Guest post by Saurabh Vishnubhakat, Associate Professor at the Texas A&M University School of Law and the Texas A&M College of Engineering.  Although Prof. Vishnubhakat was an advisor at the USPTO until June, 2015, his arguments here should not be imputed to the USPTO or to any other organization. This post is based on a new paper forthcoming in the N.Y.U. Annual Survey of American Law.  Read the draft at https://ssrn.com/abstract=3113844.

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Since the AIA, the Patent Office has had a relatively little-known power in post-issuance proceedings. Once a PTAB decision is appealed to the Federal Circuit, the Patent Office can intervene in the appeal as a matter of statutory right under 35 U.S.C. § 143:

With respect to an appeal described in section 142, the Director shall transmit to the United States Court of Appeals for the Federal Circuit a certified list of the documents comprising the record in the Patent and Trademark Office. The court may request that the Director forward the original or certified copies of such documents during pendency of the appeal. In an ex parte case, the Director shall submit to the court in writing the grounds for the decision of the Patent and Trademark Office, addressing all of the issues raised in the appeal. The Director shall have the right to intervene in an appeal from a decision entered by the Patent Trial and Appeal Board in a derivation proceeding under section 135 or in an inter partes or post-grant review under chapter 31 or 32. The court shall, before hearing an appeal, give notice of the time and place of the hearing to the Director and the parties in the appeal.

In the past few years, the Patent Office has exercised this intervenor authority frequently and with specific apparent policy objectives. In Knowles Electronics v. Matal, the Federal Circuit is now considering the extent to which the agency must establish Article III standing in order to exercise its intervenor authority—specifically in cases where the prevailing party below is absent from the appeal. Also in question, assuming agency standing, is whether the Director must defend the PTAB’s decision below or is free to take other positions on appeal.

Patent Office Interventions: An Empirical Summary

New data on Federal Circuit intervenors shows that the Patent Office’s pattern of strategic intervention intersects in important ways with constitutional limits on the agency’s power.

• Among 96 observed disputes (across 145 docketed appeals) in which the agency intervened, every intervenor brief that the Patent Office has filed has been in full or partial defense of the PTAB’s position or of some larger structural value associated with administrative adjudication, never in opposition to the PTAB’s stance.
  
• Where the Patent Office did choose to intervene on appeal, the outcomes below were usually defeats for the patent owner (about 80%), and the agency’s position was to affirm the defeat.
  
• Where the Patent Office intervened specifically to stand in for a litigant who was absent on appeal, the absent litigant was always a prevailing patent challenger—never a prevailing patent owner.
  

This is constitutionally important because the agency’s ability to intervene often will rest on its ability to show Article III standing. The Patent Office as intervenor may be able avoid having to show its own standing—but only if (1) the agency has entered the case on the side of a party that does establish standing, and so long as (2) the agency does not seek relief that is different from what that friendly party seeks.

Patent Office Intervention and Article III Standing

The Supreme Court explained in Arizonans for Official English v. Arizona, that standing “must be met by persons seeking appellate review, just as it must be met by persons appearing in courts of first instance.” 520 U.S. 43, 64 (1997). Where the friendly party with proven standing declines to appear, the intervenor “cannot step into the shoes of the original party unless the intervenor independently fulfills the requirements of Article III”—even where the intervenor takes the same position as that of the absent party. Id. at 64–65.

Importantly, adverse parties must also have standing independently of each other. It is a common shorthand to say that a plaintiff’s duty to show standing means that standing is required only from plaintiffs. But in fact, standing to defend is necessary as well. It is true that any given defendant probably can establish standing, as a defendant’s potential injury from an adverse judgment is generally enough to satisfy Article III. Still, the case-or-controversy requirement does not merely demand standing to sue. As the Court explained in Arizonans for Official English, what is needed is standing “to sue or defend.” Id. at 64.

This view also calls into question the Federal Circuit’s recent panel decision in Personal Audio, LLC v. Electronic Frontier Found. (Fed. Cir. 2017). It also calls into question the Patent Office position in Knowles. In its briefing on the Article III standing questions, the agency has adopted an expansive view of its own authority and a very limited view of its constitutional limits. In its first supplemental brief, the Patent Office argued that it need not show its own Article III standing because it can piggyback on the standing of Knowles Electronics, the patent owner mounting the appeal—even though the Patent Office as intervenor is adverse to Knowles. The agency also argued, apparently quite broadly, that “the Director may take any substantive position he likes” on appeal. The agency’s second supplemental brief clarified, however—in light of the Chenery doctrine—that this freedom to choose “any substantive position” pertained only to “an issue [actually] decided by the Board.”

But while piggybacking on a friendly party’s standing is one thing, piggybacking on an adverse party’s standing—especially where the friendly party is absent—is quite another. Indeed, though Knowles Electronics’s supplemental brief led with this point, the agency’s briefing contained no responsive discussion of Arizonans for Official English.

Implications for Patent Office Policy and Participation in the Patent System

Choosing to intervene only in certain cases, to support only certain positions, and to stand in only for certain absent appellate parties are plainly acts of policy. The plain language of § 143 suggests that it is a policy instrument that Congress intended for the Patent Office. But the constitutional limitations of Article III, as elaborated by the Court, remain a meaningful constraint on how the agency can exercise its statutory powers. This is especially true given the agency’s observed preferences as intervenor, preferences that require standing to sue or defend and that limit the ability to piggyback on adverse or absent parties.

Apart from their inherent importance, these constitutional imitations also matter for broader participation in the patent system. Since the Patent Office began intervening in Federal Circuit appeals, the relative share of interventions by private parties has declined. The remainder has shifted to a pattern of more concentrated, multi-party interventions. Data on non-governmental intervenors during the same period (Dec. 2013–Sept. 2017) as Patent Office interventions shows that 142 private parties intervened in only 43 docketed Federal Circuit cases. By contrast, in an equivalent period of time before the Patent Office began using its intervenor power (Feb. 2010–Nov. 2013), 63 private parties had intervened in 30 docketed cases while the Patent Office apparently did not intervene in any. In other words, there has been a net offloading onto the Patent Office of the responsibility to intervene.

As I argue in my paper, this is significant precisely because private-party intervenors can often show, more than the Patent Office could, enough of a stake to intervene in a given case. However, Congress chose not to entrust the protection of larger social interests diffusely to private-party intervenors. Instead, it recognized the coordinating and policymaking function that agency intervention can properly serve—within constitutional limits. When understood this way, private parties’ interventions are a useful adjunct to the agency’s. This is especially true where parties may be dissatisfied by the agency’s priorities, which may change considerably from one administration to another. If the decline in private-party intervention has reached some equilibrium with agency intervention—or will soon do so—then that outcome seems preferable to a complete abdication by private parties of the effort to intervene. The Patent Office can do much, but it should not be required to do all that intervenors can do.

The chart below comes from the USPTO OED registry of practitioners and so suffers from potential registry issues (I did do some amount of name-matching to overcome different firm name spelling and punctuation.).

According to these records, Finnegan has the most total practitioners while Knobbe has the most patent attorneys. IBM is the only operating company that breaks the top-10. The top 25 firms represent ~8% of all registered patent practitioners. The newest patent attorney on the list is Hallie Wimberley, a first-year associate at Reed Smith.  My former firm (MBHB) is now up over 100.

• Excludes certain patents, designs and secret formulas or processes from the definition of “capital asset”
• Removes the ability to treat such intellectual property as a capital asset that would have been subject to lower capital gains tax rate of 20%
• Treats gain from the sale of such assets as ordinary income, subject to higher rates

https://www.uspto.gov/sites/default/files/documents/20180201_PPAC_Legislative_Update.pdf

President Trump’s State of the Union speech promised protection of both “American workers and American intellectual property, through strong enforcement of our trade rules.”  Trump also noted that “I have directed my Administration to make fixing the injustice of high drug prices one of our top priorities. Prices will come down.”  Although, high drug prices are, in many cases, premised upon exclusive rights granted by patents, the Administration has – thus far – not offered any indication that it will be breaking (or bending) pharma patent rights.  For both new drugs and off-patent generics, the Trump Administration is looking to speed FDA approval noting that “last year the FDA approved more new and generic drugs and medical devices than ever before in our history.”

In its petition for writ of certiorari, Riveer asks the following question:

Whether it is a denial of due process under the Fifth Amendment to the United States Constitution for the United States Court of Appeals for the Federal Circuit, on issues requiring de novo review, to affirm summarily in a one-word per curiam judgment under Federal Circuit Rule 36 a district court judgment which itself included no reasoning or explanation, concerning intellectual property rights including patent rights.

Petter Investments, dba Riveer v. Hydro Engineering, No. 17-1055.  The issues here are different from those I addressed in my article on the topic, but still of some importance.  [Link]

by Dennis Crouch

The Supreme Court has heard oral arguments in Oil States and briefing is ramping-up in one additional case, WesternGeco, that focuses on lost profit damages for international activities.

A fairly large number of petitions for writ of certiorari are pending – however, the questions presented lack diversity.  The vast majority of the pending petitions are Oil States follow-on cases that basically ask whether the post-issuance review proceedings are constitutional.  Other topics of pending petitions: Dealing with ‘evidence’ in eligibility decisions; Limits on ‘teaching away’ in obviousness; apportionment of lost profit damages; assignor estoppel; defining ‘exceptional case’ for attorney fees; and whether the Federal Circuit must issue reasons for its decisions.

Eligibility:

• R+L Carriers, Inc. v. Intermec Technologies Corporation, No. 17-980 (“proving” it is abstract).
• The Cleveland Clinic Foundation, et al. v. True Health Diagnostics LLC, No. 17-997 (role of evidence in eligibility analysis)

Obviousness:

• Nidec Motor Corporation v. Zhongshan Broad Ocean Motor Co., Ltd., et al., No. 17-751 (Obviousness: does ‘teaching away’ requires express criticism; also Oil States issue)

Damages

• EVE-USA, Inc., et al. v. Mentor Graphics Corporation, No. 17-804 (Apportionment and Assignor Estoppel)
• NOVA Chemicals Corporation (Canada), et al. v. Dow Chemical Company, No. 17-564 (attorney fees – how exceptional)

Review of PTAB:

• Google LLC v. Unwired Planet, LLC, No. 17-357 (Does the Federal Circuit has jurisdiction to review the PTAB determination that a patent is a “covered business method” patent; What level of deference should be given to PTAB decisions).
• PNC Bank National Association, et al. v. Secure Axcess, LLC, No. 17-350 (parallel court proceedings: when is PTAB proceeding moot?)

Rule 36 No Opinion Judgments:

• Celgard, LLC v. Joseph Matal, Interim Director, United States Patent and Trademark Office, No. 16-1526 (“Does the Federal Circuit’s issuance of Rule 36 judgments without opinions for the disposition of appeals from the Patent Office violates 35 U.S.C. § 144’s requirement that the Federal Circuit ‘shall issue’ its ‘mandate and opinion’ for such appeals?”; Also Oil States issues)
• C-Cation Technologies, LLC v. Arris Group, Inc., et al., No. 17-617 (also raises Oil States issues)
• Integrated Claims Systems, LLC v. Travelers Lloyds of Texas Insurance Company, et al., No. 17-330 (also raises Oil States issues)
• Petter Investments, dba Riveer v. Hydro Engineering, No. 17-1055

Oil States Follow-On

• Uniloc USA, Inc., et al. v. SEGA of America, Inc., et al., No. 17-1018
• Worldwide Oilfield Machine, Inc. v. Ameriforge Group, Inc., No. 17-1043
• KIP CR P1 LP, Successor in Title to Crossroads Systems, Inc. v. Oracle Corporation, et al., No. 17-707 and 17-708 (Response Requested by SCOTUS)
• Hitachi Metals, Ltd. v. Alliance of Rare-Earth Permanent Magnet Industry, No. 17-768 (Response Requested)
• Enova Technology Corp. v. Seagate Technology (US) Holdings, Inc., et al., No. 17-787 (Response Requested)
• AT&T Intellectual Property II, L.P. v. Joseph Matal, Interim Director, United States Patent and Trademark Office, No. 17-643
• Audatex North America, Inc. v. Mitchell International, Inc., No. 17-656
• Hillcrest Laboratories, Inc. v. Movea, Inc., No. 17-39
• Affinity Labs of Texas, LLC v. Joseph Matal, Interim Director, United States Patent and Trademark Office, No. 17-117; 17-232; 17-232
• Affinity Labs of Texas, LLC v. Samsung Electronics Co., Ltd., et al., No. 17-116
• IPR Licensing, Inc. v. ZTE Corporation, et al., No. 17-159
• Paice LLC, et al. v. Ford Motor Company, No. 17-221; 17-220; 17-229; 17-112; 17-113; 17-111; 17-110; and 17-222.
• Security People, Inc. v. Joseph Matal, Interim Director, United States Patent and Trademark Office, et al., No. 17-214
• Outdry Technologies Corporation v. Geox S.p.A., No. 17-408
• Skky, Inc. v. MindGeek, s.a.r.l., et al., No. 17-349
• TransPerfect Global, Inc. v. Joseph Matal, Interim Director, United States Patent and Trademark Office, No. 17-535

by Dennis Crouch

In NantKwest v. Matal, the Federal Circuit will sit en banc to decide whether the cost-shifting provision found in 35 U.S.C. § 145 permits the USPTO to recover its attorney fees. I explained the setup in a prior post:

After being finally rejected by both the examiner and the PTAB, a patent applicant can then take its case to court. The Statute provides two options – either (1) a direct appeal to the Federal Circuit or (2) filing a civil action in district court to pursue a trial on the merits under 35 U.S.C. § 145.

An oddity of Section 145 civil action is the last line which states: “All the expenses of the proceedings shall be paid by the applicant.” In 2010, the en banc Federal Circuit ruled that the statute means what it says – expenses are to be paid by the applicant “regardless of the outcome.” Hyatt v. Kappos, 625 F.3d 1320 (Fed. Cir. 2010) (en banc). In NantKwest, the split panel ruled that the “expenses” include attorney fees.

In a sua sponte order, the Federal Circuit then ordered en banc review of the fee shifting rule – particularly whether the statutory “expenses” include attorney fees (especially in-house salaried attorney fees). Briefs have now been filed in the case and oral arguments are set for March 8, 2018 in the Federal Circuit’s Washington D.C. Courthouse at 717 Madison Place.

[Briefs Filed (Big PDF): 16-1794_Documents]

The US Government (USPTO) brief makes the basic argument that Congress intended for patent applicants to bear the expense of the optional district court proceedings, and attorney fees are a major component of that expense. The Gov’t further explains that the Federal Circuit majority approach has also been approved by the 4^th Circuit with regard to the parallel Lanham Act provision. Shammas v. Focarino, 784 F.3d 219 (4th Cir. 2015). Although not express, the Gov’t approach suggests that “all expenses” need not even be limited to reasonable expenses.

In response, Nantkwest relies heavily on history – noting that prior to this case, “neither the PTO, nor Congress, nor the courts have ever interpreted § 145 to authorize any attorneys’ fees.” That history along with the presumption against fee shifting and the limited language of the statute should collectively prevent a fee award here.

• Amicus from Federal Circuit Bar Association: The FCBA argues in support of NantKwest that expenses as used in the statute should not include attorney fees. Their prime example is that §145 does not say “attorney fees” while a parallel provision for infringement litigation, §285 does expressly say “attorney fees.” The longstanding practice of the USPTO has been to not ask for attorney fees – that approach should add considerable weight to whether the PTO’s interpretation is correct.
• Amicus from AIPLA: “No reading of ‘all expenses of the proceedings’ can mean reimbursement of staff salaries.”
• Amicus from IPO: “Attorneys’ fees are not expenses ‘of the proceeding'” as required by the statute.
• Amicus from INTA: The American rule creates a strong presumption against attorney fee awards.

One of the basic debates here is how the general presumption against awarding attorney fees in US Courts should be applied.  The Government Lawyers makes the odd technical argument that the “American Rule” is a presumption is against awarding attorney fees to the prevailing party. Here, they argue, the presumption is not implicated since the statute awards fees win-or-lose.  That particular argument is wrong on many levels, but it does have the majority on its side as well as the 4th Circuit panel.

= = = = =

Patenting is a Pay for Service Process: In thinking through the case, one starting point is a recognition that the patent is a pay-for-service process.  Applicants pay for filing, for PTO searches, for PTO Examination, for Appeals, for Issuance, etc. Although it makes sense to spend some taxpayer money on encouraging scientific research and innovation, the pay-for-service model is much easier politically.  In that setup, it also seems reasonable that there would be a fee for filing and pursuing a civil action. With most fees today, the PTO is setting fees to reflect some average cost of providing service (with some additional policy preferences embedded into pricing).  However, the difficulty for the PTO here is that the mechanism for collecting fees under Section 145 looks just like fee shifting – which the courts historically disfavor.

In re Janssen and NYU  (Johnson & Johnson) (Fed. Cir. 2018).

In an ex parte reexamination of U.S. Patent No. 6,284,471, the Patent Trial and Appeal Board affirmed the examiner’s conclusions that NYU’s claims unpatentable under the judicial doctrine of obviousness-type double patenting. NYU and J&J have played a few games with this particular patent family of 30+ patents.  The claims relate to antibodies and assay methods associated with a tumor necrosis factor (TNF) and is said to cover J&J’s blockbuster drug Remicade used to treat so-called autoimmune diseases.

The Patent Act text appears to allow a patentee to obtain multiple patents covering similar inventions.  However, the judicially created doctrine blocking double-patenting limits that approach. The most poignant need for the OTDP doctrine arose pre-GATT when a patent’s term extended for 17 years beyond its issue date.  In that legal framework, a patentee could seemingly file a series of continuation applications that included obvious modifications to claim scope but in order to continually refresh the patent term. Thus, the Federal Circuit has explained:

The doctrine of obviousness-type double patenting is intended to prevent the extension of the term of a patent by prohibiting the issuance of the claims of a second patent that are not patentably distinct from the claims of the first patent.”

G.D. Searle LLC v. Lupin Pharm., Inc., 790 F.3d 1349, 1351 (Fed. Cir. 2015) (citing Eli Lilly & Co. v. Teva Parenteral Meds., Inc., 689 F.3d 1368, 1376 (Fed. Cir. 2012)). This concern has largely been eliminated since patent terms are now calculated based upon priority filing dates. In addition, it is unclear the extent that the doctrine survives the modifications of the America Invents Act.  These concerns though are irrelevant to this case since it is a pre-GATT case.

A twist on the OTDP doctrine comes from 35 U.S.C 121 which has been interpreted to prohibit claims in a divisional application (filed following a restriction requirement) from being cancelled or rejected based upon the parent application.

Here indeed, the parent application was subject to a 5-way restriction requirement.  However, rather than limiting the claims and filing a divisional, NYU abandoned the original application and filed two separate continuation-in-part applications — in both cases adding new matter.  According to the Federal Circuit, without a divisional, Section 121 safe harbor does not apply.

The § 121 safe harbor, “by its literal terms, protects only divisional applications (or the original application) and patents issued on such applications.” Pfizer, Inc. v. Teva Pharm. USA, Inc., 518 F.3d 1353, 1360 (Fed. Cir. 2008) (internal quotation marks omitted). Accordingly, patents issued on CIP applications are not within the scope of § 121. Nor are patents issued on continuation applications. Amgen. Our precedent is clear: aside from the original application and the original patent, the protection afforded by § 121 is limited to divisional applications and patents issued on divisional applications.

The precedent above is not new and was well known to the patentee here by the time of this dispute.  Thus, during the reexamination the patentee attempted to retroactively amend its filing to transform the application from a continuation-in-part into a divisional application.  The Federal Circuit has rejected that approach:

In Searle we answered this question in the reissue context, holding that the patent owner could not take advantage of the safe-harbor provision simply by designating the CIP as a divisional application in a reissue application years after the fact. . . . We are persuaded by the reasoning in Searle that a patent owner cannot retroactively bring its challenged patent within the scope of the safe-harbor provision by amendment in a reexamination proceeding.

Obviousness-type double patenting AFFIRMED.

EVE-USA was founded by former employees of Mentor — the named inventors on Mentor’s emulation software patents.  Initially Mentor licensed the patents to EVE for its use, but that license was terminated when Synopsys later acquired EVE.  Mentor then sued Synopsys and won a $36 million jury verdict for infringement of its U.S. Patent No. 6,240,376.  Following the Federal Circuit’s decision largely supporting the verdict, EVE/Synopsis have petitioned the Supreme Court for writ of certiorari asking two questions relating respectively to Assignor Estoppel and Apportionment of Damages.

Assignor Estoppel: Although the patent act expressly indicates that invalidity is a defense to patent infringement, the doctrine of assignor estoppel operates to prohibit a defendant from asserting invalidity in certain situations.  Here, the accused infringer asks:

1. The question is whether, and under what circumstances, assignors and their privies are free to contest a patent’s validity.

In addition to tying its arguments to the text of the statute, the petitioner also links its case with the Supreme Court’s decision in Lear, Inc. v. Adkins, 395 U.S. 653 (1969) which abolished the analogous doctrine of “licensee estoppel.”  In some ways, this case sits in parallel with other recent equitable cases such as SCA Hygiene (2017) (eliminating laches as a bar to legal damages).

Apportionment of Damages in Lost Profits Cases: The second issue raised in the petition involves apportionment of damages in cases where the patent covers only a feature or portion of a machine being sold and where the patentee claims lost-profits.  The defendant here argues that the Federal Circuit improperly “permits patentees to recover lost profits damages for an entire multi-component product, without apportioning the value between patented and unpatented features, simply by showing that the patentee would have made the sale “but for” the infringement.”  Thus, the question presented is:

2. Did the Federal Circuit err in holding that proof of but-for causation, without more, satisfies the requirement that damages be apportioned between patented and unpatented features?

Although certiorari has not been granted, the case is moving in that direction.  Four briefs amici were recently filed supporting petitioner and the Supreme Court has requested a response from the patentee Mentor.

• Federal Circuit Decision
• Federal Circuit En Banc Denial
• Petition for Writ of Certiorari
• Law Professor Brief (Bernard Chao): “An unbroken line of Supreme Court precedent holds that apportionment analysis is required in all damages calculations.”
• Eric Bensen Brief: “The patentee has the burden of identifying the portion of its lost profit that would have been attributable to the value of its patented invention as opposed to the value of the article’s unpatented components. It is only that portion that a patentee seeking a lost profits award may recover as damages under the Patent Act. Were it otherwise, a patentee could use a patent on a small feature to restrict the sale of goods that would otherwise trade freely in the marketplace.”
• Law Professor Brief (Stanford Clinic): Assignor estoppel should be limited to cases such as bad faith negotiations and only rarely applied to those in privy with the assignor.  This brief substantially follows Mark Lemley’s article on the topic.
• HP, EBay, Oracle, et. al: The Federal Circuit’s “all or nothing” approach in the lost profit scenario “creates the risk of large damages awards far out of proportion to the value created by the patented features. This risk,
  in turn, gives undue leverage to patentees and imposes potentially prohibitive costs on doing business—even in products and services that largely reflect the accused infringer’s own innovation.”

For its part, the Federal Circuit would likely argue that the briefs mischaracterize its decision that respects the apportionment requirement but that sees the entire market value rule (EMVR) as a longstanding element of apportionment doctrine applied in the limited circumstances where “the entire value of the whole machine . . . is properly and legally attributable to the patented feature.” Quoting Garretson v. Clark, 111 U.S. 120 (1884).

The following message comes from Wilbur Ross, Secretary of Commerce.  The main point is that USPTO will remain in operation even if there is a government ‘shutdown.’:

As many of you are aware, annual funding for the government expires on January 19th. The Administration does not believe it is necessary for a lapse in funding to occur and looks forward to working with the Congress to finalize appropriations for this year.

However, prudent management requires that we be prepared for all contingencies, including the possibility that a lapse could occur. A lapse would mean that a number of government activities would cease due to a lack of appropriated funding and that a number of employees would be temporarily furloughed. To prepare for this possibility, we are working to update our contingency plans for executing an orderly shutdown of activities that would be affected by a lapse in appropriations.

Should such a lapse occur, the USPTO would still have access to prior year fee collections, which enables the agency to continue normal operations for a few weeks. USPTO employees should report to work as normal until and unless you receive notice otherwise. We are working with your Office of General Counsel and Chief Financial Officer to update our contingency plans should the USPTO need to execute an orderly shutdown of activities after that point.

Thank you for your hard work, dedication, and patience through this process, and for all that you do for the Department of Commerce and the American people.

Sincerely,
Wilbur L. Ross
Secretary of Commerce