Supreme Court review principally on the ground that Retractable Technologies is not an “appropriate vehicle” because the district court did not specifically rely upon factual findings.  Therein lies the Catch-22.  No district court since at least the Federal Circuit’s 1998 en banc Cybor ruling has been willing to make factual findings in construing patent claims for the pragmatic, logical, and legal reason that to do so would contradict Federal Circuit law that claim construction is a pure question of law.

As we have chronicled at length elsewhere, see Anderson & Menell, From De Novo Review to Informal Deference: An Historical, Empirical, and Normative Analysis of the Standard of Appellate Review for Patent Claim Construction (2012) available at <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2150360>,  Anderson & Menell, Appellate Review of Patent Claim Construction: The Reality and Wisdom of a “Mongrel” Standard the Federal Circuit, the Federal Circuit has struggled mightily over the standard of appellate review since the Markman case.  A slim majority adheres to de novo review notwithstanding the Supreme Court’s recognition of the “mongrel” character of claim construction.  The confusion has contributed to a high, variable, panel-dependent reversal rate of claim construction determinations.  Fearing reversal for relying upon expert testimony, district judges avoid and/or mask use of experts in determining how skilled artisans interpret patent claims.  Numerous studies indicate — and district court and several Federal Circuit jurists believe — that the de novo standard has significantly increased the uncertainty and costs of patent litigation, reduced settlement rates, and misapplied the Supreme Court’s Markman ruling.

The SG’s rationale overlooks a critical and unique structural feature of the federal patent system: the Federal Circuit’s exclusive jurisdiction over patent appeals.  Circuit splits are not possible on patent issues and district courts throughout the land are bound by the Federal Circuit’s interpretation of patent law.  Under the SG’s logic, therefore, the standard of appellate review will not be ripe for Supreme Court review unless a district court defies the Federal Circuit.  Such logic nearly guarantees that there will never be an “appropriate vehicle” for considering this issue, notwithstanding the vehement cries for help from Chief Judge Rader, Judge Moore, and Judge O’Malley.

It is possible that the Federal Circuit will eventually revisit this standard on its own, although the historical record does not inspire confidence.  As we chronicle in our article, members of the Federal Circuit have repeatedly sought to revisit the de novo standard since the Markman decision to no avail.  Meanwhile, district courts and the patent system have endured a doubtful application of the Supreme Court’s Markman ruling, causing substantial disruption and wasted resources.

To avoid the Catch-22, the Supreme Court should view dissents from rehearing en banc in the Federal Circuit as a proxy for a circuit split.  Furthermore, the fact that a “split” has festered since the time of Markman strongly indicates that the standard of appellate review is ripe for Supreme Court consideration.  The SG has missed these critical points in its assessment of the Retractable Technologies certiorari petition.

The Fox Group v. Cree: Expanding Section 102(g) Prior Art

Patent

By Jason Rantanen

The Fox Group, Inc. v. Cree, Inc. (Fed. Cir. 2012) Download 11-1576
Panel: Newman, O'Malley (dissenting-in-part) and Wallach (author)

In The Fox Group, the Federal Circuit substantially expands the scope of prior art under 35 U.S.C. § 102(g). There are two main components of this expansion: the panel's unanimous interpretation of the reduction to practice requirement as not necessitating repeatability and the majority's sharp narrowing of what constitutes abandonment, suppression or concealment.

While Section 102(g) will be eliminated as a category of prior art for patents based on applications filed on or after March 16, 2012, it will continue to apply to a large number of patents for many years to come.

Background: In 1995, Cree grew a low defect silicon carbide (SiC) crystal and sent a sample to a university scientist for analysis.  The scientist advised Cree that there was an exceptionally low defect area in this sample.  That same year, a Cree researcher showed a cropped image of the sample and described its low defect nature, stating that it had an area with less than 1,000 dislocations per square centimeter and no micropipes.  The researcher also described the high quality of the sample in an article published in 1996 that included an image of an X-ray topograph of the crystal.  The article did not describe how the crystal was created and there was no evidence in the record that Cree took any steps towards commercialization prior to 2004.  

Fox is the assignee of Patent No. 6,562,130, filed on May 4, 2001.  The '130 patent claims a low defect SiC crystal having, among other properties, a density of dislocations per square centimeter of less than 104 and a density of micropipes of less than 10 per square centimter.  Fox sued Cree for infringement of the '130 patent in 2010 and Cree responded by arguing that its prior invention rendered the '130 patent invalid under 102(g).  The district court granted summary judgment in favor of Cree and Fox appealed.

Under 35 U.S.C. § 102(g)(2), a person is not entitled to a patent if:

before such person’s invention thereof, the invention was made in this country by another inventor who had not abandoned, suppressed, or concealed it. In determining priority of invention under this subsection, there shall be considered not only the respective dates of conception and reduction to practice of the invention, but also the reasonable diligence of one who was first to conceive and last to reduce to practice, from a time prior to conception by the other.

There are two core requirement for 102(g) prior art.  First, the challenger must establish that the alleged prior inventor reduced its invention to practice first or, alternately, was the first party to conceive of the invention and then exercised reasonable diligence in reducing that invention to practice.  Second, the prior inventor must not have abandonned, suppressed, or concealed the invention.  The court's opinion addresses both.

Reduction to Practice: The court found that Cree satisfied the first element of prior inventorship by reducing the invention to practice in 1995 by (1) creating the crystal sample (which met all the limitations of the asserted claims of the '130 patent) and (2) recognizing that it was a low-defect crystal.  In reaching this conclusion, the CAFC rejected Fox's argument that reduction to practice of a product invention requires that the the prior inventor "must prove repeatabliity to prove that it had reduced the invention to practice."  Slip Op. at 9.  In other words, it was sufficient that Cree had created the crystal once; there was no requirement for it to prove that it could be done again. 

Suppresssion or Concealment: The more significant aspect of the opinion relates to the issue of suppression or concealment.  Here, Fox argued that Cree suppressed or concealed its invention because it (1) did not file a patent application for its Kyoto Wafer, (2) did not present proof of commercialization that would allow for reverse engineering, and (3) did not otherwise provide adequate disclosure because it failed to reveal the details of the growth conditions under which boule G0259 was made."  Slip Op. at 10.  

In rejecting Fox's argument, Judges Wallach and Newman concluded that disclosure of an product invention to the public requires only that the inventor make the existence of its invention known to the public.  (Note: the majority does not actually use the word "existence of"; however, in my view that's the only logical way to read the opinion, given that this is the only information that Cree disclosed).  Provided that general details about the invention are given to the public, it is irrelevant whether or not an invention is commercialized or a patent is filed.  "Filing a patent application and commercializing a product are only two convenient ways of proving an invention has been disclosed to the public."  Slip Op. at 11.  Here, it was sufficient that Cree sent samples of its boule for testing by Dr. Dudley, an outside evaluator, the product itself (though not the process used to make it) was described in a published paper, and knowledge of the product was disseminated outside of the company in the Kyoto presentation."  Id.  The crux of the majority's reasoning:

The purpose of § 102(g) is to bar an inventor from receiving a patent on an invention that has already been invented and was not abandoned, suppressed, or concealed. Apotex, 254 F.3d at 1038-39. If the patent claimed a process, then a prior inventor would have to prove prior invention of the process which had not been abandoned, suppressed, or concealed, to invalidate the patent under § 102(g). “Cree promptly and publicly disclosed its findings concerning the low defect properties of the SiC material from which the [Kyoto Wafer] was cut through a presentation at the 1995 International Conference and a published paper on the subject.” Fox Group, 819 F. Supp. 2d at 535. Accordingly, Cree promptly made its invention, a SiC material with low defect densities, known to the public. Fox has not produced sufficient evidence raising any genuine issues of material fact to show that Cree suppressed or concealed its invention.

Writing in dissent, Judge O'Malley emphatically disagreed with the majority on this issue:

Because Cree made the fact of its invention known to the public, the majority, like the district court before it, concludes that Fox can never establish abandonment, suppression, or concealment. Under the majority’s approach, an inventor could publicly announce that it made a product, with no explanation as to how it did so, and then hide it away in a closet indefinitely. As long as the inventor describes a product in general terms, the inventor cannot, according to the majority, be accused of abandoning, suppressing, or concealing the invention.

The majority’s approach cannot be the law. If a prior inventor could disclose the mere existence of a product and take no further action for nine years, the concept of abandonment, suppression, or concealment would be rendered meaningless. Consistent with our prior case law, where there is no enabling written disclosure, there must be evidence that the prior inventor timely made its
invention available to the public in some other way – e.g., through public use, commercialization, or filing a patent application claiming the invention. Such a requirement is consistent with § 102(g)’s general goal of giving the public the benefit of the invention. See Checkpoint, 54 F.3d at
761 (Section 102(g) “encourages prompt public disclosure of an invention by penalizing the unexcused delay or failure of a first inventor to share the ‘benefit of the knowledge of [the] invention’ with the public after the invention has been completed.” (citation omitted)).

Judge O'Malley further pointed out that this case was before the court on a grant of summary judgment of invalidity; in light of this posture, it was especially inappropriate to hold that Cree had not suppressed or concealed the invention. In particular, Judge O'Malley pointed to evidence indicating that Cree had a broad policy of concealing its production methods, and in light of that policy took specific steps to avoid enabling its competitors to make the invention. 

Comment: In my view, the majority erred in concluding that merely disclosing general information about the invention suffices to preclude any subsequent inventor from obtaining a patent.  In addition to Judge O'Malley's reasoning why this cannot be correct (including an analysis of why it is inconsistent with the CAFC's precedent), the effect of the majority's holding is to cause 102(g)(2) to swallow much of the remainder of Section 102.  Under the majority's reasoning, any disclosure about an invention, no matter how superficial or non-enabling, becomes potential prior art as long as there is secret information about a reduction to practice of the invention.  The effect of the court's opinion is to incentivize lower quality, non-enabling disclosures of information as, in the near term at least, this is all that is apparently necessary to defeat patentability.

Director Kappos’s Speech on Software Patents, the PTO, and Innovation

Patent, ,

By Jason Rantanen

Last week, Director of the USPTO David Kappos delivered a keynote address to the Center for American Progress that focused on software patents and the smartphone "patent wars."  The speech is noteworthy for the Director's strong defense of software patents. The entire speech is worth reading – here are a few excerpts to induce you to read the full speech:

Software patents, like all patents, are a form of innovation currency. They are also ecosystem enablers, and job creators. The innovation protected by software patents is highly integrated with hardware. All of it must remain eligible for protection. The current software patent “war” is hardly the first patent war—and unlikely to be the last in our nation’s patent history. Whenever breakthrough technologies come onto the scene, market players find themselves joined in the marketplace by new entrants. The first instinct of the breakthrough innovators is to bring patents into play. This is not only understandable, it is appropriate. Those who invest in breakthrough innovation have a right to expect others to respect their resultant IP. However, in the end, as history has shown time and time again, the players ultimately end up agreeing to pro-consumer solutions via licenses, cross-licenses or joint development agreements allowing core technologies to be shared.

***

So does that mean we’re done? End of speech? Should we just accept the problems, given the importance of the innovation and the illogic of discriminating against great technology that happens to be implemented in software? Of course not. The right point of inquiry is quality. By getting that right, we grant patents only for great algorithmic ideas worthy of protection, and not for everything else. This administration and its innovation agency understand that low-quality patents do no good for anyone. Low quality patents lead to disputes, uncertainty, and lost opportunity. Quality is central to our mission. All of this especially for software.

So we’ve been working on the underlying drivers for software patent quality from the beginning. Knowing that you get what you measure, starting in the summer of 2009 we assembled a taskforce to devise a comprehensive new set of quality metrics. That work culminated in 2010, when we rolled out the most complete, broad, objective patent quality measurement system on the planet – seven metrics, which we report eagerly to the public. The Lexus of quality metrics. And what do those metrics show? Patent quality isn’t broken at all. In fact, our decisions on both allowances and rejections correctly comply with all laws and regulations over 96 percent of the time.

***

You know, the history of software patents is not a perfect one, although things are improving. Some of the most troublesome patents have expired; others can be challenged with new post-grant proceedings; and newer patents are quantifiably clearer, and aligned with current legal standards. But it’s important to note that, during the so-called smartphone patent wars, innovation continues at breakneck pace. A system like ours, in which innovation is happening faster than consumers can keep up, cannot fairly be characterized as “broken”. Nor can it be said that the U.S. is just a receiver of all this innovation. Most of the innovation is taking place right here. Broken? What?

The fact is, the explosion of innovation—and follow-on litigation—that we see across consumer electronics hardware and software is a direct reflection of how our patent system wires us for innovation. It's both natural and reasonable that in a fast-growing, competitive market, innovators would seek to protect their breakthroughs using our patent system.

The full version of Director Kappos's speech is available here: http://www.uspto.gov/news/speeches/2012/kappos_CAP.jsp

 

 

Unenforceability

Patent

By Jason Rantanen

A few months ago Polk Wagner, Lee Petherbridge, and I circulated an early draft of our empirical study on the characteristics of patents that the Federal Circuit has held to be unenforceable due to inequitable conduct.  In response to comments, including many from this site, we have substantially revised the piece (now called simply Unenforceability). We've also put together a 4 page Research Report version that summarizes the key findings.  Here's the abstract:

There has been no systematic attempt to determine whether the patent doctrine of inequitable conduct is or is not working as theorized. This study fills that gap. We find that patents held unenforceable have clear hallmarks of risky prosecution behavior, such as longer pendency and fewer disclosures of prior art as compared to other types of litigated patents. The results indicate that the doctrine is likely to be operating better than the conventional wisdom would suggest.

The shorter Research Report is available here.   For those interested in the full-length version, it can be downloaded here. As always, comments are welcome.

Ritz Camera v. SanDisk: Expansion of Standing for Walker Process claims

Patent,

By Jason Rantanen

Ritz Camera & Image, LLC v. Sandisk Corporation (Fed. Cir. 2012) Download 12-1183
Panel: Bryson (author), Dyk, and Moore

In Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the Supreme Court held that a party who uses a patent procured through intentional fraud on the PTO to obtain or preserve a monopoly may be subject to antitrust liability.  Ritz Camera addresses an important standing issue for Walker Process claims: whether a direct purchaser of goods covered by the patent has standing to bring a Walker Process antitrust claim against the patentee even if the purchaser would not be entitled to seek declaratory relief against the patentee under the patent laws.  In an opinion authored by Judge Bryson, the court held that such direct purchasers do have standing. 

Background: SanDisk is a major producer of NAND flash memory; allegedly, SanDisk controls about three-quarters of the market.  It holds several patents relating to the memory products under which it sells and licenses flash memory technology.  Ritz is a retailer that purchases flash memory products from SanDisk and its licenses. 

In 2010, Ritz filed suit alleging that SanDisk had violated Section 2 of the Sherman Act.  Ritz contended that SanDisk had fraudulently procured two patents central to its flash memory business by failing to disclose known prior art and making affirmative misrepresentations to the PTO, that SanDisk established its monopoly position by enforcing those patents and by threats of enforcement, and that these actions caused direct purchasers to pay supra-competitive prices for NAND flash memory products.  SanDisk sought to dismiss the complaint on the ground that Ritz lacked standing, an argument that the district court rejected.  The appeal arrived at the Federal Circuit on a petition for interlocutory review.

Antitrust Standing Even When No Patent Law Standing: The sole question at issue was:

Whether direct purchasers who cannot challenge a patent's validity or unenforceability through a declaratory judgment action (have not been sued for infringement, and so cannot assert invalidity or unenforceability as a defense in the infringement action) may nevertheless bring a Walker Process antitrust claim that includes as one of its elements the need to show that the patent was procured through fraud.

Slip op. at 5.  The Federal Circuit held that direct purchasers do have such standing and, more broadly, that antitrust standing is not limited by the rules of patent standing.  Rather, "[t]he “full play” of antitrust remedies encompasses the standing requirements that apply in the antitrust setting,… including the recognition that direct purchasers are not only eligible to sue under the antitrust laws, but have been characterized as “preferred” antitrust plaintiffs." Slip Op. at 6 (internal citations omitted).  In Walker Process itself, "[t]he Court did not suggest that the class of “those injured by any monopolistic action” should be limited to those within that class who would have standing to bring an independent challenge to the patents at issue."  Id.

In reaching this conclusion, the court expressly rejected SanDisk's argument "that allowing direct purchasers to bring Walker Process claims would allow an intolerable end-run around the patent laws because parties unable to pursue invalidity claims could achieve the same result by way of a Sherman Act claim."  Slip Op. at 9.  The court noted that a Walker Process claim "is a separate cause of action from a patent declaratory judgment action."  Id. It is governed by antitrust law, and the patent issue is only one of several elements that must be proven by the claimant.

Nor did the court agree that the result here "would trigger a flood of litigation and stem innovation," particularly given the demanding proof requirements of a Walker Process claim.  Walker Process claims involve patents procurred through intentional fraud, which "cannot well be thought to impinge upon the policy of the patent laws to encourage inventions and their disclosure."  Id., quoting Walker Process, 382 U.S. at 176 (Harlan, J., concurring). 

Note: Judge Bryson recently annouced his move to senior status, effective January 7, 2013.  He has written a number of significant opinions over his tenure, including Phillips v. AWH.  Once he assumes senior status, he will have a likely have a reduced caseload and will no longer be eligible to participate in en banc decisions unless he is part of the original panel that heard the case.  I will certainly miss reading his opinions as often as I was previously able.

Guest Post: The RCE Cliff

Patent

Guest post by Dr. Kate S. Gaudry of Kilpatrick, Townsend & Stockton LLP and Dr. Joseph J. Mallon of Knobbe, Martens, Olson & Bear LLP. 

A recent PatentlyO posting noted that the growth in Request for Continued Examination (RCE) filings has leveled off.  It appears that RCE filings have become less desirable, at least in part because the PTO is now responding to them much more slowly.  Changes to the "count" system and RCE docketing implemented by the PTO in 2009 have resulted in significant increases in both the RCE backlog and the pendency from RCE filing to the next Office Action.  The PTO dashboard shows a near doubling in two years, with the RCE backlog increasing from under 50,000 in October 2011 to over 95,000 in September 2012, and pendency from RCE filing to the next Office Action going from an average of 2.7 months in October 2011 to 5.9 months in September 2012 (see http://www.uspto.gov/dashboards/patents/kpis/kpiBacklogRCEDrilldown.kpixml and http://www.uspto.gov/dashboards/patents/kpis/kpiRCEtoOFCACTION.kpixml).  The current 5.9 month pendency from RCE filing to the next Office Action may not seem particularly long to many. However, anecdotally, we are aware of an increasing number of cases in which the pendency is over two years, suggesting a significant increase in post-RCE-pendency variability as well.

To quantify and expand on our anecdotal observations about the increase in pendency, we turned to PatentCoreTM, which is a database that provides a variety of statistics derived from file histories of more than 6 million applications. PatentCoreTM provided us with a list of all utility applications in each of five art units (1618 – Organic compounds; 1644 – Drug, bio-affecting and body treating compositions; 2161 – Data processing: database and file management or data structures; 2822 – Semiconductor device manufacturing: process; and 3622 – Data processing: financial, business practice, management or cost/price determination) in which an RCE was filed between October 1, 2002 and October 1, 2012. For each of these applications, the following information was collected: the date of the RCE, the date of the next PTO action and the type of the next PTO action (Office Action, Notice of Allowance, or Notice of Abandonment). Next-action Notice of Abandonments were rare and seemed to follow unusual fact patterns, so we excluded these cases from our data set.

For each art unit, we asked the following question for each fiscal year (FY) between 2003 and 2012: what percentage of the applications having RCEs filed in the given FY received a next Action (i.e., an Office Action or Notice of Allowance) within 3 months, 6 months, 1 year, 2 years or 3 years from the RCE filing?1

Perc_examined_per_post_RCE_time_sm
The Figures accompanying this post show the results of our analysis. Each subplot corresponds to a different art unit. The x-data indicates the FY of RCE filings. The y-data (% Examined) indicates the percentage of the applications with RCE filings in the fiscal year that received a next Action within a given time period following the RCE filing. The color of the data symbols indicates the duration of that time period.  Thus, the first red data point in the top graph indicates that, for applications in art unit 1618 for which an RCE was filed in fiscal year 2003, 64.6% of those applications received an Office Action or Notice of Allowance within 3 months from the RCE filing. Not surprisingly, for a given fiscal year the percentage examined increases as longer durations are considered.

Of note, however, is how dramatically the data changes across fiscal years. For example, averaging across the five art units, the percentage of applications examined within three months in FY 2012 was less than half (43.7%) the percentage of applications examined within three months in FY 2003. The trends are most striking in the business-method art unit (3622) and the chemistry art unit (1618). For example, in FY 2011, only 52% (art unit 3622) and 25% (art unit 1618) of RCE filings received a next Action within two years of the RCE filing. 

Ideally, the PTO will address this type of art unit-specific pendency data in its approach to tackling the increasing RCE-backlog problem. In the meantime, practitioners should be prepared to adjust prosecution strategies in view of the trends. In instances in which fast patent procurement is desirable, several options exist to attempt to avoid potential long RCE backlogs. First, in view of this data, practitioners may wish to be more conscientious about how they respond to first Office Actions (e.g., entering amendments less cautiously).

Second, practitioners can use services such as PatentCoreTM to review art-unit- or examiner-specific data identifying RCE backlogs and determine whether appealing a rejection is a more desirable (and potentially faster) way to respond to a final rejection as opposed to filing an RCE. Third, practitioners can consider filing a continuation instead of an RCE. Finally, while expensive, the Track One prioritized examination initiative by the PTO provides an opportunity for examination of an application to be accelerated following an RCE filing.

1 For recent years, this query entailed identifying all applications for which sufficient time had passed since the RCE filing to answer the query. For example, if a set of applications had RCE filings in September 2012, it would be too soon to calculate what percentage of these applications received a next Action within 6 months from the RCE filings.

Zoltek v. United States: Patents, the Federal Government, and 271(g)

Patent, ,

By Jason Rantanen

Zoltek Corporation v. United States (Fed. Cir. 2012) (en banc in part) Download 09-5135
Majority: Rader, Newman, Lourie, Bryson, Linn, Prost, Moore, O'Malley, Reyna, and Wallach
Dissent: Dyk

Two_F-22_Raptor_in_flyingWe recently discussed the Federal Circuit's en banc opinion in Zoltek v. United States from this past spring in the Contemporary Issues in Patent Law tutorial that I run here at Iowa, and it prompted me to write up a summary.

Zoltek is different from your typical infringement case in that it involves a patent claim brought against the Federal Government for a contractor's actions, and thus liability arises through a separate statutory scheme.  Zoltek is the assignee of a patent relating to methods of manufacturing carbon fiber sheets with controlled surface electrical resistivity.  Lockheed Martin designed and built F-22 fighter jets for the Federal Government; the F-22 contains carbon fiber sheets that allegedly were produced through the method claimed in Zoltek's patents. However, the process for making the sheets was begun in Japan, the partially completed product was imported into the United States, and the process was completed in the United States, which created a significant problem for Zoltek's infringement claim.

In 1996, Zoltek filed a Complaint against the Federal Government in the Court of Federal Claims under 28 U.S.C. § 1498(a).  Section 1498(a) states:

Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.

This statute does two things: first, it acts as a waiver of the government's immunity, and second, it operates an assumption of liability by the government, thus insulating the government contractor itself from liability. However, during an earlier stage of this case, the government argued that because the process was partially performed abroad, it did not fall under Section 1498(a).  In a 2006 opinion (Zoltek III), a panel of the Federal Circuit agreed, and held that the scope of 1498(a) was limited to direct infringement under 35 U.S.C. § 271(a).  (That opinion also rejected a Fifth-Amendment takings argument).  Because 271(a) does not include manufacturing processes that are begun abroad and completed in the United States, the court concluded that the United States had not assumed liability under 1498(a).

The practical effect of the Federal Circuit's ruling was that on remand, Zoltek sought leave to amend its Complaint to add a claim against Lockheed for infringement of the patent under 271(g) and to transfer the action to federal district court.  In granting Zoltek's motion, the trial court rejected the Government's argument that 1498(a) insulates government contractors from suit even when the government could not be liable.  The Court of Federal Claims certified for interlocutory review the question "“whether 28 U.S.C. § 1498(c) must be construed to nullify any government contractor immunity provided in § 1498(a) when a patent infringement claim aris[es] in a foreign country.” 

The Federal Circuit did not directly answer that question.  Instead, the new appeal caused it to "re-examine the premises on which our earlier opinion in Zoltek III was based, and to reconsider the consequences of that opinion."  672 F.3d 1314.  In other words, the panel had erred.

Revisiting the issue en banc, the court concluded that the correct interpretation of 1498(a) is that it creates a cause of action for direct infringement that is separate and different from 271(a), and that it could include conduct falling under 271(g).  Infringement under 271(a) is thus not a necessary predicate for liablity under § 1498(a) as the earlier panel had held.  Instead, the court reasoned, the Government's liability "under 1498(a) is linked to the scope of the patent holder's rights as granted by the patent grant in title 35 U.S.C. section 154(a)(1).  As the patent grant has expanded over the years, so too has the coverage of § 1498(a)."  672 F.3d 1323.  Applying this reasoning, the court concluded that the government could be liable here: "we hold that for the purposes of section 1498, the use or importation “within the United States [of] a product which is made by a process patented in the United States” constitutes use of the invention without lawful right because the products embody the invention itself."  672 F.3d 1326.

Judge Dyk, writing in dissent, disagreed both that the court had jurisdiction to address the issue of the scope of 1498 sua sponte, as well with as the court's revised interpretation. 

The scope of 271(g): In concluding that the Government could be liable for Lockheed's conduct, the court held that "[i]f a private party had used Zoltek's patented process to create the resulting product there would be liability for infringing Zoltek's patent right under § 154(a)(1) and § 271(g)."  672 F.3d 1323.  However, 271(g) states that:

Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent….A product which is made by a patented process will, for purposes of this title, not be considered to be so made after—

(1) it is materially changed by subsequent processes; or
(2) it becomes a trivial and nonessential component of another product.
Here, Lockheed was not importing "a product which is made by a process patented in the United States"; instead, it was importing a nearly-finished component of that process.  I haven't found any cases dealing with this scenario in the regular 271(g) context, so it may be a novel issue.  The court essentially avoids the issue in Zoltek by imbuing the product of the process with the essence of the process itself: "In the context of § 1498, the product of a patented process is not only the product, but also the physical embodiment of the invention."  672 F.3d 1326.  Zoltek itself is of limited use in settling this issue, however, since by the court's express instruction, "nothing in this opinion should be construed to affect our Title 35 jurisprudence."  Id.

Technology Patents LLC. v. T-Mobile (UK) Ltd.

Patent, ,

By Jason Rantanen

Technology Patents LLC. v. T-Mobile (UK) Ltd. (Fed. Cir. 2012) Download 11-1581
Panel: Bryson (author), Prost, Reyna

This case involves a suit brought by prolific inventor Aris Mardirossian's company Technology Patents LLC against more than 100 domestic and foreign defendants that TPL accused of infringing US Reissue Patent No. RE39870.  While the primary subjects addressed by the court are those of claim construction and infringement , there are several additional noteworthy issues discussed at the end of the post.

The '870 patent relates to a global paging system.  According to the patent, the prior art was deficient because "it did not fulfill the need for a cheap and efficient global paging system that allows users who expect to receive messages or pages abroad to 'remotely input country designations in which they are to be paged.'"  Slip Op. at 13, quoting '870 patent.  The '870 patent sought to cure the deficiencies of the prior art: "The ’870 Patent solved this problem by claiming a system which allows for paging of the receiving user (“RU”) in countries where the RU “may be located,” as per a list input by the RU." Id., quoting district court.  Claim 4, the primary claim addressed on appeal, recites  (claim terms at issue in the appeal are in bold):

4. A system for paging a receiving user in a country-selective paging system, comprising:

a paging system spanning a plurality of different countries of the world, the paging system including a plurality of servers, and wireless transmitters in different countries for transmitting paging messages to receiving users;

interconnecting servers so as to permit digital communication of signals between the plurality of servers via at least the packet-switched digital data network;

a first website or server located in a first country for allowing an originating user to page the receiving user who may be located in a second country different from the first country, the originating user not necessarily knowing what country the receiving user is located in;

wherein the paging system determines if the second country is currently designated by the receiving user as a designated country in which the paging system is to attempt to page the receiving user;

when the paging system determines that the second country has been designated by the receiving user, means for sending a paging communication via at least the packet-switched digital data network to a second website or server, the second website or server being in communication with a wireless transmitter located in the second country, and wherein the paging communication causes the second website or server to initiate paging the receiving user via the wireless transmitter in the second country; and

when the paging system determines that the second country has not been designated by the receiving user, the paging system initiates paging operations in another country in a predetermined order in an attempt to page the receiving user.

The over 100 companies companies that TPL sued roughly fell into three categories: (1) domestic carriers and handset companies, (2) software providers, and (3) foreign carriers.  Following claim construction, the district court granted summary judgment of noninfringement to the domestic carriers.  On appeal, TPL challenged the district court's claim construction and noninfringement rulings. 

Claim Construction: Much of the claim construction dispute revolved around the meaning of "receiving user."  The district court construed this term to mean a "person or party," while TPL contended that it means "the combination of the person and the handset."

Applying what has often been described as a holistic approach to claim construction, the Federal Circuit affirmed the district court's construction.  In other words, the court applied a flexible, relatively unstructured approach to construing the claim terms as opposed to a rigid rules-based approach.  In this particular case, that meant looking closely at the intrinsic evidence.  "The text of the patent makes clear that the term “receiving user” does not refer to a person-pager combination."  Slip Op. at 19. The court applied a similar approach to the two remaining claim terms.

Holistic Infringement Analysis: TPL also argued that, even if the CAFC affirmed the district court's claim constructions, it nevertheless erred in its grant of summary judgment of noninfringement.  On this point, too, the Federal Circuit affirmed.  While much of the CAFC's conclusion was based on the "receiving user" limitation, the court's overall approach bore many similarities to its holistic claim construction: the court made frequent reference back to the specification even as it assessed the question of infringement, rather than rigidly applying its claim construction. 

For example, in responding to TPL's argument that because the accused systems permitted users to select the carrier when traveling abroad, some of which contained country information (see below figure), the court pointed out that "The specification and the claims make clear that the invention is concerned with the country in which the receiving user is located, not with the receiving user’s carrier." Slip Op. at 29.  This carried through to the assessment of infringement under the doctrine of equivalents, as the court concluded that "the distinction betwen selecting a carrier and selecting a country is not insignificant in the context of the patent….That is a fundamental difference between the accused systems and the claimed invention that goes to the heart of the claimed invention."  Slip Op. at 34.  Figure 1

 

Additional notes:

  • This lawsuit was filed in 2007 – well before the September 16, 2011 enactment of the America Invents Act, which substantially altered the rules for joining multiple unrelated defendants within a single infringement lawsuit. 
  • The district court granted summary judgment of noninfringement to the software providers as well, in part on the ground that it concluded that certain claims required mutiple actors and TPL failed to show that the defendants have discretion or control over the end users.  The Federal Circuit concluded that it was unnecessary to consider the recent en banc decision in Akamai Technologies v. Limelight addressing divided infringement because the claimed software system could be "used" by a single actor even if the user did not have physical control over all elements of a system. Slip Op. at 36 (citing Centillion Data Sys. v. Qwest Communications, 631 F.3d 1279, 1284 (Fed. Cir. 2011).
  • The district court found that it lacked jurisdiction over the foreign carriers.  On appeal, the Federal Circuit did not address the jurisdictional question, instead concluding that "Our ruling sustaining the district court’s decision in favor of the domestic carriers thus dooms TPL’s claim of infringement against the foreign carriers as well. For that reason, it is unnecessary for us to decide whether the district court was correct in dismissing the case against the foreign carriers for lack of personal jurisdiction."  Slip Op. at 39.

Appellate Review of Patent Claim Construction: The Reality and Wisdom of a “Mongrel” Standard

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Guest Post by Professors J. Jonas Anderson (American University) and Peter S. Menell (Berkeley)

Patent scope plays a central role in the operation of the patent system, making patent claim construction a critical aspect of nearly every patent litigation.  With the resurgence of patent jury trials in the 1980s, the allocation of responsibility for interpreting patent claims between trial judge and jury emerged as a salient issue.  While the Supreme Court’s Markman decision usefully removed claim construction from the black box of jury deliberations notwithstanding its "mongrel" (mixed fact/law) character, the Federal Circuit’s adherence to the view that claim construction is a pure question of law subject to de novo appellate review produced an unusually high reversal rate. The high rate of reversal distorted the evidentiary foundation of claim construction determinations, delayed settlement of patent cases, ran up litigation costs, and turned appellate review of nearly every patent case into re-litigation of patent claim terms.

In 2004, the Federal Circuit undertook to reassess this regime in the Phillips case.  On its face, the majority en banc opinion largely stayed the course.  Indeed, the studies to have emerged since Phillips suggest that not much has changed, finding that the reversal rate remained high and that the Federal Circuit’s analytical framework remained largely unchanged.

Our recent article reports the results of a longer term, comprehensive, empirical analysis of the Federal Circuit’s claim construction jurisprudence from 2000 through 2011.  See “From de novo Review to Informal Deference: An Historical, Empirical, and Normative Analysis of the Standard of Appellate Review for Patent Claim Construction,” available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2150360.  In contrast to prior analyses, we find that the claim construction reversal rate has dropped precipitously since the Phillips decision.

 

Pre-Phillips

Post-Phillips

Percentage of terms reversed

37.6%

23.8%

Percentage of cases with at least one reversed claim term

40.7%

29.9%

Percentage of cases resulting in remand, reversal, or vacation due to claim construction error

35%

24.1%

The following figure shows the term-by-term reversal rate as a rolling average over 100 terms.  The blue line indicates the date that the Federal Circuit granted en banc review in Phillips.  The green line indicates the date of the oral argument.  The red line indicates the date that the decision issued.

Reversal Rate

As our article explains, although a majority of the Federal Circuit declined to overturn the de novo standard, just about all members of the Federal Circuit apparently concluded at or around the time of the Phillips argument that they should lighten up on their scrutiny of district court decisions.  The immediate drop in reversals that occurs following the Phillips argument suggests that the change in reversal rates cannot simply be explained by district courts having changed their practices in response to the Phillips decision.  If the real benefit of Phillips was the opinion’s value in instructing district court judges, we would expect to see a delayed and gradual drop in reversals followed by a later increase as litigants began selecting only the strongest cases for appeal.  Instead, we see an immediate and sustained drop in reversals.

As the following chart indicates, affirmance rates for all members of the Federal Circuit rose after Phillips.

Affirmance Votes

In addition, use of summary affirmances increased significantly following the Phillips decision and has remained higher than the pre-Phillips period.

SJ

Reversal rates have fallen across all technology fields except business methods. 

Technology Fields

During 2011, the average reversal rate dipped to 17%.  In the two years prior to Phillips, the rate was in the mid-40s.

This does not mean, however, that the problems of de novo review have been adequately resolved.  So long as the Federal Circuit subscribes to the view that claim construction is a question of law subject to de novo review, district courts will downplay their resort to experts and fact-finding in managing claim construction in an effort to avoid reversal.  This will undermine the quality of adjudication and appellate review by failing to elicit relevant evidence and perpetuating opaque analysis and reasoning.  We propose a “mongrel” standard of appellate review of claim construction decisions that better reflects the comparative strengths of trial judges in determining how skilled artisans understand patent claim terms. 

The proper standard integrates fact-finding based on experts who can illuminate the perspective of skilled artisans and claim draftpersons with careful review of the intrinsic record.  Lower courts’ assessments of such evidence should be upheld if not clearly erroneous or clearly contradicted by the specification or prosecution history.  The Federal Circuit would review the intrinsic record on a more independent basis, but with due regard for the district court’s deliberations, proximity to the full record, and integration of the skilled artisan perspective.  Were the Federal Circuit to embrace such a standard, lower courts would openly exercise their discretion to receive such evidence and build a forthright record supporting their interpretation.  Such a “mongrel” appellate standard would foster better development of the basis for claim construction analysis while promoting earlier settlement of patent litigation and lower litigation cost.  Where the disputed claim term is particularly susceptible to skilled artisan construction, the district court’s ruling would carry great weight.  But where the term is set forth or substantially constrained by the specification or prosecution history, then the intrinsic record would control.  But even in the latter circumstance, we believe that the Federal Circuit should apply a heightened standard – a showing by the appellant of unambiguous evidence in the intrinsic record supporting an alternative construction – so as to promote settlement and reduce litigation costs and uncertainty.

Recognizing this more limited role for appellate review of claim construction should not be viewed as abandoning the effort to improve the clarity of patent claims.  That remains a critical component of improving the efficacy of the patent system.  What our analysis shows is that achieving that goal through de novo review of patent claim construction misapprehends comparative institutional analysis at a heavy cost.  Claim clarity can and should be handled through the claim indefiniteness doctrine and through greater efforts by the Patent Office to ensure that patent claims are clear at the front end of patent protection.

The Supreme Court is currently considering whether to grant a writ of certiorari in a case presenting the standard of appellate review for claim construction decisions in Retractable Technologies, Inc. v. Becton, Dickinson and Co.  We believe that the time is ripe to formalize a “mongrel” standard.

Outside the Box Innovations v. Travel Caddy

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By Jason Rantanen and Dennis Crouch

Outside the Box Innovations LLC (Union Rich) v. Travel Caddy  (Fed. Cir. 2012) Download 09-1171
Panel: Newman (concurring in part and dissenting in part), Prost, O'Malley (opinion for the court Per Curiam)

A major criticism of the inequitable conduct doctrine has been that patents could be held unenforceable based upon even "minor and inadvertent errors" that occurred during prosecution of a patent.  A major purpose of the Supplemental Examination provision of the America Invents Act was to provide an avenue for correcting the potential unenforceability of patent rights due to those errors. While the AIA was percolating through Congress, however, the Federal Circuit issued its en banc opinion in Therasense v. Becton Dickinson.  Under the revised legal framework for inequitable conduct articulated in Therasense, it is highly questionable whether these "minor" violations continue to meet the materiality requirement of inequitable conduct. 

Unsurprisingly, post-Therasense, the Federal Circuit has been skeptical of these types of claims.  Last fall, in Powell v. Home Depot, 663 F.3d 1221, the Federal Circuit affirmed a district court determination that the patentee did not commit inequitable conduct by failing to update a Petition to Make Special as this was "not the type of unequivocal act, 'such as the filing of an unmistakably false affidavit,' that would rise to the level of affirmative egregious misconduct.'" (PatentlyO discussion here). In Outside the Box Innovations v. Travel Caddy, the Federal Circuit continues in the direction set by Powell, although it does not appear to be ready to completely abandon the notion that certain "minor" violations can constitute inequitable conduct – perhaps maintaining a bit of the "bark" of inequitable conduct despite curtailing its "bite." 

Small Entity Fees and Inequitable Conduct

The USPTO offers a major price-break for “small entities” – a 50% reduction in fees if the patent owner qualifies for “small entity status.”  In practice, small entities can actually be quite large. The usual rule is that the organizational structure be less than 500 employees.   Small entities can lose their status, however, by inter alia licensing the patent to a non-small entity.  See Ulead Systems, Inc. v. Lex Computer & Management Corp., 351 F.3d 1139, 1142 (Fed. Cir. 2003).  (It's worth noting that the America Invents Act offers an even more aggressive price reduction of 75% for "micro entities," which the USPTO plans to implement in early 2013.)

Prior to Therasense, the Federal Circuit had held that inequitable conduct could arise when a large entity pays only the small entity fees.  See Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1231-33 (Fed. Cir. 2007).  Here, the patentee (Travel Caddy) paid the small entity fee when it should have paid the large entity fee (based upon licensing affiliates). The district court held the patents unenforceable. On appeal, the Federal Circuit reversed not on the ground of materiality, but on the basis of a lack of intent.  The court thus deferred to another day the question of whether the false statement associated with the small entity fee payment could rise to the level of "affirmative egregious misconduct," leaving it intact, if somewhat dinged up:

[A] false affidavit or declaration is per se material. Although on its face, it appears that a false declaration of small entity status would fall within the definition of an “unmistakably false affidavit,” particularly since a party that claims entitlement to small entity status does so in a sworn written declaration, we need not decide that question.[] Even if a false assertion of small entity status were per se material, the requirements of Therasense are not met here because there was no clear and convincing evidence of intent to deceive the PTO.  Specifically, there was no evidence that anyone involved in the patent prosecution knew that a patent license had been granted to a large entity and deliberately withheld that information in order to pay small entity fees.

Slip Op. at 13. 

Writing in dissent, Judge Newman argued that the majority did not go far enough in its reversal because the filing of the small entity statement by affidavit should not render the incorrect statement “per se material.”  Judge Newman also argued that a contingent patent license to a distributor should not necessarily defeat the small entity status.

Failure to Inform Patent Office of Pending Litigation

Manual of Patent Examining Procedure §2001.06(c) states that "Where the subject matter for which a patent is being sought is or has been involved in litigation, the existence of such litigation and any other material information arising therefrom must be brought to the attention of the U.S. Patent and Trademark Office."  The application leading to Patent No. 6,991,104 was a continuation of the application that led to Patent No. 6,823,992.  On September 23, 2005, a declaratory judgment was filed seeking a declaration of noninfringement of the '992 patent; Travel Caddy did not inform the patent examiner of the existence of this litigation prior to the '104 patent's issuance on January 31, 2006. 

The Federal Circuit reversed the district court's pre-Therasense finding of both materiality and intent on this theory of inequitable conduct as well. On materiality, the Federal Circuit ruled that the failure to disclose the existence of a litigation "when there was no citation of prior art, nor any pleading of invalidity or unpatentability in the ’992 complaint as it existed during pendency of the ’104 application" did not constitute "clear and convincing evidence" of materiality.  Slip Op. at 7.  On intent, "the record contains no suggestion of how the withholding of the information concerning the ’992 litigation could have deceived the examiner and no suggestion of deliberate action to withhold it in order to deceive the examiner."  Id. at 8. 

Experts Need Not Be Lawyers: In a somewhat bizzare ruling, the district court excluded an expert offered by one of the parties on the ground that he was not a lawyer.  "To be sure, many lawyers have technical training, but it is technological experience in the field of the invention that guides the determination of obviousness, not the rhetorical skill or nuanced advocacy of the lawyer."  Slip Op. at 19.  The Federal Circuit concluded that this constituted an abuse of discretion, and that the error had a "substantial influence" on the outcome of the case.

Claim Construction: The opinion also includes a detailed discussion of claim construction procedure in the context of a prior interpretation by a CAFC panel reviewing a denial of a preliminary injunction (although no final resolution of the issue is reached), and addresses issues of claim construction generally.  Judge Newman dissented from the opinion on these issues as well.