Supreme Court: Solving Claim Construction?

032312_0335_ClaimConstr1
by Dennis Crouch

Retractable Techs., Inc. v. Becton, Dickinson & Co. (on petition for certiorari 2012)

As its company name suggests, Retractable Technologies makes safety syringes that retract after completing a drug injection. Retractable sued BD for patent infringement and won $5 million in damages and permanent injunctive relief. This was the second time that Retractable had filed a lawsuit to enforce its patent. In both cases, the district court interpreted the claim term syringe "body" as encompassing a body "composed of one or multiple pieces." (In the first case, the accused infringer agreed to stop making its product and to pay a $1 million settlement).

On appeal here, BD was able to convince a two-member majority of its Federal Circuit panel to modify the claim construction in a way that limits the "body" element to a "one-piece body." (Majority opinion by Judges Lourie and Plager). The appellate panel narrowly construed the term based upon its reading of the patent specification and the notion that the claims should be limited to what "the inventor actually invented." In dissent, Chief Judge Rader argued that the majority had improperly confined claim scope to the specific embodiments of the invention." Chief Judge Rader also argued in favor of giving more weight to the doctrine of claim differentiation. Here, some of the non-asserted claims in the patent included an explicit "one-piece body" limitation – suggesting that the asserted claim without the "one-piece" limitation must be broader.

After losing the appeal, Retractable filed a petition for rehearing and rehearing en banc. The petition was denied, but Judges Moore and O'Malley each filed dissents.

Supreme Court Petition: Retractable has now filed a petition for writ of certiorari to the United States Supreme Court. The petition raises two questions:

1. Whether a court may depart from the plain and ordinary meaning of a term in a patent claim based on language in the patent specification, where the patentee has neither expressly disavowed the plain meaning of the claim term nor expressly defined the term in a way that differs from its plain meaning.

2. Whether claim construction, including underlying factual issues that are integral to claim construction, is a purely legal question subject to de novo review on appeal.

First Question Goes Nowhere: In my view, the first question presented is not well stated. Of course a court can use context to provide meaning to claim language. A formalistic and restrictive view of patent doctrine was rejected by the Supreme Court in virtually every recent decision, including Mayo, Bilski, KSR, eBay, and MedImmune. Further, many members of the Supreme Court have identified a problem with vague and over-broad claim limitations, and the majority opinion here provides a simple tool for limiting scope: interpret the claims within the context of what was demonstrably understood by the inventor and the examiner and by what would have been known by a reasonably skilled artisan.

Use Specification to Narrow (or Broaden): There are times when the context of the specification is used to broaden the scope of a claim term beyond its ordinary meaning. However, the Federal Circuit judges appear to believe that greater reliance on the specification will usually result in a narrowing of claim scope. Thus, the debate on the role of the specification in claim construction is at least partially a proxy for the debate on whether patents should be given a broad scope or narrow scope. I would again criticize the petition – this time for wholly agreeing that reliance on the specification results in a narrowed scope. Retractable frames the debate on trying to understand "the circumstances in which the language of the specification should narrow the plain meaning of a claim term."

The Second Question is more well framed, although I would have tweaked it slightly to ask: "Whether claim construction, including underlying factual issues that are integral to claim construction, is a purely legal question [that is therefore] subject to de novo review on appeal." The tweak here is important because Retractable is not challenging the Supreme Court's Markman decision but rather challenging the Federal Circuit's Cybor decision. In Markman, the Supreme Court recognized the reality that claim construction includes a number of factual determinations – calling the process a "mongrel" of fact and law. However, the court ruled that claim construction should be treated as an issue of law to be decided by a judge. In Cybor, the Federal Circuit applied its usual formalistic if-then approach to rule that appellate review must be de novo because claim construction is an issue of law. From the petition:

In Markman, this Court held that, for purposes of the Seventh Amendment, the task of construing patent claims falls to trial judges rather than juries. Markman did not decide the standard of review that an appellate court should apply to a district court's claim construction. The Court noted, however, that the process of construing a claim is a "mongrel practice," that "falls somewhere between a pristine legal standard and a simple historical fact." In holding that trial judges are "better suited" for this task than juries, the Court recognized that claim construction requires trial judges to exercise a "trained ability to evaluate the testimony in relation to the overall structure of the patent." Accordingly, the Court held that "there is sufficient reason to treat construction of terms of art like many other responsibilities that we cede to a judge in the normal course of trial, notwithstanding its evidentiary underpinnings." Thus, Markman recognized that claim construction involves underlying factual questions, and said nothing to indicate that the Federal Circuit should displace the district court's resolution of those questions.

There are lots of doctrines that receive de novo review that do not have a reversal rate anywhere near that of claim construction. I think that everyone agrees that claim construction is inherently difficult. Claim construction rulings do not provide a yes-no answer like you might find in an obviousness judgment. Rather, a judge is required to identify the best interpretation of all possible interpretations of each contested claim term. And, unlike statutory interpretation, we do not have the benefit of the scope being developed over time through a series of cases. Rather, in most instances, a court's construction is in the first instance. In addition to the inherent difficulty, claim construction is made more difficult because of the open panel dependence of claim construction decisions. For many years the Federal Circuit refused to admit any panel dependence in its decision making, that has changed.

Where to Focus Assurances?: District court judges complain about claim construction because of the high likelihood that their decisions will be reversed on appeal. Giving deference to district court judgments would likely mean fewer reversals. This approach gives us certainty earlier in the process, but only once the district court issues a final claim construction. That date still seems very late. The scope of patent claims is of critical importance to almost all patent monetization transactions. However, very few of those transactions take place in conjunction with a district court claim construction decision. We need a process for substantially understanding claim scope at a much earlier stage and without relying on a federal court.

One answer for an early understanding of claim scope: Define terms during prosecution. If applicants fail to define terms, examiners should provide their own definitions as part of the office action. In the short-term, the focus should be on terms that are (1) frequently debated in court (such as "server" or "coupled to"; (2) used in the specification in a way that is in tension with the ordinary meaning of a term; or (3) inherently imprecise (such as "about").

Notes

The Path Forward for Intervening Rights: Presaging the En Banc Decision in Marine Polymer v. Hemcon

Guest Post by Scott McKeown, Greg Gardella, and Lisa M. Mandrusiak all of OBLON, SPIVAK, MCCLELLAND, MAIER & NEUSTADT, L.L.P.[1]

The Court of Appeals for the Federal Circuit is currently considering en banc the panel decision in Marine Polymer Technologies, Inc. v. Hemcon, Inc. The panel decision can be interpreted as suggesting that intervening rights can arise from an argument made during a post grant patent proceeding, such as a patent reexamination proceeding,[2] even if the patent owner is merely urging a claim interpretation that is consistent with the manner in which the term would have been understood at the time the underlying patent application was filed. In cases where the post grant record simply clarifies the way in which a skilled artisan would have understood a claim term at the time of filing, or reiterates the positions of the previous intrinsic record, the scope of the claims cannot properly be said to have been altered during the subsequent proceeding.

Post grant PTO patent proceedings often focus on the meaning of different aspects of originally issued claim language than were considered during the earlier application prosecution. Therefore, much of the argument made by the patent owner during the subsequent PTO proceeding is directed to new issues not previously considered by the PTO. It is to be expected that re-opening the intrinsic record via post grant file histories will often include substantively new discussion of various claim terms.

For example, during post grant proceedings patent claims are accorded the broadest reasonable interpretation ("BRI"). Determining the BRI requires a different analysis than carried out in a district court during claim construction, and notably, there is no requirement that the PTO consider the earlier prosecution record in ascertaining the BRI and meaning of an originally issued patent claim. This often places patent owners in the position of having to re-argue distinctions which were implicitly or explicitly accepted by the previous patent examiner. When the PTO requires amendment of a claim in post grant proceedings the amendment may in fact be a simple restatement of previously agreed upon claim scope, which should not give rise to intervening rights.

The rule adopted by the Court should be flexible so as to accommodate the foregoing situations and permit intervening rights only in the appropriate circumstances. The application of argument-based intervening rights should be limited to situations in which the patent owner clearly and unambiguously revises the issued claim scope by urging that a limitation has a meaning that is plainly at odds with the interpretation a court would have given the originally issued claim language.

(more…)

Court: Parties Must Justify Need for Claim Construction

IP Cleaning v. Annovi Research (W.D. Wisc. 2008)

IPC has accused Annovi of infringing its patent covering a high-pressure washer. Although only a single claim is in dispute, both parties requested that the court construe several claim terms. In a recent order, however, the court denied both motions for claim construction because neither party had “persuade[d] the court that construction of each specified term is necessary to resolve a disputed issue concerning infringement or invalidity” beyond the generic statement of resolving issues of infringement and validity. According to the court, it will only resolve claim construction disputes where the parties have a “concrete dispute” that will impact the outcome.

“The reason for the order is not to require parties to parrot its language before the court construes claim terms; it is to avoid the devoting judicial resources to the issuance of advisory opinions on the construction of claim terms about which the parties have no concrete dispute. As much as the parties may hate to show their hands at this early stage, they must do so, if they hope to seek the benefit of claim construction before filing motions for summary judgment. Because the parties have disregarded the order and failed to demonstrate the basis for requesting construction of the terms they dispute, their motions requesting claim construction will be denied.”

This decision is in tension with O2 Micro v. Beyond Innovation (Fed. Cir. 2008). In that case, the Federal Circuit found that the lower court had improperly refused to construe certain disputed terms. “When the parties raise an actual dispute regarding the proper scope of these claims, the court, not the jury, must resolve that dispute. . . . When the parties present a fundamental dispute regarding the scope of a claim term, it is the court’s duty to resolve it.” O2 Micro. The two cases may be distinguished on the ground that in IP Cleaning, the parties have not yet shown an “actual dispute regarding the proper scope” of the claims.

The Likely Indefiniteness of Coined Terms

by Dennis Crouch

AGIS v. Life360 (Fed. Cir. 2016)

In some ways the case here can be thought of as placing a higher definiteness burden on patentees when relying upon non-industry-standard language such as coined-terms in the claims. This result makes sense to me because coined-terms are most likely to be found at points of novelty within the claim — the points where precision in description is most important. 

The AGIS claims all require a “symbol generator” to track mobile phone user location.   See U.S. Patent Nos. 7,031,728 (claims 3 and 10) and 7,672,681 (claims 5 and 9).  During claim construction, the district court found the term lacked definiteness under 35 U.S.C. 112 ¶ 2 (now 112(b)) and, although it would seemingly be a foregone conclusion, the parties stipulated that the claims were therefore invalid.

On appeal, the Federal Circuit affirmed the indefiniteness finding under its strict means-plus-function approach. The appellate panel first held that the “symbol generator” element should properly be interpreted under 35 U.S.C. 112 ¶ 6 as claiming a means for performing a specified function without reciting (in the claims) the supporting structure.  Under 112 ¶ 6, means-plus-function claim elements are However, the statute requires that MPF claim elements be tightly construed to cover only “the corresponding structure . . . described in the specification and equivalents thereof.”  Further, the Federal Circuit has repeatedly held that MPF claim elements that are not supported by corresponding structure within the specification are indefinite and thus invalid.

Step 1: Traditionally, claim elements intended to be interpreted as means-plus-function elements include the word “means.”  Here, the word ‘means’ was not used – and that leads to the a rebuttable presumption 112 ¶ 6 does not apply.  Prior to 2015, this presumption was seen as a “strong” presumption.  However, in Williamson (2015), the en banc Federal Circuit eliminated the “strong” portion of the presumption and in favor of one that appears easily rebuttable.  Under Williamson, 112 ¶ 6 will apply when the proper construction of the words of the claim fail to provide sufficiently definite structure.  The standard is “whether the words of the claim are understood by person of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.” If not, then 112 ¶ 6 applies.

Here, the court noted that the term “symbol generator” was a term coined for the purposes of the patent and thus, cannot be said to be already known to one of skill in the art. As such, the court fell-back on its textual analysis – finding that “the combination of the terms [symbol and generator] as used in the context of the relevant claim language suggests that it is simply an abstraction that describes the function being performed (i.e., the generation of symbols) [and]  by itself, does not identify a structure by its function.”  Of interest, at this stage, the court did not delve into the question of whether the specification had properly defined the term.  I believe that omission was a result of the fact that the specification did not so define the term (as discussed below).

Step 2: Once a term is defined as Means-Plus-Function, the court must then look to the specification to determine whether corresponding structure is available to define the term. Here, because the symbol generator is a computer implemented function, the court requires disclosure of an algorithm for performing the function. Here, that algorithm was not provided. Quoting Aristocrat Tech, the court wrote: “A patentee cannot claim a means for performing a specific function and subsequently disclose a ‘general purpose computer as the structure designed to perform that function” because this “amounts to pure functional claiming.'”

Coined Terms and Circular Reasoning: Looking at the specifications, the only mention of the term “symbol generator” was found in one of the two specifications and that specification stated only that “The CPU also includes a symbol generator for creating touch screen display symbols discussed herein.”

Because MPF analysis involves circular reasoning, it is difficult to know what the result would have been if the specification had sufficiently and particularly defined the symbol generator as an algorithmic module.  That structural definition certainly would have been enough to satisfy structure requirement of 112 ¶ 6.  However, if it was sufficient to satisfy 112 ¶ 6, then it likely would have been sufficient to ensure that the proper construction of the term was non-MPF.  This leads to the conclusion that, at least for coined-terms, the whole game is won or lost at step 1 from above.

 

 

Data on Transition Phrases in Patent Cases

by Dennis Crouch

You may have heard that most US utility patent claims use the open transition phrase COMPRISING.  Here’s the data to support that hearsay. The chart below shows data from independent claims gleaned from issued US patens grouped by patent issue year.

To make the chart, I calculated the percentage of independent claims that include the phrase comprising or comprises or comprise as the first traditional (or only) transitional phrase within the claim text.

Patent courses traditionally talk about the three primary transition phrases:

  1. Comprising/Comprises/Comprised of (Open Transition)
  2. Consisting of (Closed Transition)
  3. Consisting Essentially Of (Hybrid Transition)

In recent patents, fewer than 1% of claims use “consisting of” or consisting essentially of.”  Rather, the biggest non-comprising segment is the category of claims that lack any traditional phrase as shown in the chart below.  These non-traditional claims might use the word “having” or “including” as a transitional phrase, or they might not use any word at all.

Here are a few examples of these non-traditional transitions from 2021 patents:

  • One or more non-transitory, computer-readable media having instructions that, when executed by one or more processors, cause a device to: …
  • A non-transitory computer-readable medium configured to store instructions that, when executed by one or more processors, cause the one or more processors to perform operations that include:
  • A handheld, self contained, air cooled induction heater including …
  • A compound or a pharmaceutically acceptable salt thereof, wherein said compound is: …
  • A compound, or a pharmaceutically acceptable salt thereof, having the structure of
  • A method, by one or more processors, for managing text in rendered images: [No transition at all except for a colon]
  • Intermediate of formula B-20 [showing structural diagram of compound and going on to include several markush groups]

In many cases it appears that attorneys may be using the alternative transitions as part of their claim stratification strategy.  Thus, many of the claims relying upon a non-traditional transition sit alongside other claims in the same patent that use “comprising.”

Guest Post: Fast Examiners; Slow Examiners; and Patent Allowance

Prof. Shine Tu (WVU Law) has been doing interesting work studying patent prosecution and how differences between patent examiners impact the process.  I asked him to provide a guest post to help readers get started on his work. – DC

by Shine Tu

Although we know that individual patent examiners can greatly affect an inventor’s chance to (1) get a patent at all and (2) get it in a timely way, there has been very little work determining how examiners are able to either delay or compact prosecution while still maintaining their quotas via the count system.  Understanding how examiners work the quota system with very different outcomes can be critical for practitioners trying to understand what sort of responses or claim narrowing they should make. It also has significance for those looking to understand and improve the very process intended to spur invention.

In a previous study, I have shown that there are extreme variations on allowance rates between examiners.  For example, in analyzing 10 years of patents from Technology Center 3700 I found that there were approximately 200 examiners from 3700 who had issued over 120,000 patents (approximately 51% of the patents from this Technology Center). In contrast, there was a group of approximately 300 examiners who issued less than 800 patents (less than 1% of the patents from this Technology Center). [See https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1939508].  In this current dataset, I find that not only is there a difference in allowance rates, but there is a significant difference in prosecution times. Fast examiners allow applications in approximately 1.64 years, average examiners in 3.07 years, and slow examiners on average will allow a case in 5.85 years.  This delay of over four years (fast versus slow examiners) increases direct costs to applicants in the form of PTO and attorney fees, as well as indirect costs such as reduced growth, sales, and follow-on innovation.

In a set of two articles, I explored how examiners can either: (1) slow down the patent prosecution process by using a strategy of constant rejections [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3539731] or (2) speed up the patent prosecution process by using a strategy of fast allowances [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3546944]. To create a sufficiently large sample to be statistically significant, I coded the patent prosecution histories of 300 patents and reviewed 100 patents from slow, average, and fast examiners from workgroup 1610.  Every rejection issued by the examiner and every response and traversal argument by the applicant was recorded.

As an initial matter, these data show that examiners in each group have similar amounts of experience at the PTO and similar average current docket sizes. However, the allowance rates of these examiner groups vary dramatically, with 79.55%, 61.65%, and 27.7% allowance rates corresponding with fast, average and slow examiners, respectively.  The Office Action to Grant (OGR) score shows that these fast examiners grant a patent for every 1.5 Office Actions written, while it takes average examiners roughly 4 Office Actions and slow examiners a stunning 10.5 Office Actions before they grant one patent.

Fast examiners seem to be using a count maximization strategy based on allowances. A typical applicant who gets a fast examiner will usually have one or two Office Actions before an allowance.  Fast examiners do not use many prior art rejections.  Additionally, the rejections employed by fast examiners rely heavily on Obviousness-type Double Patenting (ODP) and/or 35 USC 112 rejections. Fast examiners have four times as many ODP rejections compared to slow examiners.  Most applicants can (and do) traverse these ODP rejections by simply filing a terminal disclaimer.  Interestingly, use of the ODP rejection is a super-efficient way to employ a count maximization strategy. This is because little work is needed to find an ODP rejection, due to the closed universe of patents, and an ODP rejection is relatively easy for the applicant to traverse. Thus, an ODP rejection followed by a terminal disclaimer gets the examiner to maximum counts with minimal effort.

In contrast, slow examiners seem to be using a strategy based on rejections.  First, slow examiners have a much higher restriction rate (almost twice) and encounter three times as many traversals to these restriction requirements.  These data are consistent with a rejection strategy because examiners can create a large patent family and cycle through rejections with less work, especially since they should already be familiar with the specification from the other restricted family members.  Furthermore, slow examiners may not be able to avail themselves of the ODP rejection strategy employed by fast examiners because of the safe harbor created by 35 USC 121.

Not only do slow examiners use more prior art, the sources of prior art differ for slow examiners versus fast and average examiners. Slow examiners employ a rejection strategy based on prior art, with five times as many 102(a/e) rejections and six times as many 103 rejections compared to fast examiners. For 102(a/e) rejections, slow examiners rely on both US patents as well as printed publications, while fast and average examiners rely on US patent applications.  Interestingly, for 102(b) rejections all examiners rely more on printed publications and secondarily on US patents. With 103 rejections, examiners also all mainly rely on US patents and, secondarily, on printed publications. Thus, all examiners search and employ prior art from different databases, however, they use the prior art that they find in different ways.

Unsurprisingly, applicants traverse prior rejections from slow examiners at a much higher rate than fast examiners. Specifically, with 102 and 103 rejections, applicants will push back against slow examiners most commonly with a missing elements argument.  In contrast, most applicants respond to fast examiner 102 and 103 prior art rejections by simply filing claim amendments.  Interestingly, applicants will also push back against 103 rejections from slow examiners by making a “no motivation to combine” argument. This may be because slow examiners use seven times as many references as fast examiners.

Slow examiners also put the brakes on prosecution by filing multiple 112 rejections.  Specifically, slow examiners utilize three times as many 112 second rejections, four times as many enablement rejections and seven times as many written description rejections. With slow examiners, applicants use arguments to traverse enablement and written description rejections. In contrast, applicants with fast examiners usually only make claim amendments to traverse enablement or written description rejections.

Practitioners need to understand what type of examiner they have.  Understanding and using this data is paramount to help manage client expectations as well as to help create a rational prosecution strategy.  I note that all of these data can be accessed through services such as LexisNexis PatentAdvisor® to help determine which examiner you may encounter.  This may also be important for patent prosecution strategy since slow examiners may require a strategy that involves an appeal.  While fast examiners may require a strategy that involves fewer amendments and more arguments.

Although I do not make any definitive judgements about the quality of the claims passed by different examiners nor even if there is an “optimal” or “ideal” allowance rate, these varying trends indicate a wide discrepancy in examiners’ methodology that may be affecting the overall quality and number of patents created. By analyzing the differences, my studies suggest how the counts system might be modified to ensure a more efficient and balanced process where all examiners apply the rules of patentability fairly and consistently. One possible solution, for example, would be to review applications from both fast and slow examiners at a higher rate. Another solution may be to deduct counts from examiners who make too many erroneous rejections.  Conversely, adding counts for examiners who dealt with difficult applicants could also be in order.  Alternatively, we could completely reform the count system and create an examiner incentive structure that focuses more on quality and less on quantity.  Only by looking in-depth at examiner behaviors will we be able to (1) better understand and navigate the current system and (2) make reforms to the current process that will truly encourage innovation.

Abandoning Disparaging Marks

As TM owners willingly give up their racially disparaging and gender stereotyping marks, are there ways to ensure that the marks are not reoccupied by others wanting to free ride on their fame and infamy?

Guest Post by Deborah R. Gerhardt, Reef C. Ivey II Excellence Fund Term Professor of Law at UNC School of Law

Quaker Oats says it plans to phase out its “Aunt Jemima” brand. The character has long been criticized as a stereotypical representation of black women as inferior servants. In recognition of the problem, the Company had been gradually revising the brand’s image and considering when might be the appropriate time to phase it out altogether. Of course, if taking a bold stand against racism had been their true intent, they would have taken much more decisive action to drop the brand long ago.

As Trevor Noah observed on the Daily Show’s June 17, 2020 episode,

It’s also amazing that the brand knew that Aunt Jemima was racist and then instead of just changing it, they chose to instead slowly phase out the racism over time. That is so ridiculous. Can you imagine you caught your partner cheating and instead of stopping, they said, Yeah, yeah. You’re right baby. This is so wrong. I think I’m going to slowly start phasing out all of my affairs. From now on no sex, just hand stuff.

Amidst protests following the wake of George Floyd’s untimely death, Quaker Oats proclaims it truly does plan to take action to recreate the brand, although you would not know that from looking at its website one week after the announcement. As the screenshot below illustrates, no indication of abandonment appears on their pancake mix or syrup web pages.

The current plan is hardly inspiring. It appears to be: “Let’s keep the admittedly racist mark in place until a suitably less racist substitute has been crafted.”

One of the potential ways to challenge a third-party registration of a racist brand was eliminated in 2017. For years Section 2(d) of the Lanham Act blocked registrations that disparaged a group of people. But despite this bar, the “Aunt Jemima” mark (and so many other disparaging marks) registered anyway.  Some however, were blocked or cancelled (including the Washington Redskins mark) on that basis before the Supreme Court held the bar unconstitutional in Matal v. Tam 137 S. Ct. 1744 (2017). Since that decision, the First Amendment right to free expression permits citizens to seek registration of racially offensive trademarks.

After Tam, the Quaker Oats plan to abandon the Aunt Jemima mark raises an interesting question: what if a third party were to seize the opportunity to pick up the well-known mark and double down on the racist stereotype? Are there strategies that Quaker Oats can use to minimize any consequential harm? For a fun take on what such a highjacking looks like, go here https://southpark.cc.com/clips/vlg1j1/from-one-redskin-to-another to see what happens when the Southpark kids adopt “the Washington Redskins” for their start-up after the registration was cancelled. Contrary to the suggestion in that episode, there at least a couple of strategies that may work.

The Southpark spoof appears to be coming true with recent application to register marks on AUNT JEMINA and ESKIMO PIE by notorious “trademark entrepreneur” Leo Stoller. Consider Also Mark Cohen’s discussion of Colgate Palmolive’s Darlie (“Black man toothpaste.”) trademark in China.

The easiest option is to lean on the USPTO’s examiner corps. Even if the company ceases using the mark, the company’s portfolio of registrations will remain on the Principal Register until, one by one, they expire. If a new entrant to the syrup and pancake mix market applies to register “Aunt Jemima,” the Examiner would look at the Principal Register and see if any confusingly similar marks are still live. I predict that as long as Aunt Jemima lives on the Principle register, the marks will block others from registering confusing similar brands. We will not have to wait long to see if my prediction is right because on June 18, 2020, an individual in California applied to register “Aunt Jemima” for “Pancake mixes; Maple syrup; Pre-mixed pancake batter; Table syrup.” Something at the USPTO would have to go terribly against the norm for this application to succeed. Quaker Oats owns five registrations (and one pending application) for the brand, and some will not be up for renewal until 2025. Even if Quaker Oats took no action against the current applicant, the mark’s continued presence in the USPTO’s TESS data will give trademark examiners a clear and easy way to deny registration of the mark to anyone else until the last Quaker Oats “Aunt Jemima” mark expires.

This practice reveals that some trademark owners can succeed in blocking new entrants years after use has stopped. Although the Lanham Act ties trademark rights to use, for the sake of efficiency, USPTO trademark examiners treat third party federal registration as an irrefutable heuristic for use in office actions. When an Examiner blocks an application because the proposed mark is confusingly similar to one already registered, the USPTO treats the facts in the registration as true. Because Quaker Oats would not be a party to the applicant’s registration proceeding, USPTO examiners will not look into allegations of abandonment without Quaker Oats present to defend its brand. The company’s current “Aunt Jemima” registrations will be more than sufficient to deny the new entrant registration. However, if Quaker Oats opposed the registration, the new entrant could raise the defense of abandonment. Therefore, Quaker Oats would be smart to stay quiet and let the USPTO take care of the matter. If the new entrant had the chutzpah to seek cancellation of the Quaker Oats federal registrations, they would have to respond to the applicant’s claim that “Aunt Jemima” was available because Quaker Oats abandoned use of the mark and expressed a clear intent not to resume its use.

Beyond the arena of registration, there are alternatives for Quaker Oats to explore if someone were to actually start using the “Aunt Jemima” mark in commerce, whether or not the new entrant sought registration. The Lanham Act is broad enough to assert a claim against a new adopter even if the original trademark owner abandoned the mark as a matter of law as long as consumers still draw a connection between the “Aunt Jemima” mark and Quaker Oats. The language of 15 USC 1125(a) may support a cause of action for false sponsorship, false affiliation or false designation of origin or state unfair competition if a new entrant used the mark in commercial advertising in a way that causes Quaker Oats harm.  Contrary to what the Redskins (the football team not the start-up) owner claimed in the South Park skit, there actually is something a trademark owner can do, and much that the USPTO will do for a trademark owner both before and after the mark has been abandoned.

Supreme Court: What is the Role of Functional Claim Limitations?

by Dennis Crouch

One of the more interesting pending cases before the U.S. Supreme Court has to do with the use of functional claim language at the point of novelty. Eli Lilly and Company v. Erfindergemeinschaft UroPep GbR (Supreme Court 2019).  The Supreme Court has discussed this issue in a series of important cases — albeit most recently in 1946.

In Halliburton Oil Well Cementing Co. v. Walker, 329 U.S. 1 (1946), the Supreme Court invalidated Walker’s on those grounds:

The language of the claim thus describes this most crucial element in the “new” combination in terms of what it will do rather than in terms of its own physical characteristics or its arrangement in the new combination apparatus. We have held that a claim with such a description of a product is invalid as a violation of Rev. Stat. 4888 [“he shall particularly point out and distinctly claim the part, improvement, or combination which he claims as his invention or discovery.”]

Halliburton. The Supreme Court had previously held claims invalid that use “conveniently functional language at the exact point of novelty.”  Gen. Electric Co. v. Wabash Co., 304 U.S. 364 (1938).  The question in Halliburton was whether this patenting-bar applied to claims directed to a combination of elements.  Question as presented in Halliburton:

Is the doctrine of the case of General Electric Co. v. Wabash Appliance Corp., 304 U. S. 364, condemning the use of indefinite and functional language at the exact point of novelty in a claim of a patent, applicable to a claim on a combination of elements, or should the doctrine be limited as held by the Ninth Circuit Court of Appeals, to a claim on a “single element” or “specific product”?

Halliburton Brief.  The Court answered this question affirmatively — yes the same law applies to claims in combination.

We understand that the Circuit Court of Appeals held that the same rigid standards of description required for product claims is not required for a combination patent embodying old elements only. We have a different view.

Id. Congress rejected Halliburton in the Patent Act of 1952 — allowing that “an element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof…” 35 U.S.C. 112.

The 1952 Patent Act expressly allows focused on changing the standard for combination patents, but does not seemingly apply to a claim for a single element.  One interpretation of the section 112(f) is that it reinstates the 9th Circuit holding in Halliburton distinguishing the GE case:

[Petitioner] assumes that the court … failed to consider … General Electric Co. v. Wabash Appliance Corporation, 304 U.S. 364. . . . Halliburton is mistaken. In the General Electric case the claim considered was not one for a combination of elements, but a claim for a single element.

Halliburton Oil Well Cementing Co. v. Walker, 149 F.2d 896 (9th Cir. 1945), aff’d, 326 U.S. 696 (1946), opinion set aside, 329 U.S. 1 (1946).  The invalidated claim in GE was written as follows:

25. A filament for electric incandescent lamps or other devices, composed substantially of tungsten and made up mainly of a number of comparatively large grains of such size and contour as to prevent substantial sagging and offsetting during a normal or commercially useful life for such a lamp or other device.

Patent 1,082,933 (claims 26 & 27 were also invalidated).  In invalidating the claims, the court explained that it had no need to consider whether the claim was anticipated. “The claim is invalid on its face. It fails to make a disclosure sufficiently definite.”

The claim uses indeterminate adjectives which describe the function of the grains to the exclusion of any structural definition, and thus falls within the condemnation of the doctrine that a patentee may not broaden his product claims by describing the product in terms of function. Claim 25 vividly illustrates the vice of a description in terms of function. ‘As a description of the invention, it is insufficient, and, if allowed, would extend the monopoly beyond the invention.’

The Supreme Court agreed that the claim was not “wholly functional” and doubted such a limit would be “ever true. Still, the GE court saw the problem here the inventor’s use of “conveniently functional language at the exact point of novelty.”

A limited use of terms of effect or result, which accurately define the essential qualities of a product to one skilled in the art, may in some instances be permissible and even desirable, but a characteristic essential to novelty may not be distinguished from the old art solely by its tendency to remedy the problems in the art met by the patent.

Gen. Electric Co. v. Wabash Appliance Corp., 304 U.S. 364 (1938).

= = = = =

In Lilly, the question focuses on the impact Section 112 with regards to non-combination claims.

Whether a single-step patent claim that describes its point of novelty solely in functional terms violates the rule against functional claiming set forth in Halliburton Oil Well Cementing Co. v. Walker, 329 U.S. 1 (1946).

[Lilly petition]. The claim at issue is directed to a treatment for benign prostatic hyperplasia (prostate enlargement) by administering “an effective amount of an inhibitor of phosphodiesterase (PDE) V.” The claim also includes a group of compounds that might be inhibitors but that are not covered by the claim.  Lilly’s Cialis drug does serve the function of a PDE inhibitor, but Lilly argues that thousands of other drugs also fit the functional description.

The E.D. Tex. court hearing the case allowed it to go to a jury trial and confirmed the jury verdict of infringement ($20 million damages). On appeal, the Federal Circuit affirmed without opinion. (R.36 Affirmance) .

Response: Uropep has now filed its brief in opposition to certiorari. The brief primarily focuses on disputes related to the patent and procedure — arguing (1) that its claim is structural (2) the issue was not properly preserved on appeal. Uropep rewrote the question as follows:

Whether a patent claim that the district court construed as structural—a conclusion that Petitioner did not challenge in its appeal—is valid under the Patent Act.

[Opposition Brief].  Still, the brief does get into the law and particularly argues that “there is no blanket rule against functional claiming” since Congress enacted Section 112. Note that Uropep had originally waived its right to file a brief, but the Supreme Court requested briefing on the case.

One way to think about this case is to look back onto the invalidated claim 25 in GE v. Walker and ask whether that claim would be patentable now. Or, is it unpatentable because the claim sets the “size and contour” of tungsten grains according to their functional limit — “as to prevent substantial sagging and offsetting during a normal or commercially useful life for such a lamp or other device.”

= = = = =

An interesting aspect of this case is how it relates to patent eligibility.  The patentees here appear to have been the first to discover the general concept that PDE V inhibitors can serve as a treatment for benign prostatic hyperplasia. That general discovery itself is an unpatentable aspect of how the human body works — what the Supreme Court calls a Law of Nature.  As such, the patentee looked to find the broadest application of the general law — administering a PDE V inhibitor in an amount effective to treat.  In its briefing, the patentee Uropep suggests that there might have been an eligibility argument in this case, but it was waived by Lilly.

Registering ZERO: Trademarks mean Nothing to Me

Royal Crown Dr. Pepper, and Seven Up v. Coca Cola (Fed. Cir. 2018)

This case stems from Royal Crown’s opposition of Coca-Cola’s attempt to register various trademarks with the term ZERO. These include, among others, SPRITE ZERO, FANTA ZERO, COKE ZERO, PIBB ZERO, and my favorite COKE ZERO ENERGY.

Coke uses the ZERO mark on zero calorie products — presumably to indicate the same.  Other companies, including Royal Crown have used the mark for the same purposes (See DIET RITE PURE ZERO).  Royal Crown argued that Coca-Cola should be required to disclaim the term ZERO since it a generic term is simply descriptive of the a feature of the goods.  The Federal Circuit has approved of the disclaimer process in the past: “Disclaiming unregistrable components prevents the applicant from asserting exclusive rights in the disclaimed unregistrable terms.” In re La. Fish Fry Prods., Ltd., 797 F.3d 1332, 1335 (Fed. Cir. 2015).

Coca-Cola argued that no disclaimer was necessary since its use of the ZERO mark was not generic and has acquired distinctiveness under Section 2(f) of the Lanham Act. The TTAB agreed with Coca-Cola and approved the marks for publication without any disclaimer.

On appeal, the Federal Circuit has VACATED and REMANDED — holding that the TTAB applied the wrong standard in determining whether the the marks are generic and did not fully consider the evidence presented.  The court also held that the TTAB had failed to sufficiently explain how the evidence presented meets the “precise burden” of acquired distinctiveness.

The word ZERO has lots of potential meanings that can vary by context.  In trademark law, we look particularly a mark’s use in the particular marketplace at issue (“genus of goods”) and consider how the the relevant public would understand the term with reference to that genus.   If the term is understood “to refer to a key aspect of that genus” then it is generic. In re Cordua Rests., Inc., 823 F.3d 594, 603 (Fed. Cir. 2016).  It was in the “key aspect” or sub-genus focus that the TTAB failed in its analysis:

The Board here failed to consider whether the relevant consuming public would consider the term ZERO to be generic for a subcategory of the claimed genus of beverages—i.e., the subcategory of the claimed beverages encompassing the specialty beverage categories of drinks with few or no calories or few or no carbohydrates.

On remand, the TTAB will reconsider the issue with a focus on whether ZERO is generic for zero-calorie drinks.

Again, the focus of Trademark Law is the perception of relevant consumers.  A word or phrase that is seemingly descriptive of a product can still serve as a protectable mark if those consumers distinctively associate the mark with particular products or services (rather than the genus as a whole).  In cases where a mark is “highly descriptive” then “evidence of acquired distinctiveness must be exacting.”

Here, however, the TTAB “did not make any finding as to the degree of descriptiveness conveyed by the term ZERO” nor did it asses the evidence “through an exacting lens.”

Important decision: Read it here

What is really going on in the case: Coke could register these marks if it disclaimed protection to ZERO alone.  However, it appears that Coke is looking to use these marks as a stepping-stone for prohibiting any other ZERO soft drinks.

Genus-Species in Trademark Law Usage

Brittex Financial v. Dollar Financial (Fed. Cir. 2021)

This is a trademark case. Dollar Financial holds registered trademarks for MONEY MART – the name it uses for its payday and title loan venders as well as pawn shops and pawn brokerages.  The company had been using the name for several years in the payday loan business, and in 2012 expanded into pawn shops and then filed for registration for that usage in 2013.  The USPTO then granted the registrations associated with the new uses.

Brittex had been using its own version of the mark on its south-Texas pawn shops since the early 1990s: MONEY MART PAWN.  In 2015, Brittex petitioned for cancellation of the mark based upon the likelihood of confusion between the two marks.  In particular, Section 2(d) of the Lanham Act bars registration of a mark that:

so resembles . . . a mark or trade name previously used in the United States by another and not abandoned, as to be likely, when used on or in connection with the goods of the applicant, to cause confusion, or to cause mistake, or to deceive.

15 U.S.C. § 1052(d).

There is no question that these marks are confusing vis-à-vis one another. They are virtually identical and associated with identical services.

The dispute in the case is about priority.  Dollar was the first user of the mark, albeit only in the payday loan and loan financing sphere. Dollar holds an incontestable mark in that area.  On the other hand, Brittex was the first to use the mark in the pawn business.

In its decision, the TTAB sided with Dollar — holding that pawn shop services are “covered or encompassed by loan financing.”  The Board reasoned that a major aspect of the pawn business is making collateralized loans.  That expansive reading of financial services meant that Dollar’s prior use and registration served as direct priority for the new pawn-shop registrations.

On appeal, the Federal Circuit rejected the TTAB’s conclusions — holding that the TTAB went too far in creating new law.  In particular, the court found that the registration of a mark generally covering a broad category (genus) of uses did not necessarily establish priority over a specific (species) use covered by the broad category.   The TTAB provided no “sound legal basis” for a conclusion “that a registrant has priority as to a specific service it was second to offer just because it was first to offer a different specific service that is a species of a genus that covers both specific services.”  Further, even if a genus does provide coverage, that does not necessarily mean that the genus holder has rights to register a specific species over a competitor’s prior use.

The court also rejected the Board’s factual finding of overlap.  While there certainly is some overlap, the court found no support for complete overlap — that all pawn shop business is a form of loan financing.

On remand, Dollar might still win the case based upon a separate argument not yet decided by the TTAB. In particular, there is a separate doctrine of “natural expansion” that can also permit a priority claim for an earlier similar use.

Bridgegate and Property Law

by Dennis Crouch

An expansive notion of “property” also allows for expansive criminal prosecution.  As an example, the Federal Wire Fraud statute makes it a crime to use the “wires” to move forward with “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.”  18 U.S.C. § 1343.

Case-in-point is Kelly v. U.S., 140 S. Ct. 1565 (2020).  Kelly case involves George Washington Bridge lane closing scandal known lovingly as “Bridgegate.” In 2013, Chris Christie was Governor of New Jersey seeking reelection (he won).  His deputy Chief of Staff Bridget Kelly (and others) had caused the bridge lanes to be closed (via text messages) “for a political reason—to punish the mayor of Fort Lee for refusing to support [Christie’s] reelection bid.”  Kelly was prosecuted and criminally convicted for property fraud — both wire fraud as well as fraud on a federally funded program.    The Second Circuit affirmed.

 These statutes require the use of fraud for the purpose of obtaining “property.”  The Supreme Court took up the case and reversed the convictions — holding that Kelly’s actions were not designed to obtain money or property and thus do not violate the statutes.  The court recognized the abuse-of-power: “But not every corrupt act by state or local officials is a federal crime.” (Unanimous opinion authored by Justice Kagan).

The evidence the jury heard no doubt shows wrongdoing—deception, corruption, abuse of power. But the federal fraud statutes at issue do not criminalize all such conduct. Under settled precedent, the officials could violate those laws only if an object of their dishonesty was to obtain the Port Authority’s money or property.

The Government pointed to the following property frauds: commandeering of bridge lane access; diverting the “wage labor” of federal employees.  While the bridge itself can be considered Property, the actions here, according to the court, were a “quintessential exercise of regulatory power” rather than a scheme to “appropriate the government’s property.   The court noted that a “public employee’s paid time” is also the property of the government. According to the court, the use of employee time was “incidental to” the lane-closure purpose — the use of that portion of the government’s property was not the “object of the fraud” as required under Cleveland v. U.S., 531 U.S. 12, (2000) (the statute “requires the object of the fraud to be ‘property'”).

= = = = =

The decision here offers an interesting dichotomy regarding property and property rights. On the one hand, the Court offers a broad conception of what counts as property — including a conclusion that an employer “owns” the time employees are spending working (this seems like a pre-civil war conclusion). On the other hand, the Court weakens property rights by reinforcing its prior conclusions that major regulatory actions that shift the owner’s ability to use its property do not count as property rights violations.  This same dichotomy is seen in patent law with the advent of inter partes review; and is a longstanding element of zoning law.

In January 2011, the Supreme Court vacated and remanded (GVR) a parallel case in Blaszczak v. U.S., 20-5649, 2021 WL 78043 (U.S. Jan. 11, 2021) “for further consideration in light of Kelly v. United States, 590 U.S. –––– (2020).”  In that case, the Second Circuit held that “confidential information” about an upcoming regulatory action was a property right whose “embezzlement” could serve as a basis for property fraud under the statute.  In its decision, the Second Circuit did not use the term “trade secret” but rather suggested that the information was property because it was a “thing of value.” quoting U.S. v. Girard, 601 F.2d 69 (2d Cir. 1979). The outcome of Blaszczak will end up giving us a lot more information about the meaning of property in the US.

 

 

The UK Supreme Court’s Re-interpretation of FRAND in Unwired Planet v. Huawei

Guest post by University of Utah College of Law Professor Jorge L. Contreras

In its Judgment of 26 August 2020, [2020] UKSC 37, the UK Supreme Court affirms the lower court decisions ([2017] EWHC 711 (Pat) and [2019] EWCA Civ 38) in the related cases Unwired Planet v. Huawei and ZTE v. Conversant [I discuss the High Court’s 2017 decision here].  The judgment largely favors the patent holders, and holds that a UK court may enjoin the sale of infringing products that incorporate an industry standard if the parties do not enter into a global license for patents covering that standard. The court covers a lot of important ground, including the parties’ compliance with EU competition law under Huawei v. ZTE (CJEU, C-170/13, 2015) (¶¶ 128-158) and the appropriateness of injunctive remedies under UK law (¶¶ 159-169). But in this post, I will focus on what I consider to be the most significant aspect of the court’s judgment – its interpretation of the patent policy of the European Telecommunications Standards Institute (ETSI), an interpretation that largely determines the outcome of the case and could have far-reaching ramifications for the technology sector.

Background

The case began in 2014 when Unwired Planet, a U.S.-based patent assertion entity (PAE), sued Huawei and other smartphone manufacturers for infringing UK patents that it acquired from Ericsson (other suits were brought elsewhere). The patents were declared essential to the 2G, 3G and 4G wireless telecommunications standards developed under the auspices of ETSI, an international standards-setting organization (SSO).  A companion case was brought by another PAE, Conversant, with respect to similar patents that it acquired from Nokia.

Because Ericsson and Nokia participated in standards-development through ETSI, they were bound by ETSI’s various policies, including its patent policy.  Accordingly, when the patents were acquired by Unwired Planet and Conversant, these policies continued to apply.  The ETSI patent policy requires that ETSI participants that hold patents that are essential to the implementation of ETSI standards (standards-essential patents or SEPs) must license them to implementers of the standards (e.g., smartphone manufacturers) on terms that are “fair, reasonable and non-discriminatory” (FRAND).

Huawei and ZTE are China-based smartphone manufacturers with operations in the UK.  Unwired Planet and Conversant offered to license the patents to them on a worldwide basis, but the manufacturers objected to their proposed royalty rates, claiming that they were not FRAND. Among other things, Huawei argued that any license entered to settle the UK litigation should cover only UK patents.  After numerous preliminary proceedings, in 2017 the UK High Court (Patents) held that a FRAND license between large multinational companies is necessarily a worldwide license. Moreover, if Huawei did not agree to such a worldwide license incorporating FRAND royalty rates determined by the court, the court would enter an injunction against Huawei’s sale of infringing products in the UK. The Court of Appeal largely affirmed the High Court’s ruling.

The UK Supreme Court Embraces SSO Policy Interpretation

In its judgment, the UK Supreme Court gives significant weight to the language and intent of the ETSI patent policy – far more than either the High Court of the Court of Appeal.  This approach contrasts starkly with that of the U.S. Court of Appeals for the Ninth Circuit, which decided another FRAND case, FTC v. Qualcomm (9th Cir., Aug. 11, 2020), just a fortnight earlier.  The Ninth Circuit explicitly dodged any interpretation of the SSO policies at issue in that case (those of the Telecommunications Industry Association (TIA) and Alliance for Telecommunications Industry Solutions (ATIS)), focusing solely on the antitrust issues raised by the parties.  The UK Supreme Court, in contrast, appears to have embraced the exercise of SSO policy interpretation, focusing intently on the language and drafting history of the ETSI policy, as well as its own conclusions about the intent of that language.  This judicial interpretive exercise leads to three key holdings in the case:

ETSI’s Policy Compels a Worldwide License

In determining that a FRAND license between Unwired Planet and Huawei should be global in scope, rather than limited to the UK, Mr Justice Birss of the UK High Court looked to industry practice and custom. He first noted that “the vast majority” of SEP licenses in the industry, including all of the comparable licenses introduced at trial, were granted on a worldwide basis, and both Unwired Planet and Huawei are global companies.  He then reasoned that “a licensor and licensee acting reasonably and on a willing basis would agree on a worldwide licence” (¶543).  In contrast, he regarded the prospect of two large multinational companies licensing SEPs on a country-by-country basis to be “madness” (¶543). Accordingly, the High Court held that  a FRAND license, under these circumstances, must be a worldwide license.

The UK Supreme Court acknowledges the industry practices referenced by the High Court, but bases its reasoning much more heavily on ETSI’s patent policy. First the Supreme Court recognizes the inherent territorial limitations on the jurisdiction of national courts (¶58). However, it is the ETSI patent policy, adopted by the SSO and accepted by its participants, that opens the door both to the consideration of industry practices (¶61) and the extension of national court jurisdiction to the determination of global royalty rates. The Court concludes, “[i]t is the contractual arrangement which ETSI has created in its patent policy which gives the [English] court jurisdiction to determine a FRAND licence” for a multi-national patent portfolio (¶58).  Thus, the Supreme Court affirms the decisions of the lower courts, but grounds its decision more firmly in the ETSI patent policy.

ETSI’s Policy Contemplates Injunctions

The Supreme Court also relies on the ETSI patent policy to support its conclusion that SEP holders may seek injunctions against standards implementers who do not enter into FRAND license agreements. The availability of injunctions in FRAND cases has been the subject of considerable debate in jurisdictions around the world. The UK court comes down in favor of allowing such injunctions, not on the ground that patent holders can do whatever they like, but because “[t]he possibility of the grant of an injunction by a national court is a necessary component of the balance which the [patent] policy seeks to strike, in that it is this which ensures that an implementer has a strong incentive to negotiate and accept FRAND terms for use of the owner’s SEP portfolio” (¶61).

This conclusion is striking in two regards.  First, it largely omits the analysis of EU competition law that typically accompanies the consideration of injunctive relief in EU FRAND cases.  While the Court later discusses Huawei v. ZTE at length (¶¶ 128-158), it does so while analyzing whether the parties violated applicable competition law, not whether competition law itself establishes a basis for seeking injunctive relief.

Second, and more surprisingly, the Court imputes to the ETSI patent policy an affirmative authorization to seek injunctive relief that is found nowhere in the policy itself.  From the fact that the patent policy includes provisions that are favorable to both implementers and SEP holders, the Court finds that the policy intended to establish a “balance” between these two groups, and that a “necessary component” of that balance is the ability of the SEP holder to seek an injunction against the implementer.

This is a surprising result that was not forecast in either of the decisions below. It is particularly significant because it may influence other courts’ interpretations of the ETSI patent policy.  It may also encourage other SSOs, if not ETSI itself, to adopt policy language expressly prohibiting participants from seeking injunctive relief against adopters of their standards (as IEEE has already done).

 Non-Discrimination is Not a Stand-Alone Commitment

The third significant aspect of the judgment relates to the non-discrimination (-ND) prong of the ETSI FRAND commitment.  At the High Court, Mr Justice Birss held that the -ND part of a FRAND commitment does not have a “hard edge”, which would mandate that every FRAND license must be priced at exactly the same rate. Instead, based on EU competition law, he found that differences in pricing should not be objectionable unless they distort competition.  As such, he did not fault Unwired Planet for pricing some FRAND licenses below the rates that it offered to Huawei.

I disagreed with Justice Birss’s reasoning on this point in 2017, arguing that it “conflate[s] two issues: the competition law effects of violating a FRAND commitment, and the private “contractual” meaning of the FRAND commitment itself.” I was thus pleased to see that the UK Supreme Court looks not to competition law, but to the content of the ETSI patent policy, to define the scope of the SEP holders’ non-discrimination obligation.

This being said, the Court’s interpretation of “non-discrimination” is novel and somewhat radical.  Rather than considering the -ND prong of FRAND to be an independent commitment of the SEP holder – that the licenses it grants not discriminate (however that is defined) — the Court blends the -ND prong  together with the “fair and reasonable” (FRA-) prong to form a “general” obligation.  It explains,

Licence terms should be made available which are ‘fair, reasonable and non-discriminatory’, reading that phrase as a composite whole. There are not two distinct obligations, that the licence terms should be fair and reasonable and also, separately, that they should be non-discriminatory. Still less are there three distinct obligations, that the licence terms should be fair and, separately, reasonable and, separately, non-discriminatory” (¶113 (emphasis added)).

As evidence for its interpretation, the Court points to ETSI’s rejection, in 1993, of a ‘most-favored license’ clause in its patent policy.  Interpreting the policy’s non-discrimination commitment as a ‘hard edged’ commitment would, in the Court’s view, re-introduce most-favored treatment “by the back door” (¶116).  As a result, the Court concludes that the non-discrimination prong of ETSI’s FRAND commitment merely “gives colour to the whole and provides significant guidance as to its meaning. It provides focus and narrows down the scope for argument about what might count as ‘fair’ or ‘reasonable’ for these purposes in a given context” (¶114).

As far as I am aware, the elimination of non-discrimination as a separate pillar of the FRAND obligation is at odds with both U.S. case law and the academic literature that address this issue (an overview can be found here).  The Court’s reasoning also contradicts the explicit concerns of the European Commission, which emphasized the importance of non-discrimination during debates over the ETSI patent policy in 1992:

Terms and conditions applied to participants and non-participants should not significantly discriminate against the latter. A fortiori where the standard-making body acts in an official or quasi-official standard-making capacity and where its standards are recognized and even made compulsory by virtue of legislation, access to the standard must be available to all without a precondition of membership of any organization (Communication from the Comm’n, Intellectual Property Rights and Standardization at p. 19, 27 Oct. 1992).

Clearly, the Commission did not view non-discrimination simply as giving color to the meaning of ‘fair and reasonable’.  On the contrary, non-discrimination, standing alone, is among the most important features of the FRAND commitment.  The UK Supreme Court’s interpretation to the contrary is thus highly problematic.

Conclusions

While I applaud the UK Supreme Court’s shift from a focus on competition law to the language and intent of the ETSI patent policy, I am concerned about its conclusions regarding the authority of one country’s courts to determine global FRAND rates, the availability of injunctive relief against standards implementers and the demotion of non-discrimination as an independent prong of the FRAND analysis.

One silver lining in this cloud, perhaps, is that the Court’s judgment, which relies so heavily on the particulars of the ETSI policy, is thus limited to the ETSI policy.  It is unclear how much weight its findings would have for a court, whether in the UK or elsewhere, assessing participants’ obligations under FRAND policies adopted by different SSOs such as TIA and ATIS (as in FTC v. Qualcomm), not to mention SSOs such as IEEE that have adopted language expressly contravening some of the interpretations that the Court makes with respect to ETSI.

In fact, the Court seems to invite SSOs to re-evaluate their patent policies.  Huawei objected to the UK court’s determination of global FRAND rates because, among other things, permitting a national court to resolve a global dispute could promote “forum shopping, conflicting judgments and applications for anti-suit injunctions” (¶90).  The Court tacitly agrees, but then pushes back, seeming to blame SSOs for allowing this to happen:

“In so far as that is so, it is the result of the policies of the SSOs which various industries have established, which limit the national rights of a SEP owner if an implementer agrees to take a FRAND licence. Those policies … do not provide for any international tribunal or forum to determine the terms of such licences. Absent such a tribunal it falls to national courts, before which the infringement of a national patent is asserted, to determine the terms of a FRAND licence. The participants in the relevant industry … can devise methods by which the terms of a FRAND licence may be settled, either by amending the terms of the policies of the relevant SSOs to provide for an international tribunal or by identifying respected national IP courts or tribunals to which they agree to refer such a determination” (¶90).

In this regard, I wholeheartedly agree with the Court. I have long advocated the creation of an international rate-setting tribunal for the determination of FRAND royalty rates.  I continue to believe that such a tribunal, if supported by leading SSOs, would eliminate much of the inter-jurisdictional competition and duplicative litigation that currently burdens the market.  If the UK Supreme Court’s judgment in Unwired Planet encourages ETSI and other SSOs to endorse such an approach, then this could be the most significant outcome of the case.

Supreme Court on Generic Functionality for Website Designs.

USPTO v. Booking.com B.V., Docket No. 19-46 (Supreme Court 2020)

Oral arguments are set in this trademark case for May 4, 2020 [Listen Live at 9:00 am EST].  Booking.com is seeking to register rights on their eponymous service BOOKING.COM. The basic question is whether the addition of “dot com” to a generic term can result in a protectable trademark.

The company’s actually uses the word “booking” in its typical generic form: “The World’s #1 Choice for Booking Accommodations.”  However, the company presented factual (survey) evidence that the addition of dot-com transforms the term in the eyes of consumers. Still, the PTO refused to register the trademark — holding that the “.com” addition is never enough.  The PTO’s approach here relates back to the 1888 decision in Goodyear Co. v. Goodyear Rubber Co., 128 U.S. 598 (1888).  At the time “Goodyear rubber” was seen as a generic term for a type of vulcanized rubber, and the Supreme Court held that adding the term “Company” would not change the matter — even if used for 20+ years with public understanding.

[T]he name of “Goodyear Rubber Company” is not one capable of exclusive appropriation. “Goodyear Rubber” are terms descriptive of well-known classes of goods produced by the process known as Goodyear’s invention. Names which are thus descriptive of a class of goods cannot be exclusively appropriated by any one. The addition of the word “Company” only indicates that parties have formed an association or partnership to deal in such goods, either to produce or to sell them. Thus parties united to produce or sell wine, or to raise cotton or grain, might style themselves Wine Company, Cotton Company, or Grain Company; but by such description they would in no respect impair the equal right of others engaged in similar business to use similar designations, for the obvious reason that all persons have a right to deal in such articles, and to publish the fact to the world. Names of such articles cannot be adopted as trade-marks, and be thereby appropriated to the exclusive right of any one; nor will the incorporation of a company in the name of an article of commerce, without other specification, create any exclusive right to the use of the name.

Id.   Goodyear Co. was later followed by dot.com cases.  See, In re Oppedahl & Larson LLP, 373 F.3d 1171 (Fed. Cir. 2004) (patents.com not registrable). However, in Oppedahl, the Federal Circuit noted that there is no “rule that always disregards the use of ‘.com’.” Id. This sets up the question as presented by the U.S. Gov’t seeking to bar registration of the mark:

Whether, when the Lanham Act states generic terms may not be registered as trademarks, the addition by an online business of a generic top-level domain (“.com”) to an otherwise generic term can create a protectable trademark?

My question in the case is whether the operation of the internet has changed so substantially in the past 20 years so as to require a rethinking.  These days, almost no one types “.com” into their browser window but instead that portion is filled-in automatically.  Likewise, many people (like myself) primarily use Booking.Com via an app rather than a web browser (image below).  In the App setup, “.com” is merely a moniker and offers no direct functionality.

I had expected TLD’s to have lost all of their functionality by now — being eclipsed by other technology. They have continued to hold on, but I still expect that their supremacy (if it still exists) will only be for another decade or less.  Hopefully, the Supreme Court will recognize that its decision here need not assume that our current approach is locked-in-stone.

Manufacturers Locking-In Consumers with Design Patents

by Dennis Crouch

Automotive Body Parts Ass’n v. Ford Global Techs. (Fed. Cir. 2019)

Car manufacturers regularly use design patents to control the repair marketplace.  In this case, Ford accused members of the ABPA of infringing its U.S. Patent No. D489,299 (F150 truck hood) and U.S. Patent No. D501,685 (F150 headlamp) and APBA responded with a declaratory judgment lawsuit — arguing that the patented designs are functional rather than ornamental and therefore invalid.

A design patent must be directed to an “ornamental design for an article of
manufacture” and not one “dictated by function.”  High Point Design LLC v.
Buyers Direct, Inc., 730 F.3d 1301, 1315 (Fed. Cir. 2013) (interpreting 35 U.S.C. § 171(a)).   Although the article of manufacture itself is typically functional, the design itself may not be “primarily functional.”

The Federal Circuit has applied a multi-factor approach that basically asks whether the claimed design is “essential to the use of the article.” Factors:

[W]hether the protected design represents the best design; whether alternative designs would adversely affect the utility of the specified article; whether there are any concomitant utility patents; whether the advertising touts particular features of the design as having specific utility; and whether there are any elements in the design or an overall appearance clearly not dictated by function.

Berry Sterling Corp. v. Pescor Plastics, Inc., 122 F.3d 1452 (Fed. Cir. 1997).

ABPA’s argument here is that anyone repairing a damaged F150 truck will want replacement parts that match the original design.  In particular, APBA “argues
that Ford’s hood and headlamp designs are functional because they aesthetically match the F-150 truck.”  On appeal, the Federal Circuit rejected this theory of functionality: “the aesthetic appeal of a design to consumers is inadequate to render that design functional” —  “even in this context of a consumer preference for a particular design to match other parts of a whole.”  According to the court, market advantage via aesthetic appeal is the exact type of market advantage that design patents are supposed to provide.

The holding here gives a powerful nod of approval to the already rampant use of design patents to lock-in consumers for repair parts and for manufacturers to use design patents to prohibit unauthorized interconnections.  In this form, the case sits closely alongside the Federal Circuit’s decision on Google v. Oracle that is pending certiorari before the Supreme Court.  The case also reaffirms the tradition that the functional limit in design patents is a very weak test — even weaker than that of copyright and trademark law. 

Auto insurance companies have long lobbied congress to weaken design patent coverage on repair parts. This case may trigger a resurgence in that activity.  The case also suggests a potential marketplace for after-market parts that are slightly different from OEM but still functional.  I’d probably prefer an F150 that doesn’t look like the original.  

American Piledriving v. Geoquip: Resolving Different Courts’ Constructions

By Jason Rantanen

American Piledriving Equipment, Inc. v. Geoquip, Inc. and American Piledriving Equipment, Inc. v. Bay Machinery Corporation (Fed. Cir. 2011) Download 10-1283
Panel: Bryson, Gajarsa, and Linn (author)

One of the Federal Circuit's primary purposes is to ensure consistent claim construction results.  American Piledriving v. Geoquip highlights this role. 

American Piledriving holds Patent No. 5,355,964, which relates to counterweights for "vibratory pile drivers."  By rapidly rotating these unevenly weighted counterweights in opposite directions, vibratory forces are generated that force the pile into the ground.  Early counterweights possessed several drawbacks that the invention of the '964 purport to solve.

The district court proceedings on appeal involved two suits brought by American Piledriving, one in the Eastern District of Virginia and the other in the Northern District of California, against distributors of vibratory pile drivers manufactured by Hydraulic Power Systems, Inc. (These two suits were part of a set of seven brought by American Piledriving, all in different districts).  The crucial portion of representative claim 1 reads:

a counterweight rotatably carried in said receiving means for rotation about a rotational axis, said counterweight having a cylindrical gear portion and an eccentric weight portion integral with said cylindrical gear portion, said eccentric weight portion having at least one insert-receiving area formed therein, said counterweight being made of a first metal;

At issue were the district courts' constructions of three claim terms, two of which the courts construed differently: "eccentric weight portion" and "insert receiving area." (The courts reached the same contruction for "integral," a construction the appellate court affirmed).  Based on their constructions of these terms, the two district courts granted summary judgment of noninfringement.

On appeal, the CAFC agreed fully with the Virgina court, affirming its constructions and grant of summary judgment.  The Calfornia court fared slightly less well: the panel disagreed with the additional limitations the trial court added but nonetheless affirmed summary judgment of noninfringement for the two products that were also involving in the Virginia litigation, reversing and remanding for further proceedings on a third product at issue only in the California litigation. 

Although much of American Piledriving comes across as a typical claim construction opinion concluding that well-established principles of claim construction supported the district courts' interpretations, the portions of American Piledriving addressing the two courts' different interpretations of "eccentric weight portion" and "insert receiving area" are somewhat noteworthy.  All three courts determined that some structure provided by the specification was required; however, the CAFC concluded that the California court's constructions went beyond what the rules permitted:

While both district courts indicated that the term should be defined as extending from the face of the gear, the California court also required that the “eccentric weight portion” extend from a particular portion of the gear, extend in a specific direction, and include a receiving area formed to receive a tungsten rod. This court agrees with American Piledriving that nothing in the specification compels the reading of these additional limitations into the construction of “eccentric weight portion.”

Unfortunately, the CAFC's discussion of the differences between these two courts' analyses of the use of the structure in the specification to limit the functional claim elements is limited to this brief passage and a similar passage in its section on "insert receiving area."  This is disappointing given the court's build-up at the beginning of the opinion, which held promise for a thorough dissection of where the cutoff might be in terms of how much structure from the specification should be part of the claim constuction.  See Slip Op. at 10 ("In the course of construing the claims in this case, the Virginia district court carefully avoided redefining the claims and reading limitations into the claims from the written description. The California district court, however, inappropriately added several limitations not contained in the inventor’s claimed definition of the scope of his invention. This disparate treatment of the same issues before two competent and capable district courts is thus instructive."

Indefiniteness: Terms Cannot be Moving Targets

IconIconby Dennis Crouch

Icon Health v. Polar Electro & Garmin Int’l. (Fed. Cir. 2016) [IconHealth]

In a non-precedential opinion, the Federal Circuit has affirmed that Icon’s asserted patent claims are invalid because they “fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.”  Although indefiniteness is a question of law subject to de novo review, the starting point of that review is almost always the district court opinion – thus the court here looked for errors in the district court decision.  That is especially true here where the district court decision was based in part on underlying factual conclusions that receive deference under Teva.

Claims define the scope of the exclusive patent right and there are a number of benefits associated with having that scope clearly delineated.  Because patentees have control of claim language, the law places a burden on patentees to also ensure clarity.  Section 112 of the Patent Act requires that requires “one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention.” In Nautilus, the Supreme Court interpreted the statute as requiring claims to “inform those skilled in the art about the scope of the invention with reasonable certainty.”  As I have written before, “reasonable certainty” is generally thought of as a high standard that is difficult to meet, but the Supreme Court did not elaborate on its meaning in the patent context. Up to now, the Federal Circuit has also resisted an exploration of the term’s meaning other than noting that the standard is significantly higher than was was previously in play.

The patent at issue covers an “exercise system” that includes “in-band communication” with a local server; “out-of-band communication” with the user; and a “relationship” between the in-band and out-of-band communication.  Both the district and appellate courts found that this “relationship” was undefined and that the distinction between the two forms of communication was unduly ambiguous.

At the Markman hearing, the district court allowed expert testimony on the meaning and definiteness of these terms and the Federal Circuit approved of that approach – since “the indefiniteness of the claim terms simply cannot be resolved by reference solely to the intrinsic evidence (i.e., the claims, specification, and prosecution history).”  The defendants here took an interesting tack of presenting ten-different extrinsic references and showing that the meaning of the communication forms would vary depending upon which was chosen. Thus, based upon that evidence, the courts found “that those skilled in the art understand that the terms ‘in-band’ and ‘out-of-band’ are relative terms, and only have meaning in a given context with a defined reference, such as a frequency, a channel, a protocol, time slots, and data streams.”  Because the patents themselves offered no such context, they were deemed indefinite.

= = = = =

I mentioned above that indefiniteness is a question of law.  A major limitation on that approach however comes from Teva, where the Supreme Court held that underlying factual conclusions regarding evidence extrinsic to the file history should be given deference on appeal.  Here, the court found that the conclusions regarding the ten extrinsic references “constitute findings of fact, and we review such factual findings for clear error. Teva.”

= = = = =

Level of Proof Depends upon Purpose of Proof: Teva does offer an interesting dichotomy regarding factual conclusions that may need further exploration. Although parties may benefit from deference on appeal – there is also the higher standard of proof – “clear and convincing evidence” – that must be met before a claim may be found invalid.  The result of this evidentiary burden then is that the level of proof required to support factual conclusions underlying a claim construction determination will depend upon the purpose for which the claim construction is being used.  If invalidity then the underlying conclusions require presentation of clear-and-convincing evidence; if infringement then the court’s underlying conclusions require only a preponderance of the evidence.

“No License, No Problem” – Is Qualcomm’s Ninth Circuit Antitrust Victory a Patent Exhaustion Defeat?

Guest post by University of Utah College of Law Professor Jorge L. Contreras

The Ninth Circuit’s recent decision in FTC v. Qualcomm (9th Cir., Aug. 11, 2020) is generally viewed as a resounding victory for Qualcomm.  In a strongly worded opinion, the Ninth Circuit reversed the entirety of the district court’s holding, which found that Qualcomm violated Sections 1 and 2 of the Sherman Act.  The Ninth Circuit exonerated Qualcomm with respect to each of its allegedly anticompetitive practices, concluding that these practices merely reflected the flexing of Qualcomm’s “economic muscle” with admirable “vigor, imagination, devotion, and ingenuity” (slip op. at 55).

Among Qualcomm’s challenged practices was its refusal to license rival chip makers under patents that are essential to one or more wireless telecommunications standards (standards-essential patents or SEPs).  While the District Court found that this refusal violated Qualcomm’s antitrust duty to deal under Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985), the Ninth Circuit disagreed.  It reasoned that Qualcomm did not violate any duty to deal because it uniformly refused to grant patent licenses to chip makers and did not “single[] out any specific chip supplier for anticompetitive treatment” (slip op. at 35).

In praising Qualcomm’s egalitarian approach toward rival chip makers, the Ninth Circuit points out that instead of granting licenses to these rivals, Qualcomm merely “declines to enforce its patents” against them “even though they practice Qualcomm’s patents” (id). As such, the Ninth Circuit quips that Qualcomm’s “policy toward rival chipmakers could be characterized as ‘no license, no problem’” (id., emphasis added).  Yet, as I discuss below, this approach could actually be a very big problem, not only for Qualcomm, but for all patent licensors seeking to extract revenue from the most lucrative point in the supply chain.

The Patent Exhaustion Doctrine and Chip Sales

As the Supreme Court explained in Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008), “The longstanding  doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item.”  That is, once the patent holder or its authorized licensee sells a product covered by a patent, that patent can no longer be asserted against a downstream buyer or user of the product. The patent is “exhausted” with respect to that particular product.

In Quanta, LG licensed three patents to Intel.  Intel manufactured chips allegedly covered by the patents, then sold the chips to Quanta for incorporation into Quanta’s PCs. LG then attempted to assert the patents against Quanta.  The court held that so long as the Intel chips “substantially embodied the patent[s]”, they were exhausted upon Intel’s sale of the chips to Quanta (553 U.S. at 633).  LG had no right to assert the patents against Intel’s customer Quanta.

Level Discrimination and SEPs

To grossly oversimplify, the supply chain for standardized wireless telecommunications functionality can be divided into three relevant tiers: (1) standards developers, (2) chip manufacturers, and (3) end user device (e.g., smartphone) manufacturers.  Standards developers like Qualcomm cooperate within standards-development bodies to create telecommunications standards like 4G LTE. Chip manufacturers then implement these standards in chipsets, which they sell to device manufacturers for incorporation into smartphones and other consumer devices.

What happens, however, when a standards developer like Qualcomm holds patents (SEPs) that cover a standard like LTE?  In theory, both the chips embodying the standard and the smartphones incorporating those chips infringe its SEPs.  Thus the SEP holder could choose to license those SEPs at either Tier 2 (chip manufacturers) or Tier 3 (device manufacturers). How to choose?

If a SEP holder licenses a chip manufacturer, then its SEPs covering a particular chip will be exhausted as soon as the manufacturer sell that chip to a device manufacturer, just as LG’s patents were exhausted in Quanta.  This means that if the SEP holder licenses a Tier 2 chip manufacturer, it cannot separately license, or collect royalties from, Tier 3 smartphone manufacturers for the same SEPs.  Qualcomm was keenly aware of the risk of patent exhaustion, which is why it refused to grant “exhaustive” licenses to chip makers like Intel. 411 F.Supp.3d at 748, 761.

If SEP royalties were standardized on a per-unit basis (e.g. $0.50 per product embodying the standard), then it would not matter whether the SEP holder licensed its SEPs at Tier 2 or Tier 3.  In either case it would receive the same payment.  However, due to longstanding industry practice, that is not how SEP royalties are calculated. Instead, they are usually based on some percentage (say 2.5%) of the price of the product embodying the standard.  So for a 4G LTE wireless radio chipset priced at $30, the royalty would be $0.75.  But for a $600 iPhone incorporating that chipset, the royalty would be $15.  For this reason, SEP holders strongly prefer to license their SEPs to end device makers (Tier 3).  As explained by one Ericsson licensing executive, “we choose to license the patents as late in value chain as possible …. One big advantage with this strategy is also that it is likely that the royalty income will be higher since we calculate the royalty on a more expensive product.” Or, as more succinctly expressed by a Qualcomm attorney at trial, licensing SEPs to device makers is “humongously” more lucrative than licensing  them to chip makers. 411 F.Supp.3d at 754, 758, 796.  The practice by which a SEP holder licenses its SEPs at only one tier of the supply chain is sometimes called “level discrimination.” (Courts and commentators disagree whether level discrimination is permitted under the nondiscrimination prong of a FRAND commitment – see this article for a discussion).

Pseudo-Licensing Deals with Chip Makers

If a SEP holder licenses its SEPs at Tier 3, what happens to the Tier 2 chip manufacturer? Does the chip that embodies the standard infringe the SEPs?  Yes, probably. Patent exhaustion only works downstream, not upstream.  That is, a smartphone manufacturer can’t infringe a SEP if it purchases a chipset from a licensed chip maker.  But a chip manufacturer can infringe a SEP even if its customer (the smartphone maker) has a license to use it.  Without a license, the Tier 2 chip maker is exposed to infringement claims by the SEP holder.

So what’s a chip maker to do?  Should it manufacture and sell chipsets that embody a standard even though it knows that it is infringing a host of SEPs?  Wouldn’t this infringement be willful, subjecting the chip maker to a risk of treble damages (see Sec. 5.2.1(1) of this chapter for a discussion of willful infringement of SEPs)?  It seems like an untenable situation for a chip maker.

To address this situation, Qualcomm appears to have developed various strategies.  In the 1990s, it granted chip makers purportedly “non-exhaustive licenses” that permitted them to manufacture chipsets covered by Qualcomm’s SEPs (in exchange for a royalty), but which explicitly excluded any license rights for the purchasers of those chipsets (9th Cir., slip op. at 14 n.7).  In Quanta, the Supreme Court rejected such a “non-exhaustive” arrangement between LG and Intel, holding that LG’s patent rights were exhausted upon Intel’s sale of covered chips to Quanta.  After this, Qualcomm amended its practices and began to enter into “CDMA ASIC Agreements” with chip makers. Under these agreements, “Qualcomm promises not to assert its patents in exchange for the company promising not to sell its chips to unlicensed [smartphone manufacturers]” (9th Cir., slip op. at 14, emphasis added).  According to the Ninth Circuit, these agreements “allow Qualcomm’s competitors to practice Qualcomm’s SEPs royalty-free” (id.).  Or, as the court pithily observed, Qualcomm’s “policy toward rival chipmakers could be characterized as ‘no license, no problem’” (id. at 35).

The Ninth Circuit found that because Qualcomm applied its “no license, no problem” policy uniformly toward all rival chip makers, it did not violate the antitrust laws.  But did Qualcomm, instead, open the door to a finding that its patents are exhausted at the chip maker level?

Do SEP Makers Inadvertently Grant Exhaustive Licenses to Chip Makers?

As observed by the Ninth Circuit, Qualcomm “promises not to assert” its SEPs against chip makers.  Its CDMA ASIC Agreements allow chip makers “to practice Qualcomm’s SEPs royalty-free”.  Ericsson, which employs a similar form of level discrimination, has referred to the result as “indirect licensing” of chip manufacturers (see Ericsson v. D-Link, 2013 U.S. Dist. LEXIS 110585, *80 (E.D. Tx. 2013)).

In assessing whether a patent has been licensed, courts have generally looked beyond the language used by the parties.  As the Supreme Court reasoned in De Forest Radio Telephone Co. v. United States, 273 U.S. 236, 241 (1927), “No formal granting of a license is necessary in order to give it effect. Any language used by the owner of the patent, or any conduct on his part exhibited to another from which that other may properly infer that the owner consents to his use of the patent in making or using it, or selling it, upon which the other acts, constitutes a license”.

A number of lower court cases have equated a license to a ‘covenant not to sue’.  As the Federal Circuit held in Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1031 (Fed. Cir. 1995), “A license may amount to no more than a covenant by the patentee not to sue the licensee for making, using or selling the patented invention.”

Given this precedent, SEP holders’ practice of tacitly permitting chip manufacturers to operate under their patents, whether by promising not to assert or “indirectly” licensing, looks suspiciously like licensing.  And, if SEP holders are granting chip manufacturers licenses to make and sell chips under their SEPs, then those SEPs should, by rights, be exhausted upon the sale of those chips to smartphone and other device manufacturers.  And this exhaustion should thereby prevent SEP holders from seeking to license and collect royalties from Tier 3 device manufacturers who incorporate those chips into their smartphones and other products.

This result should come as no surprise to anyone, least of all Qualcomm.  According to the District Court, a Qualcomm executive admitted to the IRS in 2012 that “if Qualcomm licensed a rival [chip manufacturer] … ‘[W]hen [the rival] sell[s] that chip to somebody who’s going to put the chip in a cell phone, okay, the licensee’s sale of that chip will exhaust our rights and then we won’t be able to collect a royalty on a cell phone that’s based on the price of the cellphone’” (411 F.Supp.3d at 796).  When Huawei apparently asserted that Qualcomm’s SEPs were exhausted after selling chips to Huawei, Qualcomm allegedly “threatened to cut off [Huawei’s] chip supply” (id. at 712).

These statements and actions indicate that Qualcomm was well-aware of the threat of patent exhaustion, and actually took measures to avoid the appearance of exhaustion (e.g., by converting its chip maker license agreements into CDMA ASIC Agreements).  Yet in trying to rebut the antitrust allegations made against it, and to overturn the District Court’s antitrust holdings, Qualcomm seems to have persuaded the Ninth Circuit that it effectively grants licenses to rival chip manufacturers. And, in doing so, Qualcomm may have armed its next smartphone licensee with a potent exhaustion defense to any claim of infringement.  Ultimately, “no license, no problem” may cause big problems for Qualcomm and other SEP holders that seek to license only at the most lucrative level of the supply chain.

Novel, Technological, and an Abstract Idea

by Dennis Crouch

Primbas, et al. v. Iancu (Supreme Court 2020)

This new petition for certiorari asks the following question:

Whether recitation in a patent claim of a combination of steps determined to be inventive over an idea is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [idea] itself.”

Petition, quoting Alice.

Christopher Primbas and his co-inventor Philip Stamataky are seeking to patent their method of eliminating coins from cash transactions. [claim 1 is below].  The figures below attempt to highlight the invention — instead of receiving coins from a transaction, you receive a merchant credit.

The examiner actually allowed the claims back in 2014 with a notice of allowance just before the Supreme Court’s decision in Alice. The applicant paid the issue fee, but the PTO withdrew the application from issue.  The examiner then issued a new rejection — finding the claims ineligible as directed to an abstract idea under Alice. That decision was affirmed by the PTAB and by the Federal Circuit (R.36 judgment without opinion).  This setup leads folks to fight hard — they were given real hope via notice of allowance and that was pulled-out from under them.

The basic

 

Here is the claim now on appeal:

1. A method involving a retail cash transaction in which a customer uses physical currency to pay a merchant for goods or services received, in which an amount between 1¢ and 99¢ in coin change is due to the customer and used as payment for credit purchased, the method comprising the steps of:

the customer tendering cash to the merchant as payment for the goods or services and there being an amount of coin change due back to the customer, which amount the customer does not receive in the form of physical coins but rather in the form of a cash purchase of credit equal to the amount of coin change otherwise due;

in a different financial transaction than the cash-tender transaction, debiting, using an electronically readable device physically present at the customer-merchant transaction and in electronic communication with an electronic processor and a financial network, one or more accounts associated with the customer in an amount equal to a tracking fee, which is equal to the entire amount of the cash purchase of credit; and

subsequently crediting to the one or more accounts associated with the customer the sum of both the cash purchase of credit and the tracking fee;

wherein the debiting and crediting steps are performed electronically and the tracking fee reflects both the cash purchase of credit and its transfer into the one or more customer accounts.

See Petition Appendix.  The petition argues that the claim here recites a patent-eligible “technical solution” that the patent office has expressly admitted is a novel solution to a long-considered problem.

The petition particularly point to its claims that require debiting with a e-readable device (credit card) and communication with a financial network.  The petitioner argues that a benefit of the solution here is that it works with existing credit card networks and thus does not need an expensive merchant retrofit. “[T]he ability to use a conventional card reader and an existing credit card network are advantages of this technical solution, as the use of conventional electronic hardware and card networks that are already in use at most point of sale registers allows for use of this solution by retailers without purchasing or installing any new hardware.”

Jeremy Doerre filed the petition in this case and also filed Judge Rader’s recent amicus brief in Chamberlain Group.

 

Cancelling Pre-AIA patents and the Takings Clause

Guest Post by Prof. Gregory Dolin (Baltimore). Prof. Dolin recently filed an amicus brief supporting Celgene’s arguments that AIA post-issuance review represents an uncompensated takings of pre-AIA patent rights.

Since its passage in 2011, the America Invents Act has been subject to numerous Supreme Court decisions. But thus far, the major constitutional challenge to the Act in Oil States Energy Servs v. Greene’s Energy Group has failed. But while the Court the, upheld the AIA’s post-issuance review system against an Article III challenge, left a major question open. The Oil States Court stated that it was not resolving whether the application the AIA-created procedures to patents issued prior to the AIA’s effective date violates the Takings Clause of the Fifth Amendment. This question is now squarely presented to the Court in Celgene v. Peter. (There are also pending cases that in addition to the Takings issue raise a Due Process challenge).

Celgene owns two patents “generally directed to methods for safely distributing teratogenic or other potentially hazardous drugs while avoiding exposure to a fetus to avoid adverse side effects of the drug.” These patents were issued in 2000 and 2001, or more than a decade prior to the enactment of the AIA. These patents were challenged before the Patent Trial and Appeal Board (PTAB) in 2015 in an Inter Partes Review (IPR), and the proceeding resulted in cancellation of all but one of the challenged claims in both patents. As with other post-issuance proceedings, but unlike district court litigation, Celgene’s patents enjoyed no presumption of validity, and could be cancelled upon preponderance of evidence. Furthermore, in construing Celgene’s claims, PTAB utilized the “broadest reasonable interpretation” (BRI) approach, as was called for by the then-current rules. The interplay of lower standard of proof for cancellation and the BRI standard, combined with the lack of a meaningful opportunity to amend the claims, left patents challenged in IPR particularly vulnerable. (Since that time, the Patent Office issued new rules to amend its procedures and now measures the claims under the Phillips framework—the same standard in use by Article III tribunals).

Celgene challenged this procedure in the U.S. Court of Appeals for the Federal Circuit, arguing that by applying a different claim construction standard than in district court and denying the patent a previously existent presumption of validity, the America Invents Act retroactively devalued its property rights in their patents and therefore resulted in the constitutionally compensable Taking in violation of the Fifth Amendment. Relying on its two prior decisions, the Federal Circuit rejected the argument, holding that the presumption of validity is not “a property right subject to the protection of the Constitution.” Additionally, the Federal Circuit held that Celgene suffered no diminution in its property rights because its patents were always subject to ex parte and inter partes reexamination proceedings, both of which use (or used) the preponderance of the evidence standard with respect to patent validity. Celgene sought certiorari and I, together with Professors Kristen Jakobsen Osenga and Irina Manta filed a brief in support of the petition.

The argument we made in favor of Celgene is relatively straightforward. As the Supreme Court recognized time and again, a patent is a property right protected by the Takings Clause of the Constitution. In turn, the decision to procure a patent is fundamentally an investment decision which takes into account the likelihood that a patent would be challenged and survive such a challenge. In addition, the decision to disclose the invention and forgo trade secret protection is essentially a tradeoff: the patentee sacrifices the confidentiality of the invention in exchange for the protections of the patent system. (Admittedly, it is not always possible to keep the invention secret, especially if regulatory approval is necessary as in the case of Food and Drug Administration’s approval to market drugs or medical devices. Nonetheless, broadly speaking, an inventor has a choice between patent protection and trade secrecy protection). Depending on the robustness of those protections, the scales of the decision on whether to seek a patent may tip one way or another. Thus, the legal regime existing at the time the applicant filed for the patent constitutes the patentee’s “investment-backed expectation.”

The legal regime matters, and IPRs couldn’t be more different from reexaminations. As my research shows, the economic impact of the AIA on patent holders has been profound. The reason behind this significant drop in value is that although administrative review procedures have existed for nearly 40 years, these procedures have always been coupled with a patentee’s unlimited right to amend the claims in order to preserve their validity. Thus, prior to the AIA the patentee knew that if his patent were challenged one of two things will happen. One option was for the dispute to end up in an Article III court where the claim would rise and fall as written, but where the patent would enjoy a presumption of validity. Alternatively, the dispute would be resolved by the Patent Office where the claims would not be presumed valid, but would be subject to amendments for as long as the patentee was willing to continue prosecuting the patent. The AIA fundamentally altered this balance. Under the AIA, claim patentability can be adjudicated by the PTAB without the presumption of validity and without a robust opportunity to amend the claims. (Although the statute does permit claim amendments, these are not as of right, but must be requested by motion to the PTAB. Since October 2017 when the Federal Circuit held that Motions to Amend must be allowed unless the Patent Office carried its burden to show that claims are unpatentable, the PTAB has granted only 16% of such motions (with an additional 6.5% being granted in part). These already low numbers are a significant improvement from the pre-2017 system where the PTAB granted under 3% of such motions.

It should be acknowledged that Celgene did not seek to amend its claims during the PTAB proceedings, which may make it not an ideal vehicle to resolve the takings claim. On the other hand, given PTAB’s rejectionist approach to motions to amend, it is quite possible that Celgene was among countless patentees who chose not to bother with filing the motions in the first place. (It is worth noting that Celgene’s patents were adjudicated prior to October 2017).

The Supreme Court has previously concluded in Ruckelshaus v. Monsanto Co., that when the government changes the terms of the bargain with an individual, such a change can result in a regulatory taking. In Monsanto, the Court held that the Environmental Protection Agency’s public disclosure of data voluntarily submitted to the Agency may, in some circumstances, constitute a taking. The Court’s analysis was centered on the legal rules governing the use and disclosure of such data and the “nature of the expectations of the submitter at the time the data were submitted.” The Court held that the Government’s guarantee at the time of submission that the submitted data would remain a trade secret and not be disclosed to third parties “formed the basis of a reasonable investment-backed expectation” and played a role in the property holder’s decision whether to submit the data to the EPA in the first place. Celgene’s situation is analogous. When it had to make a decision whether or not to obtain a patent or rely on trade secrecy, it made the decision by reference to the then existing government guarantees of patent protections. Changes to that regime are what constitutes a compensable taking.

Before closing, it should be acknowledged that there is a significant issue that is antecedent to the question presented in Celgene’s petition. That is whether the Federal Circuit has jurisdiction to hear such claims absent filing of a claim for compensation in the Court of Federal Claims (CFC) and if so, how the Claims Court is supposed to evaluate the value of property lost. That question is embedded in a separate petition before the Supreme Court. The Federal Circuit has recently concluded that the CFC does have jurisdiction to hear such claims, even if on the merits it must reject them. The Government has advanced a contrary view (which the CFC endorsed, though this endorsement is at odds with the Federal Circuit’s later opinion). It may be that this issue may need to be resolved before (or concurrently with) the issue presented by Celgene.

In sum, the Supreme Court should answer the question whether retroactive application of the AIA’s post issuance review procedures to patents issued prior to the passage of the AIA, and which results in their invalidation, constitutes a taking within the meaning of the Fifth Amendment—a question the Court explicitly left open in Oil States. And in my view, the answer should be “yes.”