Strategic Decision Making in Dual PTAB and District Court Proceedings

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By Jason Rantanen

Saurabh Vishnubhakat (Texas A&M), Arti Rai (Duke) and Jay Kesan (Illinois) recently released a draft of their empirical study of Patent Trial and Appeal Board proceedings, Strategic Decision Making in Dual PTAB and District Court Proceedings.  Their study takes a close look at the relationship between IPR and CBM proceedings and district court proceedings to assess the “substitution hypothesis”: the claim that post-grant review is “an efficient, accessible and accurate substitute for Article III litigation over patent validity.”

In addition to an array of descriptive statistics on post-grant proceedings at the PTO, the authors find that:

  • “Although IPR petitions may challenge patent claims as to either novelty or nonobviousness, nonobviousness challenges predominate across all major technology areas.” (p. 18)
  • During the period studied (September 16, 2011 to June 30, 2015), “a total of 14,218 patents were either challenged in an IPR or CBM petition, asserted in litigation, or both. A subset of 11,787 patents were involved in litigation alone; 324 patents were involved in a USPTO proceeding alone; and 2,107 patents were involved in both. Accordingly, about 15.2% of litigated patents are also being challenged in the PTAB, and about 86.7% of IPR- or CBM-challenged patents are also being litigated in the federal courts.” (p. 20) [edited on Feb. 12, 2016]
  • Overall, most CBM and IPR petitions are filed by those with a direct self-interest flowing from infringement litigation.  78% of CBM petitioners, and 70% of IPR petitioners, “have previously been defendants in district court litigations involving the patents they later challenge in CBM [or IPR] review.” (p. 23)  By this the authors simply mean that the petitioners showed up as defendants in an infringement proceeding on a given patent before filing for IPR or CBM review on that patent.  They likely continued to be infringement defendants during the pendency of the IPR or CBM (the authors did not track that).

Vishnubhakat et. al’s third finding has two implications.  First, a substantial number of CBM and IPR petitions are filed by parties who are not concurrently defendants in litigation involving those patents.  The existence of this group merits further study. The authors suggest a range of motivations driving these petitions.

Second, notwithstanding that group, the vast majority of CBM and IPR petitions are filed by parties that are in all likelihood simultaneously litigating the patents in district court.  Given the substantial amount of overlap, and the potential for strategic behavior by accused infringers, the authors suggest that the same claim construction standard should be applied by both forums–a point with implications for Cuozzo Speed Technologies v. Lee.

Read the article here: http://ssrn.com/abstract=2731002

 

3M Liable for $26 Million for Fraudulent Patent Enforcement

Patent, ,

By Dennis Crouch

Transweb v. 3M (Fed. Cir. 2016)

Although 3M was the initial litigation aggressor, TransWeb’s response is the more successful.  Here, the lower court sided with TransWeb – finding 3M’s asserted patent claims invalid based upon pre-filing public uses by TransWeb and unenforceable due to inequitable conduct during prosecution. In addition, the jury awarded TransWeb $26 million for antitrust violations based upon 3M’s attempts to maintain its monopoly by asserting a fraudulently obtained patent. On appeal, the Federal Circuit has affirmed.  The technology at issue here involves Plasma-fluorinated filters as covered by 3M’s U.S. Patents 6,397,458 and 6,808,551.

Public Use based upon Oral Testimony: The evidence of pre-filing public use came from TransWeb’s founder Kumar Ogale who orally testified that he attended an expo in May 1997 and handed out “T-Melt” samples (more than one year before 3M’s 1998 priority filing date).  Although it was clear that Ogale did attend the expo and that samples were distributed, 3M challenged the oral testimony based upon the lack of corroborating evidence that Ogale handed-out samples that included the plasma-fluorinated material at the expo.  Oral testimony of an interested party is ordinarily insufficient to invalidate an issued patent.  Rather, the ‘clear and convincing’ evidence standard requires further documentation or testimony to that corroborates the account.  However, “there are no hard and fast rules as to what constitutes sufficient corroboration, and each case must be decided on its own facts.”  In this case, the Federal Circuit rejected 3M’s argument that each and every factual conclusions leading to an invalidity determination must be corroborated by additional evidence.  Rather, the rule of corroboration is a “flexible, rule of reason demand” designed to ensure that “as a whole” the oral testimony is credible.  Here, there was corroborating evidence that Ogale attended the expo and distributed materials; that his company had been producing the plasma-fluorinated material for several months and had filed for patent protection on some aspects of the material; etc.  Reviewing this evidence, the Federal Circuit found “abundant support” for Mr. Ogale’s testimony and for the jury’s verdict of prior public use.

Inequitable Conduct:  As an equitable judgment, the determination of whether a patent is unenforceable due to inequitable conduct is ordinarily within the purview of the judge rather than the jury.  Here, however, the judge permitted the jury to offer an ‘advisory opinion’ of unenforceability that the judge then enforced based upon reaching the same conclusion.  On appeal, the Federal Circuit only reviewed the judge’s conclusions.

The basic facts are that 3M had a sample of TransWeb’s filter and notified the examiner of that fact.  Based upon this notice, the examiner rejected the pending claims as obvious.  At that point, 3M offered the ‘dubious’ assertion that the TransWeb samples were only received after signing of a confidentiality agreement and thus could not constitute prior art.  That assertion was, of course, sufficient for the examiner who withdrew the rejection.  In reviewing what happened, the district court also found that 3M’s in-house counsel “undertook an intentional scheme to paper over the potentially prior art nature” of its TransWeb samples that a 3M collaborator (and later subsidiary) had received from TransWeb one-moth after the aforementioned expo.   Based upon these (and additional facts explained in the decision), the appellate panel affirmed that the fraud upon the patent office was both intentional and material – thus affirming the inequitable conduct finding.

Antitrust Violation:  In the 1965 Walker Process decision, the Supreme Court held that an antitrust-plaintiff can prevail by showing (1) that a patentee enforced its patent, knowing the same to have been obtained by willful fraud upon the patent office leading to (2) monopolization (or attempted monopolization). Although the “willful fraud” element of a Walker Process claim was previously described as a higher burden than that used in inequitable conduct. Following Therasense, the court now sees these as “nearly identical.”

The jury found that the actual harm suffered by TransWeb for the monopolization was a measly $34,000 in lost profits.  However, TransWeb also spent over $10 million in legal fees fighting the patent infringement claims ($7.7 million) and asserting the antitrust claims ($3.2 million).  Under the Sherman Act, “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.”  Following that rule, the district court awarded $3.2 million for the cost-of-suit but then trebled the $7.7 million as the damages for fraudulent patent enforcement.  On appeal, the Federal Circuit affirmed that result – holding that “3M’s unlawful act [of enforcing its fraudulently obtained patent] was in fact aimed at reducing competition and would have done so had the suit been successful.”

 

Michael Williams (Quinn Emanuel) represented TransWeb in the appeal while Seth Waxman (Wilmer) represented 3M.

 

Dear Supreme Court: Does Joint Enterprise Liability Theory Apply to Direct Patent Infringement

Patent

My starting point for thinking about patent infringement begins with the recognition that the corporate defendants held liable for patent infringement ordinarily do not themselves make or use the patented invention.  Rather, in most cases, it is employees, contractors, and employees of those contractors who take the actual infringing acts that are then attributed to the accused infringer.  This case looks to boundary conditions for finding, under the law, when third-party activities are so attributable.

The Limelight v. Akamai dispute involves a system of using a distributed set of servers for avoiding congestion while delivering internet content.  The approach is used by media giants such as Netflix and others.  The distributed nature of the technology creates a good likelihood that different business entities will control various aspects of the system.  A concern for a patentee in this situation is that, although the patented invention is being used, no single entity is liable for infringement (applying the all elements rule).

In its 2014 Limelight decision, the Supreme Court held that infringement-by-inducement requires evidence of underlying direct infringement.  After remand, the Federal Circuit then expanded the contours of direct infringement.  According to the court, direct infringement requires that all steps be “attributed” to a single entity and can be attributable “when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.” likewise “where two or more actors form a joint enterprise, all can be charged with the acts of the other.”

Now, Limelight has asked the Supreme Court to once again review the case. The question presented is:

Whether the Federal Circuit erred in holding that a defendant may be held liable for directly infringing a method patent based on the collective performance of method steps by multiple independent parties, even though the performance of all the steps of the method patent is “not attributable to any one person” under traditional vicarious-liability standards.

Limelight’s strongest argument is that the Federal Circuit’s decision represented an undue expansion of rights. Unfortunately, I don’t give the case much chance of success.  The brief primarily argues that – on the facts – no liability exists and that – before the most recent Federal Circuit decision – the courts had previously found no direct infringement.  The Supreme Court is unlikely to take-up a full review of factual proof in this 10-year-old complex patent case.  Likewise, none of the prior decisions focused on how those facts applied to the question of joint enterprise liability.

Read the petition here: Limelight petition

 

Pre-Issuance Damages under Section 154(d)

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Rosebud LMS v. Adobe Systems (Fed. Cir. 2015)

In one of its first interpretation of the pre-issuances damages statute, 35 U.S.C. § 154(d), the Federal Circuit has affirmed that “actual notice of the published patent application” is a necessary element of infringement, even when the infringer buries its head in the sand to avoid knowledge of the application.

Section 154(d) defines the poorly-named concept of “provisional rights”[1], which I refer to as “pre-issuance damages.”   Under the statute,

a patent shall include the right to obtain a reasonable royalty from any person who, during the period beginning on the date of publication of the application . . .  and ending on the date the patent is issued–(A)(i) makes, uses, offers for sale, or sells in the United States the invention as claimed in the published patent application or imports such an invention into the United States . . . and (B) had actual notice of the published patent application.

The statute further requires that the patented invention be “substantially identical to the invention as claimed in the published patent application.”  Although actual notice is required, the statute does not appear to require any affirmative act by the patentee to provide that notice.

The action here involves Rosebud’s allegations against Adobe for infringing its U.S. Patent No. 8,578,280.  Prior to the present lawsuit, Rosebud had previously sued Adobe for infringing the two additional applications – the ‘parent’ and ‘grandparent’ of the ‘280 patent.  At the time of the prior lawsuit, the application leading to the ‘280 patent had already published. However, Rosebud did not introduce any evidence showing that Adobe had particular knowledge of the published application.  Instead, Rosebud presented circumstantial evidence that: (1) Adobe had actual notice of the predecessor patent that shared an identical specification (Adobe was sued for infringing the parent/grandparent and it was cited by an examiner as prior art against Adobe) (2) Adobe followed Rosebud products, based upon confidential internal Adobe emails; and (3) standard practice in the industry” suggest that Adobe’s counsel knew of the published application that resulted in the ‘280 patent.

Although the Federal Circuit agreed that circumstantial evidence could prove actual notice, the evidence presented here was insufficient to lead to that conclusion.  Further, the court reiterated that proof of “constructive notice” is insufficient to prove actual notice.

Rosebud attempted to the SynQor decision regarding pre-suit damages for inducement that require “actual knowledge” of the asserted patent.  In that case, the court approved of jury instructions that asked whether “Defendants knew or should have known” that its actions would induce actual infringement and had “reason to be aware of the existence of the patent.”  In the case, the holding of actual knowledge (affirmed on appeal) was based upon (1) marking of products with the parent’s patent number; (2) defendant’s effort’s to imitate SynQor’s products; and some evidence of patent monitoring by the defendant.   In Rosebud, the Federal Circuit did not cite or refer to this SynQor analysis.

I’ll pause here to suggest that Adobe got away with something here – It is unbelievable to me that Adobe’s counsel did not know of the published application – the sole child application of the patent that was the subject of an infringement lawsuit.

One reason why Adobe won on this issue seems to be that Rosebud delayed its push for discovery and the district court decided the summary-judgment motion before the close of discovery.  Rosebud hade provided a R. 30(b)(6) deposition notice to Adobe on the topic of knowledge of the application, but the deposition had not yet taken place.  On those points, the Federal Circuit found no abuse of discretion:

The district court did not abuse its discretion in granting summary judgment before the close of discovery. Rosebud had notice of Adobe’s intent to file an early motion for summary judgment, and did not oppose this request or indicate at the time that it needed further discovery on issues relevant to the motion. Moreover, Rosebud did not serve its Rule 30(b)(6) deposition notice or its subpoenas on Adobe’s outside counsel until several weeks after it received Adobe’s motion for summary judgment. It appears that Rosebud delayed filing much of its discovery until after it received Adobe’s motion for summary judgment, without informing Adobe or the court that such discovery might be necessary. Given this timing, we see no abuse of discretion in the district court’s action.

No pre-issuance damages for Rosebud.

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[1] There is already a substantial amount of confusion regarding the filing of provisional patent applications, and Section 154(d) has nothing to do with provisional applications other than borrowing the name.

Ethicon: What Powers Can the Director Delegate to the Patent Trial & Appeal Board?

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By Dennis Crouch

This is my second post[1] on the Federal Circuit’s 2016 decision Ethicon.[2]  The case focuses on the institution and later proceedings of inter partes reviews (IPRs).  The first stage is known as institution that, according to the statute, is within the purview of the “Director” of the USPTO.  Once instituted, the case moves to the second stage where the Patent Trial and Appeal Board (PTAB) is tasked the trial and the final decision.  Despite the statutory separation, the USPTO has created a process where the PTAB (rather than the Director) makes both the institution and final decision.  In its panel decision, the Federal Circuit has agreed that the statute provides the Director with authority to make the institution decision, but found that she had properly delegated that authority to the PTAB.

Developing an Efficient Process: After the IPR statute was enacted as part of the 2011 AIA, the USPTO implementation team concerned itself with the practicalities of implementation.  A major concern whose impact is apparent throughout the IPR implementation rules stems from the statutory one-year deadline for issuing a final written decision.  That one-year deadline placed efficiency and timeliness as top USPTO priorities.  The Director saw one way to create efficiencies was to link the institution with the trial and final decision.  The setup then was (and is) to have PTAB judges decide the institution stage and then have those same judges handle the trial and final determination of patentability.  This structure gives a head-start on the one-year timeline and avoids any waste-of-resources involved requiring multiple individuals to get-up-to-speed on the issues for a particular case.  The majority agrees with this assessment: “The PTO has determined that, in the interest of efficiency, the decision to institute and the final decision should be made by the same Board panel.”  I buy into this efficiency argument – the question though is (1) whether it violates the decision-maker-separation written into the statute or (2) leads to unfair results.

Delegation by the Director: The Patent Act includes a number of roles of the USPTO Director, including issuing and rejecting patents[3], making copies of patent documents, classifying patents, etc.  The Director does not personally make these decisions, but delegates them to the Commissioner for Patents and other PTO employees.  That structure is usual for administrative agencies and also highlighted by the statutory structure.[4]  Both the commissioner and the “other employees” are – by statute – placed into the role of general management and duties.

The Patent Trial and Appeal Board and its associated Administrative Patent Judges are different.  Their authority is particularly spelled out as follows: The Patent Trial and Appeal Board shall—

  • on written appeal of an applicant, review adverse decisions of examiners upon applications for patents pursuant to section 134(a);
  • review appeals of reexaminations pursuant to section 134(b);
  • conduct derivation proceedings pursuant to section 135; and
  • conduct inter partes reviews and post-grant reviews pursuant to chapters 31 and 32.[5]

With regard to IPR proceedings, note here that the PTAB authority is to “conduct” IPR proceedings and not “institute” those proceedings.  As the Federal Circuit has previously held, those are distinct activities under the statute.  The Administrative Patent Judges are also somewhat different than ordinary PTO employees – they are judges and they are deemed Officers under the U.S. Constitution appointed by the Secretary of Commerce (rather than PTO director).[6]  Certainly, it would have been improper to take-away statutory authority from PTAB, the question though is whether it was proper for the Director to add these new duties.

The Statutory Structure Separating Institution from Proceedings: I described above how Section 6 of the Patent Act seems to limit the authority of the PTAB to IPR proceedings (rather than institutions).  The statute goes further into this: the Director determines whether an IPR review is to be instituted. 35 U.S.C. § 314(a).  If instituted by the Director, the Board then conducts the trial. 35 U.S.C. § 316(c).  The separation here, is further emphasized by the fact that the institution proceeding is not appealable while the final decision is appealable.  The idea that these are separate roles fit within the history and structure of the agency where no decision-making roles (beyond that authorized by Section 6) have been given to the PTAB other than this institution decision. Thus, the PTAB does not decide petitions (other than those directly related to PTAB operations), reissues, or reexaminations (except on appeal).

The majority opinion in this case was penned by Judge Dyk and joined by Judge Taranto glosses-over all of these arguments, writing:

There is nothing in the statute or legislative history of the statute indicating a concern with separating the functions of initiation and final decision. Ethicon ignores the longstanding rule that agency heads have implied authority to delegate to officials within the agency, even without explicit statutory authority and even when agency officials have other statutory duties.

The court particularly fails to consider the role of the PTAB and of its Judges and whether those bodies should be considered separate and distinct from other USPTO employees.  A request for rehearing is almost certainly coming that may well be followed by a petition for writ of certiorari.

I wonder if the court would have changed direction if the statutory structure of the IPR process had begun with a determination by the Director followed by a right of appeal to the PTAB (rather than institution followed by final decision). In that situation, would the Director be permitted to delegate the initial decision to the PTAB?

The decision here is not in a vacuum.  Rather, most believe that a separation-of-roles would reduce the likelihood of cancelling claims in IPRs.  This result will help to divide the parties doing the arguing according to whether they are enforcing patents or challenging patents.

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[1] Read the first post: Crouch, Due Process and Separating Powers within an Agency, Patently-O (January 13, 2016) at https://patentlyo.com/patent/2016/01/process-separating-within.html.

[2] Ethicon Endo-Surgery v. Covidien, — F.3d —, 2016 WL 145576, (Fed. Cir. 2016) http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/14-1771.Opinion.1-8-2016.1.PDF.

[3] 35 U.S.C. §§ 131 and 132.

[4] 35 U.S.C. § 3(b).

[5] 35 U.S.C. § 6(b).

[6] Following professor John Duffy’s 2007 article on-point, these roles have been tightened-up. https://patentlyo.com/media/docs/2011/10/Duffy.BPAI.pdf.

Patentlyo Bits and Bytes by Anthony McCain

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Get a Job doing Patent Law

When a Consultant Starts Work Before He Signs the Agreement

Patent

by Dennis Crouch

A discussion of TriReme Medical v. AngioScore, Inc. (Fed. Cir. 2016)

Corporations must be getting somewhat annoyed with the antics of these pesky inventors. TriReme v. AngioScore centers on an inventorship dispute involving Dr. Chaim Lotan who was previously a paid consultant with AngioScore but who later sold his rights to a competitor TriReme.   In the lawsuit, TriReme sued for correction-of-inventorship of three AngioScore patents that do not currently list Lotan as an inventor.

The Supreme Court has repeatedly announced that ownership of potential patent rights initially vest with the inventor(s). So far in our law, the set of potential “inventors” is limited to human persons (not corporate persons or machines or macaques). The initial right may, however, be transferred to through an assignment agreement.

In this case, the district court found that Lotan had assigned his rights to AngioScore and that his later purported assignment to TriReme actually transferred no rights.  These two conclusions led to the final dismissal with a holding that TriReme had no standing to bring its claim.

On appeal, the Federal Circuit pulled-up the Consulting Agreement between Lotan and AngioScore that plainly indicates that Lotan “hereby assigns” all rights to his inventions, developments, and improvements made during the term of the Agreement. The problem with the agreement, however, was that Lotan had actually begun working prior to his signing of the agreement.  In particular, he had run a full day test on the proposed angio-balloon, discovered a retention problem and recommended a solution.  The later issued patents (that did not include Dr. Lotan’s name) did include an attachment structure similar to the one he had recommended.

The consulting agreement included a second provision that required Lotan to list all prior inventions relating to the work to be developed. Lotan did not include his suggested solution in that list.  The district court held that Lotan’s failure to include the pre-agreement solution on the list resulted in an assignment of his rights to that solution to AngioScore – based upon an understanding of the “purpose” of the agreement.

On appeal, the Federal Circuit rejected that analysis. Applying California law, the court found that nothing in the contract purported to assign pre-agreement rights.  Likewise, the Federal Circuit found no “estoppel-by-contract” since “neither Dr. Lotan nor his successor in interest (TriReme) seeks to enforce any rights under the contract.”

 

= = = = =

The situation highlighted here regularly arises when a third-party is initially approached informally before being contracted-in.  The solution to the problem is to add an ex post assignment of any pre-agreement innovations stemming from the informal work.

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The patents at issue include U.S. Patent Nos. 8,080,026; 8,454,636; and 8,721,667.  To me it is somewhat interesting that one of the listed co-inventors (Eitan Konstantino) left AngioScore to found the competitor TriReme.

David Caine (Arnold & Porter) argued the case for TriReme while Peter Armenio (Quinn Emanuel) represented AngioScore.

Strictly Construing Amended Claims Against the Patentee

Patent,

by Dennis Crouch

In Cioffi v. Google, the Federal Circuit sided with the patentee, Cioffi — holding that the district court erred in its construction of the asserted patent claims and thus vacated the holdings non-infringement and invalidity via indefiniteness. (Non-precedential opinion).  Now, Google has petitioned the court for an en banc rehearing asking the court to “strictly construe” claim amendments against the patentee.

1. When construing a patent claim, should courts generally consult the prosecution history as context for resolving ambiguities, or is prosecution history relevant only if it clearly and unmistakably disavows claim scope?
2. When a patent applicant has amended a claim to overcome the Patent and Trademark Office’s earlier disallowance of the claim, should a court strictly construe the amended claim language against the applicant, as the Supreme Court has held, or consider the amendment history to be relevant only to the extent that it clearly and unambiguously disavows claim scope, as this Court has held

The issues raised here are parallel to those raised in the failed Google v. Vederi petition for writ of certiori. In that case, the Google asked (but the Supreme Court refused to answer):

Whether, when an applicant for a patent amends a claim to overcome the PTOs earlier disallowance of the claim, a court should (i) presume that the amendment narrowed the claim and strictly construe the amended claim language against the applicant, as this Court has held; or (ii) presume that the claim scope remained the same and require that any narrowing be clear and unmistakable, as the Federal Circuit has held.

In my 2015 discussion of Vederi, I wrote that the following:

[T]he Federal Circuit has strayed significantly from Pre-1952 disclaimer law exemplified by cases such as Supply Co. v. Ace Patents Corp., 315 U.S. 126, 137 (1942); Keystone Driller Co. v. Nw. Eng’g Corp., 294 U.S. 42, 48 (1935); Smith v. Magic City Kennel Club, Inc., 282 U.S. 784, 789–90 (1931); I.T.S. Rubber Co. v. Essex Rubber Co., 272 U.S. 429, 443–44 (1926); and Hubbell v. United States, 179 U.S. 77, 84 (1900).

Google relies upon many of these as well as additional cases for its argument. It writes:

The Supreme Court has long held that amendments made to overcome disallowance must be strictly construed against the applicant and in favor of the public. E.g., Exhibit Supply Co. v. Ace Patents Corp., 315 U.S. 126, 136-37 (1942); Smith v. Magic City Kennel Club, Inc., 282 U.S. 784, 789-90 (1931); Hubbell v. United States, 179 U.S. 77, 84 (1900).

In its decision in the case, the Federal Circuit considered prosecution history statements and actions, but was ultimately swayed by a claim differentiation argument. “We do not find, moreover, that anything in the prosecution history overcomes the presumption created by these claim differentiation principles.”  For me, an important question (that I cannot answer at this point) is whether Google’s legal argument is actually relevant to the facts-on-the-ground.  That is, would this shift in the law also shift the outcome of the case? That question is critical.

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I’ll note here that the Federal Circuit’s recent decision in Columbia University v. Symantec appears roughly follow the suggestions outlined by Google here. That case, was decided by Chief Judge Prost along with Judges Dyk and Huges.  It is not surprising to me that those three judges reached a different result than the Cioffi panel of Judges O’Malley, Plager, and Bryson.

For this petition, Google added known Supreme Court and appellate litigator Daryl Joseffer to the brief. Joseffer also filed the Google v. Vederi petition. The hiring of Joseffer suggests that Google will push this case to the Supreme Court if it fails at the Federal Circuit.

Asserted patents in the case are U.S. Patent Nos. RE43,103; RE43,500; RE43,528; and RE43,529.

Claim Construction Leads to Nonsensical Result and thus Indefiniteness Holding

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Columbia University v. Symantec Corp (Fed. Cir. 2015)

Back in 2013, the NPE known as Columbia University sued Symantec for infringing at least six of its data-analytics patents covering the process of detecting and blocking computer malware.[1]  Following a 2014 claim construction it was clear that all of the asserted claims were either (1) not infringed or (2) invalid as indefinite.  As a result, Columbia stipulated to such and filed its appeal of the claim construction order.[2]  On appeal, the Federal Circuit has affirmed the indefiniteness holding and substantially affirmed the claim construction, but did find enough problems with the lower-court decision to re-ignite the case.

Here, I’m just going to focus on the claim term “Byte Sequence Feature.”

Defining Byte Sequence Feature: The claim construction issues in this case are parallel to those debated in many cases – when a term is understood by one skilled in the art, does the specification limit that definition by using the term in particular ways (but not expressly re-defining the term), or does the term retain its ordinary and customary meaning?   Here, the court reiterated its en banc statements from Phillips that “the specification may define claim terms by implication.”

Columbia argued that the term “byte sequence feature” includes more than merely machine code instructions, and also extends to other non-compiled elements of an executable attachment.   On appeal, the Federal Circuit rejected that argument — finding that the specification indicates that the byte sequence feature “represents the machine code in an executable.”  The court also found that the machine-code limitation “most naturally aligns” with the inventor’s description of his invention.[3]

Since none of the accused products analyze machine code instructions, they don’t infringe (under this construction).

Loose Statements in the Provisional: Of interest to patent prosecutors, the associated provisional application included a statement essentially saying that the byte sequence feature does not include non-machine code “resource information.” That statement was removed from the non-provisional application, but the Federal Circuit indicated that the original definition still stands.[4]  This fits within the normal approach to patent prosecution that the mere withdrawal of a mis-statement is insufficient.  Rather, following a mis-statement or change-in-definition, the patent applicant should affirmatively identify the change for the examiner’s consideration.

Resource Code is Indefinite: I noted above that both courts agreed – the proper definition of “byte sequence feature” covers machine code and not ancillary resource information that may be part of the executable file.  Now, the confusing part is that many of these same claims include a express limitation that the “byte sequence feature” includes this resource information — exactly opposite of the court’s definition of the term.

It is a problematic ambiguity to have a claim element include embodiments excluded from the element’s definition.  As such, the court determined that those claims must be found invalid as failing the definiteness requirement of 35 U.S.C. 112. The court writes:

Claims 1 and 16 conflate a “byte sequence feature,” which is a feature extracted from machine code instructions, with the extraction of “resource information,” which is not a machine code instruction. Specifically, the claims describe the step of extracting machine code instructions from something that does not have machine code instructions. . . . The claims are nonsensical in the way a claim to extracting orange juice from apples would be, and are thus indefinite.

The court’s decision on indefiniteness appears correct but avoids the patentee’s actual argument that the claim terms should be construed so as to avoid this nonsense approach.

As noted in the intro, the Federal Circuit did reverse the claim construction as to the claims of two of the patents and vacated the non-infringement judgment. Thus, the patent case will continue on remand.  In the case, Columbia also sued Symantec for fraudulent concealment, unjust enrichment, and conversion. Those state law claims are apparently still pending before the district court.

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[1] The asserted patents include Patent No. 7,487,544 (“the ’544 patent”), U.S. Patent No. 7,979,907 (“the ’907 patent”), U.S. Patent No. 7,448,084 (“the ’084 patent”), U.S. Patent No. 7,913,306 (“the ’306 patent”), U.S. Patent No. 8,074,115 (“the ’115 patent”), and U.S. Patent No. 8,601,322 (“the ’322 patent”).

[2] You might question whether the claims are valid under 35 U.S.C. § 101 for being directed to an unpatentable abstract idea.  Claim 1 of the ‘544 patent is directed to a “method for classifying” an executable file attached to an email by (1) extracting a byte sequence from the attachment “representative of resources referenced by the … attachment”; and (2) using a set of classification rules (not defined by the claim) to predict whether the byte sequence is malicious.  I suspect that the full-throated Section 101 argument was not raised because the defendant Symantec also supports broad subject matter eligibility.  In that situation, it may be the Court’s jurisdictional role to take up the mantle.

[3] See Renishaw PLC v. Marposs Societa’ per Azioni, 158 F.3d 1243, 1250 (Fed. Cir. 2003).

[4] See Advanced Display Sys., Inc. v. Kent State Univ., 212 F.3d 1272, 1282 (Fed. Cir. 2000) (provisional applications incorporated by reference are “effectively part of the” specification as though it was “explicitly contained therein.”).  This suggests that the oft-used approach of ‘fixing it in the non-provisional’ may need to be reconsidered.

[5] In the ‘115 and ‘322 patents.

Pending Supreme Court Patent Cases 2016 (February 3 Update)

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by Dennis Crouch

With Washington DC snowed-in, action within the Supreme Court has also been somewhat slow.  Briefing is now complete in ePlus v. Lawson. In that case, a district court originally held an adjudged infringer in contempt-of-court for refusing to comply with its injunction order. Following the contempt order, the USPTO independently cancelled the patent claims and, at that point, the Federal Circuit vacated both the injunction and the contempt order. ePlus presents the following questions:

1. Whether civil contempt of a permanent injunction order that has been affirmed on appeal and is binding on the litigants under the law of judgments, may be set aside based on a legal development that came after both the permanent injunction and the contumacious conduct, and that did not call into question the correctness of the injunction when it was entered.
2. Whether, under Plaut v. Spendthrift Farm, 514 U.S. 211 (1995), the PTO, an administrative agency, may issue an order that retroactively overrides a federal court’s judgment on a question of law that is not subject to further judicial review, so long as some other part of the litigation is pending.

BIO/PhRMA filed a brief in support of the petition.  The ePlus case is one of several challenging the structure of administrative review proceedings running in parallel with court litigation.  William Jay (Goodwin Proctor) is representing ePlus with Mark Perry (Gibson Dunn)  on the other side.

Oral arguments for the parallel willfulness cases of Halo and Stryker are set for February 23, 2016.  The cases are consolidated to a single one-hour hearing. The attorneys for Halo/Stryker will chose a representative who gets 20-minutes; the US Department of Justice (who generally supports the Halo/Stryker position) will have 10-minutes of oral arguments; and Pulse/Zimmer will choose an attorney for a 30-minute opposition.  For those attending, the other case being heard that day is the criminal case of Taylor v. US involving the Hobbs Act that creates federal criminal liability for “interference with commerce by threats of violence.” 18 U.S.C. 1951.  The question is whether the required element of interstate commerce must be proven beyond a reasonable doubt in order to obtain a criminal conviction.

A new petition for certiorari has been filed in Cooper v. Lee, No. 15-955 (whether IPRs violate Separation of Powers).  The petition by Robert Greenspoon links itself with the Cuozzo challenge — noting that Cuozzo raises the “smaller issue” while Cooper raises “larger issues.”

Other new petitions include a filing from Joao Bock Transaction Systems, LLC v. Jack Henry & Associates, Inc., No. 15-974 (defining an abstract idea) and Systems, Inc. v. Nordock, Inc., No. 15-978 (design patent damage calculations).  The Federal Circuit decided Joao Bock with a R.36 affirmance (without opinion affirming that claim 30, et. al, of U.S. Patent No. 7,096,003 are invalid as effectively claiming abstract ideas).  Regarding Nordock, although it is not as high profile, its simplicity may make it a better vehicle than Samsung v. Apple for challenging design patent damage calculations. In any event Nordock’s timing is good and I would expect that the court will at least withhold judgment until it decides whether to grant certiorari in Samsung v. Apple.

1. Petitions Granted:

2. Petitions Granted with immediate Vacatur and Remand (GVR)

3. Petitions for Writ of Certiorari Pending:

  • Post Grant Admin: Cooper v. Lee, No. 15-955 (whether IPRs violate Separation of Powers).
  • Post Grant Admin: Achates Reference Publishing, Inc. v. Apple, Inc., et al., No. 15-842 (IPR institution decisions unreviewable, even when addressed in a final written decision by PTAB)
  • Post Grant Admin: Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Design Patents: Samsung Electronics Co. v. Apple Inc., No 15-777 (design patent scope and damages calculation)
  • Design Patents: Systems, Inc. v. Nordock, Inc., No. 15-978 (design patent damage calculations – similar issues as Samsung v. Apple).
  • Inducement: Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (whether an entity can “induce itself” under 271(f)(1))(CVSG, awaiting government brief)
  • Inducement: Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Claim Construction: Universal Lighting Technologies, Inc., v. Lighting Ballast Control LLC, No. 15-893 (intrinsic vs extrinsic evidence for claim construction).
  • Preclusion or Jurisdiction: Vermont v. MPHJ Technology Investments, LLC, No. 15-838 (Federal court jurisdiction in anti-troll consumer protection case)
  • Preclusion or Jurisdiction: Alexsam, Inc. v. The Gap, Inc., No. 15-736 (appellate jurisdiction over patents that were dropped from case pre-trial)
  • Preclusion or Jurisdiction:
    ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Preclusion or Jurisdiction: Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • Eligibility Challenges: Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Eligibility Challenges: Joao Bock Transaction Systems, LLC v. Jack Henry & Associates, Inc., No. 15-974 (defining an abstract idea)
  • Claim Construction: Media Rights Technologies, Inc. v. Capital One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Patent Term Adjustment Dispute: Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies; could bleed into admin law issues)
  • Damages: STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Damages: Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on – potential wait-and-see)
  • Low Quality Brief: Morales v. Square, No. 15-896 (eligibility under Alice)

3. Petitions for Writ of Certiorari Denied:

  • Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567
  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381
  • Tyco Healthcare Group LP, et al. v. Ethicon Endo-Surgery, Inc., No. 15-115
  • Nautilus, Inc. v. Biosig Instruments, Inc., No. 15-561
  • Chunghwa Picture Tubes, Ltd., et al. v. Eidos Display, LLC, et al., No. 15-288
  • Kenneth Butler, Sr. v. Balkamp Inc., et al., No. 15-273
  • Arthrex, Inc. v. KFx Medical Corporation, No. 15-291
  • Daiichi Sankyo, Inc., et al. v. Apotex Inc., No. 15-281
  • Mylan Pharmaceuticals Inc. v. Apotex Inc., No. 15-307
  • Luv N’ Care, Ltd. v. Munchkin, Inc., No. 15-242
  • Automated Merchandising Systems, Inc. v. Michelle K. Lee, Director, United States Patent and Trademark Office, No. 15-326
  • I/P Engine, Inc. v. AOL Inc., et al., No. 14-1358
  • Interval Licensing LLC v. AOL Inc., et al., No. 14-1362
  • Content Extraction and Transmission LLC v. Wells Fargo Bank, National Association, et al., No. 14-1473
  • W.L. Gore & Associates, Inc. v. Bard Peripheral Vascular, Inc., et al., No. 15-41
  • NetAirus Technologies, LLC v. Apple Inc., No. 14-1353
  • Muffin Faye Anderson v. Kimberly-Clark Corporation, No. 14-10337
  • MobileMedia Ideas LLC v. Apple Inc., No. 15-206
  • SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kessler doctrine)
  • Rodney K. Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602
  • Lakshmi Arunachalam v. JPMorgan Chase & Co., No. 15-691

4. Prior versions of this report:

@Mizzou: Administrative Patent & Trademark Hearings & Symposium

Patent

Save the Date: On March 1, 2016, the University of Missouri School of Law and our Center for Intellectual Property and Entrepreneurship will host an event that we’re generically calling Patent and Trademark Administrative Hearings and Symposium.  Both the Patent Trial & Appeal Board (PTAB) and the Trademark Trial & Appeal Board will be hearing live contested cases in our courtroom. In addition, we will have a set of discussion panels with the judges as well as outside perspectives on the process. In addition to the Judges and USPTO Officials, speakers include, inter alia, Jason Mudd, Matthew Cutler, Erich Spangenberg, Ashley Keller, and Dennis Crouch (me).

The CLE event begins at 9:00 a.m. at the law school and runs through 3:00 p.m. Lunch is provided for those who register in advance.  [Register at this link: http://goo.gl/forms/QryUdcIcvM] We are also looking to live-stream the hearings if permitted by the USPTO.

The USPTO will also be holding similar hearings in Dallas (February 24), Salt Lake City (March 4) and Atlanta (February 26).  I’ll provide more information as it becomes available.

 

NewEgg Denied its Fees Again

Patent

Site Update v. CBS Corp and NewEgg (Fed Cir. 2016)

Back in 2010, Site Update sued a broad set of companies for infringing its Reissued Patent No. RE40,683. The patent claims appear to broadly cover a method of using an XML Sitemap to update search engine data.  As is its policy, NewEgg refused to settle the case and, following a claim construction decision favoring the defendant, the district court entered a stipulated dismissal with prejudice.  At that point, however, NewEgg requested that the case be deemed “exceptional” and that it be compensated its reasonable attorney fees under 35 U.S.C. § 285.

The district court originally rejected the fee request. However, that decision was prior to Octane Fitness and, on appeal, the Federal Circuit previously remanded and asked for reconsideration under the Supreme Court’s new precedent.  On remand, N.D. California Magistrate Judge Grewal* again denied a fee award — listing eight reasons:

(1) Site Update’s proposed claim constructions were not “so weak that this case stands out from others because [Site Update] abandoned its reliance on these constructions when it was given the opportunity to do so”;

(2) Site Update’s argument that its means-plus-function terms should be given a broad construction did not make the case exceptional;

(3) Site Update’s positions on necessary structures were “unartful,” but not so frivolous to be exceptional;

(4) Site Update’s position on structures “strains credibility,” but was not so unreasonable as to warrant fees;

(5) an incorrect proposed claim construction is not exceptional;

(6) Site Update’s infringement theories had flaws, but losing does not compel fees;

(7) Site Update’s willingness to settle does not make the case exceptional; and

(8) deterrent policy considerations are inapposite in this case

On appeal, the Federal Circuit directly followed Supreme Court precedent giving a district court discretional authority to determine fee awards and requiring deference on appeal.

Although reasonable minds may differ, the district court ruled from a position of great familiarity with the case and the conduct of the parties, and it determined that Site Update’s tactical blunders and mistakes do not warrant fees under 35 U.S.C. § 285. The district court noted that Site Update tried and failed, but losing a case does not make it exceptional. . . . [U]nder the circumstances of this case, our review authority is limited to whether a district court’s findings are supported by evidence and sound reasoning. . . . In this case, because we do not believe that the district court based its ruling on an erroneous view of the law and we are not left with a definite and firm conviction that the district court erred in its assessment of the evidence or otherwise abused its discretion, we cannot say that the district court erred. For these reasons, we affirm.

In the appeal, the Federal Circuit noted that – this time, NewEgg was the one with an unreasonable position — demanding a “de novo review of the district court’s findings” despite recent Supreme Court precedent to the contrary.   However, the Federal Circuit followed its usual practice of requiring each party to bear its own costs of the appeal.

= = = = =

* I assume that the parties agreed that these issued could be properly decided by the Magistrate Judge.

On Appeal, Abuse-Deterrent OxyContin Patents are Invalid

Patent, ,

By Dennis Crouch

Purdue Pharma v. Epic Pharma (Fed. Cir. 2016)[1]

In an important Hatch-Waxman related decision, the Federal Circuit has affirmed the lower court’s holding that Purdue Pharma’s abuse deterrent OxyContin patent claims are invalid as anticipated and/or obvious over the prior art.[2]

Of interest, it appears that the patentee was harmed here by the Patent Act’s objective approach to obviousness that, according to the statute, must be considered without regard to the actual “manner in which the invention was made.”  In particular, during the process of creating its low-ABUK oxycodone, the innovators first discovered an 8α impurity isomer created during drug manufacture that led to a problematic 14-hydroxy compound.  The claimed invention was a product having a reduced 14-hydroxy  level.  In the appeal, the Federal Circuit noted that, while the 8α impurity may have been a new discovery, it was not necessary to achieve the claimed low-ABUK results.  In particular, the court noted that reduction of both the 8α and 8β impurities would also achieve the same result without having to distinguish between the two — affirming that “a skilled artisan would recognize that hydrogenation could be used to remove the remaining 14-hydroxy, regardless of the source of the 14-hydroxy.”

Of course, the claims did expressly require that the impurity being reduced be “derived from 8α.”  That limitation, however, was deemed an illusory product-by-process limitation.

We also conclude that, because “derived from 8α[]” is a process limitation, the district court did not err in disregarding the limitation in its obviousness analysis. We have clearly stated that “‘[i]n determining validity of a product-by-process claim, the focus is on the product and not the process of making it.’” Greenliant Sys., Inc. v. Xicor LLC, 692 F.3d 1261 (Fed. Cir. 2012) (quoting Amgen Inc. v. F. Hoffman-La Roche Ltd., 580 F.3d 1340 (Fed. Cir. 2009)). “That is because of the . . . longstanding rule that an old product is not patentable even if it is made by a new process.” Id.; see also SmithKline Beecham Corp. v. Apotex Corp., 439 F.3d 1312, 1317 (Fed. Cir. 2006) (“It has long been established that one cannot avoid anticipation by an earlier product disclosure by claiming . . . the product as produced by a particular process.”); In re Thorpe, 777 F.2d 695, 697 (Fed. Cir. 1985) (“If the product in a product-by-process claim is the same as or obvious from a product of the prior art, the claim is unpatentable even though the prior product was made by a different process.”).

In Amgen, the Federal Circuit did find that the particular claimed process will be relevant if it imparts distinguishing structural differences on the resulting product.  Here, however, the court found that the fact that the negative 14-hydroxy byproduct was derived from 8α “imparts no structural or functional differences” over the prior art that already included low-ABUK product achieved without focusing on the 8α isomer.

Generic OxyContin has been on the market for the past year – following the district court judgment that has now been affirmed – and so this decision should not have a major market impact.

This case here is one part of a complex web of battles that Purdue appears to be fighting to protect its exclusive rights to sell OxyContin – or at least delay competition. Although these asserted claims have been found invalid, Purdue is asserting a set of new patents, including U.S. Patent Nos. 8,309,060, 8,337,888, 8,808,741, 8,894,987, 8,894,988, 9,060,976, 9,034,376 and 9,073,933.

= = = = =

[1] App. No. 2014-1294 (Fed. Cir. 2016); on appeal from In re OxyContin Antitrust Litig., 994 F. Supp. 2d 367 (S.D.N.Y. 2014).

[2] Asserted patents include U.S. Patent No. 7,674,799 (“’799 patent”), U.S. Patent No. 7,674,800 (“’800 patent”), U.S. Patent No. 7,683,072 (“’072 patent”) (collectively, “the low-ABUK patents”), and U.S. Patent No. 8,114,383 patent (“’383 patent”).

WHAT YOU NEED TO KNOW ABOUT THE AMENDED DEFEND TRADE SECRETS ACT

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Guest post by James Pooley.  Pooley is the former Deputy Director General of WIPO. He recently testified at the Senate Judiciary Committee in favor of the Defend Trade Secrets Act. See his earlier Patently-O guest posts . He wishes to thank Prof. Peter Menell for contributing to this post.

Last Thursday the Senate Judiciary Committee favorably voted out the Defend Trade Secrets Act (“DTSA”), which would amend the Economic Espionage Act (“EEA”) to give trade secret plaintiffs the option of filing civil claims for misappropriation directly in federal court. The vote reflected broad bipartisan support (there are now 27 cosponsors in the Senate) and followed a substantive hearing on December 2 at which I had the privilege to testify. Since that time a number of senators engaged in discussions about how to improve the legislation. The result was a series of amendments, all of which have been adopted. Because the bill is likely to proceed quickly at this point, it would be useful to describe what has changed and what those changes could mean for practitioners and companies.

The notable amendments generally fall into four categories: (1) harmonizing with existing standards under the Uniform Trade Secrets Act (“UTSA”); (2) tightening up the process for preventive seizure of secrets; (3) ensuring that injunctions do not unreasonably restrain employee mobility; and (4) providing an exception for whistleblowers who disclose confidential information in order to report a crime to the authorities. The first three of these are laid out in a “Substitute” for S.1890, and the fourth is described in a separate amendment proposed by Senators Patrick Leahy and Chuck Grassley.

HARMONIZING WITH THE UTSA

Bringing the DTSA in closer alignment with familiar provisions of the UTSA, the amendments have slightly changed the definition of a trade secret. The EEA had previously required that qualifying information not be known or readily ascertainable to “the public,” while the UTSA had used the phrase “persons who can obtain economic value from its disclosure or use.” While it was never clear whether this difference would actually matter when applied in litigation, the UTSA formulation has now been adopted, so that the two laws are congruent. (Some still point to the different list of examples of protectable information in the UTSA and EEA definitions, but this has never been shown to make any difference in the broad meaning of the common basic term “information.”)

The amendments have also changed the term of the statute of limitations from five years to three. Although a number of states have designated longer periods (from four to six years), this brings the DTSA into line with the UTSA as it was originally proposed. In the same vein, the enhanced damages provision, which had allowed a punitive assessment up to three times the compensatory award, has been adjusted to match the provisions of the UTSA at twice the amount of compensatory damages.

SEIZURE PROVISIONS

The ex parte seizure provisions have been substantially tightened, providing more assurance that this remedy will not be abused. First, the bill now expressly refers to seizure as available only in “extraordinary circumstances.” Second, an ambiguity identified by Senator Whitehouse at the December hearing has been resolved by clarifying that the target of the seizure must be in “actual” possession of the trade secret and property to be seized. Third, access to the seized material is more limited: only federal law enforcement can perform the seizure, with assistance as necessary from state authorities and an independent technical expert, but the applicant is barred. And following the seizure, the court may have the material sorted by a special master who, like the technical expert, must be under confidentiality restrictions. Fourth, in issuing its order the court must direct when the seizure may be carried out, and whether force may be used to access locked areas. Finally, in a new section the bill requires the Federal Judicial Center to develop “best practices” for seizure and handling of electronically stored information.

MOVING ON FROM “INEVITABLE DISCLOSURE”

One of the most interesting and potentially impactful provisions of the amendments concerns the preservation of employee mobility. Recognizing the critical importance of preventive relief to a right that can be so easily destroyed, the UTSA has always permitted injunctions against “threatened misappropriation,” and the same language is used in the DTSA. But because the DTSA would establish a national standard, some expressed fears that the “inevitable disclosure doctrine,” which has been expressly rejected in some states, might be used by federal judges to block an employee from taking a new job. The draft bill had tried to address this concern with a proviso that no injunction could “prevent a person from accepting an offer of employment under conditions that avoid actual or threatened misappropriation,” but this did not quiet the controversy.

To understand the nature of the dispute we need to wind back the clock to 1995, when the Seventh Circuit issued its decision in Pepsico v. Redmond, 54 F.3d 1262 (7th Cir. 1995), affirming a five-month injunction against a former marketing executive who had lied about his plans to take an identical position with another company that was about to launch a directly competitive product. Although the court had emphasized the executive’s bad behavior, it also summarized that “defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.” Commentators promptly wrenched this phrase from its context and warned that Pepsico could be used to justify enjoining someone from taking a job just because of what he or she knew. This is how the so-called “inevitable disclosure doctrine” was born.

Having (mis)construed Pepsico this way, it was easy for some to make it a target, raising the alarm that “inevitable disclosure” was the equivalent of a post-hoc judicially-imposed non-compete agreement. Perhaps unsurprisingly, the backlash was particularly strong in California, where employees are protected by a robust public policy against restrictive covenants. In Whyte v. Schlage Lock, 101 Cal. App. 4th (2002), an intermediate appellate court issued a blistering condemnation of the doctrine and flatly declared it unacceptable under California law. It did this in response to the plaintiff’s argument that the doctrine should be available as an “alternative” to proving “threatened misappropriation.” Just what kind of evidence might be enough to establish a threat under the UTSA was not addressed. However, that question was answered several years later in another appellate decision, Central Valley General Hospital v. Smith, 162 Cal. App. 4th 501 (2008). The court said that evidence of bad behavior, like a prior misappropriation, an intention to misappropriate, or a refusal to return confidential material, would be enough to supply the inference.

In the meantime, however, the ideological battle lines had been drawn, and the forces mustering against inevitable disclosure, reinforced by many academic and popular articles, were determined to stamp it out if possible, or at least to protect their own jurisdiction from infection. The fervor of the debate apparently distracted everyone from critically examining what “inevitable disclosure” meant, or how it was actually being applied in places that didn’t have a reflexive opposition to it. It turns out that the doctrine was almost never used as the opponents assumed, that is where the only threat indicator was how much the employee knew. In fact, in those cases judges typically explained their denials by reminding the plaintiff that if all this information had been so critically important they could have demanded that the employee sign a non-compete agreement.

Following last December’s hearing, and in the wake of continuing concerns over the relevant DTSA language, I reached out to my friend Mark Lemley, professor at Stanford Law School. Mark and I had worked together before on issues relating to California’s “high velocity” labor market, and after some discussion about what appeared to be this false conflict over the inevitable disclosure doctrine, we suggested to Senate staff that the issue could better be reframed around the kind and quality of evidence that should be required – under the UTSA or the DTSA – to prove “threatened misappropriation,” and that the inquiry should focus on the employee’s behavior, not merely on how much they knew.

Ultimately, Senator Dianne Feinstein proposed the relevant portion of the DTSA amendments, which now allows an order against threatened misappropriation, provided that it not “prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows.” (In a belt-and-suspenders approach, the DTSA also includes a directly related amendment proposed by Senator John Cornyn that the order may not “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”)

The new language on threatened misappropriation has at least two very positive effects. First, it makes express the apparent consensus from the courts that “threatened” misappropriation may not be established merely by the importance of the information that someone knows. This makes sense not only as a matter of public policy but also of evidence law. Second, it relieves us from the energy-draining debate over “inevitable disclosure,” which was pretty much a straw man that people loved to punch. Courts will not have to consider whether a jurisdiction accepts or rejects this abstract “doctrine,” but instead will ask: what is the actual evidence from which we should conclude that this person (or their new employer) can’t be trusted to honor the integrity of the plaintiff’s trade secrets? Outcomes in particular cases should not be substantially different.

WHISTLEBLOWER PROTECTION

A second major amendment was offered separately by Senators Leahy and Grassley, addressing a new, and in my opinion long neglected, question: how do we assure that employees and contractors who come upon evidence of illegal activity, but who are constrained by nondisclosure agreements from communicating those facts, can safely speak to their lawyers and to law enforcement officials? One might think that this question would already have been reliably answered by now, but it hasn’t been. In a wide-ranging and thoughtful on the subject, Tailoring a Public Policy Exception to Trade Secret Protection, Professor Peter Menell of the UC Berkeley School of Law explores not only the sparse, murky, and sometimes contradictory legal authority, but also the psychology of whistleblowing and the importance of a clear “safe harbor” for those who are thinking of reporting wrongdoing. As he notes, “[t]he same routine non-disclosure agreements that are essential to safeguarding trade secrets can be and are used to chill those in the best position to reveal illegal activity.”  As a practical matter, employees and contractors face a stark dilemma, where the upside is a clear conscience (and possibly a reward for uncovering fraud) but the downside can involve painful and relentless retaliation as well as personal, financial, legal, and professional risk. Insulating the whistleblower from costly trade secret exposure serves larger societal interests in law enforcement, tax compliance, and surfacing and deterring securities fraud and fraud against the government..

Yet because of the difficulty of enforcing trade secrets once they leak, companies risk potentially significant losses if employees or contractors mistakenly disclose legitimate trade secrets—i.e., those that do not reveal illegal conduct. Peter’s article provided a balanced and effective solution to this dilemma that protects whistleblowers without jeopardizing disclosure of legitimate trade secrets. The proposed safe harbor insulates whistleblowers and their counsel from trade secret liability for disclosing trade secret information in confidence to government officials or as part of a lawsuit alleging retaliation by an employer provided that the information is filed under seal. (The federal Trade Secrets Act, 18 U.S.C. § 1905, generally prohibits governmental employees from disclosing trade secrets.) The proposed statutory exception to trade secret liability provides clear assurance to potential whistleblowers that they do not violate their NDAs merely by consulting legal counsel regarding reporting allegedly illegal conduct to a responsible government official through a confidential channel. In addition, this safe harbor insulates lawyers advising potential whistleblowers about their options and serving as conduits for presenting evidence of allegedly illegal conduct to the government. The efficacy of the safe harbor is enhanced by requiring that NDAs prominently include notice of the law reporting safe harbor to ensure that those with knowledge of illegal conduct are aware of this important public policy limitation on NDAs and exercise due care with trade secrets in reporting such activity.

After Peter’s article appeared just as the DTSA was gaining momentum in the fall, the Senate staff reached out to him to help craft appropriate language. The Leahy/Grassley amendment provides immunity under federal or state law against any claim for violation of an individual’s nondisclosure obligations for disclosure, made in confidence, to (a) an attorney or government official, for the purpose of reporting or investigating a violation of law, or (b) a filing made under seal in a lawsuit “or other proceeding.” In order to ensure that employees (a term that also includes contractors) know about their rights, employers are required to give an appropriate notice in the nondisclosure agreement (as is often done now with state inventor statutes), although this can be a reference to the company’s separate policy document. A failure to comply with the notice provision would block any award of attorneys’ fees or enhanced damages against an employee under the DTSA. Significantly – and this point was emphasized by Senator Feinstein at the hearing on January 28 – the whistleblower protection would not extend to any otherwise improper acts by the employee, such as hacking information in violation of the Computer Fraud and Abuse Act.

CONCLUSION

The DTSA in its current form is a strong bill, meeting its original objective of giving plaintiffs access to federal courts, which are better equipped to handle cases of interstate or international misappropriation of trade secrets. In my opinion, all reasonable objections have been adequately addressed, and there are sufficient protections built in against abuse. Moreover, passage of this bill would substantially improve the environment for both plaintiffs and defendants, by making trade secret litigation more predictable, establishing a national standard for issues like “threatened misappropriation,” and striking the right balance of interests to promote responsible efforts by whistleblowers to report possible violations of law.

REPORT AND ANALYSIS OF RECENT AMENDMENTS TO S. 1890 (The Defend Trade Secrets Act 2016)

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By Professor Sharon K. Sandeen, Mitchell Hamline School of Law  

The Defend Trade Secrets Act (S. 1890) passed out of the U.S. Senate Committee on the Judiciary today, but not before it was amended to address a number of concerns that were voiced by opponents over the past two years. The following is my quick analysis of the changes.  Note that there were actually two sets of amendments to the legislation. The so-called manager’s amendment (labeled “S. 1890 Substitute Amendment”) and amendments offered by Senators Leahy and Grassley (labeled “Leahy-Grassley1”). The following page and line references are to the Substitute Amendment. The Leahy-Grassley amendments are discussed thereafter.  [S.1890 Substitute Amendment][Leahy-Grassley1].

1. S. 1890 Substitute Amendment

Page 1:

The legislation is now to be known as the “Defend Trade Secrets Act of 2016” instead of “2015.”

Page 2, line 2:

“Misappropriated” added and language “aggrieved by misappropriation” deleted

Sandeen Comment: This change was apparently made in response to expressed concerns that “aggrieved” might be introducing a new concept of wrongdoing into trade secret law. Since “misappropriation” is a defined term in the DTSA (copied from the UTSA), it is better to stick with that language.

Page 2, lines 11-12:

With respect to the ex parte civil seizure remedy, the language “but only in extraordinary circumstances” was added.

Sandeen Comment: I am not sure what this language adds other than to emphasize the fact that this remedy should rarely be granted. But that begs the question: Why is the remedy needed at all if it will rarely or ever be granted? No one has ever explained to me why egregious cases that might justify such a remedy would not be championed by the U.S. Department of Justice in a criminal case. But there is a clue in later amendments to the EEA criminal provisions that give trade secret owners standing to assert secrecy concerns in such cases. (See report on new Section 3 below).

Page 2, lines 24-25:

The language “another form of equitable relief” was added to limit the circumstances under which an ex parte seizure order could be granted.

Sandeen Comment: As I understand the limitations built into the civil seizure provision, such an order is not to be granted unless other available equitable relief is inadequate. What seems to be lost in the discussion of all forms of equitable relief is that there are legal remedies available, including potential exemplary damages. Typically, equitable relief is not available when such is the case. In this regard, I wonder if “another form of equitable relief” would include a royalty injunction.

Page 4, line 5 et seq:

A new section (V) has been created (and subsequent subsections re-lettered accordingly) to highlight that “the person against whom seizure would be ordered” must have actual possession of both the trade secret and the property to be seized.

Sandeen Comment: While seemingly limiting the scope of the civil seizure remedy, this addition confirms what the opponents of DTSA were afraid of: that the civil seizure remedy can be used to seize property in addition to the actual trade secrets. While the person against whom seizure would be ordered must be shown to have either misappropriated a trade secret or conspired to misappropriate a trade secret, this language is actually much broader than it may seem on the surface. This is because the definition of misappropriation under the DTSA (and the UTSA) can apply to third-parties who were not directly involved in the initial misappropriation, provided they have the requisite (but obviously later acquired) knowledge. For instance, new employers.

Page 5, line 13:

Deletes the language “that are unrelated to the trade secret that has allegedly been misappropriated” in describing the elements of any civil seizure order.

Sandeen Comment: This was apparently intended to limit the scope of a civil seizure order, which is a good thing if it works.

Page 5, line 16 – page 6, line 11: 

Uses “prohibiting” instead of “restricting” and makes other changes to the provision concerning the required content of a civil seizure order, the most significant change being the addition of a new sub section (iv) which requires the court to “provide guidance to law enforcement officials” concerning how they are to execute the order.

Sandeen Comment: This language was undoubtedly added to address concerns that Senator Sheldon Whitehouse raised during the hearing on DTSA that was held before the U.S. Senate Committee on the Judiciary in December of 2015. His principal concern related to the use of force in the event that the person against whom seizure would be ordered was uncooperative.  

Page 7, line 13 – page 8, line 22:

The “Materials in Custody” provision was re-labeled and expanded, particularly with respect to the newly labeled sub-section “Storage Medium” and new provisions labeled “Protection of Confidentiality” and “Appointment of a Special Master.”

Sandeen Comment: The added language was undoubtedly added in an attempt to address concerns about the scope of any civil seizure order (including the very real possibility that property not relevant to the trade secret case might be seized), the handling of seized information, and the practical reality that federal court staff is ill equipped to manage such materials. Nothing in the legislation indicates who will pay for the services of a Special Master.

Page 9, line 2-15:

Deleted the language that used to allow state and local officials to execute a civil seizure order and instead specifies that a civil seizure order must be executed by federal law enforcement personnel.  State and local law enforcement personnel can be involved, but they cannot be involved in the actual seizure of property. Further, the court may allow for the use of a technical expert to assist federal law enforcement officials in executing the civil seizure order, again without specifying who will pay for the technical expert.

Sandeen Comment: These amendments address some of the concerns that have been expressed about how a civil seizure order will be executed and how it can be done without including the legitimate business information of the “person against whom civil seizure is ordered.” However, the more that efforts are made to address the concerns of critics, the more the risks of such a remedy are revealed. If this remedy will be used very infrequently as its proponents argue, Congress should ask if the marginal benefits of this remedy are worth its tremendous costs, particularly given the fact that: (1) criminal prosecution and seizure are possible in egregious cases; and (2) plaintiffs in trade secret cases have very robust legal remedies in the event of the loss of trade secrecy.

Page 11, line 6 et seq:   

The standing to file a motion for encryption has been broadened to include both parties to the litigation and “a person who claims an interest in the subject matter seized.”

Sandeen Comment: This is a positive development, but obviously it acknowledges that non-parties may be affected by a civil seizure order and be forced to hire an attorney to protect their interests.

Page 11, line 23 – page 12, line 8: 

The provisions concerning the effect of injunctions on employment were re-worked, re-lettered and expanded. First, the original language was amended so that any injunction must “be based upon evidence of threatened misappropriation and not merely on the information a person knows.” Second,   the legislation now includes language which states that an injunction cannot “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”

Sandeen Comment: This is a very positive development that makes it clear that State law governing restrictive covenants, including non-compete agreements, will continue to apply as limits on the scope of injunctive relief. More specifically, it rejects the worst aspects of the inevitable disclosure doctrine which many states (most notably California) have found to be inconsistent with their laws against restrictive covenants, particularly those that restrict employee mobility. Issues of choice of law remain, of course. 

Page 13, line 9: 

The measure of potential exemplary damages has been lowered to 2 times instead of 3 times.

Sandeen Comment: This is a positive development, particularly for the proponents of the DTSA who claim that its primary purpose is greater uniformity in trade secret law. The new language is consistent with the UTSA. However, it appears that this change may have been part of a compromise since (as discussed below), the criminal penalties for a violation of the EEA have been increased.

Page 13, line 23: 

The statute of limitations has been lowered to 3 years from 5 years.

Sandeen Comment: This change also makes the statute of limitations consistent with the language of the UTSA (although some UTSA states have not adopted the statute of limitations specified in the UTSA). This is a positive development because businesses can now be more certain when threats of trade secret litigation will end. Since the statute of limitation follows the discovery rule, plaintiffs will have plenty of time to bring a lawsuit once the facts giving rise to such claims are discovered.

Page 14, line 8:

The definitions provisions of the DTSA must be read alongside the existing definition provisions of the EEA, which is where you will find the definition of a trade secret. A change from earlier versions of the legislation is that the word “public” in 18 U.S.C. §1839 (3)(B)  (the definition of a trade secret) will be substituted with “another person who can obtain economic value from the disclosure or use of the information.”

Sandeen Comment: This is another positive development that makes the definition of a trade secret under the EEA (as amended) more consistent with the language of the UTSA. Without this amendment, the EEA might be interpreted to include information that is in the public domain under state law. Not changed in the EEA to be consistent with the UTSA is the first part of the definition of a trade secret which, under the EEA, includes a litany of types of information that might qualify for trade secret misappropriation. However, this greater specificity always struck me as necessary since the EEA was initially, and will remain in part, a criminal statute.

Page 17, line 21 – Page 19, line 2:   

A new Section 3 was added titled “Trade Secret Theft Enforcement” and old Section 3 was re-labeled as Section 4. This section increases the penalties for a violation of 18 U.S.C. §1832 from $5,000,000 to the greater of $5,000,000 or 3 times the value of the stolen trade secrets to the organization, including the costs of reproducing the trade secrets. Second, it adds a new provision titled “Rights of Trade Secret Owners” that essentially allows trade secret owners to be heard in criminal court concerning the need to protect their trade secrets. Lastly, it amends 18 U.S.C. §1961 (the RICO statute) to add a violation of the EEA as a predicate act.

Sandeen Comment: At first blush, these changes seem to more directly address the concerns that motivated the proposed legislation and should have been tried first before risking the disruption of U.S. trade secret law by creating a federal civil cause of action for trade secret misappropriation. What they reveal is the concern that trade secret owners have about the effectiveness of federal criminal prosecution to stop (or punish) the most egregious cases of trade secret misappropriation. They also reflect the risks to trade secrets posed by the public nature of criminal prosecutions. Robust criminal laws are already on the books to punish those who would engage in the most egregious forms of trade secret misappropriation, but trade secret owners might be hesitant to report such crimes out of fear that their trade secrets might be lost in the process. Allowing trade secret owners to express their confidentiality concerns in a criminal court seems like a good idea. More study of the implications of the RICO provision is needed, particularly with respect to the potential for the over assertion of criminal prosecutions which was a major concern of business interests when the EEA was first adopted.

Page 22, line 23 et seq.:

The re-numbered “Sense of Congress” provision (now Section 5) added point (4) concerning the civil seizure order and Congress’ sense that the need for such a remedy should be balanced  against the risk of interrupting the business of third parties and the legitimate interests of the party accused of wrongdoing.

Sandeen Comment: While this is helpful language, it is interesting that this language is included in the “Sense of Congress” provision and not in the text of the civil seizure provision itself. While Congress is at it, I would urge it to add point (5) to the “Sense of Congress” and state that the DTSA should be interpreted and applied in a manner that is consistent with the commentary to the UTSA.

Page 23, Line 4 et seq:  

New Section 6 was added titled “Best Practices” to require the Federal Judicial Center “using existing resources” to, within two years, recommend best practices related to civil seizure orders.

Sandeen Comment: Again, this indicates that concerns about the abuse of civil seizure orders remain.

2. Leahy-Grassley Amendments

These amendments would add a section to the DTSA, in a place to be determined, titled “Immunity from Liability for Confidential Disclosure of a Trade Secret or in a Court Filing.” This new section is designed to protect whistleblowers from liability for the disclosure of trade secrets to the government and in the context of retaliation lawsuits, provided that steps are taken by the whistleblower to keep such information confidential. It also would require employers to give notice of such immunity to employees, thereby requiring an exception to confidentiality provisions.

Sandeen Comment: This is a very positive development for those who are concerned that the assertion of trade secret rights can be used to prevent the timely disclosure of information that is needed by law enforcement authorities. However, it only applies where there is an alleged violation of law and not, more broadly, in situations where threats to public health exist, for instance.  

= = = = =

[Prior Patently-O Posts on the DTSA]

Patentlyo Bits and Bytes by Anthony McCain

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Section 285 Does Not Support Deterrence Based Fee Enhancement; Next Stop Rule 11 Sanctions

Patent

This is the second post on the attorney-fee-case of Lumen View v. FindTheBest.com.  The original post focused on the Federal Circuit’s holding that (1) the exceptional case finding was appropriate but (2) it was improper to double the awarded attorney fees for the purpose of added deterrence.  In making its determination, the Federal Circuit looked to the Patent Act that authorizes only “reasonable attorney fees” to the prevailing party in an exceptional case.

In a one-sentence statement at the end of its vacatur, the Federal Circuit suggests that the district court might instead consider sanctions under Rule 11 of the Federal Rules of Civil Procedure. “Whether the court wishes to utilize Rule 11 or any other statutory framework is of course up to the district court.”

In Octane Fitness, the Supreme Court noted the partial overlap between Section 285 fees and R. 11 sanctions.  Section 285 does not particularly require sanctionable conduct but does require that the recipient be the ‘prevailing party.’

Importantly for the discussion here, Rule 11 particularly authorizes sanctions designed “to deter repetition of the [sanctioned] conduct or comparable conduct by others similarly situated.”  Here, the district court (supported by the Federal Circuit) has already found the complaint at least recklessly baseless and that may be enough to legally support a deterrence-based sanction.  The court’s next move may be to issue an order to show-cause under R. 11(c)(3).

 

 

Prevailing Defendant’s Exceptional Case Restitution Limited to “Reasonable Attorney Fees”

Patent

By Dennis Crouch

In Lumen View v. FindTheBest.com, the Federal Circuit has affirmed the the district court’s “exceptional case” finding under 35 U.S.C. §285, but has vacated the award as unjustifiably large. In particular, the district court erred by doubling the fee award as a mechanism designed to “deter baseless litigation.”

In the underlying lawsuit, Lumen sued FTB for infringing its U.S. Patent 8,069,073 covering a computer method for matching parties to a potential financial transaction based upon “multilateral analyses” of “preference data.”   On the pleadings, S.D.N.Y. Senior Judge Cote dismissed the case  writing that “[t]here is no inventive idea here. . . . Nothing in the ‘073 patent evinces an inventive idea beyond the idea of the patent holder to be the first to patent the computerization of a fundamental process that has occurred all through human history.”  In the fee award judgment, the district court noted that, the accused infringers clearly did not infringe even under the patentee’s proposed claim construction.  According to the district court “the most basic” investigation prior to filing the lawsuit would have made the non-infringement clear – and, in fact, the non infringement had been particularly explained in a pre-filing letter from the defendant.

In finding the case “exceptional”, the district court primarily focused on the baselessness of the patentee’s legal claim, but also on its conclusion that the patente was seeking a “nuisance settlement” via a “predatory strategy.”

On appeal, the Federal Circuit affirmed the exceptional case finding (no abuse of discretion” — noting that “[t]th allegations of infringement were ill-supported, particularly in light of the parties’ communications.”

The double award: Once a case is deemed “exceptional,” section 285 permits a district court judge to award “reasonable attorney fees” to the prevailing party.  “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”  Here, the defendant showed $148,592 in reasonable fees and the district court doubled that figure ($297,184) based upon its determination that the patentee needed more deterrence.

On appeal, the Federal Circuit first agreed that the award calculation is within the discretion of the district court judge.  However, most courts follow the approach of multiplying hours worked (if reasonable) by a reasonable hourly fee — with that calculation as the “lodestar”, a court then makes adjustments to ensure the award is reasonable.

Here, the district court followed that approach and then doubled the results for punishment/deterrence.  The appellate panel found that deterrence is not an appropriate justification for increasing a fee award under Section 285.

Although deterrence may be a consideration when determining whether to award attorney fees, it is not an appropriate consideration in determining the amount of a reasonable attorney fee, which is principally based on the lodestar method. Unlike sanctions that are explicitly tied to an amount that suffices to deter repetition of conduct, see Fed. R. Civ. P. 11(c)(4), § 285 only specifies “reasonable attorney fees” once an exceptional case is found. And the lodestar method, yielding a presumptively reasonable attorney fee amount.

As noted above, the lodestar approach is a preferred methodology for fee calculation, but district courts are not limited to that approach.  On remand, the district court has the potential maintaining its same fee award – but it would need to construct a new explanation of how the doubling would be a reasonable fee.

The Federal Circuit did not award fees or costs to either party.

 

Federal Circuit: Board Must Explain its Decisions

Patent, ,

by Dennis Crouch

In the non-precedential Cutsforth v. MotivePower decision, the Federal Circuit has vacated a PTAB inter partes review (IPR) final decision — holding that “the Board did not adequately describe its reasoning for finding the claims obvious.”

The patent at issue is directed to a brush-assembly used to maintain an electric current with a rotating mechanism. US Patent No. 7,990,018. 

The Federal Circuit requires that the PTAB “articulate articulate its reasoning for making its decision.” See In re Sang-Su Lee, 277 F.3d 1338 (Fed. Cir. 2002).  Along these lines, the board must explain the factual bases for its findings and must go well beyond “conclusory statements.”  Most PTAB decisions are related to the question of obviousness and the Federal Circuit particularly requires the Board to “explain why a person of ordinary skill in the art would modify the prior art references to create the claimed invention.” See In re Kotzab, 217 F.3d 1365, 1369 (Fed. Cir. 2000) and In re Rouffet, 149 F.3d 1350 (Fed. Cir. 1998).

Here, the Board apparently recited the challenger’s (MotivePower’s) arguments and the ultimate conclusion of obviousness, but did not “formally” adopt the arguments as its own conclusions. See MotivePower, Inc. v. Cutsforth, Inc., IPR2013-00274.  On appeal, the Federal Circuit rejected this approach. Some key quotes:

The Board’s decision appears to assume this combination is obvious. It offers no explanation for why a person of ordinary skill in the art would adjust Bissett and Kartman to create the claimed mounting block of the ’018 patent. The Board only states that MotivePower argued it was obvious to do so. Merely reciting MotivePower’s argument does not satisfy the Board’s responsibility to explain its own reasoning. The decision must explain why a person of ordinary skill in the art would find it obvious. The Board gives no such explanation. . . .

For claim 5, which requires that the mounting block include a spring, the Board explains that the placement of the spring on the mounting block is simply a design choice. . . . This statement alone is not enough to explain why the Board found claim 5 obvious. Merely stating that a particular placement of an element is a design choice does not make it obvious. The Board must offer a reason for why a person of ordinary skill in the art would have made the specific design choice to locate the spring on the mounting block. Here, it does not.

On remand, I expect that the Board will simply rewrite its 33-page decision – better explaining its holdings – but we shall see. [PTAB Final Decision: final decision-31].

To be clear, although the PTAB is held to this high standard, patent examiners are not.  Rather, examiners are only required to provide notice of their rejection/objection rather than a full-bodied explanation.  Update: I just looked at the comment section and note that a number of folks raise the important point that my off-the-cuff statement an examiner’s notice burden is limited to the introductory rejection and establishing a prima facie case as the Federal Circuit explained in Packard.  Once a prima facie case is established, the patent applicant has the opportunity to rebut that case. And, once rebutted, the examiner’s burden is then raised actually prove the case if possible.