Stanford Law School is hosting what looks to be an excellent event on April 5, 2013 that focuses on design patents. The event is free, but you should register here.
Long neglected in practice and academic scholarship, design patents have exploded in importance as a result both of recent changes in the law and high-profile cases like Apple v. Samsung. Drawing on the experience of lawyers, in-house counsel and academics, our conference will explore both practical and policy ramifications of these developments.
Speakers include: Sarah Burstein (University of Oklahoma); Christopher Carani (McAndrews); Dennis Crouch (University of Missouri); Alan Morgan Datri (WIPO); Brian Hanlon (USPTO); Laura Heymann (William & Mary Law School); James Juo (Fulwider Patton); Robert Katz (Banner & Witcoff); Mark Lemley (Stanford); Jaime Lemons (Nike); Katie Maksym (Nike); Michael Meehan (Google); Mark McKenna (Notre Dame Law School); Tom Moga (Shook Hardy & Bacon); John Pratt (Kilpatrick Townsend); Michael Risch (Villanova Law School); Perry Saidman (Saidman Design Law); and Matt Schruers (CCIA).
The following day (April 6, 2013), Stanford is also hosting an academic conference on design patents with additional speakers, including Paul Goldstein, Rebecca Tushnet, Pam Samuelson, David Abrams, Jason Du Mont, Andew Torrance, Sarah Wasserman Rajec, Graeme Dinwoodie, Sunder Madhavi, Peter Lee, Ryan Vocca, Gerard Magloicca, Rob Merges, and Colleen Chien. The second day is purely academic and will have some pie-in-the-sky, but is also free and open to practitioners.
The US Supreme Court has decided a number of patent cases that raise questions of unenforceability. Perhaps most notable among these are:
Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240 (1933);
Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944); and
Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806 (1945).
This trio of cases explains that inequitable conduct fits within the scope of the traditional equitable doctrine of unclean hands.
Keystone involved a patentee paying another party to lie about its prior use of a patented invention where that use might have been a prior public use. Similarly, in Hazel-Atlas, the patentee wrote an article and had it published under the name of a well-known expert (with the expert's consent). After seeing how the article lauded the invention (and without knowing the connection), the PTO was willing to issue the patent. Precision involved perjury in the course of an interference proceeding. In each of these cases, the Supreme Court held that that the unclean hands doctrine could be used to render the patent unenforceable.
For many years, the doctrine of unclean hands (and, as we call it now inequitable conduct) was a powerful in-court tool for accused infringers to challenge patent enforcement. Almost since the Federal Circuit beginning, Federal Circuit judges have been on a crusade to limit the doctrine. The court's most recent pronouncement found in Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011) (en banc) continues this trajectory and strongly limits the scope of inequitable conduct allegations.
In Therasense, the Federal Circuit offers two pathways for proving inequitable conduct in the patent prosecution process. The first and primary pathway clear and convincing proof of (1) intentional misconduct and (2) that the misconduct is a but-for cause of the patent issuing. As shorthand, we speak of (1) intentionality and (2) materiality. The Therasense majority, also offered a second pathway for proving inequitable conduct based upon "egregious affirmative acts of misconduct." According to the court, the mere non-disclosure or omission of required information will always fit within the primary pathway while intentional affirmative misstatements that go beyond attorney argument could fit within the second pathway if sufficiently egregious. In reading the trio of Supreme Court cases, the Federal Circuit found that Keyston, Hazel-Atlas, and Precision all fit the definition of egregious misconduct.
Writing in dissent Judge O'Malley criticized the majority opinion as unduly rigid in its formulation of the unclean hands doctrine.
[B]oth the majority and [other] dissenting opinions eschew flexibility in favor of rigidity. Both opinions suggest tests for materiality to apply in all cases. Their respective materiality inquiries are black or white, while equity requires judicial consideration of shades of gray.
The majority defines materiality under a but-for test, with an exception for intentionally false affidavits filed with the PTO. The dissent, on the other hand, defines materiality according to Rule [37 C.F.R. 1.56]. Both tests fail to provide district courts with flexibility to find inequitable conduct in an extraordinary case where the conduct in question would not be defined as such under either test. This result is contrary to the very nature of equity and centuries of Supreme Court precedent. I cannot, accordingly, lend support to either of the immutable tests proposed by my colleagues.
= = = = =
Sony Computer v. 1st Media LLC (on petition for writ of certiorari 2013)
In a recently filed petition for writ of certiorari, Sony and Viacom have asked the Supreme Court return the law to the flexible tests of its old precedent. Raising the following question:
Did the Court of Appeals for the Federal Circuit err in restricting district courts' equitable discretion in evaluating patent unenforceability, contrary to this Court's precedent in Keystone Driller, Hazel-Atlas, and Precision Instrument, by applying a rigid test that (a) forecloses district courts from considering the entire circumstantial record; and (b) precludes district courts from granting equitable remedies where a patent applicant has violated the PTO's duty of candor.
The Federal Circuit intended that the second pathway for egregious misconduct add sufficient flexibility to fit within the Supreme Court's doctrine. Sony responds that the limited carve-out "is flawed because it creates a rigid threshold [of an egregious affirmative act of misconduct] as a prerequisite to the equitable discretion called for by this Court's precedent. The flexibility embodied in this Court's precedent should apply in all cases, not just those involving affirmative egregious misconduct."
Guest post by Professor Brett M. Frischmann (Benjamin N. Cardozo School of Law)
On March 25, 2013, the Supreme Court will hear oral arguments in Federal Trade Commission v. Watson Pharmaceuticals, Inc., a case concerning reverse payment settlements of patent litigation. The court granted cert on the following issue:
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).
In this brief post, I suggest a way to decide the issue in a manner that resolves the apparent tensions between the Hatch-Waxman Act, the Patent Act, and the Sherman Act. To my knowledge, the argument I make does not appear explicitly in the briefs, although Scott Hemphill made a related argument in his 2006 NYU Law Review article, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem.
Hatch-Waxman should be given substantial priority in the analytical framework that courts employ when resolving antitrust claims about reverse payment settlements of patent litigation. Here is why. Both antitrust law and patent law are general-purpose, industry-agnostic legal regimes. Antitrust law regulates competition generally. It aims to sustain competition and constrain anticompetitive practices, and it does so with very general legal prescriptions that courts must apply in a wide range of different contexts. Patent law aims to encourage innovation by giving inventors the right to exclude others from a patented invention. Patent law also consists of very general legal prescriptions that the PTO and courts must apply in a wide range of different contexts. In both antitrust and patent, sector-specific, industry-specific, or even context-specific rules do arise over time in the courts or agencies. But the statutory law enacted by Congress is general-purpose.
Hatch-Waxman is special-purpose and industry-specific, and it also happens to be last-in-time. Congress enacted Hatch-Waxman to accomplish specific ends through specific means. Of course, Hatch-Waxman is a complex regulatory regime, and there are various tradeoffs reflected in the law that may have been necessary to get it passed. But Hatch-Waxman primarily aimed to induce competition in drug markets when such competition is feasible, and one of the central means for accomplishing this end is litigation over patent validity.1 Thus, Hatch-Waxman envisioned two particular types of competition—first, competition in courts between owners of drug patents and generic drug companies, and second, competition in drug markets between brand firms and generics. Reverse payment settlements stifle both types of competition.
What do I mean when I say that Hatch-Waxman should be given substantial priority in the analytical framework that courts employ when resolving antitrust claims about reverse payment settlements of patent litigation? The antitrust-patent interface has been the source of substantial consternation—how do we resolve tensions that might arise among competing legal principles and values? Regardless of how one comes out on how to resolve or understand the interface, it is largely irrelevant to this particular set of issues. Hatch-Waxman replaces general patent law in this context. As a result, it supplies the relevant principles and values, and it significantly narrows the range of relevant arguments that a court should entertain in an antitrust suit. Simply put, broad claims about principles and values derived from patent law should not carry much, if any, weight. For example, claims about the impact of reverse payment settlements, or their prohibition, on patent law's "incentives to innovate" are red herrings. Similarly, arguments about weak vs. strong patents are also red herrings because there is nothing in Hatch-Waxman itself that draws a distinction between weak and strong. (It is worth noting that even for "really strong" patents, litigation over patent validity also provides the public with greater certainty about the validity of those patents.) Finally, claims about the general judicial economy of encouraging settlement are also irrelevant because Hatch-Waxman directly employs litigation as a means to facilitate competition.
Antitrust scrutiny of reverse payment settlements of patent litigation need not get bogged down in discussions of patent law or judicial economy. Congress has spoken clearly and specifically and chosen to use patent litigation as a means to induce competition. Reverse payment settlements of patent litigation are precisely the sort of agreements that antitrust law directly regulates, usually through a rule that says such agreements are per se unlawful. An agreement not to compete in the forum specified by Hatch-Waxman is no different than competitors expressly agreeing not to compete in any other market; it looks like various types of cases where per se illegality is generally accepted as a legitimate rule (e.g., bid rigging, market division).
Accordingly, the Supreme Court could reasonably declare reverse payment settlements of Hatch-Waxman-based patent litigation per se unlawful. Alternatively, the Court could declare the settlements in question presumptively unlawful and then put the burden on the defendants to rebut the presumption.
Reverse payment settlements stifle both types of relevant competition noted above. Competition of the first type (competition in courts between owners of drug patents and generic drug companies) is always stifled. The same might be said about competition of the second type (competition in drug markets between brand firms and generics), although some argue that settlements sometimes may increase competition of the second type where a patent would be found valid (if actually litigated) because the settlement allows the generic company to enter the market earlier than otherwise would be the case. Presumably, the Court should choose between per se illegality and presumptive illegality based on its evaluation of this argument.
If the Court takes this latter route, the types of evidence and arguments relevant to rebutting the presumption should be limited substantially by Hatch-Waxman. As noted above, Hatch-Waxman specifies the types of relevant competition and if given the priority it deserves, it would preclude various generic arguments from being made.
===
FN1: As Scott Hemphill put it, "the Hatch-Waxman Act is a deliberate effort to promote consumer access through litigated challenges." See C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, 81 NYU L. Rev. 1553 (2006), available at http://ssrn.com/abstract=925919. He goes on: "Since litigation is the instrument by which the regulatory arrangement accomplishes its ends, it is difficult to argue that an end-run on the instrument is consistent with the scheme." Much of the argument I am making derives from ideas in Scott's article and conversations we have had over the years.
The Senate has confirmed the nomination of Richard Taranto for a position on the Court of Appeals for the Federal Circuit with a unanimous 91-0 vote. I expect that he will be join the bench within the next week or so.
Although largely non-controversial, the confirmation process for of Ray Chen and Todd Hughes will likely take the bulk of 2013.
One reason for the US strong pro-intellectual-property position is based on US national interests. US IP rights have historically been held primarily by US entities. In that scenario, US IP enforcement was primarily a transfer of wealth between US entities. That setup allows for strong political support for IP rights so long as the rights offer additional benefits (such as incentive to innovate and market products).
A major change in this political environment is the new reality that most new US IP rights are of foreign origin and held by foreign entities. In that context the US national interest in IP enforcement is at least marginally reduced because a larger portion of IP enforcement actions will involve a transfer of wealth from US entities to foreign entities.
The chart below shows the percent of US utility patents issued each year that are of foreign origin. The general trend is that a smaller and smaller percentage of US patent rights are owned by US entities.
The text of the proposed SHIELD ACT legislation adds one new section, 35 U.S.C. § 285A as follows:
= = = = =
Sec. 285A. Recovery of litigation costs
(a) In General- In an action involving the validity or infringement of a patent–
(1) a party asserting invalidity or noninfringement may move for judgment that the adverse party does not meet at least one of the conditions described in subsection (d);
(2) not later than 90 days after a party has moved for the judgment described in paragraph (1), the adverse party shall be provided an opportunity to prove such party meets at least one of the conditions described in subsection (d);
(3) as soon as practicable after the adverse party has been provided an opportunity to respond under paragraph (2), but not later than 120 days after a party has moved for the judgment described in paragraph (1), the court shall make a determination whether the adverse party meets at least one of the conditions described in subsection (d); and
(4) notwithstanding section 285, the Court shall award the recovery of full costs to any prevailing party asserting invalidity or noninfringement, including reasonable attorney’s fees, other than the United States, upon the entry of a final judgment if the court determines that the adverse party did not meet at least one of the conditions described in subsection (d), unless the court finds that exceptional circumstances make an award unjust.
(b) Bond Required- Any party that fails to meet a condition under subsection (a)(3) shall be required to post a bond in an amount determined by the court to cover the recovery of full costs described in subsection (a)(4).
(c) Timing and Effect of Pending Motion- With respect to any motion made pursuant to subsection (a)(1) the following applies:
(1) In the case of a motion that is filed before the moving party’s initial disclosure are due–
(A) the court shall limit any discovery to discovery that is necessary for the disposition of the motion; and
(B) the court may delay issuing any scheduling order until after ruling on the motion.
(2) In the case of a motion that is filed after the moving party’s initial disclosures are due the court may delay ruling on the motion until after the entry of final judgment.
(3) In the case of a motion that is filed after the entry of final judgment, any such motion must be combined with a motion for fees to the prevailing party.
(d) Condition Defined- For purposes of this section, a `condition’ means, with respect to the party alleging infringement, any of the following:
(1) ORIGINAL INVENTOR- Such party is the inventor, a joint inventor, or in the case of a patent filed by and awarded to an assignee of the original inventor or joint inventor, the original assignee of the patent.
(2) EXPLOITATION OF THE PATENT- Such party can provide documentation to the court of substantial investment made by such party in the exploitation of the patent through production or sale of an item covered by the patent.
(3) UNIVERSITY OR TECHNOLOGY TRANSFER ORGANIZATION- Such party is–
(A) an institution of higher education (as that term is defined in section 101 of the Higher Education Act of 1965 (20 U.S.C. 1001); or
(B) a technology transfer organization whose primary purpose is to facilitate the commercialization of technology developed by one or more institutions of higher education.
Guest Editorial by Peter Schechter(Edwards Wildman Palmer LLP)
Some years ago, a few patent lawyers realized that the cost of U.S. patent litigation had become so expensive that most companies sued for infringement would probably pay something just to make it go away, regardless of the merits. This realization forms the fundamental underpinning of most U.S. patent litigation today. If most of the plaintiffs were shining examples of Horatio Alger stories, no one would be too upset about this state of affairs. But they are not – far from it. Most patent infringement plaintiffs today are Non-Practicing Entities (NPEs), or "patent trolls." Rates of success on the merits for NPEs, in those few cases that actually get determined on the merits, are very low, ranging from less than 10% to about 25%, according to different studies. Many people view NPE cases as being generally meritless, generally speaking, regardless of the accuracy of that view in any specific case. On February 14, 2013, even President Obama voiced his displeasure with patent trolls, saying they "are essentially trying to leverage and hijack somebody else's idea and see if they can extort some money out of them."
Recently, Congress has at least been trying to fix what many feel is this most broken aspect of the U.S. patent system. Last year, Rep. Peter DeFazio (D-Ore.) and Rep. Jason Chaffetz (R-Utah) introduced the bipartisan H.R. 6245 –"Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act" — a bill intended to curb the flourishing patent troll business model by shifting the patent litigation system away from the "American model" (everyone pays their way, win or lose) to a "loser pays" system, at least in some types of infringement cases. H.R. 6245 was applauded by some and decried by others; among its faults were the limitations on the types of cases to which it applied, and its lack of "teeth" for implementing the "loser pays" fee-shifting provision. The bill died with the end of the 112th Congress.
Reps. DeFazio and Chaffetz last week reintroduced a "new and improved" version (H.R. 845) of the SHIELD Act (now "of 2013"). Now the bill bites – hard — on NPEs. Gone are the industry-specific limitations. New for 2013 is the most significant provision of the bill: the requirement that the NPE (as defined in the bill) must post a bond early in the case to cover the recovery of the "full costs to any prevailing party asserting invalidity or noninfringement, including reasonable attorney's fees …." This provision does more than implement fee-shifting in NPE patent litigation; it strikes at the heart of the patent troll's business model, and may cut out that heart completely.
To understand the importance and effect of the bond provision, one must first understand the NPE business model. Many, and probably most, NPEs today are "special purpose vehicles" created for the sole and exclusive purpose of owning and suing on patents. In many instances, these limited liability companies are owned by the patent litigators doing the suing. These plaintiffs have few or no assets other than the patents themselves, the out-of-pocket expenses of litigation being fronted by the lawyers, and the lawyer's fees being entirely contingent upon settlement payments. In other words, NPEs are designed to be, and typically are, judgment-proof. For this crucial reason, the traditional fee-shifting mechanism in the Patent Act, 35 U.S.C. Sec. 285, is not an effective deterrent to truly unwarranted patent infringement allegations. Only in rare situations are the litigation attorneys held jointly and severally liable for Sec. 285 attorney's fees awards. While Rule 11, Fed. R. Civ. P., always exists to deter the very worst offenses, Rule 11 awards against signing attorneys are even rarer in patent infringement cases than Sec. 285 awards.
As a result, NPEs are often analogized to gamblers playing with house money – they can win, but cannot lose. The bond requirement of the SHIELD Act of 2013 recognizes and addresses this economic reality, because virtually every type of judicial bond available from a surety, bank, insurance company, or other bond provider is fully 100% collateralized. In practical terms, this fact may well throw the trolls off the bridge.
Bail bonds and appeal (supersedeas) bonds are two examples of judicial bonds. Both the party seeking the bond and the company giving the bond know the exact amount of the potential liability that the bond must cover. In some cases, the amount of a supersedeas bond is set by statute, and may include a required amount to cover interest.
The bond required by the SHIELD Act is different – no one knows, at the beginning of a patent case, what the "full costs to any prevailing party asserting invalidity or noninfringement, including reasonable attorney's fees," might ultimately be. Qualcomm, the prevailing defendant in a patent case, was recently awarded more than $12.4 million in attorney's fees alone; "full costs" would presumably be substantially more. Prevailing defendant Takeda Chemical was awarded $16.8 million in attorney's fees in 2008. Dozens of attorney's fees awards have exceeding $1 million, and in almost all of those cases, the prevailing defendants had to establish that the cases were "exceptional" under Sec. 285.
"Losing NPE pays full costs including reasonable attorney's fees" would become the default standard for NPEs under the SHIELD Act; no "exceptionality" is required. Given the NPEs' current strategy of filing numerous substantially simultaneous separate suits (as a result of the anti-joinder provisions of the America Invents Act), critical questions arise. Would an NPE be required to post a "full costs" bond in each, separate suit? If not, the law would be pointless. How would the "full costs" amount of the required bonds be determined at the beginning of each, separate suit, when different defendants will employ different defense strategies, and incur different "full costs"? Will the bond amount be the subject of legal opinions of counsel, or of expert opinions? What banks, sureties, or insurance companies would offer to provide SHIELD Act bonds to NPEs? Assuming that some financial institutions would, in fact, offer to provide SHIELD Act bonds, what amount and type of collateral would be required and, more importantly, how would typically asset-free, judgment-proof NPEs provide that collateral?
Given the historical reluctance of insurers to offer patent infringement insurance of any kind at all, the 100% collateral requirement is virtually a sure thing. It also seems reasonable to assume that only a very tiny fraction of currently operating NPEs will be able to raise sufficient capital to provide 100% collateral for more than a very small number of SHIELD Act bonds at any given time – should they even decide to take that risk, knowing full well their low probabilities of success on the merits. If the SHIELD Act of 2013 becomes law as written in H.R. 845, the business model of patent infringement litigation as currently practiced by most NPEs would likely become economically unfeasible, and the era of NPE patent litigation as it currently exists would likely come to an end.
= = = = =
The views expressed in this article are the author's alone, and do not necessarily reflect those of Edwards Wildman Palmer LLP or anyone else.
Scott Hemingway sent me a note regarding his case of Sanders v. Flanders. The legal malpractice action pits the inventor (Mr. Sanders) against his former patent attorney (Mr. Flanders). The Federal Court in W.D. Tex. sided with the patent attorney Flanders and awarded FRCP R. 50 Judgment as a Matter of Law – writing “Eric M. Sanders shall TAKE NOTHING on his claims against Defendant Harold H. Flanders.”
In presenting his case, Sanders had not offered any expert testimony to show that the patent attorney’s failures actually caused harm. In his motion, patent attorney Flanders argued that expert testimony is required in a case and the district court Judge Yeakel agreed.
In this case, Flanders had filed six different patent applications (over a almost a decade) that each lacked full payment to the USPTO. The district court found that Flanders never paid the full fee or notified Sanders of the missing parts prior to abandonment of the applications. Of course, breach of the standard of care is not sufficient to create malpractice liability. Rather, harm must also be shown. Thus, for instance, if the patents would have never issued or if nobody would have cared about the patents then no harm. And, the plaintiff has the burden of proving harm.
Sanders appealed to the Federal Circuit, but in a recent order the court has forwarded the appeal to the Fifth Circuit Court of Appeals based upon the recent Supreme Court case of Gunn v. Minton.
Why the 5th Circuit?: The original jurisdiction of the Federal district court was based on both (1) patent law arising under jurisdiction and (2) complete diversity of the parties. In Gunn, the Court rejected the notion that malpractice cases such as this arise under the patent laws. Following Gunn, the remaining justification for federal court jurisdiction is only diversity. And the, diversity cases are appealed to the regional circuit court of appeals (here the 5th Circuit) rather than to the Federal Circuit.
Now, the 5th Circuit will need to decide (applying Texas and 5th Circuit law) whether expert testimony drawing the link is required.
In a recent post, Tracy-Gene Durkin outlined some issues associated with GUI-based design patents. These design patents essentially cover computer images that are shown on a screen, such as a computer display or smartphone. I have written before that this type of patent is somewhat problematic because of its likelihood to impinge on free speech protections. I created the chart below of the number of these type of patents issued each year since 2005. In the PTO’s design patent classification system, these all fall within classes D14 / 485 – 495. The forecast for 2013 is also included.
Who is getting these icon design patents?: Microsoft. The software company has obtained 44% of the GUI-based design patents issued since 2005. Samsung & Apple are both big players in this market with around 5% each. Only 1% of the icon design patents are unassigned at issuance. This contrasts with the 22% of all design patents that are unassigned at issuance.
Pepsi holds over 40 icon design patents that appear to simply be advertisement drawings such as the “DEW” design patent shown below. U.S. Patent No. D.618,251.
Radio Systems Corp. v. Lalor (Fed. Cir. 2013) (Moore (majority author), Reyna, & Newman (in partial dissent)).
In a split decision, the Federal Circuit has affirmed that the judicial doctrine of equitable estoppel applies to block a patentee from alleging patent infringement following a five-year delay in pursuing charges. Writing in partial dissent, Judge Newman argued that estoppel should additionally apply to family members of the patent in question.
In the 1992 en banc decision of Aukerman v. Chaides Constr., the Federal Circuit identified three elements of the equitable estoppel doctrine applicable here:
Misleading Silence: The patentee, through misleading conduct (or silence), leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer;
Reliance: The alleged infringer relies on that conduct; and
Prejudice: The alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.
As background, the patentee (Bumper Boy) sent a demand letter to Innotek back in 2005. The letter indicated that Innotek's "UltraSmart" dog collar infringed Bumper Boy's U.S. Patent No. 6,830,014. Innotek quickly responded with a letter claiming that the patent was invalid. Following that, there was no communication between the parties for 4 ½ years. In fact, Bumper Boy never again communicated with Innotek because that company was acquired by Radio Systems. Radio Systems continued to develop the UltraSmart and other dog collar product lines. Meanwhile, Bumper Boy filed a continuation application and obtained a second patent in 2007 (U.S. Patent No. 7,267,082) with a somewhat more focused claim scope. In 2009, Bumper Boy sent a demand letter to Radio Systems alleging infringement of both the old '014 patent and the new '082 patent.
Radio Systems then filed a declaratory judgment action and the district court awarded summary judgment for Radio Systems. The summary judgment ruling held the patentee equitably estopped from pursuing an infringement action against the UltraSmart products based on either the old or the new patent.
On appeal, the Federal Circuit has affirmed-in-part – affirming that the patentee is estopped from suing the successor-in-interest (Radio Systems) on the old patent (subject of the 2005 letter exchange) but denying to extend the estoppel to the new family-member patent that was not mentioned in the letter and that had not issued at the time.
Judge Moore's language suggests that equitable estoppel could never apply to pending patent applications. She writes "quite simply, the '082 patent claims could not have been asserted against Innotek or Radio Systems until those claims issued." However, that interpretation of the decision is likely unduly expansive – especially since a patentee can collect back-damages for pre-issuance infringement under 35 U.S.C. § 154(d). Thus, for instance, a patentee who sends a pre-issuance 154(d) notice of infringement and then waits to sue for four years following the issuance may well (in my estimation) fall within the realm of equitable estoppel. Of course, these are hypothetical facts that do not apply in the Radio Systems case. A second potential factor in the decision here is that the patentee added new matter to the second patent, but the majority appears to have disregarded that fact as immaterial since the asserted claims do not rely on new matter.
Judge Newman has previously provided an expansive view of equitable estoppel in her majority opinion in the case of Aspex Eyewear v. Clariti Eyewear (Fed. Cir. 2009) (Judge Rader dissenting). In the present caes, Judge Newman penned a quite short opinion that argued that the estoppel should be extended to the continuation application, although her analysis does not directly confront the majority's reasoning.
A second pressure point in the decision involves the corporate restructuring from Innotek to Radio Systems. The Federal Circuit has previously held that equitable estoppel can be claimed by successors-in-interest where privity has been established. Jamesbury Corp. v. Litton Indus. Prods., Inc., 839 F.2d 1544 (Fed. Cir. 1988). At some point, there may be a need to explore the privity element, but here that was not a real problem since Radio Systems (1) wholly owns Innotek, (2) is headed by the same individual as Innotek, (3) incorporated Innotek designs and products in its own product lines; and (4) exerts substantial control over Innotek. In my view, privity alone should be insufficient to transfer equitable estoppel rights to the new entity if the estoppel has not yet vested and if the patentee has no reasonable knowledge of the shift.
This decision provides some food-for-thought to patentees. On the one hand it places more pressure of having enforcement-through-litigation as a genuine and timely option during any license negotiations. On the other hand, the case also offers a roadmap for avoiding equitable estoppel problems with the use of continuation applications.
Patent versus Portfolio: The conceptual problem with this decision is one that we'll be struggling to deal with for years – and that is the distinctions between a single patent claim, a single patent, a family of patents, and a portfolio of loosely related patents. The law still largely focuses on single patent claims while business leaders are increasingly focused on a portfolio analysis. Equitable estoppel is largely related to reasonable reliance by business leaders and in that context it makes sense to apply the estoppel principles to a portfolio rather than single claims or single patents.
= = = = =
In addition to the estoppel decision, the lower court also found that the claims were not infringed by other Radio Systems products. In the appeal, the Radio Systems offered as an alternative ground for affirmance that the asserted patents were invalid. However, the Federal Circuit refused to hear that contention on technical grounds since the contention was raised in an opposition brief rather than as a cross-appeal. An invalidity holding is generally broader than a holding of equitable estoppel or non-infringement since those holdings are limited to the products or parties involved in the case. Invalidity on the other hand will apply to all future Radio Systems products as well as other would-be infringers and even current licensees. That change-in-scope creates a problem for Radio systems because of the ordinary rule that an appellee cannot request expansion of the lower court holding. Rather, a party unsatisfied with the scope of a lower court ruling must become an appellant by filing an appeal or cross-appeal.
The Supreme Court has long recognized that "[a]bsent a cross appeal, an appellee . . . may not attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary." El Paso Nat. Gas Co. v. Neztsosie, 526 U.S. 473 (1999). We have held that a judgment of invalidity is broader than a judgment of noninfringement. "[A] determination of infringement applies only to a specific accused product or process, whereas invalidity operates as a complete defense to infringement for any product, forever." Typeright Keyboard Corp. v. Microsoft Corp., 374 F.3d 1151 (Fed. Cir. 2004). Thus, invalidity cannot be an alternative ground for affirming a judgment of noninfringment absent a cross-appeal.
While we acknowledge the inefficiency that may result from requiring cross-appeals in situations where the scope of a judgment would be enlarged, we are cabined by our jurisdiction and may not reach issues that are not properly before us. On remand, Radio Systems may pursue its invalidity defense in further proceedings, and, should there be additional rulings on invalidity by the district court, Radio Systems may pursue a proper appeal at that time. Because Radio Systems did not properly file a cross-appeal on the invalidity issue in this appeal, Bumper Boy's motion to strike Radio System' alternative grounds for affirmance is granted.
Just to be clear, it doesn't appear that Radio Systems failure to file a cross-appeal was a technical error. Rather, the company could not file an appeal arguing invalidity because the district court had not reached that issue yet.
Radio Systems Corp. v. Lalor (Fed. Cir. 2013) (Moore (majority author), Reyna, & Newman (in partial dissent)).
In a split decision, the Federal Circuit has affirmed that the judicial doctrine of equitable estoppel applies to block a patentee from alleging patent infringement following a five-year delay in pursuing charges. Writing in partial dissent, Judge Newman argued that estoppel should additionally apply to family members of the patent in question.
In the 1992 en banc decision of Aukerman v. Chaides Constr., the Federal Circuit identified three elements of the equitable estoppel doctrine applicable here:
Misleading Silence: The patentee, through misleading conduct (or silence), leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer;
Reliance: The alleged infringer relies on that conduct; and
Prejudice: The alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.
As background, the patentee (Bumper Boy) sent a demand letter to Innotek back in 2005. The letter indicated that Innotek's "UltraSmart" dog collar infringed Bumper Boy's U.S. Patent No. 6,830,014. Innotek quickly responded with a letter claiming that the patent was invalid. Following that, there was no communication between the parties for 4 ½ years. In fact, Bumper Boy never again communicated with Innotek because that company was acquired by Radio Systems. Radio Systems continued to develop the UltraSmart and other dog collar product lines. Meanwhile, Bumper Boy filed a continuation application and obtained a second patent in 2007 (U.S. Patent No. 7,267,082) with a somewhat more focused claim scope. In 2009, Bumper Boy sent a demand letter to Radio Systems alleging infringement of both the old '014 patent and the new '082 patent.
Radio Systems then filed a declaratory judgment action and the district court awarded summary judgment for Radio Systems. The summary judgment ruling held the patentee equitably estopped from pursuing an infringement action against the UltraSmart products based on either the old or the new patent.
On appeal, the Federal Circuit has affirmed-in-part – affirming that the patentee is estopped from suing the successor-in-interest (Radio Systems) on the old patent (subject of the 2005 letter exchange) but denying to extend the estoppel to the new family-member patent that was not mentioned in the letter and that had not issued at the time.
Judge Moore's language suggests that equitable estoppel could never apply to pending patent applications. She writes "quite simply, the '082 patent claims could not have been asserted against Innotek or Radio Systems until those claims issued." However, that interpretation of the decision is likely unduly expansive – especially since a patentee can collect back-damages for pre-issuance infringement under 35 U.S.C. § 154(d). Thus, for instance, a patentee who sends a pre-issuance 154(d) notice of infringement and then waits to sue for four years following the issuance may well (in my estimation) fall within the realm of equitable estoppel. Of course, these are hypothetical facts that do not apply in the Radio Systems case. A second potential factor in the decision here is that the patentee added new matter to the second patent, but the majority appears to have disregarded that fact as immaterial since the asserted claims do not rely on new matter.
Judge Newman has previously provided an expansive view of equitable estoppel in her majority opinion in the case of Aspex Eyewear v. Clariti Eyewear (Fed. Cir. 2009) (Judge Rader dissenting). In the present caes, Judge Newman penned a quite short opinion that argued that the estoppel should be extended to the continuation application, although her analysis does not directly confront the majority's reasoning.
A second pressure point in the decision involves the corporate restructuring from Innotek to Radio Systems. The Federal Circuit has previously held that equitable estoppel can be claimed by successors-in-interest where privity has been established. Jamesbury Corp. v. Litton Indus. Prods., Inc., 839 F.2d 1544 (Fed. Cir. 1988). At some point, there may be a need to explore the privity element, but here that was not a real problem since Radio Systems (1) wholly owns Innotek, (2) is headed by the same individual as Innotek, (3) incorporated Innotek designs and products in its own product lines; and (4) exerts substantial control over Innotek. In my view, privity alone should be insufficient to transfer equitable estoppel rights to the new entity if the estoppel has not yet vested and if the patentee has no reasonable knowledge of the shift.
This decision provides some food-for-thought to patentees. On the one hand it places more pressure of having enforcement-through-litigation as a genuine and timely option during any license negotiations. On the other hand, the case also offers a roadmap for avoiding equitable estoppel problems with the use of continuation applications.
Patent versus Portfolio: The conceptual problem with this decision is one that we'll be struggling to deal with for years – and that is the distinctions between a single patent claim, a single patent, a family of patents, and a portfolio of loosely related patents. The law still largely focuses on single patent claims while business leaders are increasingly focused on a portfolio analysis. Equitable estoppel is largely related to reasonable reliance by business leaders and in that context it makes sense to apply the estoppel principles to a portfolio rather than single claims or single patents.
= = = = =
In addition to the estoppel decision, the lower court also found that the claims were not infringed by other Radio Systems products. In the appeal, the Radio Systems offered as an alternative ground for affirmance that the asserted patents were invalid. However, the Federal Circuit refused to hear that contention on technical grounds since the contention was raised in an opposition brief rather than as a cross-appeal. An invalidity holding is generally broader than a holding of equitable estoppel or non-infringement since those holdings are limited to the products or parties involved in the case. Invalidity on the other hand will apply to all future Radio Systems products as well as other would-be infringers and even current licensees. That change-in-scope creates a problem for Radio systems because of the ordinary rule that an appellee cannot request expansion of the lower court holding. Rather, a party unsatisfied with the scope of a lower court ruling must become an appellant by filing an appeal or cross-appeal.
The Supreme Court has long recognized that "[a]bsent a cross appeal, an appellee . . . may not attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary." El Paso Nat. Gas Co. v. Neztsosie, 526 U.S. 473 (1999). We have held that a judgment of invalidity is broader than a judgment of noninfringement. "[A] determination of infringement applies only to a specific accused product or process, whereas invalidity operates as a complete defense to infringement for any product, forever." Typeright Keyboard Corp. v. Microsoft Corp., 374 F.3d 1151 (Fed. Cir. 2004). Thus, invalidity cannot be an alternative ground for affirming a judgment of noninfringment absent a cross-appeal.
While we acknowledge the inefficiency that may result from requiring cross-appeals in situations where the scope of a judgment would be enlarged, we are cabined by our jurisdiction and may not reach issues that are not properly before us. On remand, Radio Systems may pursue its invalidity defense in further proceedings, and, should there be additional rulings on invalidity by the district court, Radio Systems may pursue a proper appeal at that time. Because Radio Systems did not properly file a cross-appeal on the invalidity issue in this appeal, Bumper Boy's motion to strike Radio System' alternative grounds for affirmance is granted.
Just to be clear, it doesn't appear that Radio Systems failure to file a cross-appeal was a technical error. Rather, the company could not file an appeal arguing invalidity because the district court had not reached that issue yet.
Radio Systems Corp. v. Lalor (Fed. Cir. 2013) (Moore (majority author), Reyna, & Newman (in partial dissent)).
In a split decision, the Federal Circuit has affirmed that the judicial doctrine of equitable estoppel applies to block a patentee from alleging patent infringement following a five-year delay in pursuing charges. Writing in partial dissent, Judge Newman argued that estoppel should additionally apply to family members of the patent in question.
In the 1992 en banc decision of Aukerman v. Chaides Constr., the Federal Circuit identified three elements of the equitable estoppel doctrine applicable here:
Misleading Silence: The patentee, through misleading conduct (or silence), leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer;
Reliance: The alleged infringer relies on that conduct; and
Prejudice: The alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.
As background, the patentee (Bumper Boy) sent a demand letter to Innotek back in 2005. The letter indicated that Innotek's "UltraSmart" dog collar infringed Bumper Boy's U.S. Patent No. 6,830,014. Innotek quickly responded with a letter claiming that the patent was invalid. Following that, there was no communication between the parties for 4 ½ years. In fact, Bumper Boy never again communicated with Innotek because that company was acquired by Radio Systems. Radio Systems continued to develop the UltraSmart and other dog collar product lines. Meanwhile, Bumper Boy filed a continuation application and obtained a second patent in 2007 (U.S. Patent No. 7,267,082) with a somewhat more focused claim scope. In 2009, Bumper Boy sent a demand letter to Radio Systems alleging infringement of both the old '014 patent and the new '082 patent.
Radio Systems then filed a declaratory judgment action and the district court awarded summary judgment for Radio Systems. The summary judgment ruling held the patentee equitably estopped from pursuing an infringement action against the UltraSmart products based on either the old or the new patent.
On appeal, the Federal Circuit has affirmed-in-part – affirming that the patentee is estopped from suing the successor-in-interest (Radio Systems) on the old patent (subject of the 2005 letter exchange) but denying to extend the estoppel to the new family-member patent that was not mentioned in the letter and that had not issued at the time.
Judge Moore's language suggests that equitable estoppel could never apply to pending patent applications. She writes "quite simply, the '082 patent claims could not have been asserted against Innotek or Radio Systems until those claims issued." However, that interpretation of the decision is likely unduly expansive – especially since a patentee can collect back-damages for pre-issuance infringement under 35 U.S.C. § 154(d). Thus, for instance, a patentee who sends a pre-issuance 154(d) notice of infringement and then waits to sue for four years following the issuance may well (in my estimation) fall within the realm of equitable estoppel. Of course, these are hypothetical facts that do not apply in the Radio Systems case. A second potential factor in the decision here is that the patentee added new matter to the second patent, but the majority appears to have disregarded that fact as immaterial since the asserted claims do not rely on new matter.
Judge Newman has previously provided an expansive view of equitable estoppel in her majority opinion in the case of Aspex Eyewear v. Clariti Eyewear (Fed. Cir. 2009) (Judge Rader dissenting). In the present caes, Judge Newman penned a quite short opinion that argued that the estoppel should be extended to the continuation application, although her analysis does not directly confront the majority's reasoning.
A second pressure point in the decision involves the corporate restructuring from Innotek to Radio Systems. The Federal Circuit has previously held that equitable estoppel can be claimed by successors-in-interest where privity has been established. Jamesbury Corp. v. Litton Indus. Prods., Inc., 839 F.2d 1544 (Fed. Cir. 1988). At some point, there may be a need to explore the privity element, but here that was not a real problem since Radio Systems (1) wholly owns Innotek, (2) is headed by the same individual as Innotek, (3) incorporated Innotek designs and products in its own product lines; and (4) exerts substantial control over Innotek. In my view, privity alone should be insufficient to transfer equitable estoppel rights to the new entity if the estoppel has not yet vested and if the patentee has no reasonable knowledge of the shift.
This decision provides some food-for-thought to patentees. On the one hand it places more pressure of having enforcement-through-litigation as a genuine and timely option during any license negotiations. On the other hand, the case also offers a roadmap for avoiding equitable estoppel problems with the use of continuation applications.
Patent versus Portfolio: The conceptual problem with this decision is one that we'll be struggling to deal with for years – and that is the distinctions between a single patent claim, a single patent, a family of patents, and a portfolio of loosely related patents. The law still largely focuses on single patent claims while business leaders are increasingly focused on a portfolio analysis. Equitable estoppel is largely related to reasonable reliance by business leaders and in that context it makes sense to apply the estoppel principles to a portfolio rather than single claims or single patents.
= = = = =
In addition to the estoppel decision, the lower court also found that the claims were not infringed by other Radio Systems products. In the appeal, the Radio Systems offered as an alternative ground for affirmance that the asserted patents were invalid. However, the Federal Circuit refused to hear that contention on technical grounds since the contention was raised in an opposition brief rather than as a cross-appeal. An invalidity holding is generally broader than a holding of equitable estoppel or non-infringement since those holdings are limited to the products or parties involved in the case. Invalidity on the other hand will apply to all future Radio Systems products as well as other would-be infringers and even current licensees. That change-in-scope creates a problem for Radio systems because of the ordinary rule that an appellee cannot request expansion of the lower court holding. Rather, a party unsatisfied with the scope of a lower court ruling must become an appellant by filing an appeal or cross-appeal.
The Supreme Court has long recognized that "[a]bsent a cross appeal, an appellee . . . may not attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary." El Paso Nat. Gas Co. v. Neztsosie, 526 U.S. 473 (1999). We have held that a judgment of invalidity is broader than a judgment of noninfringement. "[A] determination of infringement applies only to a specific accused product or process, whereas invalidity operates as a complete defense to infringement for any product, forever." Typeright Keyboard Corp. v. Microsoft Corp., 374 F.3d 1151 (Fed. Cir. 2004). Thus, invalidity cannot be an alternative ground for affirming a judgment of noninfringment absent a cross-appeal.
While we acknowledge the inefficiency that may result from requiring cross-appeals in situations where the scope of a judgment would be enlarged, we are cabined by our jurisdiction and may not reach issues that are not properly before us. On remand, Radio Systems may pursue its invalidity defense in further proceedings, and, should there be additional rulings on invalidity by the district court, Radio Systems may pursue a proper appeal at that time. Because Radio Systems did not properly file a cross-appeal on the invalidity issue in this appeal, Bumper Boy's motion to strike Radio System' alternative grounds for affirmance is granted.
Just to be clear, it doesn't appear that Radio Systems failure to file a cross-appeal was a technical error. Rather, the company could not file an appeal arguing invalidity because the district court had not reached that issue yet.
The recent Apple v. Samsung litigation has consumed the media since August when a California Jury awarded Apple more than $1 billion for infringement. Of the three design patents involved in that judgment, one was for a graphical user interface (GUI). This landmark case is the first time that a U.S. court has considered infringement of a GUI design patent and may be just the tip of the iceberg beginning to emerge within the design patent landscape.
How the Law Developed
Design law relating to GUI protection has developed at a slow rate since 1996, when the USPTO first created guidelines for the examination of GUI designs. The legal basis for design patents derives from the Patent Statute, 35 U.S.C. Section 171 which provides that whoever invents any new, original, and ornamental design for an “article of manufacture” may obtain a patent for it. Section 171 also refers to the design for an article as including ornamental designs of all kinds, such as surface ornamentation. The question then is how is GUI considered to be an article of manufacture under U.S. law?
The Manual of Patent Examination Procedure Section 1502 discusses what constitutes the ornamental appearance of a design, which includes the shape and configuration, indicia, contrasting color or materials, and graphic representations on an article of manufacture. Any ornamentation applied to an article is considered to be surface treatment. Surface treatment itself is not protectable with a design patent, but rather through copyright. However, when that surface treatment is applied to an article of manufacture it is protectable through a design patent.
The case of Ex parte Strijland 26 USPQ2d 1259 (BPAI 1992) established the protection of GUI using a design patent. This case was taken up at the USPTO Board of Appeals and Interferences (BPAI) over an icon. The examiner rejected the design as being unpatentable on the basis that it was not an ornamental design to be applied to an article of manufacture, but rather was mere surface ornamentation. The applicant then tried to add information to the application to include and describe the computer display on which the claimed icon could be displayed. The Examiner rejected the additional information as new matter. The BPAI affirmed the Examiner, but in doing so, created a road map of how to apply for a patentable GUI by suggesting that had the information that was added to the application after it was filed been provided at the time of filing the application, it would have made the design patentable because it provided an article of manufacture (the display) on which the GUI was presented as surface ornamentation.
In 1996, the USPTO created guidelines for the protection of GUIs based on the decision in Ex Parte Strijland. GUIs are now statutory subject matter, provided that the GUI design or surface ornamentation is shown with some portion of a display or other article of manufacture. Although there have been no reported USPTO BPAI decisions involving the patentability of GUI designs since the Strijland case of 1992, nor any reported infringement cases related to GUI’s (excluding Apple v. Samsung), there have apparently been GUI cases appealed to the BPAI. Those decisions have unfortunately not been published.
Requirements to patent a GUI design
The requirements to patent a GUI design in the United States are the same as for any other kind of design patent application. The design must be novel, not obvious, and not functional. The claimed design may be presented as a line drawing or a digital image. Color and grayscale are allowed to be presented in the same GUI application, but line drawings and digital images are not. Animated designs are also patentable in the United States, and must show a minimum of two views of the animation. More images may lead to a greater chance of patentability, although it may also lead to patent with a narrower scope.
Any attempt to add language about the article of manufacture in the title or the drawing figures after an application has been filed will be met with a new matter rejection during patent examination at the USPTO. Examiners search prior patented GUI designs as well as GUI utility patents in making their patentability analysis, resulting in a very complex and comprehensive search. While design patent applications are rarely rejected, the most common references used in a GUI design rejection are utility patents. Non-patent literature is also commonly used.
What’s Next for GUI Design Patents
The number of patent lawsuits involving GUI is increasing rapidly in the United States. According to the New York Times, over the last two decades the number of patent lawsuits filed yearly in U.S. district courts has tripled (3,260 were filed in 2010). According to a study done by Stanford University, $20 billion was spent on patent litigation and purchasing patents in the smartphone industry in the last two years. We also know from information provided recently by David Gerk from the USPTO’s Office of Policy and External Affairs at an Inn of Court meeting that the number of GUI design patent applications is currently growing at the fastest rate of any other area. As digital displays become common place on more and more consumer products, there is little doubt that the subject matter of the increased patent filings is extending well beyond the smart phone.
About the Author: Tracy-Gene G. Durkin is a director and leader of the Mechanical Patent and Trademark Practice Group at intellectual property specialty law firm Sterne, Kessler, Goldstein & Fox. Tracy is a recognized design patent expert and represents some of the most forward thinking companies in the area of product design and product packaging design. Contact Tracy via email at tdurkin@skgf.com.
If the 2013 Sequester holds through the end of FY2013, it looks like the USPTO will be forced to cut about $148 million from its FY2013 budget of $2.951 billion. [White House Report on Sequestration]. This amount represents 5% of the agency’s annual budget.
However, the USPTO’s fee collections for FY2013 have fallen somewhat under the budgeted amount. Under USPTO budget rules, the executive agency can only spend what it brings in through fees with a maximum cap set by the budget. If this trend continues through the major fee shake-up of March 16, 2013, then we should not see any direct serious direct impact due to an ongoing sequester.
The Federal Circuit will be expected to cut about $2 million from its $30 million budget. Chief Judge Rader previously indicated the Court’s intention to continue to provide the highest quality opinions in the same timely manner. Still, the cuts have to come from somewhere. The judges may take a voluntary pay cut and hourly employees could receive reduced hours.
Update: An official at the Department of Commerce has confirmed that the USPTO is subject to sequestration but that the agency is already operating below the sequester’s funding level.
Move, Inc. v. Real Estate Alliance (REAL) (Fed. Cir. 2013)
REAL owns U.S. Patent No. 5,032,989 that covers a computerized map-based system for locating available real estate. Although the patent is now expired, MOVE filed a declaratory judgment action to stop REAL from pursuing back-damages.
Claim 1 appears to read on most online real-estate systems. The method includes the following steps:
(a) creating a database of the available real estate properties; (b) displaying a map of a desired geographic area; (c) selecting a first area having boundaries within the geographic area; (d) zooming in on the first area of the displayed map to about the boundaries of the first area to display a higher level of detail than the displayed map; (e) displaying the first zoomed area; (f) selecting a second area having boundaries within the first zoomed area; (g) displaying the second area and a plurality of points within the second area, each point representing the appropriate geographic location of an available real estate property; and (h) identifying available real estate properties within the database which are located within the second area.
REAL’s problem, of course, is on the question of divided infringement. The accused infringers “create the database” while independent users select the various areas. In that situation, neither party could be considered a “direct infringer” under the traditional Federal Circuit rule that direct infringement occurs only when a single actor performs each and every element of an asserted claim.
Of course the law has changed somewhat since the district court’s January 2012 dismissal of the case. In August 2012, the Federal Circuit issued its en banc rulings in the parallel cases of Akamai Tech. v. Limelight Networks, 692 F.3d 1301 (Fed. Cir. 2012) and Mckesson Tech. v. Epic Systems (Fed. Cir. 2012). In those cases, the court expanded the potential for liability for so-called divided-infringement under the rubric of inducement. In particular, to prove inducement liability, “it is no longer necessary to prove that all the steps were committed by a single entity."
On appeal, the Federal Circuit agreed that there is no direct infringement. “If the performance of those steps is not attributable to Move, then Move cannot be directly liable for infringing REAL’s asserted method claim.” However, the court remanded on the question of inducement:
We conclude that the district court legally erred by not analyzing inducement under 35 U.S.C. § 271(b). Recently, sitting en banc in Akamai, we clarified the law on inducement. We explained that all the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity. In so holding, we overruled the holding in BMC that in order for a party to be liable for induced infringement, some other entity must be liable for direct infringement.
On remand, REAL may be able to prove that it induced users to act in a way that completed all of the claimed step. However, inducement raises some difficulty because it also requires that the accused inducer have knowledge of the patent (or be willfully blind) and have intended for their actions to induce the infringement.
In the background, both Akamai and Epic Systems have filed pending petitions for Supreme Court review. Epic’s question is most pointed: “Whether a defendant may be held liable for inducing infringement of a patent that no one is liable for infringing.” Akamai has asked the Supreme Court to push the envelope on direct infringement by holding that concerted action by two parties can result in direct infringement liability. Those cases are at the petitions stage and briefing is ongoing.
In the past, I have suggested that liability should persist based upon infringement by conspiracy.
Kimber Cakeware v. Bradshaw Int’l (S.D. Ohio 2013)
Kimber’s design patent No. D671,376 covers a cup-cake batter separator. Kimber sells these as “batter babies” and they allow you to make cupcakes with two types of batter. Cool idea. Of course using a divider to segmenting baked goods is not a new idea. In fact, Robert Reiser (the ‘376 patentee) has his own prior patents covering other forms of cake-batter separators.
The question in this recently filed case is going to be infringement: whether “in the eye of an ordinary observer, giving such attention as a purchaser usually gives [and in light of the prior art], the two designs are substantially the same.” Quoting Gorham v. White (1871) as described in Egyptian Goddess v. Swisa (Fed. Cir. 2008).
The following image comes from the Kimber complaint. Of course, the missing factor here is the prior art.
Guest Post by Jeffrey Lefstin, Ph.D., Professor of Law at the University of California Hastings College of the Law. In his previous life Dr. Lefstin was a molecular biologist, studying mammalian gene regulatory mechanisms and DNA-protein interactions. Below, he provides his thoughts on the true stakes in Association for Molecular Pathology v. Myriad Genetics.
Playing with Fire: What's Really at Stake in Myriad
In a previous post I noted that the Supreme Court’s Mayo v. Prometheus decision, while acknowledging that “all inventions can be reduced to underlying principles of nature which, once known, make their implementation obvious,” appears to have revived the analytical framework of Funk Brothers. Funk denied patentability to a mixture of nitrogen-fixing bacteria because, even if the patentee’s discovery about the bacteria was “ingenious,” it was a phenomenon of nature and not patentable. Once that discovery was made, the state of the art made production of the claimed mixture obvious; the patentee therefore had not claimed a patentable application of the law of nature. In Mayo the Court likewise demanded that a claim embody an inventive application of a natural law, denying patentability to a process claim where the steps beyond the natural law consisted of nothing more than “well-understood, routine, conventional activity.”
Mayo’s grounding in Funk means that the Mayo analysis governs the patent-eligibility of a claim to a composition of matter, such as the isolated and purified DNA molecules at issue in Myriad. But the stakes in Myriad are actually far higher. For twenty years after Funk, the lower courts employed the “something else beyond a law of nature” analysis to invalidate a variety of claims that we would probably regard as innocuous today. If the Court reaffirms the analysis of Funk, Parker v. Flook, and Mayo in Myriad, this line of authority presents a disturbing vision for the future.
The line began with Davison Chemical Corp. v. Joliet Chemicals, Inc., 179 F.2d 793 (7th Cir. 1950). Davison Chemical dealt with a process for producing silica gel. While the process of making silica gel was long known in the art, the patentee had discovered that the temperature of the wash step determined the density of the gel. He therefore claimed an improved process wherein the temperature of the wash step was adjusted to control the density of the final product. But the Seventh Circuit regarded the relationship between wash temperature and gel density as “a newly discovered scientific fact.” Under Funk Brothers, it was necessary that the patentee’s application of that fact be inventive. According to the court, once the relationship between temperature and density was discovered, it required “nothing more than the ordinary skill of the scientist” to determine that maintaining the temperature of the wash step would control the density of the silica gel.
The Court of Customs and Patent Appeals followed Davison Chemical in In re Arnold, 185 F.2d 686 (CCPA 1950), involving a claim to a process of electrostatic welding. In Arnold, the applicant had discovered that molecules near the surface of a material responded more readily than interior molecules to alternating electrostatic fields. By selecting a particular frequency, the applicant could selectively weld the surface of the material, or selectively weld a plasticizer applied to the surface. But according to the CCPA, the differential response of surface molecules was a “phenomenon of nature” discovered by the applicant. The claimed process merely selected a particular frequency based on that discovery, and therefore lacked “invention.” (While the Federal Circuit has never cited Arnold, the case, being precedent of the CCPA, is technically binding on the court.)
National Lead Co. v. Western Lead Products Co., 324 F.2d 359 (9th Cir. 1963), was similar to Davison Chemical. In a process for making a lead / lead oxide suspension (useful for storage batteries), the patentee had supposedly discovered that two different crystalline forms of lead oxide were present; by controlling the temperature of the reaction, the patentee could control the proportion of these two forms and thereby the uniformity of the final product. But following Davison Chemical, the patentee’s discovery of the relationship between temperature and product uniformity was not patentable. The question was whether the claimed method would have been obvious to an artisan – an artisan assumed to already know the relationship between temperature and product uniformity. Since the patentee used only conventional methods to regulate temperature of the reaction, the method was unpatentable.
The pinnacle – or perhaps the nadir – of the Davison line was the Third’s Circuit’s decision in Armour Pharmaceutical Co. v. Richardson-Merrel, Inc., 396 F.2d 70 (3d Cir. 1968). The patentee made the surprising discovery that trypsin – a proteolytic enzyme with anti-inflammatory properties – could be absorbed by the small intestine, and thereafter transported into the bloodstream. Whereas the prior art relied on administering trypsin to patients via injection, the patentee determined that oral administration would be possible if the trypsin was given a coating permitting it to resist digestion in the stomach and reach the small intestine. But the Third Circuit concluded that a claim to the enteric-coated trypsin formulation was not patentable under Funk. Once “nature’s secret” was discovered – the ability of the small intestine to absorb trypsin – any artisan would have employed known coatings to enable the trypsin to reach the small intestine. And even if the patentee’s discovery was the anti-inflammatory effect of trypsin administered to the small intestine, not merely the ability of the small intestine to absorb trypsin, the application of that newly discovered principle still lacked inventiveness under Funk.
Despite being framed as “lack of invention,” these are not obviousness cases. In each case the information that might render the invention obvious was the patentee’s own discovery. That is the point of Mayo: despite Diehr’s admonition to the contrary, the Court appears to have resurrected Funk’s rule that a claim must embody a non-obvious application of a law of nature or natural phenomenon to be patent-eligible. And the district courts have already begun applying that analysis to question the patent-eligibility of claims.[1] The Davison line suggests that a wide variety of claims to improvements or optimizations of known processes and compositions are vulnerable under the Mayo analysis. Unless we can distinguish the “natural laws” in these cases from the “natural law” in Mayo, a reaffirmance of Funk and Mayo in Myriad could presage a dramatic contraction in the scope of patent-eligible subject matter in the future.
[1]See, e.g., Aria Diagnostics, Inc. v. Sequenom, Inc., 2012 WL 2599340, at *11-12 (N.D. Cal. July 5, 2012); Tessenderlo Kerley, Inc. v. Or-Cal, Inc., 2012 WL 2054994 at *5-6 (N.D. Cal. June 5, 2012).
Editorial by David A. Balto and Brendan Coffman. Mr. Balto and Mr. Coffman are antitrust attorneys in Washington D.C. whose representations include high technology firms. In addition to his practice, Mr. Balto was formerly a policy director of the Federal Trade Commission, attorney-adviser to Chairman Robert Pitofsky, and an antitrust lawyer at the U.S. Department of Justice.
When Patent Pools Attack: Competitive Concerns from the Devolution of MPEG LA
By David A. Balto and Brendan Coffman
Patent pools pose a unique challenge to antitrust enforcement. On the one hand they solve collective action problems and allow participants to achieve economies of scale that would otherwise be impossible. Patent pools enable market participants to join complementary intellectual property to better manage those IP rights. As the Department of Justice noted, patent pools may “provide competitive benefits by integrating complementary technologies, reducing transaction costs, clearing blocking positions, and avoiding costly infringement litigation.”
On the other hand, patent pools can create competitive problems by conferring market power on a group (in the case of member-owned patent pools) or entity (in the case of stand-alone patent pools). Thus, the antitrust enforcement agencies have always been concerned if the pools are over-inclusive and include competing technologies. Where this is the case patent pools may leverage their position to interfere with competition in at least two ways. First, a pool may interfere with the relationships and convergent intellectual property rights of pool members. This result may be particularly pernicious if one of the patent pool participants seeks to introduce a new business model that may compete head-to-head with the pool’s customers. Second, pools may leverage their market power within the supply chain to extract higher or duplicative royalties on downstream purchasers of the pool’s licensed technology. These concerns are typical in the high-tech/intellectual property field, and come up very often in discussions of patent assertion entities, or PAEs.
The key for regulators and policy-makers alike is to ensure that patent pools remain committed to the procompetitive collaborative efforts that justify their creation, and do not change their business model to exploit or create market power. In theory this sounds simple. In practice, it is anything but.
History of MPEG LA
MPEG LA is an interesting case study in the trade-off between the efficiencies of pooling arrangements and the potential competitive risks. MPEG LA has been a personification of the debate since the group’s incipiency. Formed in 1996 to administer the pooling of 27 digital video patents deemed essential to the MPEG 2 video compression technology into a single portfolio, MPEG LA aggregated and offered a collective license to 27 patents from eight companies and Columbia University. MPEG LA presented its idea to the Department of Justice, seeking ex ante approval through the DOJ’s Business Review Procedure [pdf].
The DOJ responded in an oft-cited 14-page letter containing 49 footnotes. The DOJ concluded that the joint licensing of the MPEG 2 essential patents is likely to provide significant cost savings to licensors and licensees alike because “the licensing arrangement have features designed to enhance the usual procompetitive effects and mitigate potential anticompetitive dangers.” The DOJ also emphasized that the structure of the patent pool appeared well-suited to ensure that only truly essential patents become included in the pool, and that the patents in the pool remain complements, not substitutes. Finally, the DOJ opined “there does not appear to be any potential for use of the Portfolio license to disadvantage particular licensees” because the pool’s most-favored-nations clause ensures equivalent rates to all takers on non-discriminatory terms. In approving the arrangement, the DOJ laid forth the following four guidelines for when a patent pool may gain approval:
1. The patents must be valid and enforceable;
2. The pool must not aggregate competitive technologies and set a single price for them;
3. An independent expert should determine whether the patents are essential; and
4. The pool must not disadvantage competitors or facilitate collusion
The DOJ’s approval of MPEG LA’s turned in large part on one fundamental and pivotal fact: MPEG LA’s operating procedure called for the participation of an independent expert at every turn. In fact, the Business Review Letter mentions the independent expert sixteen times.
There was significant concern raise about the MPEG LA pool. As one antitrust scholar exclaimed “the anticompetitive potential of the MPEG LA patent pool is enormous. The DOJ’s approval of the pool validates a collectively enforced monopoly over a fundamental communications standard.”1Despite this and public criticism, the DOJ approved the behavior. MPEG LA stated publically that the company’s mission was to “provide a service that brings all parties together so that technical innovations can be made widely available at a reasonable price.” As history shows, it is not long before a company with this model succumbs to the pressure of exercising and extending its monopoly power.
Emerging Competitive Concerns
In recent years, MPEG LA has been accused of inhibiting the innovation that it was designed to foster. Notably, the company’s practice of charging high licensing fees for patents that are near or past expiration has led critics to assert that the firm has placed profit above its core mission of cheap and accessible licensing of digital video patents. Technology market players have also alleged that MPEG LA has violated the terms of its original agreement with DOJ by failing to invite oversight of its licensing practices by independent experts, and neglecting to adhere to FRAND guidelines. A firm that was once a model (at least in theory) of the potential benefits from collaboration has morphed into one of the industry’s most notorious and most harmful players.
Interestingly MPEG LA embodies both of the concerns with patent pools outlined above and by the DOJ in its approval of the patent pool’s licensing structure. First, MPEG LA may overtly inhibit the ability of its members to develop any technology that may compete with customers of the MPEG LA pool. Most notably, MPEG LA was involved in a dispute with pool-participant Google. In 2010 Google introduced WebM, an open-source solution to uploading videos to the web. Google designed WebM to serve as an alternative to H.264, the primary video compression technology in Microsoft and Apple devices that is covered by the MPEG LA patent pool. All three are members of the MPEG LA patent pool, and pay royalties to the company (although Apple contributed only one patent to the pool). MPEG LA asserted that Google’s WebM product practices on or infringes patents in the pool, and demanded that users of the WebM product pay royalties to the pool. A license from Google would not be enough. In fact, in early 2011 MPEG LA instructed patent owners to inform the pool of patents they believe the WebM product uses. The DOJ initiated an investigation into whether MPEG LA is acting anticompetitively by trying to quash the Google WebM product through assertion of patents as a patent pool. The investigation appears to be on-going.
It is not only Google that MPEG LA has targeted – German software company Nero also filed complaints with the DOJ alleging that MPEG LA is illegally maintaining and enhancing its monopoly power by failing to adhere to the conditions of the DOJ Business Review Letter. Nero points out that MPEG LA does not rely on independent experts as it said it would, but instead allows its membership to drive patent inclusion decisions. Nero also argues that MPEG LA did not offer the patents in question on fair, reasonable, and non-discriminatory terms as required.
MPEG LA has also devolved into a PAE. A PAE may accumulate and leverage patents as a business model by taking advantage of economies of scale and the high cost of patent litigation. A common business model of PAEs is to divide patents among shell companies, thereby making it difficult for defendants to identify the original patent owner and impossible to assert a counterclaim. MPEG LA’s President, Larry Horn, is also the president of MobileMedia Ideas, a known PAE jointly owned by MPEG LA, Sony, and Nokia. The firm controls patents for technologies used in mobile phones, computers, tablets, cameras, and videogame consoles, among other devices. MobileMedia Ideas has engaged in a significant amount of successful litigation, and continues a business model of leveraging these patents against numerous operating companies, including those that have business relationships with MPEG LA.
What is the Lesson?
The lesson cannot be that patent pools are inherently bad. Pooling complementary products displaces litigation in favor of innovation, and is absolutely a win-win for consumers and manufacturers alike. Instead, the lesson must be that continued oversight is necessary in the case of patent pools, especially when there is so much incentive for a pool to step outside the confines of approved activity, and to begin leveraging its unique market position anticompetitively.
With that in mind, there are some basic steps that can be taken to prevent the problems identified above from replicating. First, the antitrust agencies should disapprove of patent pools that place a restriction on how a participant may deploy its own technology. It is appropriate to require a patent owner to make technology available on certain terms and to as large an audience as possible, but it is inappropriate to restrict the patent owner from actually competing. Second, the agencies should condition approval of a patent pool on the continued use of independent experts. A neutral voice is essential to prevent a pool from devolving into a firm seeking to include as many substitute patents as possible. Third, the agencies should condition approval of a patent pool on a commitment to maintain autonomy and to refrain from engaging in any other business activities outside of the pooling arrangement. It is too easy for a patent pool to learn the business of its members and position itself in the market as another barrier to entry.
1Steven C. Carlson, Patent Pools and Antitrust Dilemma, 16 Yale J. on Reg. 359, 372 (1999).
by Dennis Crouch