July 2013

Subject Matter Eligibility Post-CLS Bank

By Dennis Crouch

DDR Holdings, LLC v. Hotels.com, L.P., 2013 WL 3187161 (E.D.Tex. 2013)

In late 2012, jury agreed with DDR that its business method patents were being infringed upon and that the various defendants had failed to prove the claims invalid as either anticipated or obvious. The patents themselves are related to a method of “coordinated offsite marketing” of “internet websites.” U.S. Patent No. 7,818,399 and 6,993,572. The jury was not given the question of patentable subject matter under 35 U.S.C. 101. In a recent post-verdict ruling, Judge Gilstrap has also rejected Defendants’ Section 101 argument.

A typical claim in the patents is No. 17 from the ‘572 patent that reads:

An e-commerce outsourcing process comprising the steps of:

a) storing a look and feel description associated with a first website in a data store associated with a second website;

b) including within a web page of the first website, which web page has a look and feel substantially corresponding to the stored look and feel description, a link correlating the web page with a commerce object; and

c) upon receiving an activation of the link from a visitor computer to which the web page has been served, sewing to the visitor computer from the second website a composite web page having a look and feel corresponding to the stored look and feel description of the first website and having content based on the commerce object associated with the link.

In considering the claim scope, the Judge agreed with the patentee that the inventions embodied by the claims present “functional and palpable applications in the field of computer technology.” (Citing Research Corp). The judge also walked through the litany of “machine” elements required by the claims and concluded that the claim “also passes the machine-or-transformation test” and that conclusion strongly suggests patentable subject matter as “a useful and important indicator in the § 101 analysis.”

[The] claimed e-commerce outsourcing process requires [an] interaction between a data store storing a look and feel description of a web page and an activation of a link from a visitor computer to receive a composite web page. The method of an outsource provider also discloses a server that responds to activation by a web browser of a computer user by retrieving pre-stored data from storage, then generating and transmitting visual elements corresponding to the source page.

. . . .

As discussed above, the asserted claims disclose a specific set of physical linkages that involve a data store, server, computer, that together, and through the claimed interconnectivity, accomplishes the process of displaying composite web pages having the look and feel of the source web page. [Defendant] urges the Court to find the invention is only a business method of making two web pages look alike. While the ′572 and ′399 patents do, indeed, cover the concept of two web pages with visually corresponding elements, there is more to the asserted claims when considered as a whole. “Diehr emphasized the need to consider the invention as a whole, rather than ‘dissect[ing] the claims into old and new elements and then … ignor[ing] the presence of the old elements in the analysis.” Bilski. When the asserted claims are considered as a whole, the claimed invention lies in stark contrast to the facts of Bancorp. In Bancorp, the claimed “mathematical concept of managing a stable value protected life insurance policy” was found unpatentable as an abstract idea because mere mathematical computer was not dependent upon the computer components required to perform it. In contrast, the interactions and linkages of computer machinery to generate composite web pages in this case are integral to each of DDR’s asserted claims. Accordingly, the first prong of the machine-or-transformation test is satisfied. That being the case, this Court needs not address the transformation prong at this time.

Using the word “idea”: The word “idea” seems fairly abstract and thus potentially troublesome for a patentee. In this case, the inventor used the word “idea” repeatedly in his trial testimony. The defendants made the argument that the inventor’s language should serve as evidence that the claim is abstract. However, Judge Gilstrap rejected that argument as well:

The Court is also not persuaded that the inventor’s use of the word “idea” at least 25 times to describe his invention is evidence of unpatentable subject matter. The inventor’s testimony was given during a one week trial, and it is not unusual to explain a patent claim as a “gist” or “core idea.” Such testimony is not instructive that a claim is an abstract idea for purposes of § 101 patentability. Moreover, “all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas,” yet, “too broad an interpretation of this exclusionary principle could eviscerate patent law.” Mayo.

In all likelihood, the case will soon move to the Federal Circuit for review.

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Judge Gilstrap cited the recent fractured en banc decision in CLS Bank v. Alice only once and for the position posited by Judge Lourie that the statutory presumption of validity applies to the Section 101 analysis.

Fresenius v. Baxter: PTO Reexamination Decision Trumps Prior Decisions by both the District Court and the Federal Circuit

By Dennis Crouch

A substantial number of patents being enforced today are involved in parallel proceedings. Most often, these proceedings include an infringement lawsuit in federal court and a post-grant administrative proceeding before the US Patent Office. The law gives both entities power to rule on the validity of the patents in question. However, the Patent Act does not provide guidance for situations where the two political bodies conflict in judgment. An additional complicating factor stems from our Constitutionally mandated national government structure that separates power between the Administration, Congress, and the Courts. In a case decided today, the Federal Circuit says that the PTO’s invalidity decisions trump prior Court Decisions.

In Fresenius USA v. Baxter Int’l. (Fed. Cir. 2013), the Federal District Court granted “Summary Judgment of Validity” of a number of Baxter’s claims found in its U.S. Patent No. 5,247,434. (A kidney dialysis apparatus with a touch screen). In a 2009 decision, the Federal Circuit affirmed a portion of the validity decision – leaving Baxter with a handful of judicially proclaimed valid claims. In a parallel proceeding, the US Patent Office completed its reexamination of the patent and found the identical claims invalid and that decision was affirmed on appeal. The timing is somewhat important and so here is the chronological order:

  1. Court holds patent claims valid on summary judgment and proceeds toward Final Judgment.
  2. PTO finds patent claims invalid in reexamination.
  3. Court issues final judgment enforcing patent claims.
  4. Federal Circuit affirms PTO invalidity finding.

Although the district court did not stay its proceedings, the court was slow enough so that the PTO’s invalidity finding came before the court issued a final judgment in the case. That delay was key, according to the Federal Circuit decision here, since it divested the court of subject matter jurisdiction over the dispute. The Court explained, because of the USPTO decision, “Baxter no longer has a cause of action.”

The Federal Circuit went on to explain that the 2007 validity decision does not count as a final decision for res judicata purposes because it did not conclude the case as a whole.

The majority opinion was written by Judge Dyk and joined by Judge Prost.

In a 30 page dissent, Judge Newman argues that the majority ruling is an unconstitutional violation of separation of powers:

The court today authorizes the Patent and Trademark Office, an administrative agency within the Department of Commerce, to override and void the final judgment of a federal Article III Court of Appeals. The panel majority holds that the entirety of these judicial proceedings can be ignored and superseded by an executive agency’s later ruling.

This holding violates the constitutional plan, for “Judgments, within the powers vested in courts by the Judiciary Article of the Constitution, may not lawfully be revised, overturned or refused faith and credit by another Department of Government.” Chi. & S. Air Lines, Inc. v. Waterman S.S. Corp., 333 U.S. 103 (1948).

It is likely that Baxter will file a petition for writ of certiorari.

The PATENT Jobs Act of 2013

By Dennis Crouch

Reps. Honda, Lofgren, and Eshoo (All D-Ca) have collectively introduced the Patents and Trademarks Encourage New Technology (PATENT) Jobs Act of 2013 with the sole purpose of exempting the USPTO from the sequestration process for FY2014-2021. As I noted in my recent congressional testimony, the greatest impact of the America-Invents-Act has been increased funding at the USPTO and the resulting improved ability of the Agency to address the workload requirements. Although all of the USPTO's expenditures are matched by user-fee revenue, the sequester has been applied to the agency in a way that guarantees that a portion of every user-payment to the PTO is spent on general federal expenditures rather than for patent examination.

Both the AIPLA and IPO are strong supports of the proposed bill.

Contractual Override of Trade Secret Law

By Dennis Crouch

Convolve and MIT v. Compaq and Seagate (Fed. Cir. 2013)

MIT has a long history with patent enforcement, including its historic link with Franklin Pierce Law Center (now UNH) and housing of the Lemelson-MIT Program. Of late, the not-for-profit institution has become quite a patent plaintiff. In addition to this case, MIT is the patent-owner-plaintiff in the Akamai and Ariad cases as well as many others. This case reaches back more than a decade when MIT and Convolve sued a group of defendants for both trade secret misappropriation and infringement of its U.S. Patent Nos. 6,314,473 and 4,916,635. In 2007, the Federal Circuit decided a prior appeal in this case on mandamus – In re Seagate Tech., LLC, 497 F.3d 1360 (Fed.Cir. 2007) (en banc) (holding that willful patent infringement at least requires showing of objective recklessness).

The present case began with a non-disclosure agreement and then failed license negotiation between Convolve and Compaq. The signal shaping technology in question is useful in computer read/write operations and Convolve agreed that Seagate (Compaq’s hard drive supplier) could be included in the conversation. No license was reached but Convolve and MIT sued two years later when the features (allegedly) showed up in Compaq/Seagate technology.

Contractual Override of Trade Secret Law: The main trade secret problem for Convolve in this case is the language of the non-disclosure agreement (NDA) that the parties signed. The agreement states that any confidential material or presentations must be particularly identified as confidential and Convolve was unable to show that it followed the procedures required by the NDA. In addition the trade secret claims regarding marketing information failed under NY law because NY trade secret law does not extend to marketing concepts. The Federal Circuit writes:

[B]arring waiver of the NDAs marking requirements (discussed below) we conclude that Seagate did not breach the NDA to the extent it may have appropriated the information disclosed. Because the disclosure of the information was not subject to the confidentiality obligations of the NDAs, moreover, barring some other basis upon which to predicate a promise of confidentiality (which we also discuss below) information relating to those ATSIs lost any trade secret status it might have had upon disclosure.

A major legal and practical point here, that should already be well understood, is that is that a contractual agreement to transfer otherwise secret information will override trade secret protections that may be in place.

Patent Infringement: The district court also dismissed the patent infringement side of the action based upon a finding of non-infringement. On appeal, the Federal Circuit vacated that decision – finding that sufficient factual dispute existed to allow the plaintiff to overcome the summary judgment motion of non-infringement for the ‘473 patent.

While a very close call, we find that Convolve presented enough evidence to preclude summary judgment on its inducement claims. Convolve did not merely demonstrate that the drives are capable of infringing, but provided evidence of specific tools, with attendant instructions, on how to use the drives in an infringing way. Unlike Fujitsu Ltd. v. Netgear, Inc., 620 F.3d 1321 (Fed. Cir. 2010), upon which the district court relied, the evidence here does not demonstrate that the infringing option in the Seagate drives was disabled by default. See Toshiba Corp., 681 F.3d at 1365 (analyzing the holding in Fujitsu). Accordingly, given the procedural posture in which the claim is presented to us, we conclude that Convolve may proceed with its inducement claims on remand.

Thus, on remand, the case will continue to determine whether the ‘473 patent was actually infringed.

Does Profit-Distribution to Professors Spoil Princeton’s Non-Profit Status?

By Dennis Crouch

Like many universities, Princeton University (my Alma Mater) receives millions of dollars in patent royalty revenue. By agreement, some of that money goes directly to individual inventor/professors as an equity-type profit distribution compensation. In an interesting lawsuit, a coalition of local citizens has partially challenged the private university’s New Jersey Non-Profit status based upon this profit-sharing arrangement and other commercial activities of the University. The basic idea here is that Princeton should be paying local property taxes on facilities used for commercial profit-making. In the plaintiff’s words, “under the law they are not even entitled to a tax exemption because they are engaged in commercial patent licensing, and the school give out a percentage of profits to faculty. Under the law in New Jersey, if a nonprofit gives out profits, it is not entitled to an exemption at all.” The case is now moving forward after the NJ court denied Princeton’s motion on the pleadings.