December 2013

Institut Pasteur: Federal Circuit Takes Hard Look at USPTO Board Factual Conclusions

By Dennis Crouch

Institut Pasteur v. Focarino and Precision BioSciences, Reexam No. 95,000,443 (Fed. Cir. 2013)

The French non-profit Institut Pasteur holds several patents covering site-directed insertion of genes into eukaryotic chromosomes. See U.S. Patent Nos. 7,309,605, 6,610,545, and 6,833,252. Basically, Pasteur discovered that a set of naturally occurring enzymes that could cleave chromosomal DNA at particular recognition sites and also discovered that cells will naturally repair the cleavage through homologous recombination even when an additional gene sequence is added, so long as a proper recombinatory DNA template is also added. It turns out that this sequence of events occurs in mitochondrial DNA but Pasteur was able to make it work on chromosomal DNA as well. The patents all relate to creating the enzymes and method of using those enzymes to insert DNA.

This is old stuff and all happened in the early 1990’s The three patents all expired in 2012 while the case was pending appeal to the Federal Circuit, but companies may still be on the hook for past damages for what has become a basic tool of genetic engineering.

In 2009, Precision BioSciences filed for inter partes reexamination of the three patents. The examiner found the claimed invention obvious and that decision was affirmed by the USPTO’s administrative patent appeal board. On appeal, the Federal Circuit has come-out with three interesting rulings:

Hard Deadline on Amendments: First, for the ‘605 patent, the claims were amended during the reexamination (and prior to the patent expiration date). For those claims, the court dismissed Pasteur’s appeal as moot because “[substantially] amended claims cannot be entered now that the patent has expired.” This result is obviously important for gamesmanship because it rewards delay tactics on the part of would-be infringers and also encourages patentees to work toward concluding any post-grant reviews.

No Substantial Evidence: Second, the Federal Circuit determined that the Board lacked Substantial Evidence for its factual conclusions that led to its obviousness decision of the challenged claims of the ‘545 patent. The question of obviousness is a matter of law predicated upon a set of factual conclusions. A factual conclusion must itself be based upon evidence presented to the Court. Here, after reviewing the two key prior art references (the evidence), the USPTO Board concluded that the prior art showed that the claimed enzyme “cleaved yeast chromosomal DNA when expressed in yeast cells.” On appeal, the Federal Circuit rejected that factual conclusion after failing to find such a disclosure in either reference. One factor making the Federal Circuit’s decision easier was that the Board based its conclusion upon the text of the prior art references rather than relying upon factual or expert testimony that could have offered stronger conclusory evidence.

Motivation to Combine: Finally, with regard to the ‘252 patent, the Federal Circuit found that the Board had failed to identify the “motivation, if any, a skilled artisan at the relevant time would have had to pursue the claimed invention.”

Opinion by Judge Taranto

Verdict and Settlement

By Dennis Crouch

Cassidian Communications v. microData GIS (E.D. Tex. 2013). Last week an Eastern District of Texas jury found all of Cassidian’s asserted “multiple-call-center” claims invalid. See U.S. Patent No. 6,744,858. According to Michael C. Smith, the E.D. Texas results for 2013 are “four plaintiff verdicts in fifteen infringement trials this year.”

Meanwhile, Princeton Digital Image settled another infringement case. This time with Toys R Us. PDI’s patent is US Patent No. 4,813,056 that allegedly covers “encoding image data into JPEG files for the purposes of producing JPEG images of products” for use on a website. The Patent was originally owned by GE and has now expired. PDI is in the process of collecting back-damages.

Further thoughts on Fee-Shifting from Judges Rader and O’Malley

By Dennis Crouch

Kilopass Tech v. Sidense Corp. (Fed. Cir. 2013)

In a 2012 decision, the district court ruled that Sidense did not infringe any of the claims of Kilopass’s three asserted memory-cell patents and that decision was affirmed on appeal (without opinion). However, the district court denied an exceptional-case attorney-fee award because Sidense had failed to provide clear and convincing evidence that the infringement action was brought or prosecuted in bad faith. In a decision calling for broader awards of exceptional-case attorney-fees, the Federal Circuit has vacated and remanded. Judge O’Malley penned court’s opinion with a concurring opinion filed by Chief Judge Rader.

35 U.S.C. § 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Over the past several years, Exceptional-case awards have been few-and-far-between and the perception is that those awards are particularly rare for prevailing defendants who successfully avoid liability for infringement. In Brooks Furniture, the Federal Circuit ruled that a prevailing accused infringer can receive fees under Section 285 based upon either (1) objectively baseless litigation brought in subject bad faith or (2) other misconduct during the litigation.

The attorney-fee issue is hot right now. The Supreme Court will hear two pending cases on the interpretation of Section 285 later this term and Congress is considering several bills that would make it easier for a prevailing party to also get its fees paid-for. These actions are primarily focuses ways to push-back against patentees who raise unsuccessful infringement claims.

Here, Sidense argued that the case should be found exceptional because the lawsuit was objectively baseless and brought in bad faith. The district court rejected that argument, and, in vacating that decision, the Federal Circuit made several important findings:

  1. A case can still be brought in bad faith even if the plaintiff-patentee did not have actual knowledge of its baselessness. Rather, the knowledge requirement can be met when a lack of objective foundation for a claim was either known or obvious. Thus, a plaintiff with a misguided belief in its case can still be found to have brought the case in bad faith if the baselessness of the claim would have been obvious to someone more reasonable.
  2. Subjective knowledge of bad faith can be proven through a variety of direct and circumstantial evidentiary proofs and should be based on the “totality of the circumstances.” Thus, even though clear-and-convincing evidence is required to prove bad faith, courts can still “infer[] bad faith from circumstantial evidence.”
  3. A “smoking gun” that reveals “that a patentee knew that he had no chance of winning a lawsuit” is sufficient to show subjective bad faith despite other evidence to the contrary (such as an opinion of counsel that the case is a good one).
  4. “Factors such as the failure to conduct an adequate pre-suit investigation, vexatious or unduly burdensome litigation tactics, misconduct in procuring the patent, or an oppressive purpose are factors which can be indicative of bad faith.”

Judge O’Malley also discussed, but rejected, the defendant’s arguments that (1) subjective bad faith be eliminated as an element of an exceptional case finding and that (2) fees should be awarded in cases where a patentee loses a week but reasonable case.

In light of patentees’ First Amendment right to petition the government (by, for instance, filing a lawsuit seeking relief in the courts), we do not think Congress intended to discourage patentees from bringing reasonable claims of infringement by raising the specter of fee shifting—even when the patentee’s legitimate claims are on less than the firmest ground.

. . . Patent owners possess presumptively valid property rights which convey the right to exclude others from practicing the claims in their patents. The property right conveyed by a patent has constitutional underpinnings. . . . And, patentees have a constitutional right to petition the government to enforce or otherwise vindicate those rights. Thus, where there is no basis upon with to predicate exceptionality other than the viability of the claims asserted, we conclude that § 285 fees should not be awarded as long as the patentee had an objectively reasonable basis for its claims [or] if an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome.”

Instead, when a plaintiff presses reasonable, but weak, claims of infringement, a prevailing defendant must look to the many other bases for fee shifting under § 285.

Writing in concurrence, Chief Judge Rader argued that the rule for fee-shifting should be more liberal and generally allowed whenever the circumstances require fee shifting in order to prevent a gross injustice. See Eltech Sys. Corp. v. PPG Indus., Inc., 903 F.2d 805 (Fed. Cir. 1990).

Guest Post: So what if a True Invention Uses a Computer!

Guest Post by Martin Goetz

In the Alice vs. CLS Bank case that is before the Supreme Court the question by Alice is "Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter…". That's the wrong question to ask.

Equally wrong is to boil down that question to "Is software patentable"which both IP lawyers and the media are quick to do (see Crouch'sblog "Is Software Patentable?: Supreme Court to Decide"and Forbes articleSupreme Court Takes Up Case Challenging Software Patents).

The correct question, which the Supreme Court has answered indirectly and affirmatively in the past, but never in the way I have re-phrased the question is, "Is a 'true invention' that contain as part of (or all of) its disclosure (in its patent application) a digital computer (and a computer program), entitled to US patent protection."

I deliberately put in quotes true invention for that's not part of the debate. In previous patently-O articles I give just a few examples of true inventions which used a digital computer and software as part of their implementation of the invention e.g., artificial retina, voice translation, driverless car, Reading machine for the Blind and 3-D printer. Few, I believe, would debate whether those examples deserve the protection of the US patent System.

For a more in-depth discussion on my arguments of why "Is software patentable?" is the wrong question to ask, see my four patently-O blogs Do the Wright Brothers Deserve a Patent for their Flying Machine?: Why Eliminating Software Inventions from the Patent System Makes No Sense. , "No" to Software Patents Per Se: Software is Only a Means to an End. , In Defense of Software Patents and In Defense of Software Patents – Part 2.

Today, there are hundreds if not thousands of true, and undebatable, inventions that contain a digital computer and computer programs as part of their disclosure in virtually all world-wide industries, including the software industry.

For those that believe that the US patent system has spurred innovation and the growth of the United States since the patent system became law in 1790, eliminating true inventions that contain software as part of their disclosure, would be a catastrophe for the growth and health of the US economy.

Michelle Lee, Hal Wegner and Professor Scalia

Guest Post by Professor John F. Duffy, University of Virginia School of Law

[PDF of this Post with the Delegation of Authority: Download Michelle Lee2]

This title of this post, which addresses the legality of Michelle Lee’s recent appointment within the PTO, needs a bit of explanation.  The first two names in the title are not surprising because those two are at the center of the ongoing controversy.  On December 11, 2013, Michelle Lee was appointed by the Secretary of Commerce to be Deputy Director of the PTO and Deputy Under Secretary of Commerce for Intellectual Property.  Hal Wegner, the prominent patent commentator, has argued in a series of widely distributed papers that Lee’s appointment was unlawful.

The third name is the surprising one.  What does former Professor, now Justice, Antonin Scalia have to do with the controversy over Michelle Lee’s appointment?  The short answer is that the work of Professor Scalia, when he was a professor, is what convinces me that Hal Wegner is absolutely right to devote significant attention to the issue, but absolutely wrong in concluding that Lee was improperly appointed.  Let me explain.

First off, it is worthwhile to summarize the timeline of relevant events and Hal Wegner’s argument against the legality of Lee’s appointment.  After David Kappos left the position of PTO Director on February 1, 2013, his Deputy Director, Teresa Rea, assumed all the powers of the Director pursuant to 35 U.S.C. § 3(b)(1).  Ms. Rea served as Deputy Director until her departure on November 21, 2013.  Secretary of Commerce Penny Pritzker appointed Lee Deputy Director on December 11.  If Lee is validly appointed, then she like Rea has authority under § 3(b)(1) to exercise the powers of the Director while that office is vacant.    

Wegner begins his argument against the legality of Lee’s appointment by noting that the Secretary of Commerce has statutory authority to appoint a Deputy Director of the PTO only “upon nomination by the Director [of the PTO].”  35 U.S.C. § 3(b)(1).  At the time of Lee’s appointment, the PTO did not have a PTO Director to make such a nomination.  As just mentioned, all functions and powers of the PTO Director devolve by statute (§ 3(b)(1)) to the PTO Deputy Director in the case of a vacancy in the Director’s office, but of course at the time of the appointment of Lee, the Deputy Director’s position was also vacant. Thus, because the PTO lacked both a Director and Deputy Director (so Wegner’s argument goes), no person could properly make a “nomination” of Lee, and because a nomination is a statutory prerequisite for appointment, the appointment is not valid.  Wegner has even gone so far as to say:  “Why would a person of heretofore spotless reputation and noted achievement [i.e., Lee] accept an appointment in violation of the strict statutory wording that the appointment is only ‘upon nomination by the Director,’ 35 USC § 3(b)(1), at a time when there is no Director?” 

In sum, Wegner’s argument about the legality of Lee’s appointment turns on the absence of a proper statutory nomination.  Here’s where the work of Professor Scalia comes in. 

Years ago, when I was leaving law practice to begin a career in teaching, I asked Justice Scalia (my old boss) if he had any advice or suggestions about teaching administrative law—a subject that I intended to teach and that he had taught both here, at the University of Virginia, and at the University of Chicago.  In response, he gave me a real treasure: a copy of a 900+ page, unpublished manuscript of an administrative law casebook that he had coauthored and had used when he was teaching the subject. 

Scalia’s unpublished casebook taught me two things relevant to this current controversy about Michelle Lee’s appointment.  First, the casebook devotes a great deal of attention—about the first fifth of the book—to basic structural issues concerning delegations of power and the appointment and removal of officers.  That was much more attention, and much more prominent attention, than had been afforded to such issues in the administrative law casebook that I had used as a student.  I have come to think, however, that Professor Scalia’s approach is quite wise. 

Administrative law is, at its core, all about the allocation of power.  Thus, a great deal of attention should be devoted to understanding the law governing both proper delegations of power and the proper recipients of those delegations.  For that reason, I applaud Hal Wegner’s attention to the issue of whether Michelle Lee is lawfully appointed to be a proper recipient of the PTO’s important statutory powers. 

The second lesson I learned from Scalia’s administrative law casebook, however, tells me that Hal Wegner is not correct in concluding that Lee was invalidly appointed.  Within the section of his manuscript devoted to delegation and appointment issues, Scalia and his coauthor (the great constitutional law scholar David Currie) devoted an entire chapter to the topic of “Delegation Within the Executive Branch.”  That chapter was the most surprising to me when I first received the book, for it includes a whole set of cases on a topic that is almost unmentioned in modern administrative law courses: the ability of the President and other Executive Branch officers to delegate their powers to subordinates.  And it is that vein of authority on inter-executive delegations that demonstrates the flaw in Wegner’s argument.

The law on inter-executive delegations of authority has an overarching theme, which is that most executive branch officers may delegate their powers to subordinate officers.  Nondelegable executive powers are very much the exception, and the PTO Director’s power to nominate a candidate for appointment as Deputy is not such an exception. 

Wegner’s argument about Lee’s appointment assumes that the statutory power of the PTO Director to nominate a candidate for Deputy Director must be exercised by the PTO Director or someone who is expressly authorized by statute to act as the PTO Director (i.e., the Deputy Director).  In other words, Wegner assumes that the Director's deputy-nomination power is nondelegable.  That assumption is wrong.

The heads of most executive branch agencies have very broad statutory authority to delegate their powers.  The PTO is no exception.  The Patent Act expressly gives the Director the power to “delegate to [other PTO officers] such of the powers vested in the Office as the Director may determine.” 35 U.S.C. 3(b)(3)(B).  Supreme Court precedent establishes that such a general authorization for an executive branch agency head “permit[s] the delegation of any function vested in the [agency head] under the Act unless a specific limitation on that delegation authority appears elsewhere in the statute.”  Touby v. United States, 500 US 160, 169 (1991). 

The Supreme Court’s Touby case is interesting because it involved the delegation of a very substantial power—the Attorney General’s power under the Controlled Substances Act to add new drugs to the list of drugs the possession of which could result in criminal prosecution (e.g., cocaine, heroin, etc.).  In other words, it was the power to create new criminal prohibitions through administrative rulemaking rather than through legislative action.  So substantial was this power that most of the Court’s opinion was devoted to addressing the constitutional limits on congressional power to give that power to any Executive Branch officer.  However, once the Court sustained the constitutionality of the statute giving the Attorney General the power to criminalize new conduct, the Court devoted a mere two paragraphs to upholding the Attorney General’s delegation of the power to the Administrator of the Drug Enforcement Administration (DEA).  See Touby, 500 U.S. at 169 (sustaining the Attorney General’s delegation power in 29 C.F.R. §0.100(b) to the DEA Administrator). 

The Attorney General’s power to delegate under the Controlled Substances Act is highly similar to the PTO Director’s similar power under the Patent Act.  The Attorney General is authorized to delegate “’delegate any of his functions under [the Controlled Substances Act] to any officer or employee of the Department of Justice.’” Id. (quoting 21 U. S. C. § 871(a)).  After articulating the legal standard that such executive delegation power applies “unless a specific limitation on that delegation authority appears elsewhere in the statute,” id., the Court merely looked to see whether the statute imposed any limitation on the Attorney General’s power to delegate to another officer the power to add new drugs to the schedule of controlled substances.  Finding no such limitation, the Court unanimously sustained the Attorney General’s delegation. 

A similar analysis here means that the PTO Director can delegate the deputy-nomination function, for the Director has a general power to delegate, and the statute creating the Director’s deputy-nomination power (35 U.S.C. § 3(b)(1)) also contains no restriction on delegation. 

Touby cited and distinguished an earlier case—United States v. Giordano, 416 US 505 (1974)—which shows an exception that proves the general rule.  There the Government argued that “Congress characteristically assigns newly created duties to the Attorney General rather than to the Department of Justice” and that the Attorney General could delegate any of those functions to other officers in the Department of Justice through his general power to delegate contained in 28 U.S.C. § 510.  The Supreme Court considered that argument to be, “[a]s a general proposition, … unexceptionable.”  Giordano, 416 U.S. at 514.

With respect to the specific power at issue in Giordano, however, the statute vesting the power with the Attorney General expressly addressed the issue of delegation and “specifically limited [the Attorney General] to delegating his authority to “‘any Assistant Attorney General specially designated by the Attorney General.’”  Giordano, 416 U.S. at 514 (quoting 18 U.S.C. § 2516).  The Court also cited another statute that both required a particular function to be exercised by the Attorney General or the Deputy Attorney General and expressly stated that the “‘function … may not be delegated.’” Id. (quoting 18 U. S. C. § 245(a)).   Statutes containing such language do supersede and limit general powers of executive delegation, but again, nothing like that language is contained in the statute authorizing the PTO Director to nominate a Deputy Director.

In sum, the law governing inter-executive delegation is very clear, and the PTO Director’s function of nominating a Deputy Director is fully delegable to any other officer in the PTO.  According to the PTO’s previous public statements, all of the functions of the PTO Director had been delegated to the Commissioner of Patents, Peggy Focarino, and Commissioner Focarino nominated Michelle Lee. See  In a blog posting and widely distributed email, Hal Wegner described this PTO position to be “[r]emarkable” and “bizarre” because it means that Ms. Lee was nominated by a “Commissioner who has no statutory authority to make such a nomination.”  See  I, however, have quite the opposite reaction.  With two small caveats discussed below, I view the PTO’s position to be completely un-remarkable and un-bizarre; it is instead merely a reflection of the general rule that executive functions usually can be delegated to other officers within the agency. 

The two caveats are, I think, minor in this particular situation.  First, the Appointments Clause of the Constitution does place limits on inter-executive delegation, for only constitutionally appointed “Officers of the United States” may exercise a power that qualifies as a “significant authority pursuant to the laws of the United States.”  Buckley v. Valeo, 424 U.S. 1, 126 (1976).  Thus, significant powers cannot be delegated to non-officers within the PTO. 

It is an interesting question whether the PTO Director’s deputy-nomination function qualifies as a “significant authority.”  Typically, powers to make mere recommendations are not considered to be “significant authority,” but usually such recommendations are not binding in any way.  (Thus, if a nonofficer recommends option A, the officer receiving the advice can usually reject A and adopt options B, C, D, E, etc.)  The PTO Director’s deputy-nomination function might be a bit more significant because once person A is nominated, the Secretary of Commerce may be constrained either to accept A or to reject A and then await another nomination.  If the deputy-nomination function does constrain the Secretary’s appointment power, then the nomination function may constitute “significant authority” within the meaning of Buckley v. Valeo.  But even if so, the delegation to the Commissioner of Patents presents no problem because the Commissioner of Patents is properly appointed as an “Officer of the United States” (albeit an inferior officer) through the constitutionally acceptable process of appointment by a “head of Department[].”  U.S. Const. art. II, § 2, cl. 2; see also 35 U.S.C. § 3(b)(2)(A) (lodging the appointment of the Commissioner of Patents in the Secretary of Commerce). 

The second caveat is that the deputy-nomination power must have been actually delegated to Commissioner Focarino.  When a PTO Director leaves office (as David Kappos did on February 1, 2013), the Deputy Director assumes all the Director’s powers the automatic operation of 35 U.S.C. § 3(b)(1).  By “automatic operation,” I mean that departing Director does not have to sign any document delegating his powers because § 3(b)(1) immediately vests the Deputy Director with all of the Director’s powers as soon as the vacancy occurs.  When a Deputy Director departs while the Director’s office is vacant (as when Ms. Rea departed on November 21, 2013), no statute automatically authorizes anyone in the PTO to assume the PTO Director’s duties.  Thus, the departing Deputy Director must sign an order delegating the powers before she leaves. 

In this case, however, such a delegation did occur.  On November 15, 2013, soon-to-depart Deputy Director Rea delegated to the Commissioner of Patents Focarino all of the “non-exclusive functions and duties” assigned to the PTO Director or to the Deputy Director, with the delegation to take effect whenever the offices of Director and Deputy Director are both vacant.  See Delegation to Perform Non-Exclusive Functions and Duties (attached at the end of this paper).  That delegation is properly limited to the non-exclusive functions of the Director and Deputy Director—i.e., it does not extend to any non-delegable functions.  I’m not sure whether there are any such non-delegable functions assigned to the Director or Deputy Director, but I am certain that the Director’s deputy-nomination is surely one of the delegable functions. 

Hal Wegner has also cited the Vacancies Act, 5 U.S.C. § 3345 et seq., as providing support for his conclusion about the illegality of Michelle Lee’s appointment, but once again, his analysis of the Vacancies Act suffers from his assumption that the powers of the PTO Director are nondelegable, which is not correct. 

It is true that the Vacancies Act imposes strict limitations on the ability of other officers “to perform the functions and duties of any office of an Executive agency,” 5 U.S.C. § 3347(a), but the Act also expressly defines “function and duty” very narrowly to encompass only a statutory or regulatory function that is required “to be performed by the applicable officer (and only that officer),” id. § 3348(a)(2)(A)(ii) & (B)(ii) (emphasis added).  In short, the Vacancies Act’s restrictions apply only to the nondelegable duties of the vacant office.  As the Department of Justice’s Office of Legal Counsel has noted in its advice about the Vacancies Act, “[m]ost, and in many cases all, the responsibilities performed by a [Senate confirmed] officer will not be exclusive, and the [Vacancies] Act permits non-exclusive responsibilities to be delegated to other appropriate officers and employees in the agency.”  See Office of Legal Counsel, Guidance on Application of Federal Vacancies Reform Act of 1998 (available at (question 48)).  As discussed above, the PTO Director’s deputy-nomination function is surely delegable, and thus the Vacancies Act does not bar Commissioner of Patents Focarino from exercising it (as she apparently has in nominating Michelle Lee).

 If I am right in my conclusion that Michelle Lee has been properly nominated, and therefore properly appointed, as the new PTO Deputy Director, then the Vacancies Act does tell us one other important fact.  Ms. Lee may continue to serve as Deputy Director—and to exercise all the powers of the Director pursuant to § 3(b)(1)—without any particular time limit.

Normally, the Vacancies Act imposes a time limit of 210 days on the ability of a “first assistant” to serve in an “acting capacity” in an office requiring Senate confirmation.  5 U.S.C. §§ 3345 & 3346.  Since that 210-day period (roughly 7 months) commences with the vacancy in the relevant office (here the vacancy in PTO Director’s office), the time period would have already expired since David Kappos left office on February 1, much more than 7 months ago.  But the Vacancies Act expressly states that its time limits and other restrictions are inapplicable where “a statutory provision expressly … designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity.”  5 U.S.C. 3347(a)(1).  Because § 3(b)(1) of the Patent Act expressly vests the Deputy Director “with the authority to act in the capacity of the Director in the event of the absence or incapacity of the Director,” the Deputy Director—first Teresa Rea, now Michelle Lee—can continue to act in the capacity of Director without a time limit.  Indeed, this has to be true or else even Teresa Rea’s service as acting Director (which extended for more than nine months) would have been unlawful.

The Deputy Director’s ability to continue exercising the Director’s powers under § 3(b)(1) should not be viewed as an improper circumvention of the Senate’s role in the appointments process.  There is certainly no constitutional problem.  The PTO Director, even though currently subject to appointment by the President with the advice and consent of the Senate, is undoubtedly an “inferior officer” because the position is subordinate to the Secretary of Commerce, and Congress may by law vest the appointment of an inferior officer in the Head of a Department such as the Secretary of Commerce.  (Indeed, if the PTO Director were not an inferior officer, then it might very well be unconstitutional for the Deputy Director to exercise the Director’s powers for any length of time.)  Nor it is troubling as a statutory matter that the Deputy Director can exercise the Director’s powers for a potentially long period of time.  As the Vacancies Act shows, Congress clearly understands how to place time limits on the ability of deputies to act with the powers of a vacant office.  But Congress included no such limit in § 3(b)(1), and the Vacancies Act expressly provides that its strict time limits are inapplicable to such statutes.  

In closing, I would be remiss if I were not to give Hal Wegner some additional words of praise.  I have already complimented Wegner for bringing a proper level of attention to the important issue whether the powers of the PTO are being exercised by a lawfully appointed officer.  While I disagree with Wegner’s legal conclusion—and to be clear, I think there’s no doubt that Michelle Lee is properly appointed as the PTO’s new Deputy Director—I nonetheless do agree with Wegner that there’s something deeply wrong as a matter of policy (though not legality) with the current situation.  

With its appointment of Michelle Lee as Deputy Director, the Obama Administration must have determined that Ms. Lee is fully qualified and capable of exercising all the powers of the Director, because that is precisely what she will be doing as Deputy Director given the vacancy in the Director’s position.  Why then not nominate her to be Director?  Surely, it cannot be that the Administration fears a tie-up in the Senate. Now that the so-called “nuclear option” has been exercised, filibusters of executive nominations are not a threat, so the Administration could expect a relatively swift confirmation.  If the Administration intends to continue seeking another nominee for the position, that seems to be really bad treatment of the new Deputy Director.  Any new Director would surely want to name his or her own Deputy, and so another nominee will bring the possibility of at least a substantial demotion of the current Deputy.  Confidence in an agency’s leadership cannot be conveyed—both inside and outside of the agency—when the agency’s current leader appears to have only the contingent and begrudging support of the Administration. 

It also cannot escape notice of anyone that the USPTO has never had a woman as a permanent head (as opposed to an acting head).  News reports have speculated that “that the administration favours the appointment of the first woman permanent Director of the USPTO.” See “The USPTO Director job has never been more important, so keep a close eye on who gets it,” Intellectual Asset Management (available at  If that is so, the Administration is certainly doing a poor job of it, for the Administration appears to be in the process of passing over multiple highly qualified women.  Deputy Director Teresa Rea was highly qualified and served as acting director for more than nine months.  She was not nominated for the permanent position and has now left the agency.  Perhaps passing on one qualified female candidate can be explained by a variety of circumstances, but the Administration now has another highly qualified woman who will in fact be running the agency.  If the Administration balks at nominating her for the top job, the agency will face the prospect of having several qualified women serve as mere “temps” while the job search drags on.  Such a process would, to put it mildly, seem like a suboptimal way to demonstrate the Administration’s enthusiasm for having a woman as the head of this important agency with its jurisdiction over matters of science, technology and innovation.  

Top Patent Law Stories of 2013 (Webinar)

MBHB’s Patent Docs (Donald Zuhn and Kevin Noonan) are putting on a timely session focusing on the Top Patent Law Stories of 2013. The session will be a live webinar via WebEx on January 21, 2014, 10 a.m. – 11:15 a.m. (central time).

For the past six years, the Patent Docs weblog has presented an annual, end-of-the-year review of the top stories in patent law. In this presentation, Patent Docs co-authors Donald Zuhn and Kevin Noonan will take a look back at the top patent stories of 2013, many of which will likely impact patent applicants and practitioners in the coming year.

The event is free, but participants must register in advance and need to register individually to receive CLE credit.


Note – MBHB is the exclusive sponsor of the Patently-O blog.

Reading Patent Law

By Jason Rantanen

First, thank you for all the terrific comments I received in response to the Top 10 Patent Cases post.  There were some great ideas there and after substantial reflection I decided that my final list this year will be:

Bowman v. Monsanto, 133 S.Ct. 1761 (2012)
O’Reilly v. Morse, 56 U.S. 62 (1853)
Diamond v. Chakrabarty, 447 U.S. 303 (1980)
Egbert v. Lippmann, 104 U.S. 333 (1881); City of Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126 (1878)
Graham v. John Deere, 383 U.S. 1 (1966); KSR v. Teleflex, 550 U.S. 398 (2007)
The Incandescent Lamp Patent case, 159 U.S. 465 (1895)
Phillips v. AWH, 415 F.3d 1303 (Fed. Cir. 2005) (en banc)
Graver Tank v. Linde Air Products, 339 U.S. 605 (1950)
Gorham v. White, 81 U.S 511 (1871)
Bonito Boats v. Thunder Craft Boats, 489 U.S. 141 (1989)

While it's hard to do justice to patent law with just 10 or 12 cases, because this is an Introduction to Intellectual Property class the amount of classroom discussion that can be devoted to individual cases is limited.  Additional cases are discussed in the mini-treatise the students read and I'll cover them in the lecture component as well.  Fortunately, I also teach Patent Law which allows a much more substantive exploration of specific issues in patent law.  Also, the above list is a combination of importance and teaching value: some cases are on there more because they're both reasonably significant and useful teaching tools.

Second, for those of you who are interested in textualism and claim construction, Landslide recently published my review of Justice Antonin Scalia and Professor Bryan A. Garner's Reading Law: The Interpretation of Legal Texts from a patent law perspective.  A copy of the review is available on Landslide's website and I've archived a copy on ssrn

I'll also note that Professor Tun-Jeng Chiang wrote to me yesterday to share that his recently published article The Interpretation-Construction Distinction in Patent Law, 123 Yale Law Journal 530 (with Lawrence B. Solum) relates to many of the issues that I discuss in the review, taking on in particular the "argument that the high reversal rate belies the certainty of textualism or suggests that claim interpretation typically involves hard cases from a linguistic standpoint."  While I ultimately don't agree with many of Professor Chiang's arguments, his work is always insightful and worth reading.  His article is available here.

“Top 10” Patent Cases of All Time

By Jason Rantanen

I teach the Introduction to Intellectual Property course each spring here at Iowa.  Because this is a survey course that covers multiple areas of law that themselves each can be covered in an intermediate-level course, I always find it a fascinating challenge to balance breadth and depth in a way that maximizes students' ability to learn and apply the law. 

This coming semester I'm trying something new: rather than use a regular casebook, I'm taking a "top 40" cases approach combined with a hornbook.  The idea here is to use the hornbook together with lectures to cover the breadth of intellectual property while using discussion of the cases to dig more deeply into particularly significant or interesting moments in patents, copyrights, trademarks, trade secrets, and associated areas of law.  (For those of you not familiar with conventional casebooks, they're typically structured so that preparing for a single class involves reading 2-4 opinions plus associated casenotes.)

My current "top 10" list of patent cases is:

Bowman v. Monsanto, 133 S.Ct. 1761 (2012)
Diamond v. Chakrabarty, 447 U.S. 303 (1980)
Bilski v. Kappos, 561 U.S. __ (2010)
Egbert v. Lippmann, 104 U.S. 333 (1881); City of Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126 (1878) (taught together; yes, this technically makes it 11 cases)
KSR v. Teleflex, 550 U.S. 398 (2007)
The Incandescent Lamp Patent case, 159 U.S. 465 (1895)
Phillips v. AWH, 415 F.3d 1303 (Fed. Cir. 2005) (en banc)
Therasense v. Becton Dickinson, 649 F.3d 1276 (Fed. Cir. 2011) (en banc)
Global-Tech Appliances v. SEB, 563 U.S. __ (2011)
Bonito Boats v. Thunder Craft Boats, 489 U.S. 141 (1989)

These cases track the subject matter I cover in the classroom, so while there are more great cases in each area, I've limited it to just the top case or cases in each.   Also, I recognize that Bowman v. Monsanto is probably not on most folks' top 10 lists; however, I think it's a great way to introduce students to patent law and is particularly relevant here in the midwest.

Are there other cases that you think are even more important or interesting?  Keep in mind that adding cases also requires removing an equivalent number of cases from the list.

CBT Flint v. Return Path: Applying 28 U.S.C. 1920(4) to E-Discovery Costs

By Jason Rantanen

CBT Flint Partners, LLC v. Return Path, Inc. (Fed. Cir. 2013)
Panel: Dyk, O'Malley (concurring-in-part and dissenting-in-part), Taranto (author)

This is an important pair of opinions that anyone interested in the fee-shifting proposals currently pending before Congress should read.  Two aspects are worth noting.  First, the court rejects the argument that Congress's 2008 amendment to section 1920(4) implemented a dramatic change in terms of e-discovery costs.  Second, it implements a granular framework for analyzing e-discovery cost requests that requires complex and careful line-drawing. In addition, both the majority and dissent address the policy concerns implicated in this area.

CBT sued Cisco Ironport Systems and Return Path (who I'll refer to collectively as Cisco, since most of the costs incurred here were sought by Cicso) for patent infringement.  Following claim construction, CBT stipulated to noninfringement and Cisco obtained summary judgment of indefiniteness on one asserted claim.  Cisco moved to recover its costs under 28 U.S.C. § 1920, including $243,453.02 in fees it paid to a company that handled electronic discovery.  The district court granted Cisco's request.  On appeal, the Federal Circuit reversed summary judgment of indefiniteness, construed the claim in question, and remanded for further proceedings.  The district court subsequently granted summary judgment of noninfringement to Cisco, which the Federal Circuit summarily affirmed.

After granting Cisco's motion for summary judgment of noninfringement, the district court again awarded Cisco the fees it paid to an e-discovery vendor. 

The district court's reasoning: The district court's award of costs was implicitly based on 28 U.S.C. § 1920(4), which states:

A judge or clerk of any court of the United States may tax as costs the following:
(4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case;

The Federal Circuit described the district court's reasoning as follows:

Based on a “careful review” of the vendor’s invoices to Cisco, the court characterized the services rendered as “highly technical” and “not the type of services that attorneys or paralegals are trained for or are capable of providing.”  The court concluded that the fees Cisco sought to recover were “the 21st Century equivalent of making copies” (although Cisco had not categorized them as such) and held them to be recoverable….In awarding Cisco the requested amounts, the court said that the “enormous burden and expense of electronic discovery are well known” and that “[t]axation of these costs will encourage litigants to exercise restraint in burdening the opposing party with the huge cost of unlimited demands for electronic discovery.” 

Slip Op. at 3 (internal citations omitted).  On appeal, the Federal Circuit reversed in part, vacated in part, and remanded the matter to the district court for further proceedings.

The Narrow Scope of Section 1920: In 2008, Congress amended section 1920(4) to remove a specific reference to "papers."  While the Eleventh Circuit (whose law applied in this case) has not addressed section 1920(4) as amended, its prior caselaw had interpreted section 1920 as being limited to the "reasonable costs of actually duplicating documents, not [] the costs of gathering those documents as a prelude to duplication."  The Federal Circuit concluded that the amendment did not change that interpretation: 

[W]e conclude that recoverable costs under section 1920(4) are those costs necessary to duplicate an electronic document in as faithful and complete a manner as required by rule, by court order, by agreement of the parties, or otherwise. To the extent that a party is obligated to produce (or obligated to accept) electronic documents in a particular format or with particular characteristics intact (such asmetadata, color, motion, or manipulability), the costs to make duplicates in such a format or with such characteristics preserved are recoverable as “the costs of making copies . . . necessarily obtained for use in the case.” 28 U.S.C. § 1920(4). But only the costs of creating the produced duplicates are included, not a number of preparatory or ancillary costs commonly incurred leading up to, in conjunction with, or after duplication.

Slip Op. at 10.

Three stages of e-discoveryTo analyze whether the costs fell into the category of producing duplicates versus preparatory or ancillary activites, the court divided the e-discovery process into three stages: imaging and extraction (where source media is copied as a whole and individual documents are extracted), database creation and document identification (where extracted documents are organized into a database and searched), and production copying (where the documents selected for production are copied onto memory media). 

Comment: The opinion specifically refers to this as "the document production process used in this case."  However, these stages are common enough that the court's framework can be applied to most cases involving e-discovery.

However, while they provide a framework, these categories do not answer the question of whether costs may be awarded for the respective activies.  Rather, the court's opinion envisions a careful line-drawing process, in which the specific activities and their context plays a substantial role in determining whether individual costs may be awarded.  For example, in some circumstances, costs for extraction can be recoverable under section 1920 "where they are, in fact, necessary to make copies of information required to be produced and not incurred just to make copies for the convenience of the producing party."  Slip Op. at 13.  However, "if metadata can be preserved without first using imaging and extraction techniques, then those steps are outside section 1920(4)."  Id. at 13-14.  The opinion contains numerous examples of hypotheticals and considerations to take into account, while noting that it is "an inquiry that the district court should perform in the first instance."  Id. at 15. 

Comment: One thing to keep in mind with this opinion: the flexibility that the majority perceived in Eleventh Circuit law here is not uniform across the circuits.  The court's opinion specifically recognizes that its approach to stage one costs is at odds with the Third and Fourth Circuits.  This variation should be kept in mind when applying this opinion. 

Judge O'Malley's Separate Opinion: Writing separately, Judge O'Malley agreed with most of the majority's discussion but disagreed with respect to one category: the pre-duplication expenses that the majority described as "stage one costs."  In her view, the majority's approach, which allows some of these costs to be awarded, improperly broadens the scope of section 1920(4), is inconsistent with the Eleventh Circuit's prior approach to section 1920(4), and creates an unnecessary circuit split. 

References to the Sedona Conference: The opinion references the The Sedona Conference Glossary: E-Discovery & Digital Information Management (Sherry B. Harris et al. eds., 3rd ed. 2010) numerous times.  As I've written before, this is a worthwhile program to consider becoming involved in. 

In addition, the Sedona Conference has put together an all-star program on patent litigation reform called "Patent Litigation Best Practices: A Matter for Congress or for Bench and Bar?" that will be held on January 22, 2014.  The scheduled panelists include Judge O'Malley.

Patent Law Exam: Questions 2-4

This year I gave a very straightforward patent law exam that was worth 30% of the student grade. The remaining 70% was based upon a series of graded projects during the semester that included drafting claims, drafting office action rejections; drafting responses to rejections; problem sets; case summaries; briefing a mock-appeal; and holding oral arguments in our 3rd Annual Patent Law Moot Court at the University of Missouri. – Dennis

= = = = = 

2. Bob’s patent application is directed to a replicating in vitro cell culture of human embryonic stem cells capable of living without differentiation on a fibroblast feeder layer. Is the application subject-matter eligible? (100 words)

3. Referring back to Bob’s application, it turns out that Bob came up with a working model of the invention and then waited 11-months to file his patent application. Meanwhile, about six-months before Bob filed his application Cindy independently created a replicating in vitro cell culture of pig embryonic stem cells capable of living without differentiation on a fibroblast feeder layer.  Cindy immediately published her work in Science magazine.  Identify three additional facts that would help you know whether Cindy’s publication counts as prior art against Bob's pending patent application and indicate the relevance of those facts. (100 words). 

4. Referring back to Bob’s application and Assuming that Cindy’s publication counts as prior art under 35 U.S.C. 102(a), what is the most likely reason why the Bob’s application would be rejected as unpatentable? (20 words). 

Proving Anticipation-by-Inherency: It is Hard

By Dennis Crouch

Motorola Mobility v. ITC and Microsoft (Fed. Cir. 2013)

In a short opinion, the Federal Circuit has affirmed the ITC’s judgment that Motorola infringes Microsoft’s Patent No. 6,370,566 covering a mobile device having a “personal information manager.”

The most interesting part of the decision comes from the court’s analysis of the Apple Newton MessagePad device. Motorola had argued that the Newton anticipated the ‘566 patent. The ITC found that, while it was “plausible” that the Newton contained the claimed synchronization feature, that Motorola had failed to fully prove that limitation was practiced by the Newton. In particular, the ITC concluded that the “inference of a possibility” did not rise to the level of clear and convincing evidence. On appeal, the Federal Circuit affirmed – finding that “substantial evidence supports the Commission’s conclusion that Motorola did not present clear and convincing evidence that the operating system necessarily required any additional capacity that would qualify it as a component ‘to synchronize.’ Inherency requires more than probabilities or possibilities.”

The bad trick here is that Motorola pursued anticipation-by-inherency rather than proving that the Newton was actually used in an anticipating manner. As the Federal Circuit wrote, “inherency requires more than probabilities or possibilities” but instead requires that the limitation in question be a necessary consequence of using a device for its intended purposes. As Janice Mueller writes in her treatise: Stated another way, [inherency occurs when the] practice of the prior art reference would inevitably have resulted in the claimed invention.” Bottom line here is that anticipation-by-inherency can be quite difficult to prove well beyond the already difficult hurdle of clear-and-convincing evidence.

The ITC issued an exclusion order that blocks importation of foreign-manufactured Motorola phones that infringe the ‘566 patents. It is unclear to me at this point which phones and Android operating systems are covered by the exclusion order.

= = = =

The ‘566 patent stems from a 1997 application and claims:

1. A mobile device, comprising:

an object store; [i.e., a section of memory used to store records]

an application program configured to maintain objects on the object store;

a user input mechanism configured to receive user input information;

a synchronization component configured to synchronize individual objects stored on the object store with remote objects stored on a remote object store;

a communications component configured to communicate with a remote device containing the remote object store; and

wherein the application program is further configured to generate a meeting object and an electronic mail scheduling request object based on the user input information.




Question 1 on my short-answer patent law final

What is your best short-answer to this exam question? (See the 20-word limit).

  1. Alice’s patent covers a new flat panel television made with cobalt-ion-trixles (a truly new compound). In her initial patent application, Alice did not disclose a WiFi transmitter/receiver as part of the television. However, during patent prosecution she added a claim directed to the television that includes both the cobalt-ion-trixles and a WiFi transmitter – arguing that the new WiFi limitation is okay because WiFi is so well known in the art. Assuming that WiFi is truly well known in the art, what is the most likely argument against patent validity? (20 words).

US Government Suggests that Supreme Court Reject Federal Circuit’s Divided Infringement Jurisprudence

By Dennis Crouch

Limelight Networks, Inc. v. Akamai Technologies, Inc. (Supreme Court 2013)

Akamai is the licensee of MIT’s patents for that solve some problems associated with distributing large amount of data to individual servers and endpoints in a large computer network (such as the Internet). The ideas therein are used by Limelight to distribute video content on behalf of many of the largest content providers in the world. However, the Akamai/MIT patent has a problem in that several steps of the claimed method are performed by Limelight but others are performed by its customers. Prior Federal Circuit cases would have found Limelight not liable in this situation because no single entity (or its agents) performed each and every step of the claimed invention. The Federal Circuit rejected that rule in its en banc decision in this case – holding instead that Limelight could be held liable under 35 U.S.C. § 271(b) for practicing several of the steps itself and inducing others to perform the remaining steps.

Limelight has petitioned the Supreme Court for a writ of certiorari, asking the following question:

Whether the Federal Circuit erred in holding that a defendant may be held liable for inducing patent infringement under 35 U.S.C. § 271(b) even though no one has committed direct infringement under § 271(a).

The question presented by Limelight is somewhat misleading because the Federal Circuit left-open for another day whether Limelight’s activity could be considered direct infringement under § 271(a). Adamai/MIT re-wrote the question:

Whether the Federal Circuit correctly held that a determination of induced infringement under § 271(b) does not require a predicate finding that a single entity was liable for infringement under § 271(a), under circumstances where all of the steps of a method claim are performed, but the inducer performs some steps itself and induces another to perform the remaining steps?

The Supreme Court then asked the US Solicitor General to provide comments on behalf of the US Government. In a brief signed both by the US Solicitor General Donald Verrilli and USPTO Solicitor Nathan Kelley, the US Government has supported the petition for writ of certiorari and sughested that the court reverse the Federal Circuit Decision.

The US Government position is typically seen as the most important and predictive brief on whether the Supreme Court will hear a particular case.

The government writes:

The Court should grant the petition … hold that a party cannot be liable for inducement under 35 U.S.C. 271(b) if no party has directly infringed the patent.

In its brief, the Government recognizes that, if the court follows its proposal, that the law “will likely permit vendors such as Limelight to avoid liability altogether.” The brief goes on to indicate that the “statutory gap is unfortunate, but reflects the better reading of the current statutory language in light of establish background principles of vicarious liability.”

The basic statutory argument is that 271(b) creates liability against someone who “actively induces infringement.” And, the implication that the word infringement in the statute means infringement under 271(a).

SCOTUS Blog has the briefs:

Director Michelle Lee: A Rough Start

By Dennis Crouch

First, let me give my endorsement: I admire Director Michelle Lee and believe that she will be an excellent Deputy Director of the USPTO as well as Acting Director. She is extremely well qualified both in terms of education and experience; she is well respected in the highest levels of governments as well as by business leaders and on-the-ground innovators; and she is ready to work hard to improve the Patent Office and the US Patent System.

That said, Director Lee has not begun her tenure well – seemingly because of her willingness to go along with plans set forth by those in the White House in terms of both (1) the questionable process of her appointment and (2) an initial secret and private roundtable discussion.

Improper Appointment: Yesterday, we discussed the appointment of Director Lee as Deputy Director without proper statutory authority. In particular, the statute is fairly clear that no Deputy Director can be appointed in the absence of a Director. 35 U.S.C. § 3(b)(1). Further, an odd feature of the appointment was the caveat that she will not be titled “Acting Director” of the Agency even though she will be “Acting as Director” and even though the same statute provides that the Deputy Director should fill that role in the absence or incapacity of a Director.

The limits on the Directorship appointments are not merely statutory. Rather, they are in place to maintain an important check on executive authority. Special authority flows from the PTO Director because the Director is appointed by the President and approved by the Senate. See U.S. Constitution Article II, Section 2, Clause 2 (requiring “Advice and Consent of the Senate”).

Now, the reality here is that these critiques are largely academic in that: (1) if put up for a vote in the Senate, Director Lee would very likely be approved based upon her qualifications that I discussed above; (2) any legal challenge to her nomination will likely be moot because a Senate-Approved Director is likely to be in office within a few months – well before pleadings would be complete on any challenge to Director Lee’s legal authority. However, the comparisons to Dwight Schrute and his role as assistant to the regional manager.

Secret Exclusionary Meeting: Within hours of her announcement as Deputy Director, Director Lee and White House Patent Reform Coordinator Colleen Chien spearheaded a roundtable discussion with a select group of invited guests put forward by the heavily Democratic leaning “Business Forward” community. Business Forward does not lobby, but instead “mak[es] it easier for … business leaders from across America to advise Washington on how to create jobs and accelerate our economic recovery.” The meeting was designated as “off the record” by the PTO and barred press (including Patently-O) from attending as well as leaders from the IPO and the AIPLA. USPTO Spokesman indicated that the meeting was a “normal” and usual event: “Yesterday’s meeting with a group of seasoned patent litigators was part of a normal series of discussions USPTO has facilitated to solicit views on patent reform proposals from various segments of our user community. As legislation moves on to the Senate, we expect to continue to host such normal meetings with various parts of the IP community.

Now, I do not have a problem with the PTO Director and White House having private meetings, but it does look bad that Director Lee’s first information-gathering discussion is with a private hand-selected group of operatives whose result will likely work to set her vision for patent reforms in ways that cannot be rebutted. Directors Kappos and Rea both pushed strongly for public discussion and my hope is that Director Lee will continue that important trend.

Michelle Lee, Acting as Director but not “Acting Director”

By Dennis Crouch

When Michelle Lee joined the USPTO in 2012, she took an interesting title – Director of the Silicon Valley Patent Office. With the resignation of both David Kappos (USPTO Director) and Theresa Rea (USPTO Deputy Director), Lee is the only remaining titled “Director” within the USPTO. There has been a growing expectation that she would soon shift from her West-Coast focus and take over operations of the full USPTO. Although the position of USPTO Director requires Senate confirmation, the Director of Commerce has the ability to shift the personnel who effectively control that position.

This morning, the Commerce Department announced that Michelle Lee will be the new Deputy Under Secretary of Commerce for Intellectual Property effective, January 13, 2014. Because there is no current USPTO Director she will be in charge until a new Director is nominated by the President and approved by the Senate.

Director Michelle Lee has a strong background in intellectual property, beginning with her multiple degrees from MIT in computer science and electrical engineering and a J.D. from Stanford Law School where she was a law review editor. Prior to law school, she worked in MIT’s Artificial Intelligence labs and also in HP’s research labs. She clerked both in the Northern District of California and for Judge Paul Michel at the Federal Circuit. She then worked for a decade in top Silicon Valley law firms, including Fenwick & West and Keker & Van Nest and then joined Google where she worked for a decade as head of their patent team and deputy general counsel. In the past, Lee has worked closely with Colleen Chien who is now spearheading the White House patent initiatives. Lee is seen as an effective manager and a visionary willing to take on major challenges. Like Kappos, I have always found Lee to be open and ready to hear and respond to reasoned input. There is some trepidation (or enthusiasm, depending upon your perspective) that she will strongly advocate Google’s anti-patent stance. I suspect, however, that the result will be pushing for higher quality examination that better ensures clarity.

Congratulations to Michelle Lee!

Lee’s appointment does have a genuine statutory problem. In particular, the statute requires that a Deputy Director be appointed by the Secretary of Commerce “upon nomination by the [USPTO] Director.” 35 U.S.C. § 3. Because there is no Director, there could be no such nomination. One reason why there is no Director is that position requires Senate approval (as required by the Constitution), and the President’s approach here appears to be an attempted end-run around that process. The DoC press release includes the following statement: “Upon assuming her role as USPTO Deputy Director, Lee will perform the functions and duties of the USPTO Director, a position that is currently vacant. In accordance with statutory law, she will assume the title of ‘Acting Director’ once President Obama nominates a Director.” The final sentence of this is unclear to me, but the PTO confirmed that their statement is correct, she will only be acting as director but not officially Acting Director. This is apparently an attempt to avoid the statutory and Constitutional requirements mentioned above. I think it has the complete opposite result because the statute requires that the Deputy Director “act in the capacity of the Director in the event of the absence or incapacity of the Director.” Noted patent attorney Hal Wegner comments: “Why would a person of heretofore spotless reputation and noted achievement accept an appointment in violation of the strict statutory wording that the appointment is only ‘upon nomination by the Director,’ 35 USC § 3(b)(1), at a time when there is no Director.” USPTO’s chief communications officer Todd Elmer clarified to me that PTO’s Commissioner of Patents Peggy Focarino apparently nominated Michelle Lee who was then selected by the Secretary of Commerce. Since Focarino has been handling all the duties of the director, then the PTO has reasoned that Focarino has the power to nominate under the statute.

John Cabeca will take-over as director of the SV patent office.

Chisum on Patents: Abstract Ideas

Don Chisum on the CLS Bank case:

The Supreme Court often intervenes to resolve splits among the various courts of appeal. Here a split exists within a circuit that the circuit itself is unable to resolve. The circuit judges’ varying interpretations of a body of recent and not-so-recent Supreme Court precedent riddled with fuzzy language and inconsistent results caused the split. Now, the Court has the opportunity (and the obligation) to clean up a mess that is, to a major extent, of its own making.

Read Chisum’s full write-up on the law of “abstract ideas” post-Bilski. /wp-content/uploads/2013/12/Supreme-Court-on-Computer-Software-Patents-1.pdf

Supreme Court: The Right to a Jury Trial on Obviousness

By Dennis Crouch

Soverain v. Newegg (on petition for writ of certiorari)

After a trial on the merits, Judge Davis (E.D.Tex.) found that the accused infringer (Newegg) had presented insufficient evidence of obviousness and refused to let that issue go to the jury. Instead, the judge awarded a directed verdict for the patentee (Soverain) that the asserted claims were not invalid as obvious. The jury went on to find Newegg liable for infringement and awarded $2.5 million in damages and also found the patent not anticipated. Following trial, the district court denied Newegg's motion for new trial on obviousness grounds. On appeal, the Federal Circuit took the almost unprecedented stance of reversing the non-obviousness decision. One reason for the rarity of a full-reversal (rather than vacatur) is largely explained by the substantial factual foundation that serves as the basis of an obviousness decision. In its opinion, the Federal Circuit couched its discussion in terms of questions of law – following the Supreme Court's lead from KSR International Co., v. Teleflex, Inc., 550 U.S. 398 (2007). In that case, the Supreme Court was able to make the legal conclusion that the asserted claims were obvious because the factual underpinnings of obviousness were seemingly not in material dispute.

In its petition for writ of certiorari, Soverain focuses on the Seventh Amendment right to a jury trial and argues that the Federal Circuit's approach effectively and improperly redefines obviousness as a pure question of law.

Question Presented:

Whether the Federal Circuit's effective redefinition of obviousness as a pure question of law, allowing it to resolve disputed factual questions in the first instance on appeal, violates the Seventh Amendment and this Court's precedent.

Here, Sovarain points to a number of factual issues that the Federal Circuit identified as questions of law, including assessing credibility of the witnesses, resolving conflict between witness testimony resolving the teaching of prior art references.

The Seventh Amendment provides that:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved…

The Seventh Amendment "preserve[s]" the "common law" right to jury trial and, as a consequence, presents an oddball test that roughly asks whether the cause of action at issue was (or is analogous to) a common law cause of action that was tried before an English jury back in in 1791 and then whether the particular trial decision in question is one that was (or would have been) decided by a jury. See Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996).

The Supreme Court has indicated that patent infringement lawsuits where the patentee is seeking damages are cases at law protected by the Seventh Amendment right to a jury trial. However, as far as I know, the Supreme Court has never held that the right to a jury particularly to an obviousness challenge or to the underlying factual conclusions that serve as the basis for an obviousness decision. 1800's cases do suggest that the factual underpinnings to the "invention" requirement are subject to a jury determination. See, for example, Battin v. Taggert, 58 U.S. (17 How.) 74 (1854); and Turrill v. Michigan S. & N. Ind. R.R. Co., 68 U.S. (1 Wall.) 491 (1864) ("[T]here was an important question of fact which should have been left to the jury, whether … any of the prior movable pressblocks … were substantially the same as the machine of the patentee."). However, the 1952 Patent Act expressly eliminated the doctrine of invention in favor of the new doctrine of obviousness. In its last foray into this area, the Supreme Court recognized in Markman that claim construction included both questions of fact and questions of law, but ultimately determined that no fundamental right to a jury trial existed for that doctrine.

An interesting inside issue here is that Judge Newman has been a strong proponent of the right to a jury trial on obviousness. See Newell Cos. v. Kenney Manufacturing Co., 864 F.2d 757 (Fed.Cir. 1988) (J. Newman dissenting from holding that ultimate question of obviousness may be decided by judge over party's objection). However, it was Newman who found Soverain's patent obvious in the present case. In the 1988 Newell case, the majority held that the patentee has no right to a jury trial on obviousness unless the factual underpinnings are in dispute.

The defendant was, of course, entitled to have a jury summoned in this case, but that right was subject to the condition, fundamental in the conduct of civil actions, that the court may withdraw a case from the jury and direct a verdict, according to the law if the evidence is uncontradicted and raises only a question of law.

Of course, Judge Nies did not walk through the weeds of history (as required by the Supreme Court) to arrive at this answer but instead only looked to the "fundamental notion" that there is no right to a jury decision regarding a question of law. See also, In re Lockwood, 50 F.3d 966 (Fed. Cir. 1995) (Nies, C.J. writing in dissent) (arguing that a patent is a public right created by Congress and "[a] constitutional jury right to determine validity of a patent does not attach to this public grant") (mandamus vacated without opinion by the Supreme Court).

Focusing back, the Soverain petition does not ask the Supreme Court to overrule Newell, but rather to merely limit courts ability to unilaterally expand take would-be factual question and then make those factual conclusions under the guise of legal determinations. Soverain writes:

The Federal Circuit's decision to take for itself questions this Court has reserved for the trier of fact has significant consequences that threaten the stability and predictability of the patent system. This decision shifts the boundary between the ultimate legal question of obviousness and the underlying factual questions. It thus paves the way for district courts and other panels to decide factual questions and undermines the role that the jury and procedural safeguards play in ensuring that hindsight bias does not skew the analysis of obviousness. By downplaying the factual component of obviousness, the Federal Circuit's decision also erodes the clear and convincing evidence standard for proving invalidity, which this Court reaffirmed in Microsoft Corp. v. i4i Limited Partnership, 131 S. Ct. 2238 (2011).

I also see this case as asking for clarification of the KSR decision in terms of what elements of the "common sense" analysis should be considered determinations rightfully before a jury. I suspect that the brief strategically avoided that issue because the Federal Circuit is a much riper target for review than a recent unanimous and popular Supreme Court opinions.

In an amicus brief supporting the petition, Professor Eileen Herlihy argues that the Federal Circuit systematically gets Seventh Amendment questions wrong and needs to be set straight by the Supreme Court. Herlihy has written two articles on how the Seventh Amendment should be applied to patent cases.


Is Software Patentable?: Supreme Court to Decide

By Dennis Crouch

50-years on, we still don’t have the answer as to whether computer programs are patentable.

The Supreme Court has granted a writ of certiorari in the software patent case of ALICE CORPORATION PTY. LTD. V. CLS BANK INTERNATIONAL, ET AL., Docket No. 13-298 (Supreme Court 2013). The Australian patent holder Alice Corp presented the following question:

Issue: Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

In a highly fractured en banc decision, the Federal Circuit determined that Alice Corp’s claims lacked eligibility. Because none of the opinions in the decision carried a majority, the result was that the Federal Circuit only added confusion to the area.

Alice Corp’s Patent No. 7,725,375 covers software for managing the risk associated with an online transaction essentially by using an electronic escrow service. Claim 26 recites how the system would work:

26. A data processing system to enable the exchange of an obligation between parties, the system comprising:

a communications controller,

a first party device, coupled to said communications controller,

a data storage unit having stored therein (a) information about a first account for a first party, independent from a second account maintained by a first exchange institution, and (b) information about a third account for a second party, independent from a fourth account maintained by a second exchange institution; and

a computer, coupled to said data storage unit and said communications controller, that is configured to (a) receive a transaction from said first party device via said communications controller; (b) electronically adjust said first account and said third account in order to effect an exchange obligation arising from said transaction between said first party and said second party after ensuring that said first party and/or said second party have adequate value in said first account and/or said third account, respectively; and (c) generate an instruction to said first exchange institution and/or said second exchange institution to adjust said second account and/or said fourth account in accordance with the adjustment of said first account and/or said third account, wherein said instruction being an irrevocable, time invariant obligation placed on said first exchange institution and/or said second exchange institution.

The patent also claims “a computer program” for accomplishing the same result.

Capturing the Consumer Surplus through Downstream licensing and Infringement Lawsuits

by Dennis Crouch

Downstream users have been increasingly subject to patent infringement lawsuits even when the product manufacturer would seemingly have been a more natural and focused target. Many assign nefarious intent to these downstream user lawsuits, but it turns out there is a good faith economic reason why the lawsuits make sense for a patentee. The basic insight here is that lawsuits against parties further downstream in the market chain allow the patentee to capture a portion of the economic consumer surplus that is not available at manufacturer-level lawsuits.

A U.S. patent provides its owner with the right to exclude others from making, using, selling offering-to-sell, importing or exporting the patented invention. 35 U.S.C. § 271. The statute is broad enough to allow a patentee to target any point along the supply chain.* However, the rules on exhaustion and multiple recovery prevent a patentee from collecting duplicative royalties at from different points along the supply chain.

In a market economy, consumers typically purchase goods when the prices of those goods are less than what the consumers are willing to pay. Consumer surplus is defined as the difference between that highest price that they would be willing to pay and the price that they actually did pay. Because of pricing difficulties for producers and market competition, almost all goods and services are associated with some consumer surplus. This consumer surplus is a spillover benefit that simply cannot be fully captured by the manufacturer. Each step along a supply chain also typically involves consumer surplus, with the result being that the end-user places a substantially higher value on the good than did the original manufacturer.

This notion of consumer surplus ties back into the patent laws at the point of collecting damages. Under the patent laws, a patentee is due at least “a reasonable royalty for the use made of the invention by the infringer.” And, because downstream users place a higher value on the goods than do upstream manufacturers and distributers, it makes sense that the reasonable royalty award will also be relatively higher.

A typical patent scenario might involve a software developer who made check-processing software that was then sold through a vender to banks around the country. The developer, vender, and banks are all potentially liable for infringement and the patentee wanting to enforce its patent would then need to choose whom to sue for infringement. Here, the banks likely paid the vender significantly less than the actual value they receive from using the software. Similarly, a successful vender would have paid the software developer significantly less than the resale price. These differences in valuation offer fuel for the ‘hypothetical negotiation’ that serves as the fundamental basis for reasonable royalty damages. Simply stated, a party who values the invention more would tend to pay more for use of the invention.

A difficulty with customer-lawsuits is the large number of lawsuits and negotiations. Rather than dealing with a single manufacturer that may result in a single large payout, the patentee is working through dozens or even hundreds or thousands of customers who each pay their bit. In addition, patentees whose preference is to stop infringing use rather than collect royalties will likely prefer to cut focus on the manufacturer level as a better chokepoint.

Now, taking a step back toward reality: It is unlikely that these differences in valuation are driving the current preference for customer lawsuits. Rather, the settlement value of most of the customer lawsuits are driven by the cost-of-defense rather than the merits of the patent at issue or its value to the user. This means that my reasonable royalty calculation from above, even if mathematically correct, is largely irrelevant in the current climate. I should note that there are at least several legitimate criticisms to my analysis and underlying assumptions above, but I’ll save those for a later post.


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* With method-of-use claims, the end users end users are the only likely direct infringers, but even there, the suppliers may be liable for inducement or contributory infringement. (Recent cases tightening the mens rea requirement limit this somewhat).