March 2012

Guest Post: The February of FRAND

Patent, ,

Guest Post by Professor Jorge L. Contreras. 

For those of us who have been following the telecom patent battles, something remarkable happened a couple of weeks ago.  On February 7, the Wall St. Journal reported that, back in November, Apple sent a letter[1] to the European Telecommunications Standards Institute (ETSI) setting forth Apple’s position regarding its commitment to license patents essential to ETSI standards.  In particular, Apple’s letter clarified its interpretation of the so-called “FRAND” (fair, reasonable and non-discriminatory) licensing terms that ETSI participants are required to use when licensing standards-essential patents.  As one might imagine, the actual scope and contours of FRAND licenses have puzzled lawyers, regulators and courts for years, and past efforts at clarification have never been very successful.  The next day, on February 8, Google released a letter[2] that it sent to the Institute for Electrical and Electronics Engineers (IEEE), ETSI and several other standards organizations.  Like Apple, Google sought to clarify its position on FRAND licensing.  And just hours after Google’s announcement, Microsoft posted a statement of “Support for Industry Standards”[3] on its web site, laying out its own gloss on FRAND licensing.  For those who were left wondering what instigated this flurry of corporate “clarification”, the answer arrived a few days later when, on February 13, the Antitrust Division of the U.S. Department of Justice (DOJ) released its decision[4] to close the investigation of three significant patent-based transactions:  the acquisition of Motorola Mobility by Google, the acquisition of a large patent portfolio formerly held by Nortel Networks by “Rockstar Bidco” (a group including Microsoft, Apple, RIM and others), and the acquisition by Apple of certain Linux-related patents formerly held by Novell.  In its decision, the DOJ noted with approval the public statements by Apple and Microsoft, while expressing some concern with Google’s FRAND approach.  The European Commission approved Google’s acquisition of Motorola Mobility on the same day.

To understand the significance of the Apple, Microsoft and Google FRAND statements, some background is in order.  The technical standards that enable our computers, mobile phones and home entertainment gear to communicate and interoperate are developed by corps of “volunteers” who get together in person and virtually under the auspices of standards-development organizations (SDOs).  These SDOs include large, international bodies such as ETSI and IEEE, as well as smaller consortia and interest groups.  The engineers who do the bulk of the work, however, are not employees of the SDOs (which are usually thinly-staffed non-profits), but of the companies who plan to sell products that implement the standards: the Apples, Googles, Motorolas and Microsofts of the world.  Should such a company obtain a patent covering the implementation of a standard, it would be able to exert significant leverage over the market for products that implemented the standard.  In particular, if a patent holder were to obtain, or even threaten to obtain, an injunction against manufacturers of competing standards-compliant products, either the standard would become far less useful, or the market would experience significant unanticipated costs.  This phenomenon is what commentators have come to call “patent hold-up”.  Due to the possibility of hold-up, most SDOs today require that participants in the standards-development process disclose their patents that are necessary to implement the standard and/or commit to license those patents on FRAND terms. 

On its face, it is easy to see why a FRAND commitment might reassure implementers of a standard.  If a patent is essential to the standard, the patent holder must license the patent on terms that are fair, reasonable and non-discriminatory.  Unfortunately, the devil has proven to be in the details of FRAND, and no two companies seem to have the same view of what constitutes fair, reasonable or non-discriminatory licensing terms.  This lack of agreement has troubled regulators for some time and has led to an increasing number of litigation claims alleging that one party or another to a standards effort has failed to comply with its FRAND obligations. 

The February FRAND statements by Apple, Microsoft and Google are thus informative and potentially of great importance.  To understand the statements, and why the DOJ viewed them differently, it is helpful to compare them side-by-side.  The following table summarizes what Apple, Microsoft and Google said FRAND means to them.

 

Apple (relating to cellular telephony standards)

Microsoft

Google (limited to Motorola Mobility patents)

1. Prior Commitments.

Will the patent holder honor FRAND obligations of prior patent owners?

A party acquiring patents from someone who made FRAND commitments must abide by those commitments

n/a

G will honor Motorola’s existing FRAND commitments

2.  Onward Transfer.

Will the patent holder require future owners of the patent to comply with its FRAND obligations?

n/a

M will require transferees to abide by its FRAND commitments

G will use “best efforts” to ensure that transferees abide by its FRAND commitments

3. Reciprocity.

Will the patent holder require that the licensee grant a license back to the licensor?

n/a

M will only require a grant-back of the licensee’s patents that are essential to the same standard

G will only require a grant-back of the licensee’s patents that are essential to the same standard

4.  Royalty Rate.

Will the patent holder commit to a maximum royalty rate?

Standards-essential patents should be licensed at an “appropriate” royalty rate reflective of the licensor’s share of the overall number of patents essential to the standard

n/a

Maximum per-unit royalty of 2.25% of product net selling price

5. Injunctive Relief.

Will the patent holder seek injunctive relief against unlicensed implementers of the standard?

A party making a FRAND commitment must not seek injunctive relief on patents subject to the commitment

M will not seek an injunction … on the basis of [standards-] essential patents

G will not seek an injunction on the basis of standards-essential patents, during a reasonable negotiation period and if the other party makes a similar commitment

 

Despite their differences, the three FRAND statements exhibit some important similarities.  All three, for example, support the notion that FRAND commitments should “travel with the patent”.  This is an important acknowledgement, as such commitments typically lack the necessary elements of a bilateral contractual arrangement, and have been questioned in both corporate acquisitions and bankruptcy proceedings (see In re Nortel Networks Inc., Order – Case No. 09-10138(KG) (Bankruptcy Ct. D.Del., Jul. 11, 2011)).

The three statements also address the question of injunctive relief.  Numerous commentators have questioned whether injunctive relief is an appropriate remedy for holders of standards-essential patents, particularly in view of the Supreme Court’s four-part analysis under eBay v. MercExchange LLC, 547 U.S. 388 (2006). In 2011, the Federal Trade Commission suggested that injunctive relief might not be justified in the standards context, writing that “[a] prior [F]RAND commitment can provide strong evidence that denial of the injunction and ongoing royalties will not irreparably harm the patentee.”  Federal Trade Comm’n, The Evolving IP Marketplace – Aligning Patent Notice and Remedies with Competition 235 (2011).  In their February FRAND statements, Apple and Microsoft each commit not to seek injunctions on the basis of their standards-essential patents.  Google makes a similar commitment, but qualifies it in typically lawyerly fashion (Google’s letter is more than 3 single-spaced pages in length, while Microsoft’s simple statement occupies about a quarter of a page).  In this case, Google’s careful qualifications (injunctive relief might be possible if the potential licensee does not itself agree to refrain from seeking an injunction, if licensing negotiations extended beyond a reasonable period, and the like) worked against it.  While the DOJ applauds Apple’s and Microsoft’s statements “that they will not seek to prevent or exclude rivals’ products form the market”, it views Google’s commitments as “less clear”.  The DOJ thus “continues to have concerns about the potential inappropriate use of [standards-essential patents] to disrupt competition”. 

It is not clear whether the DOJ’s criticism of Google’s stance on injunctive relief, or its endorsement of Apple’s and Microsoft’s positions, is warranted.  After all, none of the February FRAND statements was made directly to the DOJ, formed part of a consent order, or even rose to the level of a contractual commitment.  But whatever their actual legal effect, it is certainly preferable to have such statements than not, and perhaps this recent wave of “clarifications” will help courts to interpret the array of FRAND-based claims that will inevitably be brought over the next several years.

Mr. Contreras is a Visiting Associate Professor at American University – Washington College of Law and will join the faculty as an Associate Professor this summer.  His research focuses on the impact of intellectual property rules on scientific and technological development, including in the area of technical standard-setting.  He is the editor of the ABA's Standards Development Patent Policy Manual and has written numerous articles and book chapters relating to intellectual property and standards.

 

Guest Post: It’s Time for a Reliable System to Determine Who Owns a U.S. Patent

Patent,

by Susan G. L. Glovsky of Hamilton Brooks Smith Reynolds

Patents are far more valuable than they ever have been. Yet, unlike real property, it can be difficult to determine patent ownership or accurately identify encumbrances even though patent value can exceed the value of a home or even an office building. Rights in real property are determined by legislation in each state, which provides for recordation of written transfers and security interests in real property. Legislation related to real property recordation provides a level of certainty in determining the true owner, provides protection for bona fide purchasers, and permits recordation of liens to satisfy debts owed by real estate owners.

This is not the case with patents. Because of an inadequate system for recordation, prospective purchasers, licensees, lenders, and even defendants in a lawsuit may have to take it on faith that the seller, licensor, borrower, or plaintiff truly owns, and has not previously encumbered, these patent rights.

Unless assigned, patent applications are owned by the inventor or inventors named in the application. The inventor(s) can assign ownership to another person or to a company. Thereafter, the assignee can further assign the application or, once issued, the patent. Any assignment must be in writing, and the assignment can be recorded with the United States Patent and Trademark Office. Recordation is voluntary. In the event of conflicting transfers of title to the same patent or application, the Patent Act gives the first purchaser a three month window in which to record, which takes priority over a subsequent purchase during the three month period, even though there was no constructive (through recordation) or actual notice of the assignment at the time the subsequent purchase was made. As a result, potential transfers that might have occurred in the three month period preceding an assignment that could trump that assignment may be unavailable when conducting any title search, leaving a potential purchaser with uncertainty and unacceptable risk.

Security interests in patents are to be recorded where UCC filings are made, based on state law. Unlike real estate, it is not always easy to determine the state in which a security interest in a patent has to be recorded. Once the state is determined, it is necessary to determine, under that state's law, whether recordation is made at the state or local level in order to search for any security interest that may be recorded. Lack of certainty concerning security interests can discourage lenders from providing needed loans.

The time has come to enact national legislation that provides clear record title to patent applications and patents. The value of patents is too great to continue with the present system. Moreover, patents are a federal right and should be addressed at a federal level. A national system would harmonize U.S. law with those of other countries, which generally have a national system for recordation of patent rights. Recently, the Patent Office proposed rules that would require disclosure of any assignee of patent rights. But these rules simply do not go far enough. Legislation is necessary in order to provide a comprehensive internationally recognized system that assures the recordation of patent title, security interests, and other encumbrances through filings solely in the Patent Office.

Taking the best from state systems for recording interests in real estate, at a minimum any legislation needs to:

  • Provide for recordation in the United States Patent and Trademark Office of transfers, security interests, exclusive licenses, corporate mergers, and liens that relate to rights in patent applications and patents as the sole location for recording those interests
  • Provide that a transfer is only effective against a bona fide purchaser once it is recorded
  • Determine priority among holders of transfers and security interests that are not recorded, including whether notice of unrecorded transfers is considered in determining priority
  • Provide a mechanism in Federal Court to remove a cloud on title to patent assets
  • Provide a mechanism (such as a lis pendens) that prevents transfer of the patent asset while a court action to determine rights in the patent asset is pending
  • Allow for dismissal of any lawsuit filed to enforce a patent, unless the record owner or record exclusive licensee is a party

The new rules proposed by the Patent Office have succeeded in focusing attention on recordation of patent rights, but the proposed rules do not go far enough. In order to provide a comprehensive system that addresses all the issues, Congress needs to enact legislation that solves all the problems in the current system.

Notes:

Microsoft and Nokia sue Apple for Patent Infringement (via a Holding Company)

Patent,

by Dennis Crouch

Luxembourg based Core Wireless Licensing S.a.r.l. has sued Apple for patent infringement in the Eastern District of Texas. The recently filed complaint alleges that Apple’s communication devices such as iPads and iPhones infringe eight different Core Wireless patents.  The Core Wireless family of patents focus primarily on communication protocols and the patent owner claims that the patents are infringed by any device that communicates using 2G, 3G, or 4G standards.

Core Wireless obtained its portfolio of 2,000 patents and pending applications from Nokia and (apparently) Microsoft. In 2011, the patent licensing entity MOSAID purchased Core Wireless.  MOSAID itself is owned by the US private equity firm Sterling Partners.

The reported purchase price for Core Wireless (including its patents) was just under $20,000 — seemingly a very low price.  However, there is a kicker, the sale requires that the new owner enforce the patents and 2/3 of any licensing revenue must be sent to Microsoft and Nokia. Further, the patent ownership rights are subject to a condition subsequent — if Core Wireless fails to meet minimum performance thresholds then the patent rights revert to the grantors (Nokia and Microsoft). The following comes from a 2011 press release by MOSAID:

Core Wireless will retain approximately one-third of gross royalties from future licensing and enforcement of the patents and will bear all of the costs associated with their administration, licensing, enforcement and monetization. Core Wireless’ ongoing ownership of the portfolio is subject to minimum future royalty milestones. The remaining 2/3 of gross royalties will be paid to Nokia and Microsoft Corporation (NASDAQ: MSFT).

One way to look at this is that MOSAID is essentially working as on a property management contract. With patents, title must shift in order to facilitate the necessary lawsuits. The complaint lists the following patents as infringed: 6,792,277, 7,606,910, 6,697,347, 7,447,181, 6,788,959, 7,529,271, 6,266,321, 6,978,143.

This case is also interesting in the context of Professor Schwartz’s article on Contingent Fee Patent Litigation.  In a round-about way, Nokia and Microsoft have hired MOSAID on contingency fee to enforce their patent rights.  The complaint itself was filed by Henry Bunsow of Dewey Leboeuf in San Francisco with Johnny Ward Jr. serving as local counsel in E.D. Texas. True to its role as hopeful licensor, the plaintiff has only asked for money damages and not injunctive relief to stop ongoing infringement.

Google Buys More Patents: Last fall, MOSAID sold a set of 18 patents and patent applications to Google for a reported $11 million. Recently, the pair recorded a new transaction of about 200 patents and applications from MOSAID to Google.  Those patents were previously owned by the Italian tire manufacturer Pirelli and a spinoff company PGT-Photonics.  Google also recently purchased one eCommerce patent from the tiny firm Alpine-in-Motion.

Contingent Fee Patent Litigation

Patent

Review by Dennis Crouch

Dave Schwartz is a law professor these days. However, before joining Chicago-Kent he was litigator for more than a decade. Schwartz's most recent article is interesting study of the practice of contingent fee patent litigation. And, the article is appropriately named "Contingent Fee Patent Litigation." [Download the Article from SSRN] The meat of the article is based on Schwartz's interviews with a set of forty litigators who work on contingency fee basis and a privately collected set of contingency fee agreements.

From the abstract:

Drawing upon several sources of data, including in-depth interviews with over forty lawyers involved in contingent representation in patent litigation and examination of over forty contingent fee agreements, this Article provides the first comprehensive analysis of the rapid evolution of contingent representation in patent law. The development of contingent representation includes top-tier litigation firms recently transitioning to taking on high value contingent cases, small entrants representing plaintiffs in lower value cases, and numerous general practice firms experimenting with contingent patent litigation. These diverse players each select and litigate cases using varied methods, resulting in different levels of risk and reward. The Article uses the study of these players to discuss how and why attorney-client contingent relationships established in the nascent marketplace of patent contingent litigation differ from other types of contingent litigation, and what patent law can teach about contingent representation in general.

Schwartz particularly rejects the conclusions drawn by Texas Professors Ronen Avraham and John Golden that former medical malpractice and mass tort lawyers have moved into the contingency fee patent law arena. Rather, Schwartz concludes that "most lawyers whose practice consists of substantially all patent contingent litigation are primarily and historically patent litigators. They are not former medical malpractice, personal injury, or other tort lawyers."

I might quibble a bit with Schwartz's prognostication that the America Invents Act (AIA) is likely to reduce the filing of weak patent claims where the patentees are hoping to settle for the cost of defense. The basis for this is the AIA's new anti-joinder rule that "joining multiple defendants in many circumstances." Schwartz correctly writes that "this means that the practice of suing multiple unrelated defendants in one cause of action is prohibited going forward." However, in my own experience filing patent complaints, it is not much more difficult to file 20 separate actions as it is to file one action against 20 defendants. The primary difference is the $350 federal court filing fee and perhaps a need for a slightly better system of managing multiple cases. However, those fees are still small when compared with settlement figures.

One topic fascinating to me that is only lightly discussed by Schwartz is financing for the lawyers themselves and the rise of Wall Street hedge fund and bank financed patent litigation. Those underlying financing issues almost certainly drive elements of contingent fee patent litigation.

Download the Article from SSRN

Copyright: Lawfirms Sued for Submitting Prior Art to the USPTO

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  • John Wiley & Sons and American Institute of Physics v. McDonnell Boehnen Hulbert & Berghoff (MBHB) (N.D. Ill.) (Complaint)
  • American Institute of Physics and John Wiley & Sons v. Schwegman Ludberg (D.Minn) (Complaint)

The Hoboken publishing company (John Wiley) and the non-profit American Institute of Physics have continued their quest to pursue copyright infringement charges against US patent attorneys who submit copies of journal articles to the US Patent Office during the patent application process. The submission of those documents is required by law and attorneys who fail to submit known and relevant prior art can be subject to ethics charges and the associated patents held unenforceable. Earlier this year, the US Patent Office issued a memo indicating its belief that copying and submitting copyrighted documents should be considered a non-actionable fair use.  Firms already pay for access to the articles and the USPTO also has its own access to most of the articles. The issue is whether the patent applicants must pay an additional fee for making a copy for the USPTO and an additional copy for the in-house file.

The first two law suits were filed yesterday. The first against my former law firm MBHB LLP in Chicago and the second against the Schwegman firm in Minnesota.  These two firms are known for the high level of scientific and technical expertise of their attorneys.  (Full Disclosure – MBHB is the primary advertiser on Patently-O)

The complaints allege two particular infringing acts:

14. In connection with researching, filing and prosecuting certain patent applications, McDonnell made and/or distributed to the United States Patent and Trademark Office (“PTO”), and perhaps others, unauthorized copies of copyrighted articles from plaintiffs’ journals … Such unauthorized copies were used for the commercial benefit of defendants and their clients.

15. Upon information and belief, defendants made (a) additional copies of the copyrighted works that defendants included or cited in their patent applications to the PTO, including those identified on Schedule A, and (b) copies of plaintiffs’ copyrighted works that defendants considered in connection with those applications, but did not ultimately cite or provide to the PTO. Plaintiffs cannot know the full extent of defendants’ copying without discovery. Apart from the copying of plaintiffs’ works accompanying the patent filings described above, this internal copying infringes plaintiffs’ copyrights.

In his article for PaidContent, Jeff Roberts sees these two as “a test-run. . . . If the firms fold their cards and settle, John Wiley and the physicists may be emboldened.” (See also Zach Winnick at Law360).

In the complaint, Wiley identifies two articles that MBHB allegedly submitted to the USPTO:

  • Raznikov, V., et al., “A new approach to data reduction and evaluation in highresolution time-of-flight mass spectrometry using a time-to-digital convertor datarecording system,” Rapid Communications in Mass Spectrometry, vol. 15, No. 8, pp. 570-578 (2001); and
  • Erchak, A., et al., “Enhanced coupling to vertical radiation using a twodimensional photonic crystal in a semiconductor light-emitting diode,” Applied Physics Letters, vol. 78, No. 5, pp. 563-565 (2001).

The complaint in the Schwegman case are based upon these two articles:

  • McDonald S., et al., “Photoconductivity from PbS- nanocrystal/ semiconducting polymer composites for solution-processible, quantum-size tunable infrared photodetectors,” Applied Physics Letters, vol. 85, No. 11, XP012062554, ISSN: 0003-6951, pp. 2089-2091, (Sep. 13, 2004); and
  • Greenwald, et al., “Polymer-Polymer Rectifying Heterojunction Based on Poly(3,4-dicyanothiophene) and MEH-PPV,” J. Polym. Sci. A: Polym. Chem., vol. 36:17, pp. 3115-3120, (1998).

I have contacted the authors of each of these articles, but have not yet received any response. MBHB’s managing partner Marcus Thymian released a statement referring to the USPTO’s position on fair use. “We note that the United States Patent and Trademark Office has released its position — that it is a fair use for a patent applicant to submit a copy of non-patent art to the patent office to fulfill the disclosure requirement imposed by the patent regulations.”  It will also be easy for the law firms to obtain an opinion that internal copying also qualifies as a fair use under Section 107 of the Copyright Act. 

In a statement to Law360, the plaintiffs attorney Bill Dunnegan appears ready to admit – despite language in the complaint – that submissions to the USPTO are not actionable.  He is quoted as saying “The crux of what our case deals with is the internal copying by the law firms after they have one copy in their hand. . . . Those copies are not licensed, and the patent office didn’t take a position on whether or not fair use would apply to those copies.”  The copy-for-file issue seems to fall in line with the Supreme Court’s analysis in Sony v. Universal (1984). In that case, the court held that it was a fair use for home consumers to record television broadcasts so the consumers could view the shows at a later time. 

Notes:

  • Submitting Citations: Several years ago, the USPTO realized that it already had copies of all issued US patents within its in house databases and asked patent practitioners to stop sending-in copies of patents. Rather, the patent attorneys were asked to simply submit a list of US patent documents that materially related to the patent being examined.  To the extent that the USPTO already has access to many of the publications in question here, a similar solution could work that allows patent practitioners to simply submit the citation to articles within the USPTO databases.
  • Open Access: Depending upon pricing structure, access to a journal such as the Journal of Applied Physics costs as much as $15k per year.  Academic authors generally receive no compensation for publication and there is a growing movement amongst academia toward open access journals.  Almost all law reviews make their works freely available online.  This enforcement project may push the sciences in that direction as well.

GE Wins Wind Turbine Patent Appeal – USITC Must Now Determine Whether to Block Mitsubishi Wind Turbine Imports

Patent, ,

GE v.USITC and Mitsubishi (Fed. Cir. 2012)

Wind turbine technology is coming into its own. GE and Mitsubishi are both global leaders. Mitsubishi imports wind turbines into the US, and GE filed a complaint with the US International Trade Commission (USITC) alleging infringement of three patents. Patent Nos. 7,321,221, 6,921,985, and 5,083,039. The '039 patent expired in 2011 and, because the USITC's only remedy is injunctive relief to stop ongoing and future infringement, the court has dismissed all charges associated with that expired patent.

During its proceedings, the USITC Administrative Law Judge found the GE patents infringed, enforceable, and "not invalid." However, patents are only enforceable at the USITC if there is a "domestic industry" for the claimed invention. 19 U.S.C. § 1337(a). The statute specifically requires a US industry that can show "with respect to articles protected by the patent" significant investment in plant and equipment; employment; or investment in exploitation, "including engineering, research and development, or licensing." The ALJ found a domestic industry, but the full Commission rejected that finding and additionally held that Mitsubishi did not infringe the '221 patent.

Win for GE: In a decision penned by Judge Newman and joined by Chief Judge Rader and Judge Linn, the Federal Circuit has affirmed-in-part, vacated-in-part, reversed-in-part, and remanded. Overall, this is a win for GE because the appellate court ruled that a domestic industry exists in relation to the '985 patent and it appears that the USITC already agrees that the '985 patent is valid and infringed.

USITC Domestic industry jurisprudence is a mess. Here, the basic question boiled down to whether there is at least one claim – GE's wind turbines are would infringe the claims in its asserted patents. That decision obviously turned on claim construction and particularly whether GE's domestic turbines included a "converter controller coupled with the inverter … to shunt current from the inverter." The problem with GE's domestic turbines is that its controller is within the inverter and the Commission held that it could not therefore be "coupled to" or shunt current "from" the inverter. On appeal, the court rejected that analysis and instead held that the claim does not require that the controller be separate from the inverter.

A similar argument was rejected in NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005), where some of the claims recited a receiver "connected to" or "coupled to" a processor or that the receiver "transfers" information to the processor. The accused infringer in NTP had argued that "connected to," "coupled to," and "transfer from" each requires the receiver and the processor to be separate, but the court concluded that "the two components could be connected, joined, or linked together by wires or other electrical conductors and still be located in the same housing or even on the same circuit board." 418 F.3d at 1310-11. The court also held that the function that information is transferred between two entities does not require physical separation of the entities. Id. at 1310.

Based upon its corrected claim construction, the Federal Circuit was able to conclude that claim 15 of the '985 patent "covers the domestic industry turbines" and that GE therefore has a right to bring an action on the patent in the ITC.

Notes:

  • GE filed a parallel lawsuit requesting damages and injunctive relief against Mitsubishi in the Southern District of Texas That case has been stayed pending the outcome of the ITC action. In a separate case, GE is fighting with one of its former employees — Thomas Wilkins who is claiming joint inventorship rights to the patents. Wilkins has apparently assigned his rights to Mistubishi.

Richard Taranto: Next Federal Circuit Judge

Patent

In his blog, Bill Vobach reports on the recent Senate Judiciary Committee hearing on Federal Circuit nominee Richard Taranto. Vobach reports:

It appeared that the hearing was only attended by three senators — Senator Franken (Minnesota), Senator Grassley (Iowa), and Senator Lee (Utah). Questions were asked by all three senators. Senator Franken asked Mr. Taranto about his clerking for Justice Sandra Day O’Connor. Senator Grassley asked Mr. Taranto about the Defense of Marriage Act. Senator Lee questioned Mr. Taranto about judicial philosophy. No material, if any, questions were asked about patent law.

There do not appear to be any roadblocks in the way of Mr. Taranto’s confirmation and we can expect that he will be joining Chief Judge Rader and his colleagues in short order.

Mr. Taranto is an appellate and Supreme Court litigator at the small but well established DC firm of Farr & Taranto. He has participated in dozens of Federal Circuit patent appeals, including several Rambus cases, Verizon v. Cox, Lucent v. Gateway, Syngenta v. Monsanto, and others. Mr. Taranto has argued three IP cases before the U.S. Supreme Court: MGM v. Grokster (contributory copyright infringement), Warner Jenkinson v. Hilton Davis (patent law doctrine of equivalents), and Two Pesos v. Taco Cabana (trade dress infringement). He has taught a variety of classes as an adjunct professor, including patent law at Harvard in 2002. Taranto graduated from Yale Law School in 1981. He clerked for Judge Abraham Sofaer on the Southern District of New York; Judge Robert Bork on the D.C. Circuit; and Justice Sandra Day O’Connor on the Supreme Court.

During his discussion Mr. Taranto noted that both of his grandmothers are 100-years-old and still living. I suspect that actuaries would agree that this gives Mr. Taranto a good chance of living a long time as well. He is current 54 years old.

Taranto’s favorite non-living Supreme Court justice: Justice Harlan.

Taranto was nominated in November 2011.

* * * * *

The appellate court now consists of eleven circuit judges: Chief Judge Rader along with Judges Newman, Lourie, Bryson, Linn, Dyk, Prost, Moore, O’Malley, Reyna, and Wallach. Mr. Taranto will fill the bench as number twelve. Judges Mayer, Plager, Clevenger, Gajarsa and Schall all sit on the bench with senior status. Judges Newman, Lourie, Bryson, and Dyk are all eligible to elect senior status and Judge Linn will be eligible in April of this year. It is likely that at least two positions will open-up during the next year.

IBM’s Patent Abandonment Strategy

Patent

by Dennis Crouch

It is well known that IBM receives more US patents than any other company. The company also abandons more patents than any other company.   Once a patent issues, the patent holder must pay maintenance fees in order to avoid abandonment.  Fees are due at 3½, 7½, and 11½ years after issuance and each subsequent fee is substantially higher. Thus, under the current schedule, the first fee is $1,130, the second fee is $2,850, and the third fee is $4,730.  In recent years, IBM has abandoned thousands of patents for failure to pay the fee due at 3½ years from issuance.  IBM’s rate of abandonment is more than double that of other major patent holders. 

The chart below shows the percent of IBM-assigned patents that that were abandoned withn 4–years of issuance for failiure to pay the maintenance fee due.  The most recent available annual information is for patents issued in 2007. (Maintenance fees for patents issued in 2008 are due in the upcoming months).

PatentlyO130

A company like Apple is on the other extreme regarding payment of these renewal fees. Based on my records, Apple has not abandoned a single application issued in the past ten years based upon failure to pay the first fee. Canon rivals IBM in terms of sheer number of patents but typically abandons fewer than 1% of its issued patents at the four-year mark.

What’s going on here? Apple and Canon are certainly paying maintenance fees on patents that would be found invalid on reexamination and not-infringed in court. On the other side, IBM could have predicted at the time of issuance that it wouldn’t pay the maintenance fee — so why did it pay the $1,000 issue fee?

Patently-O in the Courts: Tropp v. Conair Corporation

Patent

By Dennis Crouch

Tropp v. Conair Corporation (E.D.N.Y. February 28, 2012) Download TroppConair

A federal court in the Eastern District of New York recently justified its holding in a patent case based at least partially on a 2010 Patently-O posting. David Tropp's patent claim against Conair and others was denied based upon the joint patent infringement doctrines outlined in BMC Inc. v. Paymentech, 498 F.3d 1373, 1378 (Fed. Cir 2007) and Muniauction, Inc. v. Thompson Corp., 532 F.3d 1318, 1329 (Fed. Cir. 2008).

Conair then asked that the case be ruled "exceptional" to justify an award of attorney fees. In rejecting that claim, the court cited Patently-O for the proposition that the line of cases on joint infringement left some amount of wiggle room for courts to find joint infringement absent facts sufficient to support traditional vicarious liability. Based upon potential ambiguity in the law, the court found that the plaintiff's theory of the case had not been improperly pursued, even if ultimately unsuccessful.

Muniauction did not indisputably hold that vicarious liability is the only way to satisfy the control or direction standard. It only made clear that (I) mere "arms-length cooperation" is not sufficient; and (2) vicarious liability, if established, is sufficient. Muniauction, 532 F.3d at 1329-30. At the least, such a reading of BMC and Muniauction is not objectively baseless. See Global Patent Holdings, LLC v. Panthers BRHC LLC, 586 F. Supp.2d 133 I, I 334-35 (S.D. Fla. 2008) (finding it "appears that" vicarious liability is required to satisfy the direction or control test, while also acknowledging that the "Federal Circuit did not explain with any specificity what it meant by 'direction or control'"); Dennis Crouch, MUNIAUCTION: Joint Infringement Requires Mastermind, Patently-O (July 15, 2008) https://patentlyo.com/patent/2008/07 /muniauction-joi.html (opining that Muniauction "left some wiggle room," open space to be further developed by ligation, such that a "later case could still hold that it is not necessary to show facts sufficient to support traditional vicarious liability"). Accordingly, this argument in particular, and defendants' motion in general, depends on an exaggerated view of the certainty and static determinism of the law of divided infringement.

I communicated with Tropp's attorney (and fellow blogger and Princeton alum) Ron Coleman who noted that an appeal on the merits of the case has already been filed.

Of course, the joint infringement (aka divided infringement) issue is being discussed in the halls of Madison Place in the pending en banc case of Akamai Tech v Limelight Networks.