The Value of Open Data for Patent Policy

Patent, , ,

Guest Post by Christopher A. Cotropia, Professor of Law and Austin Owen Research Fellow, University of Richmond School of Law; Jay P. Kesan, Professor and H. Ross & Helen Workman Research Scholar, University of Illinois College of Law; and David L. Schwartz, Associate Professor and co-Director of the Center for Empirical Studies of Intellectual Property at Chicago-Kent College of Law

Harlan Krumholz, one of the nation’s leading medical researchers, recently wrote an important New York Times Op-Ed piece called Give the Data to the People. Dr. Krumholz praised Johnson & Johnson for making all of its clinical trial data available to scientists around the world. This included not only the conclusions in published articles, but also unpublished raw data. Companies are often reluctant to share raw data because their competitors may benefit. In the medical field, there are also patient privacy concerns. But releasing the raw data permits other researchers to learn from and build upon existing data. It also offers other researchers the ability to replicate and verify the findings of important medical studies. Dr. Krumholz concludes: “For the good of society, this is a breakthrough that should be replicated throughout the research world.”

We believe that Dr. Kumholz’s call for more publicly available data is applicable to empirical legal studies. It is especially critical, in our view, to the study of patent assertion entities (“PAEs,” which some refer to as patent trolls). There is an important public policy debate underway about the role of PAEs within patent law. There have been reports in the press about PAEs – including a high profile report by the President’s Council of Economic Advisors
– that relied upon confidential data. In his State of the Union address, President Obama called on Congress to enact patent reform legislation. The main basis for the reform is alleged abuses by “patent trolls.” Unfortunately, much of the raw data about patent litigation is not publicly available.

As academic researchers, we are interested in data about PAEs. We have previously studied and written an article about patent infringement lawsuits filed in 2010 and 2012. Because of the importance of the debate about PAEs, we released the raw data from our study to the public (here) to permit others to evaluate and study. Others have downloaded and commented on our data to us, and we have gone back and verified particular classifications in some instances. We believe more publicly available data is necessary.

Why is more information about PAE litigation not public? After all, the underlying data relates to litigation in the federal courts, and thus does not implicate privacy concerns like in the medical context. However, most of the raw data has been gathered and coded by private companies. For-profit businesses legitimately desire to use the information within their business and to prevent competitors and others from using commercially valuable information. That said, we believe corporate owners should release as much of the raw data (not merely descriptive statistics) as they can. To the extent that the raw data is not released or shared, society should be extremely cautious before relying upon it to make important public policy decisions.

Perhaps more importantly, we call upon academic researchers to gather and release more data. The data should be gathered and released in a form most useful to others. For instance, there is a debate about the definition of a PAE. Some believe that it excludes original owners – for instance, universities and individual inventors – while others believe PAEs include any non-operating company. Ideally, the raw data should be coded and released on a granular level. That way, future researchers can analyze the data relying upon different definitions, rather than only the definition used by the original researcher.

In sum, we ask that other researchers release more raw data on PAEs, which will permit both robustness checks on the results, as well as future empirical research on the topic. The time for more transparency has come.

Disjunction in IP Litigation: Patent Courts are not Copyright Courts

Patent, ,

By Dennis Crouch

In the last four months of 2012 about 4,000 intellectual property lawsuits were filed in federal courts. Of these, about 2,000 were patent cases along with 1,000 copyright and 1,000 trademark cases. Patent litigators are well aware of the ongoing popularity of the Eastern District of Texas and the rising popularity of the Delaware court. I wanted to look at how that concentration is different on the copyright and trademark side. It is easy to draw two quick conclusions from the case filings. First, I note that the most popular patent infringement jurisdictions are among the least popular jurisdictions in the other two areas. Very few copyright or trademark cases are filed in EDTX or DDEL. Second, I can conclude that the patent litigation cases are much more highly concentrated in a smaller number of jurisdictions than that of either copyright or trademark. (One measure of this is that the top three patent jurisdictions have 59% of the patent cases while the top three copyright and trademark jurisdictions have 32% and 28% respectively). Part of the explanation for the high concentration of patent cases is the clustering of NPE cases that involve a single plaintiff against multiple defendants filed before a single court. However, I would suggest that the driving explanation is simply the popularity of EDTX and DDEL. The appellate courts provide even more disjunction between the IP regimes since almost all of the patent litigation appeals are heard by the Court of Appeals for the Federal Circuit whereas that court sees very few copyright or trademark infringement actions. Likewise, the appellate courts that hear the most copyright and trademark appeals never hear patent appeals. As I have written previously, the bulk of governmental money spent on administering intellectual property rights goes through the US Patent & Trademark Office (PTO) — an executive agency housed within the Department of Commerce. The US Copyright Office, however, is not part of the administration but rather is housed within the Library of Congress, which itself is managed by Congress rather than the President. Thus the US Copyright Office does not officially represent the Administration or shape Administration policy.

All of this is an odd setup – especially with the rising and overlapping market role for intellectual property rights. From a theoretical standpoint, it is unclear whether the fractured structure leads to rights that are either too strong or too weak. What we can tell is that the structure leads to a lack of coordination of the various IP systems within the US.

For its part, the US Supreme Court has an almost regular practice of doing a comparative analysis in its intellectual property cases that considers how a particular issue is handled in other areas of IP law. Harmony in these areas is part of what the court calls a ‘carefully crafted balance.’ To this end, the court has recognized that the scope and coverage offered by patent law is relevant to the relevant scope and coverage of copyright and trademark protection. Likewise, in the upcoming fee-shifting cases, we can expect that the court will use copyright and trademark precedent as a guide. Perhaps unfortunately, few lower courts have the cross-IP-jurisdictional experience of the US Supreme Court that would be necessary to reasonably draw the same types of parallels.

The chart below shows the most-popular 25 jurisdictions for case filings in the final four months of 2012.

 

 

 

 

 

 

Thanks to LexMachina for this data.

Broader Dependent Claims?

Patent,

By Dennis Crouch

Butamax v. Gevo (Fed. Cir. 2014)

Butamax is a joint venture between BP and DuPont that focuses on creating butanol from corn and sugarcane. The company’s Patent No. 7,993,889 covers isobutanol production using a recombinant yeast. The claims particularly call-out the “engineered” pathway beginning with the raw biologic, passing through the various intermediaries, and resulting in butanol.

Now, the claims are interesting. Claim 1 is directed to a “method for producing isobutanol” that uses the “recombinant yeast microorganism.” Claim 12 is directed to “The recombinant yeast microorganism of claim 1.” Patent professionals will recognize the unusuality of this claim structure. Usually, a dependent claim is narrower than its referenced independent parentage. However, Butamax’s dependent claim 12 here is broader (in some ways) than the referenced claim 1. That is clear here since infringement of claim 1 (a method claim) requires practicing the method, but infringement of claim 12 (a composition claim) can be infringed merely by possession or potentially any use of that microorganism. In the software context, this type of claim structure is somewhat common and typically involves an independent algorithmic method claim followed by a dependent claim directed to a non-transitory computer readable memory storing instructions for causing a processor to complete

Dependent claims are authorized by the Patent Act. 35 U.S.C. § 112(d) states that:

(d) Reference in Dependent Forms. — [A] claim in dependent form shall contain a reference to a claim previously set forth and then specify a further limitation of the subject matter claimed. A claim in dependent form shall be construed to incorporate by reference all the limitations of the claim to which it refers.

In my mind, the Butamax claim structure does not fit within the structure authorized by §112(d) because the full effect of the “method” limitation is not included in the dependent composition claim. The result then, could be invalidity either as indefinite or for failure to comply with §112(d).  See Pfizer, Inc. v. Ranbaxy Laboratories Ltd., 457 F.3d 1284 (Fed. Cir. 2006) (claim invalid for failure to properly structure the dependent claim).

Now, this claim form is similar to that used in product-by-process claims where a dependent product-by-process claim references the process described in a process claim. That type of claim has been accepted by the Federal Circuit on several occasions See Scripps Clinic & Research Found. v. Genentec, Inc. (Fed. Cir. 1991) (“product by process claims are not limited to product prepared by the process set forth in the claims”), overruled by Abbott Labs v. Sandoz (Fed. Cir. 2009) (en banc)

Here, the Butamax claim is not directed to a resulting process but instead to a component used in the method, but perhaps that is not a worthwhile distinction.  The appeal here arises from a district court finding that the claims were invalid on other grounds.  On appeal, the Federal Circuit vacated that decision and remanded for reconsideration by the district court. Perhaps we’ll see the 112(d) issue briefed next time around.

Once an independent claim is found patentable, examiners often give short consideration to the subsequent dependent claims.  That time-saving measure makes follows some logic since the dependent claims are supposed to be narrower than the allowed claim and thus should also be patentable over the prior art.  Of course, this is one situation where that logic fails.

Patent,

Two disturbing videos, neither bring good news:

  • Video Shines Light On The Disturbing Emotional Toll Of Being Black At UCLA Law School [Video]
  • Novelty Shop: Clarence never invented anything; however, he didn’t let that keep him from being one of the most prolific patent litigants ever. The following is a fictional account, based on a true legal system. Any similarity to any actual events is probably inevitable. [Video][Book]

Patent Law Jobs

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Pendency of Patent Infringement Litigation

Patent

By Dennis Crouch

I looked at patent litigation complaint filings over the past few years to work on identifying the timing of typical lawsuits. The chart below shows the percentage of lawsuits that are still open (i.e., not terminated) grouped by the complaint filing year. As the chart shows, 99% of the patent lawsuits filed back in 2005 & 2006 have been terminated at the district court level (I should note here that some of these may still be on appeal and thus “live” in that sense.). On the other hand, 99% of the patent lawsuits filed in the past 50 days (2014 calendar year) are still open. For the most part, there simply has not been time to even settle those cases. Important results: more than one third of the lawsuits are terminated within one year and about three quarters are done within two years. I generated the data from a LexMachina search and the results based on cases still open as of February 17, 2014.

Upcoming Supreme Court Arguments

Patent, Supreme Court,

By Dennis Crouch

  1. Exceptional Case Awards: The Supreme Court will be hearing oral arguments on February 26, 2014 in two patent infringement cases that both concern shifting of attorney fees under the “exceptional case” standard of 35 U.S.C. § 285. The Federal Circuit has traditionally been resistant to fee shifting awards – especially in cases where an accused infringer is the prevailing party. 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. We can expect that the Supreme Court will eliminate the Brooks Furniture test – at least as it is strictly applied.
  2. Patentable Subject Matter: On March 31, 2014, the Supreme Court will hear oral arguments in the software patent case of Alice v. CLS Bank. The case has the potential of drawing dividing line between what types of software are patentable and what types of software are not patentable. I am quite pessimistic that the result proposed by the Supreme Court will be fairly implementable by the US Patent Office.
  3. Indefiniteness: On April 28, 2014, the Supreme Court will hear oral arguments in Nautilus v. Biosig. That case questions the standard for challenging issued patents on indefiniteness grounds. We can expect that the Supreme Court will lower the standard for proving indefiniteness – down from “insolubly ambiguous” to a more “reasonable” standard. This has the potential of impacting a substantial number of patents that have issued with claim terms that intentionally flirt with ambiguity. Indefiniteness is regularly confused with over-breadth. Patent attorneys role moving forward will be in finding ways to draft broad but well defined claims
  4. Divided Infringement: On April 30, 2014, the Supreme Court will hear the joint infringement case of Limelight v. Akamai that posits the question whether the elements of infringement-by-inducement require a single entity who, based upon the inducement, performs all elements of the claimed invention. The Federal Circuit ruled that the single-entity rule of direct infringement should be relaxed for inducement and instead that the relevant question is whether the alleged inducer did indeed induce performance of all elements of the patented claim. Although the Supreme Court may prove some tweaks, I believe that the Federal Circuit approach here should carry the day.

Attorney Hal Wegner follows upcoming cases and regularly post various notices here: http://www.laipla.net/category/wegners-writings/

3M & GE: Defendant Litigation Practices are Just as Bad Nuisance Settlement Trolls

Patent

The following quote comes from the joint amicus brief of 3M, GE, and others in the pending Supreme Court case of Octane Fitness v. Icon Health and Fitness.

To be sure, there are instances (some extremely well-publicized) of patent litigation abuse involving non-practicing patent owners who use the courts in an effort to collect large numbers of nuisance settlements. Yet this problem, in the experience of Amici Companies, is no more serious than that created by many infringing defendants who routinely fight off meritorious patent suits by pressing scores of frivolous defenses and counterclaims, and who otherwise rely upon dilatory tactics to force unjust settlements. Accordingly, the focus should be on curbing litigation misconduct wherever it occurs. An evenhanded standard, flexibly applied, allows just that.

Do readers have suggestions for studying whether the sense of amici is correct?

What is Intellectual Property Law?

Patent,

By Dennis Crouch

Intellectual Property Law is really a general term used to describe a host of more particular legal regimes. Parties do not apply for “intellectual property rights” or go to court to enforce “IP rights.” Rather, parties hold and enforce patents, copyrights, trademarks, trade secrets, etc. In writing about the area, legal academics often use the broader term Intellectual Property to suggest that their results and conclusions apply broadly. It turns out though that very often, articles that purport to be directed to Intellectual Property in general are not so broad in their specifics but instead focus on only one or perhaps two particular areas of intellectual property law. To look into this process, I collected set of about 350 law journal articles published 2011-2013 that include the phrase “Intellectual Property” in their title. I then parsed the articles to identify which particular areas of intellectual property law served as the article focal points. I did this simply by counting the usage of words such as “patent”, “copyright,” “trademark,” and “trade secret” in each article.

Results: Of the self-styled “Intellectual Property” articles, a full 1/3 focused almost entirely on one area of intellectual property. The threshold for this result was that >90% of specific references were directed to one particular area of IP law. Another 1/3 of the articles focused almost entirely on two areas of intellectual property. Intellectual Property articles in this sample were most likely to focus on patent law as shown in the chart below. Of the paired-areas, the most common are Patent+Copyright and Copyright+Trademark but not Patent+Trademark.

Patent,

The White House has pre-announced that it will be making a major announcement on “strengthening the IP system” on February 20, 2014. Speculating, the topic will likely focus on either executive actions (through the PTO) for accomplishing patent reform or perhaps announcement of a USPTO director.

Micro Entity Status: Who is Filing for Micro Entity Status?

Patent

By Dennis Crouch

The name “micro entity” suggests something quite small. In the patent law world, this generally means that the inventor / applicant income level over the past several years is less than around $150,000 and that the inventor is not a frequent applicant. A patent applicant who qualifies will receive a 75% discount on patent office fees. That discount is designed to make it easier for small entities to access the patent system and thus encourage innovation amongst this group of potentially highly-innovative but not yet financially successful individuals. The micro entity rules include a major loophole as well – university owned patent applicants can also qualify for the fee-reduction. My alma-mater (Princeton University) has an $18 billion endowment and is far from being micro in any non-astronomic sense of the word. Still, under the rules, Princeton-owned applications would qualify for micro entity status. See also, Dennis Crouch, Micro Entity Early Stats, Patently-O (2014).

I looked through the records of 60 recently issued patents that claim micro entity status. The results are interesting: 17% are assigned to Universities; 1% to Companies; and the remaining 82% have no assignee or are assigned to an individual. (Note, the one patent in the group assigned to an individual involves a co-invented patent that is assigned to one of the co-inventors.) I had expected a higher percentage of university-owned patents in this group.

The process for seeking Micro Entity status is quite simply and appears to merely involve signing a one-page form. (SB-15A and SB-15B). Some caution should be applied since there is some precedent for finding patents unenforceable based upon improperly paying a small-entity fee when a large-entity fee was actually due.

I should note here that all of the patents in my sample were filed prior to the March 2013 institution of micro-entity fees. Thus, these patents began paying small-entity fees and then converted over to micro-entity status prior to issuance.

Patent Reform: MBHB Webinar

Patent

My friend and former colleague Dr. Andrew Williams is hosting a short Free Webinar on February 18, 2014 focusing on Congressional Patent Reform and “How It May Impact You (Especially if You Are Not Considered to be a ‘Patent Troll’).”

  • When: February 18, 2014 10:00 am CST (11 am on the East Coast and 8 am on the West Coast) – lasting for 75 minutes.
  • Where: Online / Call-In Webinar
  • Register: Free, but Pre-Registration Required [Link: http://alturl.com/h73pv]

Legislation has already been passed in the House of Representatives (Goodlatte Bill); the president has called for reforms and is pushing for legislation directly; and the Senate has several bills pending, including those offered by Senator Leahy who is powerful and respected in this area. Supports are pushing for passage in March 2014. (Yes, that is next month.)

Micro Entity Early Stats

Patent,

For many years, the US Patent Office has provided a 50% fee discount to qualified “small entities.” That option was expanded as part of the AIA to now also include “micro entities” who receive a 75% fee discount. The result is a potential savings of thousands of dollars during the life of a patent. Small entities can be fairly large – business concerns having up to 500 employees. Universities and 501(c)(3) nonprofit organizations also qualify. However, a patent that is licensed (or obligated to license or assign) to a larger entity does not qualify for the fee reduction. For micro entity status, the applicant must qualify as a small entity and then either meet the income/experience limitation (~<$150,000 in household income) or else be assigned (or obligated to be assigned) to a university or qualifying institute of higher learning. Although this fee reduction is important for small business interests, attorney fees still tend to constitute the majority of patenting costs (especially prior to issuance).

The chart below shows the percentage of recent patent applications filed by each entity type.

Heightened Pleading Requirements: Patent Reform through the Supreme Court and Judicial Conference

Patent, Supreme Court,

By Dennis Crouch

In the cases of Twombly (2007) and Iqbal (2009) (Twiqbal), the Supreme Court substantially raised the pleading standard for federal cases by requiring that the pleadings allege sufficient detail to demonstrate that their claims are “plausible.” These cases have had a dramatic impact on civil litigation in Federal courts. This is evidenced by the fact that these cases have been cited in over 10,000 decisions over the past few years.

Patentees filing infringement actions have not been directly affected by the modified precedent because of a quirk of federal civil procedure. The FRCP appendix includes a form patent infringement complaint and FRCP Rule 84 indicates that the “forms in the Appendix suffice under these rules.” The patent infringement complaint form (Form 18) is incredibly bare-bones and basically only requires an allegation that the plaintiff has rights in the patent and that the defendant is infringing the patent. Based upon the scheme set up by the Rules Enabling Act (1934), the Judicial Conference proposes any amendments to the rules of civil procedure; those proposals are then approved by the Supreme Court and then reviewed by Congress before becoming law.

Within the next couple of years, this form complaint rule is likely to change, either by action to change the rules proposed the Judicial Conference or else by Congressional legislation.

In fact, in the Judicial Conference Advisory Committee has already proposed elimination of FRCP Rule 84 and the form complaints. [Link] The result would be that Twiqbal would apply to patent infringement complaints. Although this change would not raise complaint pleading standards to that of the Goodlatte proposal, it still represents a major heightening of that initial pleading hurdle.

In its proposed rule change, the Judicial Conference Advisory Committee explains its proposal with reference to patent law:

A further reason to abrogate Rule 84 is the tension between the pleading forms and emerging pleading standards. The pleading forms were adopted in 1938 as an important means of educating bench and bar on the dramatic change in pleading standards effected by Rule 8(a)(2). They — and all the other forms — were elevated in 1948 from illustrations to a status that “suffice[s] under these rules.” Whatever else may be said, the ranges of topics covered by the pleading forms omit many of the categories of actions that comprise the bulk of today’s federal docket. And some of the forms have come to seem inadequate, particularly the Form 18 complaint for patent infringement. Attempting to modernize the existing forms, and perhaps to create new forms to address such claims as those arising under the antitrust laws (Twombly v. Bell Atlantic, 550 U.S. 544 (2007)) or implicating official immunity (Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009)), would be an imposing and precarious undertaking. Such an undertaking might be worthwhile if in recent years the pleading forms had provided meaningful guidance to the bar in formulating complaints, but they have not.

The point here is that the pleading standards are outdated and today offer a loophole for certain plaintiffs without any justification for such a loophole.

The committee goes on to make a clear misstatement that “few if any lawyers consult the forms when drafting complaints.” Rather, in the patent infringement world, it is knowledge of that form that serves as the basis for many patent complaints. However, that misstatement does not sink the proposal in any way.

The proposal here is at an early stage and is open for comments until February 15, 2014. Once the comments have been received, the Judicial Conference Advisory Committee will then reconsider its proposal and then potentially move forward with a set of final rules that would then need approval from the Judicial Conference Standing Committee, the Judicial Conference, the Supreme Court, and Congress (implicitly). For any rule change to take effect this calendar year, the Supreme Court’s promulgation of the rules would need to be effective by May 1, 2014.

Federal Circuit to PTAB: New Factual Findings Required Following Amended Claim Construction

Patent, , , ,

By Dennis Crouch

Tempo Lighting, Inc., v. Tivoli LLC (Fed. Cir. 2013)

The rules of patent trial proceedings continue to develop. One issue that is continually shocking for parties are the short and hard deadlines in the various post-issuance review proceedings and the strong pushback against parties who look to shift their position during the proceedings. Folks are learning that the first-punch in the post grant review proceedings should be at full power and fully thought through. Here, the Federal Circuit pulls the PTAB back somewhat from that approach and finds that the Board improperly found that Tempo had waived certain arguments during the proceedings.

The case itself stems from an inter partes reexamination but is relevant to the new post-issuance review proceedings. The case may also be relevant and important for patent applicants involved in ex parte appeals because of what appears to be an increase Board decisions that implicitly turn on new grounds of rejection offered by the Board.

Tivoli first sued Tempo for patent infringement in 2004 and Tempo responded with the inter partes reexamination request. The district court was then stayed (and has been stayed up to now). Tivoli’s patent at issue here covers a reflective strip that is configured to mount on the “nose” of a stair-step. U.S. Patent No. 6,554,446. Both parties compete in the industry selling lighting products.

As the reexamination plodded along, the Examiner received input from each party and closed prosecution in 2009. The Board then heard the appeal in 2010 and finally issued a decision in 2012. In that final decision, the Board rejected the Examiner’s construction of the claim term “inert to light” but then relied upon the Examiner’s determination that the primary prior art reference lacks the “inert to light” limitation. In the rehearing, Tempo argued that, under the new construction, that the primary references now teach the inert to light limitation. However, the Board procedurally rejected that argument – finding that it was an attempt to argue for an alternative ground for unpatentability being brought in the rehearing.

On appeal, the Federal Circuit found it improper for the Board to directly rely upon the examiner’s factual finding regarding whether the prior art taught the inert to light limitation after it had modified the claim construction. “On remand, the PTO will have the opportunity to make new factual findings under the proper construction.”

A major difference here from traditional ex parte examination is that the reexamination examiner here expressly determined the claim construction. In the ordinary patent application situation, examiners do not spell-out their construction. At times, it may be advantageous to push for an explicit claim construction in the process of setting-up appeal.

Whither the USPTOs Authority to Require Ownership Recordation

Patent

By Dennis Crouch

The USPTO has proposed a new set of proposed rules that would require recordation of patent ownership rights, including the ultimate parent entity of any patent owner. Some question whether the USPTO actually have the authority to make these rules. The basics of federal agency authority begins at zero. That is, an agency has no authority to act until given authority by Congress. Because the longstanding nature of Patent Office activities, some of these authorities may flow from explicit statutory authority while others may flow from very longstanding practice.

The USPTO has long-maintained a registry of patent ownership, although the Patent Act only implicitly suggests as much. 35 U.S.C. § 261 provides that an assignment of patent rights (or other conveyance) “shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months.” Section 161 suggests that the USPTO must have authority to create and organize its system of recordation. However, there are no statutory provisions that particularly provide that authority.

The patent ownership records reach back well into the 19th century and are discussed by a handful of decisions by Justice Story. See, e.g., Pitts v. Whitman, 2 Story 609 (C.C.D. Maine 1843). Justice Story’s decisions focus on the effect of recordation-of-rights and also the failure to record. Justice Story reached the general conclusion that a patentee is under no legal duty record patent ownership and that a patent owner could enforce the patent even without ever recording his interest. According to Story, the one purpose of the recordation is to put potential subsequent bona fide purchasers on notice. In its proposed rulemaking, the USPTO rejects Justice Story’s principles and instead defends a broader purpose of recordation that also militates for a broader requirement of recordation. Justice Story’s perception of the law has continued to be considered the black-letter law. See, In re Cybernetic Services, Inc., 252 F.3d 1039 (9th Cir. 2001) (“Congress intended for parties to record their ownership interests in a patent so as to provide constructive notice only to subsequent holders of an ownership interest.”); John Tuman & Sons v. Basse, 113 F.2d 928 (2nd Circuit 1940) (“The only possible interest of … an infringer which deserves protection is the avoidance of the danger of being sued more than once for the same unlawful act.”). Now, the Tuman & Sons case does have some interesting statement regarding the pre-1952 patent act that only allowed a patent to an assignee “but the assignment must first be entered of record in the Patent Office.” (Quoting Section 4895 of the Old Act). The ’52 Act dropped the seeming requirement of assignee recordation and instead more simply states that patents be granted “to the assignee of the inventor of record.” 35 U.S.C. § 152. The 2011 America Invents Act (AIA) adds a bit of meat to PTO authority because of the restructuring that focuses on the “applicant” rather than on the “inventor.” See 35 U.S.C. § 118. Under the newly revised law, the PTO appears to be charged with determining whether the applicant qualifies to manage the applicant. I.e., the PTO must determine whether the applicant “shows sufficient proprietary interest.” Id.

In considering USPTO authority for its expansion of the recordation requirement, it makes sense to focus on 35 U.S.C. § 2. That provision provides for a set of general powers – giving the Office the power to establish regulations to “govern the conduct of proceedings in the Office.” §2(b)(2)(A). In its notice of proposed rulemaking, the USPTO identifies that general regulatory power as the source of its authority to regulate here. The USPTO’s position has substantial basis in law – especially when considered within the context of the fairly recent Federal Circuit decisions in Star Fruits S.N.C. v. U.S., 393 F.3d 1277 (Fed. Cir. 2005) and Cooper Techs. Co. v. Dudas, 536 F.3d 1330 (Fed. Cir. 2008). In those cases, the courts found that the USPTO has authority to promulgate “procedural” rules that require “submission of information that is reasonably necessary to proper examination or treatment of the matter at hand, provided that such requests are not arbitrary or capricious.” And, implicit in a submission requirement is that some form of punishment (such as abandonment) stems from failure to comply.

The proposed rulemaking was careful drafted by the USPTO to justify its demand for additional evidence in both (1) benefits to third parties (its implicitly primary reason) and (2) benefits for the examination process (its implicitly secondary reason). Although arguably a secondary motivation, the alleged benefits of recordation to the examination process are well within the core mission of the USPTO and thus provide better legal foundation for the rules under § 2(b).

The backstop here is Tafas v. Dudas, 559 F.3d 1345 (Fed. Cir. 2009) (vacated). That discussion will await a future post.

Attorney Fees: Litigation Misconduct But No Fees Awarded

Patent, , ,

By Dennis Crouch

Oplus Technologies, Ltd. v. Sears & Vizio (C.D.Cal.2014)

In an October 2013 summary judgment decision, Judge Pfaelzer found in favor of the defendants – holding that the Oplus asserted patents were not infringed (Patent Nos. 6,239,842 and 7,271,840) and also invalid as anticipated (Patent No. 6,239,842). That final decision is pending appeal at the Federal Circuit.

Most recently, the court denied Vizio’s motion for attorney and expert witness fees “pursuant to 35 U.S.C. § 285, 28 U.S.C. § 1927, and the Court’s inherent power.” However, that denial came only as part of a decision that walks through statements by Oplus and its attorneys (the Niro firm) that “were seriously contradictory and unreasonable” and their “manner and style” that were “offensive to the Court.” Particular noted misconduct included:

  • Oplus delayed the litigation by strategically amending its claims to manufacture venue.
  • Oplus misused the discovery process to harass Vizio by ignoring necessary discovery, flouting its own obligations, and repeatedly attempting to obtain damages information to which it was not entitled.
  • Oplus used improper litigation tactics including presenting contradictory expert evidence and infringement contentions as well as misrepresenting legal and factual support.

However, the Judge Pfaelzer also found that (despite summary judgment) that Oplus’s claims were not “objectively baseless.”

Although the misconduct was serious in Judge Pfaelzer’s view one reason for not awarding attorney fees was that Vizio’s was also guilty of delay and avoidance tactics. And, the court found that the inconsistencies in Oplus position actually helped make the Summary Judgment decision easier – probably saving attorney fees.

Ray Niro submitted a letter to Judge Pfaelzer that likely helped sway her decision not to award fees. In the letter, Ray Niro’s letter Niro apologized for “the conduct of one of our young lawyers” and that “could be understood as being arrogant to and disrespectful to the Court.” Niro indicated he has “taken remedial action” and would monitor the lawyer’s conduct throughout the next year. Niro also indicated that – although not an excuse or justification – that the mother of the lawyer who had spoken harshly to the court had been critically ill on the day of the hearing and had died four days later.

The case is interesting as an added element to the ongoing debate on awarding attorney fees. Two patent law attorney fee cases are pending before the US Supreme Court and several related bills are pending in Congress. Here, Judge Pfaelzer had no problem identifying litigation misconduct but applied her discretion to rule that attorney fees were not appropriate. In essence, Pfaelzer began with the presumption that ordinarily no attorney fees should be awarded and then found that there were not sufficient reasons to move from that starting position. At least some of the congressional proposals shift the starting-position so that the ordinary rule would be an award of attorney fees unless there are sufficient reasons to not award fees. I would guess that this is one of the cases that would flip under the proposed rules.

  • Scott Graham from The Recorder has more on the story here.
  • NiroLetter
  • OrderDenyingAttorneyFees
  • As luck would have it, Vizio was sued again this week. This time by Pragmatus Telecom who alleges infringement of several patents, including U.S. Patent No. 8,438,314.

Exela takes its Collateral Patent Challenge to the Federal Circuit

Patent

Exela Pharma Sciences, LLC v. Focarino (Lee) (Fed. Cir. 2014)

Exela is an interesting pending case before the Federal Circuit. I previously wrote about Exela’s lawsuit against the USPTO in an essays titled Suing the USPTO to Cancel Improperly Issued Patents (August 2012) and Twelve Year Old USPTO Rules Cannot be Challenged Even if They Are Only Now Hurting You (February 2013).

The patent at issue is Cadence Pharma’s U.S. Patent No. 6,992,218 that covers an injectable form of acetaminophen. During prosecution the patentee failed to timely file a US national-stage application before the 30-month PCT deadline. However, the USPTO allowed the patentee to subsequently revive the case and file the national-stage application based on a pleading that the delay was “unintentionally.” Exela argues that the Patent Act only permitted revival in this situation when the application was unavoidable abandoned – a much more difficult standard to meet. Unfortunately for Exela, improper revival is not a cognizable defense in patent litigation. See Aristocrat Gaming v. IGT and 35 U.S.C. §282.

When Cadence sued Exela for infringement, Exela filed this collateral action against the PTO – asking the agency to cancel the improperly issued patent. The district court gave consideration to Exela’s argument but ultimately sided with the USPTO in holding that the held that the case was barred by the six-year statute of limitations defined by 28 U.S.C. § 2401(a) (“Except as [otherwise provided], every civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues.”).

The case is now on appeal at the Federal Circuit before an interesting panel consisting of Chief Judge Rader and Judges Newman and Dyk. The case is interesting in that the USPTO has argued that its mistake here (improper revival) is one that is and should be absolutely unreviewable by any court of law. The following quote is on-point from the oral arguments.

Judge Dyk: Under Your Analysis, the PTO can act unlawfully and nobody can challenge it.

Dennis C. Barghaan on behalf of the Government: Your statement is correct.

Matthew Dowd (the less famous one) argued on behalf of Exela that the APA properly permits judicial challenges to agency conduct, such as this, that goes beyond the scope of the agency’s limited power. He writes in the brief:

This case presents the important question of when a party, who is adversely affected by a specific, unlawful agency decision, can invoke the protections of the APA. Exela filed its APA challenge shortly after being sued by the patent owner. That lawsuit is the harm directly traceable to the PTO’s ultra vires revival of the patent application. Accordingly, under the APA, Exela should be permitted to challenge the PTO’s decisionmaking.

For its part, the PTO makes two arguments: (1) The six-year statute of limitations of the APA has expired since it has been more than six years since the PTO improperly revived the patent. That argument seems to fly in the face of the statutory language of 28 U.S.C. § 2401(a) that bases the timing on the date that the “right of action first accrues.” Exela likely had no right of action (no standing) for its challenge until it was accused of infringement by the patentee. However, the PTO does have a number of precedential decisions that support its interpretation.

The second argument (2) is that, even if not time-barred, the APA provides no right of action because Congress has already explicitly determined the types of challenges that are available.

Patent Case Filings: Slow Start in 2014

Patent

The chart above comes from LexMachina [Link] and shows the number of lawsuits filed each month for the past several years. You’ll note that the number of case filings in January 2014 is the lowest since October 2011. The rise in filings since 2011 is largely (if not completely) explained by the joinder provisions of the AIA that block a patentee from filing suit against multiple unrelated parties in a single lawsuit.

This week Steve Morsa sued Facebook on his match-engine-marketing patents. See U.S. Patent Nos. 7,904,337 and 8,341,020; Adidas sued UnderArmor for infringing twelve of its patents covering location-aware fitness devices. See U.S. Patent Nos. 7,292,867 and 7,805,149; and Dyson sued Euro-Pro for infringing its U.S. Design Patent No. D668,010 that appears to cover the Dyson Digital cordless vacuum.

Proposed Rules: Identify the True Owner on Pain of Abandonment

Patent, , , ,

By Dennis Crouch

In one of her first acts as de facto USPTO Director, Michelle Lee has proposed a new set of rules associated with patent assignment recordation. The proposal is quite complicated (occupying 18,000 words in the Federal Register) but the general idea is (1) that information regarding who owns which patents should be available to the public; (2) some rights-holders have been taking steps to hide their identity; and therefore (3) the USPTO proposes to require greater transparency. Although the proposal is signed by Deputy Director Lee, it was a White House initiative well before she took office.

The Office is proposing … to require that the attributable owner, including the ultimate parent entity, be identified … on filing of an application (or shortly thereafter), when there is a change in the attributable owner during the pendency of an application, at the time of issue fee and maintenance fee payments, and when a patent is involved in supplemental examination, ex parte reexamination, or a trial proceeding before the Patent Trial and Appeal Board (PTAB). The Office is also seeking comments on whether the Office should enable patent applicants and owners to voluntarily report licensing offers and related information to the Office, which the Office will then make available to the public in an accessible online format.

The recordation requirement would be retroactive and apply to all live patents and patent applications. However, the USPTO suggests that “most additional reporting will need to be done by companies that have complicated corporate structures and licenses, which often include the complex structures used by certain patent assertion entities (“PAEs”) to hide their true identities from the public.” The proposed penalty for failure to comply would have some teeth: abandonment.

Comments on the proposed rules are due by March 25, 2014 and can be emailed directly to: AC90.comments@uspto.gov. The review is being spearheaded by James Engel and Erin Harriman who are attorney advisors in the Office of Patent Legal Administration (OPLA).

Why: Before getting into the details of the proposal, we might pause to consider why the USPTO is proposing this new requirement. The USPTO identifies several potential benefits of a more complete ownership record. According to the USPTO, enhanced assignment information will:

  • “[A]llow [competitors] to better understand the competitive environment in which they operate.”
  • “[E]nhance technology transfer and reduce the costs of transactions for patent rights since patent ownership information will be more readily and easily accessible.”
  • “[R]educe risk of abusive patent litigation by helping the public defend itself against such abusive assertions by providing more information about all the parties that have an interest in patents or patent applications.”

In addition to these public benefits, the USPTO argues that the assignment information will help the office in several ways, such as avoiding conflicts of interest and better identifying double-patenting problems.

The key issues regarding the rules are (1) which rights-holders must be named? (2) Under what circumstances must a parent-entity be named? (3) What is the timeline for providing information to the USPTO? And (4) what would be the consequences for failure to fully comply with the regulations.

Who is an Attributable Owner?: In my 1L property law class, we discuss all sorts of way that property rights can be divided amongst present and future interest holders; lienholders; easement holders; those with equitable rather than legal title; etc. The proposed requirement here identifies three particular class of rights-holders who will be required to record their interest: (1) titleholders (someone who has been assigned title); (2) those with rights-of-enforcement (such as exclusive licensees or others that would be a necessary party to an enforcement action); and (3) entities created in order to temporarily divest (or prevent vesting) of title or enforcement rights (such as a trust, proxy, etc.). One difficulty here is that patent ownership interests are defined by a mixture of local law (state and/or foreign) and federal law. It is quite difficult to create a simple rule that fits to each of the hundreds of potential local jurisdictional mechanisms of operation.

Parent Entities: In addition to the attributable owner, the law would also require the recordation of any “ultimate parent entity” of any of the attributable owners. As a term of art, ultimate parent entity is already defined by 16 CFR 801.1(a)(3) and the USPTO is intending to follow that approach. Chapter 16 of the CFR generally relates to commercial practices and is promulgated by the Federal Trade Commission (FTC). The definition is as follows: “The term ultimate parent entity means an entity which is not controlled by any other entity.” The CFR provides the following three examples:

1. If corporation A holds 100 percent of the stock of subsidiary B, and B holds 75 percent of the stock of its subsidiary C, corporation A is the ultimate parent entity, since it controls subsidiary B directly and subsidiary C indirectly, and since it is the entity within the person which is not controlled by any other entity.

2. If corporation A is controlled by natural person D, natural person D is the ultimate parent entity.

3. P and Q are the ultimate parent entities within persons “P” and “Q.” If P and Q each own 50 percent of the voting securities of R, then P and Q are both ultimate parents of R, and R is part of both persons “P” and “Q.”

Although not clear from the definition, there is an idea that a parent entity must exhibit some amount of control over the subsidiary. One purpose here is to identify “hidden beneficial owners.”

Penalty for Failure to Comply: Abandonment.

Read the Rules and Comment: 79 FR 4105 (2014).