May 2013

Recent Scholarship: Investing in America’s Future by David Kappos

Last fall, then-PTO Director David J. Kappos delivered a speech on software patents, the PTO, and innovation, in which he strongly defended software patents.  Below, Director Kappos, now with Cravath, Swaine & Moore, summarizes an article that he recently published in the Stanford Technology Law Review that expands on that theme.  – Jason

"Investing in America’s Future Through Innovation" appearing in the Stanford Technology Law Review

By: David J. Kappos

While the smart phone patent wars have ignited debate about the patent system, the discussions are about far more than smart phones and software patents.  These disputes, and the accompanying critiques, raise a more fundamental question about the willingness of the United States to invest in our future.  We Americans need to make up our collective mind about whether we are satisfied with short-term gratification to get the newest technology at the absolute lowest price or whether we are willing to invest in the long-term. At their core, patents, and intellectual property in general, represent that investment.

Drawing on recent patent quality metrics, my article appearing in the Stanford Technology Law Review brings balance to the heated rhetoric surrounding the smart phone patent wars, explaining why the best evidence available shows that these disputes are not about low quality software patents or an ineffective patent system.  In fact, and in contrast to the many critiques that offer no empirical evidence, the data shows that low quality patents are not the problem. Instead, the real issue is the historical tension between the necessary long-term incentives that form the basis for the patent system, versus the desire of consumers to have products and services today at the lowest prices possible. To move beyond the rhetoric of the current debate, we must continue to have faith in allowing our national innovation system to grow and develop as it has over 200+ years so that we and our children will have even more, and better, innovations to enjoy in the future.

The article is available on the Stanford Technology Law Review's website at: http://stlr.stanford.edu/2013/05/investing-in-americas-future-through-innovation/

Judge Mayer: Subject Matter Eligibility Must be Decided First Even if Not Raised by Either Party on Appeal

By Dennis Crouch

Alexsam, Inc. v. IDT Corp. (Fed. Cir. 2013)

I recently posted on Alexsam’s pending litigation in the Eastern District of Texas. In that case, the jury sided with the patentee Alexsam and rejected the defendants’ arguments that the patent was invalid. The appeal here involves the same patents directed to a system for activating gift cards at the time that they are purchased. See U.S. Patent No. 6,000,608. The most interesting aspect of the decision comes from Judge Mayer’s dissent where he argued that asserted patent claims “disclose nothing more than an abstract idea for making a business run more efficiently, thereby failing to meet the subject matter eligibility requirements set forth in 35 U.S.C. § 101.”

The claim issue (Claim 57) reads as follows:

A multifunction card system comprising:

a. at least one card having a unique identification number encoded on it, said identification number comprising a bank identification number approved by the American Banking Association for use in a banking network;

b. a transaction processor receiving card activation data from an unmodified existing standard retail point-of-sale device, said card activation data including said unique identification number;

c. a processing hub receiving directly or indirectly said activation data from said transaction processor; and

d. said processing hub activating an account corresponding to the unique identification number, thereby permitting later access to said account.

To reach his conclusion that the claim fails to disclose eligible subject matter, Judge Mayer first began by identifying the core inventive concept of the claim. Here, the idea behind the patent is that it allows a card to be activated by swiping it through the terminal used for processing credit card transactions rather than having a dedicated activation terminal. The benefit of that approach is that no special equipment is needed for activating gift cards and the patent application states that no new technology is required in order to allow standard point-of-sale devices to activate gift cards.

The way Judge Mayer describes this setup immediately raises novelty and obviousness concerns in my mind. Indeed, Judge Mayer writes that the case “presents the anomalous situation in which a patentee attempts to preserve the validity of his claims by arguing that they contain nothing new.” Ordinarily, when patent claims “contain nothing new,” they are found invalid for lacking novelty or nonobviousness. Indeed, millions of patent claims are rejected each year by the USPTO for this very reason. And, the primary thrust of the US patent examination system is to ensure that patents are only issued for inventions that are sufficiently new. In this case, the defendants argued that claims were obvious and anticipated as a matter of law. However, instead of addressing that issue that was actually appealed, Judge Mayer focused on the Subject Matter Eligibility that was not raised on appeal – seeing subject matter eligibility as a threshold issue that must be decided first:

Whether claims are directed to statutory subject matter is a “threshold” question, Bilski v. Kappos, 130 S. Ct. 3218, 3225 (2010), which must be addressed before this court can consider subordinate issues related to obviousness and infringement. See Parker v. Flook, 437 U.S. 584, 593 (1978) (“Flook”) (emphasizing that “[t]he obligation to determine what type of discovery is sought to be patented” so as to determine whether it falls within the ambit of section 101 “must precede the determination of whether that discovery is, in fact, new or obvious” (emphasis added)); In re Comiskey, 554 F.3d 967, 973 (Fed. Cir. 2009) (“Only if the requirements of § 101 are satisfied is the inventor allowed to pass through to the other requirements for patentability, such as novelty under § 102 and . . . non-obviousness under § 103.” (citations and internal quotation marks omitted)).

In our 2010 article, Professor Robert Merges and I argued that the law does not require the “threshold” question be decided in any particular order. See Dennis Crouch & Robert P. Merges, Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making, 25 Berkeley Tech. L.J. 1673 (2010). Indeed, thresholds are crossed all throughout a journey. Judge Mayer is in the minority on this point of doctrinal ordering. Although rejecting some of our arguments, the CLS Bank plurality opinion agreed with Merges and myself that “district courts may exercise their discretion to begin elsewhere when they perceive that another section of the Patent Act might provide a clearer and more expeditious path to resolving a dispute.” (Citing Merges & Crouch).

The second major problem with Judge Mayer’s dissent is the implicit ruling that Subject Matter Eligibility is not waivable and instead should be raised sua sponte by an appellate court. Here, the §101 eligibility question was not raised by the defendant-appellants in the appeal, nor were they discussed in oral arguments. In the past, both Judges Mayer and Dyk have raised §101 issues sua sponte on appeal — essentially finding that subject matter eligibility questions are on par with the issue of a court’s subject matter jurisdiction.

Finally, Judge Mayer’s decision highlights the failure the CLS Bank decision – because there was no majority opinion in that case, Judge Mayer did not feel the need to even cite that recent pronouncement by the court that directly relates to the case at hand.

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Sanctions: The district court awarded sanctions to the patentee for the defendants’ litigation misconduct in failing to provide to satisfy the appropriate discovery requests regarding the accused systems. The sanction was quite harsh. In particular, the district court deemed several accused systems were infringing as a sanction for ITD’s failure to disclose the fact that its cards contain BINs in their card numbers. On appeal, the Federal Circuit affirmed the sanction. I suspect that the “Patent Abuse Reduction Act” would further embolden accused infringers to play discovery games by avoiding disclosing key information or admitting key facts that would greatly simplify the litigation.

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Unpaid License Still a License: Some of IDTs systems use the MasterCard computer network. That is important because MasterCard has obtained a license from Alexsam to practice the invention. The agreement specifically states that other parties (such as IDT) that are using the MasterCard computer network will be “deemed sublicensed under an implied sublicense.” As part of the agreement, MasterCard is also required to report the total number of licensed transactions to Alexsam at the end of each month, and to pay a fee for each transaction. In this case, however, MasterCard never reported IDT as a sublicensee or paid the required royalties. On appeal, the Federal Circuit agreed with IDT that the MasterCard related sales were licensed and that IDT is therefore not liable for those. In reaching its conclusions, the court noted that the MasterCard agreement did not condition the sublicense on payment of the royalties. Further, the court the cited to its decision in Tessera, Inc. v. Int’l Trade Comm’n, No. 2010-1176, 2011 WL 1944067 (Fed. Cir. 2011) where it held that failure to pay royalties “did not convert authorized sales into unauthorized sales.”

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What Is Happening In Vermont? Patent Law Reform From The Bottom Up

Guest post by Camilla A. Hrdy, Resident Fellow at the Yale Law School Information Society Project.

Although there have been various proposals for curbing abusive threats of patent litigation by Patent Assertion Entities (PAE’s), or so-called patent “trolls,” and the Federal Circuit appears willing to sanction PAE’s for baseless lawsuits, the U.S. Patent Act does not directly address the problem. Dissatisfied with this situation, the state of Vermont has just passed a new and innovative law amending its Consumer Fraud statute to prohibit “bad faith assertions of patent infringement” against individuals or companies based in Vermont. The law creates a factor-based test for courts to determine when acts constitute “bad faith assertions,” and lists several non-exhaustive factors that courts may consider as evidence of bad faith, including sending demand letters that lack basic information about the infringement claim or that seek payment of unreasonable royalty fees. Targets of bad faith assertions can bring actions (in state or federal district court1) to obtain compensatory damages and exemplary damages, plus costs and fees. Vermont’s Attorney General simultaneously filed a complaint under existing Vermont consumer protection law against a PAE that sent out demand letters to thousands of small businesses in Vermont and around the country.

Some commentators suggest Vermont’s new law is preempted by federal patent law. This is not necessarily the case – so long as courts apply the law in a way that satisfies the Federal Circuit’s standard for a finding of “bad faith.” This requires, at minimum, “clear and convincing evidence” that the infringement assertions are “objectively baseless” to avoid dismissal on summary judgment or a motion to dismiss. As the Federal Circuit explained in Globetrotter, the idea is that patent holders should not be penalized simply for asking the government to enforce their patent rights. That said, as Vermont Attorney Justin McCabe points out, if courts do adhere to the Federal Circuit’s current standard, this will certainly weaken the Vermont law’s utility as a supplement to current options.

Putting aside the question of whether the Vermont law will be preempted, should it be? According to Eric Goldman, we should be wary of state-by-state contributions to patent law (and IP law in general) for numerous reasons, including higher costs for patent owners to enforce their rights and comply with different or inconsistent state standards. Goldman concludes that while he would “enthusiastically favor a nation-wide threats action,” if the choice is between no threats action at all versus state-level threats actions, he might favor the former.

I disagree.

There are certainly costs to introducing decentralization into the patent system, just as there are for any area of law where state and federal governments have concurrent power (immigration, tax, corporate law, to name just a few). But the creation of a novel, state-level solution to the problem of unfounded patent assertions highlights the reasons we accept some of these costs by continuing to support a system of dual sovereignty. Robust federalism can produce a range of benefits, including involvement from local officials in designing policies to support their jurisdictions’ development goals, promoting intergovernmental competition and experimentation, and diffusing authority among different sovereigns in order to avoid consolidation of power in a single lawmaking body or administrative agency (i.e. the U.S. Patent & Trademark Office).

But for federalism to actually benefit patent law and innovation policy generally, states require some autonomy to disagree with federal patent policy and to use state law to grow local innovation ecosystems, like California has with Silicon Valley. According to the preamble of the new law, Vermont is “striving to build an entrepreneurial and knowledge based economy.” State representatives decided the law will facilitate their goal of attracting IT and other knowledge based companies facing costly threats of litigation from PAE’s. Vermont has every right to make this attempt, and we should encourage other states to do the same.

Obviously, as the Supreme Court has made clear, state laws should be preempted when they interfere with the goals and objectives of federal patent law. But Vermont’s law doesn’t: like U.S. patent law, it strives to promote innovation and does not interfere with inventors’ decision to file for U.S. patents and disclose information about their inventions to the public.2 Far from needlessly raising the cost for patent owners to enforce their rights, Vermont’s local solution to a national problem is a prime example of how federalism is supposed to work.

As I argue in a forthcoming article and a recent essay, given the benefits of state involvement in patent law and innovation policy, federal courts should be wary of preempting state laws that attempt to influence national patent policy. I hope the Vermont law is the first, not the last, of its kind, and that it inspires other states to take a greater role in helping federal institutions fix the patent system’s problems. Meanwhile, innovators themselves – whether businesses aggrieved by PAE’s or inventors who are dissatisfied with patent law’s emphasis on propertization versus free access to knowledge – should begin to actively encourage their state and local governments to dissent against federal patent norms by experimenting with laws to make the system work better for everyone. We may ultimately decide that some, or even all, state patent policy innovations are not workable in practice. But the results of a bottom up reform movement will inevitably surprise us. And this is the point.

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1. Federal district courts have exclusive jurisdiction over patent cases, and the jurisdiction statute was recently amended to clarify that “[n]o State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.” 28 U.S.C. §    338(a). However, if none of the claims for relief under the Vermont law necessarily requires the resolution of a patent law issue, then federal district courts would not have jurisdiction absent diversity citizenship. See ClearPlay, Inc. v. Nissim Corp., 602 F.3d 1364, 1369 (Fed. Cir. 2010).

2. The same cannot be said for state trade secret laws, which we permit despite the risk that inventors of patentable inventions will keep their inventions secret, due to the independent benefits derived from more information sharing within companies and protection of valuable, if not always patentable, information from misappropriation by competitors. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 490-93 (1974).

Best Mode: Only Mostly Dead

By Jason Rantanen

Ateliers de la Haute-Garonne v. Broetje Automation USA Inc. (Fed. Cir. 2013) Download 12-1038.Opinion.5-17-2013.1
Panel: Newman (author), Prost (dissenting), Reyna

While the America Invents Act eliminated the failure to disclose best mode as a defense in patent infringement suits commenced on or after September 16, 2011, it remained available as a defense for litigation that had already commenced.  In AHG v. Broetje, the Federal Circuit divides over the issue of whether intentional concealment is required for a best mode violation in a split that will likely remain forever unresolved.

AHG is the owner of two patents relating "to the dispensing of objects such as rivets through a pressurized tube with grooves along its inner surface, to provide a rapid and smooth supply of properly positioned rivets for such uses as the assembly of metal parts of aircraft."  Slip Op. at 2. Prior to the enactment of the AIA, AHG filed an infringement suit against Brotje. 

The crux of Brotje's best mode argument turned on whether the inventors' best mode involved three-grooves or an odd number of grooves. At the time of the application, the inventors were mostly using three-groove embodiments.  The patents disclosed a three-groove embodiment (among other examples including a fifty-five groove and two two-groove embodiments).  Brotje argued, however, that at the time of the application the inventors considered an odd number of grooves to be the best mode of carrying out the invention.  Based on Broje's theory, the district court granted summary judgment of invaliditydue to a failure to disclose the best mode of carrying out the invention.  AHG appealed.

Best mode and the issue of intent: In granting summary judgment, the district court stated that "the clear weight of Federal Circuit authority holds that intentional concealment is not required for best mode violations . . . ." and that the "patents-in-suit are 'so objectively inadequate as to effectively conceal the best mode from the public,' such that a reasonable jury could not find in AHG’s favor with respect to Broetje’s ‘odd number’ theory."  Slip Op. at 9, quoting district court (emphasis in original). 

On appeal, the majority disagreed with the district court that this was the correct correct legal standard.  "Violation requires intentional concealment; innocent or inadvertent failure of disclosure does not of itself invalidate the patent."  Slip Op. at 10.  Thus, under the majority's view, a best mode violation requires both that the inventor knew of a better mode and intentionally concealed it.

Judge Prost disagreed that this is the law of best mode.  "The majority holds that a '[v]iolation [of the best mode requirement] requires intentional concealment.'…"  Dissent at 2 (emphasis in quotation).  This decision "is itself based on an error of law.  It is not in accord with our precedent regarding intent in a best mode analysis."  Id. at 1. Rather, "this court has repeatedly acknowledged the error in the Brooktree dicta and recognized that we are bound to follow our earlier precedent that intent is not an element of a best mode violation."  Id. at 3.

In support of their positions, both the majority and dissent cite an array of recent precedents and engage in a series of dueling footnotes.  This disagreement might seem somewhat minor; after all, best mode is being phased out as a defense in patent litigation.  What is interesting here is the way in which the judges express their disagreement: both opinions suggest that not only is the other side wrong, but that its opinion is invalid.  This is particularly apparent in the treatment of recent precedent by the majority and dissent.  Both cite substantial amounts of recent and older opinions that arguably support their positions and conclude that the opposing sets of precedents are invalid; they then cite back to older precedent in a complex dance in which older precedent is better, unless it is too old, unless it is cited in a more recent old opinion (compare majority footnote 3 with dissent footnote 1).

This opinion itself seems likely to fall into that morass when it is cited in the future: some judges may take the view that it is binding for what it says while others take the opposite view.  I'm curious as to whether this reflects an emerging trend in Federal Circuit jurisprudence or whether it no different than other doctrinal disagreements within the court.  My observational sense is that dissents and disagreement within Federal Circuit opinions are have been on a substantial rise but haven't yet put together the data to test that intuition.

Articulating the best mode:  Majority and dissent also disagreed over what needed to be disclosed.  The majority interpreted the best mode requirement as requiring that the best embodiment must be disclosed.  "The general statement that an odd number is better than an even number is not a statement of a better mode than the preferred embodiment shown in the specification. There was no evidence of intentional concealment of a better mode than was disclosed. The preferred embodiment's disclosure of a three-groove tube is adequate to enable a person skilled in this art to practice the best mode." Slip Op. at 14.

The dissent disagreed.  In addition to concluding that it was a disputed question of fact as to whether the three-groove embodiment or the odd-number of grooves was the preferred embodiment, the dissent would have found even the three-groove embodiment to not be adequately disclosed.  "[T]he inventors did not simply reveal their best mode and disclose others; they buried the best mode among other embodiments, also falling under the preferred embodiment heading, that did not include the
'essential' feature that the inventors discovered and knew was necessary to successfully implement their invention. Such disclosure is not the “quid pro quo” demanded by the best mode requirement."  Dissent at 6.

Patent Abuse Reduction Act of 2013 (S.1013)

By Dennis Crouch

If it exists, the patent heat in Congress right now is focused on “curbing abusive patent litigation.” A variety of bills have been introduced, including the SHIELD Act that would introduce a one-way fee shifting system that would require losing plaintiffs to pay the attorney fees of successful defendants. H.R. 845. The Bill also requires that the patentee plaintiff (or DJ Defendant) post a bond early in the lawsuit to ensure that the fees will be paid. Under its current structure, the bill is limited to cases where (1) the party asserting the patent is not the original inventor or original assignee; (2) the party asserting the patent is not exploiting the patent “through production or sale of an item covered by the patent” and (3) the party asserting the patent is not a University or the US Government. If the patentee meets any one of those prongs then they escape the fee shifting. At the conclusion of the case if the patentee loses then the court must award the prevailing party “full costs … including reasonable attorney’s fees.”

Senator Cornyn this week introduced another bill – the Patent Abuse Reduction Act of 2013 (S.1013). According to Cornyn’s press release, the bill “would require plaintiffs to disclose the substance of their claim and reveal their identities when they file their lawsuit; allow defendants to hale into court interested parties; bring fairness to the discovery process; and shift responsibility for the cost of litigation to the losing party.”

Transparency In Enforcement: S.1013 proposes that the initial complaint must also “the identity of any person with a direct financial interest in the outcome of the action, including a right to receive proceeds, or any fixed or variable portion thereof; and a description of any agreement or other legal basis for [the] financial interest.”

Presumption of Attorney Fees: As with the SHIELD Act, S.1013 would more readily shift attorney fees. This time, however, the fees would be balanced and awarded to the prevailing parties regardless of whether that be a plaintiff or defendant. However, no attorney fees would be awarded when the non-prevailing party’s “position and conduct … were objectively reasonable and substantially justified” or where the exceptional circumstances make the award unjust. If the patent plaintiff cannot pay the attorney fees, the bill would allow for those fees to be paid by others with an interest in the litigation. Defendants would also be permitted to join interested parties into the litigation.

Heightened Pleading Requirements: S.1013 proposes that a complaint must draw a link between particular asserted patent claims and any accused products if such a link “is known.” In addition, the bill would require a complaint to include “detailed specificity” as to “how the terms in each asserted claim[s] … correspond to the functionality of the accused instrumentality.” The Bill would also require the Supreme Court to review model complaint Form 18 to ensure that it conforms with the law.

Discovery After Claim Construction: S.1013 proposes to limit discovery until after claim construction has been complete.

Additional Major Limits on Discovery: Perhaps the most dramatic changes proposed in the bill would be statutory limits on discovery and a cost-shifting regime.

It will be interesting to see how these develop moving forward.

Sample Civil Procedure II Exam

In CivPro II (a 2-hour course), we covered civil procedure issues related to class actions, discovery, summary judgment, JML, new trial, appellate jurisdiction, and preclusion. Here is the two-hour exam. – Dennis

052213_1918_SampleCivil1=====

Dent sued Baker in the United States District Court for the Eastern District of Missouri alleging patent infringement. After receiving the complaint, Baker had his production manager (Morgan) review the product sales history. Morgan delivered an internal memorandum to Baker indicating that Baker sold 10,000 allegedly infringing sunglasses in the past year for a total revenue of $85,000. The report was marked "Confidential."

a) What information regarding the sales must Baker include in his initial disclosures under Rule 26(a)? (5 points)

b) Under what circumstances would a Court Order Baker to turn over the report to Dent? (10 points)

c) Assuming that the court has issued what Baker believes is an erroneous order forcing Baker to turn-over the report to Dent. Can Baker appeal that order? (5 points)

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After trial, a jury returns a verdict for Dent and against Baker (finding infringement). Dent then sues Campbell in the same court also alleging patent infringement.

d) Can Dent assert either claim preclusion or issue preclusion in the case against Campbell? (10 points)

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In the patent case against Campbell, patent infringement must be proven by a preponderance of the evidence. During discovery, Dent's expert provides testimony that Campbell's products infringe the patent while Campbell does not provide any competing evidence of non-infringement. Dent then moves for summary judgment of infringement. In response, Campbell only argues that a jury will find the expert testimony untrustworthy.

e)     Should the court order summary judgment? (15 points)

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The United States later brings a criminal prosecution against Baker for criminal counterfeit in United States District Court for the Western District of Missouri.

f) Can the US Government assert either claim preclusion or issue preclusion in the case against Baker? (5 points)

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Assume that Dent lost the lawsuit against Campbell based on a jury finding that Dent's patent was invalid. Thus, there is one case where the patent was enforced (against Baker) and another where the patent was found invalid (against Campbell). Dent then sued Haseltine in Federal Court in the Eastern District of Texas again alleging infringement of the patent.

g)     Can Haseltine rely on either claim preclusion or issue preclusion in the case against Dent? (10 points)

h)     How can we know if the court was correct to send the question of validity to a jury rather than have that question be decided by the judge? (5 points)

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The patent right is later fully and finally revoked by the US Patent Office. This means that the knock-off versions are actually legal to manufacture and sell in the US. In reaction, Vincent then files a class action lawsuit on behalf of all sellers of knock-off versions of Dent's sunglasses. The complaint alleges unfair competition based upon Dent's assertion of invalid patent rights and demands that the court force Dent to stop all enforcement activity and compensate businesses who suffered under the enforcement strategy. Vincent's information shows that there are more than 1,000 companies that stopped selling knockoffs because of Vincent's enforcement activities even though Baker, Campbell, and Haseltine were the only entities actually sued.

i)     What are the two most likely sections of Rule 23 that would be used to deny class certification in this case? (15 points)

Motiva v. ITC and Nintendo

By Jason Rantanen

Motiva, LLC v. International Trade Commission and Nintendo Co., Ltd. (Fed. Cir. 2013) Download 12-1252.Opinion.5-9-2013.1
Panel: Newman, Prost (author), O'Malley

In order to bring a section 337 action in the International Trade Commission to prevent the importation of a product that infringes a patent, the plaintiff must establish that a domestic industry exists or is in the process of being established for the articles protected by the patent. Earlier this year, a Federal Circuit panel consisting of Judges Bryson and Mayer held that:

section 337 makes relief available to a party that has a substantial investment in exploitation of a patent through either engineering, resale and development, or licensing.  It is not necessary that the party manufacture the product that is protected by the patent, and it is not necessary that any other domestic party manufacture the protected article. As long as the patent covers the article that is the subject of the exclusion proceeding, and as long as the party seeking relief can show that it has a sufficiently substantial investment in the exploitation of the intellectual property to satisfy the domestic industry requirement of the statute, that party is entitled to seek relief under section 337.

InterDigital v. USITC and Nokia, 707 F.3d 1295, 1303-4 (Fed. Cir. 2013) (emphasis added). You can read more about Interdigital here. Based on this holding, the InterDigital majority sided with the ITC plaintiff. Writing in dissent, Judge Newman viewed the domestic industry requirement as necessitating domestic manufacture.

In Motiva v. ITC and Nintendo, a panel consisting of Judges Newman, Prost and O'Malley have limited InterDigital to some extent. In Motiva, the panel concluded that the domestic industry requirement is not satisfied by a plaintiff whose only activities at the time of filing its complaint consisted of its litigation against the ITC defendant when those activities were "not an investment in commercializing Motiva's patented technologies that would develop a licensing program to encourage adoption and development of articles that incorporated Motiva's patented technology." Slip Op. at 10.

Motiva’s investment in the litigation against Nintendo could indeed satisfy the economic prong of the domestic industry requirement if it was substantial and directed toward a licensing program that would encourage adoption and development of articles that incorporated Motiva’s patented technology. See InterDigital Commc’ns, LLC v. Int’l Trade Comm’n, 707 F.3d 1295, 1299 (Fed. Cir. 2013) (clarifying that efforts directed toward licensing a patent can satisfy the domestic industry requirement where they would result in the production of “goods practicing the patents”)….

However, the ALJ found that Motiva’s litigation against Nintendo was not directed at developing such a licensing program. Relying on extensive documentary evidence and witness testimony, the ALJ concluded that the presence of the Wii in the market had no impact on Motiva’s commercialization efforts or ability to encourage partners to invest in and adopt its patented technology. And Motiva was never close to launching a product incorporating the patented technology—nor did any partners show any interest in doing so, for years before or any time after the launch of the Wii. Motiva’s only remaining prototype was a product far from completion, and a multitude of development and testing steps remained prior to finalizing a product for production. Moreover, the evidence demonstrated that Motiva’s litigation was targeted at financial gains, not at encouraging adoption of Motiva’s patented technology. The inventors looked forward to financial gains through Motiva’s litigation, not hopes of stimulating investment or partnerships with manufacturers.

Slip Op. at 10 (emphasis added).

Timing of the domestic industry analysis: The Federal Circuit also held that the date of the filing of Motiva's ITC complaint is the "relevant date at which to determine if the domestic industry requirement of Section 337 was satisfied." Slip Op. at 11. Thus, irrespective of Motiva's earlier attempts to develop a domestic industry for its technology before 2007, there was "no evidence in the record relating that development activity to Motiva’s efforts to establish a domestic industry at the time Motiva chose to file its complaint three years later." Id.

Guest Post: Monopoly Without Apology

By Shubha Ghosh

Without any surprise, even to those who wrote amici in support of the farmer in Bowman v. Monsanto, the Supreme Court ruled in favor of Monsanto last week. During oral arguments in February, the Court made it clear that it would find against Bowman because he had made an unauthorized copy of Monsanto’s patented seed. Since oral argument, the focus has been on how the Court would rule in favor of Monsanto. The final ruling, while narrow in its language, is a potentially confusing one. In this post, I write about the implications of Bowman for the future.

Towards the end of her opinion for a unanimous court, Justice Kagan states that the ruling applies only to the facts at hand. The Court leaves open how the exhaustion doctrine applies to other self-replicating technologies. As a co-author of an amicus for the American Antitrust Institute on behalf of Bowman, I was relieved to read Justice Kagan’s rejection of the broad exception to the exhaustion doctrine for self-replicating technologies adopted by the Federal Circuit. Such a broad holding would mean that first sale and other applications of exhaustion would have no place in biotechnology or digital technologies. Contrary to the Federal Circuit, and citing treatment of software under copyright, the Court acknowledges that patent rights may not extend to necessary, but incidental copying, or to situations where copying occurs outside the control of the purchaser. Similar limitations may exist for making under patent law in the exhaustion doctrine.

What is more troubling, and somewhat confusing, is the Court’s treatment of making under the patent act. Bowman’s act of infringement was simply the act of planting the seed for another generation. This broad construal of infringement expands the scope of patent infringement to include the sort of incidental infringement that the Court acknowledges as possibly protected by exhaustion. During oral argument, the Court asked Monsanto’s counsel about inadvertent infringement, but there was no engagement. Whether inadvertent or not, it appears from the Court’s decision is that planting by itself is infringement. That conclusion is inconsistent with precedent and with previous cases.

The Court cites its 1962 decision, Wilbur-Ellis Co. v. Kuther, for the proposition that a purchaser cannot make another version of the patented item under the exhaustion doctrine. However, the Court did not mention that Kuther involved a situation in which the purchaser was not found liable for patent infringement. Specifically, the purchaser retrofitted a patented sardine-canning machine so that it could handle larger sizes of cans. Although the patent owner claimed this retrofitting to be an unauthorized reconstruction of the patented machine, the Court held that in adjusting and putting together the unpatented parts the purchaser was engaging in authorized repair.

Bowman argued that by planting the seed, he was harnessing the unpatented reproductive capacity of the seed. The Court dismissed this argument as the “blame the bean defense.” Admittedly, the argument might mean a broad exhaustion doctrine for self-replicating technologies, a conclusion that is equally troubling as the Federal Circuit’s broad exemption from exhaustion for such technologies. But the Court dismissed this argument too quickly. By concluding that planting is by its very nature reconstruction, the Court ignores the unpatented natural processes that are embodied in the act of planting. The use of the unpatented natural processes is discounted completely. In ruling against Bowman, the Court relied on a precedent that in some of its elements favored the purchaser.

The Court also relied on its 1882 decision, Cotton-Tie Company v. Simmons. In this case, the patentee distributed its patented tie for bundles for free with the cotton bales it sold under the express licensing term that the ties be used only once. The defendant collected the used ties and reconstructed them. The Court held that the defendant infringed the patent. The facts of Bowman are similar to that of Simmons. Both bought used versions of the patented product and reused them. But there are key differences. The Court’s finding of infringement in Simmons rested on a clear application of the claims of the patent which covered precisely the reconstruction of the patented ties. In Bowman, however, the Court relies on a dictionary definition of the work make to conclude that since the patented gene was part of the next generation of seeds grown by Bowman, the farmer had made the patented invention. The Court does not consult the language of the claims. Instead the Court concludes that planting is making and, under the Patent Act, any making is an infringement.

But the Bowman Court seems to be confused on when exactly making is infringement. In footnote 3, the Court considers the hypothetical of a farmer buying the patented seeds from Monsanto without an express licensing term that allowed the farmer to plant the seeds. The Court says that in such a scenario, the farmer would have an implied license to plant the seed once. But if planting is infringement, from where does this implied license arise? The Court seems to be saying that the implied license is inherent to the transaction. Why else would a sane farmer buy the seed from Monsanto except to plant?, the Court implicitly asks. The Court, of course, gives an answer to this question when it acknowledges that there are uses of the seed that would be protected from infringement under patent exhaustion: as feed for livestock or even for personal consumption. The Court’s hypothetical raises the question of when the license to plant is implied and when it is not. This confusion raises the question of the legal basis for determining when a planting of a seed is a making of the patented gene.

The Court’s legal basis ultimately rests in policy. It states that its concern is with the unlimited reproduction of the patented gene which would prevent Monsanto from developing a meaningful business model for the distribution of its seed after the first sale. But exhaustion does not remove all remedies for patent owners. Breach of contractual restrictions can give rise to contract remedies, ones that may be less draconian than a patent injunction or treble damages. During oral arguments, the Court characterized this argument as having contract substitute for patent. That is a mischaracterization. Contract remedies can supplement patent remedies, particularly in cases of exhaustion. Contract remedies do not eviscerate a patent, and they do not serve as a poor substitute for a patent. Instead, contract remedies in the case of exhaustion serve to balance the rights of patent owners with those of consumers, business people, and inventors that make use of patented articles. The Court affirmed this notion in footnote 7 of its 2008 Quanta decision, which remains good law after Bowman.

What is the most revealing about the Court’s opinion is its frequent reference to the “patent monopoly.” When I first read that phrase, which appears four times in a ten page opinion, I kept thinking of the bad old days of Justice Douglas, who viewed patents as inherently anti-competitive. The Court in Bowman, however, uses the term of patent monopoly to refer to the patentee’s exclusive rights in the specific patented article that is sold. According to the Court, the monopoly in that particular article is broad and is compromised if unauthorized making is allowed. The Court sees that threat in Bowman. Unfortunately, in reaching its decision the Court based its decision almost exclusively on the interests of the patent monopolist without thorough consideration of its own precedent, the analysis of the underlying unpatented natural processes, and the relationship among planting, making, and implied license. With the patent at issue about to expire, perhaps the impact of the decision is minimal. However, with the next generation of Round Up Ready and genetically modified seed currently under review in the USPTO, the impact of the decision will undoubtedly be felt by the next generation of inventions and users.

Shubha Ghosh is The Vilas Research Fellow & Professor of Law at the University of Wisconsin Law School.

Supreme Court to hear another Case Involving Licensees in Good Standing who Challenge Patent Rights

By Dennis Crouch

Medtronic Inc. v. Boston Scientific Corp., Docket No. 12-1128 (Supreme Court 2013)

The Supreme Court has granted a writ of certiorari in a license dispute involving giants of the medical device world – Medtronic and Boston Scientific. Medtronic has licensed defibrillator patents owned by Mirowski Family Ventures and now controlled by Boston Scientific as exclusive licensee. U.S. Reissue Patent Nos. RE38,119 and RE39,897. Medtronic’s license gives it the right to challenge the patent in court even while still under license. That right to challenge is also supported by the Supreme Court’s 2007 decision in MedImmune. And, in a 2007 court filing, Medtronic did challenge the license – alleging that its new products did not infringe the patents in question.

Normally, the patentee has the burden of proving infringement. The odd ruling in this case came when the Federal Circuit flipped that normal approach and held instead that the burden shifts to the DJ plaintiff when the case involves a licensee-in-good-standing suing for declaratory judgment of non-infringement. The Supreme Court will now consider whether that burden shift is appropriate – and in all likelihood will reject the Federal Circuit’s decision 9-0.

Medtronic asks the following question:

In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is “not required … to break or terminate its … license agreement before seeking a declaratory judgment in federal court that the underlying patent is … not infringed.”

The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.

One question that the court needs to answer is whether its rules regarding licensee standing and burdens are hard-and-fast or instead whether they should be treated as default rules that can be altered by contracting parties.

Hal Wegner of Foley writes that the case will be briefed over the summer and heard early in the October 2013 Term.

Alexsam, Inc. v. Best Buy, Barnes & Noble, Gap, JC Penney, McDonalds, et al.(E.D. Tex. 2013)

Alexsam has asserted its gift-card patents against a host of accused infringers. U.S. Patent Nos. 6,000,608 and 6,189,787. These patents have been the subject of multiple reexamination requests but the USPTO has repeatedly confirmed patentability and refused to re-re-examine. Here again a jury has confirmed that the patent is valid. In the case against the defendants here, the court held a single trial for validity and will next hold separate trials on infringement for each accused infringer. Meanwhile, Best Buy settled after losing on validity.

The company Alexam was founded by the inventor Robert Dorf who filed for patent protection back in 1997. Asserted Claim 1 of the ‘787 patent reads as follows:

1. A multifunction card system, comprising:

a. at least one electronic gift certificate card having a unique identification number encoded on it, said identification number comprising a bank identification number approved by the American Banking Association for use in a banking network, said identification number corresponding to said multifunction card system;

b. a bank processing hub computer under bank hub software control and in communication over a banking network with a pre-existing standard retail point-of-sale device, said bank processing hub computer receiving electronic gift certificate card activation data when said electronic gift certificate card is swiped through said point-of-sale device, said electronic gift certificate card activation data comprising said unique identification number of said electronic gift certificate card and an electronic gift certificate activation amount; and

c. a gift certificate card computer under gift certificate card software control and in communication with said bank processing hub for activating a gift certificate card account in a gift certificate card database corresponding to said electronic gift certificate card, said gift certificate card account comprising balance data representative of an electronic gift certificate activation amount.

After Final Consideration Pilot 2.0

From the PTO:

Using information gathered from the After Final Consideration Pilot (AFCP), as well as input from stakeholders and examiners obtained through the RCE outreach initiative, the USPTO will launch the After Final Consideration Pilot 2.0 (AFCP 2.0) on May 19, 2013. Designed to be more efficient and effective than the AFCP, AFCP 2.0 will be part of the USPTO’s on-going efforts towards compact prosecution and increased collaboration between examiners and stakeholders.

“Compact prosecution remains one of our top goals,” said Teresa Stanek Rea, Acting Under Secretary of Commerce for Intellectual Property and Acting Director of the USPTO. “As with the original AFCP pilot, the new AFCP 2.0 pilot allows additional flexibility for applicants and examiners to work together and provides even greater opportunity for communication after final than the original pilot.”

Like AFCP, AFCP 2.0 authorizes additional time for examiners to search and/or consider responses after final rejection. Under AFCP 2.0, examiners will also use the additional time to schedule and conduct an interview to discuss the results of their search and/or consideration with you, if your response does not place the application in condition for allowance. In this way, you will benefit from the additional search and consideration afforded by the pilot, even when the results do not lead to allowance.

In addition, the procedure for obtaining consideration under AFCP 2.0 has been revised. The revised procedure focuses the pilot on review of proposed claim amendments and allows the USPTO to better evaluate the pilot.

To be eligible for consideration under AFCP 2.0, you must file a response under 37 CFR §1.116, which includes a request for consideration under the pilot and an amendment to at least one independent claim that does not broaden the scope of the independent claim in any aspect. Please see the notice published in the Federal Register at 78 Fed. Reg. 29117 for a complete description of how to request consideration under AFCP 2.0. As was the case with the AFCP, examiners will continue to use their professional judgment to decide whether the response can be fully considered under AFCP 2.0. This will include determining whether any additional search is required and can be completed within the allotted time, in order to determine whether the application can be allowed.

As always, the option to request an interview with the examiner, consistent with MPEP 713, is available to you irrespective of whether the submission was considered under AFCP 2.0.

If you are considering filing a response to a final rejection under 37 CFR 1.116 that you believe will lead to allowance of your application with only limited further searching and/or consideration by the examiner, you should consider requesting consideration of the response under AFCP 2.0.

AFCP 2.0 is scheduled to run through September 30, 2013, i.e., any request to consider a response after final rejection under AFCP 2.0 must be filed on or after May 19, 2013, and on or before September 30, 2013. AFCP, which began on March 25, 2012, will terminate on May 18, 2013.

Supreme Court Looks More Closely at Reviewing Therasense

By Dennis Crouch

Sony Computer v. 1st Media LLC, Docket No 12-1086 (on petition for writ of certiorari 2013)

In a recent order, the Supreme Court has asked the Solicitor General to file a brief in this expressing the views of the United States in this pending inequitable conduct case. (CVSG). The case is essentially a challenge of the Federal Circuit’s en banc decision in Therasense that strongly cabined-in the doctrine of inequitable conduct. In this case, the Federal Circuit rejected a district court holding of inequitable conduct in a failure-to-submit case. According to the lower court, three references used to reject the equivalent foreign cases were never submitted for consideration by the US examiners. Nevada district court Judge Mahan found that both the patent attorney and the listed inventor were at fault for failing to submit the references and consequently held the patent unenforceable due to inequitable conduct.

On appeal, the Federal Circuit reversed – making clear (again) that in a failure-to-disclose situation, the defendant must prove that individuals with a Rule 56 duty “made a deliberate decision to withhold” the references. Further, that deliberate decision element must be proven with clear and convincing evidence and that proof of intent cannot be inferred merely from the fact that the individuals had knowledge of the references and their materiality. The Federal Circuit wrote:

A court can no longer infer intent to deceive from non-disclosure of a reference solely because that reference was known and material. Moreover, a patentee need not offer any good faith explanation for his conduct unless and until an accused infringer has met his burden to prove an intent to deceive by clear and convincing evidence. . . . Moreover, it is not enough to argue carelessness, lack of attention, poor docketing or cross-referencing, or anything else that might be considered negligent or even grossly negligent. To sustain a charge of inequitable conduct, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference. Whatever one might conclude about Lewis’s and Sawyer’s conduct and interactions relating to the Bush reference, and the nature of Sawyer’s practice at the relevant time, the record does not support the inference that Lewis and Sawyer deliberately chose to withhold Bush.

Because one element of the inequitable conduct charge is missing, the court concluded that the charge cannot be proven. Of course, “carelessness, lack of attention, [or] poor docketing” will still lead to malpractice claims.

In the petition for writ of certiorari, the accused infringer asks the following question:

Did the Court of Appeals for the Federal Circuit err in restricting district courts’ equitable discretion in evaluating patent unenforceability, contrary to this Court’s precedent in Keystone Driller, Hazel-Atlas, and Precision Instrument, by applying a rigid test that (a) forecloses district courts from considering the entire circumstantial record; and (b) precludes district courts from granting equitable remedies where a patent applicant has violated the PTO’s duty of candor.

In Therasense, the Federal Circuit added some flexibility to its analysis in cases involving sufficiently egregious misconduct. Sony responds that the limited carve-out “is flawed because it creates a rigid threshold [of an egregious affirmative act of misconduct] as a prerequisite to the equitable discretion called for by this Court’s precedent. The flexibility embodied in this Court’s precedent should apply in all cases, not just those involving affirmative egregious misconduct.”

Supreme Court has a history of hearing fraud cases and this CVSG adds to the likelihood that it will hear this case.

Forrester v. Wheelabrator: No Federal Subject Matter Jurisdiction Over Tortious Interference Claims Involving Prospect of Claim Construction

By Jason Rantanen

This case is significant because even as it applies the Supreme Court's recent ruling in Gunn v. Minton to find a lack of subject matter jurisdiction over state law tortious interference claims involving patent issues it also expressly suggests that there are limits to the effects of the Court's ruling.  This issue is particularly important to be cognizant of because, as here, a lack of subject matter jurisdiction can instantly reset a lawsuit regardless of how far along it has proceeded. 

Forrester Envtl. Servs., Inc. v. Wheelabrator Techs., Inc. (Fed. Cir. 2013) Download Forrester v Wheelabrator (2013)
Panel: Newman, Bryson, Dyk (author)

Forrester, a player in the market for industrial and municipal waste treatment systems, sued competitor Wheelabrator in New Hampshire state court for a violation of the New Hampshire Consumer Protection Act, tortious interference with a contractual relationship, tortious interference with Forrester's prospective advantage, and trade secret misappropriation.  Forrester's claims were based on the allegation that in 2007, Wheelabrator met with Kobrin, a Taiwanese company that Forrester had a business arrangement with, telling Korbin that Wheelabrator's US patents covered the technology provided to Kobin by Forrester.  Forrester contended that this statement was false and that as a result of the false statement Korbin ended its arrangement with Forrester.

After Forrester filed its suit in state court, Wheelabrator removed the action to federal district court.  The district court summarily denied Forrester's remand motion and subesequently ruled in Wheelabrator's favor on all of Forrester's substantive claims.  Forrester appealed.

Recap of Section 1338 Requirements: Under 28 U.S.C. § 1338, federal district courts have original jurisdiction over "any civil action arising under any Act of Congress relating to patents."  While this applies on its face to standard patent infringement suits, "a cause of action created by state law may 'aris[e] under' federal patent law within the meaning of 28 U.S.C. § 1338 if it involves a patent law issue that is '(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.' Gunn v. Minton, 568 U.S. ___, ___, 133 S. Ct. 1059, 1065 (2013)."  Slip Op. at 6-7.

Patent law issue here not "substantial": The central issue on appeal was whether Forrester's state law claims necessarily raise a substantive issue of patent law because Forrester's allegations "necessarily require the trial court to construe the claims of the patent in order to determine whether the alleged statements were [] false."  Slip Op. at 8, quoting Wheelabrator's brief.  The Federal Circuit held that this did not raise a substantial issue of patent law here because, as in Gunn, there is "no prospect of future conflict between inconsistent judgments in state and federal courts."  Id. at 10.  Due to the  circumstances of this case, "there is no prospect of a future U.S. infringement suit arising out of Kobin's [operations in Taiwan]" and because the patents have all expired, there is "no prospect that future conduct in the U.S. could lead to an infringement suit regarding those patents."  Id.

The Federal Circuit also rejected Wheelabrator's specific argument that resolution of the claim construction issues necessarily would have potential preclusive effects in future litigation involving the patents.  "[T]he Supreme Court rejected a related argument in Gunn, concluding that any such collateral estoppel effect “would be limited to the parties and patents that had been before the state court,” and that '[s]uch ‘fact-bound and situation-specific’ effects are not sufficient to establish federal arising under jurisdiction.'"  Id., quoting Gunn

Limits on Gunn: Even while concluding that here the district court did not have jurisdiction, Forrester recognizes some potential limits when applying Gunn to state law claims:

In the past, we have concluded that similar state law claims premised on allegedly false statements about patents raised a substantial question of federal patent law. For example, in Additive Controls & Measurement Systems, Inc. v. Flowdata, Inc., we concluded that the plaintiff’s state law business disparagement claims arose under patent law for the purposes of 28 U.S.C. § 1338. [] We noted that under state law, “a business disparagement claim requires [the] plaintiff to prove . . . the falsity of [the] defendant’s allegedly disparaging statements.” []  There, the allegedly disparaging statement was an accusation of patent infringement; thus, we concluded that in order to prove the falsity of that statement, the plaintiff would have to “show that its product does not infringe the . . . patent.” [] Reasoning that the infringement issue presented a substantial question of patent law, we concluded that the claims arose under federal patent law for the purposes of § 1338. [CAFC also discusses Hunter Douglas]

Those cases may well have survived the Supreme Court’s decision in Gunn. Unlike the purely “backward looking” legal malpractice claim in Gunn, [], permitting state courts to adjudicate disparagement cases (involving alleged false statements about U.S. patent rights) could result in inconsistent judgments between state and federal courts. For example, a federal court could conclude that certain conduct constituted infringement of a patent while a state court addressing the same infringement question could conclude that the accusation of infringement was false and the patentee could be enjoined from making future public claims about the full scope of its patent as construed in federal court. 

Slip Op. at 8-9 (internal citations omitted and emphasis added).

Expanding Post-Grant Business Method Reviews: S. 866

By Dennis Crouch

Senator Chuck Schumer has proposed a short bill entitled the “Patent Quality Improvement Act of 2013.” S. 866. The purpose of the bill is to expand the scope of the transitional covered business method review. First, the S. 866 would eliminate the sunset provision of the bill making it permanent rather than transitional in nature. Second, the bill would expand the scope of covered business methods by eliminating the “financial product or service” limitation. This expansion should be seen as the next step toward expanding post-grant review to cover all patents throughout their lifespan.

Background: The American Invents Act created several new mechanisms for challenging patents through the Patent Trial and Appeal Board (PTAB). One of the most powerful of these is the new post-grant review (PGR) proceeding that allows patent challenges on any validity ground, including issues arising from 35 U.S.C. §§ 101, 102, 103 or 112.. However PGR is only available for first-to-file patents (i.e., patents relating to applications filed since March 16, 2013) and a PGR request must be filed within nine-months of the patent issuance. In addition to PGR, the AIA provides a special provision to allow expanded challenges of certain business method patents covered by the statutory definition. As with PGR, the covered business method review allows challenges for any validity ground. Although covered business method reviews are not limited by the timing requirement the statute does provide a set of important limitations.

Under the AIA:

  • Covered business methods are limited to those used in delivering “a financial product or service” and not be for a “technological invention.” The PTO rules provide that a “technological invention” is one that “recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution.”
  • The Petitioner must either have been sued by the patentee or have Article III declaratory judgment standing in order to file the petition.
  • The transitional provisions are set to sunset after eight years.

The Patent Quality Improvement Act would expand the scope of Covered Business Methods in two manners: (1) by eliminating the sunset provision and (2) by eliminating limitation that covered business methods be directed toward a “financial product or service.” The new definition would read as follows:

IN GENERAL- For purposes of this section, the term ‘covered business method patent’ means a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or an enterprise, product, or service, except that the term does not include patents for technological inventions.

If bill passes, the PTO would then have the opportunity to provide its definitions for the terms used here. At its broadest, the provision would make-available business-method reviews for new any patent that includes at least one claim that itself does not include a “technological invention.” If that is the purpose, we should wholly rewrite the provision to make it clear and straightforward: “IN GENERAL – For purposes of this section, the term ‘covered business method patent’ means a patent that includes a claim that is not directed to a technical invention.”

The Current USPTO Fees for filing a covered business method review is $30,000. However, since these claims are all associated with actual disputes that fee does not likely represent the most significant barrier to filing. In the nine-months since CBM reviews became available, petitions have filed a total of 25 reviews against a total of 18 patents.

Patent Troll Panel at Yale Law School

Guest post by Lisa Larrimore Ouellette, Postdoctoral Associate in Law and Thomson Reuters Fellow, Yale Law School Information Society Project

Last month I moderated a panel discussion hosted by the Information Society Project at Yale Law School on what are variously (and ambiguously) called patent-assertion entities (PAEs), non-practicing entities (NPEs), or patent trolls (video here). These entities have attracted significant recent attention: they are the target of a GAO report required by the AIA (now nearly eight months overdue), a DOJ/FTC workshop (which may lead to subpoenas), and the proposed SHIELD Act (mandating fee-shifting for some losing NPEs). But several panelists at Yale argued that this focus on trolls is misplaced.

Professor Michael Risch (Villanova), described his finding in Patent Troll Myths that the patents enforced by trolls look “basically like the patents you see in the rest of the world.” NPEs drive up product costs by suing operating companies over what are sometimes weak patents—but so do operating companies, and if this a problem, any solution should target both. He said his views are nicely illustrated by the case of Innovatio targeting thousands of Wi-Fi end users:

My first thought upon hearing about these folks was “the gall of these people, to think that they invented wireless LANs.” [But] it turns out they got all their patents from Broadcom. You know what? Broadcom did invent wireless LANs, along with a bunch of other people … It’s unclear whether [Innovatio is] doing bad things by going after these end users, I don’t know. But the question I have is, would it be so much better if Broadcom were doing this? I don’t think so. … A lot of [NPE] patents come from people who have spent money developing them, real research dollars, which is the exact kind of thing we have patents for. … We have to do something about the behavior, and not the owner.

Christina Mulligan (Yale ISP Fellow, starting as a professor this fall at Georgia Law) countered that extreme trolling behavior—in which the patent is simply hidden “in a submarine-like way” until an operating company independently invents and commercializes—is necessarily harmful because society gains nothing from the patent. This problem could be alleviated with an independent invention defense, or with solutions more directly targeting trolls (including private solutions such as Colleen Chien’s proposed patent litigation insurance for small companies, which Mulligan thinks might “starve the [troll] beast”). Professor Tun-Jen Chiang (George Mason) agreed that trolls often assert normatively unjustified patents, and noted that the same problem can exist when an operating company holds the patent. The problem of legally valid but negative-net-welfare patents is not an NPE problem—it is a systemic problem. NPEs simply make enforcement of such patents more effective, but “if we are going to a bad destination I don’t want to get there faster.” And even though the problem is broader than NPEs, in the absence of real patent reform, a narrower solution that targets NPEs might be “a second-best solution.”

Manny Schecter (IBM Chief Patent Counsel) disagreed, arguing that reforms that target particular business strategies (or particular technologies) are a mistake. But that doesn’t mean that NPEs are not causing an enormous shift in the patent landscape. IBM has been the top annual US patentee for the past 20 years and licenses its IP “to the tune of a billion dollars a year,” but it has only brought litigation to enforce its patents “once or twice a decade.” NPEs are now driving a “dramatic increase” in the amount of patent litigation (most of which does not affect IBM because it is no longer in the consumer electronics space). This isn’t necessarily bad, but it is definitely changing the dynamic—because legal departments are “overwhelmed,” NPEs “can impede the ability of the genuine competitors from enforcing their patents.” Still, an independent invention defense like Mulligan suggests would be a “mistake” because it would create an incentive to not look at patents and to reinvent the wheel. “Some of the academics here will say, ‘Well, studies show people don’t look at patents to figure out what others are doing.’ … Don’t believe it.” [Note from Lisa: I agree!] Instead of focusing on NPEs, “to the extent we can do anything to improve the patent system’s certainty and clarity, we should be doing that … Removing some of those uncertainties from the system will in turn take away a tool that is in fact sometimes leveraged in the very types of litigation we are talking about here.”

Nathan Kelley (PTO Deputy Solicitor) described two such PTO initiatives to improve the patent system’s clarity: First, improving ownership information in PTO databases from the current “antiquated system of recording” so that people know who owns patents throughout their lifecycle and “who is the controlling entity behind accusations of infringement.” Second, working during prosecution to make sure claims have “understandable scope,” which is “particularly problematic when it comes to functional claiming … a problem that arises more frequently—I think it’s fair to say—in the NPE world and the software world.” He specifically mentioned Mark Lemley’s work on how § 112(f) needs to be applied more rigorously, and said they are working on having examiners specify on the record whether they think claims trigger § 112(f) or not. But he agreed that specifically targeting NPEs is a mistake:

We have history in our country of making our patent laws technology neutral, and maybe even business-model neutral as well. And to extent that we want to step away from that, and start to make laws that discriminate either on technology or on the business entity asserting the rights, we’re going to cause some problems, and we’re going to some extent devalue patents that already are there. … If we tip the balance against patentees, inevitably we are going to lower the incentive factor. And whether that’s a good thing or not I guess is something we’ll continue to debate.

The debate about patent trolls thus really seems to be a debate about the patent system. None of the panelists seemed to believe that patent assertion by NPEs is per se a problem—if there is a problem, it is that normatively unjustified patents are disproportionately asserted by trolls (though trolls also assert “good” patents, and “bad” patents do not exclusively belong to trolls). How you feel about trolls will depend on how prevalent you think those “bad” patents are—where “bad” means that the patent has negative net social welfare, even though it might be completely legally valid—a question that is frustratingly hard to resolve empirically. In the meantime, the best we might be able to do is improve patent clarity and certainty, a goal that is hard to argue against (though some have tried). Unfortunately, given current divisions on the Federal Circuit, improving clarity is sometimes easier said than done.

Supreme Court: Patent Rights Block Farmers from Saving and Re-Planting Patented Seeds

by Dennis Crouch

Bowman v. Monsanto Company (Supreme Court 2013)

In a short opinion a unanimous Supreme Court has sided with Monsanto in holding that the doctrine of patent exhaustion “does not permit a farmer to reproduce patented seeds through planting and harvesting without the patent holder’s permission.” 

Read the decision below:

= = = =

Bowman v. Monsanto Company, 569 U. S. ____ (2013)

JUSTICE KAGAN delivered the opinion of the Court

Under the doctrine of patent exhaustion, the authorized sale of a patented article gives the purchaser, or any subsequent owner, a right to use or resell that article. Such a sale, however, does not allow the purchaser to make new copies of the patented invention. The question in this case is whether a farmer who buys patented seeds may reproduce them through planting and harvesting without the patent holder’s permission. We hold that he may not.< ?xml:namespace prefix ="" o />

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Respondent Monsanto invented a genetic modification that enables soybean plants to survive exposure to glyphosate, the active ingredient in many herbicides (including Monsanto’s own Roundup). Monsanto markets soybean seed containing this altered genetic material as Roundup Ready seed. Farmers planting that seed can use a glyphosate based herbicide to kill weeds without damaging their crops. Two patents issued to Monsanto cover various aspects of its Roundup Ready technology, including a seed incorporating the genetic alteration. See Supp. App. SA1–21 (U. S. Patent Nos. 5,352,605 and RE39,247E); see also 657 F. 3d 1341, 1343–1344 (CA Fed. 2011).

Monsanto sells, and allows other companies to sell, Roundup Ready soybean seeds to growers who assent to a special licensing agreement. See App. 27a. That agreement permits a grower to plant the purchased seeds in one (and only one) season. He can then consume the resulting crop or sell it as a commodity, usually to a grain elevator or agricultural processor. See 657 F. 3d, at 1344–1345. But under the agreement, the farmer may not save any of the harvested soybeans for replanting, nor may he supply them to anyone else for that purpose. These restrictions reflect the ease of producing new generations of Roundup Ready seed. Because glyphosate resistance comes from the seed’s genetic material, that trait is passed on from the planted seed to the harvested soybeans: Indeed, a single Roundup Ready seed can grow a plant containing dozens of genetically identical beans, each of which, if replanted, can grow another such plant—and so on and so on. See App. 100a. The agreement’s terms prevent the farmer from co-opting that process to produce his own Roundup Ready seeds, forcing him instead to buy from Monsanto each season.

Petitioner Vernon Bowman is a farmer in Indiana who, it is fair to say, appreciates Roundup Ready soybean seed. He purchased Roundup Ready each year, from a company affiliated with Monsanto, for his first crop of the season. In accord with the agreement just described, he used all ofthat seed for planting, and sold his entire crop to a grain elevator (which typically would resell it to an agricultural processor for human or animal consumption).

Bowman, however, devised a less orthodox approach for his second crop of each season. Because he thought such late-season planting “risky,” he did not want to pay the premium price that Monsanto charges for Roundup Ready seed. Id., at 78a; see Brief for Petitioner 6. He therefore went to a grain elevator; purchased “commodity soybeans” intended for human or animal consumption; and planted them in his fields.[1] Those soybeans came from prior harvests of other local farmers. And because most of those farmers also used Roundup Ready seed, Bowman could anticipate that many of the purchased soybeans would contain Monsanto’s patented technology. When he applied a glyphosate-based herbicide to his fields, he confirmed that this was so; a significant proportion of the new plants survived the treatment, and produced in their turn a new crop of soybeans with the Roundup Ready trait. Bowman saved seed from that crop to use in his late-season planting the next year—and then the next, and the next, until he had harvested eight crops in that way. Each year, that is, he planted saved seed from the year before (sometimes adding more soybeans bought from the grain elevator),sprayed his fields with glyphosate to kill weeds (and any non-resistant plants), and produced a new crop of glyphosate resistant—i.e., Roundup Ready—soybeans.

After discovering this practice, Monsanto sued Bowman for infringing its patents on Roundup Ready seed. Bowman raised patent exhaustion as a defense, arguing that Monsanto could not control his use of the soybeans because they were the subject of a prior authorized sale (from local farmers to the grain elevator). The District Court rejected that argument, and awarded damages to Monsanto of $84,456. The Federal Circuit affirmed. It reasoned that patent exhaustion did not protect Bowman because he had “created a newly infringing article.” 657 F. 3d, at 1348. The “right to use” a patented article following an authorized sale, the court explained, “does not include the right to construct an essentially new article on the template of the original, for the right to make the article remains with the patentee.” Ibid. (brackets and internal quotation marks omitted). Accordingly, Bowman could not “‘replicate’ Monsanto’s patented technology by planting it in the ground to create newly infringing genetic material, seeds, and plants.” Ibid.

We granted certiorari to consider the important question of patent law raised in this case, 568 U. S. ___ (2012), and now affirm.

II

The doctrine of patent exhaustion limits a patentee’s right to control what others can do with an article embodying or containing an invention.[2] Under the doctrine, “the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U. S. 617, 625 (2008). And by “exhaust[ing] the [patentee’s] monopoly” in that item, the sale confers on the purchaser, or any subsequent owner, “the right to use [or] sell” the thing as he sees fit. United States v. Univis Lens Co., 316 U. S. 241, 249–250 (1942). We have explained the basis for the doctrine as follows:“[T]he purpose of the patent law is fulfilled with respect to any particular article when the patentee has received his reward . . . by the sale of the article”; once that “purpose is realized the patent law affords no basis for restraining the use and enjoyment of the thing sold.” Id., at 251. Consistent with that rationale, the doctrine restricts a patentee’s rights only as to the “particular article” sold, ibid.; it leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item. “[T]he purchaser of the [patented] machine . . . does not acquire any right to construct another machine either forhis own use or to be vended to another.” Mitchell v. Hawley, 16 Wall. 544, 548 (1873); see Wilbur-Ellis Co. v. Kuther, 377 U. S. 422, 424 (1964) (holding that a purchaser’s “reconstruction” of a patented machine “would impinge on the patentee’s right ‘to exclude others from making’ . . . the article” (quoting 35 U. S. C. §154 (1964 ed.))). Rather, “a second creation” of the patented item “call[s] the monopoly, conferred by the patent grant, into play for a second time.” Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U. S. 336, 346 (1961). That is because the patent holder has “received his reward” only for the actual article sold, and not for subsequent recreations of it. Univis, 316 U. S., at 251. If the purchaser of that article could make and sell endless copies, the patent would effectively protect the invention for just a single sale. Bowman himself disputes none of this analysis as a general matter: He forthrightly acknowledges the “well settled” principle “that the exhaustion doctrine does not extend to the right to ‘make’ a new product.” Brief for Petitioner 37 (citing Aro, 365 U. S., at 346).

Unfortunately for Bowman, that principle decides this case against him. Under the patent exhaustion doctrine, Bowman could resell the patented soybeans he purchased from the grain elevator; so too he could consume the beans himself or feed them to his animals. Monsanto, although the patent holder, would have no business interfering in those uses of Roundup Ready beans. But the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto’s permission (either express or implied). And that is precisely what Bowman did. He took the soybeans he purchased home; planted them in his fields at the time he thought best; applied glyphosate to kill weeds (as well as any soy plants lacking the Roundup Ready trait); and finally harvested more (many more) beans than he started with. That is how “to ‘make’ a new product,” to use Bowman’s words, when the original product is a seed. Brief for Petitioner 37; see Webster’s Third New International Dictionary 1363 (1961) (“make” means “cause to exist, occur, or appear,” or more specifically, “plant and raise (a crop)”). Because Bowman thus reproduced Monsanto’s patented invention, the exhaustion doctrine does not protect him.[3]

Were the matter otherwise, Monsanto’s patent would provide scant benefit. After inventing the Roundup Ready trait, Monsanto would, to be sure, “receiv[e] [its] reward” for the first seeds it sells. Univis, 316 U. S., at 251. But in short order, other seed companies could reproduce the product and market it to growers, thus depriving Monsanto of its monopoly. And farmers themselves need only buy the seed once, whether from Monsanto, a competitor, or (as here) a grain elevator. The grower could multiply his initial purchase, and then multiply that new creation, ad infinitum—each time profiting from the patented seed without compensating its inventor. Bowman’s late-season plantings offer a prime illustration. After buying beans for a single harvest, Bowman saved enough seed each year to reduce or eliminate the need for additional purchases.

Monsanto still held its patent, but received no gain from Bowman’s annual production and sale of Roundup Ready soybeans. The exhaustion doctrine is limited to the “particular item” sold to avoid just such a mismatch between invention and reward.

Our holding today also follows from J. E. M. Ag Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., 534 U. S. 124 (2001). We considered there whether an inventor could get a patent on a seed or plant, or only a certificate issued under the Plant Variety Protection Act (PVPA), 7 U. S. C. §2321 et seq. We decided a patent was available, rejecting the claim that the PVPA implicitly repealed the Patent Act’s coverage of seeds and plants. On our view, the two statutes established different, but not conflicting schemes: The requirements for getting a patent “are more stringent than those for obtaining a PVP certificate, and the protections afforded” by a patent are correspondingly greater.

J. E. M., 534 U. S., at 142. Most notable here, we explained that only a patent holder (not a certificate holder) could prohibit “[a] farmer who legally purchases and plants” a protected seed from saving harvested seed “for replanting.” Id., at 140; see id., at 143 (noting that the Patent Act, unlike the PVPA, contains “no exemptio[n]” for “saving seed”). That statement is inconsistent with applying exhaustion to protect conduct like Bowman’s. If a sale cut off the right to control a patented seed’s progeny, then (contrary to J. E. M.) the patentee could not prevent the buyer from saving harvested seed. Indeed, the patentee could not stop the buyer from selling such seed, which even a PVP certificate owner (who, recall, is supposed to have fewer rights) can usually accomplish. See 7 U. S. C. §§2541, 2543. Those limitations would turn upside-down the statutory scheme J. E. M. described.

Bowman principally argues that exhaustion should apply here because seeds are meant to be planted. The exhaustion doctrine, he reminds us, typically prevents a patentee from controlling the use of a patented product following an authorized sale. And in planting Roundup Ready seeds, Bowman continues, he is merely using them in the normal way farmers do. Bowman thus concludes that allowing Monsanto to interfere with that use would “creat[e] an impermissible exception to the exhaustion doctrine” for patented seeds and other “self-replicating technologies.” Brief for Petitioner 16.

But it is really Bowman who is asking for an unprecedented exception—to what he concedes is the “well settled” rule that “the exhaustion doctrine does not extend to the right to ‘make’ a new product.” See supra, at 5. Reproducing a patented article no doubt “uses” it after a fashion. But as already explained, we have always drawn the boundaries of the exhaustion doctrine to exclude that activity, so that the patentee retains an undiminished right to prohibit others from making the thing his patent protects. See, e.g., Cotton-Tie Co. v. Simmons, 106 U. S. 89, 93–94 (1882) (holding that a purchaser could not “use” the buckle from a patented cotton-bale tie to “make” a new tie). That is because, once again, if simple copying were a protected use, a patent would plummet in value after the first sale of the first item containing the invention. The undiluted patent monopoly, it might be said, would extend not for 20 years (as the Patent Act promises), but for only one transaction. And that would result in less incentive for innovation than Congress wanted. Hence our repeated insistence that exhaustion applies only to the particular item sold, and not to reproductions.

Nor do we think that rule will prevent farmers from making appropriate use of the Roundup Ready seed they buy. Bowman himself stands in a peculiarly poor position to assert such a claim. As noted earlier, the commodity soybeans he purchased were intended not for planting, but for consumption. See supra, at 2–3. Indeed, Bowman conceded in deposition testimony that he knew of no other farmer who employed beans bought from a grain elevator to grow a new crop. See App. 84a. So a non-replicating use of the commodity beans at issue here was not just available, but standard fare. And in the more ordinary case, when a farmer purchases Roundup Ready seed qua seed—that is, seed intended to grow a crop—he will be able to plant it. Monsanto, to be sure, conditions the farmer’s ability to reproduce Roundup Ready; but it does not—could not realistically—preclude all planting. No sane farmer, after all, would buy the product without some ability to grow soybeans from it. And so Monsanto, predictably enough, sells Roundup Ready seed to farmers with a license to use it to make a crop. See supra, at 2, 6, n. 3. Applying our usual rule in this context therefore will allow farmers to benefit from Roundup Ready, even as it rewards Monsanto for its innovation.

Still, Bowman has another seeds-are-special argument: that soybeans naturally “self-replicate or ‘sprout’ unless stored in a controlled manner,” and thus “it was the planted soybean, not Bowman” himself, that made replicas of Monsanto’s patented invention. Brief for Petitioner 42; see Tr. of Oral Arg. 14 (“[F]armers, when they plant seeds, they don’t exercise any control . . . over their crop” or “over the creative process”). But we think that blame-the-bean defense tough to credit. Bowman was not a passive observer of his soybeans’ multiplication; or put another way, the seeds he purchased (miraculous though they might be in other respects) did not spontaneously create eight successive soybean crops. As we have explained, supra at 2–3, Bowman devised and executed a novel way to harvest crops from Roundup Ready seeds without paying the usual premium. He purchased beans from a grain elevator anticipating that many would be Roundup Ready; applied a glyphosate-based herbicide in a way that culled any plants without the patented trait; and saved beans from the rest for the next season. He then planted those Roundup Ready beans at a chosen time; tended and treated them, including by exploiting their patented glyphosate resistance; and harvested many more seeds, which he either marketed or saved to begin the next cycle. In all this, the bean surely figured. But it was Bowman, and not the bean, who controlled the reproduction (unto the eighth generation) of Monsanto’s patented invention.

Our holding today is limited—addressing the situation before us, rather than every one involving a self replicating product. We recognize that such inventions are becoming ever more prevalent, complex, and diverse. In another case, the article’s self-replication might occur outside the purchaser’s control. Or it might be a necessary but incidental step in using the item for another purpose. Cf. 17 U. S. C. §117(a)(1) (“[I]t is not [a copyright] infringement for the owner of a copy of a computer program to make . . . another copy or adaptation of that computer program provide[d] that such a new copy or adaptation is created as an essential step in the utilization of the computer program”). We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances. In the case at hand, Bowman planted Monsanto’s patented soybeans solely to make and market replicas of them, thus depriving the company of the reward patent law provides for the sale of each article. Patent exhaustion provides no haven for that conduct. We accordingly affirm the judgment of the Court of Appeals for the Federal Circuit.




[1] Grain elevators, as indicated above, purchase grain from farmers and sell it for consumption; under federal and state law, they generally cannot package or market their grain for use as agricultural seed. See 7 U. S. C. §1571; Ind. Code §15–15–1–32 (2012). But because soybeans are themselves seeds, nothing (except, as we shall see, the law) prevented Bowman from planting, rather than consuming, the product he bought from the grain elevator.

 

[2] 2The Patent Act grants a patentee the “right to exclude others from making, using, offering for sale, or selling the invention.” 35 U. S. C. §154(a)(1); see §271(a) (“[W]hoever without authority makes, uses, offers to sell, or sells any patented invention . . . infringes the patent”).

[3] This conclusion applies however Bowman acquired Roundup Readyseed: The doctrine of patent exhaustion no more protected Bowman’sreproduction of the seed he purchased for his first crop (from a Monsantoaffiliated seed company) than the beans he bought for his second (from a grain elevator). The difference between the two purchases wasthat the first—but not the second—came with a license from Monsanto to plant the seed and then harvest and market one crop of beans. We do not here confront a case in which Monsanto (or an affiliated seed company) sold Roundup Ready to a farmer without an express license agreement. For reasons we explain below, we think that case unlikely to arise. See infra, at 9. And in the event it did, the farmer might reasonably claim that the sale came with an implied license to plantand harvest one soybean crop.

Don’t break the chain – ensuring valid claims to priority based on US patent filings has become easier.

Guest Post by Alex Korenberg of Kilburn & Strode (UK)

The Paris Convention (and its implementation by the EPO and UKIPO) requires that the person filing a priority claiming application is the same as the person who has filed an application from which priority is claimed, or his or her successor in title. This has in the past caused problems for US based applicants on several occasions, since a mismatch cannot be fixed retrospectively.

The problematic fact situation was that the chain of title from the inventor(s) on the US priority application to the applicant (e.g. assignee company) on a priority claiming second application (e.g. a PCT application) could not be established at the second (e.g. PCT) filing date. The result in several UK court cases and EPO Board of Appeal decisions was that the claim to priority was found to be invalid, leading to a loss of the patent due to intervening disclosures in the priority year (see here http://www.kilburnstrode.com/resources/news/2011-4-21-ensuring-valid-priority-claims-for-us-originating-applications for a briefing note describing this issue in more detail). The only way to be certain the chain of tile was in place was to have assignments in place from all US applicant/inventors to the applicant on the second application prior to filing it.

The implementation of the provisions of the AIA now provides a convenient way for US patent filing companies to ensure this issue does not affect their foreign filings, making use of the ability to file the US application in the name of the assignee company, rather than the inventors. By filing in the name of the assignee company, there is then no question as to the chain of title in relation to the priority claim for a subsequent PCT or other foreign application filed in the same name. Unlike the entitlement to claim priority, the entitlement to grant of a patent can be settled in Europe after filing and at any time before grant, or even after grant by appropriate assignment. Using the provisions of the AIA to file in the name of the assignee company, the question of assignments from the inventor to the assignee company ceases to be a potentially fatal issue if not settled during the priority year.

The interaction between an invention’s chain of title and the ability to claim priority has been a niche pursuit for aficionados of the nether regions of patent law, but this may be one point where the harmonisation of patent law as a result of the AIA can provide readily available benefits for US patent filers. Of course, the complexity of the interaction of earlier inventor filed applications and the Paris Convention will still be around to keep lawyers busy for years to come.

CLS Bank v. Alice Corp: Court Finds Many Software Patents Ineligible

by Dennis Crouch

CLS Bank v. Alice Corp. (Fed. Cir. 2013) (en banc)

In a much awaited en banc decision, the Federal Circuit has affirmed the patent ineligibility of Alice Corp’s claims to a computerized method, a computer-readable medium containing computer instructions, and a computer system that implements those instructions.  The ten-member en banc panel released seven different decisions. While none of the opinions garnered majority support, seven of the ten judges agreed that the method and computer-readable medium claims lack subject matter eligibility.  And, eight of the ten concluded that the claims should rise and fall together regardless of their claim type.

All of the judges recognized that the test for patent eligibility under section 101 should be “a consistent, cohesive, and accessible approach” that provides “guidance and predictability for patent applicants and examiners, litigants, and the courts.”  However, the judges hotly disagree as to the pathway that will lead to that result.

The leading five-member opinion written by Judge Lourie provides three guideposts for its analysis:

  • First and foremost is an abiding concern that patents should not be allowed to preempt the fundamental tools of discovery—those must remain “free to all . . . and reserved exclusively to none.” . . . [T]he animating concern is that claims should not be coextensive with a natural law, natural phenomenon, or abstract idea; a patent-eligible claim must include one or more substantive limitations that, in the words of the Supreme Court, add “significantly more” to the basic principle, with the result that the claim covers significantly less. Thus, broad claims do not necessarily raise § 101 preemption concerns, and seemingly narrower claims are not necessarily exempt. What matters is whether a claim threatens to subsume the full scope of a fundamental concept, and when those concerns arise, we must look for meaningful limitations that prevent the claim as a whole from covering the concept’s every practical application.
  • Next, the cases repeatedly caution against overly formalistic approaches to subject-matter eligibility that invite manipulation by patent applicants. . . . Thus, claim drafting strategies that attempt to circumvent the basic exceptions to § 101 using, for example, highly stylized language, hollow field-of-use limitations, or the recitation of token post-solution activity should not be credited.
  • Finally, the cases urge a flexible, claim-by-claim approach to subject-matter eligibility that avoids rigid line drawing.

Abstract Ideas are Disembodied Concepts: Alice Corp’s claims are drawn to methods of reducing settlement risk by effecting trades through a third party intermediary (a supervisory institution) empowered to verify that both parties can fulfill their obligations before allowing the exchange to be completed.  This essence, the method is a form of third-party escrow that helps overcome the risk of fraud and non-payment. In thinking about that method, the court determined that it is an abstract idea because it is a “disembodied” concept that is a basic building block of human ingenuity and untethered from any real-world application.  Lourie writes:

CLS describes that concept as “fundamental and ancient,” but the latter is not determinative of the question of abstractness. Even venerable concepts, such as risk hedging in commodity transactions, see Bilski, 130 S. Ct. at 3231, were once unfamiliar, just like the concepts inventors are unlocking at the leading edges of technology today. But whether long in use or just recognized, abstract ideas remain abstract. The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a “disembodied” concept, In re Alappat, 33 F.3d 1526, 1544 (Fed. Cir. 1994) (en banc), a basic building block of human ingenuity, untethered from any real-world application. Standing alone, that abstract idea is not patent-eligible subject matter.

After identifying the portion of the claim directed to an abstract idea, Judge Lourie then looked to see whether “the balance of the claim adds ‘significantly more.’” Answering that question in the negative, the court found the claims lack eligibility.

Writing in Dissent, Chief Judge Rader disagreed with the court’s decision. He writes:

I enjoy good writing and a good mystery, but I doubt that innovation is promoted when subjective and empty words like “contribution” or “inventiveness” are offered up by the courts to determine investment, resource allocation, and business decisions. Again, it is almost . . . well, “obvious” . . . to note that when all else fails, it makes sense to consult the simplicity, clarity, and directness of the statute.

As I start my next quarter century of judicial experience, I am sure that one day I will reflect on this moment as well. I can only hope it is a brighter reflection than I encounter today.

 


 

 

Apple’s European Multi-Touch Patent Revived by the English Court of Appeals

By Dennis Crouch

HTC v. Apple, [2013] EWCA Civ 451 (Court of Appeals of England and Wales 2013)

In a Judgment by Lord Justice Kitchen, the English court of appeals has offered a decision in favor of Apple’s European Patents covering its multi-touch keyboard. See European Patent Nos. 2 098 948 and 1 964 022.

The patents cover technical data-flow solutions to for multi-touch keyboard devices and the lower court held that those claims lacked patent eligibility under Article 52 (2)(c) of the European Patent Convention which indicates that “[t]he following in particular shall not be regarded as inventions … programs for computers.” On appeal, the court reversed that decision — finding that the invention solves a sufficiently technical problem and therefore is patent eligible:

The problem which the patent addresses, namely how to deal with multiple simultaneous touches on one of the new multi-touch devices, is essentially technical, just as were the problems of how to communicate more effectively between programs and files held in different processors within a known network which lay at the heart of the decision in IBM Corporation/Data processing network, and how to provide a visual indication about events occurring in the input/output device of a text processor which lay at the heart of the decision in IBM Corporation/Computer related invention.

In this process, the court focused on what the invention contributed to the art as a “matter of practical reality” rather than focusing on the invention’s relation to computer software. The court went on to hold that a patentable contribution does not become unpatentable simply because a computer program is used to implement that contribution.

In the end, Apple’s claim 2 of its ‘948 patent still stands (claim 1 was obvious as were claims 5 and 17 of the ‘022 patent). The ‘948 claims at issue read as follows:

1. A method for handling touch events at a multi-touch device, comprising:

displaying one or more views;

executing one or more software elements, each software element being associated with a particular view;

associating a multi-touch flag or an exclusive touch flag with each view;

receiving one or more touches at the one or more views; and

selectively sending one or more touch events, each touch event describing a received touch, to one or more of the software elements associated with the one or more views at which a touch was received based on the values of the multi-touch and exclusive touch flags.

2. The method of claim 1, further comprising:

if a multi-touch flag is associated with a particular view, allowing other touch events contemporaneous with a touch event received at the particular view to be sent to software elements associated with the other views.

In his opinion, Lord Justice Lewison described his disappointment in the lack of clarity in the law.

It is, to me at least, regrettable that because these apparently simple words have no clear meaning both our courts and the Technical Boards of Appeal at the EPO have stopped even trying to understand them. However we are so far down that road that “returning were as tedious as go o’er”. Instead we are now engaged on a search for a “technical contribution” or a “technical effect”. Instead of arguing about what the legislation means, we argue about what the gloss means. We do not even know whether these substitute phrases mean the same thing. . . .

So the upshot is that we now ignore the words “computer program … as such” and instead concentrate on whether there is a technical contribution. It is, if I may say so, a singularly unhelpful test because the interaction between hardware and software in a computer is inherently “technical” in the ordinary sense of the word. If I buy a software package that malfunctions the software house will often offer me “technical support”. But that is clearly not enough for the software to qualify as making a “technical contribution”.