I recently posted a chart showing that there is a significant difference in technology focus of patents tied to US-Inventors as compared with Non-US-inventors. The following chart looks at the file histories of U.S. patents and asks what percentage received a rejection prior to issuance (blue) and what percentage received a Section 101 rejection prior to issuance (issued patents 2015-2020). Overall, 83% of the patents received some sort of rejection prior to issuance. The vast majority of these rejections are based upon prior art – and are primarily Section 103 obviousness rejections. 13% of these patents were rejected on eligibility grounds prior to issuance.
Applications from US Inventors were significantly more likely to be rejected on eligibility than non-US Inventors (15% vs 10%). However, that difference can be fully explained by differences in the types of patents being obtained. For example, US applications are much more likely to patent in the business-method group (as well as 8 of the top-9 art unit groups most likely to receive 101 rejections). But, within the art units groups, there is typically no difference between US and Non-US inventions in terms of eligibility rejections. Thus, for my sample of business method patents, 75% of the patents in each group (US and Non-US inventors) received an eligibility rejection. The data do reveal some outliers. In 1660-plants, non-us-inventor patents received 15% more eligibility rejections than us-inventor patents; while in 2760-printers & graphics, non-us-inventor patents received 10% fewer.
Thaler v. Hirshfeld, App No. 21-02347 (Fed. Cir. 2022)
Prof. Ryan Abbott continues to push Thaler’s case on a global basis. Thaler created an AI system that he calls DABUS. DABUS created two separate inventions — a “Neural Flame” and “Fractal Container.” Thaler filed for patent protection, but refused to name himself as the inventor — although he created DABUS, these particular inventions did not originate in his mind. The USPTO rejected the applications — explaining US patents must name a human inventor. Now the case is pending before the Federal Circuit. The reality here is that Thaler could have claimed to be the inventor and the PTO would not have blinked-an-eye; and no other person or entity would have standing to challenge that result. In a forthcoming article, I argue that the PTO’s don’t-ask-don’t-tell approach is a truly problematic legal fiction. And, Thaler’s refusal to comply provides helpful exposure to the hypocrisy.
After being refused a patent, Thaler sued in district court, but the district court sided with the PTO and dismissed the case on summary judgment. Now the appeal to the Federal Circuit. Thaler argues:
The USPTO does not accept than an AI can be an “inventor.” This holding is simply inconsistent with the Patent Act’s plain language, Congressional intent, and the Constitution. The District Court improperly endorsed an interpretation of the Patent Act that, for the first time, excludes an entire category of innovation from patent law protection. The result of which will be to discourage innovation, limit
disclosure of trade secrets, and restrict commercialization of new products.
Thaler Brief. The argument begins with an analysis of the Patent Act: (1) nothing in the Act actually requires human inventors; and (2) nothing in the Act requires “conception.” Rather, the design of the system is to create an open incentive field to generally encourage innovation, disclosure, and commercialization. Barring AI-created inventions from the patent sphere discourages each of these goals of the patent system.
One catch to the Thaler argument in the US is that the 2011 America Invents Act included a new definition of the term “inventor” that requires the inventor be an “individual” and required submission of a inventorship declaration from “each individual who is the inventor or joint inventor.” 35 U.S.C. §§ 100, 115. The statute also provides a binary gender identification for inventors: “himself or herself.” These changes suggest a human-inventor requirement, but there are also a number of cases interpreting “individual” to include non-human persons. In addition, the law allows for a substitute declaration in cases where the inventor is legally incapacitated. In this case, Thaler submitted that substitute declaration on behalf of DABUS.
Briefing appears complete in the case, and oral arguments will likely be scheduled for sometime this summer.
Hoyt Fleming is a patent attorney, and former Chief Patent Counsel for Micron. He is also an inventor and builder (he has personally built three airplanes). His U.S. Patent No. RE47,474 is pretty cool: it claims a “whole-aircraft ballistic parachute, which includes a rocket, that is coupled to the fuselage of the aircraft.” In response to a deployment request, the system first “commands the autopilot to increase aircraft pitch” and then deploys the ballistic parachute.
Fleming sent a copy of his pending patent application to Cirrus who apparently then released a new aircraft embodying his patented design. Fleming began negotiations on a license, but Cirrus filed a declaratory judgment action for non-infringement and also filed two IPR petitions. This is an appeal from the first IPR — finding the challenged claims unpatentable as obvious.
On appeal, the Federal Circuit has affirmed both the obviousness determination and the Board’s denial of Fleming’s motion to amend several claims.
The Federal Circuit spells-out the crux of the obviousness case as follows:
It is well known that: aircraft autopilots are programmable; can perform flight maneuvers and deploy a parachute.
It is also well known certain maneuvers should be performed prior to deploying a whole-aircraft parachute — such as increasing altitude and stabilizing the attitude;
But, everyone agrees that the prior art does not specifically teach “commanding an autopilot to perform the claimed flight maneuvers of increasing pitch, reducing roll, or changing attitude upon receipt of a parachute deployment request.”
The Board concluded that a person of ordinary skill in the art would be motivated to reprogram the autopilot to take Fleming’s proposed actions prior to releasing the parachute in order to improve safety outcomes.
Note here that the motivation for combining here is improved safety. Fleming noted that the prior art cautioned against the use of autopilot in certain certain emergency situations because it was unsafe. The PTAB rejected that argument and the Federal Circuit affirmed on appeal: “the Board correctly explained that the obviousness inquiry does not require that the prior art combination is the “preferred, or the most desirable” configuration.” The court noted that caution against autopilot use did not necessarily extend to all aircraft — such as unmanned aircraft. “That the prior art cautioned pilots not to use an autopilot in some emergency situations on some aircraft does not mean that the skilled artisan would have been dissuaded from doing so in all emergency situations on all aircraft.” Slip Op.
Fleming also argued copying – that Cirrus had copied his invention – and that copying is a strong indicia of nonobviousness. The Board concluded that Fleming had not proven that Cirrus copied:
Fleming repeatedly provided copies of his patent application and argued that Cirrus incorporated that disclosed material into its product and also its own patent application.
However, the Board found the evidence lacking because he did not provide “any meaningful infringement analysis.” On appeal, the Federal Circuit affirmed that conclusion
In re Volkswagen Group of America; In re Hyundai Motor America (Fed. Cir. 2022)
On appeal here, the Federal Circuit delved into franchise law — holding that independently owned and operated VW/Hyundai car dealerships located in the W.D. Texas do not count as a “place of business” of the car distributors. As such, venue is improper under 28 U.S.C. 1400(b).
In ordinary civil actions, venue is proper in any district that would have personal jurisdiction over the defendant. 28 U.S.C. 1391. Thus, for most federal cases, venue is not a major hurdle. But, in the 1800s, Congress created a special statute that substantially limits proper venue in patent cases (well before the expansion seen in Section 1391. In Fourco (1957), and again in TC Heartland (2017), the Supreme Court gave weight to the patent-focused statute. Today, there are two ways to show proper venue over a US corporate defendant:
The defendant is incorporated in the state; or
The defendant committed acts of infringement in the district and also has a “regular and established place of business” in the district.
TC Heartland, interpreting Section 1400(b).
In 2020, StratosAudio sued VW Group of America (VW) for patent infringement in Judge Albright’s court located in Waco, Texas. VW is incorporated NJ and does not have its own “place of business” in the district. However, there are VW dealerships in Waco and Austin. The question is whether those can count as a “place of business” for the defendant.
The laws of most states, including Texas, prohibit auto manufacturers and distributors from operating a dealership within the state. Still, Judge Albright found sufficient control by the distributor as well as ratification by the distributors.
On mandamus, the court further defined its requirements to determine whether a dealership can count as the place of business for a manufacturer or distributor:
Is the dealership the VW’s agent?
Does the dealership conduct VW’s business?; and
Has VW ratified the dealership as its place of business?
Slip Op. These requirements stem from the court’s 2020 Google decision requiring physical presence of an “agent of the defendant conducting the defendant’s business at the alleged place of business.” In re Google LLC, 949 F.3d 1338 (Fed. Cir. 2020). In addition, the ratification requirement appears in Cray: “Thus, the defendant must establish or ratify the place of business. It is not enough that the employee does so on his or her own.” In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017). These three elements are independent requirements that must each be met before a place-of-business maintained by a separate legal entity will “count” as the place-of-business of the defendant.
Not Agents: Here in particular, the court found that the dealerships located in W.D.Texas are not agents of VW Group of America. And, therefore, the dealerships are not a place-of-business of VW Group. The court’s approach was to follow the Restatement (Third) of Agency in focusing on the right of control/direction by the principal; and consent to the agency relationship by both the principal and agent. In the end, the court found that the dealerships had “full control over their day-to-day operations, such as sales.” Thus, the court found no agency relationship there. The court admitted some control over things such as:
who can be employed, what roles are required, and other employment requirements;
minimum inventory;
requirement of performing warranty work (warranty is promised by VW, not the dealer);
use specified tools when performing warranty and maintenance work;
use distributor-approved computer hardware and software;
compliance with distributors’ standards regarding dealership appearance and use of signs and brand logos;
maintaining working capital;
attending mandatory training and or certificates.
However, the court found that there was a lack of “interim control” once those parameters are set.
No agent, no place of business, no venue.
Fed Cir: a building that says VOLKSWAGEN, has VOLKSWAGEN signage all over it, has employees in it all wearing VOLKSWAGEN uniforms, and that exclusively sells and services VOLKSWAGEN vehicles, is not, in fact, VOLKSWAGEN’s place of business. https://t.co/f4GHOKD9Oq
The chart below provides a contrasting glimpse into the subject matter of US-originated patents compared with their foreign-originated counterparts. For each art-unit grouping, I show the percent of patents having US inventors (residence).
Broadcom petitioned the ITC to halt imports by Renesas Electronics (and others) because they infringe two Broadcom patents:
US7512752, claims 1, 2, 5, 7, 8: memory access unit with improve access to shared memory.
US7437583, claims 17–18, 25–26: gating clock signals to reduce power consumption.
But, the ITC sided fully with Renesas:
For the ‘583 patent, the ITC found no “domestic industry” to protect – a prerequisite for USITC action. In particular, Broadcom was unable to show any licensed domestic use of the invention as claimed. In addition, the ITC found no infringement of claims 25-26.
For the ‘752 patent, the ITC found infringement of claim 5, but concluded that claim 5 was invalid as obvious. (In a parallel IPR proceeding, the PTAB also found claim 5 obvious).
On appeal, the Federal Circuit consolidated the ITC case with the IPR appeals and has affirmed in favor of Renesas.
Domestic Industry: The International Trade Commission (ITC) is a branch of the U.S. government whose role is the protection of domestic industry against foreign overreach. As part of its role, a patentee can complain to the ITC about infringing imports. A prerequisite for these Section 337 cases is the existence of a domestic industry to protect.
[ITC powers over infringing imports] apply only if an industry in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established.
19 U.S.C. § 1337(a)(2). Thus, the statute requires “an industry in the United States, relating to the articles protected by the patent” being asserted. The patentee can prove that the domestic industry already exists by pointing to actual products in the US market that practice at least one claim of the asserted patent. Of course, minimal domestic sales do not equate to “an industry.” Rather, the law also requires a showing that the patentee has made significant/substantial investment in equipment, labor, engineering, research and development, and/or licensing. 19 U.S.C. § 1337(a)(3).
Here, Broadcom pointed to its system-on-a-chip (SoC) in serving the domestic industry for the ‘583. However, Broadcom’s chips do not include a “clock tree driver” required by all claims of the patent, and the ITC found no domestic industry. Broadcom generally argued that aspect of the patent was integrated by clients. However Broadcom did not point to any actual instances of such integration. But, generalities regarding the domestic industry are insufficient. The court explained:
As in Microsoft, Broadcom failed to identify any specific integration of the domestic industry SoC and the “clock tree driver” firmware, or a specific location where the firmware was stored. [And therfore] the Commission’s finding that Broadcom failed to satisfy the domestic industry requirement of Section 337 was supported by substantial evidence.
Slip Op. After losing before the ALJ, Broadcom added further evidence pointing to a particular system. However, the ITC and CAFed both concluded that new argument had been waived.
Broadcom was able to show a domestic industry for the ‘752 patent, but the court also affirmed the PTAB findings that the asserted claims were invalid. The court’s only real quibble was with regard to grammar. In a footnote, the court explained:
The Board and Commission decisions refer to what “is” obvious. Because § 103 addresses what “would have been” obvious, we recommend usage of the statutory language that looks back to the past in order to avoid the appearance of hindsight bias.
Slip Op. at Note 2. I read through the ITC decision and found the following line that appears to have raised Judge Lourie’s ire: “[T]he record evidence fully supports the FID’s finding that claim 8 is obvious over Foster alone.” [ITC Decision – 711340-1540697]. I also read through the PTAB decisions, but could not find any parallel offensive statements. Rather, the PTAB was careful to repeatedly recite the line “would have been obvious.” The PTAB did conclude that each problematic claim “is unpatentable under 35 U.S.C. § 103(a) as obvious.” However, that statement does not appear problematic to me.
As with most grammar, Judge Lourie’s opinion has some rational basis but will have the primary result of protecting self-satisfied insiders. The Supreme Court as a non-patent court doesn’t appear to care. Guess what the Court wrote in the biggest obviousness case of the past 50 years: “THE COMBINATION IS OBVIOUS.” KSR (2007)
In 1982, the USPTO began charging a surcharge for patent applications that included >3 independent claims and >20 total claims. The original surcharge was $10 per extra claim. The surcharge slowly rose up to $18 per extra claim by 2004. Then, in December of that year Congress pushed the fee up to $50 per claim–almost treble damages. Since then, the rate has continued to rise–jumping to $62 and then $80 in 2013. It now sits at $100 per claim beyond the 20-claim buffet limit.
The chart below shows the percent of patents that I call “jumbo patents”–those with >50 claims (orange) and >100 claims (dashed-blue). Both curves peak in 2005 with that year celebrating the issuance of the most jumbo patents in history. At its peak, only about 3.5% of patents issued with more than 50 claims. That number is now down below 0.5%.
I posit that the rapid decline in jumbo patents after 1995 was a direct result of the substantial rise in fee-surcharges December 2004. The impact of that change began to be felt in patents issued in 2006, and is shown much more dramatically by 2008 as the pre-2005 applications worked their way out of the system. An application with 50 claims (including 7 independent claims) went from an $850 surcharge to $2,300 surcharge. Thus, the new surcharge was substantially above the $1,000 fee for simply filing another patent, and almost covered the issue fee of $1,400 as well. In fact, the rise in jumbo patents was a key reason why the Dudas USPTO pushed for the large surcharge increase — Imagine seeing that upward trajectory in the pending applications and trying to figure out how to manage examination time.
= = =
The following are the most-jumbo patents from the past year:
11,116,808 – 394 claims – Nielsen Biosciences – “method for treating a common wart”
10,973,440 – 354 claims – method for “determining a gait velocity” – solo inventor.
11,080,336 – 302 claims – “a commonplace of information” – solo inventor
The decision here is simple, the plaintiffs sued WM for a data breach, but failed to allege that any of WM’s actions were unreasonable. The court dismissed the case, holding that “the law does not impose strict liability for harms arising out of the storage of personal information.”
In re Waste Management Data Breach Litigation, 21CV6147 (DLC), 2022 WL 561734, at *6 (S.D.N.Y. Feb. 24, 2022) [WasteManagementDismissal].
Waste Management detected some suspicious activity on its servers in January 2021, but did not discover that there was a real breach until May 2021. By that time, hackers had obtained personally identifiable information (PII) for the company’s 40,000 employees, and tens-of-thousands of former employees. This includes name, SSN, DOB, Driver’s License, etc. 4-weeks after discovering the breach, Waste Management disclosed the breach to individuals as well as to the California Attorney General (required by statute). WM offered to pay for 1-year identity monitoring.
The current/former employees sued in a nationwide class action alleging negligence, breach of implied contract, breach of fiduciary duty, and unjust enrichment. In addition, the California plaintiffs alleged breach of various California state laws, including the CCPA. In her recent decision, S.D.N.Y. Judge Denise Cote has dismissed the case for failure to state a claim upon which relief could be granted. Fed. R. Civ. Pro. R. 12(b)(6).
Negligence: “When an employer requires an employee to submit their sensitive personal information, the employee … has a reasonable expectation that the employer will take reasonable care not to place their personal data at unnecessary risk of exposure.” However, negligence does not sound in strict liability for all hacked disclosures. Rather, negligence always requires some unreasonable action (or inaction) in breach of the duty of care. Here, the complaint did not spin-out any such story. The court provides potential examples: non-encrypted files; failure to delete old data; failure to adhere to industry security guidelines; etc. However, none of these facts were pled. Thus, the negligence claim was dismissed.
Implied Contract: The court found that the plaintiffs might be able to prove that WM entered into an implied contract regarding data security. However, the complaint alleges that the implied contract was that WM “act reasonably.” But, as in the negligence claim, the complaint failed to plead plausible facts telling the story of any unreasonable action. The court notes that the plaintiffs might have pled (but did not actually plead) an implied contract to “insure employees against any data loss.”
Fiduciary Duty: No case here because “employers are not fiduciaries of their employees.”
Unjust Enrichment: Again, an unjust enrichment claim here would require some unreasonable act by WM. Plaintiffs failed to allege such an act.
California Consumer Privacy Act (CCPA): The complaint failed here again on reasonableness grounds. In particular, the complaint failed to allege that WM had in place “reasonable security procedures and practices appropriate to the nature of the information.” Cal. Civ. Code § 1798.150(a)(1). The CCPA also creates an action for unreasonable delay, but the court found that the 24-day delay “is insufficient on its own to plausibly allege unreasonable delay.”
Thomas v. Hughes, 20-50671, 2022 WL 620238, at *1 (5th Cir. Mar. 3, 2022) [Opinion]
Texas attorney Lee Ann Hughes purchased Performance Probiotics, LLC from the company founder Pearcy. At the time of the purchase, Hughes was Pearcy’s attorney – a red flag. In addition to the purchase agreement, PPI agreed to license Pearcy’s proprietary formulation of probiotics at a rate of 14% of net sales with an option to purchase the rights for $100k at the end of five years. But, PPI did not pay the royalties and instead simply used the formulation without payment (a second red flag).
Percy sued in Texas state court an won a verdict of almost $1 million for trade secret misappropriation (by PPI) but just $1 against Hughes for breach of attorney fiduciary duty. But, PPI did not pay the money owed on the judgment — instead filed for bankruptcy. At that point, Percy (as well as PPI’s bankruptcy trustee Thomas) sued Hughes personally for the money owed. The veil-piercing action included allegations of fraudulent transfer pre-bankruptcy, fraud, and breach of fiduciary duty to the company — this time all against Hughes. A jury found that Hughes was liable for all of it — although by that time the interest pushed the award up to $1.5 million. In addition, the jury awarded $1.2 million in punitive (“exemplary”) damages. The district court additionally ordered:
Disgorgement of $900k in compensations Hughes received from PPI;
Injunction against Hughes and her new companies from using the trade secret formulation until the judgment is fully satisfied;
Joint and several liability against Hughes personally for the prior judgment against PPI; and
Attorney fees of $400k. (This brings the total due to about $4 million).
On appeal, the Fifth Circuit has affirmed (with only a slight modification).
Under Texas law, trade secret misappropriation requires the following three elements:
existence of a trade secret
acquisition of the trade secret through a breach of a confidential relationship or improper means; and
unauthorized use of the trade secret.
Sufficiency of the Evidence: A litigant in federal court must take particular actions at trial in order to preserve a right to appeal a verdict on sufficiency-of-the-evidence grounds. In particular, the issue must be raised first in a pre-verdict R.50(a) JMOL motion; and then the same issue must be renewed as part of a post-verdict R.50(b) JMOL motion. On appeal here, Hughes argued that there was insufficient evidence to prove that Percy’s formulation was a trade secret. Although Hughes made that argument in her R.50(b) motion, she did not make the argument in a pre-verdict R.50(a) motion. On appeal, the Federal Circuit stuck to the rules and refused to consider this particular challenge. “Because Hughes did not challenge the existence of a trade secret or improper use in her initial Rule 50(a) motion, those issues were not properly raised in her post-trial Rule 50(b) motion. We therefore decline to address them on appeal.”
Trade Secret Damages: Although you have to prove damages in a trade secret case, the Texas Supreme Court allows for “flexible and imaginative” approaches. Here though the damages were easy to calculate because they were part of the contract – 14% of net sales + 100,000 for the purchase price. On appeal, the court affirmed the award.
Injunction: Hughes argued that the money paid fully compensated the defendant and thus no injunction was appropriate. The appellate court disagreed:
While it is true that the jury awarded “legally measurable damages” to Pearcy for Hughes’s misappropriation of trade secrets, the history of this case makes clear that such damages, without more, are incapable of remedying “the situation sought to be enjoined.” The Comal County jury originally awarded damages against PPI for breach of contract and misappropriation of trade secrets. But that award did not stop Hughes and companies she controlled from misappropriating Pearcy’s trade secrets again. Moreover, the money damages awarded to Pearcy compensate for past misappropriation, while the injunctive relief was fashioned by the district court to prevent future misappropriation—until the court’s judgment is satisfied, neither Hughes nor her companies have any more right to use Pearcy’s trade secrets than they did before. We agree with the district court that “the evidence adduced at trial and supported by the jury’s verdict shows that without injunctive relief, [Hughes] could continue harming Plaintiffs, which would … defeat the entire purpose of this long, expansive litigation.”
The chart below provides one look at the role of the U.S. Gov’t in directly funding patentable research-and-development. You’ll see two curves. The bottom curve tracks the percent of U.S. utility patents assigned to the U.S. governmental (or agency of the government, such as the Navy). U.S. Gov’t owned patents has dropped precipitously over the past 40 years. The upper curve tracks the percentage that list some U.S. Government interest in the patent — typically based upon Gov’t funding of the R&D and the government interest is provided for under the Bayh-Dole Act. Overall, when these two curves are combined together, we have a slight downward trend in the percentage of patents where the U.S. Gov’t asserts some property interest.
Readers should note that the primary government interest in government-funded patents are the march-in rights outlined in 35 U.S.C. § 200 et seq., and extended to large entities by various executive orders. Although that interest appears powerful, it has never been used by the government to ignore patent owner’s exclusivity. In addition, the funding agency receives a non-exclusive license to the patents for governmental uses. “With respect to any invention in which the contractor elects rights, the Federal agency shall have a nonexclusive, non-transferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world.” 35 U.S.C. 202.
The U.S. Gov't disclaims copyright protection the works of authorship created by the Government.
How would the world be different if we did the same with patentable inventions?
Data available here: Dennis Crouch, Replication Data for: U.S. Government Property Interests in Patent Rights, Harvard Dataverse (March 6, 2022), https://doi.org/10.7910/DVN/8CXI6Y.
DBN Holdings (DeLorme) v. International Trade Commission (Fed. Cir. 2022)
This case is a bit complicated procedurally — the basic facts are here:
BriarTek’s brought an ITC action against DeLorme (now DBN) asserting U.S. Patent No. 7,991,380 covering “two-way global satellite communication devices.” DBN settled that dispute and agreed to stop importing the accused products.
But, DBN actually continued to import covered products and the ITC assessed a civil penalty of $6.2 million for violation of the consent decree.
After being charged with the penalty, DBN filed an action in Federal Court seeking a declaration that the patent claims were invalid. DBN won the case and the invalidity was affirmed on appeal. Once the patent was invalidated, the consent decree (by its terms) no longer barred DBN from importing products. However, DBN also wanted to escape from the $6.2 million fine for its pre-invalidation violations.
The ITC refused to relieve DBN from payment of the fine — finding it “res judicata” based upon a prior affirmance of the fine by the Federal Circuit. Back on appeal in 2018, the Federal circuit vacated that judgment — holding instead that the ITC possessed authority to rescind or modify the civil penalty in light of the invalidity of the relevant patent claims.
Back on remand, the ITC maintained the penalty — finding that the ex post invalidation did not free DBN from penalties associated with its bad faith violation of the consent orders and disrespect to the ITC. This last decision is what is on appeal now, and the Federal Circuit has affirmed.
The Federal Circuit explains:
By entering the consent order, DBN agreed to discontinue any violation of Section 337. The ITC, in turn, terminated the investigation as required. From a contractual perspective, the breach of this promise provides the ITC a distinct ground for imposing a civil penalty. DBN agreed to the terms of the consent order, and those terms “unambiguously indicate[] that the invalidation trigger—like the expiration and unenforceability triggers—applies only prospectively.” Had the consent order been written in retrospective terms, DBN might have a stronger argument that the invalidation of the asserted claims renders the consent order null and void, or that modification is required. But under the clear terms of the consent order, DBN remained potentially liable for any violations up to the time of invalidation.
Slip Op. Judge Reyna’s opinion provides a rough roadmap for accused infringers entering into consent decrees — endeavor to negotiate retrospective terms regarding invalidity. This would look like something along these lines: “Defendant agrees to no longer import or sell any products infringing the asserted claims . . . . If the patent is later found invalid, Defendant will no longer be bound by the consent decree and the court will reconsider any prior adverse judgments against Defendant in light of the new invalidation.”
= = = =
The prospective/retrospective considerations here point toward a philosophical question of whether an invalidity decision is should be seen as an action cancelling a patent or instead is merely revealing that the patent has always been invalid. The consent order in this case agreement particularly states that DBN won’t import products “that infringe claims 1, 2, 5, 10–12, and 34 of the ’380 Patent.” One argument here is that the proper interpretation of “infringe” assumes patent validity. Once we figured out that the patent is invalid, doesn’t that mean that it was always invalid?
When a patent is found invalid, we know that it never should have issued.
Arthrex, Inc. v. Smith & Nephew, Inc. (Fed. Cir. 2022).
In 2021, the Supreme Court sided with the patentee in holding that the AIA trial system violated the Appointments Clause of the U.S. Constitution. The Court concluded that PTAB judges were wielding the substantial power of the U.S. Gov’t by cancelling already-issued patent claims. The Constitution provides that officers wielding such power must be directly tied to the US President via presidential nomination and confirmation by the US Senate. But, PTAB judges are appointed by the Secretary of Commerce and do not undergo Senate confirmation. Rather than burning down the entire house, the Supreme Court partially rewrote the statute — adding the presidentially appointed USPTO director as an intermediary with power to accept or reject any PTAB decision stemming from an AIA trial.
The PTAB had originally sided with the patent challenger (Smith & Nephew) in finding the claims unpatentable. After the Supreme Court decision, the case was remanded back to the Patent Office so that the USPTO Director could have the final word from the administrative agency. Commissioner for Patents Drew Hirshfeld denied the petition for director review. Although Hirshfeld is currently the USPTO’s highest ranking official, he is not the USPTO Director, nor is he the Acting Director rather he continues in his role as Commissioner for Patents while still “performing the functions and duties of the Director.” Further, Hirshfeld was not nominated by the President or confirmed by the Senate. Rather, just like the PTAB judges found Constitutionally inadequate, Hirshfeld is an inferior officer appointed by the Secretary of Commerce.
Arthrex has now appealed its case back to the Federal Circuit — arguing that Hirshfeld’s denial does not meet the strict requirements imposed by the Constitution and the Supreme Court. The basic argument here is simple — the Supreme Court held that the PTO’s final agency decision in an IPR must come from a presidentially appointed principal officer.
One issue here is the practicalities of running an administrative agency such as the PTO in the interim following resignation of a presidentially nominated director. From the beginning of the Republic (1791), Congress has authorized temporary appointments in situations where the full nomination-confirmation process might take too much time to complete. Today, this process is generally provided for by the Federal Vacancies Reform. That law outlines mechanisms for allowing a temporary acting Director absent Senate confirmation. However, Hirshfeld does not qualify even for this statutory work-around because he was not the Deputy Director nor was he personally selected by the President.
One aspect of the appointments clause is to draw a direct link to the President. A final difficulty for Hirshfeld is that his appointment has a 5-year tenure protection and can only be removed early for cause. 35 U.S.C. 4(b)(2). These tenure protections further limit Presidential power over agency action.
In response, Smith & Nephew rely heavily on United States v. Eaton, 169 U.S. 331 (1898). In Eaton, the Supreme Court permitted approved of a non-presidential appointment of an officer “under special and temporary conditions.” However, there is a strong suggestion that Eaton was an inferior Officer rather than principal Officer case. Dir. Hirshfeld has now been standing-in as director for more than one year — on the four-year-timeline of the Presidency, this is starting to appear permanent.
Oral arguments in this round of the appeal are set for March 30, 2022.
Although it is not entirely clear, it appears to me that the original merits panel of Chief Judge Moore, and Judges Reyna and Chen will retain the case and here this petition as well. This trio decided the original case, with Judge Moore writing the opinion. The Federal Circuit and Supreme Court both agreed that the PTAB judges were principal officers if the IPR statute was strictly followed. The Federal Circuit offered a different remedy (removing PTAB judge tenure) than the Supreme Court (adding Director Review). Following the Supreme Court decision, the same panel issued the order to remand the case for Director Review. However, that remand included a statement that the “court retains jurisdiction over this appeal” and that the appellate proceedings are simply stayed. Thus, the appeal pending now is using the same docket number (18-2140) and, I expect, will be in front of the same set of judges.
AstraZeneca AB v. Mylan Pharmaceuticals Inc. (Fed. Cir. 2022)
The Federal Circuit has denied AstraZeneca’s petition for en banc rehearing in this scientific notation case. I’d like to see a Supreme Court petition on scientific notation. Here is the basic setup:
AZ’s formulation patent includes “0.001%” PVP K25.
Mylan’s accused product is slightly different, but still within standard rounding error (0.0005% to 0.0014%).
Is it infringing?
The court found it would normally be infringing, but the patent suggests a narrower range that includes “the precise number, with only minor variation.” Thus, the range of literal scope would be something like 0.00095 to 0.00104. And, that narrower scope means no infringement.
I’ve got three charts to show you below. The first and second are histograms showing the number of claims per US utility patent – 2021 and 2006 issue dates respectively. You’ll notice that the 2021 histogram has a much stronger central tendency focused on the buffet-limit of 20 claims. The 2006 patents are significantly more spread, with many more patents under and over 20-claims mark. That wider distribution is also shown in the time-series box-and-whiskers plot at the bottom (showing 25-50-72 percentiles in the box). And by the standard deviations: the standard deviation for the 2021 claim counts was less than half of that for the 2006 claim counts. Basically, the 2021 patents are much less likely to either a very large number of claims or a very small number of claims.
My hypothesis is that these changes are driven by several factors, with the following two most impactful: (1) Since 2006, there has been a substantially increases in USPTO fees associated with having more than 20 claims. That change has pushed folks away from having a large number of claims in a single patent; (2) Since 2006 we have also seen a further professionalization of patent prosecution, including a recognition that the applicant should include 20 claims if possible. This change has shifted applicants up from the very low numbers. Some may argue that restriction practice is also important. However, I don’t believe that restrictions have increased so dramatically as to cause this change.
But – why does someone need 20+ restatements of the invention? Would it be conceivable to have a system that includes just one claim? What do you think?
The fee structure for excess claims (>20) was established in the form we know back in 1982. The final chart below comes from 1980, and you see no 20-claim impact.
On his wonderful Fed Circuit Blog, Professor Taylor is hosting an interesting online symposium on the topic of Patent Law and Institutional Choice with the following nine thought provoking essays:
As expected, a panel of the Federal Circuit held last week that the PTO violated the First Amendment when it refused to register without his permission a mark criticizing former President Donald Trump. Unfortunately, the Court did little more than that. The PTO had denied registration under a provision in the Lanham Act requiring it to do so when a mark “[c]onsists of or comprises a name . . . identifying a particular living individual” without the individual’s “written consent.”[2] The Court held that, as applied to the mark TRUMP TOO SMALL, “section 2(c) involves content-based discrimination that is not justified by either a compelling or substantial government interest.”[3] But in an act of breathtaking judicial restraint, the opinion fails to provide any guidance as to what test the PTO should use in the future to avoid applying the statute in an unconstitutional manner as it processes thousands of routine registration decisions per year. Given that this issue will undoubtedly arise again, the PTO might justifiably wonder why it has been turned out onto Lafayette Square without any roadmap of what to do next.
Steve Elster’s trademark, TRUMP TOO SMALL as applied to shirts, is intended to “invoke[] a memorable exchange between President Trump and Senator Marco Rubio from a 2016 presidential primary debate, and aims to ‘convey[] that some features of President Trump and his policies are diminutive.’”[4] Hence, the mark is political speech at the heart of the First Amendment. Nonetheless, the PTO applied Section 2(c), determined that, unsurprisingly, the record did not contain any evidence that Trump consented to the registration of a mark calling his policies and “some features” too small, and therefore declined to grant the registration. In defense against Elster’s claim that this violated his free speech rights, the PTO justified the statute (or its mechanical application thereof) on the grounds that it was defending the right of publicity.[5] But as the Court of Appeals found, “challenges under state-law publicity statutes are ‘fundamentally constrained by the public and constitutional interest in freedom of expression,’ such that the ‘use of a person’s identity primarily for the purpose of communicating information or expressing ideas is not generally actionable as a violation of the person’s right of publicity.’”[6] In other words, as my previous post detailed, every jurisdiction that recognizes the right of publicity also recognizes some sort of First Amendment defense to the assertion of such a claim. The form these defenses take varies from state to state, and they are roundly criticized by scholars as offering insufficient free speech protection. The problem is, the PTO applies Section 2(c) to bar registration without any consideration of a First Amendment defense.
The Federal Circuit has decided that this application of the statute violated Mr. Elster’s rights, but declined to say which of the myriad First Amendment defenses to the right of publicity the PTO might apply in the future in making registration decisions of this sort. Instead, the Court suggested in dictum that the statute might be facially unconstitutional as overbroad, but declined to rule on that issue either:
As Elster raised only an as-applied challenge before this court … we have no occasion to decide whether the statute is constitutionally overbroad. We note, however, that section 2(c) raises concerns regarding overbreadth.[7]
The Court explained that “‘a law may be overturned as impermissibly overbroad’ when ‘a ‘substantial number’ of its applications are unconstitutional, ‘judged in relation to the statute’s plainly legitimate sweep.’”[8] The Court then enticingly offered that “[i]t may be that a substantial number of section 2(c)’s applications would be unconstitutional,” because “[t]he statute leaves the PTO no discretion to exempt trademarks that advance parody, criticism, commentary on matters of public importance, artistic transformation, or any other First Amendment interests.”[9] “Nonetheless,” the Court concluded, it will “reserve the overbreadth issue for another day.”[10] But why do we have to wait for another day? Now the PTO has to go to work violating the Constitution again, so that the same arguments can be briefed and argued again, to what end? One can only conclude that in addition to Trump, the opinion in In re Elster is also “too small.”
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[1] Professor of Law, Golden Gate University School of Law.
[3]In re Elster, No. 20-2205, slip op. at 5 (Fed. Cir. Feb. 24, 2022).
[4]Elster, slip op. at 2 (quoting Elster’s registration application).
[5] The PTO also argued that it must deny registration to safeguard Trump’s right of privacy, an argument so weak as to deserve even less attention than this footnote. As the Court held, a public official does not enjoy a right of privacy protecting him from criticism except in the case of “actual malice,” which is “the publication of false information ‘with knowledge of its falsity or in reckless disregard of the truth.’” Elster, slip op. at 11 (quoting Time, Inc. v. Hill, 385 U.S. 374, 388 (1967)).
[6]Elster, slip op. at 15 (quoting Restatement (Third) of Unfair Competition § 47 cmt. c.).
[8]Elster, slip op. at 19 (quoting Wash. State Grange v. Wash. State Republican Party, 552 U.S. 442, 449 n.6 (2008) and New York v. Ferber, 458 U/S. 747, 769-71 (1982)).
