Tafas v. Dudas: Discovery and Scheduling

Patent

Tafas v. Dudas, 07–cv-0846 (E.D.Va 2007)

As is well known in the patent prosecution community, Tafas and SmithKline Beecham (GSK) filed suit against the USPTO — asking the Federal Courts to block implementation of a new set of rules that would limit the number of claims and continuation applications that can be filed based on a single original patent application.  The Eastern District of Virginia District Court has issued a preliminary injunction (PI) that temporarily blocks implementation of the new rules. Now, the Patent Office is fighting to change the outcome in the final decision.

The PTO has now submitted its answer to the complaints filed Tafas. In its answer, the PTO presents three defenses:

  • The rules were promulgated in accordance with appropriate rules (and the US Constitution) and comply with the Patent Act;
  • Plaintiff (Tafas) has waived all objections that he did not make during the rulemaking process; and
  • Plaintiff (Tafas) lacks standing on many of the asserted counts.

As is usual, the answer did not develop any factual background for these particular defenses.

Discovery and Scheduling: During the PI Hearing, the PTO argued for an extended period for filing Summary Judgment motions. At that time, the Tafas attorney indicated that the schedule should go much more quickly.  Of course, now that the rules have been stayed the parties have flipped their positions. The PTO wants a quick decision and Tafas is content to allow the proceeding to drag-on a bit longer.

From the PTO Scheduling Brief:

“In order to halt Tafas and GSK’s stalling efforts, clarify that no discovery is permitted, and allow the Court reach the merits expeditiously so that the Final Rules are not preliminarily enjoined longer than necessary, Defendants Jon Dudas and the USPTO (collectively “the USPTO”) respectfully request that the Court enter an Order clarifying that a standard scheduling order will not issue in these consolidated cases because the cases may promptly be decided on cross-motions for summary judgment without discovery.”

The PTO would have all summary judgment briefs filed prior to the Christmas Holiday. The next hearing is scheduled for November 16, 2007.

Before deciding the scheduling, the district court will need to determine whether to allow any discover. The plaintiffs — Tafas & GSK — are asking for discovery (including depositions of PTO leaders). The defendants — PTO & Dudas — argue that no discovery is necessary.

There is usually very little discovery when a court reviews administrative rules — rather, the new rules usually stand or fall based on the administrative record. Of particular interest in this case are public (and private) statements by PTO officials regarding the purpose and likely effect of the rule package — especially because some of those statements speak to purposes and effects not found in the ‘official’ reasoning published by the Office.  Tafas adds that its Constitutional claims (apart from its APA claims) deserve discovery.

Files:

USPTO.2007.11.answer.Tafas.pdf
USPTO.2007.11.09.memorandum.scheduli.pdf
Tafas.1007.11.memo.schedule.pdf
GSK.2001.11.memorandum.schedule.pdf

Barack Obama’s Patent Reform Initiatives

Patent

PatentLawPic117It’s not surprising that Barack Obama – a former law professor – would include detailed policy initiatives as part of his campaign strategy. The bulk of his newly released technology plan suggests his approach to ensure an “open government.” The current Democratic push for a ‘more transparent government’ is primarily a reaction to the current Bush administration’s reported closed door policy. Obama’s plan, however jumps into specifics such as using wiki and social networking technologies to open up the government process and engage the citizenry; release more government information in more accessible formats; open up government data to individuals and also open government channels to receive data from the population; and appoint a Chief Technology Officer (Cabinet level?) to treat these networking issues as opportunities rather than solely as a law enforcement threat or spy channel.

On the patent side, Obama is ready to move forward with patent reform – he particularly support’s his former colleague Doug Lichtman’s (coauthors Lemley & Sampat) suggestion of a “gold plated” patent. [Link].

Read the Obama patent reform statement:

Reform the Patent System: A system that produces timely, high-quality patents is essential for global competitiveness in the 21st century. By improving predictability and clarity in our patent system, we will help foster an environment that encourages innovation. Giving the Patent and Trademark Office (PTO) the resources to improve patent quality and opening up the patent process to citizen review will reduce the uncertainty and wasteful litigation that is currently a significant drag on innovation. With better informational resources, the Patent and Trademark Office could offer patent applicants who know they have significant inventions the option of a rigorous and public peer review that would produce a “gold-plated” patent much less vulnerable to court challenge. Where dubious patents are being asserted, the PTO could conduct low-cost, timely administrative proceedings to determine patent validity. As president, Barack Obama will ensure that our patent laws protect legitimate rights while not stifling innovation and collaboration.

Notes:

Tax Strategy Patents

Patent,

PatentLawPic116The Internal Revenue Service is “concerned” about tax strategy patents and has issued a notice of proposed rules to require a special disclosure if a taxpayer uses a patented tax planning method to achieve a tax benefit. 

The specific rules would require a special disclosure reporting a patent license anytime a taxpayer pays a fee (including indirect consideration) to a patent holder for the legal right to use a tax planning method that the taxpayer “has reason to know” is subject to a patent.  A tax planning method is defined as “any plan, strategy, technique, or structure designed to affect Federal income, estate, gift, generation skipping transfer, employment, or excise taxes.” The rule would exclude patents covering tax preparation software or “other tools used to perform or model mathematical calculations or to provide mechanical assistance in the preparation of tax or information returns.”  Under the rules, both the licensee and licensor (patent owner) would be required to submit the disclosure reporting the license transaction.

One hole in the rule would allow non-licensed intentional infringers to use the patented tax strategy without filing any particular documentation. 

This disclosure is akin to the recent proposal by Lemley & Myhrvold to require publication of all patent licenses. However, the IRS rule is much easier to implement because of a pre-existing enforcement structure and the relatively small number of tax strategy patents. In the tax strategy business, the disclosure could dramatically change the current status of highly secret meetings and extensive diversion tactics.

Notes & Documents:

  • Any comments on the rules must be received by December 26, 2007. Once effected, the new rules will apply retroactively to September 26, 2007. Comments may be submitted through the eRulemaking portal at www.regulations.gov with reference to IRS-REG-129916–07. The IRS point of contact is Richard Hurst: Richard.A.Hurst@irscounsel.treas.gov (202) 622–7180.
  • Federal Register Publication: http://patent.googlepages.com/TaxPatents.pdf.
  • Senator Obama has proposed an amendment to 35 USC 101 to eliminate tax shelter patents [Link].
  • More info from Paul Caron — the “TaxProf” [Link][Link].

Some Tax Strategy Patents:

  • 6,567,790: Funding of a GRAT with nonqualified stock options.
  • 6,292,788: Tax-deferred real estate transaction.
  • 7,149,712: Purchase of an annuity contract to fund a charitable remainder trust.
  • 7,177,829: Tax Refund System (HRBlock Software).

No Appellate Jurisdiction Over Remanded Inventorship Dispute

Patent

HIF BIO v. Yung Shin Pharmaceuticals (Fed. Cir. 2007)

In 2005, HIF sued Yung Shin, Carlsbad Technology, the Fish & Richardson law firm, and others in California State Court. In its complaint, HIF asked the court for a declaratory judgment for ownership and inventorship of various anti-angiogenesis drugs. The complaint also asserts claims of slander, conversion, fraud, business interference, and unjust enrichment. The case was removed to Federal Court. However, the only federal claim — the RICO allegation — was dismissed and the district court declined to exercise its supplemental jurisdiction to hear the other state claims (thus, remanding the state claims back to the state court).

On appeal, the defendants argued that the federal district court should be required to hear the supplemental state claims because the claims are intricately tied to the federal patent law issue of inventorship. 28 USC §1367 provides a district court discretion in determining whether to hear supplemental issues. Although generally broad, the discretion is not completely unfettered and may be reviewed on appeal. In Voda, for instance, the CAFC found that a district court had abused its 1367 discretion by hearing foreign patent infringement claims.

In its decision, the appellate panel found that it lacked subject matter jurisdiction to hear the appeal.  In particular, the court held that 28 USC §1447(d) blocks federal appellate jurisdiction over remands back to state court. From its text, 1447(d) appears to be broadly written to block any appellate review of a remand to state court (except for a small unrelated exception).  Supreme Court precedent, however, has narrowly interpreted the statute to allow federal appeals for remands except for remands based on a lack of subject matter jurisdiction.

Thus, the question here was whether the remand based on discretionary denial of supplimental jurisdiction is the same as a remand based on lack of subject matter jurisdiction.  The CAFC found the two overlapping — certainly once the court excerts its discretion to refuse the case, it certainly lacks subject matter jurisdiction.

Interestingly, the court has gone out on a limb with this case — splitting with decisions from the Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits.  Precedent from courts indicate a willingness to hear cases appealing remands based on denials of supplimental jurisdiction.  Writing for the CAFC panel, Judge Gajarsa found that a recent Supreme Court case (Powerex 2007) opened the door for the new direction.

  • This case would have a good shot of being granted certiorari. Its impact on patent law, however, is nil. (Perhaps a good thing).

Patent Law News

Patent
  • Help prepare the next GSK brief with Michael Alexander’s WikiBriefs.
  • PatentLawPic112Intellectual Ventures plans to spend $2 billion over the next several years on patent rights. The ‘non-producing entity’ has been largely shut-out from top US university technology transfer deals because many universities and is now refocusing on doing deals with non-US universities and researchers.  US universities are not interested in selling because they want their licensees to develop the technologies. IntVen CEO Nathan Myhrvold told the WSJ that his company has not yet sued anyone for patent infringement. (See WSJ Blog).
  • PatentDocs blog is one year old. Congratulations on a great start! [Link] (The senior patent doc – Dr. Kevin Noonan – is pictured at right).
  • Patent Troll Tracker also provides a milestone — his 100th post. In that post, PTT calls for patent reform. He’s upset by “the numerous multi-defendant patent litigation cases being brought by non-practicing entities and patent trolls in the Eastern District of Texas.” [Link]
  • David Donoghue posts his “Blawg Review.”

Recent Jobs:

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CAFC Reaffirms that Doctrine of Equivalents Applies to Ranges

Patent, Patent Cases 2007, Vitiation, ,

US Philips v. Iwasaki (Fed. Cir. 2007)

Philips sued Iwasaki for infringement of its patents covering mercury-tungsten halogen light. The district court awarded summary judgment of non-infringement to Iwasaki.

Vitiation and the Doctrine of Equivalents: The asserted patent claims a target concentration of 1.6 ± 0.4 × 10-4 µmol/mm3. Based on that claim language, the district court ruled that the claim was “intended to establish the demarcation of boundaries [with] the type of precision that is closely analogous to the metes and bounds of a deed of real property.”  Thus, according to the court, allowing the claim to cover any concentration outside of the clearly claimed limits would vitiate the limitation.

On appeal, the CAFC rejected the notion that an expanded numerical range would vitiate the claim language.

“A reasonable juror could make a finding that a quantity of halogen outside that range is insubstantially different from a quantity within that range without “ignore[ing] a material limitation” of the patent claim.”

This decision conforms to prior decisions that allow equivalents for numerical ranges, but not for other limits (such as a claimed “majority.” Moore).

Notice of Infringement: 35 U.S.C. § 287(a) provides that damages for patent infringement only begin to accrue once the infringer was “notified of the infringement.” (Marking constitutes constructive notice). Notice requires a charge of infringement directed to a specific product, device, or action. The notice must also normally include the patentee’s identity. Here, the infringement letter (sent by “Mr. Rolfes”) did not specifically indicate that Philips was the assignee, but the court found notice sufficient because (1) Philips was correctly listed as the assignee of the patent and (2) Philips had granted the sending party the “responsibility for licensing and enforcing” the patent. Thus, Philips may collect damages from the date of receipt of the letter.

Notes:

  • Rounding in Claim Construction: “‘1.0’ may be said to have more significant digits than ‘1’ with no decimal point. Because [the claimed] ‘10-6’ and ‘10-4’ are simply the numbers 0.000001 and 0.0001 expressed as powers of ten, the claim language provides no basis for inferring any level of precision beyond the single digit ‘1.’ The way that power-of-ten quantities are used in the specification, discussed supra, confirms that the quantities of halogen described by the claims are not intended to be more precise.” — Why does this matter — Less precision means that the accused product may still literally infringe due to rounding.
  • Approximately: “[T]erms like ‘approximately’ serve only to expand the scope of literal infringement, not to enable application of the doctrine of equivalents.”

PTO Publishes Comments on Proposed BPAI Rules

Patent,

Because of the expected increase of appeals to the Board of Patent Appeals and Interferences (the “Board”), the Patent Office has proposed a new set of rules governing practice before the Board. [Proposed Rules]. The PTO received over fifty comments from the public — mostly negative.  As it turns out, the rules appear to primarily serve as a roadblock to appeals — either by raising costs or creating procedural stumbling blocks.  The extra rules are especially shocking when you consider that the vast majority of appeals filed never reach the BPAI. Rather, even after the applicant files an appeal brief, most cases are re-opened by the Examiner who either allows the case or re-opens prosection. [cite]

In its letter to the PTO, the AIPLA noted problems with the new rules:

Some of these new requirements … do not appear to address any specific problem being experienced by the Board, and would simply add additional formal requirements that would increase the burden and costs of preparing an appeal brief, and lead to even more disputes over compliance of an appeal brief with the many formalities already required.

Intellectual Ventures said it more forcefully:

The proposed new rules are onesided and will serve as a significant hurdle to a patent applicant in pursuing their statutory right of an appeal to the BPAI. Many of the proposed changes run counter to the patent statute and improperly attempt to transfer responsibilities and shift burdens of proof from the USPTO to applicants. … Since the agency is forcing more appeals, the appeal process should be reformed to make appeals easier and less expensive to prepare rather than make appeals more expensive and burdensome as in the proposal.

Some Examples:

  • Proposed Rule 41.37(q) and (r): would require applicants to identify for every argued claim where every claim limitation finds support in the specification and is illustrated in the drawings — even where a claim limitation is not at issue in the appeal. This requirement only raises the cost of preparing an appeal brief.
  • Proposed Rule 41.37(o)(7): Would require applicant to provide an explanation of patentability when obviousness is asserted. There may be some policy reasons for requiring this. However, under current law, the applicant is not required to prove patentability — rather, the applicant only needs to poke holes in the Examiner’s prima facie case of obviousness.  

In its comments, the Adams law firm of New Mexico noted a recent Patently-O posting on BPAI delay — and suggested that briefs should be submitted directly to the BPAI — not to examiners for their initial review.  

David Boundy – writing for CantorFitz – debated whether these rules are actually ‘procedural.’

When combined, the various limits imposed in the propped Appeal Rule accumulate to a substantive denial of an applicant’s right to a fair and efficient appellate review. Increased fonts [14 point], decreased page limits [25 pages], added material that must be included, no limits on the amount of material that an Examiner can present, and a draconian remedy for failing to address every point raised by an Examiner – all make one question the motivation for these proposed changes. At some point, a collection of “procedural” limits becomes so stringent that they amount to a “substantive” limit on the ability to prosecute an application.

A. Intellectual Property Organizations and Government Agencies

  1. American Bar Association (ABA) [PDF]
  2. American Intellectual Property Law Association (AIPLA) [PDF]
  3. Bar Association District Columbia (BADC) [PDF]
  4. Intellectual Property Owners Association (IPO) [PDF]
  5. BIOCOM [PDF]
  6. Minnesota Intellectual Property Law Association (MIPLA) [PDF]
  7. National Association of Patent Practitioners (NAPP) [PDF]
  8. Washington State Patent Law Association [DOC]

B. Corporations and Associations

  1. 3M Innovative Properties Company (3M IPC) [PDF]
  2. Alkermes, Inc. [PDF]
  3. Amylin Pharmaceuticals, Inc. [PDF]
  4. Intellectual Ventures (IV) [PDF]
  5. Ceres [PDF]
  6. Cantor Fitzgerald L.P. [PDF]
  7. Eastman Kodak Company [PDF]
  8. Eli Lilly and Company [PDF]
  9. IBM Corporation [DOC]
  10. Microsoft Corporation [DOC]
  11. Wyeth [DOC]

C. Law Firm

  1. Adams Law Firm Co. [PDF]
  2. Greenblum & Bernstein, P.L.C. [PDF]

D. Individuals

  1. Aaronson, Larry [DOC]
  2. Alstadt, Lynn, J. [DOC]
  3. Baker, Daniel [DOC]
  4. Calvert, Ian, A. [DOC]
  5. Cermank, Adam, J. [DOC]
  6. Dolce, Marcus, P. [PDF]
  7. Golladay, James, E., II [PDF]
  8. Haynes, Michael [PDF]
  9. Hoover, Allen, E. [DOC]
  10. Hyatt, Gilbert P. (comments) [PDF]
  11. Hyatt, Gilbert P. (appendix) [PDF]
  12. Hyatt, Gilbert P. (comments) [PDF]
  13. Hyatt, Gilbert P. (appendix) [PDF]
  14. Hyatt, Gilbert P. [PDF]
  15. Jocke, Ralph, E. [PDF]
  16. Keegan, Robert, R. [DOC]
  17. Katznelson, Ron, D. [PDF]
  18. Marshall, Bob [DOC]
  19. Meirs, Raymond, C. Jr.. [DOC]
  20. Miller, Jerry, A. [PDF]
  21. Moore, Steven, J. [DOC]
  22. Moore, Steven, J. [DOC]
  23. Mullen, James, J. [PDF]
  24. Murashige, Kate, H. [PDF]
  25. Paul, Scott, D. [PDF]
  26. Reeves, Nancy, L. [DOC]
  27. Schideler, Blynn, L. [DOC]
  28. Steinkraus, Walter, J. [PDF]
  29. Svensson, Leonard [PDF]

Patent Family Tree: Grandparent Invalidates Grandchild

Patent,

PatentLawPic104Zenon Environmental v. United States Filter (Fed. Cir. 2007)

At a bench trial, Zenon’s microfiltration patents were found not invalid but also not infringed. Both parties appealed, but the CAFC only needed to decide half the case — After deciding that Zenon’s asserted patent was anticipated one of Zenon’s prior patent, the issue of infringement became moot.  

The particular issue on appeal was whether Zenon’s asserted patent (the ‘319 patent) properly claimed priority to an earlier Zenon patent (the ‘373 patent).

Chain of Reference: The ‘319 patent claims to be a continuation of No. 6,294,039, which is a divisional of No. 6,042,677, which is a divisional of No. 5,910,250, which is a CIP of No. 5,783,083, which is a CIP of the ‘373 patent.

The claims in the asserted patent were disclosed in the original filing — the dispute arose because an intervening patent included only a reduced disclosure.

“In order to gain the benefit of the filing date of an earlier application under 35 U.S.C. § 120, each application in the chain leading back to the earlier application must comply with the written description requirement of 35 U.S.C. § 112.” Lockwood v. Am. Airlines, 107 F.3d 1565 (Fed. Cir. 1997).

Of course, the written description requirement can be satisfied by incorporating information by reference. That incorporation must, however, be explicit.  In one of the intervening patents, Zenon did include a reference to the ‘373 patent. However, the CAFC found that reference fell short because it did not explicitly state that it was incorporating the earlier patent by reference. (The reference was stated as follows: “details relating to … a most preferred skein are found in the parent U.S. Pat. No. 5,639,373.”).

Without the incorporation by reference of the proper written description, the asserted patent cannot claim priority to the filing date of the earlier patent. And, that lack of continuity of disclosure means that the early patent now serves as § 102 prior art.

Because it is undisputed that the ’373 patent discloses each and every limitation of the claims of the ’319 patent, and the ’373 patent was filed more than one year prior to the filing of the ’319 patent, we thus conclude that the ’319 patent is anticipated by the ’373 patent and hence invalid.3

In dissent, Judge Newman found it silly that the grandparent application would invalidate the grandchild. In addition to being silly, Newman argued that 35 U.S.C. § 120 requires that the later filing is “entitled to the benefit of the [earlier] filing date” so long as the family relationship is properly disclosed.

Ferguson Challenges PTO’s Hardened Line on Business Method Patents

Patent

PatentLawPic103In re Ferguson (Fed. Cir. 2007) (on appeal)

Scott Harris is one of the named inventors on U.S. Patent Application No. 09/387,823. He is also representing his fellow inventors in their Federal Circuit appeal — asking the court to explicitly define patentable subject matter to include business methods.** Ferguson’s claimed invention focuses on the “concept of a marketing company devoted to selling/marketing products produced by other companies in return for a share of their profits.”  Claim 24 is representative:

24. A paradigm for marketing software, comprising: a marketing company that markets software from a plurality of different independent and autonomous software companies, and carries out and pays for operations associated with marketing of software for all of said different independent and autonomous software companies, in return for a contingent share of a total income stream from marketing of the software from all of said software companies, while allowing all of said software companies to retain their autonomy.

The application also includes method claims of using the paradigm.

The BPAI (Board) found that the claims satisfied the requirements of 35 USC 102, 103, and 112, but that they were not patentable subject matter under 35 USC 101.

§101. Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter … may obtain a patent therefor, subject to the conditions and requirements of this title.

Although difficult to find within the text of the statute, the Board found that Section 101 requires that a claim either have a “useful, concrete, and tangible result” or “transform” something into a new physical state. Because Ferguson’s claims don’t fit either of these categories, the Board held that the claims were abstract and thus unpatentable. In its decision, the Board followed the rules set forth in the PTO’s Interim Guidelines on Subject Matter Eligibility.

Ferguson’s appeal is a head-on challenge to the PTO’s guidelines — arguing that the limited tests proposed by the PTO were never intended by courts to be ‘exclusive test’ and that his claims are, in fact, patentable subject matter. 

Oral arguments are set for December 5th, and a decision likely in February or March of 2008. That decision may finally provide a clear analysis regarding the patentability of business methods.

Notes:

  • ** People Magazine Byline: If you remember, Scott Harris is a former major partner at Fish & Richardson. He left the patent litigation giant after some of Fish’s larger clients (Google) complained about being sued for infringement of patents invented (but no longer owned) by Harris.  Fish has been sued by owners of a Harris patent (and now Harris himself). Their allegations against the firm include tortious interference, defamation, and the wrongful witholding of wages. Interestingly, Jenner & Block is representing another non-practicing patent plaintiff, PA Advisors, who is suing Fish clients (Google). . . [PTT] [Patently-O][Harris Counterclaims]. Interestingly, Tom Woolston (owner of MercExchange) was also a Fish & Richardson patent attorney and prosecuted his patents while at that firm. John Phillips, managing partner of Fish & Richardson’s San Diego office is a co-owner of that company.
  • Bilski: Bilski also involves business method patenst and was argued on October 1, 2007. In the audio, Judge Moore takes seriously the seemingly novel concept that Design Patents must also fit within the the 101 guidelines.
  • LINK: At his excellent blog, Peter Zura uncovers three recent BPAI decisions that limit the patentability of software.
  • Ex Parte Yang-Huffman (link) (Software ‘per se’ is not patentable subject matter)
  • Ex Parte Kinzhalin et al. (link) (“Automated” procedure is not technical enough)
  • Ex Parte Rodriquez et al. (link) (Computer instructions are not patentable as instructions (dicta)).

ITC Section 337 Case Requires Showing That Imports Threaten US Market for Articles Protected by Asserted Patent

Patent

OSRAM v. ITC (Fed. Cir. 2007) (non-precedential) 

Many patent litigators see the International Trade Commission (ITC) as the preferred forum for stopping imports of infringing products. In particular, when compared with district court litigation, Section 337 ITC actions move to conclusion much more quickly; offer a better chance of immediate preliminary relief; and allow for “general exclusion orders” to stop imports industry-wide (i.e., those injunctions cover particular accused infringers as well as other non-parties).  The ITC has no power to award damages — However, injunctive relief does not require that the patentee prove-up the eBay factors.

One limitation of Section 337 ITC actions is that they can only be pursued when the imports threaten a US industry for the protected article. (US industry must either exist or be “in the process of being established.”  19 USC 1337(a)(2). This ‘domestic industry test’ has been interpreted to require that the domestic product also infringe the patent. Alloc v. ITC, 342 F.3d 1361 (Fed. Cir. 2003).

In this case, the ITC’s original claim construction of a term limiting the size of luminous pigment grains resulted in a finding that OSRAM’s US sales were not covered by the patent. On appeal, the CAFC modified the claim construction holding — and consequently found that OSRAM’s products are covered by their own patent.

Judge Dyk dissented on the claim construction issue.

Notes:

  • Prosecution thoughts: This case provides a concrete example of one reason why the most important claims in a patent are usually directed at covering the client’s actual (or expected) product.
  • The claim construction issue here is actually quite interesting. The disputed limitation reads as follows: “a mean grain diameter d50 # 5 μm”. The appeal focused on whether the mean grain diameter should be calculated on a number-based average (average diameter) or a volume basis (diameter of grain with average volume). This analysis is complicated by the fact that the claimed d50 term generally indicates a median – not a mean.  Judge Dyk sided with the ITC holding that the volume based average should be used because that is the “commercial standard.” The majority chose the number based diameter calculation for reasons well-dissected by Judge Dyk.

Patent Law News

Patent
  • PTO Battle over Rules: PTO Director Jon Dudas and Deputy Director John Doll have now been served with deposition notices from Mr. Tafas’ attorneys. The Dudas deposition is scheduled for Friday, December 7, 2007 at the law office of Kelley Drye in DC.  Deposition dates are rarely firm.
  • E.D.Texas Not Waning: Patent Troll Tracker provides more stats in response to my post suggesting that the “magnetism of the Eastern District of Texas may be beginning to wane.” (Of course, TT’s work looks to the past, and my post was primarily thinking about the future).
  • S.1145: As the Senate Judiciary committee gets rolling again. Now is the time to contact your Senator to discuss the pros and cons of various aspects of patent reform.  [Contact] Interestingly, the Senate has disbanded its Judiciary subcommittee on Intellectual Property [Link]
  • Tafas v. Dudas et al Documents: My friends at Justia have agreed to provide links to all the court documents for the Tafas case: Justia on Tafas.  On November 5, 2007, the PTO withdrew its motion for partial summary judgment under Rule 12(b)(6).
  • Be a Fellow at Princeton: Those of you ready to spend time thinking and writing about patent law might consider a Fellowship in Princeton’s Program in Law and Public Affairs. One of the six fellowships is slotted to be awarded to an IP scholar. (funded by Microsoft). “Outstanding faculty, independent scholars, lawyers, and judges” are all invited to apply. Info: http://lapa.princeton.edu. [Other patent law jobs]

The GSK Case: An Administrative Perspective

Patent

Rai_portraitBy, Arti K. Rai*

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The already voluminous discussion of GSK[1] has not focused sufficiently on the court’s reasons for concluding that the PTO continuation rules (for reasons of brevity, I focus here only on continuation rules) probably violate the patent statute.  This reasoning is important because the court ruled against GSK’s argument that the rules were a bad idea as a policy matter (or, in the language of administrative law, “arbitrary and capricious”).  The court’s reasoning about the alleged conflict between the statute and the rules contains several errors of administrative law. 

 

With respect to the prospective application of the continuation rules (the very thorny issue of retroactivity in administrative law is best left for another day), analysis of whether the rules are contrary to the patent statute turns on two issues that should be decided sequentially.  First, do the rules fall within the scope of the PTO’s procedural rulemaking authority?  Second, do the rules violate the statute?

 

One mistake in the court’s opinion is that it appears to assume that analysis of the second question can be done without a complete answer to the first.   After equivocating briefly on the first question, the court jumps immediately to the alleged inconsistency with section 120 of the Patent Act.  In agreeing that GSK has “raised serious concerns” about whether the restrictions on continuations conflict with the Act, the court’s opinion relies heavily on In re Henriksen.[2]  That 1968 decision by the CCPA overturned a PTO limit on the number of continuation applications entitled to an earlier filing date under Section 120.

 

But Judge Cacheris should not have avoided deciding the question of substance vs. procedure.  If the PTO’s rules are in fact procedural, then the question of alleged inconsistency with statutory language does not turn on a 1968 CCPA case that makes no mention of administrative law principles (and, indeed, was decided at a time before it was clear that the Administrative Procedure Act even applied to the PTO).  Rather, it turns on the enormous case law that the Supreme Court has developed under its 1984 decision in Chevron v. Natural Resources Defense Council.[3]  Under Chevron and its progeny, an agency acting pursuant to authority delegated to it by Congress (here, procedural rulemaking authority under Section 2(b)(2) of the Patent Act) is entitled to interpret its organic statute so long as Congress has not “directly spoken to the precise question at issue” (Chevron step 1) and the agency’s interpretation is reasonable (Chevron step 2).

 

Assuming that Chevron applies, it is far from clear that Section 120 “speaks directly” to the limits enunciated in the PTO’s continuation rules.  Even if we assume that Section 120 does speak directly to the issue of whether the PTO can impose a bright-line bar, the PTO has argued that it does not intend an absolute limit.  According to the PTO, it will evaluate requests for a third continuation application on a case-by-case basis. Importantly, the PTO interpretations of its own regulations are entitled to very strong deference under the Supreme Court decision in Bowles v. Seminole Rock.[4]  Seminole Rock deference, which was recently reaffirmed in the 1997 Supreme Court case Auer v. Robbins,  says that an agency interpretation of its own rule is “controlling unless plainly erroneous or inconsistent with the regulation.”[5]

 

Indeed, the very strong deference of Seminole Rock is relevant even if the rules in question are substantive and thus not entitled to the application of Chevron.  Yet the opinion by Judge Cacheris does not even cite Seminole Rock.

 

These are more than fine lawyerly arguments about details.  Given the highly uncertain prospects for patent reform, and the reality that Section 2(b)(2) already gives it some rulemaking authority, the PTO has an understandable desire to engage in “self-help.”  Its current and future efforts at self-help must be judged according to the appropriate legal standards.


* Professor, < ?xml:namespace prefix ="" st1 ns ="" "urn:schemas-microsoft-com:office:smarttags" />Duke Law School.  Professor Rai’s 2003 Columbia Law Review article on patent reform focused on the balance of power between the PTO and the Federal Circuit. Arti K. Rai, Engaging Facts and Policy: A Multi-Institutional Approach to Patent System Reform, 103 Colum. L. Rev. 1035 (2003).

 

Preferred citation: Arti K. Rai, The GSK Case: An Administrative Perspective, 2007 Patently-O Patent L.J. 36, https://patentlyo.com/lawjournal.

 

[1] Tafas v. Dudas, 2007 U.S. Dist. LEXIS 80474 (E.D. Va. Oct. 31, 2007).

[2] In re Henriksen, 399 F.2d 253 (C.C.P.A. 1968).

[3] Chevron U.S. A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984).

[4] Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945).

[5] Auer v. Robbins, 519 U.S. 452 (1997)

PTO Rule Challenge

Patent

Some food for thought:

  • GSK made two successful legal arguments against the new rules: (1) that the limitations on continuations are substantively contrary to 35 USC 120 and associated precedent; and (2) that the retroactive nature of applying the new rules to already pending applications exceeds PTO authority.
  • Even if the rule challengers win on those two arguments, the PTO would still be able to implement portions of the new rule that limit the number of claims in newly filed applications. 
  • Furthermore, the retroactive nature of the claim rules is less compelling than for the continuation rules.  The proposal does not truly limit the number of claims. Rather it only requires an “examination support document” be filed if the claim count exceeds the 5/25 limit.  While many have noted these so called ESD’s are onerous, at least one company claims an automated approach (Link).  This would increase applicant’s cost, but arguably would not harm any property rights.  Modestly increasing regulatory cost does not constitute an unlawful retroactive effect.

Notes:

The Waning of the Eastern District of Texas (as a Patent Venue)

Patent

Although still the most popular district court for new patent cases. The magnetism of the Eastern District of Texas may be beginning to wane. Two recent cases:

  • Weinstein v. UGS Corp: This is not a patent case — however it may be indicative of the court’s new favorite word: Transfer. Here, the court transferred a civil case back to Michigan were the best locus of facts and witnesses could be found.

    • TGIP v. AT: TGIP won a $156 million patent infringement verdict — the largest patent verdict ever in the Eastern District of Texas. After the verdict, the district court erased the award — awarding judgment as a matter of law for AT&T. Apparently, the jury decision did could not properly account for technical details regarding the call authorization code timing.

Michael Smith calculates the 2007 patentee win rates at 28% (2 of 7). If Patent Reform 2007 becomes law, new filings will likely dry up quickly (becaues the venue will be improper for most cases).

Some evidence to the contrary —over 15% of new patent lawsuits filed between August 1, 2007 and November 1, 2007 were filed in the Eastern District of Texas (Westlaw Docket Reports). 

Documents:

 

 

Failure to Conduct Pre-Suit Investigation of Title Does Not Create Exceptional Case

Patent

PatentLawPic100Digeo v. Audible (Fed. Cir. 2007)

Digeo bought its patent out of bankruptcy and sued Audible for infringement. A bit of background on the patent: Two of the named inventors are brothers – Edward and Oliver Chang. Oliver signed the assignment and power of attorney forms on behalf of the estate of his “deceased brother Edward.” During litigation, the facts revealed that Edward is alive and thus, not deceased.  Digeo’s case was therefore dismissed for lack of title. (The bankruptcy purchase did not convey legal title because the assignment was forged.)

The appeal here focuses on the sole question of whether the district court properly denied Audible its attorney fees. Under Section 285 of the Patent Act, attorney fees may be awarded in exceptional cases. The CAFC has limited those exceptional cases to “bad faith” litigation that is “vexatious, unjustified, or frivolous.” 

Rule 11 Sanctions and Exceptional Case: FRCP Rule 11 has an interesting burden shifting procedure. Once a movant establishes non-frivolous allegations of Rule 11 violations, the burden shifts the the accused violator to show the reasonableness of its actions. Section 285 operates differently — there is no burden shifting and the exceptional case must be proven by clear and convincing evidence.  The two rules are linked in that a court’s finding of a Rule 11 violation can be then used to prove that the case is exceptional.  Here, there was no finding of a Rule 11 violation and Audible’s plea for a burden shifting procedure were denied.

“Therefore, the burden here is not on Digeo to show it conducted a reasonable pre-suit investigation into … its legal title…. Instead, the burden is on Audible to prove by clear and convincing evidence that the case is exceptional by showing that Digeo brought a frivolous lawsuit because it knew or should have known that it lacked legal title.”

No Heightened Standard for Bankruptcy Purchases: When you buy something “as is,” a smart buyer conducts a more thorough pre-purchase check. Audible here argued that plaintiffs who purchase patents “as is” should also live under heightened pre-filing investigation requirements because of the greater likelihood that the patent is faulty. The court disagreed with that argument — noting that even “negligent conduct does not suffice to establish that a case is exceptional.”

Walking away, the rule is that a patentee has no duty to conduct a pre-litigation title search unless he “knew or should have known its legal title was defective.”  Of course, Digeo won this battle, but lost the overall case because of the faulty title.

The court also denied Audible’s motion for additional discovery to examine any pre-filing misconduct by Digeo. Audible was unable to establish the requisite “reasonable probability that the outcome [of its Section 285 motion] would have been different had discovery been allowed.”

CAFC Finds Washington DC Drug Price Law to be Unconstitutional

Patent

BIO and PhRMA v. District of Columbia (Fed. Cir. 2007).

Earlier in 2007, the CAFC found a the District of Columbia’s new Drug Price Law to be unconstitutional as preempted by the patent laws. The law would have prohibited a manufacturer from enforcing a minimum retail price restriction or from charging “excessive prices” for patented drugs. (I.e., not more than 30% more than is charged in Canada or the UK). The appellate panel found that those limits conflicted with the incentive goals of the patent laws because they would limit the “full exercise of market power.”  In October 2007, the CAFC also denied a rehearing en banc. That denial includes two interesting opinions:

Judge Dyk in Favor of Rehearing: Judge Dyk recognizes the broad holding of the original CAFC opinion — that “any state law regulating the prices of patented pharmaceutical products would likely be preempted as a result of the panel’s holding.”  In Judge Dyk’s opinion, a rehearing is not necessary to change the outcome — but rather to change misguided language in the decision.  In particular, Judge Dyk notes that the majority’s discussion of the “full exercise of market power” is overly broad:

“A patent grant is designed not to allow the patent holder to exploit the grant for the maximum profit that the market will bear, but merely to confer a right of exclusivity.”

There are many proper state activities that limit a patentee’s market power. These include:

  • Taxing the sale of patented products;
  • Regulating the sale of patented products (such as tobacco formulations and unsafe lamp oil);
  • Prohibiting the sale of patented products (such as casino games); and
  • Prohibiting price-fixing agreements on patented products.

Judge Dyk argues that like these, price regulation — especially the prohibition on international price discrimination — are not preempted by the Patent Act (even though they may be bad policy).

Judge Gajarsa argued against Judge Dyk’s position — In the process, however, Judge Gajarsa essentially rewrote the panel decision. Arguing that the decision is not based on a requirement that a patentee have full market power but rather, that the DC act is preempted because it upsets the careful balance of rights and incentives created by the US Government in the area of pharmaceutical development.

This case could easily go to the Supreme Court.

Court Blocks PTO Rules on Eve of Effective Date; All Four Equitable Relief Factors Suggest Injunction

Patent,

Tafas v. Dudas (E.D. Va. October 31, 2007)

After a two-year long notice, comment, and review process, the US Patent & Trademark Office (PTO) published a set of final rules in August 2007 to effectively limit the number of claims filed in each patent application and to limit the number of continuation applications stemming from an original patent application.  (Current rules allow unlimited claims and unlimited continuations).  Tafas, an individual inventor, immediately filed suit — asking the Virginia based Federal Court to block the rules. Later, Glaxo Smithkline (GSK) filed a preliminary injunction to stop the rules before their November 1, 2007 effective date. Other parties, including the AIPLA, Élan, Hexas, the Roskamp Institute,and Tikvah Therapeutics, IBM, SanDisk, & Senator Schumer, then filed briefs or declarations supporting preliminary relief.

In granting the requested preliminary injunction, the district court walked through the four relevant factors: (1) likelihood that the plaintiff will succeed on the merits of the case; (2) irreparable harm without an injunction; (3) a balance of hardships weighing in favor of an injunction; and (4) the public interest supporting an injunction.  Although the four factors are considered as a whole, the first to factors are clearly the most important and must always be proven.

Likelihood of Success: In its brief analysis of the issues, the court found a “genuine possibility” that the PTO will lose. In particular, the Court noted two particular GSK arguments as likely winners: (1) the facial illegality of limiting the number of continuation applications under 35 USC 120; and (2) problems created by the retroactive effect on settled rights. A third argument – vagueness of the ESD requirements – also has some value according to the Court.

Continuation Applications: 35 USC 120 can be read various ways, but the Court found that Federal Circuit law “suggests that a decision by the PTO to limit the number of continuing applications would run contrary to the mandate of Section 120.”  See Symbol. This conclusion is made easier because the PTO would deserve no rulemaking deference for any rules that extends into substantive grounds. GSK’s position on the illegality of claim limitations is not as strong because there is no statutory provision to the contrary. Thus, the court found that “neither party can claim a strong likelihood of success on this issue.”

Retroactive Effect: The doctrine of retroactive effect is interesting here. Unless expressly granted by Congress, an agency’s rulemaking cannot be retroactive. The court found vested rights in the ability to file continuations and claims under the old rules. Those rights vested at the time when the patentee chose to file for patent protection and give up trade secret protection.

While “an individual [that] discloses his trade secret to others who are under no obligation to protect the confidentiality of the information, or otherwise publicly discloses the secret,” loses that property right, Rucklehaus, 467 U.S. 1002, the Final Rules retroactively alter the bargain on which inventors like GSK rely in making their decision to surrender their rights. The Final Rules thus impair GSK’s right to this bargain.

ESD Requirements: The after publishing the final rules, the PTO published a series of clarification papers and guidelines for how to properly prepare an examination support document (ESD) under the new rules. The Court turned that guidance on its head — suggesting an admission of vagueness and noting that the additional guidance cannot be used to help vague rules overcome due process violations.

An alternative way to block the rules is to show that they are “arbitrary and capricious.” The Court found the PTO’s reasoning coherent enough to give the agency a pass.

Thus, the PTO’s rationale appears to be sufficient to satisfy arbitrary and capricious review, and the Court will find that GSK has not shown a real likelihood of success on this issue.

Irreparable Harm: The Court agreed that the “uncertainty” created by the new regulations was sufficient to cause irreparable harm because they would change investment and patent filing incentives. Without an injunction, GSK would be unable to recover from its lost protection if the rules are ultimately determined to be invalid.

Balance of Hardships: For the preliminary injunction, the balance of hardships weigh in GSK’s favor because GSK’s woes are instant once the new rules are effective. On the other hand, the PTO will simply experience a gradual continued increase in pendency.

Public Interest: The public interest is in a stable patent system. Thus, a preliminary injunction to preserve the status quo is appropriate.

Notes:

PTO Continuation and Claim Rules Temporarily Blocked by District Court

Patent,

On October 31, 2007, Judge Cacheris of the Eastern District of Virginia held court in the case of Tafas v. Dudas. In that case, several plaintiffs have joined together in an attempt to block implementation of a set of new patent prosecution rules proposed by the USPTO. The jist of those rules would be to effectively limit the number of claims filed in each patent application and to limit the number of ‘continuation’ applications that may stem from any original patent application.

At the conclusion of the hearing, the Court issued an oral decision temporarily enjoining the PTO from implementing the new rules that were set to become effective on November 1, 2007. John White, who attended the hearing, noted that the crowd clearly supported the plaintiffs and were quite relieved by the decision. Jill Browning of the Ashe firm also attended today’s hearing and provides the following analysis of Judge Cacheris’ hearing on the PTO’s Continuation and Claim Limitations:

With respect to the arguments presented, the Court was clearly well prepared on all the issues.  The attending members of the patent bar (of which there were many) were grateful to the Court for making its decision granting the injunction before the critical November 1 deadline and before the rules had a chance to become effective.   

The Court, at the outset, asked why GSK had delayed in filing its motion.  GSK indicated that the rules issued in August, 2007, were so different from the rules the public commented on in January, that, given the complexity of the rules, GSK’s filing of the motion was timely.  On this point, the USPTO later argued that the Final Rules were merely a “logical outgrowth” of the public comments provided and, thus, acceptable under the law.  GSK took issue with this point, but indicated that this topic would be more germane to the summary judgment briefing and did not need to be decided now. 

GSK began its argument by focusing on the public interest.  GSK argued that the public’s interest would best be served by not implementing the rules and, as support for this, pointed out that every amicus and declaration (and a letter from a Senator) filed by a third party had supported GSK’s position, as opposed to the USPTO’s. [Link] GSK pointed out that the public interest would best be served by maintaining the status quo, as opposed to implementing rules that would require applicants (and specifically GSK) to make substantive choices and decisions regarding their patent portfolios that could never be “undone.”  One particularly persuasive point GSK made during argument wsa that the “contract” between the applicant and the government (i.e., the applicant discloses its trade secret in return for patent protection) was broken by the USPTO’s enactment of the rules.  GSK pointed out that the “quid” of submitting the applications was already accomplished, and now the USPTO wanted to change the “quo.” 

In response, the USPTO argued that the USPTO was not deaf to the public outcry – but that the outcry of “change is bad” is not enough to outweigh an agency’s need to conduct its business in a way that alleviates an over burdened system.  In fact, at one point the USPTO, in a somewhat contradictory argument, noted that it was not enacting a “mechanical” rule eliminating additional continuations. Rather, the rules were simply directed at a way to relieve an overburdened system.  The USPTO stated that the New Rules would increase efficiency and decrease backlog.

GSK rebutted the USPTO’s argument that a delay would cause irreparable harm (i.e., loss of money in changing to the new implementation) by pointing out that the money was already spent, and delaying the implementation of the rules would not cause the USPTO to lose additional money.  On rebuttal, the USPTO indicated that the government would have to expend additional money re-training the examiners, as they could not be expected to maintain their understanding of such complicated and detailed rules for any extended period of time.

With respect to the merits of the case, the Court specifically asked each party whether the USPTO was acting in an arbitrary and capricious manner.  While GSK indicated that they did not need to address this question until summary judgment briefing, it believed that the USPTO was so acting, as evidenced by the Final Rules contradicting over 100 years of court precedent.  The USPTO, in response to the Court’s question, clung to the argument that the rules were merely procedural, and, thus, are well within the USPTO’s authority.  The USPTO also indicated that the 10,000 page record, which included a public comment period, supported the USPTO’s careful and extensive consideration of the issues and stands in stark contradiction to any allegation that the USPTO acted in an arbitrary and capricious manner.

The Court also asked each party what makes the New Rules “substantive” vs. “procedural.”  GSK argued that the rules were substantive primarily because the rules represent a break with over 100 years of substantive patent practice (focusing primarily on the ability to file unlimited continuations, excepting very narrow prosecution laches situations that should be applied on a very limited case-by-case basis).  The USPTO responded by arguing that the Final Rules were procedural because they do not affect the substantive rights of applicants to file, and do not even limit the number of continuations that an applicant can file – the applicant, to file additional applications (i.e., more than the 2 + 1) need only file a petition, which will be decided on a case-by-case basis.

GSK argued that the effect of the Final Rules was, in fact retroactive because it impaired the rights of a party, relying on Supreme Court precedent.  The USPTO indicated that Final Rules were not retroactive, merely because they “upset expectations” and that there is no property right in a patent application or in any particular procedure adopted by the USPTO.   

While, as the USPTO pointed out, an injunction is an extraordinary measure, GSK argued out that agencies are enjoined “all the time” when they promulgate rules that are challenged as being beyond the agencies’ authority.  Apparently, the Court agreed with GSK.  The reasoning for Judge Cacheris’ decision will be found in an opinion that he will issue before close of business today.

1.  When we can expect a final decision on the merits:  The summary judgment briefing schedule that the USPTO had agreed upon with Tafas appears to no longer be in effect for several reasons.  First, the USPTO claims that the expedited briefing schedule was agreed to based on Tafas’ agreement not to seek an injunction.  The USPTO indicated that Tafas reneged on the agreement and joined the motion for a preliminary injunction or TRO and, thus, this alone was grounds to vacate the government’s agreement.  Second, even if the court determined that Mr. Tafas’ actions did not repudiate the agreement, given the additional amicus briefs, and joining GSK as a party, the USPTO requires additional time to adequately address the briefs.  Further, the USPTO pointed out that, because the injunction was granted, plaintiff’s arguments for a speedy hearing on the summary judgment motion are less pertinent.  The Court instructed the parties to attempt to agree on a briefing schedule.  Hopefully, the briefing schedule will be presented as an order so that we will be able to determine when it will be heard, as this will determine when ultimate resolution of the case.

Of course, the preliminary injunction is not a decision on the merits of the rules — it is only preliminary relief. A full decision will likely be delayed until at least early January.  The PTO may still choose to appeal.

In other prosecution news… New IDS rules are expected to be published soon.

Preliminary Injunction Order

Patent

Text of the Preliminary Injunction order from Judge Cacheris:

4) Defendants [USPTO & Director Jon Dudas] are preliminarily enjoined from implementing the Final Rules titled “Changes to Practice for Continued Examination Failings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications”;

5) Defendants are preliminary enjoined from issuing new regulations restricting the number of continuing applications, the number of requests for continued examination, and the number of claims that may be filed with the PTO;

6) This Order shall expire upon the entry of a final judgment in this matter, unless otherwise ordered by the Court.