Federal Circuit to Take on Corporate Law Question of CEO Liability for False Submissions

Patent,

By Dennis Crouch

US v. Trek Leather (Fed. Cir. 2014) (en banc rehearing)

The Federal Circuit today granted the US Government’s petition for en banc rehearing of a case stemming from the United States Court of International Trade. The USCIT is an Article III court formerly known as the US Customs Court that hears cases involving customs, duties, and anti-dumping rules. Appeals from the USCIT are heard by the Federal Circuit Court of Appeals – about fifty per year.

Although the meat of this case is the statutory interpretation of 19 U.S.C. § 1592, patent professionals (and corporate attorneys in general) will likely be interested in the veil piercing aspects of the case. The case is also an important reminder that someone’s status as a director or owner of a limited liability entity does not immunize that person from individual tort liability. See, e.g., Frances T. v. Village Green Owners Assn., 42 Cal.3d 490 (1986).

Briefly, Trek Leather’s president and majority owner, Mr. Harish Shadadpuri submitted false entry documents to Customs & Border Patrol (CPB) that undervalued the men’s suits being imported with the result being an under-collection of customs duties owed. The money-owed was later paid, but the US Government also filed suit under section 1592 – asking that Mr. Shadadpuri be personally fined for the misrepresentation. The USITC court awarded summary judgment to the US Government based upon a finding that Shadadpuri had been grossly negligent in his statements. On appeal, the Federal Circuit reversed – finding that the statute did not permit veil piercing of this sort. In particular, the appellate panel held that section 1592 penalties could not be imposed upon a person who was acting in his capacity as officer of a corporate “importer of record” for negligently filling out entry papers required of the corporation, absent a piercing of the corporate veil or a showing of fraud. (Opinion by Judge O’Malley). Judge Dyk dissented and argued that both the plain language of the statute and its legislative history would permit this action even absent veil piercing or fraud.

Here, the statute is fairly clear: “no person, by fraud, gross negligence, or negligence—(A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of (i) any document … which is material and false.” 19 U.S.C. § 1592(a)(1). The statute seems to suggest that, since Shadadpuri is a person, then he would be liable for the submission. This result would also comply with the traditional notions of common law tort liability that would find the individual actor liable for negligence (even if someone else is also liable under an agency or joint tortfeaser doctrine). The majority opinion of the Federal Circuit recognized the section 1592 argument, but looked to other sections of Title 19 that discussed only the “importer of record” being the party who submits the entry documents – the result being that (by construction of law) the submission by Shadadpuri should be seen as coming only from his company Trek Leather and not from Shadadpuri personally.

The en banc rehearing will focus on the following set of questions:

A) 19 U.S.C. § 1592(a) imposes liability on any “person” who “enter[s], introduce[s], or attempt[s] to enter or introduce” merchandise into US commerce by means of fraud, gross negligence, or negligence by the means described in § 1592(a). What is the meaning of “person” within this statutory provision? How do other statutory provisions of Title 19 affect this inquiry?

B) If corporate officers or shareholders qualify as “persons” under § 1592(a), can they be held personally liable for duties and penalties imposed under § 1592(c)(2) and (3) when, while acting within the course and scope of their employment on behalf of the corporation by which they are employed, they provide inaccurate information relating to the entry or introduction of merchandise into the United States by their corporation? If so, under what circumstances?

C) What is the scope of “gross negligence” and “negligence” in 19 U.S.C. § 1592(a) and what is the relevant duty? How do other statutory provisions in Title 19 affect this inquiry?

Amicus briefs may be filed without leave in the case.

Sarah Harris as Next USPTO General Counsel

Patent

By Dennis Crouch

According to Pam MacLean at Reuters, Sarah Harris has now been tapped by USPTO Deputy Director Michelle Lee as the next USPTO General Counsel. Bernie Knight left the position in August of 2013 for private practice and Will Covey has been acting GC. Covey is expected to now return to his role as Director of the Office of Enrollment and Discipline.

Article: http://www.reuters.com/article/2014/03/05/uspto-harris-idUSL1N0M21MD20140305

Harris is most recently the Deputy General Counsel for AOL in charge of Intellectual Property and has spent time in-house at several high-tech companies.

General Counsel is seen as the principal legal advisor to the USPTO Director and generally supervises court representation for the agency. Although the role does deal with substantive IP issues, it delves deeply into all sorts of additional issues involving government contracts, employment issues, etc.

From the article:

“The disappointing aspect of this news is that we’re building up a leadership structure in the USPTO without actually having an appointed director in charge,” said Dennis Crouch, a patent attorney and author of the Patently O blog, which covers U.S. patent law issues.

Crouch praised the Harris appointment, saying, “she will bring strong pragmatic leadership in that role.”

Ordinarily, a director would first be named and then given some authority to build his or her team. That was the approach that David Kappos was able to use to great success. It may be more difficult to now find a USPTO leader who fits easily into this already-forming team of supporting cast members.

Thank you foliovision

Patent

By Dennis Crouch

Many of you have noticed our new blog format and comment structure. In the background, we have also installed new servers and a system that allows the blog to present well on all sorts of screen sizes, including hand held devices. For those of you with sensitive eyes, the comments are hidden unless requested. This is also intended to make printing more straightforward. Those 25,000+ who see the blog only through the email distribution will not notice much of any difference. [Subscribe here]. The Job Board remains quite active as does David Hricik’s Ethics site. [Note, for instance, Hricik’s most recent final post on Section 101].

The changes are a result of the hard work of Ryan Swarts, who is both a lawyer and design professional, and also the hard work of foliovision. The folks at foliovision provided full service and hands-on conversion from my legacy Typepad system over to WordPress. With over 4,000 posts, 150,000 comments, and several thousand additional media files, the conversion was not simple. However, foliovision handled these well and have worked well with us through the few inevitable bugs. As some of you know, I try to run the blog on a shoestring budget. It is helpful then that foliovision’s price was really good too. Thanks foliovision!

Examining Eligibility: USPTO Guidelines on Products of Nature, Laws of Nature, and Natural Phenomena

Patent,

by Dennis Crouch

One difficulty with the US patent system is that the same rules of patentability are sometimes determined by a judge, other times by a jury, and, of course, most often by a patent examiner. A judge is typically an experienced lawyer and political heavyweight who receives substantial input from leading advocates on both sides of any argument. However, judges most typically have not technical expertise in the particular invention or its market. On the other hand, a patent examiner is typically a subject matter expert but comes with little or no legal training and who participates in an ex parte inquiry.  At yet another extreme, a jury also receives the benefit of input from both sides, but typically has no technical or legal training.

One difficult role that the USPTO takes-on is translating court decisions on patentability into administrable tasks for its examiner corps.  That task is perhaps most difficult in the realm of subject matter eligibility.

In a new set of training materials, the USPTO has attempted to provide some concrete guidance to its examiners on determining whether claims improperly encompass laws of nature, natural principles, natural phenomena, or products of nature. The updated guidance is necessary based upon the Supreme Court’s decisions in Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. _, 133 S. Ct. 2107, 2116, 106 USPQ2d 1972 (2013), and Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. _, 132 S. Ct. 1289, 101 USPQ2d 1961 (2012).  The USPTO is awaiting outcome of the CLS Bank decision before providing parallel insight on examining claims for abstract ideas.

Although these guidelines do not have force of law, they are important because of their de facto power for the several hundred thousand pending patent applications.

The basic test, according to the USPTO is “whether a claim reflects a significant difference from what exists in nature” (patent eligible) or instead “whether a claim is effectively drawn to something that is naturally occurring” (not patent eligible).  Of course, the rub is the dividing line between these mutually exclusive categories.

The PTO provides the following flowchart:

pic-113

 

More later.

Apple Loses on Claim Construction and Indefiniteness

Indefinite, Patent,

by Dennis Crouch

Ancora Tech. v. Apple Inc. (Fed. Cir. 2014)

Ancora’s patent covers a verification system to ensure that the software running on a computer are properly licensed.  U.S. Patent No. 6,411,941.  Following claim construction, Ancora stipulated to a summary judgment of non-infringement — agreeing that the district court’s construction of the claim term “program” was so narrow that Apple’s verification system did not fit within its bounds.  In particular, the examples from the original 1998 patent application all focused on application programs — ones that rely upon an operating system in order to run and thus exclude the (Apple) operating system itself.

Asserted claim 1 is written as follows:

1. A method of restricting software operation within a license for use with a computer including an erasable, non-volatile memory area of a BIOS of the computer, and a volatile memory area; the method comprising the steps of:
selecting a program residing in the volatile memory,
using an agent to set up a verification structure in the erasable, non-volatile memory of the BIOS, the verification structure accommodating data that includes at least one license record,
verifying the program using at least the verification structure from the erasable non-volatile memory of the BIOS, and
acting on the program according to the verification.
On appeal, the Federal Circuit rejected a narrow construction of the term “program”  — finding that the patentee gave no reason to move the term from its ordinary meaning in context.

A claim term  should be given its ordinary meaning in the pertinent context, unless the patentee has made clear its adoption of a different definition or otherwise disclaimed that meaning. . . There is no reason in this case to depart from the term’s ordinary meaning.

Although not stated in the opinion, I suspect that this is one case that would have turned-out differently under a deferential standard of review. However, in Lighting Ballast, the Federal Circuit reconfirmed that a district court’s claim construction is given no deference and instead reviewed de novo on appeal.
= = =
You’ll note that the claim also includes references to “volatile memory” and “non-volatile memory.”   In a cross-appeal, Apple argued that those terms were invalid as ambiguous under 35 U.S.C. 112(b).  The panel here easily rejected that argument:

The Supreme Court currently is considering how to refine the formulations for applying the definiteness requirement. See Nautilus, Inc. v. Biosig Instruments, Inc., Sup. Ct. No. 13-369, cert. granted, 2014 WL 92363 (Jan. 10, 2014). In this case, we think that we can reject the indefiniteness challenge without awaiting the Court’s clarification. However other circumstances may be evaluated, it suffices to reject the challenge in this case that the claim language and the prosecution history leave no reasonable uncertainty about the boundaries of the terms at issue, even considering certain aspects of the specification that could engender confusion when read in isolation.

Most importantly, there is no dispute that the terms “volatile memory” and “non-volatile memory” have a meaning that is clear, settled, and objective in content. Both parties and the district court agreed that, as a general matter, “[t]o one of ordinary skill in the art, a volatile memory is memory whose data is not maintained when the power is removed and a non-volatile memory is memory whose data is maintained when the power is removed.” That meaning leaves the relevant public with a firm understanding of the scope of the claim terms, unless something exceptional sufficiently supplants that understanding.

Apple’s particular indefiniteness argument was based upon the fact that the specification refers to a “hard disk” as an example of volatile memory when, in reality, a hard disk is ordinarily thought of as quite the opposite.  According to Apple, those references so blur the meaning of volatile and non-volatile that the terms should be seen as indefinite.  The Federal Circuit rejected Apple’s argument for several reasons.

Under our claim-construction law, a clear ordinary meaning is not properly overcome (and a relevant reader would not reasonably think it overcome) by a few passing references that do not amount to a redefinition or disclaimer.

Under our claim-construction law, a clear ordinary meaning is not properly overcome (and a relevant reader would not reasonably think it overcome) by a few passing references that do not amount to a redefinition or disclaimer. . . . [Furthermore], it is well known that a computer’s hard disk is routinely used as “virtual” memory to provide temporary storage when there is insufficient RAM to complete an operation.

It will be interesting to see here if Apple asks petitions for certiorari on either de novo review or indefiniteness.

Federal Circuit Splits on Venue Transfer Issues

Patent,

By Dennis Crouch

In re Apple Inc. (Fed. Cir. 2014); In re Barnes & Noble (Fed. Cir. 2014)

In a pair of decisions, the Federal Circuit has denied two different petitions for writ of mandamus that sought appellate oversight in the transfer motions. Both cases involved identical split panels with Judges Reyna and Prost in the majority (denying mandamus) and Judge Newman in dissent. Over the past several years, a number of § 1404 transfer petitions have been filed at the Federal Circuit following the court’s 2008 TS Tech decision. See, In re TS Tech USA Corp., 551 F.3d 1315, 1319 (Fed. Cir. 2008).

In both cases here, the majority found that the movant had failed to “meet its exacting burden to demonstrate that the district court was clearly and indisputably incorrect in concluding that the case should not have been transferred” by the District Court judge.

Judge Newman’s dissents are interesting she writes in Apple:

The plaintiff, Core Wireless Licensing, S.A.R.L., is a Luxembourg company having one employee. Core Wireless maintains a wholly-owned subsidiary, Core Wireless USA, a Texas corporation with 6 employees who live in or near Plano, Texas. Core Wireless USA’s employees manage Core Wireless’s patent portfolio, including any licensing agreements deriving therefrom. Neither Core Wireless nor Core Wireless USA makes, uses, or sells the patented subject matter in Texas or elsewhere.

The accused products are versions of Apple Incorporated’s iPhone and cellular iPad products. Apple has been headquartered in Cupertino, California since 1976. Apple’s management and primary research and development facilities are also located in Cupertino where Apple employs over 13,000 people. The record also states that the research, design, and development of the accused products took place in Cupertino and that virtually all Apple business documents and records relating to the research, design, development, marketing strategy, and product revenue for the accused products are located in or near Cupertino. Additionally, Apple has stated that its foreseeable witnesses with knowledge of the research, design, and development of the accused products reside or work in or near Cupertino. (more…)

Industry Responds to White House Calls for Prior Art, Examiner Training

Patent, , , ,

Guest Post by Professor Jorge L. Contreras

As previously reported, on February 20 the White House highlighted its progress on five patent-related policy initiatives introduced in June 2013, announced three new patent-related initiatives, and renewed its call for legislation to combat “patent trolling”. In all, ten different initiatives were discussed. Below is a quick guide to making sense of the most significant ones, as well as a summary of private sector responses to date.

Patent Assertion Entities (PAEs) – In this year’s State of the Union address, President Obama came out publicly against unfair litigation tactics deployed by “patent trolls” and has called on Congress to enact legislation to “curtail abusive patent litigation.” Two of the Administration’s June 2013 initiatives relate to PAE litigation: a proposed PTO rule that would require reporting of real party in interest (re-branded as “attributable ownership”) information in patents and patent applications, and an online toolkit providing links and other information for the recipients of patent demand letters. Among the most useful features of the toolkit are links to advanced demand letter and patent litigation analytics provided by Lex Machina and Docket Navigator. Although the toolkit is available to anyone, its intended beneficiaries are small businesses that have been targeted by some of the more notorious PAEs for using off-the-shelf office equipment like scanners and wireless routers. The Administration seems to realize that both of these initiatives are relatively modest, and it has again urged Congress to enact measures that will have a meaningful impact on reducing abusive patent litigation.

PTO Fixes – The Patent and Trademark Office (PTO) has, fairly or unfairly, come under increasing fire for procedural lapses and staffing inadequacies that allow the issuance of too many “bad” patents. Last week’s announcements contain some meaningful proposals that could help to address this situation.

  • Claim Clarity – the PTO has implemented new training programs for examiners and judges relating to “functional claims“, which have been widely criticized as overly broad and unclear. The PTO also highlighted an upcoming pilot program involving the use of glossaries in patent specifications to clarify claim language. The details of this program remain to be seen, but anything that will bring greater consistency and rationality to claim interpretation can only help.
  • Examiner Technology Training – One perceived problem with the patent examination system is the inability of examiners to keep up with rapidly changing technologies. Gaps in technical knowledge can result in examiners’ failure to identify relevant prior art, to appreciate the interaction of different system elements, and to make cogent assumptions and conclusions about inventiveness, anticipation and nonobviousness. To address this issue, the Administration has called for private sector volunteers to provide state-of-the-art technical training to patent examiners through a program coordinated by the PTO. This is clearly an area in which the private sector can help to solve a known weakness in the patent system. Several private sector entities have already committed to participate in this project. For example, The Clearing House, a financial services industry association, has pledged to develop educational materials and offer seminars to examiners in the area of financial infrastructure technology, and Verizon, which has already begun to train PTO examiners in the areas of network architecture and communications, will continue these efforts.

    While commitments such as this are a welcome start, important details will likely need to be worked out as this program grows. Though examiners work in specific art units, they must still cover a wide range of products and technologies. In complex and fast-moving fields, one could easily see some examiners spending virtually all of their working hours being trained. Moreover, one can envision competition among businesses to “educate” examiners regarding their competitors’ product lines without providing a balanced or realistic survey of the field. Accordingly, the PTO will need to exercise some oversight regarding both the scope and content of this program, and to ensure that whatever training is provided is likely to enhance the patent examination system, rather than burden or bias it.

  • Crowdsourcing Non-Patent Prior Art – Perhaps the most interesting and ambitious announcement made last week was the Administration’s call for the private sector to disclose and share prior art. The problem of non-patent prior art is a real but difficult one. It goes without saying that patent examiners examining an application should seek prior art relevant to the claimed invention from whatever sources are available. Traditionally, examiners have focused primarily on prior art contained in other patents and patent applications. While patents and patent applications are admittedly easy to search, this technique is sure to miss relevant art that has not been included in patent applications. In fast-moving industries such as software, it is likely that most of the relevant art is contained in “non-patent literature” (NPL). Yet NPL is notoriously difficult to search, particularly outside of the biosciences in which scientific publications are regularly reviewed and cited by examiners. In the software arts, NPL could include old product brochures, documentation manuals, technical drawings, and obsolete code. Even finding, let alone analyzing, prior art from this diffuse and heterogeneous mass of information presents a daunting challenge.

    The problem of NPL has been understood for some time, and “crowdsourcing” of prior art searching has long been viewed as a potential solution. In 2007, the PTO announced its pilot “Peer to Patent” program, which was intended to recruit members of the public to submit prior art relevant to applications under review, initially in the areas of software and business methods. The program was funded by a number of large companies and received a reasonable amount of press coverage, both favorable and unfavorable. The initial pilot program ran from 2007-09, with a second pilot from 2010-11. Perhaps it was the enactment of the America Invents Act in 2011, with its battery of new pre-grant challenge mechanisms, or the difficulty in finding qualified volunteer peer reviewers in highly specific technology categories, but the Peer-to-Patent project has quietly faded into oblivion.

    The Administration’s current “crowdsourcing” approach is different, in that it calls directly on companies, the repositories of most NPL, to help. It is encouraging that a number of private firms have already answered the Administration’s call and pledged to make large quantities of previously non-public technical material available to the PTO. To date, pledges to this effect have been made by:

    • The Clearing House (to provide the PTO with access to documents describing the national financial infrastructure),
    • Microsoft (to provide PTO with access to more than 10 million archived Microsoft technical documents),
    • SAS (to provide 38 years of user documentation and technical papers to IP.com, working in conjunction with the PTO), and
    • Yahoo (to continue to share prior art relevant to its business).

    The amount of data contained within the private coffers of the world’s technology companies is mind-boggling; and collecting, formatting and presenting this data in a cost-effective manner that is useful to patent examiners could prove to be a monumental task. Nevertheless, the effort must be undertaken if patents will continue to be issued in fast-moving technology fields. Google, the world’s largest search engine, has started down this path with its Prior Art Finder, an outgrowth of the popular Google Patent Search launched in 2006. The Administration’s leadership in this area is to be commended, and one can only hope that many more companies will follow those who have already pledged to assist with this vital project.

  • Patent Pledges? – It is notable that both the Examiner Technology Training and the Crowdsourcing Prior Art programs announced last week rely heavily on voluntary engagement by the private sector. The Administration has called upon industry to take a leading role in addressing some of the problems that have emerged in the patent system. This approach is sensible, as the technological expertise necessary to evaluate patents in complex and rapidly evolving technical areas resides within the companies that create those technologies, not in the PTO. However, such calls to action are also risky. What if they are ignored, or too few companies heed the call? Governmental calls to action have been around since the Crusades and have recently sought to address social issues from healthy eating and blood diamonds to financial reform and climate change. Over the past few years, spurred by the increase in PAE litigation, among other things, companies have begun to make voluntary pledges relating to patents. These have included pledges not to assert patents, or not to seek injunctions, against standardized technologies and common technology platforms, to charge royalties that are fair, reasonable and non-discriminatory (FRAND), to refrain from transferring patents to PAEs, and a variety of other activities. As I have written elsewhere, these pledges are intended to assure the market that the pledgor’s patents will not be used to disrupt valuable social activity. The recent pledges made in response to the Administration’s call are of a slightly different variety. Rather than impose “negative” encumbrances on the pledgor’s patents or its ability to enforce them, they create “positive” obligations on the pledgors to contribute knowledge, technology and (presumably) trade secrets to the PTO and/or the public. These new positive patent pledges are an intriguing and potentially game-changing development, and it will be interesting to see how many additional companies elect to commit themselves in this manner. I oversee a project at American University that catalogs patent-related pledges made outside formal standards-setting organizations, and look forward to adding many new commitments from the private sector in response to the Administration’s latest call.

Patent Pro Bono/Pro Se Assistance – Another of the new initiatives announced last week relates to the allocation of “dedicated educational and practical” PTO resources to help pro se (unrepresented by counsel) patent applicants navigate their way through the patent application process. Presumably this means that better documentation, explanatory screens and improved help resources will be made available on the PTO web site, all of which would be useful additions. The Administration also called for private sector volunteers to offer increased pro bono (free) legal assistance to small inventors. While these initiatives are welcome, the vast majority of U.S. patents are filed by businesses that can comfortably afford patent counsel, and the Edisonian conception of the sole inventor has been show largely to be a myth. Thus, while politically appealing, it is not clear that these initiatives will have a meaningful impact on the market or the patent system overall.

One wonders, in fact, why the PTO’s pro bono program is limited to patent prosecution, a relatively inexpensive legal task in the grand scheme of things. Perhaps this program would be more useful, and more aligned with the Administration’s other initiatives, if the pro bono program made lawyers available to advise retailers, small businesses and non-profit organizations about how to respond to PAE patent demand letters. While the analytics and information provided through the new PTO patent litigation toolkit are a gold mine for academics and patent litigators, it is not clear that members of the lay public will be able to make effective use of them without professional legal assistance. The PTO’s pro bono program could nicely fill this gap and make the most of the electronic tools that have already been developed and deployed by the Administration.

Conclusion – There are problems with the U.S. patent system. Rather than avoiding them, the Administration has taken positive and productive steps toward addressing them. While the long-term benefits of some of these initiatives are uncertain, programs such as the PTO’s solicitation of non-patent prior art and enhanced technical training for patent examiners could yield meaningful benefits for the system. The companies that have already pledged their support of these initiatives deserve to be commended. Let’s hope that both the Administration and the private sector follow-through on these promising first steps.

Supreme Court on Fee Shifting – A review of Oral Arguments in Octane Fitness and Highmark

Attorney Fees, Fee Shifting, Patent, Supreme Court, ,

By Dennis Crouch

Octane Fitness v. Icon Health & Fitness (SCOTUS 2014); Highmark v. Allcare Health Mgmt. (SCOTUS 2014) (Transcripts: HighmarkTranscript; OctaneTranscript)

Today, the Supreme Court heard oral arguments in the paired fee-shifting cases of Octane Fitness and Highmark that focus on the proper standard for an exceptional case finding by a district court under 35 U.S.C. § 285 and the proper standard of review on appeal. In Octane Fitness, petitioner asks the Court to lower the standard for proving an exceptional case. In Highmark, petitioner asks for deference to lower court exceptional case findings. In both cases, the Federal Circuit sided with the patentees who lost their infringement actions. In Octane Fitness, the Federal Circuit confirmed that the case was not “exceptional” while in Highmark, a divided Federal Circuit reversed an exceptional case finding based upon a de novo appellate review that gave no deference to the district court’s finding that the lawsuit was objectively baseless.

In the U.S., each party to litigation ordinarily pays its own attorney fees regardless of the case outcome. In the patent litigation context, this changes as 35 U.S.C. § 285 provides an avenue for awarding “reasonable attorney fees to the prevailing party” in “exceptional cases” at the discretion of the lower court. However, discretion only goes so far, and the Federal Circuit’s standard for classifying an “exceptional case” has been critiqued as too rigid, tough, and pro-patentee.

The first case heard today was Octane Fitness. Arguing on behalf of Octane, Rudy Telscher’s main focus was on moving the away from the “objectively baseless” standard to something that is easier for a successful defendant to prove. However, the debate quickly descended into a theoretical discussion of the proper adjective – moving between whether the case was “meritless;” “objectively meritless;” “without substantial merit;” “low likelihood of success;” “unreasonable;” “unreasonably weak;” “a little bit lower than [the Rule 11] standard” and “something more than frivolous.”

Justice Scalia helped cut through the problem somewhat by noting that really what Octane is seeking is a totality of the circumstances test:

JUSTICE SCALIA: Mr. Telscher, it occurs to me that you really cannot answer the question of what adjectives should be attached to “meritless.” And the reason you can’t is, since it is a totality of the circumstances test, that is only one factor and it doesn’t have to be an absolute degree of meritlessness. Even in a I assume you would say that even in a very close case, if there has been outrageous litigation abuse by the other side, the court would be able to say: My goodness, I’ve never seen lawyers behave like this. You’re going to pay the attorneys’ fees for the other side. Couldn’t the court do that?

MR. TELSCHER: That’s absolutely correct, your Honor.

JUSTICE SCALIA: So then how can we possibly define “meritless”? We can’t, because it goes up and down, even in a case where it’s a close case. It could still be exceptional.

MR. TELSCHER: It’s the degree of the unreasonable nature of the case as one factor.

And, in this sense, Octane agrees with the US Government that fees should be awardable whenever the totality of the circumstances indicates that fees are “necessary to prevent gross injustice.”

In a colloquy with Justice Kagan, Octane identified what it sees as a non-exhaustive list of factors to be considered, including (1) whether the case is meritless; (2) bad faith; (3) litigation misconduct; (4) other equitable considerations; (5) anything else that “bears on the gross injustice and uncommon nature of the case.” In addition, Octane argued that the fact that the patentee “never made a product under [the] patent” should be considered as well. Arguing for the U.S. Government, Roman Martinez added that advancement of “objectively unreasonable legal arguments” should also be considered as a factor and, in its own, sufficient for a finding of exceptional case. In his summary, Mr. Telscher did a nice job of summing this up as saying that the exceptional case question is really about “how extreme” the conduct needs to be before it is considered exceptional.

One difficulty is that the Justices had difficulty squaring this laundry list of potentially sufficient factors with the legislative history that the statute is designed to prevent “gross injustice.” In the eyes of the justices (or at least in their questions), gross injustice seems to suggest something more serious than these more mundane factors.  Although both parties and the US Government agree that the “exceptional case” standard should follow a gross injustice standard, Justice Scalia offered a predictable negative outlook on that standard since its establishment is largely based upon legislative history.

Ordinarily, the Supreme Court gives no deference to appellate court decisions. However, here Chief Justice Roberts jumped into the debate to consider the role of deference to the appellate panel in this case based upon the congressionally mandated role of the Federal Circuit in unifying patent law.

CHIEF JUSTICE ROBERTS: [W]hy shouldn’t we give some deference to the decision of the Court that was set up to develop patent law in a uniform way? They have a much better idea than we do about the consequences of these fee awards in particular cases. And since we’re just as Justice Kennedy pointed out dealing with adjectives, you know meritless, frivolous, exceptional why don’t give some deference to their judgment?

MR. TELSCHER: Well, I think we need to look at the basis of the judgment.

On that point, the Government responded favorably to the idea that the Federal Circuit could be given deference on some issues, but the internal inconsistencies on this particular issue mean that deference doesn’t make sense here:

MR. MARTINEZ: I think if the Federal Circuit had had a consistent view over its history or if the Federal Circuit were not internally divided on this issue, that may be a consideration. Deference might be more appropriate. But here there is no consistent history and the Federal Circuit, as we’ve seen in Kilopass, is divided.

Here, Chief Justice Roberts may be considering whether the Federal Circuit should be thought of more like an expert agency who would receive some amount of deference for its rulemaking (i.e., precedential decisions).

In the oral arguments, Justice Alito attempted to focus in on exceptionality and noted that, for most district court judges, all patent cases are unusual and – as such – may have no basis for determining whether a particular case is exceptional as compared with the ordinary patent case.

An important issue in the Octane fitness case that was only subtly discussed is also whether clear-and-convincing evidence is required to prove an exceptional case or is a preponderance of the evidence sufficient.

Carter Phillips argued on behalf of the respondent here; arguing that – absent other misconduct – that the case must have been “objectively baseless” in order to be deemed exceptional under Section 285.

One interesting aspect of the decision focused on the applicability of the Supreme Court’s decision in Prof’l Real Estate Investors v. Columbia Pictures Indus.,508 U.S. 49 (1993) and Noerr immunity.

MR. PHILLIPS: Well, I think you could argue that there is at least a First Amendment concern that’s in here;

CHIEF JUSTICE ROBERTS: First Amendment concern, what, to bring a patent case?

MR. PHILLIPS: Well, access to the courts, access to the courts. Any time you talk about imposing multimillion dollar fee awards at the end of the litigation, particularly if you do it on a fairly arbitrary basis.

JUSTICE SCALIA: Do you think Congress could not require the loser to pay in all cases?

MR. PHILLIPS: Well, I have no doubt that Congress could well, I’m not sure about in all cases.

JUSTICE SCALIA: I mean, if it can do that, there’s certainly no First Amendment problem.

MR. PHILLIPS: Well, I’m not sure I concede that in all cases. I do think in the run of the mill cases, but when you’re talking about a situation where the assertion is that the conduct of the litigation, the bringing of the litigation itself is inappropriate

JUSTICE SCALIA: That’s an English rule. It used to be our rule. I don’t see how you can possibly say that it’s unconstitutional to make the loser pay.

JUSTICE KENNEDY: This is not your best argument. (Laughter.)

MR. PHILLIPS: It is not my best argument, I appreciate that.

On the other hand, if you if you go back and look at Christiansburg. In that case the Court also didn’t treat it as a First Amendment issue, but it still recognizes an important policy of trying not to have too much interference with access to

When Justice Breyer entered the argument, he implicitly pushed Mr. Phillips to recognize that the USPTO has issued many bad patents but that the associated presumption of validity of the patents is a setup that makes it very hard to show a case is objectively baseless even when it is pretty clear that a patent is invalid. Philips responded simply that the filing of a frivolous claim should be seen as objectively baseless and that the present case was not such a case.

Phillips also gave his talk on how the “patent troll” debate is really nonsense and that there is nothing to see here:

MR. PHILLIPS: First of all, as I say, the plaintiff this you know, there’s a reason why you don’t see advertisements on television when Saiontz & Kirk says, If you think your patent has been infringed, call us. Why? Because there’s not a long line of people who can bring plaintiffs’ patent cases. They are expensive to litigate, and the ultimate effect and you have to get an expert, and at the end, you put your patent into validity [risk].

Apart from that, however, the court did not appear to focus on the “troll” issue in any depth.

= = = =

The Highmark argument came immediately following that of Octane Fitness. The second cases focuses on the standard of appellate review for the objectively baseless question and so, obviously depends upon the outcome in Octane Fitness. Certainly, if the court moves toward a “totality of the circumstances test” then more deference would be given to district court judges in their determination. That makes Highmark the trailing decision here and likely less important.

Neal Katyal argued on behalf of petitioner Highmark who is asking the court to give deference. Katyal is a former Acting Solicitor General of the US and also brother to Fordham Law School IP Professor Sonya Katyal. The basic argument that whether or not the party’s position is reasonable is a question of fact that, once decided, should be given deference on appeal. The US Solicitor’s office also supported Highmark here arguing for deference. Don Dunner argued on behalf of the respondent here

Federal Circuit: Enablement More Difficult When Invention Faces Skepticism

Enablement, Patent, ,

By Dennis Crouch In re Hoffman (Fed. Cir. 2014) (non-precedential decision) Gene Hoffman and David Lund’s patent application is directed to method of weakening the strength of tropical cyclones by delivering super-coolant from an aircraft into the eye of the hurricane. The inventors here have never tested their method, but did provide some preliminary calculations that – they argue – suggest success. The USPTO rejected the application for failing to enable the claimed invention under 35 U.S.C. 112(a). In particular, the examiner identified three failures: (1) the preliminary calculations contained unexplained assumptions and mathematical errors; (2) the specification noted a need for experimentation to determine the proper amount of coolant to add and the optimal strike time; and (3) a number of weather scientists have expressed doubt as to whether similar approaches would work. In reviewing the rejection, the PTAB affirmed and that decision (rejecting the application) has now been affirmed on appeal. Pending claim 36 is identified as representative and claims:

A process for disrupting a formed or forming tropical cyclone eye wall or eye or center of lowest pressure comprising:

Introduction of a super coolant chemical agent sprayed with force (the super coolant is stored in a vessel under pressure) and or released from pre-measured containers from an appropriate number of large aircraft to reduce the temperature within the eye wall (top to bottom at sea level),

thereby circulating the super coolant throughout the eye wall by the centrifugal force of the eye wall, alternatively into the eye or center of lowest pressure to reduce the temperature in the eye or center of lowest pressure and the water beneath,

[t]hereby reducing the wind and storm surge of the eye wall or raising the pressure in the eye or center of lowest pressure and converting it back to a tropical rainstorm.

The claim form here does not really follow the standard ordinarily used by professional patent drafters. Here, it appears that claim drafting and prosecution were handled pro-se by the inventors. For more than 150 years, patent law has been seen as an arcane area of law full of traps for non-experts. In some ways, this decision confirms that tradition. The first sub-section of 35 U.S.C. § 112 requires that the patent document disclose enough about the invention so as to enable an artisan skilled in the particular area of science and technology to make and use the invention. The statute reads:

[The patent must disclose] the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same.

35 U.S.C. §112(a). The court has added some gloss to the statute in that precedent allows missing elements from the specification so long as the skilled artisan could fill-in those gaps without undue experimentation. The court also uses the “Wands factors” to help determine whether the disclosure meets the enablement standard. These factors include:

  1. The quantity of experimentation necessary,
  2. The amount of direction or guidance presented,
  3. The presence or absence of working examples,
  4. The nature of the invention,
  5. The state of the prior art,
  6. The relative skill of those in the art,
  7. The predictability or unpredictability of the art, and
  8. The breadth of the claims.

In re Wands, 858 F.2d 731 (Fed. Cir. 1988). In applying these, the Federal Circuit found that there was no doubt that the USPTO’s decision was correct. Although the court did not go into depth in its analysis, one interesting aspect of the decision is that the Federal Circuit identifies skepticism in the scientific community as the most important factor here. The court writes:

And perhaps most significantly, the very efficacy of the method itself is subject to considerable doubt in the scientific community.

In other words, the enablement burden is more difficult to meet when the invention is surprising or when it goes against conventional wisdom. Of course, those same inventions will more easily surpass the central patentability test of non-obviousness. My point here, though, is that patentees with clearly groundbreaking inventions should take extra pause to ensure that the surprising result has been properly enabled.

More USA Jobs

Patent

US Department of Justice has two vacancies for IP litigators to primarily handle § 1498 defense:

The Intellectual Property Staff of the Commercial Litigation Branch, primarily defends the United States against allegations of patent and copyright infringement in the United States Court of Federal Claims and the United States Court of Appeals for the Federal Circuit. The Branch occasionally represents the Government in a variety of proceedings before the Patent and Trademark Office, the district courts, and the courts of appeals.

https://www.usajobs.gov/GetJob/ViewDetails/360379300.

PTAB continues to hire, and is looking for a Vice Chief: https://www.usajobs.gov/GetJob/ViewDetails/362535800

The Federal Circuit is hiring a new Deputy Chief Clerk: https://www.usajobs.gov/GetJob/ViewDetails/362474500

 

Patent Plaintiffs May Welcome More Fee Shifting

Attorney Fees, Fee Shifting, Patent

By Dennis Crouch

Semcon Tech LLC v. Micron Tech (D. Del. 2014)

A few days ago Judge Richard Andrews wrote the following order in this case:

The request for oral arguments is denied. Micron’s position is meritless, and I am surprised that micron’s distinguished Delaware counsel did not talk lead counsel out of its opposition to the motion.

[Order Lifting Stay]. Semcon’s case against Micron involves the chemical-mechanical polishing and planarization used in semiconductor wafer manufacturing. U.S. Patent No. 7,156,717. Earlier in the litigation, the parties in the action agreed to a stay of the litigation pending outcome of parallel cases involving the same patent against Applied Materials. In December 2013 that case was voluntarily dismissed as part of a settlement agreement between Semcon and Applied Materials. Semcon then repeatedly sought to meet and confer with Micron’s opposing counsel from Weil Gotshal regarding re-opening of the case, and then eventually filed a motion to lift the stay.

In its opposition to the motion, Micron‘s attorneys argued that the stay should never be lifted and never be reopened. That tidy conclusion was a simple matter of logic: (1) The stay order set in place by Judge Andrews stated that it would be in place “until such time as a final, non-appealable judgment is entered in the Semcon v. Applied Materials Suit.” And, (2) no final judgment was entered in the Applied Materials case but rather the case was merely subject to a voluntary dismissal without prejudice by Semcon. According to Micron’s attorneys, for the stay to be lifted, Semcon must re-file its lawsuit against Applied Materials and litigate that case “to a final, nonappealable judgment. . . . Until that occurs, however, the stay should remain in place to preserve efficiency and economy.”

Of course, the court saw Micron’s argument as too clever and has ordered the case reopened. I suspect that Semcon will next move for some amount of Rule 11 fees.

Micron has an interesting reputation in the patent sphere. In 2011, the company stopped hiring University of Illinois engineers because the university had sued Micron for patent infringement.  The company also has an (apparently) ongoing back-end deal with Round Rock to enforce more than 1,000 of its patents.

A few days ago, I wrote about defendants behaving badly and whether there are clear examples of that occurring. Although admittedly biased, patent plaintiff IP Nav (Erich Spangenberg) has an put together an interesting essay on the topic of fee shifting. See Patent Lawsuit Defendants Behaving Badly. The essay explains why IP Nav can be happy with a fee shifting rule – as long as it is balanced so that he can collect fees against defendants who engage in willful infringement, make meritless arguments in court, and needlessly drag-out litigation. The essay also highlights a few examples such as Takeda Chemical v. Mylan Laboratories (attorney fee award of $16.8 million to the patentee Takeda because Mylan’s obviousness argument was “so devoid of merit and so completely fail[ed] to establish a prima facie case of invalidity that it must be described as `baseless.'”) and Beckman Instruments, Inc. V. Lkb Produkter Ab. (Attorney fees for the patentee Beckman for defendant’s vexatious litigation).

On Wednesday of this week, the Supreme Court will be hearing oral arguments in the two pending fee shifting cases Highmark and Octane Fitness.

Federal Circuit: Patent Case May be Transferred to Court with No Personal Jurisdiction over Plaintiff

Patent,

By Dennis Crouch

elcommerce.com v. SAP (Fed. Cir. 2014)

In a prior post, I discussed the important means-plus-function issues arising from this case. Here, I focus on the separate issues of jurisdiction and venue.

Elcommerce first filed its lawsuit in the Eastern District of Texas (TX Court). Subsequently, SAP moved for a transfer of venue to the Eastern District of Pennsylvania (PA Court). SAP’s headquarters is located within the EDPA and the district court granted the § 1404 transfer motion. On particular concern raised by elcommerce was that it had no ties with Pennsylvania and that, as a consequence, PA Court had no jurisdiction over it as plaintiff. Both the district court and the Federal Circuit rejected that argument.

The statute provides that “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” 28 U.S.C. § 1404(a). Here, it is clear that the case could have been brought in PA Court since that is SAP’s headquarters and, according to the Federal Court, that settles the matter.

Here, in the first-filed Texas case there was personal jurisdiction over both the plaintiff elcommerce and the defendant SAP, and elcommerce as plaintiff was subject to the declaratory counterclaims filed by SAP in Texas. This jurisdiction was preserved when the entire action was transferred to Pennsylvania under §1404(a).

The court previously found this same result in the case of In re Genentech (Fed. Cir. 2009). There, the court stated that “[t]here is no requirement under §1404(a) that a transferee court have jurisdiction over the plaintiff or that there be sufficient minimum contacts with the plaintiff.”

Means-Plus-Function: Invalidity Needs Expert Testimony

Patent,

By Dennis Crouch

elcommerce v. SAP (Fed. Cir. 2014)

Facing another functional claim limitation case, the Federal Circuit here vacated the lower court holding that the means-plus-claims were invalid as indefinite for failing to teach sufficient corresponding structure in the patent specification. Particularly, the court here holds that, in this case, attorney-argument was insufficient to prove invalidity and rather than some amount of extrinsic evidence (such as expert testimony) was necessary to provide the necessary clear-and-convincing evidence.

Patent claims ordinarily recite particular “structure, material, or acts” as elements that both provide for the requisite inventive step and also materially limit the scope of rights. However, since 1952 the patent act has provided an express avenue for drafting patent claims using functional – instead of structural – limitations. Under 35 U.S.C. §112(f), a claim element “may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof.” To a lay reader, these means-plus-function claims appear quite broad. For instance a claimed “means for connecting elements A and B” seemingly covers any method or structure that accomplishes the claimed function. However, the statute itself requires that means-plus-function claims be given a much more limited scope. That is, the statute goes-on to say that a means-plus-function claim “shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof.” Id. Thus, to know the meaning of a claimed “means for connecting,” we must look to the patent specification to see what particular connecting mechanisms were disclosed and the scope of the claim would be limited only to those disclosed structures and their equivalents. The result here is that means-plus-function claims typically have a scope that is much narrower than one might expect on the initial reading.

In recent years, a substantial number of means-plus-function claims have been invalidated as lacking definiteness under § 112(b). (I.e., invalid as indefinite). Courts follow the following logic: (a) The statute requires that a means-plus-function element be defined according to corresponding structure found in the specification; (b) If no corresponding structure is found in the specification then the term cannot be defined and (c) is therefore invalid as indefinite.

In this case, the asserted claims are directed to a system for monitoring a supply chain. Representative claim 37 in the case has nine-different means claim elements, such as a “means for monitoring” supply data; “means for extracting” supply data; “means for translating” the data into a common format; etc. As part of its claim construction, the district court found that the specification failed to include any structure for any of the claimed means and subsequently, that the claims were invalid and indefinite. One problem with the district court’s analysis is that it doesn’t come to terms with the reality that “structure” is to be seen in the eyes of one skilled in the art.

Now, the standards applied here are quite messy. We know that patents are presumed valid and, in Microsoft v. i4i, the Supreme Court explained that presumption may only be overcome with clear and convincing evidence. In a concurring opinion, Justice Breyer (joined by Justice Scalia) raised the point that the clear-and-convincing standard ordinarily applies to factfinding and questions of fact and not to questions of law. Justice Breyer writes: “Where the ultimate question of patent validity turns on the correct answer to legal questions—what these subsidiary legal standards mean or how they apply to the facts as given—today’s strict standard of proof has no application.” Ignoring that advice (sub silento), the Federal Circuit has ruled that indefiniteness must be proven with clear and convincing evidence. See TecSec, Inc. v. IBM, 731 F.3d 1336 (Fed. Cir. 2013)(Linn, J.). That conclusion draws its foundation from the 1987 Panduit decision stating that the presumption of validity is applicable to all validity challenges. Panduit v. Dennison, 810 F.2d 1561 (Fed. Cir. 1987) (Markey, J.). Drawing-in the claim construction issue, by statute, identifying the “corresponding structure” of a functional element is a claim construction issue. Such an element “shall be construed to cover the corresponding structure.” And, as patent litigators are well aware, claim construction is also a question of law.

In her opinion, Judge Newman does not address any of the aforementioned conflict except for the requirement that indefiniteness be judged with clear and convincing evidence. With that framework, the opinion notes that the only way “a general purpose judge could ascertain the position of persons of skill in the art and conclude that there is not a shred of support for any of the eleven interrelated means-plus-function claim limitations. . . . The burden was on SAP to prove its case, and in the absence of evidence provided by technical experts who meet the Daubert criteria there is a failure of proof. Attorney argument is not evidence.” Here, Judge Newman’s statement regarding “not a shred of support” goes beyond the clear-and-convincing standard, but her point is made – expert testimony is necessary here.

To be clear, the Federal Circuit does not expressly hold that expert testimony is always required. We do not of course hold that expert testimony will always be needed for every situation.” However, the court does not provide any explanation of when it might not be necessary.

In prior cases, the Federal Circuit has held that claim construction and indefiniteness findings can be made without expert testimony. See, e.g., Noah Systems, Inc. v. Intuit Inc., 675 F.3d 1302 (Fed. Cir. 2012); Default Proof Credit Card Sys., Inc. v. Home Depot U.S.A., Inc., 412 F.3d 1291, 1302 (Fed. Cir. 2005). The majority does not address these prior precedents. However, Judge Wallach does in his dissenting opinion.

The issue in this case is whether expert testimony is required to prove indefiniteness of a means-plus-function term when the specification contains no corresponding structure. This court answered “no” in Noah, explaining that expert testimony is not required where the specification contains no algorithm corresponding to each recited function. When there is an identifiable algorithm, however, expert testimony may be helpful in determining whether the algorithm is adequate corresponding structure in the view of a skilled artisan. Id. . . .

Indeed, indefiniteness is part of claim construction, both of which are questions of law. . . . Just as there is no requirement for expert testimony when construing means-plus-function claims to cover the corresponding structure, expert testimony is not needed to hold the claims indefinite when no structure is disclosed.

Judge Wallach’s point parallels what I discussed above – that these are questions of law where expert testimony does not appear to be a requirement. However, his perspective also appears lacking because he essentially ignores the requirement that these questions be viewed from the standpoint of one of skill in the particular area of technology.

Deserving of Attention: The Proposed Abrogation of Civil Rule 84 & the Official Forms

Patent

Guest post by Professor Brooke D. Coleman. (Ed: Professor Coleman is not a patent scholar, but instead focuses her attention generally on civil procedure. I asked her to write this guest post on the form-complaint issue from that perspective. – Dennis).

In the land of civil procedure, we tend to get very excited when the Federal Rules of Civil Procedure are amended. As proceduralists, however, we are accustomed to expressing our enthusiasm amongst ourselves. Procedure can be a lonely endeavor—especially when it comes to the Rules and the Federal Rulemaking process. However, the current proposed amendments to the Civil Rules are receiving far more attention than usual. The Committee on the Federal Rules of Practice and Procedure of the Judicial Conference has proposed amendments to the discovery rules. These amendments have been controversial, receiving over 2000 comments during the recently-extended public comment period and getting extensive coverage on blogs and in editorials.

Yet, lost in the buzz around the discovery rules is another critical proposed change—the abrogation of Rule 84 and the Forms. (This is where one might start to think that the lone nature of procedure is a good thing, but trust me, it gets interesting.) Rule 84 provides that the forms included in the appendix to the Civil Rules are both illustrative and sufficient under the rules. The forms themselves have been a part of the Civil Rules since the rules were originally adopted in 1938. The Rulemaking Committee has grown concerned about these forms, however, because recent cases have called the validity of the forms into question. For example, some have argued that Form 11—the form for pleading a basic negligence claim—is no longer valid after recent pleading cases, Twombly & Iqbal. In patent cases, courts have similarly struggled with whether Form 18 is valid. (And, in fact, pending federal legislation may eliminate Form 18 anyway.) In the face of this consternation over the forms, the Committee considered a few possible paths. First, it could leave the forms as is. Second, it could change the forms and bring them in line with current practice. Finally, the Committee could just get out of the form-writing business altogether. It chose the final option.

There are a number of problems with the path the Committee chose. The problem I have focused on is how the Committee has gone about attempting to abrogate Rule 84 and the Forms. As I have argued elsewhere, the Rules Enabling Act process—the process by which the Civil Rules are amended—requires the Committee to change the rules and the forms together. This is because the forms and the rules to which they correspond are one in the same. In order to understand the rule, one must look to the form. Because the rule and form are linked in this way, in order for the Committee to change the form, it must consider and publish both the rule and form together. In this case, the Committee did nothing of the sort. It is deleting Rule 84 and the forms without reference to any of the rules to which those forms correspond.

I argue this is problematic for a few reasons. First, the history of Rule 84 shows that the rules and the forms are linked. The original rulemakers believed the forms were critical. They intended the forms to be the “pictures” that would accompany the rules. Rule 84 has only been amended one time since then. In the early years after the rules were adopted, some courts did not treat the forms as sufficient under the rules. Those courts dismissed cases even when parties followed the form complaints. In 1946, Rule 84 was amended to clarify that the forms were not simply passive indications of what the rules meant. They were instead active illustrations of the rules. The revised language adopted in 1946 is the rule we still have today—it states that the forms suffice under the rules. That the rule was amended to make this clarification demonstrates how the rules and forms are inextricably linked.

Second, rulemaking practice with respect to the forms shows that the rules and the forms are connected. Historically, the forms have only been amended in concert with their corresponding rules. For example, when Rule 4 was amended to add a provision for waiver of service of process, the forms were also amended to abrogate the old service form and add new forms. This example of how the forms are amended is repeated throughout the history of the rules. I reviewed every instance in which a form was amended since 1938. There were only two contexts where a form was amended without amending the rule to which it corresponded. First, forms were amended pursuant to federal statutory change (Congress raising the amount in controversy, for example). Second, forms were amended to make purely technical modifications (changing date designations from 19—to 20—at the turn of the century, for example). In other words, the forms have never been modified in a meaningful way without a corresponding change to the rules.

Finally, there is a current example of how the proposed abrogation of the forms is problematic. As already discussed, Twombly and Iqbal have called the pleading forms into question. Yet, the Court cited Form 11 approvingly in Twombly, and has said nothing about it since. The Rulemaking Committee’s deliberations regarding the forms, and specifically Form 11, demonstrate the amount of confusion those cases have created. But, they also demonstrate how much Rule 8 and Form 11 are linked. In those deliberations, the Committee worried that deleting Form 11 would affect the interpretation of Rule 8 and Twombly and Iqbal. This means the Committee was concerned that deleting Form 11 would change Rule 8. And, that is exactly the problem. If deleting a form changes the rule to which it corresponds, that means the rule and the form must be considered together and, further, it means both the rule and the form must be published for comment.

In short, by not considering and publishing the rules and the forms together, the Committee has violated the Rules Enabling Act process. In addition, its failure to follow the proper course has made this change less noticeable. Lawyers, academics, and judges haven’t focused on how deleting the forms will affect the rules because the proposal—as a simple abrogation of Rule 84—does not indicate the significance of this change. Add in the controversy regarding the discovery rules, and it is easy to see why this rule change has gone relatively unnoticed. Yet, the change the Committee is proposing is a substantial one. It certainly hasn’t gotten the attention it deserves, but let’s hope it does before it is too late.

Brooke D. Coleman is an Associate Professor of Law at the Seattle University School of Law. A draft of her article titled Abrogation Magic: The Rules Enabling Act, Civil Rule 84, and the Forms is available on SSRN.

Patently-O Bits and Bytes by Dennis Crouch

Patent

 

Lighting Ballast: Deference Would Have Only Masked the Problems

Patent,

By Dennis Crouch

In Lighting Ballast, the en banc Federal Circuit once again held that claim construction should be seen as a question of law that is reviewed de novo on appeal. In the end, this is probably a good result for the patent system – but not for any of the reasons given by the court.

Over the years, the high-rate of claim construction reversal has repeatedly been highlighted as a symbolic of problems with the patent system. Some thought that the problem lay in district court failures to conduct proper analyses, but over time, most of us have come to reject that explanation. Rather, my view is that claim construction is a difficult task and it is not surprising that, out of the myriad possible definitions that a term could be given, two courts would disagree on which definition is best. I actually see this issue pointing a spotlight toward a major problem with the patent system – perhaps the largest problem – that patents often fail to provide clear notice of what is and what is not covered by the various claims.

Deference would have only masked the problem. The reversal rate would have gone down and from that high level that traditional off-kilter signal would be missing. The real difference with deference would be that patent scope would be understood as of the district court decision rather than having to wait for an appeal. That may help some litigants, but still it is a fairly ridiculous patent system where the scope of claims are not well understood until determined by a judge.

Rather, the problem has to be addressed by the US Patent Office with a renewed focus on clarity of claim scope. President Obama’s administration has recognized this with their call to “ensure claims are clear and can be consistently enforced.” The rub is that the administration’s approach of (1) encouraging glossaries and (2) providing additional examiner training are unlikely to have any meaningful impact. The good thing then is that the Federal Circuit’s continued power means that these systemic problems won’t be buried.

En Banc Federal Circuit Confirms Cybor: Claim Construction Reviewed De Novo on Appeal

Patent, , ,

By Dennis Crouch

Lighting Ballast Control LLC v. Philips Electronics N.A. Corp. (Fed. Cir. 2014) (En banc)

In a long awaited decision, an en banc Federal Circuit has reconfirmed the longstanding rule that claim construction is an issue of law reviewed de novo on appeal.

Writing for the majority, Judge Newman summarizes:

For the reasons we shall discuss, we apply the principles of stare decisis, and confirm the Cybor standard of de novo review of claim construction, whereby the scope of the patent grant is reviewed as a matter of law. After fifteen years of experience with Cybor, we conclude that the court should retain plenary review of claim construction, thereby providing national uniformity, consistency, and finality to the meaning and scope of patent claims. The totality of experience has confirmed that Cybor is an effective implementation of Markman II, and that the criteria for departure from stare decisis are not met.

Because of the importance of this issue and the divided court, Supreme Court review is fairly likely. The decision also guarantees that the Court will continue to be the central patent law authority.

The majority decision filed by Judge Newman was joined by five other judges (Judges Lourie, Dyk, Prost, Moore, and Taranto). Judge Lourie wrote a concurring opinion providing “additional reasons” for confirming Cybor. Judge O’Malley filed a dissenting opinion that was joined by Chief Judge Rader and Judges Reyna and Wallach. The six-member opinion carried the day as majority because Judges Hughes and Chen chose not to participate. Even then, a 6-6 tie would have confirmed Cybor but without any clear further precedent.

The majority opinion takes a Socratic approach of poking holes in every argument for changing the rule and in the end concluded that “deferential review does not promise either improved consistency or increased clarity.” And, without some clear reason to change, the default in law should be stare decisis – follow longstanding precedent that, in this case, involves hundreds of appellate claim construction decisions over the past 15 years creating a large body of precedent. The majority writes:

We have been offered no argument of public policy, or changed circumstances, or unworkability or intolerability, or any other justification for changing the Cybor methodology and abandoning de novo review of claim construction. The proponents of overruling Cybor have not met the demanding standards of the doctrine of stare decisis. They have not shown that Cybor is inconsistent with any law or precedent, or that greater deference will produce any greater public or private benefit. We conclude that there is neither “grave necessity” nor “special justification” for departing from Cybor.

The court also walked through post-Cybor policymaking by Congress as well as Supreme Court decisions and found nothing that would undermine Cybor.

[W]e have reviewed the arguments for changing the Cybor procedure of de novo review of claim construction. First, we have looked for post- Cybor developments, whether from the Supreme Court, from Congress, or from this court, that may have undermined the reasoning of Cybor. None has been found, or brought to our attention. There has been no legislative adjustment of the Cybor procedure, despite extensive patent-related legislative activity during the entire period of Cybor‘s existence.

In the end, the Court did not address the particular facts of the case – whether the “voltage source means” should be interpreted under §112p6. The district court said no but the original appellate panel said yes (on de novo review). That appellate panel will carry the day here and the plaintiff loses because the specification did not disclose sufficient structural embodiments of the claimed voltage source means.

“Inventive Concept” and the Hot-Blast Cases

Patent, , , , ,

Guest post by Jeffrey A. Lefstin, Professor of Law, University of California, Hastings College of Law

As the Supreme Court prepares to take up Alice Corp. v. CLS Bank, a major question the Court may confront is to what extent an “inventive concept” is necessary for patent eligibility under § 101. In Mayo v. Prometheus, the Court suggested that “conventional and obvious” activity cannot transform a law of nature or abstract idea into a patent-eligible invention. The Court seemingly revived Parker v. Flook, which held that only “inventive applications” of abstract ideas are patent-eligible. But when the Federal Circuit heard CLS Bank, divided as the court was, both Judge Rader and Judge Lourie emphatically rejected the idea that Mayo demands “inventiveness” for patent-eligibility.

In both Flook and Mayo, the Supreme Court anchored the requirement for inventive application in Neilson v. Harford, the famous English case on James Neilson’s hot-blast smelting process. The Court in Flook and Mayo focused on this passage appearing in Baron Parke’s opinion for the Court of Exchequer:

We think the case must be considered as if the principle being well known, the plaintiff had first invented a mode of applying it by a mechanical apparatus to furnaces; and his invention then consists in this—by interposing a receptacle for heated air between the blowing apparatus and the furnace.

Flook took this language to mean that an underlying idea or discovery should be treated as part of the prior art; Mayo took it to mean that a claim is patent-eligible only if the application of a discovery or idea is inventive or unconventional.

However, a reading of the Exchequer’s full opinion tells the opposite story. Neilson’s patent was sustained because his application was entirely conventional and obvious. The defendant’s challenge in Neilson was primarily a scope of enablement argument: Neilson had disclosed that the blast should be heated before introducing it into the furnace, but disclosed next to nothing about the heating means. In refuting the defendant’s challenge, both the patentee and the judges of the Exchequer emphasized that the mode and apparatus for heating air were old and well known in the field, and represented no invention by Neilson.

So why did Baron Parke write that Neilson’s discovery – his ‘principle’ – should be regarded as “well known”? The court was wrestling with the question of whether Neilson had claimed a patentable manufacture, or the abstract principle that hot air was superior to cold. And if a manufacture, was Neilson entitled to reach the accused blast furnace, which employed a different heating apparatus? The Exchequer had faced the same questions seven years earlier in Minter v. Wells, involving a patent to an adjustable chair. The defendant in Minter had argued that the patentee was trying to claim a well-known principle of mechanics: the self-adjusting lever. Alternatively, if the claim was to the chair rather than the principle, the patent should be restricted to the inventor’s particular embodiment. Baron Parke concluded instead that the patentee had claimed the application of the self-adjusting leverage to an adjustable chair. Therefore, the patent was not drawn to an abstract principle, and might extend to other chairs embodying the same application but with a different arrangement.

Minter thereby established that a patent might claim the application of a well-known principle to new ends, and might extend beyond the exact machinery employed by the patentee. In the famous passage from Neilson, Parke was applying the same doctrine to Neilson’s patent – except that Neilson’s ‘principle’ was new rather than well-known. Neilson was a more difficult case because, given Neilson’s minimal disclosure, the scope of enablement was more dubious than in Minter. But a special jury verdict on that point ultimately carried the day for Neilson.

Neilson was only one of some twenty cases asserted by Neilson in England and Scotland. Other decisions following and interpreting Neilson leave no doubt that the case stood not for inventive application, but for the distinction between principles in the abstract and patentable applications. For example, in a case litigated the next year, Househill v. Neilson, the Court of Sessions stated:

The main merit, the most important part of the invention, may consist in the conception of the original idea—in the discovery of the principle in science, or of the law of nature, stated in the patent, and little or no pains may have been taken in working out the best manner and mode of the application of the principle to the purpose set forth in the patent.

Neilson was understood the same way in the Supreme Court’s landmark 19th-century opinions that discussed Neilson extensively, such as Le Roy, Morse, and Tilghman. Further, in late 19th-century and early 20th-century American cases and treatises, it was black-letter law that while abstract principles and discoveries could not be patented, a practical application was patent-eligible without the need for inventive application – subject to certain exclusions such as the ‘mental steps’ rule.

As I wrote about last year, the actual origin of the inventive application test was Justice Douglas’s opinion in Funk Brothers, in 1948. The dubious history of the inventive application test in the wake of Funk suggests we would have been better served by following Justice Frankfurter instead of Justice Douglas. For it was Frankfurter’s concurrence that embraced the spirit of Neilson and the historical tradition: the claims to bacterial compositions in Funk were unpatentable not because they added or changed little relative to a law of nature or natural phenomenon, but because the patentee was claiming the idea of compatible strains instead of his practical application.

I write about the hot-blast cases, and the history of the inventive application test, in an article available here.

Two Upcoming Conferences

Patent

Spring is the time for IP law conferences…and fortunately, spring is almost here.  (I’m trying to be willfully blind to forecasters’ projections that it’s going to be -5 here in Iowa in a few days).  Two conferences coming up next week:

Summit on Law in the Global Marketplace:

On Monday, February 24, the University of California Hastings College of the Law, the Berkeley Center for Law and Technology, and Hogan Lovells are hosting a one-day summit on Law in the Global Marketplace: Intellectual Property and Related Issues at UC Hastings.  Speakers include Judge Rader, the Hon. Sung-Mei Hsiung, High Court Judge, Taiwan Intellectual Property Court, and Mark Jackson, Senior Patent Counsel for Genentech.  Details are available here: [Law and the Global Marketplace Registration]

(I’m told that the event is currently sold-out, but they’re keeping a waitlist.  Folks interested in the program can contact Chris Mammen at chris.mammen@hoganlovells.com for more details.).

Northwestern Journal of Technology & Intellectual Property Symposium 2014

Next Thursday and Friday, the Northwestern Journal of Technology & Intellectual Property is hosting its annual symposium.  They have a great lineup of speakers, including F. Scott Kieff of the International Trade Commission, Michael Friedman of Ocean Tomo, Kevin Noonan of MBHB (and one of the coauthors of PatentDocs, Jane Ginsburg of Columbia Law School, and many others.  The Friday program will provide 3.75 CLE credits.  More information is available here: http://scholarlycommons.law.northwestern.edu/njtip_symposium/SCHEDULE/Schedule_2014/