Did the AIA Eliminate Secret Prior Art?

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In many ways, prior art is the core of the US patent system. Patentability requires that any invention-to-be-patented be “new” as defined by 35 U.S.C. §§ 101, 102, and 103. Prior art serves as the underlying evidence to prove that the invention is not new. As implied by its name, prior art has a temporal aspect in that the “prior art date” must come before (i.e., be prior-in-time to) the critical patentability date of the invention in question. Sometimes, the identical invention is found within a single prior art reference. In that case, the newness doctrine of “novelty” as defined by 35 U.S.C. § 102 will do the invalidating work. However, more often than not, a prior art reference will only teach a portion of the purported invention. In that case, the prior art may still serve a useful roll when applying the obviousness doctrine defined by 35 U.S.C. § 103.

We’ve talked about two key features of prior art: (1) being earlier in time and (2) teaching some aspect of the invention being claimed. Those two elements are never sufficient to satisfy the evidentiary requirements of prior art. Rather, the law always requires one additional element to take this information from being merely prior private knowledge to being prior art. As part of the America Invents Act move to a first-to-file regime, this additional step will always involve (3) transferring knowledge.

One argument favoring a first-to-file regime is its focus on publicly available information rather than privately held knowledge. And, in most cases, the step of transferring of knowledge highlighted above is a public act. Thus, prior art may be created through publication, patenting, or public use. 35 U.S.C. § 102(a)(1) (post-AIA). The AIA retains one form of temporally-secret prior art in that the prior filing of a patent application by “another inventor” will be deemed prior art as of its filing date. 35 U.S.C. § 102(a)(2) (post-AIA; formerly defined by § 102(e)). This is secret prior art because patent applications are typically kept secret by the USPTO for 18-months after they are filed. However, I term § 102(a)(2) prior-art-as-of-filing-date as only temporally (or temporarily) secret because such a reference cannot be used as prior art unless and until the prior-filed application is made public through either publication or patenting. Perhaps because of the unfairness of associated with its secrecy, most other countries besides the US only allow this type of prior art for novelty arguments and not for questioning obviousness (inventive step).

The AIA did eliminate several types of secret of prior art, including prior secret invention by another inventor under pre-AIA § 102(g) and prior knowledge transferred from another to the patent applicant under pre-AIA § 102(f). The individualized secrecy of these prior art references created two main problems: (1) that patentability could not be fully evaluated with going through the arduous process of obtaining additional information from interested parties and (2) that the secrecy gave interested parties more of an opportunity to fraudulently create (or destroy) documents after-the-fact. Making patentability based upon publicly available information can hypothetically lead to some unjust outcomes, but it has the enormous benefit of providing clear(er) notice to anyone who cares to look.

Two important secret prior art questions remain — namely whether either (1) secret commercial uses (by the patentee) or (2) secret on-sale activity (by anyone) create prior art that can invalidate a patent on novelty grounds and contribute to invalidation on obviousness grounds. The Patent Act never expressly authorized the first type of prior art and has arguably now rejected the second. Advocates for a transparent prior art system argue that the AIA should be interpreted as eliminating both.

Secret Sales: One type of prior art that is traditionally thought of as potentially secret is created by what is known as the on-sale bar. An invention that is on sale before the critical patenting date will result in prior art that renders any patent invalid. There are a few ways that a sale or offer-to-sell could be secret: for example, (1) it might be an offer between two individuals that is subject to a (formal or informal) confidentiality agreement or (2) it might be an offer that does not fully disclose the scope of the invention.

The AIA retains the identical language of its predecessor statute regarding on sale activity that occurs prior to the defined critical date. Compare 35 U.S.C. § 102(a)(1) (post-AIA) with 35 U.S.C. § 102(b) (pre-AIA). Although the “on sale” term itself is identical, the context of the new statute is arguably different. In particular, the new statute has added a catchall phrase “otherwise available to the public” that suggests that the on-sale activity must also be available to the public. The new statute reads as follows:

A person shall be entitled to a patent unless — 1. the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or …

The open question is whether the language here creates a legally cognizable implication that the “on sale” activity must be available to the public as well.

Secret Commercialization by the Patentee: In his 1946 decision in Metallizing Engineering, Judge Learned Hand explained that a patentee’s commercial use of its process (even if done secretly behind factory walls) counted as a “public use” sufficient to invalidate the later-filed patent application. The court wrote “That it is a condition upon an inventor’s right to a patent that he shall not exploit his discovery competitively after it is ready for patenting; he must content himself with either secrecy, or [a patent].” Under the rule, secret commercial uses of an invention by a third party does not count as a public use. This distinction is found nowhere in the patent statute, but has been judicially recognized for many years. While the new statute retains the “public use” language, many suggest that a strong congressional intent that the new statute eliminate the Metallizing rule.

USPTO Proposed Interpretation: In a set of proposed examination guidelines, the USPTO indicated its interpretations that the statute has altered these provisions in favor limiting the application of secret prior art. In particular, the USPTO’s position is that, while the statute is not entirely clear on these points, the legislative history indicates that that prefiling secret sales and commercial uses do not qualify as prior art under the revised Section 102. The PTO writes: “The legislative history of the AIA indicates that the inclusion of this clause in AIA 35 U.S.C. 102(a)(1) should be viewed as indicating that AIA 35 U.S.C. 102(a)(1) does not cover non-public uses or nonpublic offers for sale.

For the most part, patent attorneys appear to agree with the USPTO’s proposals. The American Bar Association’s IP Law Section writes:

ABA IPL respectfully submits that the passage “otherwise available to the public” reflects the touchstone of what constitutes prior art under the AIA under section 102(a)(1). This section requires availability to the public or public accessibility is an overarching requirement. Such accessibility is critical to provide a simpler, more predictable and fully transparent patent system. As such, for a “public use,” for a determination that an invention is “on sale,” as well as to assess whether an offer for sale has been made, the statutory requirements under the AIA require a public disclosure. Thus, non-public offers for sale (and non-public uses) would not qualify as prior art under the AIA.

The AIPLA agrees, writing:

AIPLA believes that an offer for sale needs to be public to qualify as “on sale” prior art under §102(a)(1). . . . AIA §102(a)(1), unlike pre-AIA 35 U.S.C. §102(b), contains the residual clause “or otherwise available to the public.” This is a major policy change achieved by the new legislation, which would further the goal of increasing objectivity in the identification of prior art. . . .

[T]he legislative history of the AIA indicates that the inclusion of this clause in §102(a)(1) should be viewed as indicating that §102(a)(1) does not cover non-public uses or non-public offers for sale. AIPLA believes that such an interpretation reflects the clear intent of Congress. It is also consistent with the broad goal of global harmonization under a first-inventor-to-file system.

The IPO agrees as well – arguing in its comments to the USPTO that the AIA “overrules Metallizing Engineering by excluding ‘secret’ commercial activity from the ‘on sale’ provision” and that the only on sale activity relevant to patentability under the AIA is when an invention is “publicly on sale.” LES is also on board with this interpretation.

Several individuals disagreed, including Lawrence Pope who wrote:

Certainly, any change in patent law which abandoned a long established policy and allowed inventors to engage in secret commercial exploitation of their inventions for as long as they liked without forfeiting their right to obtain valid patent protection on the same, would require quite explicit statutory language. In addition, it would be expected that any such major change would be reflected in a more extensive legislative history than the mere comments of two members. One would at least expect to see it reflected in the Committee Report reporting on the legislation to the House of Representatives.

Mark Lemley also argued that the PTO’s interpretation is quite problematic:

[T}he proposed Guidelines take the position that the AIA has reversed an unbroken line of precedent of both the Federal Circuit and the regional circuits tracing back to Judge Learned Hand’s decision in the Metallizing case. Those cases hold — for impeccable policy reasons — that the term “public use” in old section 102(b) should be interpreted to prevent an applicant from making a secret commercial use for more than a year while delaying the filing of a patent application. A contrary conclusion, as the PTO now proposes, will enable inventors to keep their process inventions secret for years or even decades, and then surface and file a patent application. That is directly contrary to the goals of first-inventor-to-file in the AIA, which encourage early filing of patent applications.

Concluding that Metallizing and the cases that follow it were abrogated will have another, even more pernicious effect. Metallizing, Gore v. Garlock, and other cases interpret the term “public use” in the old statute. One might reasonably conclude that those cases stretch the meaning of that term, but what the courts said they were doing was interpreting “public use.” The term “public use” appears unchanged in new section 102 under the AIA. For the PTO to conclude that the new law opens the door to reinterpretation of the settled meaning of terms present in both the old and new statutes opens a dangerous door. Parties and courts might be expected to try to revisit the meaning of “on sale,” “patented,” “printed publication,” and many other settled statutory provisions, creating enormous uncertainty. To take just one example, the inherency doctrine, like the Metallizing rule, is not articulated expressly in either the old or new statute. If the reenactment of the term “public use” opens the door to revisiting Metallizing, it also opens the door to revisiting inherency, the “ready for patenting” rule in on sale bar, and a host of other settled cases. The PTO, patent applicants, and litigants would be much better served by leaving existing precedent interpreting unchanged statutory terms in place.

Read more comments here: http://www.uspto.gov/patents/law/comments/. (Note, the equally major issue is the USPTO’s interpretation of the disclosure grace period that is also part of the commentary).

What’s the Big Deal?: The USPTO does not have substantive authority to shape the interpretation of 35 U.S.C. § 102. In the end, this issue will be resolved by the courts or else clarified by Congress in a technical amendment. In many ways, the arguments above are simply a preview for a Federal Circuit and Supreme Court ruling on the issue. One problem with the USPTO’s narrow view of the prior art is that it delays the eventual resolution of this issue since it gives patent applicants nothing to challenge. In any event, this is a debate that will continue for at least the next decade and likely beyond.

Making Software Patents Transparent and Understandable: Begin by Determining Whether Software is Patentable

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By Dennis Crouch

One major problem with software patents is their forced lack of transparency. The USPTO has granted hundreds of thousands of patents that should rightfully be termed “software patents,” but almost none of those patents include a claim directed to “software.” Rather, the innovative software is being hidden by innuendo and obfuscation because of the perceived ban on patenting software per se.

I contend that if we are going to allow software patents, we should do so openly and honestly. In that world, patent claims would be able to match the words of the computer scientist inventors and might simply be written as “Software comprising …” or “A computer program comprising …” We are not in that world.

In the 1960’s the USPTO began pushing against the patenting of bare computer software. Its 1968 guidelines formalized the USPTO’s position against computer programs as unpatentable mental steps under 35 U.S.C. § 101. That approach was largely vindicated by the Supreme Court cases of Gottschalk v. Benson (1972) and Parker v. Flook (1978). However, the combination of Diamond v. Diehr (1981); new leadership at the USPTO; and the formation of the Federal Circuit all rejuvenated the patenting of computer software. Many still hold to the idea that software per se cannot be patented because the software is not a machine or apparatus and because the software only becomes a non-abstract patentable process once implemented on a particular device. In Bilski v. Kappos (2010), the court rejected categorical exclusions of business method patents (and thus presumably software patents). At the same time, however Bilski and the subsequent case of Mayo v. Prometheus (2012) serve to revive the pre-Federal-Circuit case law and create further direct tension with software patents.

The result from this long history is that we still have software patents but they are hidden under the surface. They are harder to find, harder to examine, harder to understand, and thus much more problematic than they need to be. After fifty years of controversy; meandering administrative practice; and inconsistent Supreme Court decision making, it is time for the courts to take a stand and deliver the law in a way that is clear and precise. Finally answer the question: Is software patentable?

Federal Circuit To Announce Whether Software is Patentable?: En Banc Rehearing on Section 101 Issues

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By Dennis Crouch

CLS Bank Int’l v. Alice Corp, App. No. 2011-1301 (Fed. Cir. 2012) (en banc order)

The Federal Circuit has refocused its attention on the question of patentable subject matter and has ordered an en banc rehearing of CLS Bank Int’l. v. Alice Corp. (Fed. Cir. 2012). In its initial panel opinion, the Federal Circuit held that, when considered as a whole, the claimed data processing invention was patent eligible. Judge Linn wrote the majority opinion suggesting that a court should only reach Section 101 issues when subject matter ineligibility is “manifestly evident”. Judge Prost wrote in dissent and argued that the majority improperly ignored the Supreme Court’s most recent statements on the topic found in Prometheus. The patentable subject matter question in CLS Bank is virtually indistinguishable from the parallel issue in Bancorp v. Sun Life. In that case, however, the Federal Circuit ruled the invention ineligible.

In its en banc order, the court reformulated the questions presented as follows:

a. What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible “abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?

b. In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for § 101 purposes?

The Federal Circuit has asked for the USPTO to file a brief as amicus curiae. Further amicus briefs may be filed without consent of the parties or leave of the court but must otherwise follow Federal Circuit’s Rule 29.

More Reading:

The Removal of Section 102(f)’s Inventorship Requirement; the Narrowness of Derivation Proceedings; and the Rise of 101’s Invention Requirement

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By Dennis Crouch (October 5, 2012)

In a prior Patently-O essay, I wrote that the removal of the inventorship requirement of Section 102(f) opens the door to patenting obvious variants of inventions created by someone else. In that essay, I mentioned the newly designed derivation proceedings, but opined that they would not be much use in this situation. I wrote that "it appears to me that those actions (even if timely filed by the originator) would be unsuccessful because derivation proceedings are limited to cases where the derived claims are "substantially the same" as the originator's innovation. The substantially the same limitation is much narrower in scope as compared with the potential wide variety of obvious variants." 102(f) Essay.

I received a response to that essay from Professor Sarnoff who reports that he and Chico Gholz have a soon-to-be-published article in IP Today addressing the PTO's new rules for triggering derivation proceedings. The punch line of their article is that the legal scope of derivation proceeding is even narrower than I suggested—thus allowing for a third party to patent quite minor variations of ideas obtained from someone else. (I encourage you to read the article once it is published.)

The America Invents Act of 2011 (AIA) entirely rewrote the section 135 of the patent act. That provision previously detailed the interference process and now focuses exclusively on derivation proceedings as they will apply to patent applications filed on or after March 16, 2013. New section 135(a) limits derivation proceedings to instances where an alleged wrongdoer files an earlier patent application "claiming" the original inventor's (but late filer's) "claimed invention." In their article, Gholz and Sarnoff correctly argue that there is not much room for variation here. Under the statute, the derived invention (as claimed) must be for the same subject matter as the original invention (as claimed), even if their language differs. This further confirms what I see as the problematic naming of "derivation proceedings." In my mind, the meaning of the word derivation suggests some amount of modification. While a derivation depends upon having an original source, the final results are ordinarily a modification of that source. With Gholz-Sarnoff, we learn that this ordinary meaning does not fit to the Derivation Proceedings as defined by the AIA. A better term for the AIA defined action might be "False Inventorship Claim Proceeding."

Gholz and Sarnoff recognize that the PTO took a different view when it codified the rules at 37 C.F.R. §42.405(a)(2). That provision broadly authorizes derivation proceedings when the petitioner's claims are "substantially the same" as the alleged deriver's claims, with "substantially the same" defined in 37 CFR 42.401 as "patentably indistinct." Gholz and Sarnoff argue that the PTO is wrong in this interpretation and that the Federal Circuit will eventually overrule the PTO's misapplication of the law.

Further, as noted by Sarnoff in his Patently-O article and as reiterated in the new Gholz-Sarnoff article in response to the views of Armitage, the original inventor may not have conceived of the obvious variant and thus may not be able to provide the required oath in regard to the obvious-variant claim so as to trigger the derivation proceeding.

In our prior e-mail communications (repeated here with permission), Sarnoff has also explored other ways to block patenting of the obvious variants. He writes:

  1. A person who conceives of an obvious variant is normally treated as an inventor of an invention (just of an obvious one), so lack of inventorship under Section 101 may not be a successful approach to invalidating the claim made by the deriver, although the deriver will likely be entitled at least to joint-inventor status; and
  2. Current inventorship law may not necessarily treat the originator of the underlying invention as a joint-inventor of the obvious variant of which the originator did not conceive, even if the originator added a significant contribution to conception by the deriver, and thus it may not always be possible to correct inventorship to permit the originator to obtain joint inventor status and joint ownership of the obvious variant.
  3. However, the courts have sometimes extended unpatentability to obvious variants even when the statute does not clearly provide for it, as they did in In re Foster, 343 F.2d 980 (C.C.P.A. 1965) (extending Section 102(b) to claims that were obvious in light of statutory bar art). [Note, this explains Professor Sarnoff's prior equivocation that I discussed here. DC.]

The bottom line here that I began with my recent essay and continue with this additional discussion revealed by Gholz and Sarnoff is that the elimination of section 102(f) and the narrow scope of derivation proceedings have created a potential problem by offering a roadmap for bad behavior. The law now apparently sanctions the patenting of minor variations of innovations created by someone else. This raises several levels of concern. Most directly, we are concerned about (1) how the obvious variant patent negatively impacts the idea originator and (2) how the obvious patent burdens the public who must either license or avoid infringement.

The current law basically places the burden on the idea originator to protect his or her rights by (1) keeping the idea secret and then relying on contract and trade secret law to protect that secrecy; (2) quickly filing for patent rights; or (3) quickly going public with the idea in a way that creates prior art. Any of these overlapping choices can be sufficient to block or invalidate an obvious variant patent. I am also not overly concerned that this approach unduly shifts a burden to the idea originator. My problem with that approach – as suggested by Anon – is that the idea originator might not be proactive enough to take the actions necessary to protect the public's interest in not being burdened by patents covering obvious innovations.

New Pressure on Section 101: This whole scenario then puts tremendous pressure on courts (including the Supreme Court) to expand the powerful (but ungainly) tool of 35 U.S.C. § 101 and use that fundamental statute to block these derived variant patents that are not otherwise prohibited by statute. The Supreme Court is unlikely to stand for the patenting of obvious variants of ideas derived from another. And, the most straightforward way for the court to act is with the return of something akin to the invention requirement that was thought to have been eliminated by the 1952 Patent Act. That action would likely add steel to the link between newness and subject matter eligibility in a way that many of us see as problematic. (Perhaps under the framework of "inventive contribution.") The better approach is a statutory change that shifts rights with fewer ripple effects.

Sarnoff's perspective is that Section 101 should have an active and engaged role in the patent eligibility doctrine. In his recent article on the post-1952 invention requirement, Sarnoff writes (with apologies to Dr. Strangelove): "[T]o those who believe in using private property to motivate creative advance, using eligibility determinations to restrict access to the patent system is the bomb that threatens our future viability. For the reasons discussed [in the article], I believe we need to learn to stop worrying and to love that bomb." Joshua Sarnoff, Patent Eligible Inventions after Bilski: History and Theory, 63 Hasting Law Journal 53 (2011).

Notes:

  • In addition to raising this interesting topic, I should (and do) also thank Gholz and Sarnoff for their editorial suggestions on this essay.

Supreme Court Questions Whether Patent Law Malpractice Claims “Arise Under” the US Patent Laws (And Thus Are Amenable to Federal Jurisdiction).

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By Dennis Crouch

Gunn v. Minton (Supreme Court 2012)

Over the past few years we have seen an ongoing subject matter jurisdictional battle between state courts, regional federal circuit courts of appeal, and the Court of Appeals for the Federal Circuit. The issue as raised in various context is when a complaint stating a non-patent cause of action should be considered to “arise under” the patent laws so as to ensure that the case is heard by a federal district court and subsequently by the Court of Appeals for the Federal Circuit. These non-patent / patent cases can arise in a variety of disputes, including disputes over legal malpractice, contracts and licenses, employment disputes, bankruptcy, challenges to arbitrations, and antitrust disputes.

The issue in the present case is whether state courts in Texas properly have jurisdiction over legal malpractice claims against patent attorneys (or patent litigators). Legal malpractice is generally a state law tort claim, but the Federal Courts have jurisdiction over claims arising under the patent laws. Although there is Federal Circuit precedent on point, this case actually arises from a Texas state court dismissal of Mr. Minton’s malpractice claim based upon the state court’s interpretation of federal law.

Now, the Supreme Court has agreed offer its final view on the question of when the Federal Courts (and the Court of Appeals for the Federal Circuit) have jurisdiction here. Although nominally a patent case, the case could have much broader impact because it will essentially be interpreting the generic constitutional and statutory limitation of “arising under” jurisdiction.

Background on the Dispute: The case started several years ago when Mr. Vernon Minton developed a set of software that he leased to the Texas Int’l Stock Exchange (TISE). That lease to TISE occurred more than one year before he filed a provisional patent application on the invention embodied by the product. The USPTO granted Minton U.S. Patent No. 6,014,643. However, in a later lawsuit against NASDAQ, the patent was invalidated via the on-sale bar of 35 U.S.C. § 102(b) and that invalidity finding was upheld by the Federal Circuit on appeal. Minton v. Nat’l Ass’n of Sec. Dealers, Inc., 336 F.3d 1373 (Fed. Cir. 2003). In that decision, the Federal Circuit confirmed that the lease to TISE constituted a “sale” for 102(b). In a post-judgment motion, Minton asked the district court to consider whether the use by TISE was an experimental use. However, the district court refused to consider that issue because of its untimely introduction.

The present lawsuit arose when Minton sued his patent litigation counsel (who have now joined the Fulbright & Jaworski firm). The crux of the malpractice claim is that the litigation counsel failed to timely plead the experimental use question. Minton filed the lawsuit in Texas state court and lost on a pretrial motion based upon the trial court’s judgment that Minton had failed to present “a scintilla of proof . . . to support his claims.” That no-damages judgment was affirmed by the Texas court of appeals. However, the Supreme Court of Texas took an orthogonal view and held that Texas courts actually lacked subject matter jurisdiction over case. In particular, the Texas Supreme Court held that Minton’s malpractice claim required resolution of a substantial question of patent law and therefore fell within the exclusive “arising under” jurisdiction of the federal courts and, eventually, the Court of Appeals for the Federal Circuit. This ruling gives Minton another shot at winning the case – this time in federal district court. The Texas court wrote:

This case arises out of patent infringement litigation. We consider whether federal courts possess exclusive subject-matter jurisdiction over state-based legal malpractice claims that require the application of federal patent law. The federal patent issue presented here is necessary, disputed, and substantial within the context of the overlying state legal malpractice lawsuit. Additionally, the patent issue may be determined without creating a jurisdictional imbalance between state and federal courts. We conclude that exclusive federal jurisdiction exists in this case. Accordingly, without reaching the merits of the legal malpractice claim, we reverse the court of appeals’ judgment and dismiss this case.

The 5-3 Texas Supreme Court decision follows the lead set by the Court of Appeals for the Federal Circuit in Air Measurement Tech., Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P., 504 F.3d 1262 (Fed. Cir. 2007) and Immunocept, L.L.C. v. Fulbright & Jaworski, L.L.P., 504 F.3d 1281 (Fed. Cir. 2007). In those cases the Federal Circuit gave a broad interpretation to arising under jurisdiction based upon the court’s congressionally mandated goal of national uniformity in the patent system. Both the Akin Gump and the Fulbright Jaworski cases were decided on the same day by the same panel and both penned by then Chief Judge Paul Michel. (Judges Lourie and Rader joined). Although the Texas court did not treat the Federal Circuit decisions as binding precedent, the Court chose to adopt the logic of those decisions. The dissent argued that the State of Texas has a strong interest in (and a regulatory scheme in place for) ensuring that Texas attorneys maintain a high level of quality and that federalism concerns suggest that many of these cases should be adjudged at the state court level. In a non-patent case, the Supreme Court approved of this more nuanced analysis of arising under jurisdiction in the case of Grable & Sons Metal Products, Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005). In 2012, the Federal Circuit has decided at least three other jurisdictional disputes over attorney malpractice. In each case, Judge O’Malley argued against federal circuit jurisdiction based upon her reading of Grable. See Landmark Screens, LLC v. Morgan Lewis & Bockius, LLP (Fed. Cir. 2012)(O’Malley, J., concurring); Byrne v. Wood, Herron & Evans, LLP (Fed. Cir. 2012)(O’Malley, J., joined by Wallach, J., dissenting from denial of the petition for en banc rehearing); and USPPS, Ltd. v. Avery Dennison Corp. (Fed. Cir. 2012)(O’Malley, J., joined by Mayer, J., concurring).

Question Presented: The attorneys challenging federal jurisdiction raised the following questions:

Did the Federal Circuit depart from the standard this Court articulated in Grable & Sons Metal Products, Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005), for “arising under” jurisdiction of the federal courts under 28 U.S.C. § 1338, when it held that state law legal malpractice claims against trial lawyers for their handling of underlying patent matters come within the exclusive jurisdiction of the federal courts? Because the Federal Circuit has exclusive jurisdiction over appeals involving patents, are state courts and federal courts strictly following the Federal Circuit’s mistaken standard, thereby magnifying its jurisdictional error and sweeping broad swaths of state law claims – which involve no actual patents and have no impact on actual patent rights – into the federal courts?

In his responsive brief, Minton reframed the question as follows:

Minton filed a legal malpractice claim against the Attorneys arising from a patent infringement lawsuit. Do federal courts have exclusive “arising under” jurisdiction where the sole substantive issue is the application of a patent law doctrine which is an essential element of Minton’s malpractice claim?

Underlying Law: As suggested by both questions presented, the underlying law on federal court jurisdiction over patent cases begins with the federal statute – 28 U.S.C. § 1338(a).

The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases.

28 U.S.C. § 1338(a). There are two key phrases here. First, federal jurisdiction only exists when the civil action is considered to be “arising under [an] Act of Congress relating to patents.” Second, if federal circuit exists then it is exclusive of state jurisdiction.

Not a Constitutional Question: The statutory “arising under” language is intended to reflect the parallel language found in Article III, Section 2 of the U.S. Constitution that limits federal judicial power to cases “arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority…” However, the two sources have been interpreted somewhat differently. The constitutional “arising under” limits have been broadly interpreted to allow courts to hear cases even when the federal claim is only raised in a defense or counterclaim. See Osborn v. Bank of the United States, 22 U.S. 738 (1824). On the other hand, the “arising under” language in sections 1338 and 1331 have been more narrowly interpreted under the well pleaded complaint rule. In his 2004 article on Holmes Group, Professor Cotropia writes:

The phrase “arising under” originated from Article III of the Constitution, defining the jurisdiction of the federal court system. The Supreme Court interpreted this phrase, as it appears in Article III, to extend the constitutional grant of federal judiciary power to every case where federal law potentially forms an ingredient of a claim. Article III allowed “[t]he mere existence of a latent federal ‘ingredient’ that might in theory be dispositive of the outcome of a case . . . to bring the entire case, including ancillary nonfederal issues, within the jurisdiction of the federal courts.” An implementing statute is needed, however, for lower federal courts to exercise the powers conferred by Article III. With such an implementing statute, lower federal courts could enjoy some or all of the constitutional “arising under” grant of jurisdiction.

Christopher Cotropia, Counterclaims, the Well-Pleaded Complaint, and Federal Jurisdiction, 33 Hofstra L. Rev. 1 (Fall 2004); See also Donald L. Doernberg, There’s No Reason for It; It’s Just Our Policy: Why the Well-Pleaded Complaint Rule Sabotages the Purposes of Federal Question Jurisdiction, 38 Hastings L.J. 597 (1987).Because the Constitutional limitation has been so broadly interpreted, all of the practical discussion is focused on the meaning of “arising under” as it is found in the statutory context.

In Grable (following a long line of precedent), the Supreme Court confirmed that – under the statute – a case may “arise under” federal law even when the cause of action is purely a non-federal state-law claim. However, when the cause of action is not based on a federal claim, Grable requires (1) a substantial underlying contested federal issue and (2) that federal jurisdiction over the case “be consistent with congressional judgment about the sound division of labor between state and federal courts.” Grable interpreted the “arising under” language of 28 U.S.C. § 1331 rather than the patent jurisdictional statute of section 1338. However, in Christianson v. Colt Industries Operating Corp., 486 U.S. 800 (1988), the Supreme Court recognized that those two statutes should be interpreted in parallel.

Is Patent Law Different?: Although I wrote above that the case has non-patent implications, patent law presents some particulars that might not exist in other areas of law. These involve the particular exclusive jurisdictional statute for patent law. Thus, although state courts have jurisdiction to also decide most federal claims, they cannot decide patent claims. In addition, Congress has spoken regarding its desire for uniformity in the application of the patent laws. These stated federal interests could be sufficient to explain a difference between federal jurisdiction over patent law malpractice claims and not over say trademark law malpractice claims. The malpractice is a relatively minor question compared with jurisdiction over contract claims that involve patent rights (such as a patent license or sale). It would be a big deal if the Supreme Court opened the door to greater federal jurisdiction over these claims. As I explain in the next paragraph, I think it is unlikely that this case would be a vehicle for expanding federal jurisdiction and instead will more likely be a vehicle for contracting federal jurisdiction – at least when compared with the holdings in Akin Gump and Fulbright jurisdictional decisions discussed above.

Grable is the Supreme Court’s most recent pronouncement on this issue and that case the court tempered federal arising under jurisdiction by requiring courts to be mindful of the appropriate balance of power between state and federal courts. Despite Grable, both the Federal Circuit and now the Texas Supreme Court have continued to maintain broad jurisdictional reach over these malpractice cases. In these cases, the minority dissenting viewpoint has argued for less expansive jurisdiction. In this setup, the Supreme Court is more likely to resolve the conflict between these ranges than it is to identify a result to the extreme. In addition, in the years since Grable, there has been a continued focus and recognition of legitimizing State’s rights. This notion of the importance of State’s rights places an additional thumb the scale of reduced federal jurisdiction over these types of cases.

AIA Expands Arising Under Jurisdiction: Although not applicable for this case, the Leahy-Smith America Invents Act (AIA) has altered federal court jurisdiction in a way that overrules the Supreme Court decision in Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826 (2002). In that case, the Supreme Court interpreted the applied the well pleaded complaint rule to the Federal Circuit appellate jurisdiction statute (28 U.S.C. § 1295) in holding that patent issues raised only in counterclaims do not “arise under” the patent law in a way that creates Federal Circuit jurisdiction. The AIA amends the statute to clarify that Federal Circuit jurisdiction includes cases where the patent issue is first raised in a compulsory counterclaim. In addition, the new law indicates that “No State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents” and also provides a right of removal from state court if either party raises a claim for relief “arising under any Act of Congress relating to patents.”

Self Replicating (and Alive) Inventions: Supreme Court Grants Certiorari in Monsanto v. Bowman

Patent

By Dennis Crouch

Mr. Bowman v. Monsanto Co., Docket No. 11-796 (Supreme Court 2012)

Beginning its 2013 term with a bang, the Supreme Court has granted Vernon Bowman’s petition for a writ of certiorari in the Indiana farmer’s longstanding battle against Monsanto Co. The patents at issue cover Monsanto’s genetically modified seed technology that protects broadleaf plants such as soybeans from being damaged by the application of the popular broadleaf herbicide glyphosate (another Monsanto invention known as RoundUp).

After losing at the Federal Circuit, Bowman presented the following questions to the Supreme Court:

Patent exhaustion delimits rights of patent holders by eliminating the right to control or prohibit use of the invention after an authorized sale. In this case, the Federal Circuit refused to find exhaustion where a farmer used seeds purchased in an authorized sale for their natural and foreseeable purpose – namely, for planting. The question presented is:

Whether the Federal Circuit erred by (1) refusing to find patent exhaustion in patented seeds even after an authorized sale and by (2) creating an exception to the doctrine of patent exhaustion for self-replicating technologies?

In its brief-in-opposition, Monsanto reformulated the question as follows:

Whether the Federal Circuit correctly ruled that Monsanto’s patent rights in biotechnology related to genetically modified plants (here, patented technologies that make soybeans resistant to glyphosate-based herbicides) are independently applicable to each generation of soybeans embodying the invention, such that a grower who, without authorization from Monsanto, creates a new generation of genetically modified soybeans infringes Monsanto’s patents.

When asked for commentary on the case, the Solicitor General advised the Supreme Court to deny certiorari. In doing so, however, the Solicitor was harshly critical of the Federal Circuit’s precedent on exhaustion – stating flatly that the Federal Circuit’s “conditional sale” doctrine is inconsistent with Supreme Court precedent.

The Revival of Parker v. Flook

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The Supreme Court’s much maligned 1978 decision in Parker v. Flook, 437 U.S. 584 (1978) is seeing something of a revival following the Federal Circuit’s substantial rejection of the case under Judge Rich. The chart above shows the citation count for the case over the past 30 years. Part of the revival is based upon revived interest in the subject matter eligibility doctrine in general. However, the Supreme Court in Bilski v. Kappos (2010) and Mayo v. Prometheus (2012) both treat the case favorably. The most controversial aspect of the Flook decision is its language regarding the “inventive concept” rather than merely focusing attention on a patent claim “as a whole.” In that case, the court wrote:

Even though a phenomenon of nature or mathematical formula may be well known, an inventive application of the principle may be patented. Conversely, the discovery of such a phenomenon cannot support a patent unless there is some other inventive concept in its application.

In analyzing merits briefs filed at the Federal Circuit, I found that the case was cited in 13 briefs from 1996-2006. In the past six years (2007-2012) the case has been cited by more than 130 briefs.

With 102(f) Eliminated, Is Inventorship Now Codified in 35 U.S.C. 101? Maybe, but not Restrictions on Patenting Obvious Variants of Derived Information.

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By Dennis Crouch

Before the America Invents Act (AIA), the Patent Act included a specific prohibition on patenting something the purported inventor did not actually invent. According to the statute, “[a] person shall be entitled to a patent unless … 102(f) he did not himself invent the subject matter sought to be patented.” 35 U.S.C. § 102(f) (pre-AIA). When that provision was eliminated, Congress was assured by various parties that the inventorship requirement was sufficiently protected by the U.S. Constitutional reference to “inventors” and by the “[w]hoever invents or discovers” preamble of 35 U.S.C. § 101. This position is exemplified by Joseph Matal in his recent article on the creation of the AIA.

Some may think that, because § 102(f) has been repealed, there is no longer any legal requirement that a patent for an invention be obtained by the inventor. Not so. Both the Constitution and § 101 still specify that a patent may only be obtained by the person who engages in the act of inventing. Indeed, even commentary on the 1952 Patent Act noted, with respect to § 102(f), that “[t]his paragraph is perhaps unnecessary since under § 101 it is ‘Whoever invents …’ who may obtain a patent and later sections provide that the inventor must apply for the patent and execute an oath of inventorship.”

Joseph D. Matal, A Guide to the Legislative History of the America Invents Act: Part I of II, 21 FED. CIR. B.J. 435 (2012).

To be clear, even under this duplicative construct we should recognize that Section 102(f) does have the important effect of eliminating 102(f)/103 prior art defined by the 1997 OddzOn Prods decision. The 102(f)/103 scenario is probably best termed a “derived knowledge” situation that occurs when an applicant learns of an invention created by someone else and then comes-up with an obvious variant of that invention. Under pre-AIA law, the resulting patent would properly be invalidated on 102(f)/103 obviousness grounds even if the prior-invention had never been made public or the subject of a sale. By removing 102(f), the AIA also removes the prospect of 102(f)/103 prior art. In his AIA article, Robert Armitage writes “subsection [102(f)] had become, as far as the courts were concerned, a prior art provision for assessing obviousness.” Understanding the America Invents Act its Implications for Patenting, 40 AIPLA Q.J. 1 (2012). Armitage explains why the change is particularly fitting as part of the move-towards transparency embodied by the AIA first-to-file rules.

Moreover, putting a “prior art” provision of pre-AIA § 102(f) ilk into the new law would have undone the transparency/objectivity reforms that its elimination by the AIA worked to perfect. Congress simply rejected the notion that every individual named as an inventor on a patent application should be queried to determine what secret or private information the inventor was already aware of, from the work of someone else, at the time the invention was made by that individual. Congress rejected the notion that the inventor’s private knowledge learned from others should then be provided to patent examiners to determine whether the inventor’s claimed invention could be nonetheless regarded as “obvious” (perhaps in combination with other prior art).

Armitage at 98. Armitage and Matal were both instrumental in the development and passage of the AIA. Their well written articles explain the choices made in the AIA legislation and attempt to explain their visions for how ambiguities should be interpreted. Professor Sarnoff agrees with Armitage here that the AIA removes knowledge that a putative inventor obtained from another is no longer prior art. In his Patently-O Patent Law Journal Article, Sarnoff wrote:

By eliminating existing § 102(f), the new act removes the substantive prior art basis that used to prevent patents on derived inventions that are the same as or obvious in light of the derived knowledge. Because § 102(f) was treated as prior art for obviousness, it provided substantive grounds for denying or invalidating patents on obvious variants of a derived invention (e.g., applications or improvements of, or additions to or modifications of, a derived invention) as well as to the derived invention itself.

Joshua D. Sarnoff, Derivation and Prior Art Problems with the New Patent Act, 2011 Patently-O Patent Law Journal 12.

Sarnoff absolutely agrees with Armitage that the law will no longer prevent an applicant who derived an invention from obtaining a patent on an obvious variant of that invention. I.e., the USPTO has no tools to prevent a third party from patenting obvious variants of information obtained from another. Now, the AIA does provide for a third party to initiate a derivation proceeding or a civil action for derivation. However, it appears to me that those actions (even if timely filed by the originator) would be unsuccessful because derivation proceedings are limited to cases where the derived claims are “substantially the same” as the originator’s innovation. The substantially the same limitation is much narrower in scope as compared with the potential wide variety of obvious variants. Sarnoff largely agrees with my analysis here, but in a more equivocal manner.

The new derivation procedure and civil action also may be inadequate to prevent the deriving applicant from obtaining the patent on an obvious variant even when the originator does file a derivation petition, when the original inventor learns about the obvious variant from the deriver (and had not earlier conceived of the obvious variant). And in litigation defending against the deriver’s patent on an obvious variant, an unrelated third party may be unable to challenge the deriver’s patent for obviousness (although it may be able to challenge it for improper inventorship, but only if the elimination of § 102(f) has not undermined the substantive basis for such invalidation.

Sarnoff (emphasis added).

Unlike Armitage & Matal, Mark Stadnyk is a total Washington DC outsider. His company MadStad designs and sells after-market motorcycle parts (mainly windshields and accessories). MadStad and Stadnyk filed suit in 2012 challenging the AIA as an unconstitutional modification of the US patent laws and asking the federal court to render the law null and void. One of the argument MadStad presents is that the statutory elimination of 102(f) is problematic because it runs contrary to the IP enabling clause of the US Constitution. The US Constitution empowers Congress to develop a patent system that grants rights to “inventors.” And, according to MadStad, the new AIA creates a system where (1) non-inventors can apply for patent and (2) rights wrongly granted to non-inventors cannot be challenged in court by negatively affected third-parties.

In its response to MadStad, the USPTO recently presented its idea regarding inventorship. The USPTO rejects MadStad’s argument and instead follows Matal’s “duplicative” theory. (Matal is now an assistant solicitor at the USPTO.)

The USPTO writes:

The AIA does not sanction the award of patents to anyone but inventors. Retained verbatim—unaltered by the AIA—section 101 continues to restrict the grant of patents to inventors. Section 101 states: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” 35 U.S.C. § 101 (emphasis added); see AIA, passim (no changes to § 101). By retaining section 101, the AIA still requires as a condition of patentability that the named inventor actually invent the claimed subject matter.

Nevertheless, Plaintiffs remarkably allege that the AIA eliminates the inventorship requirement and thus will allow an individual who is not an inventor to obtain a patent. The basis of their claim is that the AIA deletes section 102(f), which provides that a person will not be entitled to a patent if he “did not himself invent the subject matter sought to be patented.” 35 U.S.C. § 102(f). Plaintiffs accordingly allege that, without section 102(f), “being an inventor is no longer a condition of patentability” nor “a requirement of patent validity under Section 282 of the Patent Act,” which establishes the defenses in any action involving the validity or infringement of a patent. Plaintiffs’ allegations are legally incorrect. Both the Supreme Court and the Federal Circuit have concluded that §101—which the AIA retains—is a condition for patentability and can be used as a defense in an action involving patent infringement and validity.

Thus, according to the USPTO, the AIA’s deletion of the redundant requirement in 35 U.S.C. § 102(f) is irrelevant, as section 101 will continue to require that a patent only be awarded to an inventor.

Moving forward, the question is what work do the US Constitution and Section 101 actually do on the inventorship front? The link between patents and their inventors is strong and deeply rooted. As such, it is unlikely (in my view) that MadStat is correct in its argument that Section 102(f) was the only provision guaranteeing continuation of that link. An important question, however, is what to do about the inventorship requirement of the IP empowering clause. Are the limits of that clause implicitly embedded into the conditions and requirements of patentability or, instead, do we use those limits to invalidate legislation that fails to conform to the constitutional restrictions.

Prior to the 1952 patent act, lack-of-inventorship was a condition for patentability under the precursor to our Section 101 and was explicitly listed as a defense that a defendant charged with infringement could plead under the precursor to our Section 282. Thus, “the defendant may plead … That [the patentee] was not the original and first inventor or discovered of any material and substantial part of the thing patented.” See RS § 4920 (Patent Act of 1870).

There are real ongoing questions that stem from the elimination of section 102(f): Is Armitage correct in his assessment of the law that a third party can now patent an obvious variation of an idea secretly learned from the true inventor? Is the USPTO correct that a patent can be challenged for improper inventorship as a violation of 35 U.S.C. 101?

Notes:

Is the New Supplemental Examination a Complete Replacement for Owner Initiated Ex Parte Reexamination?

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By Dennis Crouch

This essay focuses on supplemental examination but, perhaps surprisingly, the essay does not consider inequitable conduct inoculation. The ability of supplemental examination to cure inequitable conduct has received a significant amount of attention. However, supplemental examination is likely to have a broader value for patent owners. In particular, supplemental examination offers an expanded and beneficial avenue for patent owners to subtly enter ex parte reexamination. In its official estimates, the USPTO predicts that patent owners will entirely stop filing ex parte reexaminations. Rather, in the USPTO’s estimation, 100% of the cases that would have been filed as owner-filed reexaminations will now be filed as supplemental examinations. The USPTO writes:

[T]he Office estimates that it receives approximately 110 requests for ex parte reexamination filed by patent owners annually. In view of the benefits to patent owners afforded by supplemental examination under 35 U.S.C. 257(c), the Office is estimating that all 110 requests for ex parte reexamination that would have been filed annually by patent owners will instead be filed as requests for supplemental examination. However, the Office is also estimating that more than 110 requests for supplemental examination will be filed annually due to a combination of: (1) the benefits to patent owners afforded by supplemental examination; (2) the fact that the “information” that may form the basis of a request for supplemental examination is not limited to patents and printed publications; and (3) the fact that the issues that may be raised during supplemental examination may include issues in addition to those permitted to be raised in ex parte reexamination (e.g., issues under 35 U.S.C. 112).

See Changes To Implement the Supplemental Examination Provisions of the Leahy-Smith America Invents Act and To Revise Reexamination Fees; Final Rule, 77 Fed. Reg. 48827 (2012). Although not suggested by the USPTO, there is some thought that the supplemental reexamination will also take some demand away from the current reissue system.

As a starting point on this topic, it is useful to remember that ex parte reexamination has been left virtually unchanged by the America Invents Act (AIA). The greatest exception is not a process change but rather a seven-fold increase in the price-tag for filing a request for ex parte. This takes the price from $2,500 to almost $18k. Ex parte reexaminations will still be conducted by examiners in the central reexamination unit (CRU) and the Board (now the PTAB) will handle first level appeals. The AIA “clarifies” the law that adverse decisions from the PTAB may be appealed only to the Court of Appeals for the Federal Circuit and that the patentee has now right to file a civil action in district court to overturn an adverse decision during the reexamination.

The reissue process was also left untouched except that the AIA removes the “without any deceptive intention” language from 35 U.S.C. § 251. The reissue statute now reads as follows:

Whenever any patent is, through error without any deceptive intention, deemed wholly or partly inoperative or invalid, by reason of a defective specification or drawing, or by reason of the patentee claiming more or less than he had a right to claim in the patent, the Director shall, on the surrender of such patent and the payment of the fee required by law, reissue the patent for the invention disclosed in the original patent, and in accordance with a new and amended application, for the unexpired part of the term of the original patent. No new matter shall be introduced into the application for reissue.

However, unlike reexaminations, reissue fees associated with reissue applications have been kept low – remaining mostly equivalent to fees associated with original prosecution. For patents in litigation (or likely to be litigated) the fee differential will be a relatively minor factor in the ultimate choice. However, that fee differential could be quite important for more average patents – those part of a large portfolio but that would become more valuable if given a secondary review. Since this post is getting quite long, I’m going to save the comparison between supplemental examination and reissues for a different post.

Comparing Supplemental Examination with Ex Parte Reexamination: The process of supplemental examination is quite similar to that of ex parte reexamination. You can think of ex parte reexamination as having two main parts: (1) request stage; and (2) examination stage. At the request stage, the USPTO must decide whether the reexamination request raises patentability issues that are significant enough to warrant full reexamination. If the issues presented are not significant enough then the reexamination request is denied and the case is over. However, if the issues are deemed significant then the patent is fully reexamined. That reexamination can result in claims being cancelled, amended, or confirmed as patentable. In many ways, supplemental examination can be seen as simply changing name of the request stage. For supplemental examination, the request stage is the supplemental examination. In that stage, the USPTO is simply conducting a cursory review to determine whether the issues presented in the supplemental examination request raise a substantial new question of patentability. If not, then the supplemental examination is concluded (with a certificate). If substantial questions are raised then a full reexamination is ordered and conducted. As in the request stage of ex parte reexaminations, supplemental examination is completed very quickly (3-months) and without any additional outside input beyond the request itself.

Supplemental examination offers four primary benefits for a patent owner as compared with directly filing a request for ex parte reexamination:

  • When a patent owner files a reexamination request on its own patent, it has to first convince the USPTO that its patent has a problem. With supplemental examination, the patentee need not make any such statement. Rather, the supplemental examination request simply points to material that should be considered with minor explanation and the PTO makes the judgment as to whether the submitted material raises any substantial new questions of patentability. This helps patentees avoid potential prosecution history issues that often trap patentees in the reexamination process. This may also mean that the supplemental examination document request is less expensive to prepare.
  • In ordinary circumstances, Ex parte reexaminations are instituted based upon printed publications or patents. Supplemental examination can be used to raise all sorts of issues based upon “any supporting document” or legal issue (such as patentable subject matter).
  • If the PTO concludes that no substantial question of patentability is raised by the request then, with supplemental examination, it issues a “supplemental examination certificate” that the patentee can take and show to a district court judge and jury. While the decision in supplemental examination is effectively the same as a denial of a request for ex parte reexamination, the cognitive impact is different. In the ex parte reexamination scenario, the PTO merely denied a request to review the case. On the other hand, in the supplemental examination scenario, the PTO actually conducted a supplemental examination; determined that the submitted issues do not raise a substantial question of patentability; and issued an official certificate saying as much.
  • As discussed elsewhere, the supplemental examination also provides the inoculation against inequitable conduct charges.

There are some downsides to supplemental examination, but in most cases it will be a better option when compared with an owner-requested ex parte reexamination.

The GAIN Act Stacks 5-Years of Market Exclusivity for Antibiotics

Patent

Guest Post by Jacob S Sherkow. Sherkow is a fellow at Stanford Law School's Center for the Law and Biosciences. This post originally appeared on Sherkow's Stanford Site.

This week's New Yorker has an interesting article on the rise of antibiotic resistant gonorrhea (subscription required). What caught my attention was its discussion of something called the GAIN Act ("Generating Antibiotic Incentives Now")–a new law that apparently seeks to encourage pharmaceutical research of antibiotic resistance by giving pharmaceutical companies manufacturing a "qualified infectious disease products" (QIPDs) an additional five years of market exclusively–with or without a patent. The Act comes as title VIII to Senate Bill 3187, the Food and Drug Administration Safety and Innovation Act (the "FDASIA"). The FDASIA generally concerns the regulation of user-fees for FDA drug approval. (That is, allowing pharmaceutical companies to pay for part of the FDA approval process.) There are a few surprising things about the law: (1) Despite the high level of congressional partisanship, it was passed rather quickly. The bill went from being introduced in the House to receiving the President's signature in just over a month. (2) Although it seems like the additional protections afforded to manufacturers are significant–and concern a broad variety of public interests–there has been almost no discussion of the Act in the popular press. And (3), a number of companies–some of which were already conducting Phase III trials of qualifying drugs when the bill was passed–seem to have benefited. The GAIN Act is a relatively complex piece of legislation that requires detailed analysis, but for now, I'll briefly review the broad outlines.

"Non-IP" Market Exclusively

Prior to the GAIN Act, several classes of new drug applications (NDAs) received statutory market exclusivity, independent of whether the underlying drugs were protected by a patent. New drugs–that is, new active ingredients–received four to seven-and-a-half years of protection from the date of application. (21 U.S.C. § 355(c)(3)(E)(ii).) Old drugs with new uses received three years. (Id. § 355(c)(3)(E)(iii).) And drugs for a "rare disease or condition"–as designated by the Secretary of DHHS–received seven years. (Id. § 360bb(a)(1).) During these "exclusivity periods," FDA could not approve another version of the same drug, even if those drugs were not protected by a patent.

The GAIN Act

The GAIN Act adds a class of applications to that list–"qualified infectious disease products" or QIPDs. (Like drugs for "rare diseases and conditions," QIPDs are to be determined by the Secretary.) If the QIPD fits any of the three categories, above (i.e., a new drug, an old drug with a new use, or a drug for a rare disease), then its market exclusivity is automatically extended by five years. This means that new drug QIPDs will have a minimum statutory protection of nine years; old drug/new use QIPDs will have a total of eight years of protection; and rare disease, i.e., "orphan" QIPDs will have a whopping twelve years of "non-IP" market exclusivity.

As for what qualifies as a QIPD, it's up to the Secretary, although the statute lists several "superbugs" as suggestions. Interestingly, the GAIN Act provides that once an application has been classified as a QIPD, that designation–and its attendant exclusivity–cannot be taken away, even if the Secretary removes a "bug" on the statutory list of QIPDs. Because the exclusivity periods in the GAIN Act are as long, or longer, than any Secretary will have his or her job (because, presumably, a new President, after eight years, will replace the Secretary), previous Secretaries' QIPD designations will have significant "dead hand control" on future ones'.

GAIN vs. Patent Terms

There has long been concern that patents do not provide enough incentives to drug companies to develop new as opposed to follow-on drugs. (There are a number of proposed reasons for this: FDA approval uncertainty, the length of the approval process, increased patent litigation, patent thickets and licensing concerns, and others.) The current wisdom is that, on average, a pharmaceutical patent will have an "effective patent life"–the amount of patent protection lasting after the FDA approval process–of about fourteen and-a-half-years. The reality is likely shorter due to recent backlogs at the patent office and the increasingly aggressive challenges from generic manufactures. Regardless, the GAIN Act now appears to offer protection on par with patents, with the added advantages of being immune from challenges from competitors or "de-listing" by the Secretary. These seem like fairly significant protections and may even obviate the need for patents in some instances.

The core question, of course, is whether the GAIN Act, with its generous protections, will spur enough innovation in a critical public health area that it's worth the hit to other researchers and consumers. Only time will tell, but a more thorough vetting of the Act would be to everybody's gain.

Inter Partes Reexaminations: USPTO Can Only Consider References from the Request that Were Found to Raise a Substantial Question of Patentability

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By Dennis Crouch

Belkin v. Kappos (Fed. Cir. 2012) (Appeal of Inter Partes Reexam No. 95/001,089)

OptimumPath’s U.S. Patent No. 7,035,281 broadly covers a wireless router with onboard authentication and is based upon an application filed in the year 2000. When Belkin filed its inter partes reexamination request, it argued that a set of four prior art references render all 32 claims unpatentable. The USPTO partially granted Belkin’s request. However, the USPTO found that only one of the four references (“Pierce”) raised a substantial new question of patentability, and the Pierce-SNQ only related to claims 1-3 and 8-10 of the ‘281 patent. The USPTO thus rejected the request as to the remaining claims 4-7 and 11-32. Further, the USPTO also rejected the notion that the four-reference combination raised a SNQ with regard to claims 1-3 and 8-10.

Belkin filed a petition to challenge the partial denial. Since the reexamination had been granted as to claims 1-3 and 8-10, Belkin only challenged the USPTO’s adverse decision regarding the other claims. That petition was duly denied. As prosecution developed, the Examiner (supported by the BPAI) determined that the lone reference (Pierce) did not actually anticipate claims 1-3 or 8-10. Further, the USPTO refused to consider the four-part combination obviousness argument that had been rejected at the request stage. The BPAI then confirmed the Examiner’s decision – holding that the Board did not have the power to now decide that the combination of references raise a SNQ of patentability because that determination is not appealable under 35 U.S.C. § 312(c).

The USPTO differentiates between petitions and appeals and according to the Board, Belkin erred by failing to timely petition to challenge SNQ determination rather doing what it did (waiting to appeal that determination after receiving an adverse examiner decision0.

Now, the Court of Appeals for the Federal Circuit (CAFC) has affirmed the Board decision – holding that

The proper course of action was for Belkin to have petitioned the Director to review the determination that the arguments relying on the [other three references] did not raise a substantial new question of patentability pursuant to 37 C.F.C. § 1.927. Belkin did not do so, and thus that decision became final and non-appealable, rendering those issues beyond the scope of the reexamination.

One problem raised by this decision by Judge Lourie and joined by Chief Judges Rader and Judge Wallach is that it conflicts with the MPEP.

MPEP § 2648 identifies a hypothetical situation parallel to Belkin’s – where an inter partes reexamination request on a particular claim is granted based upon one set of prior art but denied based upon another set of prior art. According to the MPEP, no petition challenging the partial-grant may be filed with regard to that claim and that once granted, the reexamination will consider “all prior art.”

[N]o petition may be filed requesting review of a decision granting a request for reexamination even if the decision grants the request as to a specific claim for reasons other than those advanced by the third party requester. No right to review exists as to that claim, because it will be reexamined in view of all prior art during the reexamination under 37 CFR 1.937.

MPEP § 2648. The Federal Circuit decision here considered the conflict created by the MPEP and ultimately determined that the MPEP does not carry the weight of law and thus is easily discarded. The court writes:

[T]he MPEP does not have the force of law, and is only entitled to judicial notice as the PTO’s official interpretation of statutes and regulations with which it is not in conflict. Molins PLC v. Textron, Inc., 48 F.3d 1172, 1180 n.10 (Fed. Cir. 1995).

This holding here (following Molins) becomes even more important under the AIA as the PTO has received a substantial additional amount of rulemaking authority for determining the proper methodology of conducting the array of post-grant challenge options. Here we have a re-affirmance that the USPTO’s statements in the MPEP will not be given the same deference that will be due to rules promulgated and printed in the code of federal regulations (CFR). The court noted that this decision should not be seen as offering any guidance as to how the AIA will be interpreted (since this case applies the old law regarding inter partes reexaminations).

Limit Scope of Reexamination: The court here goes on to hold that the Patent Act strictly limits the prior art that the USPTO can apply in considering challenged claims during reexamination. In particular, in the reexamination the PTO can only consider the prior art that the director found raised the substantial questions of patentability. The court writes:

In any event, in order to reconcile what may otherwise appear to be conflicting provisions, we hold that, under the statute, available prior art may only be considered to answer the specific questions of patentability found by the Director.

In a footnote, the expressly refuses to rule on a situation where the patentee amends claims or adds new claims during the reexamination. Thus, in those situations, the PTO might have the power to consider other references.

We do not reach the issue of what prior art references the PTO may or may not consider during reexamination in response to an amended or substituted claim.

The problem with this holding on the “statute” is that the court does not actually identify the statutory provision that lead to its conclusion. I suppose that the best statute on point is Section 312(c) that limits the appeal of SNQ determinations. If we allow a requester to force the consideration of additional references by appealing to the BPAI – then that begins to look like an appeal of the SNQ determination. That seems to be a fairly weak argument and perhaps that is why the court did not spell it out.

For its part, the Board was likely thinking of this case as an important stake-in-the-ground to limit the scope of the new post grant review regimes (that the Board is handling directly rather than the CRU). The importance is evidenced by the fact that the case was decided by an expanded 5-judge panel which included Board Vice-Chief Judge James T. Moore and Judge Allen MacDonald as added members.

Trans-Border Active Patent Inducement under Akamai

Patent,

By Dennis Crouch

This post discusses Professor Holbrook’s new essay on the extraterritorial consequences of the recent Akamai decision.

In Akamai v. Limelight, an en banc Federal Circuit (CAFC) expanded the scope of liability for actively inducing patent infringement (inducement). Under the old rule, an active inducement charge required proof that an induced third party actually practiced the patented method. Akamai loosened that constraint a bit. Under the new rule, actively inducing infringement of a patented method no longer requires underlying infringement by the third party. The court replaced that element with a requirement of proof that each step of the patented method be performed. Thus, the difference between the old and the new is that active inducement no longer follows the single infringing actor rule that is *still* applied in the context of direct infringement. Under the new rule, a defendant could be held liable for active inducement even when it took three different actors to collectively perform the patented-steps. The statutory basis for active inducement is 35 U.S.C. §271(b) (“Whoever actively induces infringement of a patent shall be liable as an infringer.”). At least as interpreted, the statute does not provide any help in understanding which of these two interpretations (old & new) are correct.

Akamai raises a host of further more detailed question about application of the newly revised doctrine.     

In his most recent essay, Professor Timothy Holbrook (Emory) focuses on one of his specialties – international application of the patent laws – and considers how the new law of inducement applies in the international and trans-border patent infringement context.

The crux of Holbrook’s essay begins with the statutory definition of direct patent infringement that uses the phrase “within the United States” as a territorial limitation on patent infringement actions. 35 U.S.C. § 271(a). The old rule of active inducement was linked to this definition and thus included an implicit territorial limitation as well. In Akamai, the court decoupled active inducement from the direct infringement definition of 271(a) and challenges whether (and how) a territorial limitation will be applied moving forward.

One suggestion is that the Federal Circuit should rely upon its control-and-beneficial use doctrine developed in NTP v. Research-in-Motion, 418 F.3d 1282 (Fed. Cir. 2005), to determine whether the territorial limits of the patent laws bar an inducement action. However, NTP is a deeply unsatisfying opinion and has little basis in the law, and such an extension of that opinion would have even less basis in law. Holbrook suggests that when portions of the induced activity occurs in another country, the court should focus on whether the patentee bringing the infringement action has a parallel patent in that other country. If so, then the inducement action can move forward. On the other hand, the absence of such parallel patents suggest that the trans-border inducement action unduly extends US law. Holbrook writes:

The baseline principle would be as follows: if there would not be infringement of the patent in the foreign country, then there would be no infringement of the United States. As I have advocated elsewhere, this approach takes into account potential conflicts with foreign law, which is one of the justifications for the presumption against extraterritoriality.

I should note that Holbrook has offered his solution more broadly as a replacement for the NTP test.

For patentees, the interesting result of Professor Holbrook’s approach is that provides an additional incentive for patentees obtain foreign patent protection because that protection bolsters their US patent rights. In this sense, it gives an edge to non-US innovators who are already much more likely to obtain foreign rights than are US based entities. The approach also offers a straightforward avenue for someone to receive the benefit of practicing the invention without paying royalties and without infringement liability. The approach would be to identify countries where the patent is not protected and induce performance of some steps of the method there. However, in most cases that approach is likely too far-fetched for most situations.

Read the essay: Timothy Holbrook, The Potential Extraterritorial Consequences of Akamai, forthcoming in the Emory International Law Review (2012) online at http://ssrn.com/abstract=2154277.

US Courts Reject German Injunction Order in Microsoft v. Google Patent Battle

Patent

by Dennis Crouch

Microsoft Corp. v. Motorola, Inc. (9th Cir. 2012)

The Ninth Circuit Court of Appeals has confirmed a temporary injunction blocking enforcement of Motorola’s German patent infringement judgment against Microsoft’s Xbox 360. In May 2012, the German court (sited in Mannheim) based its injunction order on three holdings: that (1) a licenses between Microsoft and Motorola did not cover asserted patents; (2) Motorola’s commitments of the patents to FRAND agreements were not enforceable by Microsoft; and (3) Microsoft did indeed infringe the two asserted patents. The two Motorola patents asserted in Germany are EP0538667 (“‘667”) and EP0615384 (“‘384”). These patents relate to the H.264 video coding and the 802.11 WLAN standards.

This is a somewhat unique situation because Motorola’s patents are part of FRAND licensing commitments; both parties are American companies (although it is a German Motorola subsidiary that is pursuing the German case); and the German patent dispute is being resolved within contract litigation between the parties here in the US. In this vein, the Ninth Circuit decision relied on recent writings by Professor Lemley and Judge Posner that both push-against awarding injunctive relief for patents that have been involved in a FRAND license commitment. The appellate panel also found that US overrunning the German decision did not intolerably violate principles of comity — especially because the German infringement action was filed after the US contract litigation had already started. One hook on the comity front is that the German injunction requires some additional action by Motorola (posting of a bond) before the Xbox injunction would begin. Thus, the US courts did not need to overturn the German decision but instead only order Motorola not to enforce its injunction.

Of course, Google now owns Motorola and is operating as puppet master behind the scenes.

http://www.ca9.uscourts.gov/datastore/opinions/2012/09/28/1235352.pdf

 

Patently-O Bits & Bytes by Lawrence Higgins

Patent,

Patent Backlog to fall below 600K by end of the year!

  • The current patent backlog is around 623,000 patents and is decreasing by an average of about 5,000 patents per month. This time last year the USPTO had a backlog of an estimated 683,000 patents and in 2010 it was 728,000 patents backlogged. By the end of the year the backlog should be under 600,000. The decrease from 2011 to 2012 is by almost 60,000 patents and this can be contributed to the hiring initiative that the USPTO implemented. The USPTO currently has around 7,600 patent examiners with plans to hire more in the near future. However, the patent backlog will be expected to start to slightly increase around March of 2013 due to the first-to-file patent system. [Link]

Great new free educational website!

  • Coursera.org offers online classes in many different subject matters online for free. For example, they offer courses in electrical and materials engineering, computer science, biology & life sciences, and many more. The classes are taught by some of the leading institutions in the world. Some classes even offer a certificate of completion. I am currently enrolled in a computer science course taught by faculty from the University of Toronto.

Patent Jobs:

  • Harrington & Smith is seeking a patent associate with a degree in EE or physics and at least 2 years of experience to work at their Shelton, Connecticut office. [Link]
  • Krieg DeVault is looking for an IP associate with 3-7 years of experience to work at their Indianapolis office. [Link]
  • Harrity & Harrity is searching for patent attorneys/agents with a background in EE, computer science, or physics and a minimum of 2 years of experience to work at their Fairfax, VA office. [Link]
  • Honigman is seeking a patent attorney/agent with a degree in EE or computer science to work at their Oakland Count, Michigan office. [Link]
  • Byrne Poh is looking for a patent attorney/agent with a degree in EE or computer science to work at their New York office. [Link]
  • The Ollila Law Group is seeking a patent attorney with an EE and at least 2 years of experience to work at their Boulder office. [Link]
  • Abel Law Group is seeking a chemical practitioner with 2+ years of experience to work at their Austin office. [Link]
  • Klarquist Sparkman is seeking an IP Litigation Associate with 1-2 years of experience to work at their Portland office. [Link]

Upcoming Events:

  • The Synopsis under IP/Patents Telecom Sourcing (SUITS) Conference is presented in conjunction with the ITEXPO on October 2 and 3, 2012 in Austin, Texas. The SUITS Conference provides a unique forum for innovators of in the field of telecommunications, including developers, executives, implementers, licenses, licensors, end users, and carriers, to learn about and discuss intellectual property issues. Key topics will include the changing patent law landscape, litigating in the telecom space post Apple v. Samsung, monetizing telecom patents and more. The conference includes moderators Christopher Douglas of Alston and Bird, Jeb Dykstra of technology Sector Law, Raffi Gostanian of Open Invention Network and Todd Juneau of Juneau Partners with guest speakers that include John Horvath of Google, Ross Barton and Stacey White of Alston and Bird, Robert Johnson of AmelioWave, Noreen Rucinski of Schneider Rucinski Enterprises and more. http://itexpo.tmcnet.com/suits/
  • The 13th Annual Maximizing Pharmaceutical Patent Lifecycles is scheduled for October 10-11 in New York. The conference will feature, Presentations from key representatives from the USPTO who will provide you with direct insights and the logic of this agency on some of most pressing life cycle management strategies that the industry is facing today, Analyses of recent critical cases affecting patent life cycle planning including: Caraco (use codes); Prometheus (subject matter eligibility); Sun Pharma (double patenting); Ariad (patentability); and Therasense (inequitable conduct) – and strategies for using these cases to your advantage and many more topics. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • The University of Akron School of Law's Center for IP & Technology will host the 6th Annual IP Scholars Forum on October 26, 2012, from 9:00AM – 2:00 PM. The Forum's purpose is to bring together a small group of prominent scholars for intensive, high-level discussions on cutting-edge issues of common interest. This year's Forum will discuss "The Impact of IP on Public Health." Guest include: Frank Pasquale, Andrew Torrance, Jim Chen Jay Dratler, Jr., Katherine Van Tassel, and many others. [Link]
  • The IP Section of the Nevada State Bar is hosting its annual CLE program in Las Vegas on November 2. The program will have sessions on trademarks, the top 10 patent cases of the year, IP strategy war stories, and many more. Guest speakers include: Mary LaFrance, Marketa Trimble, Mikio Ishimaru, Sean Carter, Jason Smalley, and many others. [Link]
  • ACI's 14th Advanced Forum on Biotech Patents will be held on November 28-29, in Boston. ACI's 14th Advanced Forum on Biotech Patents brings together another top-notch faculty of expert biotech patent practitioners who will share their experience and knowledge to help you avoid pitfalls and maximize the value of your intellectual property. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • The ACI's Orphan Drugs and Rare Diseases conference will take place on November 28-29 in Boston. There are an estimated 6,000 rare diseases currently recognized in the U.S. alone; European authorities recognize as many as 8,000 rare diseases. With only approximately 150 treatments for these diseases approved so far according to the FDA's orphan designation database, there is a unique opportunity for companies of all sizes to invest in research and development to try to capture this lucrative market share. Indeed, according to a leading industry report, the orphan disease therapeutics market will continue to see a marked increase in value through the decade, increasing from 2010's $2.3 billion to an estimated $6 billion in 2018. [Link] (PatentlyO readers register for with PO 200 for a discount)

Contact Lawrence.Higgins@patentlyo.com with leads for future Bits and Bytes.

Practice Note on US/EPO Patent Family Prosecution

Patent

Guest Post by Gwilym Roberts (UK) of Kilburn & Strode LLP

The USPTO delivered an advisory on 30th July 2012 urging US practitioners to file Form PTO/SB/69 effectively releasing search results from an unpublished US patent application for delivery to the EPO.  Practitioners in Europe have become aware of this because of the flurry of queries they have received subsequently from US attorneys requiring clarification! 

The relevant EPO provision is Rule 141 EPC.  Rule 141(1) is the key provision which entered into force on 1st January 2011 requiring applicants filing a European patent application claiming priority to additionally file a copy of the results of any search on the application from which priority was claimed.  However under Rule 141(2) the EPO can make special arrangements and US Federal Register Notice 2011-33539 notes that the USPTO has agreed with the EPO to provide the search results directly.  As a result, the EPO, prior to entry into force of the new rule, confirmed to users that they did not need to provide priority search results for US originating cases.  Hence, as far as European Patent attorneys are concerned, when we file a European patent application claiming priority from a US patent application there is no obligation on us, under EP law, to additionally provide search results from the original US application.

Before we get on to the new complexities following the USPTO advisory, as a final point Rule 141(3) does permit the European Patent Office to additionally request copies of search results from related cases.  In practice we are seeing this invoked in only very few instances. 

The complexity had come, as noted in the Federal Register Notice, because, of course, most if not all US patent applications will not have been published at the time a European application is filed claiming priority, meaning that the search results are not publically available.  As a result, Form PTO/SB/69 needs to be filled out for any US case in which an EP priority is likely to be claimed.  In practice this has not been happening, it would appear, hence issuance of the advisory pleading with US attorneys to fill out the form.  Of course the form is discretionary not obligatory and it may well be that in some instances applicants are not happy for their information to be released before publication of the patent application.  But the implication of the advisory notice is that if the situation is not remedied, the EPO exemption may be lifted meaning that on every EP case filed claiming priority from the US, the US search results need to be filed which will of course add to the burden and cost of the process.  It's not clear whether there has been discussion to that effect between the EPO and the USPTO, nor what prompted the appearance of the advisory. 

So what does this mean for US attorneys?  At present, whether or not the form is filed on the given case has no effect on the legal situation in Europe – European patent attorneys are not obliged to independently file copies of the priority search results by virtue of the notice from the EPO President.  Given that in due course the US application will be published the practical effects of not filing the form are likely to be either that processing of the European application is delayed until publication of the US application from which it claims priority, or that the EPO will start invoking Rule 141(3) and independently asking for the search results.  Longer term, however, we may see the exemption being lifted with the ensuing problems as described above. 

So for now perhaps the answer is, going forwards, and with applicant consent, to file the form, given that the results will be publically available at 18 months anyway.  However if the applicant is uncomfortable then this needs to be taken into account although it's worth noting that the search results will not become visible from the EPO earlier than 18 months either as it is subjected to the same non-publication period.  Questions have been raised as to whether it is necessary to file back dated release forms for applications already filed.  There will be no need to do this for applications that have been published but more generally this does not appear to be something the USPTO Advisory is requesting.

As regards the USPTO, it is clearly taking the correct legal line in terms of applicant interest.  But looking at other offices the approach taken by the UKIPO is certainly more straightforward – when requesting search on patents form 9A there is a box to be ticked requesting consent for sharing search information confidentially but note H indicates that in any event they are obliged to provide some information before publication to the EPO.  In other words, they just do it.  The relationship between EP law and UK law is far closer and intertwined, or course, but what a simple solution!

Summary

  • It is necessary to provide search results from US applications in relation to EP applications claiming priority from them, but this is done automatically by the EPO 
  • The USPTO can only send the priority search documents pre publication with applicant consent which it is now pleading with users to provide
  • From an EP perspective there is no legal obligation for US applicants to provide such a consent
  • But the long term result otherwise may be that the EPO no longer automatically obtains copies of US search results adding to the burden of the applicant, so it is worth doing, with client consent
  • There seems no need to retrospectively provide consent on existing applications.

Appellate Review of Patent Claim Construction: The Reality and Wisdom of a “Mongrel” Standard

Patent, , ,

Guest Post by Professors J. Jonas Anderson (American University) and Peter S. Menell (Berkeley)

Patent scope plays a central role in the operation of the patent system, making patent claim construction a critical aspect of nearly every patent litigation.  With the resurgence of patent jury trials in the 1980s, the allocation of responsibility for interpreting patent claims between trial judge and jury emerged as a salient issue.  While the Supreme Court’s Markman decision usefully removed claim construction from the black box of jury deliberations notwithstanding its "mongrel" (mixed fact/law) character, the Federal Circuit’s adherence to the view that claim construction is a pure question of law subject to de novo appellate review produced an unusually high reversal rate. The high rate of reversal distorted the evidentiary foundation of claim construction determinations, delayed settlement of patent cases, ran up litigation costs, and turned appellate review of nearly every patent case into re-litigation of patent claim terms.

In 2004, the Federal Circuit undertook to reassess this regime in the Phillips case.  On its face, the majority en banc opinion largely stayed the course.  Indeed, the studies to have emerged since Phillips suggest that not much has changed, finding that the reversal rate remained high and that the Federal Circuit’s analytical framework remained largely unchanged.

Our recent article reports the results of a longer term, comprehensive, empirical analysis of the Federal Circuit’s claim construction jurisprudence from 2000 through 2011.  See “From de novo Review to Informal Deference: An Historical, Empirical, and Normative Analysis of the Standard of Appellate Review for Patent Claim Construction,” available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2150360.  In contrast to prior analyses, we find that the claim construction reversal rate has dropped precipitously since the Phillips decision.

 

Pre-Phillips

Post-Phillips

Percentage of terms reversed

37.6%

23.8%

Percentage of cases with at least one reversed claim term

40.7%

29.9%

Percentage of cases resulting in remand, reversal, or vacation due to claim construction error

35%

24.1%

The following figure shows the term-by-term reversal rate as a rolling average over 100 terms.  The blue line indicates the date that the Federal Circuit granted en banc review in Phillips.  The green line indicates the date of the oral argument.  The red line indicates the date that the decision issued.

Reversal Rate

As our article explains, although a majority of the Federal Circuit declined to overturn the de novo standard, just about all members of the Federal Circuit apparently concluded at or around the time of the Phillips argument that they should lighten up on their scrutiny of district court decisions.  The immediate drop in reversals that occurs following the Phillips argument suggests that the change in reversal rates cannot simply be explained by district courts having changed their practices in response to the Phillips decision.  If the real benefit of Phillips was the opinion’s value in instructing district court judges, we would expect to see a delayed and gradual drop in reversals followed by a later increase as litigants began selecting only the strongest cases for appeal.  Instead, we see an immediate and sustained drop in reversals.

As the following chart indicates, affirmance rates for all members of the Federal Circuit rose after Phillips.

Affirmance Votes

In addition, use of summary affirmances increased significantly following the Phillips decision and has remained higher than the pre-Phillips period.

SJ

Reversal rates have fallen across all technology fields except business methods. 

Technology Fields

During 2011, the average reversal rate dipped to 17%.  In the two years prior to Phillips, the rate was in the mid-40s.

This does not mean, however, that the problems of de novo review have been adequately resolved.  So long as the Federal Circuit subscribes to the view that claim construction is a question of law subject to de novo review, district courts will downplay their resort to experts and fact-finding in managing claim construction in an effort to avoid reversal.  This will undermine the quality of adjudication and appellate review by failing to elicit relevant evidence and perpetuating opaque analysis and reasoning.  We propose a “mongrel” standard of appellate review of claim construction decisions that better reflects the comparative strengths of trial judges in determining how skilled artisans understand patent claim terms. 

The proper standard integrates fact-finding based on experts who can illuminate the perspective of skilled artisans and claim draftpersons with careful review of the intrinsic record.  Lower courts’ assessments of such evidence should be upheld if not clearly erroneous or clearly contradicted by the specification or prosecution history.  The Federal Circuit would review the intrinsic record on a more independent basis, but with due regard for the district court’s deliberations, proximity to the full record, and integration of the skilled artisan perspective.  Were the Federal Circuit to embrace such a standard, lower courts would openly exercise their discretion to receive such evidence and build a forthright record supporting their interpretation.  Such a “mongrel” appellate standard would foster better development of the basis for claim construction analysis while promoting earlier settlement of patent litigation and lower litigation cost.  Where the disputed claim term is particularly susceptible to skilled artisan construction, the district court’s ruling would carry great weight.  But where the term is set forth or substantially constrained by the specification or prosecution history, then the intrinsic record would control.  But even in the latter circumstance, we believe that the Federal Circuit should apply a heightened standard – a showing by the appellant of unambiguous evidence in the intrinsic record supporting an alternative construction – so as to promote settlement and reduce litigation costs and uncertainty.

Recognizing this more limited role for appellate review of claim construction should not be viewed as abandoning the effort to improve the clarity of patent claims.  That remains a critical component of improving the efficacy of the patent system.  What our analysis shows is that achieving that goal through de novo review of patent claim construction misapprehends comparative institutional analysis at a heavy cost.  Claim clarity can and should be handled through the claim indefiniteness doctrine and through greater efforts by the Patent Office to ensure that patent claims are clear at the front end of patent protection.

The Supreme Court is currently considering whether to grant a writ of certiorari in a case presenting the standard of appellate review for claim construction decisions in Retractable Technologies, Inc. v. Becton, Dickinson and Co.  We believe that the time is ripe to formalize a “mongrel” standard.