Exelixis v. Kappos: Court Finds PTO is Still Undercalculating Patent Term Adjustments

Patent,

by Dennis Crouch

Exelixis, Inc. v. Mr. David Kappos (as PTO Director), Case No. 1:12cv96 (E.D. Va. November 1, 2012)  Download Exelixis_and_Kappos

Judge Ellis recently sided with the patentee Exelixis in ruling that the PTO improperly under-calculated the patent term adjustment due to the patentee. The focus of the case is how the filing of a request for continued examination (RCE) impacts any eventual patent term adjustment (PTA). The judge does a nice job of clearly spelling out the holding:

In sum, the plain and unambiguous language of [35 U.S.C. § 154(b)(1)(B)] requires that the time devoted to an RCE tolls the running of the three year clock if the RCE is filed within the three year period. And, put simply, RCE's have no impact on PTA if filed after the three year deadline has passed. The PTO's arguments to the contrary are not persuasive and, accordingly, the PTO's interpretation of subparagraph (B) must be set aside as "not in accordance with law" and "in excess of [its] statutory . . . authority."

This holding further extends the scope of patent term adjustments beyond the prior enhancement identified in Wyeth v. Kappos, 591 F.3d 1364 (Fed. Cir. 2010). I am estimating that this newest change impacts about 10% of recently issued patents — particularly those whose first RCE filing was more than three years after the application's actual US filing date. Up to now, the PTO has been cutting-off further PTA beyond the RCE filing date and now those applicants are eligible to seek a greater term adjustment.  In many cases, the re-adjusted PTA will extend the term by more than one year. 

Client Alert Now to Avoid Malpractice: Patents issued within the past 180 days are eligible for a recalculation. However, that recalculation will likely require the filing of a lawsuit in the Eastern District of Virginia. 35 U.S.C. § 154(b)(4)(A). "An applicant dissatisfied with a determination made by the Director under paragraph (3) shall have remedy by a civil action against the Director filed in the United States District Court for the Eastern District of Virginia within 180 days after the grant of the patent." For patents issued within the past two months, the PTA can be corrected via a request for reconsideration under 37 C.F.R. 1.705(d). Attorneys should beware to not simply assume that their clients are not interested in the work associated with obtaining an adjustment. The second action point here is, moving forward, applicants should not file an RCE before the three-year date without first fully considering the major PTA implications.

Judge Ellis begins the opinion with the simple question presented:

Whether 35 U.S.C. § 154(b)(1)(B) requires that an applicant's PTA be reduced by the time attributable to an RCE, where, as here, the RCE is filed after the expiration of AIPA's guaranteed three year period.

The text of section 154(b)(1)(B) begins with the headline of a "guarantee of no more than 3-year application pendency." The section provides that, subject to some caveats:

[I]f the issue of an original patent is delayed due to the failure of the [USPTO] to issue a patent within 3 years after the actual filing date of the application in the United States, not including—(i) any time consumed by continued examination of the application requested by the applicant under section 132 (b), … the term of the patent shall be extended 1 day for each day after the end of that 3-year period until the patent is issued.

In reading the statute, Judge Ellis found that the caveat for continued examination (RCE filing) modifies only the calculation of the original three-year timeline. An RCE filing prior the three-year mark will permanently toll the running of that clock. However, once the three-year delay is reached, the statute requires a 1-for-1 patent term adjustment from the three year mark through patent issuance.

Thus, subparagraph (B) essentially describes two calculations. The first is a description of the calculation of the three year period: The three year clock beings to run on the date the application is filed and, except for three specific potential tolling events, including the filing of an RCE, the clock runs continuously until the three year period ends. In other words, the "not including" portion of subparagraph (B), followed by (i), (ii), and (iii), clearly and unambiguously modifies and pertains to the three year period and does not apply to, or refer to, the day for day PTA remedy. Subparagraph (B)'s second calculation is simply a day for day addition to the PTA for every day beyond the end of the three year clock until the patent issues.

By implication, the result here is "that once the three year clock has run, PTA is to be awarded on a day for day basis regardless of subsequent events."

Up to now, the PTO has cut-off further type-B PTA at the point of an RCE filing – regardless of whether that RCE was filed after the three-year period. In its argument to the district court, the PTO asked that deference be given for its expert-agency interpretation of the statute. See Skidmore v. Swift & Co., 323 U.S. 134 (1944). The court rejected that argument. Basically, Skidmore deference comes about when there is some amount of ambiguity or lack of clarity in the statute. Here, however, the court found this question unambiguous and thus "that Skidmore deference is unwarranted."

Moving forward and except for continuation applications and delayed PCT applications, this ruling essentially guarantees that newly issued patents will be given a term of at least 17-years from issuance. This result substantially subverts a primary goal of the 20-year-from-filing term to eliminate the applicant incentive to keep an application pending for a long period of prosecution prior to issuance.

The USPTO has not yet announced whether it will appeal to the Federal Circuit. 

Patent

Best line from today’s Supreme Court oral arguments in Already v. Nike:

MR. DABNEY: Your Honor, in the real world, a business competitor –

JUSTICE BREYER: No, I’m not interested in the real world. I am interested in the record.

Timing of the First Office Action on the Merits

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The average US patent issues about 3 ½ years after filing. The bulk of that time can be assigned to the initial examination queue. When USPTO officials refer to the “backlog” of patent applications awaiting examination, they are typically referring to the 600,000 or so applications that have not yet received any substantive consideration. For any given patent application, the backlog delay ends when a patent examiner issues a first action on the merits (FAOM). In the vast majority of utility applications, that first action is an initial non-final rejection of the originally filed (or preliminarily amended) claims. However, in a small percentage of cases the first action is a notice of allowance.

Based upon USPTO reports in the Official Gazette, I created the following chart considers the timeline for receiving first-actions across the various technology centers and art-units within the USPTO.

The USPTO patent examination corps is divided into a number of technology centers, and each technology center is sub-divided into one or more art units. The technology focus of each tech center is listed below.

  • 1600 – Biotechnology and Organic Chemistry
  • 1700 – Chemical and Materials Engineering
  • 2100 – Computer Architecture, Software, and Information Security
  • 2400 – Computer Networks, Multiplex communication, Video Distribution, and Security
  • 2600 – Communications
  • 2800 – Semiconductors, Electrical and Optical Systems and Components
  • 2900 – Designs
  • 3600 – Transportation, Construction, Electronic Commerce, Agriculture, National Security and License & Review
  • 3700 – Mechanical Engineering, Manufacturing, Products

The chart above is a histogram that graphically represent the time from filing to first-action for each technology center and art unit. More particularly, it reports on the pendency of applications at FOAM for each art unit averaged over the months of June, July, and August 2012. You’ll note that only one art-unit has an average time-to-first-action of less than one year. That art unit is something of a cheat because it is the single Design Patent art unit (2900). As I have noted before, the USPTO’s examination of design patents is roughly equivalent to no substantive examination on prior art grounds. The second quickest art unit is 1660 – again a cheat because it is the unit responsible for plant patents. The slowest art unit here is 2190 (data processing). I should note that the “art unit” level that I discuss here are actually grouped by tens such that 2190 is a considered a single art unit for my purposes even though it includes art units 2192-2196.

One focus of the PTO under Director David Kappos and PTO Commissioner Peggy Focarino has been to focus on outliers within the organization and shift resources in order to bring all art units within a tighter sphere of activity. Thus, one of the PTO’s initiatives has focused on ensuring that all very old cases have received at least one office action on the merits. The PTO recently completed its second round of its COPA project (Clearing the Oldest Patent Applications 2.0). In each round, the Office has set a filing date cutoff and pushed examiners to ensure that all applications filed prior to that date had actually been examined. For COPA 2.0, the cutoff date was September 1, 2010. When the project began in at the end of September 2011 there were almost 300,000 applications filed prior to that date that had not yet received any action. At the end of the project in September 2012, there were only about 33,000 remaining in that subset of old cases.

Next time I make this chart, none of the art units should pass the 2.0 year mark for FAOM. Although not the focus of the post, the PTO offers an option for applicants to skip the queue by paying a $4,000 fee to accelerate the examination.

Moving Away from Beauty as a Factor in Design Patent Validity

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Guest Post by Professor Andrew W. Torrance. This post is a shortened version of Professor Torrance’s recently published article titled Beauty Fades: An Experimental Study of Federal Court Design Patent Aesthetics, Journal of Intellectual Property, Volume 19, Issue 2 (2012) available at http://ssrn.com/abstract=2156943.

Introduction    

Courts are rarely asked to judge beauty. Such a subjective practice would normally be anathema to the ideal of objective legal standards. However, one area of federal law has a long tradition of explicitly requiring courts to make aesthetic decisions: the law of design. Examination of design patent law offers unique insight into how aesthetic considerations have been, and are currently, employed by courts to make legal decisions.

In the United States, patent law offers protection for inventions originating within diverse fields of endeavor. In addition to utility and plant patents, design patents represent a third category of patent rights, which are available to inventors of "any new, original and ornamental design for an article of manufacture . . . ." (35 U.S.C. §171). Since they were first made available in 1842, more than 630,000 design patents have issued in the United States. The very first design patent was issued to George Bruce in 1842 to protect a new "Type" font (U.S. Patent No. D1). Later design patents issued to protect such iconic designs as the Statue of Liberty (D11,023, granted to Auguste Bartholdi) and the Coca-Cola bottle (D48,160, granted to H. Samuelson). Over the past several years, design patents have enjoyed a resurgence in popularity, with applications to the United States Patent and Trademark Office increasing markedly (Steven L. Oberholtzer, The Basic Principles Of Intellectual Property Law 6, 2d ed. 2009).

Not unsurprisingly, many courts have interpreted U.S. design patent law to require an element of artistry. Although no such requirement was explicitly present in the original design patent statute, the Patent Act of August 29, 1842 (ch. 263, 5 Stat. 543), judicial interpretations of the ornamentality requirement often appeared to necessitate that designs possess features that were aesthetically pleasing to the human eye. In Blisscraft of Hollywood v. United Plastics Co., 294 F.2d 694, 696 (2d Cir. 1961), the court mandated that "[a patented design must] be the product of aesthetic skill and artistic conception." As recently as 1989, in dicta from Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 148, the U.S. Supreme Court echoed the view that, to be patentable, designs must be visually attractive, explaining that, "[t]o qualify for protection, a design must present an aesthetically pleasing appearance that is not dictated by function alone, and must satisfy the other criteria of patentability." Thus, the legal requirement that a design patent be "ornamental" was long interpreted to necessitate artistry or an aesthetically pleasing effect.

Roughly coincident with the creation of the Court of Appeals for the Federal Circuit ("CAFC") in 1982, design patent law doctrine appeared to change direction, as aesthetic considerations were deemphasized in deciding the validity of designs claimed in patents. This shift was decisively heralded a decade later, in Seiko Epson v. Nu-Kote International, 190 F.3d 1360, 1368 (1999), when the CAFC stated "the 'ornamental' requirement of the design statute means that the design must not be governed solely by function. . . ." So well accepted has the non-artistic interpretation of the law become that law firms now generally counsel their clients that aesthetic considerations hold little relevance for design patents. To illustrate how well accepted this principle is, consider the following statement about design patent law on page 7 of The Basic Principles of Intellectual Property Law (Second Edition, 2009), a primer of intellectual property law freely distributed to potential clients by the venerable law firm, Brinks Hofer Gilson & Lione: "There is no requirement that the design be artistic or pleasing to the eye." The trend away from aesthetic interpretations of the ornamentality requirement has brought U.S. design patent law closer to that in other jurisdictions, such as the European Union and Canada, where aesthetic considerations appear to play little role in determining the validity of design patents or registrations.

Experiment and Results

An experimental approach was used to test the hypothesis that aesthetic considerations in design patent law have, indeed, diminished over the last thirty years. All design patents from 1982 (that is, the creation of the CAFC) to 2010 in which a court made a final determination of validity or infringement were identified, and each design patent therein scored for validity and infringement. Then, in a controlled experiment, human subjects were asked to score the attractiveness of all the patented designs at issue in these cases.

The experimental results indicate that, at the beginning of the time period considered, patents claiming the least attractive designs were most likely to be found invalid, those claiming designs of intermediate attractiveness fared better in terms of validity, but were found to have been infringed relatively less often, and patents claiming the most attractive designs were most likely to be found both valid and infringed. In other words, aesthetically pleasing designs claimed in patents tended to fare better in court than did less attractive designs. However, the results also indicate that, while the attractiveness of patented designs found valid, whether infringed or not, has changed little since 1982, the average attractiveness of patented designs found invalid has risen markedly over time. In fact, in contradistinction to the situation early in the time period surveyed, the attractiveness of a design claimed in a patent has now become a poor predictor of judicial outcome. Design beauty appears to have ceased to be a useful predictor of judicial outcome in design patent litigation.

A few of the experimental results of this study are illustrated below. Complete results for all litigated design patents, by type of court (that is, all federal courts, federal district courts, and the CAFC), and litigation outcome (that is, validity, invalidity, infringement, and non-infringement) can be found in the full version the article, available as a free download at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2156943.

FIGURE 1 is a scatterplot graph that depicts the mean attractiveness of all design patents according to the year in which a court ruled on their validity or infringement. FIGURE 1 also shows the results of a linear regression of these data. The regression analysis shows very little change (y = 0.0132x – 21.511, R² = 0.0146) in the attractiveness of patented designs from 1982 to 2010.

FIGURE 2 is a scatterplot graph that depicts the mean attractiveness of all design patents found invalid by a court by year of court ruling. FIGURE 2 also shows the results of a linear regression of these data. The regression analysis shows a more substantial rise (y = 0.0495x – 93.82, R² = 0.2183) in the attractiveness of patented designs found invalid from 1982 to 2010.


Discussion

a. Overall stability in attractiveness

For most of the categories of outcome and types of courts considered there was little change in the measured attractiveness of patented designs from 1982 to 2010. These results apply to patented designs found to be (1) valid but not infringed and (2) both valid and infringed, and pertain to results from both federal district courts and the CAFC. These data show little evidence that the attractiveness of patented designs held valid (whether infringed or not) changed from 1982 to 2010 across most categories of outcome and types of court.

b. Rise in attractiveness of PATENTED designs HELD INVALID

The most striking pattern in the data involves patented designs finally found invalid by a court. The data indicate a marked rise in measured attractiveness of these patented designs from 1982 to 2010. This pattern is remarkably consistent whether considered across all federal courts (y = 0.0495x – 93.82, R² = 0.2183), in federal district courts (y = 0.0442x – 83.227, R² = 0.213), or in the CAFC (y = 0.0968x – 188.48, R² = 0.2363). These results roughly match an observed shift in design patent doctrine away from an aesthetics requirement occurring since the advent of the CAFC. From 1982 to 2010 courts became increasingly likely to find attractive patented designs invalid. By contrast, the data suggest that, during the early years of the time period studied, less aesthetically attractive patented designs were more likely to be found invalid while more aesthetically attractive patented designs were more likely to found valid. This trend away from aesthetics as a factor in invalidity is mirrored in both the doctrine and the data.

c. Policy implications

There may be policy advantages to dropping the requirement for aesthetics, chief among which may be improved consistency in making decisions about design patent validity. Judgments about attractiveness are inherently subjective, depending as they do on the personal aesthetic sensibilities of the judges who determine design patent validity. Relying, instead, on a more objective test of ornamentality, such as lack of functionality, is likely to lead to improved consistency in validity determinations, not only in court and at the USPTO, but also among design patent owners considering infringement litigation and defendants attempting to avoid such actions.

A second salutary implication for policy involves the harmonization of U.S. design patent law with standards of intellectual property law prevailing internationally. The weakening of the aesthetics requirement in its design patent law has moved the United States towards the design protection laws that predominate in most other jurisdictions, such as the European Union and Canada. Access to a similar test of design patent (or design registration) validity across jurisdictions may afford design patent owners advantages of efficiency, since determinations of validity in one jurisdiction would be more likely to hold true in others.

Conclusions

Coinciding approximately with the inception of the CAFC, design patent doctrine appears to have begun to shift away from an aesthetic interpretation of the statutory ornamentality requirement. In particular, the measured attractiveness of patented designs finally found invalid by courts has increased substantially over the last three decades. Both legal doctrine and experimental results agree that beauty appears to have faded as a requirement for design patent validity.

Andrew Torrance is a Professor at the University of Kansas School of Law, a Visiting Scholar at MIT Sloan School of Management, and a Research Fellow at the Gruter Institute.

Pending Patent Applications: Delays in Prosecution and Patent Term Adjustments

Patent

The chart above shows the current patent application status for US utility patents grouped by patent application filing date (quarter). For applications filed in the first quarter of 2005 (almost eight years ago), about 61% of the applications have issued as patents, 34% have been abandoned, and 5% are still pending. Because examination takes time to complete, a greater percentage of more recently filed applications are still pending. The chart is helpful for some patent applicants to think about where their applications fit within the range of ordinary.

The chart itself is limited only to published applications because that is the only way to peek into the status of abandoned or still pending applications. Because of that limitation, ignored applications filed after March 2011 because many of those have not yet published. The patented data (in blue) was generated from a dataset that I created of all patents that have issued since January 2005. The abandoned and pending portion of the chart was created from a randomly-sampled subset of about 10,000 applications that were published but not yet patented during the appropriate time period. For applications claiming PCT priority, I used the US national stage filing date.

Although seemingly small, the 5% of applications that are still-pending after eight years in prosecution is concerning for a number of reasons. Most of these applications have been delayed by one or more appeals to the BPAI (now PTAB). Those patentees could have likely obtained earlier protection (with narrower scope), but the delay is often not a problem for the patentee because our generous patent-term-adjustment (PTA) scheme means that the term will keep being extended one day for each day in prosecution. For professionally prosecuted patents, the US patent term has largely reverted to one that is once-again based upon the patent issue date rather than the filing date.

IP Rights Won’t Stop the Election: Federal Circuit Rules that Florida Voting Machines do not Infringe Patentee’s Exclusive Rights

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By Dennis Crouch

Voter Verified v. Premier Election Solutions and Diebold (Fed. Cir. 2012)

On the eve of the 2012 US Presidential Election, the Federal Circuit has released its opinion affirming two Florida district court judgments that 93 of Voter Verified’s asserted patent claims are invalid and the one remaining claim is not infringed by either that the remaining are not infringed by the automated voting systems sold by Premier Election Solutions and Diebold. This result rescues the court from deciding whether injunctive relief to stop voting in Florida would be against the public interest. See eBay v. MercExchange, 547 U.S. 388 (2006)

The asserted patent was originally filed as a patent application in December of 2000 in the wake of the Bush-Gore election debacle in Florida. The patent lists two inventors, including patent attorney Anthony Provitola who prosecuted the patent and litigated the case. The basic idea of the invention is to print a paper copy of the electronically-entered vote and then using the paper copy to verify that the recorded information is correct. See RE40,449.

The decision includes two topics for discussion:

Internet postings as prior art: One prior art reference used to invalidate various claims came from an online posting available through the niche website “Risks Digest.” There was clear evidence of its posting date, however, the patentee argued that the posting did not qualify as a “printed publication” under Section 102(b) because it was not sufficiently accessible to the public interested in the art by the critical date. Rejecting that criticism, the Federal Circuit noted that proof of indexing is not a requirement. Rather, what is necessary is proof that the reference was “available to the extent that persons interested and ordinarily skilled in the subject matter or art, exercising reasonable diligence, can locate it.” (Quoting SRI v. ISS and Bruckelmyer). Applying a totality-of-the-circumstances approach, the court found that availability was proven by the facts that: the reference was available online before the critical date; the site was well known to relevant individuals (those concerned with electronic voting technologies); by the critical date the site included more than 100 electronic voting articles; users of the site consider submissions to be public disclosures; and the site includes an internal search engine that would retrieve the prior art article based on searches for “voting” or “election.”

Joint Infringement: Some of asserted method claims required action by multiple parties (including “the voter”) that could potentially be actionable under Akamai Technologies, Inc. v. Limelight Net­works, Inc., 692 F.3d 1301 (Fed. Cir. 2012) (en banc). However, the appellate panel found that the patentee had waived that argument at the trial level and could not raise it on appeal even though the law has changed in the interim.

Of note, in Akamai the en banc Federal Circuit focused exclusively on indirect infringement and expressly refused to comment on whether prior panel decisions had unduly narrowed the scope of direct infringement. However, the court did vacate the panel decisions in Akamai and McKesson. Here, however, the court falls back on the still-standing precedent in the parallel decision of BMC and Muniauction to limit the scope of direct infringement liability only to cases where the accused direct infringer “either performs every step of the claimed method or exerts ‘direction or control’ over any such steps performed by others.” Since control of “the voter” would be akin to voter fraud, the court here held that no such direct control exists.

Don’t forget to Vote. Below is a photo of Obama that I posted back in 2004 when he was running for senate and voting near my home in Hyde Park (Chicago), IL.

Notes: Just to clear up any confusion from my reference to eBay above, there is no chance that the Federal Circuit would have ordered an injunction to stop the election even if the devices were infringing VV’s exclusive patent rights.

A Rush to File Ex Parte Reexaminations and Now a Lull

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By Dennis Crouch

Historically about two thirds of ex parte reexaminations were filed by third-party filers. In recent years, that figure has risen so that now around 90% of ex parte reexamination requests are filed by third-parties. The America Invents Act of 2011 (AIA) made only a very limited change to the ex parte reexamination structure. The greatest change, however, came about on September 16, 2012 when the USPTO instituted a new fee regime that boosted the cost of ex parte reexaminations from $2,520 to $17,750.

In the days leading up to September 16, 2012 there was a rush to file these ex parte reexamination requests in order to beat the fee deadline. The 200 or so requests filed in the final week is equivalent to about four months of filing in more ordinary weeks. With that in mind, it is not surprising that the post-September-16 filings are at a much lower rate – about one third of the pre-implementation rate for the past seven weeks.

By new year (January 2013), any gap created by the rush to file should be dissipated. However, I don’t expect for the ex parte reexamination filings to be back to their normal pre-AIA rate because of the new high-cost of filing ex parte reexaminations and because supplemental examination is now a better alternative for the majority would-be owner-filed reexaminations. The one caveat is that the new increased expense of inter partes review may push some challengers toward the ex parte approach.

Notes

  • Upcoming – A review of recently filed supplemental examination requests.
  • If you are worried that the drop in filing post-implementation will harm the USPTO’s bottom line, don’t worry. The PTO’s CFO should see the raise in fees as a very good business move. The PTO now has two thirds less work coming-in but each bit of work receives seven times more revenue. More money for less work is never a bad thing (unless you are the customer).
  • Eight Points about September 16, 2012
  • A Rush to File at the End of Inter Partes Reexaminations

Reviewing Inter Partes Review: After Six Weeks

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Six-weeks into the new inter partes review regime, third parties have filed a total of 41 inter partes review requests – each one challenging a single patent. Of these, I identified 34 (82%) as already being involved with prior litigation in court. Most of the prior-litigation is patent infringement litigation. However one case (involving Sony & Tessera) stems from a licensing dispute between the companies. Of the seven patents that have not been subject to prior litigation, five appear to be part of a retaliation game between Intellectual Ventures and Xilinx. IntVen challenged four Xilinx patents in an apparent retaliation against a prior declaratory judgment filed by Xilinx. Not to be outdone, Xilinx then filed its on IPR against an IntVen patent. In a sense, IntVen’s actions may serve as a warning against other potential licensees who refuse to deal. The final two non-litigation IPRs appear to be focal points of disputes between fairly small competitors.

The point of all this is fairly obvious – that inter partes reviews are being used only when there is a major dispute between the patentee and the third-party filer. The filings used in parallel to district court and ITC litigation were entirely expected. It was not so apparent that inter partes review would be used as a pawn in a larger battle between companies. The small number of filings helps to confirm the strong prediction that inter partes reviews will not be used as a tool to limit the number of “bad” patents.

In these cases, the patent owner has three months to file a preliminary response (or waive that filing). Following that, the USPTO has three months to determine whether or not to grant the inter partes review request. At that point, the statute calls for a final determination from the PTO within 12 months.

Age of Patents when Asserted

Patent,

By Dennis Crouch

The chart above is a histogram showing the age of utility patents at the time when an infringement complaint is filed. I used the Derwent LitAlert patent database and limited the search to only lawsuits filed Sept 16, 2011 – Sept 15, 2012 (this avoids false marking cases). I also excluded cases that were identified as declaratory judgment lawsuits in the LitAlert database. The data has some holes but it is roughly accurate.

Supreme Court on Patent Law 2013

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The Supreme Court is scheduled to decide four intellectual property cases this term:

  • Bowman v. Monsanto (patent exhaustion in second generation of GM seeds)
  • Kirtsaeng v. John Wiley & Sons, Inc. (international copyright exhaustion)
  • Already, LLC v. Nike, Inc. (impact of limited covenant-not-to-sue on declaratory judgment jurisdiction in trademark law)
  • Gunn v. Minton (whether legal malpractice claims arising out of representation in a patent dispute should be heard by the Federal Circuit)

There are several more pending petitions for certiorari. The most notable of these is Association for Molecular Pathology (AMP) v. Myriad Genetics (patentability of isolated but naturally occurring human DNA). A second important pending petition is Retractable Technologies, Inc. v. Becton, Dickinson and Co. (de novo review of claim construction). More than a dozen other petitions have been filed or are likely within the next two months.

Mossoff and Epstein on Patent Rights

Patent

By Dennis Crouch

Professors Adam Mossoff and Richard Epstein recently had an interesting discussion on the public policy concerns over the current patent system. Both professors are active participants in Federalist Society debates, and this discussion stems out of that format.

The audio podcast is available for free at this link: http://www.fed-soc.org/publications/detail/patent-rights-a-spark-or-hindrance-for-the-economy-podcast

Duty to Use Your Property and Your Patents

Patent

By Dennis Crouch

Cornell professors Eduardo Penalver and Oskar Liivak have an interesting new essay on the absence of any use requirement in patent law. In the 1908 case of Continental Paper Bag Co. v. Eastern Paper Bag Co., the Supreme Court held that patent owners have no duty to actually practice their patent. In that case, the court tied their analysis to real property where it recognized “the privilege of any owner of property to use or not use it, without question of motive.” In their essay, Penalver and Liivak challenge this notion of real property and, in turn, challenge its use as a metaphor for patent rights. They write:

[T]he law significantly hems in the rights of owners not to use their property, employing numerous doctrines, such as nuisance, abandonment, adverse possession, and permissive waste, to ensure that owners’ decision not to use their property does not inflict harm on others. Even with respect to attentive nonuse, owners’ rights are qualified, both by common law doctrines like necessity and by the state’s power to override (or at least influence) owners’ decisions about nonuse through eminent domain, regulation and taxation.

The essay also challenges the property/patent metaphor as inapt because of the “nonrivalrous nature” of information and “because of the particularly powerful way that patent law constrains the freedom of nonowners.”

Edwardo Penalver and Liivak, Oskar, The Right Not to Use in Patent and Property Law (October 16, 2012). Available at SSRN: http://ssrn.com/abstract=2162667

Kirtsaeng v. John Wiley Oral Arguments

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Kirtsaeng v. John Wiley & Sons, Docket No. 11-697 (Supreme Court 2012)

Here are a few quotes from today’s oral arguments. More discussion of the case here.

….

MR. ROSENKRANZ: (on behalf of accused infringer Kirtsaeng): What [copyright holders] got [with the passage of Section 602] was a much more powerful weapon than a contract. [A] copyright weapon gives you injunctive relief, gives you multiples of damages which you don’t get out of a contract remedy.

MR. ROSENKRANZ: The moment that a manufacturer learns that this Court says you get what we’ve called the Holy Grail of manufacturing, endless eternal downstream control over sales and rentals, you can ruin secondary markets that are competing with you, the moment that happens, that will be yet another reason for manufacturers silently to decide that they’re headed — that they’re sending their manufacturing overseas.

….

JUSTICE KAGAN: Mr. Rosenkranz, can I take you back to Justice Ginsburg’s opening question? Just as a matter of copyright theory, I had always understood [that] a copyright holder has a kind of a bundle of rights. It’s not one right that applies everywhere in the world. It’s you have your U.S. rights and you have your Chinese rights, you have your rights under each jurisdiction’s law. And your position is essentially to say that when I sell my Chinese rights to somebody, I’m also selling my U.S. rights to that same person, because the person who has the Chinese rights can just turn around and import the goods. I mean, that’s the nature of your position, isn’t it, that your U.S. rights are always attached when you sell more — your rights under the jurisdiction of another country?

MR. ROSENKRANZ: Well — so first, Your Honor, back in 1976, this notion of geographic division was very, very new, so it’s not at all clear what Congress was thinking with that — with respect to that. But secondly, no, we’re not — we’re not saying that when the owner sells his Chinese — its Chinese rights to the Chinese company, it is selling all rights. Certainly, the Chinese company cannot sell everywhere, but after that first sale, all of the manufacturer’s rights are cut off.

….

JUSTICE BREYER: I mean, an American copyright holder licenses a British company to publish the work under British copyright law. 602(a) says he can’t import the books into the United States, period…. The question is what happens when he sells it to his bookstore and you or I go in and buy it and we want to give a copy to our wife when we get back to the United States. The question is, … is that unlawful? … [What if] I bring back five copies and I give one to my son?

MR. OLSON (arguing on behalf of the copyright holder John Wiley): Well, there are fair use exceptions …

….

JUSTICE BREYER: [I]magine Toyota, all right? Millions sold in the United States. They have copyrighted sound systems. They have copyrighted GPS systems. When people buy them in America, they think they’re going to be able to resell them…. Under their reading, the millions of Americans who buy Toyotas could not resell them without getting the permission of the copyright holder of every item in that car which is copyrighted?

MR. OLSON: … that is not this case….

JUSTICE KENNEDY: You’re aware of the fact that if we write an opinion with the — with the rule that you propose, that we should, as a matter of common sense, ask about the consequences of that rule. And that’s what we are asking….

JUSTICE BREYER: I would like to know, if you were the lawyer for the Toyota distributor, and if you were the lawyer for the Metropolitan Museum of Art, or you are the lawyer for a university library, and your client comes to you and says, my God, I just read the Supreme Court opinion. It says that we can’t start selling these old books or — or lending them or putting them in our word processor or reselling the Toyota without the — without looking — displaying the Picasso without the permission of the copyright holder, who may or may not be Toyota itself. What, as their lawyer, do you tell them? Do you tell them, hey, no problem; or, do you tell them, you might become a law violator; or, do you tell them, I better litigate this? What do you tell them?

MR. OLSON: Well, each one of those situations that you posit, Justice Breyer, has a whole panoply of set of facts. With respect to the museums, with respect to the person bringing books into the United States, there are other defenses, including fair use. There are other defenses under the copyright law. But — and one of the things is that, to a certain extent, if you’re going to use the product created by someone else in a way that’s contemplated by the copyright laws, maybe it’s required that you actually comply with the copyright laws by going to the owner of the copyright and saying, look, here’s what I propose to do, can I have a license to do this?

…

JUSTICE GINSBURG: Mr. Olson, do you have an answer to the outsourcing problem and the charges that if you read the statute as you are urging, then you are inviting the outsourcing of manufacturing jobs?

MR. OLSON: There are several answers to that. One, that’s Congress’s concern. And — and there is no evidence that that would really actually happen. And Congress was concerned with creating a segmentation of the market. But it’s entirely speculative as to whether or not people are going to start manufacturing books or other items outside the United States. Congress can address that if that should become a problem, but it’s not something that was suggested as a part of what was taking place at that time.

…

JUSTICE BREYER: Well, the word has grounding. [What about the ancient principle found in] Coke on Littleton, 1628, where it says that “if a man be possessed of a chattel and give or sell his whole interest upon a condition, that condition is no good.” And Coke says, and that’s how it should be. And now that’s picked up in Bobbs-Merrill; it’s picked up in Dr. Miles. It’s been the law. Now if, in fact, there are two ways of interpreting the statute, and one is consistent with that basic principle of commercial law, and the other produces some of the complexities that you have just mentioned, isn’t it better to go with the common law and simply reaffirm a principle that’s been in the commercial law almost forever?

MR. STEWART (arguing as amicus on behalf of the US Government): I give two answers for that. And the first is that Coke was saying that, in most circumstances at least, a sale is sufficient in order to divest the owner of his prior right to control distribution, but it doesn’t say that a sale is necessary. And my point is that when Mr. Rosenkranz says the hypothetical foreign publisher who makes copies with authorization but ships … them into the United States without [authorization] could be held liable for infringement, there is nothing in section 109(a) that would allow a court to draw that distinction; that is, although 109(a) is sometimes referred to as a codification of the First Sale Doctrine, it doesn’t require an antecedent first sale. So as long as the foreign publisher was the owner of the books at the type — time they were manufactured, if those books were lawfully made under this title, under Petitioner’s reading they could be imported and distributed. We know also that this was not an oversight, that Congress didn’t intend the provision to be subject to a sort of implicit first authorized sale requirement, because the language was intended to cover copies that were made pursuant to a compulsory license.

….

No direct mention of patent law in the oral arguments.

International Copyright Exhaustion: Supreme Court to Decide Whether Copyright Holders Can Block Imports

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By Dennis Crouch

Kirtsaeng v. John Wiley & Sons, Inc. (Supreme Court 2012)

Oral arguments are being held this morning in the Kirtsaeng copyright case involving international exhaustion. The case has direct implications on international patent law considerations.

Kirstaeng purchased legitimate copies of Wiley textbooks in various foreign countries and then imported those into the US for resale. The international versions of the textbooks vary somewhat from the US version (e.g., the foreign version covers evolution and is printed on cheaper paper). However, Kirtsaeng was able to find a substantial US market for the books and used the revenue to fund his own education. Copyright includes the exclusive right of distribution, and resale of a product is typically seen as a form of distribution. 17 U.S.C. 106. A separate provision also bars importation of copyrighted works without permission of the copyright holder. 17 U.S.C. 602(a)(1). However, the copyright statute also includes an exception known as copyright exhaustion or the first sale doctrine. 17 U.S.C. 109. The statute provides:

[T]he owner of a particular copy … lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.

Patent law has an equivalent doctrine. Notably, however, the patent law doctrine of exhaustion is not bound by any statute but does stem from parallel common law origins. The exhaustion doctrine allows for a robust secondary market for goods.

In this case, Wiley wants to use its US copyrights to block Kirtsaeng from reselling his books. Kirtsaeng argues that he purchased non-counterfeit authorized copies of the books and that Wiley’s copyrights are therefore exhausted. Wiley, in turn, focuses on the statute and argues that the US copyright is not exhausted because the foreign-made books were not “lawfully made under this title” where “this title” refers to the US Copyright Act. In its appellate decision, the Second Circuit agreed with Wiley and held that the foreign sale did not trigger the Section 109 exception. The decision supports a notion of country-by-country price discrimination of works protected by copyright (or patent). Unfortunately for US consumers, the price of these goods is typically higher in the US than abroad. In addition to price discrimination, the law is also being used to control access to goods in various countries. In many cases, these ideas have been implemented as mechanisms for preventing important of goods that do not – at first glance – appear to be protected by intellectual property. In the Supreme Court cases of Costco v. Omega and Quality King Distribs., Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998), the asserted copyrights were unrelated to the value of the product being sold. In Costco, the protected copyright was a small symbol on the under-side of the watch while in Quality King, the protected copyright was the shampoo bottle label. (On remand, the district court dismissed Omega’s action on the ground of copyright misuse.)

The Supreme Court is hearing oral arguments in the case this morning. In 2010 the court heard Costco v. Omega. In that case, however, the court was deadlocked 4-4 (thus affirming the copyright holder’s position). The ninth justice that will sit on this case is Justice Kagen who had recused herself in 2010 – apparently after working on the case as Solicitor General. In her absence, the DOJ has supported the copyright holders in arguing against international exhaustion.

In my view, Wiley likely has the better argument based on a straight reading of the statute. However, the implementation of Section 109 was largely a codification of the 1908 Supreme Court decision in Bobbs-Merrill Co v. Straus. And, it appears that international copyright exhaustion was on the mind of Congress at that time. Further, we already know that if the text of the statute is construed as copyright holders suggest, then the statute does not entirely define the scope of exhaustion. For instance, authorized sales within the US are seen as exhausting the copyright even if the work was not “lawfully made” in the US. In my mind, this opens the door to a potential atextual expansion of the exhaustion doctrine.

There are several interesting briefs filed in the case. The IPO, AIPLA, ABA all support the copyright holders rights to block importation of goods that the copyright holder sold abroad. For the most part, these organizations say that their arguments are “limited to the Copyright Act” and should not be read into “other fields, such as trademark and patent law” which “involve distinct statutory schemes and implicate separate policy concerns.”

A group of law professors led by Jason Shultz filed an amicus brief and argues that the Wiley’s argument “runs contrary to the statutory context in which § 109(a) appears, the common-law backdrop against which Congress legislated, and analogous principles of patent law as well.” Federal Circuit precedent on the topic runs parallel to the Wiley decision finding no international exhaustion. See Jazz Photo Corp. v. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001) and Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368 (Fed. Cir. 2005). Interestingly, the brief rejects the Jazz Photo cases as against the weight of past and present Supreme Court precedent on the topic.

Mark Lemley filed a brief on behalf of Powell Books, et al. that runs in parallel with a brief filed by a group of art museums. Both briefs argue that their respective operations (selling used books and showing artwork) have long relied upon international exhaustion. If copyrights are not so exhausted, both business models will suffer greatly.

Notes:

Good Things Come in Threes? DOJ, FTC and EC Officials Wax Eloquent About FRAND

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Guest Post By Professor Jorge L. Contreras

For years, developers of standards in the information and communications technology (ICT) sector have committed to license patents that are essential to those standards on terms that are "fair, reasonable and nondiscriminatory" (FRAND). This February, I summarized the reasons that these vague but somewhat reassuring commitments have become so prevalent in the industry. Since then, the litigation over FRAND commitments has only intensified. In April, I summarized the major pending lawsuits that revolve around allegations that FRAND commitments have been violated. One of these, Microsoft v. Motorola (W.D. Wash.) is scheduled to go to trial on this issue in November, and Judge Robart has suggested (some would say threatened) that he may define FRAND for the parties if they can't reach agreement before then.

Against this backdrop, regulators in the U.S. and Europe have actively pursued a FRAND clarification program of their own. As I noted in February, the U.S. Department of Justice (DOJ) appears to have persuaded Microsoft, Apple and Google to release a trio of "voluntary" statements describing their interpretations of FRAND. This public display occurred in connection with DOJ's review (and approval) of major patent acquisition transactions by each of these parties. The European Commission, which approved Google's acquisition of Motorola Mobility shortly thereafter, also exhibited a keen interest in Google's view of FRAND commitments.

Six months later, there has been another flurry of FRAND clarifications. This time, however, guidance is being offered not by companies, but by the regulators themselves (or, rather, by senior agency officials speaking "on the record" at public events). These include the following speeches by officials of the DOJ, FTC and EC:

  • Jon Leibowitz, Chairman of the FTC, at the Georgetown Global Antitrust Enforcement Symposium (September 19),
  • Joseph Wayland, Acting Asst. Attorney General in the Antitrust Division of DOJ, at the Fordham Competition Law Institute (September 21),
  • Joaquin Almunia, Vice President of the European Commission responsible for Competition Policy, also at Fordham (September 20),
  • Fiona Scott-Morton, DOJ Deputy Asst. Attorney General for Economic Analysis, at the National Academies of Science (NAS) Symposium on Management of Intellectual Property in Standard Setting Processes (October 3),
  • Howard Shelanski, Director of FTC Bureau of Economics, also at NAS (October 4), and
  • Renata Hesse, Deputy Attorney General in the Antitrust Division of DOJ at the International Telecommunications Union (ITU) Patent Roundtable (October 10)

It is no coincidence that these officials each came forward with comments regarding FRAND within a few weeks of each other. As suggested by Dr. Scott-Morton, this effort was at least loosely coordinated within the three agencies, each of which is actively involved in matters involving the licensing of patents essential to industry standards. For example, the FTC has initiated an investigation of Google/Motorola in relation to its FRAND licensing practices and submitted a public statement to the ITC in Microsoft's case against Motorola (now resolved), the EC has launched FRAND-related investigations of both Google/Motorola and Samsung, and the DOJ is reported to have opened an investigation into Samsung's practices in this area. But despite the clear desire by these three agencies to send a message to the industry regarding FRAND, the scope of that message is not entirely clear. Below is a brief summary of the FTC, DOJ and EC officials' statements regarding FRAND:

Injunctive Relief. If the agency viewpoints share on one thing, it is a strong aversion to injunctions that seek to block the use of a standard after a FRAND commitment has been made. However, even here the extent of agency accord is unclear. For example, Mr. Almunia declares that "the worst-case scenario is when a company willing to take a license for standard-essential patents is hit by an injunction" (Almunia, p.6), yet he does not indicate whether, or on what basis, such an injunction might be limited. The FTC's position on injunctive relief is more restrained, and Chairman Leibowitz only notes that such relief may be "in tension" with the FRAND commitment (Leibowitz, p.7). This statement is consistent with the FTC's earlier comments to the ITC, suggesting that if a patent holder has made a "reasonable royalty offer" that has subsequently been refused by an infringer, relief in the form of an exclusion order might be appropriate. The most steadfast opponent of injunctive relief in the face of a FRAND commitment appears to be DOJ, which tipped its hand back in February when it applauded Apple's and Microsoft's statements "that they will not seek to prevent or exclude rivals' products from the market", while viewing Google's more qualified commitment as "less clear". Mr. Wayland refers to these earlier statements (Wayland, p.7), and to his testimony before the Senate Committee on the Judiciary, which held hearings on ITC exclusion orders in September (Wayland, p. 10-11). With respect to ITC exclusion orders he echoes the FTC's position, which has generally disfavored injunctive relief for FRAND-committed patents due to the increased leverage that negotiating in the "shadow" of such an injunction can give to the patent holder (FTC 2011 Report, p.225-26). But like the FTC in its recent public comments to the ITC, he indicates some tolerance for such injunctions when a potential licensee has not negotiated reasonably or is beyond the reach of the U.S. courts (Wayland, p.10-11). However, it is FTC Chairman Leibowitz who makes the boldest statement regarding injunctive relief, suggesting not only that such relief should not be granted in the face of a FRAND commitment, but that even seeking such relief could amount to unfair competition under Section 5 of the FTC Act (Leibowitz, p. 9). He thus warns companies that violating their FRAND commitments could lead to enforcement actions by the agency.

Antitrust and Competition Law Claims. Several of the agency officials suggest that violation of FRAND commitments could, under certain circumstances, constitute violations of antitrust or competition law. Mr. Almunia, for example, while acknowledging that the recent smartphone patent wars are "primarily patent cases, not competition cases", goes on to suggest that "this state of belligerence may encourage a company to use its patents as weapons to harm legitimate competitors" (Almunia, p.5). Ms Hesse of DOJ notes the "risks to competition" that may arise from collaborative standards-setting and so-called "patent hold-up" (Hesse, p.5). And Mr. Wayland unambiguously states that "the [Antitrust] division is ready to enforce the antitrust laws against standard-setting activities that harm competition" (Wayland, p.8). Mr. Almunia likewise indicates that the EC is "willing to provide clarity to the market through our enforcement" (Almunia, p.6).

But perhaps the most interesting comments regarding antitrust remedies are Chairman Leibowitz's statements regarding the "unfair methods of competition" that may result from seeking an injunction in the face of a FRAND commitment (Leibowitz, p.9). As noted above, he suggests that such conduct may run afoul of Section 5 of the FTC Act "which, as all of us in this room understand, Congress intended to extend well beyond the reach of the antitrust laws" (Id.). Chairman Leibowitz thus hedges his bets: even if antitrust doctrines are not sufficient to prosecute FRAND violations, the agency has tools beyond antitrust that it may use to correct such behavior (an argument that, perhaps, arises from the FTC's 2008 reversal by the D.C. Circuit in its antitrust case against Rambus, Inc. for abuse of the standardization process).

Magnitude of FRAND Royalties. Not surprisingly, the agency representatives do not speak much about the complex question of the magnitude of FRAND royalty rates. Historically, the FTC has maintained that appropriate royalties for standards-essential patents should be based on the ex ante value of the patented technology prior to adoption of the standard (FTC 2011 Report, p.22-23). Obviously, determining such a royalty in hindsight can be challenging, and perhaps Judge Robart's upcoming judicial intervention in Seattle may shed light on how best to conduct this analysis. Another nettlesome question regarding the magnitude of FRAND royalties arises from the comparative value of the many different patents that may cover the same standard (sometimes ranging in the thousands). In this regard, Chairman Leibowitz offers an interesting observation, possibly alluding to the pending disputes over Motorola's proposed royalty: "When the allegedly infringing component is, say, only one of 15,000 patents used in a smart phone or a tablet, is it fair to demand two percent of the entire sales price? To ask that question is to answer it."

SDO-Based Solutions. Unlike the FTC and EC representatives, the DOJ officials strongly encourage SDOs to implement policies that are likely to alleviate some of the risks and uncertainty currently associated with FRAND commitments. Both Mr. Wayland and Ms. Hesse reflect favorably on DOJ's 2007/2008 Business Review Letters approving the "ex ante" licensing disclosure policies proposed by VITA and IEEE (Wayland, p.8-9, Hesse, p.7-8). Such policies permit (in the case of IEEE) and require (in the case of VITA) that patent holders disclose their "most restrictive" licensing terms (including royalty rates) before adoption of a standard. Ms. Hesse notes that "[w]e saw then, and continue to see now, the potential benefits to competition from the implementation of such an approach" (Hesse, p.8). In addition to ex ante licensing disclosure, Mr. Wayland, Ms. Hesse and Dr. Scott-Morgan of DOJ all suggest concrete steps that SDOs should consider in relation to FRAND (Wayland, p.9; Hesse p.9-10; Scott-Morgan, p.1-4). These are summarized below (based primarily on Ms. Hesse's presentation, which is the most detailed and occurred latest in time).

  1. Identify Excluded Patents. Identify patented technology that will not be offered on FRAND terms and "consciously determine" whether or not such technology should be included in a standard.
  2. Transfer. Ensure that FRAND licensing commitments bind subsequent purchasers of patents. (This requirement was also advocated by Microsoft, Apple and Google in their February statements).
  3. Cash-Only. Require that patent holders offer FRAND licenses on "cash-only" terms (presumably to eliminate (a) perceived abuses arising from "bundling" of non-essential patents with standards-essential patents, and (b) inherent barriers to entry for market entrants lacking their own patents to use as cross-licensing barter with other patent holders).
  4. Limit Injunctions. Limit participants' right to seek injunctions after a FRAND commitment has been made. (This limitation was also advocated by Microsoft, Apple and Google in their February statements).
  5. Arbitration. Set guidelines for FRAND royalty rates, or establish an arbitration or other mechanism for resolving disputes over the level of FRAND royalties.
  6. Accuracy of Disclosure. Ensure that disclosure of "essential" patents is accurate and not overly broad (only suggested by Hesse, p.10).

The "inherent ambiguity" of FRAND commitments (Hesse, p.6) undoubtedly requires clarification, either by the parties making such commitments or, lacking that, by courts and regulatory agencies. The recent statements by agency officials at the DOJ, FTC and EC represent a good first step toward such clarification. At this point, there appears to be a developing consensus among private industry and the agencies that FRAND commitments should "travel with the patents" after they are sold, and that injunctive relief should be limited after a FRAND commitment is made. In other areas, however, there does not appear to be a high degree of consensus among the agencies and additional work by all stakeholders (SDOs, patent holders, product vendors and regulators) will be required before a common understanding of FRAND is finally developed. I agree with the DOJ commenters that SDO-based solutions are the most likely avenues toward widespread alleviation of FRAND uncertainty, and have proposed a slightly different set of recommendations for SDO policy reform. Barring this, however, the decision will be left to the courts.

Should a patentee with market power be allowed to charge monopoly prices?: March-In Rights and the NIH

Patent,

Patents are no longer referred to as monopolies. Rightly so because the exclusive rights granted do not normally confer monopoly power in any relevant market. However, sometimes patents do confer so much market power that the owner can charge prices that bear no relation to the cost of manufacture (except for being well above that cost). Abbott’s patents covering its antiretroviral drug ritonavir likely serve as one such example. Although not likely a true monopoly, Abbott is able to charge much more than its marginal costs. In the US, Abbott charges about $12 per 100 mg pill on its drug under the brand name Norvir. And, most patients are on a multi-pill daily regimine. In other high-income countries around the world, the drug is ordinarily sold at less than $2 per pill. Apparently to relieve political pressure, Abbott also lowers its price paid by the US Gov’t for purchases under medicare and medicaid. Abbott has also apparently refused to allow its drug to be combined with other anti-viral treatments that would reduce cost and make life generally easier for patients.

The drug is protected by U.S. Patent No. 5541206, No. 5635523, No. 5648597, No. 5674882, No. 5846987, and No. 588604. And, there is little suggestion that these patents are invalid.

In a recent filing, Knowledge Economy International (KEI) has asked the NIH to use its March-In Rights to force Abbott to lower its price charged to US consumers. http://keionline.org/node/1573. The legal hook for KEI is that the US government funded a substantial portion of the initial drug development. That initial funding was critical and Abbott only fully committed and took-over all research funding once it realized the high likelihood that the drug would be a major profit source. Under Bayh-Dole, the US government has “march-in rights” for patents such as these to ensure that the innovations are reaching the marketplace in a way that serves consumers. However, the US government has never actually used its march-in rights. Although the US Gov’t has not actually marched-in, a prior petition to the NIH is seen as one reason why Abbott reduced its price charged for the drug to the U.S. Gov’t.

The Norvir situation is one of many cases that KEI sees as problematic. More generally, the organization has asked the NIH to adopt two rules to guide the use of March-In rights.

Rule 1: Ceiling on prices to U.S. residents: The Secretary shall normally grant open licenses to third parties to use patented inventions that have benefited from federal funding, subject to the payment of a reasonable royalty and an appropriate field of use, if a product or products based upon those inventions are sold in the United States at prices [more than 10%] higher than in other high income countries. . . . A licensee may rebut the presumption of unreasonable pricing by providing evidence that its actual risk adjusted R&D costs would not be recovered, but for the charging of higher prices in the U.S. market, or other evidence specific to the risk adjusted costs for the licensed invention.

Rule 2: Use of invention for a dependent co-formulation technology: The Secretary shall grant licenses to third parties to use patented inventions that have benefited from federal funding, subject to the payment of a reasonable royalty and an appropriate field of use, if a product based on those patented inventions: (a) is a drug, drug formulation, delivery mechanism, medical device, diagnostic or similar invention, and (b) is used or is potentially useful to prevent, treat or diagnose medical conditions or diseases involving humans, and (c) its co-formulation, co-administration or concomitant use with a second product is necessary to effect significant health benefits from the second product, and (d) the patent holder has refused a reasonable offer for a license.

I expect that the NIH will again reject this petition and refuse to exercise any march-in rights or develop a framework for the future. However, you may begin to wonder why Congress included march-in rights if they are never to be used.

New Book: Law of Superheroes

Patent

102512_1352_NewBookLawo1by Dennis Crouch

The book that we've all been waiting for is finally out: The Law of Superheroes.  I am serious here — at least that I have been waiting for this book ever since I discussed the project with co-author James Dailey a few years ago when he visited the Mizzou campus.  Daily and Ryan Davidson have turned their popular blog (lawandthemultiverse.com) into book published by Gotham Books, a division of Penguin. Daily is a patent attorney and the book answers many IP questions that may have vexed comic book readers:

  • Does Batman's use of Wayne Enterprises' advanced technologies to stop crimes (at night) negate patentability?
  • Does Spiderman infringe any genetic engineering patents?
  • In our universe, the Beatles broke up and John Lennon died. However, there are other (far better) universes where that did not happen. What copyright laws would apply when someone wants distribute copies of the Beatles' 40th Anniversary Album that was brought back from that alternate universe?

One of the book's thirteen chapters focuses on intellectual property. But the book as a whole covers a host of topics ranging from Constitutional law to immigration; from criminal procedure to the legal treatment of non-human intelligence.

Great work by Daily and Davidson! I am already looking for Volume II. Law students beware: the book offers a host of original hypothetical questions that would be readily used on final examinations.

Amazon's current price is $14.60.

Top-25 Design Patent Recipients from the Past Year

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  1. Samsung Electronics :See D669,432 a contactless mobile device charger
  2. Microsoft: See D669,498 a computer icon (as part of a display screen)
  3. Procter & Gamble: See D668,878 a design on paper towel
  4. LG Electronics: See D669,469 a tablet computer
  5. Apple: See D668,674 a computer icon (as part of a display screen)
  6. Research-In-Motion: See D667,807 an electronic device with a built in physical keyboard
  7. Philips Electronics: See D668,812 a lamp
  8. Nike: See D668,441 a tiny bit of a shoe
  9. Toyota: See D668,592 the front-end of a car
  10. FIH (a branch of Foxconn): See D668,648 an electronic device cover with fancy surface treatment
  11. Cheng Uei Precision Industry: See D666,579 a stereo headseat
  12. Honda Motor: See D668,594 a automobile grill
  13. Hon Hai: See D668,664 a flash drive that folds like an old Leatherman
  14. LG Innotek (Subsidiary of LG Electronics): See D667,383 packaging for an LED
  15. 3M Innovative Properties: See D668,496 a scouring pad holder
  16. Sony: See D668,637 earbuds
  17. Panasonic: See D668,702 an overhead projector
  18. Target Brands: See D668,176 a chain with the letter “E” attached
  19. Gillette: See D668,532 a package for holding personal care product
  20. S C Johnson & Son: See D668,542 the top of a plastic bottle with a closure device
  21. Karl Storz: See D668,762 a medical device handle
  22. Goodyear Tire Rubber: See D668,600 a tire
  23. Beifa Group: See D668,293 a writing pen with a cap
  24. Kohler: See D663,396 a toilet seat
  25. Daimler: See D666,957 rims

Apple Patents an Encircled Musical Note

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One of Apple's most recent design patents is Patent No. D668,263. The patent claims "The ornamental design for a display screen or portion thereof with icon, as shown and described." As the image shows below, the patented ornamentation is basically the design of a musical note with a surrounding circle and roughly resembles the iTunes icon. Although design patents are purported to be examined for novelty and obviousness. In reality they are not so examined.

In my view, design patents such as these would be fine so long as they are given exceedingly narrow scope (which they often are) and if the courts allowed for some amount of fair use (which they do not).

The senate recently passed a bill that would extend the design patent term an extra year–to 15 years from patent issuance.

The question: Is Patently-O infringing the design patent by showing the image on your screen?