It is Improper to Consider Extra-Record Claim Construction Evidence On Appeal

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Apple v. Samsung (Fed. Cir. 2016) (En banc)

Note: This SamsApple case is not the design patent damages case now before the US Supreme Court. Rather, this case involves Apple’s patents covering slide-to-unlock; phone number recognition; and auto spell correction. At the district court, the jury found that three of Apple’s touch-screen patents infringed by Samsung devices (resulting in $119.6 million in damages).  The jury also found one Samsung patent  infringed by Apple, but only awarded less than $200,000 in damages.  In a February 2016 opinion authored by Judge Dyk, the Federal Circuit reversed the jury verdicts – finding two of Apple’s patents invalid as obvious and the other not-infringed.

Now, in a surprise en banc ruling Friday, the Federal Circuit has chastised the that original panel in this case – writing to:

[A]ffirm our understanding of the appellate function as limited to deciding the issues raised in the appeal by the parties, deciding these issues only on the basis of the record below, and as requiring appropriate deference be applied to review of fact finding.

Zeroing in here, the en banc found that the original panel had improperly considered “extra-record extrinsic evidence to construe a patent claim term.”

Prior to Teva v. Sandoz (and especially prior to Phillips v. AWH) Federal Circuit panels regularly relied upon extra-record evidence such as dictionary definitions in reaching appellate decisions.  In Phillips, the court shifted focus away from dictionary definition toward intrinsic evidence such as the patent document and prosecution history.   Then, in Teva, the Supreme Court held that extrinsic factual conclusions of a district court must be given deference on appeal.  According to the en banc panel here – “After Teva, such fact findings are indisputably the province of the district court.”  With this framework, the en banc majority then offered its holdings:

(1)  the appellate court cannot rely on extra-record extrinsic evidence in the first instance or make factual findings about what such extrinsic evidence suggests about the plain meaning of a claim term in the art at the relevant time or how such extra record evidence may inform our understanding of how the accused device operates

(2) the appellate court is not permitted to reverse fact findings that were not appealed; and

(3) the appellate court is required to review jury fact findings when they are appealed for substantial evidence.

In discussing the obviousness determination, the en banc majority noted that the panel (and en banc dissents) raise important questions, but found those questions must wait for a different case since “no party—at the panel or the petition for rehearing en banc stage—invited this court to consider changing the existing law of obviousness.”

After chastising the original panel, the en banc majority then reaffirmed the jury verdicts – finding them supported by substantial evidence and thus reinstated the verdict for Apple.

The en banc opinion judgment here was 8-4 8-3 with Judge Moore authoring the 7-member majority opinion; Judge Hughes concurring in judgment but without authoring any opinion whatsoever; The original panel members, Chief Judge Prost, Judge Dyk, and Judge Reyna each dissented and each authored their own opinions; and Judge Taranto not participating.

Judge Dyk’s is the most interesting in the way that it reveals some inner-court-workings:

 For the first time in 26 years, this court has taken an obviousness case en banc. See In re Dillon, 919 F.2d 688 (Fed. Cir. 1990) (en banc). Remarkably, the majority has done so without further briefing and argument from the parties, amici, or the government, as has been our almost uniform practice in this court’s en banc decisions. . . .

The present en banc decision will have a significant and immediate impact on the future resolution of obviousness issues. While purporting to apply established circuit law, the majority is in fact making significant changes to the law as articulated by the Supreme Court. Indeed, as Judge Reyna convincingly points out, it is difficult to understand how this case would satisfy the requirements for en banc review if the majority’s purpose were not to clarify the law.

The majority states that it takes this case en banc to correct the original panel’s reliance on extra-record evidence. This could hardly be the reason the majority has granted en banc review, since the panel has continuingly expressed willingness, and indeed desire, to eliminate references to any extra-record evidence because of concerns raised in Apple’s petition for rehearing and because they were unnecessary to the panel opinion. . . . [T]he principles that the majority announces are inconsistent with the Supreme Court’s decisions in KSR, Graham v. John Deere, as well as earlier Supreme Court cases, and will make proof of obviousness far more difficult.

Judge’s Prost and Reyna also agreed that the majority’s application of the law in this case is inconsistent with Supreme Court precedent.

If you made it here, then you you see that there is substantially more to discuss – save that for the next post.

 

2016 Corporate IP Institute

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CrouchCoopBy Dennis Crouch

I have greatly reduced my travel schedule this fall – spending time instead milling lumber and building my chicken coop (as well as teaching patent law & internet law).

I am, however, looking forward to returning to Atlanta in two weeks to take part in the 2016 Corporate IP Institute at Georgia State University. (October 25-26).

Image result for georgia stateChason Carroll, Jeff Kuester, and Perry Binder have put together a great program. In addition to Professor Hricik’s ethics talk, I’m particularly looking forward to the discussions of cybersecurity.  I’ll be doing an IP Year-in-Review (Cases, Legislation, Regulation, etc.)  The event typically has a high turnout of in house IP attorneys.   See you there.

Patentlyo Bits and Bytes by Anthony McCain

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FTC Study on Patent Assertion Entity Activity

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Image result for FTCThe FTC has released its long awaited study on Patent Assertion Entity Activity. [FTC Report]   Using its subpoena power, the agency obtained data on more than 2000 patent holding companies, a minority of which have asserted their patent rights in court.

The report offers important insight into PAE business models – primarily identifying two categories: Litigation PAEs and Portfolio PAEs.  The FTC found that Litigation PAE licensies are “typically … less than the lower bounds of early stage litigation costs” and thus seen by the FTC as consistent with “nuisance litigation.”  The report suggests a variety of litigation reforms to help alleviate potential abusive litigation tactics by patent owners.

The 269 page report will be a catalyst for patent reform measures and thus should be considered carefully.

 

Guest Post: Recalibrating Patent Venue

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In the following guest post, Professors Colleen V. Chien (Santa Clara) and Michael Risch (Villanova) follow up on their earlier work calling for patent venue reform. They have written a full article on the topic available on SSRN: http://ssrn.com/abstract=2834130. — DC

Earlier this year, we presented some initial results of our study of what might happen if patent venue reform took place. Since then, Senator Flake (R-Az) introduced the VENUE Act of 2016, and last month, petitioners, led by a group including James Dabney and John Duffy, filed a petition for writ of certiori in the TC Heartland case in the Supreme Court. Amicus briefs are due October 17, 2016 and Kraft’s brief is due on November 16, 2016.

To support these deliberations, we examined the history of the patent venue law and presented some statistics about plaintiff venue preferences for the Eastern District (for even more statistics on this point see the new paper by Brian Love and James Yoon). Additionally, we empirically modeled both reforms by randomly selecting 939 cases from 2015, and making our best guess as to where cases would have been filed under the proposed rules, assuming they would have been filed at all. Since 2015, the overall number of patent cases has declined, about 20% YTD based on data from Lex Machina (4,216 cases by this time last year vs. 3,369 today). The Eastern District of Texas has made a number of changes and its share is also down from 44% in 2015, to 35% 2016 YTD (30% in 1Q, 36% in 2Q, and 38% in 3Q); the next closest district (Delaware) has seen about 9% of filings, based on data from Lex Machina.

In modeling different venue reform choices, we do not purport to claim that any venue reform would be, on balance, welfare enhancing, nor can we know with certainty where or if cases would be filed. However, we do make one thing clear: a patent system in which so much rides on where a lawsuit is filed is deeply flawed, and, as we have said before, we hope that policymakers will take the opportunity to clarify what has been a complicated area of law.

A draft of the complete paper is available here. In brief, however, TC Heartland reform would require cases to be filed either where the defendant is incorporated or where the defendant has a place of business and is infringing. VENUE Act would add the location of the original inventors as well as anywhere the patent owner performed R&D on the patent (patent assertion entities are, by definition, excluded). To model these provisions we gathered relevant case and location information; we also gathered information on industries, plaintiffs, and defendants of different sizes to understand the differential impacts of reform.

In brief, we looked to see the following under the conditions of each reform: 1) could the plaintiff have filed in the district that the case is already in? 2) if not, could the plaintiff have sued in a district in which it has sued in the last two years? 3) if not, could the plaintiff have sued in a district popular among plaintiffs like it in the last five years? 4) if not, we assume that the plaintiff would sue at the defendant’s primary place of business. Option 1 means “no change” – the case would stay put. Options 2, 3, and 4 mean, “change”—the case would have been filed in another district and the model where the suit would end up based on the proposed venue rules. Note that the 2nd and 3rd assumptions bias our model towards the currently concentrated status quo. Patentees might well pick other favorite districts if they can find a basis for venue there.

Applying this methodology, we found a few interesting things.

First, 86% of cases were filed outside the defendant’s primary place of business,[1] including 80% of cases brought by operating companies and  90% of cases brought by NPEs. When we considered any of defendant’s place of business, cases were filed outside of where the defendant had a location 83% of the time. This suggests that, in general, permissive venue leads to plaintiffs filing where it is convenient or advantageous, which is usually not where the defendant is located.

Second, we find that if TC Heartland reform had been in effect, 52% of operating companies would have to pick a different district than they had originally chosen. For NPEs, 60% would have to pick a different district. If the VENUE Act were passed, however, the change from the status quo would be a lot less dramatic for operating company plaintiffs – only 18% would have to move their case while the rest could have been filed as is. NPE plaintiffs would have been impacted differently, particularly under the VENUE Act, with PAEs most impacted. The reason for this is relatively straightforward: the VENUE Act allows operating companies (and failed companies or individuals) to sue where they do research and development, but does not allow PAEs to do the same. Furthermore, operating companies are more likely to sue where they do research and development, while NPEs are more likely to sue in the Eastern District of Texas.

Third, we find that cases would be more geographically distributed, but our reported distributions are likely in the eye of the beholder and sensitive to our assumptions particularly about the prioritization of familiar districts by plaintiffs, which might not hold in practice. That said, we believe that one thing is clear: cases would leave the Eastern District of Texas. The following table shows the top 5 districts before and after reform as we modeled it:

Final Districts – OpCo π Final Districts – NPE π
District Actual Case Prediction Heartland Prediction VENUE Act Actual Case Prediction Heartland Prediction VENUE Act
E.D.Tex. 7.8% 4.6% 5.0% 64.1% 19.0% 19.1%
D.Del. 10.0% 18.9% 11.0% 7.3% 25.8% 23.1%
D.N.J. 10.3% 12.1% 10.7% 0.9% 2.4% 2.0%
C.D.Cal. 7.5% 14.2% 9.6% 2.1% 2.6% 2.4%
N.D.Cal. 5.0% 2.8% 3.9% 3.0% 17.3% 16.6%

Fourth, Heartland and VENUE Act reform would affect companies of different sizes differently. In general, Heartland would require suits to be filed where the defendant is located much more often than the VENUE Act (on the order of ~65% to ~45% depending on company size). Smaller defendants would benefit more from TC Heartland venue reform than would larger defendants, because of their relatively smaller footprints.

Fifth, we found that manufacturing and biopharma defendants would benefit the least from venue reform. For biopharma, the result is complicated. Contrary to conventional wisdom, all of the cases are not in New Jersey, though as shown in the table above, many of them are. Instead, because reform allows for suit where parties are incorporated, many cases would remain in Delaware, where they are already located. Industries that would see the most benefit from Heartland reform would be in high tech and consumer/durable goods manufacturing. These are often companies with only one place of business, which limits where they could be sued. High tech, especially, is a sector that is often sued by NPEs, so their cases would be relocated under either Heartland or the VENUE Act. On the other hand, manufacturing industries are often sued by operating companies and thus, they would see much less benefit under VENUE Act reform than they would under Heartland.

Despite its limitations, we believe that this study provides valuable insight into patent venue. Examination of venue by industry, comparison of the differences between the options (including who wins and who loses), and analysis about where cases might wind up will hopefully provide fruitful information for anyone involved in patent practice and policy. The full paper has much, much more analysis, with a representative sample of the types and sizes of companies being sued in addition to detailed discussion of how each reform proposal will affect parties by plaintiff type, geography, and defendant industry and size.

 

= = = = =

[1] We found that, for a random sample of 99 of our defendants’ other litigations, 80% were filed outside the defendant’s primary place of business

Fees Rising: USPTO Proposes New Fees in Search of New Revenue

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The USPTO has issued a notice of proposed rulemaking (NPRM) on patent and PTAB fees with the goal of raising revenue in order to improve patent quality and examination timeliness. Public comments are due by December 2, 2016.

The proposal includes:

  • Major increase in inter partes review fees – from $23,000 to $30,500 (petition + institution).  Similar increases for PGR and CBM.
  • Large fee increase for patent applications with > 3 independent claims or > 20 dependent claims
  • Large fee increase for design patent search, examination, and issue fees — hopefully the PTO will increase its quality on that front.
  • New fee for sequence listing submissions of > 300 MB ($1000) and > 800 MB ($10,000).
  • Ex parte appeals +25% (up to $3,500)
  • Standard fees for utility applications are relatively steady => only about 10% increase.

 

Read More and Comment:

Infringement Complaint Must Provide Factual Allegations at the Claim-Element-by-Claim-Element Level

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by Dennis Crouch

Lyda v. CBS (Fed. Cir. 2016)

Although at first glance, Lyda appears as a narrow decision against an individual-inventor plaintiff, the decision is important because it establishes that a patent infringement complaint must provide factual allegations at the claim-element-by-claim-element level in order to avoid a dismissal on the pleadings.  

In a civ-pro focused decision, the court has affirmed the dismissal of Lyda’s infringement case for failure to state a claim – finding that Lyda’s complaint fails to satisfy the Twiqbal pleading standards.[1]  Rule 8 of the Federal Rules of Civil Procedure require a “ a short and plain statement of the claim showing that the pleader is entitled to relief.”[2]  Failure to state a claim is grounds for dismissal under R. 12(b)(6).[3] The Supreme Court gloss requires allegations of sufficient facts to state a plausible claim for relief.  Although statements in the complaint are taken as true, “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”[4] “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.”

Until recently, Twiqbal was not directly applied to patent complaints because the existence of a bare-bones form infringement complaint (Form 18) that the rules deemed to be sufficient.  Form 18 was eliminated in the December 1, 2015 changes to the rules.  In the present case, the amended complaint was filed prior to the change, but the court held that Form 18 does not apply in this case because Lyda implicitly alleged a claim of joint infringement rather than the standard direct infringement that is the focus of Form 18.[5]

Applying Twiqbal is not easy – although the general rule is that the pleadings must include enough plausible facts that – if taken as true – would lead to a verdict for the plaintiff.  In discussing its application, the Supreme Court noted that it will be “context-specific” requiring both “judicial experience and common sense.”  Applying that approach to patent infringement cases, the court here took the fairly bold stance of requiring that the facts plausibly pled be “sufficient to allow a reasonable inference that all steps of the claimed method are performed.”

Lyda’s case was particularly dismissed because the patentee failed to plead the elements of joint infringement required by Akamai.  The Lyda court writes:

[Under the plaintiffs theory of infringement, the] Amended Complaint must plausibly allege that Defendants exercise the requisite “direction or control” over the performance of the claim steps, such that performance of every step is attributable to Defendants. The Amended Complaint alleges that CBS Interactive controls certain independent contractors who in turn direct and control the “participation” of unnamed third persons to send votes on either their own or borrowed cell phones. Mr. Lyda does not set forth any factual allegations in support of his assertion that CBS Interactive directed or controlled the independent contractors. Nor does the Amended Complaint contain factual allegations relating to how the independent contractors directed or controlled the unnamed third parties. Most importantly, the Amended Complaint does not allege any relationship between the Defendants and the unnamed third parties, who own or borrow cell phones, in a way that the actions of these unnamed third parties should be attributed to Defendants. Rather, the Amended Complaint alleges conclusively and without factual support that CBS directed or controlled the independent contractors who then directed or controlled the unnamed third parties. There are thus no allegations in the Amended Complaint that can form the basis of a reasonable inference that each claim step was performed by or should be attributed to Defendants. The Amended Complaint fails to plausibly plead sufficient facts to ground a joint infringement claim under this court’s Akamai decision and does not satisfy the Iqbal/Twombly pleading standard.

The district court also denied Lyda leave to amend the complaint a second time. On appeal, the Federal Circuit affirmed that determination – finding that the district court has “broad power to control its own docket.” With the case dismissed, I expect that Lyda can refile and just potentially lose some of the back damages.

= = = = =

[The complaint]

[1] Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009).

[2] Fed. R. Civ. Pro. R. 8.

[3] Fed. R. Civ. Pro. R. 12(b)(6) (“a party may assert . . . (6) failure to state a claim upon which relief can be granted”).

[4] Iqbal.

[5] See Akamai Techs., Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015) (en banc) (requiring that “(1) one party exercises the requisite ‘direction or control’ over the others’ performance or (2) the actors form a joint enterprise such that performance of every step is attributable to the controlling party).

Not Eligible: Supreme Court Denies All Pending Subject Matter Eligibility Petitions

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The Supreme Court has greatly simplified the patent docket by denying certiorari in 10+ cases.  Gone are GEA Process (IPR termination decision), Amphastar (scope of 271.e safe harbor) , Commil (appellate disregard of factual evidence), MacDermid (obvious combination), Jericho (Abstract Idea) , Trading Technologies (mandamus challenging CBM initiation), Tobinick (interference), Neev (arbitrator autonomy), Genetic Tech (eligibility), Essociate (eligibility), Dreissen, and Pactiv (ex parte reexamination procedure).   Notably, all of the eligibility petitions have been denied.

The constitutional challenges of MCM and Cooper are the only cases that particularly survived the Court’s latest culling. Those cases have been relisted for consideration at the next conference (October 7). However, there is some chance that the court is simply waiting for Square’s responsive brief due October 12.  Meanwhile, on October 11, the court will hear oral arguments in Samsung v. Apple.

First Amendment Finally Reaches Patent Law

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The big news from Intellectual Ventures v. Symantec (Fed. Cir. 2016) is not that the court found IV’s content identification system patents invalid as claiming ineligible subject matter.  (Although that did happen). Rather, the big event is Judge Mayer’s concurring opinion that makes “make two points: (1) patents constricting the essential channels of online communication run afoul of the First Amendment; and (2) claims directed to software implemented on a generic computer are categorically not eligible for patent.”

Read Judge Mayer’s opinion in full:

MAYER, Circuit Judge, concurring.

I agree that all claims on appeal fall outside of 35 U.S.C. § 101. I write separately, however, to make two points: (1) patents constricting the essential channels of online communication run afoul of the First Amendment; and (2) claims directed to software implemented on a generic computer are categorically not eligible for patent.

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Patentlyo Bits and Bytes by Anthony McCain

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Lee v. Tam: Supreme Court Takes on the Slants

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by Dennis Crouch

In its decision in this trademark registration case, the Federal Circuit found the statutory prohibition against registering “disparaging marks” an unconstitutional governmental regulation of speech in violation of the First Amendment. (En banc decision).  I noted in my December 2015 post that “there would be a good chance for Supreme Court review of the case if the government presses its position.”

The Supreme Court has now granted the USPTO’s petition for writ of certiorari asking:

Whether the disparagement provision of the Lanham Act, 15 U.S.C. 1052(a), which provides that no trademark shall be refused registration on account of its nature unless, inter alia, it “[c]onsists of . . . matter which may disparage . . . persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute” is facially invalid under the Free Speech Clause of the First Amendment.

In the case, Simon Tam is seeking to register a mark on his band name “The Slants.” The USPTO refused after finding that the mark is disparaging toward individuals of Asian ancestry.

Tam’s responsive brief was unusual in that he agreed that Certiorari should be granted.  The brief also restated and expanded the question presented as follows:

1. Whether the disparagement clause bars the registration of respondent’s trademark.
2. Whether the disparagement clause is contrary to the First Amendment.
3. Whether the disparagement clause is unconstitutionally vague under the First and Fifth Amendments.

While the Federal Circuit majority opinion had agreed that the disparagement clause was contrary to the First Amendment, only a two-judge concurring opinion indicated that the clause is unconstitutionally vague.  Thus, the reframing of the question presented here appears an attempt to offer alternative reasons for affirmance.  The Supreme Court offered no indication as to which question is proper.

Congratulations to Ron Colemen for shepherding this case and Profs Volokh and Banner who apparently wrote the petition response.

Supreme Court Patent Cases – September 28 Update

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by Dennis Crouch

Cooper v. Lee and Cooper v. Square are both ask the same question: whether 35 U.S.C. §318(b) violates Article III of the United States Constitution, to the extent that it empowers an executive agency tribunal to assert judicial power canceling private property rights amongst private parties embroiled in a private federal dispute of a type known in the common law courts of 1789, rather than merely issue an advisory opinion as an adjunct to a trial court.”  The issues here are also parallel to those raised in MCM Portfolio v. HP (“Does IPR violate Article III of the Constitution?”).  The cases received a boost this month with the Court’s call for response (CFR) in Cooper v. Square.  Square had previously waived its right to respond, but its response is now expected by October 11, 2016.  Under Supreme Court R. 37, the Call for Response reopens the period for filing of an amicus curiae brief in support of petitioner. (~ due October 8, 2016).  Eight Amici Curiae briefs were filed in MCM and two in Cooper v. Lee.  In general, each brief additional brief incrementally increases the odds of certiorari.  Statistical analysis also suggests that a call for response significantly increases the odds of certiorari being granted.

I wrote earlier this week about the new IPR process challenge in Ethicon where the patentee has challenged Director Lee’s delegation of institution decision authority to the PTAB.  The case is one of statutory interpretation but uses the separation-of-function doctrine as an interpretive guide. The same question is also presented in LifeScan Scotland, Ltd. v. Pharmatech Solutions, Inc.  Both petitioners (Ethicon and LifeScan) are owned by J&J.

The final new petition is a personal jurisdiction case: Mylan v. Acorda.  The Hatch-Waxman setup involved Mylan preparing and filing its abbreviated new drug application that created a cause of action for infringement under 35 U.S.C. 271(e)(2). Although the ANDA preparation occurred in West Virginia and the filing in Maryland, the infringement lawsuit was filed by Acorda in Delaware.  Mylan asks: “Whether the mere filing of an abbreviated new drug application by a generic pharmaceutical manufacturer is sufficient to subject the manufacturer to specific personal jurisdiction in any state where it might someday market the drug.”  The argument builds on the non-patent decision Daimler AG v. Bauman, 134 S. Ct. 746 (2014). In the pro-business case of Daimler, the Supreme Court reduced the scope of general personal jurisdiction to states where the defendant company is incorporated or has its personal place of business.

 

In the claim construction front, the Supreme Court also called for a response in Google v. Cioffi. In that case Google suggests an interpretative principle of “strictly construing” amended claim language against the patentee. [GoogleCioffiPetition]

On the merits side – we have three patent cases pending oral arguments.  First-up is the design patent damages case of Apple v. Samsung.   Although not a party, the Solicitor General has requested to been granted leave to participate in oral arguments.   Its brief, the SJ argued (1) Section 289 does not permit apportionment but rather requires award of the infringers profits on the relevant article of manufacture; but (2) the article of manufacture can be a “component” rather than a finished product sold to end-users.  In the end, the SJ argues that the jury should have been tasked with determining the appropriate article-of-manufacture and that the case should be remanded to determine whether a new trial is warranted.  Briefing continues in both SCA Hygiene (laches) and Life Tech (Component Export liability).

 

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Unpacking Trade Secret Damages

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Prof. Elizabeth Rowe (Florida) has posted a new article on trade secret damages: Unpacking Trade Secret Damages.   The article looks at outcomes of about 150 federal trade secret lawsuits that went to trial and received a verdict. These cases are all pre-DTSA and thus in federal court on diversity or supplemental jurisdiction grounds.   Prof Rowe found – in my view – a surprisingly low percentage of cases where punitive damages or attorney fees were awarded (~2% and 8% respectively – of cases with an award).

The award distribution is also highly skewed.  “[T]en cases account for half of the total damages of the approximately $2.4 billion awarded since 2000.”  Top on this list is DuPont’s 2011 award of 900 million against Kolon.

[Read the Article]

 

Ethicon v. Covidien: Delegation of Institution Decisions to the PTAB

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Ethicon has filed its expected petition for writ of certiorari challenging the USPTO’s delegation of IPR Institution Decisions to the Patent Trial and Appeal Board.  I wrote about the case earlier:

The newly filed petition argues pure statutory interpretation:

Whether the [AIA] permits the Patent Trial and Appeal Board instead of the Director to make inter partes review institution decisions.

The setup: The statute requires “The Director” to “determine whether to institute.” 35 U.S.C. § 314(b).  Under the statute, the PTAB picks up its role after institution in order to “conduct each inter partes review instituted under this chapter,” § 316(c).  Rather than making the determinations herself, the PTO issued a rule that the PTAB makes the institution decisions “on behalf of the Director.” 37 C.F.R. § 42.4(a).

Although the statute does not expressly prevent the Director from delegating her authority, Ethicon argues that the statute should be interpreted in light of the “longstanding policy of separation-of-functions whereby adjudicatory officers inside an agency (such as administrative law judges or, here, administrative patent judges) are insulated from discretionary executive functions.”  Of course, the Director does not have to personally do all the work – The idea here though is that it is impermissible to delegate policy issues to the administrative patent judges.  And, the AIA is clear that the institution decision is at least partially based upon policy and institutional competency determinations.

Read the Petition: Ethicon Petition for Certiorari 

In the background, patentees see the separation of institution from trial as a mechanism for getting two-bites at the apple.

 

RMail: Is Eligibility a Proper Litigation Defense?

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Thus far, the Federal Circuit has successfully ducked any direct holding on whether eligibility under 35 U.S.C. 101 is a “condition of patentability” or a proper invalidity defenes.  Professor Hricik and I raised these issues in a number of posts back in 2012.

Following Hricik’s proposal, patentee and DJ Defendant RMail raised the issue in district court.  [LINK]  The district court followed tradition and held that ineligibility is a defense that can be raised in a district court challenge to patent infringement. After losing on the merits (summary judgment) the case is now on appeal and RMail again argues that “Ineligibility is not a litigation defense under §282(b).”  In its brief, RMail writes:

Patent defenses are statutory. If a patent defense is not denominated within the Patent Act, then the Court lacks jurisdiction to address it. See Aristocrat Tech. Section 282(b) . . . enumerates the defenses that may be raised in a patent infringement action. . . . [T]he
plain language of §282(b)(2) does not authorize ineligibility as a defense.

A stumbling block for the patentee here is the Versata decision which held that the PTAB has authority to decide Section 101 challenges in a CBM review.  The newly filed brief distinguishes that case, however, by arguing that “Versata relies on the legislative history of the AIA . . . not the legislative history of the 1952 Patent Act, which enacted §282(b)(2).”

In the end, I expect that history and tradition are strong enough to overcome the statutory gap, but it would be nice to see an explanation from the Court.

Read the brief: RMAIL 101 Challenge.

 

Affinity II: Who Has the Burden for Alice Step II?

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by Dennis Crouch

A few days ago I wrote about the Federal Circuit decision in Affinity Labs. v. DirecTV  affirming that Affinity’s U.S. Patent No. 8,688,085 claims an ineligible abstract idea rather than a patent eligible invention.

The companion case – Affinity Labs v. Amazon was decided by the same panel of Chief Judge Prost and Judges Bryson (author) and Wallach and U.S. Patent No. 7,970,379 and also affirmed that the challenged claims lack eligibility under Section 101.

In DirectTV, the court first “stripped” the representative claim “of excess verbiage.”  Using the same approach but different words, the Amazon court here offered its version of the representative claim “stated more succinctly:”  the claim “is directed to a network-based media system with a customized user interface, in which the system delivers streaming content from a network-based resource upon demand to a handheld wireless electronic device having a graphical user interface.” [Full claim text below]

Abstract Idea: Analyzing the claimed invention, the court found that the claims are directed to a high level of generality “describing a desired function or outcome, without providing any limiting detail that confines the claim to a particular solution to an identified problem. The purely functional nature of the claim confirms that it is directed to an abstract idea, not to a concrete embodiment of that idea.”  In Enfish, the court considered technological inventions and queried whether the invention represents “an improvement in the functioning of a computer,” or merely “adding conventional computer components to well-known business practices.”  Here, of course, the invention uses more than just a “computer component” but the court still found Enfish applicable — finding that the claims “fall into the latter [ineligible] category.”  Further, the “tailoring of content based on information about the user . . . is an abstract idea that is as old as providing different newspaper inserts for different neighborhoods.”  Slip opinion at  10.

Burden Shifting for Step Two?:  Once a patent is deemed to be directed to an abstract idea, the burden appears to shift against the patentee to show that the claim includes “something more” such as an “innovative concept” that goes beyond the ineligible abstract idea.  This burden-shifting would go against the traditional rule that each each element in an invalidity analysis must be proven with clear and convincing evidence — and so it may still be proper to say that the challenger also has the burden under Step Two of Alice/Mayo to show the claim includes “nothing more” of patentable weight.  A complication of this internal dialogue is that eligibility is deemed a question of law whereas the C&C evidentiary requirement applies only to questions of fact.  That distinction became important in this case since the district court dismissed the case on the pleadings prior to the consideration of any factual conflicts.

Nothing More:  Enfish substantially increased the overlap between Steps One and Two of the eligibility analysis.  Typically, if a claim includes an eligible inventive concept then it will not be deemed directed to an abstract idea in the first place.   Here, the court found the converse logic also true:

As noted [in our Enfish analysis], representative claim 14 is written in largely functional terms, claiming “a collection of instructions” that perform the functions of displaying a selection of available content on a graphical user interface and allowing the user to request streaming of that content. . . . [These features] do not convert the abstract idea of delivering media content to a handheld electronic device into a concrete solution to a problem. The features set forth in the claims are described and claimed generically rather than with the specificity necessary to show how those components provide a concrete solution to the problem addressed by the patent.

Thus, the claim fails under Step Two as well – Judgment on the Pleadings of Invalidity Affirmed.

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The court noted that the title of the patent ““System and Method to Communicate Targeted Information” has essentially no relation to the asserted claims.  That disconnect had no direct impact on patentability.  However, it appears to have lent credence to the notion that the claims lack innovative weight and technical application since the focus of the claims is something different than what was originally thought to be innovative and worth extensive description.

= = = = =

Claim 14: A media system, comprising:

a network based media managing system that maintains a library of content that a given user has a right to access and a customized user interface page for the given user;

a collection of instructions stored in a nontransitory storage medium and configured for execution by a processor of a handheld wireless device, the collection of instructions operable when executed: (1) to initiate presentation of a graphical user interface for the network based media managing system; (2) to facilitate a user selection of content included in the library; and (3) to send a request for a streaming delivery of the content; and

a network based delivery resource maintaining a list of network locations for at least a portion of the content, the network based delivery resource configured to respond to the request by retrieving the portion from an appropriate network location and streaming a representation of the portion to the handheld wireless device.

= = = = =

Traditional equitable defenses do not apply to IPR proceedings

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Husky Injection Molding v. Athena Automation (Fed. Cir. 2016)

Referring to the headline. The PTAB (acting on behalf of the PTO Director) held that traditional equitable defenses do not apply to IPR proceedings.  Because this holding was made as part of an IPR institution decision, the appeal was dismissed for lack of jurisdiction. 

The case here is interesting because Husky’s former owner (Schad) is the founder of competitor Athena.  Schad is also co-inventor of Husky’s U.S. Patent No. 7,670,536 – that Schad’s company challenged in an IPR proceedings.  The PTAB ultimately found some of the challenged claims valid and cancelled others.

On appeal Husky argues that assignor estoppel bars the IPR proceeding.  The PTAB rejected that contention – holding that traditional equitable defenses do not apply to IPR proceedings.  Athena v. Husky, IPR No. 2013-00290 (P.T.A.B. Oct. 25, 2013) (Institution Decision on behalf of the Director).    On appeal, the Federal Circuit dismissed — holding that the institution decision is not appealable. 35 U.S.C. 314(d) (“The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.”); Although the Supreme Court in Cuozzo suggested that some appeals of institution decisions may be available.  Here, however, the court rejected the idea of venturing into that abyss:

[Prior cases] establish a two-part inquiry for determining whether we may review a particular challenge to the decision whether to institute. First, we must determine whether the challenge at issue is “closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review,” or if it instead “implicate[s] constitutional questions,” “depend[s] on other less closely related statutes,” or “present[s] other questions of interpretation that reach, in terms of scope and impact,” “well beyond ‘this section.’” Cuozzo.  If the latter, our authority to review the decision to institute appears unfettered. But if the former, § 314(d) forbids our review. One further exception remains, however. At the second step of the inquiry, we must ask if, despite the challenge being grounded in a “statute closely related to that decision to institute,” it is nevertheless directed to the Board’s ultimate invalidation authority with respect to a specific patent. Id.; see also Versata; and Achates. If so, we may review the challenge.

After rejecting Husky’s challenge of the institution decision, the Federal Circuit moved to Athena’s appeal.

Incorporation by Reference: Athena challenged the portion of the Board’s opinion finding some of the claims not anticipated.  The basic issue is that the prior art (Glaesener – U.S. Patent Pub. No. 2004-0208950) did not itself disclose all of the claimed elements.  However Glaesener referred particularly to a prior patent (Choi): noting that Choi described “pineapple and toothed-ring mechanism” and in a separate paragraph stating that “All cross-referenced patents and application[s] referred to in this specification are hereby incorporated by reference.”  The combination of Choi and Glaesener do (arguably) teach all of the claim element but the Board refused to treat them as a single document despite the incorporation by reference. On appeal, the Federal Circuit has vacated that holding.

The standard:

A host document incorporates material by reference if it “identif[ies] with detailed particularity what specific material it incorporates and clearly indicate[s] where that material is found in the various documents.” Advanced Display Sys., Inc. v. Kent State Univ., 212 F.3d 1272 (Fed. Cir. 2000). . . .  In making such a determination, we assess whether a skilled artisan would understand the host document to describe with sufficient particularity the material to be incorporated [giving no deference on appeal].  . . . [Thus t]he incorporation standard relies only on the reasonably skilled artisan and his or her ability to deduce from language, however imprecise, what a host document aims to incorporate

Here, the court found sufficient particularity to incorporate Choi by reference – noting that PHOSITA would “appreciate Glaesener’s reference of ‘pineapple and toothed-ring’ to describe, with sufficient particularity” the securing assemblies in Choi. “To find otherwise would be to undervalue the knowledge of a skilled artisan.”  On remand, the Board will need to re-evaluate anticipation based upon Glaesener now expanded by Choi.

Point of Novelty Returns to Indefiniteness Analysis

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Cox Communications v. Sprint (Fed. Cir. 2016)

The district court found all of Sprint’s asserted claims invalid as indefinite under 35 U.S.C. § 112, ¶ 2.  The term “processing system” was common to the claims of all six asserted patents, and the lower court found it “functionally” described and claimed in a manner that did not provide the reasonable certainty of claim scope required under Nautilus.  U.S. Patent Nos. 6,452,932; 6,463,052; 6,633,561; 7,286,561; 6,298,064; and 6,473,429.  On appeal, the Federal Circuit has reversed.

Section 112, ¶ 2 requires claims “particularly pointing out and distinctly claiming” the invention and is seen as the textual source of the definiteness requirement.  In Nautilus, the Supreme Court held that “a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.”

More Definiteness Leeway For Terms Outside the Point of Novelty: In thinking through its analysis, the Federal Circuit started with an interesting issue: Point of Novelty.  The appellate panel noted that the claimed “processing system” was did not provide newness to the claim but was “merely the locus at which the steps are being performed.”  To drive this point home, the court walks through a representative set of claims to show how “processing system” does almost no work in the claims.

Of course, “point of novelty” analysis has a history in indefiniteness cases – most famously in the pre-1952 Supreme Court cases of Halliburton Oil Well Cementing Co. v. Walker, 329 U.S. 1 (1946) and Gen. Elec. Co. v. Wabash Appliance Corp., 304 U.S. 364 (1938) that heightened the definiteness burden at the point of novelty.  Those cases particularly on functional claim language:

The vice of a functional claim exists not only when a claim is ‘wholly’ functional, if that is ever true, but also when the inventor is painstaking when he recites what has already been seen, and then uses conveniently functional language at the exact point of novelty.

Gen Elec. I’ll note here that the Federal Circuit’s Sprint opinion does not cite to either of these older cases. The court does, however, refer to the Post Nautilus decision in Eidos Display, LLC v. AU Optronics Corp., 779 F.3d 1360 (Fed. Cir. 2015). In that case, the court found the term “contact hole” sufficiently definite since the specification referred to well-established practice in the industry and the limitation was not itself offering a point of novelty.

Coming back to Sprint’s claims, the court writes

If “processing system” does not discernably alter the scope of the claims, it is difficult to see how this term would prevent the claims … from serving their notice function under § 112, ¶ 2.

Here, the court notes that the indefiniteness test focuses on each “claim” not “claim terms” themselves.  And, although we have a common practice of focusing on individual terms — that approach is merely a helpful tool.

Particularly focusing on the functional nature of the “processing system” claim term – the court first held that functional claim language is permissible and at times quite helpful in providing definite scope limits.

As Nautilus instructs, the dispositive question in an indefiniteness inquiry is whether the “claims,” not particular claim terms, “read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.”

The Sprint majority opinion here was authored by Judge Prost and joined by Judge Bryson. Judge Newman wrote a concurring opinion, protesting the majority’s approach to determining the term’s importance by removing the challenged term from the claim and then determining whether the removal changes the claim meaning.

 

Affinity Content Distribution Scheme – Abstract Idea

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Affinity Labs v. DirecTV (Fed. Cir. 2016)

The Federal Circuit here affirms that Affinity’s challenged claims invalid as directed to an abstract idea.  when “stripped of excess claim verbiage”, Claim 1 of U.S. Patent No. 7,970,379 “is directed to a broadcast system in which a cellular telephone located outside the range of a regional broadcaster (1) requests and receives network-based content from the broadcaster via a streaming signal, (2) is configured to wirelessly download an application for performing those functions, and (3) contains a display that allows the user to select particular content.” Slip opinion.

Alice Step 1: Considering these limitations and the claim’s “character as a whole” the court identified the concept of “providing out-of-region access to regional broadcast content” as an unpatentable abstract idea.  The court explained its conclusion by noting that the practice (1) has been long employed in media distribution; (2) is not tied to any particular technology; and (3) could be implemented by very low-tech technology such as via mail.  The court went on to explain that (4) nothing in the claim “is directed to how to implement out-of-region broadcasting on a cellular telephone. Rather, the claim is drawn to the idea itself.” And, (5) unlike in Enfish, the claims are not directed to “an improvement in cellular telephones but simply to the use of cellular telephones as tools.” Taking all these together, the court found the claim was in fact directed to an abstract idea.

Alice Step 2: Step two of Alice indicates that a patent directed to an abstract idea is patent eligible if it claims “additional features” that constitute an “inventive concept” that go beyond “well-understood, routine, conventional activity.” Mayo. Here, the court found no such additional features. “The claim simply recites the use of generic features of cellular telephones, such as a storage medium and a graphical user interface, as well as routine functions, such as transmitting and receiving signals, to implement the underlying idea. That is not enough.” Slip Opinion at 15-16.

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Claim 1 below – seen was used as representative for the analysis:

1. A broadcast system, comprising:

a network based resource maintaining information associated with a network available representation of a regional broadcasting channel that can be selected by a user of a wireless cellular telephone device; and

a non-transitory storage medium including an application configured for execution by the wireless cellular telephone device that when executed, enables the wireless cellular telephone device:

to present a graphical user interface comprising at least a partial listing of available media sources on a display associated with the wireless cellular telephone device, wherein the listing includes a selectable item that enables user selection of the regional broadcasting channel;

to transmit a request for the regional broadcasting channel from the wireless cellular telephone device; and

to receive a streaming media signal in the wireless cellular telephone device corresponding to the regional broadcasting channel, wherein the wireless cellular telephone device is outside of a broadcast region of the regional broadcasting channel, wherein the wireless cellular telephone device is configured to receive the application via an over the air download.

 

Obviousness does not Require Prior Art to Fit Together Exactly

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ClassCo v. Apple (Fed. Cir. 2016)

In response to being sued for patent infringement, Apple filed for inter partes reexamination of ClassCo’s Patent No. 6,970,695. That litigation (originally filed in 2011) has been stayed pending the resolution here.  Although the patent had survived a prior reexamination, this time the Examiner rejected the majority of the patent claims as obvious; the PTAB affirmed those rejections; and the Federal Circuit has now re-affirmed.

The patent relates to a “caller announcement” system that uses a phone’s speaker (rather than screen or separate speaker) to announce caller identity information.  The system includes a “memory storage” that stores identify information being announced.

The examiner identified the prior art as U.S. Patent No. 4,894,861 (Fujioka) that teaches all of the claimed elements (of representative claim 2) except for use of the phone’s regular audio speaker (rather than a separate speaker) to announce a caller’s identity (claimed as the “audio transducer”).  A second prior art reference was then identified as U.S. Patent No. 5,199,064 (Gulick) that taught the use of the audio transducer for providing a variety of call related alerts.

On appeal, ClassCo argued that the combination of Fujioka and Gulick was unreasonable because it would involve changing the function of the known elements.  The Federal Circuit disagreed writing that:

KSR does not require that a combination only unite old elements without changing their respective functions. . . . Instead, KSR teaches that ‘[a] person of ordinary skill is also a person of ordinary creativity, not an automaton.’ And it explains that the ordinary artisan recognizes ‘that familiar items may have obvious uses beyond their primary purposes, and in many cases a person of ordinary skill will be able to fit the teachings of multiple patents together like pieces of a puzzle.

Slip opinion at 8 (quoting KSR).  The court goes on to explain that a combination of known elements can be obvious even the elements don’t fit perfectly together like puzzle pieces.  Rather, the approach is “flexible” in its pursuit of determining whether the combination would have been “predictable” – i.e., obvious.

Although KSR rejected a strict application of a motivation-to-combine, the court consistently required at least an explanation of that motivation.  Here, the court found that “substantial evidence” supports the PTO conclusions since some of the benefits were suggested by both prior art references.

Secondary Indicia: During reexamination, ClassCo had also presented evidence of industry praise for its products covered by the patent.  That evidence was disregarded by the PTO as, inter alia, not commiserate commensurate with the scope of the claims. 🙂 In particular, the Board noted that the industry praised particular embodiments but did not praise other potential embodiments. On appeal, the Federal Circuit rejected those conclusions.  The court found that some of the evidence praised ClassCo features that were not available in the prior art and that were “within the scope” of the representative claims.

[T]he Board found the evidence not commensurate in scope with these claims on the ground that they are too broad, encompassing other embodiments. But “we do not require a patentee to produce objective evidence of nonobviousness for every potential embodiment of the claim.” Rambus. Rather, “we have consistently held that a patent applicant ‘need not sell every conceivable embodiment of the claims in order to rely upon evidence of [objective indicia of nonobviousness].’” In re Glatt Air Techniques, 630 F.3d 1026 (Fed. Cir. 2011) (quoting In re DBC, 545 F.3d 1373 (Fed. Cir. 2008)).

Although the Board erred in its approach to objective indica, that was harmless error since the prior art evidence was strong. “We nonetheless agree that the value this evidence possesses in establishing nonobviousness is not strong in comparison to the findings and evidence regarding the prior art under the first three Graham factors.”  Obviousness affirmed.

Although a different product, the following ClassCo video review is a fun throw-back: