Don’t Write This Letter to the Patent Office

Patent

by Dennis Crouch

We all get frustrated. After an examiner rejected his client's application for a telescoping tripod sprinkler, patent attorney Andrew Schroeder could no longer resist and filed the following remarks:

REMARKS: Are you drunk? No, seriously…are you drinking scotch and whiskey with a side of crack cocaine while you "examine" patent applications? (Heavy emphasis on the quotes.) Do you just mail merge rejection letters from your home? Is that what taxpayers are getting in exchange for your services? Have you even read the patent application? I'm curious. Because you either haven't read the patent application or are… (I don't want to say the "R" word) "Special."

Numerous examples abound in terms of this particular Examiner not following the law. Clearly, the combination of references would render the final product to be inoperable for its intended use. However, for this Special Needs Examiner, logic just doesn't cut it. It is manifestly clear that this Examiner has a huge financial incentive to reject patent applications so he gets a nice Christmas bonus at the end of the year. When in doubt, reject right?

Since when did the USPTO become a post World War II jobs program? What's the point of hiring 2,000 additional examiners when 2,000 rubber stamps would suffice just fine? So, tell me something Corky…what would it take for a patent application to be approved? Do we have to write patent applications in crayon? Does a patent application have to come with some sort of pop-up book? Do you have to be a family member or some big law firm who incentivizes you with some other special deal? What does it take Corky?

Perhaps you might want to take your job seriously and actually give a sh.t! What's the point in having to deal with you Special Olympics rejects when we should just go straight to Appeals? While you idiots sit around in bathtubs farting and picking your noses, you should know that there are people out here who actually give a sh.t about their careers, their work, and their dreams.

Your job is not a joke, but you are turning it into a regular three ring circus. If you can't motivate yourself to take your job seriously, then you need to quit and let someone else take over what that actually wants to do the job right.

See U.S. Patent Application No. 13/068530 (PAIR). [Update: It appears that the PTO has now removed the letter from the file history.] Perhaps we should have a contest to rewrite this letter to get the same substantive points across without violating any rules of professional conduct.

The pending claims are listed as follows:

1. A Telescoping Tripod Sprinkler Cart comprising

a tripod junction unit, a plurality of support members, a sprinkler support assembly, and a telescoping assembly;

the tripod junction unit comprises a first leg, a second leg, and a hose conduit;

the plurality of support members are sized to mate with the legs;

the legs comprise a detent orifice sized to mate with a detent on a support member;

the support members comprise a detent for the purpose of fastening the support member to the tripod junction; and

the sprinkler support assembly is connected with the hose conduit of the tripod junction.

2. The Telescoping Tripod Sprinkler Cart of claim 1 further comprising a carriage assembly; the carriage assembly comprises an axle, an axle housing, a pair of wheels, and a pair of struts.

In the final rejection, the examiner found the claim 1 unpatentable over Richey (U.S. Patent No. 2,694,600) in view of Nies (U.S. Pub. No. 2009/0230206) and in further view of Harward (U.S. Patent No. 4,824,020) and claim 2 unpatentable in further view of Ward (U.S. Patent No. 5,484,154).

   

Patent

Tidbit: About 3% of recently issued US patents are following an interesting path that begins with the filing of a US provisional patent application followed one-year later with an international application (PCT) and then eventually followed-up with a US non-provisional application based on the PCT. The delay in filing the non-provisional application means that, on average, these patents issued more than six years after the priority filing date. Most of the patents come from TC1600 (Biotechnology and Organic Chemistry), but the most frequent users of this approach are actually foreign hard-tech companies such as LG and Philips. — Dennis    

Issue Preclusion in Repeat Patent Cases

Patent

Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313 (1971) involves a case where the patentee (University of Illinois) had first asserted its patent against Winegard and lost a bench trial on obviousness grounds. Later, the University sued Blonder, but the Supreme Court found the University’s case barred by collateral estoppel (AKA issue preclusion). Prior to this case the general rule was that collateral estoppel did not apply non-mutually – i.e., where the defendant in the second case was not part of the first case.

What should happen in the following situation?:

1. Assume that a patentee believes its rights are being infringed by a number of companies.

2. Patentee sues D1 for infringement; D1 raises prior art and challenges the patent as obvious; but Patentee wins, including a holding that confirms patent validity.

3. Patentee sues D2 for infringement; D2 raises the same prior art and obviousness argument; but Patentee wins, including a holding that confirms patent validity.

4. Patentee sues D3 for infringement; D3 raises the same prior art and obviousness argument; but Patentee wins, including a holding that confirms patent validity.

5. Next, Patentee sues D4 for infringement; D4 raises the same prior art and obviousness argument; However this time the patentee loses and the court holds the patent invalid as obvious.

6. Finally, Patentee sues D5 for infringement.

Question – Does D5 have the right to win the case on collateral estoppel grounds?

= = = =

[More Context]

I started thinking about this issue when reading the Restatement of the Law 2d – Judgments. Section 29 considers non-mutual issue preclusion and indicates that “other circumstances [may] justify affording [a would-be precluded party] an opportunity to relitigate the issue. The circumstances to which considerations should be given include those enumerated in § 28 and also whether . . . (4) The determination relied on as preclusive was itself inconsistent with another determination of the same issue.” The notes following §29 suggest two prior inconsistent outcomes “may have been based on equally reasonable resolutions of doubt as to the probative strength of the evidence or the appropriate application of a legal rule to the evidence. That such a doubtful determination has been given effect in the action in which it was reached does not require that it be given effect against the party in litigation against another adversary.”

Don Chisum emailed with two particular patent cases on point from his treatise. Mississippi Chem. Corp. v. Swift Agricultural Chem. Corp., 717 F.2d 1374 (Fed. Cir. 1983) and Stevenson v. Sears, Roebuck & Co., 713 F.2d 705 (Fed. Cir. 1983). In Mississippi Chem, the Federal Circuit held that prior inconsistent judgments serve as a “red flag warning” for the court to more carefully consider whether the patentee had a full and fair opportunity to litigate the issue in the case that resulted a finding of invalidity. The idea of this red-flag warning comes from a pre-Federal Circuit decision by the Fifth Circuit. Blumcraft of Pittsburgh v. Kawneer Co., 482 F.2d 542 (5th Cir.1973). In Blumcraft, the court wrote (in dicta) that “under our ruling today it would be technically possible to apply collateral estoppel where a prior finding of invalidity was preceded by several rather than by just one finding of validity.”

In such instances there would be a red flag warning a court to apply the full and fair criteria very carefully to determine if the court finding the patent invalid had adequately comprehended and applied the appropriate substantive standards.

In Blumcraft, the court described the Blonder-Tongue ruling as follows: “Blonder-Tongue did not throw merely a jab at the multiplicity of patent litigation; rather, it intended a knockout blow through the doctrine of collateral estoppel so that any time a patent was found invalid in a fair fight with a knowledgeable referee, the courts could count ten and the patent holder could no longer maintain that he was champion.” As it did in Mississippi Chem., the Federal Circuit followed this same approach in Stevenson.

Federal Circuit Supports Bare-Bones Patent Complaints

Patent

By Dennis Crouch

K-Tech Telecommunications v. Time Warner (Fed. Cir.2013)

The district court dismissed K-Tech’s infringement lawsuit on a FRCP R. 12(b)(6) motion for failure to state a claim upon which relief can be granted. Following the Supreme Court decisions of Twombly and Iqbal, federal courts have generally required plaintiffs to add more particularity and factual allegations into their complaint and the district court’s decision in this case follows that trend. The Federal Circuit, however, has resisted with respect to patent infringement allegations. And here, the court reverses and remands.

K-Tech’s complaint alleges that the company owns several patents and that Time-Warner is infringing particular claims of those patents by transforming the digital-broadcast-signal sub-channels into a new numbering system for cable transmission. See U.S. Patent Nos. 6,785,903 (claim 24); 7,485,533 (claim 13); 7,761,893 (claims 1 and 9); 7,984,469 (claims 1, 5, 9, 12, and 15).

Citing Twombly, the district court dismissed the complaint,

Plaintiff [complaint] seems to suggest that Defendant must operate some product or process in a manner that infringes some of the Asserted Patents, because Defendant is able to achieve the same end-result as that contemplated by the Asserted Patents. Although Plaintiff strongly believes that Defendant “must” be infringing the Asserted Patents, Plaintiff fails to explain the basis of this belief. Plaintiff does not explain why it believes that Defendant is utilizing the methods and products protected by the Asserted Patents to update the digital signals it receives rather than using other noninfringing methods and products.

. . . . Plaintiff has failed to allege facts sufficient to state a plausible claim for patent infringement under the standards articulated in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).

On appeal, however, the Federal Circuit has reversed – holding that patent cases are special because the Federal Rules of Civil Procedure include a proposed form complaint for patent infringement (Form 18) and “proper use of a form contained in the Appendix of Forms effectively immunizes a claimant from attack regarding the sufficiency of the pleading.”

The patent infringement form (Form 18) is incredibly bare-bones and requires only the following:

Form 18

1.     <Statement of Federal Jurisdiction>

2.    On <Date>, United States Letters Patent No. <__________________> were issued to the plaintiff for an invention in an electric motor. The plaintiff owned the patent throughout the period of the defendant’s infringing acts and still owns the patent.

3.    The defendant has infringed and is still infringing the Letters Patent by making, selling, and using electric motors that embody the patented invention, and the defendant will continue to do so unless enjoined by this court.

4.    The plaintiff has complied with the statutory requirement of placing a notice of the Letters Patent on all electric motors it manufactures and sells and has given the defendant written notice of the infringement.

Therefore, the plaintiff demands:

(a)    a preliminary and final injunction against the continuing infringement;

(b)    an accounting for damages; and

(c)    interest and costs.

According to the court when an approved form complaint is available, a plaintiff satisfies the pleading requirements of Rule 8 by either conforming to the provided form complaint or by conforming to the requirements of Twombly.

In considering whether the complaint here met the requirements of Form 18, the appellate panel concluded that there is no requirement that the complaint name the accused product or service by name. “That K-Tech cannot point to the specific device or product within TWC’s or DirecTV’s systems that translates the digital television signals each receives—especially when the operation of those systems is not ascertainable without discovery—should not bar K-Tech’s filing of a complaint.”

The touchstones of an appropriate analysis under Form 18 are notice and facial plausibility. While these requirements serve as a bar against frivolous pleading, it is not an extraordinarily high one.

This decision adds additional context to the Federal Circuit 2012 decision In re Bill of Lading, No. 2010-1493 (Fed. Cir. 2012). In that case, the court also affirmed the power of Form 18 as an approved model complaint but also indicated that the form only applies to allegations of direct infringement and not infringement by inducement.

Writing in concurrence, Judge Wallach disagreed with the majority’s conclusion that Form 18 controls over Twombly. Rather, Judge Wallach argues that the two must be reconciled:

The question presented in this case is whether KTech’s allegations are adequate under Rule 8(a). If so, they survive a Rule 12(b)(6) motion; if not, the complaints must be dismissed. The Supreme Court has interpreted Rule 8(a) to require “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). This standard “governs the pleading standard ‘in all civil actions and proceedings in the United States district courts.'” Id. (quoting Rule 1) (emphasis added). Form 18 provides a sample complaint for patent infringement, and Rule 84 “makes clear that a proper use of [Form 18] . . . effectively immunizes a claimant from attack regarding the sufficiency of the pleading.” Majority Op. at 9–10 (emphasis added). As the majority rightly points out, Rule 84 is binding on this court to the same extent as Rule 8(a). . . . Thus, this court is bound by Iqbal and Twombly … and by Rule 84. To the extent possible, these standards must be harmonized.

For his part, Wallach suggested that the complaint submitted by the plaintiff here satisfied both standards.

= = = = = =

One odd element of the decision is that the court indicated that the judgment on whether claims had been sufficiently pled is not a patent specific matter. The consequence of that is that Federal Circuit follows the lead of the appropriate regional circuit court of appeal. “Because it raises a purely procedural issue, an appeal from an order granting a motion to dismiss for failure to state a claim upon which relief can be granted is reviewed under the applicable law of the regional circuit.” However, following that humble claim, the court went on to repeatedly cite its own decisions and not those of the Ninth Circuit. Responding to that issue in a footnote, the court noted any difference between regional circuits on this issue would be improper because the result is dictated by Supreme Court precedent. Thus, the court’s “analysis is no different where the case comes to us from the Ninth Circuit [or the Sixth Circuit]. Form 18 is a national form, and any argument that we should interpret it differently here than we did in R+L Carriers is without merit. One trick here is that we ordinarily do not apply common law interpretation to the Federal Rules of Civil Procedure – meaning that precedential decisions of the regional circuits have less weight in this area than in other areas of law.

Patent-Conscious Preparation for a Summer at the Beach

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Guest Post by Marketa Trimble

As the America Invents Act slowly fades as a cocktail party topic, your conversation might gravitate to your upcoming summer vacation at the beach. Don’t worry, this conversation will present opportunities for patent-spirited discussions as well.

Last month, while preparing a presentation on U.S. IP law for a class of fashion design and communications students in Milan, Italy, I came across a patent that changed my perspective on a summer beach vacation. U.S. patent 8,371,043, applied for on August 1, 2008 (two provisional applications were filed earlier), and issued on February 12, 2013, concerns “a molded shoe featuring a 3 dimensional figure (e.g., an animal or character)” that is perfect footwear for any child’s day of fun at the beach.

I wanted to include a utility patent in a series of examples of how individual types of IP rights under U.S. law, which is often presented as deficient in its limited protection of fashion, might provide some protection to some aspects of fashion. However, this particular utility patent was not a good introduction to U.S. patent law for the students – it certainly was not suitable to explain the “law on the books,” although it was appropriate to illustrate the “law in action.” By the point in the semester when I spoke to the class, the students had a pretty good idea of IP law as it exists in European countries, and they seemed to be eager to learn about U.S. IP law. They took copious notes when I talked about section 101 and the conditions for patentability under U.S. law. But when I showed the slide with the molded shoe patent the pens went down and the eyebrows went up.

U.S. patent 8,371,043 covers a shoe that

“has a sole having a bottom surface that comprises a series of projections and recesses that form a print for an animal or character, to thereby obtain an imprinting surface; and an upper, attached to the sole, having an outer surface that comprises a series of projections and recesses that form a three dimensional figure (e.g., an animal figure or a character figure). The sole and upper are substantially formed from molded plastic; the projections and recesses of the animal imprinting surface allow one wearing the shoe to make imprints on a soft surface, and the three dimensional figure on the outer surface of the upper relates to the print of the imprinting surface.” (Abstract that substantially tracks Claim 1)

It was telling that the students, on seeing the drawings of the invention, almost uniformly exclaimed: “Crocs!” Indeed, to an average consumer the shoe in the drawings might resemble Crocs, which have been on the market since about 2002, and it might surprise the public that the assignee of the patent is not Crocs, Inc., but Polliwalks, Inc. The idea of putting the face of an animal or a character on the tip of a shoe and a corresponding surface print on the bottom of the shoe might have been non-obvious to a PHOSITA but did not seem non-obvious to the students, who knew of various fabric shoes featuring animals and characters – shoes that very likely had preceded the invention in the patent. Nor did having a sole that makes an imprint corresponding to the shape of the sole impress the students as non-obvious. In the end the class agreed that issues of patentability are complex and that the students were not likely to be in a position to second-guess a complicated assessment of non-obviousness.

What was perhaps more troublesome about the patent, though, was that it extends to “[a] method of making an animal imprint on a surface with a molded shoe” (Claim 11). If you have any doubts about the link to a day at the beach you should know that the surface in the patent is identified as “a soft surface that includes dirt, mud, sand or clay” (Claim 12). With the exception of sale representatives and designers of competitor-infringers who might engage in making imprints with patent infringing products, the only other people likely to infringe the method claims appear to be consumers using patent infringing products – children who, as the patent applicant assures us, “enjoy exploring and learning about new things” (as written in the Background of the Invention). Apparently, these “things” will now include patent infringement.

Of course, your children will not infringe the method claims if you purchase a pair of the shoes that are sold by the patent owner or with the patent owner’s consent – we know that the patent owner’s right to control the disposition of the shoe is exhausted upon the first authorized sale of the shoe, and that the patent owner’s right to control the use of the patented method that is substantially embodied in the product will be exhausted upon the first authorized sale of the product as well. But if you purchase “knock-offs” of the shoes or other shoes that infringe the patent, your child might end up being a patent infringer.

The Milan students wondered about the utility of patenting a method that is likely to be infringed primarily – if not only – by consumers. Does the patent owner really plan to sue consumers for patent infringement when consumers walk on U.S. beaches? Is that an ideal public relations strategy? Are the method claims really just hooks for potential indirect infringement claims? Or did the applicant simply apply for whatever protection that was available?

U.S. patent 8,371,043 was certainly issued in time to be a conversation topic before the upcoming summer at the beach. It provides excellent material for a discussion of U.S. IP protection for fashion and the value of U.S. patents. It also allows you to revive the America Invents Act as cocktail party conversation and point out that the AIA, while making some revolutionary changes to U.S. patent law, certainly does not solve all of the issues of the U.S. patent system.

Patent Pendency and the PPH

Patent

By Dennis Crouch

You can get this from the chart, but the median pendency is under three years when considering all issued utility patents. The long tail increases the average pendency to a bit over three years.

Many of the fastest patent issuances are coming from the Patent Prosecution Highway (PPH). See, for example, U.S. Patent No. 8,406,758. In that case, the EPO issued its search report indicating that all of the claims included an inventive step. US patent attorney Stephen Chen then filed the US national stage application along with a request to participate in the PCT-PPH program. Four months later, the considered the application and issued a notice of allowance.

Unfair Competition Book Raises Unfair Competition Claims Against Kenyon

Patent

By Dennis Crouch

Duvall v. Kenyon & Kenyon (D.D.C. 2013)

In 1990, ITC Chief Judge Donald Duvall published his treatise titled Unfair Competition and the ITC: Actions Before the International Trade Commission under Section 337 of the Tariff Act of 1930. [correction] He retained ownership of the assigned legal title to the copyright to Clark Boardman Pub. (later purchased by Thompson Reuters) and continued to update the treatise on an annual basis. Judge Duvall died in 1999 and his right to royalty (beneficial title) passed to his widow, Kathryn Duvall.

Attorneys at Kenyon & Kenyon took over the annual updates and, as part of a royalty agreement, Ms. Duvall continued to receive annual royalties on sales of new versions of the book. Each edition listed Judge Duvall as the original author as well as the new authors. In 2012, however, Judge Duvall’s name was removed from the publication and the publisher ceased making any royalty payments to Ms. Duvall. After consulting with the Kenyon attorneys, the publisher wrote to Ms. Duvall:

[A]fter careful determination as to source of the [W]ork’s content, the substantial revision of that content by the current authors, and the many years since Judge Duvall had contributed material to the publication, we were forced to conclude that attributing the work to Judge Duvall no longer provided readers with an accurate statement of authorship.

Ms. Duval has now sued Kenyon & Kenyon and the newly listed authors – alleging copyright infringement, declaratory judgment of authorship, illegal contract (between Kenyon & the publisher), breach of contract, breach of implied duty of good faith and fair dealings, civil conspiracy, interference with contract, and accounting for past royalties.

The complaint provides something of a tour-de-force as it lists page after page of the treatise where Judge Duvall’s original writing is virtually unchanged. According to the allegation, for example, the page shown below compares Judge Duvall’s version with the newest version of the treatise with changes in redline.

The point here is that large portions of the treatise are virtually unchanged and that fact likely leads to the conclusion that Judge Duvall’s copyright continues to provide exclusive rights to the work. The unfortunate aspect of this case is that Kenyon continues to publish the work in the USA. If it had contracted with a foreign publisher then Duvall could have brought the action in the USITC.

Read the complaint: https://docs.google.com/file/d/0B_b15LgT1GHYUGd6YnYxS1RWNjQ/edit?usp=sharing

USPTO Budget Cuts

Patent

By Dennis Crouch

Although unwilling to confirm that the PTO will be cutting its budget, a Commerce Department spokesperson has told me that: “The [USPTO] is continuing its efforts to develop a sequestration plan—this plan is a work in progress and details are still forthcoming.” Reading between the lines, the answer is: yes, the PTO will be cutting its spending and turning-over user-fees to the treasury rather than using that money to examine patents or trademarks.

Update – Following the comments from the Commerce Department, PTO Director Rea distributed a message to employees that the agency is facing “substantial budgetary uncertainty” and is “working to identify potential savings and projects that could be deferred in a way that minimizes the impact to our mission and our employees.”

In her email, Director Rea makes clear that the under sequestration, the PTO will be unable to use a “significant” amount of user fees and those fees will instead be returned to the US treasury. In the past, this has been known as “fee diversion.”

The action plan is to first cut all non-examination related spending and then determine whether further spending cuts are necessary.

In light of these factors and the substantial budgetary uncertainty the agency now faces, it is essential that we act now to further reduce spending. I have thus asked the management team to come together to identify immediate and significant spending reductions for the remainder of FY 2013 with a focus on minimizing the impact to our mission and our employees. The management team is taking immediate measures to limit all expenditures, including but not restricted to most hiring, travel, training, and IT modernization projects. (Your managers may even be reaching out to you for ideas on cost savings measures.)

One thing to remember in all of this is that the USPTO budget has increased sharply over the past three years. FY2010 budget was two billion dollars while the FY2013 budget was almost three billion dollars. The sequester reduction is rather minuscule compared to the size of this increase.

Facts and Trends of USITC Litigation

Patent

By Dennis Crouch

The United States International Trade Commission (USITC) is a US-based agency tasked with the goal of protecting US domestic industry against improper foreign competition. The law provides that one form of improper foreign competition is the unauthorized importation of patented goods. See 19 U.S.C. 1337 (“Section 337”). A patentee has the power to separately allege patent infringement at the USITC or in Federal Court. There is also no prohibition against both actions being brought at once. One distinction is that the only remedy available from the USITC is blocking importation of infringing goods. However, the USITC is not bound by eBay v. MercExchange, and thus, the likelihood of a winning patentee being awarded injunctive relief is much greater.

Some commentators have argued that the USITC is improperly supporting the activities of patent licensing companies. However, in a recent four-page report, the USITC has offered a defense against those accusations. The agency notes that, since eBay v. MercExchange, the about 20% of the instituted investigations are associated with patent licensing companies who do not themselves practice the invention. That figure is well below the numbers seen in federal district courts. Further, in that same time period, only four patent licensing companies have obtained exclusion orders (injunctive relief).

USITC: FACTS AND TRENDS REGARDING USITC SECTION 337 INVESTIGATIONS

In general, the number USITC 337 investigations is on the rise. However, the number of patent licensing company (NPE) lawsuits has remained relatively small.

Game Theory: Patent licensing companies generally make money when others use the patented technology – that is where the licensing royalties come into play. And, apart from artificially shifting supply, licensing companies do not make money by excluding others. Thus, one question that arises is why a patent licensing company would file suit in the USITC since the only result is injunctive relief? One solution is to change the law the USITC has the power to award ongoing royalties when a patentee is willing to license the asserted patent rights.

 

Welcome Back Fee Diversion: USPTO Likely to Begin Sending Collected Fees back to Treasury

Patent,

By Dennis Crouch

Many agencies within the Federal Government are suffering under sequestration that effectively cuts budgets by about 5% for the rest of the fiscal year. In March, I reported that the USPTO would not be forced to cut its spending because the collected fee revenues were already under budget. It seems that result is not sitting well with other federal agencies who would prefer to see more equal suffering. Under orders from the White House, it appears that the USPTO will now be forced to reduce its spending – essentially using fee revenues as the base from which to cut.

Robert Budens sent around an email raising some alarm regarding USPTO funding. Budens heads the USPTO employee union POPA. Budens writes:

About a week or so ago POPA started hearing rumors that the White House Office of Management and Budget (OMB) was attempting to mess with USPTO funding by requiring that our sequestration hit be taken off of our fee income rather than our appropriated budget level. I also heard that USPTO management had been put under a “gag order” not to discuss these changes until approved by OMB and Commerce. The rumors also suggested that the sequestered fees would not go into our AIA reserve fund for later availability, but would in fact, not be available for USPTO use, i.e., our fees are going to be diverted once again, barely a month after full implementation of the AIA that was supposed to prevent fee diversion!

In discussions with AIPLA, IPO and others, I learned that they had also heard such rumors and that none of us were getting any information out of USPTO management. To date and despite numerous inquiries from POPA, USPTO management has still not discussed this issue, all but confirming the gag order.

I believe other recent developments have all but confirmed those rumors and I wanted to update you because OMB’s interpretation of the impact of sequestration on the USPTO will have significant impacts.

Today, the OCIO notified its staff of an $80M cut to the OCIO budget. [DDC Note: Office of the Chief Information Officer] This will result in layoffs of a number of USPTO contractors and significant delays in the development of the Patents-End-To-End project (PE2E) and upgrades to PALM — both critical IT projects. Obviously this is not good news, but I suspect it is evidence that OMB’s sequestration decision is being implemented. And yesterday, you all should have seen the Memorandum from the ADCs regarding changes to overtime in the Examining Corps. Again, more evidence that the rumors are true.

The USPTO’s fee income is currently below projected levels. In other words, we are already operating in a sequester environment by virtue of our reduced fee income. It is incomprehensible to me why the White House would then pile on us by taking such a negative interpretation of sequester on the USPTO. This is about as short sighted as anything I can think of. Our fee income represents filed patent applications that will need to be examined. To now take away those fees while leaving the USPTO with the work to do is counterproductive.

In his letter, Budens mentions the AIA reserve fund that is now codified in 35 U.S.C. § 42. The law establishes a “Patent and Trademark Fee Reserve Fund” within the US Treasury.

If fee collections by the Patent and Trademark Office for a fiscal year exceed the amount appropriated to the Office for that fiscal year, fees collected in excess of the appropriated amount shall be deposited in the Patent and Trademark Fee Reserve Fund. To the extent and in the amounts provided in appropriations Acts, amounts in the Fund shall be made available until expended only for obligation and expenditure by the Office in accordance with paragraph.

As Budens suggests, it does not appear that this provision would be effective against the budget cuts outlined above because they are coming from either executive fiat or the cap set in the Budget Resolution – neither of which changes the amount appropriated.

Depending upon how it is calculated, the USPTO may be facing about $140 million in cuts for the remaining 5½ months of FY2013.

Guest Post by Prof. Michael Risch: The Securitization of Patents

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Guest post by Michael Risch, Associate Professor of Law, Villanova University School of Law.

My forthcoming article in Duke Law Journal, The Securitization of Patents, argues that the best way to create patent markets might be to start treating portfolios as securities. A full draft is accessible at this SSRN page. The article makes four basic points:

  1. Aggregation and trading is not limited to non-practicing entities – everyone is doing it.
  2. Companies are trading aggregated patent portfolios as they do other patent instruments, either through sale or licensing.
  3. Aggregation is beneficial, even critical, for efficiency; this is directly contrary to the conventional wisdom.
  4. Based on the above, markets might be improved by applying securities treatment to patent portfolios.

[NB: I focus on portfolios, not individual patents. I also focus on sale and licensing of patents, not the initial patent grant. The paper explains why in more space than I have here.]

When I first wrote Patent Troll Myths, there was very little empirical data about NPEs. Since then, such research has exploded, with new data every week seemingly counting the number of NPEs and their cases. This data, though helpful, leaves a lot to be desired, I think. First, there is a rarely a real apples-to-apples comparison with the activity of product companies (and when there is, the comparison is not very granular). To that end, I’ve been developing a matched data set for my Patent Troll Myths data so we can test what real differences in quality and quantity, if any, exist. Second, the data largely ignores licensing practices, which can be quite similar. To be fair, licensing data is difficult to come by, but without it, normative determinations are difficult. Third, studies like mine, which look at the provenance of NPE patents, are rare.

These issues lead to my first point: aggregation is not just for trolls anymore, if it ever was. The public is becoming a bit more aware of this with new focus on privateering, the outsourcing of patent enforcement by product companies to licensing and assertion specialists. The idea that aggregation is just fine when a product company does it, but suddenly evil when those same patents transferred to a third party has never sat well with me. And regardless of moral considerations, the fact of the matter is that patent aggregation is everywhere.

My second point follows from the first: aggregated portfolios are being used as assets, and traded as such by all sorts of companies. This is nothing new; people have been writing about patents as a new asset classes for a while now. Transactions are getting bigger, however, and they are hitting the news. Perhaps no transaction better illustrates my point than the recent Kodak patent auction. First, Kodak offered its patents for sale as a financing strategy in bankruptcy. Second, the eventual buyer was a consortium including, among others, Microsoft (a product company); Intellectual Ventures (a licensing company, but also one that litigates, but also one that aggregates defensively; and RPX (a defensive aggregator). This one transaction is my argument in a nutshell: everyone is aggregating, and they are doing so in buy/sell type transactions for financial purposes.

My third point is that such aggregation is not always (or necessarily often) a bad thing. This is decidedly against the conventional wisdom. Companies with large portfolios surely have the ability to cause “royalty stacking,” but in practice this is less likely than if many separate parties enforced those same patents. Litigation looks much the same; regardless of the size of the portfolio, courts are just not going to hear a case asserting 1000 patents. Only a few (at most 5 or 10) patents will be at issue, and then the aggregator looks like anyone else. Similarly, in negotiations, the parties usually haggle over a few “lead” patents. This is little different than negotiation with the owner of few patents – with one big exception. When you come to terms with the aggregator, you can settle and license hundreds or maybe thousands of patents at once. Not so with single-patent owners. These folks line up one after another, asserting a few patents at a time. The biggest NPEs will often assert patents obtained by individual inventors; would product makers really rather that the inventors assert their own patents separately? Maybe, before a time when people figured out a viable mechanism for funding patent assertion, but now that individuals might seek funding for enforcing their own patents, a single aggregator must surely be a better option than many inventor plaintiffs.

There is one difference with aggregated portfolios, of course. When the parties are done haggling over the lead patents, the portfolio owner always has more to discuss while the small patent holder has none. But rather than being the greatest cost of the portfolio, a seemingly bottomless portfolio is its greatest benefit.

And that is my fourth point: when parties are trading portfolios, the haggling should be over price instead of quality and infringement. In a large enough portfolio holding patents directly related to a particular product, there will surely be some number of patents that are both valid and infringed. The question is how many, and how much it will cost to find them.  A central thesis of my article is that treating portfolios as securities will help lower transactions costs in a variety of ways by limiting the litigation costs of finding those infringing patents and instead better pricing patents in the market.  For you legal sticklers, I didn’t just make this up: the paper looks at portfolios under the Supreme Court’s famous Howey test and concludes that such treatment is at least plausible under the law.

How might securities laws benefit markets? Not in the traditional “public offering” way. I suspect that most transactions would be excluded from the registration requirements. However, such transactions might be regulated as dark pools, and require clearinghouse treatment that makes such transactions public. Further, stock fraud laws might require the disclosure of information that might affect portfolio value. For example, patent holders who know of anticipatory prior art might be required to disclose it rather than keep it secret. Perhaps most important, accepting that portfolios are simply financial transactions might drive efforts to develop objective portfolio pricing. The goal of such pricing schemes is to determine a portfolio’s price even though the parties cannot agree on the price of any of the particular patent in the portfolio.  I examine several pricing strategies that might work (and several destined to fail) in the paper.

There is obviously much more in this paper than I can write here. I detail my arguments in the full paper.

AMP v. Myriad Gene Patenting Oral Arguments

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By Dennis Crouch

Association for Molecular Pathology v. Myriad Genetics, 12-398 (Supreme Court 2013) oral argument transcript.

The Supreme Court held oral arguments today in the much watched Gene patent case pending before the US Supreme Court. Myriad Genetics and the University of Utah own several patents covering particular isolated human genes, seemingly man-made complementary DNA that mimics the natural DNA sequence, methods for obtaining the DNA, and methods for using the DNA to test for disease. The major breakthrough made by the Myriad Scientists was to discover the naturally occurring sequence of DNA that codes for early-onset breast cancer. These are the so-called BRCA1 and BRCA2 genes. This was a huge breakthrough and has been applied to save many lives. However, historic patent law is clear that the mere information discovered is not patentable. That information could be classified as both a natural phenomenon and an abstract idea—both of which lack patent eligibility. So, instead of patenting the information, the researchers applied molecular biology tools (conventional at the time) to isolate the DNA, and create cDNA. It was those structures and methods that Myriad patented, although the innovative heart of each patent claim remained the particular unpatentable genetic sequence. A group of public-minded researchers and groups challenged the patents. Arguing on their behalf is Chris Hansen of the ACLU. Myriad called patent law expert Greg Castanias for its arguments. And, acting as amicus curae, Donald Verrilli argued on behalf of the US Government.

My take is that the court is likely to find cDNA patentable because of the man-made nature of the molecule and hold that purely isolated molecules will only be patentable if their function is significantly altered because of the isolation. This result depends upon the court buying Myriad's argument that cDNA is the equivalent of recombinant DNA whose sequence is designed by the inventors. One risk of the decision for patentees is that the court appears poised to place additional weight on the obviousness analysis. Here, it is also clear that the court does not trust the USPTO to make these determinations. As Justice Kagan mentioned "the PTO seems very patent happy".

AMP's attorney Chris Hansen began his argument with the strongest possible approach – arguing that Myriad's recognition that the BRCA genes "correlate with an increased risk of breast or ovarian cancer . . . [was] made by nature . . . [and] Myriad does not deserve a patent for it." Mr. Castanias disagreed – "What Myriad inventors created in this circumstance was a new molecule that had never before been known to the world."

A first focus of the argument was on whether the isolated DNA has a new function – different from that found in the human body.

JUSTICE ALITO: Isolated DNA has a very different function from the DNA as it exists in nature. And although the chemical composition may not be different, it — it certainly is in a different form. So what is the distinction?

MR. HANSEN: Well, I don't think it has a new function, Your Honor, with respect. I believe that what — Myriad has proffered essentially three functions for the DNA outside the body as opposed to inside the body. The first is we can look at it. And that's true, but that's not really a new function. That's simply the nature of when you extract something you can look at it better.

The second two rationales that Myriad has proffered are that it can be used as probes and primers. Three of the lower court judges found that full-length DNA, which all of these patent claims include, cannot be used as probes and primers. But more important, finding a new use for a product of nature, if you don't change the product of nature, is not patentable. If I find a new way of taking gold and making earrings out of it, that doesn't entitle me to a patent on gold. If I find a new way of using lead, it doesn't entitle me to a patent on lead.

As I mentioned, everyone recognizes that Myriad made a major advance in our understanding of human genetics. The focused then turned to how Myriad should be rewarded.

JUSTICE KAGAN: Mr. Hansen, could you tell me what you think the incentives are for a company to do what Myriad did? If you assume that it takes a lot of work and takes a lot of investment to identify this gene, but the gene is not changed in composition, and what you just said is that discovering uses for that gene would not be patentable even if those new — even if those uses are new, what does Myriad get out of this deal? Why shouldn't we worry that Myriad or companies like it will just say, well, you know, we're not going to do this work anymore?

MR. HANSEN: Well, we know that would not have happened in this particular case, Your Honor. We know that there were other labs looking for the BRCA genes and they had announced that they would not patent them if they were the first to find it. We also know that prior to the patent actually being issued, there were other labs doing BRCA testing and Myriad shut all that testing down. So we know in this particular case that problem would not have arisen.

But the point of the whole — the whole point of the product of nature doctrine is that when you lock up a product of nature, it prevents industry from innovating and — and making new discoveries. That's the reason we have the product of nature doctrine, is because there may be a million things you can do with the BRCA gene, but nobody but Myriad is allowed to look at it and that is impeding science rather than advancing it.

MR. HANSEN: [Further], taxpayers paid for much of the investment in Myriad's work. I [also] think you get enormous recognition.

SCALIA: Well, that's lovely.

MR. HANSEN: But I think that we know that that's sufficient. We know it's sufficient with respect to these two genes. We also know it's sufficient with respect to the human genome.

JUSTICE KENNEDY: But I just don't think we can decide the case on the ground, oh, don't worry about investment, it'll come. I just don't think we can do that.

The patented cDNA is not found in the human body, but instead was manufactured by the researchers by using a discovered enzyme to convert mRNA created in the body back in to the more stable DNA form.

JUSTICE SOTOMAYOR: [cDNA] is artificially created in the laboratory, so it's not bound in nature. It's not taking a gene and snipping something that's in nature. And yet you claim that can't be patented. The introns are taken out, the exons are left in, and they're sequenced together. Give me your brief argument on that. I read your brief, but it is not a product of nature; it's a product of human invention.

MR. HANSEN: There are two big differences between cDNA and DNA. The first is exactly the one Your Honor just discussed, which is that the introns, the noncoding regions, have been removed. That is done in the body, by the body. That's done in the process of DNA going to mRNA. What the scientist does who's creating the cDNA is they take the mRNA out of the body and then they simply have the natural nature-driven nucleotide binding processes complement the mRNA. So that if the mRNA has a C, the scientist just puts the corresponding nucleotide in there and nature causes them to bind up. The scientist does not decide -­

JUSTICE BREYER: I know, but I don't see the answer, because I gather, if I — if I've read it correctly, that when you have an R — the messenger RNA does not have the same base pairs. There's a U or something instead of an A or whatever it is.

MR. HANSEN: Yes.

JUSTICE BREYER: So when you actually look, if you could get a super-microscope and look at what they have with the cDNA, with their cDNA, you would discover something with an A, not a U. Is it AU? Is that the one?

MR. HANSEN: Yes.

JUSTICE BREYER: Okay. Okay. So — so you would discover something with an A there, you see, and you wouldn't discover something with a U there. And there is no such thing in nature as the no-introns AGG, whatever, okay? It's not there. That's not truly isolated DNA. But you can go look up the Amazon, wherever you want. Hence the question. Now, on that one, how? How is that found in nature? The answer is it isn't.

MR. HANSEN: Well, but I would suggest, Your Honor, that the question is not whether it is identical to something in nature. The question is whether there was a human invention involved, whether it is markedly different from what is found in nature.

JUSTICE SOTOMAYOR: But that goes to obviousness. That does not in my mind go to the issue of whether it's patent eligible. You may have a very strong argument on obviousness, but why does it not -­it's creating something that's not found in nature at all.

. . . CHIEF JUSTICE ROBERTS: But I — I thought the basic general approach here was we have a very expansive view of what is patent eligible and then we narrow things through things — issues like obviousness and so on. Why — wouldn't it make more sense to address the questions at issue here in the obviousness realm?

. . . . JUSTICE ALITO: This case has been structured in an effort to get us to decide this on the broadest possible ground . . . it's just about 101, it's not about any other provision of the Patent Act. Why should we do that?

. . . . JUSTICE BREYER: Ah. Then — then watch what you're doing. That's very, very interesting, because, really, we are reducing, then, 101 to anything under the sun, and — and that, it seems to me, we've rejected more often than we've followed it.

As it should, the discussion eventually worked its way to the patenting of ideas.

JUSTICE SOTOMAYOR: That's a failure of the patent law. It doesn't patent ideas.

MR. HANSEN: And it shouldn't patent ideas, and — but it also makes the point that isolated gene and the gene in the body are the same.

. . .

GENERAL VERRILLI: The claim that isolated DNA is a human invention rests entirely on the fact that it is no longer connected at the molecular level to what surrounded it in the body. But allowing a patent on that basis would effectively preempt anyone else from using the gene itself for any medical or scientific purpose. That is not true about a patent on cDNA. A patent on cDNA leaves the isolated DNA available for other scientists and other — and others in the medical profession to try to generate new uses. . . . [T]he position of the United States is that [as a conceptual matter] cDNA is patent eligible.

. . .

JUSTICE KAGAN: The first person who found a chromosome and isolated it, I think we can all say that that was a very useful discovery. And the question is, can you then — can the person who found that chromosome and isolated it from the body, could they have gone to the PTO?

A decision in the case is expected in June.

Responding to USPTO’s new Maintenance Fee Regime

Patent

On March 19, 2013, the USPTO’s new fees became effective. The most notable changes were the maintenance fees due at three intervals: 3½, 7½ and 11½ years after patent issuance. At each interval, the fees increase with the new top-fee set at $7,400 — a 50% increase over the old fee.

With the major fee increase, it is no surprise that savvy patent owners took advantage of the opportunity of paying the renewal fees early. The USPTO allows patentees to pay the fees due up to six-months early or, with a $160 fee, up to six months late.

 

Recent Patent Assignments

Patent

Recent Patent Deals from the USPTO Assignment Records:

  • Ericsson transferred over 820 patent families to the publicly traded company known as Unwired Planet, Inc. (UPIP). Ericsson will receive a percentage of any revenue generated from the patents. (20% of first $100m; 50% up to $500m; and 70% of any additional revenue). Unwired has lawsuits pending against both Apple and Google.
  • A new company known as BRIGHT SUN TECHNOLOGIES, seemingly headquartered at the offices of Fenwick & West, has purchased 100+ patents from Marathon Solutions. Those patents previously belonged to AOL. See Patent No. 8,335,834.
  • The transfer of patents from EASTMAN KODAK to INTELLECTUAL VENTURES have begun to show up in the assignment records. See Patent No. 6,804,407. Apple also recorded a block of Kodak patents
  • Frank Bisignano (JPMorgan COO) obtained another two dozen patents from Inselberg Interactive.
  • Nokia transferred about thirty patents to a new Las Vegas entity known as MEMORY TECHNOLOGIES LLC. See Patent No. 7,172,454.
  • Bankrupt ORMET CORPORATION has transferred its patents to the WAYZATA INVESTMENT PARTNERS as part of a restructuring process – apparently as collateral.
  • As part of a deal with Sanofi, COVIS PHARMA has received the patent rights for a set of Sanofi drugs. See Patent No. 6,297,254.
  • A new company founded by Heidi Zak and Dave Specter – MeCommerce – has obtained a set of patents covering methods of custom fitting and ordering clothing. Although the patents look interesting, they have already bounced through three other companies. See Patent No. 6,711,455
  • And last but not least, the OPEN INVENTION NETWORK added a few more patents to its portfolio.

Top Phrases by the Federal Circuit

Patent

By Dennis Crouch

Google’s ngram viewer shows that the phrase “ordinary skill in the art” took-off shortly before implementation of the 1952 patent act that includes the identical wording.

From the corpus of all Federal Circuit decisions, I looked for all the five-word phrases found in those decisions. The following list are phrases that are most regularly emerging from the judicial pen.

  1. As_a_matter_of_law    
  2. ordinary_skill_in_the_art    
  3. Under_the_doctrine_of_equivalents    
  4. The_district_court_erred_in
  5. Judgment_as_a_Matter_of
  6. by_clear_and_convincing_evidence
  7. Genuine_Issue_of_Material_Fact
  8. The_Patent_and_Trademark_Office
  9. is_a_question_of_law
  10. agree_with_the_district_court
  11. We_affirm_the_district_court
  12. did_not_abuse_its_discretion
  13. The_scope_of_the_claims
  14. likelihood_of_success_on_the
  15. law_of_the_regional_circuit
  16. and_remand_for_further_proceedings

PatCon 3: Posner/Epstein Debate on the Patent System

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Continuing to liveblog from PatCon 3.  I'll continue updating this post throughout the debate. 

A Debate About the Patent System

The Honorable Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit
Professor Richard Epstein, Laurence A. Tisch Professor of Law, New York University School of Law, and James Parker Hall Distinguished Service Professor Emeritus of Law and Senior Lecturer, University of Chicago Law School

Moderated by Olivia Luk of Niro, Haller & Niro

For another perspective on this debate, check out Lisa Larrimore Ouellette's post over at Written Description.

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