Patent Reform 2015

According to The Hill, Patent Reform has been taken off the agenda of the judiciary committee. Senator Leahy is quoted as saying “Because there is not sufficient support behind any comprehensive deal, I am taking the patent bill off the Senate Judiciary Committee agenda.”

With election season now moving into high-gear, the issue is unlikely to be revived this session.

Fee Shifting as a Risk Management Exercise

By Dennis Crouch

I have written before that patent plaintiffs may welcome more fee-shifting so long as they are balanced in the way that they apply both to plaintiffs and defendants. In Octane Fitness, the Supreme Court followed this pathway – giving trial court judges discretionary authority to determine which cases are sufficiently “exceptional” to warrant an attorney fee award.

Because of the expense, unpredictability, and potential delays of patent litigation, patent assertion entities spend a considerable amount of time managing and hedging against downside risks. They do this by finding contingency fee attorneys and partners willing provide substantial up-front monies in order to fund an enforcement campaign. Still, in the wake of Octane Fitness, some assertion entities have at least informed their investors of potential risk. Spherix Inc, for instance, recently filed a quarterly report remarking on the topic:

Recent rulings also create an increased risk that if the Company is unsuccessful in litigation it could be responsible to pay the attorney’s fees and other costs of defendants by lowering the standard for legal fee shifting sought by defendants in patent cases.

Link.

Of course, for masters-of-risk-management, the increased risk of owing attorney fees upon losing a case is just another risk to be managed.

Athena Fee Shifting Protection (FSP): A new product being offered by Athena FSP is designed to help in this regard. In return for a percentage share of any eventual award or settlement, Athena FSP will promise to pay any attorney fee award lodged against their partner. For patent assertion entities, this model eliminates the downside risk of losing a fee shifting award by reducing the potential upside by a few points. (Note: the standard policy limit is $3m).

Although Athena FSP’s product looks like insurance, the company wants to ensure that its product is not regulated as insurance. One difficulty with insurance is that state regulators typically enforce a rule against providing insurance for intentional torts — and losing on an exceptional-case finding has many parallels to intentional torts. Because of the upside-only payout, a better analogy may be to think of Athena FSP as an investor who, instead of paying cash for shares, takes a percentage of revenue in return for co-signing the loan.

I asked Athena’s Director Ashley Keller whether there is some fear that judges will be more likely to award fees in their cases since the partnership with Athena FSP seems designed as a plan toward malfeasance. The well-considered retort is twofold: Athena’s approach is to conduct an extensive deep dive into the potential lawsuit as a way to vet the case and only partner in situations where an exceptional case award is quite unlikely. That vetting process can then serve as evidence that an outside entity was willing to put significant money at risk based upon its thorough analysis that the case was not exceptional. In other words, if this was an insurable risk then it shouldn’t be seen as exceptional.

Applicant-Assignees

One aspect of the America Invents Act of 2011 was to allow patent owners to directly file patent applications as the named “applicant.” Under the prior rule, only inventors could be applicants except in unusual circumstances where the inventor was proven to be unavailable or unwilling to cooperate with the rights-holder. This change simplifies the process for corporate patent owners — especially in dealing with continuation applications and former employees. The chart above shows information gleaned from recently published patent applications and shows that most assignees are now naming themselves as the applicant rather than the inventors.

Trade Secret Subject Matter Eligibility

By Dennis Crouch

While the U.S. Supreme Court contemplates its most recent case on patent subject matter eligibility, a California appellate court has just decided a case on trade secret subject matter eligibility – finding that ideas are protectable under California trade secret laws, but that the protectable information must be sufficiently specific and secret. Altavion, Inc. v. Konica Minolta Systems Laboratory Inc., — Cal.Rptr.3d —-, 2014 WL 1846104 (Cal.App. 1 Dist. 2014). Oddly, KMSL’s MoFo attorneys argued (without citation to precedent) that “[g]eneralized ideas and inventions are protectable by patents and thus cannot be trade secrets.” That argument was soundly rejected by the Altavion court, who held instead that a trade secret can include “any unpatented idea which may be used for industrial and commercial purposes.” Quoting Sinclair v. Aquarius Electronics, Inc., 42 Cal.App.3d 216 (1974). This follows the general and longstanding principle that an inventor may choose to keep her idea as a trade secret rather than file for patent protection. “[I]f a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law.” In particular, the court here upheld the trade secret rights to “design concepts” such as process flows and conceptual methods that were not tied to any particular product or software.

In trade secret law, subject matter eligibility often begins with the notion it can be “any information” that confers some economic benefit on its holder by virtue of being kept secret and is the subject of reasonable efforts to maintain secrecy. One limit on the scope of trade secret rights is that the secret must be described “with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit [an accused infringer] to ascertain at least the boundaries within which the secret lies.” Diodes, Inc. v. Franzen 260 Cal.App.2d 244 (1968).

Of the various forms of alleged trade secret misappropriation, two scenarios are likely most common. The first involves former employees who join competitor firms and share secret information with their new employers. The second involves secret information shared with partner firms or potential affiliates who then abuse their relationship to unduly profit from the information. A common theme with both of these scenarios is a preexisting relationship between the trade secret holder and the alleged wrongdoer. That relationship is often bound by a contract that speaks specifically to rights and duties associated with secret information. Thus, in these cases, the same action that appears as trade secret misappropriation is often a breach of contract as well. Regarding this contract-law phenomenon, the court here started its decision with a quote of Mark Lemley’s 2008 article on trade secret law:

Trade secret protection promotes the sharing of knowledge, and the efficient operation of industry by permitting the individual inventor to reap the rewards of his labor by contracting with a company large enough to develop and exploit it. Trade secret law allows the inventor to disclose an idea in confidential commercial negotiations certain that the other side will not appropriate it without compensation. The holder of the secret, may disclose information he would otherwise have been unwilling to share, and this permits business negotiations that can lead to commercialization of the invention or sale of the idea, serving both the disclosure and incentive functions of intellectual property law.

Lemley, The Surprising Virtues of Treating Trade Secrets as IP Rights, 61 Stan. L.Rev. 311 (quotations and citations omitted).

The story of this case began with Altavion’s idea for “digital stamping technology” involving bar-codes that include encrypted information about the contents of the underlying document being stamped. Altavion disclosed the idea to KMSL – Konica Minolta’s research subsidiary – as part of a failed negotiation between the companies. That negotiation was, however, governed by a non-disclosure agreement agreed-to by KMSL. Later, Altavion learned that KMSL had filed twenty four separate patent applications on digital stamping technology stemming from the Altavion idea. Altavion, on the other hand, had decided to keep its idea as a trade secret.

Following a bench trial, the district court found that KMSL had misappropriated the Altavision trade secret and awarded $1.5 million in damages and $3.2 million in attorney fees. The trial court found that KMSL “had no idea, interest or information about DST … or use of bar codes prior to their dealings with [Altavion].” On appeal, that decision has now been affirmed.

In its appeal, KMSL argues that the lower court’s protection of digital stamping technology as a trade secret was improper and that, instead, the lower court should have focused on the particular and specific algorithms and software concepts that Altavion had created. The court agreed with this, in-part, but responded by dividing the claimed information into three tiers grouped according to both their specificity and secrecy.

The least specific and least secret level of information is Altavion’s general idea for a barcode allowing for self-authentication of documents with identification of alterations. This level of information is not a protectable trade secret because the general idea was disclosed to other companies without the benefit of an NDA. At the other extreme, the most specific and secret level of information is Altavion’s algorithms and source code that execute Altavion’s DST. Such information is unquestionably protectable by trade secret law, but it could not form the basis for Altavion’s misappropriation claim because Altavion did not share its algorithms and source codes with KMSL.

The middle tier of information is comprised of the design concepts that underlie Altavion’s DST, many of which might be evident to a software end user. There is no evidence such information was disclosed to anyone other than KMSL, pursuant to an NDA, and, thus, misappropriation of these secret design concepts (separately and in combination) provide a basis for Altavion’s claim.

Here, the court finds “design concepts” – similar to what are found in patent drawings – to be protectable trade secrets.

Read the court decision here: Altavion

For further background on this topic, readers may want to read: Andrew Schwartz, THE CORPORATE PREFERENCE FOR TRADE SECRET, 74 Ohio St. L.J. 623 (2013) (arguing that, where protectable, corporations should prefer trade secret protection over patent protection)

Supreme Court: In Copyright, Laches Cannot Preclude Actions Taken Within Three Year Statute of Limitations

By Dennis Crouch

Petrella v. MGM (Supreme Court 2014)

Frank Petrella wrote a screenplay back in 1963 based on the life of Jake LaMotta and assigned rights to UA/MGM who made the movie Raging Bull. Under the old renewal system, renewal rights went to Petrella’s heir, Paula Petrella, who renewed the copyright in 1991 in a fashion that (seemingly) eliminates the prior license. In 1998 she informed MGM that its continued exploitation of the Raging Bull movie violated her copyright. Finally, in 2009, she did sue – alleging copyright infringement.

Copyright infringement has a three-year statute of limitations indicating that “No civil action shall be maintained under the [Act] unless it is commenced within three years after the claim accrued.” 17 U.S.C. §507(b). However, as in patent law, copyright follows a “separate-accrual rule” that sees each successive violation of a copyright as a new infringing act with its own statute of limitations. Thus, under the statute of limitations, MGM could be liable for its post-2006 actions such as copying and distributing the work.

In the lawsuit, MGM separately asserted the equitable defense of laches based upon the long and unreasonable delay in bringing suit.

In a 6-3 decision, the Supreme Court has sided with Petrella – finding that the statute of limitations does all the work on the question of liability – leaving latches only to potentially shape the remedy.

Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window. As to equitable relief, in extraordinary circumstances, laches may bar at the very threshold the particular relief requested by the plaintiff. And a plaintiff’s delay can always be brought to bear at the remedial stage.

The court was clear that equitable estoppel may also apply, but that generally requires some affirmative act by the rights-holder (that leads to

In a footnote, the court draws some parallels with the six-year statute of limitations for collecting back-damages in patent law. 35 U.S.C. § 286. In a 1992 en banc decision, the Federal Circuit held that laches can be an additional bar to collecting back-damages even within the six-year limit. A. C. Aukerman Co. v. R. L. Chaides Constr. Co., 960 F. 2d 1020 (Fed. Cir. 1992) (en banc). Noting that decision, the Supreme Court here only remarked that “We have not had occasion to review the Federal Circuit’s position.”

One interesting aspect of the decision was the unusual split between the majority and dissent. Justice Ginsburg penned the majority opinion that was joined by Justices Scalia, Thomas, Alito, Sotomayor, and Kagen.  Justice Breyer dissented and was joined by Chief Justice Roberts and Justice Kennedy.

PTO: Business Method Patent in 100 Days

by Dennis Crouch

A couple of weeks ago, the USPTO issued U.S. Patent No. 8,712,797 to the drug-price-shopping company named GoodRX. The patent appears to be a typical business-method type invention based on the idea that automated internet communications can help solve consumer information problems. Here, the basics are to obtain a price list from two different pharmacy benefit managers and then display “at least a portion” of those prices through a user interface.

What is unusual is that the patent issued only 98 days after its filing date. The notice-of-allowance was mailed 44 days after filing.  (Note – this is not a continuation or divisional but it does claim priority to a provisional application.)  The application included a track-one request ($2,000 for small entity) filed by Knobbe. This is an incredibly short timeline for issuing a broad business-method patent that is very likely invalid.

Claim 1 is listed as follows:

1. A method of displaying prices for drugs … comprising:

providing a user interface using a computer processor;

receiving from the user interface information identifying a first drug;

obtaining a first set of prices for the first drug that is associated with a first pharmacy benefit manager (PBM), wherein a pharmacy benefit manager processes a claim relating to a drug and has an agreement with a pharmacy relating to a price of one or more drugs, the first set of prices comprising at least one price for the first drug and each price in the first set of prices being determined by an agreement between the first PBM and a pharmacy;

obtaining a second set of prices for the first drug that is associated with a second pharmacy benefit manager, the second set of prices comprising at least one price for the first drug and each price in the second set of prices being determined by an agreement between the second PBM and a pharmacy; and

displaying in the user interface at least a portion of the first set of prices and the second set of prices.

As mentioned above, the patent claims priority to a provisional filing. One interesting aspect of this case is that the provisional was filed pre-AIA and the application was filed post-AIA. For these transitional applications, the USPTO asks applicants to declare whether new matter was added to the non-provisional application and the applicant here indicated that answer was no. The problem is that the provisional application is actually quite sparse and – at least to my eye – there are a number of claims that were not described by that document.  Of course, we would need to ask whether there is any remedy for failing to accurately answer the AIA-Transition question.

To the extent you are concerned about GoodRX patent viability, the company does have two additional applications pending that claim priority to the same provisional application.

Kelley Drye Misses First Step in Collecting $14 Million Fee from Client

By Dennis Crouch and David Hricik

Kelley Drye & Warren, LLP v. Orbusneich Med. Co. Ltd., BVI, 2014 WL 1814204 (Conn. Super. Ct. Apr. 4, 2014). KDW Decision

In this case, the law firm of Kelley Drye (KDW) has sued Orbus to collect the $14,000,000 that it claims to be owed as part of its alternative fee arrangement for handling litigation on behalf of its then-client, Orbus, against Boston Scientific.

The basics: Orbus hired KDW to litigate its patent infringement and related common law claims against Boston Scientific. Orbus was advised that the suit would go quickly on the rocket docket of the Eastern District of Virginia. The fee-setup was a hybrid-contingency-fee arrangement with a guaranteed payout of $375,000 for pre-trial work and another $325,000 for the trial, if necessary. In the event of a settlement, the agreement called for KDW to then receive the full hourly rate for their work plus a “success fee” based on the settlement amount.

The case was filed in the Eastern District, but then was transferred to Massachusetts. Then, Boston Scientific moved for reexam and the suit was stayed. Thus, things were in a ditch:

At this point the exchange of correspondence between the parties (Defendants’ Exhibits B, C & D) make clear that: (1) the U.S. litigation begun by KDW on behalf of Orbus was stayed for possibly several more years; (2) no leverage whatsoever of the kind envisioned in Attorney Moore’s engagement letter (Plaintiff’s Ex. 2) had been brought to bear on Boston Scientific; (3) the settlement value of the U.S. litigation had minimal or no cash value at all; and (4) Orbus’ patents had possibly been placed in jeopardy by the continuing reexaminations. In reviewing the results obtained by counsel when determining the reasonableness of fees charged, the court cannot find on these facts that KDW added substantial value to Orbus’ legal interests as of July of 2012, after three years of litigation and millions of dollars of time expended.

Orbus then turned to replacement counsel. Their strategy had Orbus file a number of European actions, including ones in Germany, UK, Ireland, and the Netherlands. KDW was not much involved.

In 2013, Orbus and Boston Scientific came to a settlement resulting in a one-time payment to Orbus and a worldwide patent license for Boston Scientific. KDW then added-up its fees thus far in the litigation ($2.8 million) and added on its success fee bonus before sending its $14 million bill to Orbus.

When the (now former) client balked, KDW filed suit. In this decision, the trial court rejected KDW’s argument that it was entitled to pre-judgment relief, apparently in the form of some sort of state law attachment of Orbus’ assets. The question the court had to decide was whether KDW was likely to prevail on the merits.

Attorney fee arrangements are treated somewhat differently from ordinary commercial contracts – here the court indicated in can only enforce attorney fee arrangements to the extent that they are reasonable. All state professional responsibility rules prohibit the collection of unreasonable fees. Regarding reasonableness, a major question is whether the attorney exerted substantial effort and/or added substantial value.

Here, the European cases began after the US case was stayed. That fact aided Orbus’s argument that KDW added no value to the European cases. In addition, Orbus argued that the terms of the fee arrangement do not extend to those cases. And, if it had to pay KDW for the European monies then Orbus would effectively be paying “twice for the same legal service” since its European attorneys must also be paid.

Based upon these facts, the trial court stated:

[T]he court is unable to find even a reasonable suspicion that KDW would prevail on the merits at trial, and that the trier of fact would find the superseding contingent fee agreement enforceable in the full amount of $14,560,000.00.

At this point, the court has denied preliminary relief, but KDW still has the opportunity to prove its case at the trial.

Fee Shifting in the Future

Over on the main page Dennis has a nice announcement about an upcoming webinar on the future of fee shifting post-Octane.  Two thoughts.

One, in the op-ed I wrote many months before Octane with Chief Judge Rader and Professor Colleen Chien (who is now at a post at the White House, I believe), we wrote:

To make sure Section 285 is implemented with appropriate vigor, judges must look more closely for signs that a patent lawsuit was pursued primarily to take improper advantage of a defendant — that is, using the threat of litigation cost, rather than the merits of a claim, to bully a defendant into settling.

One sign of potential abuse is when a single patent holder sues hundreds or thousands of users of a technology (who know little about the patent) rather than those who make it — or when a patent holder sues a slew of companies with a demand for a quick settlement at a fraction of the cost of defense, or refuses to stop pursuing settlements from product users even after a court has ruled against the patentee.

Other indications of potential bullying include litigants who assert a patent claim when the rights to it have already been granted through license, or distort a patent claim far beyond its plain meaning and precedent for the apparent purpose of raising the legal costs of the defense.

Second, I wrote about NPEs and ethics a long, long, long time ago in an article here, which also talks about how defense counsel can get in cahoots, so to speak, with NPEs to drive up defense costs for their own benefit.  (All my articles are named after songs by Wesley Stace, f/k/a John Wesley Harding.  It’s a long fun story.)

Williams & Woelker on Fee Shifting | Hricik News

I am looking forward to the upcoming CLE-webinar by my former MBHB colleague Andrew Williams, Ph.D. along with Erin Woelker on the impact of the Supreme Court’s fee shifting cases.

On April 29, 2014, the Supreme Court ruled on two cases related to the Patent Act’s fee shifting provision under 35 U.S.C. §285. In Octane Fitness, LLC v. ICON Health & Fitness, Inc., the Court defined an “exceptional” case entitled to fee-shifting to be “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” In Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., the Court held that because such a determination is at the discretion of the trial court judge, it should be reviewed with an abuse-of-discretion standard. These cases have been watched closely because of their potential impact on so-called “patent trolls.”

This webinar will cover the potential implications of the Octane and Highmark decisions on fee-shifting in patent litigation, especially in cases involving these “patent trolls.”

There is no fee but you must pre-register here: http://tinyurl.com/ljw5odg. [Tuesday, June 10, 2014 10:00 am (Chicago Time)].

More dramatic Fee-Shifting legislation is still pending in the Senate. However, each day’s delay makes its passage less likely as we move into election season.

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I also wanted to highlight the fact that my co-author David Hricik has joined the Atlanta-based law firm of Taylor English Duma LLP in an of counsel position.  Hricik will continue on as a Mercer law professor and also as the Patently-O legal ethics expert.  – DC

 

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En Banc Federal Circuit to Review ITC’s Power over Induced Infringement

By Dennis Crouch

Suprema, Inc. and Mentalix v. US International Trade Commission and Cross Match Tech (Fed. Cir. 2013/2014)

Although the USITC handles plenty of patent cases, it actually derives its power from the Tariff Act, 19 U.S.C. § 1337(a)(1)(B). That provision indicates that the government agency can prohibit the import or sale-after-import of “articles . . . that (i) infringe a valid and enforceable United States patent” The Tariff Act does not further define patent infringement and so the ITC has generally referred to Section 271 of the Patent Act for guidance.  As with district court patent litigation, ITC merits decisions are also appealed to the Court of Appeals for the Federal Circuit.

Here, Cross Match’s asserted patent covers a fingerprint-scan methodology that includes both hardware and software components. The hardware is manufactured abroad and imported by Suprema and then, once in the US, combined by Mentalix with the software to make a product used to infringe. Of importance, the imported hardware does not – by itself – directly infringe the patent. However, the USITC found that Suprema was liable for inducing infringement under 35 U.S.C. 271(b).

On appeal, the Federal Circuit reversed that judgment — holding instead that the USITC’s power only extends to block articles that are themselves infringing at the point of importation. The result for this case is that the inducement theory of infringement could not stand because it requires both additional steps to complete the infringement as well as a particular mens rea. Oddly, however, the majority did find that the USITC may still have power when the cause of action is contributory infringement rather than inducement. This distinction was based upon the notion that inducement is focused on the “conduct of the inducer” and “is untied to an article.” Judge O’Malley penned the Federal Circuit opinion and was joined by Judge Prost. Judge Reyna wrote in dissent.

The ITC and Patentee both filed petitions for re hearing en banc and the Federal Circuit has now granted those petitions. The questions presented are as follows

Cross Match asks:

Whether the United States International Trade Commission (“ITC”) has authority to find a Section 337 violation—and issue an exclusion or cease and desist order—where it finds that an importer actively induced infringement of a patented invention using its imported articles but the direct infringement occurred post-importation.

Cross Match argues that the question is largely answered by Young Eng’rs, Inc. v. ITC, 721 F.2d 1305 (Fed. Cir. 1983); Vizio, Inc. v. ITC, 605 F.3d 1330 (Fed. Cir. 2010); and Disabled Am. Veterans v. Sec’y of Veterans Affairs, 419 F.3d 1317 (Fed. Cir. 2005).

The USITC asks:

(1) Did the panel contradict Supreme Court precedent in Grokster and precedents of this Court when it held that infringement under 35 U.S.C. § 271(b) “is untied to an article”?

(2) Did the panel contradict Supreme Court precedent in Grokster and this Court’s precedent in Standard Oil when it held that there can be no liability for induced infringement under 35 U.S.C. § 271(b) at the time a product is imported because direct infringement does not occur until a later time?

(3) When the panel determined the phrase “articles that . . . infringe” in 19 U.S.C. § 1337(a)(1)(B)(i) does not extend to articles that infringe under 35 U.S.C. § 271(b), did the panel err by contradicting decades of precedent and by failing to give required deference to the U.S. International Trade Commission (“the Commission”) in its interpretation of its own statute?

(4) Did the panel misinterpret the Commission’s order as a “ban [on the] importation of articles which may or may not later give rise to direct infringement” when the order was issued to remedy inducement of infringement and when the order permits U.S. Customs and Border Protection to allow importation upon certification that the articles are not covered by the order?

The USITC argues that these questions are fully answered (in its favor) by Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 940 n.13 (2005); Standard Oil Co. v. Nippon Shokubai Kagaku Kogyo Co., 754 F.2d 345, 348 (Fed. Cir. 1985) (Rich, J.); Crystal Semiconductor Corp. v. TriTech Microelectronics Int’l, Inc., 246 F.3d 1336, 1351 (Fed. Cir. 2001); Vizio, Inc. v. Int’l Trade Comm’n, 605 F.3d 1330, 1343-44 (Fed. Cir. 2010); The Young Engineers, Inc. v. U.S. Int’l Trade Comm’n, 721 F.2d 1305, 1310, 1317 (Fed. Cir. 1983); Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 843 (1984); and Enercon GmbH v. Int’l Trade Comm’n, 151 F.3d 1376, 1381 (Fed. Cir. 1998).

The accused infringers here argued that the fingerprint scanning hardware they are importing are simple staple goods that cannot themselves infringe even if their intended use is infringing.

Documents:

In many ways, this is another divided infringement inducement case. The Supreme Court is currently deciding that issue in Akamai and a decision is expected within the next four weeks.  The Federal Circuit may do well to delay its briefing in this case until Akamai is decided.

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Parallel Process: Despite its “international” name, the USITC is actually a branch of the U.S. government charged with protecting U.S. industry and U.S. goals in international trade.  The USITC’s jurisdiction focuses solely on border-crossing issues and, in the patent context, investigates infringing imports.  It turns out that district courts can also block the importation of infringing goods.  There are some differences in remedy and process, but the basic patent policy question is whether the additional parallel procedure offered by the USITC fills an important gap in district court adjudication. And, if so, why does that gap exist?

Administrative Law: Moving from patent policy, the issues here also focus on a continued power struggle between the various branches of government. One question here is the level of deference that should be given to the USITC in carrying out its mandate.

– Dennis

Guest Post: Federal Circuit Blocks Trademark for Being Disparaging to Muslims

Guest Post by Professor Mark Bartholomew (SUNY-Buffalo). I asked Professor Bartholomew to comment on this Geller after noting his recent article on Trademark Morality. DC

In re Geller (Fed. Cir. 2014)

Section 2 of the Lanham Act contains a variety of limitations on trademark registration. Some are widely used—for example, the prohibition on merely generic marks. Others rarely come into play, including a registration bar for any mark containing “matter which may disparage.” In its first ever interpretation of this statutory provision, the Federal Circuit affirmed a decision of the Trademark Trial and Appeal Board (TTAB) that denied federal registration to the mark STOP THE ISLAMISATION OF AMERICA. The Federal Circuit agreed with the TTAB that the mark would be disparaging to a substantial composite of the American Muslim community. The stakes are high here because the Federal Circuit is the typical route for appeals of TTAB decisions, and a highly anticipated decision from the TTAB on disparagement involving the WASHINGTON REDSKINS mark is due soon.

Pamela Geller and Robert Spencer tried to register their STOP THE ISLAMISATION OF AMERICA mark in connection with services of “understanding and preventing terrorism.” Geller and Spencer are known for their criticism of Islam, particularly their opposition to the construction of a mosque and Islamic Center near the former site of the World Trade Center. Organizations started by Geller and Spencer, including Stop the Islamisation of America, have been designated as hate groups in the United Kingdom and attracted widespread criticism in this country. This background appeared to influence the Federal Circuit’s view as to whether Geller and Spencer’s mark was disparaging.

The Federal Circuit began its analysis by endorsing the TTAB’s two-prong test for disparagement inquiries. Under the first prong of that test, a court must determine the likely meaning of the mark in question. Under the test’s second prong, the court examines whether the likely meaning refers to an identifiable group and, if so, whether that meaning is disparaging to a substantial composite of that group. The Federal Circuit spent most of its time on the first prong, examining the evidence for the TTAB’s finding that “Islamisation” has a public meaning referring to conversion or conformance to Islam. It endorsed the TTAB’s use of online dictionaries, but also ratified its consideration of essays posted by Geller and Spencer on their own website as well as anonymous reader comments posted on the same website. With regard to the essays, the Federal Circuit read them as advocating suppression of the entire Islamic faith, rather than merely critiquing particular political groups like the Muslim Brotherhood. The essays called for opposing mosque-building, which the Federal Circuit implied was tantamount to an attack on Islam itself. With regard to the website comments, the TTAB cited posts like “Islam is evil” and “There’s only one thing you can do and that’s say no to Islam and the Islamization of America.” Geller said that these were “cherry-picked anonymous comments” deserving of no evidentiary weight. Nevertheless, the Federal Circuit affirmed the use of such evidence in determining the likely meaning of the applicants’ mark. From there, it was not surprising that the court, in evaluating the test’s second prong, found that STOP THE ISLAMISATION OF AMERICA refers to American Muslims and that this group would be offended by a mark associating Islam with terrorism.

In many ways, the Federal Circuit’s opinion is not surprising. The reported decisions evaluating whether marks are disparaging or “scandalous” (another registration prohibition under Section 2) reveal longstanding concern over marks that can offend the sensibilities of particular religious or ethnic groups. For example, a 1938 case heard by the Federal Circuit’s predecessor, the Court of Customs and Patent Appeals, involved the mark MADONNA in connection with wine. Denying registration, the CCPA relied on its own intuition that intoxicating liquors like wine cause various “evils” while the Madonna in Christianity “stands as the highest example of the purity of womanhood, and the entire Christian world pays homage to her as such.” In re Riverbank Canning Co., 95 F.2d 327 (C.C.P.A. 1938).

What In re Geller suggests, however, is current judicial discomfort with the disparagement provision of the Lanham Act and an attempt to build a larger doctrinal edifice to justify its existence. The two-prong test endorsed by the Federal Circuit looks like scaffolding meant to make the disparagement analysis seem more rigorous than it really is. After all, once the court determined the likely definition of STOP THE ISLAMISATION OF AMERICA, it seems like the determination that the mark was disparaging to American Muslims was pretty obvious. The Geller decision also authorizes an expansion in the amount of evidence that should be brought to bear in determining whether a particular group is being disparaged. Do we really want examiners at the PTO building lengthy cases regarding the likely interpretation of a potentially disparaging term by doing things like sifting through anonymous reader comments? It might be better to simply rely on dictionary definitions, which in this case would have been enough to conclude that the applicant’s mark was meant to “stop” an entire religion.

In a recent article, I maintain that judges frame trademark decisions (and intellectual property law decisions in general) in the seemingly neutral language of efficiency and economic analysis but, beneath the surface, there are often hotly contested moral considerations that drive judicial outcomes. Today, it is not considered appropriate for judges to apply moral intuition to their decisions, particularly in the utilitarian-based world of intellectual property law. But this happens all the time in trademark law, from findings of infringement to mark validity to geographic restrictions. But it is usually done behind the scenes. Section 2(a)’s prohibition on disparagement, however, offers a seemingly blank check for judges to engage in just this sort of unfettered analysis of right and wrong. The legalistic approach adopted in Geller shows that the Federal Circuit is nervous about cashing this blank check. Disparagement issues will continue to appear, but it is likely that courts will decide these issues only reluctantly and with a preference for anchoring determinations in seemingly neutral doctrinal frameworks and comprehensive sources of “likely meaning.”

The Veil Over Camelot

New Jersey v. H.L.M. (Superior Court of NJ, May 13, 2014)

This case involves the defendant H.L.M., who was arrested for removing her children from New Jersey in violation of the custody agreement with her ex-husband. She was stopped at the Canadian border and charged with first degree kidnapping as well as interference with custody. In a plea-deal, the state dropped the kidnapping charge and agreed to probation, counseling, and no contact with her children. The defendant then began “blogging [on] facebook” with apocalyptic quotes and references to Jeffrey Dalmer, Satan, and Adolph Hitler as well as references to her ex-husband and children.

At that point the judge agreed to modify the probation rules prohibiting her from referencing her ex-husband or the children on the blog. “You can talk about what you want to talk about, but don’t reference [J.M.] or the children.” A few months later, she began blogging again about her ex-husband and the children – but used the word “Camelot” to refer to them. The judge found a violation of probation.

You may be asking: how is this related? Answer, somewhat tangentially. It turns out that H.L.M. is also a former patent attorney and electrical engineer. In her appeal, H.L.M. argues that the no-blogging-about-children condition of probation was void for vagueness under the 14th Amendment of the U.S. Constitution and is also an unconstitutional prior restraint on speech in violation of the First Amendment.

In its decision, the appellate court found the patent attorney aspect important – holding that fact lead to a conclusion that she “is clearly a person of more than ordinary intelligence capable of understanding whether her contemplated conduct is lawful.” The court also rejected the first amendment claim – finding that the condition is “narrowly tailored” to protect the victims without unduly limiting speech.

* Note, the image at the side is of the patented Chrysanthemum plant named Camelot. US PP5441.

Guest Post: Are APIs Patent or Copyright Subject Matter?

Guest Post by Pamela Samuelson, Richard M. Sherman Distinguished Professor of Law at Berkeley Law School. I asked Professor Samuelson to provide a discussion of the recent Federal Circuit decision in Oracle v. Google. DC.

Application programming interfaces (APIs) are informational equivalents of the familiar plug and socket design through which appliances, such as lamps, interoperate with the electrical grid. Just as a plug must conform precisely to the contours of the socket in order for electricity to flow to enable the appliance to operate, a computer program designed to be compatible with another program must conform precisely to the API of the first program which establishes rules about how other programs must send and receive information so that the two programs can work together to execute specific tasks.

No matter how much creativity might have gone into the design of the existing program’s interfaces and no matter how many choices the first programmer had when creating this design, once that the API exists, it becomes a constraint on the design of follow-on programs developed to interoperate with it. Anyone who develops an API is, in a very real sense, designing that aspect of the program for itself and for others.

One of the many errors in Judge O’Malley’s decision in the Oracle v. Google case was her insistence that the merger of idea and expression in computer program copyright cases can only be found when the developer of an API had no choice except to design the interface in a particular way. If there is any creativity in the design of the API and if its designer had choices among different ways to accomplish the objective, then copyright’s originality standard has been satisfied and not just the program code in which the API is embodied, but the SSO of the API, becomes copyrightable. Indeed, harkening back to an earlier era, Judge O’Malley repeated the unfortunate dicta from the Apple v. Franklin case about compatibility being a “commercial and competitive objective” which is irrelevant to whether program ideas and expressions have merged.

The Ninth Circuit in the Sega v. Accolade case, as well as the Second Circuit in Computer Associates v. Altai, have rejected this hostility toward achieving software compatibility and toward reuse of the APIs in subsequent programs.

Although purporting to follow Ninth Circuit caselaw, Judge O’Malley in Oracle v. Google ignored some key aspects of the holding in Sega. Accolade reverse-engineered Sega programs in order to discern the SSO of the Sega interface so that it could adapt its videogames to run on the Sega platform. The principal reason that the Ninth Circuit upheld Accolade’s fair use defense as to copies made in the reverse engineering process was because “[i]f disassembly of copyrighted object code is per se an unfair use, the owner of the copyright gains a de facto monopoly over the functional aspects of his work—aspects that were expressly denied copyright protection by Congress,” citing § 102(b). To get the kind of protection Sega was seeking, the Ninth Circuit said it “must satisfy the more stringent standards imposed by the patent laws.”

Judge O’Malley in Oracle also ignored the Ninth Circuit rejection of Sega’s claim that Accolade infringed based on the literal copying of some Sega code insofar as that code was essential to enabling the Accolade program to run on the Sega platform. That Sega code might have been original in the sense of being creative when first written in source code form, but by making that code essential to interoperability, the expression in that program merged with its function, and hence Accolade’s reproduction of it was not an infringement.

The SSO of the Sega interface was almost certainly creative initially as well. Yet, once that interface was developed, it was a constraint on the design choices that Accolade and other software developers faced when trying to make videogames to run on Sega platforms. The Second Circuit similarly rejected Computer Associates’ claim that Altai had infringed the SSO of its program interface and suggested that patents might be a more suitable form of legal protection for many innovations embodied in software.

Under Sega and Altai, the SSO of APIs are not within the scope of copyright protection for computer programs. Subsequent cases—at least until the Federal Circuit decision in Oracle v. Google—have overwhelmingly endorsed this approach to compatibility issues in software cases.

Perhaps Judge O’Malley was worried that if she did not extend copyright protection to the Java APIs in Oracle v. Google, there would be too little intellectual property protection available to computer programs. After all, she was one of the Federal Circuit judges who would have upheld all of the patent claims for computer-implemented inventions in the CLS Bank v. Alice Corp. case that is now pending before the U.S. Supreme Court. She joined an opinion that warned that if courts struck down the claims in CLS Bank, this mean that hundreds of thousands of software and business method patents would be invalidated. Given the Supreme Court’s skepticism about the Federal Circuit’s rulings on patentable subject matter, there is reason to think that at least some software patents may indeed fall when the Court issues its opinion in Alice. Would such invalidations affect the scope of copyright protection for software?

In the most expansive interpretation of software copyright law since Whelan v. Jaslow, Judge O’Malley in Oracle v. Google endorsed dual protection for APIs from both copyright and patent law. This ignored an important statement from that court’s earlier ruling in Atari Games v. Nintendo that “patent and copyright laws protect distinct aspects of a computer program.” The Oracle opinion instead invoked the dicta from Mazer v. Stein that “[n]either the Copyright Statute nor any other says that because a thing is patentable it may not be copyrighted.”

While it may have been true that the statuette of a Balinese dancer in Mazer was eligible for both copyright as a sculpture and a design patent for an ornamental design of an article of manufacture (as a lamp base), nothing in that decision or any other has upheld utility patent and copyright protection in the same aspect of the same creation, and it seems unlikely that the Supreme Court would abrogate the longstanding tradition tracing back to Baker v. Selden that copyrights protects expression in works of authorship and patents protect utilitarian designs.

In “The Strange Odyssey of Software Interfaces as Intellectual Property,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1323818, I traced the tortuous evolution of the law in relation to the protection of software interfaces. At first, they were not treated as intellectual property at all. Firms published APIs so that others would make programs to run on their computing systems. As firms recognized that they could license interface information to generate revenues, APIs were protected as trade secrets. In the mid- to late 1980s, some argued that the “structure, sequence, and organization” (SSO) of APIs should be protected by copyright law, but by the early 1990s, courts decided they were unprotectable elements of programs, more suited to patent than to copyright protection. And so firms began patenting interface designs, as well as continuing to license them as trade secrets.

If Judge O’Malley’s opinion in the Oracle v. Google case is to be believed, APIs have migrated back into copyright’s realm big time. Unless overturned by the Supreme Court or repudiated or distinguished in subsequent cases, the Oracle decision may well reignite the software copyright wars that so many of us thought had died out after the Sega, Altai, and their progeny.

Calculating Fee Awards

By Dennis Crouch

I reported earlier on a $6.6 million attorney fee award reinstated by the Supreme Court. To find out more about that decision, I pulled up the district court’s accounting opinion. Checkpoint Systems, Inc. v. All-Tag Security S.A., 2011 WL 5237573 (E.D. Pa 2011).

It turns out that the award provides $2.4 million to All-Tag Security and $4.2 million to Sensormatic.

All-Tag Sensormatic
Attorney’s Fees $1,607,507 $3,148,966
Expenses $191,127 $336,762
Pre-judgment Interest $633,570 $805,877

 

Under 35 U.S.C. § 285, a judge may only award “reasonable attorney fees.” That reasonableness was defined somewhat by the Federal Circuit in its Central Soya decision where it held that the purpose of the fee award is “to compensate the prevailing party for its monetary outlays in the prosecution or defense of the suit.” However, following Octane Fitness, that statement has likely lost power as a limitation on district court discretion. The basic approach known as the “lodestar” method calculates attorney fees based upon the number of hours worked times a reasonable hourly rate. That total is then reduced by excluding charges that are “excessive, redundant, unnecessary or otherwise not reasonably expended.”

Here, one challenge that the losing party brought to fee calculation is that the defendants included all of their attorney fees – including fees associated with losing arguments. However, the district court rejected that argument – finding that the plaintiff should even pay those fees since it brought the objectively unreasonable lawsuit.

When this case was appealed, the Federal Circuit reversed the fee decision – finding that the case was not exceptional because the lawsuit was not objectively unreasonable. The Supreme Court has changed that standard – now making it easier to award fees even if the lawsuit itself was not objectively unreasonable. The Federal Circuit will next look to re-judge whether the fee award was proper.

More on Claiming Clones: Products of Nature and Source Limitations

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

Jason’s excellent post on Roslin summarized the case and raised the question of whether the Federal Circuit paid insufficient attention to the inherent differences conveyed by the ‘clone’ limitation of the claims. In this post I address two other issues in Roslin:  the Federal Circuit’s interpretation of Ckakrabarty and Funk Brothers, and Roslin’s consistency with Federal Circuit precedent holding that structural or functional differences between natural and synthetic products must be defined in the claims.

Unaltered by the hand of man: Judge Dyk’s opinion in Roslin unfortunately perpetuates the view, now found in the PTO’s Myriad guidelines, that Chakrabarty requires a claimed invention to be “markedly different” from a natural product for patent-eligibility under § 101.  Myriad itself imposed no such requirement: the Court found BRCA cDNAs patent-eligible without determining that they were “markedly different” from natural sequences. And though Myriad reiterated the “markedly different” language from Chakrabarty, Chakrabarty’s discussion of ‘products of nature’ was entirely dictum. Only the question of whether living organisms were patent-eligible was before the Court in Chakrabarty; the ‘product of nature’ rejection in the case had not been sustained by the Patent Office Board of Appeals.

The Chakrabarty Court noted the claimed bacteria differed markedly from natural bacteria by way of distinguishing the case from Funk Brothers.[1] As Paul Cole’s recent post notes, the patentee had discovered that certain strains of bacteria could be mixed together without inhibiting their nitrogen-fixing capability.  Justice Douglas regarded this compatibility as the unpatentable discovery of a natural phenomenon;  the claims were unpatentable because the patentee’s application – a mixed inoculant – was “a simple step” once the underlying discovery was assumed away.

As I discuss in a recent article, Funk  was nonetheless very much a patent eligibility case. It reflects Douglas’s view – shared by Justice Stevens in Flook, and Justice Breyer in Mayo – that obvious applications of scientific discoveries or abstract ideas are not patent-eligible “inventions” within the meaning of the statute.

Whether or not we share that view, understanding it shows us that Funk was an ‘inventive application’ case, not a ‘product of nature’ case. Douglas made no reference to the ‘product of nature’ doctrine, nor to the recent cases embodying it.[2] Instead, Douglas emphasized the lack of change in the bacteria to establish that the mixed inoculant was obvious (once the patentee’s discovery was assumed away). Under the old doctrine of ‘aggregation,’ it was not invention to combine old elements where the elements were unchanged, and no new function arose from their combination. It was therefore not inventive for the patentee in Funk to combine old bacteria without changing their structure or function.

But just as many combinations of old elements become patentable when a new function emerges, the mixed inoculants of Funk would have been patentable — even if the bacteria remained unchanged — had the mixed inoculant acquired new functions not performed by its constituent bacteria. If Funk Brothers instead stood for the proposition that a combination is unpatentable if its constituents are ‘unaltered by the hand of man,’ then a very large number of inventions become patent-ineligible.  An artificial structure like an arch, formed by piling stones atop each other, would be ineligible unless the stones themselves were altered by the hand of man.  Even as ardent a skeptic of the patent system as Justice Douglas would not have gone that far.

Source limitations and expressly claimed distinctions: The second difficulty with Roslin is its demand that the ‘marked differences’ between the natural organism and the invention must be expressly claimed. As Jason discussed, the applicant in Roslin argued that cloned animals differ from their natural counterparts at least in having mitochondrial DNA derived from the egg donor, rather than the animal which donated the somatic nucleus. The Federal Circuit rejected such arguments because neither the difference in mitochondrial DNA, nor any functional consequence of that difference, was recited in the claims.

However, the same argument, albeit in the context of § 102, was before the Federal Circuit in the extensive litigation over Amgen’s recombinant erythropoietin (EPO) patents. Much like Roslin, Amgen had claims to a ‘copy’ of natural product: in that case EPO produced by mammalian cells in culture. While Amgen’s synthetic EPO differed in glycosylation from the natural product, several of the claims in the case recited only the non-natural source of the EPO, not the structural differences. The Federal Circuit recognized that the novelty of the synthetic EPO claims depended on whether synthetic EPO differed from natural EPO.  Yet the court found novelty based on the unclaimed structural and functional differences between natural and  synthetic EPO, which were demonstrated in part by the specification and prosecution history, and in part by testimony at trial. Amgen Inc. v. F. Hoffman-LaRoche Ltd, 580 F.3d 1340, 1370 (Fed. Cir. 2009). In effect, the court held that the structural and functional differences characterizing the synthetic product were inherent in the source limitations. (The court did not inquire whether all synthetic EPO molecules falling within the scope of the claims would display similar differences in glycosylation.)

Thus under Amgen, a source limitation alone (such as ‘non-naturally occurring’ or ‘purified from mammalian cells grown in culture’) may establish novelty of a product. Assuming the ‘clone’ limitation in Roslin to require derivation from nuclear transfer, then it serves as a source limitation as well. Since Roslin cannot overrule Amgen, we seem to be in a regime where differences between natural and synthetic products may be unclaimed yet confer novelty under § 102, but must be explicitly claimed to establish ‘marked difference’ under § 101. Of course, if Roslin is correct, that doctrinal inconsistency is less significant than the consequence that Amgen-type claims – and perhaps a wider category of product-by-process claims involving natural products – are now ineligible under § 101.



[1] In Chakrabarty, the Commissioner never suggested that the claimed bacteria were unpatentable under Funk, nor even raised the case.  Rather, Chakrabarty argued that if living organisms were not patent-eligible, the Court would have said so in Funk.

[2] In particular, the General Electric and Marden cases denying patentability to purified tungsten, uranium, and vanadium. The defendant had urged General Electric upon the Funk court in its brief.

Patent Rights are a Marital Asset and Non-Inventing Spouse is a Co-Owner

By Dennis Crouch

James Taylor v Taylor Made Plastics (Fed. Cir. 2014)

I should note here that this case is neither about the musician or the golf club company. Rather, it is about the now fractured Taylor family and their patented pipe plugs. I discussed the district court decision earlier here.

Several years ago James T. invented storm drain equipment and obtained a patent in his name only. U.S. Patent No. 5,806,566. When he and his wife Mary T. later divorced, the divorce court ordered “equitable distribution of marital property” with Mary T. receiving 60% of proceeds from the patent and James T. receiving 40%. The divorce court seemingly only dealt with equitable title in the form of rights-to-proceeds and not with legal title to the patent itself. And, in particular, the divorce court did not identify who held the exclusive rights associated with the patent.

Following the divorce, James T. seems to have lost control of the Taylor Made Plastics company that sells the devices he invented and the company also stopped paying on the patent. Mary T., however, is on much better terms with the company that continues to be family run. So, when James T. filed his infringement lawsuit against Taylor Made Plastics, Mary T. sided with the company and the district court dismissed the case – finding that title to the patent was divided between the two former spouses and, as a consequence, any infringement lawsuit must be filed by both co-owners acting in concert.

On appeal, the Federal Circuit has affirmed – finding that Mary T. was properly considered a co-owner and therefor a necessary party for any infringement lawsuit to consider.

The appellate panel began by highlighting the rule that equitable title is not the type of ownership we are talking about. Thus, the fact that Mary T. is owed 60% of the distribution is irrelevant. Rather the correct question is whether Mary T. has at least partial power to wield the rights-of-exclusivity inherent to the patent.

The long-established rule is that a suit for patent infringement must join all co-owners of the patent as plaintiffs. Waterman v. Mackenzie, 138 U.S. 252 (1891). If any co-owner should refuse to join as a co-plaintiff, the suit must be dismissed for lack of standing. But a party is not co-owner of a patent for standing purposes merely because he or she holds an equitable interest in the patent. Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574 (Fed. Cir. 1991). Rather, a co-owner must hold legal title to the patent. Id. (citing Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S. 24 (1923)). Legal title vests initially in the inventor, and passes to others only through assignment or other effective legal transfer.

As in most states, assets acquired by either spouse during a Florida marriage are presumed to be marital assets subject to equitable distribution on divorce. It is through that process that Mary T. became a co-owner. In the appeal, James T. represented himself pro se and seemingly did a poor job by offering number of arguments “only in a cursory fashion without any supporting facts.” At the Federal Circuit, James T. argued (but failed to provide any evidence) that Mary T. had signed a contractual agreement to enforce the patent against Taylor Made. If that contract exists and is enforceable then James T. should be able to re-file the lawsuit and force her to participate in the next go-round.

= = = = =

Professor Hricik provides his thoughts here: https://patentlyo.com/hricik/2014/05/spouses-inventors-owners.html

 

Federal Circuit Supports Dual Patent/Copyright Protection for Interface Software

Oracle v. Google (Fed. Cir. 2014)

More to come on this case, but the bottom line is that the Federal Circuit held that “API packages are entitled to copyright protection” despite their functionality. The court writes “we thus decline any invitation to declare that protection of software programs should be the domain of patent law, and only patent law.”

http://www.cafc.uscourts.gov/images/stories/opinions-orders/13-1021.Opinion.5-7-2014.1.PDF

Claiming Clones

 In re Roslin Institute (Edinburgh) (Fed. Cir. 2014) In re Roslin
Panel: Dyk (author), Moore, Wallach

Dolly cloneThis case relates to Dolly, probably the most famous baby sheep ever.1  As most folks know, Dolly was the first successful mammalian clone from an adult somatic cell.  This means that her nucleic genetic material is a copy of the adult from which she was cloned.  The basic process used to create Dolly is illustrated to the right.

In addition to claims on the cloning process (which were not at issue in this appeal), the University of Edinburgh also sought product claims.  Claims 155 and 164 are representative:

155. A live-born clone of a pre-existing, nonembryonic, donor mammal, wherein the mammal is selected from cattle, sheep, pigs, and goats.
164. The clone of any of claims 155-159, wherein the donor mammal is non-foetal.

The Patent Office rejected these claims on Section 101, 102, and 103 grounds and the University appealed.

The Federal Circuit agreed that the claims were not patent eligible under Section 101.  The court began by distinguishing Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127 (1948) (which it treated as a subject matter eligibility case) from Diamond v.
Chakrabarty, 447 U.S. 303, 309 (1980), with the latter involving a patent eligible organism because “it was ‘new’ with “markedly different characteristics from any found in nature and one having the potential for significant utility.”  Slip Op. at 6, quoting Chakrabarty at 310 (emphasis added by court).  On the other hand, “any existing organism or newly discovered plant found in the wild is not patentable.”  Id. at 6-7.  Association for Molecular Pathology v. Myriad Genetics, Inc., reinforced this distinction. 133 S. Ct. 2107 (2013)

Here, the claims covered organisms (such as Dolly) that do not “possess ‘markedly different characteristics from any [farm animals] found in nature.'”  Slip Op. at 7, quoting Chakrabarty.    The emphasis of the court’s analysis was on genetic identity: “Dolly’s genetic identity to her donor parent renders her unpatentable.”  Id. The claims thus fell into the product of nature exception to the broad scope of patent eligible subject matter.

Underlying the court’s opinion was a policy thread relating to copying generally: that the copying of unpatentable articles is permitted so long as it does not infringe a patented method of copying.  In Sears Roebuck & Co. v. Stiffel Co., for example, the Supreme Court wrote that “[a]n unpatentable article, like an article on which the patent has expired, is in the public domain and may be made and sold by whoever chooses to do so.” 376 U.S. 225, 231 (1964).  Because the claimed clones are exact genetic copies of the of patent ineligible subject matter, they, too, are not eligible for patent protection.

What about the argument that these clones may be genetic copies of the donor organism, but they aren’t exactly the same?  For example, environmental factors will produce differences between the phenotypes of the donor and clones and their mitochondrial DNA will differ, since the mitochondrial DNA comes from a different source than the nucleic DNA.  The court rejected these arguments because such differences were not claimed: the claims are written in terms of genetic identity, not phenotypic or mitochondrial differences.

What the court appears to be implicitly doing here is to interpret the claims in a manner that is least favorable to the applicant.  There is at least a plausible argument that the claims do implicate genetic identity but phenotypic diversity by their reference to a “live-born clone of a … mammal.”  To be sure, the word “clone”  contemplate genetic identity.  But at the same time the very idea of a live-born mammalian clone suggests that the product will not be an exact duplicate of the donor.  In other words, while the claims don’t contain the words “phenotypic difference,” those differences are inherent in what a clone is: a clone will necessarily exhibit phenotypic differences because it will develop in different environmental circumstances than its donor.

However, even were the claims to expressly include such limitations, the court reasoned that it would not change the outcome.  As to phenotypic differences, they “do not confer eligibility on their claimed subject matter. Any phenotypic differences between Roslin’s donor mammals and its claimed clones are the result of ‘environmental factors,’ Appellant’s Br. 21, uninfluenced by Roslin’s efforts.”  Slip Op. at 10.  (I guess the fact that the whole process was set in motion by human activity doesn’t count).  As to mitochondrial differences, “There is nothing in the claims, or even in the specification, that suggests that the clones are distinct in any relevant way from the donor animals of which they are copies.”  Id. at 11.  As a result, the claims fail the “markedly different characteristics” language of Chakrabarty.

1. Except for possibly Mary’s little lamb.

Funk Brothers v Kalo – Eligibility or Unobviousness?

Guest post by Paul Cole, European Patent Attorney, Partner, Lucas & Co; Visiting Professor, Bournemouth University, UK.

New patent eligibility guidance issued by the USPTO (Andrew Hirshfeld, 4th March) will be the subject of a discussion forum this Friday 9th May.

Since the Kalo case, 333 U.S. 127 (1948) has been discussed in recent Supreme Court opinions including Chakrabarty, Myriad, and Mayo and is proposed to form the subject of an example forming part of that guidance, reflection on the true legal basis of the opinion is timely. Despite dicta in Chakrabarty and Myriad it is arguable that when viewed in its timeframe Funk concerned unobviousness not eligibility. If that view is correct, then the Kalo fact pattern should not be used as an eligibility example under current law.

The Kalo appeal was from a lengthy and careful opinion by Judge Walter C. Lindley in the Court of Appeals for the 7th circuit, 161 F.2d 981 (1947). At first instance the claimed subject matter which related to a composite culture of mutually non-inhibitive bacteria for inoculation of leguminous plants was held to be a product of nature and hence not patent-eligible. Judge Lindley reversed this finding in the following terms:

The mistake of the District Court, we think, lay in its conclusion that this did not amount to patentable invention within the meaning of the statute. Though the court recognized the value of Bond’s work, it thought that he had merely discovered a law of nature, whereas in fact the evidence is clear that what he discovered was that certain existing bacteria do not possess the mutually inhibitive characteristics which had previously prevented a successful commercial composite inoculant and that those uninhibitive species may be successfully combined. It was this contribution of noninhibitive strains which successfully combine that brought about a new patentable composition. This was application of scientific knowledge to things existing in nature and the utilization of them in a desirable composite product which had not been previously achieved but which he did achieve and of which the public now has the benefit.

We think this is clearly within the decisive definitions of patentable invention… Bond taught the method by which the composite is to be made and claims the product composed by that method, namely, a composite inoculant, comprised of different species of bacteria in sufficient numbers of each species. The noninhibitive property of bacteria was not previously known and when Bond discovered it and taught a successful composition of noninhibitive strains in combination of elements in one inoculant operating successfully on several different groups of legumes, he did much more than discover a law of nature. He made a new and different composition, one contributing utility and economy to the manufacture and distribution of commercial inoculants.”

A reader of Lindley is bound to wonder why such a conventional and straightforward opinion should have been selected for certiorari. An explanation of the significance of new effect in established patent law can be found as long ago as 1822 in Evans v Eaton 20 U.S. 356 (1822) and its evidential nature was explained by Justice Bradley in Webster Loom v Higgins
105 US 580 (1881), subsequently approved e.g. by Justice Brown in Carnegie Steel v Cambria Iron Co 185 US 402 (1902):

It may be laid down as a general rule, though perhaps not an invariable one, that if a new combination and arrangement of known elements produce a new and beneficial result, never attained before, it is evidence of invention.

The majority opinion of the Supreme Court Kalo decision was authored by Justice William O. Douglas.

His starting position was that a law of nature cannot be monopolised and he recognised the existence of the relevant non-inhibitory bacterial strains as an example of such a law. He went on to hold that invention must come from the application of the law of nature to a new and useful end and that the aggregation of select strains of the several species into one product was an application of the newly discovered natural principle. He acknowledged that there was advantage in the combination because the farmer need not buy six different packages for six different crops. He could buy one package and use it for any or all of his crops. The packages of mixed inoculants held advantages for dealers and manufacturers by reducing inventory problems, and the claimed subject-matter provided an important commercial advance.

Against this strong evidential background what was the basis for his reversal? A key to his reasoning may be found in his earlier opinion in Cuno Engineering Corp. v. Automatic Devices Corp., 314 U.S. 84 (1941) that (as the law then stood) novelty and utility were necessary but not sufficient requirements for patentability. In addition the claimed subject-matter had to reach the level of inventive genius that the Constitution authorized Congress to reward.

Several reasons supported the conclusion that the Kalo invention did not meet the standard of inventive genius. Each of the species of root nodule bacteria contained in the package infected the same group of leguminous plants that it always infected. No species acquired a different use. The combination of species produced no new bacteria, no change in the six species of bacteria, and no enlargement of the range of their utility. Each species had the same effect it always had. The bacteria performed in their natural way. Their use in combination did not improve in any way their natural function. They served the ends nature originally provided, and acted quite independently of any effort of the patentee. The claimed inoculant was not the product of invention unless invention borrowed from the discovery of the natural principle itself. It was hardly more than an advance in the packaging of the inoculants. Packaging was a simple step once the discovery had been made and all that remained were the advantages of the mixed inoculants themselves which were not enough.

The Funk opinion, amongst others, was relied on in Chakrabarty for the proposition that laws of nature, physical phenomena, and abstract ideas are not patent-eligible. As to the patentability of the Chakrabarty microorganism it was distinguished on the facts.

In Myriad Justice Thomas treated Funk as a patent-eligibility case, observing that the Bond composition fell squarely within the law of nature exception because the patent holder did not alter the bacteria in any way. Arguably such a position is inconsistent with the finding of Justice Douglas that the claimed product was an application of the principle discovered by Bond and hence implicitly patent-eligible. Classification of Funk as an unobviousness opinion accords with the reasoning of Justice Douglas whereas classification as an eligibility opinion is difficult to reconcile with his reasoning, especially against the background of his explicit reference to Cuno.

The USPTO example takes the position that the bacteria in Funk were not changed in any way, but that position is factually untrue. The naturally occurring bacteria have been the subject of a selection process to identify those strains that do not interfere, and the non-interfering strains have been cultivated and mixed. The claimed composition does not occur in nature, is produced by human intervention and has new utility. It is far from clear that the decision that was reached in 1948 would have been reached under the law as it exists post-1952 since the “flash of genius” test was rejected by Congress in favour of § 103.

For the above reasons it is submitted that the wiser course would be to delete Example D from the USPTO guidance.