Judge Wallach and Claim Construction

Patent

By Jason Rantanen

Chicago Board Options Exchange, Inc. v. International Securities Exchange, LLC (Fed. Cir. 2012) Download 11-1267-1298
Panel: Rader, Wallach (author) and Fogel

If my own conversations are any indicator, many people who follow the Federal Circuit's claim construction jurisprudence have developed strong opinions about the longstanding members of the court.  More of an unsolved puzzle are the more recent appointees.  In Chicago Board Options Exchange, we get a glimpse into the newest member of the court's thoughts on claim construction in his debut patent law opinion.  That opinion suggests an approach closely tied to the patent itself, analyzing the text of the document without reference to extrinsic sources.

Means plus function: One of the claim terms at issue in this appeal was "system memory means for storing allocating parameters for allocating trades between the incoming order or quotation and the previously received orders and quotations."  Although the court noted that the parties expressly agreed during claim construction that this was a means-plus-function limitation, the court nonetheless dropped a footnote indicating that even had the argument not been waived, the presumption arising from the use of the word "means" was not overcome because the limitation "system memory means" articulates a function and nowhere includes a "specific and definite structure."  Given this statement, it is possible that Judge Wallach may take a broad approach to 112(f), interpreting a wide array of terms to fall within its scope.  Or I may be overreading the footnote, given that the claim element did include "means" after all.

In the end, however, the distinction did not matter, as the CAFC interpreted the corresponding structure of "system memory means" to be "system memory."  After examining the specification to determine which structure was linked to the means-plus-function element's function, and applying the canon of claim construction that different terms convey different meanings, the court concluded that the "[t]he clearly linked structure associated with this function is “system memory.” Slip Op. at 13-14.  It did not include the additional elements identified by the district court.

Looking at the Claims, then the Specification: The CAFC also construed several non-means-plus-function terms, taking a similar approach to each.  For each term, the court first looked to the claim language itself to divine any meaning the claims might offer, then turned to the specification to examine whether it provided further support or rebutted the meaning as indicated by the claim.  As in the preceding section, the court relied heavily on the different terms/different meanings canon of claim construction.

Specification disavowal: Although for most terms the court found that the specification either supported or did not rebut the meaning of the terms as established by the claims, the court found clear disavowal of claim scope for one term: "automated exchange."  "The specification goes well beyond expressing the patentee’s preference for a fully automated exchange over a manual or a partially automated one, and its repeated derogatory statements about the latter reasonably may be viewed as a disavowal of that subject matter from the scope of the Patent’s claims."  Slip Op. at 21.  Thus, the district court correctly interpreted this term to mean "fully computerized, such that it does not include matching or allocating through use of open out-cry."  Id.

The USPTO Patent Backlogs: Falling and Rising

Patent

By Dennis Crouch

Under Director Kappos’ tenure, the USPTO has focused on reducing the backlog of unexamined cases. That approach has been quite successful. The table below shows a 10% reduction in the backlog of unexamined cases over the past year. As you might expect, those cases do not disappear. Rather, the bolus is being pushed down the line toward eventual issuance or abandonment. Thus, as the number of unexamined cases drops, the RCE backlog and BPAI backlog continue to grow. I suspect that we’ll eventually think of these cases as the “baby boom” of patents.

In this study, unexamined cases include only those that have not yet received a first action on the merits (FAOM) and do not include RCE cases. The rise in the RCE backlog is a direct result of USPTO policy to focus more attention on the unexamined cases.

In March 2012, the BPAI disposed of 911 cases — more than any month in recent history. This slowed the growth of the BPAI backlog. However, with 1,343 new appeals docketed, the growth continued.

Princeton Event: Patent Success or Failure? The America Invents Act and Beyond

Patent,

by Dennis Crouch

When listed as a potential survey response, Princeton University School of Law regularly ranks as a top-ten law school.  Although Princeton actually has no law school, the Ivy League university does have a set of world class thinkers in areas of public policy, political science, and political economics. Several years after I graduated from Princeton's School of Engineering, the University founded its Center for Information Technology Policy (CITP) with Professor Ed Felton as its leader.

On Friday, May 11, 2012 I'll be returning to by alma mater for a CITP conference on patent law and policy titled: Patent Success or Failure? The America Invents Act and Beyond.  Speakers include USPTO Director Kappos; CAFC Chief Judge Rader and former Chief Judge Michel;  Professors Arti Rai, Colleen Chien, Jason Schultz, and myself; Joe Matel from the Senate Judiciary Committee; Dan Ravicher from PubPat; and industry leaders from industry (IBM, Google, J&J) and practice.

The event is free and open to the public. Register here: https://citp.princeton.edu/event/patent-success-or-failure/

Notes:

  • Later this month, I'll be speaking at the 10th Annual Rocky Mountain IP & Tech Institute in Denver. Speakers there include 9th Circuit Chief Judge Alex Kozinski, Professors Lemley & Hricik, David Donoghue, Michael Smith, Chris Mirick (my brother-in-law) and many other excellent speakers. Register here: http://ip.annualcle.com/
  • In June & July I'll be presenting a series of lectures at UCL-London on changes to US Patent Law and how they integrate with UK & European practice. The Rt Hon Prof. Sir Robin Jacob is chairing the event.
    • June 18 – Changes to the way patents are prosecuted in the US under the AIA and other case law.
    • June 28 – New issues in US patent litigation; damages; settlement processes; and the rise of "international litigation." 
    • July 4 – A two-part session on (1) the new administrative structure for challenging US patents and the new scope of patentable subject matter.
    • You can register for one or more sessions here: http://ibil-us-patents.eventbrite.com/

Also in June, I'll be speaking at the 2012 IP Business Congress held at a resort/casino near Lisbon, Portugal. http://www.ipbusinesscongress.com/2012/About.aspx

Overlapping Copyright and Patent Rights

Patent

by Dennis Crouch

Oracle v. Google (N.D. Cal. 2012)

Oracle and Google are battling over whether Google improperly relied on Java OS code when developing its Android operating system.  The intellectual property rights associated with Java are now owned by Oracle, who purchased Sun Microsystems in 2009. Although there are some factual disputes, a jury recently concluded that Google did indeed copy and use portions the Java code.  However, the jury could not decide whether the use was improper or whether it instead should be considered an appropriate fair use.

In addition to being protected by copyright, the same Java code is also (allegedly) protected by patents owned by Oracle.  Thus, Oracle has argued that Google’s actions constitute both copyright and patent infringement.  

Although pre-software, the Supreme Court has written some about the overlap between various intellectual property rights.  In Mazer v. Stein, 347 U.S. 201 (1954), the Supreme Court stated refused to hold that mere patentability of a lamp structure did not preclude the creator from obtaining copyright protection.  Mazer focused on potential protectability and does not address whether an entity can properly claim and/or assert both copyright and patent rights over the same subject matter as Oracle appears to be doing here. In addition, there is some suggestion from the case that the Supreme Court was talking about design patents rather than utility patents.  In other contexts, the Supreme Court has been hostile to overlapping IP rights. See, most recently, Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003) and TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 (2001).

Patent

by Dennis Crouch

In the Oracle v. Google litigation, the jury found that Google had copied the Oracle’s protected Java software. However, the jury was hung on whether or not Google’s actions were excused by the fair use doctrine found in Section 107 of the Copyright Act. 17 U.S.C. 107.   While the judge considers whether to declare a mistrial (or else to rule on fair use as a matter of law), the second phase of the trial will focus on patent infringement.

The quote of the day came from Oracle’s lawyer Michael Jacobs who indicated to the court “I think you’ll be pleased to know that fair use is not an issue in the patent case.”  Jacobs is right –  unlike copyright, US patent law does not (yet or currently?) contain a fair use exception beyond the extremely narrow experimental use and de minimis defenses to patent infringement.


 

Obviousness and Chemical Compounds

Patent,

By Jason Rantanen

Otsuka Pharmaceutical Co., Ltd. v. Sandoz, Inc. (Fed. Cir. 2012) Download 11-1126
Panel: Lourie (author), Moore, Reyna

This opinion addresses the appropriateness of using a "lead compound" analytical framework for evaluating the obviousness of chemical compounds, reaffirming and refining the approach taken in Takeda Chemical Industries, Ltd. v. Alphapharm Pty., Ltd., 492 F.3d 1350 (Fed. Cir. 2007). 

The defendants in Otsuka consist of a group of ANDA applicants who contended that the compound claimed in Patent No. 5,006,528, aripiprazole (marketed under the brand name Abilify®), was obvious in light of three prior art carbostyril derivative compounds.  Prior to aripiprazole (itself a carbostyril derivative), the only atypical antipsychotic compounds approved by the FDA for the treament of schizophrenia were those that possessed structures related to the antipsychotics clozapine and risperidone, neither of which were the basis for the obviousness challenge.  Following a bench trial, the district court concluded that the asserted claims were not obvious in light of the three "lead compounds" identified by defendants, nor was the patent invalid due to nonstatutory double patenting.

Obviousness: In rejecting defendants' appeal of the district court's determination of nonobviousness, the CAFC endorsed the two-step framework of Takeda (also authored by Judge Lourie). In Takeda, the CAFC addressed the defendant's argument that "the prior art would have led one of ordinary skill in the art to select compound b as a lead compound," with "lead compound" referring "to a compound in the prior art that would be most promising to modify in order to improve upon its antidiabetic activity and obtain a compound with better activity."  Takeda, 492 F.3d at 1357.  The court then analyzed whether a PHOSITA would have both selected and modified the prior art compounds identified by the defendant, an approach applied by the district court in Otsuka and challenged by the defendants on appeal as the type of rigid analysis precluded by KSR.

The CAFC disagreed, holding that the Takeda approach was permissible:

Our case law demonstrates that whether a new chemical compound would have been prima facie obvious over particular prior art compounds ordinarily follows a two-part inquiry. First, the court determines whether a chemist of ordinary skill would have selected the asserted prior art compounds as lead compounds, or starting points, for further development efforts….The second inquiry in the analysis is whether the prior art would have supplied one of ordinary skill in the art with a reason or motivation to modify a lead com-pound to make the claimed compound with a reasonable expectation of success. 

Slip Op. at 17, 19.

Of course, aspects of KSR do impact this conclusion.  For example, the reason or motivation for a PHOSITA to modify a lead compound may come from a variety of sources, or not even be explicit in the prior art. Slip Op. at 19-20.  And the CAFC's approval of the Takeda approach may have been guided in part by the parties' decision to focus their arguments on selecting and modifying particular prior art compounds, rather than approaching obviousness from another direction.  Id. at 17. 

Examining the two steps, the CAFC concluded that the district court did not err when it found that a PHOSITA would not have selected the prior art compounds for use as lead compounds for further antipsychotic research or made the modifications necessary to arrive at the claimed compound. 

Obviousness-type double patenting: The CAFC also rejected defendants' nonstatutory obviousness-type double patenting argument, using the opportunity to clear up an apparent ambiguity about the differences between obviousness and obviousness-type double patenting.  Although analogous, the two differ in several respects.  The patent principally underlying the double patenting rejection need not be prior art (which makes sense given that the purpose of the double patenting doctrine is to prevent one person from obtaining more than one valid patent for the same invention or an obvious modification of the same invention).  More notably, "when analyzing obviousness-type double patenting in cases involving claimed chemical compounds, the issue is not whether a skilled artisan would have selected the earlier compound as a lead compound."  Slip Op. at 28 (emphasis added).  Rather, selection of the earlier compound as a lead compound is presumably automatic under the court's language.  However, it is still necessary to identify some reason that would have led the PHOSITA "to modify the earlier compound to make the later compound with a reasonable expectation of success." Id. at 29.  This is mandatory: "There is no other way to consider the obviousness of compound B over compound A without considering whether one of ordinary skill would have had reason to modify A to make B. That is traditional obviousness analysis."  Id. at 30 (emphasis added). 

As with the obviousness inquiry generally, the CAFC declined to find clear error in the district court's determination that no such reason existed in this case.

WARNING: Appellate lawyers often feel compelled to make sub-arguments in footnotes, as Otsuka's counsel did here in contending that a PHOSITA would not have consulted an unindexed file history of a patent.  Although Otsuka ultimately prevailed, this practice is strongly discouraged by the court: "Arguments raised only in footnotes, however, are waived…Although we may exercise our discretion to consider improperly raised arguments, we decline to do so here."  Slip Op. at 22.

Patent Malpractice Jurisdiction

Patent

Patent2011070by Dennis Crouch

Minkin v. Gibbons P.C (Fed. Cir. 2012)

In yet another malpractice action, the Federal Circuit has granted itself jurisdiction and ruled in favor of the law firm defendant (here, Gibbons). Attorney malpractice is normally a state-law cause of action brought in state court. However, the Federal Circuit has increasingly claimed appellate jurisdiction over these cases based upon its arising under jurisdiction.

Federal Circuit Appellate Jurisdiction.  As amended in the AIA, 28 U.S.C. § 1295 defines the Federal Circuit's appellate jurisdiction to include “exclusive jurisdiction” over “an appeal from a final decision” in “a civil action arising under . . . any Act of Congress relating to patents.” 

The new statute overrules Holmes Group, Inc., v. Vornado Air Circulation Systems, Inc. 535 U.S. 826 (2002).  In that decision, the Supreme Court held that the existence of a patent law issue in a counterclaim is insufficient to create Federal Circuit jurisdiction.  The revised statute makes clear that the Federal Circuit has exclusive jurisdiction over appeals that only raise patent issues in “a compulsory counterclaim.”  

The new statute does not change the “arising under” language itself.  The Supreme Court interpreted that language in Christianson v. Colt Industries Operating Corp., 486 U.S. 800 (1988).   In Christianson, the court wrote that the Federal Circuit's jurisdiction extended only to those cases in which a well-pleaded complaint established either (1) that the federal patent law created the cause of action or (2) that the plaintiff's right to relief necessarily depended upon resolution of a “substantial question of federal patent law.”  (New statute is no longer bound by a “complaint.”).

In non-patent cases, the Supreme Court has placed some limitations on the exercise of arising under jurisdiction when the underlying cause of action is –  as here –  a state law claim.  In Grable & Sons Metal Products v. Darue Eng'g, 545 U.S. 308 (2005), the court explained that the exercise of jurisdiction over state-law claims with an embedded issue of federal law should occur only when the state-law claim contains a federal issue that is “disputed” and “substantial,” and when the exercise of federal jurisdiction is “consistent with congressional judgment about the sound division of labor between state and federal courts.”  Grable made clear that the mere presence of a disputed federal question is insufficient to create federal jurisdiction.  Rather, a court must also assess “any disruptive portent in exercising federal jurisdiction.” This sentiment was repeated by the Court in the later case of Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677, 701 (2006) (“it takes more than a federal element ‘to open the ‘arising under’ door”).

In this case, the Gibbons firm handled prosecution of Minkin's U.S. Patent No. 6,012,363 (Extended Reach Pliers).  Soon after Minkin went to market, one of his customers designed its own version of the device that avoided Minkin's patent claim. Minkin then sued Gibbons for negligence –  arguing that the claims offered no meaningful protection for Minkin's invention. At trial expert witness Richard Gearhart presented an alternative claim that was arguably patentable. Because Gearhart did not present a patentability analysis under Section 103(a), the district court rejected the evidence as insufficient and awarded summary judgment for the law firm. On appeal, the Federal Circuit affirmed that finding. “We find that the 37-page Gearhart report contains nothing to assist the trier of fact with respect to the unique tests and proofs of § 103(a), and provides no insight into the question of whether the alternate claims would ultimately have been allowed by the PTO.”

Regarding Jurisdiction, the Federal Circuit noted that the malpractice claim (under N.J. Law) requires that the plaintiff prove that better representation would have resulted in a better outcome.  Here, that proof requires analysis of patentability of a hypothetical claim and thus raises substantial a question of Patent Law and therefore the case falls within the exclusive jurisdiction of the Federal Circuit.

Writing in concurrence, Judge O'Malley again repeated her call for an en banc rehearing on the issue of jurisdiction.

Notes:

Survey Response Required to Remain on USPTO Rolls

Patent

Earlier this year, the USPTO mailed a survey to the last known address to all US patent practitioners with a registration number of less than 25,000. This represents about 2,600 practitioners. Responses to those letters have been due for some time and practitioners who have not responded are now at risk of being removed from the rolls of active attorneys.  In the O.G., the USPTO has posted a list of 1,200+ practitioners who have not responded. To avoid being removed from the rolls, the practitioner must submit a response by Monday, May 7.  A practitioner removed from the rolls can be reinstated with the payment of a fee. 

The USPTO also states that that “Practitioners who may know that a former colleague whose name appears on the list below is deceased are encouraged to contact OED.”

How Many US Patents are In-Force?

Patent

By Dennis Crouch

A common mistake made by folks in business is to think of any patent issued in the past 20 years as being in-force. In fact, there are a number of ways that a patent can expire prior to that 20-year date. A patent that has expired no longer carries any rights of exclusivity for its holder.

By my calculations, there are about 2.1 million US patents in-force (as of May 1, 2012). To arrive at this number, I tallied the number of patents issued during the past twenty years (about 2.6 million) and then looked to see which of those patents had expired – either through completion of their term or through failure to pay a post-issuance renewal fee. The chart below provides an accounting of these results grouped by year of patent issuance. The older patents in my sample have all expired due to completion of the (then) 17-year term. More recently expired patents are typically associated with failure to pay a renewal fee. The most recent patents are essentially all still in-force because they have not yet had any post-issuance fees due.

050412_1519_HowManyUSPa1

The bulk of in-force patents (~91%) are issued on patent applications filed after the June 8, 1995 patent term transition (Post-GATT). Patent applications filed after June 8, 1995 are given a term of 20-years from the application (priority) filing date. Patents issued prior to the changeover (Pre-GATT) have a term of 17-years from the patent issuance date. Applications pending on the changeover date are given the longer of the 17-years-from-issue and 20-years-from-filing terms. For original applications (i.e., those without a prior term-triggering priority filing), the new 20-year term typically benefits patent applicants because USPTO delays are generously credited to the applicant and added to the patent term. For applications that claim priority to PCT filings or US non-provisional applications, the filing-date approach tends to reduce the patent term. A few thousand patents eligible to claim the 20-year term have expired – they all exhibit the same properties of being filed after the 1995 changeover but claiming priority to a pre-1993 application.

There are several important caveats to my study here. (1) I did not include terminal or other disclaimers in the analysis and (2) I did not include term adjustments for USPTO or Governmental delay; and (3) I did not consider whether patents had been held invalid by a court or the USPTO. For several reasons, I do not believe that these issues would significantly impact the above conclusions. Terminal disclaimers are most important with regard to pre-GATT applications. However, most of those patents have already expired. In more recent applications, a terminal disclaimer tying the patent term to a family-member application typically does not change the 20-year term because all the family-member applications typically claim priority to the same original application that triggers running of the term. Term adjustments created for USPTO delay only apply to applications associated with a 20-year-from-filing term. Those adjustments will be important going forward for recently issued patents. However, term adjustments only have a minimal impact for this study because so few patents have expired due to conclusion of the 20-year-term and because the PTO backlog was not as serious in the mid 1990's. Finally, Court and USPTO decisions invalidating patents are few and far-between in comparison to the absolute number of patents in consideration here.

Update –  Although it is fairly clear from the text, my reference to GATT is directed to the General Agreement on Tariffs and Trade (GATT) as modifed in 1994 by the Uruguay Round of negotiations and implemented in the US by the GATT Uruguay Round implementing legislation.

Electronic Filing at Federal Circuit

Patent

If you are filing a Federal Circuit appeal, beware that the court will soon require Electronic Case Filing. The initial filing (i.e., case initiating documents) will still be done on paper, but after May 17, 2012 any subsequent filings (such as responsive briefs and petitions) must be done electronically (with some exceptions).

Except as otherwise prescribed by Circuit rule or court order, all briefs, appendices, motions, petitions for rehearing, and other documents filed in cases assigned to the CM/ECF system, must be filed electronically using the CM/ECF system by a filer registered in accordance with ECF-2.

Comments on the new procedures are dues by May 8, 2012. [New Procedures]

Judicial Panel on Multidistrict Litigation: AIA Does Not Preclude Consolidated Cases

Patent

Guest Post by Jennifer Furey of Cooley Manion Jones LLP and Anthony Miele of Miele Law Group PC. Furey and Miele represent Bear Creek in the JPML proceeding and in the associated actions discussed below.

Suppose a patentee determines that in order to enforce its patent rights, it must sue multiple, but unrelated, parties. An obstacle then presents itself. The patentee plaintiff may very well be forced to file separate actions in disparate jurisdictions, and now risks being overwhelmed by conflicting case schedules, duplicative discovery disputes, and especially, conflicting Markman claim construction rulings. See Scott W. Burt et al., Intellectual Property Owners Associations Committee White Paper, Impact of the Misjoinder Provision of the America Invents Act 16 (2012). One mechanism for efficiently litigating the pre-trial phase of patent infringement lawsuits pending in different districts is multidistrict litigation ("MDL") under 28 U.S.C. § 1407 ("Section 1407"). In a recent opinion in In re Bear Creek Technologies, Inc., the Judicial Panel on Multidistrict Litigation ("JPML") unequivocally held that MDL remains a viable option for parties to transfer separate patent infringement actions pending in different districts for centralized pre-trial proceedings, and that the recently enacted Leahy-Smith America Invents Act ("AIA") "does not affect [the JPML's] authority" to transfer and centralize patent litigation under Section 1407. MDL No. 2344, at 3 (J.P.M.L. May 2, 2012). After Bear Creek, plaintiffs enforcing their patent rights across multiple jurisdictions may still consider MDL as a possible option to keep infringing defendants before one court up until trial. [Download JMPL Decision Bear Creek]

Enacted on September 16, 2011, the AIA's joinder provision states that accused infringers may not, "based solely on allegations that they each have infringed" the same patent(s):

  1. be joined in one action as defendants or counterclaim defendants, or
  2. have their actions consolidated for trial.

35 U.S.C. § 299. In contrast, centralization in MDL under Section 1407 requires that:

  1. actions are pending in different districts;
  2. the actions involve "one or more common questions of fact;" and
  3. transfer and consolidation of pretrial proceedings is convenient for the parties and witnesses, and promotes "the just and efficient conduct of such actions."

28 U.S.C. § 1407.

After the enactment of the AIA, Vonage in Bear Creek argued that the AIA's joinder restriction applied to Section 1407, to no avail. The JPML found the AIA "does not alter [its] authority to order pretrial centralization." MDL No. 2344 at 2. The JPML reasoned that there was "no overlap" between the AIA and Section 1407, emphasizing the different standards of the two statutes, and contrasting the AIA's focus on joinder and consolidation at trial with "Section 1407's express focus on transfer for pretrial proceedings." Id. at 2-3. Finding that both the plain language and legislative history of the AIA were "silent as to the conduct of pretrial proceedings" and did not "mention Section 1407," the JPML noted that if Congress intended the AIA to limit the JPML's authority under Section 1407, it would have "done so explicitly." Id.

After holding that the AIA did not apply, the JPML then concluded that transfer and centralization was appropriate in Bear Creek because the separate actions shared "substantial background questions of fact" concerning the "validity and enforceability" of the patent-in-suit, as well as "claim construction." Id. at 4. The JPML emphasized that "centralization offers substantial savings in terms of judicial economy by having a single judge become acquainted with the complex patented technology and construing the patent in a consistent fashion (as opposed to having six judges separately decide such issues)."

In light of the AIA's enactment, MDL can be an invaluable tool for patentee-plaintiffs to efficiently litigate their patent rights against multiple infringers with actions pending in different courts through Markman and summary judgment. Under Bear Creek, the AIA is not a magic bullet allowing patent defendants to escape multi-party litigation—they may be brought before one court up until trial in MDL under Section 1407.

Renewal Rates by Tech Centers

Patent

Technology Center

Renewal Rate (First Fee Paid)

1600

Biotechnology and Organic Chemistry

81%

1700

Chemical and Materials Engineering

86%

2100

Computer Architecture Software and Information Security

90%

2600

Communications

90%

2800

Semiconductors, Electrical and Optical Systems and Components

89%

3600

Transportation, Electronic Commerce, Construction, and Agriculture

82%

3700

Mechanical Engineering, Manufacturing and Products

84%

 

The table above reports the percentage of patents for which the first maintenance (renewal) fee was paid. The chart includes patents issued 2005-2007 and the results are grouped according to technology center. It is somewhat interesting to me that TC1600 has the lowest renewal rate.

Guest Post: Popularity of Delaware Is On the Rise

Patent

Guest Post by Professor Paul Janicke

Now that the new patent statute has put an end to qui tam actions and limited the joinder of defendants accused of infringement, we can once again take a meaningful count of patent suit filings, almost all of which are now infringement actions or DJs for noninfringement or invalidity. I ran a study of cases filed in the six-month window beginning October 1, 2011, shortly after the litigation parts of AIA became effective, through the end of March 2012.

There were 2,483 suits filed in that period, or at an annual rate of nearly 5,000 new cases. [Source: Lexis Courtlink.] The increase over earlier years, where the largest number of new patent case filings was just over 3,000, is undoubtedly due primarily to the AIA’s restraints on joining non-cooperating accused infringers in a single civil action. So there may not be more patent litigation going on, but only more files being opened with fewer defendants per action.

We should expect to see venue shifts over prior years, as accused infringers are able to move their cases to districts that are more convenient to them, generating considerably more work for the Judicial Panel On Multidistrict Litigation to sort out where the early proceedings should occur.

Perhaps for these reasons we now see Delaware approaching the top of the list for most new filings. Eastern Texas is still first with 407 filings in the six-month period, but Delaware is a close second with 388. Northern California is a distant third with 194. (The next three are Central California (169), Northern Illinois (142), and New Jersey (90). Delaware has always been a somewhat busy patent forum. However, its share of total national patent suit filings has moved up rather dramatically: in 1995 it had 3.69% of the national total of 1,626 cases; 4.53% in 2005; 6.11% in 2008; and now for the six-month window reported here its share has jumped to 15.63%. Several commentators have noticed in the past two or three years that results in Delaware are generally good for patentees. Litigants apparently agree.

Book Discussion: Frischmann Predicts Prometheus

Patent, , , , , ,

Guest post by Professor Michael Burstein.  This review is cross-posted on the Concurring-Opinions blog.

In his new book Infrastructure: The Social Value of Shared Resources (OUP 2012), Brett Frischmann explores how infrastructural resources contribute to social welfare. He defines a set of resources — infrastructure — in terms of the manner in which they create value and then examines the conditions under which such resources ought to be managed as a commons. He develops a framework for understanding the demand for infrastructure and the advantages and disadvantages of managing infrastructure in a nondiscriminatory manner. Prof. Frischmann then applies this framework to a variety of infrastructural resources — roads, telecommunications networks, the environment, and, of particular interest to readers of this blog, cultural resources including those which are protected by patent and copyright law.

I'm going to focus my comments on Frischmann's theory of intellectual infrastructure and how it relates to the structure of intellectual property law. Just a few days after the release of Infrastructure, the Supreme Court handed down its decision in Mayo Collaborative Services v. Prometheus Laboratories. That case presented the question whether certain diagnostic claims were within the scope of patentable subject matter under section 101 of the Patent Act. The Court held that they were not, in a manner that is strikingly consistent with Frischmann's theory. Hence the title of my post. But Frischmann's theory may also go a long way toward bringing some order to an area of patent law that has long been confused.

Let's start with the concept of intellectual infrastructure. Frischmann explains that intellectual or cultural resources can be infrastructural in the same manner as physical goods. So long as the resource is a "nonrival input into a wide variety of outputs" (275), it satisfies the characteristics of infrastructure that Frischmann so richly describes. In turn, that suggests that the case for managing the resource as a commons is strong. Frischmann then explains how this concept applies to ideas. Ideas, he writes, often are infrastructure (subject to a number of complications that I'll put to the side). So in his view, intellectual property should protect implementations of ideas but not the ideas themselves (286). To sort one from the other, Frischmann turns to the concept of abstraction in copyright law and argues that patent law should follow a similar path.

Now consider Prometheus. The inventors in that case discovered a correlation between the effectiveness of a drug and the amount of certain metabolites of that drug in a patient's blood. Their patent claimed a method of optimizing the dosage of the drug based on that correlation. The method was simple: (1) administer the drug; (2) determine the amount of metabolites in the patient's blood; (3) make an inference about drug dosage based on the correlation. Doctrinally, the question before the Court was whether this amounted to a claim on a "natural law" – the correlation between drug dosage and metabolism that happens in the human body – which would be unpatentable under a long-standing exception to the scope of patentable subject matter, or a patentable application of that law.

Substitute "idea" for "natural law" and the analogy to Frischmann's analysis becomes clear. Indeed, there is no reason why a "natural law" cannot be an "idea" as Frischmann describes it. A natural law is the articulation of a principle; whether that principle is an infrastructural idea turns on its characteristics, not its origins. In Prometheus, the Court, with Justice Breyer authoring the unanimous decision, held that the patent claimed the natural law itself and not an application of that law. The Court held that the the patent claims did not "add enough to their statements of the correlations . . . to qualify as patent-eligible processes that apply" those correlations (slip op. 8). The "administering" and "determining" steps, in the Court's view, comprised "well-understood, routine, conventional activity already engaged in by the scientific community" and so were "not sufficient to transform unpatentable natural correlations into patentable application of those regularities" (slip op. 11). Or, in Frischmann's terms, the patent claims did not amount to an implementation of an idea; they claimed the idea itself.

The rationale underlying the Court's decision also resonates with Frischmann's argument. Justice Breyer cast the decision in expressly functional terms. The danger, he wrote, is that because natural laws are "the basic tools of scientific and technological work," patents on natural laws "foreclose[] more future invention than the underlying discovery could reasonably justify" (slip op. 17). So too, the rationale for managing infrastructural resources as commons turns on the demand-side benefits: the spillovers and externalities that non-rival consumption of infrastructure resources enables. In this way, Prometheus is quite consistent with Frischmann's injunction against propertizing ideas.

Frischmann's theory also suggests some provocative solutions to problems that have long plagued the doctrine of patentable subject matter. Section 101 of the Patent Act defines as patentable any "new and useful process, machine, manufacture, or composition of matter." But the Supreme Court has long carved out from those categories several broad exceptions. They are usually described by the terms "laws of nature, natural phenomena, and abstract ideas," but at times appear also to encompass "products of nature," "mental processes," "mathematical formulae," "algorithms," and the like. Infrastructure may offer a unifying principle for choosing to exclude these things from the scope of patentable subject matter. Frischmann writes that "[t]he Supreme Court should stop referring to abstract ideas" in its patentable subject matter jurisprudence and should instead "make clear that ideas are not patentable" (300). Viewed through the lens of infrastructure, Prometheus is a step in this direction. The correlations at issue in that case were actually quite narrow. At the very least, they were not "abstract" in the sense that the "concept of hedging risk" found to be unpatentable in Bilski v. Kappos was abstract. Yet the correlations in Prometheus and the concept of hedging in Bilski are both ideas. And they are ideas that have the characteristics of infrastructure — nonrival inputs into a wide range of outputs. The Court's functional analysis suggests that the problem in both cases was that granting exclusive rights to ideas that have the characteristics of infrastructure might foreclose future innovation.

I would go even further. The next big patentable subject matter case is likely going to be the Public Patent Foundation's ongoing challenge to gene patents held by Myriad Genetics. Doctrinally, the question raised in that case — whether the patents claim "products of nature" – is different than the question whether a patent claims an idea. But to the extent that genes can be characterized as infrastructure — and I think there is a reasonable case that they can be — the functional analysis described above should apply. The exclusion of products of nature from the scope of patentable subject matter may therefore be consistent with the exclusion of ideas from the scope of patentable subject matter.

It has also been a matter of debate among academics and practitioners whether and to what extent the inquiry into patentable subject matter serves a function different from other requirements of patentability like novelty or nonobviousness. To the extent that infrastructural resources ought to lie beyond the scope of patent protection for functional reasons, the patentable subject matter screen will capture this insight in a way that other patentability doctrines will not. But this is a topic for further exploration.

Frischmann's book is an important contribution across a wide range of fields. It is a terrific achievement and I think its influence will continue to grow as we grapple with the implications of its analysis.

Concurring Opinions has been hosting a symposium to discuss Prof. Frischmann's book and includes posts by Marvin Ammori, Adam Thierer, Barbara A. Cherry, Frank Pasquale, Michael Burstein, Timothy B. Lee, Tim Wu, Laura DeNardis, Andrew Odlyzko, Deven Desai, and Brett Frischmann himself.

Gene Patent Debate Returns to the Federal Circuit

Patent,

by Dennis Crouch

Association for Molecular Pathology v. USPTO and Myriad Genetics (Fed. Cir. 2012)

The Supreme Court recently issued a GVR order in this case with instructions for the court to reconsider its decision in light of Mayo v. Prometheus.  The Federal Circuit has now released a new briefing schedule — asking the parties to file supplemental briefs by June 15, 2012 addressing the issue: What is the applicability of the Supreme Court’s decision in Mayo to Myriad’s isolated DNA claims and to method claim 20 of the ’282 patent? Non-parties may file briefs of  up to 15–pages in length that are due on the same date.  Oral arguments will be held July 20, 2012.

Claim 1 of Myriad’s patent is directed to “an isolated DNA coding for a BRCA1 polypeptide” with a particular amino acid sequence.  DNA coding for BRCA1 is a naturally occurring mutation and is clearly unpatentable. The catch here is that Myriad claims “isolated DNA” that the patent defines as “substantially separated from other cellular components which naturally accompany a native human sequence.”

Claim 20 of the patent is directed to the scientific method of finding a cancer treatment that involves (1) growing a host cell that has been genetically modified to include a BRCA1 gene and then (2) testing to see whether any compound particularly inhibits the growth of those cells.  A key question for this claim is whether its breadth effectively extends to cover an abstract idea — namely, using the scientific method to discover a treatment for BRCA1 cancer. 

Self-Replicating Technologies

Patent, , , , ,

Guest Post by Jeremy Sheff. In view of the pending Monsanto case, I asked Professor Sheff to provide some of his thoughts on the patenting of self-replicating technologies –  DC.  This essay is cross-posted on PrawfsBlawg.

Self-replicating technologies, once the subject of theory and fantasy, are now upon us. The original self-replicating machine—the living organism—has already been harnessed by biotechnology engineers and, more to the point, their lawyers.  The next wave of self-replicating technologies, be they nanomedical robots or organic computers, are not far behind. Rather than triggering a “grey goo” apocalypse, these technologies are, at present, raising far more prosaic issues of intellectual property and antitrust law.

Those issues have now apparently caught the attention of the Supreme Court.  A few weeks ago, the Court called for the views of the solicitor general on the certiorari petition in the case of Bowman v. Monsanto.  This is the latest in a series of cases in which the Federal Circuit has addressed the application of the doctrine of patent exhaustion to the genetic engineering technology embodied in Monsanto's "Roundup-Ready" herbicide-resistant seeds.  Seeds are the prototypical self-replicating technology, and a number of similar herbicide-resistant crops are in the pipeline of the largest agribusiness concerns.  In each of the Roundup-Ready cases, a farmer has argued that Monsanto's patent rights do not extend to the second generation of soybeans grown from a patented first-generation seed.  In each case, the Federal Circuit found for Monsanto and against the farmers.

Patent exhaustion (or "first sale") doctrine serves as a limit on patent rights, and provides that once a patentee has made an authorized sale of an embodiment of its patented invention, its patent rights with respect to that embodiment are exhausted, and the purchaser is free to use or re-sell the embodiment as it sees fit.  Like analogous doctrines in copyright and trademark, it is motivated by competition concerns.  Its aim is to enable the creation of downstream or secondary markets in patented articles, and to prevent patentees from using their intellectual property rights to gain market power in markets other than the market for the patented technology.  When the Supreme Court last spoke on the issue, it rebuked the Federal Circuit for giving these pro-competitive policies insufficient weight.  It seems to be considering an encore in the Roundup-Ready cases.  For reasons I'll explain after the jump, I think that would be a mistake.

The Federal Circuit's analysis of patent exhaustion in the Roundup-Ready cases is admittedly not a model of the judicial craft.  Framing the issue as a formal question whether a second-generation soybean is a different "article" than the first generation seed from which it grew, the court's main justification for its result was the bare assertion that any alternative result would "eviscerate" Monsanto's patent.  But this is a question-begging explanation, and there are other, better reasons why a patentee's sale of a single embodiment of its self-replicating technology ought not to exhaust patent rights with respect to the second, third, or nth generation of the technology that is propagated from that first embodiment.  Moreover, these reasons are consistent not only with the reasons for granting patent rights in the first place, but with the pro-competitive principles that justify limiting those rights through exhaustion doctrine.

To get at these reasons, I propose a thought exercise.  Let's imagine that the Roundup-Ready cases came out the other way–that purchasers of Roundup-Ready seed from Monsanto were free, as a matter of patent law, to use all subsequent generations of soybeans grown from those first purchased seeds however they saw fit.  What would we expect the Monsantos of the world to do?  How do we believe their behavior might be influenced by this new legal framework?

One possible answer to this question is: not at all.  It may be that the additional revenues to be derived from selling additional embodiments of a self-replicating technology to the same customer are trivial (perhaps due to the structure of demand), and that the prospect of any one customer re-selling a subsequent generation of the technology to another potential customer of the patentee is remote.  Nanomedicine, particularly personalized nanomedicine, may one day prove that this is a possible result.  But in the agriculture context, it strikes me as unlikely.  

Where the technology at issue is an input for the production of a commodity, and the demand for that technology is broad and essentially undifferentiated, I would expect that the possibility of re-sale of nth generation seeds by the patentee's customers would significantly eat into the patentee's revenue stream, potentially making it impossible for the patentee to recoup the investment in research and development required to develop the technology in the first place.  This is the classic free-rider problem that patent law is supposed to prevent: we preserve the incentive to engage in costly research and development by giving the inventor a limited-time monopoly.  Other scholars have noted that this free-rider rationale is particularly salient for inherently self-disclosing inventions (inventions that are easy to copy once they have been introduced to the public).  I would add that self-replication exacerbates the problem of self-disclosure: the patentee selling an embodiment of its invention would not only be teaching competitors how to practice the invention, it would in essence be building their factories as well.

So there are sound justifications grounded in the innovation policies underlying patent law for the Federal Circuit's rulings in the Roundup-Ready cases.  But of course, patent exhaustion doctrine is concerned not only with innovation policy, but also with competition policy.  This brings me back to my earlier question: how would we expect the Monsantos of the world to react to the free-rider problem if patent law did not protect them against competition from nth generation copies of their own first-generation products?  I can imagine two possible strategies a technologist might pursue to circumvent the free-rider problem: contract and secrecy.  And I think both of these alternatives are inferior to the patent solution crafted by the Federal Circuit on competition grounds.

Take the contract approach, which has been explicitly advocated by Yee Wah Chin, one of the attorneys representing the interests of Monsanto's farmer customers.  To avoid the problem of free-riders Monsanto might, for example, restrict sales of its seeds to customers who sign a license agreement in which the customers undertake to monitor the uses of nth generation embodiments.  So, a farmer might have to agree to sell his soybean crop only to buyers who have their own license agreement with Monsanto, or to Monsanto itself.  Or Monsanto could include field-of-use restrictions in its licenses, as Ms. Chin proposes: "Monsanto could have licensed seedmakers to sell seed embodying Monsanto technology on condition that the second-generation seed be either consumed or sold to buyers who agree to either consume the seed or isolate that seed from other seed and sell the seed only for consumption."  

This does not strike me as a pro-competitive result, for a few reasons.  First, it incentivizes Monsanto to extend its influence into downstream markets–such as the market for commodity soybeans and their derivative products–in ways that it would have little incentive for under the Federal Circuit's approach.  This downstream market creep is precisely the type of expansion of patent rights that exhaustion doctrine is supposed to prevent, out of fear that the patentee's interests are not likely to be consistent with the efficient functioning of those downstream markets.  Second, and perhaps more importantly, forcing Monsanto to look to contract rights to protect its investment in research and development shifts the costs of monitoring and enforcing the Roundup-Ready patents from Monsanto itself onto its customers, who are likely to face higher monitoring costs.  

We must remember, Monsanto's customers are largely farmers, who lack Monsanto's economies of scale, its greater expertise with its own technology, and its understanding of the functioning of the markets for that technology.  Moreover, shifting enforcement responsibility from the patentee to its customers is likely to create agency costs where they would not otherwise exist.  A farmer who is paying Monsanto a premium for Roundup-Ready seeds probably has far weaker incentives to vigorously monitor for violation of Monsanto's license terms than does Monsanto itself, which is reaping the premium.  Finally, in the event that a customer breaches these monitoring obligations, either maliciously or negligently, Monsanto's technology could fall into the hands of a competitor who is not in privity of contract with Monsanto and thus (absent any unfair competition type of claim) would be free to use the nth generation seed (in which Monsanto's patent rights are exhausted) to compete with Monsanto.  An individual farmer is likely to be judgment-proof in the face of the claims Monsanto might make should such a competitive threat emerge outside the reach of its licensing provisions, which once again leads us to the original problem: how would we expect Monsanto to respond to this risk of free-riding?

This brings me to the last alternative to the Federal Circuit's solution in the Roundup-Ready cases: secrecy.  Monsanto might seek to prevent free-riding by refusing to release its technology to public view, and relying on trade secret protection to protect against free-riding.  But in order to preserve its secret (a prerequisite of trade secret protection),  Monsanto would have to ensure that nothing it released into the market disclosed its genetic technology.  As I noted above, self-replication can be seen as a heightened form of self-disclosure, and so this type of secrecy would be fairly hard to maintain.  Indeed, I think the only plausible way of doing so would be to pursue a course of comprehensive vertical integration.  Monsanto would not only have to be in the business of propagating seeds, but also in the business of cultivating and harvesting soybeans, and processing them into useful products (oil, animal feed, industrial adhesives, tofu, you name it) that do not reveal the genetic material at the core of Monsanto's invention.  Even if this were technically possible (a big if), the effect on all sorts of markets, both for inputs and outputs of the soybean market, is likely to be catastrophically anti-competitive.  Where the alternative is such drastic shocks to competition in the market for, e.g.,  miso paste, soy-fed livestock, and arable land, the Federal Circuit's decisions in the Roundup-Ready cases start to look surprisingly pro-competitive.

The big question in my mind, then, is not whether the Federal Circuit's reached the right result in the Roundup-Ready cases.  Given the factual setting of those cases, I think the answer to that question is a relatively uncontroversial yes.  The real question, to me, is whether the same holds true for self-replicating technologies other than seeds for agricultural commodities.  I already noted above one type of self-replicating technology–personalized nanomedicine–that may not present the same incentives for patentees, their customers, and their competitors, as do herbicide-resistant soybeans.  Given how little we can presume to know about the future development of other self-replicating technologies, it is likely unwise to try to set a rule today to govern the rights of downstream users for all such technologies that may arise tomorrow.  And for this reason alone, it may be worth getting some discussion of the issue from the Supreme Court, which seems particularly sensitive (almost to a fault) to the hazards of establishing brittle legal rules to govern the unknown future of technology.  If the analysis that emerges is more substantive and functionally-minded than the under-argued, formalist analysis of the Federal Circuit (admittedly, another big if), I would be happy to see the Court take the case, if only to put the type of issues I've discussed in this post on the table.

What Happened to All the Cases: Why So Many Section 337 Cases Give Rise to Relatively Few Exclusion Orders

Patent

Guest Post by Michael G. McManus and Rodney R. Sweetland, III. Both authors are partners at the Duane Morris law firm. 

There is something of a paradox regarding the fate of Section 337 cases at the ITC. On the one hand, it is often noted that Section 337 cases are less likely to settle prior to trial than district court patent cases.  One commentator reports that between 2000 and 2008 46% of investigations were settled prior to hearing.[1] While this is a significant number of settlements, it indicates that most Section 337 cases have historically gone to hearing.  On the other hand, with more than three hundred investigations filed since 2005, and Section 337 complainants’ reported win rate of 58%, one would therefore expect to find well over one hundred exclusion orders in place.  In fact, as of this writing, there are only about 50 exclusion orders in effect arising from patent-based 337 investigations.  What happened to all the cases?

The present article will review the course of Section 337 complaints filed in 2008, 2009 and 2010 and describe their fate.

2008

In calendar year 2008, there were 36 Section 337 actions filed.[2]  Of these 36, 16 were decided by ALJ decision and 20 by settlement.[3]  Of the 16 resolved by decision, 3 were decided on summary determination, and 13 were decided by final initial determination (sometimes referred to as an “ID”). 

  • Of the 20 investigations resolved by settlement, 18 were settled prior to hearing and 2 subsequent to hearing. In addition, 2 of the investigations that led to IDs resulted in subsequent settlements for a total of 22 settlements.
  • Of the 36 actions filed in 2008, 21 were resolved prior to hearing (18 by settlement and 3 by SD) and 15 went to hearing (13 led to Final IDs and 2 were settled after hearing).
  • Of the 13 IDs issuing from 2008-filed complaints, 7 found a violation and 6 found no violation for a complainant win rate of 54% at the ID stage.
  • Nine of the 36 cases resulted in exclusion orders (including several arising from default judgments) with eight of the exclusion orders still in effect.

2009

In calendar year 2009, there were 34 Section 337 complaints filed.[4]  Of these 34, thirteen were determined by Administrative Law Judge (“ALJ”) decision and 21 by settlement.  Of the 13 resolved by decision, one was decided on summary determination and 12 by Final Initial Determination. 

  • Of the 21 cases resolved by settlement, 18 were resolved prior to hearing, and 3 were resolved after the hearing, but prior to the Final ID. In addition, 3 of the investigations that led to IDs resulted in settlements for a total of 24 settlements.
  • Of the actions filed in 2009, 19 were resolved prior to hearing (18 by settlement and 1 by SD) and 15 went to hearing (12 led to Final IDs and 3 were settled after hearing).
  • Of the 12 IDs arising from 2009-filed cases, six found a violation and six found no violation for a 50% win rate at the ID stage. Of the six that found a violation, 2 led to LEOs, 2 led to settlement and 2 were reversed by the Commission. Of those IDs that found no violation, five were reviewed and affirmed by the Commission and one settled. 
  • Five of the 34 cases resulted in exclusion orders. Two resulting from final IDs and 3 resulting from defaults. All 5 remain in effect.

2010

In calendar year 2010, there were 58 Section 337 complaints filed.[5]  Of these 58, 21 were decided by ALJ decision and 34 by settlement (the ID for three investigations had not yet issued as of this writing).  Of the 21 resolved by decision, 2 were decided on summary determination and 19 by final initial determination. 

  • Of the 34 investigations resolved by settlement, 33 settled prior to hearing and one settled subsequent to hearing but before the ID. 
  • Of the actions filed in 2010, 35 were resolved prior to hearing, 33 by settlement and 2 by summary determination. 23 went to hearing. Of these 23, 19 resulted in IDs, 1 settled subsequent to hearing, and 3 remain pending. 
  • Of the 19 IDs arising from 2010-filed cases, 8 found a violation and 11 found no violation for a complainant win rate of 42% at the ID stage. 
  • A significant number of 2010 cases are presently undergoing Commission review, however, 5 cases have resulted in exclusion orders thus far. 

Cumulative statistics

Cumulating the foregoing, and disregarding the 3 cases awaiting a Final ID, yields the following:

  • 69 of 125 (55%) investigations settled prior to hearing
  • 6 of 125 (5%) investigations settled after hearing but before ID
  • 44 of 125 (35%) investigations led to an ID
  • 6 of 125 (5%) investigations decided on SD

Further, 4 of the 44 cases with an ID subsequently settled.[6]  Thus, the cumulative settlement rate, considering cases at all stages before the Commission, is 63% (79 of 125).[7]

The ALJ’s issued 44 IDs in the case sample. Of these, 21 found a violation, and 23 found no violation. This yields a complainant success rate of 48% at the Initial Determination stage (there are too many cases that remain pending to derive complainant success rate through the Target Date). 

CONCLUSION

We are now in a position to answer the question, what happens to all the cases? First, the cumulative settlement rate for the time period at issue, 63%, is somewhat higher than expected.  Second, the complainant win rate for the relevant period, at least at the ALJ stage, is somewhat below the historical average. These two factors lead to fewer exclusion orders.

There is no quantitative explanation for the lower settlement rate of ITC cases relative to similar district court case.[8]  It may be that the structure of Section 337 proceedings does not lend itself to settlement.  In a district court jury case, the trial, and particularly the verdict, provide a decisive moment, with the joy of victory and the agony of defeat.  At the ITC, however, there is no comparable inflection point.  The hearing does not end with a decision; rather, the ID issues about 3 months subsequent to the hearing.  The ID yields a winner and a loser, however, in virtually every case the litigants promptly seek review by the full Commission.  The decision-making process is more drawn out and does not drive settlement “on the courthouse steps.”

Moreover, the simple speed of Section 337 proceedings may militate against settlement.  It often takes time for parties’ psychology to move from that of a combatant to a strictly rational economic agent. 

Similarly, there is no definitive explanation for the complainant win rate falling somewhat below the historical average.[9]  There is constant change in the ALJs, the Commission staff, the litigants, the law and the way the Commission is perceived among litigants. Some combination of these factors may affect win rate but the more likely explanation is that it is simply an artifact of the relatively small sample size. 

In view of the foregoing, practitioners can counsel their clients that, in recent years, 1) few cases are decided on summary determination, 2) a slim majority of cases settle prior to hearing and that 3) there is roughly a 50-50 chance of an ID yielding the desired result.

[1] Schaumberg, A Lawyer's Guide to Section 337 Investigations Before the U.S. International Trade Commission at 3.

[2] ITC Inv. Nos. 337-TA-632 through 337-TA-667

[3] For purposes of this article, the term “settlement” includes default judgments and withdrawn complaints.

[4] ITC Inv. Nos. 337-TA-668 through 701.

[5] ITC Inv. Nos. 337-TA-702 through 759.

[6] This article does not track settlements occurring after the Commission’s Final Determination; however, such settlements do occur making the total settlement rate slightly higher than reported here.

[7] This is still somewhat lower than most reported district court settlement rates for patent cases.  See Patstats.org, FY 2009 PATENT CASE DISPOSITIONS BY DISTRICT COURTS (reporting 88.6% settlement rate for 2009 cases); Jay P. Kesan & Gwendolyn G. Ball, How are Patent Cases Resolved? An Experimental Examination of the Adjudication and Settlement of Patent Disputes, 84 WASH. U. L. REV. 237, 259 (2006) (reporting approximately 80% settlement rate).

[8] See, generally, Colleen V. Chien, Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission, Wm. & Mary L. Rev. 60 (2008) at 99-103.

[9] The present article counts defaults as settlements. Were these counted as judgments favorable to the complainant, the complainant win rate would be higher.

 

Federal Jurisdiction over Patent Malpractice Cases – Supreme Court Shows Interest in Gunn v. Minton

Patent,

By Dennis Crouch

Gunn v. Minton, (on petition for Writ of Certiorari at the U.S. Supreme Court)

Vernon Minton developed a set of software that he leased to the Texas Int'l Stock Exchange (TISE) more than one year before filing 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 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 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 court refused to consider that issue because of its untimely introduction.

The present lawsuit arose when Minton then 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 sued 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 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 5-3 Texas Supreme Court decision followed the lead set by 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 the panels). 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).

The lawyer defendants have now appealed to the U.S. Supreme Court – asking that court to provide its verdict on the breadth of arising under jurisdiction for non-patent cases that require interpretation of a patent law issue. Gunn presents the following question:

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?

This may be surprising to some, but in most cases the respondent does not actually file any response to a Supreme Court petition for writ of certiorari. The Supreme Court tends to only hear important cases that are well represented on both sides. The lack of response is intended to suggest that the case should not rise to that threshold level of importance. Here, Minton declined to respond to the petition. However, in a recent order, the Supreme Court has asked for Minton's response. This judicial action suggests interest in the case, and that interest may be prompted that may be further spurred by the recent spate of decisions showing some disagreement within the Federal Circuit on the very issue. In a supplemental filing in support of its petition, Gunn argued that "[t]he Federal Circuit, which created the jurisdictional morass at issue in this case, is thus split within itself regarding whether to abandon the misguided and overly-broad jurisdictional standard it articulated 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)."

If the Supreme Court takes the case, argument will likely be scheduled for late 2012.

Status of Applications

Patent

The chart below shows the status of utility patent applictions filed over the past eight years. This morning, I pulled a random sample of 10,000 patent applications published 2005–2012 and checked the application status. For the chart below, grouped the applications according to the number of years since filing and plotted the percentage that are patented, abandoned, and still pending (WIP).  Thus, for applications that were filed 7-8 years ago, just over 60% have issued as patents; about 35% were abandoned; and the remaining 3% are still pending. 

PatentlyO142

Update 1: Here, I looked application-by-application and did not consider whether a particular application had any “family history.”  Thus, an original application followed by a divisional application would be considered two separate applications in my dataset. However, the filing of an RCE does not divide the application into two for my dataset.  One reader asked about re-files.  Of the abandoned cases in my sample, about 20% have one or more “children” applications that claim priority to the abandoned application. Patented cases are much more likely to be associated with follow-on applications than are abandoned cases.

Guest Post by Dr. Shine Tu: Luck/Unluck of the Draw: An Emprical Study of Examiner Allowance Rates

Patent,

Dr. Shine Tu is an Associate Professor of Law at the West Virginia University College of law.  For the past year, Dr. Tu, a former patent attorney with Foley & Lardner, has conducted a massive empirical examination of patent prosecution.  Massive, in the sense that Dr. Tu and his assistants examined the prosecution behavior of every patent issued in the last ten years.  In Luck/Unluck of the Draw: An Empricial Study of Examiner Allowance Rates, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1939508 and forthcoming in the Stanford Technology Law Review, Dr. Tu discusses some of the findings from his study. – Jason

Luck/Unluck of the Draw: An Emprical Study of Examiner Allowance Rates

Dr. Shine Tu

One of the greatest banes of a patent applicant is the examiner who will not allow an application that should be allowable.  During a trip to the PTO for an Examiner interview, I passed by the office of Examiner X with a sign that stated “0% allowance rate ☺ [ed.: smiley face].”  Evidently, the smiley face was inserted to add insult to injury.  I asked the examiner that I was with if Examiner X really had a 0% allowance rate, and she said “yes.”  (I later verified that this was correct)  I asked why this was the case, and she stated, “some examiners believe an allowance is an affront to their being.”  Of course, our patent system would be a complete failure if the ability to get a patent was solely determined by which examiner you were lucky/unlucky enough to draw.

In an attempt to determine the extent of this behavior, I set out to comprehensively study allowance rates of specific examiners by art unit, technology center and the PTO as a whole.  To be as comprehensive as possible, I coded over 1.5 million patents in an attempt to code every patent ever issued in the last 10 years (from January 2001-July 2011).

The results of this study were surprising.  I found two interesting populations of examiners.  First, I found a significant population of examiners who on average, issue a disproportionately small number of patents per year (low allowance rate examiners).  Second, I found a small but significant population of examiners, who on average, issue a disproportionately large number of patents per year (high allowance rate examiners).

The first population of low allowance rate examiners consist mainly of secondary examiners (junior examiner usually with less than 5 years of experience and no signatory authority).  These examiners, on average, issue a very small number of patents per year (less than 5 patents per year).   For example, between 2002-2011 in technology center 3700, approximately 17% (306 examiners) of the examiners issued less than 0.35% (823 patents) of the patents in this art unit.  Accordingly, these low allowance rate examiners issued approximately 2.7 patents per examiner.

In contrast, I found a second population of high allowance rate examiners that consist mainly of primary examiners (senior examiners usually with more than 5 years of experience and full signatory authority).  These examiners, on average, issue a high number of patents per year (more than 50 patents per year).  For example, between 2002-2011 in technology center 3700, approximately 12% (215 examiners) of the examiners issued approximately 51% (120,822 patents) of the patents in this art unit.  Accordingly, these high allowance rate examiners issued approximately 561.9 patents per examiner.

There are many good reasons why an application should not be allowed.  However, one reason that should not play a role is an uneven / inconsistent application of patentability rules.  Examiners should be consistent in the way they apply patentability rules within their own docket.  Additionally, examiners should be consistent in the way they apply patentability rules compared to examiners within their art unit.  This study suggests that examiners even within the same art unit may be applying the rules of patentability in an inconsistent manner. 

There are many limitations with this study.  First, I note that there is no ideal allowance rate.  Second, I note that this is only descriptive data.  Finally, I note that I focus only on issued patents.  I could not obtain data related to the total number of filed applications for each art unit, thus I cannot calculate the percentage allowance rate per art unit (because I do not have a denominator of “filed applications”).  This is a significant limitation because all of these results are limited by the “denominator” problem.

Additionally, it is possible both populations of examiners are doing an outstanding job.  That is, it is possible that the low volume examiners are simply getting harder cases (but I am skeptical of this explanation).   Additionally, it is possible that the low volume examiners are “doing a more thorough job” since they are mainly secondary examiners and thus have more time to spend per application for review and detailed analysis.  Furthermore, it is possible that high volume examiners are doing an adequate job because they are simply more experienced and not only know the field better, but know how to quickly make “good” rejections.  In order to obtain some substantive answers to overcome these limitations, I am currently reviewing a sample of prosecution histories to determine if these two populations of examiners truly are applying the patentability rules in an inconsistent manner. 

A full draft of “Luck/Unluck of the Draw: An Empirical Study of Examiner Allowance Rates” is available on SSRN at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1939508 and is forthcoming in the Stanford Technology Law Review.  Comments are appreciated.