April 2013

Guest Post by Prof. Michael Risch: The Securitization of Patents

Guest post by Michael Risch, Associate Professor of Law, Villanova University School of Law.

My forthcoming article in Duke Law Journal, The Securitization of Patents, argues that the best way to create patent markets might be to start treating portfolios as securities. A full draft is accessible at this SSRN page. The article makes four basic points:

  1. Aggregation and trading is not limited to non-practicing entities – everyone is doing it.
  2. Companies are trading aggregated patent portfolios as they do other patent instruments, either through sale or licensing.
  3. Aggregation is beneficial, even critical, for efficiency; this is directly contrary to the conventional wisdom.
  4. Based on the above, markets might be improved by applying securities treatment to patent portfolios.

[NB: I focus on portfolios, not individual patents. I also focus on sale and licensing of patents, not the initial patent grant. The paper explains why in more space than I have here.]

When I first wrote Patent Troll Myths, there was very little empirical data about NPEs. Since then, such research has exploded, with new data every week seemingly counting the number of NPEs and their cases. This data, though helpful, leaves a lot to be desired, I think. First, there is a rarely a real apples-to-apples comparison with the activity of product companies (and when there is, the comparison is not very granular). To that end, I’ve been developing a matched data set for my Patent Troll Myths data so we can test what real differences in quality and quantity, if any, exist. Second, the data largely ignores licensing practices, which can be quite similar. To be fair, licensing data is difficult to come by, but without it, normative determinations are difficult. Third, studies like mine, which look at the provenance of NPE patents, are rare.

These issues lead to my first point: aggregation is not just for trolls anymore, if it ever was. The public is becoming a bit more aware of this with new focus on privateering, the outsourcing of patent enforcement by product companies to licensing and assertion specialists. The idea that aggregation is just fine when a product company does it, but suddenly evil when those same patents transferred to a third party has never sat well with me. And regardless of moral considerations, the fact of the matter is that patent aggregation is everywhere.

My second point follows from the first: aggregated portfolios are being used as assets, and traded as such by all sorts of companies. This is nothing new; people have been writing about patents as a new asset classes for a while now. Transactions are getting bigger, however, and they are hitting the news. Perhaps no transaction better illustrates my point than the recent Kodak patent auction. First, Kodak offered its patents for sale as a financing strategy in bankruptcy. Second, the eventual buyer was a consortium including, among others, Microsoft (a product company); Intellectual Ventures (a licensing company, but also one that litigates, but also one that aggregates defensively; and RPX (a defensive aggregator). This one transaction is my argument in a nutshell: everyone is aggregating, and they are doing so in buy/sell type transactions for financial purposes.

My third point is that such aggregation is not always (or necessarily often) a bad thing. This is decidedly against the conventional wisdom. Companies with large portfolios surely have the ability to cause “royalty stacking,” but in practice this is less likely than if many separate parties enforced those same patents. Litigation looks much the same; regardless of the size of the portfolio, courts are just not going to hear a case asserting 1000 patents. Only a few (at most 5 or 10) patents will be at issue, and then the aggregator looks like anyone else. Similarly, in negotiations, the parties usually haggle over a few “lead” patents. This is little different than negotiation with the owner of few patents – with one big exception. When you come to terms with the aggregator, you can settle and license hundreds or maybe thousands of patents at once. Not so with single-patent owners. These folks line up one after another, asserting a few patents at a time. The biggest NPEs will often assert patents obtained by individual inventors; would product makers really rather that the inventors assert their own patents separately? Maybe, before a time when people figured out a viable mechanism for funding patent assertion, but now that individuals might seek funding for enforcing their own patents, a single aggregator must surely be a better option than many inventor plaintiffs.

There is one difference with aggregated portfolios, of course. When the parties are done haggling over the lead patents, the portfolio owner always has more to discuss while the small patent holder has none. But rather than being the greatest cost of the portfolio, a seemingly bottomless portfolio is its greatest benefit.

And that is my fourth point: when parties are trading portfolios, the haggling should be over price instead of quality and infringement. In a large enough portfolio holding patents directly related to a particular product, there will surely be some number of patents that are both valid and infringed. The question is how many, and how much it will cost to find them.  A central thesis of my article is that treating portfolios as securities will help lower transactions costs in a variety of ways by limiting the litigation costs of finding those infringing patents and instead better pricing patents in the market.  For you legal sticklers, I didn’t just make this up: the paper looks at portfolios under the Supreme Court’s famous Howey test and concludes that such treatment is at least plausible under the law.

How might securities laws benefit markets? Not in the traditional “public offering” way. I suspect that most transactions would be excluded from the registration requirements. However, such transactions might be regulated as dark pools, and require clearinghouse treatment that makes such transactions public. Further, stock fraud laws might require the disclosure of information that might affect portfolio value. For example, patent holders who know of anticipatory prior art might be required to disclose it rather than keep it secret. Perhaps most important, accepting that portfolios are simply financial transactions might drive efforts to develop objective portfolio pricing. The goal of such pricing schemes is to determine a portfolio’s price even though the parties cannot agree on the price of any of the particular patent in the portfolio.  I examine several pricing strategies that might work (and several destined to fail) in the paper.

There is obviously much more in this paper than I can write here. I detail my arguments in the full paper.

AMP v. Myriad Gene Patenting Oral Arguments

By Dennis Crouch

Association for Molecular Pathology v. Myriad Genetics, 12-398 (Supreme Court 2013) oral argument transcript.

The Supreme Court held oral arguments today in the much watched Gene patent case pending before the US Supreme Court. Myriad Genetics and the University of Utah own several patents covering particular isolated human genes, seemingly man-made complementary DNA that mimics the natural DNA sequence, methods for obtaining the DNA, and methods for using the DNA to test for disease. The major breakthrough made by the Myriad Scientists was to discover the naturally occurring sequence of DNA that codes for early-onset breast cancer. These are the so-called BRCA1 and BRCA2 genes. This was a huge breakthrough and has been applied to save many lives. However, historic patent law is clear that the mere information discovered is not patentable. That information could be classified as both a natural phenomenon and an abstract idea—both of which lack patent eligibility. So, instead of patenting the information, the researchers applied molecular biology tools (conventional at the time) to isolate the DNA, and create cDNA. It was those structures and methods that Myriad patented, although the innovative heart of each patent claim remained the particular unpatentable genetic sequence. A group of public-minded researchers and groups challenged the patents. Arguing on their behalf is Chris Hansen of the ACLU. Myriad called patent law expert Greg Castanias for its arguments. And, acting as amicus curae, Donald Verrilli argued on behalf of the US Government.

My take is that the court is likely to find cDNA patentable because of the man-made nature of the molecule and hold that purely isolated molecules will only be patentable if their function is significantly altered because of the isolation. This result depends upon the court buying Myriad's argument that cDNA is the equivalent of recombinant DNA whose sequence is designed by the inventors. One risk of the decision for patentees is that the court appears poised to place additional weight on the obviousness analysis. Here, it is also clear that the court does not trust the USPTO to make these determinations. As Justice Kagan mentioned "the PTO seems very patent happy".

AMP's attorney Chris Hansen began his argument with the strongest possible approach – arguing that Myriad's recognition that the BRCA genes "correlate with an increased risk of breast or ovarian cancer . . . [was] made by nature . . . [and] Myriad does not deserve a patent for it." Mr. Castanias disagreed – "What Myriad inventors created in this circumstance was a new molecule that had never before been known to the world."

A first focus of the argument was on whether the isolated DNA has a new function – different from that found in the human body.

JUSTICE ALITO: Isolated DNA has a very different function from the DNA as it exists in nature. And although the chemical composition may not be different, it — it certainly is in a different form. So what is the distinction?

MR. HANSEN: Well, I don't think it has a new function, Your Honor, with respect. I believe that what — Myriad has proffered essentially three functions for the DNA outside the body as opposed to inside the body. The first is we can look at it. And that's true, but that's not really a new function. That's simply the nature of when you extract something you can look at it better.

The second two rationales that Myriad has proffered are that it can be used as probes and primers. Three of the lower court judges found that full-length DNA, which all of these patent claims include, cannot be used as probes and primers. But more important, finding a new use for a product of nature, if you don't change the product of nature, is not patentable. If I find a new way of taking gold and making earrings out of it, that doesn't entitle me to a patent on gold. If I find a new way of using lead, it doesn't entitle me to a patent on lead.

As I mentioned, everyone recognizes that Myriad made a major advance in our understanding of human genetics. The focused then turned to how Myriad should be rewarded.

JUSTICE KAGAN: Mr. Hansen, could you tell me what you think the incentives are for a company to do what Myriad did? If you assume that it takes a lot of work and takes a lot of investment to identify this gene, but the gene is not changed in composition, and what you just said is that discovering uses for that gene would not be patentable even if those new — even if those uses are new, what does Myriad get out of this deal? Why shouldn't we worry that Myriad or companies like it will just say, well, you know, we're not going to do this work anymore?

MR. HANSEN: Well, we know that would not have happened in this particular case, Your Honor. We know that there were other labs looking for the BRCA genes and they had announced that they would not patent them if they were the first to find it. We also know that prior to the patent actually being issued, there were other labs doing BRCA testing and Myriad shut all that testing down. So we know in this particular case that problem would not have arisen.

But the point of the whole — the whole point of the product of nature doctrine is that when you lock up a product of nature, it prevents industry from innovating and — and making new discoveries. That's the reason we have the product of nature doctrine, is because there may be a million things you can do with the BRCA gene, but nobody but Myriad is allowed to look at it and that is impeding science rather than advancing it.

MR. HANSEN: [Further], taxpayers paid for much of the investment in Myriad's work. I [also] think you get enormous recognition.

SCALIA: Well, that's lovely.

MR. HANSEN: But I think that we know that that's sufficient. We know it's sufficient with respect to these two genes. We also know it's sufficient with respect to the human genome.

JUSTICE KENNEDY: But I just don't think we can decide the case on the ground, oh, don't worry about investment, it'll come. I just don't think we can do that.

The patented cDNA is not found in the human body, but instead was manufactured by the researchers by using a discovered enzyme to convert mRNA created in the body back in to the more stable DNA form.

JUSTICE SOTOMAYOR: [cDNA] is artificially created in the laboratory, so it's not bound in nature. It's not taking a gene and snipping something that's in nature. And yet you claim that can't be patented. The introns are taken out, the exons are left in, and they're sequenced together. Give me your brief argument on that. I read your brief, but it is not a product of nature; it's a product of human invention.

MR. HANSEN: There are two big differences between cDNA and DNA. The first is exactly the one Your Honor just discussed, which is that the introns, the noncoding regions, have been removed. That is done in the body, by the body. That's done in the process of DNA going to mRNA. What the scientist does who's creating the cDNA is they take the mRNA out of the body and then they simply have the natural nature-driven nucleotide binding processes complement the mRNA. So that if the mRNA has a C, the scientist just puts the corresponding nucleotide in there and nature causes them to bind up. The scientist does not decide -­

JUSTICE BREYER: I know, but I don't see the answer, because I gather, if I — if I've read it correctly, that when you have an R — the messenger RNA does not have the same base pairs. There's a U or something instead of an A or whatever it is.


JUSTICE BREYER: So when you actually look, if you could get a super-microscope and look at what they have with the cDNA, with their cDNA, you would discover something with an A, not a U. Is it AU? Is that the one?


JUSTICE BREYER: Okay. Okay. So — so you would discover something with an A there, you see, and you wouldn't discover something with a U there. And there is no such thing in nature as the no-introns AGG, whatever, okay? It's not there. That's not truly isolated DNA. But you can go look up the Amazon, wherever you want. Hence the question. Now, on that one, how? How is that found in nature? The answer is it isn't.

MR. HANSEN: Well, but I would suggest, Your Honor, that the question is not whether it is identical to something in nature. The question is whether there was a human invention involved, whether it is markedly different from what is found in nature.

JUSTICE SOTOMAYOR: But that goes to obviousness. That does not in my mind go to the issue of whether it's patent eligible. You may have a very strong argument on obviousness, but why does it not -­it's creating something that's not found in nature at all.

. . . CHIEF JUSTICE ROBERTS: But I — I thought the basic general approach here was we have a very expansive view of what is patent eligible and then we narrow things through things — issues like obviousness and so on. Why — wouldn't it make more sense to address the questions at issue here in the obviousness realm?

. . . . JUSTICE ALITO: This case has been structured in an effort to get us to decide this on the broadest possible ground . . . it's just about 101, it's not about any other provision of the Patent Act. Why should we do that?

. . . . JUSTICE BREYER: Ah. Then — then watch what you're doing. That's very, very interesting, because, really, we are reducing, then, 101 to anything under the sun, and — and that, it seems to me, we've rejected more often than we've followed it.

As it should, the discussion eventually worked its way to the patenting of ideas.

JUSTICE SOTOMAYOR: That's a failure of the patent law. It doesn't patent ideas.

MR. HANSEN: And it shouldn't patent ideas, and — but it also makes the point that isolated gene and the gene in the body are the same.

. . .

GENERAL VERRILLI: The claim that isolated DNA is a human invention rests entirely on the fact that it is no longer connected at the molecular level to what surrounded it in the body. But allowing a patent on that basis would effectively preempt anyone else from using the gene itself for any medical or scientific purpose. That is not true about a patent on cDNA. A patent on cDNA leaves the isolated DNA available for other scientists and other — and others in the medical profession to try to generate new uses. . . . [T]he position of the United States is that [as a conceptual matter] cDNA is patent eligible.

. . .

JUSTICE KAGAN: The first person who found a chromosome and isolated it, I think we can all say that that was a very useful discovery. And the question is, can you then — can the person who found that chromosome and isolated it from the body, could they have gone to the PTO?

A decision in the case is expected in June.

Responding to USPTO’s new Maintenance Fee Regime

On March 19, 2013, the USPTO’s new fees became effective. The most notable changes were the maintenance fees due at three intervals: 3½, 7½ and 11½ years after patent issuance. At each interval, the fees increase with the new top-fee set at $7,400 — a 50% increase over the old fee.

With the major fee increase, it is no surprise that savvy patent owners took advantage of the opportunity of paying the renewal fees early. The USPTO allows patentees to pay the fees due up to six-months early or, with a $160 fee, up to six months late.


Recent Patent Assignments

Recent Patent Deals from the USPTO Assignment Records:

  • Ericsson transferred over 820 patent families to the publicly traded company known as Unwired Planet, Inc. (UPIP). Ericsson will receive a percentage of any revenue generated from the patents. (20% of first $100m; 50% up to $500m; and 70% of any additional revenue). Unwired has lawsuits pending against both Apple and Google.
  • A new company known as BRIGHT SUN TECHNOLOGIES, seemingly headquartered at the offices of Fenwick & West, has purchased 100+ patents from Marathon Solutions. Those patents previously belonged to AOL. See Patent No. 8,335,834.
  • The transfer of patents from EASTMAN KODAK to INTELLECTUAL VENTURES have begun to show up in the assignment records. See Patent No. 6,804,407. Apple also recorded a block of Kodak patents
  • Frank Bisignano (JPMorgan COO) obtained another two dozen patents from Inselberg Interactive.
  • Nokia transferred about thirty patents to a new Las Vegas entity known as MEMORY TECHNOLOGIES LLC. See Patent No. 7,172,454.
  • Bankrupt ORMET CORPORATION has transferred its patents to the WAYZATA INVESTMENT PARTNERS as part of a restructuring process – apparently as collateral.
  • As part of a deal with Sanofi, COVIS PHARMA has received the patent rights for a set of Sanofi drugs. See Patent No. 6,297,254.
  • A new company founded by Heidi Zak and Dave Specter – MeCommerce – has obtained a set of patents covering methods of custom fitting and ordering clothing. Although the patents look interesting, they have already bounced through three other companies. See Patent No. 6,711,455
  • And last but not least, the OPEN INVENTION NETWORK added a few more patents to its portfolio.

Top Phrases by the Federal Circuit

By Dennis Crouch

Google’s ngram viewer shows that the phrase “ordinary skill in the art” took-off shortly before implementation of the 1952 patent act that includes the identical wording.

From the corpus of all Federal Circuit decisions, I looked for all the five-word phrases found in those decisions. The following list are phrases that are most regularly emerging from the judicial pen.

  1. As_a_matter_of_law    
  2. ordinary_skill_in_the_art    
  3. Under_the_doctrine_of_equivalents    
  4. The_district_court_erred_in
  5. Judgment_as_a_Matter_of
  6. by_clear_and_convincing_evidence
  7. Genuine_Issue_of_Material_Fact
  8. The_Patent_and_Trademark_Office
  9. is_a_question_of_law
  10. agree_with_the_district_court
  11. We_affirm_the_district_court
  12. did_not_abuse_its_discretion
  13. The_scope_of_the_claims
  14. likelihood_of_success_on_the
  15. law_of_the_regional_circuit
  16. and_remand_for_further_proceedings

PatCon 3: Posner/Epstein Debate on the Patent System

Continuing to liveblog from PatCon 3.  I'll continue updating this post throughout the debate. 

A Debate About the Patent System

The Honorable Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit
Professor Richard Epstein, Laurence A. Tisch Professor of Law, New York University School of Law, and James Parker Hall Distinguished Service Professor Emeritus of Law and Senior Lecturer, University of Chicago Law School

Moderated by Olivia Luk of Niro, Haller & Niro

For another perspective on this debate, check out Lisa Larrimore Ouellette's post over at Written Description.


Liveblogging PatCon 3: A Conversation with Industry

By Jason Rantanen

Today I'll be liveblogging from PatCon 3.  For those who are interested, the substance will be after the break.  I'm told that video recordings will be available for the plenary presentations.

A conversation with industry

Jim Trusell – Chief IP counsel at BP
Karen Nelson – attorney at AbbVie 
Jon Wood – Chief IP Counsel at Bridgestone
Paul Rodriguez – Chief IP Counsel at RR Donnelly
Stephen Auten – Cozen O'Conner (moderator)


Stent Patent Cannot Heal Divided Claim Construction: Four Judges = Four Different Claim Constructions

By Dennis Crouch

Bruce Saffran v. Johnson & Johnson (Fed. Cir. 2013)

Claim construction has become the most highly contentious issue in patent litigation.  A difficulty with claim construction is that the question does not involve a yes/no answer.  Rather there are a wide variety of possible constructions for any claim element.  Thus, the likelihood of a court randomly picking the correct construction is quite low. And, as it turns out under the rules of de novo review, even when the lower court applies reason and evidence to the problem it it often arrives at the wrong answer. That wrong answer leads to a reversal of the claim construction on appeal.  To be clear, claim construction falls in line with the normal plaintiff/defendant divide. Plaintiffs (patentees) tend to prefer no construction and just let the jury figure out whether the claims are infringed.  Defendants (accused infringers) see claim construction as a mechanism for removing the case from the jury based on the technicality.  Thus, most serious claim construction arguments are designed around the prospect that a favorable decision will lead to summary judgment for the defendant.  Although we often hear of "overly broad" patent claims, the reality is that some defendants ask for a narrow construction in order to build their non-infringement argument while other defendants ask for a broad construction in order to build their invalidity argument.  Of course, the high burden associated with proving invalidity tends to make the first approach a better strategy. In addition to the myriad potential constructions for each term, a typical patent claim has dozens of potentially disputed claims – making the combinatory possibilities quite large.

Background: This case involves Dr. Bruce Saffran's U.S. Patent No. 5,653,760 that claims the treatment of damaged living tissue by covering the tissue with a selectively permeable barrier that could be wholly introduced or applied as a spray. As designed, the device could then allow for the release of a treatment drug that would be able to pass through the membrane while larger molecules would be blocked. The specification explains that the selectively permeable membrane would be useful in the stent market in order to protect blood vessel cells as they regenerate. Saffran previously settled with Boston Scientific for $50 million. In this case he won a $500 million verdict (plus interest) against J&J for its infringing stents.

In a divided opinion, the Federal Circuit has flipped the verdict — finding that the lower court had erred in claim construction and that under the proper construction J&J's stents do not infringe.

The decision is interesting because it includes three opinions that all agree in the judgment reversal, but each disagrees as to the correct construction. In all, four judges have considered the claim construction and have come out with four different claim constructions. The basic dispute is over two claim terms:

  • "Device": Whether that term should be interpreted to require a sheet.
  • "Means for release of … treating material": Whether the means can generally include chemical bonds and linkages or only hydrolyzable bonds.

The four judges outcome on these two questions is shown in the two-by-two table below.


Claimed means limited to hydrolyzable bonds

Claimed means includes chemical bonds and linkages

"Device" requires sheet

Judge Lourie –

No Infringement

Judge Moore –

No Infringement

"Device" does not require sheet

Judge O'Malley –

No Infringement

Judge Ward –


Whither Cybor: The Federal Circuit is currently reconsidering whether Cybor was correctly decided – i.e., whether deference should be given to the lower court claim construction ruling. If deference had been given, it may well be that Judge Ward's opinion would have carried the day – with the resulting conclusion that the $500m verdict should be upheld. As others have written, that result does not actually solve real problems — only masks them.

Although “without tact”, Micron’s retaliatory decision to stop hiring University of Illinois Graduates is not Illegal

By Dennis Crouch

I have a policy that I don’t hire anyone who sues me. If you sued me, I would actually take that personally. So does Micron. In a letter to University of Illinois engineering professors, Micron’s hiring coordinator wrote the following:

Because Micron remains a defendant in a patent infringement lawsuit that UIUC filed against Micron in Federal court in Illinois on December 5, 2011, effective immediately, Micron will no longer recruit UIUC students for open positions at any of Micron’s world-wide facilities.

. . . . [T]he Micron Foundation has endowed chairs at the College of Engineering and has sponsored student scholarship and professor research. However, because UIUC’s suit imposes costs and risks on Micron that are inconsistent with collaborative relationships among Micron, UIUC, and its students, Micron must regrettably indefinitely suspend its recruitment of UIUC students and likewise suspend participation in other joint activities.

In the patent litigation, UIUC has alleged that Micron infringes three of its patents. U.S. Patent Nos. 5,872,387; 6,444,533; and 6,888,204 – all invented by Drs. Joseph W. Lyding and Karl Hess.

In a motion for temporary injunctive relief, the University has alleged that the email demand involved both “coercion” and “duress.”

Coercion” under Illinois law consists of overpowering another’s free will by imposition, oppression, or undue influence. In re Marriage of Flynn, 232 Ill. App. 3d 394, 401, 597 N.E.2d 709, 713, 173 Ill. Dec. 735 (1992). A demand constitutes duress when it is, inter alia, morally wrongful. Carlile v. Snap-on Tools, 271 Ill. App. 3d 833, 840, 648 N.E.2d 317, 322, 207 Ill. Dec. 861 (1995). Micron may, of course, choose not to hire the University’s students, and may choose to withhold funding from the University. However, Micron may not convey those choices to University personnel, who have nothing to do with this matter, in an obvious effort to pressure the University into dismissing the instant action.

. . . . Here, the harm in question, the pressure Micron has placed, and is likely to place, on the University, warrants redress. Such redress should take the form of an injunction that prohibits Micron from sending similarly coercive correspondence to the University.

In response to the motion, Judge Sara Darrow has denied the University’s motion for injunctive relief has a vague restraint on future speech. Citing Alexander v. United States, 509 U.S. 544 (1993) (“Temporary restraining orders and permanent injunctions—i.e., court orders that actually forbid speech activities—are classic examples of prior restraints.”). Further the University failed to show irreparable harm as required for injunctive relief under eBay.

Although the court denied the University’s motion, it did note that “Micron’s decision to shun the University’s students is without tact.”

Note here to Micron (and others), if you are ready to fund the University of Missouri Law School’s new innovation center, we are willing to work out a covenant not to sue.

= = = = =

The letter, with highlights from UIUC’s counsel.

Loyola Law Journal – Chief Judge Holderman on innovations in jury trials

By Jason Rantanen

Chief Judge Holderman: Innovations to Improve Juror Understanding in Patent Jury Trials.  (My notes from the first panel are too much of a mess to be worth posting).

Talking about how can we get rights enforced in a way that will work effectively for both the owner of the rights and the people who believe that there are other rights that the owners don't own.


Liveblogging from the Loyola Law Journal Conference on Patents, Innovation & Freedom to Use Ideas

By Jason Rantanen

Today I'll be liveblogging from the Loyola Law Journal Conference on Patents, Innovation & Freedom to Use Ideas. I'll be posting the full text of my entries below the break for those who are interested. Note that I don't necessarily agree with the views of all the speakers (some of whom are close to diametrically opposite).  Also, keep in mind that this is very rough blogging.  Don't expect elegant writing.

Keynote speaker: Dr. Richard Stallman.  Speaking about patents and software. 


Awaiting the Outcome of CLS Bank v. Alice Corp.

by Dennis Crouch

Pollin Patent Licensing v. Commerce Bancshares (E.D.Mo 2013)

The following is a recent Court Order from Judge Audrey Fleissig.

IT IS HEREBY ORDERED that this matter shall be stayed pending the decision of the Federal Circuit in CLS Bank Intl v. Alice Corp., 685 F.3d 1341, 1356 (Fed. Cir. 2012), vacated, rehg granted, 2012 WL 4784336 (Fed. Cir. Oct. 9, 2012).

In the lawsuit, Pollin is asserting U.S. Patent No. 7,117,171.  Although the company has asserted the patent in at least 17 different lawsuits, it does not appear that any of the accused infringers has filed a request for rexamination or inter partes review. Instead almost all of the cases have ended in settlement.

Pollin’s invention claims priority back to a 1992 application. That means that the patent is now expired. However, Pollin may still be able to collect substantial back damages – so long as the patent is not renedered invalid by CLS Bank.  The 1992 invention focused being able to use a checking account to pay for a service without actually writing a check. The claims are broadly written to encompass the operation via the internet (without actually using those words).

Interestingly, it was Pollin who asked for the stay in this case. 

= = = = =

Pollin’s Claim 1 is as follows:

1. A system for generating authorized payments from financial accounts belonging to a plurality of payers, in payment of debts to a payee, comprising:

input means for performing an electronic information input process wherein a system operator contemporaneously enters information sufficient to identify a new payer previously unknown to the system and information specifying a payment to be generated from an account of that payer,

said information including a financial institution identification number, payer account identifier, and an amount to be paid from said payer’s account to said payee;

an institutional database comprising financial institution identification information;

institution verification means associated with said input means for receiving said financial institution identification number and comparing said financial institution identification number to entries in said institutional database,

wherein when said financial institution is found in the institutional database, the institution verification means retrieves identifying information about the institution and verifies the accuracy of said financial institution identification number, and

wherein when said financial institution is not found in the institutional database, an error indication is generated; and

output means connected to said input means for receiving said information specifying a payment and generating in electronic information form instructions for said payment to said payee.

Sony v. Red Digital (red.com): Brewing Battle

by Dennis Crouch

Sony of Japan v. Red Digital Cinema (C.D. Cal. 2013)

Jim Jannard founded RED Digital Camera a decade ago and the company sells professional digital video cameras for tens of thousands of dollars each. Jannard is also the founder of Oakley. As you might imagine, these cameras both work well and have style.

Sony also makes digital video cameras and has now sued Red for patent infringement. The complaint alleges infringement of seven different patents. U.S. Patent No. 5,442,718, 5,523,795, 5,999,213, 6,009,233, 6,423,993, 7,138,617, and 7,304,287. These patents all claim priority back to original applications filed in Japan.

Now, it turns out that Sony's complaint is retaliatory. In February, Red Digital served Sony with its papers alleging infringement of two patents. U.S. Patent Nos. 8,358,357 and 8,174,560. That case is ongoing in the Southern District of California. So far, neither party has filed a request for inter partes review.

In the past, Red sued Wooden Camera for infringing a design patent and trade-dress associated with knock-off accessories and 24P for a declaratory judgment of non-infringement of its Patent No. 5,334,013. Those cases both settled.

It appears that the Sony/Red litigation is currently focused in the US. However, Sony is in a position to push this dispute to a more global scale. For his part, Jannard is intimately familiar with the patent system through the hundreds of lawsuits filed by Oakley against knockoff competitors.

Do I qualify for Micro-Entity-Status at the Patent Office?

By Dennis Crouch

As per their usual, the folks at Brown & Michaels have provided a concise write-up to help inventors and small companies understand whether they qualify for Micro-Entity-Status and the resulting fee reduction. http://www.bpmlegal.com/howsmall.html

The basic questions are:

  1. Does the applicant qualify as a small entity? (If no, then no micro-entity)
  2. Has the applicant or any joint inventor filed more than four US non-provisional patent applications? (If yes, then no micro-entity, unless those applications were from a prior employment and assigned to the prior employer)
  3. Did the applicant or any listed inventor have an income for the past year that was greater than $150,000? (If yes, then no micro-entity). This number will change annually based upon median US household income.
  4. Have rights in the application been promised or licensed to a non-micro-entity? (If yes, then no micro-entity)

In addition to the Brown & Michaels site above, the next stop for further reading is the USPTO’s final rules published in the Federal Register at 77 Fed. Reg. 75019.

The big deal here is that micro-entities receive a 75% reduction in USPTO fees.

Two-Way Media & the Doctrine of Equivalents

Two-Way Media v. AT&T, SA-09-c-476 (W.D. Tx. 2013)

Interesting jury verdict for Two-Way Media where a jury found that that AT&T infringes a total of seven claims coming from two different patents owned by the plaintiff and awarded $27 million in damages. U.S. Patent Nos. 5,778,187 and 5,983,005. The jury found no literal infringement but only infringement under the doctrine of equivalents.

The patents are part of a family of patents claiming a method of multicast-streaming. Infringed claim 1 is broadly written and listed below:

1. A method for transmitting message packets over a communications network comprising the steps of:

converting a plurality of streams of audio and/or visual information into a plurality of streams of addressed digital packets complying with the specifications of a network communication protocol,

for each stream, routing such stream to one or more users,

controlling the routing of the stream of packets in response to selection signals received from the users, and

monitoring the reception of packets by the users and accumulating records that indicate which streams of packets were received by which users, wherein at least one stream of packets comprises an audio and/or visual selection and the records that are accumulated indicate the time that a user starts receiving the audio and/or visual selection and the time that the user stops receiving the audio and/or visual selection.

The patent itself was subject to a third-party requested reexamination and the USPTO confirmed that all claims were patentable without amendment.

The patents themselves were originally owned by Netcast Communications. That company was founded by Jim Butterworth with the help of Antonio Monteiro. The pair received a number of patents covering various aspects of streaming technology. When Netcast closed operations, Butterworth founded Two-Way Media as the new patent holder and still runs the company. As streaming technology moved forward, these patents have become more valuable and the company has sued several others for infringement, including Akamai, Limelight, and AOL. Those cases all settled.

Among the motions in limine granted before trial, Judge Garcia ordered AT&T’s attorneys to (1) not mention the contingency fee arrangement between Two-Way and its attorneys at Susman Godfrey and (2) not use any language that would denigrate the patent system.

I suspect that we’ll have an appeal in this case that will focus on the doctrine of equivalents.

Multiplicity of Design Patent Rights

By Dennis Crouch

The number of design patent applications continues to rise. At least a portion of that rise is explained by an increase in the sophistication of design patent applicants. Rather than filing a single design patent that covers a new product release, the experts file a group of design patent applications that each claim a small portion of the overall design. Because a design patent claim is defined by the submitted drawings, each patent application will have slightly different figures. Often, the only change needed is to change portions of the drawing to either solid lines (claimed) or dashed-lines (unclaimed). This strategy has two beneficial results for the patentee: (1) competitors who copy only a portion of the product (suggestive free-riding) will still infringe; and (2) a patentees product design will still be covered by patent rights even after making small changes to the design. A second somewhat less common approach is to also file design patents on features that are closely-related but different from the patentee's actual product design. The intent is to create additional market distance for the patentee and is most effective in markets where direct knockoffs are common.

The images below come from six Gillette design patents all filed on the same day in 2012. The first drawing looks particularly at one of the designs – can see the solid lines that represent the claimed portion?


Gillette patents








Volunteer Opportunities for IP Professionals

Guest Post by Tasha Francis, PhD. Tasha is a law student at the University of Michigan expecting to graduate with a J.D. later this spring.

One common way in which lawyers give back to their community is via pro bono work. In the pro bono world, a transactional lawyer typically has a general skillset allowing him or her to cover a variety of general corporate areas for a pro bono client even if the specific question at hand does not fall directly in the lawyer's field of practice. Similarly, litigators, who have experience in the courtroom, are equipped to handle a variety of cases brought by pro bono clients, such as small-claims court matters, housing, harassment, or immigration issues. However, patent prosecutors and in-house counsel who might specialize in interacting with the United States Patent and Trademark Office (USPTO), may not feel equipped to meet in the more common litigation or transactional needs of typical pro bono clients. Thus, it may not seem obvious to these attorneys how they can use their skill set to give back to the community. This article identifies a few ways in which intellectual property professionals can use their abilities to enhance their community.

Pro-bono opportunities

The Model Rules of the American Bar Association request lawyers to perform fifty hours of pro bono work per year. Lawyers can fulfill this responsibility by providing free legal services to persons of limited means or charitable, religious, civic, community, governmental and educational organizations.

One way in which intellectual property (IP) lawyers can fulfill their pro bono hours is by getting involved with local charities and helping them with their IP needs- for example, assisting them with the filing of a trademark for their organization. As patent prosecutors have familiarity with the USPTO, this would be an ideal way to help the community. Alternatively, IP lawyers can volunteer for organizations like Lawyers for the Creative Arts or Springboard for the Arts, which provide pro bono legal assistance to clients working in the areas of art, culture, media, and entertainment, including the visual, literary, and performing arts. Example projects include working with artists on copyright, trademark, or general contract issues.

For those IP lawyers interested in writing patents for under-resourced inventors and small businesses pro bono, the USPTO launched a pilot program in Minnesota last year to provide legal services to help such individuals and businesses obtain solid patent protection.  Based on the success of the Minnesota program, the USPTO has instituted five new regional pro bono programs in Denver, California, Texas, Washington D.C. and New York City. 

Other volunteer opportunities that qualify for pro-bono hours, include serving on bar association committees or on boards of pro-bono or legal services programs, taking part in Law Day activities, acting as a mediator or arbitrator, and engaging in legislative lobbying to improve the law. Additionally, pro-bono hours can be accrued by acting as a continuing legal education instructor. Now is an excellent time to teach your colleagues about the changes to the patent laws that recently occurred with the America Invents Act, for example.

Finally, there are a number of pro-bono intellectual property clinics emerging in law schools around the country, such as the Entrepreneurship Clinic at the University of Michigan Law School. Lawyers can serve as mentors to students participating in these programs and simultaneously fulfill their pro-bono goals.

Other ways to give back to the community

Aside from those pro-bono activities, there are other ways in which IP professionals can give back to members of the community.

For example, IP professionals interested in sharing their skills with children can team up with an elementary school class and help students gain exposure to intellectual property by helping the class enter the Intellectual Property Owner's Education Foundation video contest, which is a contest meant to teach children about the US patent system. Students submit video essays about why the patent system is important. Alternatively, the USPTO recently collaborated with the Girl Scouts to introduce a new intellectual property badge to educate Girl Scouts about inventorship and intellectual property. The USPTO and Girl Scouts are actively seeking intellectual property professionals to assist local troops in obtaining this badge.

IP professionals interested in working with older students can offer to speak with Ph.D. candidates in the science and engineering fields and explain the basics of patent law to them, so that if and when they invent something during their Ph.D. program they have an understanding of how the process works.

Furthermore, it is important to realize that knowledge about intellectual property is valuable outside of the classroom as well. For example, IP professionals could make themselves available to local inventors at forums in which they usually congregate. Examples include the local community wood and metal shop, or community meetings, such as The Ann Arbor New Tech Meetup, where entrepreneurs pitch their new business ideas. Forums such as these often contain many community members who would value basic information regarding intellectual property. (And you never know- one of those people sitting in the audience may eventually come to you with work in the future).

So even though it might not be obvious how your skills as an intellectual property professional are valuable to your local community, the above mentioned should serve as a spring board for ways in which you can give back to your community.

Double Patenting Problems when Inventors Move to a New Employer

By Dennis Crouch

In re Hubbell (Fed. Cir. 2013)

Hubbell is the third element of a trio of recent decisions that remind-us that conception and inventorship will remain critically important even after the US patent system fully-shifts to the first-to-file regime. See Dawson v. Dawson and Rubin v. General Hospital Corp. In thinking about these cases, innovative companies may want to consider their employment agreements and their rights to patents associated with post-employment developments.

US Patent law has always recognized inventors as the original patent owners. Conception of the invention imbues the inventor with an inchoate patent right that can then be fully realized by successfully completing the patenting process. As Judge Reyna writes “Inventorship is perhaps the most fundamental question in patent law. The instant an inventor conceives her invention is the moment in which vests her right to a patent, thus perfecting her constitutional right to exclude.” (Judge Reyna in Dawson writing in dissent). Ownership of that inchoate right is usually transferred to the inventor’s employer as required by the individual employment contract. Without such a contract, the inventor retains ownership rights. Although the America Invents Act shifts some weight away from the primacy-of-invention, it does nothing to change this fundamental precept that rights are created at conception and held by the inventor until transferred.

As was the case in Dawson, Hubbell involves a situation where the inventor moved from one employer (Caltech) to another (ETH Zürich). His first-filed patent application (as a joint-inventor) is owned by Caltech and the second-filed application (as a joint-inventor with different joint inventors) is owned by ETH Zürich. It turns out that ETH Zürich did a better job of getting a patent and that patent issued in 2002. The Caltech patent application is still pending and is the subject of this appeal.

Of the two applications, the Caltech application was both the first invented and first filed. That means that the later ETH Zürich cannot serve as prior art. However, the PTO rejected the Caltech application under the doctrine of obviousness-type double patenting. The doctrine of obviousness-type double patenting is not statutory but instead a judicially created equitable doctrine Normally, this type of rejection is not fatal because the patentee can file a paper known as a terminal disclaimer that both (1) disclaims any term of enforcement that extends beyond the other patent and (2) agrees to that both patents will be co-owned throughout their lifespan. The problem here is that the patents are not co-owned and Caltech cannot make that promise.

Caltech argued that the double patenting rejection should not apply because the two applications have different owners and different inventors. As an alternative, the university argued that the equitable solution is to allow it to file the terminal disclaimer without the co-ownership promise.

On appeal, however, the Federal Circuit affirmed the PTO’s decision – holding that obviousness type double patenting applies and that Caltech cannot receive its patent without linking ownership. Writing for the 2-1 majority, Judge O’Malley highlighted multiple-suit harassment problem that served as the originating policy concerns for the limiting doctrine – writing that “the MPEP standard is consistent with the rationale we have used to support application of obviousness-type double patenting rejections.”

Judge Newman dissented – arguing that obviousness type double patenting is not available when a patent has different owners, different inventorship, and no joint development agreement. And here, Newman argues, that we have different inventorship because the lists of joint inventors are not identical.

The court today not only finds “double patenting” when there is neither common inventorship nor common ownership, but having so found withholds the standard remedy of the terminal disclaimer, and simply denies the application. This novel ruling is contrary to statute and precedent, with no policy justification for changing the law.

Under Judge Newman’s theory the patent should issue on its merits or perhaps be subject to an interference or derivation proceeding.

= = = = =

The panel notes that the reason Caltech’s application took so because the university was playing games with continuation practice and claims that are almost identical to those at issue now were allowed back in 2003. Instead of taking that patent, Caltech filed a continuation and abandoned that allowed application.

= = = = =

We do have a (slightly) open question moving forward as to whether obviousness type double patenting remains as a viable doctrine following the AIA.