Happy Thanksgiving and Moving Forward in a Pluralistic America

Patent

by Dennis Crouch

Although many of us will retreat to our families for this week’s thanksgiving holiday – the American tradition is to use the time to build cross cultural ties with our neighbors.

I am a great admirer of WilmerHale’s top IP Litigator Bill Lee.  Lee is an amazing lawyer and delivers for his clients while maintaining the highest ethical standards for himself and his co-counsel.   This past week’s AmLaw Daily helps bring home to me the disturbing American cultural and racial trends that are directed more at division than unity. Susan Beck writes:

On a Tuesday night in August, Lee stopped at a gas station near his home outside Boston in Wellesley, Massachusetts, to fill up his Mercedes-Benz SUV. Lee—a graduate of Harvard College and one of the nation’s most accomplished intellectual property litigators—was wearing a suit and tie, having finished a long day at work.

As Lee tells it, a man wearing a “Wellesley Hockey Parent” shirt walked up to him.

“Where does a guy like you get a car like that?” the man said to Lee, looking at the litigator’s vehicle.

Lee, whose parents came to this country from China in 1948, tried to defuse the situation. “From Herb Chambers,” he said, referring to a local car dealer.

“Why don’t you go back to your own country,” the man said, according to Lee.

“I don’t understand you,” Lee said.

“You mean, you don’t understand English,” the man said.

“I don’t understand ignorance,” Lee replied.

The Wilmer partner drove away, but the man followed in his car. When Lee pulled into a nearby police station, the man vanished.

“In the bluest of Blue States, Massachusetts, a mile from Wellesley College, if someone tells you to go back to your own country, this can happen anywhere,” Lee said. “If this can happen to the managing partner of an Am Law 200 firm, what’s happening to the rest of the country?”

Lee said he hadn’t heard a comment like this for 40 years. He attributes the encounter to the political environment that has encouraged hostility to immigrants. “He felt he could say it,” Lee said. . . . “I grew up in the fifties when we were the only Chinese family in our school district,” Lee recalled. “It was not a great time to be Asian. In many ways this brought back things that I thought we had put behind us.”

As leading lawyers we obviously play an important role in ensuring that racism and some kind of white-nationalism does not again become acceptable and normal.  One of my friends who is openly gay here in Missouri was leaving his house last week and a passenger in a passing vehicle yelled-out “faggot” and targeted him with an open soda bottle.  As with Bill Lee, T____ noted that he had not experienced this type of open vitriol for decades.  These incidents are These incidents are not supposed to happen here, but they are happening.  As Dan Rather writes “now is a time when none of us can afford to remain seated or silent. We must all stand up to be counted. . . . I believe there is a vast majority who wants to see this nation continue in tolerance and freedom. But it will require speaking.”

Happy Thanksgiving!

Economic Nationalism and the U.S. Patent System

Patent,

by Dennis Crouch

Part of President-Elect Trump’s focus is on short-term “economic nationalism” — what we call “America First” and against the “false song of globalism.”  In a set of upcoming posts we’ll walk through what this could mean for the U.S. Patent System. I expect that the answers will depend upon whether we are looking primarily for short-term gains and the measures of economic prosperity (e.g., median household income vs. stock valuation).

Although the U.S. has long operated in an international environment, we have been inwardly focused for most of the past 200 years.  During this time, the vast majority of U.S. patents were issued to U.S. entities.  What this meant was that the Patent system caused a shift in wealth within the U.S. (from consumers/competitors to patentees) with the benefit of better technology and more technical disclosures – a fairly efficient system so long as not eaten-up by transaction costs.  The change today is that most U.S. patents are issued to foreign entities or are foreign-originated.  What this means for the calculus is that the shift-in-wealth is leaving U.S. borders rather than staying put.

PercentForeignOrigin

Of course, the U.S. allows foreign entities to obtain U.S. patents because of the mutual obligations of the Paris Convention (1893) and TRIPS (1995) that require foreign states create significant patent systems and allow U.S. entities to obtain patents in those foreign states.  The now disfavored TPP was designed to further strengthen the requirements on our trading partners for enforcing intellectual property rights. Important questions: What patriotic renegotiation of these agreements might further benefit the U.S.? Barring that, wow can the USPTO and Courts conform to the international obligations while better serving U.S. interests?  Of course, all of this has the potential of pushing the U.S. much closer to a trade war.

In an email, Prof. Mark Lemley suggests that we should look for “a rise in the importance of the ITC as we focus on blocking imports.”   The ITC’s primary goal is to protect U.S. industries against unfair international trade.  Lemley writes: “One interesting question is whether Trump will move the ITC’s jurisdiction back to its roots by insisting on a real domestic industry requirement.”  Additional ITC movement could push-back against U.S. patents that are owned by foreign nations or unduly subsidized by a foreign nation.

Today (Nov 22, 2016), the Supreme Court is considering whether to grant certiorari in Lexmark v. Immersion Prods. that focuses on both domestic and international patent exhaustion.  Although the Federal Circuit’s rule that gives extra rights to holders of U.S. patents (no international exhaustion) appears at first glance to be an “America First” principle.  However, In their 2016 article, Hemel & Ouellette explain that the opposite rule would be the one more likely to “lower prices of patented goods in the United States and raise prices abroad.”  All of this fits somewhere within the old economic arguments over mercantilism.  See Hemel & Ouellette, Trade and Tradeoffs: The Case of International Patent Exhaustion, 116 Colum. L. Rev. Sidebar 17 (2016); Glynn Lunny, Copyright’s Mercantilist Turn, 42 Fla. St. U. L. Rev. 95 (2014); Guy Rub, Rebalancing Copyright Exhaustion, 64 Emory L. J. 741 (2015).

Patent Claim Counts

Patent

When judging infringement of a patent and the patent’s validity, we do not look to the patent as a whole but rather to the individual patent claims.  To win its case, a patentee need only find one claim that threads that needle of being both infringed and valid (and otherwise enforceable).  Because it is often difficult to predict which claim fits that mold, most patent attorneys believe that more claims are generally better than fewer claims.  However, despite the potential added value of extra claims, fewer and fewer patentees are seeking those extra claims.

The chart below offers a time-series of the percentage of US utility patents that are “Jumbo” – with >20, >30, or >40 patent claims and grouped by patent issuance year. You’ll note that the rates are falling. Three reasons – (1) increased fees that began in 2004 for these extra claims; (2) more aggressive USPTO restriction practice; and a greater number of internationalized cases that involve high extra-claim-fees in other jurisdictions.

ClaimCount

 

Claims in Issued Patents

 

References Cited

Patent

The number of references cited per patent continues to rise, albeit more slowly in recent years.  For patents issued in 2016, the average patent includes more than 50 cited references.  In my view – this is great, although it would certainly help if the examiner was given some clue as to why the reference is deemed relevant  or what portion of the reference is relevant. (If an examiner has a question, they can ask the applicant).  A not-surprising facet of the growth in references-cited is that almost all of the growth is in applicant-cited.  Compared with 10 years ago, applicants cite 26 more references per patent (on average) while examiners cite only 1.5 more per patent.  As you might also note from the difference between median and average – the citation distribution is highly skewed.  Example: If we take the top-5% of patents from 2016 (those with the most references cited) – they include 35% of all of the cited references.  My experience with this skew is that patent applicants considered more valuable by their owners are more likely to submit more prior art references.

Why is all this good? (1) Our IT systems can now easily handle searching through large numbers of references and in many cases the submitted references should be the first referenced searched as a group to determine a starting point for the patent analysis; (2) Because of the skew, the more important patents have more references and a better starting point.  If these are well used by the examiner then we also get better examination and a stronger patent system in the end.

ReferencesCited

Patent Term Adjustment Statistics

Patent

Patent Term Adjustment (PTA) adds extra time onto the end of a patent’s 20-year-term to account for delays during patent prosecution.  As the PTO eliminates its backlog, PTA awards are also decreasing.  However, most newly issued patents are awarded at least some adjustment based upon the PTO’s failure to meet the prosecution timelines delineated by Congress.  For newly issued patents, the average PTA is now around 6-months. I expect this to continue to fall to around 3-months over the next couple of years.

PatentTermAdjustmentAveragePTA

You’ll note the discontinuous nature of the average-PTA chart.  The break-point in early 2010 shows the impact of the Federal Circuit’s Wyeth decision holding that the PTO had been under-calculating the adjustment.

USPTO Continues to Reduce Patent Term Adjustments

Arbitrating Attorney Fees: No Appeal?

Patent

by Dennis Crouch

Prof Hricik and I both wrote about the Jenner & Block v. Parallel Networks fee arbitration back in 2013. Hricik also testified in the arbitration. [Crouch][Hricik].  Jenner represented Parallel on contingency fee in a patent case against Oracle and at least one other company. Parallel lost on summary judgment and at that point Jenner dropped Parallel as a client.  After hiring new counsel and successfully appealing, Parallel eventually was able to eventually settle with Oracle for close to $20 million. At that point, Jenner asked for its fees (requesting > $10 million) and Parallel refused to pay.

Arbitration Award Against Public Policy: The representation agreement included an agreement to arbitrate any dispute over fees.  And, in the subsequent arbitration, Jenner was awarded $4 million in fees.  According to Parallel Networks, the problem with the fee award is that it is contravened by Texas Public Policy that prevents a contingent fee attorney who drops its client for pure economic reasons to then expect to receive any further compensation.

Of course, one benefit of arbitration is that those judgments are usually final and non-appealable.  The Federal Arbitration Act (FAA) generally forces binding arbitration and prevents substantive appeals.  Rather, the only role of a court following arbitration is ordinarily to confirm the judgment.

Despite the FAA, Parallel Networks has asked the Texas Supreme Court (SCOTEX) to set aside the arbitration award as a violation of Texas public policy.  “An arbitrator’s say-so is not a magic wand that transforms Texas courts into unthinking tools for implementing public policy violations.”  And, the question presented asks whether “public policy challenges reviewable by Texas courts [a] basis to vacate arbitration awards made under the FAA?”

Arbitrator as Arbitrary: Non-reviewable decisions (whether by the USPTO or by an arbitrator) are generally troubling because they create the potential for arbitrary awards that depart from both the law and facts.

The case was originally denied hearing by the Texas Supreme Court. On rehearing request, the Court has showed some interest by requesting further briefing from Jenner & Block and two amicus filings have supported the petition.  Because it is a Federal Law (the FAA) that has prevented judicial review thus far, the case will be appealable directly to the U.S. Supreme Court once Texas gives its final word.

Briefs are available from the SCOTEX.

Patentlyo Bits and Bytes by Anthony McCain

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Get a Job doing Patent Law                  

Director Lee: IP is a Necessary Key Piece of President-Elect Trump’s Promised Economic Growth and Job Creation

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Today, USPTO Director provided her first Post-Election speech that includes some thoughts on IP policy after Obama.

I believe the incoming administration must and will continue our effort to promote innovation fueled by a strong and robust IP system. Support for IP in the United States has a long history of bipartisanship, and there’s no reason to imagine that changing with a new president and a new Congress, both of whom have economic growth as a top priority. . . .

I’m optimistic the incoming administration will share our appreciation of the importance of intellectual property as a driver of economic growth. As I look ahead, I foresee legislative patent reform changes will continue to be discussed in Congress, though those conversations will likely occur later in the term after some of the other priorities including filling a Supreme Court vacancy, immigration and tax reform are addressed, and any legislative patent reform will likely be more targeted, rather than the comprehensive reforms we’ve seen in prior Congresses. I would hope any legislative proposal will take into account the numerous positive changes that have occurred recently in the patent system including: through the courts, including on attorneys fees, pleading requirements and discovery limits, and at the USPTO through the PTAB and the agency’s efforts to improve the quality of patents in our system. As far as issues, I predict legislative discussions may include venue reform and possibly changes to Section 101 and PTAB. On venue, with nearly half of the patent cases filed in 2015 filed in a single district out of 94 federal judicial districts, it is easy for critics to contend that plaintiffs seek out this district preferentially for the wrong reasons. And the mere perception that there are advantages to be gained by forum-shopping challenges the public’s faith in the patent system. So there will be continuing pressure for legislative (and likely judicial) action on the issue of venue. The scope of any legislative reform remains is to be determined, but I predict that the focus will be on more targeted, rather than comprehensive reform as we saw these past couple Congresses. Further, I anticipate that the USPTO’s work across the globe to ensure that other countries have strong IP protections adequate enforcement mechanisms and remedies, and appropriate technology transfer (or licensing and competition) policies, will continue in the next Administration particularly in such countries as China and others. This is a President-elect that has promised economic growth and job creation in our country, and IP will necessarily be a key piece to achieving that goal. . . .

I firmly believe that the USPTO is healthy, well-functioning and poised to successfully handle whatever challenges and opportunities lie ahead.  . . . When President Obama was inaugurated in 2009, his focus was on leading this nation’s recovery from the Great Recession. One of his first acts was to ask the Smithsonian to provide for display in the Oval Office some patent models that demonstrated past American innovation that led to new jobs and new industries. The president said that throughout our history, Americans solved problems through innovation and IP. He wanted to see reminders of that every day as he encountered the challenges he faced. The Smithsonian provided him with three models: Samuel Morse’s telegraph (1849),  John Peer’s gear cutter (1874), and Henry Williams’ steamboat wheel (1877). As I stood behind the President in the Oval Office earlier this year when he signed the Defend Trade Secrets Act, I couldn’t help but notice those three models along the wall to my left—still there almost eight years later—and feel extraordinarily humbled and honored. I feel that same honor and humility today standing before all of you and reflecting on just how much we have accomplished under this administration.  I’ve been fortunate to lead the USPTO at a time when intellectual property issues have been front and center on the consciousness of the American public and President and to have had the opportunity to help guide the direction in a small way. My hope is that the President-elect keeps the patent models from Morse, Peer and Williams in his office as a reminder of the importance of intellectual property to the economic prosperity that I know he wants for our country.

Read the full remarks here.

USPTO Proposed to Revise Rule 56

Ethics, Patent

by David Hricik [Originally published on Nov 1]

The announcement is here.  I will be submitting comments before the 12/27 deadline, and so if you have any ideas or thoughts, please post away.  The proposed amendment include responses to comments made back in 2011 when the USPTO was initially pondering this, and the proposed rule now reads:

(a) A patent by its very nature is affected with a public interest. The public interest is best served, and the most effective patent examination occurs when, at the time an application is being examined, the Office is aware of and evaluates the teachings of all information material to patentability. Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability under the but-for materiality standard as defined in paragraph (b) of this section. The duty to disclose information exists with respect to each pending claim until the claim is cancelled or withdrawn from consideration or the application becomes abandoned. Information material to the patentability of a claim that is cancelled or withdrawn from consideration need not be submitted if the information is not material to the patentability of any claim remaining under consideration in the application. There is no duty to submit information which is not material to the patentability of any existing claim. The duty to disclose all information known to be material to patentability is deemed to be satisfied if all information known to be material to patentability of any claim issued in a patent was cited by the Office or submitted to the Office in the manner prescribed by §§ 1.97(b) through (d) and 1.98. However, no patent will be granted on an application in connection with which affirmative egregious misconduct was engaged in, fraud on the Office was practiced or attempted, or the duty of disclosure was violated through bad faith or intentional misconduct. The Office encourages applicants to carefully examine:

(1) Prior art cited in search reports of a foreign patent office in a counterpart application, and

(2) The closest information over which individuals associated with the filing or prosecution of a patent application believe any pending claim patentably defines, to make sure that any material information contained therein is disclosed to the Office.

(b) Information is but-for material to patentability if the Office would not allow a claim if the Office were aware of the information, applying the preponderance of the evidence standard and giving the claim its broadest reasonable construction consistent with the specification.

* * * * *
■ 3. Section 1.555 is amended by revising paragraphs (a) and (b) to read as follows:

§ 1.555 Information material to patentability in ex parte reexamination and inter partes reexamination proceedings.

(a) A patent by its very nature is affected with a public interest. The public interest is best served, and the most effective reexamination occurs when, at the time a reexamination proceeding is being conducted, the Office is aware of and evaluates the teachings of all information material to patentability in a reexamination proceeding. Each individual associated with the patent owner in a reexamination proceeding has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability in a reexamination proceeding under the but-for materiality standard as defined in paragraph (b) of this section. The individuals who have a duty to disclose to the Office all information known to them to be material to patentability in a reexamination proceeding are the patent owner, each attorney or agent who represents the patent owner, and every other individual who is substantively involved on behalf of the patent owner in a reexamination proceeding. The duty to disclose the information exists with respect to each claim pending in the reexamination proceeding until the claim is cancelled. Information material to the patentability of a cancelled claim need not be submitted if the information is not material to patentability of any claim remaining under consideration in the reexamination proceeding. The duty to disclose all information known to be material to patentability in a reexamination proceeding is deemed to be satisfied if all information known to be material to patentability of any claim in the patent after issuance of the reexamination certificate was cited by the Office or submitted to the Office in an information disclosure statement. However, the duties of candor, good faith, and disclosure have not been complied with if affirmative egregious misconduct was engaged in, any fraud on the Office was practiced or attempted, or the duty of disclosure was violated through bad faith or intentional misconduct by, or on behalf of, the patent owner in the reexamination proceeding. Any information disclosure statement must be filed with the items listed in § 1.98(a) as applied to individuals associated with the patent owner in a reexamination proceeding and should be filed within two months of the date of the order for reexamination or as soon thereafter as possible.

(b) Information is but-for material to patentability if, for any matter proper for consideration in reexamination, the Office would not find a claim patentable if the Office were aware of the information, applying the preponderance of the evidence standard and giving the claim its broadest reasonable construction consistent with the specification.

Ski at Snowmass: January 4-8, 2017 (and Talk Law)

Patent

I’m looking forward to speaking again at the National CLE Conference (SKI CLE) – this year in Snowmass Colorado, January 4-8 2017. [http://nationalcleconference.com/]. Obviously, the skiing is great, but the I am looking forward to the conference itself and the fireside patent law conversations.

The IP program is chaired by Scott Alter (Lathrop & Gage) and David Bernstein (Debevoise).  Speakers include Judges Kimberly Moore and Kara Stoll, Professor Rochelle Dreyfuss (NYU), Donald Dunner (Finnegan), Suzanne Munck (Primary Author of the FTC Patent Troll Report).   Hot topics include patent exhaustion and cyber law. I will be doing the Patent Law year-in-review and prospective Republican Agenda.

One nice aspect of the event is that it involves eight different conferences running in parallel. Topics include: Bankruptcy ■ Civil Litigation ■ Employee Benefits ■ Environmental Law, Land Use, Energy and Litigation ■ Family ■ Health ■ Intellectual Property ■ Labor & Employment.

DISCOUNT CODE: Let me know if you are coming.  If you register, use PATENTLY-O as a discount code ($100 off).

[Disclosure: Although I am not making any money directly from this post, National CLE is paying for a portion of my expenses as an academic speaker at the event.]

 

Supreme Court Patent Cases: Post Sale Exhaustion

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by Dennis Crouch

Substantive Patent Law: Newly filed petition in Merck & Cie v. Watson Labs raises a core substantive patent issue – does the on sale bar apply to secret sales? The defendant asks:

Whether the “on sale” bar found in § 102(b) applies only to sales or offers of sale made available to the public, as Congress, this Court, and the United States have all made clear, or whether it also applies to non-public sales or offers of sale, as the Federal Circuit has held.

The Merck petition is focused on pre-AIA patents.  The PTO (and patentees) are arguing more forcefully that the AIA certainly intended to exclude secret sales from the scope of prior art in cases now pending before the Federal Circuit.

The second new substantive patent law case is Google v. Arendi that challenge’s the Federal Circuit’s limitations on the use of common sense in the obviousness analysis.  In its decision, the Federal Circuit limited KSR to combination patents and held that “common sense” cannot be used to supply missing limitations.  Google argues that the Federal Circuit’s approach is contrary to the broad and flexible obviousness analysis required by KSR.  Patentees bristle term “common sense” – they see an overly flexible analysis as providing opportunities to invalidate patents without evidence.  The question: “Did the Federal Circuit err in restricting the Board’s ability to rely on the common sense and common knowledge of skilled artisans to establish the obviousness of patent claims?”

As these new petitions were being filed, the Supreme Court has also denied the pending obviousness, anticipation, and eligibility petitions.  In addition, Cooper v. Square has also been denied.

Civil Procedure: In J&J v. Rembrandt, the defendant J&J won at trial. However, Rembrandt later learned that J&J’s expert had testified falsely and the Federal Circuit ordered the case re-opened under R.60(b)(3) that empowers district courts to revisit final judgments after a showing of “fraud …, misrepresentation, or misconduct by the opposing party.”  The various circuits follow different standards and procedures for analyzing process and J&J has asked the Supreme Court to reconcile these (in its favor).  Another CivPro petition was also filed by Eon Corp that questions whether an appellee needed to file a R.50 JMOL motion to overturn a jury verdict that was based upon a faulty legal conclusion by the district court (here claim construction).  The Question Presented is:

Whether the Federal Circuit erred in ordering entry of judgment as a matter of law on a ground not presented in a Rule 50 motion in the district court, even though the ground presented a purely legal question.

Both J&J and Eon are only marginally patent cases, the core procedure case now pending is TC Heartland that would substantially upset the status quo of patent lawsuit concentration in E.D. Texas. Briefing continues in TC Heartland. In recent weeks a set of seven amici briefs were filed on the top side.

Next week Supreme Court conference includes review of the most likely-to-be-granted petition of Impression Products, Inc. v. Lexmark International, Inc. that focuses on important questions of post-sale exhaustion of patent rights.  The setup – If I buy a used product that was made and sold by the patentee, do I still need to worry that I might get sued for patent infringement?  The Federal Circuit says yes. The Supreme Court is likely to add some caveats to that.  The US Government (Obama Administration via DOJ) has argued that the case should be reviewed and that the Federal Circuit’s position should be rejected. Both parties then filed supplemental responsive briefs.  Lexmark’s best argument here is that these principles are well settled and that Congress can take on the role of tweaking them if needed.

Upcoming Supreme Court Oral Argument: Life Tech (export of components) set for December 6, 2016.

(more…)

What Would Eliminating Chevron Deference mean for Patent Law

Patent

PenguinMemeBy Dennis Crouch

In the landmark case of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. the US Supreme Court laid-out the process for determining whether to grant deference to a federal agency’s interpretation of ‘its’ statute.[1] ‘Chevron deference’ as it is often termed provides agencies with power to interpret the statutory law – and that interpretation will be given deference if ever appealed to a court of law.  In some areas, the agencies are in full control. However, patent law is different. The patent courts (i.e., the Federal Circuit) has repeatedly held that the USPTO was never granted substantive rulemaking authority by Congress and, as a consequence, the agency’s interpretations of the substantive patent law are not subject to deference. Instead, USPTO interpretations of substantive patent law are reviewed de novo on appeal.  The AIA substantially increased the USPTO’s procedural authority with creation of the AIA Trials division and fee setting authority.  Those interpretations of PTO procedural statutes are given deference by the Federal Circuit.

Some academics have argued that deference should apply to substantive patent law rulemaking, such as interpretation of the “on sale” doctrine.[2]  However, the law may soon head the opposite direction.

Now pending before the Senate is the “Separation of Powers Restoration Act of 2016” sponsored by Senators Hatch, Grassley, and Lee.[3] The House version passed in July 2016 on party lines with 100+ Republican co-sponsors. In January, party lines will have shifted to allow a renewed version of the Bill to be passed in both the House and the Senate and signed into law by President Trump.

The proposal is about as simple as can be. The one-page bill simply adds the words “de novo” into the Administrative Procedure Act Section 706 – the section that provides for the scope of review of an agency action.  Under the new law, any APA appeal will require de novo review of “all relevant questions of law, including the interpretation of constitutional and statutory provisions and rules.”

This change would breathe new life into Challenges of the AIA Trial system, USITC decisions, as well as a large host of USPTO procedural examination rules and fees.

 

= = = = =

[1] 467 U.S. 837 (1984).

[2] See, Stuart Minor Benjamin & Arti K. Rai, Administrative Power in the Era of Patent Stare Decisis, 65 Duke L.J. 1563 (2016) building on their prior work at Stuart Minor Benjamin & Arti K. Rai, Who’s Afraid of the APA? What the Patent System Can Learn from Administrative Law, 95 Geo. L.J. 269 (2007); Christopher J. Walker, Chevron Deference and Patent Exceptionalism, 65 Duke L.J. 2016; and Melissa F. Wasserman, The Changing Guard of Patent Law: Chevron Deference for the PTO, 54 William & Mary L.Rev. 1959 (2013).

[3] H.R.4768.

Federal Circuit’s Internal Debate of Eligibility Continues

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Amdocs v. Openet (Fed. Cir. 2016)

In the end, I don’t know how important Amdocs will be, but it offers an interesting split decision on the eligibility of software patent claims.  Senior Judge Plager and Judge Newman were in the majority — finding the claims eligible — with Judge Reyna in dissent.  One takeaway is that the Federal Circuit continues to be divided on the issues.  By luck-of-the-panel in this case, the minority on the court as a whole were the majority on the panel (pushing against Alice & Mayo).  Going forward, the split can be reconciled by another Supreme Court opinion, a forceful Federal Circuit en banc decision, or perhaps by future judicial appointments by President Trump.  I expect 2-3 vacancies on the court during Trump’s first term.

In a 2014 post I described the Amdocs district court decision invalidating the claims.  The four patents at issue all stem from the same original application relating to a software and network structure for computing the bill for network communications usage.   One benefit imparted by the invention is associated with its physically distributed architecture that “minimizes the impact on network and system resources” by allowing “data to reside close to the information sources.” According to the majority opinion, “each patent explains that this is an advantage over prior art systems that stored information in one location, which made it difficult to keep up with massive record flows from the network devices and which required huge databases.”  The nexus with the tated benefit is difficult to find in many of the claims themselve.  See Claim 1 below, which was taken as representative of the asserted claims of Amdocs ‘065 patent:

1. A computer program product embodied on a computer readable storage medium for processing network accounting information comprising:

computer code for receiving from a first source a first network accounting record;

computer code for correlating the first network accounting record with accounting information available from a second source; and

computer code for using the accounting information with which the first network accounting record is correlated to enhance the first network accounting record.

You’ll note that the claim is an almost pure software claim — requiring “computer code” “embodied on a computer readable storage medium.”  The code has three functions: (1) receiving a network accounting record; (2) correlating the record with additional accounting information; and (3) using the accounting information to “enhance” the original network accounting record.  The claim term “enhance” is construed narrowly than you might imagine as the addition of one or more fields to the record.  An example of an added field would be a user’s name that might be added to the accounting record that previously used a numeric identifier.   The court also found that the term “enhance” should be interpreted as requiring that – and doing so in a “a distributed fashion … close to their sources” rather than at a centralized location.  This narrow interpretation of the term “enhance” do not flow naturally from the claim language, but do turn out to be crucial to the outcome.

In reviewing the claim, the court noted that “somewhat facially-similar claims” have been alternatively invalidated as abstract ideas and found eligible.  Compare, for example, Digitech with Enfish and DDR.   Here, the court wrote that the claims are “much closer” to the ones found eligible.  I might rewrite their opinion to say that the judges in the majority prefer the decisions finding eligibility over those invalidating software patent claims.

The two recent Supreme Court cases of Alice and Mayo spell out the court’s two-step framework for determining whether a patent is improperly directed to one of the excluded categories of abstract ideas, natural phenomena, and laws of nature.  Briefly, the court first determines whether “the claims at issue are directed to one of those patent-ineligible concepts.”  If so, the decision-maker must then determine whether any particular elements in the claim “transform the nature of the claim into a patent-eligible application.”  This second step requires consideration of additional elements both individually and in combination in search for an “inventive concept . . . sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” [Quoting Mayo and Alice throughout].

In making its eligibility conclusion in Amdocs, the appellate majority focused on the claim requirement (as construed) that processing be done in a distributed fashion.  According to the court, “enhancing data in a distributed fashion” is “an unconventional technological solution . . . to a technological problem (massive record flows which previously required massive databases).”  Remember here though that we are not talking about patenting a distributed system, but rather patenting a “computer program product embodied on a computer readable storage medium” used to implement the features.

Rather than taking Alice/Mayo steps in turn, the majority accepted “for argument’s sake” that the claims were directed to abstract ideas. However, the claim adds “something more” beyond an abstract idea.  Here, the court notes that the claims require “distributed architecture—an architecture providing a technological solution to a technological problem. This provides the requisite ‘something more’ than the performance of “well-understood, routine, [and] conventional activities previously known to the industry.”

Despite being the stated “unconventional” idea of using a distributed architecture, the court noted that the patent may still fail on anticipation or obviousnesss grounds.

Writing in dissent, Judge Reyna offered several different arguments. First, Reyna argue that the court’s skipping of Alice/Mayo Step 1 helped lead to an incorrect result. If you do not define the abstract idea at issue, how do you know whether the claim includes something more?  Reyna also argued that the “distribution architecture … is insufficient to satisfy Alice step two” because the limitation is not actually found in the claims and, even as interpreted provide only a functional result.  Reyna does note that the specification provides sufficient description of a distributed architecture, but that the claims themselves lack the requisite detail.

The specifications disclose a distributed system architecture comprising special-purpose components configured to cooperate with one another according to defined protocols in a user-configurable manner for the purpose of deriving useful accounting records in a more scalable and efficient manner than previously possible. The disclosed system improves upon prior art systems by creating a specific “distributed filtering and aggregation system . . . [that] eliminates capacity bottlenecks” through distributed processing. ’ The disclosed system is patent eligible. But the inquiry is not whether the specifications disclose a patent-eligible system, but whether the claims are directed to a patent ineligible concept.

[Read the opinion here]

Citing to Supreme Court’s Eligibility Cases

Patent

The chart below shows Shepard’s citation results for recent Supreme Court eligibility cases.  I chart the number of federal court decisions citing to each of these seven major Supreme Court decisions.  2016 numbers do not include November-December 2016.

Citing101DecisionChart

* I apologize that the chart won’t be easy to read for those who are colorblind. Truthfully, it is hard for anyone to tease out information regarding any particular decision.

President Trump and the Patent Office

Patent

The question on everyone’s mind is how the patent office and patent system will be restructured once Donald Trump becomes president.   Trump has substantial personal experience protecting and enforcing his own trademarks, including attempts to protect more controversial marks such as ‘you’re fired.’   However his businesses have few if any patent rights and have relied on the perception of luxury rather than innovation for their successes.  An element of Trumps campaign was the recognition that he personally understands how to find an exploit loopholes in government regulation and that his experience make him uniquely qualified to fix the holes.  Question for the patent system is whether president Trump will see patent trolls, pharmaceutical pricing, and the Eastern  District  of Texas as exploitations needing to be fixed. It is unclear at this point who will manage the transition team but hope for a smooth transition from Outgoing Director Michelle Lee to the next USPTO leader. Democracy!

 

 

Results of the Clarity of the Record Pilot

Patent,

The following is reprinted from USPTO Director Michelle K. Lee’s “Director’s Blog.”  On December 13, 2016, the USPTO is hosting its next patent quality conference.

= = = =

by Michelle Lee

I’m pleased to report that we have completed the Clarity of the Record Pilot launched earlier this year as part of our Enhanced Patent Quality Initiative. We’ve achieved our goal of identifying some best practices for enhancing the clarity of various aspects of the prosecution record. These include best practices for documenting the USPTO’s positions with respect to claim interpretation, reasons for allowance, and interview summaries as well as encouraging examiners to initiate pre-search interviews when needed to gain a better understanding of the claimed invention. I would like to fill you in on some of our findings, and also encourage you to attend our day-long patent quality conference on December 13, where we will report in detail on the progress of the dozen or so programs in the Enhanced Patent Quality Initiative.

Through this pilot, we identified the following best practices as key drivers for clarity and trained our examiners on these practices:

For interview summaries, providing:

  • the substance of the examiner’s position
  • details of any agreement reached
  • a description of the next steps that will follow the interview

For reasons for allowance:

  • addressing each independent claim separately
  • particularly identifying the applicant’s persuasive arguments (wherever they may be in the record)
  • identifying allowable subject matter of the claim rather than merely reciting the entire claim as the basis for allowance

For claim interpretation:

  • putting all 35 USC 112(f) presumptions on the record
  • explaining how the presumptions were overcome
  • identifying on the record the structure in the specification that performs the function
  • when a prior reference is used to reject multiple claims, clearly addressing specific limitations in each claim that is anticipated by the art

As a result of this pilot, we found there is progress to be made in the treatment of 35 USC 112(f) limitations, interview summaries, and reasons for allowance, while our highest clarity was in the area of 35 USC 102 and 103 rejections. Going forward, we plan to continue increasing clarity in all aspects of our practice.

Overall, we measured 68 unique data points, each data point representing a different best practice for achieving clarity. We found that on average, pilot examiners used 14% more of these best practices in pilot cases as compared to control cases, and this increased use of best practices contributed to an increase in overall clarity in pilot cases. Notably, we found that in pilot cases examiners employed:

  • 38% more best practices as compared to control cases for 35 USC 102 rejections and
  • 140% more best practices as compared to control cases for assessments of 35 USC 112(f) limitations.

Also, we found that pilot participants carried on using the best practices they learned in the pilot, even to applications not in the pilot program.  This is a strong indication that the examiners embraced the training.  We also had anecdotal evidence that pilot participants encouraged fellow, non-pilot examiners to use the best practices during the prosecution of their own cases.  Clearly the pilot participants saw a value to using these best practices when examining applications.

The Clarity of the Record Pilot ran from March 6 to August 20 of this year. To ensure a diverse pool of examiners, we invited randomly selected utility patent examiners with at least two years of patent examining experience to participate. All told, 125 examiners representing all utility technology centers participated, and roughly two-thirds of these participants were primary examiners.

The pilot kicked off with initial training in the form of four different modules – an initial module to provide participants with an overview of the pilot and three modules to provide identified best practices to enhance clarity with respect to the pilot’s three focus areas – claim interpretation, reasons for allowance and interview summaries. All of the modules started with a discussion about the goals of the pilot and the importance of clarity of the record.

Pilot participants were expected to use identified best practices when drafting office actions for a select number of cases.  In addition, throughout the pilot, participants attended meetings (called “quality enhancement meetings”) to discuss interesting takeaways with fellow pilot participants. The quality enhancement meetings were typically held with examiners working within similar technologies; however, there were also pilot-wide meetings involving invited speakers, including a judge from the Patent Trial and Appeal Board and the Commissioner for Patents, who shared their perspective on the importance of clarifying the prosecution record. Participants also met biweekly with a pilot manager to receive one-on-one training and to consult on lessons learned.

To evaluate the pilot, the Office of Patent Quality Assurance reviewed the clarity of approximately 2,600 cases for a statistical assessment of whether the best practices of the pilot improved the clarity of office actions.  In addition, we analyzed feedback from the quality enhancement meetings and training sessions, including a list of best practices developed by the pilot participants. Using this information, we identified the best practices that were key drivers of overall clarity. Based on the results from the pilot program, we are analyzing the data to provide recommendations on implementation of the pilot’s best practices across the patent examining corps.

 

A BETR Journal: The Business, Entrepreneurship & Tax Law Review

Patent

We have a new journal here at Mizzou Law with the bold acronym of BETR – the Business, Entrepreneurship & Tax Law Review (“BETR”). (An early idea had it as BEST, but I helped to lower expectations).  Startup is always a bit dicey and so I wanted to help get out the word.  In addition to traditional academic articles, the the journal is also publishing white papers (5-15 pages) with a more practical bent and much more quickly published.

Subject matter: intellectual property, taxation, banking and finance, and regulatory issues.

Contact: Editor-in-Chief mulawbetr@missouri.edu (Currently Alex Langley).

MU School of Law

Partial-Institution Decisions Blessed by En Banc Federal Circuit

Patent, , ,

SAS v ComplementSoft (Fed. Cir. 2016)

Today, the Federal Circuit denied SAS’s en banc request challenging the USPTO’s approach to partial-institution of inter partes review petitions.  In a substantial number of cases, the PTO only partially agrees with the IPR petition and thus grants a trial on only some of the challenged claims.  In the present case, for instance, SAS’s IPR Petition challenged all of the claims (1-16) found in ComplementSoft’s Patent No. 7,110,936, but the Director (via the Board) instituted review only on claims 1 and 3-10.

The statute seems to side with SAS: The Board “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner” 35 U.S.C. § 318(a).  However, the appellate panel in this case (following prior precedent) held that “Section 318(a) only requires the Board to address claims as to which review was granted.”

In its petition, SAS wrotes:

Because § 318(a) is clear and unambiguous in requiring a final written decision as to “any patent claim challenged by the petitioner,” the PTO had no authority to adopt a contrary rule authorizing IPRs “to proceed on all or some of the challenged claims,” 37 C.F.R. § 42.108(a). Regardless of efficiency or workload concerns, the PTO’s rulemaking authority “does not include a power to revise clear statutory terms.” Utility Air Regulatory Grp. v. Environmental Protection Agency, 134 S. Ct. 2427, 2446 (2014).

In what appears to be a 10-1 decision, the Federal Circuit has denied SAS’s petition for en banc review.  Although the majority offered no opinion, Judge Newman did offer her dissent (as she did in the original panel decision).

 

 

 

Vote 2016

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For American readers – As you plan for your business day on November 8, 2016 – Please remember to Vote.

I originally posted the photo below on Patently-O back in 2004 with the following caption:

Here is a picture of my neighbor and Senate hopeful Barack Obama and his daughter casting his vote.

Pendency of US Patent Applications

Patent

This next chart is helpful for those considering patent application pendency.  As the title suggests, the chart shows the pendency of U.S. Utility Patent Applications grouped by quarterly disposal date.  Here, the pendency begins with an application’s filing date and ends with either a patent being issued or the application being abandoned.

PendencyCombo

The chart itself actually includes five separate data series: Three displaying average pendency and two displaying median pendency.  Although the average is useful for someone considering a portfolio of applications, the median may offer a more ‘typical’ application.  The series are labelled either “Crouch Data”, “USPTO CE Data”, or USPTO Dashboard.  The USPTO CE Data includes pendency for utility applications filed 1981+ and disposed-of 1985-2014 and the raw data on disposals comes from the USPTO Chief Economist.  Because I wanted to include some post-2014 data, I also obtained a sample of about 30,000 applications published 2001+ and looked at the disposal pendency of those applications.  This is the Crouch Data.  Finally, I also included the past two years of data from the USPTO Dashboard. The averages and medians are reported these data sets except for the Dashboard.  Looking at differences between the data – the primary difference is that the Crouch Data shows a higher pendency.  I believe that this is primarily driven by the fact that a non-trivial number of patents issue prior to an application’s would-be publication date and thus are excluded from my data set.

In general, you’ll note that the average/medians have shifted fairly dramatically over the past three decades — more than doubling from 1996 to 2010 and now falling again in recent years. The USPTO reports the most recent average pendency at 33 months from filing.