Apple v. Samsung: An Expert but Pro-Patent Jury?

Patent,

By Dennis Crouch

The Apple v. Samsung verdict has generated a significant amount of talk about the patent system. One set of comments focuses on the US System of lay juries and what this decision tells us about that approach for patent cases. As it turns out, the jury in the Apple case might be better classified as an expert jury. The reason for this shift is that the jury foreman – Velvin Hogan – is a patentee and current patent applicant. Hogan's granted patent covers a "method and apparatus for recording and storing video information." Now, Hogan is not simply an intelligent silicon-valley engineer who happens to be listed as a patentee. Rather, Hogen owns his patent and went through the six-year process of obtaining patent protection. I would suspect that Hogan understands patents and the patenting process at a level much deeper than 99% of the population – including most federal judges. Hogan was just one person on the nine-member jury, but I also suspect that his voice was the most influential as evidenced by his nomination as jury foreman.

The fact that Hogan is knowledgeable about the patent system does not lead to any conclusion about whether he has any natural pro or anti patent bias. Someone knowledgeable about the system will know that the USPTO often conducts low quality prior art searches and incorrectly issues many patents that it should not. This knowledgeable person will also know that, despite their mistakes, the USPTO does conduct a substantial review of every patent claim before issuing a patent. This knowledgeable person will also understand that the precise language of patent claims mean that many similar products will not actually infringe. My friend, Sir Robin Jacob is exceedingly knowledgeable about the patent system, but sees a patent as little more than a license that is required before suing someone for infringement. In his view, validity and infringement are then to be proven in court. Here in the US, we tend to give more credence to issued patents, but that credence is limited.

It turns out that Hogan is more than knowledgeable. He also has a vested interest in valuable patent rights and his patent experience (as far as I know) has focused primarily on using the patent system to protect his own inventions. This setup is one that could easily lead to some amount of pro-patentee feels. Although I'm very much still working on analyzing the data, my recent survey of about 900 self-designated patent law professionals give some credence to this idea. The survey asked readers to speculate on the percent of patents that the USPTO issues despite them having invalid claims. The survey also asked respondents to indicate whether they tend to spend more time thinking about their own (and their clients') inventions/patents or instead spend more time thinking about patents held by others. Results: Respondents who focus on patents held by their own clients were much more positive about PTO issued patents than their counterparts who focus on patents owned by others. In particular, when asked to speculate, the first group indicated that the percent of wrongly issued patents was significantly lower than did the second group. This result also correlates with the behavioral economics literature as an "ownership bias." Lots and lots of studies show that we tend to place more value on items that we own and less value on items that we don't own.

Back to the Apple case: Despite the suggestion of potential bias, I don't think we can say that there was any bias in this case. In particular, since both Apple and Samsung were asserting patent right a truly pro-patentee ruling would have enforced the patents of both parties. What is interesting is that Mr. Hogan appears ready to talk about his experiences – that means that this case will be an excellent case study for trial lawyers going forward.

Can a Third Party Challenge Section 101 Subject Matter Eligibility in the USPTO’s new Post-Grant Review Procedure?

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By Dennis Crouch

In 2013, the USPTO will open its doors to a new form of administrative patent challenge – the post-grant review. Starting on September 16 of this year, however, the USPTO will begin hearing a limited form of post-grant review proceedings directed to finance related business method patents as part of the Transitional Program for Covered Business Method Patents. The enabling statute (the AIA) provides for a broad scope of challenge – any reason that could serve as an invalidity defense under 35 U.S.C. § 282(b)(2) or (b)(3) (as re-formatted in the AIA). The AIA re-formatted Section 282(b)(2)-(3) is written as follows:

282(b) The following shall be defenses in any action involving the validity or infringement of a patent and shall be pleaded:. . .

(2) Invalidity of the patent or any claim in suit on any ground specified in part II as a condition for patentability.

(3) Invalidity of the patent or any claim in suit for failure to comply with—

(A) any requirement of section 112, except that the failure to disclose the best mode shall not be a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable; or

(B) any requirement of section 251.

In his recent essay, Professor David Hricik explained his position that Section 101 challenges likely do not qualify as defenses under 282[(b)]. The basic gist of his argument is that the requirements of Sections 102 (anticipation & statutory bars) & 103 (obviousness) of the Patent Act are clearly "specified … as condition[s] for patentability" and thus their embedded doctrines qualify as defenses under Section 282(b)(2). However, a fair reading the statute would not lead us to identify the of the subject matter eligibility doctrines housed in Section 101 as ones specified within the statute as conditions for patentability. Hricik writes:

[T]he important point, again, is that Congress deliberately thought about what should be invalidity defenses, and what should not, and left out 101 not just as a "condition of patentability," but also in [the third]paragraph, where it "caught" some strays. It left out 101. That says a lot.

In his post, Hricik focused solely on litigation issues. However, the scope of the new post grant review system also stems from Section 282 (as discussed above). Thus, if Professor Hricik is correct, then lack of subject matter eligibility (under Section 101) would also fail as a proper post-grant review challenge. Now, the USPTO disagrees with this analysis and has issued final rules indicating that Section 101 challenges will be permitted. Although these rules could be challenged (See Tafas v. Dudas) the AIA does not permit any appeal of the USPTO's decision or grant or deny a PGR request. The House Judiciary Committee report also suggests that it intended for the PGR proceeding to be open to Section 101 challenges as did statements of Senator Kyl. That said, the passage of the AIA is unlikely to be seen as expanding the scope of 282 – as such, current Congressional commentary on the meaning of the statute is unlikely to impact its meaning.

Professor Mark Lemley suggested the potential that a 101 eligibility issues are essentially threshold jurisdictional questions – rather than Section 282 defenses. This fits with the thinking of some current Federal Circuit Judges (such as Judge Mayer and Dyk) who have no problem raising eligibility questions sua sponte on appeal. However, under this explanation, a Section 101 challenge would still be excluded from post-grant review precisely because it is not a Section 282 defense.

UNH Endowed Professor of Patent Law

Patent

I spent a summer at the University of New Hampshire School of Law (at the time Franklin Pierce Law Center) before arriving at Mizzou law.  It was a great experience. Concord feels rural but is only an hour from Boston and, because of the law school's long focus on patent law, the area is riddled with patent attorneys.  But for my local family connections here in Missouri, I would have been very happy to stay on-board as a member of the patent law powerhouse.

Professor Tom Field retired this year from the faculty after 45 years in the patent law business.  His shoes will be difficult to fill. However, the law school is creating a newly endowed chair in patent law and is looking to hire an established scholar and excellent teacher to fill that role for the 2013–2014 school year. Interested individuals should send their application materials to faculty.appointments@law.unh.edu.

 

 

Upcoming Patent Law Conferences at Indiana-Bloomington

Patent,

By Jason Rantanen

The Center for Intellectual Property Research at Indiana University Maurer School of Law is sponsoring three conferences this fall on the state of patent law.  At the first conference, coming up in just two weeks, I'll be speaking about inequitable conduct in the wake of Therasense v. Becton Dickinson and the way the new supplemental examination rules are likely to impact patent law.  That conference features a panel discussion about what the AIA accomplished involving heavyweights in both academia (Mark Janis, John Duffy & Rochelle Dreyfuss) and industry (Mark Chandler, Gary Griswold, Doug Norman, and John Vaughn). 

Full details on each conference are available by following the links.

September 13-14:
The America Invents Act: One Year Later
Keynote Speakers:
David Kappos, Director, USPTO
Robert Armitage, General Counsel, Eli Lilly and Company
 
September 24: 
The State of Patent Litigation: A Conversation with the Federal Circuit
Keynote Speakers:
Hon. Randall Rader, Chief Judge, U.S. Court of Appeals, Federal Circuit
Hon. S. Jay Plager, Circuit Judge, U.S. Court of Appeals, Federal Circuit
(In cooperation with the Federal Circuit Bar Association)
 
November 2-3: 
The Future of Design Protection Law
Mark D. Janis, Robert A. Lucas Chair of Law, IU Maurer School of Law
Graeme Dinwoodie, Professor of Intellectual Property and
Information Technology Law, Oxford University
(Held at Oxford University)

Suing the USPTO to Cancel Improperly Issued Patents

Patent,

by Dennis Crouch

Although issued patents can be challenged in court, they come with a presumption of validity that can only be overcome with clear and convincing evidence.  i4i.  Section 282 of the Patent Act also limits the defenses available to avoid charges of infringement.  On Patently-O, we have had some recent discussion on whether Section 101 patentable subject matter questions qualify as defenses.   In the groundbreaking case of Aristocrat Gaming v. IGT, the Federal Circuit held that improper revival of an abandoned patent application was not a proper defense under Section 282.  Thus, in that case, the accused infringer was unable to challenge the asserted patent even though the USPTO had seemingly made a legal error in issuing the patent.

In 2011, Cadence Pharma sued Exela Pharma in Northfor infringing its patents relating to injectable acetaminophen (OFIRMEV).  Exela believes that one of the patents in question should never have issued because it was abandoned and then improperly revived.  See U.S. Patent No. 6,992,218.  As in the Aristocrat case, the patentee here failed to timely file a US national-stage application before the abandonment date of its PCT application.  The USPTO allowed the patentee to subsequently file the national-stage application based on a pleading that it had been unintentionally abandoned.  Exela argues here that the Patent Act only permits revival in this situation when the application was unavoidable abandoned –  a much more difficult standard. 

Exela Pharma Sciences, LLC et al v. Kappos et al, 12-cv-0469 (E.D. Va. 2012).

Seeing no defense available in the infringement action, Exela filed its own lawsuit against the USPTO to force the agency to rescind the revival decision.  The lawsuit was filed under the Administrative Procedures Act (APA). As a general matter, there is a presumption that the APA provides a federal cause of action to individuals adversely affected by a federal agency action. Here, the court found no statute barring the lawsuit and noted that this type of lawsuit is currently the only way that an adversely affected party can take action on this issue (because it is excluded as a defense).

In his first written decision in the case, District Court Judge Liam O’Grady has rejected the USPTO’s motion to dismiss — holding that: (1) the case is not time-barred because it did not become ripe until the 2011 lawsuit; (2) Exela has standing to sue the USPTO because the allegedly improper patent grant is “a substantial factor” that motivated the harm Exela is feeling now; and (3) the APA presumption of judicial reviewability of the USPTO’s action has not been overcome.

The USPTO had argued that some of its decisions should simply not be challengeable. The court entirely rejected that position. “The Court finds no support for the PTO’s apparent proposition that certain agency actions should remain entirely unchecked.”

In the end, the court rejected the USPTO’s motion to dismiss.  Because the district court case is ongoing, the USPTO has no right to immediately appeal.  However, the executive agency may seek a writ of mandamus from the Court of Appeals for the Federal Circuit — asking that court to end this case at an early stage.  In the Myriad case, the district court held that the plaintiffs could sue the USPTO for improperly issuing the gene patents. (Myriad and the University of Utah were also sued).  However, those claims were based on an allegation of constitutional violations rather than merely capricious actions as here.  The district court subsequently dismissed the claims against the USPTO (without prejudice) based upon the doctrine of constitutional avoidance.

The US already has a fairly complex system for challenging patents.  Accused infringers can challenge validity and enforceability under Section 282 in both federal courts and the International Trade Commission (USITC).  Third parties can request reexamination at the USPTO.  Soon, third parties will also be able to participate in post-grant review trials at the USPTO.  Although the new post grant review system will have a substantially expanded scope as compared with reexamination practice, it will not offer the opportunity to challenge improperly revived patents.

Noted attorney Ed Polk is leading Exela’s litigation team. The USPTO’s position is being represented by AUSA Stephen Obermeier.

How the AIA violates TRIPS

Patent

by Dennis Crouch

While in UK this summer, UK patent attorney Jim Boff and I had an interesting discussion regarding the special treatment of US Universities in the America Invents Act (AIA) constitute a violation of the international agreement on Trade-Related Aspects of Intellectual Property (TRIPS). In the mid 1990's the US successfully pushed TRIPS as a required element of membership in the World Trade Organization (WTO). As such the vast majority of countries around the world are member nations. TRIPS sets down certain minimum standards for national intellectual property systems and also incorporates the national treatment requirements exemplified in the Paris Convention of 1883. TRIPS also includes a dispute resolution system allowing member nations to take action against a fellow members that is violating the agreement. The typical penalty is a trade-restriction such as a quota or tariff applied against goods from the guilty country.

National Treatment: non-US inventors are allowed to obtain and enforce US patents. In fact, most US patent applications come from foreign applicants. At least in the short-run, US consumers (voters) may well enjoy the potential lower prices associated with having those patents wholly rejected. However, the US has long agreed to allow foreign-owned patents as part of a quid-pro-quo that guarantees that US-owned inventions can be patented in nations around the word. The "national treatment" system worked out in the 1883 Paris Convention and continued in TRIPS essentially requires that each member-nation treat patent applicants from other member-nations at least as well as it treats its own citizens.

On two particular points, the America Invents Act provides benefits to US Universities that are not provided to foreign applicants.

  1. Not Subject to Prior User Rights: AIA-patents are subject to a prior commercial user defense that – as its name suggests – allows a prior commercial user of an invention to avoid infringement liability even if that prior commercial user cannot identify any prior art that sufficient to invalidate the patent. This is a defense to infringement and thus weakens the power of an individual patent. The AIA has a special provision for US universities stating that the defense does not apply to patents covering inventions that were owned by the US university (or subject to contractual obligation to assign to the university) at the time of the invention. The provision defines universities by reference to the US Higher Education Act of 1965 (20 U.S.C. 1001(a)). That provision includes only universities located within the United States.
  2. 75% reduction in Fees: The AIA also includes a micro-entity provision that allows qualified applicants to receive a 75% reduction in most patent office fees. US universities qualify for the fee reduction while foreign universities do not. (Foreign individuals (natural persons) can qualify for micro-entity status if they meet the requirements.)

It is pretty clear that these are two benefits given to US universities that are not enjoyed by their counterparts in other countries. Now, the fee reduction could still pass muster – especially if seen as a subsidy rather than merely a fee discount. See National Federation of Independent Business v. Sebelius, 567 U.S. ___ (2012) (a fine is a tax).

The greater problem stems from the prior user right that is clearly a legal benefit given to a particular US group and not extended to foreign applicants.

Resolving the Problem: Although the US as a country is bound by the TRIPS agreement, US courts do not treat the agreement as controlling. Thus, violations of TRIPS cannot normally be addressed by filing a lawsuit in US court. Rather, the resolution is conducted at the national level through the rather ineffective WTO dispute resolution procedures and other diplomatic channels.

Amkor v. ITC

Patent, , , ,

By Jason Rantanen

Amkor Technology, Inc. v. International Trade Commission (Fed. Cir. 2012) Download 10-1550
Panel: Newman, Plager, and Linn (author)

Although soon to be eliminated as prior art for new patents, 35 U.S.C. § 102(g) will continue to be a potentially important category of prior art for the near future as pre-AIA patents will remain the prevailing type of patent in infringement suits for at least the next decade.  In Amkor, the Federal Circuit answered an important question about 102(g): whether an oral disclosure of an invention to the United States is sufficient to constitute prior art.  It answered in the affirmative, with a key caveat.

The version of 102(g) involved in this appeal states that:

A person shall be entitled to a patent unless:

…

(g)(1) during the course of an interference conducted under section 135 or section 291, another inventor involved therein establishes . . . that before such person’s invention thereof the invention was made by such other inventor and not abandoned, suppressed, or concealed, or (2) before such person’s invention thereof, the invention was made in this country by another inventor who had not abandoned, suppressed, or concealed it. . . .

35 U.S.C. § 102(g) (2006) (emphasis added). The appeal turned on the interpretation of "made in this country": specifically, whether it encompassed an oral disclosure to a person in the United States of an invention conceived of abroad.

In concluding that an oral communication was sufficient, the CAFC issued several notable holdings.  First, it extended the holding in Scott v. Koyama, 281 F.3d 1243 (Fed. Cir. 2001), that interpreted a previous version of 102(g) to allow the inventor of an invention of foreign origin to "rely on the date that the invention was disclosed in the United States as a conception date for priority purposes" to apply to the current version of 102(g)(2).

Second, the CAFC held that an oral communication could be a sufficient disclosure for 102(g) purposes.  "While this court’s limited precedent on this issue establishes that writings can satisfy the full domestic disclosure requirement, the cases do not establish any per se requirement that such disclosure must be in writing."  Slip Op. at 12.  However, the "content of the domestic disclosure must be specific enough to encompass the "complete and operative invention…and an inventor's oral testimony to this extent is a question of proof."  Slip Op. at 13 (emphasis in original). Thus, corroboration of the testimony is necessary. 

The CAFC did not reach the issue of corroboration of the specificity of the disclosure, instead rejecting the accused infringer's argument based on the burden of persuasion and evidence necessary to invalidate an issued patent.  The accused infringer could only show a range of dates of possible U.S. disclosure that overlapped with the patent holder's possible conception dates.  "Such a showing, at best, establishes that the ASAT inventor might have conceived of the invention first. Evidence establishing that there might have been a prior conception is not sufficient to meet the clear and convincing burden needed to invalidate a patent."  Slip Op. at 16 (emphasis in original).

Obviousness: The court also affirmed the Commission's claim constructions and rejected anticipation and obviousness arguments based on another prior art reference.  In reaching this conclusion, the court pointed to a lack of any evidence of a motivation to combine or reason to modify the prior art:

Because the fused lead attached to the die pad in JP-456 prevents the lip from extending “fully around the circumference of a die pad” or “fully around the die pad” as required by the claims, Carsem was required to present evidence that one of ordinary skill in the art at the time of the invention would have been motivated or found reason to remove the fused lead from the JP-456 reference, or that common sense would have led one of skill in the art to remove the fused lead based on a known problem, design need, or market pressure. KSR Int’l v. Teleflex, 550 U.S. 398, 418-20 (2007).

Slip Op. at 21.  While this language could be interpreted as limiting "common sense" to the three specific scenarios identified in KSR v. Teleflex, a better interpretation in my view is that Carsem simply failed to provide any explanation as to why a person of ordinary skill in the art would have modified the prior art, including the three specified examples.  Anything more rigid would be inconsistent with the flexible approach to obviousness mandated by KSR.

Constitutional Challenge to the First-to-Invent Rule

Patent, ,

By Dennis Crouch

[Update –  Read the Complaint Here]

MadStad & Mark Stadnyk v. USPTO, 12-cv-1589 (M.D. Florida 2012)

The small motorcycle engineering company MadStad recently filed suit against the US Government asking a federal court to reject the Leahy-Smith America Invents Act of 2011 (AIA) as an unconstitutional degradation of inventor rights. Steve Lohr (NYTimes) covers several aspects of the story and includes quotes from both Professor Mark Lemley and Professor Arti Rai that identify the challenge as Quixotic. I agree with Lemley and Rai on this point – especially after the Supreme Court’s Golan decision last year. Of course, I also thought that Myriad case would go nowhere.

Stadnyk’s basic argument is that when the US Constitution speaks of exclusive rights for “inventors” it should be interpreted to mean “first and true inventor.” The AIA fails because it purposefully rewards the first-to-file a patent application rather than the first-to-invent. The complaint argues:

A second ‘inventor’ is an oxymoron; that person merely rediscovers that which was already discovered by the first inventor. Thomas Jefferson, James Madison, and John Marshall all shared this understanding. . . . Congress is not authorized to award patents to the winners of races to file to the PTO. . . . Under the AIA, there is no effective statutory requirement that the applicant be an ‘inventor’ for a patent to be valid.

MadStat has also requested a preliminary injunction blocking implementation of the first-to-file provisions of the Act.

In his recent law review article, Senate Counsel Joe Matal played down the merits of the Constitutional question. Joe Matal, A Guide to the Legislative History of the America Invents Act: Part I of II, 21 Fed. Circuit B.J. 435 (2011). In his article, Matal points to the 1850 case of Gayler v. Wilder. Gayler is interesting because the Supreme Court created a subjective test for the requirement of inventorship – asking whether the patentee believed himself to be the original inventor. In that case, the actual first inventor had failed to pursue patent rights and the Supreme Court agreed that the second inventor (who originally believed himself to be the first inventor) was then properly awarded rights.

Are the Courts Correct in Their Assumption that a Patent Issued on Non-patentable Subject Matter is Invalid?

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By David Hricik, Mercer University School of Law. (Note – this is an update of the essay posted last week on the Patent Ethics site.)

I forget when I first thought about this, but it’s been a while. With all the discussion of Prometheus (sadly, the case, not the film, which was great), I figured this was a good time to raise it. At minimum, there’s a litigable question here, and assumptions that a patent issued on non-patentable subject matter is invalid need examination. I’d love to be wrong about this, but I don’t think I am.

Some History.

I have not scorched the earth, but from what I can tell no court has squarely addressed the question of whether the Patent Act allows a court to deny enforcement (on any ground) of a patent granted on subject matter that is not within Section 101. Instead, what the cases showed me was that law developed in the context of challenges to the USPTO’s denial of a patent have been used to invalidate issued patents – without analyzing the statutory authority to do so.

Let’s take a look at what most people assume is the law and see if we can get there: does the Patent Act allow a court to invalidate a patent that does not claim patentable subject matter?

Section 282

The starting point is 35 USC 282. It provides in pertinent part:

The following shall be defenses in any action involving the validity or infringement of a patent and shall be pleaded:

(1) Noninfringement, absence of liability for infringement, or unenforceability,

(2) Invalidity of the patent or any claim in suit on any ground specified in part II of this title as a condition for patentability,

(3) Invalidity of the patent or any claim in suit for failure to comply with any requirement of sections 112 or 251 of this title,

(4) Any other fact or act made a defense by this title.

Federico’s commentary, often relied on to indicate Congressional intent, doesn’t help at all, but here it is:

The defenses which may be raised in an action involving the validity or infringement of a patent are specified in general terms, by the second paragraph of section 282, in five numbered items. Item 1 specifies “Noninfringement, absence of liability for infringement, or unenforceability” (the last word was added by amendment in the Senate for greater clarity); this would include the defenses such as that the patented invention has not been made, used or sold by the defendant; license; and equitable defenses such as laches, estoppel and unclean hands. The second item specifies “Invalidity of the patent or any claim in suit on any ground specified in Part II of this title as a condition for patentability”; this would include most of the usual defenses such as lack of novelty, prior publication, prior public use, lack of invention. The third item specifies “Invalidity of the patent or any claim in suit for failure to comply with any requirement of section 112 or 251 of this title”; the first section mentioned would include the defense of insufficient disclosure, and the second sentence mentioned would include reissue defenses. The fourth item merely specifies “Any other fact or act made a defense by this title.” All the defenses usually listed in textbooks on patent law may be placed in one or another of the enumerated categories, except a few which are no longer applicable in view of changes in the new statute.

Section 101.

Section 101 is relied upon as the basis for invalidating patents. It 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.”

While clearly granting power to the USPTO to issue patents on “new and useful” processes, it obviously also limits the USPTO’s power to do so.

The question here is not patentability, but validity. Simply, suppose the USPTO makes a mistake, and issues a patent on non-patentable subject matter. Is this a defense to infringement?

In my view, the answer is “no.”

Analysis.

Let’s start with the two specific subsections, because they make us focus on the text and show some very deliberate choices by Congress that easily could have gone the other way had Congress intended 101 to be a defense.

The second subsection of 282 is probably the most important: “Invalidity of the patent or any claim in suit on any ground specified in part II of this title as a condition for patentability.”

Section 102 and 103 are “conditions of patentability.” They say so in their titles, and they are substantive legal conditions (technically, I’d call them “conditions of unpatentability” given the burdens of proof, but this works). The fact that 101 is not a condition of patentability is to me is very important: Congress chose in 282(2) to specify that only those things denominated as “conditions of patentability” are bases for invalidity. It then chose to label 102 and 103 as conditions, but not 101. Those are deliberate choices. In my view, a patent issued on non-patentable subject matter is not “invalid” under the second provision.

Subsection 3 of Section 282 is easy to apply to this question, but it is important because it also adds to the evidence that 101 is not a defense. Patentable subject matter is in 101, not 251 or 112. So that part’s easy: 282(3) doesn’t list 101.

But the important point, again, is that Congress deliberately thought about what should be invalidity defenses, and what should not, and left out 101 not just as a “condition of patentability,” but also in this specific paragraph, where it “caught” some strays. It left out 101. That says a lot.

Two down, two to go.

Now we’re left with arguing that, although it thought about what should be invalidity defenses in two different places, nonetheless we should imply that Congress meant to include it in some amorphous language in the other two subsections. We’re fighting uphill.

Let’s go to the first catch-all type subsection: “Noninfringement, absence of liability for infringement, or unenforceability.” Logically, I can’t make patentable subject matter fit, at all. Before explaining why, let’s be clear on the consequences of saying that Section 101 is within this section: it would be that the patent is valid but there would be no infringement.

“Unenforceability” is the easy one. The cases and legislative history I’ve read show this was designed to capture equitable doctrines like patent misuse and, arguably, inequitable conduct (long diversionary story there). We’d be straining to put 101 there.

Federico’s statements that the defendant hadn’t made the product, or had a license to do so, show that “infringement” means what we think it means. A licensed patent is valid, but “not infringed.” A patent that the defendant never violated is valid, but not infringed. So, I can’t make “noninfringement” logically work or work without giving words a very unnatural meaning.

Now the only arguable catch-all, subsection 4: “Any other fact or act made a defense by this title.” Here we are, trying to read it into the catch-all that, even Federico says, “merely” specifies things in the statute that are made defenses. But, section 101 is not made a defense by this title. Instead, it specifically points to other requirements and conditions. Again, if this were easy and clear, Congress would have put in 101 “it shall be a defense to patent infringement that…” or put 101 in Section 282.

So, tell me why I am wrong.

Let me get rid of some easy ones: no court I’ve found has ever addressed this issue. I think it’s pretty simple, but there you go. Second, don’t conflate patentability with infringement defenses. There are lots of things that can affect patentability that aren’t in 282. Third, 282 is exclusive: if you want so suggest that it’s not, you (a) have to say “Congress enacted a specific statute laying out defenses, but it’s just a guide” which is not in my view defensible; and (b) it says “shall be defenses,” not “may include” or some-such. Third, this is a relatively new “defense.” I can’t say I’ve scorched the earth, but in looking at CAFC cases it has only been raised a few times.

Patently-O Bits and Bytes by Dennis Crouch

Patent
  • Apple v. Samsung
  • India: SpicyIP writes that Thompson/Westlaw has been ordered by an Indian to stop distributing copies of Indian Supreme Court Cases that it allegedly copied from the Eastern Book Company reporter.
  • Internet Safe Harbor: The EFF (with Craig Newmark) have created an interesting infographic of the importance of Section 230 of the Communications Decency Act.  That provision offers a broad safe harbor to internet service providers (including website distributors) against liability created by third-party activity (such as blog comments).  Facebook would not exist without this provision (or something similar).

Micro-Entity Status: Can We All Qualify?

Patent,

On his blog, Mike Kondoudis highlights an important point regarding fees. Once an applicant properly establishes small entity status the small entity fees can continue to be paid until the issue fee is due (even if actual status changes). 37 CFR § 1.27(g)(1). However, in the proposed micro-entity rules, the USPTO has proposed that the micro entity status must be repeatedly established throughout prosecution (except for University applicants). In its response to the proposed rules, the AIPLA argues that this process makes the micro-entity status overly confusing and burdensome. "AIPLA's overall recommendation is to simplify the procedures created by the rules."

In a major giveaway to universities, the America Invents Act includes a provision that allows US Universities to take advantage of the 75% reduction in fees offered by the micro entity status. Independent inventor and author Raoul Drapeau wrote to the PTO with the following response: [This] is another sad example of how large organizations have influenced rulemaking to suit their own ends, to the disadvantage of small inventors. How could an institution of higher learning under any interpretation be considered a small – much less a micro-entity." An ongoing question regarding the micro-entity fees is whether university IP holding companies (such as WARF) and university-esque entities (such as Scripps) will receive the reduction in fee status.

Major Loophole: In an e-mail to the USPTO, well known patent attorney Rick Neifeld highlighted a major potential loophole in the statute that would allow virtually any patent applicant to take advantage of the micro entity status by licensing the invention to a US university. The issue stems from the language of newly added 35 U.S.C. 123(d)(2) that allows patent applicants to qualify for micro-entity fees if the subject applicant is licensed to (or under obligation to license to) a US university. The statute:

(d) INSTITUTIONS OF HIGHER EDUCATION.–For purposes of this section, a micro entity shall include an applicant who certifies that—

… (2) the applicant has assigned, granted, conveyed, or is under an obligation by contract or law, to assign, grant, or convey, a license or other ownership interest in the particular applications to such an institution of higher education [as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a))].

Since US universities are – for the most part – non-practicing entities, granting a limited license to a university would have little negative impact and would open the possibility of qualifying for a 75% fee reduction.

In its proposed rules, the USPTO has offered to close the loophole with a requirement that anyone claiming micro-entity status must also qualify for small entity status. In most situations, the USPTO would not have the authority to make such a dramatic change in the law. However, the new Section 123(e) gives the USPTO Director authority "in the Director's discretion, [to] impose income limits, annual filing limits, or other limits on who may qualify as a micro entity pursuant to this section." Of course, it is quite possible that the USPTO's broad limit set here actually surpasses its discretion. In that case, the rule would be struck-down as in Tafas v. Dudas. Neifeld suggests a more narrow rule that would block micro-entity claims in cases where the university-license was created in order to take advantage of the micro-entity status.

Guest Post: Federal Circuit Continues Split on Scope of 271(e)(1)

Patent,

The following is a reprint from the Orange Book Blog and was written by my former office-mate Aaron Barkoff.  Aaron is an IP litigator at McAndrews in Chicago –  Dennis Crouch

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by Aaron Barkoff

Momenta Pharms. v. Amphastar Pharms., No. 2012-1062 (Fed. Cir.)

Last year, in Classen v. Biogen IDEC, a three-judge panel of the Federal Circuit held that the safe harbor of Section 271(e)(1) "does not apply to information that may be routinely reported to the FDA, long after marketing approval has been obtained."  The majority opinion was written by Judge Newman, with Chief Judge Rader concurring and providing additional views, and Judge Moore dissenting.  A petition for certiorari in the case is currently pending at the Supreme Court, and the Court recently asked the Solicitor General's office to weigh in with its views.

Last Friday, in Momenta v. Amphastar, a case between two manufacturers of generic Lovenox (enoxaparin), a slightly different three-judge panel of the Federal Circuit held that the safe harbor does apply to certain post-approval activities.  In the case, Judge Moore wrote the majority opinion, joined by Judge Dyk, and Chief Judge Rader wrote a blistering 29-page dissent.  The decisions in the two cases do not seem entirely consistent with each other, which likely raises the odds that the Supreme Court will agree to hear the Classen case.

Momenta is the assignee of U.S. Patent No. 7,575,886, which generally relates "to methods for analyzing heterogeneous populations of sulfated polysaccharides, e.g. heparin [and] . . . LMWH [low molecular weight heparin–e.g., enoxaparin]."  Two days after Amphastar received final FDA approval to market its generic enoxaparin (and more than a year after Momenta received its own approval), Momenta filed suit against Amphastar, accusing Amphastar of "manufacturing generic enoxaparin for commercial sale" and performing "in their process for manufacturing batches of enoxaparin" an analytical method that infringes the '886 patent.  According to the majority opinion, Momenta also alleged that this infringing testing was necessary to "satisfy the FDA's requirements."

The district court granted Momenta a preliminary injunction, concluding that Amphastar's testing falls outside the scope of the safe harbor under Section 271(e)(1):  "although the safe harbor provision permits otherwise infringing activity that is conducted to obtain regulatory approval of a product, it does not permit a generic manufacturer to continue in that otherwise infringing activity after obtaining approval."  Amphastar appealed, contending that the district court adopted an overly restrictive view of the safe harbor.

The Federal Circuit majority opinion began by addressing Momenta's "contention that the information in question was not 'submitted' to the FDA, but rather was retained by the ANDA holder."  Here, the majority concluded that "the fact that the FDA does not in most cases actually inspect [Amphastar's manufacturing test records] does not change the fact that they are for the development and submission of information under a Federal law."  The majority cited the Supreme Court's Merck v. Integra decision for "holding that uses which are not ultimately included in a submission to the FDA are nonetheless exempted by the safe harbor."

The majority then turned to whether Amphastar's submissions are protected by the safe harbor.  Here, the majority took pains to distinguish Classen:

At issue in Classen were [post-marketing] studies to evaluate the association between the timing of childhood vaccinations and the risk of developing certain immune-mediated disorders.  The studies themselves were not mandated by the FDA, but any vaccine license holder was required to report to the FDA "adverse experience information," such as adverse side effects, it acquired as a result of vaccine studies.  We found that the studies conducted by the vaccine license holder according to patented methods were not insulated by the safe harbor because the studies did not facilitate marketing a generic drug by "expediting development of information for regulatory approval."  We, of course, are bound by the Classen decision unless it is overruled en banc or by the Supreme Court.  Accordingly, the scope of the safe harbor provision does not extend to "information that may be routinely reported to the FDA, long after marketing approval has been obtained."

This case, however, fits well within Classen because the information submitted is necessary both to the continued approval of the ANDA and to the ability to market the generic drug.  Here, the submissions are not "routine submissions" to the FDA, but instead are submissions that are required to maintain FDA approval.  . . .  Failure to comply with these requirements could result in suspension or revocation of Amphastar's ANDA approval to market the drug.

We also note that, unlike in Classen where the patented studies performed were not mandated by the FDA, the information here is not generated voluntarily by the manufacturer but is generated by FDA requirements the manufacturer is obligated under penalty of law to follow.  Under such circumstances, the information can be said to have been gathered solely for submission to the FDA and not, as in Classen, primarily for non-FDA purposes.  While Momenta urges us to adopt the pre-/post-approval distinction used by the district court, we cannot:  Classen did not turn on this artificial distinction, and the plain language of the statute is not restricted to pre-approval activities.

Unlike Classen, where the allegedly infringing activity "may" have eventually led to an FDA submission, there is no dispute in this case that Amphastar's allegedly infringing activities are carried out to "satisfy the FDA's requirements."

In a strongly-worded dissent, Chief Judge Rader repeatedly refers to Amphastar as a "trespasser" and "infringer."  He traces the legislative history of Section 271(e)(1)–which is curious given that the Supreme Court has twice minimized the legislative history and based its decisions instead on the plain (and broad) language of the statute.  And he takes great exception to the majority opinion's basis for distinguishing Classen.  Finally, he claims that the majority's "interpretation of 271(e)(1) would essentially render manufacturing method patents worthless."  While this is an exaggeration, the Supreme Court might reply:  "that is a problem for Congress to fix, if they so choose."

Where the scope of the 271(e)(1) safe harbor ends up matters a great deal, particularly as we approach the era of biosimilar patent litigation.  Like enoxaparin, biologics are complex molecules and thus analytical-method patents figure to be in the patent portfolios protecting them.  The sooner the courts can agree on the scope of the safe harbor, the better for everyone.

Apple wins $1.05 billion verdict

Patent

By Dennis Crouch

Apple v. Samsung (N.D.Cal 2012)

The jury must have read my recent post on Monsanto's $1b verdict and wanted to do one better – awarding Apple $1.05 billion in patent infringement damages.

Apple has won its patent case against Samsung and the nine-member jury has awarded $1.05 billion to the iManufacturer. The jury has also rejected Samsung's countersuit – finding the Samsung patents not-infringed.

Samsung's infringement is identified as "willful" – opening the door to potential punitive damages against Samsung. In patent cases, the judge (here, Judge Koh) is given the responsibility of determining whether to award punitive damages based upon a set of factors outlined in the law. In this case, the statute would limit potential patent damages to three-times the damages calculated by the jury. (The trade dress damages are not so limited).

Apple has also asked for an injunction to stop Samsung's ongoing infringement. However, US patent law places the decision on injunctive relief in the hands of the district court judge. The briefing on injunctive relief will take several weeks and Judge Koh has announced a September 20 hearing date. Judges have discretion to grant/deny injunctive relief based upon the four "eBay factors" defined by the US Supreme Court in 2006. When granting injunctive relief, the judge also has discretion to shape the relief as she sees fit. Some courts have issued broad injunctions that essentially say "stop infringing the patent" others issue much more narrow orders directed only toward the particular products that are adjudged to infringe. The reality is that Samsung has been planning for the likelihood of injunctive relief and is surely ready to stop selling any of the infringing products and replace those products with ones that at least have not yet been adjudged as infringing. Apple has another lawsuit pending against Samsung focusing on Samsung's newer handheld devices.

If an injunction is issued, a big question is whether relief will be stayed pending appeal. An adjudged infringer generally has no right to continue infringing while the case is on appeal. However, courts will stay injunctive relief when the stay prevents great potential harm and/or the appellant has a strong case on appeal. Under the Federal Rules of Civil Procedure, Apple will NOT receive the $1 billion damages until after the appeal is complete. However, Samsung would be required to post a "supersedeas bond" that may be to be set by the court, but will certainly be several hundred million dollars. During the appeal or any other delay in payment, the damages will collect interest.

Next Steps: Samsung has two basic shots at overturning the jury verdict. First, the company can file a motion for judgment against the verdict (JNOV) arguing that the jury verdict goes against the weight of the evidence. Although I do not have specific numbers, it is not uncommon for judges to at least partially reject a jury verdict in complex cases such as this. Based upon what I have read of the case, I believe that Judge Koh is unlikely to alter the jury verdict. Anyone researching this point should consider Judge Koh's history of JNOV motions. If Samsung's pleas to the court fail, the company can appeal to the Court of Appeals for the Federal Circuit. In that appeal, the odds are also with Apple. On this note, Samsung has announced that it will follow my strategy outlined above. In a press release, the company wrote "This is not the final word in this case or in battles being waged in courts and tribunals around the world, some of which have already rejected many of Apple's claims."

Notes:

Patently-O Bits and Bytes by Dennis Crouch

Patent
  • Professor TJ Chiang is blogging on PrawfsBlawg. Topics include: Mossoff’s Trespass Fallacy; The Supreme Court’s NEW patent law textualism; and The Paradox of Patents.
  • As we await the verdict, read the 20-page jury form for Apple v. Samsung: [Link]. In the end, the jury is deciding infringement of one-claim from each of three different utility patents; four different design patents; a claim to both registered and unregistered trade dress; breach of contract and monopolization. Samsung’s countersuit includes five utility patents.
  • I’ll be speaking at the IPO annual meeting on Sept 10 in San Antonio along with my former boss Paul Berghoff – see you there.

Whitserve v. Computer Packages

Patent,

By Jason Rantanen

Whitserve, LLC v. Computer Packages, Inc. (Fed. Cir. 2012) Download 11-1206-1261
Panel: Prost, Mayer (dissenting), O'Malley (majority author)

Much of this opinion deals with relatively typical appeal issues of infringement, anticipation, and damages.  Two issues are worth highlighting, however.

Prove Every Claim Element: During the district court proceedings, CPi had focused its anticipation case on claim 10 of Patent No. 6,981,007, and the Federal Circuit agreed that claim 10 was indeed anticipated.  However, the CAFC also concluded that CPi had failed to present detailed evidence explaining how each claim element of the remaining claims was discussed in the prior art, and thus affirmed the jury verdict of no anticipation as to those claims.  The moral of this story? In the absence of a stipulation that the validity of all the claims will rise and fall on a representative claim, patent challengers should make sure to present detailed evidence on every element of every claim they are challenging when advancing one claim as a representative claim.  Here, CPi had presented cursory evidence, at best, asking its expert only "are all the elements of those claims disclosed in the Schrader patent?” to which its expert replied “Yes, they are.”

Patentable Subject Matter: Writing in dissent, Judge Mayer would have sua sponte found three of the asserted patents invalid due to lack of patentable subject matter.  "Because the WhitServe patents simply describe a basic and widely-understood concept—that it is useful to provide people with reminders of important due dates and deadlines—and then apply that concept using conventional computer technology and the Internet, they fail to meet section 101’s subject matter eligibility requirements."   Slip Op. at 51.  This issue, in Judge Mayer's view, was appropriate for the court to take up despite not having been specifically raised by the parties on appeal because there were significant changes in the law since the trial court's decision rejecting CPi's section 101 argument, namely, Mayo v. Prometheus, 132 S. Ct. 1289, 1303 (2012). 

Claim 1 of Patent No. 5,895,468, which is representative of these patent claims, is below.

A device for automatically delivering professional services to a client comprising:
a computer;
a database containing a plurality of client reminders, each of the client reminders comprising a date field having a value attributed thereto;
software executing on said computer for automatically querying said database by the values attributed to each client reminder date field to retrieve a client reminder;
software executing on said computer for automatically generating a client response form based on the retrieved client reminder;
a communication link between said computer and the Internet;
software executing on said computer for automatically transmitting the client response form to the client through said communication link; and,
software executing on said computer for automatically receiving a reply to the response form from the client through said communication link.

Edit: The post should have read "present detailed evidence," not "prevent detailed evidence."  Patent challengers certainly don't want to prevent evidence of patent invalidity! – Jason

A new highest patent court for Europe? Not as long as the Court of Justice of the EU is here

Patent,

This guest post is by Angelos Dimopoulos, Assistant Professor at Tilburg Law School and Petroula Vantsiouri, Doctoral Candidate at the University of Cambridge, Faculty of Law. I invited the pair to write this post to help explain how the new pan-European patent court might fit within the current EU structure (that already includes the EU Court of Justice. – DC

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Any practitioner who has been involved in patent litigation in the European Union (EU) is well aware of the inconsistencies in the Member States patent law and the differences among national litigation systems. Disturbingly often the same case is litigated in several jurisdictions, under different procedural and evidentiary rules with uncertain timing of outcomes. In that respect, it comes as no surprise that the recent initiatives regarding the creation of a European patent with unitary effect (EPUE) and a ‘Unified Patent Court‘ (UPC) are currently the hottest IP topics in Europe. In short, the EU intends to introduce a EU-law based patent right that will be valid throughout the territory of 25 of the 27 EU Member States (Italy and Spain remaining outside) and a single patent court at the European level with exclusive jurisdiction as regards infringement and revocation proceedings, covering the same territory.

The UK government and a number of patent holders are lobbying for limiting the role that the Court of Justice (CJEU), the highest court in the EU in matters of EU law, will play in patent litigation in Europe. In our view this is simply wrong. In our recent paper called “Of TRIPS and traps: The interpretative jurisdiction of Court of Justice of the EU over patent law“, we provide two main arguments in support of this claim. First, we argue that regardless of the final wording or the adoption of the proposed EU legislation, the Court of Justice can acquire a stronger role in the application of patent law by using its interpretative jurisdiction over the patent provisions of the TRIPS Agreement. Secondly, we argue that this role is a significant tool in the process of establishing a complete and uniform framework for patent protection in the EU.

So far the CJEU has been hesitant to apply and interpret the TRIPS patent provisions. In a series of cases concerning the TRIPS Agreement, as they were crystallised in Merck Genericos, the CJEU clarified that the interpretation of the substantive patent provisions of the TRIPS Agreement lie outside its jurisdiction. This means that up to now Member States can decide according to their national laws how to interpret the TRIPS provisions on patents. However, after the entry into force of the Lisbon Treaty (which amended the constitutional charter of the EU in 2009) Merck Genericos is no longer good law. Article 207 of the Treaty on the Functioning of the European Union (TFEU) vests the EU with exclusive competence over commercial aspects of IP and brings the TRIPS agreement within the scope of EU law. In that respect, the CJEU has now acquired significant powers to determine whether national (and in the future Union) patent rules are interpreted consistently with the TRIPS agreement.

This has significant implications for the development of patent rules in the EU. Currently, patent law in the EU is characterized by a lack of harmonization, although there are some uniform rules. All 27 Member States have acceded to the European Patent Convention (EPC), which established the European Patent Organisation (EPO) and a system of law for granting patents for inventions. Thus, national laws of EU Member States are de facto harmonized in the field of patentability and validity but only as regards the grant of patents. Issues of validity and infringement after the patent grant are matters for national law and national courts. But even in the fields covered by the EPC, uniformity is not always present. In many instances the EPO and national authorities interpret the EPC in diverging ways. Many national authorities do not take each other’s case law into consideration, and even if they do, differences in legal traditions, policy choices or practicalities can lead to different outcomes.

The proposed EU patent with unitary effect and the proposed Unified Patent Court cannot change all that. The proposed legislation does not guarantee the establishment of truly uniform rules. As the proposals now stand, substantive issues (prior user rights, assignments, voluntary and compulsory licensees and government use) are left outside the scope of the proposed Unitary Patent Protection. Moreover, if adopted, the proposals will lead to four different types of patents within the EU. Finally, with Spain and Italy not participating in these projects, the EU will be partitioned in three territories.    

So, how can the Court of Justice fix that?

First, although the TRIPS agreement is very broad as regards the subject matter of patent protection, it contains specific rules on prior users’ rights and exceptions, including in particular compulsory licenses, which are subject matters left outside the scope of the proposed regulation. Article 1 TRIPS requires that WTO members “give effect” to its provisions, which signifies that a WTO member should take all reasonable measures to ensure consistency between domestic law and the agreement. So, the CJEU can use its interpretative jurisdiction to establish common minimum rules with regard to the subject matters that could be left outside the scope of harmonization.

Secondly, the Court’s interpretative jurisdiction can result in the establishment of minimum, uniform standards of protection for the different types of patents. In its previous caselaw (Hermes and Dior) the Court held that “where a provision can apply both to situations falling within the scope of national law and to situations falling within the scope of [Union] law, it is clearly in the [Union] interest that, in order to forestall future differences of interpretation, that provision should be interpreted uniformly, whatever the circumstances in which it is to apply.” Considering that the regulation on European Patents with Unitary Effect will be part of Union law, the Court of Justice can employ the TRIPS agreement in order to determine the standards of protection under national and EPO-granted patents by reference to the standards of protection of European Patents with Unitary Effect, so as to ensure uniform implementation of the TRIPS agreement in the EU.

Thirdly, the interpretative jurisdiction of the Court can mitigate the danger that arises from the existence of parallel adjudication regimes for patent protection. By allowing the CJEU to determine whether national courts abide by the TRIPS when they adjudicate patent infringement cases, the CJEU can act as the single, ultimate judicial authority in the EU, ensuring coherence and consistency in the interpretation of the different regimes of patent infringement rules.

In short, although it cannot contribute to the reduction of litigation costs, at least initially, the CJEU’s interpretative jurisdiction over TRIPS provisions can promote legal certainty, and the establishment of uniform and comprehensive patent protection in the EU that would be attractive to the industry and conducive to technological progress. Nevertheless, the power to interpret the TRIPS is not a panacea. It does not result in the establishment of uniform substantive rules, as the TRIPS is a minimum standards agreement, while its success depends on the number and subject matter of the actual cases that will reach its jurisdiction under the preliminary reference procedure.

Analyzing the Role of NPEs in the Patent System

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Guest Post by David L. Schwartz, Associate Professor at Chicago-Kent College of Law and Jay P. Kesan, Professor and H. Ross & Helen Workman Research Scholar, University of Illinois College of Law

Understanding the role of non-practicing entities (or "NPEs" for short) in patent litigation is important. For one reason, patent litigators appear to be polarizing into a plaintiffs' bar and a defense bar. This polarization in lawyers is new to patent litigation, but has existed for many years in other areas of the law, such as medical malpractice, products liability, and labor law. In addition to the lawyers, certain industries have experienced more infringement allegations by NPEs, which have created rifts in many debates about patent reform. The topic of NPEs in patent litigation – their costs and benefits – has been featured prominently in the press, including extensive coverage of a study reporting that the "direct cost" of NPEs was $29 billion in 2011.

We recently wrote a short paper called Analyzing the Role of Non-Practicing Entities in the Patent System, which attempts to set forth a coherent way to conceptualize NPEs.

Before we can meaningfully study or even discuss NPEs, it is important to precisely define what is an NPE. Unfortunately, there is very little agreement on this point. Technically, individual inventors and universities are non-practicing entities. However, they appear very different from each other, and they are also different from start-up companies that have unsuccessfully attempted to commercialize their patented technologies. In addition, the term NPE is often used to refer to both small patent holding companies and large patent aggregators who purchase portfolios of patents from inventors and others for the primary purpose of enforcement. Any credible study of NPEs should distinguish among these different constituents and report empirical information separately.

Beyond the definitional issue, numerous arguments have been offered about the positive and negative aspects of the rise of NPEs in patent litigation. We discuss below several of these arguments, and what the existing empirical evidence suggests.

1. Criticisms of NPEs:

One common criticism of NPEs (however that term is defined) is that they initiate patent infringement lawsuits seeking to enforce patents of dubious quality or with questionable infringement claims, and then settling for amounts far less than the defendants' litigation costs. The story is that NPEs take strategic advantage of the notoriously high cost of patent litigation, which requires several million dollars in attorneys' fees to litigate through the close of discovery.

There is a little firm empirical evidence supporting this scenario of the combination of dubious patent assertions with low settlement demands. There is evidence that NPEs settle more quickly compared to other patent holders, which could indicate the possibility of nuisance settlements. But there is also evidence that the patents asserted by NPEs are similar to patents asserted by practicing entities. There is some evidence that the most litigious NPEs lose more often when the cases are taken to a final judgment, but like other types of complex civil litigation, the vast majority of patent cases settle before judgment.

If widespread opportunistic conduct by NPEs is in fact true, then we need less expensive ways to invalidate patents (e.g., cheaper post-grant review and inter partes review) and to resolve infringement actions (e.g., with a small claims court for cases with less than $3 million in damages or with early ADR).

But before we conclude that such widespread opportunistic conduct is occurring, we need better data on the merits of NPE patent cases, settlement amounts in those cases, the length of time they last, and the amount of attorneys' fees paid by defendants and NPEs to get a true picture of what the reality is. Recently, James Bessen and Michael Meurer from Boston University released a highly publicized study estimating that the direct cost of NPE patent assertions is "substantial, totaling about $29 billion in accrued costs in 2011." We have criticized their methodology and findings, which has been reported on here, here, and here. Briefly, we believe that the $29 billion estimate is likely skewed too high for several reasons. The estimate is based upon a biased sample of NPE defendants. It also includes the settlements, verdicts, and judgments to NPEs as part of the costs, when in reality these are the transfers to patent holders at the very core of the patent system. We find their analysis unsatisfying, and our article offers various suggested improvements to their methodology. Their study also does not consider the merits of the underlying cases.

A second common criticism is that certain types of NPEs – those who are unrelated to the original inventors – pocket a large part of the settlement amounts received and pass little on to the inventors who initially developed the patented technology. We need more data to assess this, but what we currently know appears to point to the opposite conclusion. For instance, Acacia Research Group, perhaps the largest publicly traded NPE, reported that in 2011, it paid more in royalties to inventors than it did to contingent fee attorneys who enforced their patents in litigation.

A third common criticism is that NPEs are not true innovators. Rather, they wait for another to expend resources to commercialize a product with the patented technology and then demand a "tax" on it. We think that existing patent law doctrines can be used to analyze this criticism: Are the asserted patent claims invalid as obvious? Does the accused product embody the asserted claims? Is there some other defense to infringement that has merit? What is the appropriate amount of damages for infringement? And does equity support the entry of an injunction?

2. Benefits of NPEs:

Most agree that university faculty and graduate students are often true innovators. But even NPEs unrelated to the original inventors may provide benefits. This is difficult to empirically assess because nearly all such NPEs are privately-held companies, and there is little publicly available information about these entities. If the concern is that settlement dollars transferred to NPEs are not provided to R&D or inventors, we suggest that private NPEs be surveyed. A survey of NPEs on issues such as litigation costs, settlements, transfers to inventors, and other issues, could be of tremendous value. We do not believe that any such survey has ever been conducted. A survey of NPEs has the additional advantage of exploring both sides of this issue. It could reveal a more complete and balanced picture of patent litigation than what can be obtained from surveying only one side, the accused infringers.

Even NPEs who merely purchase patents with an eye toward enforcement may serve a useful purpose by creating a market for patent rights. They purchase patents from those who do not have the resources or expertise to take their patented technologies to market such as individual inventors. These individual inventors often do not have the resources to hire lawyers that bill by the hour and instead must look for alternate arrangements, such as contingency fee representation or a sale of their portfolios to NPEs. Thus, NPEs create opportunities, perhaps the only opportunities, for non-manufacturing patentees to monetize their patents.

From an economic perspective, many believe that NPEs may serve an important market need. They absorb the risks and uncertainties of patent litigation, and yet may provide an important service permitting non-manufacturing patentees to reap some monetary rewards for their innovations. This potential benefit is premised upon the assumption that the patents are not of dubious quality. With respect to the debate about NPEs, we believe that focusing solely on the costs from and the distributions of funds by NPEs is somewhat beside the point. The better question is whether NPE lawsuits are being brought because the defendants are infringers of a valid patent, or because the defendants are merely easy targets for a nuisance lawsuit. This determination requires looking beyond the identity of the patent holder. Rather, it means we need to evaluate the patents being asserted to determine if there are credible patent claims that are valid, enforceable, and infringed. To the extent changes are needed to the patent system, we suggest focusing on reducing transaction costs (e.g., lawyers' fees) in patent litigation, offering cheaper mechanisms to challenge issued patents (the AIA's post-grant challenges and other administrative procedures for challenging validity appear to be a step in the right direction), and providing cheaper and quicker adjudication through a new small claims court for patent lawsuits, instead of focusing solely on whether the patent holder is a non-practicing entity.

In sum, the debate about NPEs underscores the fundamental point that patent litigation is about whether a valid and enforceable patent claim has been infringed. The more efficiently we can determine this answer in a lawsuit, the better off we will be.

The full article, which includes suggestions for improving the patent system, areas for future study, and criticisms of the study by other academics is available here.

AIA Practice Tips: Using New Inventor Declaration Forms

Patent, ,

The following is a guest post from Carl Oppedahl. Oppedahl is the founder of his self-named, Colorado-based patent law firm. www.oppedahl.com

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On August 14, 2012, USPTO published its new Rules relating to the Oath and Declaration of the inventor. These Rules take effect on Sunday, September 16, 2012 and it is not much of an exaggeration to say that they change everything about the Oath and Declaration of the inventor. USPTO has also posted several new forms on its web site, forms which will be usable starting on September 16, 2012. In this guest post I will talk about two particular forms and the ways that they will make a big difference in your daily patent practice.

We are all familiar with Form PTO/SB/01 and Form PTO/SB/01A, which I call the "long form" declaration and the "short form" declaration. These two forms are to be used for any patent application filed before September 16, 2012. They contain the "magic words" that are required for a declaration that is used in an application filed before September 16, 2012. I call these "old" declarations. When I say an "old" application I mean an application filed before September 16, 2012.

The long form declaration contains all of the bibliographic data, for example the foreign priority information, the mailing address of the inventors, and lots of other things. The short form declaration contains the bare minimum of information and "magic words" permitted by the Statute and the Rules for an "old" application.

This leads us to one of the very big changes in the new Rules. For a new patent application filed on or after September 16, 2012 (which I call a "new" application), the "magic words" and the information content for a declaration are different than before. The new form is PTO/AIA/01. I call this the "new" declaration.

Here is one of the important things to know. If your application is a "new" application, then the declaration has to be a "new" declaration. If your application is an "old" application, then the declaration has to be an "old" declaration.

We all know that under 35 USC § 363, a PCT application designating the United States is a US patent application. This means that if your application is a US national phase of a PCT application, then the way you know whether it is "new" or "old" is by looking at the international filing date.

If you are getting ready to send a blank declaration to an inventor for signature, you need to send the correct one ("old" or "new") depending on the filing date of the application. If you already have a signed declaration in hand and you are thinking about sending it to the USPTO, you need to look at it to see if it is "old" or "new" If it is the wrong kind, then you need to prepare one of the correct kind and get it signed.

Go to the web site of the USPTO and print out the "old" and "new" declarations. What you will see is summarized in this table:

Filing date of application

Before September 16, 2012

On or after September 16, 2012

How many inventor documents are filed?

One declaration with N signatures lines, one signature line for each inventor

One form for each inventor, each with one signature line and one signature

Does the declaration take a position on who the other inventors are?

Yes

No

How many "magic words"?

203

90

Form

PTO/SB/01A

PTO/AIA/01

Citizenship stated in form?

Yes

No

When an inventor cannot be found or refuses to sign?

Rule 47 practice

Form PTO/AIA/02 ("Substitute Statement")

One of the first things you will see is that the new declaration has no place to list any inventors other than the particular inventor who is signing the declaration. Instead, it turns out that the way the USPTO learns who the inventors are in a particular case is by means of an Application Data Sheet.

For an old application, there will be a single declaration form, with places for as many signatures as there are inventors. Each inventor is taking a position as to who the other inventors are. In contrast, for a new application, there are as many declaration forms (Form PTO/AIA/01) as there are inventors, each having only a single signature line for that inventor.

Another thing you will see is that the "magic words" count is far smaller for a new declaration compared with an old one. The magic word count is 90 compared with 203.

The new declaration does not aver that the signer has reviewed and understood the application including the claims. And it does not acknowledge the duty of disclosure. But the new Rules state that anyone signing a declaration must have reviewed and understood the application including the claims. And the new Rules state that the signer must be aware of the duty of disclosure. So you will need to do whatever it takes to ensure that these requirements are satisfied for anyone signing a new declaration.

What happens if an inventor cannot be found or refuses to sign the declaration?

For an old application, the answer is of course the well-known Rule 47 procedure. You assemble one or more statements signed by various persons having knowledge of the pertinent facts, you prepare a Petition, you pay a fee, and then you wait to find out what the USPTO thinks about your papers. Maybe the USPTO grants the Petition, maybe the USPTO asks for more statements or more detailed statements. I've heard stories from practitioners who had to go around as many as three times with the USPTO before the USPTO would grant the Petition.

For a new application, it's all different. You simply fill out Form PTO/AIA/02 and send it in. No fee, no statements, no petition. This form all by itself replaces the inventor's declaration. So for example if you have seven inventors, and two of them refuse to sign and another cannot be found, then you will hand in three Forms PTO/AIA/02, and four signed Forms PTO/AIA/01, and an Application Data Sheet, and Bob's your uncle.

So for some categories of inventor signature problem, the legacy Rule 47 procedure is a thing of the past. Anyone who has suffered through a difficult Rule 47 Petition in the past will be delighted at this change.

Which gets us to the Application Data Sheet (ADS). The ADS with which many of us are familiar is Form PTO/SB/14 ( /media/docs/2012/08/sb0014.pdf ). It is a Best Practice to use this form (which is computer-readable) because it can auto-load its bibliographic data directly into EFS-Web and from there into Palm. This eliminates several possible sources of error when compared with an approach in which USPTO personnel hand-key such information into Palm.

Under the new Rules, the use of a ADS is mandatory except under a small handful of rare fact situations. So you might as well get used to preparing and filing ADSs.

Within the next week or two, USPTO will post the "new" application data sheet for use with "new" patent applications. When this ADS becomes available, it will likewise be a Best Practice to use it, and to e-file it so that it too may auto-load into Palm. The key is to include the computer-readable ADS in the first e-filing submission for a particular patent application. Only then will it auto-load into Palm.

After you have carried out the e-filing submission that contains the ADS (the first e-filing submission for a particular patent application), be sure to open the application in Private PAIR and click on the Publication Review page. You can proofread this page and you can check all of the bibliographic data for accuracy. In the event of some error or omission, you can get started right away on getting it fixed even before the Filing Receipt gets mailed.

Well, there we are. I've told you about one-twentieth of the things that are completely different as a result of USPTO's new rules relating to the oath and declaration. For the rest, you can read the new Rules (/media/docs/2012/08/fr_inventor_oath.pdf ).

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Carl Oppedahl will present a webinar (brochure) about the new Rules on Oath and Declaration on August 30, 2012. Carl has made this posting available as an Epub file which you could load into a Nook or any other Epub reader.

© OPLF 2012