Certified Questions on Appeal under 1292(b)

January 31, 2020PatentinventorshipDennis Crouch

by Dennis Crouch

In civil procedure, I just finished teaching appeals of interlocutory orders under 28 U.S.C. § 1292(b).

The normal rule in patent cases (and in federal litigation generally) is that the parties have to wait until the case is complete — final judgment — before having a right to appeal. Under this “final judgment rule,” interlocutory orders — orders that do not end the case — are generally not immediately appealable. Rather, parties have to wait for final judgment. There are, however, a number of exceptions to the final judgment rule.

Appealing Injunction Orders: Because injunctions are often requested in patent cases, § 1292(a) is regularly invoked. That section creates a right to appeal district court decisions “granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions.” Thus, even if an injunction order is interlocutory (such as denying preliminary injunctive relief), that order can be automatically appealed.

Certified Questions: Section 1292(b) provides the Courts of Appeals with discretionary authority to review of interlocutory issues of law that are “certified” for appeal by a district court:

When a district judge … shall be of the opinion that [an otherwise non-appealable] order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals … may thereupon, in its discretion, permit an appeal to be taken from such order.

28 U.S.C. § 1292(b).

This week in MLC Intellectual Property v. Micron Tech (Fed. Cir. 2019), the Federal Circuit decided a 1292(b) issue — allowing MLC (the patentee) to appeal a set of interlocutory orders excluding MLC’s expert testimony. The Federal Circuit opinion is short on detail and analysis — explaining (1) that the Federal Circuit has discretion to exercise interlocutory review in this situation; and (2) review here appears appropriate to “avoid an expensive trial solely on liability” since the patentee was left with a very weak damages case and no injunction case (since the patents are expired). [1292(b) Decision]. The case is now placed on the regular docket with full briefing of the issues.

In its certification order, the district court explained the situation as follows:

In the Damages Orders, the Court excluded [MLC’s expert] Mr. Milani’s damages opinion under Daubert because the Court concluded that his comparative license analysis did not comport with Federal Circuit jurisprudence. These deficiencies included, inter alia, Mr. Milani’s failure to apportion the revenue base to include only the revenue attributable to the patented technology and Mr. Milani’s calculation of a royalty rate that was not supported by the evidence. In addition, the Court held that MLC had failed to disclose the factual underpinnings of its reasonable royalty claim in discovery, and excluded much of Mr. Milani’s opinion on that ground. MLC asserts that it was not required to disclose those facts because the determination of a reasonable royalty is the province of expert opinion. All of these questions are controlling questions of law as to which there is substantial ground for difference of opinion. … Absent interlocutory review, the parties and the Court will be required to proceed with an expensive trial focused solely on liability, as MLC concedes that it has no damages case to present at trial.

Interlocutory review of the Damages Orders will result in either the ultimate conclusion of this case (if the Federal Circuit affirms) or a single trial on liability and damages (in the event of reversal); either way, interlocutory review is in the interest of judicial economy and will save the parties a considerable amount of time and expense.

Dct Opinion.

The parties have jointly requested and have now been granted a stay in the district court litigation pending the outcome of the appeal (as well as the outcome of an appeal in a parallel reexamination). 1292(b) indicates that the appeal does not automatically stay proceedings, but suggests that a stay is available if ordered by “the district judge or Court of Appeals.” Id.

MLC’s claimed invention is a method of calibrating a camera-laser-unit using the Tsai algorithm.

Other Recent 1292(b) Cases: The Federal Circuit decided one other 1292(b) cases over the past year. In Heat Techs., Inc. v. Papierfabrik August Koehler Se, 2019 WL 3430477 (Fed. Cir. July 18, 2019), the court denied the petition to hear an interlocutory appeal on the question of whether a “§ 256 claim for correction of inventorship can proceed not-withstanding other potential challenges to the patent’s validity.” In Heat Techs, the appellate panel found several faults with the district court certification order — most notably was the reality that there was not “substantial ground for difference of opinion.” Rather, the answer was a simple “yes” – inventorship and ownership are separate from validity and there are important implications that can flow from owning a patent – even if invalid.

The Court of Appeals also decided a 28 U.S.C. § 1292(d)(2) case. Laturner v. U.S., 933 F.3d 1354 (Fed. Cir. 2019). 1292(d)(2) is substantially parallel to 1292(b) — difference being that (d)(2) allows for interlocutory appeals from the Court of Federal Claims whereas (b) is focused on district court orders.

USPTO Proposed Fee Changes

August 25, 2019PatentDennis Crouch

The USPTO has issued a set of proposed fee changes with public comments due September 30, 2019 (fee.setting@uspto.gov). Basically, all of the fees are going up by around 5-10% with a few much higher.

Major proposed new fees:

New Fee: Non-DOCX Application Filing Surcharge Fee of $400
New Fee: Annual Fee for Patent Practitioner

Significant Fee Adjustments:

Late maintenance fee payment – $500 up from $160.
Expedited Design Patent Examination – $2,000 up from $900.
Utility Filing + Search + Examination Fees – $1,720 up 6% from $1620
Utility Issue Fee – $1,200 up 20% from $1,000.
First Maintenance Fee – $2,000 up 24% from $1,600.
Provisional Application Fee – $300 up from $280.

https://www.federalregister.gov/documents/2019/07/31/2019-15727/setting-and-adjusting-patent-fees-during-fiscal-year-2020

Duplicative IPR Filings

October 29, 2018PatentDennis Crouch

I just saw this interesting report from Steven Carlson and Ryan Schultz of Robins Kaplan on duplicative IPR filings. [Synopsis][Full Report with data]. They looked at the most frequent filers of inter partes review proceedings and found the following:

Over 56 percent of Apple’s petitions are duplicative, in that they challenge at least one claim that is the subject of attack by another Apple petition. Microsoft is even higher, at 59 percent. Samsung, Google and LG have 38 percent, 38 percent and 34 percent duplicative petitions, respectively.

The article provides its expectation that the PTO will likely become even more aggressive at limiting this approach of repeat filings. “Therefore it may be prudent to concentrate the best arguments into a single petition, that is, to only count on a single bite at the apple.”

USPTO Announces Notice of Proposed Rulemaking for Claim Construction Standard used in PTAB Proceedings

May 8, 2018PatentDennis Crouch

USPTO Press Release: Alexandria, VA – Today, the United States Patent and Trademark Office announced its proposed rulemaking to change the prior policy of using the Broadest Reasonable Interpretation standard for construing unexpired and proposed amended patent claims in Patent Trial and Appeal Board (PTAB) proceedings under the America Invents Act. The proposed new standard is the same as the standard applied in Article III courts and International Trade Commission (ITC) proceedings.

The USPTO also proposed to amend the rules for PTAB trials to add that the USPTO will consider any prior claim construction determination concerning a term of the claim in a civil action, or an ITC proceeding, that is timely made of record in an Inter Partes Review (IPR), Post Grant Review (PGR), or Covered Business Method (CBM) proceeding.

The purposes of the proposed rule include, among other things, to ensure consistency in claim construction between the PTAB and proceedings in district court or at the ITC, and to increase judicial efficiency.

A Notice of Proposed Rulemaking (NPRM) will publish on May 9, 2018. Please submit comments to ptabnpr2018@uspto.gov within 60 days from the notice of publication.

NPRM – 2018-09821

CURRENT: 37 C.F.R. § 42.100

(b) A claim in an unexpired patent that will not expire before a final written decision is issued shall be given its broadest reasonable construction in light of the specification of the patent in which it appears. A party may request a district court-type claim construction approach to be applied if a party certifies that the involved patent will expire within 18 months from the entry of the Notice of Filing Date Accorded to Petition. The request, accompanied by a party’s certification, must be made in the form of a motion under § 42.20, within 30 days from the filing of the petition.

PROPOSED: 37 C.F.R. § 42.100

(b) In an inter partes review proceeding, a claim of a patent, or a claim proposed in a motion to amend under § 42.121, shall be construed using the same claim construction standard that would be used to construe such claim in a civil action to invalidate a patent under 35 U.S.C. 282(b), including construing the claim in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art and the prosecution history pertaining to the patent. Any prior claim construction determination concerning a term of the claim in a civil action, or a proceeding before the International Trade Commission, that is timely made of record in the inter partes review proceeding will be considered.

Supreme Court Patent Update for January 2018

January 29, 2018PatentDennis Crouch

by Dennis Crouch

The Supreme Court has heard oral arguments in Oil States and briefing is ramping-up in one additional case, WesternGeco, that focuses on lost profit damages for international activities.

A fairly large number of petitions for writ of certiorari are pending – however, the questions presented lack diversity. The vast majority of the pending petitions are Oil States follow-on cases that basically ask whether the post-issuance review proceedings are constitutional. Other topics of pending petitions: Dealing with ‘evidence’ in eligibility decisions; Limits on ‘teaching away’ in obviousness; apportionment of lost profit damages; assignor estoppel; defining ‘exceptional case’ for attorney fees; and whether the Federal Circuit must issue reasons for its decisions.

Eligibility:

R+L Carriers, Inc. v. Intermec Technologies Corporation, No. 17-980 (“proving” it is abstract).
The Cleveland Clinic Foundation, et al. v. True Health Diagnostics LLC, No. 17-997 (role of evidence in eligibility analysis)

Obviousness:

Nidec Motor Corporation v. Zhongshan Broad Ocean Motor Co., Ltd., et al., No. 17-751 (Obviousness: does ‘teaching away’ requires express criticism; also Oil States issue)

Damages

EVE-USA, Inc., et al. v. Mentor Graphics Corporation, No. 17-804 (Apportionment and Assignor Estoppel)
~~NOVA Chemicals Corporation (Canada), et al. v. Dow Chemical Company, No. 17-564 (attorney fees – how exceptional)~~

Review of PTAB:

Google LLC v. Unwired Planet, LLC, No. 17-357 (Does the Federal Circuit has jurisdiction to review the PTAB determination that a patent is a “covered business method” patent; What level of deference should be given to PTAB decisions).
PNC Bank National Association, et al. v. Secure Axcess, LLC, No. 17-350 (parallel court proceedings: when is PTAB proceeding moot?)

Rule 36 No Opinion Judgments:

Celgard, LLC v. Joseph Matal, Interim Director, United States Patent and Trademark Office, No. 16-1526 (“Does the Federal Circuit’s issuance of Rule 36 judgments without opinions for the disposition of appeals from the Patent Office violates 35 U.S.C. § 144’s requirement that the Federal Circuit ‘shall issue’ its ‘mandate and opinion’ for such appeals?”; Also Oil States issues)
C-Cation Technologies, LLC v. Arris Group, Inc., et al., No. 17-617 (also raises Oil States issues)
Integrated Claims Systems, LLC v. Travelers Lloyds of Texas Insurance Company, et al., No. 17-330 (also raises Oil States issues)
Petter Investments, dba Riveer v. Hydro Engineering, No. 17-1055

Oil States Follow-On

Uniloc USA, Inc., et al. v. SEGA of America, Inc., et al., No. 17-1018
Worldwide Oilfield Machine, Inc. v. Ameriforge Group, Inc., No. 17-1043
KIP CR P1 LP, Successor in Title to Crossroads Systems, Inc. v. Oracle Corporation, et al., No. 17-707 and 17-708 (Response Requested by SCOTUS)
Hitachi Metals, Ltd. v. Alliance of Rare-Earth Permanent Magnet Industry, No. 17-768 (Response Requested)
Enova Technology Corp. v. Seagate Technology (US) Holdings, Inc., et al., No. 17-787 (Response Requested)
AT&T Intellectual Property II, L.P. v. Joseph Matal, Interim Director, United States Patent and Trademark Office, No. 17-643
Audatex North America, Inc. v. Mitchell International, Inc., No. 17-656
Hillcrest Laboratories, Inc. v. Movea, Inc., No. 17-39
Affinity Labs of Texas, LLC v. Joseph Matal, Interim Director, United States Patent and Trademark Office, No. 17-117; 17-232; 17-232
Affinity Labs of Texas, LLC v. Samsung Electronics Co., Ltd., et al., No. 17-116
IPR Licensing, Inc. v. ZTE Corporation, et al., No. 17-159
Paice LLC, et al. v. Ford Motor Company, No. 17-221; 17-220; 17-229; 17-112; 17-113; 17-111; 17-110; and 17-222.
Security People, Inc. v. Joseph Matal, Interim Director, United States Patent and Trademark Office, et al., No. 17-214
Outdry Technologies Corporation v. Geox S.p.A., No. 17-408
Skky, Inc. v. MindGeek, s.a.r.l., et al., No. 17-349
TransPerfect Global, Inc. v. Joseph Matal, Interim Director, United States Patent and Trademark Office, No. 17-535

Supreme Court Reins In Patent Venue

May 22, 2017PatentSupreme Court, VenueDennis Crouch

by Dennis Crouch

In TC Heartland LLC v. Kraft Foods Group Brands LLC, the Supreme Court has significantly shifted the balance away from the geographically fringe Eastern District of Texas – holding that the residence requirement of 28 U.S.C. § 1400(b) refers only to a defendant’s State of Incorporation for patent infringement venue purposes.

Read the Decision: 16-341_8n59.

The short (10-page) unanimous opinion authored by Justice Thomas reaffirms the court’s prior decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222, 226 (1957) — holding again that “for purposes of §1400(b) a domestic corporation ‘resides’ only in its State of incorporation” and rejecting the notion that a much broader definition of venue (found in §1391) applies.

Although the Supreme Court law appears continuous. The Federal Circuit created a major blip in its 1990 decision of VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990). In that case, the appellate court held that patent infringement venue is proper in any court having personal jurisdiction over the defendant. That expansive change allowed for the rise of patent-focused venues such as the Eastern District of Texas where the majority of infringement lawsuits have been filed over the two decades (heat map below). PatentLawPic984

What next: Section 1400(b) limits patent cases to the judicial district (1) “where the defendant resides,” or (2) “where the defendant has committed acts of infringement and has a regular and established place of business.” This means a likely large boost of lawsuits in Delaware. National retailers will still be amenable to suit essentially everywhere, but many would-be defendants will be able to avoid E.D.Texas at least. There will also be new litigation on the implications for foreign companies with no established place of business in the US. The decision here expressly refuses to address that question other than noting that it did previously decide that foreign corps can be an exception to 1400(b). Although possible, it is unlikely the court will adapt the “established place of business” to include the internet, although that portion of 1400(b) has not been explored since the e-tailing explosion. With less concentrated venue, I we can also expect a rise in multi-district litigation. For more, consider Prof Janicke’s article on the Imminent Outpouring from the Eastern District of Texas.

Where are we with Secret Commercialization?

May 2, 2017Patentobviousness, Secret Prior ArtDennis Crouch

The Federal Circuit’s recent decision in Helsinn Healthcare S.A. v. Teva Pharmaceuticals (Fed. Cir. May 1, 2017) held the public sale of an invention qualifies as prior art even if the details of the invention are not publicly disclosed. The PTO has been operating for the past several years that such sales do not qualify as prior art. From the MPEP:

The phrase “on sale” in AIA 35 U.S.C. 102(a)(1) is treated as having the same meaning as “on sale” in pre-AIA 35 U.S.C. 102(b), except that the sale must make the invention available to the public.

MPEP 2152.02(d). This statement is obviously wrong under Helsinn, and I expect that the Supreme Court would side with the Federal Circuit on this point (but probably won’t take the case).

The court expressly refused to determine whether a non-public sale (or offer-to-sell) also qualifies as prior art under the AIA or must at least the fact-of-the-sale be made public. The court also refused to make any holding regarding whether secret commercialization (other than sales) by the patentee qualifies as prior art under the AIA. The AIA does not support expressly support such a notion – of course neither did the statute pre-AIA. The court also does not discuss the continued relevance of experimental use, but does fall-back on the Pfaff ready-for-patenting on-sale analysis.

Obviousness: These issues involve an interesting and largely unresolved mix between statutory prior art and “non-statutory bars to patentability.” The outcome of this mix becomes quite relevant and important once we begin focusing on obviousness. The Post-AIA obviousness statute redoubles its focus on the prior art – as such any non-statutory-bars eventually developed by the courts should probably not qualify as prior art for obviousness purposes.

PTO Director Lee

April 18, 2017PatentUSPTO DirectorDennis Crouch

Politico reports today that PTO Director Michelle Lee is “in the running to head up the White House Office of Science and Technology Policy” known as OSTP. [LINK] Lee’s Obama-Holdover status suggests to me that OSTP’s policy-making role will be substantially downgraded under President Trump as compared to that of the Obama Administration when the office was headed by John Holdren. However, the move would also confirm a comparative business forward position. The OSTP Director also now holds an official seat of the new Office of American Innovation headed by Jared Kushner.

According to reports, Commerce Secretary Wilbur Ross has interviewed several replacement candidates for PTO Director.

Federal Circuit Now Receiving More Appeals Arising from the PTO than the District Courts

March 2, 2016PatentAIA Trials, IPRJason Rantanen

By Jason Rantanen

Appeals arising from district court patent infringement cases have historically made up about a third of the court’s docket. In 2011, for example, appeals from the district courts constituted 33% of appeals filed, while appeals from the PTO were about 9%.

Caseload by Category - 2011

(Graph from http://www.cafc.uscourts.gov/the-court/statistics)

That distribution no longer holds. During Fiscal Year 2015 (which ended on September 30, 2015), appeals from the PTO exploded, to about a quarter of all appeals filed. Appeals from the district courts also rose, but at a slower pace.

Caseload by Category - 2015

(Graph from http://www.cafc.uscourts.gov/the-court/statistics)

That trend has continued, with appeals from the PTO now overtaking appeals from the district courts. The below chart shows the annual number of appeals filed from 1997 to the end of January 2016. As of January 29, the court had docketed more appeals arising from the PTO than the district courts. If this filing rate holds true for the rest of the year, we can expect almost as many appeals from the PTO to be filed as there were appeals from the district court last year.

Appeals docketed through Jan 2016

(Data source: http://www.cafc.uscourts.gov/the-court/statistics)

My primary hypothesis for this dramatic rise is relatively simple. Since the implementation of the America Invents Act, there has been an explosion of inter partes review proceedings at the PTO. In inter partes review proceedings, there is inevitably a winner—and a loser. Given the relatively small cost of filing an appeal, and the current uncertainty as to outcomes on appeal, parties that are losing on IPR are filing those appeals. There are other things going on, particularly the increased thoroughput of the PTAB, but I suspect that many of the appeals from the PTO are of IPR proceedings.

Whatever the cause, the ramifications of this increase in appeals from the PTO are quite significant. If I’m right that most of these appeals from IPR proceedings, they’re likely to be hotly contested by both parties. In addition, each of these cases involves its own invention and technology. So I see this as a substantial workload increase for the Federal Circuit judges and their clerks. One thing to take a look at going forward is how the Federal Circuit is going to be handling these appeals.

(I don’t have an explanation for the drop in appeals from the district courts, other than possibly the decline in patent cases filed and pending that occurred in late 2014 and early 2015. It could also be due to more cases being resolved through the IPR proceedings—although as others have observed, only a fraction of patents involved in infringement litigation are also involved in IPR proceedings)..

No Appeal for Errors in Instituting IPR

September 30, 2015PatentAIA Trials, IPRDennis Crouch

Achates References v. Apple (Fed. Cir. 2015)

At the conclusion of its Inter Partes Review Proceeding (IPR), the Administrative Patent Trial and Appeal Board (PTAB) concluded that several claims of Achates’ patents were invalid. U.S. Patents No. 5,982,889 (claims 1-4); and No. 6,173,403 (claims 1-12 and 17-19). (more…)

Is it Appropriate Prosecute Patents for Direct Competitors on Inventions on Similar Technology without Disclosure and Waivers?

September 3, 2015Ethics, Patentanticipation, obviousnessDennis Crouch

by Dennis Crouch

[Prof Hricik may have more to say on this conflict-of-interest case, but I believe it is an interesting one and important for discussion.]

Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, SJC-11800.

A patent law malpractice case is pending before the Massachusetts Supreme Court that has major implications for patent prosecution practice. Many patent patent attorneys and law firms develop technology-specific specialties as a marketing strategy. The professional responsibility problem arises when the strategy is successful enough to attract multiple clients with substantial technological crossover. Of course, this likelihood is intensified in larger law firms where more lawyers means more clients and more (potentially overlapping) invention disclosures.

Back in 2003, Maling hired Finnegan Henderson to prosecute a set of patent applications relating to screwless eyeglass hinges. According to the allegations, it turns out that Finnegan was also representing a competitor (Masunaga) with a similar invention in the same screwless eyeglass hinge field. Finnegan says that these were “attorneys in different offices.” Neither client was informed or gave consent to this alleged conflict of interest and Maling argues that Finnegan’s “independent professional judgement” was impaired by the conflicting representation in violation of the Massachusetts Rules of Professional Conduct. Among the various harms Maling alleges a delay in filing his application and wasted efforts on technology not sufficiently protected by patent.

The state trial court dismissed on failure-to-state-a-claim for the civil action with the court finding no direct adversity of interests and no nexus between the conflicting representation and the claimed harm. The Supreme Judicial Court of Massachusetts (MA’s highest court), is now focused on the question of whether an actionable conflict arises when a single law firm files and prosecutes patent applications for similar inventions on behalf of two existing clients.

Massachusetts law:

1.7(a): “A lawyer shall not represent a client if the representation of that client will be directly adverse to another client.”
1.7(b) “[A] lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests.”

Finnegan here argues that the allegations of filing and prosecuting a competitor’s “similar” invention is “insufficient” to even suggest a conflict of interest. Rather, Finnegan argues an ethical conflict only arises if one of the client’s inventions are blocked by patent disclosures made by another client.

The distinction between “similar” and “novel and non-obvious” is well-illustrated by the Maling and Masunaga inventions described in the patents at issue in this case. Both inventions attempt to solve the problem of how to construct an eyeglass frame without utilizing screws. As the PTO concluded, however, each patent claims a novel solution to this problem. . . .

Here, there is no allegation that Maling and Masunaga ever were “directly adverse” to one another, in patent proceedings or otherwise. Maling cites to no case law, nor is Finnegan aware of any, in which a court has held that parties are directly adverse to one another simply because each seeks to patent technology in the same field. Such a standard, moreover, would be inconsistent with the statutory-framework discussed above, which recognizes that multiple patents may be granted in the same field so long as each claims a “new and useful” invention, or a “new and useful improvement thereof.”

Finnegan also explains that conflicting-out large law firms would make it difficult for inventors to find representation — quoting Hricik as saying that “a rule that limits a firm to representing only one client in a particular technical field ‘imposes unnecessary costs on lawyers, clients, and the system.'” Hricik & Meyer, Patent Ethics: Prosecution (2015).

In his brief, the plaintiff-appellant argues that its allegations of violation and harm are sufficient to overcome a motion to dismiss. Their brief does not detail an explanation of how similarity should be treated.

In an amicus filing, a group of major law firms, including Knobbe Martins; Honigman Miller; Nixon Vanderhye, and others arguing that direct conflict issues only arise if the inventions are so close as to lead to an interference (pre-AIA).

The amicus brief suggests that the rules may be different post-AIA because the new law sets up more of a race to the PTO (first-to-file vs first-to-invent). This, of course, is disingenuous as the pre-AIA system included a large number of adverse impacts caused by delays in filing.

One interesting issue that arises here is that Maling had Finnegan conduct a pre-filing prior art search in 2003. At that point, the Masunaga patent was on file, but not yet published and so did not turn-up in the search results – even though Finnegan attorneys knew of the reference and knew that it was prior art.

Michael McCabe has more of a discussion of the case on his IP Ethics and Insights Blog.

= = = = =

Most civil-action malpractice claims fail because of the difficulties of proving harm. At the USPTO and State Bars, mere violation – even without client harm – is actionable as a violation of the rules of professional responsibility. It will be interesting to see how the USPTO treats this case.

= = = = =

Read the Briefs:

Deputy Director Russ Slifer

March 26, 2015PatentUSPTO DirectorDennis Crouch

As I mentioned in my twitter feed, Russ Slifer has now been sworn-in as Deputy Director of the USPTO after being nominated by Director Michelle Lee and then appointed by Secretary of Commerce Penny Pritzker. The PTO leadership is again at its full strength with a healthy mix of PTO insiders and outsiders, but all having years of direct intellectual property law experience. We should expect Lee and Slifer to stay on the job for the next two years. But, as political appointees, the expectation is that they will be out once a new president is sworn-in, although that transition can come in different forms depending upon the new administration.

The team is making a strong push for patent quality initiatives associated primarily with aspects under their control – internal examination processes – rather than changes in substantive law. However, they are also now renewing their focus on helping guide congressional patent reforms in order to avoid unbalancing the system. Two key questions on that front: (1) what clout with PTO input carry on the Hill when the focus is on litigation reform; and (2) how will PTO actions on that front be curtailed or shaped by the White House.

As Gene Quinn writes, Slifer was hard at work yesterday leading various aspects of the Patent Quality Summit.

The Deputy position is something like a vice president – little actual defined job responsibility. However, when I spoke with Director Michelle Lee who has been in that position for more than a year, she indicated that Slifer’s plate will be extremely full.

The Strong Patent Act of 2015 from Senator Coons

March 3, 2015PatentAIA Trials, Broadest Reasonable Interpretation, Claim Construction, Damages, PGR, USPTO DirectorDennis Crouch

by Dennis Crouch

Senator Coons is expected to introduce his competing patent reform bill into the Senate this week under the title Strong Patents Act. As the name suggests, these provisions here tend to strongly favor patent holders. With his usual understated tone, Herb Wamsley writes that Coons’ bill “will differ substantially from Rep. GOODLATTE’s bill H.R. 9.” In the current political state, this provision has no hope of being enacted. However, I suspect that supporters of provision see it as having strong gridlock-creating potential.

The following is a fairly high-level review of the particular proposals as well as a link to the text of the bill.

[STRONG Patents Act of 2015]

Provisions related to PGR/IPR/Reexams:

Claim Construction during Post-Issuance Review Proceedings shall be according to the “ordinary and customary meaning” and in the same way that a court would construe the claim in an action to invalidate a patent. This provision would have the beneficial impact of better-linking the parallel court and PTO proceedings. The provision would also make it more difficult for the PTAB to invalidate patents because the claims would no longer be given their broadest reasonable interpretation.

Amendments to the Claims during Post-Issuance Review Proceedings will be allowed if “reasonable.”

Presumption of Validity will Apply to patents being challenged in post-issuance review proceedings such that unpatentability of a previously issued claim would require clear and convincing evidence.

Standing to File Post-Issuance Review Proceedings will be limited to only entities charged with infringement.

In Response to a Post-Issuance Review Petition, the patentee will be allowed to submit supporting evidence.

Separating the Two Steps of Post-Issuance Review Proceedings: Under the proposed law, a PTAB judge who participates in the decision to grant a PGR/IPR petition will not then be allowed to decide the merits of the case.

Blocking Anonymous Petitions: The proposed law would allow the patentee to discover the real party in interest associated with the filing of either a reexamination or an PGR/IPR petition.

A One Year Deadline will be instituted for filing requests for ex part reexamination triggered by service of a complaint alleging infringement.

Civil Procedure:

Form 18 is to be eliminated.

USPTO Funding:

Fees collected by the USPTO will be made available to the Director until expended including past each fiscal year.

Infringement:

The Punitive Damages Provision would be amended to allow the court “in its discretion” to treble damages “upon determining, by a preponderance of the evidence, that the infringement was willful or in bad faith.”

Inducement of Infringement becomes a cause of action as outlined by the Federal Circuit in Akamai. This would effectively overrule the Supreme Court’s decision in the case.

Universities:

The provision would fix a seeming gap in the current micro-entity status requirements that don’t actually allow universities to claim micro-entity status (for a 75% fee reduction) but instead only those with a duty to assign rights to the university.

Rogue and Opaque Demand Letters:

The new law would specify that certain bad-faith demand letters are unlawful under the FTC Act and the FTC would have power to enforce the law with a maximum penalty of $5 million.

= = = = =

USPTO’s Swelling Examiner Rolls

November 30, 2014PatentUSPTO DirectorDennis Crouch

Count of USPTO Employees by Fiscal Year

In FY2014, the USPTO swelled to over 12,000 employees. This represents a 50% increase in less than a decade. As the chart above indicates, the bulk of the increase (and indeed, the bulk of employees overall) is in patent examiners. Today, the number of patent examiners is approaching 9,000 and Director Lee expects to continue to hire more examiners through the next year.

The idea here is to take control of the 1.1 million application backlog to ensure that patents are either issued or rejected early in the process. A major question is what will the USPTO do with the excess employees once the backlog comes down.

Court Publicly Reprimands Ed Reines, Recipient of Email from then-Chief Judge Rader (to be updated)

November 5, 2014En Banc, Ethics, PatentFederal Circuit En BancDavid

By David Hricik

(Note: yesterday when writing this, it struck me as odd that this was en banc (I don’t think that’s procedurally proper and it surely deprives Reines of any “appeal,”) and some of the facts, upon critical thought, don’t make a lot of sense. I’m going to read the source documents. Click on “ethics” above to keep reading.)

In early June, 2014, the Federal Circuit in an unusual per curiam order ordered Ed Reines to show cause as to why he should not be sanctioned for forwarding an email sent to him by then-Chief Judge Rader. The Federal Circuit today issued an en banc per curiam decision publicly reprimanding Mr. Reines for his actions. The opinion, In Re Edward R. Reines, is here.

The email from Chief Judge Rader that began the events reads:

Ed,

On Wednesday, as you know, the judges meet for a strictly social lunch. We usually discuss poli- tics and pay raises. Today, in the midst of the general banter, one of my female colleagues inter- rupted and addressed herself to me. She said that she was vastly impressed with the advocacy of “my friend, Ed.” She said that you had handled two very complex cases, back to back. In one case, you were opposed by Seth Waxman. She said Seth had a whole battery of assistants passing him notes and keeping him on track. You were alone and IMPRESSIVE in every way. In both cases, you knew the record cold and handled every question with confidence and grace. She said that she was really impressed with your performance. Two of my other colleagues immediately echoed her en- thusiasm over your performance.

I, of course, pointed out that I had taught you everything you know in our recent class at Berkeley together . . . NOT! I added the little enhancement that you can do the same thing with almost any topic of policy: mastering the facts and law without the slightest hesitation or pause!

In sum, I was really proud to be your friend today! You bring great credit on yourself and all associated with you!

And actually I not only do not mind, but encourage you to let others see this message.

Your friend for life, rrr

Consistent with his encouragement to let others see the email, Reines forwarded it to clients and potential clients.

The decision analyzed whether Reines’ conduct violated Model Rule of Professional Conduct 8.4(e). That rule states that “[i]t is professional misconduct for a lawyer to . . . state or imply an ability to influence improperly a government agency or official to achieve results by means that violate the Rules of Professional Conduct or other law.” The court noted that the ABA has stated that “a lawyer who suggests that he or another lawyer is able to influence a judge or other public official because of a personal relationship violates Rule 8.4(e).” Id. (quoting Lawyers’ Manual on Prof’l Conduct (ABA/BNA), at 101:703 (Mar. 30, 2011)).

The court held that Reines had violated the rule. Specifically, it reasoned:

First, the email both explicitly describes and implies a special relationship between respondent and then-Chief Judge Rader. The text of the email describes a close friendship between the two. The email included the language, “[i]n sum, I was really proud to be your friend today,” and closed with “[y]our friend for life.” The very fact that the email was a private communication rather than a public document implies a special relationship, and then-Chief Judge Rader’s sharing of internal court discussions (which would be ordinarily treated as confidential) about the lawyer’s performance in a pending case implies an unusually close relationship between respondent and the then-Chief Judge. Respondent’s comments transmitting the email also convey a special relationship with then-Chief Judge Rader and the Federal Circuit. Respondent described the email as “unusual” or “quite unusual” in some of his accompanying comments, Reines Ex. 4; Ex. 8; Ex. 44; Ex. 45, and referenced his “stature” within the court and his role as chair of the Federal Circuit’s Advisory Council, Reines Ex. 38.

Second, recipients of the email also viewed it as suggesting the existence of a special relationship between respondent and then-Chief Judge Rader and perhaps other judges of the court. Several responses referred to the high opinion then-Chief Judge Rader and judges in general had for Mr. Reines. 5 Other responses specifically referenced the friendship between respondent and then- Chief Judge Rader.

Third, the transmission of the email did more than suggest that respondent should be retained because of his superior advocacy skills. It suggested that his special relationship with the court should be taken into account. Respondent touted his role as chair of this court’s Advisory Council, and stated that his “stature” within the court had helped “flip” a $52 million judgment in favor of his client and that he “would love to help [the recipient of his message] do the same.” Reines Ex. 38. Another lawyer in respondent’s firm in forwarding the email stated that respondent “knows the judges extremely well.” Reines Ex. 49. Albeit respondent noted that he did not approve of the communication, he took no steps to advise the recipient of his disapproval. Decl. of Edward R. Reines ¶ 21.

Fourth, in sending the email to clients and prospec- tive clients, respondent sought to directly influence their decisions about retaining counsel. He typically stated, “[a]s you continue to consider us for your Federal Circuit needs, I thought the below email from Chief Judge Rader might be helpful.” Reines Ex. 11.7 Prospective clients likewise stated that they would consider it in making retention decisions.8

Finally, the email itself and respondent’s comments accompanying the sending of the email suggested that Federal Circuit judges would look favorably on the retention of respondent. Then-Chief Judge Rader invited respondent to distribute the email to others. Respondent suggested that clients should “listen[] to . . . the Federal Circuit judges[.]” Reines Ex. 30.

Id. Based upon this analysis, the court stated that it would “blink reality” to pretend that forwarding the email did not imply a special relationship with the judge. Id.

The court then determined that the penalty would be a public reprimand. Not only had Reines acknowledged he had erred by forwarding the email, the court found mitigation in the fact that he had been encouraged to do so, and, further, because it was not an express but was an implicit statement that he could influence the court.

After rejecting a First Amendment challenge, the court ended with two somewhat curious observations. First it stated there was a separate issue that it was referring to the California bar concerning an exchange of gifts:

On Mr. Reines’s side, he provided a ticket for one concert, at another concert arranged for upgrading to a standing area near the stage, and arranged for backstage access for then-Chief Judge Rader at both. Then-Chief Judge Rader paid for accommodations. This occurred while Mr. Reines had cases pending before this court.

The court did not decide the issue but referred it “and the underlying relevant documents to the California bar authorities for their consideration.” Id.

Second, the court stated that it was maintaining certain documents relating to the investigation under seal. It stated that it was doing so “since this does not concern a matter as to which we have imposed discipline.” Instead, it was leaving “it to the California bar authorities whether and when such materials should be disclosed.” Id.

My Comments.

I clerked for Chief Judge Rader ending about 18 months ago. I never perceived him to be influenced by anything other than the merits of a case — period. I also know he has a tendency to be effusive (that is putting it mildly) in emails. As a result, the context of Chief’s emails to anyone who knows him discounts some of this.

But, in my view the court’s ruling was correct. (Well, no it wasn’t. See the ethics page by clicking above.)

Federal Circuit: Bingo Gaming Software Improperly Encompasses the “Basic Tools of Scientific and Technological Work”

August 27, 2014PatentAbstract Idea, anticipation, First to Invent, obviousness, Subject Matter EligibilityDennis Crouch

by Dennis Crouch

Planet Bingo v. VKGS (Fed. Cir. 2014)

In a non-precedential decision earlier this week, the Federal Circuit found Planet Bingo’s patents invalid as lacking eligible subject matter under 35 U.S.C. 101. The court’s opinion self-identifies as a “straightforward application of the Supreme Court’s recent holding in Alice Corp. v. CLS Bank International.”

The patent claims a computerized method for managing a game of Bingo – yes, the multi-billion dollar industry of Bingo. The basic idea of the invention is that some folks want to play ‘their numbers’ each week. The computerized system lets individuals pre-select their numbers and also helps the Bingo-hall to track sales, verify winners, and avoid tampering. VKGS and Planet Bingo compete in the marketplace for bingo equipment.

Claim 1 of U.S. Patent No. 6,398,646 recites typical computer hardware including a computer with a CPU, memory device, a printer, input and output terminal, and also a computer program with particular features. As is typical with software related inventions, the only novel features of the invention stem from software-related functionality. Here, the program is configured to allow input and storage of the pre-selected Bingo numbers in files associated with the players. A player with stored numbers can then retrieve them to play Bingo. At that point, a control number is also associated with the numbers that can later be used to verify winnings. The patents also include method claims that basically step through the program steps outlined above.

Although I am no Bingo expert, nothing here appears amazingly inventive. Of course, the challenge to the patent is not on grounds of obviousness or anticipation. Rather, the challenge is on subject matter eligiblity grounds – that the patent unduly encompasses an “abstract idea” and therefore unduly limits “the basic tools of scientific and technological work.”

The Patent Act is broadly written so as to allow the patenting of “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” 35 U.S.C. 101. In addition to the text of the statute, the Supreme Court has further restricted the patenting of “laws of nature, natural phenomena, and abstract ideas.” According to the court, these exceptions to patentability are necessary to protect “the basic tools of scientific and technological work.” In Alice Corp, the Supreme Court explained:

“[M]onopolization of those tools through the grant of a patent might tend to impede innovation more than it would tend to promote it,” thereby thwarting the primary object of the patent laws. Mayo. We have “repeatedly emphasized this . . . concern that patent law not inhibit further discovery by improperly tying up the future use of ” these building blocks of human ingenuity. Mayo (citing Morse).

Here, the Federal Court found that – yes – those building blocks of scientific inquiry are being inhibited by Planet Bingo’s bingo software patent. To reach this result, the court began by recognizing that the method and system claims are basically the same and thus should rise-and-fall with the same analysis. The court then analyzed the case through the lens of the method claims as ineligiblity tends to be easier to show for method claims.

Following the process outlined in Alice Corp., the Federal Circuit first identified the abstract idea as the steps of selecting, storing, and retrieving the bingo numbers, assigning the control number, and checking to see whether the set of numbers is a winner. These steps are collectively an abstract because they are “mental steps which can be carried out by a human using pen and paper.” Particularly, none of these steps require new technology but rather may be “carried out in existing computers long in use.” (quoting Benson). Further, the Federal Circuit was unable to find an “inventive concept” in the rest of the claimed subject matter sufficient to transform these abstract ideas into a patent eligible invention. The court writes:

Apart from managing a game of bingo, the claims at issue also require “a computer with a central processing unit,” “a memory,” “an input and output terminal,” “a printer,” in some cases “a video screen,” and “a program
. . . enabling” the steps of managing a game of bingo. These elements, in turn, select, store, and retrieve two sets of numbers, assign a player identifier and a control number, and then
compare a winning set of bingo numbers with a selected set of bingo numbers.

Here, however, the claims recite merely a generic computer and instructions that simply implement the abstract idea discussed above.

Patent Invalid.

Guest Post: Is there a justification for greater transparency in patent transactions?

March 21, 2013PatentEnablement, Licenses, VenueDennis Crouch

by Alan D. Minsk [1]

Introduction

In a recent article [2], Matt Rappaport argues for the need for greater transparency in the "marketplace" for transactions involving patents. Rappaport points out several inefficiencies that may result from a lack of transparency regarding the holdings of an entity that is seeking to license one or more of its patents. These inefficiencies result from a potential licensee being unable to readily obtain information regarding the complete holdings of the licensor, and the resultant uncertainty that may introduce regarding relevant prior art, other assets of interest, preferred negotiating tactics, etc. In general, the author thinks that the lack of transparency that results from the use of "shell" companies or other methods of disguising the actual owner of an asset create difficulties for the negotiation process, cause a failure to provide "notice" of the real party in interest (which may impact negotiations and legal options, as well as prevent knowledge of the true holdings of an entity), and subjects potential licensees to a situation in which they are at a disadvantage before even beginning a licensing discussion. There has been an increasing amount of discussion and proposed actions related to making information available regarding the entire patent holdings of patent buying entities when they seek to license portions of their patent portfolios [3].

Although some may argue that a "level playing field" (or at least a more level one) is not necessarily required for every transaction and is not something that a party is entitled to in a marketplace, this article will discuss some of the reasons why it may be beneficial to introduce a more level playing field into the market for patents. Because of the strong public policies that underlie the creation and administration of the patent system, there is a related public interest in how that system is operated. As a result, this public interest may be sufficient to justify introducing a greater degree of transparency into the "market" for patents. This greater degree of transparency may be achieved via judicial decisions, but may be more effectively introduced through enforcement of competition related laws or even new regulations (in order to produce a desired degree of uniformity in how any new requirements are implemented).

Why Increased Oversight or Regulation May Be Justified

While some may argue that patent aggregators, non-practicing entities (NPEs), or patent assertion entities (PAEs) (collectively, "patent buying entities") represent a business model that is counter-productive to the goals of the patent system or to notions of fairness, such comments seem more of a visceral response or value judgment, rather than a conclusion supported by facts. Instead of arguing about whether such entities should exist, it may be more productive to address the possible consequences of their operational methods when they purchase patents or patent applications. Specifically, how a lack of transparency in their operations can create distortions in the efficient operation of a "market" for patent rights. Even if it is uncertain whether such entities are operating in a manner that is supportive of the goals of the patent system, there appear to be strong reasons for advocating greater transparency in their operation, as this would be expected to establish a more efficient and trustworthy "market" for patents. An additional benefit is that this will also enable a more accurate determination of whether the existence and operation of these entities support, inhibit, or are effectively neutral with respect to achieving the goals of the patent system.

There are strong public policies behind the creation and operation of the patent system and as a result, both the Federal government and the public have an inherent interest in that system. This clear from the concern for providing protection for inventions that is expressed in the U.S. Constitution [4] and the Federal statutes based on that expression [5]. The Federal government has an interest in seeing that the patent system operates in a way that enables the system to achieve its stated purpose(s), while observing its obligations to the public. The public has a similar interest in seeing that the patent system fulfills its stated purpose(s), since the system is operated by the Federal government as a service for the public.

Because of the strong public interest in the operation of the patent system and its impact on the public, I believe that the exchange of patent rights should not be exposed to the benefits and disadvantages of the free market system without a careful consideration of whether additional controls should be applied to ensure that the market operates efficiently and fairly for the participants, while supporting (or at least not harming) the interests of the public [6].

That a "market" is being developed for patents and the rights that they enable the owner to exercise is shown by the development of patent trading systems, the holding of patent auctions, and the general increase in attention paid to the value of patents as business assets [7]. However, the asset being traded in such a market is of a different nature than most assets. Patents represent a conscious decision by the Federal government to encourage certain types of behavior by members of the public by creating a new type of property. As a result, patents themselves and the operation of the system that grants them are invested with a stronger government and public interest than is the transfer of most other types of property. This suggests that justification exists for a greater degree of scrutiny into whether the operation of entities that engage in the buying, selling, and licensing of patents do so in a way that supports (or at least does not frustrate) achieving the goals of the patent system.

Should the Patent "Market" Be Considered Part of the Patent System?

A threshold issue is whether a marketplace for the transfer of patent assets should be considered as part of the overall patent system, or instead whether it should be considered a part of the free market system (and as such, evaluated independently of its impact on the patent system). The existence of patent aggregators, NPEs, and PAEs would be expected to have at least some impact on the innovation process; such entities provide an additional exit strategy to enable inventors and companies to recoup some portion of their investment in generating the assets. In addition, the ability to sell a patent may enable an inventor to continue working on other projects, which may lead to more innovation. In general, having a marketplace in which patents may be sold is a positive development, as it may prevent a waste of assets, which is typically a desirable outcome. Therefore, it would seem that having this exit strategy would provide an incentive for at least some additional risk taking and investment in innovation.

At the least, it seems disingenuous to say that the existence of such patent buying entities has no impact on the innovation process or other aspects of the patent system. Given that there is at least a possible impact, I believe that there is justification for considering the still-developing market for patent assets as part of an overall patent system that is intended to fulfill specific goals. And, if the existence of that market is part of a system that is supposed to create an incentive for innovation, then it stands to reason that a properly functioning market is desirable in order to ensure a proper level of incentives and to most efficiently produce the desired benefits of those incentives.

Assuming that there is some impact on the patent system and its operation that can be traced to the operations of patent buying entities, what (if anything) should be done about it? Given the possible inefficiencies or distortions in the operation of a market for patents (and the overall patent system) that can result from a lack of transparency, one could simply accept this as a by-product of exposing patent rights to the operation of a free market system. However, because patents are a property right created by the Federal government for a specific purpose, it may be preferable to recognize a strong enough public interest in the operation of the market for patent rights to justify considering additional controls that would increase the transparency in transactions that occur within that market. This approach seems desirable for at least two reasons: (1) until we can be more certain that such patent buying entities are not having an undesirable impact on the patent system, it is more likely to be in the public interest to err on the side of requiring increased transparency rather than accepting decreased transparency; and (2) since the overall patent system is one designed around establishing and fostering incentives to innovate, it is expected that greater transparency would be more conducive to achieving the proper incentives than would less transparency. If controls that functioned to increase transparency were to be adopted, then such controls would assist in ensuring that the proper incentive structure was in place for an efficiently operating market, and one which presumably would operate more effectively in achieving the goals of the patent system.

Arguments for Increased Buy-Side Transparency

As noted, the article referred to in the Introduction discusses some of the problems caused by a lack of transparency in the patent licensing operations conducted by patent aggregators, NPEs, and PAEs. However, there is another aspect of the use of shell companies and other factors that reduce transparency that may impact the proper operation of a marketplace for patent assets. This is the impact such a practice has on the buying side operations of these entities; specifically, how a lack of transparency may distort the operation of a market for patents, including by preventing a more accurate valuation of patents. The lack of an accurate valuation (or at least the existence of obstacles to a more accurate valuation) does not serve the interests of those selling patents or those to whom they have a fiduciary obligation (such as venture capital investors or stockholders in a company that is selling some of its patent assets).

For example, by using shell companies and preventing disclosure of the ultimate purchaser (and in some cases the beneficiaries of a purchase) of a patent portfolio, a patent buying entity is allowed to distort the market for the value of the rights they are negotiating to purchase. This is because an inventor or other potential seller of a patent portfolio has a reduced amount of information about who wants to buy their patents and what previously existing agreements are in place between the buyer and other parties. For example, such agreements might result in the buyer granting a license to a party that might have paid much more for the patents if the seller had negotiated with them directly.

In the case of the seller being an operating company, such agreements may cause the undesired result of granting a license to a competitor with whom the company would have rather negotiated in an effort to obtain an agreement of greater value to the company (such as a joint development agreement, co-marketing agreement, more desirable distribution terms, a patent cross-license, etc.). The use of a shell company and the failure to disclose existing agreements that may impact the licensing of a purchased patent portfolio may therefore place the seller at a severe disadvantage during negotiations. In addition, due to the lack of transparency, a seller is unable to evaluate how their patents fit into the overall holdings of the prospective buyer. This is likely to further impact the seller's appreciation of the potential value of their own patents to the buyer. Investors in a selling company may not recapture the full value of a patent that resulted from a company's investment in research and development (R&D) if the market value for a patent is distorted. Thus, it is in the interests of the investors of the selling company to have increased transparency since it impacts the valuation of the company and may impact how investors view the decisions made by the executives of the company.

The seller's lack of knowledge regarding the actual buyer and any possible beneficiaries of the sale of their patents prevents them from determining the true demand for their asset, and hence its actual value in the marketplace. As is the case with a lack of transparency in other markets, this distorts the valuation of the assets being exchanged and introduces inefficiencies into the operation of a market for such assets. However, in contrast with transactions involving other goods, the lack of transparency may also introduce a need for greater oversight in order to protect the public interest and prevent unfair and/or anti-competitive business practices that act to prevent (or at least lessen) the ability to achieve the goals of the patent system.

Increased oversight may be provided by one or more suitable mechanisms. These include interpreting unfair competition laws to require disclosure of the actual purchaser and any expected beneficiaries of the purchase of a patent portfolio, or by the establishment of new requirements on the transfer of patents as part of the Federal laws that establish and regulate the operation of the patent system. Judicial action may also have a role, such as where a Court decides that proper valuation of a patent cannot be determined without knowledge concerning the actual purchaser and its holdings, or that the validity of a patent that is being asserted cannot be determined without knowing the full holdings of the party asserting the patent.

Other Operational Aspects That May Be of Concern

The previous discussion has focused on the impact of the lack of transparency arising from using shell companies to obscure the actual buyer of a patent and/or beneficiaries of a purchase on the seller of a patent. In addition, there may be other aspects of patent buying entities that should be considered in order to determine if the operations of such entities are supportive of the goals of the patent system.

Consider the situation where a patent buying entity has investors. If the entity is publicly traded, then disclosure obligations will presumably act to make sellers (i.e., inventors or corporations that employs inventors) aware of at least some of the implications of selling their patents to the entity. However, if the entity is private, many of these obligations do not apply and information regarding operational methods may not be available. In such a case, if a patent buying entity has investors, it may be useful to know if those investors have input into what portfolios are being bought. This is because such inputs or direction may act to further reduce efficient operation of the market by hiding the interest of those investors in a particular portfolio. This affects valuation because it prevents a seller from knowing which parties may be most interested in their patents, and hence the potential demand for the assets. It therefore may enable the investors to acquire patents or licenses at less than the true market value of such assets.

Perhaps, more importantly, it may also raise antitrust or unfair competition concerns because the lack of transparency can permit investors to hide behind the buying entity while having their risk exposure to the patent assets reduced. This may reduce competition by (1) permitting investors to cooperate in efforts to reduce their risk by purchasing certain patents at below market value, and (2) providing the investors with a mechanism for asserting the purchased patents against competitors of the investors. Further, if the investment opportunity in the patent buying entity is not open to all, then those excluded may be at a competitive disadvantage relative to those that are able to invest and exercise some direction over how the patents are asserted. Another benefit to investors in a patent buying entity is that they do not have to make the R&D investment that would typically be required in order to obtain the purchased patents.

Note that even if any direction or guidance exerted by investors is indirect or informal, it may still amount to a business practice which is unfair or which alters the competitive environment. This is because the patent buying entity would be expected to act in the interests of its investors with regards to which patents to purchase and against which targets to assert those patents. Thus, the type and degree of direction exerted by investors (in a formal or in an informal sense) with regards to the purchase and assertion of patents is an aspect of the operation of patent buying entities that may need to be considered.

Regardless of the outcome, it seems appropriate to consider whether the operational behaviors of patent aggregators, NPEs, and PAEs are supportive of (or at least devoid of any negative impact on) achieving the intended goals of the patent system. This would help to ensure that the goals that were intended to be accomplished by the grant of an important Federal right are not being harmed by exposing patents to the operation of the free market system. It is likely that patent aggregators, NPEs, and PAEs are themselves not the problem, but only that certain aspects of their operations need to be modified.

The "Bottom Line"

Because the Federal government created the rights at issue and intended for them to be used for a specific purpose, it may be necessary to introduce additional controls into the operation of the developing market for patent rights. If the actions of, or the methods of operating a business that are practiced by, patent aggregators, NPEs, and PAEs are counter-productive to (or even simply unsupportive of) the goals of the patent system, then additional controls may be justified in order to restore the market for patent assets to a more desirable form. If such controls are to be adopted, their form is uncertain but presumably would include fuller disclosure of the entities that would benefit from a purchase of a patent portfolio, such as the actual buying entity and any other parties that would be expected to benefit by having a license to the purchased assets. The controls may also require disclosure of the investors in a patent buying entity and the ways (if any) in which the investors may impact the acquisition or assertion of patents.

While other markets may accept a similar lack of transparency (and the resulting inequities) as part of the free market process, such an approach may be inappropriate where patents are concerned. At the least, it seems desirable to determine if the lack of transparency being practiced by certain patent buying entities is having an undesired impact on the operation of the patent system.

[1] Alan D. Minsk is a Patent Attorney and former in-house Counsel for Unwired Planet and Intellectual Ventures. His practice focuses on counseling clients with regard to intellectual property issues that arise during the course of their business operations. He has extensive experience as a patent strategist, concentrating on the development and strategic management of patent portfolios, and has represented clients ranging from start-ups to publicly traded companies. Alan received his J.D. from Harvard Law School (1991), and received a Masters degree in Physics and a Bachelors degree in Astronomy from the University of California, Berkeley. The views, statements, and opinions expressed in this article are solely those of the author, and in no way represent or should be associated with those of the author's current employer or of a previous employer.

[2]Matt Rappaport, "How Hidden IP Assets Hurt the Entire Patent Community", IP Law360 at http://www.law360.com/technology/articles/393963/how-hidden-ip-assets-hurt-the-entire-patent-community.

[3] See "Roundtable on Proposed Requirements for Recordation of Real-Party-in-Interest Information," http://www.uspto.gov/ip/officechiefecon/roundtable_01-11-2013.jsp.

[4] Congress shall have power . . . To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. U.S. Constit., Art. I, Sec. 8.

[5] The Patent Act, 35 U.S.C.

[6] Note that examples exist of the introduction of federal oversight to establish greater transparency and a more level playing field in other areas, such as the trading of stocks, in order to provide for a more efficient and trustworthy market. With regards to stock transactions, the transparency, disclosure, and insider trading regulations all act to protect the interests of one party (i.e., the public) in a situation in which an imbalance of information exists.

[7] Patents represent more than a collateral output of the product development cycle. Because of the many possible value propositions for a patent, a properly constructed patent portfolio can effectively protect a company's assets and in some cases may be used to reduce operating costs or generate revenue. This perspective on patents as a business asset is discussed in my articles entitled, "Old Model: Patents Protect Products. New Model: Patents Themselves Are Products," Forbes magazine's CIO Central (June 1, 2012), and "Protect Your Company — And Increase its Value with a Strategic Patent Portfolio," Seattle Business magazine (October 2012).

When does the Written Description Requirement Limit Amendments to Design Patent Drawings

January 16, 2013Patentdesign patent, Enablement, Written DescriptionDennis Crouch

By Dennis Crouch

In re Owens (Fed. Cir. 2013) (decision pending)

In 2006, P&G obtained a design patent for its Crest brand mouthwash bottle. D531,515. Before that patent issued, the company filed a continuation application and eventually amended the drawings to use ghost-lines (dashed lines) for most of the bottle design and solid design lines for only a small portion of the bottle surface.

In the figures below, the drawing on the left is the design drawing originally filed in the specification and issued in the D'515 patent. The drawing on the right is found in the continuation and the subject of this appeal. In design patents, the drawings are of critical importance because the single allowable design patent claim typically ties the scope of enforceable right to the drawings. Here, for instance, in the D'515 design patent P&G claims "the ornamental design for a bottle, as shown and described."

Now, for claim purposes, ghosted lines have essentially no meaning and are given no weight. Thus, the continuation below claims a portion of the bottle base. The focus of the litigation is on the front portion of the bottle that previously claimed an inverted irregular pentagon and now appears to be limited to only the upper portion of that pentagon in a roughly trapezoidal shape. The base of the trapezoid is ghosted, but the drawing does claim the surface up to the ghosted line. In the photo of the Crest bottle to the right, you can see the inverted pentagon design is created by a label sticker.

During prosecution, the PTO rejected P&G's continuation application — concluding that the new claim (as shown in the drawing) did not satisfy the written description requirement of 35 U.S.C. § 112(a). In other words, it is not apparent from the originally filed specification that that the inventor was at that time in possession of the invention as now claimed. P&G's argument is that the area being claimed was already disclosed in the original application and that is literally true. The PTO responds, however, that the original application did disclose a break-point for the trapezoidal area now being claimed. In other words, nothing in the original application indicates that the portion now claimed could itself be a design. The PTO has proposed a rule it feels is administrable: applicants can amend claims by "ghosting" solid lines and vice-versa, but applicants cannot further partition areas or define new portions without running afoul of the written description requirement.

Design patents are largely governed by the same rules as utility patents. This is often unfortunate because the policy goals supporting many of the (utility) patent rules do not map well to the world of design rights. Designs are, for the most part, being used as an additional layer of trademark (trade dress) protection rather than as an incentive to invest in the invention of new designs. This case fits that mold well. But, it is the patent laws that we follow.

In thinking about the written description requirement, a good beginning approach is to try to first uncover the best analogy to utility patent doctrine. One analogy might be to subgenus & subrange claims. Utility patents regularly disclose and claim concentration level ranges, such as "concentration of cardiolipin is between 0.02 and 0.04%." When impinging prior art is discovered, one solution is to amend the claim scope to narrow the claims – perhaps to change the concentration to "between 0.02 and 0.03%." However, the written description requirements limits an applicant's ability to make this narrowing amendment unless there is some evidence that the applicant had (at the time of the application filing date) possession of the invention with the narrower range as well. For these points, the M.P.E.P. cites In re Smith, 458 F.2d 1389 (CCPA 1972) (a subgenus is not necessarily described by a genus encompassing it and a species upon which it reads) and In re Lukach, 442 F.2d 967 (CCPA 1971) (subgenus range was not supported by generic disclosure and specific example within the subgenus range). Of course, the amendment by P&G in the present case is not a narrowing amendment but rather might better be seen as a broadening amendment – of course, broader and narrower in design patent law is somewhat difficult to define. The written description requirement is also used to invalidate claims that have been broadened by eliminating claim limitations. Such cases include ICU Medical v. Alaris Medical System (Fed. Cir. 2009) and the often maligned Gentry Gallery, Inc. v. Berkline Corp., 134 F.3d 1473 (Fed. Cir. 1998) (claims to a sectional sofa comprising, inter alia, a console and a control means were held invalid for failing to satisfy the written description requirement where the claims were broadened by removing the location of the control means). See also MPEP § 2172.01.

All-in-all, the PTO's position makes sense to me – that nothing in the new original application suggests the claim limit as suggested by P&G. Design patent claims are considered "as a whole" and refocusing only on a small portion of a design can dramatically alter the impact and overall feel of the design. In the ordinary doctrine of patent law, such a potentially dramatic change in claim scope is only allowed if the original disclosure evidences that the inventor possessed the refocused invention at the time of filing. It is reasonable here to say that Owens did not possess that new invention as now claimed. Here, we should be keen to recognize that the written description requirement is separate and distinct from the enablement requirement – even though both arise from the same statutory phrase in Section 112. Here, there is no question that the enablement requirement is met.

The kicker for the PTO in this case is that written description is a question of fact and PTO determinations on questions of fact are given substantial deference on review by the PTO. There is hardly any question in my mind that the PTO's position passes that low threshold.

The case was recently argued before Judges Prost, Moore, and Wallach. This panel is interesting because of Judge Moore's famous pre-nomination article on the problems of patent continuations. This case arises out of a continuation. P&G wants to claim priority back to the original filing date because the original patent had already been out for more than a year by the time that the amended claims were introduced in the continuation. Thus, if it cannot claim priority then its original work will serve as prior art to block this later patent from issuing. A decision is expected later this spring.

In the trade dress world, this mess would not make such a difference because we don't worry about prior art but rather priority in the marketplace. But again, in the US, design patent rights are squarely within the pigeon hole of patent law.

Sham Reexamination Requests and Federal Preemption

November 10, 2010Patent, ReexaminationInequitable ConductDennis Crouch

Lockwood v. Sheppard Mullin (Fed. Cir. 2010)

This is an interesting case that is pending before the Federal Circuit. The focus of the appeal is whether a patentee has any cause of action for a third-party's baseless filing of a reexamination request. The patent laws themselves offer no remedy so Lockwood turned to California State Court – alleging that the Sheppard Mullin law firm should be held liable for Malicious Prosecution, Interference, and Fraud by filing their reexamination request. Lockwood argues that "[Sheppard Mullin lawyers] chose to violate the strict duty of candor required before the USPTO by making deceptive misrepresentations about the nature of purported 'prior art' in two Requests for Reexamination. Respondents filed the Requests to gain a tactical advantage during infringement litigation, in furtherance of their stated aim of putting Lockwood 'out of business,' and without any reasonable basis in patent law."

The District Court granted a 12(b)(6) motion to dismiss – holding that the Federal Patent Laws and administrative structure of the USPTO preempted any cause of action in court against a sham reexamination request filed by a third party. Several law professors are involved with the litigation. Professor Jay Thomas (Georgetown) testified on behalf of Lockwood (stating that the PTO is "an agency in crisis" whose examiners are "overworked, overextended, undertrained, and underpaid"), and Professor David Hricik (Mercer) led a group of law professors who filed an amicus brief supporting Lockwood's position.

The leading Supreme Court case on the merits is Buckman Co. v. Plaintiffs' Legal Committee, 531 U.S. 341 (2001). In that case, the Court held that Buckman's state-law claim for fraud on the FDA was preempted by the Food Drug & Cosmetics Act because the "federal statutory scheme amply empowers the FDA to punish and deter fraud against the Agency, and that this authority is used by the Agency to achieve a somewhat delicate balance of statutory objectives." The FDA holds and actually asserts relatively greater power than the USPTO with respect to fraud on the office. As Professor Hricik writes, "since 1992, the Patent Office has not investigated inequitable conduct, and … cannot award civil damages or recover damages caused to the Office by frivolous filings."

Off the Cuff: One aspect of the law that is unclear to me is how this case differs from the ordinary prosecution malpractice situation. If the USPTO administrative and disciplinary structure preempts a civil action for patent attorney bad-behavior in reexamination filings, it seems that it would also preempt a civil against by a former client against an attorney broke USPTO ethical rules and injured his client. What is the difference?

Update: Raymond Mercodo forwarded a copy of his academic article: The Use and Abuse of Patent Reexamination: Sham Petitioning Before the USPTO.

Why do Applicants File So Many Requests for Continued Examination?

June 30, 2010Patent, Patent Applicationsobviousness, VenueDennis Crouch

Of the patents issued thus far in 2010, more than 25% carry the baggage of a file history with at least one request for continued examination (RCE) and that rate is expected to rise. RCEs are also filed in a significant number of patent applications that are eventually abandoned.

Patent Office management sees the high RCE rate as a symptom of a breakdown in the prosecution system. In their view, after two rounds of negotiation, the parties should have arrived at final positions — either by identifying appropriate patent-worthy claims or else by determining that no-such patentable subject matter exists. At that point, further negotiation with the same examiner makes little sense in the ordinary case. If the applicant and examiner come to an agreement then the case is concluded, otherwise the applicant appeals to a higher authority.

The Problem of RCEs: Although RCEs do generate USPTO revenue, they are troublesome because they frustrate the USPTO's goal of reducing the large backlog of 730,000+ unexamined patent applications. Furthermore, the current RCE fee of $810 ($405 for small entities) do not cover PTO expenses associated with the ongoing examination. The cost differential is made-up with maintenance and extension fees. In most of the RCE'd cases, the applicant and examiner eventually do reach an agreement without an appeal to the Board — but only after more rounds of discussion. This re-working of applications raises costs for patent applicants, delays patent issuance, prevents work on the backlog of cases, and generally makes all the parties look silly.

No Solution Yet: Historically, the patent examiners count system provided some incentive for examiners to induce the filing of RCEs. The count system has been modified to reduce that incentive. Despite this disincentive, RCE filings do not appear to have dropped in any significant way. Another growing RCE disincentive involves patent term adjustment (PTA). The long examination backlog is leading to unprecedented PTAs that can add additional months and years to the term of a patent. Although the filing of an RCE cuts-off the ongoing accumulation of (type-B) PTA, folks are continuing to file RCEs.

Explaining why RCEs are Filed: Although not universal, the broadest independent claims of a patent application are often narrowed during prosecution. It is important to recognize, however, that the narrowing amendments typically involve the inclusion of limitations already found in dependant claims. In the negotiation context, the dependent claims begin to look like pre-set negotiable points. It obviously takes time to reach some mutual agreement between the applicant and the PTO. Perhaps the usual case does need more than two rounds. However, my sense is that the high RCE numbers persist because initial office action rejections regularly fail to directly address the claimed invention and (consequently?) necessary claim amendments are not proffered by the applicant until after the final rejection. At that point, an RCE may be required. Of course, even in the best of times RCEs are sometimes unavoidable — such when prompted by the late discovery of important prior art. The additional time delay of RCEs may be helpful in other cases such as when limitations that distinguish the invention from the prior art are buried in the specification.

The PTO is looking for ways to reduce RCEs and more generally reduce the re-working of applications. To that end, I would like to ask two general questions that will help me create a follow-on survey:

What is your explanation for the large number of RCE filings?
What can the PTO do help prosecution conclude more quickly (on average) and reduce the number of RCE filings? (examiner behavior, PTO procedures, negotiation techniques, patent application format…)
Do some patent attorneys disagree with my notion that the amendment process is a negotiation?