Cert petition granted in Oil States

Question: Whether inter partes review, an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents, violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.

The deciSion here is very big news for the IPR system because it has the potential of bringing down the entire AIA trial regime.  The conventional wisdom with Supreme Court cases is that they usually reverse the path set by the Federal Circuit. Here, that results may well be a holding that PTO cancellation of issued patents is a constitutional violation.

Legality of the Matal Appointment: Acting As PTO Director

The following is a guest post by David Boundy – a Cambridge Massachusetts attorney with a specialty at the intersection of patent and administrative law. In 2007-09, David led the teams that quashed the Continuations, 5/25 Claims, IDS, Markush, and appeal rules under the Paperwork Reduction Act.

On other mailing lists, members of the patent bar have expressed concern that the appointment of Joe Matal may be illegal, because it does not follow the succession plain laid out in the Commerce Department Organization order 10-14.04. Some have wondered whether the appointment is illegal, in defiance of law. Would actions taken by Mr. Matal be ultra vires? Would patents signed by Mr. Matal be validly issued?

The DOO is not a statute. It’s not even a regulation. The Administrative Procedure Act, 5 U.S.C. § 553, sets out the “pigeonholes” for classifying rules and their effect. Of those pigeonholes, the DOO is a “statement of policy,” and thus only “hortatory,” not binding against the agency or the public.

Guidance is binding on an agency’s employees when that guidance promises procedural rights in favor of the public (but guidance is not binding against the public, unless it meets all the requirements of Chevron to be an “interpretation of statute or regulation”). Here, I have trouble seeing a procedural right operating in favor of the public that’s violated by appointment of one qualified individual over another, and thus there’s no binding effect for the DOO guidance.

In the guidance alone, I don’t see anything having force of law that could be breached, I don’t see who would have standing to challenge the DoC/PTO’s self-waiver, and I don’t see what remedy a court could order. (The DOO guidance may be a paraphrase or interpretation of a statute governing agency succession—that would be a different matter. I don’t know of such a statute.)

Very likely the law controlling validity of patents signed by Mr. Matal is expressed in Aristocrat Technologies Australia Pty, Ltd. v. International Game Technology, 543 F.3d 657, 663, 88 USPQ2d 1458, 1463 (Fed. Cir. 2008)—once a patent issues, nonstatutory procedural lapses (other than inequitable conduct) merge into the grant, and are not bases for challenging validity.

To be sure, there are procedural issues swirling around the PTO. The PTO’s self-grant of a federal holiday is a statutory issue, and even after an unpublished district court decision in Elm 3DS Innovations LLC v Lee, that’s still an open issue clouding validity of patents. The PTO’s misunderstanding of the legal stature of guidance creates hundreds of millions of dollars of waste, fraud, abuse, and unwarranted burden for the public. The PTO’s neglect of its obligations, and self-granted waivers, under the Paperwork Reduction Act, allow these millions to be hidden from OMB’s oversight authority. Those problems are compounded by the PTO’s failure (indeed, outright refusal stated in Petition Decisions) to implement a 2007 directive from the Executive Office of the President that clarifies the role of guidance, and the legal obligation of agencies to enforce guidance against its own employees and not against the public.

But the skirting of guidance leading to Mr. Matal’s appointment isn’t one of those legal problems. I hope the Patent Bar will join me in welcoming a lawyer into the PTO senior management. Mr. Matal is a lawyer with recent stand-up court experience. I hope that he will translate his experience into infusing the PTO with an appreciation for the importance of procedure, and respect for rule of law, to fair and accurate decisionmaking.

Metallizing Forfeiture Post-Helsinn

The following guest post is by Daniel Taskalos. After reading his 2013 Stanford Technology Law Review article on Metallizing Engineering post-AIA, I asked Mr. Taskalos to revisit those issues here in Patently-O. – DC

In Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., the Federal Circuit had its first opportunity to address the impact of the “or otherwise available to the public” clause contained in post-AIA 35 U.S.C. § 102.  In finding that the AIA “did not change the statutory meaning of ‘on sale’ in the circumstances involved here,” the Federal Circuit provided insight into the continued relevance of the forfeiture doctrine of Metallizing Engineering v. Kenyon Bearing.

The critical issue in Helsinn was whether the post-AIA definition of prior art requires public disclosure of the details of an invention in order to trigger the on-sale bar.  In the AIA, Congress revised § 102—otherwise known as the “novelty provision.”  As revised, the new novelty provision states:

(a)  NOVELTY; PRIOR ART. — A person shall be entitled to a patent unless—

(1)  the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.

While the AIA maintained the pre-AIA language of “patented,” “described in a printed publication,” “in public use,” and “on sale,” it added the emphasized clause above (the “catch-all clause”).  The AIA does not provide any elaboration on the import of the catch-all clause, leaving many to wonder exactly what its presence means for the interpretation of the other, well-known categories of prior art.

Since its enactment in 2011, scholars have debated the effect of the catch-all clause on the “public use” and “on sale” statutory bars.*  Helsinn asserted that the catch-all clause modifies prior-art categories such that only disclosures that publicly disclose the details of the invention qualify as prior art.  Advocates like Helsinn contend that the intention of Congress was to overrule “secret” use and sale decisions, like Metallizing Engineering.

Others, including Teva, argue that the addition of the catch-all clause does not invalidate the years of case law interpreting “public use” and “on sale.”  These advocates contend that interpreting the catch-all clause to impose a “public” requirement would be a foundational change to the purpose and rationale for the public use and on sale bars support—in the absence of a clear repudiation by Congress of the pre-AIA law.

*The number of articles discussing both sides of the debate is far too numerous to provide a full list.  You can find a few of these articles listed here.

The facts of Helsinn presented a unique situation in which to consider this important question.  Helsinn sued Teva for allegedly infringing four patents directed to a formulation of palonosetron for reducing chemotherapy-induced nausea and vomiting (“CINV”).  All the asserted claims covered a specific palonosetron amount in a solution—0.25 mg.  The parties agreed that the critical date for all four patents was the same—but different laws were implicated by the patents.  Three of the patents were governed by the pre-AIA patent laws, while the last patent fell under the AIA.

Teva alleged that Helsinn’s asserted patents were invalid under § 102.  The conduct in question concerned an agreement entered into by Helsinn with another party to market and distribute Helsinn’s palonosetron formulation.  Almost two years before the critical date, Helsinn agreed with MGI Pharma, Inc., that MGI would market and distribute one or more formulations of palonosetron, contingent on approval by the FDA.  The agreement identified the 0.25 mg dosage as one of the potential formulations to be purchased and sold.  Although the existence of the deal was made public (through a required SEC filing), the specific formulation details were redacted.

Thus, the district court faced analyzing the same conduct under two sets of laws:  pre-AIA and post-AIA.  Under either, however, the same two-prong framework explicated in Pfaff v. Wells Electronics applied: the on-sale bar is triggered where before the critical date (1) there is a sale or an offer for sale and (2) the claimed invention was ready for patenting.  Under the Pfaff framework, the district court found that the distribution agreement constituted a sale with respect to the three pre-AIA patents.  But the district court interpreted Congress’ addition of the catch-all clause as a modification to the “on sale” category that placed a public requirement on the disclosure itself.  The district court found that under the AIA, a § 102-triggering sale must publicly disclose the details of the invention; a public sale that did not disclose the claim limitations was insufficient.

The Federal Circuit reversed this decision and provided an analysis may prove instructive in future cases concerning public uses and other non-informing disclosures.  In its opinion, the Federal Circuit noted that the support for Helsinn’s argument that § 102’s requirements changed with Congress’ addition of the catch-all phrase rested outside of the text of the amended provision; Helsinn relied primarily on floor statements by a few individual members of Congress.

The Federal Circuit noted that those floor statements appeared to show “at most” an intent to do away with case precedent concerning “public use” cases, not “on sale” cases.  According to the Court, the only “precedent” cited by the Congressmen were cases in which the invention was used in public, but that use did not disclose to the public the details of the claimed invention.  E.g., Egbert v. Lippman; Beachcombers International v. Wildewood Creative Products; Jumpsport, Inc. v. Jumpking, Inc.  Moreover, the Federal Circuit explained that even assuming the statements could be stretched to cover sale cases as well, the “secret sale” cases “were concerned entirely with whether the existence of the sale or offer was public,” not whether the details of the invention were disclosed.  Thus, the Court found the floor statements were of little support for a different interpretation of the statutory meaning of “on sale” under the AIA.

The Federal Circuit further found Helsinn’s argument unpersuasive because imposing a publicity requirement would  “work a foundational change in the theory or the statutory on-sale bar.”  In fact, the Federal Circuit noted that the issue of whether to impose a publicity requirement was exactly the situation in Pennock v. Dialogue, in which Justice Story created the on-sale bar.  In Pennock, Justice Story found that allowing a patent to stand after a sale that did not disclose the claim limitations “would materially retard the progress of science and the useful arts, and give a premium to those who should be least prompt to communicate their discoveries.”  Relying heavily on its prior case law, the Court also explained why  such a publicity requirement has never been considered necessary.  The Federal Circuit concluded by hold that at most, the catch-all clause just requires that the sale must put the patented product in the hands of the public,* not that it must be informed of all the limitations of the claim.

*Of course, the Federal Circuit did not mean that the product must be explicitly in the hands of the public.  As discussed in the opinion, “our prior cases have applied the on-sale bar even when there is no delivery, when delivery is set after the critical date, or, even when, upon delivery, members of the public could not ascertain the claimed invention.”

Looking at the Federal Court’s reasoning in Helsinn and The Medicines Co. v. Hospira, Inc., that Metallizing Engineering may remain good law under the AIA.  As the Federal Circuit made clear, it does not view the floor statements in Congress as evidencing a clear intent to overturn the “on sale” precedent, instead “at most” supporting an argument that the intent was to overturn the “public use” case law.  In The Medicines Co., the Federal Circuit referred to Metallizing as an “on sale” case: the conduct at issue in Metallizing was the sale of performing a particular claimed process for compensation before the critical date, i.e. activity triggering the on-sale bar.  Thus, the Federal Circuit would likely find mere floor statements to be of little relevance to a factual situation similar to Metallizing.  Moreover, as the Federal Circuit identified, the law regarding “secret sales” has always been concerned with whether the existence of the sale itself was publicly disclosed—not the details of the invention.  There is no indication in Metallizing that the sales at issue were not publicly known, so the same rationale from Helsinn should apply.

In Helsinn, the Federal Circuit anchored its holding on the fact that imposing a requirement that a triggering sale disclose the details of the invention directly contradicts Justice Story’s reasoning in Pennock for creating the on-sale bar.  As Justice Story saw it, to allow an inventor to exploit commercially his or her invention for an extended period and still maintain the ability to seek patent protection would undercut the “progress of science and the useful arts” and promote undesirable behavior.  This principle has been consistently reiterated by the Federal Circuit.  See The Medicines Co.; Atlanta Attachment Co. v. Leggett & Platt, Inc. (“The overriding concern of the on-sale bar is an inventor’s attempt to commercialize his invention beyond the statutory term.”).  The aim of discouraging the inventor from improperly extending the monopoly was one of the underlying reasons behind Judge Learned Hand’s decision in Metallizing.  Thus, it is possible that the Federal Circuit may find Metallizing to remain applicable after the AIA, despite the reduced ability for such conduct under the first-to-file concept of the AIA.*

*This is one argument raised in support of the view that the AIA explicitly overrules Metallizing.  Under the first-to-invent approach, this type of secret commercialization provided a greater incentive because even if another filed a patent on the claimed invention prior to the commercial exploiter, the exploiter could, in theory, establish prior invention and obtain the patent.  As prior invention is no longer a valid argument under first-to-file, the incentive to secretly exploit an invention is diminished.  However, the fact that success may be more difficult does not, in and of itself, mean the forfeiture doctrine no longer has value or applicability.  As long as one person is still able to commercially exploit his or her invention in a manner like that in Pennock or Metallizing, the reasoning for the doctrine would still apply.

The recent Supreme Court decision in TC Heartland LLC v. Kraft Food Grp. Brands LLC also provides support for the continued relevance of MetallizingSee No. 16-341 (May 22, 2017).  At issue in TC Heartland was the impact of Congressional amendment of the general venue statute (28 U.S.C. § 1391(c)) on the interpretation of the patent venue statute that was not amended (28 U.S.C. § 1400(b)).  The patent venue statute has remained unchanged since the Supreme Court interpreted its scope, holding that a domestic corporation only “resides” for purposes of venue in a patent infringement action in its state of incorporation.  See Fourco Glass Co. v. Transmirra Products Corp. (1957).  However, after Congress amended the general venue statute in 1988, the Federal Circuit held that Congress’s amendment also changed the scope of where a corporation “resides” under § 1400(b) (although § 1400(b) remained unchanged).  See VE Holding Corp. v. Johnson Gas Appliance Co. (1990).  In TC Heartland, the Supreme Court reversed the Federal Circuit’s ruling in VE Holding, emphasizing that “[w]hen Congress intends to effect a change [to the statutory meaning of legal language], it ordinarily provides a relatively clear indication of its intent in the text of the amended provision.”

Accordingly, the TC Heartland decision can be interpreted as requiring clear congressional intent within the text of an amended provision itself to modify the settled meaning of statutory language.  Such an interpretation would further undermine the persuasiveness of the minimal floor statements discussed in Helsinn, given that those statements were by individual senators, put forth their interpretations of post-AIA § 102, and are not included within the text of the AIA.  Moreover, the Federal Circuit in Helsinn appears to have found the catch-all clause to not be a “clear indication if [Congress’s] intent in the text of the amended provision” to change the interpretation of “on sale” in the statute.  In light of the large amount of scholarly debate on the meaning of the clause, it seems unlikely that the Supreme Court would disagree with the Federal Circuit’s apparent determination.

After Helsinn, it appears that on-sale bar precedent has survived the AIA.  Applying the Court’s reasoning, and in view of other recent cases such as The Medicines Co. and TC Heartland, it appears the Metallizing Engineering precedent may also have survived the AIA, at least for now.  However, there is still the possibility that the Federal Circuit may take the opportunity presented by the ambiguity caused by the catch-all clause to revisit the ultimate decision in Metallizing.  Although the Federal Circuit may consider Metallizing to be an “on sale” case, Judge Hand’s opinion does rely on principles underlying both the “public use” and “on sale” bars.  As such, the forfeiture doctrine of Metallizing would appear to be an extra-statutory bar, not falling within either the “public use” or “on sale” categories entirely.  Because of this, some have questioned whether Judge Hand’s decision is actually correct.  See Dimitri Karshtedt, Did Learned Hand Get It Wrong?: The Questionable Patent Forfeiture Rule of Metallizing Engineering, 51 Vill. L. Rev. 261 (2012).  Moreover, although the Federal Circuit was not persuaded as to the “clear indication” of intent to change the meaning of “on sale” as advocated by Helsinn and others, that is not to say the Supreme Court would hold the same.

Daniel Taskalos is an intellectual property associate at Sheppard Mullin Richter & Hampton LLP.  His practice covers a range of issues, including litigation and counseling.

Joe Matal – Now PTO Director (Interim)


U.S. Secretary of Commerce Wilbur Ross has named U.S. Patent and Trademark Office (USPTO) Associate Solicitor Joseph Matal to perform the functions and duties of the Under Secretary of Commerce for Intellectual Property and Director of the USPTO. The position is effective June 7, 2017 and follows the resignation of Michelle K. Lee. Matal will serve in this role during the nomination and confirmation process for a new director.

As an Associate Solicitor in the USPTO’s Office of Solicitor, Matal has briefed and argued appeals of patent and trademark decisions before the U.S. Court of Appeals for the Federal Circuit and the U.S. District Court, and assisted in the development of legal positions taken by the U.S. Solicitor General in patent and copyright cases before the U.S. Supreme Court. Matal recently served as acting Chief of Staff for the agency, and has advised the director on legislative matters.

Matal previously served as the General Counsel of the Judiciary Committee for former Senator Jeff Sessions (R-AL), and as a Judiciary Committee Counsel to former Senator Jon Kyl (R-AZ). In that role, he was the principal staff drafter and negotiator of legislation that became the Leahy-Smith America Invents Act, the first comprehensive patent law overhaul since 1952. Matal has a bachelor’s degree from Stanford University, and a law degree from the University of California at Berkeley.

Waymo and Uber at the Federal Circuit – Round 2

by Dennis Crouch

The ongoing trade secrecy case between Waymo (Google) and Uber / Otto Trucking centers on former Wamo creative Anthony Levandowski who left in 2016 to form Otto that was then purchased by Uber.  In the case, Waymo has alleged improper solicitation of Google employees and “theft” of 14,000 computer files.  Because the employment agreement includes an arbitration clause, Waymo initiated arbitration against Levandowski, and separately sued Uber in federal court.

Two major preliminary decisions by N.D.Cal. Judge Alsup have been (1) to award a preliminary injunction against Uber and (2) to rule that the Levansdowski employment agreement does not require arbitration of the case against Uber / Otto. The Federal Rules of Procedure permit immediate appeal of both of these interlocutory decisions.  Because the complaint also alleges Uber is infringing one of Waymo’s patents, the appeal goes to the Federal Circuit. (U.S. Patent No. 8,836,922 – invented by Levandowski, et al.).

Now on appeal, Uber is asking the Federal Circuit to reconsider its case for arbitration. Uber writes:

The questions presented on appeal relate to the precise circumstances under which a nonsignatory can use California’s doctrine of equitable estoppel to compel arbitration of claims that are asserted by a party to a contract that contains a broadly inclusive and enforceable arbitration provision.

Uber argues that Waymo is relying heavily upon the Levandowski agreements in order to make its trade secrecy and patent claims (assignor estoppel, for instance) and therefore the equitable approach is to also bind Waymo to the arbitration provisions in the agreement. It appears that the appeal will see expedited briefing and a quick resolution.

The Federal Circuit already ruled once in the case.  In April, the court denied a mandamus petition by Levandowski to block certain discovery against him based upon his claim for 5th Amendment privilege against self incrimination.  (Remember here that trade secret theft is also a crime.)

On the preliminary injunction side, Levandowski was barred further work LIDAR.  Subsequently, Uber fired Levandowski.

Note here: When Levandowski left Uber, he formed Otto Trucking and Ottomotto to develop self-driving vehicles. He was then sued by Clearpath Robotics for trademark infringement – based upon Clearpath’s Otto Motors division – that also develops self-driving material transport vehicles.  That case settled in 2017 and after it acquired Levandowski’s company, Uber dropped the Otto name in favor of Uber ATG.



Drew Hirshfeld – Acting Director of the USPTO

According to folks at the Intellectual Property Owners Association (IPO), current Commissioner for Patents Drew Hirshfeld is moving into the position of Acting Director of the United States Patent & Trademark Office (USPTO).  Hirshfeld is a long-time USPTO employee and is very familiar with both the patenting process and the details of running the multi-billion-dollar-agency.  Congratulations Mr. Hirshfeld on the promotion!

There was some question about whether the position of Acting Director / Undersecretary of Commerce would go to the Patent Commissioner or instead to the current Acting Deputy Director Tony Scardino. According to the USPTO Succession Plan:

If the position of the Under Secretary is vacant, the Deputy Under Secretary shall serve as Acting Under Secretary. If both the Under Secretary and the Deputy Under Secretary positions are vacant, the Commissioner for Patents and the Commissioner for Trademarks, in that order, will perform the functions and duties of the Under Secretary.

Although Scardino has been the “Acting Deputy Under Secretary,” the position of “Deputy Under Secretary” itself is vacant — leading to Hirshfeld being next in line as Commissioner for Patents.


Michelle Lee Resigns as PTO Director

USPTO Director Michelle Lee has announced her resignation — noting that “It has been the professional experience of a lifetime [and] a true privilege serving our country by supporting what I believe to be some of America’s greatest heroes—our inventors and entrepreneurs.”  The resignation appears to be effective immediately. Prior to joining the USPTO, Lee was chief patent counsel for Google, and I expect that Lee will return to high-level industry position.

Lee will be known as a stabilizing force – managing the agency during these tumultuous post-AIA and post-ALICE years.  Although critics suggest that she is not sufficiently pro-patent-property-rights, the PTO has continued to issue a record-number of patents each year.  Although the timing is a surprise, Lee was an Obama appointee and the departure itself is not a surprise.

There has been no word from the White House or Commerce Department on a successor.  It is unclear to me at this point whether Tony Scardino (current acting deputy director) or Drew Hirshfeld (current Commissioner of Patents) will be tapped as Acting Director.

CBM Review Keeps its Narrow Scope: Narrowly Surviving En Banc Challenge

Secure Axcess v. PNC Bank (Fed. Cir. 2017) (en banc denied)

In its original panel decision, the Federal Circuit narrowly construed the Covered Business Method statute – holding that CBM review is only available when the claims themselves are directed toward a financial service.  I previously wrote:

In its decision, the court walked through the statute – noting that the focus is on the claimed invention rather than the asserted marketplace or potential uses of the invention.  Thus, the relevant question is not how the invention is used, but rather whether the claims are directed to a financial service.  According to the court, any other reading, would “give the CBM program a virtually unconstrained reach.”

The challengers then petitioned for en banc review.  That petition has now been denied – although over vigorous dissent.  (6-5 denial, with Judge Stoll not participating). As the Federal Circuit continues to be divided, it is most interesting to consider the sides that have formed:

  • Supporting Rehearing (and broader scope of CBM review, and broader 101 application): Chief Judge Prost and Judges Lourie, Dyk, Wallach, and Hughes
  • Against Rehearing (for narrower CBM review and reduced 101 application): Judges Moore, Taranto, O’Malley, Reyna, Newman, and Chen.

Judge Plager also sat on the original panel, but his senior status precluded his voting on the en banc rehearing question.


For CBM Review: _Claims_ Must be Directed to Financial Service

CBM Review: Must the Claims Be Expressly Limited to Financial Services?


Demystifying Drug Importation after Impression v. Lexmark

Guest post by Professor Erika Lietzan of the University of  Missouri School of Law.  This is cross-posted on the new FDA Law blog “Objective Intent” created by Professor Lietzan and GSU Law Professor Patti Zettler.

On May 30, the Supreme Court surprised many of us by ruling that exhaustion of U.S. patent rights occurs even when sale of the item takes place in a foreign country.  There is a great deal more to the ruling, and there are now very interesting questions about the characterization of transactions as something other than “sales” and about the use of contractual provisions to prevent resale into the United States following first sale of patented products elsewhere.  But for now, let’s stop with the bare bones description: U.S. patent rights are exhausted when an item is sold overseas.  This means that shipping an already-sold product into the United States for subsequent-sale to a U.S. consumer will not infringe the patents in question.  Depending on how patent owners structure their transactions overseas going forward, this ruling could give U.S. consumers access to products that are intended for foreign markets and that are priced for those markets — lower, for instance.

One of the many topics circulating now: what are the implications for pharmaceutical companies and for U.S. consumers of pharmaceuticals

I’m not taking up that issue.  (Professors Lisa Ouellette and Daniel Hemel addressed it in a blog entry cross-posted at Written Description and Whatever Source Derived.  And Professor Sarah Wasserman Rajec touched on it as well, at PatentlyO).

Instead, I am going to demystify the FDA framework that comes in to play.  There are three basic principles to know.

First, it’s illegal to import new drugs that are not FDA approved.  Section 505 of the Federal Food, Drug, and Cosmetic Act (FDCA) prohibits the introduction into interstate commerce of any “new drug” (which includes virtually every prescription drug) that is not the subject of an approved new drug application (NDA) or abbreviated new drug application (ANDA).  Importation counts as introduction into interstate commerce, so the approval requirement applies.  In plain English: it’s illegal to import a new drug that FDA has not approved, and most prescription drugs count as new drugs.

Second, it’s illegal to import the foreign version of a new drug that FDA has approved.  Approval of a new drug is specific to that particular product, made and labeled exactly as described in the application that FDA reviewed. If a product is manufactured in a different facility from the facilities listed in the NDA, or if it is manufactured according to different specifications, it is considered an unapproved new drug — even if it is made by the same company.  (Great explanation from FDA, here.)

To make this more concrete:  Pfizer sells Viagra in the United States under an NDA that FDA has approved.  Pfizer also sells Viagra in Europe.  That drug is marketed pursuant to authorization by the European Commission on the basis of a separate marketing application that complied with European law.  If the European product is made at a facility that is not listed in the U.S. application, or if it is manufactured according to different specifications, or if it is composed differently (different inactive ingredients for instance), then it cannot be imported into the United States.  Certainly it is labeled in accordance with European labeling rules, and the European labeling is not the same as the FDA-approved labeling, so again it cannot be imported into the United States.  In plain English: it’s illegal to import the foreign version of a company’s product, even if that same company sells an FDA-approved version to U.S. consumers.  (The same great explanation from FDA, here.)

Third, all of this is true even if the drug was made in the United States.  Don’t confuse where something was manufactured with which country has approved it. Companies have manufacturing facilities all over the world.  Some drugs available in other countries are manufactured in the United States and then exported.  Some drugs sold here are manufactured (in part or entirely) overseas.  What matters for purposes of importation into the United States is whether the drug fully aligns with an NDA that the U.S. FDA has approved.  If the product in question does not fully align with an approved U.S. new drug application, it is an unapproved new drug and cannot be imported.

Now things get a little more complicated.

You may be wondering . . .

What about so-called “reimportation”?  Aren’t the rules different if the company brings the drug back itself?  Well, yes and no.  A new drug that lacks an approved NDA cannot be imported, period, full stop.  But it is theoretically possible that the FDA-approved product is circulating in another country.  I think this is probably a null set, but let’s suppose it is not.  Suppose there is an FDA-approved product, with FDA-approved labeling, circulating in another country.  Can it be imported?  It depends.

Now it depends on where the drug was made.  Section 801(d) of the statute — which was added in the late 1980s and appears at 21 U.S.C. 381(d) — changes that.  If the product was made here and shipped overseas for a foreign market, and actually happens to be completely identical to the U.S. approved product (complies with the NDA in every respect), then the only company that can bring it back to the United States is the original manufacturer.  (Check the same link as above, for FDA’s explanation.)  We sometimes call these “American goods returned.”

And if that foreign-circulating FDA-approved drug wasn’t made here?  Then, yes, that product can be imported by anyone.  This follows from all of the rules I’ve already explained.

Here is a simpler way of putting it.  The statute prohibits importation of unapproved new drugs.  It permits importation of approved new drugs (as long as they don’t appear adulterated or misbranded), with one exception — American goods returned.  That is: if the product was made here and shipped out of the country, then the only entity permitted to bring it back is the original manufacturer.

What about personal importation?  Isn’t there a de minimis exception?  If you have seen Dallas Buyers Club, you may be wondering, why did FDA allow Woodroof back into the country, once he claimed that all of the boxes in his car were for his personal use?  The answer: it’s not a de minimis exception to the law; it is a long-standing policy of enforcement discretion.  (See section 9-2 of the Regulatory Procedures Manual, here.)

This policy applies if the drug is clearly intended for personal use. (FDA will presume commercial use if the supply exceeds what one person would take in three months, which explains some of the exchange at the border in the movie.)  More importantly for our purposes, the drug has to be intended for treatment of a serious condition for which satisfactory treatment is not available in the United States, and the drug cannot be approved in the United States.  This means: as drafted, the policy does not permit you to bring back a foreign version of a drug that is actually available in the United States.  No Canadian Januvia, for instance.  That said, in practice, FDA doesn’t have the resources (or, I suspect, inclination) to stop those packages.  But the agency does go after middlemen that set up storefronts or websites to facilitate foreign orders.

And it’s important to remember that this is an enforcement discretion policy; importation fully within the four corners of this policy is still illegal.

What about section 804 of the statute: doesn’t it explicitly authorize importation?  Yes, and no.  Here’s section 804.  It directs FDA to promulgate regulations permitting pharmacists and wholesalers to import prescription drugs from Canada. But notice subsection (l): “this section shall become effective only if the Secretary certifies to the Congress that the implementation of this section will (A) pose no additional risk to the public’s health and safety; and (B) result in a significant reduction in the cost of covered products to the American consumer.”  That certification has never happened. So it’s not in effect.

Also, notice that under 804(c) the imports in question must comply with section 505 of the statute.  That’s the approval requirement.  Section 804 is not about importing foreign versions of FDA approved drugs.  It is an “American goods returned” provision.

So where does this leave us?  The bottom line is that it is illegal to import the foreign version of a medicine approved in the United States.

And what does this have to do with Impression Products v. Lexmark?  That might be a post for another day.  But on the question whether the Supreme Court’s decision has thrown open the gates for access to cheaper foreign medicines, the answer is no.  Not so long as the federal government enforces the law that ensures products in the U.S. distribution system are  FDA-approved.  But it may be important to remember that only the government can enforce this.  There is no private right of action under the FDCA.

Abusing Discretion on Attorney Fees

In its 2014 attorney-fee decisions of Highmark and Octane Fitness, the Supreme Court handed back discretion to lower courts to determine when the “exceptional case” requirement for fee shifting had been met.  Going with that discretion, the Supreme Court ruled also ruled that deference should be given to the determination when appealed.

Interestingly, the two new fee-shifting decisions this week are both reversals – although reaching opposite conclusions on whether fees should be awarded.

Both cases involve successful defendants who requested attorney fees to compensate for their wasted time and money.  The differences between these cases might be the Judges: Judges Newman, Lourie, and Moore deciding Checkpoint Sys in favor of no-fees against the patentee; and Chief Judge Prost, and Judges Wallach and Mayer deciding Rothschild in favor of fees against the patentee.  However, the two cases are also distinguishable on the merits.

In Rothschild, the patentee dismissed its case against ADS after the defendant filed a motion for dismiss on 101 and 102 grounds.  The district court found the case non-exceptional. On appeal, however, the Federal Circuit found that the lower court abused its discretion by failing to (a) expressly consider the defendant’s arguments that Rothschild was willful ignorant of the prior art; (b) consider Rothschild’s pattern of litigation practices as part of the totality of circumstances; and (c) consider exceptional fees under Section 285 as separate and distinct from Rule 11 sanctions.  Judge Mayer added in his concurrence that the complaint was “frivolous on its face” based upon clear failure under Section 101. (Claim 1 of U.S. Patent No. 8,788,090).

In Checkpoint Sys, the district court awarded $6 million in attorney fees following a jury verdict finding that the asserted patent was invalid, unenforceable, and not infringed.  Checkpoint Sys., is also an interesting study case because the original district court opinion awarding fees was Pre-Octane –– that case was rejected in a 2013 Federal Circuit opinion.  Following Octane Fitness, however, the district court again awarded fees — finding that “that Checkpoint’s pre-suit investigation was inadequate” and “improper motivation” behind the lawsuit – that Checkpoint brought suit “to interfere improperly with Defendants’ business and to protect its own competitive advantage” rather than simply to enforce its patent rights.  On appeal here, the court again rejected fee award — this time as an abuse of discretion.  The court particularly rejected the notion that the suit was filed for improper motive: “motivation to implement the statutory patent right by bringing suit based on a reasonable belief in infringement is not an improper motive.”

The legislative purpose behind § 285 is to prevent a party from suffering a “gross injustice”: “The exercise of discretion in favor of [awarding attorney fees] should be bottomed upon a finding of unfairness or bad faith in the conduct of the losing party, or some other equitable consideration of similar force, which makes it grossly unjust that the winner of the particular law suit be left to bear the burden of his own counsel fees.” S. Rep. No. 1503, 79th Cong., 2d Sess. (1946) (addressing the § 70 precursor to § 285); see also Octane Fitness, 134 S. Ct. at 1753 (“The provision enabled [district courts] to address ‘unfairness or bad faith in the conduct of the losing party, or some other equitable consideration of similar force,’ which made a case so unusual as to warrant fee-shifting.” (quoting Park–In–Theatres, 190 F.2d at 142)). We conclude that the district court erred, and thus abused its discretion, in its assessment of “exceptional case,” for the record shows that the charge of infringement was reasonable and the litigation was not brought in bad faith or with abusive tactics. The award of attorney fees under 25 U.S.C. § 285 is reversed.

Despite these two reversals, we do know that there have been an increase in fee awards since the 2017 decision.  I wonder if there is any steady-state percentage (or are these not judged on a curve?).



Impression Products, Inc. v. Lexmark Inc.: will International Patent Exhaustion bring Free Trade in Patented Goods?

Guest post by Professor Sarah R. Wasserman Rajec*

In Impression Products, Inc. v. Lexmark Inc., decided Tuesday, the Supreme Court held that the authorized sale of a patented product, anywhere in the world, exhausts the patent-holder’s rights in that product. The Court overturned Federal Circuit case law holding that post-sale restrictions and foreign sales preserve a U.S. patent-holder’s right to sue for infringement. As a result, Impression Products was not liable for patent infringement when it bought used Lexmark toner cartridges abroad from lawful purchasers, refilled them, and then imported and sold them in the United States, nor did the post-sale restrictions Lexmark placed on its goods give rise to patent infringement liability. Jason Rantanen has written about the decision’s impact on post-sale use restrictions. I will focus on the ruling as regards international patent exhaustion.

The decision that an authorized sale anywhere in the world exhausts a patentee’s rights brings patent law doctrine in line with copyright law and the Court’s 2013 decision in Kirtsaeng v. John Wiley & Sons, Inc.. In that case, the Court held that textbooks lawfully made and sold in Thailand could be imported and sold in the United States without infringing U.S. copyright. Kirtsaeng was not controlling because it involved statutory interpretation as opposed to the purely doctrinal nature of exhaustion in patent law, but many of the policy arguments for copyright apply in the patent context, and many goods are covered by both types of protection. The greater impact of an international patent exhaustion rule, as I have previously argued, is that it makes U.S. patent law more consistent with free trade principles and is likely to increase competition by lowering barriers to trade in patented goods. Companies will no longer be able to use patent rights (without further strategizing, see below) to engage in geographic price discrimination between U.S. and foreign markets, and supply-chain-participants, resellers, and consumers will not be subject to the information costs associated with determining the provenance and travels of all articles of commerce they purchase. These Court makes clear that the third party benefits that ease the flow of commerce were important in coming to its decision, colorfully explaining that:

More is at stake when it comes to patents than simply the dealings between the parties, which can be addressed through contract law. Instead, exhaustion occurs because, in a sale, the patentee elects to give up title to an item in exchange for payment. Allowing patent rights to stick remora-like to that item as it flows through the market would violate the principle against restraints on alienation.

Even after looking up “remora,” the opinion leaves open some questions about international trade in patented goods. Some are legal and will likely spur further litigation (e.g., whose authorization is required for an “authorized sale abroad” to occur?) while others are empirical and still speculative (e.g., with geographic price discrimination off the table, what other methods will businesses pursue for price discrimination and control of downstream sales? And, what will the effect of this ruling be on access to medicine?).

First, the legal question: What is an authorized sale abroad?

Who needs to authorize the sale? Will companies be able to get around exhaustion by structuring businesses so that foreign sales are not authorized by the U.S. patent holder?

In its opinion, the Court stated that “a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose on the location of the sale.” And, more to the point, “[a]n authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.” However, an authorized sale is not the same as a lawful sale—it requires an entity capable of authorization in the United States, and requires that this entity grants authorization in the foreign market. The Court addressed the issue of what will count as an authorized sale in its discussion of Boesch v. Graff, an 1890 case in which the Court ruled that U.S. patent rights were not exhausted by lawful manufacture and sale in Germany. However, in that case, the manufacturer was entitled to make and sell the products under a prior user right in the German patent law which allowed those who were preparing to produce a patented article at the time the patent was filed to do so without authorization. Thus, the Court in Impression Products explained that Boesch merely illustrates “that a sale abroad does not exhaust a patentee’s rights when the patentee had nothing to do with the transaction.”

However, there is a lot of room between Boesch, where the patentee had “nothing to do with” the manufacture and sales and Impression Products, where Lexmark had patent rights in multiple countries and authorized sales abroad. The question remains whether a company structured such that subsidiaries in different countries own the various patent rights will be subject to exhaustion of its U.S. patents for foreign sales made by a foreign subsidiary. The Court seems to imply not, explaining that “only the patentee can decide whether to make a sale that exhausts its patent rights in an item,” and later, “what matters is the patentee’s decision to make a sale.” Yet if it is really the case that only authorization by the U.S. patent-holder will result in exhaustion through foreign sales, the Court has left open a way for patent holders to opt out of international exhaustion. And while courts may interpret “authorized sale” more broadly, to include sales by related entities, the contours of any rule will take some time to be settled.

With geographic price discrimination off the table, what other methods will businesses pursue for price discrimination and control of downstream sales?

I have previously discussed the economic argument for price discrimination, explaining that

The standard economic argument against international exhaustion draws on the potential gains to patent holders and to consumers in low-income countries from geographic price discrimination. This argument describes the current rule as allowing patent holders to market goods worldwide, adjusting prices for countries with lower purchasing power while continuing to reap rewards in high-income countries. An international exhaustion regime, according to this view, will push patent holders either to restrict sales to high-income markets or to offer goods at a globally uniform price, to the detriment of consumers in low-income countries. However, geographical price discrimination is but one of many options for identifying and marketing to populations with differing abilities to pay; many goods, regardless of patent protection, are available in different versions at different prices worldwide. Geographic price discrimination is desirable to firms because of its effectiveness at preventing arbitrage and because enforcement costs are shared by states through customs enforcement. It may not be the most desirable form of price discrimination for consumers, however, because it is imprecise in identifying differing demand curves. This is particularly true for countries with large or growing income disparities. A shift to international exhaustion would likely result in changes in how firms market goods, but would not necessarily entail the wholesale welfare losses that the standard argument suggests, because that argument compares geographic price discrimination with no price discrimination at all.

In other words, the useful comparison is not between geographic price discrimination and no price discrimination, but between geographic price discrimination and the other methods that companies will increasingly turn to following this ruling. If instead of choosing not to sell abroad under the new rule, a company chooses to sell a costly and a cheaper version of a good, the availability of that cheaper version may be a boon to consumers inside the United States that otherwise could not afford the costly version.

Many have suggested that this ruling will lead to more licensing and fewer sales and I generally agree, where that is technologically possible and privity can be maintained. However, one thought I’ve had is that this move towards licensing goods when possible is not isolated to the patent context in any way. That is, licensing of goods may allow companies to price discriminate and control (or stop) downstream sales, and it generally runs counter to the law’s abhorrence for restraints on alienation, but it was on the rise before this case and would be just as desirable (to companies and some consumers) or undesirable (to other consumers and resellers) for goods not covered by patents as for those that are. So while I agree that we’ll see more action in this area as a result of the case, and that the dividing line between licenses and sales is incredibly important to our understanding of ownership and use of modern and emerging technologies, it is not an issue of patent law qua patent law.

What will the effect of this ruling be on access to medicine?

International patent exhaustion presents particular concerns for the advocates of global access to medicines and for the pharmaceutical industry. Because versioning or licensing do not easily apply to the sale of drugs, there is a concern that pharmaceutical companies will refuse to sell medicines at low prices in lower-income markets because of a fear of arbitrage. As a result, patients in lower-income countries would suffer without access to medicine and pharmaceutical companies may reap lower profits to invest back into research and development of new drugs. There are reasons, however, to think that the immediate effect on the pharmaceutical industry and patients worldwide will not and need not be so dire. There are also solid policy reasons to expand the regulatory means of curbing parallel imports in this industry.

Currently, the Food & Drug Administration must approve drugs before they are sold in the United States—both the chemical composition of the drug and its manufacture. The registration of drugs and approval of production processes mean that the FDA serves as a gatekeeper for all who wish to sell drugs in the U.S. market, and an expansion in this role to exclude drugs first sold in least developed countries would not exceed the scope of the agency’s current expertise. And while generally there are good reasons to apply patent law equally to different technology areas, the drug industry may be appropriate for special treatment because it is subject to price controls in so many countries. Thus, while a patent-holding pharmaceutical company may have a choice whether to sell its drug in foreign markets, they have less control over the price than in the United States, which does not have a single-payer system allowing for the strong bargaining power that many countries have. In addition, because the WTO agreement on Intellectual Property, the TRIPS Agreement, allows for countries to issue a compulsory license for patented goods in certain circumstances, drug companies may face foreign sales that they have not authorized. Under these circumstances, the free trade concerns that drive some of the arguments for international exhaustion simply do not apply in that industry. Combined with the highly-regulated nature of drug sales in the United States, this provides a strong argument for treating drugs differently in order to maintain access for foreign patient populations.

Concluding thoughts

Despite the Court’s suggestion that a rule of international exhaustion is consistent with prior doctrine, it is a change in the law as announced by the Federal Circuit and as understood by practitioners and academics. (The historical claim has been challenged for both copyrights and patents.) On the domestic side, we can expect to see even more attempts to structure transactions as licenses rather than sales, while on the international side, I expect that the question of patent-holder authorization will dominate in the near future.

= = = = =

* Assistant Professor of Law, William & Mary Marshall-Wythe School of Law.


Impression v. Lexmark: Patent Rights Exhausted by Sale, Domestic or Abroad



I’ll be part of today’s (June 1, 2017) IPO Webinar discussing the ramifications of the Federal Circuit’s April decision in Helsinn v. Teva at 2:00 pm Eastern Time


  • Prof. DENNIS CROUCH, author of the Patently-O blog (University of Missouri),
  • Life science litigator DEBORAH FISHMAN (Arnold & Porter Kaye Scholer LLP), and
  • Assistant Chief IP-Counsel JENNIFER JOHNSON (DuPont).

Moderator and Organizer of the IP Chat Channel: Pamela Sherrid.

Register Online $$

How BRI Impacts Proof of Prior Invention

Intellectual Ventures v. Motorola (Fed. Cir. 2017)

In a short opinion, the Federal Circuit has rejected a PTAB IPR determination finding IV’s patent invalid and has remanded for reconsideration of the case. U.S. Patent No. 7,382,771.  Because the patent at issue here was filed prior to March 2013, the pre-AIA first-to-invent rules apply.

The issue here is whether IV can rely upon pre-filing invention evidence to antedate the proffered prior art.  Prior to the American Invents Act (AIA), the primary triggering date for prior art was the date-of-invention rather than the date of patent-filing.  Because invention is defined as requiring both conceiving of the invention and reducing that invention to practice.  Although invention is not complete until actually implemented, we considered conception an important triggering date — thus allowing for an inventor to claim priority back to the date of conception so long as the inventor worked diligently post-conception to reduce the invention to practice.  So as not to overly romanticize the golden days of first-to-invent, remember here that “diligence” tends to be very hard to prove and does not allow for seemingly reasonable breaks in the effort to reduce the invention to practice such as business management efforts, financing pushes, or vacations.

Invention as Conception + Reduction to Practice: Some may also be confused about my definition of invention that requires actual reduction to practice.  An important legal exception to this definition is that the courts and PTO consider the filing of a fully enabled patent application to count as constructive reduction to practice.  A “constructive” fact is something that we know does not exist in realtà, but we announce to be true in the sight of legal authority.  Someone might query whether this “constructive” invention qualifies Constitutionally.

Back to our story, the patentee here (IV) argued that its predecessor-in-interest had actually reduced the invention to practice prior to filing of its patent application and prior to the critical date of the referenced prior art.  The PTAB rejected that argument — finding that the pre-filing activities did not recreate the entire invention as claimed.  On appeal, the Federal Circuit vacated — holding that the PTAB had been too stringent in its requirements.  In particular, the Board erred by requiring conception of “authentication and control features” of the claimed LAN since the Board had already rejected a claim construction proposal that would have included those features as required by the the claims.

This is a situation where Broadest Reasonable Interpretation (BRI) comes into play in an interesting way.  Generally, BRI is thought to make it easier for the USPTO to cancel questionable claims since broader claims are more likely to encompass the prior art.  Here, however, the Broadest Reasonable version of the claims made it easier for the patentee to prove prior conception.  I previously discussed a siilar situation involving written description issues.

Written Description, Disclosed Embodiments, and BRI




Impression v. Lexmark: Patent Rights Exhausted by Sale, Domestic or Abroad

By Jason Rantanen

Impression Products, Inc. v. Lexmark International, Inc. (2017) – Download opinion

In a  straightforward and almost unanimous opinion authored by Chief Justice Roberts, the Supreme Court reversed the Federal Circuit on both domestic (8-0) and international exhaustion (7-1).

The Supreme Court’s opinion is summed up by a single sentence early on. “We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.”  Slip Op. at 1.  The underlying  rationale is offered a bit later: “Patent exhaustion reflects the principle that, when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace.”  Slip Op. at 11.  With these two pronouncements, the Supreme Court has in one swoop both simplified patent law and added new complexities, challenges and opportunities to the innovation ecosystem.

Impression v. Lexmark involved, at its core, the question of whether restrictions placed on a patented product could be enforced through an infringement suit–often a more viable legal mechanism for the patent owner than an an action for breach of contract.

Under Federal Circuit precedent, the answer for over two decades was yes.  The theory relied upon by the Federal Circuit in decisions such as Malkinkrodt, and reaffirmed by the en banc court in Lexmark v. Impression, was that the patent owner could decide to give away only some of its patent rights when it sold or authorized the sale of a patented product.  As a result, the patent owner could sue a party who violated those restrictions for patent infringement because, the theory went, the purchaser did not possess the relevant set of patent permissions–the “sticks” in the “bundle of rights” that the patent owner possessed.  Thus, for example, a patent owner could place a single-use only restriction on an ink cartridge or medical device and sue for infringement if the device were reused.  In short, the exhaustion rule was effectively default rule of patent law that the parties could contract around.

The Supreme Court rejected this approach, basing its conclusion on common law principles of ownership as reflected in its 1853 decision in Bloomer v. McQuewan.  “For over 160 years, the doctrine of patent exhaustion has imposed a limit on [patentees’ right to exclude others from making, using, offering for sale, or selling their invention].”  Slip Op. at 5-6. “When a patentee chooses to sell an item, that product ‘is no longer within the limits of the monopoly’ and instead becomes the ‘private, individual property’ of the purchaser, with the rights and benefits that come along with ownership.”  Id., quoting Bloomer. While a patent owner may impose contractual restrictions, those restrictions are a matter of contract law, not patent law.  “A patentee is free to set the price and negotiate contracts with purchasers, but may not, ‘by virtue of his patent, control the use or disposition’ of the product after ownership passes to the purchaser. United States v. Univis Lens Co., 316 U. S. 241, 250 (1942) (emphasis added).”  Once  a patent owner sells a patented product, it has obtained the patent reward and may no longer rely on patent law.  Referencing its opinion in Kirsaeng v. John Wiley & Sons, Inc., 568 U.S. 519, 538 (2013), the Court observed that exhaustion has “an impeccable historic pedigree,” a backdrop against which Congress has repeatedly revised and fine-tuned the patent law.

The Federal Circuit’s error was that it started from the wrong place: interpreting the  infringement statute.  But “the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is instead a limit on ‘the scope of the patentee’s rights.'”  Slip Op. at 10, quoting United States v. General Elec. Co., 272 U. S. 476, 489 (1926) (emphasis added).   The sale transfers the foundational rights to use, sell or import the product sold; it simultaneously exhausts the patent rights:

The right to use, sell, or import an item exists independently of the Patent Act. What a patent adds—and grants exclusively to the patentee—is a limited right to prevent others from engaging in those practices. See Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U. S. 24, 35 (1923). Exhaustion extinguishes that exclusionary power. See Bloomer, 14 How., at 549 (the purchaser “exercises no rights created by the act of Congress, nor does he derive title to [the item]by virtue of the . . . exclusive privilege granted to the patentee”). As a result, the sale transfers the right to use, sell, or import because those are the rights that come along with ownership, and the buyer is free and clear of an infringement lawsuit because there is no exclusionary right left to enforce.”

Exhaustion applies regardless of whether the patent owner sells the product or a licensee–even a licensee subject to restrictions by the patent owner.  “A patentee’s authority to limit licensees does not, as the Federal Circuit thought, mean that patentees can use licenses to impose post-sale restrictions on purchasers that are enforceable through the patent laws. So long as a licensee complies with the license when selling an item, the patentee has, in effect, authorized the sale.” Slip Op. at 11-12.

“In sum, patent exhaustion is uniform and automatic. Once a patentee decides to sell—whether on its own or through a licensee—that sale exhausts its patent rights,regardless of any post-sale restrictions the patentee purports to impose, either directly or through a license.”

The Court also held that foreign sales exhausted U.S. patent rights–in other words, a system of global exhaustion.  This conclusion, too, was bolstered by a common law policy against restraints on the alienation of chattels.

Justice Ginsburg concurred with the Court’s holding on domestic exhaustion but dissented with respect to international exhaustion.  She would hold that “A foreign sale…does not exhaust a U.S. inventor’s U.S. patent rights.”

What about Contracts? The Court’s Impression decision means that post-sale restraints on products will need to be enforced via contract rather than patent law.  That matters because contract law is subject to a number of constraints, including both privity and various public policy-based limitations on enforcement.  Patent law is not so limited.  Outside of the core questions of infringement and validity, enforcement of patents is subject to relatively few such constraints–misuse being one rare (and rarely successful) exception.  In addition, enforcement under contract law means that many cases involving post-sale restrictions will ultimately be decided by state supreme courts or other federal courts of appeal rather than by the Federal Circuit.

What’s left? Lexmark strikes a powerful blow against post-sale restrictions on products by negating the threat of infringement to enforce those restrictions.  But it hardly eliminates such restrictions–to the contrary, the Court is clear that such restrictions may still be enforced under contract law.  In addition, the Court’s opinion revolves around sales of products.  Left unanswered is the role that patents will continue to play in non-complete transfers–licenses of a good or service rather than a sale.


Previous Patently-O Commentary:



Are Copyright and Patent Overlapping or Mutually Exclusive in Protecting Software Innovations?

Guest Post by Pamela Samuelson, Berkeley Law School.  Professor Samuelson’s newest article Functionality and Expression in Computer Programs: Refining the Tests for Software Copyright Infringement, is forthcoming in the Berkeley Technology Law Journal.

“Neither the Copyright Statute nor any other says that because a thing is patentable it may not be copyrighted. We should not so hold.” So said the Supreme Court in Mazer v. Stein, 347 U.S. 201, 217 (1954).

In Oracle Am. Inc. v. Google Inc., 750 F.3d 1339 (Fed. Cir. 2014), the Federal Circuit invoked this language in rejecting Google’s “policy” argument that application program interface (API) designs were more appropriately patent, not copyright, subject matter. Id. at 1380-81. The Oracle decision seemingly accepted as unobjectionable the possibility of overlapping utility patent and copyright protections in program interfaces, and perhaps even of copyright as a gap filler for interface designs for which patents had not been obtained.

Because the contours of copyright and patent protections for software innovations remain unclear notwithstanding more than 50 years of experience trying to apply these intellectual property (IP) regimes to these utilitarian writings and virtual machines, the question of whether or to what extent copyright and patent overlap or are mutually exclusive continues to bedevil the field. The Federal Circuit’s Oracle decision is unlikely to be the last word on this subject.

Recently, I rediscovered the 1991 study that the Patent & Trademark Office (PTO) and the Copyright Office wrote about the software IP overlap or exclusivity issue. The Patent-Copyright Laws Overlap Study (May 1991) was prepared at the behest of the House Subcommittee on Intellectual Property and the Administration of Justice. The Study is more than 90 pages in length and has more than 50 pages of appendices.

[1991 Patent-Copyright Overlap Study]

Among the most significant of the Study’s software findings is that there is “no overlap in subject matter: copyright protects the authorship in a set of statements that bring about a certain result in the operation of a computer, and patents cover novel and nonobvious computer processes.” Letter from Ralph Oman and Harry F. Manbeck to the Hon. William J. Hughes, July 17, 1991 (transmitting the Study to the then Chair of the House Subcommittee).

Another finding is that “[p]atent protection is not available for computer programs per se,” which supports the Study’s conclusion that copyright and utility patent for programs are not “coextensive.” Study at iii (emphasis in the original). The Study identifies the doctrinal rationale for this exclusivity: program innovations “consist of mental steps or printed matter.” Id. at vii. Copyright and patent could, however, protect “totally different aspects” of program innovations. Id. at 2. The Study cited to the Supreme Court’s decision in Baker v. Selden, 101 U.S. 99 (1879) as the “bedrock opinion for the view that patent and copyright are mutually exclusive.” Id. at 19.

As for user interface designs, the Study reports that “[t]he mere display on a screen of commands, menus, questions and answers, forms, or icons is not generally considered patentable subject matter for utility patents” because “it is generally considered to be merely printed matter.” Id. at 45-46. Yet processes to produce user interface displays might be eligible for utility patenting. Id. at 47. (The Study discusses the possibility of design patent protection for icons. Id. at 46-47.)

Insofar as user interface screen displays have original expressive elements (e.g., videogame graphics), they would be eligible for copyright protection. Id. at 60-67. However, many aspects of user interface designs are akin to blank forms and lack originality. Id. at 68-69. Some aspects of user interfaces, such as lists of commands, are uncopyrightable under the doctrines of merger and scenes a faire and the words and short phrases exclusion. Id. at 70-71.

The Study recognized that some commentators had raised concerns about overbroad copyright protection for programs; yet, others, it noted, think that expansive protection is needed. Id. at 86-87. The Study concluded that this debate notwithstanding, it would be “premature” to conclude that the risks of overbroad protections were significant as there is “no overlap in subject matter” between copyright and patent. Id. at 88-90. The Study urged Congress to wait and see how the law evolved. Id. at 89.

“At the bottom of this debate,” said the Study, “it appears is the question of protection of functionality….” Id. at 87. It would be contrary to the statutory exclusions set forth in 17 U.S.C. § 102(b) for copyright to protect program functionality. (“In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, principle, or discovery, regardless of the form in which it is described, explained, illustrated or embodied in such work.”) Study at 87. According to the Study, the protection of functionality “is assigned to patents where a much more rigorous test must be undergone and the barriers to entry in terms of time, cost, and complexity, are higher.” Id. at 88.

It is unfortunate that the Federal Circuit did not have access to this Study when deciding the copyrightability issue in the Oracle case, as its conclusions might have given the court pause about invoking the Mazer overlap-endorsing dicta in response to Google’s mutual exclusivity argument.

In a forthcoming article, Functionality and Expression in Computer Programs: Refining the Tests for Software Copyright Infringement, I challenge the Federal Circuit’s conclusion that copyright and utility patent can provide overlapping IP protections for software innovations. The article notes that the Mazer dicta was made in the context of a real, if partial, overlap in copyright and design patent subject matters. Stein’s statuette qualified as a work of art under U.S. copyright law. However, used as the base of a lamp, the design was also eligible for design patent protection as an ornamental design of an article of manufacture.

The Court in Mazer was unequivocal about copyright and utility patents having separate domains. It cited approvingly to two of Baker’s progeny that had held “that the Mechanical Patent Law and Copyright Laws are mutually exclusive,” Mazer, 201 U.S at 215, n.33 (emphasis added). See Taylor Instrument Co. v. Fawley-Brost Co., 139 F.2d 98 (7th Cir. 1943) (no copyright in temperature recording charts because they were integral parts of previously patented machines) and Brown Instrument Co. v. Warner, 161 F.2d 910 (D.C. Cir. 1947) (accord). Overlaps in design patent and copyright subject matters had, by contrast, long been accepted. Mazer, 201 U.S. at 215, n.33.

The exact contours of utility patent and copyright protections for software innovations may not shimmer with clarity, but the 1991 Study adheres to the Supreme Court’s long-standing pronouncements in Baker and Mazer that copyright and utility patent are and should be mutually exclusive. Now if only the Federal Circuit can be made to understand this.

Patentlyo Bits and Bytes by Anthony McCain

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Chisum on IPR Initiation

Chisum-MuellerIn an email distribution regarding their upcoming Chisum Patent Academy, Don Chisum and Janice Mueller opine on the upcoming Supreme Court case of SAS v. Lee.

They write:

The Court will address, at least indirectly, the PTO’s rule 37 CFR § 42.108(a). The rule allows the Patent Trial and Appeal Board (PTAB) to institute inter partes review (IPR) on (and, implicitly, to adjudicate) only some of the claims of a patent challenged in a petition (and, also, only on some of multiple grounds of unpatentability). . . .

More likely than not, the Supreme Court will invalidate the practice that rule 108(a) makes possible as contrary to the governing statutes. 35 USC Section 318(a) requires that the PTAB “issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” If the PTAB must rule on all claims challenged in a petition in its final decision, it makes no sense to allow the PTAB (per Rule 108(a)) to “institute” review on fewer than all those claims. (NOTE: the statute on institution, 35 USC 314(a), sets a reasonable-likelihood-of-unpatentability “threshold” for “at least 1 of the claims challenged in the petition.” That can easily be read as contemplating that only one of the challenged claims must meet the threshold and that all challenged claims will be carried into a review upon institution, whether or not they met the threshold standard.)

Briefing in the case will go through the summer.


Fame is Relative in the Trademark Context

by Dennis Crouch

Joseph Phelps Vineyards v. Fairmont Holdings (Fed. Cir. 2017)

Phelps Vineyards has been selling its INSIGNIA wine for the past 40 years — often at $200+ per bottle. In 2012, Fairmont received its federal registration for the mark ALEC BRADLEY STAR INSIGNIA for cigars.  Phelps Vineyard petitioned for cancellation before the Trademark Trial and Appeal Board (TTAB). Insignia

Although different market areas, Phelps Vineyards argued that the fame of its mark increased the likelihood of confusion.  However, the TTAB rejected that argument – finding that “Petitioner’s mark is not famous” and thus gave that DuPont factor no weight.  On appeal, the Federal Circuit has vacated that decision – finding that “fame” in the likelihood of confusion analysis is not a binary yes/no consideration but rather “varies along a spectrum” from not famous at all to extremely famous: think Chester Arthur to Donald Trump.   Note here – the DuPont factor of fame is totally different from dilution fame, which is a yes/no question.


In looking at the facts of the case here, the appellate panel noted substantial evidence that INSIGNIA wine “is renowned in the wine market and among consumers of fine wine. . . . We are perplexed at the Board’s finding that INSIGNIA wine has no ‘fame,’ giving no discernable weight to this factor. . . . The factor of ‘fame’ warrants reasonable weight, among the totality of the circumstances.”

On remand, the TTAB will take-up the case again and determine whether this change impacts the results in any way.  Of course, a conclusion that INSIGNIA is famous in the wine business certainly does not directly lead to the conclusion that the mark ALEC BRADLEY STAR INSIGNIA is confusingly similar when used to sell cigars.

StarInsigniaAn interesting aspect of the decision is that it was written as a per-curiam opinion of the court (Judges Newman, Dyk, and Wallach).  However, Judge Newman also penned a concurring opinion noting two additional errors made by the board:

  1. Although the Board found that the wine and cigars are sold in the same channels of trade to the same purchasers, it did not further explore the DuPont factor of “relatedness.”
  2. In considering the likelihood of confusion of the marks, the Board did not consider Fairmont’s actual use of its mark that placed the word INSIGNIA in a dominant format – raising the likelihood of confusion.

Since these notations are in the concurring opinion, the TTAB is not directly bound to follow Judge Newman’s suggestions, but will do well to given them full consideration on remand.