April 2013

Guest Post: Nine Reasons why the Supreme Court Should Side with Myriad and Affirm the Patenting of Isolated Human Genes

Guest Post by Benjamin Jackson, Senior Director of Legal Affairs at Myriad Genetics, Inc.

The Myriad Case: A Golden Opportunity to Bring Clarity and Fairness to Subject-Matter Eligibility

Two weeks ago the US Supreme Court heard oral argument in the landmark case of AMP v. Myriad Genetics. The Justices appeared engaged in the argument and seemed to be genuinely seeking understanding of the science and the potential impact of any decision they might take. Several specific points emerged from the argument that warrant further discussion:

1. What Does "Isolation" Really Mean? Some Justices seemed to struggle with what is involved in "isolation" under the patents. This is the most critical issue in the case as a correct understanding of this word leads to the inescapable conclusion that the claims are directed to human-made inventions rather than what exists in nature. Regardless of any meaning used in the Petitioner's arguments and those of prominent amici such as Dr. Lander, "isolation" as defined by the patents requires that a new chemical entity be created either synthetically from scratch or by chemically/structurally modifying an existing molecule. The patents explicitly define "isolated" DNA as removed from its natural environment, whether that environment be in the nucleus or, as the Lander brief emphasizes, floating around outside the cell in someone's blood. But isolation under the patents is not just "snipping" molecules as they sit in their natural environment. Isolation under the patents also requires purification (i.e., concentration) of the newly created molecule out of the interfering milieu.

What is ignored in ACLU's arguments is that purification is a critical element of what it means to "isolate" something under the patents. The Lander brief calls purification of DNA routine, but only in the context of randomly purifying all nucleic acids out of a sample. "Isolation" under the patents requires specific, targeted purification/enrichment of BRCA1– or BRCA2-related molecules, which was not routine or even possible before Myriad's invention. Under this proper understanding of everything that "isolation" under the patent requires, ACLU made Myriad's case by conceding in their reply brief and in oral argument that purification to yield a significant new utility is sufficient to warrant a patent. Some Justices seemed to agree: A molecule sitting in a leaf of an Amazonian plant is not "new" or patent-eligible, but it becomes both once it is purified and concentrated into a useful form. Similarly, DNA in its natural environment, whether whole in the cell or fragmented in the blood, is neither new nor patent-eligible, while a DNA molecule chemically modified and purified by man is both.

2. Splitting the Baby Doesn't Work Out Well for the Baby. Some see patent-eligibility for cDNA and not isolated genomic DNA, advocated by the Department of Justice, as a compromise position that the Court is seriously considering. I am hopeful that instead the Court has merely recognized that cDNA is so clearly patent-eligible that it needs no serious discussion and has efficiently moved on to the marginally closer question of isolated genomic DNA. While this may superficially seem like a nice, neat compromise, it quickly falls apart under scrutiny. In the area where the Myriad case has the most potential impact, because new isolated DNA patents are common and thus incentivizing new discoveries is most important today, there is no distinction between genomic DNA and cDNA. Bacteria, for example, have no introns, which means the reverse transcription product of mRNA (i.e., what you might call a cDNA) has a sequence identical to genomic DNA. In essence, there is no such thing as cDNA in bacteria. DOJ's position would make all isolated DNA claims patent-ineligible in any organism without introns. The wisdom of Solomon was not in splitting the baby, but in finding a course that meant he didn't need to.

3. Methods v. Compositions. Much of the Myriad oral argument centered on whether method of use claims would be enough to incentivize innovation in the life sciences. Some Justices seemed to be trying to weigh whether an entire category of composition claims could be invalidated without negative effect on innovation because method of use claims would remain. With respect, the Court is not the body that can or should attempt these kinds of determinations where in-depth investigation and careful balancing of competing interests is needed to strike the right balance between what is or is not needed for innovation. For example, the Court is not well-positioned to survey in detail the international legal landscape to, e.g., evaluate statements such as those from DOJ on DNA use versus composition patents in Europe. Congress, not the Court, is practically equipped and Constitutionally-tasked with precisely this type of determination.

4. Analogies. The Court seemed to grapple with several analogies in trying to probe the outer reaches of patent-eligibility. Any analogy that overly simplifies complex science falls apart under close scrutiny. But more importantly, the Court need not agonize over patenting livers cut out of bodies or whole plants uprooted from the Amazon. The patented molecules in Myriad are far closer and vastly more analogous to the chemical compound purified and concentrated from the Amazonian plant than the uprooted whole plant. Indeed, Myriad's claims present an even stronger case because there has been a modification of the chemical structure in addition to the purification. We must not confuse the analogy for the thing actually at issue or let hypothetical future implications of questionable likelihood cloud what was actually patented in this case. Concerns over allowing patenting of extracted livers should not distract the Court from the simple fact that what is before it in Myriad is neither an extracted liver nor an uprooted plant, but instead a highly useful, purified and chemically modified compound that never existed in nature until Myriad created it. If someone ever tries to patent an extracted liver, the Court can address any problems then. It would be tragic, however, to let the "tail" of that remote future possibility wag the "dog" of patent-eligibility for biotech inventions today.

5. Innovation. Some Justices appeared anxious incentivizing innovation without inhibiting it, with Justice Breyer noting "uncomfortable compromises" in patent law. The Myriad patents specifically and gene patents generally require no such discomfort. First, ACLU's argument that the claims preclude any study of the BRCA genes is simply wrong. Untargeted sequencing and analysis of the genes would not infringe claims to isolated BRCA DNA because it does not involve purification (thus no "isolation") of the BRCA genes out of the genomic milieu. Second, putting ACLU's anecdotes aside, all available systematic evidence shows that gene patents do not inhibit but instead spur innovation. ACLU's imaginative assertions about what the claimed molecules can be used for are a red herring; the Petitioners in Myriad clearly stated in their declarations that they want to use the claimed molecules not for DNA-based computers or developing new drugs, but instead to replicate Myriad's test.

6. Every Chemical Invention Is Possible in Nature. Justice Alito made an insightful comment about a branch washing up on shore looking like a baseball bat. This shows the legal irrelevance of the Lander amicus brief, which figured somewhat prominently in the oral argument. That randomly fragmented DNA floating around in someone's blood might at some point comprise the BRCA1 gene is irrelevant to the question whether what Myriad claimed was produced by human ingenuity rather than by nature. The relevant question is whether the inventor merely found something unmodified in nature and staked claim to it, or instead created something by her own ingenuity. To ask whether a claimed chemical composition could conceivably ever exist in nature is an unhelpful question of probability because, given enough time, any arrangement of atoms is inevitable. See, Dan L. Burk, Anticipating Patentable Subject Matter, 65 STAN. L. REV. ONLINE 109, 114 (2013). For example, it was irrelevant to the decision in Chakrabarty that Dr. Chakrabarty assisted the natural process bacterial "breeding" that, given enough time, could certainly have yielded the claimed bacterium naturally.

7. Subtraction v. Addition. Many easily accept that combining two chemical entities creates a man-made, patentable invention, but become instantly skeptical if a single molecule is separated into two parts that do not exist in nature. This surfaced in the Myriad argument as well, but from a chemical, biological, genetic, and even legal perspective there is no defensible distinction between addition and subtraction. A molecule created by removing parts that interfered with its new utility is just as much a product of human ingenuity, and can have just as important a new utility, as a molecule created by addition.

8. Short DNA Molecules. Justice Sotomayor asked about claims directed to short DNA molecules of 15 or more nucleotides. She appeared to rely on ACLU's arguments, based on an article published after Myriad filed its merits brief, about these claims covering the entire genome. Certainly as to Claim 6 of the '282 patent, this is clearly wrong. Claim 2 is directed to a molecule with the cDNA sequence of SEQ ID NO:1 (whose patent-eligibility the Court seemed pretty comfortable with) and Claim 6 is merely directed to fragments of that molecule. If the larger molecule is a product of human ingenuity, then human-made fragments of it must also be. Regardless, ACLU's unproven allegations on this point are irrelevant from a practical perspective. Anything as small as 15 nucleotides would only be used as part of a primer pair and, when used this way, the molecules would be 100% specific for BRCA1.

9. Myriad: A Unique Chance to Return Clarity and Fairness to Patent-Eligibility by Returning to the Statute and Chakrabarty. There is currently great confusion amongst courts, the patent office, patentees and the public about patent-eligibility under section 101 of the Patent Act. While the spirit behind the judicial exclusions for patentability is correct, decisions applying them can often be, in the words of Justice Frankfurter, "infected with too much ambiguity and equivocation" due to "vague and malleable terms" such as "the work of nature" and the "laws of nature." But the language of section 101 itself and the Court's seminal decision in Diamond v. Chakrabarty provide the Court with a framework for a long overdue recalibration and clarification of patent-eligibility in the Myriad case.

Section 101 requires that a claimed composition of matter be both new and useful, thus encompassing the judicial exclusions and giving courts the tools to resolve difficult questions of patent-eligibility. The claimed chemical composition must have some structural, physical or chemical change from the natural starting materials used by the inventor in order to be new under section 101. Limiting patent-eligibility to structurally, physically, or chemically "new" things addresses the judicial concern over patentees removing from the public domain that which exists in nature because there must be a modification of the natural thing. It further addresses the Mayo Court's concern over section 101 becoming a dead letter. Section 101 fills the gap in sections 102 and 103 by excluding anything the inventor found in nature but that was not previously known to others (which could not be anticipated or obvious under section 102 or 103, but which we don't want to award a patent for).

Merely being new is not enough under section 101; the claimed invention must also be useful. This is where the statute really does its work and gives courts an objective yet flexible framework for giving proper force to the legislature's intent. Not just any utility will do. The claimed composition must have one or more significant new utilities and these new utilities must directly result from the structural, physical or chemical changes made by the inventor. Courts can exert substantial discretion in determining whether the new utilities are "significant" under section 101. Courts can weigh the structural changes (how new the composition is) with the new utilities (how significant they are) to decide whether the invention is patent-eligible. If the utility is relatively minor, more of a structural change may be required. If the utility is groundbreaking, very minor structural changes may be sufficient. For example, purification of a molecule from its natural surroundings, without any change in the chemical structure, is a relatively minor structural/physical change from the natural state of things. Nevertheless, this may be patentable if the highly purified composition has significant new (e.g., therapeutic, diagnostic) uses. Importantly, these uses must be assessed from the perspective of human endeavors. The purified molecule always has some or all of the same chemical properties (e.g., polarity, electronegativity, etc.) as it did in nature, but its purification has opened up a world of human uses that take advantage of those properties.

The Court's decision in Chakrabarty, the definitive statement of patentable subject matter for compositions of matter, epitomizes the judicial exclusions and the statute working at their harmonious best. Chakrabarty cited to many of the early cases that established the judicial exclusions from patent-eligibility, then clarified that the dispositive question for patent-eligibility is whether what is claimed is a product of nature or a product of human ingenuity. The Court's analysis paralleled section 101's text, emphasizing that the claimed bacterium was different from what existed in nature (i.e., it was new) and had "significant utility" (i.e., it was useful).

In a great insight into what it means for something to be "new" under section 101, the Court made clear that it is the differences between what is claimed and what exists in nature, not the similarities, that make all the difference in patent-eligibility. Dr. Chakrabarty manipulated bacterial breeding to give one bacterium the natural ability of other bacteria to eat oil. As Dr. Chakrabarty himself noted in his amicus brief in support of Myriad, "the genetically-engineered bacterium that I created and sought to patent in Chakrabarty had a quite similar structure to what existed in nature. It shared the same genome and internal structure as naturally occurring Pseudomonas bacteria and differed only by a few pieces of DNA."

But these elegant changes resulted in "significant utility" such that the Court declared that these modest modifications yielded a product that was "markedly different." The vast similarities were irrelevant; they did not negate the fact Dr. Chakrabarty's human ingenuity brought about something that never existed before with "a distinctive name, character and use." As the Chakrabarty Court noted, legislative history makes clear that what is not eligible for patenting is that which is "created wholly by nature unassisted by man" while anything that "is unique, isolated, and is not repeated by nature, nor can it be reproduced by nature unaided by man" is eligible. The modified bacterium gained significant utility from the donor bacteria and could now be put to many important new uses (e.g., cleaning up oil spills). Again, a relatively minor structural change can be enough if the gained utility is significant.

In Myriad, the Court can readily apply this framework to find that the claimed compositions are new and useful and thus patent-eligible. The isolated DNA molecules are new because they are not found in nature by definition. As shown in point # 1 above, "isolation" under the patents requires a brand new chemical composition with significant structural changes that has been purified and concentrated out of the milieu that previously prevented its new uses. Chromosomal DNA in its natural environment, whether whole in the cell or fragmented in the blood, is neither new nor patent-eligible, while the molecule chemically modified and purified by man is both.

The new molecules have gained significant new utilities. They can be used as laboratory tools for targeted sequencing of the BRCA genes of patients, which is not just transfer of an existing utility to a new product as in Chakrabarty, but an entirely new utility never possible before. ACLU makes much of the fact that these utilities largely depend on properties shared with the natural DNA. This is true but irrelevant. The new molecules share some useful properties with the natural source material (why else would we have sought them out?), but the breakthrough new utilities were impossible before the inventors' modifications. This is precisely what the patent system was designed to incentivize.

Upholding the Myriad patents does a lot more than affirm patent protection of a deserving invention of human-made molecules with significant societal value. In Myriad the Court can honor the language and intent of the statute passed by Congress and bring the objectivity, clarity and predictability that patentees and alleged infringers alike yearn for, all while advancing the policy goals of the judicially-created patent-eligibility exclusions.

Lazare Kaplan v. Photoscribe: Make Sure to Always File a Cross-Appeal (Except When You Shouldn’t)

By Jason Rantanen

Lazare Kaplan Int'l. v. Photoscribe Technologies, Inc. (Fed. Cir. 2013) Download Lazare Kaplan v Photoscribe
Panel: Lourie (author), Dyk (dissent), Reyna

Deciding which issues to appeal can sometimes be a challenging process.  One quirky rule of appealing patent judgments is that when a district court has entered a judgment of invalidity on all asserted claims, it is improper to file a cross-appeal based on either (1) additional claims for invalidity or (2) claims of noninfringement, and doing so can potentially subject the cross-appellant to sanctions.  As Lazare Kaplan illustrates, however, when a district court has entered a judgment that the claims are not infringed and not invalid and the patent holder appeals noninfringement, the patent challenger must file a cross-appeal challenging the no invalidity judgment.  Failing to do so in this situation terminates the patent challenger's ability to raise invalidity arguments, even on remand following a broadening claim construction by the Federal Circuit. 

Background: Lazare Kaplan is the owner of Patent No. 6,476,351.  In 2006, Lazare Kaplan sued Photoscribe for infringement of the '351 patent; Photoscribe responded by filing invalidity counterclaims.  After the district court construed a key claim term, Photoscribe obtained summary judgment of no literal infringement and prevailed at jury trial on the doctrine of equivalents.  The jury also found that the claims were not invalid under the court's construction. The district court entered judgment that the claims were not infringed and not invalid. Lazare Kaplan appealed the judgment of noninfringement but Photoscribe did not appeal the judgment that the claims were not invalid.  On appeal, the Federal Circuit broadened the district court's construction and remanded for further proceedings on infringement.

Following remand, the district court agreed with Photoscribe that both infringement and validity should be retried "because the validity decision of the jury in the first trial was on the basis for a claim construction which the Court of Appeals has reversed."  Slip Op. at 4 (quoting district court).  The district court granted Photoscribe's motion for relief from the prior judgment under Rule 60(b) and its motion for summary judgment of invalidity. Lazare Kaplan appealed. 

Rule 60(b) relief:  While the majority's analysis technically involves determining whether the district court abused its discretion in granting Photoscribe's Rule 60(b) motion, because the majority concludes that the issue before it is unique to patent law, it reviews that decision without deference to either the district court or the law of the regional circuit in which the district court sits (although it does find Second Circuit decisions to be persuasive).  To the majority, the issue is simply "whether, on remand, a district court may reopen a prior final judgment as to patent validity, not appealed by either party, based on a claim construction modified by" the Federal Circuit, a pure question of patent law.  Slip Op. at 6. Framed in those terms, the majority concludes that the answer is no.

Judgment of Validity Must Be Appealed: "It is well-settled that a party must file a cross-appeal if, although successful in the overall outcome in the district court, the party seeks, on appeal, to lessen the rights of its adversary or to enlarge its own rights."  Slip Op. at 6.  An offshoot of this requirement is that "“[A] party will not be permitted to argue before us an issue on which it has lost and on which it has not appealed, where the result of acceptance of its argument would be reversal or modification of the judgment rather than affirmance.”  Id., quoting Radio Steel & Manufacturing Co. v. MTD Products, Inc., 731 F.2d 840, 844 (Fed. Cir. 1984).  In  Odetics, Inc. v. Storage Technology Corp., 185 F.3d 1259 (Fed. Cir. 1999), the Federal Circuit drew on this foundation to affirm a district court's decision that the challenger's invalidity arguments were barred in procedural circumstances similar to here.

Lazare Kaplan goes a step further, holding that a district court cannot address validity on remand where the challenger failed to appeal the judgment that the claims were not invalid, irrespective of the modified claim construction.  In reaching this conclusion, the majority expressly rejects the argument that separate appeal of validity and infringement was not necessary because the issues of validity and infringement were closely interrelated.  "Whether or not the concepts of invalidity and infringement are “closely interrelated” is irrelevant; the relevant issue is whether a ruling reversing the validity holding would expand Photoscribe’s rights or lessen Lazare Kaplan’s rights."  Slip Op. at 9.  Ultimately, regardless of the district court's view that it "makes no sense" not to entertain validity challenge on remand following a new claim construction that potentially raises new validity issues, "rules are rules, and the cross-appeal rule is firmly established in our law."  Id. at 14. 

Judge Dyk: Judge Dyk's dissent criticizes the majority for failing to adhere to the fundamental principle of patent law that “claims must be interpreted and given the same meaning for purposes of both validity and infringement analyses.”  Slip Op. at 17, quoting Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343, 1351 (Fed. Cir. 2001).  Here, the district court attempted to eliminate the inconsistency of allowing the patent holder "to assert infringement on a broad claim construction while permitting it to defend against invalidity using a different and far narrower claim construction" by applying Rule 60(b)(5).  Slip Op. at 17-18. 

Judge Dyk's argument focuses on the majority's lack of any support for its conclusion that "failure to file a contingent cross-appeal bars Rule 60(b) relief." Id. at 20.  This is "not a situation governed by the traditional “cross-appeal rule”—that is, the rule that “a party must file a cross-appeal if . . . [it] seeks, on appeal, to lessen the rights of its adversary or to enlarge its own rights.” Maj. Op. 6 (citing El Paso Natural Gas Co. v. Neztsosie, 526 U.S. 473, 479 (1999)) (emphasis added). Here, Photoscribe sought on appeal not to modify the rights established by the district court judgment but to preserve them."  Id.

UK Moving on Design Patent Rights

By Dennis Crouch

UK has an Intellectual Property Office (UKIPO) that is the go-to-agency when considering policy implications of potential changes to the laws. One recent focus of the UKIPO has been industrial design rights and “the extent to which the design industry is properly supported by the Intellectual Property Framework.” In a new whitepaper, the agency has released a proposal for amending the law and procedures of UK design rights. The agency takes the following positions:

  1. Retain Unregistered UK Design Rights (for up to 15 years), however, the unregistered right will be limited to protect only against commercial copying of unique and major elements of a company’s product.
  2. Extend the ownership limitations of Unregistered UK Design Rights to include anyone who carries out business in the EU or markets articles made to the design in the EU. The initial owner of design rights will be the designer – rather than the person who commissioned the design.
  3. Allow for a 30-month delay in publishing registered design rights.
  4. Align UK Copyright and Design Rights so that a company with permission to use a UK or EU design right implicitly has permission to use the equivalent UK Copyright.
  5. Create criminal sanctions for deliberate copying of registered UK designs.

More available here: /media/docs/2013/04/response-2012-designs.pdf

In the US, unregistered design rights are also protectable, but they have to be fit either the Lanham Act, the Copyright Act, or some state law regime (such as Trade Secret or Unfair Competition).

Biogen v. Glaxosmithkline: Prosecution History Disclaimer and Claim Construction

By Jason Rantanen

Biogen Idec, Inc. v. Glxosmithkline (Fed. Cir. 2013) Download Biogen v GSK
Panel: Dyk, Plager (dissenting), Reyna (author)

By the mid-1990's, it was well known that rituximab, an anti-CD20 antibody, could be used to treat certain cancers of the lymph nodes such as non-Hodgkins lymphoma.  The anti-CD20 antibody binds to a portion of the CD20 antigen protein exposed on the cell surface and destroys the cell.  Scientists from Biogen discovered that patients with another type of cancer, Chronic Lymphocytic Leukemia (CLL), could also be treated using anti-CD20 antibodies.  Based on this discovery, Biogen obtained Patent No. 7,682,612.  Claim 1 of the '612 patent reads:

1. A method of treating chronic lymphocytic leukemia in a human patient, comprising administering an anti-CD20 antibody to the patient in an amount effective to treat the chronic lymphocytic leukemia, wherein the method does not include treatment with a radiolabeled anti-CD20 antibody.

Biogen filed the application leading to the '612 patent in the late 1990s.  At the time, scientists believed that only one large loop, or epitope, of the CD20 antigen was exposed on the cancerous cell's surface and that this was the only site that for an anti-CD20 antigen to bind to.  Rituximab binds to this epitope. After Biogen filed its application, other scientists discovered that the CD20 antigen had a second small loop (originally thought to be hidden inside the cell) to which other, different anti-CD20 antibodies could bind.  In 2002, Glaxosmithkline (GSK) developed a new anti-CD20 antigen that binds to the small loop.  Because it binds to a different epitope, GSK's anti-CD20 antibody has different specificity and affinity characteristics than rituximab. 

Biogen sued GSK for infringement of the '612 patent in 2010.  The district court construed anti-CD20 antibody to mean "rituximab and antibodies that bind to the same epitope of the CD20 antigen with similar affinity and specificity as rituximab."  Based on this construction, Biogen stiplated to noninfringement and appealed. 

Prosecution History Disclaimer: The issue on appeal involved the the doctrine of prosecution history disclaimer.  Prosecution history disclaimer applies when a "patentee unequivocally and unambiguously disavows a certain meaning to obtain a patent."  Slip Op. at 8.  In this circumstance, the doctrine "narrows the meaning of the claim consistent with the scope of the claim being surrendered," id. overcoming even the term's ordinary and customary meaning.  Application of the doctrine helps serve a public notice function by allowing the public and competitors rely on definitive statements made during prosecution when launching a new product or designing-around a patented invention.

During an early stage of the prosecution of the '612 patent, the examiner rejected the presented claims on enablement grounds:

Claims 1 and 12 are broadly drawn to ‘. . . an anti-CD20 antibody or fragment thereof’. This is
broadly interpreted for examination purposes to be any and all anti-CD20 antibodies, no matter
the specificity or affinity for the specific epitope on the circulating tumor cells. While the specification is enabling for the application of RITUXAN®, RITUXIMAB® and 2B8-MX-DTPA in the treatment of hematologic malignancies, the specification is not enabling in the application of all other anti-CD20 antibodies, which may have different structural and functional properties.

In response, the applicant wrote:

Applicants respectfully submit that even though antibodies directed to the same antigen might have different affinities and functional characteristics, one of skill in the art could readily identify an antibody that binds to CD20 with similar affinity and specificity as does RITUXAN® using techniques that are well known in the art. . . . With that knowledge in hand, the skilled artisan could readily produce anti-CD20 antibodies using similar techniques, and screen such antibodies for those having an affinity and functional activity similar to Rituxan®

Based on this exchange in the context of the prosecution history read as a whole, the majority agreed with the district court that prosecution disclaimer applied to limit the scope of "anti-CD20 antibody."  "[R]ather than challenging the examiner’s understanding of the crucial terms, the applicants argued that the specification was enabling for anti-CD20 antibodies with similar affinity and specificity as Rituxan®."  Slip Op. at 10.  Nor was exact recitation of the examiner's own words necessary: "While disavowing statements must be “so clear as to show reasonable clarity and deliberateness,” Omega, 334 F.3d at 1325, this requirement does not require the applicant to parrot back language used by the examiner when clearly and deliberately responding to a particular grounds for rejection. If an applicant chooses, she can challenge an examiner’s characterization in order to avoid any chance for disclaimer, but the applicants in this case did not directly challenge the examiner’s characterization."  Slip Op. at 11. 

Hierarchy of canons of claim construction: In the hierarchy of canons of claim construction, prosecution history disclaimer trumps the presumption of claim differentiation: "Our cases make clear [] that where found, prosecution history disclaimer can overcome the presumption of claim differentiation."  Id. at 12 (note that the court said "can overcome," leaving open a door for cirucumstances in which it might not). 

Dissent: Writing in dissent, Judge Plager disagreed that this was an instance of prosecution history disclaimer.  "[T]he give-and-take that is often part of the process of negotiation between an examiner and an applicant may result in less-than-clear understandings, as happened here. Making too much of such ambiguous statements 'does not advance the patent’s notice function or justify public reliance.'"  Slip Op. at 16.  For Judge Plager, the question is thus "whether the prosecution history makes it clear that using RITUXAN® [Biogen's branded version of rituximab]-like antibodies is the only way to practice the claimed invention, and that no other antibodies can be used."  Id.  In his view, the above quoted statements fail to meet the "clear and unmistakable" standard required for prosecution history estoppel.  

The avoided question: By affirming the district court's claim construction, the CAFC avoided a battle over an extremely challenging issue: enablement in the context of after arising technologies and knowledge.  Biogen's proposed construction was "an antibody that binds to a cell surface CD20 antigen."  This construction would presumably encompass methods using antibodies that bind to the larger epitope (which Biogen discovered) as well as antibodies that bind to the smaller epitope (which Biogen did not).  Since enablement is determined as of the filing date, this presents the classic patent law hypothetical: Inventor X invents one way of curing a type of cancer and then claims simply "a cure for cancer."  Should inventor X be entitled to the claim?  She's cured cancer, after all.    

FCBA and Santa Clara Program on Advanced Complex Litigation

By Jason Rantanen

This year, the Federal Circuit Bar Asociation is sponsoring a series of programs on Advanced Complex Litigation. Next Friday, May 3, the FCBA and Santa Clara Law School's High Tech Law Institute will co-host the next segment of the series. Speakers and panelists include: Chief Judge Rader, Judges Whyte and Koh, Magistrate Judge Grewal, Erich Spangenberg (IP Nav), Alan Schoenbaum (Rackspace), Mary Coyne (Verizon), Courtland Reichmann (McKool) and others. In addition, professor Colleen Chien will present the
interim results of an on-going survey of in-house counsel.

Topics include:

• Discovery
• Case Management
• Focusing Disputes
• Multiple Party Litigation

Further details are available here: http://law.scu.edu/hightech/2013-advanced-complex-litigation-series.cfm . The last program of the series will take place in Newark on May 30. Details on the entire series are available here: http://www.fedcirbar.org/olc/pub/LVFC/cpages/misc/acl_series.jsp .

SO THAT’S WHAT “RAND” MEANS?: A Brief Report on the Findings of Fact and Conclusions of Law in Microsoft v. Motorola

Guest Post By Jorge L. Contreras, Associate Professor of Law, American University Washington College of Law

In a meticulous 207-page opinion released on April 25, Judge James Robart in the Western District of Washington has crafted the first-ever judicial determination of a “reasonable and nondiscriminatory” (RAND) royalty rate for patents essential to industry standards. To some observers, the dense opinion (captioned “Findings of Fact and Conclusion of Law”) may be nothing more than another bit of procedural arcana in the interminable litigation over smart phone patents (summarized here), this time in the battle between Microsoft and Motorola (now owned by Google). But for followers of industry standards, Judge Robart’s opinion was a highly-anticipated and desperately-needed attempt to establish basic guidelines for the interpretation of the RAND licensing commitments that pervade industry standardization bodies.

Patents and RAND Licensing

As I discussed here last year, so-called “interoperability standards” enable products and services offered by different vendors to work together invisibly to the consumer (e.g., WiFi, USB, and the pervasive 3G and 4G telecommunications standards). Once standards are broadly adopted, markets can become “locked-in” and switching to a different technology can be prohibitively costly. Because patent holders have the potential to block others from deploying technology covered by their patents after lock-in occurs, the industry associations that develop standards (“standards development organizations” or “SDOs”) often require that companies participating in standards-development license patents that are essential to the standard to others on terms that are “reasonable and non-discriminatory” (RAND, also known as “FRAND” when the equally ambiguous term “fair” is added to the mix).

Microsoft, Motorola and the RAND Wars

The current litigation between Microsoft and Motorola relates to two common industry standards, the H.264 video coding standard developed at the International Telecommunications Union (ITU) and the 802.11 “Wi-Fi” standard developed at the IEEE Standards Association (IEEE). These standards are used in thousands of products on the market today, including Microsoft’s popular X-Box 360 game consoles, personal computers running the Windows operating system and a variety of smart phones. According to the pleadings, in 2010 Motorola offered to license Microsoft its patents essential to the implementation of these standards. A disagreement arose, however, over the royalty calculation that Motorola proposed. Under the rules of ITU and IEEE, royalties for patents covering H.264 and 802.11 must comply with RAND requirements. According to Microsoft, however, Motorola’s initial royalty demands were anything but “reasonable” and would have resulted in royalty payments in excess of $4 billion per year. Microsoft responded by suing Motorola for breach of contract in the Western District of Washington. The crux of Microsoft’s complaint is that Motorola reneged on its RAND commitments by offering a royalty rate that was manifestly unreasonable. Last October, Judge Robart ruled in the case that the applicable RAND royalty rate must be determined before a finding can be made regarding Motorola’s alleged breach of contract. A bench trial was held in November, 2012, and Judge Robart’s Findings of Fact and Conclusions of Law were released on April 25, 2013.

Defining RAND

Judge Robart’s opinion is important, not only because it resolves several highly contentious issues between Microsoft and Motorola, but because if provides a more general framework for analyzing RAND disputes in the future. At its heart, the bulk of Judge Robart’s opinion is a fairly conventional Georgia-Pacific analysis of the “reasonable royalty” rates applicable to Motorola’s patents. He spends a considerable amount of time analyzing comparable licensing transactions and determining their applicability to a hypothetical licensing negotiation between the parties. But Judge Robart makes significant modifications to the traditional Georgia-Pacific analysis in order to adapt it to the assessment of RAND royalty rates (which are related to, but different than, the “reasonable royalties” that serve as a measure of damages in patent infringement suits) (Para. 87). Here are some of the important observations that Judge Robart makes in this regard:

1.    Broad Industry Benefits from Standardization – Judge Robarts is explicit about the potential benefits that standards can confer on the overall economy through increased production and price competition (Para. 12). He observes that a primary goal of SDOs is the widespread adoption of standards “because the interoperability benefits of standards depend on broad implementation” (Para. 13). Likewise, RAND commitments are intended to “encourage widespread adoption” of standards (Para. 51, 70). Judge Robart recognizes the public benefit of standards and the public interest in ensuring that royalty rates for standardized technology enable broad implementation. Thus, unlike most patent licensing negotiations, the licensing of standards-essential patents takes on a public character. It is not merely a closed-door negotiation between two private parties. It must be conducted, and reviewed, with these public benefits in mind.

2.    Royalty Stacking – For years, commentators have observed that the aggregation of royalty demands by multiple patent holders can result in significant and unsupportable royalty burdens on standardized products. This is the problem of “royalty stacking”, which is very real in the case of H.264 (2,500 essential patents held by 35 U.S. entities, plus 19 entities with unknown numbers of patents) and 802.11 (developed by more than 1,000 companies). Throughout his opinion Judge Robart notes the threat of royalty stacking, and insists that any RAND royalty payable to Motorola must take into account royalties payable to other holders of patents covering the standards in question (Paras. 72, 92, 112, 456). This observation is significant, as it confirms that RAND royalties cannot be computed “in a vacuum” on the basis of isolated bilateral negotiations between licensor and licensee, without regard to the broader industry context in which such negotiations take place.

3.    Relative Value of Patented Technology – Judge Robart confirms yet another point that has been advanced by commentators for years: that the royalty associated with a particular patented technology should be commensurate with the actual value that technology adds to the overall standard and to the product in which it is implemented (Paras. 80, 104). Undertaking this lengthy and complex analysis, he determines that, by and large, Motorola’s patented technology added relatively little to either the H.264 or 802.11 standards or to Microsoft’s products (e.g., Paras. 289, 299, 384, 394, 457, etc.)


The bulk of Judge Robart’s opinion is devoted to a detailed, patent-by-patent, standard-by-standard analysis of the relative contribution made by Motorola’s technology, followed by an equally detailed Georgia-Pacific style analysis of licensing “comparables” a derivation of the RAND royalty rates for each standard. In the case of H.264, the primary comparable is the MPEG-LA H.264 patent pool. Judge Robart constructs a hypothetical negotiation between Microsoft and Motorola, assuming that Motorola’s patents are included in the pool and then calculating the royalties that Motorola would have earned from Microsoft as a result (¢0.185/unit). He then doubles this figure and adds it to the royalty base to account for the hypothetical license benefit that Motorola would have gained from being a member of the pool, yielding a RAND royalty rate for Motorola’s H.264 patents of ¢0.555/unit. In the case of 802.11, Judge Robarts finds the Via Licensing 802.11 pool to be a less relevant comparable than the MPEG-LA H.264 pool. He thus uses as his primary 802.11 comparable a royalty rate determined in 2003 by industry analyst InteCap, which he then divides by 25 to reflect the small value actually attributable to Motorola’s patented technology. The RAND royalty rate for Motorola’s 802.11 patents is thus set at ¢3.471/unit.

Both of these rates are significantly lower than the ones Motorola urged. As reported in the press, Microsoft calculates that on the basis of these rates, it would owe Motorola approximately $1.8 million per year, as opposed to Motorola’s original 2010 demand of approximately $4 billion, or the annual amount it requested at trial, which was approximately $400 million.

Judge Robart also calculated “ranges” of RAND royalties for Motorola’s patented contributions to each standard, presumably to help establish whether Motorola’s initial offers to Microsoft constituted “good faith” offers for purposes of Microsoft’s breach of contract claims. In both cases, the computed RAND royalties fall at or near the low end of these ranges (¢0.555 to ¢16.389 for H.264 and ¢0.8 to ¢19.5 for 802.11).

Significance and What the Future Holds

Judge Robart’s April 25 opinion is important to the standards world primarily because it sets out, for the first time, a logical and consistent methodology for computing a RAND royalty. This methodology is based on a conventional Georgia-Pacific patent royalty analysis, as modified to give substantial weight to royalty stacking, relative value and public interest considerations. The opinion will thus be useful not only to other courts considering RAND issues, but also, and perhaps more importantly, to arbitrators, mediators and private parties seeking to adjudicate RAND disputes before litigation commences. Given the likely increase in arbitration of standards-essential patent disputes (prompted by the recent nudge in this direction by the FTC’s Consent Order with Google), such guidance can only be helpful for the industry.

This being said, it is not clear that Judge Robart’s methodology offers the optimal means for resolving disputes over RAND royalties. It is, at best, complex and time consuming. At worst, it may be criticized as somewhat arbitrary. It may also be less useful for standards that are less broadly-adopted than H.264 and 802.11. With these standards, Judge Robart was able to choose from several different “comparables” to develop RAND royalty rates and ranges. Most importantly, he found comparables that were not merely bilaterally negotiated licenses between private parties, which he acknowledges result in royalty rates higher than those of patent pools. Most other standards do not have so many non-bilateral comparables from which to choose, if they have any at all. Thus, RAND rates may not universally drop, as they did in this case. Finally, it may be quite difficult to assess the “value” of particular patented technology in a standard if it is not functionally discrete, as Motorola’s contributions to H.264 and 802.11 seem to have been (e.g., Motorola’s contribution to H.264 appears to have consisted primarily of “interlaced video” technology that is now relatively obsolete).

For these reasons, other proposals regarding the determination of RAND royalty rates may still be worth considering, particularly as this latest decision in Microsoft v. Motorola begins what is likely to be a lengthy and interesting appeals process.

Don’t Write This Letter to the Patent Office

by Dennis Crouch

We all get frustrated. After an examiner rejected his client's application for a telescoping tripod sprinkler, patent attorney Andrew Schroeder could no longer resist and filed the following remarks:

REMARKS: Are you drunk? No, seriously…are you drinking scotch and whiskey with a side of crack cocaine while you "examine" patent applications? (Heavy emphasis on the quotes.) Do you just mail merge rejection letters from your home? Is that what taxpayers are getting in exchange for your services? Have you even read the patent application? I'm curious. Because you either haven't read the patent application or are… (I don't want to say the "R" word) "Special."

Numerous examples abound in terms of this particular Examiner not following the law. Clearly, the combination of references would render the final product to be inoperable for its intended use. However, for this Special Needs Examiner, logic just doesn't cut it. It is manifestly clear that this Examiner has a huge financial incentive to reject patent applications so he gets a nice Christmas bonus at the end of the year. When in doubt, reject right?

Since when did the USPTO become a post World War II jobs program? What's the point of hiring 2,000 additional examiners when 2,000 rubber stamps would suffice just fine? So, tell me something Corky…what would it take for a patent application to be approved? Do we have to write patent applications in crayon? Does a patent application have to come with some sort of pop-up book? Do you have to be a family member or some big law firm who incentivizes you with some other special deal? What does it take Corky?

Perhaps you might want to take your job seriously and actually give a sh.t! What's the point in having to deal with you Special Olympics rejects when we should just go straight to Appeals? While you idiots sit around in bathtubs farting and picking your noses, you should know that there are people out here who actually give a sh.t about their careers, their work, and their dreams.

Your job is not a joke, but you are turning it into a regular three ring circus. If you can't motivate yourself to take your job seriously, then you need to quit and let someone else take over what that actually wants to do the job right.

See U.S. Patent Application No. 13/068530 (PAIR). [Update: It appears that the PTO has now removed the letter from the file history.] Perhaps we should have a contest to rewrite this letter to get the same substantive points across without violating any rules of professional conduct.

The pending claims are listed as follows:

1. A Telescoping Tripod Sprinkler Cart comprising

a tripod junction unit, a plurality of support members, a sprinkler support assembly, and a telescoping assembly;

the tripod junction unit comprises a first leg, a second leg, and a hose conduit;

the plurality of support members are sized to mate with the legs;

the legs comprise a detent orifice sized to mate with a detent on a support member;

the support members comprise a detent for the purpose of fastening the support member to the tripod junction; and

the sprinkler support assembly is connected with the hose conduit of the tripod junction.

2. The Telescoping Tripod Sprinkler Cart of claim 1 further comprising a carriage assembly; the carriage assembly comprises an axle, an axle housing, a pair of wheels, and a pair of struts.

In the final rejection, the examiner found the claim 1 unpatentable over Richey (U.S. Patent No. 2,694,600) in view of Nies (U.S. Pub. No. 2009/0230206) and in further view of Harward (U.S. Patent No. 4,824,020) and claim 2 unpatentable in further view of Ward (U.S. Patent No. 5,484,154).


Tidbit: About 3% of recently issued US patents are following an interesting path that begins with the filing of a US provisional patent application followed one-year later with an international application (PCT) and then eventually followed-up with a US non-provisional application based on the PCT. The delay in filing the non-provisional application means that, on average, these patents issued more than six years after the priority filing date. Most of the patents come from TC1600 (Biotechnology and Organic Chemistry), but the most frequent users of this approach are actually foreign hard-tech companies such as LG and Philips. — Dennis    

Issue Preclusion in Repeat Patent Cases

Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313 (1971) involves a case where the patentee (University of Illinois) had first asserted its patent against Winegard and lost a bench trial on obviousness grounds. Later, the University sued Blonder, but the Supreme Court found the University’s case barred by collateral estoppel (AKA issue preclusion). Prior to this case the general rule was that collateral estoppel did not apply non-mutually – i.e., where the defendant in the second case was not part of the first case.

What should happen in the following situation?:

1. Assume that a patentee believes its rights are being infringed by a number of companies.

2. Patentee sues D1 for infringement; D1 raises prior art and challenges the patent as obvious; but Patentee wins, including a holding that confirms patent validity.

3. Patentee sues D2 for infringement; D2 raises the same prior art and obviousness argument; but Patentee wins, including a holding that confirms patent validity.

4. Patentee sues D3 for infringement; D3 raises the same prior art and obviousness argument; but Patentee wins, including a holding that confirms patent validity.

5. Next, Patentee sues D4 for infringement; D4 raises the same prior art and obviousness argument; However this time the patentee loses and the court holds the patent invalid as obvious.

6. Finally, Patentee sues D5 for infringement.

Question – Does D5 have the right to win the case on collateral estoppel grounds?

= = = =

[More Context]

I started thinking about this issue when reading the Restatement of the Law 2d – Judgments. Section 29 considers non-mutual issue preclusion and indicates that “other circumstances [may] justify affording [a would-be precluded party] an opportunity to relitigate the issue. The circumstances to which considerations should be given include those enumerated in § 28 and also whether . . . (4) The determination relied on as preclusive was itself inconsistent with another determination of the same issue.” The notes following §29 suggest two prior inconsistent outcomes “may have been based on equally reasonable resolutions of doubt as to the probative strength of the evidence or the appropriate application of a legal rule to the evidence. That such a doubtful determination has been given effect in the action in which it was reached does not require that it be given effect against the party in litigation against another adversary.”

Don Chisum emailed with two particular patent cases on point from his treatise. Mississippi Chem. Corp. v. Swift Agricultural Chem. Corp., 717 F.2d 1374 (Fed. Cir. 1983) and Stevenson v. Sears, Roebuck & Co., 713 F.2d 705 (Fed. Cir. 1983). In Mississippi Chem, the Federal Circuit held that prior inconsistent judgments serve as a “red flag warning” for the court to more carefully consider whether the patentee had a full and fair opportunity to litigate the issue in the case that resulted a finding of invalidity. The idea of this red-flag warning comes from a pre-Federal Circuit decision by the Fifth Circuit. Blumcraft of Pittsburgh v. Kawneer Co., 482 F.2d 542 (5th Cir.1973). In Blumcraft, the court wrote (in dicta) that “under our ruling today it would be technically possible to apply collateral estoppel where a prior finding of invalidity was preceded by several rather than by just one finding of validity.”

In such instances there would be a red flag warning a court to apply the full and fair criteria very carefully to determine if the court finding the patent invalid had adequately comprehended and applied the appropriate substantive standards.

In Blumcraft, the court described the Blonder-Tongue ruling as follows: “Blonder-Tongue did not throw merely a jab at the multiplicity of patent litigation; rather, it intended a knockout blow through the doctrine of collateral estoppel so that any time a patent was found invalid in a fair fight with a knowledgeable referee, the courts could count ten and the patent holder could no longer maintain that he was champion.” As it did in Mississippi Chem., the Federal Circuit followed this same approach in Stevenson.

Federal Circuit Supports Bare-Bones Patent Complaints

By Dennis Crouch

K-Tech Telecommunications v. Time Warner (Fed. Cir.2013)

The district court dismissed K-Tech’s infringement lawsuit on a FRCP R. 12(b)(6) motion for failure to state a claim upon which relief can be granted. Following the Supreme Court decisions of Twombly and Iqbal, federal courts have generally required plaintiffs to add more particularity and factual allegations into their complaint and the district court’s decision in this case follows that trend. The Federal Circuit, however, has resisted with respect to patent infringement allegations. And here, the court reverses and remands.

K-Tech’s complaint alleges that the company owns several patents and that Time-Warner is infringing particular claims of those patents by transforming the digital-broadcast-signal sub-channels into a new numbering system for cable transmission. See U.S. Patent Nos. 6,785,903 (claim 24); 7,485,533 (claim 13); 7,761,893 (claims 1 and 9); 7,984,469 (claims 1, 5, 9, 12, and 15).

Citing Twombly, the district court dismissed the complaint,

Plaintiff [complaint] seems to suggest that Defendant must operate some product or process in a manner that infringes some of the Asserted Patents, because Defendant is able to achieve the same end-result as that contemplated by the Asserted Patents. Although Plaintiff strongly believes that Defendant “must” be infringing the Asserted Patents, Plaintiff fails to explain the basis of this belief. Plaintiff does not explain why it believes that Defendant is utilizing the methods and products protected by the Asserted Patents to update the digital signals it receives rather than using other noninfringing methods and products.

. . . . Plaintiff has failed to allege facts sufficient to state a plausible claim for patent infringement under the standards articulated in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).

On appeal, however, the Federal Circuit has reversed – holding that patent cases are special because the Federal Rules of Civil Procedure include a proposed form complaint for patent infringement (Form 18) and “proper use of a form contained in the Appendix of Forms effectively immunizes a claimant from attack regarding the sufficiency of the pleading.”

The patent infringement form (Form 18) is incredibly bare-bones and requires only the following:

Form 18

1.     <Statement of Federal Jurisdiction>

2.    On <Date>, United States Letters Patent No. <__________________> were issued to the plaintiff for an invention in an electric motor. The plaintiff owned the patent throughout the period of the defendant’s infringing acts and still owns the patent.

3.    The defendant has infringed and is still infringing the Letters Patent by making, selling, and using electric motors that embody the patented invention, and the defendant will continue to do so unless enjoined by this court.

4.    The plaintiff has complied with the statutory requirement of placing a notice of the Letters Patent on all electric motors it manufactures and sells and has given the defendant written notice of the infringement.

Therefore, the plaintiff demands:

(a)    a preliminary and final injunction against the continuing infringement;

(b)    an accounting for damages; and

(c)    interest and costs.

According to the court when an approved form complaint is available, a plaintiff satisfies the pleading requirements of Rule 8 by either conforming to the provided form complaint or by conforming to the requirements of Twombly.

In considering whether the complaint here met the requirements of Form 18, the appellate panel concluded that there is no requirement that the complaint name the accused product or service by name. “That K-Tech cannot point to the specific device or product within TWC’s or DirecTV’s systems that translates the digital television signals each receives—especially when the operation of those systems is not ascertainable without discovery—should not bar K-Tech’s filing of a complaint.”

The touchstones of an appropriate analysis under Form 18 are notice and facial plausibility. While these requirements serve as a bar against frivolous pleading, it is not an extraordinarily high one.

This decision adds additional context to the Federal Circuit 2012 decision In re Bill of Lading, No. 2010-1493 (Fed. Cir. 2012). In that case, the court also affirmed the power of Form 18 as an approved model complaint but also indicated that the form only applies to allegations of direct infringement and not infringement by inducement.

Writing in concurrence, Judge Wallach disagreed with the majority’s conclusion that Form 18 controls over Twombly. Rather, Judge Wallach argues that the two must be reconciled:

The question presented in this case is whether KTech’s allegations are adequate under Rule 8(a). If so, they survive a Rule 12(b)(6) motion; if not, the complaints must be dismissed. The Supreme Court has interpreted Rule 8(a) to require “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). This standard “governs the pleading standard ‘in all civil actions and proceedings in the United States district courts.'” Id. (quoting Rule 1) (emphasis added). Form 18 provides a sample complaint for patent infringement, and Rule 84 “makes clear that a proper use of [Form 18] . . . effectively immunizes a claimant from attack regarding the sufficiency of the pleading.” Majority Op. at 9–10 (emphasis added). As the majority rightly points out, Rule 84 is binding on this court to the same extent as Rule 8(a). . . . Thus, this court is bound by Iqbal and Twombly … and by Rule 84. To the extent possible, these standards must be harmonized.

For his part, Wallach suggested that the complaint submitted by the plaintiff here satisfied both standards.

= = = = = =

One odd element of the decision is that the court indicated that the judgment on whether claims had been sufficiently pled is not a patent specific matter. The consequence of that is that Federal Circuit follows the lead of the appropriate regional circuit court of appeal. “Because it raises a purely procedural issue, an appeal from an order granting a motion to dismiss for failure to state a claim upon which relief can be granted is reviewed under the applicable law of the regional circuit.” However, following that humble claim, the court went on to repeatedly cite its own decisions and not those of the Ninth Circuit. Responding to that issue in a footnote, the court noted any difference between regional circuits on this issue would be improper because the result is dictated by Supreme Court precedent. Thus, the court’s “analysis is no different where the case comes to us from the Ninth Circuit [or the Sixth Circuit]. Form 18 is a national form, and any argument that we should interpret it differently here than we did in R+L Carriers is without merit. One trick here is that we ordinarily do not apply common law interpretation to the Federal Rules of Civil Procedure – meaning that precedential decisions of the regional circuits have less weight in this area than in other areas of law.

Patent-Conscious Preparation for a Summer at the Beach

Guest Post by Marketa Trimble

As the America Invents Act slowly fades as a cocktail party topic, your conversation might gravitate to your upcoming summer vacation at the beach. Don’t worry, this conversation will present opportunities for patent-spirited discussions as well.

Last month, while preparing a presentation on U.S. IP law for a class of fashion design and communications students in Milan, Italy, I came across a patent that changed my perspective on a summer beach vacation. U.S. patent 8,371,043, applied for on August 1, 2008 (two provisional applications were filed earlier), and issued on February 12, 2013, concerns “a molded shoe featuring a 3 dimensional figure (e.g., an animal or character)” that is perfect footwear for any child’s day of fun at the beach.

I wanted to include a utility patent in a series of examples of how individual types of IP rights under U.S. law, which is often presented as deficient in its limited protection of fashion, might provide some protection to some aspects of fashion. However, this particular utility patent was not a good introduction to U.S. patent law for the students – it certainly was not suitable to explain the “law on the books,” although it was appropriate to illustrate the “law in action.” By the point in the semester when I spoke to the class, the students had a pretty good idea of IP law as it exists in European countries, and they seemed to be eager to learn about U.S. IP law. They took copious notes when I talked about section 101 and the conditions for patentability under U.S. law. But when I showed the slide with the molded shoe patent the pens went down and the eyebrows went up.

U.S. patent 8,371,043 covers a shoe that

“has a sole having a bottom surface that comprises a series of projections and recesses that form a print for an animal or character, to thereby obtain an imprinting surface; and an upper, attached to the sole, having an outer surface that comprises a series of projections and recesses that form a three dimensional figure (e.g., an animal figure or a character figure). The sole and upper are substantially formed from molded plastic; the projections and recesses of the animal imprinting surface allow one wearing the shoe to make imprints on a soft surface, and the three dimensional figure on the outer surface of the upper relates to the print of the imprinting surface.” (Abstract that substantially tracks Claim 1)

It was telling that the students, on seeing the drawings of the invention, almost uniformly exclaimed: “Crocs!” Indeed, to an average consumer the shoe in the drawings might resemble Crocs, which have been on the market since about 2002, and it might surprise the public that the assignee of the patent is not Crocs, Inc., but Polliwalks, Inc. The idea of putting the face of an animal or a character on the tip of a shoe and a corresponding surface print on the bottom of the shoe might have been non-obvious to a PHOSITA but did not seem non-obvious to the students, who knew of various fabric shoes featuring animals and characters – shoes that very likely had preceded the invention in the patent. Nor did having a sole that makes an imprint corresponding to the shape of the sole impress the students as non-obvious. In the end the class agreed that issues of patentability are complex and that the students were not likely to be in a position to second-guess a complicated assessment of non-obviousness.

What was perhaps more troublesome about the patent, though, was that it extends to “[a] method of making an animal imprint on a surface with a molded shoe” (Claim 11). If you have any doubts about the link to a day at the beach you should know that the surface in the patent is identified as “a soft surface that includes dirt, mud, sand or clay” (Claim 12). With the exception of sale representatives and designers of competitor-infringers who might engage in making imprints with patent infringing products, the only other people likely to infringe the method claims appear to be consumers using patent infringing products – children who, as the patent applicant assures us, “enjoy exploring and learning about new things” (as written in the Background of the Invention). Apparently, these “things” will now include patent infringement.

Of course, your children will not infringe the method claims if you purchase a pair of the shoes that are sold by the patent owner or with the patent owner’s consent – we know that the patent owner’s right to control the disposition of the shoe is exhausted upon the first authorized sale of the shoe, and that the patent owner’s right to control the use of the patented method that is substantially embodied in the product will be exhausted upon the first authorized sale of the product as well. But if you purchase “knock-offs” of the shoes or other shoes that infringe the patent, your child might end up being a patent infringer.

The Milan students wondered about the utility of patenting a method that is likely to be infringed primarily – if not only – by consumers. Does the patent owner really plan to sue consumers for patent infringement when consumers walk on U.S. beaches? Is that an ideal public relations strategy? Are the method claims really just hooks for potential indirect infringement claims? Or did the applicant simply apply for whatever protection that was available?

U.S. patent 8,371,043 was certainly issued in time to be a conversation topic before the upcoming summer at the beach. It provides excellent material for a discussion of U.S. IP protection for fashion and the value of U.S. patents. It also allows you to revive the America Invents Act as cocktail party conversation and point out that the AIA, while making some revolutionary changes to U.S. patent law, certainly does not solve all of the issues of the U.S. patent system.

Patent Pendency and the PPH

By Dennis Crouch

You can get this from the chart, but the median pendency is under three years when considering all issued utility patents. The long tail increases the average pendency to a bit over three years.

Many of the fastest patent issuances are coming from the Patent Prosecution Highway (PPH). See, for example, U.S. Patent No. 8,406,758. In that case, the EPO issued its search report indicating that all of the claims included an inventive step. US patent attorney Stephen Chen then filed the US national stage application along with a request to participate in the PCT-PPH program. Four months later, the considered the application and issued a notice of allowance.

Unfair Competition Book Raises Unfair Competition Claims Against Kenyon

By Dennis Crouch

Duvall v. Kenyon & Kenyon (D.D.C. 2013)

In 1990, ITC Chief Judge Donald Duvall published his treatise titled Unfair Competition and the ITC: Actions Before the International Trade Commission under Section 337 of the Tariff Act of 1930. [correction] He retained ownership of the assigned legal title to the copyright to Clark Boardman Pub. (later purchased by Thompson Reuters) and continued to update the treatise on an annual basis. Judge Duvall died in 1999 and his right to royalty (beneficial title) passed to his widow, Kathryn Duvall.

Attorneys at Kenyon & Kenyon took over the annual updates and, as part of a royalty agreement, Ms. Duvall continued to receive annual royalties on sales of new versions of the book. Each edition listed Judge Duvall as the original author as well as the new authors. In 2012, however, Judge Duvall’s name was removed from the publication and the publisher ceased making any royalty payments to Ms. Duvall. After consulting with the Kenyon attorneys, the publisher wrote to Ms. Duvall:

[A]fter careful determination as to source of the [W]ork’s content, the substantial revision of that content by the current authors, and the many years since Judge Duvall had contributed material to the publication, we were forced to conclude that attributing the work to Judge Duvall no longer provided readers with an accurate statement of authorship.

Ms. Duval has now sued Kenyon & Kenyon and the newly listed authors – alleging copyright infringement, declaratory judgment of authorship, illegal contract (between Kenyon & the publisher), breach of contract, breach of implied duty of good faith and fair dealings, civil conspiracy, interference with contract, and accounting for past royalties.

The complaint provides something of a tour-de-force as it lists page after page of the treatise where Judge Duvall’s original writing is virtually unchanged. According to the allegation, for example, the page shown below compares Judge Duvall’s version with the newest version of the treatise with changes in redline.

The point here is that large portions of the treatise are virtually unchanged and that fact likely leads to the conclusion that Judge Duvall’s copyright continues to provide exclusive rights to the work. The unfortunate aspect of this case is that Kenyon continues to publish the work in the USA. If it had contracted with a foreign publisher then Duvall could have brought the action in the USITC.

Read the complaint: https://docs.google.com/file/d/0B_b15LgT1GHYUGd6YnYxS1RWNjQ/edit?usp=sharing

USPTO Budget Cuts

By Dennis Crouch

Although unwilling to confirm that the PTO will be cutting its budget, a Commerce Department spokesperson has told me that: “The [USPTO] is continuing its efforts to develop a sequestration plan—this plan is a work in progress and details are still forthcoming.” Reading between the lines, the answer is: yes, the PTO will be cutting its spending and turning-over user-fees to the treasury rather than using that money to examine patents or trademarks.

Update – Following the comments from the Commerce Department, PTO Director Rea distributed a message to employees that the agency is facing “substantial budgetary uncertainty” and is “working to identify potential savings and projects that could be deferred in a way that minimizes the impact to our mission and our employees.”

In her email, Director Rea makes clear that the under sequestration, the PTO will be unable to use a “significant” amount of user fees and those fees will instead be returned to the US treasury. In the past, this has been known as “fee diversion.”

The action plan is to first cut all non-examination related spending and then determine whether further spending cuts are necessary.

In light of these factors and the substantial budgetary uncertainty the agency now faces, it is essential that we act now to further reduce spending. I have thus asked the management team to come together to identify immediate and significant spending reductions for the remainder of FY 2013 with a focus on minimizing the impact to our mission and our employees. The management team is taking immediate measures to limit all expenditures, including but not restricted to most hiring, travel, training, and IT modernization projects. (Your managers may even be reaching out to you for ideas on cost savings measures.)

One thing to remember in all of this is that the USPTO budget has increased sharply over the past three years. FY2010 budget was two billion dollars while the FY2013 budget was almost three billion dollars. The sequester reduction is rather minuscule compared to the size of this increase.

Facts and Trends of USITC Litigation

By Dennis Crouch

The United States International Trade Commission (USITC) is a US-based agency tasked with the goal of protecting US domestic industry against improper foreign competition. The law provides that one form of improper foreign competition is the unauthorized importation of patented goods. See 19 U.S.C. 1337 (“Section 337”). A patentee has the power to separately allege patent infringement at the USITC or in Federal Court. There is also no prohibition against both actions being brought at once. One distinction is that the only remedy available from the USITC is blocking importation of infringing goods. However, the USITC is not bound by eBay v. MercExchange, and thus, the likelihood of a winning patentee being awarded injunctive relief is much greater.

Some commentators have argued that the USITC is improperly supporting the activities of patent licensing companies. However, in a recent four-page report, the USITC has offered a defense against those accusations. The agency notes that, since eBay v. MercExchange, the about 20% of the instituted investigations are associated with patent licensing companies who do not themselves practice the invention. That figure is well below the numbers seen in federal district courts. Further, in that same time period, only four patent licensing companies have obtained exclusion orders (injunctive relief).


In general, the number USITC 337 investigations is on the rise. However, the number of patent licensing company (NPE) lawsuits has remained relatively small.

Game Theory: Patent licensing companies generally make money when others use the patented technology – that is where the licensing royalties come into play. And, apart from artificially shifting supply, licensing companies do not make money by excluding others. Thus, one question that arises is why a patent licensing company would file suit in the USITC since the only result is injunctive relief? One solution is to change the law the USITC has the power to award ongoing royalties when a patentee is willing to license the asserted patent rights.


Welcome Back Fee Diversion: USPTO Likely to Begin Sending Collected Fees back to Treasury

By Dennis Crouch

Many agencies within the Federal Government are suffering under sequestration that effectively cuts budgets by about 5% for the rest of the fiscal year. In March, I reported that the USPTO would not be forced to cut its spending because the collected fee revenues were already under budget. It seems that result is not sitting well with other federal agencies who would prefer to see more equal suffering. Under orders from the White House, it appears that the USPTO will now be forced to reduce its spending – essentially using fee revenues as the base from which to cut.

Robert Budens sent around an email raising some alarm regarding USPTO funding. Budens heads the USPTO employee union POPA. Budens writes:

About a week or so ago POPA started hearing rumors that the White House Office of Management and Budget (OMB) was attempting to mess with USPTO funding by requiring that our sequestration hit be taken off of our fee income rather than our appropriated budget level. I also heard that USPTO management had been put under a “gag order” not to discuss these changes until approved by OMB and Commerce. The rumors also suggested that the sequestered fees would not go into our AIA reserve fund for later availability, but would in fact, not be available for USPTO use, i.e., our fees are going to be diverted once again, barely a month after full implementation of the AIA that was supposed to prevent fee diversion!

In discussions with AIPLA, IPO and others, I learned that they had also heard such rumors and that none of us were getting any information out of USPTO management. To date and despite numerous inquiries from POPA, USPTO management has still not discussed this issue, all but confirming the gag order.

I believe other recent developments have all but confirmed those rumors and I wanted to update you because OMB’s interpretation of the impact of sequestration on the USPTO will have significant impacts.

Today, the OCIO notified its staff of an $80M cut to the OCIO budget. [DDC Note: Office of the Chief Information Officer] This will result in layoffs of a number of USPTO contractors and significant delays in the development of the Patents-End-To-End project (PE2E) and upgrades to PALM — both critical IT projects. Obviously this is not good news, but I suspect it is evidence that OMB’s sequestration decision is being implemented. And yesterday, you all should have seen the Memorandum from the ADCs regarding changes to overtime in the Examining Corps. Again, more evidence that the rumors are true.

The USPTO’s fee income is currently below projected levels. In other words, we are already operating in a sequester environment by virtue of our reduced fee income. It is incomprehensible to me why the White House would then pile on us by taking such a negative interpretation of sequester on the USPTO. This is about as short sighted as anything I can think of. Our fee income represents filed patent applications that will need to be examined. To now take away those fees while leaving the USPTO with the work to do is counterproductive.

In his letter, Budens mentions the AIA reserve fund that is now codified in 35 U.S.C. § 42. The law establishes a “Patent and Trademark Fee Reserve Fund” within the US Treasury.

If fee collections by the Patent and Trademark Office for a fiscal year exceed the amount appropriated to the Office for that fiscal year, fees collected in excess of the appropriated amount shall be deposited in the Patent and Trademark Fee Reserve Fund. To the extent and in the amounts provided in appropriations Acts, amounts in the Fund shall be made available until expended only for obligation and expenditure by the Office in accordance with paragraph.

As Budens suggests, it does not appear that this provision would be effective against the budget cuts outlined above because they are coming from either executive fiat or the cap set in the Budget Resolution – neither of which changes the amount appropriated.

Depending upon how it is calculated, the USPTO may be facing about $140 million in cuts for the remaining 5½ months of FY2013.