Intellectual Ventures Stops Buying Patents

Intellectual Ventures has stopped buying patents on the secondary market based upon an ‘investor driven decision.’ Removal of this dedicated capital from the market likely means a continued depression of patent prices — especially for patents not directly tied to a product currently on the market.

Although IV is only a small part of the secondary patent market, it filled an important niche for patents not currently being infringed and not purchased as part of a larger business transaction such as a merger, buyout, or technology transfer and license agreement.  Rather, IV’s focus has been on aggregating.

Of course, IV will continue to monetize its many assets via enforcement actions as well as sales.  Jack Ellis at IAM-Market describes a recent sale of more than 1,000 IV patents to Dominion Harbor. [LINK]

As Ellis writes, “some canny players may see the gap in the marketplace as presenting an exciting opportunity” to buy up patents at a depressed price.

Generics Successful at Invalidating Novartis Gilenya Patent

by Dennis Crouch

Novartis v. Torrent Pharma, Apotex, and Mylan (Fed. Cir. 2017)

At the conclusion of its Inter Partes Review (IPR) Trial, the Patent Trial & Appeal Board (PTAB) found all claims of Novartis U.S. Patent No. 8,324,283 invalid as obvious.  The PTAB had allowed Novartis to include substitute claims as well, but found those also unpatentable as obvious.  On appeal here, the Federal Circuit affirms.

The ‘283 patent covers a solid combination of a sphingosine-1 phosphate (S1P) receptor agonist (fingolimod) and a sugar alcohol (mannitol). The drug – sold under the trade name Gilenya – is used to treat multiple sclerosis.  This is the first oral disease modifying MS drug approved by the FDA and is a big drug with billions in sales each year.

The particular ingredients were already known in the art, and the active ingredient – fingolimod – was already known as useful for treating autoimmune diseases such as MS.  However, none of the references brought-together the entire combination in a “solid pharmaceutical composition” as required by the claims.  However, the Board found that the combination of references would have led an ordinary skilled artisan to the invention claimed here.

On appeal, the Federal Circuit reviews the Board’s factual findings for substantial evidence – a liberal and forgiving standard that only requires “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”  Conclusions of law, however, are reviewed de novo on appeal.  In patent law, the ultimate question of obviousness is deemed a question of law.  However, that ultimate conclusion must be based upon a set of predicate factual conclusions as outlined in Graham v. John Deere.

Perhaps of most relevance for many obviousness cases – the existence of a motivation-to-combine references is deemed a question of fact and thus deference is given to the PTO’s conclusion.  Here, the court noted that the board considered the negative properties of using mannitol (teaching-away), but was not convinced, and sufficient evidence supported the Board’s decision.  The patentee also focused on the fact that the Board’s written decision did not expressly consider all of the patentee’s teaching-away arguments.  On appeal, the Federal Circuit rejected that argument – holding that “there is no requirement that the Board expressly discuss each and every negative and positive piece of evidence lurking in the record to evaluate a cursory argument.” On this point, the court recognized the tension with Medichem‘s holding that the disadvantages of a reference must be considered, but held that Medichem does not create a bright-line rule requiring express discussion of all disadvantages.  Rather, the Board is “not require[d] . . . to address every argument raised by a party or explain every possible reason supporting its conclusion.” Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309, 1322 (Fed. Cir. 2016).

Novartis also raised an APA challenge – arguing that the Board did not provide the required notice and an opportunity since the Board included a new reference (Sakai) in its final decision.  Sakai was raised in the IPR petition, but institution was denied for the particular grounds raising Sakai.  On appeal, the Federal Circuit sided with the PTAB holding that – although institution decision rejected Sakai as anticipatory or the primary obviousness reference – the Board did not exclude Sakai from consideration since it is clearly a relevant reference.  “The Board’s discussion of Sakai in the Final Written Decision was not inconsistent with its review of Sakai in the Institution Decision.”  With this explanation, the court was able to justify the PTAB approach and find that the agency did not “change theories in midstream without giving respondents reasonable notice of the change.”   and ‘the opportunity to present argument under the new theory.” Rodale Press, Inc. v. FTC, 407 F.2d 1252, 1256–57 (D.C. Cir. 1968).

What next: I’ll note here that the ‘283 patent is only one of four patents listed in the Orange Book covering Gilenya, one of which is also currently being challenged at the PTAB.

 

Patentlyo Bits and Bytes by Anthony McCain

Upcoming Events

Los Angeles Intellectual Property Law Association Spring Seminar

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Trade Secret Protections at the Patent Office

The USPTO is hosting a free symposium on Trade Secret Protections – May 8, 2017, from 9 a.m. to 4 p.m. EDT at the Alexandria HQ as well as via webcast. More info here: https://www.uspto.gov/​learning-and-resources/​ip-policy/​enforcement/​trade-secret-symposium.

DTSA enforcement continues to primarily focus on charges against former employees who join a competitor.  In Santander Securities v. Gamche, 2017 WL 1208066 (E.D. Penn. April 2017), the case centers on Gary Gamche who left Santander and joined a competitor Citizens Securities as a financial advisor – taking with him a list of his clients.  Similarly, in Brand Energy v. Irex, the construction company claims its former employees stole its proprietary business information (target bids and potential customer information); joined competitor Irex; and began poaching business.  So far, there are only a few DTSA decisions. In Brand, the Pennsylvania District Court  recently denied the defendant’s 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted – finding that the alleged use easily fits within very broad definition of misappropriation found in the new federal statute.

Although the DTSA is limited to post-enactment misappropriations, the court in Brand held that it can apply to “continuing misappropriation that occurs after the effective date.”   Following Adams Arms, LLC v. Unified Weapon Sys., Inc., 16–cv–1503, 2016 WL 5391394, at *5–7 (M.D. Fla. Sept. 27, 2016).

In addition to the DTSA claim, the court found that the RICO and CFAA claims had been appropriately pled.

CFAA (Computer Fraud and Abuse Act) is interesting in that it imposes liability on anyone who knowingly “accesses a … computer without authorization, or exceeds authorized access” of the computer.  Here, Brand’s theory is that of ‘indirect access.’ After leaving BRAND, the defendants convinced a current employee to access the database and provide information.  According to the judge here, the defendants can be seen as accessing the computer (albeit indirectly and non-electronically via the employee) without authorization.  The statutory justification for this outcome is the court’s conclusion that Congress could have particularly defined “access” as “personal access” or “direct access” but instead left the term broadly stated.

 

 

Brand Energy v. Irex.

Unwired Planet v. Huawei: An English Perspective on FRAND Royalties

FRONDGuest Post by Professor Jorge L. Contreras

In the latest decision by the UK High Court of Justice (Patents) in Unwired Planet v. Huawei ([2017] EWHC 711 (Pat), 5 Apr. 2017], Mister Justice Colin Birss has issued a detailed and illuminating opinion regarding the assessment of royalties on standards-essential patents (SEPs) that are subject to FRAND (fair, reasonable and non-discriminatory) licensing commitments.  Among the important and potentially controversial rulings in the case are:

  1. Single Royalty: there is but a single FRAND royalty rate applicable to any given set of SEPs and circumstances,
  2. Significance of Overstep: neither a breach of contract nor a competition claim for abuse of dominance will succeed unless a SEP holder’s offer is significantly above the true FRAND rate,
  3. Global License: FRAND licenses for global market players are necessarily global licenses and should not be limited to a single jurisdiction, and
  4. Soft-Edge: the “non-discrimination” (ND) prong of the FRAND commitment does not imply a “hard-edged” test in which a licensee may challenge the FRAND license that it has been granted on the basis that another similarly situated licensee has been granted a lower rate, so long as the difference does not distort competition between the two licensees.

Background

This case began in 2014 when Unwired Planet, a U.S.-based patent assertion entity, sued Google, Samsung and Huawei for infringement under six UK patents (corresponding actions were filed in Germany).  Unwired Planet claimed that five of the asserted patents, which it acquired from Ericsson in 2013 as part of a portfolio comprising approximately 2000 patents, were essential to the 2G, 3G and 4G wireless telecommunications standards developed under the auspices of the European Telecommunications Standards Institute (ETSI).  Because Ericsson participated in development of the standards at ETSI, any patents shown to be SEPs would necessarily be encumbered by Ericsson’s FRAND commitment to ETSI.

The UK proceedings involved numerous stages, including five scheduled “technical trials” which would determine whether each of the asserted patents was valid, infringed and essential to the ETSI standards.  During these proceedings Google and Samsung settled with Unwired Planet and Ericsson (which receives a portion of the licensing and settlement revenue earned by Unwired Planet from the patents), leaving Huawei as the sole UK defendant.  By April 2016 three of the technical trials had been completed, resulting in findings that two of the asserted patents were invalid and that two were both valid and essential to the standards.  These findings are currently under appeal. The parties then agreed to suspend further technical trials.  In October 2016 a “non-technical” trial began regarding issues of competition law, FRAND, injunction and damages.  Hearings were concluded in December 2016, and the court’s opinion and judgment were issued on April 5, 2017.

A. The High Court’s Decision – Overview

The principal questions before the court were (1) the level of the FRAND royalty for Unwired Planet’s SEPs, (2) whether Unwired Planet abused a dominant position in violation of Section 102 of the Treaty for the Formation of the European Union (TFEU) by failing to adhere to the procedural requirements for FRAND negotiations outlined by the European Court of Justice (CJEU) in Huawei v. ZTE (2014), and (3) whether an injunction should issue in the case.  In the below discussion, Paragraph numbers (¶) correspond to the numbered paragraphs in the High Court’s April 2017 opinion.

B. FRAND Commitments – General Observations

Justice Birss begins his opinion with some general observations and background about the standard-setting process and FRAND commitments.  A few notable points emerge from this discussion. (more…)

Construing claims to avoid invalidity (and also infringement)

by Dennis Crouch

MedCo v. Mylan (Fed. Cir. 2017)

In this Hatch-Waxman dispute, the Federal Circuit has sided with the accused infringer Mylan and reversed a lower court’s judgment that Mylan’s proposed Bivalirudin formulation would infringe The Medicines Company (MedCo) U.S. Patent No. 7,582,727 (covering ANGIOMAX).  This decision appears to clear the way for Mylan’s generic launch. (An authorized generic is already being marketed by Sandoz).

Claim construction: Rather than focusing solely on individual dosages, the MedCo patents include a limitation for consistant “batches” of the active ingredient based upon various impurity level targets and a target pH that is “adjusted by a base.”  Although not expressly claimed, the patent describes an “efficient mixing” process used to ensure the consistency.  Mylan’s proposal would use a different process to ensure batch consistency and pH level – Thus, the issue is whether the claims – as properly interpreted – require efficient mixing.

We hold that [the] patents include a “batches” limitation that requires batch consistency, which, according to the patents in suit, is achieved through efficient mixing. . . . We further construe efficient mixing as defined by Example 5 of the patents’ specification.

To reach this conclusion, the court applied a canon of construing-for-validity: Here, the claim language require a particular impurity level but the court found that they could not simply apply to individual-batches since that is already taught by the prior art. “Such a construction would render the claims of the ’727 patent invalid in light of Medicines’ numerous pre-critical-date sales of ANGIOMAX® batches having Asp9 levels below 0.6 percent.”  Rather, the requirement that “the batches have a maximum impurity level” limitation must be construed to require cross-batch consistency — which requires that all of the batches be produced with the “same compounding process.”  Looking to the specification, the court found that the patentee had stated its “development of a compounding process for formulating bivalirudin that consistently generates formulations having low levels of impurities is desirable” and later discussed “the compounding process . . . of the invention” . . . “and as prepared by the new process of the present invention.”  When then further delving into the specification, it became clear that the compounding process discussed is the efficient mixing process.  The specification spells out that process in “example 5” and contrasts it with the non-efficient process of “example 4.” (Example 5 was the only embodiment of efficient mixing described). The court writes:

Although the specification provides that Example 5 is “non-limiting,” no other part of the patents’ written description sufficiently teaches the affirmative steps that constitute efficient mixing. In this circumstance, we think it entirely appropriate to limit the term “efficiently mixing” to the sole portion of the specification that adequately discloses “efficient mixing” to the public.

Once the efficient mixing limitation was read into the claims, it was accepted by the parties that the Mylan proposal would not infringe.

To spell out the results here. The appellate court reversed the district court’s decision based upon its revised claim construction.  The claims require “batches” of the active ingredient that “have a maximum impurity level.”  The court construed that term to require a consistent process for making all the batches, and then looked to the specification to note that the patentee intended to use an “efficient mixing” process as that consistent process since that was the type of process described in the specification; And then finally zeroed-in on the the “efficient mixing” process and required that it follow the particulars of “example 5” of the patent since that was the only detailed example given of efficient mixing.  With that narrowed claim construction, non infringement was easy.

Although the court does not state as much here, this appears to me a case that de novo review was critical in the appellate court’s analysis.

 

Justice Neil Gorsuch

Neil Gorsuch has now been confirmed by the Senate and will swear-in next week as one of the nine justices of the United States Supreme Court.  I expect Justice Gorsuch to support strong patent rights, but primarily focus on statutory language and historic precedent. I.e., do not expect Gorsuch to see patents as a fundamental right, but rather a policy tool that can be fully regulated by Congress.

Neil_Gorsuch_and_Donald_Trump

 

PTAB Procedural Reform Initiative

VIA USPTO:

[T]he USPTO is launching an initiative to use nearly five years of historical data and user experiences to further shape and improve Patent Trial and Appeal Board (PTAB) trial proceedings, particularly inter partes review proceedings. The purpose of the initiative is to ensure that the proceedings are as effective and fair as possible within the USPTO’s congressional mandate to provide administrative review of the patentability of patent claims after they issue.

Since being created through the passage of the America Invents Act (AIA), PTAB proceedings have significantly changed the patent landscape by providing a faster, cost-efficient quality check on issued patents. . . .

This initiative will examine procedures including, but not limited to, procedures relating to multiple petitions, motions to amend, claim construction, and decisions to institute. It will evaluate the input already received from small and large businesses, startups and individual inventors, IP law associations, trade associations, and patent practitioners, and will seek to obtain more feedback regarding potential procedural enhancements.

Coke Morgan Stewart, Senior Advisor to the Director [and veteran patent litigator], will be coordinating this effort.

Members of the public may submit their ideas regarding PTAB procedural reform to: PTABProceduralReformInitiative@uspto.gov

CAFC: Prior Judicial Opinions Do Not Bind the PTAB

Novartis v. Noven Pharma (Fed. Cir. 2017)

This short opinion by Judge Wallach affirms the PTAB findings that the claims of two Novartis patents are invalid as obvious. See U.S. Patent Nos. 6,316,023 and 6,335,031.  Several prior court decisions (including those involving the petitioner here) had upheld the patent’s validity against parallel obviousness challenges.

The most interesting aspects of the decision are found under the surprising heading: Prior Judicial Opinions Did Not Bind the PTAB.  When taken out-of-context, we can all agree that the statement is silly and wrong. The PTAB is obviously bound by Supreme Court and other precedent.  In my view, the statement is still silly and wrong even when applied in context. 

The context: In Novartis Pharm. Corp. v. Noven Pharm., Inc., 125 F. Supp. 3d 474 (D. Del. 2015)), the district court considered Noven’s obviousness argument and fount it lacking merit. Same story in Novartis Pharm. Corp. v. Par Pharm., Inc., 48 F. Supp. 3d 733 (D. Del. June 18, 2014) and Novartis Pharm. Corp. v. Watson Labs., Inc., 611 F. App’x 988 (Fed. Cir. 2015), albeit with different parties.

In the Inter Partes Review, the USPTO concluded that those prior court decisions regarding obviousness need not be considered since the record was different at the PTAB – albeit admittedly ‘substantively the same.’   [edited] On appeal, the Federal Circuit rejected the PTAB’s reasoning as a trivial likely insufficient distinction, but instead found that the different evidentiary standard was what justified the result:

Nevertheless, even if the record were the same, Novartis’s argument would fail as a matter of law. The PTAB determined that a “petitioner in an inter partes review proves unpatentability by a preponderance of the evidence (see 35 U.S.C. § 316(e)) rather than by clear and convincing evidence[] as required in district court litigation,” meaning that the PTAB properly may reach a different conclusion based on the same evidence.

The idea here is that in litigation, invalidity must be proven with clear and convincing evidence while inter partes review requires only a preponderance of the evidence. As explained by the Supreme Court on Cuozzo, this may lead to different outcomes:

A district court may find a patent claim to be valid, and the [USPTO] may later cancel that claim in its own review. . . . This possibility, however, has long been present in our patent system, which provides different tracks—one in the [USPTO] and one in the courts—for the review and adjudication of patent claims. As we have explained . . . , inter partes review imposes a different burden of proof on the challenger. These different evidentiary burdens mean that the possibility of inconsistent results is inherent to Congress’[s] regulatory design.

Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2146 (2016) (citation omitted).

My view: As suggested here, we have a failure of system design – a party who challenges a patent’s validity in court and loses should not later be allowed to re-challenge validity. [Cite the 100’s of cases and articles supporting finality of judgments.]  In this situation, the PTAB / Federal Circuit should at least be required to distinguish its factual findings from those of the federal courts.

Obviousness Aside: A quirk of this case not addressed by the court is that it is an obviousness case – and obviousness is a question of law.  The differences in invalidation standards for courts and the PTAB are evidentiary standards and do not apply to questions of law. Rather, questions of law should be decided identically in both fora.

En banc denial in Challenge to Versata-Review of CBM Decisions

by Dennis Crouch

Unwired Planet v. Google (Fed. Cir. 2017) (en banc denied)

The Federal Circuit has denied Google’s petition for rehearing en banc.  The patent challenger asked the Federal Circuit to overturn Versata in light of the Supreme Court’s decision in Cuozzo.  The issue is well known to attorneys involved in the post-grant review of covered-business-method (CBM) patents.

According to the statute, the CBM process begins with a petition and institution decision by the Director.  Once instituted, the PTAB holds trial and issues a final decision.  The statute indicates that CBM review may be instituted “only for” CBM patents but that the Director’s institution decision “shall be final and nonappealable.”

In Versata, a divided Federal Circuit panel held that the CBM question could be reviewed since – a non-CBM patent is “outside the PTAB’s invalidation authority.”  In its briefing, Google argued that Versata was wrong when it was decided, and was extra-wrong following the Supreme Court’s Cuozzo decision that gave substantial force to the non-appealable provision of the statute.  Of course, Cuozzo offered a number of ‘outs’ – suggesting generally that there will be times when appeals of initiation decisions may still be allowed.

Versata v. SAP: Federal Circuit Claims Broad Review of CBM Decisions

In what appears to be a unanimous denial, the Federal Circuit has rejected Google’s petition. Judge Hughes wrote a short concurring opinion in dissent – arguing (as he did in the original Versata case) that the statute no-appeal provision should be given more weight.

I continue to believe that Versata was incorrectly decided. I further believe that Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016) confirms that our review of the Patent Trial and Appeal Board’s decision should be limited to the ultimate merits of the patent validity determination and should not, with narrow exception, extend to any decisions related to institution. Those exceptions may include the rare circumstances where the agency acts unconstitutionally or in complete disregard of the limits on its statutory authority.

I expect that the Supreme Court would agree with the Federal Circuit on this particular issue based upon how the court sees eligibility as a threshold and almost jurisdictional issue and the close tie between the CBM definition and patent eligibility.  In the eyes of the Supreme Court, these issues are categorically different from the likelihood-of-invalidation question that is the substantive focus of initiation decisions.

Despite my prognostications here, Google is likely to petition for writ of certiorari.  Top Supreme Court Litigator Neal Katyal handled the failed petition here that particularly asked two questions: (1) Whether the Federal Circuit has jurisdiction to review a PTAB determination that a patent is a “covered business method” patent. (2) Whether the Federal Circuit should defer to the Patent and Trademark Office’s reasonable interpretation of the definition of a “covered business method” patent.

I have discussed the first question above. The second question is also an interesting issue of administrative law that may be mooted if Congress enacts the Separation of Powers Restoration Act of 2017.

Separation of Powers Restoration Act

Modified Opinion: Federal Circuit Won’t Enjoin Non-Party

Asetek Danmark v. CMI USA (“Cooler Master”) (Fed. Cir. 2017)

The Federal Circuit has updated its original decision in Asetek, with Judge Prost deleting her dissent and her points being incorporated into the majority opinion.  The change here relates to the injunction pending remand.

Asetek sued CMI/Cooler-Master for infringing its computer fan patents. U.S. Patent Nos. 8,240,362 and 8,245,764 (“cooling systems”).  A jury sided with Asetek and the patentee was awarded damages as well as an injunction against specific Cooler Master products.  The problem – is that the injunction was awarded against CMI USA as well as “Cooler Master Co., Ltd.”, a Taiwanese company who was no longer a party to the lawsuit.   On appeal, the Federal Circuit substantially affirmed but remanded on the injunction since it applied to a non-party and went beyond that non-party’s ‘abetting a new violation’ by the adjudged infringer.

The oddity of the original Judge Taranto opinion was that it did not actually vacate the injunction but kept it in-force until modified by the lower court. “We do not think it appropriate to vacate the injunction at present.”  Writing in dissent, Chief Judge Prost argued that “The correct course of action would be to vacate the portions of the injunction that improperly reach Cooler Master.”

Following the original opinion, CMI filed for rehearing and that has been partially granted today with a new opinion from the original panel.  The new opinion here adopts Chief Judge Prost’s position and her partial dissent is deleted as is the panel’s non-vacatur.  The new opinion now partially vacates the injunction so that it no longer applies to the non-party (except for aiding and abetting).  The new paragraph:

Two final, related points. First, the need for further proceedings to determine the proper reach of the injunction in this case leads us to vacate the injunction, effective upon issuance of our mandate, insofar as the injunction reaches conduct by Cooler Master that does not abet new violations by CMI. The district court is to conduct those proceedings in as reasonably prompt a fashion as possible. Our partial vacatur of the injunction does not foreclose Asetek from pursuing reinstatement of the vacated portion of the injunction should there be unjustifiable delay by Cooler Master in completing the proceedings, or from pursuing any other remedies against Cooler Master, if otherwise authorized by law.

The en banc court simultaneously released its denial of rehearing after noting that the panel had revised its opinion.  CMI’s en banc petition began as follows:

The Panel Majority’s precedential opinion has promulgated a new rule that a pre-liability permanent injunction against a non-party is permissible pending a determination of liability under the “legally identified with” theory. There are three issues with this opinion. First, it violates the rule that everyone has a right to his day in court. Second, it violates the rule that actual success on the merits must precede entry of a permanent injunction. Third, its remand of further proceedings to determine the “legal identity” issue is an impermissible advisory opinion.

I believe that the revised decision here is legally correct, but it always gives me pause to watch companies and owners divide-up the structure of their firms without substantially dividing management and control — and then use that division to partially avoid legal liability.  The end result is that the potential corporate complexity can substantially raise the costs of enforcement without providing any social benefit.  In this case, Asetek writes that “the precise historical and corporate relationship between CMI and Cooler Master is murky; not even their counsel is sure of it.”  The parties always had the same attorneys, and CMI distributes all of Cooler Master’s products in the US, and assists with US marketing.

 

 

TC Heartland LLC v. Kraft Foods Oral Arguments.

Last week’s oral arguments in TC Heartland LLC v. Kraft Foods (SCT 16-341) went well for the petitioner. [TRANSCRIPT: 16-341_8njq]  In the case, the accused infringer TC Heartland argues that Delaware is an improper venue for its patent case since 28 U.S.C. 1400(b) limits patent venue to “judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”  TC Heartland is an Indiana LLC that is also HQed in Indiana and has no regular place of business in Delaware – seemingly excusing it from defending a patent case in Delaware.  The big catch, however, is that 28 U.S.C. 1391(c) provides a broad definition of “reside” –

Except as otherwise provided by law . . . For all venue purposes . . .  an entity . . . shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.

28 U.S.C. 1391(c).  This provision appears to greatly extend the reach of proper venue for all federal cases to the limits of personal jurisdiction as well. Operating from a blank slate, I expect that the best reading of the statute is that 1391(c) controls and broad venue is available.  The problem though, is that the Supreme Court previously held the other way in Fourco Glass (1957).  And, although the statute has been somewhat amended, there is no suggestion in the record that Congress intended to overrule Fourco.

Arguing for TC Heartland, James Dabney begins:

MR. DABNEY: The Court in this case is presented with an historic choice. That choice is between upholding or destroying venue protections that Congress provided in 28 U.S.C. 1400(b), and that this Court interpreting that statute declared to exist in its Fourco Glass decision. And the correct choice, we submit, is to adhere to this Court’s existing, long-established interpretation of Section 1400(b) and to reject the new call for a new revisionist interpretation that would render Section 1400(b) nugatory in this case and in all but the most unusual cases. . . .

In the Fourco Glass case, the Court considered statutory language that was not materially different in this respect from current 1391 and held that 1400(b) when it says the judicial district where the defendant resides, that means domicile.

Justice Kagen appeared to agree that Fourco controls – and that the Federal Circuit has been going the wrong way for some time:

JUSTICE KAGAN: One oddity of this case is usually, when we say something, when we issue a decision, we can be pretty confident that Congress is acting against the backdrop of that — that decision. But I think that that would be an odd thing to say in this case, given that for 30 years the Federal Circuit has been ignoring our decision and the law has effectively been otherwise. And then It seems actually that if I were a congressman, I’d think that the practical backdrop against which I’m legislating is not Fourco; it is instead the Federal Circuit’s decision in VE Holding, which is the decision that the practice has conformed to.  . . . When 30 years of practice goes against you, what happens?

MR. DABNEY: I heard Justice Souter say something like that in the KSR case, you know, the teaching-suggestion-motivation test had been around so long that, at some point, the mistake becomes the law. And this Court has again and again and again stood up for its authority to declare what the law is.

On issues of patent law, there’s actually a precedent, Andrews v. Hovey that says no issue of patent law is settled until we have settled it.

Chief Justice Roberts, who tends to focus on precedent, seems to also agree that congressional action since then had no intent to overrule the patent venue cases:

CHIEF JUSTICE ROBERTS: No — [the recent amendment to 1391] wasn’t intended to overrule VE Holding, but I suspect it wasn’t intended to overrule Fourco at all either. And Fourco is a decision of this Court.

For his part, William Jay, arguing on behalf of Kraft focused on the statutory language.

MR. JAY: [The post-Fourco amendment] it isn’t here a change from “for venue purposes” just to “for all venue purposes.” [there are several other amendments to the statute] . . . [Although] the principles by which Fourco interpret the statutes are still good law — the definition that Fourco applied is no longer the controlling definition of “residence.”

So Fourco is based on two things. Number one, the fact that 1400 was recodified in the 1948 revision of the Judicial Code. [That is interpreted differently than ordinary amendments, which presume an intent to change and overrule.]

The other thing is the specific and the general canon. This Court said that 1391(c), as it then existed, was clearly a general corporation venue statute, and so it was. It provided where a corporation could be sued. It doesn’t do that anymore. 1391(c) is now a purely definitional provision, and it was adopted specifically to clear up a number of the nagging problems that the members of the Court have been asking my friend about, including where do you sue an artificial entity that is not a corporation? Where does it reside.

An important statutory interpretation question is whether the Supreme Court’s Fourco interpretation of 1400(b) should be included within the “except as otherwise provided by law” limitation of 1391(c).  Interesting question about what Congress intended when it said “provided by law.”

Only a small portion of the discussion involved policy questions of the focus of patent cases in E.D. of Texas and the pending congressional legislation. This, I think brought out a good point by Mr. Jay.

MR. JAY: I think that the issue is not the definition of residence. The [real] issue is how do we come up with a different patent venue statute altogether? And that is something that Congress has been working on, trying to come up with something more calibrated, so that, for example, a research university would be able to bring suit in its home district, because that’s where it did the invention; it’s where the inventor’s lab is and so forth, you know, where they would want to be able to sue a defendant in its own principal place of business, even if it doesn’t commit the relevant act of infringement there.

Big picture here – the statutory interpretation is messy enough that there is not a clean pathway to an answer for the Supreme Court.  If we have a reversal – we’ll see more big changes to patent litigation.

Register of Copyrights: Amending the Process of Selection

My proposal is to join the United States Copyright Office with the already existing United States Patent and Trademark Office to form a cross-doctrine United States Intellectual Property Office (USIPO).  Congress has other plans.

H.R.1695 – Register of Copyrights Selection and Accountability Act of 2017 – is moving forward in the house – being voted out of the Judiciary Committee earlier this week (27-1 vote).  The proposal would create a quasi-independent position of Register of Copyrights appointed by the US President for a 10-year term (with Senate confirmation) removable for cause.   An amendment approved by the Committee would limit Presidential appointment power. In particular, a six-member delegation of Congressional leadership plus the Librarian of Congress would recommend three qualified candidates for the President’s consideration.

The background for the changes stems from the recognition that the Register of Copyrights is currently seen essentially as an at-will employee of the Librarian of Congress – who is not really focused on IP Policy or Efficiency.

USPTO Leadership Updates

In what I expect will be a several-month-stasis several-week-stasis, the USPTO has reshuffled some of its personnel to fill vacant slots and better-fit with the Trump administration. [Updated]

Michelle Lee remains at the top as Director of the USPTO and Undersecretary of Commerce.  As one of the few political-appointee holdovers from the Obama administration, Lee’s position remains somewhat tenuous, but I expect that it will be solid for at least several months weeks.  One noticeable gap is that the Commerce Dep’t website still fails to indicate Dir. Lee’s position. [LINK]

Second-in-command is Anthony Scardino, Acting Deputy Director of the USPTO and Acting Deputy Under Secretary of Commerce for Intellectual Property.  One problem with this appointment is the statutory requirement that the Deputy Director be a member of the PTAB which requires “competent legal knowledge and scientific ability”, 35 U.S.C. 6, and also have “professional background and experience in patent or trademark law.” 35 U.S.C. 3.  My understanding of the Agency’s position is that these requirements only apply to actual Deputy Directors and not an “Acting Deputy Director.”  Dir. Lee apparently sees Scardino’s position as filling an important administrative roll, but there is no chance that he will be appointed to the position of Deputy Director.  In addition Scardino apparently will not be participating as a member of the PTAB.

[Updated to correct typo] Joe Matal has been quiet for the past few years, but is not now rising again and has been named the acting Chief of Staff of the U.S. Patent and Trademark Office – “principal policy advisor” to the Director.  For the past several years, Matal has worked as an Associate Solicitor in the USPTO’s Office of Solicitor.  Prior to that, he worked as counsel for Senators Jeff Sessions (R-AL) and Jon Kyl (R-AZ) and was a primary drafter of the Leahy-Smith America Invents Act.

Paul Rosenthal is now the Acting Chief Communications Officer – moving from his prior position as Deputy Chief that is now being filled by Paul Fucito.

Finally, Drew Hirshfeld and Mary Boney Denison remain as the respective Commissioners for Patents and Trademarks as do the directors of the regional offices, all of whom had ties to the Obama Administration but are also very well respected IP attorneys.

I’ll take this chance to give a big shout-out to Russ Slifer who joined the PTO in 2014 to join and was named Deputy Director by Michelle Lee the next year.  Russ stepped down in January.  Thank you for your service to the agency and the profession!

 

FREE: Examination Practice and Procedure Training (March 31 Deadline)

DenverSign-Up Closes March 31 for the USPTO’s Examination Practice and Procedure (STEPP) Training to be held May 9-11 at the Rocky Mountain USPTO regional office in Denver, Colorado.  According to the PTO:

This training is intended for those who have recently passed the patent bar for the purpose of practicing before the USPTO. The training will make use of statutes, rules, and guidelines relevant to practicing before the USPTO. The course is led by USPTO trainers and is based on material developed for training patent examiners and other employees.

This looks to be an excellent course.  More information and sign-up: [LINK]

 

Berry on IP

by Dennis Crouch

Just returned from a quick family spring break visit to Galveston.  Wendell Berry is probably my favorite poet. He focuses mainly on communities and their interaction with the land and conservation efforts, and writes in ways that easily resonate.  He does have some harsh words for intellectual property (as well as property law in general).

He writes:

“Intellectual property” names the deed by which the mind is bought and sold, the world enslaved.

Some Further Words

I have no “intellectual property,” and I think that all claimants to such property are thieves.

Sex, Economy, Freedom, and Community: Eight Essays (1993).

I will note here that Berry has recorded his copyright to more than 100 works, including the Sex, Economy book (but seemingly has never asserted them in court).  My sense of Berry’s life is that he has attempted to live in ways align well with his written works, I would be interested to learn more about this little corner of his vision.

 

 

 

Sir Edward Coke and International Patent Exhaustion

GomezArosteguiGuest Post by Professor Tomás Gómez-Arostegui (Lewis & Clark Law School)

One of the questions in Impression Prods., Inc. v. Lexmark Int’l, Inc., on which the Supreme Court recently heard oral argument (March 21), is whether the authorized and foreign first sale of a patented item exhausts a U.S. patent holder’s use and distribution rights. The Patent Act of 1952 contains no pertinent provisions on the effect of the first sale of a patented article, and as a consequence many observers believe that the common law will be especially important in deciding the question. The Petitioner, Impression Products, has gone so far as to argue that the common-law backdrop is dispositive.[1] If the Court agrees and decides that the common law should control or influence the case, then assessing the content of that common law becomes paramount.

So what is the common-law rule? In Kirtsaeng v. John Wiley & Sons, Inc., a copyright case, the Court stated that the first-sale doctrine was a “common-law doctrine with an impeccable historic pedigree” that reached as far back as the 17th century and that made “no geographical distinctions.”[2] In reaching that conclusion, the Court relied in large part on English law, particularly Sir Edward Coke’s 1628 treatise in which he rejected post-sale restraints on the alienation of ordinary chattels. Although Coke was not speaking of chattels encumbered by copyrights or patents, let alone goods made and first sold in a different country, the Court nevertheless stated that this no-restraint principle applied to chattels embodying copyrighted works. Notably, the Court offered no other support for its historical account of the common law, apart from citing its 1908 decision in Bobbs-Merrill Co. v. Straus—which treated national (rather than international) copyright exhaustion.[3]

Not surprisingly, Impression Products refers to Coke repeatedly in its brief,[4] as do many amici who have submitted supporting briefs.[5] And at the oral argument last week, Impression Products began by stating that the “principle goes back, of course, to the 15th century.”[6] It also ended its argument by referring to Coke.[7] But more importantly, as Dennis notes in his recent post recapping the oral argument, Justice Breyer, who wrote the majority opinion in Kirtsaeng, seems very much inclined to continue relying on Coke’s account of English common law. Justice Breyer referred to Coke many times[8] and stated, for example, that a patent rule rejecting mandatory international exhaustion would be “very much contrary to what 300 years of restraints on alienation [doctrine] ha[d] in mind.”[9]

In an article posted on SSRN,[10] I examine and reject the Court’s historical account of English common law. Although Kirtsaeng gave the distinct impression that no early cases in England had ever ruled against gray-market importation in an intangible rights case, this is not so in fact. My article discusses two English cases and a few Scottish ones, decided in the long 18th century, and which have thus far escaped the attention of practitioners and scholars. Some of the cases are reported in print, but not all of them appear in traditional law reports, and some of the records only survive in manuscript. I have posted images of the most important manuscripts and less accessible print sources online. The cases demonstrate that the common law did not recognize international exhaustion. On the contrary, the common law observed foreign legal boundaries and permitted right owners and their licensees to stop gray-market goods that embodied intangible rights.

One of the English cases was decided in the Court of Chancery in 1716–1722, and the other in the Chancery and House of Lords in 1802–1804. Both involved patents for the exclusive right of printing, selling, and importing the Holy Bible, New Testament, and Book of Common Prayer. The King held prerogative copyrights in these works and had licensed them by letters patent separately in England and Scotland. At the request of the English licensees, the courts ruled against London booksellers who had imported books printed and sold by the Scottish licensees. Despite the union of the two countries in 1707, the Chancery and House of Lords viewed Scotland as a foreign country for the purpose of prerogative copyrights because the rights granted in the two countries were territorial, legally separate, and potentially distinct. Outside of English common law, a case decided in the Court of Session in Scotland and then in the House of Lords in 1828, extended the proposition to books traveling in the other direction—from England to Scotland.

Notably, these cases considered many of the same arguments that Lexmark and Kirtsaeng raise, such as the territoriality of patent rights; free trade among countries; the potential benefit to consumers of competition from imported gray-market goods; the potential harm to consumers who purchase goods in one country without any notice of their inability to bring those goods into another country; and the potential negative effect that gray-market imports could have on a domestic licensee.

So what do these cases mean for international patent and copyright exhaustion in the United States?

Two consequences follow. First, they call into question the Supreme Court’s decision in Kirtsaeng. Neither the parties nor the Court were aware of these cases and thus the decision issued on an incomplete record of the common law. Second, and most obviously, these newly revealed cases could have an even greater impact in Lexmark. If the Court or any of its members choose to rely on English common law once more—whether presented as controlling, persuasive, or simply historical narrative—that consultation must now occur with a different view of the common law in mind.

= = = = =

[1] Brief for Petitioner at 10–11, 44–47 (Jan. 17, 2017); Reply Brief for Petitioner at 2–3, 16–17 (Mar. 14, 2017).

[2] 133 S. Ct. 1351, 1363 (2013).

[3] Id. at 1363 (citing Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908)).

[4] Brief for Petitioner at 10, 13, 42, 45–46 (Jan. 17, 2017).

[5] E.g., Brief of Public Knowledge et al. at 5, 9, 13–14 (Jan. 23, 2017); Brief of Costco Wholesale Corp. et al. at 20–21, 33–34 (Jan. 24, 2017); Brief for HTC Corp. et al. at 12, 17 (Jan. 24, 2017); Brief of the Association of Medical Device Reprocessors at 36 (Jan. 24, 2017); Brief of Auto Car Association et al. at 21 (Jan. 24, 2017); Brief of Intellectual Property Professors et al. at 6, 26–27 (Jan. 24, 2017).

[6] Oral Argument Transcript at 3 (Mar. 21, 2017).

[7] Id. at 53.

[8] Id. at 14, 26, 28, 33–34, 36.

[9] Id. at 28; see also id. at 26.

[10] H. Tomás Gómez-Arostegui, Patent and Copyright Exhaustion in England circa 1800, available at http://ssrn.com/abstract=2905847.

USPTO Working Group on Regulatory Reform

Under the direction of the White House, the USPTO has formed a “Working Group on Regulatory Reform.”  To implement the 2-for-1 regulatory agenda previously outlined on Patently-O. According to a release from Dir. Michelle Lee’s office:

USPTO’s Working Group on Regulatory Reform implements President Donald Trump’s January 30, 2017 Executive Order 13771(link is external), titled “Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs,” and his February 24, 2017 Executive Order 13777 (link is external), titled “Presidential Executive Order on Enforcing the Regulatory Reform Agenda.”