December 2012

Patenting Software: Obama Administration Argues “Sometimes”

December 17, 2012PatentAbstract Idea, AIA Trials, Claim Construction, Federal Circuit En Banc, PGR, Subject Matter Eligibility, USPTO DirectorDennis Crouch

By Dennis Crouch

CLS Bank Int'l v. Alice Corp (Fed. Cir. 2012)

The US Government has filed its amicus brief in the pending en banc CLS Bank case that focuses on the patentability of software systems. Download CLS-Bank_v_Alice_USA-amicus-ISO-Neither-Party. The brief generally rejects the idea that software per se represents patentable subject matter but is favorable toward the patenting of computerized applications that either improve computer performance, use technology in a unique technological way, or transform the local environment.

Unlike some recent briefs, this has been filed with the support of both the USPTO and the DOJ. The brief suggests a claim-by-claim subject matter analysis that begins with claim construction and only then asks "whether the challenged claim, properly construed, incorporates enough meaningful limitations to ensure that it amounts to more than a claim for the abstract idea itself." The brief then lists a set of factors that the government sees as important in making that determination:

Is the computer only nominally or tangentially related to the performance of the invention?
Is the computer generically recited or, instead are specific, unconventional computer equipment or tools required?
Is the invention focused primarily on non-technological fields or does the invention improve the ability of a computer to function as a computer?
Is the computer used generically for its automation or communication functions or does the computer manipulate particular data in particular, specific, and useful ways?
Is the abstract idea merely described within a particular environment or is the abstract idea part of an invention that transforms its environment.
Are the computer related elements merely conventional steps described at a high level of generality in a way that would be employed by anyone wanting to apply the abstract idea.

Each of these determinations is riddled with problems as is the potential weighting in an overall abstract-idea analysis. However, the overall approach adds substantially to the the

The brief suggests that all claimed features can contribute to subject matter eligibility, but some caution should be used to not allow "mere 'drafting effort designed to monopolize [an abstract idea] itself'" (quoting Mayo). Regarding the product/process divide, the government writes that the form of the claim should not impact subject matter eligibility because those differences come from the "draftsman's art" rather than the invention itself.

Perhaps attempting to endear itself to the Federal Circuit, the brief implicitly criticizes Supreme Court patent decisions by arguing that "the §101 inquiry should focus on the actual language of each challenged claim, properly construed, not a paraphrase or parody of the claims. Unfortunately, the government does not have any Supreme Court precedent to back-up this argument.

As a final point, the government brief argues that the presumption of validity associated with patent rights lead to a conclusion that a patent can only be invalidated on subject matter eligibility grounds based upon "clear and convincing evidence." Reading between the lines, this seems to mean that any conclusions draw from the factors above must be proven with clear and convincing evidence. While §101 eligibility may be a question of law, the government additionally argues that it is a factual question as to whether "limitations recited in a claim do not, in practice, impose any meaningful limitations on their claim scope." Of course, prior to issuance or during post-grant review there is no presumption of validity.

AIA Technical Amendment (H.R. 6621) Moving Forward

December 17, 2012PatentAIA Trials, First to Invent, IPR, obviousness, PGRDennis Crouch

By Dennis Crouch

Representative Lamar Smith has put forward an amended version of H.R. 6621 (/media/docs/2012/12/BILLS-112hr6621-SUS.pdf). The amended bill removes the provision that would have crippled the value of pending pre-Uruguay Round Agreement Act (URAA). In my estimation about 200 of those applications filed prior to June 8, 1995 are still in prosecution at the USPTO. That change makes the bill less controversial and sets up easy passage in the House leadership has set the bill up for a voice vote this week, perhaps as early as Tuesday, December 18. At this point no opposition to the bill has been raised in Congress. To become law, the Senate would need to pass the bill before its December recess.

Important changes include the following:

Less Patent Term Adjustment: The current language of Section 154(b) suggests an applicant may begin accumulating PTA as of the filing date of an international PCT application that is later followed by a US national stage application. The proposed amendment would eliminate that option by clarifying that the PTA calculations only begin “commencement of the national stage under section 371 in an international application.” The change also provides that the PTO calculate PTA with the issuance rather than at the notice of allowance. This is obviously problematic for some because it blocks patentees from clearing-up PTA issues prior to patent issuance. See 35 U.S.C. 154(b)(3)(C). This also effectively limits the timing for administratively challenging PTA determinations to a two-month period. In my first read through of the Bill, I failed to recognize that the amendment would require an administrative challenge prior to filing a district court challenge. Thus, the two-month-from-issuance deadline becomes a fairly hard deadline for correcting PTA. The statute does not clarify what happens if the USPTO fails to decide the PTA challenge prior to the six-month deadline for filing a district court case. Courtenay Brinkerhoff has a nice post criticizing the provision here: http://www.pharmapatentsblog.com/2012/12/11/hr-6621-adds-new-roadblocks-to-patent-term-adjustment-appeals/.

Post-Grant Dead Zone: Once the AIA is fully implemented, an issued patent will be immediately challengeable through a post-grant review. Then, after a nine-month window, challenges will be available through inter partes review. However, the AIA has bit of an implementation issued because (1) post-grant reviews will only be available for patents issued on applications filed on or after March 16, 2013; (2) inter partes reviews are available for all patents, but only those that have been issued for at least 9-months; and (3) the old inter partes reexaminations are no longer available. This creates something of a dead zone in that for the next couple of years patents will not be challengeable through any inter partes system until 9-months after issuance. H.R. 6621 would eliminate that 9-month dead zone by allowing inter partes reviews to be filed at any time for applications with an effective filing date before March 16, 2013.

Delaying Inventor’s Oath: Section 115(f) of the AIA indicates that an either (1) an oath, (2) a substitute statement, or (3) sufficient assignment must be submitted prior to the notice of allowance of a patent application. The amendment would push that deadline back to be “no later than the date on which the issue fee for the patent is paid.”

Sharing Fees Between the Patent and Trademark Side: The AIA requires that, for the most part, fees collected on patents be used to cover “administrative costs of the Office relating to patents” while fees collected on the trademark side be used to cover “administrative costs of the Office relating to trademarks.” H.R. 6621 would eliminate that restriction and thus allow patent fees to pay for trademark operations and vice versa.

Derivation Proceedings: The AIA eliminated the ongoing viability of interference proceedings (although some will be pending for years) but created a new beast known as a derivation proceeding. H.R. 6621 would clean up the language for initiated a derivation proceeding under 35 U.S.C. §135(a). I need to think some about the language to understand the substance. I have created a rough mark-up of this language. (/media/docs/2012/12/CompareNewOldDerivation.docx).

Smith on Design Patents

December 16, 2012PatentDennis Crouch

By Dennis Crouch

When I began writing Patently-O in 2004, design patents were largely thought of as akin to a pre-ball Cinderella: In rags, forlorn, and quite pitiful. Things have changed. Design patents are more valuable than ever and their trajectory continues to rise.

Matthew A. Smith (Foley) recently put together a short treatise on design patents (short for a treatise) and offered to publish Version 0.9 here as a preliminary draft for commentary. Coverage in the 82 page volume includes general background on the laws of design patents; design patent application preparation and prosecution; design patent enforcement; tests of design patent validity; and design patent remedies. As per his usual, Smith’s approach is to provide straightforward analysis in practical terms and with direct reference to the underlying sources of law.

Read it while its hot: Matthew A. Smith, Design Patents, Ed. 0.9 (Prelim. Draft) (Dec. 17 2012). /media/docs/2012/12/2012-12-17_design_patents.pdf [Updated]

Judicial Network of the Patent Trial and Appeals Board (PTAB)

December 16, 2012PatentUSPTO DirectorDennis Crouch

by Dennis Crouch

Here is an image from a project that I'm working on with PTAB/BPAI decisions. Each node (circle) represents one of the 160 or so PTAB judges that have participated in an ex parte patent appeal since January 2010. These are cases where a patent examiner has twice rejected a patent application and the applicant then asks for appellate review.

Node size varies according to the number of cases decided during the past three years. For the most part, smaller nodes represent newer judges. Connections between judges are created each time two judges sit on the same panel. I have also color-coded the judges according to their primary technology area. Thus, judges coded as red judge mostly cases from Technology Center 2100 (Computer Architecture, Software, and Information Security) while judges coded as orange mostly hear cases from Technology Center 1600 (Biotechnology and Organic Chemistry). (Tech Centers). There is extensive overlap between Tech Centers 2400, 2600, and 2800 and so I grouped those together and colored them green. Judges coded yellow had no discernable primary technology area.

As may be discernable from the chart, judges are much more likely to be empanelled with others in the same technology area. Mechanical engineers are especially separate and, for the most part, TC1600 judges only interact with themselves and TC1700 judges.* The result here is that, in the usual case, all three judges on a panel have the same technology focus.

Now, back in 2009 there were only about 80 judges on the entire board. That made technological specialization difficult. Since then the PTAB has doubled in size and is expected to continue to rapidly grow over the next year. One question that the USPTO will need to address is whether to double-down on technological specizlization or instead to take measures that ensure that the judges have a broader spectrum of experiences. The answer may well depend upon whether the appeals brought to the PTAB are more due to (alleged) (1) examiner errors in understanding the technology at issue or (2) examiner errors in understanding how to apply the law of patents. Those questions are ones that we'll save for another post.

Structuring a Privateering Contract

December 14, 2012PatentLicenses, VenueDennis Crouch

By Dennis Crouch

The world of patent deals and monetization schemes are difficult to report on because the details of most deals (and often all aspects of the deals) are kept secretly buried under binding confidentiality clauses. Patrick Anderson recently wrote about US Patent 6,081,835 and its unique ownership setup. The information on the patent ownership is now public through an interesting decision by Judge Ellis. Download SuffolkTech.EllisDecision. The patent is being asserted by Suffolk Tech against Google, and Google challenged Suffolk's standing to sue – claiming that the company did not hold complete rights to the patent. With that defense in mind, Judge Ellis explored the ownership structure.

It turns out that the patent was originally owned by British Telecom based upon an underlying UK invention. BT transferred its ownership interest to IPValue who immediately transferred rights to Suffolk Tech as part of the deal. It was already known that IPValue is a joint venture of Goldman Sachs, General Atlantic Partners and Boston Consulting Group.

In the invest-to-sue market, patent buyers rarely pay cash. Rather, in these deals the majority of compensation to the seller is at the back-end — after the purchaser has successfully licensed the patent rights. In this case, BT sold the patent (transferring title), but and received as compensation a contract right to "50% of the Adjusted Gross Proceeds derived from exploitation of the '835 Patent" with the additional caveat that IPValue's sale of the patent (other than to Suffolk) within one-year of the BT-IPValue deal would result in 90% of the proceeds going to BT. The contract also includes restrictions on fees to contingency counsel; a $10 buy-back clause if IPValue fails to bring in sufficient revenue; and a non-exclusive license-back to BT.

On the standing point, Judge Ellis found that the deal left Suffolk Tech with title, core rights to practice and enforce the patent, and "all other substantial rights" in the patent. "As a result of the assignments, BT retained only a non-exclusive license to practice the patent and the right to share in revenue from the exploitation of the patent." As such, Suffolk Tech can properly assert the patent without joining BT or IPValue as co-plaintiffs.

Joff Wild at iam has some interesting thoughts on the case as well:

It turns out that BT has decided that it does not want to get its hands dirty directly, so like countless others before it (including [Intellectual Ventures]) it has turned to a third party to do the heavy lifting. That is what the privateer model is all about. It is being used, in one way or another, increasingly frequently by operating companies in the US, which for whatever reason decide they would prefer not to become involved in patent monetisation programmes that may involve aggressive assertion. NPEs that I can think of off the top of my head which have had close relationships with operating companies at some time or another include: Rockstar, RoundRock, Acacia, MOSAID, Intellectual Ventures, Sisvel and IPCom. No doubt readers of this blog can think of many more. From where I sit it is a perfectly legitimate activity, aimed as it is at maximising the value of key corporate assets – which is exactly what companies are supposed to do. At least some, however, are a little coy about their arrangements; while it is becoming increasingly clear that US antitrust authorities, and perhaps those in Europe too, are going to take a much closer look at the whole privateer model.

The last line of Joff's statement will continue to raise interest in upcoming years.

USPTO Financial Tidbits

December 14, 2012PatentVenueDennis Crouch

by Dennis Crouch

The USPTO’s Chief Financial Officer Tony Scardino provided a few interesting bits of information in his PPAC presentation:

Final fee rules are expected to be finalized and implemented at least by April 1.
PTO’s estimated budget is $2.5 billion, but current revenue is below that target.
Sequestration beyond the fiscal cliff would potentially cut $240 million from the budget. [Corrected]

/media/docs/2012/12/121312-05-ocfo-update.pdf

Federal Circuit Rejects Due Process Challenge to AIA on False Marking Retroactivity

December 13, 2012PatentMarkingDennis Crouch

By Dennis Crouch

Ken Brooks v. Dunlap and US Government (Fed. Cir. 2012)

As expected, the Federal Circuit has rejected Brooks’ argument that the Leahy-Smith AIA’s retroactive elimination of his false-marking cause-of-action was unconstitutional. Brooks is a patent attorney operating out of northern California. He has no apparent relation with Dunlap other than his discovery that Dunlap’s guitar string winders were (allegedly) falsely marked with patent numbers that had expired and invalidated. Under the pre-AIA law, “any person” had standing to bring suit for false marking and collect 1/2 of any resulting fine (with the US government receiving the other half). 35 U.S.C. § 292 (2010). In response to a rash of several hundred false-marking claims, section 292 was amended to restrict private standing to only persons “who has suffered a competitive injury as a result of a [false marking] violation.” 35 U.S.C. § 292 (2012).

Brooks filed his lawsuit in September 2010 – one year before the AIA was enacted. However, the AIA includes a retroactivity clause stating that “[t]hese amendments . . . shall apply to all cases, without exception, that are pending on, or commenced on or after, the date of the enactment of this Act.” Based upon that change, the district court dismissed the case for lack of standing.

On appeal, Brooks offered a due process challenge — arguing that the Due Process Clause of the U.S. Constitution bars Congress from applying the AIA’s amendments to § 292 to pending qui tam actions. In general, there is no rule against changing the legal regime in a way that adversely affects particular parties who have conformed their actions to benefit from the prior rules. If the change constitutes a Fifth Amendment Takings then the government must provide compensation. And, the legal change would very likely be an improper ex post facto law if it criminalized past actions as felonies. Apart from these exceptions, a retroactive change in the law will be enforced so long as it passes the very low standard of rational basis review. As the Supreme Court wrote in 1984, the “burden is met simply by showing that the retroactive application of the legislation is itself justified by a rational legislative purpose.” Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717 (1984).

In considering the Congressional record, the Federal Circuit easily found a rational basis for the retroactive nature of the law, including eliminating “the perceived abuses and inefficiencies stemming from false marking claims that were initiated before the AIA was signed into law” and avoiding “a live question about the constitutionality of the then-existing qui tam provision.”

At bottom, Congress made a considered choice to modify the private cause of action in § 292(b) and apply that modification to pending as well as future cases. Given Congress’s legitimate concerns with respect to the cost and constitutionality of pending qui tam actions, we conclude that the retroactive application of amended § 292 to pending actions was a rational means of pursuing a legitimate legislative purpose.

Dismissal affirmed.

Coming Soon: A European Unified Patent Court (UPC) and Unified Patents

December 12, 2012PatentDennis Crouch

By Dennis Crouch

Europe has taken another major step toward actualizing a Unified Patent Court that intends to offer greater consistency in proceedings and judgments across the 25 participating member states. The new system passed by the European Parliament additionally creates an enforceable Unified Patent (European Patent) instead of requiring patent registration in each country. Risk-averse patentees will want to continue to obtain national rights in at least a handful of countries. However, for any given application, the Unified Patent appears to be an exclusive-alternative. Before it can become effective, least 13 EU member states need to ratify the package (including the big-three of UK, Germany, and France). The current forecast is that the first Unified Patent will be issued in 2014.

The setup for the Unified Patent itself appears straightforward. When the EPO grants a patent today, the owner really has a set of individual national patent rights that must be validated at the national level (with the payment of additional fees and translation costs). Under the new system, the patent right granted by the EPO will be enforceable via the court system described below without the national validation step. This approach saves the local fees and also translation costs. Under the rules, the patent must be filed in the English, German, or French language. No other translations of the application materials will be required. Spain and Italy could not suffer the language offense and will likely opt-out of the system. The EPO will set renewal fees with a discount for small entities.

In the agreed-upon enforcement system, a set of designated specialized trial courts in Paris, London, and Munich and potentially other locales will have exclusive jurisdiction over the enforcement of Unified Patents. It appears that an ordinary trial will be overseen by a tribunal of judges and have a "multinational composition." Judges will either be legally qualified (with patent litigation experience) or technically qualified. Those courts will have power to determine infringement as well as unenforceability. A specialized tribunal sited in Luxembourg will hear appeals and the Court of Justice of the European Union (CJEU) would remain the top court. The national courts will still be available to enforce national patents for a transitional period. After that, however, the UPC will apparently also be the sole judge of national rights.

This is a quite interesting development, but it is clear that European patent law will continue to be a mess for many years to come.

The unitary patent

A new highest patent court for Europe? Not as long as the Court of Justice of the EU is here

It Took 30 Years, but the EU Finally Agreed to a Unified Patent System

The Proposed Unified Patent Court for Europe: conditio sine qua non for a Unitary Patent or unavailing venture into the unknown?

Europe Achieves Historic Agreement on Unitary Patent

'Troll' warning as EU gets unitary patent scheme, after decades of failure

Mark-Up and Commentary on the Patent Law Treaties Implementation Act of 2012

December 10, 2012PatentDamagesDennis Crouch

By Dennis Crouch

I have posted a draft Mark-Up and Commentary on the Patent Law Treaties Implementation Act of 2012.

Download it here: patentlyo.com/PLT.pdf.

At this point, the mark-up is very much a draft. I will release a more final version once the bill is enacted. President Obama is expected to sign the bill into law at least by December 21, 2012.

The following is my introduction to the document:

* * * * *

On December ___, 2012, President Obama enacted the Patent Law Treaties Implementation Act of 2012, Public Law No 112-___ (S. 3486).

The new law is designed to implement two patent law treaties:

(1) The Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs adopted at Geneva on July 2, 1999 (“Hague Agreement”) and

(2) The Patent Law Treaty (“PLT”).

Both treaties were ratified by the Senate without opposition in 2006, and both are intended to simplify the formal obligations and reduce costs for American rights-holders when seeking patent protection outside the United States. A corollary result is that that treaty implementation also eases the obligations of foreign rights-holders when seeking patent protection within the United States.

The Hague Agreement

Implementation of the Hague Agreement creates an international design application that can serve as the basis for filing industrial design applications in countries around the world. The new provisions are codified in ten new sections of the Patent Act and a handful of amendments within the statute. See 35 U.S.C. §§ 381 – 390. In addition to the added statutory language, the USPTO is also required to “perform all acts connected with the discharge of its duties under the treaty.” 35 U.S.C. 382. One such obligation is to forward any international application to the International Bureau of WIPO who would then publish the application. Currently, most international design applications are filed directly with WIPO. However, it seems that the US structure will likely encourage applicants to file the international application in the US first.

The international design application is roughly the design parallel to the international utility patent application known as the PCT application. This should significantly reduce the cost of obtaining design protection in additional countries. Although the Hague Agreement is an important step, global industrial design laws vary widely. The next relatively small step toward harmonization would be to rationalize the various rules and laws regarding drawings in design patent applications. Drawings are especially important for design rights because those drawings typically define the scope of rights being claimed. At this point, harmonization on this front does not necessarily require further negotiations within the Hague Agreement but could instead be accomplished through bilateral and multilateral agreement between the various offices administering the design rights.

For domestic applicants, the new law extends the term of design patents by an extra year to 15-years as calculated from the design patent’s date of issuance. In the US, no maintenance fees are due and so design patents tend to remain in force for their entire 15-years unless subject to any terminal disclaimers.

International design patent applications are published soon after filing. However, an applicant can delay the publication for up to 30-months. Upon publication, those design applications will be considered prior art as of the application filing date. The publication will also create the prospect of provisional rights under 35 U.S.C. 154(d)(1) to allow a patentee to collect back-damages against unauthorized pre-issuance usage of the design by someone with actual knowledge of the pending application. For several reasons, provisional rights been only marginally useful for utility patent holders. However, there is some expectation that provisional rights will be more useful for design patent holders because (1) the patents more often cover products released on the market during the application period; (2) design inventions are more often copied but those copies easier to identify; and (3) design patents are more rarely amended during prosecution.

Patent Law Treaty

The Patent Law Treaty is a procedural treaty that is designed to limit formal and procedural requirements that countries can place on patent applicants and patentees. The Patent Law Treaty also provides a particular filing date standard.

The key change is that a utility application will now be given a filing date even if filed without claims. 35 U.S.C. 111. The quasi-requirement of drawings is also removed from the filing date requirement. Thus, the filing date requirement will now read as follows: “The filing date of an application shall be the date on which a specification, with or without claims, is received in the United States Patent and Trademark Office.” Id. Some applicants will rely upon this change to reduce the immediate transaction costs of moving from a provisional application filed without claims to a non-provisional application that previously required claims.

Purpose

This volume is intended to serve as helpful tool in understanding implementation of the new provisions of the law and should be especially helpful for those wanting to understand how the law has changed.

Patents for Humanity

December 9, 2012PatentUSPTO DirectorDennis Crouch

Senators Leahy and Coons have introduced the Patents for Humanity Program Improvement Act of 2012 (S. 3652). The bill is relatively minor and will be an uncontroversial extension of the Humanitarian Awards Pilot Program created by the Patent Office earlier in 2012.

A bit of background, the Patents for Humanity program is an incentive program intended to encourage the use of patented technologies to help alleviate poverty and suffering. The incentive is a bit like the (perhaps outgoing) charitable donation tax break. However, instead of offering a direct monetary reward the PTO has offered an accelerated examination certificate. According to the implementation rules, the certificate can be used to accelerate either an ex parte reexamination proceeding (including an appeal to the Board) or else an appeal to the Board (PTAB) in an ordinary application or reissue. A group of designated experts will soon be selecting the first group of up to 50 winners.

It is a bit unclear what this acceleration certificate is worth, but at least several thousand dollars and perhaps more – especially for someone going through ex parte reexamination or reissue. However, there is no guarantee that the winner will have a need to use the certificate.

The legislation provides a mechanism for an award winner to turn the accelerated examination award into cash. In particular, statutory provision states that "A holder of an acceleration certificate issued pursuant to the Patents for Humanity Program … or any successor thereto … may transfer (including by sale) the entitlement to such acceleration certificate to another person."

Regarding the Bill, Director Kappos writes: "If the bill is enacted, recipients of a Patents for Humanity award could sell their certificate on the open market, turning their good deeds into operating capital."

In a press release associated with the Bill, Senator Leahy writes:

Following a Judiciary Committee hearing in June, I asked Director Kappos whether the program would be more effective, and more attractive to patent owners, if the acceleration certificate were transferable to a third party. He responded that it would, particularly for small businesses. The Patents for Humanity Program Improvement Act of 2012 simply makes these acceleration certificates transferable.

Director Kappos described the Patents for Humanity Program as one that provides business incentives for humanitarian endeavors. All Senators should support both the approach and the objective.

This bill is uncontroversial and has a strong likelihood of passage as long as Senator Leahy pushes it forward and Representative Lamar Smith agrees with its importance.

Two events on Monday, December 10.

December 9, 2012PatentDennis Crouch

Two important events on Monday, December 10, 2012

FTC and DOJ will hold a workshop on patent assertion entities (PAEs) – also known as “patent trolls.” /media/docs/2012/12/agenda.pdf. The agencies are considering ways that additional regulation and/or antitrust enforcement could be used to control negative effectives of patent assertion. This conference also highlights the renewed focus on patents outside of the USPTO. (Free Webcast Available)
Also in DC, the IPO is hosting its annual conference on USPTO law and practice. I will be speaking on a design patent panel that will include a discussion of the role of the new Hague agreement and also changes in design patent practice highlighted by the Smartphone wars. http://www.ipoef.org/AM/Template.cfm?Section=Calendar1&ContentID=32154&Template=/CM/HTMLDisplay.cfm.

See you in DC.

Reissue Cannot Be Used to Remove Terminal Disclaimer

December 8, 2012PatentDennis Crouch

In re Yamazaki (Fed. Cir. 2012)

Yamazaki filed a terminal disclaimer back in 1996 linking his future Patent No. 6,180,991 to his prior Patent No. 4,581,476. However, after a substantial amendment in the case, Yamazaki filed a petition request to withdraw the terminal disclaimer. As the petitions office has been historically known to do, it took no action on the petition for some time. Meanwhile, the examiner allowed the case, Yamazaki paid the issue fee, and the '991 patent issued in 2001. Since the petition was never decided, the PTO files continued to indicate the presence of a terminal disclaimer. The PTO eventually dismissed the petition based upon its conclusion that a terminal disclaimer cannot be nullified after issuance. The impact is fairly drastic here – with a terminal disclaimer the '991 patent expired in 2003; without a terminal disclaimer the '991 patent would not expire until 2018.

In January 2002 Yamazaki filed a reissue application seeking to fix the terminal disclaimer. Appallingly, the USPTO did not act on the reissue until 2004 (after the prior patent had expired). After an in-person interview in 2005, the examiner agreed in writing that a Reissue application could be used to correct a terminal disclaimer. However, the PTO refused to take any action for two more years and then reversed course. Yamazaki then appealed in 2007 and the BPAI finally issued its decision in 2011. That decision – made by an expanded panel of seven Administrative Patent Judges – held that a Reissue could not be used to remove a terminal disclaimer.

On appeal, the Federal Circuit has affirmed – holding that the plain language of Section 251 coupled with Section 253 prohibit using a reissue to expand a patent's term.

In particular, Section 251 facilitates the correction errors through reissue, but states that once the correction is made USPTO will reissue the patent "for the unexpired part of the term of the original patent." Section 253 indicates that a terminal disclaimer made in writing to the USPTO is "considered as part of the original patent." With these two statutes in hand, the court found that expanding the term by eliminating the terminal disclaimer would contradict the explicit instructions given by the statutory provisions. (Although Section 253 is focused on issued patents, the court held that its interpretation should also apply to pre-issuance disclaimers).

The court paused for a moment to criticize the USPTO delays – calling them puzzling and undeniably unfortunate. However, in the end, those delays do not change the ultimate result.

December 7, 2012Patentanticipation, Claim ConstructionDennis Crouch

By Dennis Crouch

FTC v. Watson Pharmaceuticals, 12-416 (SCOTUS 2012)

The Supreme Court has granted certiorari in the pharmaceutical reverse-payment case.

Issue presented:

Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held).

Justice Alito has recused himself. This means that only four justices are required to maintain the per se lawful standard.

= = = = =

Other pending petitions include:

Upsher-Smith Laboratories v. Louisiana Wholesale Drug Company – Whether the Third Circuit erred by holding, contrary to the Second, Eleventh, and Federal Circuits, that an agreement settling patent litigation that does not restrict competition outside the scope of the exclusionary right granted by the patent itself may presumptively violate the antitrust laws.

Merck & Co. v. Louisiana Wholesale Drug Company – Whether the federal antitrust laws permit a brand-name manufacturer that holds the patent for a drug to enter into a settlement of patent litigation with a prospective generic manufacturer, where the settlement includes a payment from the brand manufacturer to the generic manufacturer but does not exclude competition beyond the scope of the patent.

Montgomery v. Kappos – Whether a research proposal which was never in fact performed can, as a matter of law, inherently anticipate a patent claim under Tilghman v. Proctor.

Retractable Technologies v. Becton, Dickinson and Co. – (1) Whether a court may depart from the plain and ordinary meaning of a term in a patent claim based on language in the patent specification, where the patentee has neither expressly disavowed the plain meaning of the claim term nor expressly defined the term in a way that differs from its plain meaning; and (2) whether claim construction, including underlying factual issues that are integral to claim construction, is a purely legal question subject to de novo review on appeal.

GlaxoSmithKline v. Classen Immunotherapies – Whether the Federal Circuit’s interpretation of 35 U.S.C. § 271(e)(1)’s safe harbor from patent infringement liability for drugs – an interpretation which arbitrarily restricts the safe harbor to pre-marketing approval of generic counterparts – is faithful to statutory text that contains no such limitation and decisions of this Court rejecting similar efforts to impose extra-textual limitations on the statute.

Ninestar Technology Co. v. US International Trade Commission – Whether the initial authorized sale outside the United States of a patented item terminates all patent rights to that item.

W.L. Gore v. C.R. Bard – Whether it is consistent with Section 116 to deny joint-inventor status to the maker of the successful material, and instead deem the experimenter the sole inventor, on the ground that the maker did not communicate to the experimenter the exact property that turned out to be key.”

Maintaining Uncertainty in the Standard of Review for Exceptional Cases

December 7, 2012PatentDamages, Federal Circuit En BancJason Rantanen

By Jason Rantanen

Highmark, Inc. v. Allcare Health Management Systems, Inc. (Fed. Cir. 2012) (Order Denying Rehearing En Banc) Download 11-1219 order
Concurring opinion by Judge Dyk, joined by Judge Newman
Dissenting opinion by Judge Moore, joined by Judges Rader, O'Malley, Reyna, and Wallach
Dissenting opinion by Judge Reyna, joined by Judge Moore, O'Malley, and Wallach, and Chief Judge Rader in part

Earlier this year, a divided panel of the Federal Circuit held that the element of objective baselessness in an exceptional case determination is subject to de novo review as opposed to a more deferential form of review in Highmark v. Allcare. Yesterday, the Federal Circuit declined to grant en banc review of that holding, a decision that spawned two dissents signed by what now constitutes half the court. (Judge Linn assumed senior status shortly after participating the decision). As discussed below, in declining to grant en banc review the court preserved—and arguably increased—the uncertainty about which standard of review applies.

David Hricik previously wrote an extensive discussion of the panel decision in Highmark; background details are available there. Following that decision, Highmark filed a petition for rehearing en banc challenging the majority's application of a de novo standard when reviewing the issue of whether the litigation was objectively baseless in connection with an exceptional case determination under 35 U.S.C. § 285. The full court declined to rehear the appeal en banc.

The Dissenting Judges: Objective Baselessness is Reviewed for Clear Error. In an act that speaks volumes about the strength of the views of the dissenting judges, two separate judges, Judge Moore and Judge Reyna, each wrote dissents and also signed on to each other's opinions. Both dissents essentially contain the same themes: that the majority's holding regarding the standard of review in Highmark is (1) contrary to the court's own precedent; (2) inconsistent with the Supreme Court's prior rulings; (3) inconsistent with other court's approaches to similar issues in the Rule 11 and Equal Access to Justice Act context; and (4) fundamentally unsound. There are nuanced differences between the opinions; for example, Judge Reyna sharply criticizes the panel majority's over-reliance on developments in the willful infringement context, a part of the opinion that Judge Rader does not join, while Judge Moore offers a milder disagreement. The overarching point of the dissenting judges, however, is that all elements of the exceptional case determination, including that of objective baselessness, are reviewed for clear error, with deference given to the district court judge on factual determinations.

The Concurring Judges: Objective Baselessness is Reviewed De Novo. Writing in support of the decision not to grant rehearing en banc, Judge Dyk joined by Judge Newman argued that (1) the prior opinions did not involve a dispute between the litigants as to whether objective baselessness is a question of law to be reviewed de novo on appeal; (2) that Supreme Court precedent requires objective baselessness to be treated as a question of law; (3) that sections 284 (willful infringement) and section 285 (exceptional case) should be read as involving the same inquiry with the same standard of review; and (4) that policy supports de novo review of the issue of objective baselessness. Judge Dyk further pointed out that the court is in agreement on most of the legal issues in exceptional case determinations — just not this one.

Substantial Implications. The opinions of the dissenting judges raise two substantial implications. The first is the enhanced uncertainty surrounding the standard of review for exceptional case determinations. I read the dissenting judges as saying that not only do they it think the decision not to grant a rehearing en banc was wrong, but that they view the Highmark holding as invalid. Both dissents stress the point that the Highmark holding is inconsistent with the court's prior precedent. Judge Reyna also points out the well-established rule that to the extent a panel's decision on a point of law is inconsistent with an earlier panel's decision on that point, the earlier holding controls. See Reyna Dissent at 4-5. While the court acting en banc can overrule the first panel's holding, a decision not to grant en banc review of the second panel would seem not to be the same as the en banc court actually adopting the second panel's holding. As a result, it may be that the dissenting judges, who now comprise half the voting judges for en banc purposes (and in a month will comprise a majority when Judge Bryson assumes senior status), may not believe themselves bound by the Highmark holding. If this is the case, the split will continue until it is eventually resolved by the en banc Federal Circuit or the Supreme Court.

A second implication is that both Judge Moore and Judge Reyna appear to be skeptical of the court's recent holding in Bard Peripheral Vascular v. W.L. Gore that objective recklessness in a wilfulness determination is subject to de novo review, and are joined by at least two other judges in their skepticism. See, e.g., Moore dissent at 3, n. 1 ("For reasons simlar to those discussed below, this court should also revisit Bard en banc.).

Patenting Animals Produced through Selective Breeding

December 7, 2012PatentAffirmed Without Opinion, anticipationDennis Crouch

By Dennis Crouch

In re Ditto (Fed. Cir. 2012)

In a non-precedential opinion, the Federal Circuit has done it again (ditto) and affirmed the PTO Patent Board decision rejecting patentability. Here, the court affirmed that Mr. Ditto’s claimed cross between a bobcat and a domestic cat is anticipated by the prior art. In particular, the Pixie-Bob has been around for some time.

In the appeal, the USPTO solicitor also argued that the cat claims were all “patent-ineligible because they encompass a product of nature.” Here, the “product of nature” argument is based upon the fact that a domestic cat and bobcat can and will “naturally” mate without further human intervention. However, the Solicitor did distinguish this case from the patenting of animals with particular traits developed through a selective breeding process. An example of this is U.S. Patent No. 5,602,302 (Mikami) that claims a bronchial hypersensitive guinea pig created by brother-sister mating of guinea pigs identified as hypersensitive. In distinguishing the ‘302 patent, the Solicitor wrote that:

the claims of the Ditto application do not demonstrate how the claimed cat breed is a product of human intervention. The claims include no detail regarding how the cats are bred, what traits are desired for breeding, or what results are expected. All that is required is that a “purebred cat” is produced by mating a bobcat, lynx, or bobcat lynx with a domestic cat. Id. Moreover, … the specification fails to provide detail regarding what kind of characteristics or traits are required in the claimed “purebred” cat. While Ditto argues that there is no difference between the [patented] guinea pig … and Ditto’s cat, the Mikami patent is different from Ditto’s application in significant ways: Mikami discloses a specific breeding process used to prepare guinea pigs with a particular trait, while the Ditto application requires “[n]o specific amount or type of breeding” and “the breeding program may terminate upon identification of any desired effect.” In short, unlike Ditto’s application, Mikami’s claims recite a specific desired trait and Mikami’s patent discloses a specific method of breeding used to obtain that trait, distinguishing Mikami’s claimed guinea pigs from those in nature.

In its decision, the Federal Circuit refused to decide the subject matter eligibility question and instead affirmed on grounds of anticipation. The court simply wrote that ” we do not reach its section 101 rejection.” In this case, the court followed the course that Professor Merges and I suggested in or 2010 article on the avoidance doctrine. Some on the court have argued instead that Section 101 questions should be treated as antecedent questions that cannot be avoided.

Patents Encompassing a Human Organism

Suing the USPTO for Issuing Bad Patents

December 7, 2012PatentDennis Crouch

Pregis v. Kappos and Free-Flow Packaging (Fed. Cir. 2012)

Pregis was bothered by its competitor Free-Flow's air-packaging patents and so, in 2009, Pregis sued Free-Flow for declaratory judgment of invalidity and non-infringement. In the same lawsuit, Pregis also sued the USPTO in order to prevent the agency from issuing two of Free-Flow's pending applications. When those two patents issued, Pregis amended its complaint to allege that the PTO's action in issuing the patents was "arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law." Under the Administrative Procedures Act (APA), Pregis argued, such an action should be nullified by the court.

The district court rejected those claims for lack of subject matter jurisdiction – holding that "the Patent Act and its own scheme clearly expresses Congress' intent to preclude putative third party infringers from seeking judicial review" under the APA of PTO decisions to issue patents.

On appeal, the Federal Circuit affirmed the dismissal – noting that its own prior precedent already holds "that apotential infringer cannot sue the PTO under the APA to attack the validity of an issued patent." See Syntex (U.S.A.) Inc. v. United States Patent & Trademark Office, 882 F.2d 1570 (Fed. Cir. 1989) and Animal Legal Defense Fund v. Quigg, 932 F.2d 920 (Fed. Cir. 1991).

We affirm the district court's dismissal of Pregis' APA claims and hold that a third party cannot sue the PTO under the APA to challenge a PTO decision to issue a patent. The comprehensive legislative scheme of the Patent Act "preclude[s] judicial review" of the reasoning of PTO decisions to issue patents after examination under 35 U.S.C. § 131, and competitors have an "adequate remedy in a court" for the issuance of invalid patents. 5 U.S.C. §§ 701(a)(1), 704.

It is not surprising that this creative lawyering was orchestrated by the pair of James Dabney and Professor John Duffy who previously orchestrated the KSR decision. Although the opinion by Judge Reyna is well written it leaves the court open to the argument that this is a patent law specific and protectionist decision that should instead be based on a broader look at how when and where APA challenges are allowed. I suspect that we can look forward to a petition for a writ of certiori in the upcoming months.

Request for Comments on Request for Continued Examination (RCE) Practice

December 6, 2012PatentUSPTO DirectorDennis Crouch

By Dennis Crouch

USPTO Deputy Director Teresa Stanek Rea recently published a notice and RFC on the future of Requests for Continued Examination (RCEs). In my view, RCEs are not particularly a problem per se, but instead RCEs are a symptom of a troubled application-examination complex that typically requires multiple rounds of negotiation before the applicant and examiner agree on the appropriate scope of protection. That said, RCEs serve as a good breakpoint for discussion because they are filed after at least two formal rounds of rejection. Reducing the number of rounds of formal negotiation is an important key reaching the PTO's stated goals of pendency reduction. RCEs also win the attention of applicants (because of the fees due) and PTO management (because of the credits owed to examiners). Importantly, the current user fee charged for an RCE does not cover the expected cost of two additional rounds of examination.

In 2007 the USPTO unsuccessfully pushed a set of rules that would have limited the number of RCEs that could be filed in a given application. Upon taking office as USPTO Director in 2009, David Kappos withdrew those publicly maligned rules. That decision returned us to our current baseline that allows a patent applicant the right to file an unlimited number of RCEs. If the recent PTA case of Exelixis holds, a patent's term will be generously extended based on a guarantee patenting within three-years – even when multiple RCEs are filed by the patent applicant.

Over the past three years, RCE filings have remained fairly steady – around 155,000 per year. However, because of a strategic decision to preferentially focus on unexamined applications, the backlog of RCE applications has grown to over 90,000 pending applications. Deputy Director Rea writes that the RCE backlog "diverts resources away from the examination of new applications." Part of limited growth of RCE filings is likely due to some efforts by the PTO such as the Quick Path Information Disclosure Statement (QPIDS) pilot program and the After Final Consideration Pilot (AFCP). However, the PTO does not see these programs as sufficient.

The PTO has identified that there is a problem, but is asking for input from the patent law community in order to identify appropriate solutions. As guidance, the PTO has generated the following questions, noting that "the Office is particularly interested in receiving information that facilitates an understanding of filing strategies related to RCEs."

If within your practice you file a higher or lower number of RCEs for certain clients or areas of technology as compared to others, what factor(s) can you identify for the difference in filings?
What change(s), if any, in Office procedure(s) or regulation(s) would reduce your need to file RCEs?
What effect(s), if any, does the Office's interview practice have on your decision to file an RCE?
If, on average, interviews with examiners lead you to file fewer RCEs, at what point during prosecution do interviews most regularly produce this effect?
What actions could be taken by either the Office or applicants to reduce the need to file evidence (not including an IDS) after a final rejection?
When considering how to respond to a final rejection, what factor(s) cause you to favor the filing of an RCE?
When considering how to respond to a final rejection, what factor(s) cause you to favor the filing of an amendment after final (37 CFR 1.116)?
Was your after final practice impacted by the Office's change to the order of examination of RCEs in November 2009? If so, how?
How does client preference drive your decision to file an RCE or other response after final?
What strategy/strategies do you employ to avoid RCEs?
Do you have other reasons for filing an RCE that you would like to share?

In addition to the normal written comment submission process, the PTO is also accepting comment through a collaborative tool known as IdeaScale that allows for comments on comments. See http://www.uspto.gov/patents/init_events/rce_outreach.jsp.

Patent Application Outcomes: Rising Allowances and Falling Abandonments

December 6, 2012PatentAIA Trials, PGR, USPTO DirectorDennis Crouch

By Dennis Crouch

The USPTO patent allowance rate has seen a steady rise since David Kappos took the helm as Director in 2009. Early-on Kappos announced that his version of patent quality meant that bad patents should not issue and that right-sized inventions should be allowed. That statement was a shift from the prior administration that publicly focused solely on the side of avoiding the issuance of bad patents. Kappos' ideas and theories have permeated the USPTO, both in its culture and in performance reviews.

The first chart below shows a monthly time series of the USPTO allowance rate.

The allowance rate is calculated based solely upon the number of applications that either (1) receiving a notice-of-allowance or (2) being abandoned within a single month. The allowance rate is calculated as the percentage of allowances within that that total number of disposals. Allowance-Rate = Number-Allowed / (Number-Allowed + Number-Abandoned).

I should note that, although data includes utility, plant, and reissue applications, there are not enough plant or reissue applications to shift the results. At times the USPTO reports count RCE filings as abandonments. For the figure above I ignored RCE filings – meaning that they do not directly impact the allowance rate shown below. Because RCEs are filed in so many applications, counting RCEs as abandonments would dramatically push-down the allowance rate. Conversely, there is also a credible argument that the allowance rate shown above is unduly low because a substantial percentage of abandoned applications are re-filed in the form of a continuation or divisional application. If the allowance rate is calculated as the percentage of US patent families stemming from a non-provisional application that include at least one issued patent, then the allowance rate would likely be closer to 80%.

In several recent posts, I have written about the reality that the USPTO is issuing more patents than ever – a historical high. Up to now, my working hypothesis has been that the increased allowance rate represents only a minor explanation for the increase in the number of issued patents. Rather, my hypothesis has been that there has generally been an increased throughput that means both more allowances and more abandonments. However, my thoughts have shifted in the process of rethinking the substantial increase in allowance rates demonstrated above.

The chart below shows the number of allowances compared with the number of abandoned applications for each fiscal year.

As is apparent, increase in throughput at the USPTO is entirely accounted-for by an increase in the number of allowances. The chart below divides the data on a monthly basis (but uses a six-month average because of a large amount of monthly variance).

I like to think of patent prosecution as a negotiation between the patent applicant and the USPTO over the proper claim scope and patent coverage. As with any negotiation, changes in the practice of one party will normally result in changes to the practice of the other party. We have public statements from Director Kappos suggesting intention to move toward a higher allowance rate, but it is unclear whether part of the shift is also due to changes in practice by patent attorneys. One change in practice that I suggested earlier is the general increase in the number of provisional patent applications as well as foreign applications. I have a working hypothesis that applicants have increased their reliance on those tools as mechanisms to self-select the best applications for filing and abandoning the patent even before filing a non-provisional. Still, it is cognitively difficult for me to separate the clear shift in the data in 2010 from the cotemporaneous statements and managerial moves by Director Kappos.

It will be interesting to see how this chart develops over the next two years as the next PTO director takes over and provides her own imprimatur.

Guest Post:Claim Construction Catch-22: Why the Supreme Court Should Grant Certiorari in Retractable Technologies

December 5, 2012PatentAIA Trials, Claim Construction, Federal Circuit En Banc, PGR, Supreme CourtJason Rantanen

Guest Post by Peter S. Menell (UC Berkeley School of Law) and Jonas Anderson (American University Washington College of Law).

After nearly two decades of lower court confusion, there was a glimmer of hope that the Supreme Court might intervene to clarify the standard of appellate review of claim constructions determinations. Following strongly worded dissents from denial of rehearing en banc, the Supreme Court invited the Solicitor General’s views on the certiorari petition in Retractable Technologies, Inc. v. Becton, Dickinson and Co., 653 F.3d 1296 (Fed. Cir. 2011), denial of rehearing en banc, 659 F.3d 1369 (2012).

In its filing last week, the Solicitor General has unfortunately recommended against Supreme Court review principally on the ground that Retractable Technologies is not an “appropriate vehicle” because the district court did not specifically rely upon factual findings. Therein lies the Catch-22. No district court since at least the Federal Circuit’s 1998 en banc Cybor ruling has been willing to make factual findings in construing patent claims for the pragmatic, logical, and legal reason that to do so would contradict Federal Circuit law that claim construction is a pure question of law.

As we have chronicled at length elsewhere, see Anderson & Menell, From De Novo Review to Informal Deference: An Historical, Empirical, and Normative Analysis of the Standard of Appellate Review for Patent Claim Construction (2012) available at <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2150360>, Anderson & Menell, Appellate Review of Patent Claim Construction: The Reality and Wisdom of a “Mongrel” Standard the Federal Circuit, the Federal Circuit has struggled mightily over the standard of appellate review since the Markman case. A slim majority adheres to de novo review notwithstanding the Supreme Court’s recognition of the “mongrel” character of claim construction. The confusion has contributed to a high, variable, panel-dependent reversal rate of claim construction determinations. Fearing reversal for relying upon expert testimony, district judges avoid and/or mask use of experts in determining how skilled artisans interpret patent claims. Numerous studies indicate — and district court and several Federal Circuit jurists believe — that the de novo standard has significantly increased the uncertainty and costs of patent litigation, reduced settlement rates, and misapplied the Supreme Court’s Markman ruling.

The SG’s rationale overlooks a critical and unique structural feature of the federal patent system: the Federal Circuit’s exclusive jurisdiction over patent appeals. Circuit splits are not possible on patent issues and district courts throughout the land are bound by the Federal Circuit’s interpretation of patent law. Under the SG’s logic, therefore, the standard of appellate review will not be ripe for Supreme Court review unless a district court defies the Federal Circuit. Such logic nearly guarantees that there will never be an “appropriate vehicle” for considering this issue, notwithstanding the vehement cries for help from Chief Judge Rader, Judge Moore, and Judge O’Malley.

It is possible that the Federal Circuit will eventually revisit this standard on its own, although the historical record does not inspire confidence. As we chronicle in our article, members of the Federal Circuit have repeatedly sought to revisit the de novo standard since the Markman decision to no avail. Meanwhile, district courts and the patent system have endured a doubtful application of the Supreme Court’s Markman ruling, causing substantial disruption and wasted resources.

To avoid the Catch-22, the Supreme Court should view dissents from rehearing en banc in the Federal Circuit as a proxy for a circuit split. Furthermore, the fact that a “split” has festered since the time of Markman strongly indicates that the standard of appellate review is ripe for Supreme Court consideration. The SG has missed these critical points in its assessment of the Retractable Technologies certiorari petition.

The Fox Group v. Cree: Expanding Section 102(g) Prior Art

December 5, 2012PatentJason Rantanen

By Jason Rantanen

The Fox Group, Inc. v. Cree, Inc. (Fed. Cir. 2012) Download 11-1576
Panel: Newman, O'Malley (dissenting-in-part) and Wallach (author)

In The Fox Group, the Federal Circuit substantially expands the scope of prior art under 35 U.S.C. § 102(g). There are two main components of this expansion: the panel's unanimous interpretation of the reduction to practice requirement as not necessitating repeatability and the majority's sharp narrowing of what constitutes abandonment, suppression or concealment.

While Section 102(g) will be eliminated as a category of prior art for patents based on applications filed on or after March 16, 2012, it will continue to apply to a large number of patents for many years to come.

Background: In 1995, Cree grew a low defect silicon carbide (SiC) crystal and sent a sample to a university scientist for analysis. The scientist advised Cree that there was an exceptionally low defect area in this sample. That same year, a Cree researcher showed a cropped image of the sample and described its low defect nature, stating that it had an area with less than 1,000 dislocations per square centimeter and no micropipes. The researcher also described the high quality of the sample in an article published in 1996 that included an image of an X-ray topograph of the crystal. The article did not describe how the crystal was created and there was no evidence in the record that Cree took any steps towards commercialization prior to 2004.

Fox is the assignee of Patent No. 6,562,130, filed on May 4, 2001. The '130 patent claims a low defect SiC crystal having, among other properties, a density of dislocations per square centimeter of less than 10⁴ and a density of micropipes of less than 10 per square centimter. Fox sued Cree for infringement of the '130 patent in 2010 and Cree responded by arguing that its prior invention rendered the '130 patent invalid under 102(g). The district court granted summary judgment in favor of Cree and Fox appealed.

Under 35 U.S.C. § 102(g)(2), a person is not entitled to a patent if:

before such person’s invention thereof, the invention was made in this country by another inventor who had not abandoned, suppressed, or concealed it. In determining priority of invention under this subsection, there shall be considered not only the respective dates of conception and reduction to practice of the invention, but also the reasonable diligence of one who was first to conceive and last to reduce to practice, from a time prior to conception by the other.

There are two core requirement for 102(g) prior art. First, the challenger must establish that the alleged prior inventor reduced its invention to practice first or, alternately, was the first party to conceive of the invention and then exercised reasonable diligence in reducing that invention to practice. Second, the prior inventor must not have abandonned, suppressed, or concealed the invention. The court's opinion addresses both.

Reduction to Practice: The court found that Cree satisfied the first element of prior inventorship by reducing the invention to practice in 1995 by (1) creating the crystal sample (which met all the limitations of the asserted claims of the '130 patent) and (2) recognizing that it was a low-defect crystal. In reaching this conclusion, the CAFC rejected Fox's argument that reduction to practice of a product invention requires that the the prior inventor "must prove repeatabliity to prove that it had reduced the invention to practice." Slip Op. at 9. In other words, it was sufficient that Cree had created the crystal once; there was no requirement for it to prove that it could be done again.

Suppresssion or Concealment: The more significant aspect of the opinion relates to the issue of suppression or concealment. Here, Fox argued that Cree suppressed or concealed its invention because it (1) did not file a patent application for its Kyoto Wafer, (2) did not present proof of commercialization that would allow for reverse engineering, and (3) did not otherwise provide adequate disclosure because it failed to reveal the details of the growth conditions under which boule G0259 was made." Slip Op. at 10.

In rejecting Fox's argument, Judges Wallach and Newman concluded that disclosure of an product invention to the public requires only that the inventor make the existence of its invention known to the public. (Note: the majority does not actually use the word "existence of"; however, in my view that's the only logical way to read the opinion, given that this is the only information that Cree disclosed). Provided that general details about the invention are given to the public, it is irrelevant whether or not an invention is commercialized or a patent is filed. "Filing a patent application and commercializing a product are only two convenient ways of proving an invention has been disclosed to the public." Slip Op. at 11. Here, it was sufficient that Cree sent samples of its boule for testing by Dr. Dudley, an outside evaluator, the product itself (though not the process used to make it) was described in a published paper, and knowledge of the product was disseminated outside of the company in the Kyoto presentation." Id. The crux of the majority's reasoning:

The purpose of § 102(g) is to bar an inventor from receiving a patent on an invention that has already been invented and was not abandoned, suppressed, or concealed. Apotex, 254 F.3d at 1038-39. If the patent claimed a process, then a prior inventor would have to prove prior invention of the process which had not been abandoned, suppressed, or concealed, to invalidate the patent under § 102(g). “Cree promptly and publicly disclosed its findings concerning the low defect properties of the SiC material from which the [Kyoto Wafer] was cut through a presentation at the 1995 International Conference and a published paper on the subject.” Fox Group, 819 F. Supp. 2d at 535. Accordingly, Cree promptly made its invention, a SiC material with low defect densities, known to the public. Fox has not produced sufficient evidence raising any genuine issues of material fact to show that Cree suppressed or concealed its invention.

Writing in dissent, Judge O'Malley emphatically disagreed with the majority on this issue:

Because Cree made the fact of its invention known to the public, the majority, like the district court before it, concludes that Fox can never establish abandonment, suppression, or concealment. Under the majority’s approach, an inventor could publicly announce that it made a product, with no explanation as to how it did so, and then hide it away in a closet indefinitely. As long as the inventor describes a product in general terms, the inventor cannot, according to the majority, be accused of abandoning, suppressing, or concealing the invention.

The majority’s approach cannot be the law. If a prior inventor could disclose the mere existence of a product and take no further action for nine years, the concept of abandonment, suppression, or concealment would be rendered meaningless. Consistent with our prior case law, where there is no enabling written disclosure, there must be evidence that the prior inventor timely made its
invention available to the public in some other way – e.g., through public use, commercialization, or filing a patent application claiming the invention. Such a requirement is consistent with § 102(g)’s general goal of giving the public the benefit of the invention. See Checkpoint, 54 F.3d at
761 (Section 102(g) “encourages prompt public disclosure of an invention by penalizing the unexcused delay or failure of a first inventor to share the ‘benefit of the knowledge of [the] invention’ with the public after the invention has been completed.” (citation omitted)).

Judge O'Malley further pointed out that this case was before the court on a grant of summary judgment of invalidity; in light of this posture, it was especially inappropriate to hold that Cree had not suppressed or concealed the invention. In particular, Judge O'Malley pointed to evidence indicating that Cree had a broad policy of concealing its production methods, and in light of that policy took specific steps to avoid enabling its competitors to make the invention.

Comment: In my view, the majority erred in concluding that merely disclosing general information about the invention suffices to preclude any subsequent inventor from obtaining a patent. In addition to Judge O'Malley's reasoning why this cannot be correct (including an analysis of why it is inconsistent with the CAFC's precedent), the effect of the majority's holding is to cause 102(g)(2) to swallow much of the remainder of Section 102. Under the majority's reasoning, any disclosure about an invention, no matter how superficial or non-enabling, becomes potential prior art as long as there is secret information about a reduction to practice of the invention. The effect of the court's opinion is to incentivize lower quality, non-enabling disclosures of information as, in the near term at least, this is all that is apparently necessary to defeat patentability.