Certiorari Denied in Eligibility Cases

The Supreme Court has denied certiorari in the three leading patent eligibility petitions:

  • HP Inc. v. Berkheimer (18-415)
  • Hikma Pharmas v. Vanda Pharmas (18-817)
  • Athena Diagnostics, Inc. v. Mayo Collaborative (19-430)

Although there are several other pending eligibility petitions, I gave these three the highest potential for certiorari.  The result here is that the Supreme Court is now highly unlikely to take up eligibility anew this term.  The one exception is the copyright case of Google v. Oracle where the court will likely discuss a dividing line between patentable and copyrightable subject matter.

Additional cases denied certiorari on Jan 13, 2020:

  • Power Analytics Corporation v. Operation Technology, Inc., et al., No. 19-43 (eligibility)
  • Regents of the University of Minnesota v. LSI Corporation, et al., No. 19-337 (sovereign immunity)
  • Garmin USA, Inc., et al. v. Cellspin Soft, Inc., No. 19-400 (eligibility)
  • Medtronic, Inc. v. Barry, No. 19-414 (meaning “ready for patenting” for on sale bar)
  • Chestnut Hill Sound Inc. v. Apple Inc., et al., No. 19-591 (due process and R.36 affirmances)
  • Nuvo Pharmaceuticals, et al. v. Dr. Reddy’s Laboratories, et al., No. 19-584 (written description need for experimental data proving claimed effectiveness)
  • Mushkin, Inc. v. Anza Technology, Inc., No. 19-610 (relation back to the original complaint)

There are several petitions that remain viable for this term:

  • ChargePoint, Inc. v. SemaConnect, Inc., No. 19-521 (eligibility)
  • Trading Technologies International, Inc. v. IBG LLC, et al., No. 19-522; Trading Technologies International, Inc. v. IBG LLC, et al., No. 19-353  (eligibility)
  • Apple Inc. v. VirnetX Inc., et al., No. 19-832 (apportionment and preclusion)
  • Maxell, Ltd. v. Fandango Media, LLC, No. 19-852 (eligibility)
  • Collabo Innovations, Inc. v. Sony Corporation, No. 19-601 (due process and takings for IPR proceedings against Pre-AIA patents)
  • Cisco Systems, Inc. v. SRI International, Inc., No. 19-619 (eligibility)
  • Chrimar Systems, Inc. v. Juniper Networks, Inc., et al., No. 19-829 (role of evidence beyond that raised in the IPR petition)
  • Morris Reese v. Sprint Nextel Corporation, et al., No. 19-597 (eligibility)

Although several of these petitions raise important points, none of them have received the attention or support of the ones denied today.



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Ladders of Abstractions: How Many Rungs Till the Threshold?

by Dennis Crouch

Maxell, Ltd., v. Fandango Media, LLC (Supreme Court 2020)

Maxell was originally a battery company (MAXimum capacity dry cELL).  The $80b company has expanded into all sorts of digital media. 

Its patents at issue in this case all relate to managing access to content sent over networks, such as videos provided through online rental and streaming services.  U.S. Patents 8,311,389; 9,088,942, and 9,733,522 (all with 2000 priority date). [Update – These are the three patents listed in the petition, but that appears to be an error.  I believe that Maxell intended to list 9,083,942 and 9,773,522 but switched a couple of digits.]

Maxell sued Fandango for infringement — alleging that the “FandangoNow” service infringed.  The lawsuit was cut-short by the district court’s dismissal on the pleadings – finding the asserted claims ineligible as directed to the abstract idea of “restricting access to data” using “rules based upon time.”  On appeal, the Federal Circuit affirmed without opinion following its internal R.36 procedure.  Now, Maxell has petitioned the Supreme Court with a simple question:

Whether the claims at issue in Maxell’s patents are patent-eligible under 35 U.S.C. 101, as interpreted in Alice Corp. v. CLS Bank Int’l, 573 U.S. 208 (2014).

[Petition].  This petition is part of the pile of eligibility petitions, including AthenaHikma, Berkheimer, and Trading Technologies.

The argument in Maxell focuses primarily on Alice Step 1 — whether the claim is directed to a patent ineligible concept.  Maxell explains its position that the lower court went too-far in generalizing the concepts of the invention:

The court fundamentally erred at step one by describing the claims at too high a level of generality and failing to consider the digital context.

Id. The Supreme Court particularly warned against undue generalization in Alice — writing that at some level of generalization, all inventions involve an abstract concept. Alice.

Although Maxell’s innovations could be generally classified as a way of “restricting access to data” using “rules based upon time,” the company argues that this abstraction is not what was actually claimed:

[T]he patents do not claim the general concept of restricting access to data using rules; they claim particular solutions for restricting access
to digital audio/visual content using control information and rules sent to the user with the audio/visual file. Those solutions use two time controls to restrict access to copyright-protected content – a retention period and a playback permission period – according to specific rules set out in the claims. They protect copyright owners’ rights by restricting access to the audio/visual file to a limited period. And they optimize the user experience by allowing the user to choose when to use the audio/visual file, including when the user is offline.

Regarding Alice Step 2, Maxell suggests that the innovative concept is easier to identify once you recognize that the patent applications were filed back in the year 2000.  However, the district court refused to consider evidence of inventiveness in its eligibility analysis.

In some ways, this case is simply asking the Supreme Court to recognize the USPTO’s eligibility examination guidelines as the law — a claim is only directed at an abstract idea if it recites an abstract idea.

= = = = =

The district court used the following claim as representative in its analysis:

13. A method, comprising:

transmitting audio/video information;

receiving the audio/video information;

storing the audio/video information on a storage medium; and

reproducing the audio/video information from the storage medium according to control information related to the audio/video information,

wherein the control information includes:

  • a first period for retaining the audio/video information on the storage medium, and
  • a second period, that begins at the start of an initial reproduction of the audio/video information, for enabling a start of a reproduction of the audio/video information stored on the storage medium, and


  • in a case where an elapsed time from a retaining of the audio/video information is within the first period and an elapsed time from an initial reproduction of the audio/video information is within the second period, enabling a reproduction of the audio/video information, and,
  • in a case where a reproduction is started before the end of the first period and the reproduction is continuing at the end of the first period, enabling the reproduction to an end of the audio/video information beyond the end of the first period, and thereafter disabling a start of another reproduction of the audio/video information even if an elapsed time from the initial reproduction of the audio/video information is within the second period.

Note that the claim has interesting parallels to the claims invalidated in Mayo v. Prometheus.

Opening a Closed Markush Group

by Dennis Crouch

Amgen v. Amneal Pharma (Fed. Cir. 2020)

Amgen’s patent at issue covers a drug formulation for treatment of hyperparathyroidism in particular situations sold under the trade name Sensipar with about $1b annual sales. U.S. Patent 9,375,405.  Note here, that Amgen’s primary patent on the blockbuster drug expired in 2018, but this secondary formulation patent has been effective at keeping generics off the market.

Amgen sued Amneal, Piramal, and Zydus for infringement based upon their ANDA filings with the FDA.  The district court ruled that the Zydus proposal would infringe, but that the proposed formulations by Amneal and Piramal would not infringe.  On appeal, the Federal Circuit has vacated the verdict for Amneal on claim construction, but affirmed no-infringement by Piramal and infringement by Zydus.  Thus, Piramal has something of a green-light to move ahead.

A major portion of the appeal focused on proper construction of a Markush group that required a “binder”:

A pharmaceutical composition comprising: . . .

from about 1% to about 5% by weight of at least one binder selected from the group consisting of povidone, [HPMC], … , and mixtures thereof.

‘405 patent claim 1.

The Markush Group claim form stems from a 1923 decision by the Commissioner of Patents that allowed a patent applicant to effectively define and claim a genus by enumeration of species within the genus.  Ex parte Markush, 1925 CD 126 (Com. Pat. 1924).  In Markush, the patent applicant attempted to claim a diazotized compound for making dyes that includes

material selected from the group consisting of aniline, homologues of aniline and halogen substitutes of aniline.

The applicant (Markush) had considered a broader descriptive genus such as “mono-amines” but concluded that to be too broad since it including too many non-working embodiments.  The examiner though refused to examine the “alternative” claim form.  

In his decision, the Commissioner in Markush concluded that there are “many instances in which a generic term covering a number of substances cannot properly be employed” and that a listing of alternatives may be the only way the applicant “may cover his real invention without filing a number of applications.”

Note here that Amgen’s Markush group is remarkably similar to that presented by Markush’s patent attorney Victor Borst back in 1925.  The claim format has remained remarkably “stuck” as a limited mechanism for avoiding claim-in-the-alternative objections.

Amneal’s binder includes HPMC as recited in the claims, but also includes polyethylene glycol (PEG).  The major question in the case here is whether Amgen’s Markush Group is “open” or “closed.”  In other words, does the presence of the additional compound in the binder (PEG) avoid infringement.  The district court found the claim closed to additional binding agents and thus that Amneal does not infringe.  On appeal, however, the Federal Circuit rejected the claim construction:

There is no language in Amgen’s claim indicating that every binder … in the claimed formulation must be within the Markush group[]. Instead, the claim recites “at least one” binder … “selected from the group consisting of” various excipients. And the limitations merely require that those particular binders or disintegrants meet the specified weight-percentage requirements, which is not inconsistent with the overall composition containing other binders or disintegrants. The plain language of this claim requires “at least one” of the Markush members and certainly does not indicate that the only binders and disintegrants in the claimed formulation are those listed in the groups. And we do not see a sufficient basis for a different conclusion in the specification or in the prosecution history we have recited. . . .

[The claim] is satisfied when an accused product contains a component that is from the Markush group and that meets the limitation’s requirements for the component. It does not forbid infringement of the claim if an additional component is present functionally similar to the component identified in the Markush group limitation, unless there is a further basis in the claim language or other intrinsic evidence for precluding the presence of such additional components. There is no such basis here.

Slip Op. Thus, while the markush group itself may be closed (based upon its “consisting of” language), the claim as a whole is open (based upon its “comprising” transition in the claim’s introduction).  With this broader claim interpretation, it looks like Amneal will be found to infringe. 

Piramal’s proposed product is different in that its binder is a starch not listed in the Markush group.  Thus, no literal infringement.  Amgen unsuccessfully argued for infringement under the Doctrine of Equivalents.  The problem was that the Markush group was added as part of a narrowing Examiner’s amendment that led to an allowance. (The group was already in a dependent claim — added to claim 1).   Although the examiner asked for the amendment, Amgen argued on appeal that it wasn’t necessary to overcome the prior art because a separate amendment was sufficient. However, Amgen failed to provide an alternative purpose behind why the examiner asked for such an amendment. The Federal Circuit faulted that failure of alibi.

[I]f Amgen is correct … the Examiner proposed the Examiner’s Amendment for no purpose at all. Such a reading of the prosecution history is at best unpersuasive.

Slip Op. I’ll note here that the Federal Circuit appears shocked that an examiner would propose an amendment for no legitimate purpose.  As a counterpoint, consider that a large portion of examiner rejections are later withdrawn by the examiner upon further consideration.

In any event, a narrowing amendment made fur the purposes of securing the patent triggers a presumption of prosecution history estoppel that would prohibit a claim of equivalents to re-claim the narrowed subject matter.  One way to get around this presumption is to show that the narrowing amendment is tangential to the equivalent in question.  Here, however, the starch used by Piramal is the same starch disclosed in the prior art overcome by the amendment.  As the Federal Circuit has previously written: “an amendment made to avoid prior art that contains the equivalent in question is not tangential.” Intervet Inc. v. Merial Ltd., 617 F.3d 1282 (Fed. Cir. 2010).

Thus, the non-infringement holding of Piramal stands.

En Banc: Power of Customs & Border Protection

by Dennis Crouch

Sunpreme Inc. v. US (Fed. Cir. 2020) (en banc)

The Federal Circuit has issued an en banc decision in Supreme v. US, a case involving Customs & Border Protection (CBP) and antidumping / countervailing duty orders.  The particular question presented was as follows:

When merchandise enters the United States, whether CBP may preliminarily apply an antidumping or countervailing duty order and implement certain measures to protect the public revenue, regardless of the clarity of the order.

Here, the particular duty order comes from two Dep’t of Commerce regulations that cover crystalline silicon photovoltaic cells but expressly exclude “thin film photovoltaic products produced from amorphous silicon (a-Si).”  Products that fall within the order are subject to additional tariffs.

Sunpreme claims its products fall within the exclusion (and thus outside the Order), but CBP disagreed.  Eventually the case went before the Court of International Trade (CIT) who characterized the DOC Orders as “ambiguous” with respect to Sunpreme’s modules. In its initial decision, the Federal Circuit agreed with regard to ambiguity:

This is not a close case. The Orders in this case cover certain solar modules and expressly exclude others, without providing a definition of the class expressly excluded. Sunpreme’s solar modules are hybrid products, mixing characteristics of the included and excluded solar cells.

Fed. Cir. Vacated Opinion (2019).

The ambiguity was important because CBP enforcement is seen as a ministerial action — CBP is not authorized to interpret or fill gaps in ambiguous orders.  The court explained in its original opinion: “Ambiguity is the line that separates lawful ministerial acts from unlawful ultra vires acts by Customs.”

In its new en banc decision, the Federal Circuit has changed course — now holding that CBP has “authority to preliminarily suspend liquidation of goods based on an ambiguous antidumping or countervailing duty order, such that the suspension may be continued following a scope inquiry by Commerce.”  In its decision, the full court found confirmed that CBP’s role is “ministerial” but found that its authorized ministerial acts include interpreting ambiguous orders from the CBP. In particular, CBP can make “individual product-by-product application decisions.”

Customs is tasked with determining, for every imported product, whether the product falls within the scope of an antidumping or countervailing duty order. 19 U.S.C. § 1500(c). That necessarily entails evaluating both the product and the order. In each instance, Customs is statutorily tasked with answering a yes-or-no question as to whether the order applies, in order to fix the duty owed. When the order is ambiguous, Customs is nonetheless called upon to answer the question. . . . Answering that question does not transform Customs’s yes-or-no question into an interpretive act that would “modify Commerce’s determinations” or otherwise impinge upon Commerce’s authority to issue and set the scope of duty orders.

En Banc Decision.  The policy behind antidumping or countervailing duty orders is to protect US industry — and the Gov’t argued that the original opinion frustrated that policy by creating a likely procedural delay.

= = = = =

The issues in this case remind me of what happens with claim construction and infringement analysis in district court litigation.  The Judge decides claim construction while the jury decides whether the product infringes those claims (as interpreted).  When a judge fully construes a claim, a jury is left with almost nothing to do except the ministerial act of finding infringement.  For tough infringement questions, there is always a tendency to argue that the claims should have been more fully construed.  However, I believe that approach drains too much power from the finder of fact – the Jury.

Here, we have a similar situation in the Commerce case where the Orders are not ambiguous on their face, but do not fully define all potential situations.  You might conclude that a new situation reveals ambiguity inherent in the order; Alternatively, you might instead conclude that the ambiguity is in how the situation applies to the order.


Single-Point-Of-Novelty Innovations and the Obvious-To-Try Analysis

Google v. Philips (Fed. Cir. 2020)

So far there are still no precedential opinions issued in 2020, and this is the first non-precedential patent related decision.

Philips’ patent RE44,913 (“text entry method”) claims a 2001 filing date. At that time, a key focus of mobile-device development was on how to facilitate typing on these small devices with relatively imprecise touchpads.  The basic idea behind the invention can be seen in the two figures below. On the left is a “default” keypad with  showing “primary characters.”;  holding down the “5” key will then switch the display to the keypad on the rights that has more available options (“secondary characters”). After selecting one of those options, they keypad returns to the default state.

Philips sued Acer and others for infringement based upon their use of the Chrome and Android OS — that led Google to petition for inter partes review (IPR).

In its final decision, the PTAB sided with the patentee in holding that Google failed to prove that the claims were obvious.  On appeal, the Federal Circuit has reversed.

On appeal here, the Federal circuit has reversed the PTAB’s final decision siding with the patentee and holding that Google failed to prove that the claims were obvious. The basic issue here is that there is only a minimal difference between Philips’ claimed invention and the key prior art reference. The court explains:

The parties do not dispute that the [Philips’] ’913 patent claim differs from that Sakata II method in only one respect. In the ’913 patent claim, after a secondary character is selected, the relevant key “return[s] . . . to the default state” rather than, as in the described Sakata II method, changing to the selected secondary character.

It was also clear that the “return-to-default” option was available and familiar to someone skilled in the art (e.g. shift key).   Philips argued that particular step would not have been obvious-to-try since it one of many potential keypad techniques available.  On appeal, the Federal Circuit rejected the “wide-scope inquiry” as a red herring in this case — finding language from KSR directly on point:

[W]hen a patent claims a structure already known in the prior art that is altered by the mere substitution of one element for another known in the field, the combination must do more than yield a predictable result.”

KSR International Co. v. Teleflex Inc. (KSR), 550 U.S. 398 (2007).  The Fed. Cir. explained somewhat obliquely that:

[T]he obvious-to-try inquiry at least sometimes must focus on known options at what is undisputedly the sole point of novelty in the claim at issue.

See Perfect Web Techs., Inc. v. InfoUSA, Inc., 587 F.3d 1324 (Fed. Cir. 2009).  The practical point here is that inventions with a sole-point-of-novelty set themselves up as a target for an obviousness finding because the court will ask “if the sole contested step of the claim at issue was obvious to try, taking the remaining steps as a given.”

In this case, the Court found additional reasons for obviousness — notably the primary prior art reference was actually an improvement over prior return-to-default techniques.

Sakata II itself asserts that the character substitution at the last step provides an efficiency benefit over the evident alternative of requiring that the secondary-character menu be summoned each time one of those characters was to be re-used. . . . This efficiency assertion is on its face a comparative one, and what is plainly being compared to the Sakata II choice is  the no-substitution option—where the primary character returns to the key upon disappearance of the secondary-character menu. That is Philips’s returnto-default claim element.

Slip Op.  In the end, the appellate panel did not appear to directly fault the Board’s factual conclusions but rather Board’s legal analysis — in particular the meaning of “obvious-to-try” and its impact on the ultimate (legal) conclusion of obviousness.

We hold that claims 1 and 3–16 of the ’913 patent are unpatentable for obviousness. The Board’s decision is reversed.


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Guest Post: Against the Design-Seizure Bill

By Sarah Burstein, Professor of Law at the University of Oklahoma College of Law

As previously covered here on Patently-O, a new design patent bill has been introduced in Congress. The so-called “Counterfeit Goods Seizure Act of 2019” would allow Customs and Border Patrol (CBP) to seize goods accused of design patent infringement.

This is a bad idea.

This bill is not reasonably tailored to address its purported goal of “stem[ming] the flow of counterfeit goods.” Instead, it will allow design patent owners to foist their private enforcement costs onto taxpayers, under circumstances that are unlikely to result in accurate determinations of infringement. Moreover, this type of ex parte, non-public system of adjudication is ripe for abuse.

I have three major groups of concerns about this bill: substantive, procedural, and rhetorical. This post will address them in turn.

Substantive concerns

First, CBP will not be in a position to make accurate determinations of design patent infringement.

The test for design patent infringement, as set forth by the en banc Federal Circuit in Egyptian Goddess v. Swisa, involves two steps. (For more on the Egyptian Goddess test, see this short essay.)

The first step requires a comparison of the claimed design (i.e., what’s illustrated in the patent) and the accused product. If those designs look plainly dissimilar, the test is over; there is no infringement. If the designs look like they might be the same, then the factfinder must consider the designs in light of the closest prior art.

This second step is important. Often, two designs that look similar in the abstract look much less so when considered in light of the prior art. Consider this recently-litigated example. The patented design is shown below on the left; the accused design is below on the right:

These two designs might not look plainly dissimilar in the abstract. But when viewed in light of the prior art, a number of visual differences become apparent:

Ultimately, the judge correctly concluded that the patent owner was not likely to prove infringement (though the path to that decision was a bit more circuitous).

How would this have turned out under the design-seizure bill? Who would have collected the closest prior art? There are many things to like about the Egyptian Goddess test, but one downside is that step two requires an informed and motivated defendant to work well. In an ex parte CBP proceeding, there is no one to play that role. CPB officials are not trained (and one assumes, lack the resources) to conduct their own prior art searches. And patent owners have zero incentives to provide any—let alone the closest—prior art when they record their patents or when they give CBP information about “suspect inbound shipments.” See generally 5 McCarthy on Trademarks § 29:37 (“Trademark owners that see a higher success rate in Customs seizures are typically the ones that continuously and vigilantly provide Customs with information to use in identifying suspect inbound shipments. Such information could include the names of known foreign counterfeiters, countries of origin, suspect importers, and the like.”)

If CBP skips (or lacks sufficient information to properly conduct) Egyptian Goddess step two, competing products could seized even when they don’t infringe. CBP could seize products that merely practice the prior art or that resemble the claimed design solely in functional aspects (for all but the most pioneering products, one would expect to find any truly functional elements in the prior art).

Thus, ex parte assessments of design patent infringement are likely to lead to significant over-enforcement. At least one other commentator has voiced similar concerns. Over-enforcement would chill legitimate competition and ultimately raise prices for consumers—the very consumers who would be footing the bill through their tax dollars.

In any case, it is simply not correct—as some proponents of this bill have asserted—that all CBP would have to do is look at the design patent and the accused product and see if they look the same.

Some might argue that CBP could review the prior art cited on a particular design patent. But that’s by no means guaranteed to be the closest prior art. Some of it may not even be available at the time of enforcement; USPTO examiners often cite web pages using basic URLs and link rot is a very real concern.

One proponent of this bill has asserted that “Customs officers have already effectively demonstrated the ability to determine whether imported goods infringe a design patent, through its ongoing enforcement of design-patent exclusion orders.” But how do we know that is true? What kinds of orders are being issued by the ITC? How broad (or narrow) are they? How can we know whether CBP is enforcing them well? While we can assume CBP does the best it can in the restraints under which it operates, any assertion about what that actually looks like in practice requires something more that ipse dixit before it can have any persuasive weight.

Procedural concerns

This bill raises also raises serious due process concerns. What recourse is there for competitors whose goods are improperly seized? What accountability is there for design patent owners who direct CBP officials to competing products that don’t actually infringe? Based on my experience reviewing design patent complaints, it appears that many attorneys are under the mistaken impression that design patents cover design concepts, when they really only cover the specifically-claimed designs. I call this “the concept fallacy.” It’s remarkably common in federal court filings. If members of the bar feel comfortable making such allegations in federal court, where they are subject to both judicial sanctions and public scrutiny, what allegations will they feel comfortable making to the CBP?

The non-public nature of these seizures is also a concern. How can we know how well the system is (or is not) working? Based on the information Professor Rebecca Tushnet has been able to gather about trademark seizures, it appears that the agency does not keep good records and its substantive determinations are guided by materials provided by trademark owners. One would assume that if the design-seizure bill were passed, groups like INTA, AIPLA, and/or IPO would be happy to provide their own guidelines for CBP. If that happens, any such materials should be made public, to ensure accuracy. (Hopefully, it won’t take a FOIA lawsuit like the one Professor Tushnet had to file.)

Rhetorical concerns

Finally, the entire framing of this bill is based on conflating design patent infringement with “counterfeiting.” Those two things are not the same.

“Counterfeiting” is a term of art in U.S. IP law. The Lanham Act defines a “counterfeit” as “a spurious mark which is identical with, or substantially indistinguishable from, a registered mark.” 15 U.S.C. § 1127.

Actual counterfeiting (i.e., as that term is defined in the Lanham Act) is arguably the worst type of IP infringement. But it’s already illegal. Indeed, it’s subject to criminal penalties.
If Congress thinks those remedies are not severe enough, it is free to increase them. But Congress should narrowly tailor any such efforts to acts that actually constitute counterfeiting. That’s not what’s going on here.

Proponents of this bill like to talk about “counterfeits without labels” (a strange concept in light of the relevant statutory definitions, but that’s an issue for another day) but the bill goes beyond anything that would seem to fall into that category.

Most design patents can be infringed by products that don’t replicate the entire appearance of the patent owner’s own product—if any. (Design patent owners, like other patent owners, aren’t required to produce products embodying their designs.) Even in the rare case where a design patent claims the entire shape and surface design of a product, that patent will still be infringed by a competitor who makes a product in that shape even if the color or material or some other non-shape attribute is so different that no one would mistake it for the original item.

Many (perhaps most) design patents claim just a small part of a larger design; the whole point of such patents is to capture competing products that don’t look the same overall. When an applicant claims a small part of a design, there is no requirement that it be an important or valuable part—let alone a part that would lead to serious consumer deception. (If you’re interested, I wrote more about these claiming techniques here and here.)

Over the years, I’ve heard many design patent attorneys say they want border enforcement. But it’s not because they’re worried about counterfeiting. They want it because it will make design patents more valuable—or at least seem more valuable—to their clients, which in turn makes it easier to sell their design patent prosecution services. (It’s perhaps not surprising that the push for CBP enforcement became more organized after the Supreme Court’s decision in Samsung v. Apple which, in the eyes of many, made design patents less valuable. The ultimate impact of that case, however, remains to be seen. For more on that case, see here; for more on the developments since then, see here.) While some proponents of this bill may truly, in their hearts of hearts, be worried about actual counterfeiting, the fact remains that many design patent attorneys want border enforcement for these other reasons.

We’ve seen this rhetorical technique before—in the past, proponents of broader copyright laws have used the word “counterfeiting” to conjure the specter of medicines laced with poisons and other horrors to scare legislators into enriching private rights holders. I hope Congress doesn’t fall for it.

PTO Informative Decisions: Patent Eligibility Rejection — Look to what is expressly “RECITED” in the claims

The USPTO has identified three recent PTAB decisions as “INFORMATIVE.” All three will be helpful to patent prosecutors and so should be considered:

  • Obviousness: Hulu, LLC v. Sound View Innovations, LLC, Case IPR2018-00582, Paper 34 (Aug. 5, 2019) (designated informative on Dec. 11, 2019) (finding insufficient justification to combine references);
  • Obviousness: Johns Manville Corp. v. Knauf Insulation, Inc., Case IPR2018-00827, Paper 9 (Oct. 16, 2018) (designated informative on Dec. 11, 2019) (denying institution based upon insufficient justification to combine references); and
  • Eligibility: Ex parte Linden, 2018-003323 (Apr. 1, 2019) (designated informative on Dec. 11, 2019) (reversing examiner rejection based upon 2019 Examination Guidelines for eligibility).

This post will focus on Linden, which is a patent application owned by BAIDU spun out of Prof. Andrew Ng’s lab at Stanford.

In Linden, the BAIDU patent application claims a method using a trained neural network to transcribing speech.  The claimed method involves several data processing steps: normalizing the input (to the training data); generating a “jitter set” of audio files (time-distorted versions of the original); generating a spectrogram for each time-jiggered audio file; predicting character probabilities with the neural network; and transcribing the audio based upon character probabilities and a language model.

The examiner rejected the claims as directed to an abstract idea of manipulating data; creating information sets (based upon prior information sets); and decoding data.  On appeal, the PTAB reversed — finding that the claim should not be classified as directed to an abstract idea under the 2019 Examination Guidelines.  Under the Guidelines, abstract ideas must be classified as either:

  1. Mathematical concepts;
  2. Certain methods of organizing human activities; or
  3. Mental processes.

* The guidelines note claims outside the enumerated groupings can be treated as abstract ideas, but only in “rare circumstance.” *

Here, the Board found that the transcription claims are not directed at these categories. Focusing first on mental processes and human activities, although transcription is a human/mental activity, the Board found that the specific process here (jiggering/spectrogram sets/etc.) cannot be “practically performed mentally” nor do they recite “organizing human activity” — which is defined as activities such as using fundamental economic principles, commercial and legal interactions, and managing relationships.

Regarding mathematical concepts.  The claims here require several mathematical operations to be performed: jiggering; creating spectrogram; predicting character probabilities; etc.  However, the Board found that none of these operations actually “recite” a mathematical algorithm or formula.

[T]he Examiner identifies that the Specification discloses an algorithm to obtain the predicted character probabilities.  The mathematical algorithm or formula, however, is not recited in the claims.  As such, under the recent Memorandum, the claims do not recite a mathematical concept.

Linden. In case you didn’t see it – this is bonkers. The Board here is saying that the claim would be problematic only if it actually and expressly recited the algorithm that it uses.  Since the claim is drafted more broadly (i.e., at a higher level of abstraction), it cannot be seen as abstract.

The PTAB went on to explain that even if the claims did recite a mathematical concept — they are still not problematic because the claims as a whole are not “directed to an abstract idea” but rather any abstractions are “integrated into a practical application.”

Regarding Alice Step 2, the Board also faulted the examiner for failing to provide evidence that the claims do not include an inventive concept:

[T]he examiner concludes the claims do not include “any additional elements that amounts to significantly more than a judicial exception” but fails to provide sufficient factual support.  Berkheimer.


= = = =

Typo by the PTO?.  The Board identifies the case as “Ex PARTE LEE LINDEN, BENJAMIN LEWIS, AND ABHEEK ANAND.”  This is confusing to me because none of these individuals are listed as inventors on the patent (Awni Hannum is the first named inventor).

Take care Patently-O Commenters — Lawsuits are in the Air. 

by Dennis Crouch

Three commenters to John Welch’s TTABlog were recently sued for defamation after criticising an attorney Lee Thomason who lost a case before the TTAB. I know both John and Lee (who recently retired as a clinical professor at OSU) which makes this a bit more interesting and unfortunate.  Prof. Eugene Volokh has written more about the new lawsuit on his blog Volokh Conspiracy.

To be clear, the TTAB case was not simply lost on the merits. Rather, the TTAB issued a precedential decision cancelling Corcamore’s SPROUT registration as a sanction for bad behavior:

Respondent has been engaging for years in delaying tactics, including the willful disregard of Board orders, taxing Board resources and frustrating Petitioner’s prosecution of this case. In view thereof, Petitioner’s motion for sanctions in the form of judgment against Respondent also is granted pursuant to the Board’s inherent authority to sanction.

SFM v. Corcamore (TTAB 2018). Thomason represented Corcamore but was not personally sanctioned by the Board.

In his post, Welch did not identify Thomason by name but did make the comment: “What about a sanction against counsel?”

Three folks (all trademark attorneys) then added comments noting: (1) the attorney Thomason was a professor at The Ohio State; (2) the board “certainly ought to sanction” such behavior; (3) that the attorney is likely to blame because this is a procedure issue; and (4) that the attorney has been previously called out for unprofessional conduct.

The new defamation lawsuit filed in Federal Court in Kentucky accused Dreitler, Reidl, and deWolf of “volitional contacts with readers in Kentucky of the defamatory comments.” Prof. Volokh, whose expertise is defamation (inter alia), reviewed the filing and suggests that the claim will not stand, but promises an attempt to keep readers updated.

Read the complaint with exhibits here: https://reason.com/wp-content/uploads/2019/12/ThomasonvDreitlerComplaint.pdf

Are you Smarter than a Law Student? Patent Exam 2019

My patent law course at Mizzou is primarily practice based — the students all write patent claims, reject claims, respond to office actions, and compete in a moot court competition. But, they also take a short exam. Here is the 2019 edition. – DC

= = = = =

Introduction: Mr. Crunch’s newest venture known as “Pause” is designed to help people relax and take a momentary meditative pause.

The basics: Crunch has designed an App (software program) to be installed an electronic device such as a mobile phone.  At points in time throughout the day, the App will provide a notification “ding” to the user indicating that it is time for a meditative pause.

The notification sound: One special feature of the App is that the notification ding is specially designed to elicit a relaxation response. The default sound is modeled from a Tibetan Singing Bowl. However, App includes a customization process where App can measure a user’s relaxation response to the various sounds using biofeedback (heart rate; skin temperature; sweat gland activity; digestion via breath sensor, etc.) and then automatically select the most effective; alternatively a user can manually select from various sounds.

Timing of the notification: The other feature of the App is timing of the notification dings.  Timing may be a pre-set time (such as 1:00 pm daily) or may be spaced randomly during awake hours.  App may also rely on biofeedback to identify stressful points during the day and target those times for the ding.

= = =

Crunch conceived of the idea during a Kundalini Yoga session in August 2018.  As he moved forward with development of the business, in September 2018 he fully disclosed all aspects of the invention to his banker (seeking a business development loan) and also to two software engineers that he hired on a contract basis to write the code.  He also told everything to his spouse and <18 y.o. children, although not until January 2019.

It is now December 2019 and Crunch is ready to file his patent application.  He understands that he cannot obtain a patent simply on an app that plays a sound. However, he thinks his customization processes are novel features. His proposed claim 1 is listed below.

I claim:

1. A process for customizing an application stored on a mobile electronic device, wherein the application is designed to elicit a relaxation response in a user, the process comprising:

(a) customizing the notification sound:

  1. causing the device to play a plurality of notification sounds for the user;
  2. recording a biofeedback response for each notification sound, wherein the biofeedback response includes user heartrate; and
  3. selecting a preferred notification sound based upon the biofeedback response; and

(b)  customizing the notification timing:

  1. measuring a stress level of the user based upon a biomarker, wherein the biomarker including user heartrate; and
  2. selecting a notification time at a point of relatively higher stress.

Question 1
. Is claim 1 directed toward eligible subject matter?

Question 2. Provide a concise argument why the USPTO should reject claim 1 as indefinite.

Question 3a. Crunch is concerned that his own pre-filing disclosures (as discussed above) might block him from receiving a patent. Do those disclosures qualify as prior art against his own application filing?

Question 3b If Crunch could go back in time, what are two steps he could have taken to better ensure that his pre-filing disclosures were not prior art?

Question 4. Crunch’s patent attorney performed a prior art search and found a publication from March 2019 describing an app that helps users maintain good posture. Key relevant features of the good-posture app publication:

  1. It measures heartrate and provide a signal to users when heartrate slows telling users to improve their posture (apparently slumping typically occurs as heartrate slows);
  2. Users can customize the signal according to their preferences. The publication suggests choosing a signal that the user finds pleasing.

Although the good-posture app is described in the printed publication, there is no evidence that the good-posture app was ever actually created. Will the good-posture publication prevent Crunch from obtaining a patent?

Question 5. The year is now 2021; Crunch’s US patent has issued without any amendment.  An India-based company (Vishraam) has started distributing an app (globally) that is quite similar to Crunch’s proposal. A user has the option of customizing both the notification sound and the notification timing in same way claimed by the patent.  Can Crunch hold Vishraam liable for patent infringement?


Note – The “Pause Mediation” image above comes from a real company in Westchester.

Historic Underpinnings of the Inventor Rights Act of 2019

I received some questions regarding my statement that the provisions of the Inventor Rights Act of 2019 “have historic roots.”  This post addresses those in more detail.

Profit Disgorgement – Reset to 1946: I will start with the profit disgorgement provision – which is a major change away from the current compensatory scheme in U.S. Utility Patent Law.  That said, disgorgement remains available for design patent infringement as well as other IP regimes such as copyright, trademark, and trade secret misappropriation.  The basic approach to disgorgement is to calculate the infringer’s profits associated with the infringement and then hand those profits over to the rights holder.  As Supreme Court explained in Tilghman v. Proctor, 125 U.S. 136 (1888), this approach is designed to avoid unjust enrichment by the infringer — what patent owners term “efficient infringement.”

The reasons that have led to the adoption of this [profit disgorgement] rule are that it comes nearer than any other to doing complete justice between the parties, that in equity the profits made by the infringer of a patent belong to the patentee and not to the infringer, and that it is inconsistent with the ordinary principles and practice of courts of chancery either on the one hand to permit the wrongdoer to profit by his own wrong

Tilghman v. Proctor, 125 U.S. 136 (1888).  Profit disgorgement was eliminated from the text of the Patent Act in 1946 and Courts have held that it is no longer an available remedy. See Aro Manufacturing Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961) (“The purpose of the change was precisely to eliminate the recovery of profits as such, and allow recovery of damages only.”); Caprice L. Roberts, The Case for Restitution and Unjust Enrichment Remedies in Patent Law, 14 Lewis & Clark L. Rev. 653 (2010).

The provision found in the Inventor Rights Act of 2019 would effectively reinstate the disgorgement option close to what it was back in the 1870s when disgorgement became available for cases at law in addition to those in equity where it was already available.

Venue – Reset to 2017: Under TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017), federal patent infringement lawsuits can only be filed in states where the defendant either (1) is incorporated or (2) “committed acts of infringement and has a regular and established place of business.” Quoting 28 U.S.C. § 1400(b).  Prior to TC Heartland, venue was much broader and was proper so long as the court had personal jurisdiction over the defendant (i.e., minimum contacts).  The proposal in the Inventor Rights Act of 2019 would not fully restore the broad venue, but would allow an inventor to sue in states where the inventor conducted research or has a regular and established physical facility.

Injunctions – Reset to 2006: For many years courts issued injunctions as a matter of course against adjudged infringers.  That changed following eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). In eBay, the Supreme Court ruled, inter alia, that no injunction should issue absent proof of irreparable harm caused by the infringement as well as inadequate remedy at law.

The proposal in the Inventor Rights Act of 2019 would would restore the pre-eBay law and thus allow for injunctive relief.

Post-Issuance Review – Reset to 1980: The Bayh-Dole Act (1980) authorized involuntary ex parte reexaminations. Since then, the scope of involuntary post issuance challenges have grown — most significantly with Trials under the 2011 America Invents Act (AIA).

The proposal in the Inventor Rights Act of 2019 would would restore the pre-1980 setup – barring any involuntary post-issuance review by the USPTO:

The United States Patent and Trademark Office shall not undertake a proceeding to reexamine, review, or otherwise make a determination about the validity of an inventor-owned patent without the consent of the patentee

IRA 2019.

Of course, a key principle of the proposal here is that it applies only to a subset of patents — those owned by their inventors.

(k) The term ‘inventor-owned patent’ means a patent with respect to which the inventor of the invention claimed by the patent or an entity controlled by that inventor—(1) is the patentee; and (2) holds all substantial rights.’


Special Rights for Inventor Owned Patents

by Dennis Crouch

Rep. Danny Davis (D-Il) and Paul Gosar (R-Az) have introduced the Inventor Rights Act. H.R.5478 that creates a set of rights and privileges associated with inventor-owned patents.  These are patents owned by their respective inventors or owned by an entities controlled by the inventors.  In addition to ownership, the inventor must hold “all substantial rights.”

Big Four: 

  1. No Involuntary Post-Issuance Proceedings against inventor-owned patents.  No IPR, Post-Grant Review, or reexamination, or any other “determination about the validity” without “consent of the patentee.”
  2. Injunctions would now be likely against infringers of inventor-owned patents. The Bill would create a presumption of both irreparable harm and inadequate remedy at law for infringement of an inventor-owned patent.
  3. Broadened Venue for filing of infringement lawsuits.  Here, the proposal does not recapture all of the venue “lost” in TC Heartland. 
  4. Damages law would offer a new option: Profit disgorgement + attorney fees + treble damages for willfulness when inventor-owned patents are infringed.

Inventor Rights Act 2019. These are all major changes.  Although all of the provisions have historic roots.

Currently, only a rather small fraction of patents would qualify as “inventor-owned patents” under the statute. However, the Bill would tend to both (1) encourage individual inventorship and (2) encourage patent holding situations that take advantage of the inventor-owner rights. Tech company founders would likely keep ownership of their patents, although I suspect that large companies would remain wary of allowing regular employees to retain “all substantial rights” in the patent.

Folks at US Inventor, including Josh Malone and Paul Morinville, have lobbied for the proposal and have included substantial discussion on their website: https://www.usinventor.org/inventor-rights-act/.




Elijah E. Cummings Lower Drug Costs Now Act

The House recently passed H.R. 3 – the Elijah E. Cummings Lower Drug Costs Now Act — and the Bill has been received by the Senate for consideration.

The basic proposal is to require the U.S. Gov’t to negotiate on Medicare drug prices for insulin and >25 of the top-125 drugs (by national spending). The negotiation includes a price cap:

The negotiated maximum price may not exceed (1) 120% of the average price in Australia, Canada, France, Germany, Japan, and the United Kingdom; or (2) if such information is not available, 85% of the U.S. average manufacturer price.

If the manufacturer fails to comply then there will be civil/tax penalties. So, the word “negotiation” should be placed within quotation marks. The Congressional Budget Office predicts that price negotiation prevision would lower government spending by about $500 billion over the next decade.

This particular proposal spends most of the money – by adding dental, vision, and hearing to Medicare.

Current law includes a “noninterference” clause associated with Medicare Part D:

Noninterference.—In order to promote competition under this part and in carrying out this part, the Secretary—

(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and

(2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.

42 U.S.C. 1395w-111(i).

Although not a “patent” bill, the proposal would significantly impact the market for patented drugs and biologics. What is unclear at this point is how research would shift. PhRMA estimates that the US Bio / Pharma industry spent about $100 billion on research in 2017.

This Bill is likely to be blocked by Republican leaders in the Senate, although many Republicans have offered some support for “interference” in principle.


A Novel and Useful System for Ruling Middle Earth…

Section 285 Fee Award: Whole Case Must be “Exceptional;” Exceptional Portion is Insufficient

by Dennis Crouch

Intellectual Ventures I LLC v. Trend Micro Inc. (Fed. Cir. 2019) [IVFeeAward]

IV sued Trend Micro back in 2010 for infringing its U.S. Patent Nos. 5,987,610, 6,073,142, 6,460,050, and 7,506,155.   After substantial back and forth, we eventually learned that the patents are invalid as directed toward abstract ideas. See Intellectual Ventures I LLC v. Symantec Corp., 838 F.3d 1307 (Fed. Cir. 2016).  On motion, the Judge Stark then awarded attorney fees to Trend Micro based upon the changed testimony of IV’s expert witness at trial in the parallel Symantec case.

Ruling from the bench, the … district court concluded that Intellectual Ventures’s conduct was exceptional “solely with respect to this collection of circumstances regarding [its expert’s] changed testimony.” Considering “whether the case overall is exceptional,” however, the district court expressly “f[ou]nd it was not.” The district court also concluded that “it would be wrong to say that [Intellectual Ventures’s] case was objectively unreasonable.”

Slip. Op.  The district court ruled that the case is not “exceptional” but went ahead and awarded attorney fees. The problem is that 35 U.S.C. § 285 expressly limits attorney fee awards to “exceptional cases.”

The court in exceptional cases may award reasonable attorney fees to the prevailing party.

35 U.S.C. § 285.  On appeal, the Federal Circuit has vacated and remanded — holding that the district court erred in its analysis.  It is improper to find that the case is not exceptional and also award attorney fees under Section 285.

A portion but not the Whole: The district court did find that a discrete portion of IV’s litigation misconduct was improper and exceptional.  However, the district court ultimately concluded that discrete misconduct did not taint the case enough to render the whole “exceptional.”  On appeal, the Federal Circuit found that Section 285 attorney fees are only available when the case as a whole is exceptional.

Instead of determining whether the case was exceptional, it appears that the district court may have focused on whether one discrete portion of the case stood out…. This is not the appropriate analysis. Section 285 gives the district court discretion to depart from the American Rule and award attorney fees “in exceptional cases.” Accordingly, under the statute, the district court in this case should have determined whether the circumstances surrounding the expert’s changed opinion were such that, when considered as part of the totality of circumstances in the case, the case stands out as exceptional.

Slip Op.  A “district court has discretion, in an appropriate case, to find a case exceptional based on a single, isolated act.”  Such as finding must also consider the case as a whole and the totality of circumstances. Here, the district court did not make such a conclusion — and in fact concluded that the case was not exceptional.


Nexus: Product must be “Essentially the Claimed Invention”

by Dennis Crouch

Fox Factory, Inc. v. SRAM LLC (Fed. Cir. 2019)

This is an important case for anyone arguing secondary indicia — not a good case for patent holders. The court here again raised the “nexus” hurdle by holding that a presumption of nexus can only be achieved by proving that the product being sold by the patentee is “essentially the claimed invention.”  This is a situation where SRAM owned two patents in the same patent family — both of which covered aspects of its X-Sync bicycle chainring (gear).  Each patent included elements not claimed in the other — for the court that was enough evidence to disprove coexistence.


Guest post by Profs. Yu and Contreras: The Uncertain Criminal Status of PAE Litigation in China

Guest post by Professor Jorge L. Contreras and Associate Professor Yang Yu of Shanghai University of International Business and Economics.  Professor Yu has graciously provided translations of core parts of the court’s judgment and Prosecutor’s protest.

On September 30, 2019, the Shanghai Pudong New Area People’s Court (court of first instance) ruled that an individual, Mr. Li Xingwen, was guilty of criminal extortion for asserting patents against a number of Chinese companies shortly before their initial public offerings (IPOs). The case was widely reported in the international press (see here, here and here) before the official release of this first-instance judgment, and gave rise to concern about the risks of asserting patents in China. The full text of the Shanghai court’s decision was finally released on September 30, 2019 and reveals several interesting details about the case. In particular, Mr. Li’s conduct giving rise to the judgment of extortion involved the falsification and backdating of a license agreement with a related company in order to extract additional royalties from a company with which Li had already settled.  However, most of Mr. Li’s other patent assertions, notwithstanding their strategic filing prior to the defendants’ IPOs, were viewed as legitimate.  Then, on October 18, 2019, the Shanghai Pudong New Area People’s Procuratorate lodged a protest with the Shanghai No.1 Intermediate People’s Court, arguing that the judgment against Mr. Li was too lenient.  Below, we summarize the facts of the case and the findings of the court of first instance, then assess the implications of the People’s Prosecutor’s protest.

The Patent Assertions

According to one news report, Mr. Li was a prolific inventor and patent agent. Beginning as a university student, he reportedly applied for over 1,000 patents, more than 600 of which had issued at the time of the case. These patents covered a diverse range of products including “a folding bicycle, a flushing water tank, a self-filtering aquarium, [and] an insecticidal device” (IAM, Oct. 1, 2018).  In addition to these, Mr. Li filed numerous patents covering aspects of electrical equipment. Working with his brother, Li established several holding companies to which he transferred some of these patents.

Beginning in 2015, Li’s companies sued four Chinese electronics firms for patent infringement in the Beijing, Xiamen and Shanghai courts. In several cases, the litigation was brought as the defendant companies were in the process of registering their securities in IPOs on the Shanghai or Shenzhen stock exchanges.  In all cases, the alleged infringers settled the cases brought by Mr. Li’s companies, committing to pay him a total of RMB 2.163 million (RMB 1.163 million of which had been paid at the time of his prosecution).

Some cases involved the assertion of two Chinese patents claiming methods for data transmission and image acquisition against Zhang Yue Technology Inc., a manufacturer of e-book readers. A series of cases were brought from March 2017 to  July 2017 by Mr. Li’s company Shanghai Ke Dou Electronic Technology Co. Ltd. (Ke Dou) in the Beijing Intellectual Property Court and Shanghai Intellectual Property Court.  Zhang Yue settled with Ke Dou on 15 July 2017, agreeing to pay a total of RMB 800,000.

Then, at the end of 2017, Li’s holding company Ke Dou entered into an agreement with another Li company called Shanghai Bu Dao Industrial Co., Ltd. (Bu Dao).  Under this agreement, Ke Dou purported to grant Bu Dao an exclusive license to a data transmission patent (Patent No. ZL201010523269.X “Method and system for initiating data transmission between devices through image acquisition”). What’s more, the Ke Dou – Bu Dao agreement was back-dated so that it appeared to pre-date the license that Ke Dou granted to Zhang Yue.

Armed with this exclusive license, Bu Dao sued Zhang Yue in the Beijing IP Court under the same patent. To exert even greater pressure, Bu Dao reported the lawsuit to the China Securities Regulatory Commission (CSRC), which had oversight over Zhang Yue’s pending IPO.  In an attempt to avoid interference with the IPO, Zhang Yue agreed to settle the lawsuit with Bu Dao for an additional RMB 800,000.

Arrest and Charges

After signing the second license agreement, Zhang Yue reported Mr. Li and his brother to the police (IAM, Jul. 23, 2018). The case was investigated by the securities crime unit of the Shanghai Public Securities Bureau.  Mr. Li and his brother were arrested in January 2018 and prosecutors charged them with extortion on August 24. As reported by IAM (Oct. 1, 2018) the Shanghai Public Security Bureau explained the charges as an effort to preserve order in China’s capital markets, and justified them on the basis that the purpose of Li’s litigation was not to protect his patented technology but simply to earn large sums of money. This behavior, one official noted, “is in line with the characteristics of extortion”.

The Court’s Decision

The Shanghai Pudong New Area People’s Court rendered its decision in Mr. Li’s case on September 30, 2019. It evaluated the conduct of Mr. Li and his brother with respect to four different defendants that had been sued for patent infringement, including Zhang Yue.  In three of the cases, Mr. Li’s lawsuits were timed to coincide with the defendant’s preparation for or execution of an IPO.  Unlike the Public Securities Bureau, however, the court did not consider this fact to be dispositive.  In order to prove the crime of extortion, the court explained that the accused must have illegally obtained payment by means of threats and intimidation.

The court then noted that the patents asserted by Mr. Li’s companies against the four defendants were either recognized as valid by the China National Intellectual Property Administration (CNIPA) or were, at worst, of uncertain validity. As a result, seeking and obtaining license fees for such patents was not illegal. It was not relevant that Mr. Li’s demands for royalties came at sensitive times when the defendant companies were preparing for stock listing or financing.  Moreover, the court did not find evidence that Mr. Li’s companies carried out “threats or blackmail” simply by demanding payment for its patents.  Rather, it was possible that the defendants decided to pay the requested amounts for legitimate business reasons.  Accordingly, extortion was not found in these instances.

However, with respect to the second demand made against Zhang Yue, Mr. Li and his brother colluded “in bad faith” to fabricate an exclusive license agreement between their companies Ke Dou and Bu Dao. Bu Dao then sought additional royalties from Zhang Yue after it had already paid Ke Dou for the same patent.  Moreover, when Mr. Li reported Zhang Yue’s infringement of the patents to the CSRC, he did so only to pressure Zhang Yue to pay Bu Dao for these patents.  This action constituted coercion, and Zhang Yue’s payment to Bu Dau was made out of fear of the effect that nonpayment might have on its pending stock offering.  As a result, the court found that the Lis’ behavior toward Zhang Yue constituted criminal extortion.

The convictions required the Lis to refund the payment improperly paid by Zhang Yue, as well as additional fines of RMB 50,000 and 20,000 for Mr. Li and his brother, respectively.  In addition, Mr. Li and his brother were sentenced to four years and six months, and two years, imprisonment, and the unspecified “tools” used to commit the extortion were confiscated.

The Prosecutor’s Challenge to the Judgment

On October 18, 2019, the Shanghai Pudong New Area People’s Procuratorate (the local prosecutorial authority) lodged a protest with the Shanghai No.1 Intermediate People’s Court, arguing that the judgments against Mr. Li and his brother were too lenient, in that no extortion judgment was imposed with respect to their patent demands against the companies other than Zhang Yue. In its protest, the Prosecutor has argued that having the right to bring a patent enforcement action under the civil patent law does not necessarily exonerate a patentee from a criminal judgment of extortion. That is, civil and criminal offenses must be judged independently, and in this case, whether or not the Li brothers had patents, their conduct amounted to extortion.  The Prosecutor also questions the legitimacy of Mr. Li’s  enforcement actions under the patent law, arguing that the patents were not clearly valid or enforceable, were based on minor modifications to prior art technology, and involved extremely low R&D costs – all of which make the basis for his patent claims dubious.  What’s more, the settlement payments made by the alleged infringers were not related to the number, content or value of the patents, but were instead paid unwillingly in order to avoid litigation that could scuttle their other financing and corporate transactions. The Prosecutor points to Mr. Li’s deliberate targeting of companies that were in the process of obtaining financing and failure to make substantial preparations for litigation as further evidence of his malicious intent.  For all of these reasons, the Prosecutor has petitioned the court to extent its extortion judgment to the Li brothers’ other patent assertions.


It not clear when the People’s Court will rule on the Prosecutor’s protest, or when (or whether) a written decision will be issued in response. However, the outcome of this protest could be important for all firms considering the initiation of patent infringement litigation in China. While one can assume that few legitimate patent holders will resort to the clearly deceptive tactics adopted by the Li brothers (e.g., creating backdated licensing agreements between related shell companies), the Prosecutor seeks to impose criminal penalties on behavior that is far more common in the business environment:  asserting patents without certainty regarding their validity, confronting an infringer prior to or in the midst of a financing transaction, or obtaining a settlement payment that is not directly related to the number or value of the asserted patents. In the U.S. and other Western countries, tactics like these have generally been accepted as permissible, so long as a patent has been validly issued by the relevant granting authority.  But if the Shanghai Pudong New Area People’s Procuratorate has its way, an entirely new level of intent-based scrutiny could be applied to patent litigation.

Principal Officers: Three En Banc Petitions in Arthrex v. Smith & Nephew

by Dennis Crouch

None of the parties were happy with the outcome in Arthrex v. Smith & Nephew (Fed. Cir. 2019) and all three have now petitioned for en banc review:

In its decision, the Federal Circuit held that the appointment process for PTAB judges (APJs) violates the Appointments Clause of Article II of the U.S. Constitution.  The court explained that these judges are principal officers under the constitution and thus, must be appointed by the President of the United States rather than merely the Head of Department.  However, the court issued a cy-près ruling in an attempt to limit the upset caused by its ruling. In particular, the court invalidated a portion of the statute that limited the PTO’s ability to remove APJs from the board. According to the court, that change was enough to reclassify the PTAB Judges as inferior officers that do not need presidential appointment.  Despite its proposed “cure”, the Federal Circuit held that – in this case – the PTAB decision must be vacated and reheard in front of a new panel of APJs. “We hold that a new panel of APJs must be designated to hear the inter partes review anew on remand.”

Why is no-one happy?:

  1. The Patentee would like the case wholly thrown out and argues that the CAFC’s savings-cut was both incorrect and insufficient to convert principal officers to inferior officers.
  2. Both the Patent Challenger and USPTO as intervenor want the original final written decision reinstated (cancelling the claims) and argue that the en banc court should find the APJs were already inferior officers.  They also argue that, if APJs are principal officers then the en banc court should reconsider the appropriate remedy for such an appointments clause violation.

More to come on this.