Facts about Patent Eligibility

From today’s Patent Trial and Appeal Board decision:

“We are aware of no controlling authority that requires the Office to provide factual evidence to support a finding that a claim is directed to an abstract idea.”

Ex parte Johnson, Appeal 2016-004623 (January 18, 2018).

The ex parte appeal involves IBM-owned patent application No. 13/191,583 with a pending claim 1 that itself is quite an essay at 900 words. (NYT letters to the editor should be <175 words). The PTAB affirmed the examiner’s rejection of the claims as effectively claiming the abstract idea of “managing customer discounts following the receiving of a cancellation request by a customer.”

= = = = =  (more…)

Trump DOJ Considering Challenging Brunetti Scandalous Mark Decision

In Brunetti, the Federal Circuit extended Matal v. Tam, 137 S. Ct. 1744 (2017) to further reject the Lanham Act’s restriction on registration of immoral or scandalous marks — finding the limitation to be an unconstitutional restriction of free speech. (In Tam, the Supreme Court found the restriction on registering disparaging marks to be unconstitutional.)

In this case, the USPTO is being represented by attorneys from the Department of Justice rather than the its own internal solicitors. The DOJ is considering requesting en banc rehearing and has now requested and received an extension to file its petition until February 12, 2018.

Following TAM, the Federal Circuit’s decision here almost has to be correct.  The one major caveat in my mind is the dicta statement that the PTO cannot even limit the registration of obscene marks.

We are all FUCT

 

Abstract Idea: What is Your Evidence of Longstanding Practice?

R+L Carriers, Inc. v. Intermec Technologies Corp. (Supreme Court 2018)

In its newly filed petition, R+L asks the Supreme Court to add further depth to the abstract-idea analysis.  Namely, the the patentee asks whether Step 1 of Alice can be performed “without analyzing the requirements of the individual claim steps?” The petition also raises the important question of whether the eligibility analysis allows for any factual inquiry.

R+L’s patent No. 6,401,078 claims a self-identified business method “for transferring shipping documentation data:”

When using the business method claimed … drivers scan each customer’s shipping documents when they pick up the customer’s freight, and wirelessly transmit those documents from the truck to the terminal. Load planners then use the information from those documents, such as the freight’s destination, weight, contents and specific handling instructions, to prepare loading manifests for the freight’s further transport to its next destination.

The district court dismissed the infringement lawsuit against Intermic on summary judgment – holding that the ‘078 Patent is directed to an unpatentable abstract idea. On appeal, the Federal Circuit affirmed without opinion (R.36).

The petition’s main thrust follows:

The District Court’s decision in this case is emblematic of the results produced by the inconsistent and unpredictable application of § 101 precedent. Although the District Court concluded that the ‘078 Patent is directed to an abstract idea, it could not come up with a consistent characterization of what that abstract idea was. It variously described what it considered to be the abstract idea to which the representative claim was directed as (1) “creating an advance loading manifest”; (2) “the process of receiving transportation documentation and producing advance loading manifests therefrom”; (3) “getting shipping information to the load planners faster”; and (4) “it is even possible [that it is] … creating a loading manifest.”

The District Court’s confusion is the product of the contradictory direction by the Federal Circuit on how to determine what the claim is “directed to.” One panel said that courts should look to “capture … the ‘basic thrust’ of the Asserted Claims.” Synopsys Inc. (quoting BASCOM). Yet another panel stated that “courts ‘must be careful to avoid oversimplifying the claims’ by looking at them generally and failing to account for the specific requirements of the claims.” McRO.

Here, the District Court took the high-level approach of attempting to capture the basic thrust of the claims that the Synopsys panel endorsed. In doing so, it arrived at a characterization of the patent that could not be anything but an abstract idea. On the other hand, had the District Court viewed the claims as an ordered combination in accordance with the McRO directive, it would have seen that the patent is directed to a method that employs communication technology to transmit information about an incoming package so that outbound load planning for that package can be accomplished before the package arrives at the terminal. . . .  Since the ‘078 Patent does not merely recite a result, but rather a method with specific structure for achieving the method’s goal in a particular manner, it would have survived the eligibility challenge had the District Court followed the direction of the McRO panel rather than that of the Synopsys panel.

An incorrect characterization of what the claims are directed to has other consequences under Step 1 of the Alice test. Here, the District Court found that “preparing a loading manifest” is a conventional business practice because loading manifests existed before the application date of the ‘078 Patent. If that were an accurate characterization of the representative claim, then R+L would agree with the District Court’s conclusion. But if the District Court had taken into account the specific requirements of the claim and had avoided oversimplifying it, it would have had to find (at least on the summary judgment record before it) that the ‘078 Patent was not directed to “a fundamental economic practice long prevalent in our system of commerce[.]” While loading manifests themselves certainly existed before the ‘078 Patent, the undisputed evidence in the summary judgment record established that the particular method claimed in the patent did not.

R+L Petition.

 

En Banc Denied: Secret Sales Remain a Bar to Patentability under AIA

by Dennis Crouch

Helsinn Healthcare v. Teva Pharmaceuticals (Fed. Cir. 2018).

Without open dissent, the Federal Circuit has denied Helsinn’s petition for en banc rehearing on the definition of “on sale” under the AIA-amended prior art statute 35 U.S.C. 102.

secretsales

An invention that is “on sale” prior to the associated patent application’s critical filing date is not patentable. 35 U.S.C. 102.  Although the AIA used the same “on sale” wordage as pre-AIA 102(b), many (including the USPTO and US Government) believe that it should interpreted differently based upon the statutory change.  The particular question up for dispute is whether private and non-public offers-to-sell still serve as a bar to patentability post-AIA — or instead do sales activities only count as prior art if made available to the public. In Helsinn, the Federal Circuit did not fully answer this question since some information regarding Helsinn’s pre-filing sale had been made public.  Rather, Helsinn made the limited holding that “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale.”

Helsinn petitioned for en banc rehearing and that petition has now been denied — setting up a likely petition for certiorari to the U.S. Supreme Court.

Apart from the direct Supreme Court challenge to Helsinn noted above, open questions remain as to (1) does a fully-secret sales offer count to bar a patent under section 102? (Imagine here an offer subject to a binding confidentiality agreement and that would be considered a trade secret); (2) Even if it serves as a bar to patentability under 102, to what extent does a secret sale count as “prior art” for obviousness purposes (rather than simply being a “bar” under 102)?

Judge O’Malley, who was also a member of the original Helsinn panel penned a solo concurring opinion explaining her view that the AIA “did not change longstanding precedent governing the on-sale bar.” The concurring opinion also attempts to highlight some mischaracterizations of the original Helsinn panel decision.

  1. The original panel stated that “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale.”  Judge O’Malley argues that this sentence does not mean that public announcement of a sale triggers the on-sale bar.  Rather the determination of whether an action is a sale (or offer) is based upon a multi-factor analysis that may be influenced by the public nature.
  2. O’Malley also explained her view that supply-side arrangements can still avoid the on-sale bar if structured properly.
  3. Finally, O’Malley argued that the Helsinn panel is consistent with the en banc MedCo decision.

HelsinnEnBancDenial.

Helsinn En Banc Status

Helsinn: Post-AIA Public Sales are Prior Art Even Without Disclosing the Invention

 

Patent Damages Without Borders

In addition to considering Prof. Holbrook’s work, folks digging deeper into the WesternGeco issues will also want to consider Prof. Kumar’s updated article titled Patent Damages Without Borders.  She explains:

In WesternGeco, the Federal Circuit held that patent holders who show infringement under § 271(f) of the Patent Act cannot recover foreign lost profits. . . . This interpretation severely limits the ability of district courts to make patent infringement victims whole. . . . By creating this bright-line rule, the Federal Circuit has unduly restricted the ability of patent holders to recover damages, including in cases where there is no other applicable law. This Article proposes that the Federal Circuit adopt a flexible test that balances prescriptive comity concerns with the United State’s interest in making victims of domestic patent infringement whole.

Claims that Defendant Infringed Patent Issued Years after Suit Filed Found Subject To Claim Preclusion

Normally, claim preclusion only bars later assertion of a claim only if (a) the plaintiff could have brought that claim when it filed an earlier suit and (b) the later-asserted claim is the “same” as a claim in the first case (courts take different approaches to how closely related the later claim must be to the first, but the federal rule is to look at whether the later-asserted claim arises out of the same operative facts as the earlier claim).  So, normally, if a patent issues to the plaintiff after the first suit is filed, claim preclusion wouldn’t apply because of the first step:  you can’t sue for infringement until the patent issues (with the narrow exception of seeking “provisional damages” for infringement under Section 154).

But, in a recent case, a district court held that the plaintiff had a “duty to seek to amend” its complaint to add a later-issued patent, and to the extent the defendant can show that its infringement arose out of the same set of facts as the earlier case, claim preclusion will (and does) apply. The case, XY, LLC v. Trans Ova Genetics, LC (D. Colo. 2018), is here.  One of the two patents issued after the complaint had been filed, and a second actually issued after judgment in the first case had been entered!  (The district court also took what may prove to be a very unworkable approach to determining the second step.)

So, be careful out there: this creates a real mess because now you’re going to have to assert every possible patent for infringement, and if a new one issues, you better move to amend and hope the judge grants the motion, or doesn’t, because then you’ll be starting all over again with discovery, claim differentiation issues, and so on…  If you’re a defendant, maybe you should consider seeking a declaration as to patents the plaintiff owns, but hasn’t asserted, and just make a mess that way.

Guest Post: Deconstructing the Question Presented in WesternGeco

Guest post by Prof. Timothy Holbrook of Emory Law.  Professor Holbrook has written extensively on extraterritoriality and patents.  In the interest of full disclosure, he anticipates that this post will likely form the basis of an amicus brief.

Patent law remains hot at the Supreme Court.  The Court on January 14, 2018, agreed to review WesternGeco LLC v. ION Geophysical Corp.  WesternGeco joins two other patent cases at the Supreme Court (so far) for its October 2017 term.

WesternGeco is interesting because it is the third time in the since the October 2006 term that the Court has reviewed a fairly esoteric patent law provision, 35 U.S.C. § 271(f).  The Court addressed this provision in Microsoft Corp. v. AT & T Corp. and, just last term, in Life Technologies Corporation v. Promega Corporation. Section 271(f) creates a form of patent infringement that is extraterritorial in nature.  This provision makes a party liable for patent infringement when it exports all or a substantial portion of the components of the patented invention, or a component with no substantial non-infringing uses, where the party intends to assemble the invention outside of the United States.  Through the territorial nexus of supplying the components in the United States, the provision allows a patent owner to regulate foreign markets.

Given the extraterritorial nature of this provision, these cases fall into the line of cases at the Supreme Court addressing the extraterritorial reach of U.S. law generally, most recently in RJR Nabisco, Inc. v. European Community. The question in WesternGeco is different from all of these earlier patent and non-patent cases, however.  The issue is not liability but instead damages.  The question presented is “Whether the U.S. Court of Appeals for the Federal Circuit erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases in which patent infringement is proven under 35 U.S.C. § 271(f)?”

WesternGeco is the third in a trilogy of cases from the Federal Circuit that grafted a strict territorial limit onto patent damages doctrine.  In two earlier cases, Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. and Carnegie Mellon University v. Marvell Technology Group, Ltd., the Federal Circuit denied lost profits and a reasonable royalty, respectively, for foreseeable, overseas damages that arose from an act of domestic infringement.  Power Integreations and Carnegie Mellon both involved damages for infringement under 35 U.S.C. § 271(a), which requires the acts of infringement to take place within the United States.  The result of these casesis that the Federal Circuit created a regime of strict territoriality for patent infringement damages.

WesternGeco, therefore, reflects a direct challenge to this territorial regime.  In fact, the Solicitor General’s brief that recommended the Supreme Court take the case focused on all three of these cases, and not merely WesternGeco.  Indeed, there is a bit of dispute over how to correctly frame the questions presented, as highlighted earlier on this blog.  As such, the issue in WesternGeco bears some deconstruction to see what is truly at issue here.

The issue in WesternGeco presents two distinct, if related, issues: (1) does the presumption against extraterritoriality apply to damages and other remedial provisions generally and (2) what is the relationship between the proximate cause aspect of damages and extraterritoriality? Each of these issues bear further exploration.

Does the presumption against extraterritoriality apply to damages and other remedial provisions?  A threshold issue the Court should address is whether the presumption against extraterritoriality should apply to remedial provisions in a statute at all.  The Supreme Court has articulated a two-step process for assessing the extraterritorial reach of U.S. laws.  In RJR Nabisco, Inc. v. European Community, the Supreme Court formalized a two-step methodology for assessing the extraterritoriality reach of a statute.  At step one, a court asks “whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially.”  If the presumption has not been rebutted, a court continues to step two, where it determines the focus of the statute.  “If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad….”

The focus on conduct suggests that the concern is with liability, not remedies.   One could argue that the presumption should simply be inapplicable to damages.  If one follows RJR Nabisco’s two step analysis with respect to liability, then by definition there is no concern with extraterritoriality as it comes to remedies and damages.  As the petition for certiorari argued, requiring two-passes through the RJR Nabisco framework – one for liability and one for damages – should be unnecessary.  The Solicitor General’s brief implicitly makes this argument when it argues that background principles of proximate cause should govern the damages inquiry and not the presumption, although the Solicitor General also views the RJR Nabisco framework with being consistent with permitting the award of damages for the lost profits in this case.

The Supreme Court has never addressed whether the presumption applies to remedial provisions.  In order to address the question presented, it needs to explicitly consider whether the presumption applies to damages provisions separately from the related liability provisions in a given statute.  As Sapna Kumar recognized in a forthcoming piece, Patent Damages Without Borders, the Court in RJR Nabisco did apply the presumption twice to the same statute for the same acts in the case, suggesting that the presumption may apply to both substantive and remedial provisions of a statute separately. Consequently, WesternGeco takes on far greater significance, beyond patent law.

As I’ve argued in Boundaries, Extraterritoriality, and Patent Damages in the Notre Dame Law Review, I think the presumption should apply both to liability and to damages provisions.  The reason can be seen in the patent statute itself.  Section 284, the damages provision of the Patent Act, is silent as to any territorial limits.  Instead it refers only to “damages adequate to compensate for the infringement,” which means the provision is inextricably tethered to § 271’s definitions of infringement.  For § 271(a), there is a strict territorial requirement that the acts take place within the United States.  Such language shows the presumption has not been rebutted at step one of RJR Nabisco.  It also suggests the focus of the statute are acts within the United States, meaning that damages should be tied to those acts.  In contrast, § 271(f) satisfies RJR Nabisco’s first step because it is extraterritorial in nature.  Thus, in my view, lost profits should generally be available for infringement under that provision.  If a court declined to apply the presumption to damages, this differentiated outcome could be missed.

For example, in Carnegie Mellon, the infringing use of the patented method undisputedly was within the United States. If the presumption were applied only as to liability, then the issue of extraterritoriality in the case would would never present itself. The court would find liability then shift directly to remedies without pausing to consider extraterritoriality of the damages. If we take seriously the concern of the extraterritoriall reach of U.S. law, we should recognize that an award of damages can have similar effects as a finding of liability based on extraterritorial activity. Ultimately, the patent holder is attempting to regulate activity outside of the United States.

What is the relationship between proximate cause and territoriality?  Even if one disagrees with me and considers the presumption to be inapplicable to damages, it still is an open question as to the relationship between proximate cause and territoriality.

The Federal Circuit treated the two concepts as distinct.  In other words, even though the damages in the trilogy of cases were seemingly all foreseeable, the court nevertheless rejected extraterritorial damages.  The court viewed territoriality as an exogenous limit on damages.

But that need not be the case: perhaps foreseeability and territoriality are both part of the complex analysis involved in proximate cause.  Foreseeability, of course, is not necessarily the sine qua non of proximate cause.  The Federal Circuit articulated the foreseeability principle in its seminal en banc decision, Rite Hite Corp. v. Kelley Co., which held that patentees could recover the profits for lost sales of devices not covered by the patent.  But the court recognized that proximate cause is flexible policy lever: “the question of legal compensability is one ‘to be determined on the facts of each case upon mixed considerations of logic, common sense, justice, policy and precedent.”  Simply because certain damages may be foreseeable in an economic sense does not mandate that they should be recoverable as a matter of proximate cause in all circumstances.

As I suggested in Boundaries, Extraterritoriality, and Patent Damages, the presumption against extraterritoriality in the damages context could be considered part of the proximate cause analysis, even if the presumption does not apply to damages formally.  The impact of awarding damages for activity outside of the United States could properly be considered part of the “mixed considerations” involved in evaluating whether domestic acts of infringement are the proximate cause of damages arising outside of the United States.

Indeed, WesternGeco presents a fairly unique question of damages.  The lost profits sought are not for the lost sales of the patented invention.  Instead, the patentee is seeking profits for lost sales of services that use the patented invention.  Thus, there is an interesting proximate cause even absent any possible territorial limits on damages.

WesternGeco to some may appear to be a relatively unimportant case, with the Supreme Court addressing a seemingly narrow patent provision of little import.  Within patent law, however, WesternGeco portends some important elaborations of U.S. patent law with respect to the territorial limits on damages generally and potentially on proximate cause.  Additionally, the case likely will have significant repercussions for the Court’s development of the presumption against extraterritoriality more broadly because the Court will have to answer the question of whether the presumption applies to remedies.

Supreme Court Grants Certiori in WesternGeco – International Damages Case

by Dennis Crouch

The Supreme Court has granted writ of certiorari in the international-patent-damages case WesternGeco LLC (Schlumberger) v. ION Geophysical Corp., Docket No. 16-1011.

In December I outlined the case:

The lawsuit is related to WesternGeco’s patents on marine seismic surveys.  Adjudged infringer ION manufactures components of the system in the US, for assembly and use “on the high seas.”  A jury found liability under 271(f) – exporting components of a patented invention for assembly abroad.  The jury also awarded the patentee $12.5 million in reasonable royalties in addition to $93.4 million in lost profits based upon specific competitive contracts lost.  On appeal though, the Federal Circuit ruled that lost profits were inappropriate here because they were based upon the assembly-abroad and activities outside of the U.S. jurisdiction.

The case raises the following question:

Under 35 U.S.C. § 271(f), it is an act of patent infringement to supply “components of a patented invention,” “from the United States,” knowing or intending that the components be combined “outside of the United States,” in a manner that “would infringe the patent if such combination occurred within the United States.”

Under 35 U.S.C. § 284, patent owners who prevail in litigation are entitled to “damages adequate to compensate for the infringement.”

In this case, despite affirming that Respondent was liable for infringement under § 271(f), the majority of a divided panel of the court of appeals held that Petitioner was not entitled to lost profits caused by the proscribed combination. The court of appeals reasoned
that even when Congress has overridden the
presumption against extraterritorial application of the law in creating liability, the presumption must be applied a second time to restrict damages.

The question presented is:

Whether the court of appeals erred in holding that lost profits arising from prohibited combinations occurring outside of the United States are categorically unavailable in cases where patent infringement is proven under 35 U.S.C. § 271(f).

As rephrased by the respondent, the question is stated:

Whether this Court should overrule Microsoft v. AT&T and eliminate the presumption against extraterritoriality so that infringers are subject to damages under § 284 based on non-infringing foreign use by third parties.

And finally, as stated by the U.S. Government, the question is as follows:

The Patent Act of 1952, 35 U.S.C. 1 et seq., provides that, when a patent owner prevails in an infringement action, “the court shall award the claimant damages adequate to compensate for the infringement.” 35 U.S.C. 284. Such damages may include lost profits that the patent owner would have earned but for the infringement. Yale Lock Mfg. Co. v. Sargent, 117 U.S. 536, 552-553 (1886).

The question presented is as follows:

Whether a patentee that has proved a domestic act of patent infringement may recover lost profits that it would have earned outside of the United States if the infringement had not occurred.

Lost Profits for Infringement Abroad

Federal Circuit Reminds Us: “Will Assign” isn’t an Assignment

I love this case because it has lessons for ethics, drafting, and civil procedure.

The holding is pretty simple:  an inventor who signs an employment agreement that provides (a) she “will assign” rights to inventions doesn’t then assign them; (b) that she “holds in trust” those rights doesn’t mean she assigns them; and (c) that she “quit claims” those rights doesn’t mean she assigns them.  Two judges so held (O’Malley and Reyna), and Judge Newman dissented relying on the “intent” of the contract.  The case is Advanced Video Tech. LLC v. HTC Corp. (Fed. Cir. Jan. 11, 2018), here.

So, lesson for ethics and drafting:  verbs matter and due diligence matters! (Related note: watch out for spouses of inventors — there’s an argument in community property states that spouses own inventions that I’ve blogged about somewhere and which almost worked in one CAFC case, where the accused infringer was able to get a license from an ex-spouse!)

The civil procedure issue concerns Judge O’Malley’s concurring opinion. She argues that a co-owner who refuses to join is an indispensable party under Rule 19, and that a prior panel decision holding otherwise was wrongly decided, but binding.  I very much enjoyed working with Judge O’Malley (I clerked for then-CJ Rader a couple years ago), and she’s a civ pro wiz, but I have some doubts on that interpretation of Rule 19.  The examples of when someone is an indispensable party are few, and forcing someone to be a plaintiff in a patent suit when they don’t want to be subjects them to all sorts of potential liability (285, for example) that they may not want to incur.

Moreover, even if an en banc court agrees with her, I’m not sure it will eliminate every problem of the recalcitrant co-owner. For example, in this case, suppose the court en banc decides Judge O’Malley is right and Rule 19 requires joinder, and that the co-owner can be joined (i.e., there is personal jurisdiction over her and, arguably, venue is proper (Rule 19 is very weird)). As a result, the co-owner is joined involuntarily but then pleads:  “the defendant doesn’t infringe.”  Now there is no case or controversy between that co-owner and the defendant, and so no subject matter jurisdiction.  “Claim” dismissed?

I wonder if there’s a Rule 14 way to bring in a co-owner if there is a counterclaim for, say, inequitable conduct by that co-owner/inventor?  I teach and have written a book on civil procedure and that might work, but I’m not sure Rule 19 will.  I bet we will see an effort to use it.

Issa stepping down from House

Joining Rep. Goodlatte, Rep. Darrell Issa has also announced his retirement from the House of Representatives.  For the past several years, these two have been the most active House members in the patent law area.   I received a funny email from Paul Morinville’s US Inventor group stating that “Thousands of US inventors are applauding Rep. Darrell Issa‘s decision to not run for re-election in California’s 49th district, and they’re hopeful his replacement will fix the job-killing problems the Congressman caused by weakening the nation’s patent system.”

Issa is a listed inventor on dozens of patents (utility + design) related to the car alarm company he founded.  This background meant that Issa was both knowledgeable and interested in the U.S. patent system.

IssaPatent

 

 

What Deference Looks Like Attorney Fee Cases.

by Dennis Crouch

Honeywell v. Fujifilm (Fed. Cir. 2018)

Honeywell sued Fujifilm and others for infringing its U.S. Patent No. 5,280,371 (LCD Display patent). However, the district court dismissed the case on summary judgment after finding the claims barred under 35 U.S.C. § 102.  Although siding with the defendants on the merits, Judge Stark (D.Del.) refused to award attorney fees to the defendants as allowed by 35 U.S.C. § 285.

On appeal, the Federal Circuit affirmed the fee-denial — holding that the district court acted within its reasonable discretion in finding no exceptional case.  This result is driven by the Supreme Court’s 2014 Highmark holding that district court judges are “better positioned to decide whether a case is exceptional” and that those judgments should be given significant deference on appeal.

The Short opinion explains that Fujifilm raises “plausible arguments supporting an award of fees” but that those arguments are not sufficient to show clear error by the lower court. In particular, the appellate panel confirmed that losing on summary judgment should not automatically result in a fee award.

An additional note regarding deference: In my view, an important factor in the affirmance here was the fact that the district court decision expressly considered Fujifilm’s arguments but concluded that they were insufficient to make the case exceptional.  If the lower court had simply ignored those arguments or passed by them without analysis then I expect the result here would also be different.

 

 

Shenanigans, Time Bars, and Federal Circuit Oversight

Guest post by Saurabh Vishnubhakat, Associate Professor at the Texas A&M University School of Law and the Texas A&M College of Engineering.  Although Prof. Vishnubhakat was an advisor at the USPTO until June, 2015, his arguments here should not be imputed to the USPTO or to any other organization. Prof. Vishnubhakat was counsel of record for the amicus brief by patent and administrative law professors in this case.

***

In its en banc decision in Wi-Fi One, LLC v. Broadcom Corp, the Federal Circuit held that applications of the one-year time bar for inter partes review are, indeed, subject to judicial review in light of the Supreme Court’s 2016 decision in Cuozzo Speed Techs. v. Lee.  The en banc decision, authored by Judge Reyna and joined by eight others, overrules the panel opinion in Achates Reference Publ’g, Inc. v. Apple Inc.  The panel in Achates had held that decisions about institution are unreviewable even where the time bar may have been applied incorrectly.

In a previous post discussing the oral argument, I noted three important issues that the court appeared to be considering: the balance of power between the PTAB and the district courts, the balance of supervisory power between the USPTO Director and the Federal Circuit, and the agency’s obligations of reasoned decision-making.  The en banc outcome focuses largely on the first of these issues.

The PTAB-District Court Balance of Power

In fact, the issue of court-agency power allocation was central to the whole case.  The one-year time bar of 35 U.S.C. § 315(b) forbids inter partes review if the petition is filed more than one year after the petitioner (or its privy or real party in interest) is served with a district court complaint for infringement.  Thus, the time bar forces a substitutionary choice: leave the court within a year and come to the PTAB, or do not come to the PTAB at all.  This boundary-policing function makes the one-year time bar qualitatively different from other provisions that also bear on the institution phase, such as the pleading requirements at issue in Cuozzo.

The APA Baseline

From looking to Cuozzo, much of the initial debate surrounding this case was over what constituted a “shenanigan.”  The Court in Cuozzo had held that routine determinations that are closely tied to institution are unreviewable under 35 U.S.C. § 314(d), but assured that other determinations may remain reviewable.  These include appeals based on constitutional arguments, on less closely related statutes, on interpretive issues whose scope and impact extend beyond merely the institution statute, or on agency actions that are plainly ultra vires.  These were shenanigans that the Court in Cuozzo did not purport to protect from judicial scrutiny.

Wi-Fi One, however, argued persistently (and sensibly) that the inquiry did not begin with Cuozzo’s exceptions.  As the en banc majority here agreed, the baseline should still be a presumed availability of judicial review under the Administrative Procedure Act.  That presumption was overcome in Cuozzo, but Broadcom here would have to overcome it anew and had not done so.

This jurisprudential point is an important reminder that each new argument for unreviewability must start from the same APA baseline.

Relatedness to Institution

In this case, the argument for unreviewability failed first because the one-year time bar are not closely related to institution—certainly less closely related than the requirements for a petition, including the particularity requirement at issue in Cuozzo.  In construing the nonappealability provision of § 314(d), the Court in Cuozzo had emphasized that what is immune from appeal is institution “under this section,” i.e., section 314.  The standard for institution is a reasonable likelihood of success on at least one claim in the patent.  The pleading requirements at issue in Cuozzo came from § 312 but were related to institution “under this section” because those requirements directly shaped how the likelihood of success would be evaluated for § 314 purposes.  The Director has discretion in this regard, as § 314(a) makes reasonable likelihood of success a necessary condition but not a sufficient one:

The Director may not authorize an inter partes review to be instituted unless . . .

The one-year time bar is different.  It is unrelated to institution “under this section” because it has nothing to do with the necessary reasonable likelihood of a petition’s eventual success.  Put another way, even a petition that is otherwise certain to succeed must be denied if it comes after the time bar.  As a result, though requirements such as pleading and particularity may be folded into the Director’s § 314 discretion to evaluate reasonable likelihood of success, the time bar cannot.  The time bar has no analytical connection to evaluating whether a petition is reasonably likely to succeed for § 314(a) purposes.  Therefore, the time bar is not unreviewable for § 314(d) purposes.

Scope and Impact

The argument for unreviewability also failed because the one-year time bar reaches, in terms of the “scope and impact” that Cuozzo described, well beyond merely “this section,” i.e., well beyond § 314’s institution decision.  The key to this inquiry is the substitution of the agency for district courts as a decision-maker on patent validity.  For a boundary-policing statute such as § 315(b), the scope and impact are broad and far-reaching.  The time bar is part of a larger set of structural provisions (also including, for example, court-agency estoppel) that strike an interbranch balance of power.  As a result, proper enforcement and supervision of the time bar is a concern not solely for the agency, but also for the Article III courts that compete with the agency.  As the en banc majority explained:

The timely filing of a petition under § 315(b) is a condition precedent to the Director’s authority to act.  It sets limits on the Director’s statutory authority to institute, balancing various public interests.  And like § 315 as a whole, [the one-year time bar] governs the relation of IPRs to other proceedings or actions, including actions taken in district court.

Judge O’Malley’s Concurrence

Judge O’Malley joined the en banc majority but also wrote separately to advance a simpler line of reasoning.  Her concurring opinion distinguishes between two authorities.  One is “the Director’s authority to exercise discretion when reviewing the adequacy of a petition to institute an inter partes review.”  The other is the Director’s “authority to undertake such a review in the first instance.”  Cuozzo implicates the former and so is unreviewable.  By contrast, the present case and others like it implicate the latter, and so the Federal Circuit “sitting in its proper role as an appellate court, should review those determinations.”  The goal of such an appellate review should be “to give effect to the congressionally imposed statutory limitations on the PTO’s authority to institute IPRs.”

Interestingly, where the en banc majority opinion emphasized the court-agency allocation of power in deciding patent validity, Judge O’Malley pointed to the agency-legislature allocation of power.  It is Congress that delegated to the Patent Office the power of substantive decision-making about patentability and its incidents.  But it is also Congress that crafted a fairly bright-line time bar and instructed the Patent Office simply to apply it.  For the Director to exercise discretion on the latter, with no judicial oversight, would be inappropriate:

Congress is well versed in establishing statutory time bars.  Congressional discretion should control the application of such time bars, not that of the Director of the PTO.  I do not see the need to say more.

The Dissent’s Case for Unreviewability

The case also drew a dissent from Judge Hughes joined by Judges Lourie, Bryson and Dyk.  In the dissent’s view, the language of § 314(d) is expansive: determinations whether to institute are nonappealable.  On this view, the majority’s reading is unjustifiably narrow because it limits the prohibition on judicial review to the § 314 criteria for institution, i.e., the reasonable-likelihood-of-success standard.  The majority reads out of the statute other determinations that occur at the institution phase, including application of the one-year time bar.  The dissent took a strong textualist approach, admonishing that “[o]ur inquiry should start and end with the words of the statute.”

In support of this textualist view, and in reading Cuozzo, the dissent disagreed about the relatedness of the time bar to institution.  The timeliness of a petition is closely related to the institution decision because what is unreviewable is broadly the decision “whether to institute.”  Compare, for example, the nonappealability statute for ex parte reexamination, which provides that “[a] determination by the Director . . . that no substantial new question of patentability has been raised will be final and nonappealable.”  The decision to proceed is nonappealable, but the decision to refrain is not.  For AIA reviews, the unreviewability of the decision does not depend on its outcome.  This suggests that the unreviewability of the decision should also not depend on its origins.  Institutions should be unreviewable where they are based on timeliness or any other input just as if they were based on the petition’s likelihood of success.

In support of its argument about relatedness, the dissent also pointed to the dissent in Cuozzo itself.  Justice Alito, joined by Justice Sotomayor, had criticized the broad reach of the Cuozzo majority’s opinion by arguing that the time bar was closely tied to institution and that their reviewability might rise and fall together.  The Cuozzo majority opinion, meanwhile, did not rebut this criticism.  The en banc dissent in this case took Justice Alito’s argument and the majority opinion’s silence as a sign of consensus that the time bar was, indeed, “closely related” to institution for Cuozzo purposes:

Moreover, although Justice Alito disagreed with the ultimate result in Cuozzo, even he recognized that “the petition’s timeliness, no less than the particularity of its allegations, is “closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate . . . review,” and the Court says that such questions are unreviewable.

This issue was also a line of questioning during en banc oral argument—raised by Judge Chen, who ultimately joined the en banc majority.  The answer that I had suggested in my recap of that oral argument was that Justice Alito’s argument about the one-year bar should be seen as hortatory, intended first to build a majority and later, when the case was lost, to cabin the impact of the majority’s reasoning.  In other words, the dissent did not merely read the majority’s logic broadly but read it broadly as a reason to reject that logic.  Indeed, Wi-Fi answered Judge Chen along just these lines by discussing what the Cuozzo dissent was trying to accomplish—limiting nonappealability to a prohibition of interlocutory review—not merely what the dissent said.

Notably the en banc dissent in this case did not address the scope and impact of the one-year time bar, though that was a separate self-imposed limitation on the logic of Cuozzo.  The interbranch balance of power and the substitution between the Patent Office and the Article III courts, which figured prominently in Judge Reyna’s majority opinion, were absent from the dissent.

The Way Forward

Looking ahead, it is possible that Broadcom will seek review in the Supreme Court.  Following Cuozzo itself and the partial institution/reviewability controversy in SAS Institute v. Matal (and assuming the entire PTAB system is not invalidated in Oil States Energy Services v. Greene’s Energy Group), a grant of certiorari in this case would be a third foray by the Court into the specific issue of Federal Circuit review despite § 314.  The en banc dissent has laid out a reasonable roadmap toward a petition for certiorari.  It expressly and repeatedly argues that the en banc majority is inconsistent with Cuozzo.  It characterizes the en banc outcome as an effort “[t]o sidestep this binding precedent.”  And it points to the colloquy between Cuozzo’s own majority and dissent to suggest consensus on the issue now in dispute.  Taken together, these arguments invite further Supreme Court clarification.

However, whereas the facts of Cuozzo made a reasonable case for unreviewability—evaluating the requirements of the petition is, after all, part and parcel of determining the petition’s likelihood of success—the facts of Wi-Fi One v. Broadcom suggest a clearer case for the opposite conclusion, especially in light of the scope and impact of the time bar.  If the Supreme Court found reviewability in SAS Institute and saw it as a closer case than Wi-Fi One, then there would be little need for further clarification and little reason to grant certiorari in Wi-Fi One.  Conversely, if the outcome in SAS Institute were unreviewability, the result would be two Supreme Court decisions denying judicial review and one en banc Federal Circuit decision affording review.  This, too, may be ample guidance in the Court’s view, leaving little reason for certiorari in Wi-Fi One.  A middle-ground may come in the form of a grant-vacate-remand (GVR) order whereby the Court would grant certiorari, vacate the Federal Circuit decision, and remand for reconsideration in light of SAS Institute.  (This was the course that AMP v. Myriad Genetics initially took nearly six years ago in light of the Court’s intervening decision in Mayo v. Prometheus, though the Federal Circuit decision vacated there was that of a panel, not of the en banc Court of Appeals.)

The decision in Wi-Fi One v. Broadcom is the first real test, following Cuozzo, of the broad view that the Patent Office has taken of its immunity from judicial review in PTAB institutions.  Going forward, it will likely be the dialogue between the Federal Circuit and the Supreme Court that defines the full contours of the agency’s discretion.

Patent Eligibility in 2018

MBHB Partner Dr. Michael Borella has an upcoming free webinar: Patent Eligibility in 2018: Current Status and Best Practices:

Topics include: Overview of the most recent Federal Circuit case law regarding Section 101; Where this law is relatively clear, and where it is not; The impact of the USPTO not making any significant updates to its subject matter eligibility guidelines; Best practices for drafting and prosecuting software and business method inventions in light of the above.

Advanced registration is required.

Trade Secrecy in Data being Sold

The newly filed trade secret lawsuit Collateral Analytics v Nationstar Mortgage (N.D. Cal., No 18-cv-019) may be interesting to follow.  Collateral Analytics offers a searchable database of real estate information to its customers (a large number of customers).  According to the complaint, Nationstar was one of the customers and abused that relationship by downloading much of the database and is preparing to use that information to start a competitor (Quantarium).

In my mind, the case raises several important legal questions:
  1. Can a database provided to thousands of customers on a retail basis be considered a “trade secret” – even if subject to a confidentiality contract?
  2. Reverse engineering is a legitimate mechanism for discovering competitive trade secrets.  Is a contract that prohibits such reverse engineering enforceable? (Here, there were apparently some software limits to protect the data that had to be overcome before the data could be obtained en mass.
  3.  In some ways, the approach here is designed to fit database property rights within the trade secret realm.  Is that appropriate — especially recognizing that Congress has considered but rejected sui generis database protections.  (The lawsuit also claims violation of the Computer Fraud and Abuse Act).

Enjoy: CollateralAnalyticsComplaint

Revival of Parker v. Flook II

In 2012 I wrote a short essay on what I called “The Revival of Parker v. Flook” and included the following chart of court citations to the much maligned 1978 decision.

The Revival of Parker v. Flook

For patentees, the most difficult aspect of the decision is its focus on an “inventive concept” that is separate from any abstract idea. The court explained that “the discovery of such a [natural phenomenon or mathematical formula] cannot support a patent unless there is some other inventive concept in its application.”  The Flook decision is closely aligned with Alice and Mayo. The difference is that Alice and Mayo are being followed by lower courts, while Flook was essentially rejected by the Federal Circuit who instead followed a broad interpretation of Diehr and Chakrabarty.

The chart below provides a five-year update.

CitationsToFlook

Image result for 1978 fashion

RecogniCorp:

I previously wrote about the pending RecogniCorp petition for writ of certiorari to the Supreme Court that asks for clarification of the Abstract Idea analysis.  I see the basic question here as to whether Parker v. Flook is good law.  The Supreme Court will likely discuss the case in their January 5 conference.

RecogniCorp: Can Data Processing be Patented?

In my prior post I had included a copy of claim 1 from the asserted U.S. Patent No. 8,005,303.  However, it turns out that the claim 1 was amended during a third-party-initiated ex parte reexamination and now reads as follows:

1. A method for creating a composite image, comprising:

displaying facial feature images on a first area of a first display via a first device associated with the first display, wherein the facial feature images are associated with facial feature element codes;

selecting a facial feature image from the first area of the first display via a user interface associated with the first device, wherein the first device incorporates the selected facial feature image into a composite image on a second area of the first display, wherein

the composite image is associated with a composite facial image code having at least a facial feature element code and wherein the composite facial image code is derived by performing at least one multiplication operation on a facial code using one or more code factors as input parameters to the multiplication operation; and

reproducing the composite image on a second display based on the composite facial image code.

In the reexamination, the examiner particularly found that the added limitations were not found in the prior art and sufficiently inventive to avoid an obviousness rejection.

RecogniCorp: Can Data Processing be Patented?

Regeneron v. Merus: Sui Generis or a Regener-ating Fact Pattern?

Guest Post by Brian Landry and Justin Crotty of Saul Ewing in Boston

On December 26, 2017, the U.S. Court of Appeals for the Federal Circuit issued an order denying Regeneron Pharmaceuticals, Inc.’s combined petition for panel rehearing and rehearing en banc of a decision upholding a District Court holding of unenforceability due to inequitable conduct.  Regeneron Pharmaceuticals, Inc. v. Merus N.V., No. 2016-1346 (Fed. Cir. Dec. 26, 2017).  Of concern to many patent prosecutors, the District Court based its inequitable conduct holding on an adverse inference of specific intent to deceive the U.S.P.T.O. resulting from litigation misconduct before the District Court.

Although the District Court and Federal Circuit decisions reasonably cause concern among many patent prosecutors that the actions of a later attorney enforcing a patent during litigation could be used to establish an inequitable conduct ruling impugning the prosecuting attorney, we respectfully argue that Regeneron presents a rather nuanced fact pattern that should not be broadly applied—especially when the prosecuting counsel does not direct litigation strategy and tactics.

Regeneron v. Merus: En Banc Chances Rise

Whose Conduct?

A helpful starting point is that the District Court ruling considered inequitable conduct only against Dr. Smeland (Regeneron’s in-house counsel responsible for prosecution and litigation of the patent-in-suit) and Dr. Murphy (a co-inventor of the patent-in-suit).  Regeneron Pharmaceuticals, Inc. v. Merus N.V., 144 F.Supp.3d 530, 558 (S.D.N.Y. 2015).  Although a memo by Regeneron’s outside then-patent-agent, Dr. Jones, set the stage for the District Court’s consideration of discovery misconduct, the District Court notably did not rule on inequitable conduct allegations against Dr. Jones raised in Defendant Merus’s Answer and Third Amended Counterclaims.

With regard to Dr. Smeland, the District Court found that, “Dr. Smeland has also been involved in litigation efforts against Merus—including the instant litigation—since 2011; he oversaw outside counsel on patent prosecution and litigation.”  Id. at 562.

The District Court Proceedings

Under Therasense, a finding of inequitable conduct based upon an alleged failure to cite prior art references requires both “but-for” materiality and specific intent to deceive.

The U.S. District Court for the Southern District of New York bifurcated consideration of these elements into separate trials.  A first trial found that the “Withheld References” were material to patentability of the claims.  However, the District Court never held the second trial and, instead, issued an opinion detailing Regeneron’s discovery misconduct, drawing an adverse inference of specific intent to deceive, and holding that Regeneron’s patent was unenforceable.

The District Court’s adverse inference was based, in part, on a discovery dispute regarding a memo by Regeneron’s outside then-patent-agent Dr. Jones justifying Regeneron’s decision that disclosure of the withheld references to the U.S.P.T.O. was not required.  After holding that Regeneron had waived attorney-client privilege surrounding the Jones Memo, the District Court issued two orders requiring Regeneron to produce associated materials and make several certifications regarding such production.

However, in preparation for the second trial regarding specific intent to deceive, Regeneron submitted trial affidavits from Dr. Jones and Regeneron’s in-house counsel Dr. Smeland, along with a privilege log indicating that it had “withheld many documents from Dr. Smeland’s files that he had authored or received on the basis of the attorney/client privilege and/or work product doctrine.”  Id. at 589.  After an in camera review of a portion of the previously unproduced documents revealed several types of discovery misconduct, the District Court considered several potential sanctions including allowing the trial declarations, which would have required “a top-to-bottom re-review of the Regeneron privilege log,” “additional document production, fact depositions, and revised expert reports and depositions.”  Id. at 594-95.

How “Material” is Regeneron to Future Disputes?

Although the patent bar may have benefitted from the Federal Circuit’s reconsideration of Regeneron—even if just to clarify the circumstances under which litigation misconduct could lead to an adverse inference of specific intent to deceive—Regeneron represents a narrow fact pattern and that should not be applied to find inequitable conduct by prosecuting attorneys without control over litigation strategy.

Regeneron is best read as an example of a set of facts that led a district court judge to use the broad discretion available to judges in the face of litigation misconduct to apply an adverse inference sanction.

Again, neither the District Court nor the Federal Circuit found inequitable conduct based on the actions of Regeneron’s outside then-patent-agent.  This should give considerable comfort to outside prosecution counsel although many other reasons remain to be wary of inequitable conduct allegations and to act accordingly to protect the client’s patent and the practitioner’s reputation.

Regeneron presents a mixed bag for in-house counsel or outside prosecuting counsel that also have control over litigation strategy.  Although it is difficult to generalize in view of the various organization structures used for patent management, even the most narrow reading of Regeneron should give those controlling litigation involving patents that they personally prosecuted pause to consider whether litigation strategy may bolster inequitable conduct allegations against that attorney.  However, the most equitable application of Regeneron would limit the finding of adverse inferences to situations in which the individual subject to the adverse inference had control over the litigation misconduct triggering the adverse inference.

Brian Landry is a partner and Justin Crotty is an associate in the Boston office of Saul Ewing Arnstein & Lehr LLP. Any views or opinions expressed in this article are solely their own and do not necessarily represent those of the firm or its clients.

Inequitable Conduct and Regeneron Pharmaceuticals, Inc. v. Merus N.V.: Trouble Waiting to Happen

Important Inequitable Conduct Case: Hybrid Prosecution/Litigation Misconduct