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Life Tech v. Promega: Supreme Court Limits Contributory Liability for Exports

Patent

Life Technologies Corp. v. Promega Corp. (Supreme Court 2017)

In a largely-unanimous opinion, the Supreme Court has ruled that the “supply of a single component of a multicomponent invention for manufacture abroad does not give rise to §271(f)(1) liability.”

The case interprets the patent infringement statute 35 U.S.C. §271(f)(1) that creates liability for supplying from the US “all or a substantial portion of the components of a patented invention” to be combined abroad in a manner that would infringe the US patent (if it had been combined in the US).  The patent covers a genetic testing kit that includes five different components.  The accused infringement was shipping one component of the kit (Taq polymerase) to the UK for combination with the other components. The Federal Circuit had ruled that a single component could constitute a “substantial portion of the components” under the statute.

Writing for the court, Justice Sotomayor found that the “substantial portion” should be seen as a quantitative requirement and that a single component is not sufficient.

Although they joined with the bulk of the opinion, Justices Alito and Thomas did not join the portion suggesting that 271(f) was intended as a narrow provision enacted by congress only to fill the gap left by Deepsouth Packing Co. v. Laitram Corp., 406 U. S. 518 (1972).  Rather, in a concurring opinion, justice Alito writes that congress intended “to go at least a little further.”  The concurrence also includes its interpretative statement on the majority opinion:

I note, in addition, that while the Court holds that a single component cannot constitute a substantial portion of an invention’s components for §271(f)(1) purposes, I do not read the opinion to suggest that any number greater than one is sufficient. In other words, today’s opinion establishes that more than one component is necessary, but does not address how much more.

[14-1538_p8k01]

Whether a Patent Right is a Public Right

Patent,

publicprivate

by Dennis Crouch

Another interesting en banc petition by Robert Greenspoon and Phil Mann: Cascades Projection v. Espon and Sony, Appeal No. 17-1517 (Fed. Cir. 2017).  The petition asks one question: “Whether a patent right is a public right.” Of course, the Federal Circuit has already decided this in MCM – which is why the petitioner is bypassing the initial appeal and asking directly for an en banc hearing.

[S]ince this Court has not had a chance (as a full court) to consider the exceptionally important constitutional question, since intervening decisions after MCM have encroached upon the MCM constitutional holding, since patentees continue to bring the same constitutional challenge in hopes of overturning the MCM constitutional holding, and since overturning the MCM holding will potentially reduce this Court’s ballooning USPTO docket, Appellant seeks initial en banc review.

The “public rights” issue is complicated, but the basic outcome is simple – if patents rights are not public rights (but instead private rights) then an administrative agency cannot lawfully revoke a patent once issued (without the permission of the patentee).

The Supreme Court appeared to speak directly on this issue in McCormick Harvesting Mach. Co. v. Aultman-Miller Co., 169 U.S. 606 (1898):

The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent. Moore v. Robbins, 96 U. S. 530, 533; U. S. v. American Bell Tel. Co., 128 U. S. 315, 364, 9 Sup. Ct. 90; Lumber Co. v. Rust, 168 U. S. 589, 593, 18 Sup. Ct. 208.

Although the direct case is 100+ years ago, we’re still working with the same United States Constitution that protects private property rights against governmental intrusion that violate due process and equal protection principles.

In MCM, the Federal Circuit distinguished these old cases by noting that patent office cancellations were not authorized by Congress: “McCormick … certainly did not forbid Congress from granting the PTO the authority to correct or cancel an issued patent.” MCM (opinion by Judge Dyk, joined by Judges Prost and Hughes).  The petition offers several responses: (1) McCormick does not actualy provide the ‘statutory caveat’ but instead limits PTO authority “for any reason whatever.” (2) The reissue statute in force in McCormick did expressly authorize examiners to reject the issued claims – whether original or amended. Thus, the McCormick decision did limit the power of Congress to increase PTO power.

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One of the petitioner’s justifications for en banc review here is that it might allow the court to limit its docket.  In the process, the petition cites my recent Wrongly Affirmed Without Opinion article for the proposition that the court’s opinion writing docket may soon be further ballooning. “If Professor Crouch is right, it could be serendipitous if the Court overrules MCM, thus reducing docket load through reduction of incentives of patent owners to appeal.”

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The public/private divide is, in reality, a false dichotomy since the Court is comfortable with the notion of “quasi-private right” — which has the aspects of a private property right, but which can be subjected to administrative agency control.  A key recent opinion on point is B&B Hardware (2015) – albeit the dissent by Justice Thomas (with Scalia):

Trademark registration under the Lanham Act has the characteristics of a quasi-private right. Registration is a creature of the Lanham Act, which “confers important legal rights and benefits on trademark owners who register their marks.” Because registration is merely a statutory government entitlement, no one disputes that the TTAB may constitutionally adjudicate a registration claim.

By contrast, the right to adopt and exclusively use a trademark appears to be a private property right that “has been long recognized by the common law and the chancery courts of England and of this country.” In re Trade–Mark Cases, 100 U.S. 82, 92, 25 L.Ed. 550 (1879). As this Court explained when addressing Congress’ first trademark statute, enacted in 1870, the exclusive right to use a trademark “was not created by the act of Congress, and does not now depend upon it for its enforcement.” Ibid. “The whole system of trade-mark property and the civil remedies for its protection existed long anterior to that act, and have remained in full force since its passage.” Ibid. Thus, it appears that the trademark infringement suit at issue in this case might be of a type that must be decided by “Article III judges in Article III courts.” Stern, 564 U.S., at ––––, 131 S.Ct., at 2609.

B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293, 1317, 191 L. Ed. 2d 222 (2015) (Thomas, J. Dissenting).

Partial-Institution Decisions Blessed by En Banc Federal Circuit

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SAS v ComplementSoft (Fed. Cir. 2016)

Today, the Federal Circuit denied SAS’s en banc request challenging the USPTO’s approach to partial-institution of inter partes review petitions.  In a substantial number of cases, the PTO only partially agrees with the IPR petition and thus grants a trial on only some of the challenged claims.  In the present case, for instance, SAS’s IPR Petition challenged all of the claims (1-16) found in ComplementSoft’s Patent No. 7,110,936, but the Director (via the Board) instituted review only on claims 1 and 3-10.

The statute seems to side with SAS: The Board “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner” 35 U.S.C. § 318(a).  However, the appellate panel in this case (following prior precedent) held that “Section 318(a) only requires the Board to address claims as to which review was granted.”

In its petition, SAS wrotes:

Because § 318(a) is clear and unambiguous in requiring a final written decision as to “any patent claim challenged by the petitioner,” the PTO had no authority to adopt a contrary rule authorizing IPRs “to proceed on all or some of the challenged claims,” 37 C.F.R. § 42.108(a). Regardless of efficiency or workload concerns, the PTO’s rulemaking authority “does not include a power to revise clear statutory terms.” Utility Air Regulatory Grp. v. Environmental Protection Agency, 134 S. Ct. 2427, 2446 (2014).

In what appears to be a 10-1 decision, the Federal Circuit has denied SAS’s petition for en banc review.  Although the majority offered no opinion, Judge Newman did offer her dissent (as she did in the original panel decision).

 

 

 

Denial of PTAB Amendment: Arbitrary and Capricious

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Veritas Tech v. Veeam Software (Fed. Cir. 2016)

In an important decision, the Federal Circuit issued a limited rejection of Inter Partes Review amendment procedure — holding that the PTAB acted in an arbitrary and capricious manner by denying the patentee’s motion to amend its challenged claims.

Although claim amendments are officially allowed in IPR proceedings, the Patent Trial & Appeal board has a practice of only approving amendments after the patentee shows that the claims as amended are patentable over the references at issue in the case.  As part of this process, the PTAB requires that the patentee discuss each feature added to the claim and “whether the feature was previously known anywhere, in whatever setting, and whether or not the feature was known in combination with any of the other elements in the claim.” Toyota Motor Corp. v. American Vehicular Sciences LLC, IPR2013-00419, slip op. at 4–5 (Paper 32) (PTAB March 7, 2014).

Here, the patentee did not discuss each new feature individually but rather merely stated that the combination of new features were not described in the prior art. And, because the patentee failed to discuss each added feature separately, the PTAB found that the patentee “failed to meet its burden of showing that it is entitled to an award of a patent on a system having those features.”

On appeal, however, the Federal Circuit rejected that analysis — finding it “arbitrary and capricious.” In particular, the court wrote that the discussion of the combination  was not “meaningfully different” from the PTAB’s proposal.

In this case, we fail to see how describing the combination is meaningfully different from describing what is new about the proposed claims, even in comparison to the unamended claims.

This case may have some impact on the pending en banc appeal In re Aqua Products. That appeal addresses the following two questions:

(a) When the patent owner moves to amend its claims under 35 U.S.C. § 316(d), may the PTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 U.S.C. § 316(e)?

(b) When the petitioner does not challenge the patentability of a proposed amended claim, or the Board thinks the challenge is inadequate, may the Board sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie?

The Veritas court writes that the PTAB decision here is erroneous regardless of the outcome of Aqua.

 

DuPont v. MacDermid Printing: The importance of a Patentee’s Pre-Filing Statements

Patent, , , , ,

by Dennis Crouch

A skilled patent attorney working with a qualified searcher could cobble together a colorable obviousness argument against the vast majority of issued patent claims.  Part of the difficulty for patentees stem from the the billions of prior art references available via increasingly effective search tools. Even when an invention results from a ‘flash of genius,’ patent law typically back-fills extensive knowledge for the obviousness analysis – even when that knowledge was not actually available at the time of the invention.  The larger difficulty though is likely the large number of hard-to-pin-down facts such as the motivations, common sense, and level of creativity of a person having ordinary skill in the art.

The “expansive and flexible” approach to nonobviousness is frustrating to many, but it is seen as a feature of the system fully supported by the Supreme Court.  In KSR, the court wrote:

Throughout this Court’s engagement with the question of obviousness, our cases have set forth an expansive and flexible approach. . . . Rigid preventive rules that deny fact finders recourse to common sense… are neither necessary under our case law nor consistent with it.

KSR v. Teleflex (2007) [04-1350].  Conventional wisdom post-1980 has been that the factual inquiry makes summary judgment of obviousness difficult for a patent challenger.  Rather, obviousness goes to the jury.  Since KSR, that attitude has shifted somewhat.  (The even newer model is that obviousness goes to the PTO in an IPR proceeding – save that for a different essay).

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Summary Judgment of Obviousness: In DuPont v. MacDermid Printing (Fed. Cir. 2016) [15-1777], the NJ district court granted summary judgment of obviousness against the patentee DuPont – holding that the asserted claims of DuPont’s U.S. Patent 6,773,859 invalid under 35 U.S.C. 103.   The ‘859 patent relates to the manufacture of  a flexo plate for digital printing — a plate used to print digital images on flexible materials.   The claimed advance involves heating-up the plate to remove unpolymerized material (rather than using a harsh solvent).

The obviousness case combines two prior art references: “Martens [a 3M patent] teaches a process for developing an analog plate using heat” and “Fan [DuPont patent] teaches developing a digital plate using solvents.”   The inventor (Roxy Fan) is also the first named inventor of DuPont’s ‘859 patent being challenged in this case. The Fan prior-art patent, however, was filed a decade prior.  Reviewing these two references, the court found that the ‘859 patent uses “the same technology and processes pertaining to digital imaging” previously disclosed by Fan and the same thermal development process disclosed in Martens.  In finding a motivation-to-combine these references, the district court walked through several factors.

  • Limited set of potential combinations: The prior art only had two imaging styles (digital and analog) and four development techniques (thermal, etc.) – this makes the ‘859 combination more likely obvious to try.
  • Benefits of Moving to Digital: The prior art taught benefits of switching to digital (thus suggesting the substitution), including an article published by DuPont
  • Market Incentive: DuPont marketing material suggest a “strong incentive” to combine the thermal process with digital plates.

The district court also rejected DuPont’s evidence of commercial success, longfelt need, and industry praise – finding them insufficient to overcome the “strong showing of obviousness.”

On appeal of this summary judgment finding, DuPont focused on the standard-of-review – noting that the district court had failed to “draw reasonable inferences” in its favor.  In the process, DuPont pointed to a long list of factual disputes between the parties where it would be reasonable to draw different conclusions from the evidences.

The Federal Circuit affirmed – finding that the strong undisputed evidence of prior art and motivation to combine fully supported the summary judgment finding.

[T]he record contains strong evidence that a skilled artisan would have had a reason to combine two known technologies and would have had a reasonable expectation of success in doing so. Indeed, DuPont itself promoted the digital and thermal technologies as technological breakthroughs in prior art publications. Thus, in view of the record as a whole, even drawing all justifiable inferences in favor of DuPont, the objective evidence is insufficient to preclude summary judgment on the ultimate legal conclusion of obviousness.

Doomed by Its Own Prior Statements: The obviousness case against DuPont here is interesting because (1) one of the core prior art references was a DuPont reference and (2) DuPont’s own statements regarding its prior inventions led to the motivation-to-combine finding.  DuPont’s private case study will likely walk through and consider whether it should have taken a different pathway regarding the public disclosures.

Caveat: Although the patentee’s pre-filing disclosures are important – it is also important to remember that the question of obviousness is an objective analysis focusing on the hypothetical mind of a person having ordinary skill in the art.  What this means is that the patentee’s disclosures are should not be treated as “party admissions” and given special treatment in the obviousness analysis.  Rather, the disclosures are simply added to the body of knowledge available to the artisan.  Here, the Federal Circuit came dangerously close to crossing the line into giving information actually available to and created by DuPont special weight in the obviousness analysis.

 

En Banc Query: Must the PTO Allow Amendments in IPR Proceedings?

Patent,

AquaImageby Dennis Crouch

In its original Aqua Products decision, the Federal Circuit upheld the USPTO’s tight limits on amendment practice in IPR proceedings. Under the rules, a patentee has one opportunity to propose amendments or substitute claims. However, the proposal will only be granted if the patentee also demonstrates in the motion that the proposed amendments would make the claims patentable over the known prior art.

In a new order, the Federal Circuit has now granted the appellant’s en banc rehearing request – asking the parties to focus solely on the following questions regarding the burdens:

(a) When the patent owner moves to amend its claims under 35 U.S.C. § 316(d), may the PTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 U.S.C. § 316(e)?

(b) When the petitioner does not challenge the patentability of a proposed amended claim, or the Board thinks the challenge is inadequate, may the Board sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie?

En Banc Order.  The court has invited views of amici curiae.  Those briefs will be due October 5, 2016 (unless supporting the PTO’s position and then you get an extra month).  Appellant’s brief will be filed by September 26, 2016. Oral argument are already scheduled for Friday, December 9, 2016 at 10:00 a.m.

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The underlying case involves Aqua Products’ self-propelled robotic pool cleaner that uses an internal pump both as a vacuum cleaner to power the propulsion system.   U.S. Patent No. 8,273,183.  Competitor Zodiac Pool Systems filed for IPR which the PTO instituted as to some of the challenged claims and ultimately issued a final decision that the claims were invalid as obvious over a combination of two prior-art references.

Motion to Amend: In a timely motion, Aqua moved to amend three of the claims to include the limitations found in the non-instituted claims. (In particular, the patentee asked to substitute claims 1, 8, and 20 with claims 22-24 respectively.  The PTAB agreed that these new claims satisfied the formal requirements of Section 316(d), but refused to enter the amendment – finding that the patentee’s motion had failed to show that the substitute claims were distinguishable over the prior art.

The parties (Aqua & Zodiac) settled the underlying infringement case in April 2015 and so Zodiac did not participate in the appeal. However, the USPTO intervened in the case to defend Aqua’s appeal of the PTAB invalidity holding.

The PTO’s position in the case remains defiant.  The Agency argues that its rules regarding amendments and its application of those rules are both reasonable and entitled to substantial deference.

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Documents:

 

 

 

 

 

Some thoughts on Broadest Reasonable Interpretation

Patent,

By Jason Rantanen

A few weeks ago, my curiosity took me into trying to figure out what broadest reasonable interpretation (BRI) actually means as an approach to claim construction and how it differs from claim construction in infringement proceedings.  Surprisingly, there’s relatively little in treatises or academic work on this subject so I ended up putting together a short essay on the subject.  Here are links to the essay on SSRN and SocArXiv.

The abstract:

In this essay, I examine the meaning of “broadest reasonable interpretation” along two dimensions: how it affects the Federal Circuit’s review of Patent Office claim constructions and what it seems to mean in substantive terms. Central to both is the term “reasonable.” How should that term be understood? Does it mean that the Federal Circuit grants deference to the Patent Office when reviewing its constructions, as some commentators describe and some opinions suggest? And, perhaps more importantly, what is a “broadest reasonable interpretation” and how does that fit into the process of claim construction generally?

Here, I argue that regardless of one’s view on the historical nature of judicial review of Patent Office claim interpretation, any deference is inconsistent with the Federal Circuit’s use of a de novo standard when reviewing claim interpretations by the Patent Office (with the exception of findings of fact relating to extrinsic evidence). Second, I argue that the still-developing jurisprudence at the Federal Circuit is coalescing around a meaning of “broadest reasonable interpretation” that allows for the existence of multiple ordinary meanings and reads the intrinsic evidence with a certain degree of “looseness,” but which is still hesitant to embrace ambiguity within the application of the tools of claim construction.

Inter Partes Review Statistics

Patent,

By Jason Rantanen

This post summarizes data on inter partes review proceedings and appeals from the Patent Office.  Although the office publishes a monthly Patent Trial and Appeal Board Statistics packet, the narratives contained within that packet can create confusion as discussed in Michael Sander’s guest post earlier this year.  Below are some of the charts that I’ve developed based on the publicly available information to attempt to get a better handle on what’s going on in terms of case flow and outcome.

As you look at these charts, keep in mind the temporal issues associated with IPR proceedings.  Once a petition is filed, it typically takes about six months before an institution decision is made.*  If a petition is instituted, it will be about a year (and sometimes more) before the trial decision.  Thus, very few petitions filed in the last four months or so will have reached the point of institution decisions, and nearly all trial decisions issued in the last few months relate to petitions filed over a year (and probably around 18 months) ago.  Appeals of trial outcomes will be filed within 2-3 months depending on whether a rehearing is requested.

The consequence of this is that each successive piece of information relates to an earlier time period.  The institution rates shown in the first graph relate to the petitions filed about 5-7 months earlier; the trial outcomes shown in the second graph relate to petitions filed about 18 months earlier (and instituted about 12 months earlier), and the appeal numbers relate to trial outcomes from about 2-3 months earlier (with the additional caveat that these are all appeals from the Patent Office, not just appeals from IPRs).  These sequences are approximations, but they’re important in understanding the relationship between filed petitions, institution rates, trial outcomes and appeals.

Finally, note that at each stage, some percentage of the cases continuing on after the earlier stage will drop out due to settlement or for other reasons (such as joinders at the institution stage).  Thinking of the data as an inverted pyramid might be helpful.

Petitions Filed and Institution DecisionsIPR Petitions1

Petition filing and institution rate data indicates that both the rate of filing and rate of institution have plateaued.  Since June of 2014, the number of new petitions filed each month has ranged between 96 and 184, with most quarters falling between about 400 and 450 new filings.  The fourth quarter of 2015 and the first quarter of 2016 did see a drop, though, so perhaps we’ve seen the peak of IPR petition filings.

Trial OutcomesIPR Trial Outcomes

The most interesting thing to note about the above graph of trial outcomes, which I created based on the differences reported in the monthly statistical reports issued by the PTO, might be that recent months have seen a fall in the percentage of trials in which all claims were held unpatentable.  In March 2016, for example, while 40 trials resulted in all claims held unpatentable, twenty-one resulted in no claims held unpatentable.  And in May and June, only a bit over 50% of the trials resulted in all claims held unpatentable.

Appeals

The below chart depicts the numbers of appeals docketed at the Federal Circuit arising from the PTO, the District Courts, and the International Trade Commission.  It illustrates a dramatic rise in the number of appeals from the PTO, with the number projected to surpass the number of appeals arising from the district courts this year.  It’s use in assessing IPR proceedings is limited due to the fact that the data does not differentiate between appeals from IPR proceedings and other appeals from the PTO.    I’d be interested in hearing from anyone who’s done the detailed breakdown of these appeals to know whether the standard hypothesis–that this rise is mainly due to appeals from IPR proceedings–is correct.

Appeals Docketed

*These numbers are based on the PTO’s own timeline, see 77 Fed. Reg. 48757 (Aug. 14, 2012), and data from LexMachina indicating the median time to institution decision is currently 185 days, and the median time to final decision is currently 540 days.

Federal Circuit Saves Patentees by ruling that “Before” includes “Just Afterwards”

Patent

by Dennis Crouch

Immersion Corp. v. HTC Corp. (Fed. Cir. 2016) [ImmersionHTC]

Sometimes one day makes a big difference – especially if you accidentally missed yesterday’s deadline (or if you misread the statute).

The case here is about the deadline for filing a continuation application under 35 U.S.C. § 120.  The general rule for filing a continuation application is that it must be filed while the parent application is “alive” – before the parent is either patented or abandoned.   The statutory language for this requirement statues that must be “filed before the patenting or abandonment of or termination of proceedings” of the parent application.” Id.  Since patents are thought to issue at 12:01 am on their appointed date of issue (and thus are enforceable any time that day), the statutory language seems to suggest that a proper continuation must have been filed on the prior-day in order to have been “filed before . . . ”.  The PTO has never gone-in for that interpretation and instead has long stated in its regulations that continuations may be properly filed on the issue date.

On appeal here the Federal Circuit contravenes that statutory language and sides with the PTO interpretation. In particular, the court holds that a continuation is properly filed on the date of issuance of the parent application. In reaching this decision, the court looked to the long history of allowing same-day-continuation filing and support from the PTO.

In short, the repeated, consistent pre-1952 and post-1952 judicial and agency interpretations, in this area of evident public reliance, provide a powerful reason to read section 120 to preserve, not upset, the established position. And the conclusion is reinforced by the fact that Congress has done nothing to disapprove of this clearly articulated position despite having amended section 120 several times since its first enactment in 1952

To bolster its decision supporting the PTO, the court interestingly indicates that the PTO’s interpretation of the deadline is “essentially procedural.” As a result, the PTO’s statutory interpretation should be given weight rather than considered de novo on appeal.

The decision by Judge Taranto and signed by Judges Prost and Linn.  Because of the clear pro-patentee outcome of this decision and textual strain, a well positioned petition for certiorari has some chance.

Data on Federal Circuit Appeals and Decisions

Patent

By Jason Rantanen

A few months ago, I wrote that the Federal Circuit is now receiving more appeals arising from the Patent and Trademark Office than the District Courts.  As of the end of May, that trend is still holding strong.

CAFC Appeal Rates

This influx of appeals raises the question of how the Federal Circuit will manage its expanded docket.  One possibility is that the court will make greater use of Rule 36 summary affirmances in appeals where the panel votes to affirm.

To assess whether this is already happening, my research assistants collected and coded information about all decisions in appeals arising from the PTO and district courts that were posted to the Federal Circuit’s “opinions and orders” page since 2008.  (To my knowledge, this represents the full set of opinions and Rule 36 summary affirmances, but if anyone has contrary information I’d be very interested in hearing it.)  Orders (not all of which are posted to the website) are not included in the below graphs.

The first graph distinguishes between Federal Circuit opinions, both precedential and nonprecedential, and Rule 36 summary affirmances.  The orange bars represent numbers of opinions each year and the blue bars represent numbers of Rule 36 summary affirmances.  The percentages reflect the percentage of Rule 36 summary affirmances.

PTO Opinions v R 36

I see two takeaways from this graph. One is that the use of Rule 36 summary affirmances is indeed rising, both in absolute numbers and as a percentage of dispositions.  During 2015 and so far in 2016, the Federal Circuit has resolved more appeals arising from the PTO through Rule 36 summary affirmances than with an opinion.

But the court can hardly be accused of slacking: at the same time that Rule 36 summary affirmances are going up, the court is also issuing more opinions in appeals arising from the PTO than ever before. Last year, the court issued almost 60 opinions in appeals arising from the PTO and this year it is poised to exceed that by a substantial margin.

A similar trend appears from looking at precedential and nonprecedential opinions separately.  The following figure depicts numbers of precedential opinions (yellow), nonprecedential opinions (red), and Rule 36 affirmances (blue).  The rate at which the court is issuing both precedential and nonprecedential opinions is climbing, with the court issuing only a few less precedential opinions in the first five-and-a-half months of 2016 than all of last year.  The percentages here reflect the percentage of all dispositions that took the form of a precedential opinion.

PTO Nonprec prec Rule 36

I also looked at appeals arising from the district courts and include those graphs as below.  Here, too, the percentage of appeals disposed of through a Rule 36 summary affirmance has risen since 2008, as has the absolute number of Rule 36 summary affirmances.  However, given the slight dip in appeals arising from the district courts, I expect to see a lower number of both appeals and summary affirmances this year.

DCt Opinions v R 36

For the sake of completeness, here’s the figure for precedential and non-precedential opinions broken out separately.

DCt Nonprec prec Rule 36

Data collection notes: For purposes of this analysis, each document was treated as an individual disposition.  Approximately 10% of the data was coded by independently by two coders.  Comparison of the coding results indicated near-perfect agreement.

Thanks to my research assistants Peter Kline and Andrew Stanley for their work in coding these decisions.

MCM v. HP Briefs

Patent,

by Dennis Crouch

Petition:

  • MCM-Petition-and-Appendix: (1) Whether inter partes review (IPR) violates Article III of the Constitution; and (2) whether IPR violates the Seventh Amendment to the Constitution.
  • Response Due June 30, 2016.

Amici in Support of Grant

  • MCM_INTERDIGITAL_TESSERA (“Characterizing something as a public right comes with certain consequences. By incorrectly holding that patents are public rights, the Federal Circuit’s decision has far-reaching and wholly implausible consequences that the Federal Circuit never grappled with and that have ‘nothing to do with the text or tradition of Article III.'”)
  • MCM_NYIPLA (“The public rights doctrine is a complex issue that requires this court’s resolution.”)
  • MCM_Mossoff (“[T]his Court has long recognized and secured the constitutional protection of patents as private property rights reaching back to the early American Republic.”) (Signed by Profs Mossoff (Scalia Law), Cahoy (Penn State), Claeys (Scalia Law), Dolin (Baltimore), Ely (Vandy), Epstein (NYU & Chicago), Harrington (Montreal), Holte (SIU), Hurwitz (Nebraska), Manta (Hofstra), O’Connor (UW), Osenga (Richmond), Schultz (SIU)).
  • MCM_UNM (“[T]he threat of IPR devalues university patents.”)
  • MCM_LAUDER (“Amici agree with Petitioner that the IPR procedure was beyond Congress’s power to impose, and its underpinning rationale—that patents are a matter of administrative largesse, rather than a constitutionally protected property right—is constitutionally infirm.”)
  • MCM_HoustonInvestors (“Congress has exceeded its authority to undermine patents to give “patent pirates” encouragement to infringe patents in the well supported historical expectation that the IPR is likely to invalidate the patents.”
  • MCM_SECURITYPEOPLE (“As noted in McCormick Harvesting Co. v. Aultman, 169 U.S. 606 (1898), once a patent is issued, it can only be cancelled or invalidated by an Article III court, not the executive branch. Similarly, as taught in Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), Congress cannot conjure away the Seventh Amendment fact-finding process employed in Article III courts by mandating that traditional legal claims be tried to an administrative tribunal.”)
  • MCM_IEEE-USA (“This bizarre state of affairs merits the close scrutiny of this Court. All issued U.S. patents deserve the same constitutional protections and legal standards in invalidation proceedings as those available in Article III courts.”) * UPDATE: The brief was filed by IEEE-USA (a division of IEEE).

Judge Hughes and the New § 101 Dichotomy

Patent,

By Jason Rantanen

Enfish v. Microsoft (Fed. Cir. 2016) Download Enfish
Moore, Taranto, Hughes (author)

In re TLI Communications Patent Litigation (Fed. Cir. 2016) Download TLI
Panel: Dyk, Schall, Hughes (author)

This month’s decision in Enfish was an overnight sensation—almost literally, as mere days later the PTO issued the new examiner guidance to implement the decision that Dennis wrote about last week.  That guidance emphasizes the Federal Circuit’s recognition of Mayo Step-1 as a meaningful inquiry and focuses on particular aspects of Enfish that relate to that inquiry: comparisons to prior abstract idea determinations; a caution against operating at too high a level of abstraction of the claims, and the rejection of the tissue-paper argument that use of a computer automatically dooms the claim (it doesn’t).

Although receiving only light treatment in the guidance, in my view the critical analytical move in Enfish is more than just the court’s recognition of Mayo Step 1 as meaningful—it is the analytical framework that the Federal Circuit constructs that ultimately determines the outcome.  At its heart, Enfish contains a seemingly simple categorization scheme, one that offers the promise of a quick and easy way out of the § 101 maelstrom.  Yet, looking deeper, my sense is that it would be a mistake to rely too heavily on the Enfish framework as a universal solution, even in the computer technology space.

On its own terms, the Enfish framework sets up a choice between “whether the focus of the claims is on the specific asserted improvement in computer capabilities…or, instead, on a process that qualifies as an “abstract idea” for which computers are invoked merely as a tool.”  Enfish Slip Op. at 11.  In other words, is the claimed invention something that makes a computer work better?  Or are computers merely being used to do another task?  If the former, the subject matter is patentable; if the latter, the claim must be subjected to Mayo Step-2.  This distinction sets up the ultimate conclusion in Enfish that the claims are not directed to an abstract idea and serves as the analytical difference between Enfish and In re TLI Patent Litigation, a subsequent opinion concluding that the challenged claims are not directed to patentable subject matter.

In Enfish, Judge Hughes introduced the “improvement in computer capabilities”/”invoked merely as a tool” dichotomy after rejecting the idea that “all improvements in computer-related technology are inherently abstract and, therefore, must be considered at step two.”  Id. In broad terms, the inquiry involves considering “whether the claims are directed to an improvement to computer functionality versus being directed to an abstract idea,” but the framework is made more concrete in the next sentence.  That sentence contains the language quoted above, a binary categorization whose importance grows as it is repeated throughout the remainder of the discussion of patentable subject matter:

  • “In this case [] the plain focus of the claims is on an improvement to computer functionality itself, not on economic or other tasks for which a computer is used in its ordinary capacity.”  Id. at 12.
  • “we find that the claims at issue in this appeal are not directed to an abstract idea within the meaning of Alice.  Rather, they are directed to a specific improvement to the way computers operate.”  Id.
  • “the claims here are directed to an improvement in the functioning of a computer.  In contrast, the claims at issue in Alice and Versata can readily be understood as imply adding conventional computer components to well-known business practices.”  Id. at 16.
  • “And unlike the claims here that are directed to a specific improvement to computer functionality, the patent ineligible claims at issue in other cases recited use of an abstract mathematical formula on any general purpose computer.”  Id. at 17.
  • “In other words, we are not faced with a situation where general-purpose computer components are added post-hoc to a fundamental economic practice or mathematical equation.  Rather, the claims are directed to a specific implementation of a solution to a problem in the software arts.  Id. at 18.

Central to the Enfish framework is a recognition and definition of what is not patentable subject matter.  The opinion does not try to fight the idea that there is some subject matter that is not patentable.  Instead, it acknowledges that there are limits on patentable subject matter and works with those limits.  Judge Hughes considers the precedents in this area and identifies them as fundamentally involving the use of a computer as a general-purpose tool.  By defining what is not patentable subject matter in this way, Judge Hughes is freed to identify some “other” that is outside that impermissible category: developments that improve on the operation of the computer itself. Here, although the claimed invention could conceivably be articulated as an abstract idea, placing it within the framework leads to only one outcome: it is an improvement in computer capability, and thus patentable subject matter.

But viewing Enfish as the end-all of abstract ideas analysis, while appealing, would a mistake.  Judge Hughes’ next patentable subject matter opinion, issued just a few days latter, suggests that there is more to the analysis than just mechanically applying the Enfish framework.  At first, In re TLI Patent Litigation starts out with the Enfish framework: that “a relevant inquiry at step one is ‘to ask whether the claims are directed to an improvement to computer functionality versus being directed to an abstract idea.'” TLI Slip Op. at 8, quoting Enfish.  In Enfish, he observed,:

“We contrasted claims ‘directed to an improvement in the functioning of a computer’ with claims ‘simply adding conventional computer components to well-known business practices,’ or claims reciting ‘use of an abstract mathematical formula on any general purpose computer,” or “a purely conventional computer implementation of a mathematical formula,’ or ‘generalized steps to be performed on a computer using conventional computer activity.'”

Id., quoting Enfish. Unlike in Enfish, however, “the claims here are not directed to a specific improvement to computer functionality.  Rather, they are directed to the use of conventional or generic technology in a nascent but well-known environment, without any claim that the invention reflects an inventive solution to any problem presented by combining the two.”  Id. 

In re TLI raises two additional points to consider, however.  First, in addition to defining what is not patentable subject matter, Judge Hughes articulates some characteristics of subject matter that is patentable: “a solution to a ‘technological problem’ as was the case in Diamond v. Diehr” or an “attempt to solve a challenge particular to the Internet.”  Id. at 10.  Left unclear is the meaning of this discussion: does one only get to the solution to a technological problem inquiry if the claims are not directed to a specific improvement to computer functionality?  Or is the analysis more flexible than Enfish implies?

More significant are concerns about the bright-line nature of the Enfish approach.  While bright-line rules can be helpful, Bilski v. Kappos demonstrates the risk associated with their use in the patentable subject matter area.  Judge Hughes recognizes this concern in TLI, noting “the Supreme Court’s rejection of ‘categorical rules’ to decide subject matter eligibility.'”   Id.  The Federal Circuit will need to be careful to avoid becoming overly reliant on the Enfish framework, especially in areas where it does not fit well.  With the benefit of the last few years of experience, hopefully the Federal Circuit will be able to avoid this pitfall.  Even as this issue works its way out, however, I suspect to see the Enfish framework drawn upon heavily at the PTO and in district courts in the near future.

Guest Post: The AIA, Inter Partes Review, and Takings Law

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In a provocative new article called “Taking Patents,” 72 Wash & Lee L. Rev. (forthcoming 2016), Gregory Dolin (Baltimore) and Irina Manta (Hofstra) argue that the Federal Government effectuated a taking through its creation and implementation of the inter partes review mechanism.  Below, Camilla Hrdy and Ben Picozzi summarize the main points of their recent response to Dolin and Manta, “The AIA Is Not a Taking: A Response to Dolin & Manta,” 72 Wash. & Lee L. Rev. Online 472 (2016).

Gregory Dolin and Irina Manta argue in a forthcoming article that the Leahy-Smith America Invents Act (AIA) effectuated a Fifth Amendment “taking” by enhancing the mechanisms for challenging issued patents in administrative proceedings. Initial data do indicate that patents are more likely to be found invalid in the new inter partes review (IPR) and covered business method review (CBMR) proceedings than in district court actions or through the IPR and CBMR’s administrative predecessors. Patentees’ have even complained that the filing of individual IPR petitions has affected their stock prices.

Has the AIA made it too easy to invalidate a patent? Have patentees been treated unfairly? Maybe. Maybe not. But one things is clear: Dolin and Manta’s argument that the AIA is a taking faces serious legal hurdles.

First, Dolin and Manta’s premise that patents are property rights protected by the Takings Clause is far less clear than they contend. While the Supreme Court has recently suggested that patents, like land, “cannot be appropriated or used by the government itself, without just compensation,” see Horne v. Department of Agriculture, 135 S. Ct. 2419 (2015) (quoting James v. Campbell, 104 U.S. 356, 358 (1882)), both that statement, and the statement it quotes, are dicta. More recent decisions express greater ambivalence regarding patents’ status under the Takings Clause.

In contrast with trade secrets, the Supreme Court has never held that patents are property under the Takings Clause. In Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999), the Court held that Congress can’t abrogate states’ sovereign immunity from patent infringement claims. In reaching this conclusion, the Court stated that patents are “surely included within the ‘property’ of which no person may be deprived by a State without due process of law.” Id. at 642. But the Court declined to rule on patents’ status under the Takings Clause. See id. at 642.

Most recently, in Zoltek Corp. v. United States, 442 F.3d 1345 (Fed. Cir. 2006) (per curiam), vacated on other grounds, 672 F.3d 1309, 1314–22 (Fed. Cir. 2012) (en banc), the Federal Circuit held (rightly or wrongly) that 28 U.S.C. § 1498 is the only means of recovery for patentees whose patents are infringed by the U.S. government. Patentees can’t bring claims for compensation under the Takings Clause. Although the court eventually vacated that decision, the court never repudiated the reasoning behind its constitutional holding.

Dolin and Manta try to get around Zoltek by arguing that, unlike government infringement—which is like a forced permit and leaves all the rights of a patent intact—the AIA “changed the scope of patent rights themselves” by subjecting issued patents to more stringent post-issuance review. However, courts have not endorsed that argument, and analogs are difficult to find.

Second, even if we accept the argument that government can potentially take patents by altering their scope retroactively, courts are unlikely to view post-issuance review proceedings as the kinds of government actions regulated by the Takings Clause. Courts assessing constitutional challenges under the Fifth or Fourteenth Amendment tend to distinguish actions intended to “cure” defects in government administrative systems from incursions on property rights. In Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985), the Federal Circuit rejected a very similar challenge to IPR’s predecessor based partly on this distinction, noting that reexamination statute belonged to “the class of ‘curative’ statutes, designed to cure defects in an administrative system[,]” and that such statutes are treated more favorably for Fifth Amendment purposes even when they devalue property rights. We see little reason that a court would reach a different conclusion today.

Lastly, even if a court decides it is possible for the government to take patents by subjecting them to more stringent post-issuance review, Dolin and Manta’s argument almost certainly loses as a matter of takings doctrine. To determine whether a particular governmental action effectuates a taking, courts assess “the character of the governmental action, its economic impact, and its interference with reasonable investment-backed expectations.” See Penn. Cent. Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978). Thus, even assuming we accept that the AIA significantly devalued all patents (a big “if”), whether this constitutes a taking depends on whether patentees should have anticipated that Congress would amp up administrative review, given the existing regulatory background.

Dolin and Manta argue the AIA’s enhanced IPR and CBMR proceedings interfered with patentees’ “reasonable investment-backed expectations” by increasing the likelihood that their patents would be found invalid in administrative proceedings utilizing patentee-unfriendly rules such as “preponderance of the evidence” standard for invalidation and “broadest reasonable construction” with limited opportunity to amend. But, as Dolin and Manta concede, the AIA was enacted against a background of federal statutes and regulations that authorize challenges to patent validity. IPR and CBMR review are only the latest in a series of administrative procedures authorizing parties to offensively challenge the validity of issued patents. To us, it seems highly unlikely that the question of whether the Takings Clause applies to the creation of new IPR and CBMR review could turn on such small differences as whether or not patentees have a full opportunity to amend their claims during review.

Also, it is worth noting that beyond third party challenges to patent validity, numerous federal regulatory statutes limit patentees’ ability to exploit their inventions for purposes of health and safety. For example, various regulatory review statutes, such as the Food, Drug, and Cosmetic Act (FDCA), the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), and the Toxic Substances Control Act (TSCA), practically reduce effective patent lifetimes by prohibiting patentees from commercially marketing or using protected products prior to regulatory approval. Yet none of these statutes fully compensate patentees for their losses.

Are these actions all takings as well? This conclusion has troubling consequences. Does Congress really need to compensate patentees every time it passes a statute that significantly affects the value of issued patents? Could Congress pass regulations for the purpose of restraining bad-faith enforcement of patents that have already been granted? What about judicial actions that reduce the value of patents? Do they intend for Congress to compensate patentees in these cases or to take fewer actions limiting patent rights, simply due to the fear of effectuating a taking? This seems like a dangerous basis on which to formulate patent policy.

In any case, we think that, given this regulatory backdrop and the existence of administrative review proceedings for over thirty years, patentees could foresee—or reasonably should have foreseen—that the government would continue to actively regulate patent rights without “just compensation.”

Together, these arguments persuade us that the AIA is not a taking. Nevertheless, the authors’ article is a thought-provoking and educational analysis of the constitutional implications of Congress’s recent efforts to reform the patent system. We thank them for reopening the door on this area of scholarship.

Baker Botts Dodges $42 million Verdict in Patent Conflict Case

Ethics

This is a fascinating case on several levels, Axcess International, Inc. v. Baker Botts LLP (Tex. App. Dallas March 2016).  Baker Botts was representing one client, Axcess International, Inc. (“Axcess”) in prosecuting patent applications involving certain radio frequency identification technology. After it had filed those applications, it began to represent another client, Savi Technologies, Inc. (“Savi”) in prosecuting applications on similar technology. There is a lot going on in the case, but essentially Axcess sued Baker Botts and alleged two breaches of duty.

First, that, but for a conflict of interest between Savi and Axcess, Baker Botts would have broadened claims the firm had been pursuing for Axcess. The opinion is hard to follow but there seem to be two, related, claims made by Axcess.

First, Axcess argued that had it broadened its claims, the USPTO would have declared an interference with a then-pending Savi application, and Axcess would have prevailed. Put the other way, Baker Botts “pulled its punches” – had a material limitation in terms of 37 C.F.R. 11.107, I presume — on its ability to represent Axcess – because of its representation of Savi. Had it prevailed in the interference, Axcess would have claims to subject matter that turned out to be the lucrative technology. That leads to the second basis, which is that the broadened claims would have issued to Axcess and would have covered the lucrative terrain.

The case went to trial and the jury awarded $42 million dollars to Axcess. However, Baker Botts moved that judgment be entered in its favor, and raised four grounds. The trial court granted the motion without saying why.

The appellate court affirmed on one of the alternate grounds to affirm raised by Baker Botts – that there was no causation: specifically, that expert testimony was required and the testimony presented fell short of reliable expert testimony but was instead speculative.

In holding there was no evidence of causation, the Texas state appellate court placed the standard quite high, in my opinion and based solely on what is repeated in the opinion. The appellate court held that Axcess should have had an expert who was competent to testify that an interference would have been declared, specifically someone who could testify an Interference Practice Specialist would have reacted to the suggestion of an interference.

The second point seems to be that conflict-free counsel would have obtained broader claims that covered Savi’s commercial products. Here, the appellate court said there was no evidence the USPTO would have issued the claims. It is not clear what was done by Axcess: did the expert compare the hypothetical claims to the prior art of record? If so, that would seem to be enough, but the appellate court stated that there had to be evidence of how the USPTO would have responded to hypothetical patent applications and “evidence from similar cases.” In a vacuum and without the full trial record, this seems odd. Again, the opinion is hard to follow.

So, Baker Botts for now has dodged a $42 million verdict that arose out of relating competitors in closely related patent applications. Who knows how much the firm spent in doing so, and whether it will be reviewed by the Texas supreme court (that court has a discretionary review procedure sort of like the U.S. Supreme Court. Those risks need to be assessed in examining so-called “subject matter” conflicts. (Buy my book on prosecution ethics and read more!)

One other thing: along the way, the court stated that Baker Botts had been subpoenaed in a related case where an accused infringer argued that Baker Botts had failed to disclose in applications for Savi information the firm had obtained from Axcess. That case settled and there is no indication Savi sued Baker Botts for that failure; the existence of the subpoena and that case shows the risks of representing competitors and being careful about doing so!

Finally, the case is a warning about being careful: state courts are going to decide patent prosecution malpractice claims. Think about that.  I honestly sometimes don’t know if arbitration is any better, however, and I am beginning to think that there really are some issues in even a routine malpractice case where a state’s interpretation of law could radically affect a federal objective and interfere with patent prosecution. Stay tuned for that.

Patentlyo Bits and Bytes by Anthony McCain

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Get a Job doing Patent Law                  

Federal Circuit: Board Must Explain its Decisions

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by Dennis Crouch

In the non-precedential Cutsforth v. MotivePower decision, the Federal Circuit has vacated a PTAB inter partes review (IPR) final decision — holding that “the Board did not adequately describe its reasoning for finding the claims obvious.”

The patent at issue is directed to a brush-assembly used to maintain an electric current with a rotating mechanism. US Patent No. 7,990,018. 

The Federal Circuit requires that the PTAB “articulate articulate its reasoning for making its decision.” See In re Sang-Su Lee, 277 F.3d 1338 (Fed. Cir. 2002).  Along these lines, the board must explain the factual bases for its findings and must go well beyond “conclusory statements.”  Most PTAB decisions are related to the question of obviousness and the Federal Circuit particularly requires the Board to “explain why a person of ordinary skill in the art would modify the prior art references to create the claimed invention.” See In re Kotzab, 217 F.3d 1365, 1369 (Fed. Cir. 2000) and In re Rouffet, 149 F.3d 1350 (Fed. Cir. 1998).

Here, the Board apparently recited the challenger’s (MotivePower’s) arguments and the ultimate conclusion of obviousness, but did not “formally” adopt the arguments as its own conclusions. See MotivePower, Inc. v. Cutsforth, Inc., IPR2013-00274.  On appeal, the Federal Circuit rejected this approach. Some key quotes:

The Board’s decision appears to assume this combination is obvious. It offers no explanation for why a person of ordinary skill in the art would adjust Bissett and Kartman to create the claimed mounting block of the ’018 patent. The Board only states that MotivePower argued it was obvious to do so. Merely reciting MotivePower’s argument does not satisfy the Board’s responsibility to explain its own reasoning. The decision must explain why a person of ordinary skill in the art would find it obvious. The Board gives no such explanation. . . .

For claim 5, which requires that the mounting block include a spring, the Board explains that the placement of the spring on the mounting block is simply a design choice. . . . This statement alone is not enough to explain why the Board found claim 5 obvious. Merely stating that a particular placement of an element is a design choice does not make it obvious. The Board must offer a reason for why a person of ordinary skill in the art would have made the specific design choice to locate the spring on the mounting block. Here, it does not.

On remand, I expect that the Board will simply rewrite its 33-page decision – better explaining its holdings – but we shall see. [PTAB Final Decision: final decision-31].

To be clear, although the PTAB is held to this high standard, patent examiners are not.  Rather, examiners are only required to provide notice of their rejection/objection rather than a full-bodied explanation.  Update: I just looked at the comment section and note that a number of folks raise the important point that my off-the-cuff statement an examiner’s notice burden is limited to the introductory rejection and establishing a prima facie case as the Federal Circuit explained in Packard.  Once a prima facie case is established, the patent applicant has the opportunity to rebut that case. And, once rebutted, the examiner’s burden is then raised actually prove the case if possible.

IPR: Proving Patentability before Amendment

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By Dennis Crouch

In Prolitec, Inc. v. ScentAir Technologies,[1] the Federal Circuit has affirmed a USPTO inter partes review (IPR) decision cancelling Prolitec’s air-freshener diffuser claims.  The patent at issue[2] is the subject of a co-pending lawsuit between the parties that was stayed in 2013 — awaiting the IPR outcome.[3]

Here, the patent included a claim limitation requiring a diffusion head “mounted to” a reservoir.  The patentee wanted that term to be limited to require permanent joining of the head to the reservoir.

Too Clever Specification Drafting?: To achieve that permanent-joining result, the patentee first argued for a narrow claim construction of the “mounted term.”  That approach failed at the PTAB and has been affirmed on appeal.  The failure is to the ordinary patent drafting strategy, employed by the patentee, of using non-definite and non-limiting terms such as “may” to describe the role of various embodiments in the specification so as to not unduly limit claim scope. Here, in particular, the specification had indicated the possibility of a permanent joining in a disposable fashion, but, by clever specification drafting, had not foreclosed the potential for non-permanent mounting.  Thus, that narrowing argument was foreclosed by the patentee’s own prior actions.

No Amendment without Major Proof: As an alternative approach, the patentee also requested permission to amend its claims to replace “mounted” term with “permanently joined.”  As per its usual modus operandi, the Patent Trial and Appeal Board (PTAB) denied the motion to amend.  In particular, the PTAB found that Prolitec had failed to prove that its proposal was patentable over the prior art of record.  On appeal, the Federal Circuit affirmed – first reiterating its prior statement in Microsoft Corp. v. Proxyconn, Inc.[4] that the Board can require a patentee to establish patentability before allowing an amendment.  Here, the Federal Circuit extended that doctrine to affirm the PTAB rule that, prior to amendment, patentability must be established over all prior art of record (in both the IPR and prosecution history). That rule, according to the Federal Circuit, is not contrary to any statute and is also “reasonable.”  Further, the court held that the requirement of “establishing patentability” includes both novelty and nonobviousness.  On the merits, the court affirmed that the patentee had failed to show that its amended claims were non-obvious over the combination of references cited in the IPR petition and found in the prosecution history file.

The majority opinion was written by Chief Judge Prost and joined by Judge Taranto.

Writing in dissent, Judge Newman argued that the refusal to allow an amendment was “contrary to both the purpose and the text of the America Invents Act. . . . [E]ntry of a compliant amendment is [a] statutory right, and patentability of the amended claim is properly determined by the PTAB during the IPR trial, not for the first time at the Federal Circuit.”

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[1] Prolitec, Inc. v. ScentAir Technologies, App. No. 15-1020, (Fed. Cir. Dec. 4, 2015) (slip opinion available at http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/15-1020.Opinion.12-1-2015.1.PDF)

[2] U.S. Patent No. 7,712,683.

[3] Prolitec, Inc. v. ScentAir Technologies, Civil Action #: 2:12-cv-00483-RTR, Docket No. 62 (E.D. Wisc., May 17, 2013).  The IPR petition was filed in May 2013 but not instituted until August 2013. See IPR2013-00179. The claims of a second patent in the lawsuit were also largely been cancelled and was the subject of a separate appeal. That PTAB decision was affirmed without opinion in June 2015. See Prolitec, Inc. v. ScentAir Technologies, App. No. 15-1017 (Fed. Cir. June 9, 2015) (R. 36 affirmance without opinion).

[4] 789 F.3d 1292 (Fed. Cir. 2015).

Bits and Bytes on IP Law

Patent,
  • Video Contest: IPO is again hosting its IP Video Contest – for entertainment value I like the LOTR and Cavemen skits. [http://www.ipvideocontest.com/?page_id=410]
  • Lighting Ballast: The Federal Circuit has denied a motion for another en banc rehearing in the longstanding lighting ballast case. Thus, the latest panel decision should stand that affirms the district court holding that the claimed “voltage source means” is not a means-plus-function case.  That outcome is largely based upon the appellate court giving deference to the lower court’s factual findings that were derived from expert testimony discussing the level of skill in the art.
  • Patent Reform: Senator Grassley’s PATENT ACT of 2015 (S.1137) has been placed on the Senate Calendar queue after having been reported out of committee in June.  The bill also includes a number of substantive amendments.
  • ShowerThoughts: Our objective system of judging obviousness almost always gathers more prior art than was actually known to the inventor at the time of the invention.  This means that (for valid patents) the inventor’s actual inventive-step (based upon what the inventor knows) is typically greater than what is required by law – perhaps significantly so.

Constitutional Challenges to IPR Continue

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by Dennis Crouch

Respect for property rights has always been a core American principle.  That respect generally means that a government grant of a property rights cannot be cancelled or annulled outside of judicial action.  In a set of 19th Century cases, that principle was repeatedly upheld, including in the patent law context (both patents for land and patents for inventions).

See, e.g.:

  • McCormick Harvesting Mach. v. Aultman, 169 U.S. 606 (1898) (“[W]hen a patent [issues], it has passed beyond the control and jurisdiction of [the patent] office, and is not subject to be revoked or cancelled by the President, or any other officer of the Government. It has become the property of the patentee, and as such is entitled to the same legal protection as other property.)
  • Iron Silver Mining v. Campbell, 135 U.S. 286 (1890) (“[Patent validity] is always and ultimately a question of judicial cognizance.”)
  • US v. Stone, 69 U.S. 525 (1864).

In his 4th Circuit appeal, Carl Cooper now argues that inter partes review proceedings under the AIA violate these principles and are therefore unconstitutional. (Cooper v. Lee) In addition, Cooper argues that IPRs violate patentees Seventh Amendment right to a jury trial on questions of patent invalidity.

Cooper v. Lee began as a lawsuit after Cooper’s patents were challenged in a set of inter partes review proceedings.  Rather than awaiting the outcome of the IPR, Cooper quickly filed a civil action in district court arguing that the regime is unconstitutional. However, the district court dismissed the case – finding that it lacked jurisdiction. In particular, the district court held that the AIA provides for particular appellate review and that Cooper must first exhaust the administrative process before raising an external constitutional challenge.

As it did at the lower court, the USPTO largely avoids the merits but instead argues that the appellate court has no jurisdiction over the case – both for the reasons given by the district court and because the case should have been heard by the Federal Circuit rather than the 4th Circuit.  [PTO Brief in Cooper v. Lee]. Meanwhile, in May 2015, the USPTO PTAB issued a final order cancelling the challenged patent claims and setting-up a direct Federal Circuit appeal to be filed this month. See IPR2014-00156 (May 14, 2015); IPR2014-00157 (May 14, 2015); IPR2014-00158 (May 8, 2015).

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Incredibly important and difficult Constitutional issues here.

= = = = =

Briefing appears now complete in the parallel case of MCM v. HP that I previously discussed:

 

 

 

Guest Post: America Invents Act Cost the US Economy over $1 Trillion

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By Richard Baker, President of New England Intellectual Property, LLC

The American Invents Act, passed into law in 2011, is one of the biggest changes to US patent laws in the past fifty years.  Its sweeping reforms changed our system from the “First to Invent” to a “First to File” system, and created a new method for infringers to invalidate patents.  While many aspects of this legislation had impacts on inventors, the most striking impact has been the devastating financial impact of the post grant review process.  The post grant review process, or more specifically, the inter partes review (“IPR”) procedure allows any entity to request that the US Patent Office initiate a review of a valid, issued US Patent.  In the two and a half years since the first IPR was filed, 77% of all patent claims reviewed have been invalidated[1].

To obtain a patent in the United States, an inventor must submit his invention to an examination process before a patent examiner.  This process involves several years and often many vigorous debates between the examiner and the inventor in papers that are exchanged.  If the examiner is convinced at the end of this proceeding that a patent is warranted, the US Patent Office issues a patent to the inventor.  By the time a patent issues, there typically is a significant examination of the merits of the patent claims.

In essence, the IPR procedure is a request for the Patent Office to admit that they made a mistake and reverse themselves on the validity of the patent.  The problem with this reversal is that the inventor has relied on the patent to build a business or to initiate licensing discussions based on his faith in the original decision of the Patent Office.  This is similar to a property owner building a house based on the issuance of a deed to the property.  A reversal of the patent, or of the deed, after the fact impacts the investments made in the invention.

Some have argued that the IPR procedure is weeding out the weakest patents in the United States, but experience has shown that the opposite is true.  The IPR procedure is only being used against the best United States patents.  This is because of pure economics.  The cost for a company to file and prosecute an IPR to a decision by the Patent Trial and Appeal Board (“PTAB) is between $200,000 and $500,000.  No corporation can afford to file an IPR unless the patent in question is a significant threat.  In fact, a review of the IPRs filed in the past month or two shows that almost every patent that is IPR’ed is involved in litigation (the few that are not in litigation are in the pharmaceutical arts).  Only a small percentage of all patents are used in litigation or licensing; these patents are considered the top tier of all patents.  It is these patents that are the subject of IPRs.  Given the high rate of invalidation at the PTAB, most all patent litigation defenses now involve an IPR of the patents in suit.

To quantify the financial impact of the IPR proceedings in the AIA bill, we need to first assess the impact on the price of an average US patent.  The lore of the US patent brokers, individuals who help inventors and companies to sell their patents, is that the price of an average US patent has dropped about 66% since the institution of the AIA IPR procedure.   According to Scott Bechtel of AmiCOUR IP Group, an experienced patent broker, “US Patents have lost 2/3rds of their value since the AIA was passed in 2011.”

A bigger sampling of deal values can be found in IPOfferring’s Patent Value Quotient Annual Report of patent sales[2].  This report has been issued from 2012 through 2014, giving us three years of sales data to analyze.  The deals listed in these reports may not represent all patent sales, as this list consist of deals large enough to be material and thus publicly reported as well as deals that brokers chose to report to IPOfferrings.  Furthermore, there is no readily available data from before 2012 to see deal values before the AIA was passed.  However, these reports show the dramatic drop in patent values over 13,564 patent sales in 93 deals over a three year period.

IPOfferings Patent Value
Year Dollar Sales Patents Sold Average Price
2012 $2,949,666,000 6,985 $422,286
2103 $1,007,902,750 3,731 $270,143
2014 $467,731,502 2,848 $164,232
2012-2013 -66% -47% -36%
2013-2014 -54% -24% -39%
2012-2014 -84% -59% -61%

This chart shows a dramatic drop in the average price per patent over the three year period, with values dropping 61% from $422,286 per patent to $164,232.  In that timeframe, the number of patents sold dropped from just under 7000 to 2800, showing a decrease in liquidity in the patent market.  The overall sales dropped from $3 Billion to well under one half billion in patent sales per year, or by 84%.

But this decrease in value of US Patents should be expected given the invalidation rate of the Patent Office’s IPR proceedings.  If 77% of all valid patents are canceled through this new proceeding, then the risk adjustments on patent values should also decrease by roughly the same amount.  While our empirical data is showing a 60-70% drop in values, the theoretical impact should be 77%.  Perhaps this is reflecting an inefficiency in the market, suggesting that patent values will drop another 10-15% in the next year or two.  Or it could indicate that our samplings are not fully reflecting the actual decrease in values.

One could suggest that the Alice v CLS Bank Supreme Court decision also had an impact.  However, the Alice decision only impacts software patents, and the IPOfferrings numbers come from all fields.  The IPOfferrings numbers can be seen across three years since the AIA was implemented; Alice was decided less than a year ago and at first was not seen as a big change in patent law.  Only in the past 4-5 months has Alice been expanded by the lower courts to impact a wide set of software patents, thus possibly impacting the value of software patents.  Experienced brokers are seeing that software patents with Alice issues are simply not being sold, with buyers afraid to spend anything on these patents and sellers holding until the law settles in this area.  Thus we believe the IPOfferrings numbers are primarily showing the impact of the AIA IPR procedure with only a minor impact from the Supreme Court’s Alice decision.

The decrease in value of patents means that the valuations of companies with US patent assets are also devalued accordingly.  If a hypothetical company has patent assets on the books (much of which may be in Good Will if the company purchased the patents from others) at $1 Billion from a pre-2011 acquisition, these assets should be written down to about $390 Million based on the impact of the AIA[3].

This raises many questions on the overall impact of the AIA’s IPR procedure on the United States economy.  Using one methodology to evaluate the impact, we look at the US economy and approximate the impact from top down.  Intellectual capital (patents, copyrights, and other forms of economic ideas are worth about $9 Trillion in the United States[4].  So a 61% markdown of patents (and their resulting goodwill when small companies are bought) corresponds to a 61% markdown of a portion of the $9.2 Trillion.  Say patents are worth about 25% of the overall value of intellectual capital[5], or about $2.3 Trillion, then a 61% loss in value is $1.37 Trillion decrease in the value of the US economy based on the impact of the AIA bill.  The American Invents Act bill cost the economy about $1.37 Trillion, or an amount equal to about 7% of the US GDP.

Another way to look at the impact of the AIA starts with the count of the number of US Patents in force, about 2.1 Million according to Professor Dennis Crouch of the University of Missouri School of Law[6].  Given our 2012 IPOfferings value of $422,000 per patent, the value of patents to the US economy was $886 Billion.  The AIA dropped the value to one third, leaving $344 Billion in value.  This one act of Congress, the IPR proceeding of the AIA bill, destroyed $546 Billion of the US economy using this methodology.

While additional study is required to refine the macroeconomic impact of the AIA IPR procedure, it is clear that this bill has wiped out about $1 Trillion of value in the US economy.

But this number is probably greatly underestimated, as it only incorporates the first order loss in value.  It does not include lost opportunities, disincentives to innovation, the inability to raise money due to the decrease in collateral, and the loss of jobs without those investments.  We leave this analysis to economists in future studies.

Given the huge impact of the AIA and its IPR proceedings on the US economy, on corporate valuations, and on the value provided to individual inventors, it is time for Congress to reevaluate this procedure to assure that a much greater percentage of patents survive the IPR process.

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[1] US Patent and Trademark Office, “Inter Partes Review Petitions Terminated to Date (as of 1/15/2015)”, downloaded from http://www.uspto.gov/sites/default/files/documents/inter_partes_review_petitions_terminated_to_date%2001%2015%202015.pdf  on 6 May 2015.  In the proceeding where the USPTO decided the merits of the Inter Partes Review petitions, 643 claims were found patentable and 2176 claims were found unpatentable, or 77%.

[2] IPOfferring’s Patent Value Quotient Annual Report is available at http://www.ipofferings.com/patent-value-quotient.html.

[3] Patents generated internally in a company are not valued on a corporation’s balance sheets, according the US accounting rules.  Only patents acquired in a purchase or a merger are included on a balance sheet.

[4] See Kevin A. Hassett & Robert Shapiro, What Ideas Are Worth: The Value of Intellectual Capital And Intangible Assets in the American Economy, Sonecon (Sept. 2011), available at www.sonecon.com/docs/studies/Value_of_Intellectual_Capital_in_American_Economy.pdf.

[5] Robert Shapiro estimates in a private email that patents make up 25-30% of intellectual capital, but states that it varies per industry and per company.  Additional research is needed to calculate this percentage more precisely.

[6] Crouch, Dennis, “How many US patents are in-force”, May 4, 2012, found at https://patentlyo.com/patent/2012/05/how-many-us-patents-are-in-force.html.