From May 8, 2015 until May 22, 2015, Google will be operating its “patent purchase promotion” with a “streamlined portal” for patent owners to sell their patents to the multi-billion-dollar company.
You set the firm offer and then they say Yes/No.
http://www.google.com/patents/licensing/
by Dennis Crouch
In re Tam (Fed. Cir. 2015) (en banc order)
Simon Tam has been attempting to register the name of his band “The Slants” as a trademark. However, registration has been denied under Section 2(a) of the Lanham Act as a disparaging mark. In particular, Tam’s band is an Asian-American band and the term “slant” (according to the Urban Dictionary) is “A derogatory term used to refer to those of Asian descent. More accurately, it tends to refer to anybody with slanted eyes.” In a decision last week, the Federal Circuit affirmed the PTO’s denial. Judge Moore penned the original unanimous opinion, but also penned an addendum opinion that added a few additional nuggets. One of those nuggets has caught the eye of the Federal Circuit as a whole and is now the subject of a sua sponte en banc rehearing. Question presented:
Does the bar on registration of disparaging marks in 15 U.S.C. § 1052(a) violate the First Amendment?
The panel opinion – following prior precedent – answered that question “no.” However, Judge Moore recognized some amount of tension – especially in view of the rise in protections for commercial speech and in the power of the “unconstitutional conditions doctrine.”
In the move to a first-to-file patent system, the U.S. narrowed its pre-filing grace period previously codified under 35 U.S.C. 102(b)(2010). The new law enacted as part of the Leahy-Smith America Invents Act (AIA) continues to permit a one-year grace period but limits the scope of coverage only to a pre-filing “disclosure . . . of a claimed invention” (A) “made by the inventor or joint inventor or by another who obtained the subject matter directly or indirectly from the inventor” or (B) made subsequent to an (A) disclosure. 35 U.S.C. §102(b)(1)(A) and (B)(2015). There are a number of questions up for interpretation regarding the AIA grace period. Examples: Does the grace period apply when the inventor’s initial disclosure is slightly different than the invention being claimed? Does the grace period apply when a third party publishes a modified version of the inventor’s original disclosure?
The proposed Grace Period Restoration Act of 2015 (H.R. 1791 / S. 926) is designed to “correct the drafting problem in the Leahy-Smith America Invents Act relating to the grace period.” In particular, the bill would add a new section 102(b)(3) that creates a stronger first-to-disclose system.
The general hypothetical setup here is that we have a pending patent application or perhaps an issued patent (the claimed invention) that is being challenged based upon prior art whose effective date is less than one year before that of the claimed invention in question. Pre-AIA, the applicant might be able to negate the that reference by showing prior-invention through a process often termed “swearing behind” the asserted art. However, under a first-to-file system, invention-date is no longer directly relevant.
The proposed AIA-amendment here would allow the patentee to negate the prior art so long as the claimed invention had been previously – but still within the one-year timeline – “publicly disclosed in a printed publication by a covered person in a manner that satisfies the relevant section 112(a) requirements.”
Thus, if the inventor (1) first discloses the invention in a way that satisfies the enablement and written description requirements of section 112(a) and (2) subsequently files the patent application within one-year of the disclosure; then the inventor will be immunized against any prior art whose effective date follows that disclosure. To be clear here, the immunizing would require “public disclosure in a printed publication” and could either be done by an inventor or someone who obtained the information an inventor (either directly or indirectly).
The proposed language:
102(b)(3)(b) PUBLIC DISCLOSURE.—A disclosure by any person shall not be prior art to a claimed invention under subsection (a) or section 103 if
(i) the disclosure is made under subsection (a)(1) or effectively filed under subsection (a)(2) 1 year or less before the effective filing date of the claimed invention; and
(ii) before the disclosure described in clause (i) is made or filed, and 1 year or less before the effective filing date of the claimed invention, the claimed invention is publicly disclosed in a printed publication by a covered person in a manner that satisfies the relevant section 112(a) requirements.
Here, I have only excerpted the most relevant portions of the statutory proposal. In his remarks, Professor Hal Wegner has identified the proposed amendment as largely serving the purpose of “expand[ing] the definition of novelty under 35 U.S.C. 102 to roughly 1200 words, an unreasonable mass of verbiage that the sponsors couldn’t figure out.”
As proposed, the new grace period definition serves as a layer in addition to the grace period already available under 102(b). The grace period already in existence is narrower in some ways but broader in others. For instance, the triggering initial public disclosure need have been disclosed in a printed publication.
Time will tell whether the proposal has legs. It it does, I hope that we will first see a less cumbersome rewrite.
Earlier this week I wrote about the upcoming deadline for comments on the USPTO’s patent quality initiative as well as the Berkeley Technology Law Journal’s parallel publication process. Although the BTLJ’s project is not sanctioned by the PTO, we are working to coordinate our efforts in order to help the PTO evaluate the proposals and suggestions. Along that line, I wanted folks to be aware that, although the BTLJ will not publish all submissions, all submissions will be provided to the USPTO for their consideration. (Thus, by submitting to BTLJ, you can’t expect that your work will remain confidential). I believe that the PTO will add all these suggestions to its online docket of comments.
More Info: BTLJ/USPTO Quality Initiative
On a voice-vote, the Senate Judiciary Committee has unanimously approved President Obama’s nominee Kara Stoll to be the next addition to the Court of Appeals for the Federal Circuit. Now that the log-jam over Loretta Lynch’s nomination as attorney-general is coming to a close, I would expect full Senate approval within the next few weeks.
See: Nomination memo;
The following are a few responses to Questions For the Record asked by some members (Grassley/Cruz) of the Senate Judiciary Committee:
What role, if any, should the constitutional rulings and doctrines of foreign courts and international tribunals play in the interpretation of our Constitution and laws
Response: None.
What is your definition of natural law, and do you believe there is any room for using natural law in interpreting the Constitution or statutes?
Response: Commentators have defined natural law as a system of rights or justice held to be common to all humans and derived from nature. Natural law is not precedent, nor is it constitutional or statutory text. If confirmed, I would not rely on natural law to interpret the Constitution or statutes.
by Dennis Crouch
The general rule in our new first-to-file patent system is that your effective application filing date* is of utmost importance. In general that date is the trigger-date for prior art. Prior Publications count as prior art (102(a)(1) prior art) as do Patents and Patent Applications filed prior to the trigger-date (102(a)(2) prior art). To be clear, publications are generally thought of as prior art as of their date of publication, but we have a special rule for U.S. patent filings — once published or patented they become prior art as of their effective filing date. [Note, the statute stretches the date back to the “earliest [priority] application that describes the subject matter”].
I have identified these 102(a)(2) prior art patent documents as “submarine prior art” because they are kept secret (usually for 18-months) and then suddenly emerge as back-dated prior art. Pre-AIA law included the submarine prior art under what was then known as 102(e) (2010). However (and in my view) the new law expands the scope of submarine prior art in a few ways. First, under the new law applicants can no longer swear-behind prior art based upon their prior invention date. Second, under the new law the submarine prior art will stretch back further in many cases to encompass (for instance) the original foreign-priority filing date. [As with the old rule, a prior application by the identical inventor does not create submarine prior art].
A Company’s Own Prior Patent Filings: One exception to the submarine-prior-art issue is 35 U.S.C. §102(b)(2)(C). That sub-section indicates that neither prior-filed patent application publications nor their resulting patents will be deemed prior art if:
(C) the subject matter disclosed [in the prior document] and the claimed invention . . . were owned by the same person or subject to an obligation of assignment to the same person [as of the claimed invention’s effective filing date].
The basic idea here is that a company’s own secret-filed applications will not serve as prior art against the company itself.**
The Pre-AIA statute included a similar exception codified in 35 U.S.C. 103(c). However, the new exception is more powerful in several ways. Most notably from the face of the statute is that the old law only excused prior art for obviousness purposes but not for novelty purposes while the new law negates the references for seemingly any prior art purpose. Second, the expansion of submarine prior art (noted above) makes the exception relatively more important. As more applications continue to be filed in crowded technology spaces, I expect that the exception will continue to rise in importance.
Questions that I would like to pursue is how important this expanded submarine prior art is to the system and likewise the relative importance of the intra-company-exception.*** Theoretically, the exception favors (a) larger entities who file many incremental patent applications with a variety of inventorship team combinations as well (b) as applicants who file applications under non-publication requests. For examiners, do you consider whether an applicant can claim the exception before issuing a rejection or do you wait for the applicant to claim the exception.
This question will be part of one project that I’m planning to pursue this summer that will provide some initial studies on how the AIA has impacted patent prosecution.
On-point comments are very welcome.
*****
* The effective filing date is defined on a claim-by-claim basis as “the filing date of the earliest application for which the patent or application is entitled, as to such invention, to a right of priority under section 119, 365(a), or 365(b) or to the benefit of an earlier filing date under section 120, 121, or 365(c).” 35 U.S.C. 100(i).
** Patents associated with inventions developed via a Joint Research Agreement (JRA) can also be avoided by parties to the Agreement. 35 U.S.C. 102(c).
*** I should note here that all countries have some form of submarine prior art, but many follow the European approach that the submarine art is not considered for obviousness (inventive step) purposes because of the reality that the secret prior art would not have been within the grasp of a person of skill in the art (since it was secret at the time).
Guest post by Samuel F. Ernst, Assistant Professor of Law at the Chapman University Dale E. Fowler School of Law.
Lexmark International, Inc. sells its patented printer cartridges directly to customers and indirectly through authorized resellers. Ordinarily these authorized “first sales” would exhaust Lexmark’s patent rights in the cartridges, such that Lexmark could not sue third parties, such as Impression Products, Inc., for patent infringement when they refill and resell the spent cartridges at a reduced price. However, after Lexmark’s authorized and indiscriminate first sale occurs, the end user finds that Lexmark has printed a proposed license agreement on the outside packaging providing that by opening his or her printer cartridge, the customer “agree[s] to return the empty cartridge only to Lexmark for recycling. If you don’t accept these terms, return the unopened package to your point of purchase. A regular price cartridge without these terms is available.” In patent parlance, this provision is known as a “post-sale restriction” – an attempt to restrict the use of a patented item for its intended purpose after the patent holder has authorized a first sale. The Federal Circuit has granted en banc review in the case of Lexmark v. Impression Products to settle once and for all whether such post-sale restrictions are effective to prevent patent exhaustion, allowing the patent holder to pursue the patented item down the stream of commerce to prevent resale price competition or collect infringement damages above and beyond the monopoly price it earned at the first sale.[1]
One would have thought the question settled by the Supreme Court long ago. In 1917 the Court decided in Motion Picture Patents Co. v. Universal Film Manufacturing Co. that such post-sale restrictions are ineffective to prevent patent exhaustion.[2] In that case Motion Picture Patents held a patent on film projectors and granted a license to a third party authorizing the manufacture and sale of the projectors. The licensee was required to affix a plate to the projectors it sold purporting to impose a post-sale restriction very similar to the restriction Lexmark affixes to its printer cartridge packaging: “The sale and purchase of this machine gives only the right to use it solely with moving pictures containing the invention of reissued patent No. 12,192, leased by a licensee of the Motion Picture Patents Company…. The removal or defacement of this plate terminates the right to use this machine.”[3] Despite authorizing the sale of its patented projectors and collecting a full monopoly price for its invention, Motion Pictures Patent Company sought to restrict end users from using the projectors with film reels other than those licensed under its separate patent on film reels, just as Lexmark seeks to use the patent law to prevent the reuse and resale of its spent cartridges with unauthorized ink. When Universal Film supplied end users of the projectors with film reels that were not authorized for use with the machines, Motion Pictures Patent Company sued for infringement.[4] The Court held that the post-sale restriction was invalid and did not prevent the exhaustion of Motion Picture Patent Company’s rights in the machine. The Court held that “the right to vend is exhausted by a single, unconditional sale, the article sold being thereby carried outside the monopoly of the patent law and rendered free of every restriction which the vendor may attempt to put upon it.”[5]
The Supreme Court grounded its holding in two policies that are central to the exhaustion doctrine. First, because the patent law attempts a delicate balance between encouraging innovation and allowing free market competition, the patent holder should not be overcompensated for a license to its intellectual property beyond the free market value of the invention as determined by the free market at the first sale. “[T]he primary purpose of our patent laws is not the creation of private fortunes for the owners of patents, but is ‘to promote the progress of science and the useful arts.’”[6] Accordingly, a right to exclude, exercised and exhausted with a single sale or license of a patented product on the open market is the appropriate compensation to reward the value of the invention; nothing more should be given:
This construction gives to the inventor the exclusive use of just what his inventive genius has discovered. It is all that the statute provides shall be given to him and it is all that he should receive, for it is the fair as well as the statutory measure of his reward for his contribution to the public stock of knowledge. If his discovery is an important one, his reward under such a construction of the law will be large, as experience has abundantly proved; and if it be unimportant, he should not be permitted by legal devices to impose an unjust charge upon the public in return for the use of it. For more than a century this plain meaning of the statute was accepted as its technical meaning, and that it afforded ample incentive to exertion by inventive genius is proved by the fact that, under it, the greatest inventions of our time, teeming with inventions, were made.[7]
Hence, the exhaustion doctrine and the invalidity of post-sale restrictions prevent overcompensation, or “double recovery,” for patent holders.
Second, the Motion Picture Patents Court reasoned that the exhaustion doctrine is grounded in the policy against restraints on the alienation of chattels – i.e., servitudes that run with personal property. Once a patent holder has authorized the sale of its product, downstream purchasers of the item, including competitors in the used resale market, have a reasonable expectation that the product they buy can be used for its intended purpose. The Supreme Court explained that a ban on post-sale restrictions avoids a situation where a patent holder can:
send its machines forth into the channels of trade of the country subject to conditions as to use or royalty to be paid, to be imposed thereafter at the discretion of such patent owner. The patent law furnishes no warrant for such a practice, and the cost, inconvenience, and annoyance to the public which the opposite conclusion would occasion forbid it.[8]
The Supreme Court relied on this same policy against restraints on alienation in the recent Kirtsaeng decision, where it decided that the authorized first sale of a copyrighted article overseas exhausts the copyright owner’s right to prevent the used resale of that item.[9] The Court stated that the exhaustion doctrine is grounded in “the common law’s refusal to permit restraints on the alienation of chattels.”[10] And the Federal Circuit has recently relied on this policy in support of its decision that giving away a patented product in exchange for no consideration (rather than selling it) can trigger patent exhaustion. The Circuit reasoned that if patent exhaustion were easily evaded, “consumers’ reasonable expectations regarding their private property would be significantly eroded” and it would “offend against the ordinary and usual freedom of traffic in chattels.”[11] Nor is the policy against restraints on alienation an outmoded relic of the common law having no justification in the modern economy. As Professor Molly Shaffer Van Houweling argues in her compelling article, The New Servitudes, personal property servitudes result in notice and information costs for consumers, result in the underuse or inefficient use of resources subject to the restriction (such as the spent printer cartridges at issue here), and waive the limitations built into intellectual property law that are intended to strike the delicate balance between encouraging innovation and allowing for the dissemination of new technology.[12]
In its opening Federal Circuit brief, Lexmark relies heavily on a different Supreme Court case to argue for the validity of its post-sale restriction, the 1938 case General Talking Pictures Corp. v. Western Electronic Co.[13] But General Talking Pictures does not deal with a post-sale restriction imposed after an authorized first-sale releases a product into the stream of commerce. Rather, General Talking Pictures recognizes the validity of a pre-sale restriction, whereby a patent holder expressly limits the parties to whom its reseller may sell the patented product in the first place. In General Talking Pictures, the plaintiff licensed the American Transformer Company to make and sell its patented vacuum tube amplifiers, but stated in the license that American Transformer was only authorized to sell the amplifiers to private consumers “for radio amateur reception, radio experimental reception, and home broadcast. [American Transformer] had no right to sell the amplifiers for use in theaters as a part of talking picture equipment.”[14] American Transformer then made an unauthorized sale to the defendant for use in movie houses, even though the defendant “had actual knowledge that [American Transformer] had no license to make such a sale.”[15] The Court held that the plaintiff could sue for patent infringement because it did not authorize American Transformer to make the sale, and the first requirement of patent exhaustion was therefore not satisfied – there was no authorized first sale: “[t]he Transformer Company could not convey to petitioner what both knew it was not authorized to sell.”[16] Hence, the Supreme Court drew a distinction between (1) a post-sale restriction, which attempts to impose restrictions on the patented item after an authorized sale; and (2) a pre-sale restriction, which limits the scope of the authority to sell, authorizing sale for only particular uses or to particular customers. Post-sale restrictions are clearly ineffective to prevent patent exhaustion because the patented item has already passed out of the patent monopoly at the time of sale. The effectiveness of pre-sale restrictions, and the wisdom of enforcing them, is an interesting and novel question, which I explore in the context of licenses to settle patent litigation in Patent Exhaustion for the Exhausted Defendant: Should Parties be able to Contract Around Exhaustion in Settling Patent Litigation?.[17] But the adhesion contract Lexmark prints on its cartridge packaging is plainly a post-sale restriction, rendering the General Talking Pictures case inapposite to the Lexmark case. After Lexmark indiscriminately sells or authorizes the sale of its printer cartridges to all comers, it tries to prevent their resale through the use of a post-sale restriction, but it cannot do so under the patent law because the authorized sale means that the cartridges have already passed out of the patent monopoly.
If the Supreme Court decided this question in the 1917 Motion Picture Patents case, then why is this even an issue for en banc review? It is because a panel of the Federal Circuit, in Mallinckrodt v. Medipart, held that post-sale restrictions similar to Lexmark’s adhesion contracts can, in fact, prevent patent exhaustion.[18] In that case Mallinckrodt sold its patented aerosol mist delivery devices to hospitals, stamped with the legend, “Single Use Only,” and a package insert “instruct[ing] that the entire contaminated apparatus be disposed of in accordance with procedures for the disposal of biohazardous waste.”[19] Many hospitals did not heed the restriction, however. Instead, they sold the spent devices to the defendant Medipart, who refurbished them and returned them to the hospitals for additional use.[20] Mallinckrodt sued Medipart for patent infringement and indirect patent infringement, and the Federal Circuit held that the “single use” restriction prevented patent exhaustion. The court achieved this by cabining the holding of Motion Pictures Patents to circumstances where patent holders attempt to enlarge the scope of their monopoly by tying the use of their patent to the use of unpatented or separately patented items, in violation of antitrust laws or constituting patent misuse. Hence, the court distinguished Motion Picture Patents and other Supreme Court exhaustion precedent on the basis that “[t]hese cases established that price-fixing and tying restrictions accompanying the sale of patented goods were per se illegal. These cases did not hold, and it did not follow, that all restrictions accompanying the sale of patented goods were deemed illegal.”[21] The Federal Circuit then limited the ineffectiveness of post-sale restrictions to circumstances where the patent holder causes anticompetitive effects under the antitrust laws:
Unless the [post-sale restriction] violates some other law or policy (in the patent field, notably the misuse or antitrust law) private parties retain the freedom to contract concerning conditions of sale. The appropriate criterion is whether Mallinckrodt’s restriction is reasonably within the patent grant, or whether the patentee has ventured beyond the patent grant and into behavior having an anticompetitive effect not justifiable under the rule of reason.[22]
But why should the patent laws be relegated to the shadows of antitrust policy? Intellectual property law is not solely concerned with preventing supra competitive prices or keeping licensing practices within the “rule of reason,” like some shambling poor relation to antitrust law. Rather, intellectual property laws promote wholly different policies in wholly different ways, such as by balancing the incentive to innovate against the harm of a limited monopoly. That is why the policies supporting patent exhaustion enunciated by the Supreme Court in Motion Pictures Patent Company were not limited to preventing illegal patent tying (although the Court did mention as one of the supports for its decision a concern with patent holders enlarging the effective scope of their patent claims beyond the claimed invention). As discussed above, the Court also invoked the policy against servitudes running with personal property and the need to ensure that the exclusionary right is narrowly tailored to achieve the incentive to innovate. And these policies in support of patent exhaustion have been repeated by the Court in Kirtsaeng and by the Federal Circuit in cases such as LifeScan. Hence, under Supreme Court precedent, a post-sale restriction is ineffective to prevent patent exhaustion whether or not it has “anti-competitive effects” or the patent holder has “market power.”
If there were any doubt as to this proposition, it should have been settled by the Supreme Court’s 2008 decision in Quanta Computer Inc. v. LG Electronics, Inc. In Quanta, LG granted Intel the unconditional right to manufacture and sell its patented microprocessors.[23] But the license also had a provision in which LG “disclaimed” that it granted a license to downstream purchasers of the microprocessors allowing them to combine the devices with non-Intel parts and resell them.[24] And by separate agreement, Intel was required to notify purchasers of the microprocessors that they were not authorized to combine the microprocessors with non-Intel parts for resale,[25] similar to the notice Lexmark gives its customers that they are not authorized to return the spent printer cartridges to anyone other than Lexmark. Intel made the patented processors and sold them to Quanta, which then practiced LG’s patent claims by inserting them into computers and reselling them to customers.[26] And so LG sued Quanta for patent infringement. The Federal Circuit held that LG had not exhausted its patent rights, because “[a]lthough Intel was free to sell its microprocessors and chipsets, those sales were conditional, and Intel’s customers were expressly prohibited from infringing LG’s combination patents.”[27]
The Supreme Court reversed the Federal Circuit, holding that LG unconditionally authorized the sale of the chips, despite the contract’s language disclaiming a license to third parties and the notice Intel gave purchasers that they could not combine the chips with non-Intel parts.[28] Although the contract purported to put restrictions on what Intel’s customers could do with the chips once they bought them, these restrictions came only after an authorized sale, and “[n]othing in the License Agreement restricts Intel’s right to sell its microprocessors and chip sets to purchasers who intend to combine them with non-Intel parts. It broadly permits Intel to ‘make, use, [or] sell’ products free of LGE’s patent claims.”[29] The Court dispensed with LG’s language disclaiming an implied license by holding that “the question whether third parties received implied licenses is irrelevant because Quanta asserts its right to practice the patents based not on implied license but on exhaustion. And exhaustion turns only on Intel’s own license to sell products practicing the LGE patents.”[30] In other words, once LG authorized Intel to sell the chips to third parties, the patent rights were exhausted, and LG had no more patent rights to license or refrain from licensing. Quanta could use the microprocessors without a license. Similarly, once Lexmark sold directly or authorized the sale of its cartridges to customers, its patent rights in the cartridges were exhausted, and Lexmark retained no patent rights in the cartridges to license or refrain from licensing beyond the single use. Significantly, the Supreme Court makes no mention of market power, the “rule of reason,” or any other antitrust policy as the basis for its decision in Quanta. Patent exhaustion is not merely a reiteration of antitrust law.
Some commentators have noted that the Quanta decision is arguably ambiguous with respect to whether it did away with post-sale restrictions altogether or whether it was simply the particular way in which the LG-Intel license was drafted that failed to overcome patent exhaustion. Perhaps the post-sale restriction was ineffective simply because it was drafted in the language of a disclaimer of implied license, separate from the unconditional grant to Intel of the right to sell the microprocessors. The lower courts, including the Federal Circuit, have rejected this unlikely reading of the Quanta case.
In TransCore, LP v. Electronic Transaction Consultants Corp., the Federal Circuit addressed the issue indirectly. In that case, the patent holder had entered into a settlement agreement with a third party, Mark IV, in which it covenanted not to sue Mark IV for infringement when it sold the licensed products.[31] Subsequent to the settlement, TransCore sued Mark IV’s downstream customers for infringement after they purchased the licensed products. The holding of the case is that a covenant not to sue for patent infringement is no different from an affirmative license to practice patents; both trigger patent exhaustion.[32] There was no express provision in the settlement license purporting to contract around patent exhaustion. However, TransCore sought to rely on extrinsic evidence to the contract showing “the parties’ intent not to provide downstream rights to Mark IV’s customers….”[33] The Federal Circuit held that the district court’s exclusion of the extrinsic evidence did not affect a substantial right of TransCore because “[t]he only issue relevant to patent exhaustion is whether Mark IV’s sales were authorized, not whether TransCore and Mark IV intended, expressly or impliedly, for the covenant to extend to Mark IV’s customers.”[34] In other words, once the sales are authorized, an express or implied provision purporting to limit the effect of patent exhaustion (such as the product label at issue in Lexmark) has no effect.
In Tessera, Inc. v. International Trade Commission, the Federal Circuit held that a licensee’s authorized sale of an item resulted in patent exhaustion, shielding purchasers of the patented product from an ITC exclusion order.[35] Moreover, the authorized sales did not retroactively lose their authorization due to the licensee’s failure to pay the patentee its royalties.[36] The Federal Circuit rejected this argument because “[t]hat absurd result would cast a cloud of uncertainty over every sale, and every product in the possession of a customer of the licensee, and would be wholly inconsistent with the fundamental purpose of patent exhaustion – to prohibit post sale restrictions on the use of a patented article.”[37]
Finally, the Eastern District of Kentucky explicitly rejected Lexmark’s post-sale restriction as effective to prevent patent exhaustion in Static Control Components, Inc. v. Lexmark International, Inc.[38] The court noted that there was a debate among academics as to whether the Supreme Court had broadly rejected post-sale restrictions as sufficient to defeat patent exhaustion, or if “the Quanta holding is limited to the very specific facts, and the very specific license agreement, that confronted the Court.”[39] The court concluded “that Quanta overruled Mallinckrodt sub silentio. The Supreme Court’s broad statement of the law of patent exhaustion simply cannot be squared with the position that the Quanta holding is limited to its specific facts.”[40] One might add that even if one did suppose that the Supreme Court granted certiorari in Quanta to opine on the details of the language of a particular license agreement, it had already ruled that post-sale restrictions are ineffective altogether to avoid patent exhaustion in the 1917 Motion Pictures Patent Co. case.
And so Lexmark’s post-sale notices to customers that they must return their spent printer cartridges to Lexmark are ineffective to prevent patent exhaustion. This does not mean that Lexmark is without a remedy to quell competition from the used resale market – only a remedy under the Patent Act. For example, Lexmark spills much ink in its opening Federal Circuit brief arguing that the single-use restriction printed on its product packaging is “an enforceable contract” in the Ninth Circuit. Accordingly, Lexmark could attempt to sue its customers for their alleged breaches of the adhesion contract (despite the customer relations difficulties this might cause). As a further example, Lexmark complains in its brief that the used cartridges refilled by third parties are susceptible to malfunctions and poor performance, and that customers often blame Lexmark rather than the supplier of the used cartridge. If customers are indeed susceptible to such source confusion, then the remedy would appear to sound in trademark law, not patent law. Finally, Lexmark could pursue non-legal strategies, such as making its prices more competitive with the used resale market, or competing based on quality, which it apparently already does, given the supposed malfunctions of the used cartridges. It would be a fine world if refilling the ink in one’s printer did not cost nearly so much as the printer itself.
Hence, Lexmark has other avenues to pursue to prevent the resale of its used cartridges. But patent law has its own requirements and its own remedies, separate from the rules and remedies of contract law and trademark law. This is appropriate, because patent law promotes different policies than those other branches of law. These include the rules and policies of patent exhaustion, which prohibit a patent holder from pursuing an item down the stream of commerce once the patent rights in that item have been exhausted.
=====
[1] The Federal Circuit’s en banc order, available here, also asks the parties to brief the separate question of whether the authorized first sale of a patented item overseas gives rise to patent exhaustion, a topic not treated in this post.
[2] 243 U.S. 502 (1917).
[3] Id. at 506-07.
[4] Id. at 508.
[5] Id. at 452.
[6] Id. at 511 (quoting U.S. Const. art. I, § 8).
[7] Id. at 513.
[8] Id. at 518.
[9] Kirtsaeng v. John Wiley Sons, Inc., 133 S. Ct. 1351, 1363 (2013).
[10] Id.
[11] LifeScan Scotland, LTD v. Shasta Techs., 734 F.3d 1361, 1363, 1376 (Fed. Cir. 2013) (internal quotation marks and citation omitted).
[12] Molly Shaffer Van Houweling, The New Servitudes, 96 Geo. L. J. 885, 932-46 (2008).
[13] 304 U.S. 175 (1938).
[14] Id. at 180.
[15] Id.
[16] Id.
[17] 2014 U. Ill. J.L. Tech. & Pol’y 445 (2014).
[18] 976 F.2d 700, 709 (Fed. Cir. 1992).
[19] Id. at 702.
[20] Id.
[21] 976 F.2d 700, 704 (Fed. Cir. 1992).
[22] Id. at 708.
[23] 553 U.S. 617, 636 (2008).
[24] LG Elecs., Inc. v. Bizcom Elecs., Inc., 453 F.3d 1364, 1370 (Fed. Cir. 2006), rev’d sub nom., Quanta, 553 U.S. at 638.
[25] Id.
[26] Quanta, 553 U.S. at 624.
[27] LG Elecs., 453 F.3d at 1370.
[28] Quanta, 553 U.S. at 635-37.
[29] Id. at 636.
[30] Id. at 637.
[31] 563 F.3d 1271, 1276 (Fed. Cir. 2009).
[32] Id. at 1276-77.
[33] Id. at 1277.
[34] Id. (emphasis added).
[35] 646 F.3d 1357, 1370 (Fed. Cir. 2011).
[36] Id.
[37] Id. (emphasis added).
[38] 615 F. Supp. 2d 575, 585 (E.D. Ky. 2009).
[39] Id.
[40] Id. at 585-86.
The USPTO has an outstanding request for comments on its patent quality initiatives and many participants in the patent system will be submitting comments and proposals for improving patent quality. I have been working with a group of academics to create a second channel for submissions that will also open the door for further vetting and commentary to help the USPTO get a better sense of what ideas might work well. Of course, we would like input to go well beyond submissions from academics.
To that end:
+ + + + + +
The Berkeley Technology Law Journal (BTLJ) welcomes submissions on Patent Quality in parallel with the USPTO’s Request for Comments on Enhancing Patent Quality. BTLJ will publish selected Comment submissions in a special volume of our rapid publication, online-only Commentaries. BTLJ is seeking Comments on Quality submissions of under 1000 words. All sources should be cited but need not be formally Bluebooked. Comment submissions ideally should reflect the author’s parallel submissions to the USPTO Request for Comments, but may be revised for length and form as needed. Comments need not be novel ideas (although those are welcome as well), but rather can reflect the best known proposals for improving patent quality that may have already appeared in a full-length law review article. BTLJ will strive to post all submitted Comments that meet our standards of quality.
BTLJ seeks to cover a wide range of the three patent quality pillars and their six included proposals that have been outlined in the USPTO Request. Specifically, the first pillar, excellence in Work Products, includes (1) applicant requests for prosecution review of selected applications, (2) automated pre-examination search, and (3) clarity of record. The second pillar, excellence in measuring patent quality, includes (4) review of and improvements to quality metrics. The third pillar, excellence in customer service, includes (5) review of current compact prosecution model and the effect on quality, and (6) in-person interview capability with all examiners.
BTLJ requests that authors of Comments on Quality contact us by April 27, 2015 to express their intent to submit. Drafts of Comments on Quality, ready for publication, must be submitted by May 15, 2015.
Reviews of Comments on Quality
Additionally, BTLJ invites commentators to provide Reviews on the Comments on Quality submissions. Reviews should be under 3000 words. Preference will be given to those Reviews that address a wide range of the submitted comments, can provide some clarity and order to the submissions, and can impart insight on one or more of the Patent Quality Pillars outlined in the USPTO’s Request for Comments.
BTLJ requests that authors of Reviews contact us by April 25, 2015 to express their intent to submit. Drafts of Reviews must be submitted by June 5.
Submission Standards
All submissions should be in Word doc/docx format. Preference will be given to those submissions exhibiting a high level of clarity and persuasive prose. Grammar and style should conform to the Chicago Manual of Style, and all citations should provide a hyperlink (if possible) and/or a clear, usable reference to the source material. All quotations must be accurate and attributed. If any portion of a manuscript has been previously published (aside from a submitted Comment to the USPTO for this initiative), the author must so indicate.
Link with the USPTO
Although this project is not officially sanctioned by the USPTO, all submissions received (not only those published) will be forwarded to the USPTO for its consideration. We expect that those forwarded comments will then be republished by the USPTO on its online docket of responses to the request for comments.
Contact Information
Expressions of interest, questions, and submissions can be sent to btlj-patentquality@law.berkeley.edu
By Jason Rantanen
Ineos USA LLC v. Berry Plastics Corporation (Fed. Cir. 2015) Download Opinion [2015 WL 1727013]
Panel: Dyk, Moore (author), O’Malley
It is bedrock patent law that while a species anticipates a genus, a genus does not necessarily anticipate a species. That axiom does not mean, however, that a genus may not anticipate a species. Here, the Federal Circuit affirms the district court’s grant of summary judgment that the prior art, which disclosed a broader range that overlapped with the range claimed in the patent-in-suit, anticipates. The court’s opinion also involves an interesting shift of the burden of production, one that parties litigating this issue should take into consideration.
Ineos alleged that Berry Plastic infringes several claims of Patent No. 6,846,863 and Berry argued that the ‘863 patent is invalid. The key part of the court’s analysis focuses on claim 1:
1. Composition comprising at least [1] 94.5% by weight of a polyethylene with a standard density of more than 940 kg/m3,
[2] 0.05 to 0.5% by weight of at least one saturated fatty acid amide represented by CH3(CH2)nCONH2 in which n ranges from 6 to 28[,]
[3] 0 to 0.15% by weight of a subsidiary lubricant selected from fatty acids, fatty acid esters, fatty acid salts, mono-unsaturated fatty acid amides, polyols containing at least 4 carbon atoms, monoor poly-alcohol monoethers, glycerol esters, paraffins,
polysiloxanes, fluoropolymers and mixtures thereof, and
[4] 0 to 5% by weight of one or more additives selected from antioxidants, antacids, UV stabilizers, colorants and antistatic agents.
(bracketed numbers inserted by the court). The district court granted summary judgment for Berry on the basis that the asserted claims were anticipated by U.S. Patent No. 5,948,846. (The court refers to this prior art reference as the ‘846 patent, which makes it unnecessarily confusing given its similarity to the abbreviation of the patent in suit, the ‘863 patent. I’ll refer to the prior art as the ‘846 reference and the patent in suit as the ‘863 patent for clarity purposes.) The pre-America Invents Act version of the anticipation statute (35 U.S.C. § 102) applied, but the difference is irrelevant for the issue on appeal.
Genus-Species Problem: The parties did not dispute that the ‘846 reference contained many of the elements elements of claim 1. Of the disputed elements, limitation [2] involves the genus-species problem. With respect to that limitation, the ‘846 reference disclosed steamramide, a compound within the relevant class of saturated fatty amino acid amides, in amounts from 0.1 to 5 parts by weight, in contrast with the limitation 2 of the ‘863 patent, which claimed 0.05 to 0.5% by weight of at least one of that type of saturated fatty acid amides. The prior art reference and the claimed range thus overlapped. (The opinion notes that “The parties agree for purposes of this appeal that measurements in “% by weight” are equivalent to measurements in “parts by weight.”)
“When a patent claims a range, as in this case, that range is anticipated by a
prior art reference if the reference discloses a point within the range. Titanium Metals Corp. v. Banner, 778 F.2d 775, 782 (Fed. Cir. 1985).” Slip Op. at 6. However, “If the prior art discloses its own range, rather than a specific point, then the prior art is only anticipatory if it describes the claimed range with sufficient specificity such that a reasonable fact finder could conclude that there is no reasonable difference in how the invention operates over the ranges. Atofina, 441 F.3d at 999; ClearValue, Inc. v. Pearl River Polymers, Inc., 668 F.3d 1340, 1345 (Fed. Cir. 2012).” Id. And since “the disclosure of a range…does not constitute a specific disclosure of the endpoints of that range,” id. citing Atofina, 441 F.3d at 1000, the fact that the ‘834 reference disclosed an endpoint within the range claimed by the ‘863 reference meant that the species-genus rule did not apply.
Burden-shifting or not? The Federal Circuit nonetheless affirmed the district court because it concluded that Ineos had no evidence that the range claimed by the ‘863 patent was critical to the operability of the invention. In Atofina, for example, “the evidence showed that a person of ordinary skill in the art would have expected the synthesis reaction to operate differently, or not all, outside of the temperature range claimed in the patent-in-suit.” Id. at 7. Thus, it was the criticality of the range in the ‘863 patent relative to the ‘846 reference that mattered.
While Ineos did present evidence, the Federal Circuit disagreed that it was relevant. “even if true, this has nothing to do with the operability or functionality of the claimed invention. Ineos has not established any relationship between avoided cost and prevention of undesirable blemishes, and the claimed invention’s slip properties or elimination of odor and taste problems. Ineos does not suggest that the claimed invention’s slip properties or improved odor and taste properties would not have been expected based on the prior art. Because Ineos failed to “raise a genuine issue of fact about whether the range recited in limitation 2 of the patent is critical to the invention,” the court concluded that limitation 2 was present in the ‘846 reference.
This raises an interesting issue of burden-shifting. Because a patent is presumed valid, an accused infringer bears the burdens of persuasion and production. By requiring that Ineos show how the ‘863 limitation was different from what was found in the prior art, the criticality rule shifts the burden of production, placing it on Ineos to prove that the ‘846 reference does not contain the disputed limitation. This makes me think of the burden-shifting discussed in Mahurkar v. C.R. Bard, 79 F.3d 1572 (Fed. Cir. 1996. In Mahurkar, there was no dispute that the prior art reference contained all the elements of the claimed invention; that shifted the burden of production to Dr. Mahurkar to come forward with evidence of prior invention even as the burden of persuasion always remained with the patent challenger. Shifting the burden of production is noteworthy because it only occurs in the face of very strong evidence: evidence so strong that no reasonable jury could find otherwise. Further complicating the analysis, the result here flows from what looks like a legal rule: because the claimed range overlapped with the range in the prior art, the consequence was that Ineos now needed to prove criticality.
But is this really burden shifting? Or is it instead an articulation of the anticipation inquiry itself? From a burden-shifting perspective, the rule would be that the burden of production shifts to the patent holder when the challenger brings forth a reference that contains a range that overlaps with the claimed range; that overlapping range is itself extremely strong evidence of anticipation. From this perspective, this case is interesting because it is the evidentiary value of the overlapping range that is so high as to shift the burden. From the perspective of articulating the anticipation inquiry, the rule would be that a reference that contains a range that overlaps with the claimed range anticipates unless the patent holder can prove criticality. This perspective is interesting because it seemingly places the burden of a factual element of the anticipation inquiry squarely on the patent holder at the outset.
(Post revised on 4/20/2015)
I’m looking forward to participating in this week’s Stanford Law School conference focusing on the interplay between the USPTO and the Courts. [Event Website]. On April 17 (Friday), I will be introducing the topic with a discussion of the rise of administrative review proceedings under the America Invents Act of 2011. On the 18th (Saturday), I will be discussing my proposals for claim construction within the USPTO as part of Director Lee’s quality initiative.
In general, the 17th is designed as a practical-focused day with a number of practitioners and judges speaking along with a handful of academics and Judge Moore as the Keynote Speaker. The 18th is the “academic day” and will include presentations from many of the leading patent scholars in the country.
See you there!
by Dennis Crouch
In a report sharply critical of the US Patent Office, the Department of Commerce Inspector General’s Office has concluded that patent quality is not up-to-snuff. Read the report titled “USPTO Needs to Strengthen Patent Quality Assurance Practices.”
The report makes four basic conclusions:
The OIG has asked the USPTO to respond to the report within 60-days with an action plan responding to the criticisms and recommendations of the report.
Regarding quality, it is clear that the USPTO is good at measuring production and docket management, but the PTO tends to lack either the skill or will to ensure that each office action is of a high quality. Thus, for instance, from FY11-FY13, only seven examiners received warnings for low quality applications while 500 warnings were issued for production or docket management failures. The concern is that we’re pushing examiners to keep-up rather than conduct the highest quality examination.
Although it was clearly written by outsiders who do not fully understand the system, the report does offer important insight that Director Lee should use when pushing toward higher quality patents.
In Lexmark v. Impression, the Federal Circuit is holding an en banc hearing to consider the impact of both Kirtsaeng and Quanta on issues of patent exhaustion. I wanted to provide the following some discussion of the facts at issue in the case. The following synopsis comes from the patentee Lexmark’s opening brief on the merits:
= = = = =
The facts relevant to this appeal are not in dispute, and were largely stipulated below. Lexmark is a leading developer and manufacturer of innovative imaging and information management products and services — including laser printers and toner cartridges. Through extensive in-house research and development, Lexmark develops most of the technology that goes into its products and services. These complex innovations are protected by numerous patents. Those at issue in this suit cover various aspects of Lexmark’s toner cartridges — for example, the “encoder wheel” which determines how much toner remains in the cartridge and optimizes the print settings accordingly.
. . . Although Lexmark is known for its printers, much of its profits derive from the sale of toner cartridges to replace the cartridges that come with Lexmark printers. Lexmark offers end-user customers a choice when they purchase these replacement cartridges: a “Regular Cartridge” sold at full price without any use limitations, or a “Return Program” cartridge sold at a discount in exchange for the purchaser’s agreement to use the cartridge only once.
The two types of cartridges are physically identical. (Id.) But under the Return Program, customers agree that after the cartridge’s toner is exhausted, they will return the empty cartridge only to Lexmark for remanufacturing or recycling. Customers who buy regular cartridges, on the other hand, pay full price, but are not subject to the single-use restriction. They may dispose of or refill the cartridge as they see fit.
The Return Program cartridges cost roughly 20 percent less than the unrestricted version. That discount reflects the limitation on customers’ use of the cartridges.
Lexmark sells Return Program cartridges directly (to end-user customers) and indirectly (through “authorized resellers”). The Return Program contractually binds both Lexmark’s authorized resellers and its customers. No Lexmark reseller is authorized to sell a Return Program cartridge that is not subject to the single-use restriction. And whether a customer buys a Return Program cartridge directly from Lexmark or indirectly from an authorized Lexmark reseller, it does so subject to a user agreement that obliges the customer to use the cartridge only once. Given Lexmark’s agreements with resellers as well as end-users, the Return Program is a restriction on both sale and use.
The use restriction — a combination patent license and contract — is clearly displayed, in multiple languages, on the outside packaging of a Return Program cartridge. It also appears on Lexmark’s website. Before opening the product, therefore, customers are advised that they have a choice whether to participate:
RETURN EMPTY CARTRIDGE TO LEXMARK FOR RECYCLINGPlease read before opening. Opening this package or using the patented cartridge inside confirms your acceptance of the following license agreement. The patented Return Program cartridge is sold at a special price subject to a restriction that it may be used only once. Following this initial use, you agree to return the empty cartridge only to Lexmark for recycling. If you don’t accept these terms, return the unopened package to your point of purchase. A regular price cartridge without these terms is available.
This user agreement is an enforceable contract. Both the Ninth Circuit and the U.S. District Court for the Eastern District of Kentucky have rejected *9 challenges to the Return Program. The Ninth Circuit held that Lexmark’s user agreement provides customers with pre-sale notice, an opportunity to opt out, and consideration in the form of the price discount. The Ninth Circuit also found that Lexmark’s label was not misleading. And the Kentucky district court in Static Control Components, Inc. v. Lexmark International, Inc., rejected the argument that Lexmark and its customers lacked a “meeting of the minds,” holding instead that the Return Program “clearly set[s] forth contractual terms” of the type that have been “held to be valid.” Neither Impression nor any other defendant in this litigation challenged the enforceability of the Return Program on contract-law grounds. Indeed, Impression acknowledges that “Lexmark has an express and enforceable” contractual agreement with each of its end-user customers and with its authorized resellers. All remain free, of course, to opt for a Regular Cartridge at regular price.
The Return Program serves a number of important functions.
First, it protects the quality and reputation of Lexmark’s products. Many spent cartridges end up in the hands of “remanufacturers” that refill the toner and repackage the cartridge for sale. (See infraat 12–13.) Used cartridges refilled by third parties are susceptible to malfunctions and poor performance. Because the malfunctions can appear to involve the printer rather than the remanufactured cartridge, customers often blameLexmark rather than the supplier of the inferior knock-off cartridge — leading to warranty claims and fewer future purchases from Lexmark.
Second, the Return Program facilitates Lexmark’s own recycling and remanufacturing programs. In the 1990s, Lexmark began reconditioning its own spent cartridges. The Return Program provides a reliable stream of cartridges for Lexmark’s own remanufacturing efforts, which allow Lexmark to control the quality of its remanufactured cartridges. It also helps the environment by ensuring that *11 cartridges are properly recycled if they are not reused.
Third, the Return Program is part of Lexmark’s defense against piracy and grey-market suppliers. Lexmark’s cartridges are “regionalized” such that a cartridge sold in Europe, for instance, will not work in a printer sold in North America or Latin America. Recovering the cartridges after a single use reduces the opportunity for third-party grey-market activities. Regionalization makes it harder for third parties to use a product sold at a lower price in one market to undercut sales in another, higher-priced market. And even within a region, single-use licensing limits the chances for unauthorized reuse. Rather than restricting post-sale use across the board by imposing single-use requirements on all of its cartridges, however, Lexmark decided to give customers a choice of replacement cartridges by offering both single-use Return Program cartridges and unrestricted regular cartridges. It accounts for the potentially negative consequences of the unrestricted cartridges by pricing them differently than Return Program cartridges.
The Infringement
Each Return Program cartridge contains a computer chip that, among other things, enforces the single-use restriction. The chip monitors the cartridge’s toner level: once all the toner in a Return Program cartridge is consumed, the chip stores this fact in its memory. If the cartridge is later reinstalled, the chip will interact with the printer to disable the cartridge.
Despite this protection, piracy threatens Lexmark’s cartridge sales. Third parties, including foreign companies, have hacked Lexmark’s computer chips and produced new versions that circumvent the single-use license. Those illegitimate chips, once installed in place of Lexmark’s originals, suppress the fact that the cartridge’s original toner was already consumed. This allows a used cartridge sold by a third party to masquerade as a genuine Lexmark cartridge. A Lexmark printer will accept the cartridge despite software designed to disable cartridges reused in violation of their single-use license.
Once the chip is circumvented, Lexmark’s Return Program cartridges may be reused multiple times, in violation of the single-use restriction. “Remanufacturing” a spent toner cartridge for reuse involves replacing worn components and refilling the toner. Companies like Impression and its suppliers gather spent cartridges, install hacked replacement chips, refill the cartridges with non-Lexmark toner, and sell the refilled cartridges for use in Lexmark printers. Although the cartridge may continue to function, the remanufacturing process, if not done correctly, will reduce its print quality over time, causing Lexmark reputational harm. This has happened many times when third parties have refilled and resold used Lexmark cartridges. . . .
This Dispute
In response to widespread piracy, Lexmark took legal action to protect its intellectual property, reputation, and revenues. It first initiated proceedings in the International Trade Commission, where it obtained a general exclusion order and cease-and-desist orders barring the importation of clone, counterfeit, remanufactured, refilled, and empty Lexmark toner cartridges.
Lexmark also sued several parties for patent infringement in this action in the U.S. District Court for the Southern District of Ohio. The suit targeted two types of infringement: the sale of “clone” cartridges manufactured by third parties as unauthorized copies of Lexmark’s genuine toner cartridges; and the sale of other cartridges originally manufactured and sold by Lexmark, such as remanufactured cartridges that had been refilled, repackaged, and resold by third parties under non-Lexmark labels.
During four years of litigation, most defendants agreed to individual settlements with Lexmark, leading the district court to enter consent judgments and stipulated permanent injunctions. In some instances, the court enforced Lexmark’s patent rights through contempt proceedings or default judgments. Impression is the sole remaining defendant litigating against Lexmark. . . .
With respect to Lexmark cartridges first sold outside the United States, Impression maintained that Lexmark’s sales abroad precluded Lexmark from suing for infringement of its U.S. patents when those cartridges were imported, remanufactured, or resold in the United States. Impression acknowledged that its position contradicted this Court’s ruling in Jazz Photo, which held that a foreign sale does not exhaust U.S. patent rights. But Impression contended that Jazz Photo had been implicitly overruled by the Supreme Court’s decision in Kirtsaeng. The district court disagreed, noting that Kirtsaeng construed a distinct provision of the Copyright Act and therefore did not implicitly overrule Jazz Photo’s application of the Patent Act.
As to Lexmark cartridges first sold in this country, Impression argued that Lexmark’s patent rights were exhausted despite the express contractual conditions under the Return Program. Again, Impression recognized that the *16 law of this Court was to the contrary, given Mallinckrodt’s holding that a sale under a single-use license did not exhaust the seller’s patent rights. But the district court accepted Impression’s contention that the Supreme Court’s decision in Quanta — which addressed an unrestricted first sale — implicitly overturned Mallinckrodt’s holding regarding a restricted sale. The district court’s opinion rested on its (mistaken) understanding that Lexmark resellers possess blanket authority to sell Return Program cartridges without restriction on their subsequent use. In this respect, the court held, Lexmark’s domestic sales of cartridges were analogous to Intel’s sales of software without restriction in Quanta — sales that, as decided by the Supreme Court, exhausted patent rights.
Both Lexmark and Impression, however, recognized that the district court had misunderstood the facts concerning Lexmark’s domestic sales, and that Lexmark’s contracts and licenses did in fact restrict the resale of Return Program cartridges. To avoid the need to amend the Complaint and undertake additional briefing, the parties submitted a joint motion asking the court to supplement the record with stipulated facts and then either to reconsider its decision on the Return Program cartridges or enter final judgment to facilitate appeal.
The district court supplemented the record with the stipulated facts, but declined otherwise to revisit its decision. Instead, the court entered a stipulated judgment of non-infringement in favor of Impression with respect to Return Program cartridges first sold inside the United States, and a stipulated judgment of infringement in favor of Lexmark with respect to cartridges first sold outside the United States. The court also entered a stipulated permanent injunction, barring Impression from selling the Accused Products in the United States, except to the extent that Lexmark’s patent rights had been held to have been exhausted.
Lexmark Int’l. v. Impression Prod. (Fed. Cir. 2015) (en banc)
Acting sua sponte, the Federal Circuit has ordered en banc briefing on the issue of international patent exhaustion.
As I have previously written, current Federal Circuit precedent on international exhaustion is in direct tension with the Supreme Court’s teaching – albeit in the copyright context. Compare Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2012) with Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001). The basic international exhaustion situation occurs when the patentee authorizes a the manufacture/sale of a patented product in a foreign country. And the exhaustion question is whether the U.S. patent is exhausted by that international authorization or instead can the patentee block importation of hte product into the U.S. based upon the U.S. patent. Kirtsaeng says that the foreign action exhausts the U.S. copyright while in Jazz Photo the Federal Circuit held that the foreign action does not exhaust a U.S. patent.
The patent exhaustion doctrine has also been complicated by the largely impenetrable Quanta and Mallinckrodt decisions. What types of servitudes can a patentee place on a patented product and how do those restrictions and obligations impact exhaustion?
The en banc order presents the following two questions:
(a) Should this court overrule Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001)?
(b) The case involves (i) sales of patented articles to end users under a restriction that they use the articles once and then return them and (ii) sales of the same patented articles to resellers under a restriction that resales take place under the single-use-and-return restriction. Do any of those sales give rise to patent exhaustion? In light of Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), should this court overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), to the extent it ruled that a sale of a patented article, when the sale is made under a restriction that is otherwise lawful and within the scope of the patent grant, does not give rise to patent exhaustion?
Briefs favoring a change in the law (supporting Impression) are due within 45-days and briefs supporting the status quo will be due within 30-days following. The Federal Circuit has indicated that briefs of amici curiae may be filed without consent or leave of the court “but otherwise must comply with Federal Rule of Appellate Procedure 29 and Federal Circuit Rule 29.”
by Dennis Crouch
Perhaps the greatest impact of the shift to a first-to-file system is that the US’s traditional one-year grace period has been greatly reduced. Prior to the America Invents Act (AIA), it was fairly straightforward process for patent applicants to take advantage of a one-year pre-filing grace period – with the basic result of negating would-be prior art created in the one-year time period prior to filing. Under the AIA, a grace period still exists, but only as to pre-filing disclosures either (1) made by (or derived from) the inventor or (2) subsequent to a prior disclosure by or from the inventor. This means that – under the AIA – a third-party disclosure made even one-day before your patent application filing date will normally negate your patent. From an international comparative law framework, the AIA grace period is still more forgiving than that of most other countries whose grace period only applies when an invention is disclosed pre-filing through malfeasance such as theft or fraud.
I should note here that the particular scope of the grace period under the AIA is somewhat unclear and will require interpretation by the courts. A reasonable reading of the statute would have the potential of greatly narrowing and limiting grace period so as to make it essentially ineffective.
Universities and independent inventors have pushed to restore the grace period to its prior expanse. Because these entities tend to lack fully-internal product development and funding regimes, they typically look to make pre-filing disclosures in order to at least test the waters of economic and practical viability.
Taking a middle ground, a bipartisan set of Senators and Representatives have proposed the Grace Period Restoration Act of 2015. [Senators Tammy Baldwin (D-WI) and David Vitter (R-LA), along with United States Representatives Jim Sensenbrenner (R-WI) and John Conyers, Jr. (D-MI)].
I have not yet seen the text of the proposal, but the basic idea is that the amended statute would not fully restore the grace period to pre-AIA days but would clarify the AIA grade period in the following ways:
The proposal here is being framed as fixing an unintended error in the AIA, and I think that is a largely correct historical statement and that there may be support from leaders in both the House and Senate. However, there will be push-back by those who (1) prefer a system better harmonized with the rest-of-the-world and (2) prefer a system where it is easier to invalidate a patent.
In Oplus Tech v. Vizio, the Federal Circuit remanded with an order for the district court to expressly determine whether an award of attorney fees are warranted. After the merits were determined (summary judgment of non-infringement) the district court found the case “exceptional” under 35 U.S.C. 285 based upon litigation misconduct by Oplus. However, the district court then refused to award fees to the victorious accused (without fully articulating its reasons for the denial). On appeal, the Federal Circuit reviewed the record and could not “find a basis to support the court’s refusal to award fees.”
Although the “exceptional case” finding can still be a distinct step from a fee award. The case here suggests that a court should ordinarily award fees in exceptional cases.
Although the award of fees is clearly within the discretion of the district court, when, as here, a court finds litigation misconduct and that a case is exceptional, the court must articulate the reasons for its fee [denial] decision. In light of the court’s fact findings regarding the extent of harassing, unprofessional, and vexatious litigation, the change in legal standard by the Supreme Court, and the lack of sufficient basis to deny fees under § 285, we vacate and remand for the district court to consider whether and the extent to which fees are warranted. Because the court premised its decision regarding fees under § 1927 and its inherent power at least in part on its decision to deny fees under § 285, we vacate those rulings and remand for further proceedings.
Thus, on remand, the district court will reconsider whether fee award is appropriate based upon its prior determination of litigation misconduct.
The particular misconduct here that went unchallenged on appeal:
The court found that from the start Oplus “delayed the litigation by strategically amending its claims to manufacture venue,” and, in doing so, “flouted the standards of appropriate conduct and professional behavior.” It found that “Oplus provided only the most tenuous basis in its initial complaint for bringing suit in Illinois” and that its “first amended complaint took its first step over the boundaries of professionalism” because the “amendment rendered its allegations against Sears prima facie inadequate.” It chastised Oplus for “ignor[ing] well-settled law” by asking “the [Panel on Multidistrict Litigation] to return the case to Illinois after it lost” the motion to transfer to the Central District of California.
The court found that “Oplus misused the discovery process to harass Vizio by ignoring necessary discovery, flouting its own obligations, and repeatedly attempting to obtain damages information to which it was not entitled.” It found that Oplus implemented an “abusive discovery strategy” that involved “avoid[ing] its own litigation and discovery obligations while forcing its opponent to provide as much information as possible about Vizio’s products, sales, and finances.” The court noted that its “greatest concern . . . was Oplus’s counsel’s subpoena for documents counsel had accessed under a prior protective order.” In that instance, counsel for Oplus represented an unrelated patentee in a prior litigation against Vizio and, pursuant to the protective order in that prior litigation, retained copies of documents produced by Vizio. Here, counsel for Oplus, Niro, Haller & Niro, drafted what it called a tailored subpoena for documents retained by counsel for the earlier plaintiff, which also happened to be Niro, Haller & Niro. The court concluded that it “strain[ed] credulity” to believe that Oplus “issued the subpoena without using any knowledge by three attorneys [that both worked on the earlier case and the present case] as to the content of the discovery sought.” The court found that “Oplus blatantly misinterpreted its own prior discovery requests in an attempt to obtain the same information the Court had previously refused to compel.”
The court found that “Oplus used improper litigation tactics including presenting contradictory expert evidence and infringement contentions as well as misrepresenting legal and factual support.” It found that Oplus’s response to Vizio’s complaint about contradictory expert opinions—where Oplus disavowed “its own expert’s statement when Vizio cited the paragraph, rather than the paragraph heading” of its expert’s report—was “merely one example of Oplus’s strategic manipulation of the facts and evidence provided to the Court.” In another example, it noted that whereas “Oplus’s infringement contentions cite[d] a patent to show infringement” of Oplus’s patents, its “expert testifie[d] that the same patent did not disclose the methods of Oplus’s patents.” It found that “Oplus consistently twisted the Court’s instructions and decisions” and attempted “to mislead the Court.” It complained that when “Oplus had no evidence of infringement of one element of a claim, it simply ignored that element and argued another.” It found that “Oplus regularly cited to exhibits that failed to support the propositions for which they were cited” and that “Oplus’s malleable expert testimony and infringement contentions left Vizio in a frustrating game of Whac-A-Mole throughout the litigation.”
The district court particularly highlighted the activities of four lawyers from Niro, Haller & Niro: Gabriel Opatken, Raymond Niro, Arthur Gasey, and Paul Gibbons. [District Court 285 Denial][Patently-O Discussion]. The story told to the district court was that Opatken was a fresh new attorney handling most of the case but who was insufficiently supervised. Once put on notice of the misconduct Ray Niro put a stop to those activities. I suspect that the district court felt that internal reprimand was sufficient.
On Friday, April 10, 2015, we held the Fourth Annual University of Missouri Patent Law Moot Court Competition. Law students wrote briefs and presented oral arguments on legal and procedural questions surrounding the patenting of compounds derived from human genes. [Discussion of the Problem]. The McKool Smith firm has sponsored the event and funded a $1,000 prize to the winning student for each of the next four years. This event is also now linked with our developing Center for Intellectual Property and Entrepreneurship.
Overall winner of the competition based upon both is Paul Jacobson who will receive the $1,000 McKool Smith prize. Honorable mention goes to Mary Albert, Micah Uptegrove, Peter Bruntrager, Justin Moody,Bhandana Katoch, Mitchell Terry, John Clizer, and Joe Morrey who each received at least one first place vote. I want to especially thank our set of excellent IP-attorney-judges who gave up their day and evening for this event as well as my Teaching Assistant and future patent attorney Marriam Lin.
The next competition will be held in the Fall of 2015.
Automated Merchandising v. Michelle Lee raises yet another separation of powers issue between the courts and the patent office. Originally AMS sued Crane for infringing its U.S. Patent Nos. 6,384,402, 6,794,634, 7,191,915, and 7,343,220. In response, Crane filed (pre-AIA) inter partes reexamination requests against the patents. Then the lawsuit settled and the court issued a consent decree (final judgment) dismissing the case with prejudice and stating that the parties stipulate that the patent claims are valid. AMS took that decree to the USPTO who refused to terminate the reexamination because the final judgment was not a “decision” on the merits of validity. In response, AMS filed suit in the Eastern District of Virginia alleging violations of the Administrative Procedures Act (APA). Section 704 of the APA provides for review of agency actions:
Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review.
However, the statute is clear that a non-final agency action is not reviewable.
According to the court’s judgment here the PTO’s refusal-to-terminate was an interlocutory order. Even though the PTO originally identified it as “final,” that designation alone is insufficient to meet the final action requirement of the statute. On remand, the inter partes review will continue and, if the patentee loses on the merits, may then have a chance to appeal the refusal-to-terminate.
This case adds further weight to the argument that we need a more comprehensive approach to the various pathways for enforcing and challenging patent rights.
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In B&B, the Supreme Court held that decisions by the PTO can have preclusive effect when the same issue is raised in a parallel litigation. In dicta, the court also indicated that preclusion also operates in the opposite direction — federal court decisions also have preclusive impact on PTO decision making. B&B is focused on the doctrine of issue preclusion that is also known as collateral estoppel.
Because issue preclusion requires that the issue be actually litigated, it does not apply to the AMS. However, the parallel doctrine of claim preclusion (res judicata) may indeed apply – that doctrine typically applies when a second dispute involves a a prior final judgment of a claim sharing a “common nucleus of operative fact” and (roughly) identical parties.
A complicating factor here is that – as to inter partes reexaminations – the Patent Act had a particular statute that could be seen as redefining the scope of issue and claim preclusion for patent cases.
Once a final decision has been entered against a party in a civil action arising in whole or in part under section 1338 of title 28, that the party has not sustained its burden of proving the invalidity of any patent claim in suit . . . , then neither that party nor its privies may thereafter request an inter partes reexamination of any such patent claim on the basis of issues which that party or its privies raised or could have raised in such civil action . . . , and an inter partes reexamination requested by that party or its privies on the basis of such issues may not thereafter be maintained by the Office . . . .
35 U.S.C. 317(b). The major question for this statute is whether it reflects an alteration of traditional rules of preclusion or instead offer an additional layer of preclusion when the traditional rules do not apply.
In 2013 Texas A&M purchased the somewhat floundering Texas Wesleyan law school and created what is now the Texas A&M University School of Law – located in Dallas. In joining with a major research institution, part of the TAMU mission has been to further build the IP program that already includes Megan Carpenter, Brian Holland, and Dennis Kelly. Today, the law school announced its hiring of four new IP faculty: Professors Peter Yu (from Drake); Glenn Lunney (from Tulane); Irene Calboli (from Marquette); and Saurabh Vishnubhakat (from the PTO). Congratulations to TAMU on this bold move that will certainly raise its stature in the ever growing Texas market for IP attorneys. Congratulations both to the law school and its new faculty!
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I have received some criticism for this post. First – I recognize that the law school is in Ft. Worth, but from my non-Texan distance Ft. Worth is part of the Dallas metro area – as is Plano, Arlington, etc. Admittedly, my knowledge is largely derived from my childhood love of the (original) Dallas TV show. Second, I noted that Texas Wesleyan was “somewhat floundering.” I do stand behind that, although it should be in the context of the reality that the vast majority of law schools are currently struggling. Finally – Prof Lunney, I do apologize for misspelling your name! -Dennis
Shubha Ghosh is the Vilas Research Fellow & George Young Bascom Professor in Business Law at the University of Wisconsin Law School. He is currently serving as the inaugural AAAS Science, Technology, and Policy Fellow at the Federal Judicial Center in Washington, D.C.
I attended the oral arguments on March 31 in the Kimble v Marvel case, in which the Court considers whether to overrule Brulotte v. Thys. A 1964 precedent authored by Justice Douglas, the Brulotte decision employs an amalgam of preemption and patent misuse analysis to hold that post-expiration royalty payments for patent licensing are invalid.
Judging from the oral arguments, the Court is grappling with two issues. The first is that of stare decisis. The second is what standard should replace the per se rule articulated in Brulotte if it is overruled.
Stare Decisis and Living Economists
The divisions on the Court parallel that of Leegin v Creative Products, a 2007 decision in which the Court overruled the 95 year old per se rule against minimum resale price maintenance. The Court was split five to four with Justices Kennedy writing for Justices Roberts, Thomas, Scalia, and Alito. Justice Breyer wrote in dissent with Justices Ginsburg, Souter, and Stevens signing onto his defense of precedent.
During the Kimble oral arguments, Justice Breyer defended Brulotte with an elaborate hypo involving a patent owner that locks in all potential licensees with obligations for royalty payments going beyond the term of the patent. His point: contracts can extend the exclusivity of a patent beyond its limited time. Questioning from Justices Sotomayor and Kagan suggested that they may follow the reasoning of their predecessors Justices Souter and Stevens from the Leegin decision. Justice Sotomayor wondered why changes in the viewpoint of economists should guide precedent. “What if fifty years from now economists agree that Brulotte was correct?,” she asked. Justice Kagan adopted a similar tack by asking petitioners what problems Brulotte caused that would require overruling. Even if a bad rule, she implied, knowledgeable parties can readily contract around it.
My prediction is that the final vote will parallel that in Leegin for an overruling of Brulotte. Whatever one thinks of the result, the opinion itself is not clearly reasoned with a mix of preemption and patent misuse analysis. The problem with Brulotte is that the 1979 Aronson v. Quick Point decision tempers its reasoning by allowing parties flexibility in contracting over patentable subject matter.
While there has been much criticism from economists about the rationality of the Brulotte per se rule, from a transactional perspective the real problem is that the rule provides a trap for the unwary. Justice Scalia pointed out that the beneficiaries of the rule are licensees who knowingly enter into licenses with post-expiration payment obligations hoping that the licensor does not know of Brulotte. Such seemed to be the case in the Kimble case. Such opportunistic licensees can obtain lower royalty payments knowing that any post expiration obligation would be invalid. The Brulotte rule can be transacted around or used opportunistically. In order to avoid the latter possibility, the decision should be overruled.
After Brulotte: A Reasonable Rule or a Rule of Reason?
Harder to predict is how the Justices will overrule Brulotte. The Court had an easier choice in Leegin which was a pure antitrust case. Once the Court rejects a per se rule, it is replaced with the rule of reason in antitrust cases. Petitioners were advocating a rule of reason approach as has been adopted in patent misuse cases. Justice Sotomayor questioned why antitrust principles should be introduced into patent law. If there is an antitrust problem, the licensee can just bring an antitrust claim, she suggested. Justice Breyer raised the specter of administration costs that a rule of reason approach would imply. Other justices were less vocal about what could replace Brulotte.
It is true that Brulotte is not an antitrust case. But patent misuse tracks antitrust law (for example, see the treatment of tying as misuse under 35 USC 271(d)). So the petititoners’ advocating for a rule of reason approach is appropriate and perfectly consistent with any accompanying antitrust claims to a defense of patent infringement.
What is interesting to me is how the Court might address issues of preemption. The Court has not considered an intellectual property preemption cases since 1989 even though the issue has been percolating in the lower courts in the context of licensing and contract. Part of me hopes that the Court resolves the lower court’s treatment of preemption. Realistically, neither the briefs nor the argument address the preemption issue head on. The issue should await more careful consideration of the relationship between patents and contracts.
However, if the Court does address the preemption issue, then the 1979 Aronson issue should be its guide. In that case, the Court addressed the validity of an escalator clause which created two tiers of royalties based on whether a patent was granted on an invention. When the licensee ended up paying royalties for an invention which was found to be unpatentable, it raised preemption of the escalator clause under Brulotte. The reasoning was straightforward: if royalties after patent invalidity are preempted because of conflict with the limited terms of patents, then royalties on an invention for which a patent was denied should also be in conflict. The licensee reasoned that if such contracts were upheld, an inventor would not need to seek a patent since contract could provide equivalent protection.
The Court correctly rejected the reasoning. Patents offer benefits beyond contract. Furthermore, contracting supplements patenting and does not interfere with it. So the escalator clause was upheld. But Justice Blackmun in concurrence wondered about the conflict with Brulotte. As he wrote in 1979:
[As in Brulotte], Mrs. Aronson has used the leverage of her patent application to negotiate a royalty contract which continues to be binding even though the patent application was long ago denied. The Court… asserts that her leverage played “no part” with respect to the contingent agreement to pay a reduced royalty if no patent issued within five years. Yet it may well be that Quick Point agreed to that contingency in order to obtain its other rights that depended on the success of the patent application. The parties did not apportion consideration in the neat fashion the Court adopts.
Justice Blackmun reconciles the two cases by saying that Brulotte is solely about leveraging that allows the patent owner to extend the patent term through contract. Perhaps a better reconciliation would have been to temper the leveraging analysis, grounded in patent misuse, through application of a rule of reason analysis. That course should be the one the Court adopts in Kimble after it overrules the pre se rule of Brulotte.
by Dennis Crouch
In a letter mailed on April 7, 2015, I joined with the Electronic Frontier Foundation (EFF) in calling on the U.S. Court of Appeals for the Federal Circuit to re-institute free public access to orders issued by the court.
Following former Chief Judge Rader’s resignation in 2014, the Federal Circuit stopped providing free public access the the vast majority of court orders. These orders are still accessible through PACER, but that system is difficult and costly to use.
Although the court’s most substantive work is usually found in published opinions. Court orders can be substantive and important and the letter provides a few examples:
For example, an order involving ongoing royalties in cases involving Apple and VirnetX was not chosen for publication on the site, despite the high interest in the proceedings the case has generated, and the impact the order could have on the publicly traded companies. Another order barred Facebook from asserting invalidity defenses on appeal for procedural reasons – a matter of public interest because it could educate litigants about how to preserve issues on appeal, and because Facebook is a public company. Even in cases where the Court seeks public participation, it has not chosen to put relevant orders up on its website for public access. On December 30, the Court granted a petition for en banc rehearing of SCA Hygiene Products v. First Quality Baby Products, No. 2013-1564, announcing on its website that it invited amicus curiae briefs in the case. Rather than posting the order on its website, the Court instead directed interested parties to view the order on PACER. Because the case is sufficiently important to merit an announcement on the Court’s website, it was dismaying that the order was not selected for public access on the website.
The change that we propose is simple and fully within the Court’s power — we know this because the court was previously providing free public access to these documents as standard operating procedure. My hope is that the Court will hear our respectful requests and make this appropriate change.
Michael Barclay and Vera Ranieri from EFF have also written on the topic in the EFF Deep Links Blog.