Upcoming Symposium and The Role of Patent Applicant Incentives in Patent Office (PTO) Reform

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On February 26, 2010 (Friday), I will be speaking as part of the Stanford Technology Law Review annual Symposium. This year's focus is USPTO Reform.

Topics include:     

  • Quality and Pendency: Drilling Down to Backlog, Deferred Examination, Patent Worksharing and Other Integers to Achieve Primary Goals led by Hal Wegner
  • The Role of Applicant Incentives in Patent Office Reform led by Dennis Crouch
  • Patent Examination Policy and the Social Costs of Examiner Allowance and Rejection Errors led by Ron Katznelson
  • Examiner Characteristics and the Patent Grant Rate led by Mark Lemley & Bhaven Sampat

Other participants include Professors Colleen Chien (SCU), John Duffy (GWU), Jeff Lefstin (Hastings), Roberta Morris (Stanford), Arti Rai (Duke & USPTO), and Brenda Simon (Stanford) as well as Jon Dudas (Foley & Lardner), Leonard Heyman (VMWare), Ed Reines (Weil Gotschal), Robert Sachs (Fenwick & West), Lee Van Pelt (Van Pelt), Janet Xiao (Morrison Foerster), and Mallun Yen (Cisco).

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Introduction to My Talk

Applicant Incentives: Although I have been dilatory in providing my materials for the talk (sorry!), my general themes focus on the role of patent applicant and patentee incentives in patent office reform. The incentives conversation is comfortable for intellectual property scholars and practitioners alike. The explicit Constitutional justification for patent and copyright regimes is that an offer of exclusive rights provides an incentive to "promote the progress" in the respective fields. This big-picture incentive award has already been created by the drafters of the Constitution and detailed by Congress and the Courts. Here, l take a narrow approach and consider how applicant incentives should be utilized to achieve the goals of PTO reform. Specific questions include:

  1. To what extent should PTO reforms focus on modifying patent applicant behavior?
  2. Should reforms focused on applicant-behavior lean on rules and requirements or rather employ a softer incentive approach? These "softer incentives" could be in the form of Sunsteinian Nudges or more onerous or strongly beneficial incentives.
  3. Fees: To what extent are patent applicants sensitive to PTO fees? To what extent can (or should) the PTO use its fee structure to modify applicant behavior?

A Dynamic Feedback System: My mental starting point for the topic is Newton's third law of motion: For every action there is an equal and opposite reaction. In the simple case of billiard balls colliding on a table, those reactions are (relatively) easy to predict. In the complex patent system reactions to reforms are less predictable – especially for any particular case. It is also important to recognize that the system is dynamic. Changes in PTO operations lead to changes in patent applicant behavior. These PTO changes may take the form of rules, fees, appeal processes, personnel availability, training, etc.

Provisional patent applications have become increasingly popular since their introduction in 1995. Offering the right to file a provisional application was the first arguably most important step in shifting applicant behavior. However, the low fee, lack of formality, and ease of process in claiming priority all contribute to popularity of the form. While the government has no direct control over applicant behavior, the popularity of provisional applications was likely ensured by these positive incentives. There are many examples of applicant behavior altered by PTO practices. Increasing application fees decreases application filings; offering "free" claims increases claim filings; longer applicant deadlines result in longer waits for applicant responses; etc.

There are two observations that I want to highlight from this discussion thus far – both of which were likely already obvious to most patent folks. (1) The patent office rules & procedures impact patent applicant behavior and therefore have the potential for serving as policy levers. (2) The exerted policy lever need not create a hard-rule to be effective. Rather, non-rights-based policy choices involving fees, procedures, and default rules can also effectively shift applicant behavior. The hard-rule / soft-rule distinction is not always clear. In some situations strong incentives can have the same coercive impact as an absolute rule. (The PTO's recent attempt to limit claim and continuation filings has been described as such.)

Cause of the Problems?: It is typically difficult to pin-down the root cause of problems in dynamic system with multiple independent actors. Take the current PTO backlog problem as an example. One popular explanation accuses the PTO of being too slow and issuing unnecessary rejections. On the flip-side, applicants can be blamed for filing so many applications that are difficult to examine. Both accusations have merit, but neither tells the whole story. (There was no backlog until the first application was filed…) Even while sidestepping the blame-game, this discussion leads to two additional observations. (3) Applicant behavior impacts PTO problems — thus creating the possibility that (4) shifting applicant behavior can help to resolve those problems. In other words, many goals of PTO reform could potentially be met by pushing on applicant incentives.

USPTO Fee Structure: The USPTO has always charged some fee-for-service as a way to avoid directly spending taxpayer monies on the examination and issuance of patents. In 1871, the application fee was $15. By 1952, the fee had doubled to $30 with a surcharge of $1 per additional claim over 20. By 1982, the fees had been raised by a factor of ten to $300 for filing and $10 for excess claims. Today, the filing fee (including the required search and examination fee) is $1090 and additional claims cost $52. Since 1952, the increase averages to a not-too-unreasonable annual rate of 6.4%.

Throughout this time, the USPTO has also charged an issue fee that has been roughly equivalent to the filing fee, although the current issue fee is $1510. This historic distribution is not intuitive. The filing and issue fees must all be paid before any patent rights can be asserted, and the actual PTO budget is overwhelmingly directed toward examination costs (primarily examiner salaries). Only a small part of the budget is spent on the ministerial process of issuing the patent. The filing fee / issue fee distribution is a policy lever. A relatively low filing fee encourages applicants to "take a chance" on patenting inventions that are only marginally likely to be financially successful. The prosecution delay prior to payment of the issue fee gives applicant the opportunity to first determine whether a patent is worthwhile. On the other side of the argument, a relatively high filing fee could limit the absolute number of patent applications filed and also operate to encourage patent applicants to file "higher quality" applications. The PTO also charges maintenance fees (previous known as renewal fees). Perhaps more than any other fees, the maintenance fees are "pure profit" because the PTO does not work for that income.

The analysis of fees leads to the following observation: (5) Wittingly or not, the setting of USPTO fees involves policy choices that shift applicant incentives. Still, the agency (with the help of Congress) could attempt to design its fees in a way that most directly cover costs. However, that approach would waste the potential opportunity to use fees to improve the system inputs. At this point it would be a ridiculous approach, but it would not be inconceivable for the PTO to shift its fees for individual applications according to input quality measures with designated "high quality" applications paying a lower fee.

Additional Issues To be Discussed:

  • USPTO Deadlines, Late Fees, and Deferring Examination
  • USPTO Authority: To what extent should the PTO be given authority to use fees and other mechanismsto intentionally shift applicant behavior.

New regime for use claims (dosage regimes) before the European Patent office (EPO)

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Guest Post by Paul Cole, visiting professor of IP law at Bournemouth University

Dosage Regime/ABBOTT RESPIRATORY  G 0002/08 – 19 Feburary 2010

Patentability of the present application was governed by EPC 2000 rather than EPC 1973, and the referring Appeal Board considered it an important point of law whether medicaments for use in therapeutic treatments could be considered novel where the only feature of novelty was a dosage regime. The claim before the Board was directed to:

"The use of nicotinic acid or a compound metabolized to nicotinic acid by the body … for the manufacture of a sustained release medicament for use in the treatment by oral administration once per day prior to sleep, of hyperlipidaemia … "

The Enlarged Board was first asked to consider the general question: when a medicament was known for use to treat an illness could patents subsequently be granted further new and inventive treatments of the same illness. Under EPC 1973, such further patents had been granted with Swiss-form use claims directed to treatment of new patient groups (T 0019/06, T 0383/90 and T 0233/96), new modes of administration (T 0051/93 and T 0138/95) and different technical effects relating to truly new applications (T 0290/86. T 0254/93 and T 1020/03). The Board held that it was not the intention of the legislators in framing EPC 2000 to change the patent protection available for further therapeutic uses.  Use of a composition as a medicament for unspecified therapy was permitted as a first medical indication and for a specified therapy was permitted as a second medical indication.

A second and more specific question was directed to patentability where the only novel feature was a new and inventive dose regime. The Enlarged Board held that this question should be answered in the affirmative provided that there was a new technical effect, see also UK decision Activis v Merck [2008] EWCA Civ. 444 and German decision X ZR 236/01 Carvedilol II, 19 December 2006.   

As to any appropriate change in EPO practice, simple use claims were now permitted under the changes introduced by EPC 2000. Since the reasons for granting Swiss-form use claims had disappeared with the entry into force of EPC 2000, there was no reason to maintain the "praetorian" approach suggested in case G 0005/83, and such claims would no longer be permitted. As to the transitional provisions governing this change in practice:   

"The Enlarged Board of Appeal is aware of the fact that patents have been granted and many applications are still pending seeking patent protection for claims of this type. In order to ensure legal certainty and to protect legitimate interests of applicants, the abolition of this possibility by the interpretation of the new law given by the Enlarged Board in this decision shall therefore have no retroactive effect, and an appropriate time limit of three months after publication of the present decision in the Official Journal of the EPO is set in order for future applications to comply with this new situation. In this respect the relevant date for future applications is their date of filing or, if priority has been claimed, their priority date."   

The present decision can be seen as an uncontroversial but welcome restatement of the law that will give greater certainty both for applications and oppositions before the EPO and for the enforceability of the resulting patents in the EPC contracting states. Connoisseurs of verbal abuse may, however, wonder whether it was wise to attach the label "praetorian" which at least to English readers has implications of dishonesty, corruption and perhaps subversion to the former Swiss form claim practice whose acceptance by the national courts of the EU contracting states was at times grudging. 

When does an Ordinary Order become a Preliminary Injunction?

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Duhn Oil Tool, Inc. v. Cooper Cameron Corp (Fed. Cir. 2010) (nonprecedential)

In a rare appeal from the Eastern District of California, the Federal Circuit has vacated the lower court’s order of preliminary injunctive relief. Duhn Oil’s patent covers a “frac mandrel” or tool for isolating the head of an oil or natural gas well. Cooper Cameron’s version is alleged to infringe when its lockscrews are engaged during installation.

Appellate Jurisdiction over Preliminary Injunction Orders: As an initial matter, the parties argued over whether the court held jurisdiction over the interlocutory appeal since the defendant (Cameron) had previously volunteered to halt the uses covered by the preliminary injunction. On appeal, the Federal Circuit found jurisdiction clearly granted by 28 U.S.C. § 1292 as interpreted by the Federal Circuit. “[I]f the district court’s order expressly grants an injunction, the order is appealable under § 1292(a)(1), without regard to whether the appellant is able to demonstrate serious or irreparable consequences.” Quoting Cross Med. v. Medtronic, 424 F.3d 1293 (Fed. Cir. 2005).

When does an order become an injunction?: A court must make particular findings before it can order preliminary injunctive relief. However, the court has much more leeway when making orders that relate more to the court proceedings such as orders for discovery, preservation of evidence, compelling witnesses, etc. This case raises, but does not answer the question of where the line is drawn between ordinary orders and preliminary injunctions.

Based on its opinion, the district court clearly believed that it had not issued a preliminary injunction. The opinion expressly held that “issuance of a preliminary injunction at this time would not be a measured and appropriate exercise of equitable discretion on the present evidentiary record.” Although it generally denied relief, the court did make a series of orders relating to Cooper Cameron’s “accounting practices.” These accounting practices primarily included maintaining specific evidence regarding equipment orders, items sold, and installation instructions given. The order also granted Duhn the right to photograph newly installed equipment. In addition, the court ordered that Cameron “provide instructions to its frac mandrel customers, which unambiguously state that the lockscrews are not to be engaged during installation or use of the frac mandrel.”

The Federal Circuit focused on the final requirement that Cameron provide installation instructions to its customers and classified that requirement as an injunction because it “specifically imposed . . . an affirmative obligation on Cameron . . . to prohibit Cameron from further allegedly infringing uses.”

The lower court had not intended to issue preliminary injunctive relief and had not specifically found either a likelihood of success on the merits nor irreparable harm absent injunctive relief. Therefore, the injunction was vacated on appeal.

In this case, there were insufficient grounds for the court to enjoin Cameron. A preliminary injunction requires the moving party to show both likelihood of success on the merits, and irreparable harm unless the injunction issues. The district court identified “strongly conflicting evidence” about the possible frequency of Cameron’s future infringement, and the absence of “a sufficient showing for injunctive relief of the scope and of the nature, [sic] including the notice requirement that Plaintiffs are seeking.” Duhn identifies no irreparable harm that it would suffer without the court’s order, and does not cross-appeal the denial of the broader injunctive relief it proposed. For these reasons alone, the injunction was improper. Therefore, we decline Cameron’s invitation to address invalidity and noninfringement in the first instance.

Vacated and Remanded.

Notes & Cases On Point:

  • “[F]or purposes of appeal, requiring a party to do or refrain from doing something that is an integral part of the very matter in litigation….” Moore’s Federal Practice, ¶ 65.21 (1989). Quoted in NTN Bearing Corp. of Amer. v. U.S., 892 F.2d 1004, 1005-06 (Fed. Cir. 1989) (ITC’s stoppage of the collection of import duties was an injunction) and Norcal/Crosetti Foods Inc., v. U.S., 963 F.2d 356, 358 (Fed. Cir. 1992) (lower court’s requirement of marking of imported produce was an injunction).
  • Types of non-injunctive orders include for the purposes of Section 1292(a) include “temporary restraining orders, orders regulating procedural matters, and security orders.” Wright & Miller, 16 Fed. Prac. & Proc. Juris. § 3922 (2d ed.) (Orders Not Constituting Injunctions). Wright and Miller reluctantly offer the definition of a Section 1292(a)(1) “injunction” as embracing “orders that are directed to a party, enforceable by contempt, and designed to accord or protect ‘some or all of the substantive relief sought by a complaint’ in more than temporary fashion.”
  • Holmes v. Bendix Corp., 713 F.2d 792 (Fed. Cir. 1983) (“an appellant from an interlocutory adverse Rule 56 decision must point out something he said or did to alert the court that it would be passing indirectly on the availability of injunctive relief. Otherwise, the congressional care in allowing appeals from interlocutory decisions denying injunctive relief, and not allowing them for appeals from summary judgments, or from declaratory judgments (unless disposing of the whole case), is made meaningless.”).
  • Woodard v. Sage Products, Inc., 818 F.2d 841 (Fed. Cir. 1987) (“an interlocutory appeal under section 1292(a)(1) requires (a) that the order be injunctive in nature, (b) that it cause a serious, if not irreparable, consequence, and (c) that the order can be effectually challenged only by immediate appeal.”)

Ariad v. Eli Lilly: Written Description Requirement

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My recent study of BPAI written description requirement jurisprudence was prompted by reading the US Government Brief in the en banc case of Ariad v. Eli Lilly. In the brief, the government indicated its continued support for a separate written description requirement as a tool that the agency uses to eliminate claims during patent prosecution. In sometimes bold font, the government makes its position clear: that a separate written description requirement is "essential to the operation of the patent system;" serves an "indispensable role in the administration of the patent system;" is "fundamental to the operation of the patent system;" and is "necessary for USPTO to perform its examination function." According to the brief, these conclusions are grounded in the USPTO's "practical experience" in "appl[ying] the requirements of Section 112, ¶1 to more than 400,000 patent applications each year."

During oral arguments, the government attorney was pressed for specific evidence supporting its contention that the separate written description requirement serves a practical purpose. As in its brief, the government did not point to any evidence supporting the conclusory statements. The following colloquy at oral arguments between Chief Judge Michel and Mr. Freeman emphasize this point:

Chief Judge Michel: Why does the patent office care? How many applications that can’t be rejected on other statutory grounds will fail only if we [retain the current written description requirement]? . . . I’m asking about impact. . . .

Mr. Freeman on Behalf of the Government: I don’t know an absolute number, your honor, but I think that number must be high. . . .

Chief Judge Michel: I can’t remember ever seeing a patent office rejection that was based only on the failure of written description. I’m not saying there aren’t any, but the flow of cases that come through this court at three or four hundred a year, it is exceedingly rare that the patent office hangs its case on written description. I can’t remember a single case.

Mr. Freeman: Your honor, I don’t have a single case in mind . . . .

Chief Judge Michel: . . . It seems like the practical impact is miniscule, negligible.

Mr. Freeman: Your honor, with all respect, one cannot assume away four-hundred-thousand applications where the written description doctrine comes into play in a great many of them.

My study is essentially directed to the particular questions asked by Chief Judge Michel — How often does the separate written description requirement actually make a difference in patent prosecution? As the data reveals, Chief Judge Michel’s notional recollections from the bench are much more accurate than are the government contentions. I.e., "the practical impact is miniscule, negligible."

[Download the Study]

These results fit well with those of UMKC professor Christopher Holman that he reported in his 2007 article, Is Lilly Written Description a Paper Tiger?: A Comprehensive Assessment of the Impact of Eli Lilly and its Progeny in the Courts and PTO, 17 ALB. L.J. SCI. & TECH. 1, 62 (2007).

An Empirical Study of the Role of The Written Description Requirement in Patent Prosecution

Academic Studies, Articles and Publications, En Banc, Enablement, Patent, , ,

Table 3[Download the Draft Essay]

Essay Overview: In the pending case of Ariad v. Eli Lilly, an en banc Federal Circuit is considering whether Section 112 of the Patent Act as properly interpreted includes a written description requirement that is separate and distinct from the enablement requirement. Although the USPTO has no direct role in the infringement dispute, the government submitted an amicus curiae brief arguing that a separate written description requirement is “necessary to permit the USPTO to perform its basic examination function.” However, when pressed during oral arguments the government could not point to any direct evidence supporting its contention.

This essay presents the results of a retrospective empirical study of the role of the written description requirement in patent office practice. It is narrowly focused on rebutting the USPTO’s claim that the separate written description requirement serves an important role in the patent examination process. To the contrary, my results support the conclusion suggested by Chief Judge Michel during oral arguments that it is indeed “exceedingly rare that the patent office hangs its case on written description.”

For the study, I analyzed 2858 Board of Patent Appeals and Interference (BPAI) patent opinions decided January-June 2009. Written description issues were decided in 123 (4.3%) of the decisions in my sample. Perhaps surprisingly, I found that none of the outcomes of those decisions would have been impacted by a legal change that entirely eliminated the written description requirement of Section 112 so long as the USPTO would still be allowed to reject claims based on the addition of “new matter” (perhaps under 35 U.S.C. Section 132). New-matter style written description requirement rejections were outcome-determinative in 20 of the 2858 cases – about 1.0% of the cases in my sample. (I am very confident that the PTO will retain its ability to make new matter rejections even if the separate written description requirement is eliminated.)

Although there may be valid reasons for retaining a separate written description requirement, this study safely leads to the conclusion that the government’s conclusory statements regarding the doctrine’s critical importance for patent examination lack a factual basis.

Continue reading the essay. [PDF]

These results fit well with those of UMKC professor Christopher Holman that he reported in his 2007 article, Is Lilly Written Description a Paper Tiger?: A Comprehensive Assessment of the Impact of Eli Lilly and its Progeny in the Courts and PTO , 17 ALB. L.J. SCI. & TECH. 1, 62 (2007).

The Timeliness of the En Banc Rehearing of Hyatt v. Kappos

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The pending en banc case of Hyatt v. Kappos is more important now than ever before because the Board of Patent Appeals and Interferences (BPAI or Board) is deciding more appeals than ever before.  The chart below reflects the number of applications with completed appellate briefing that are pending resolution at the BPAI. As active patent prosecutors are well aware, this chart only reveals a small portion of a complex problem.  Appeal briefing has largely become an ordinary part of patent prosecution practice. Most cases where appeal briefs are filed do not actually reach a BPAI decision.  Rather, in most cases the examiner withdraws the standing rejection rather than pursue the appeal.  In this system, appeal briefs have largely become a priced commodity rather than an all-out factual and legal effort.

PatentLawPic928

In Hyatt v. Kappos, the en banc Federal Circuit is focusing on the amount of new evidence that can be presented when challenging a BPAI decision in Federal District Court under 35 USC 145.  The panel decision held that the district court properly refused to allow Hyatt to submit additional expert testimony that went beyond the arguments presented to the BPAI.  Judge Moore dissented from that holding and instead argued that the right to a “civil action” under Section 145 includes a right for a de novo consideration of patentability.

The issues raised in Hyatt v. Kappos are now important for many patent applicants because of the cost-pressures of appeal briefs and the high-likelihood that rejections will be withdrawn based on the briefing.  Typical Applicants do not submit substantial additional evidence of patentability during the appeal process.  However, under Hyatt, the applicant would be barred from substantially adding to the record in a subsequent civil action.

Appealing a BPAI Rejection: Can the Applicant Present New Arguments and New Evidence to the District Court?

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Hyatt v. Kappos (Fed. Cir. 2010)

The Federal Circuit has ordered an en banc rehearing of its August 14 decision. The appeal focuses on evidentiary and procedural limits of an appeal of a BPAI decisions to a District Court under 35 USC 145. The Court framed the en banc issues as follows:

(a) Are there any limitations on the admissibility of evidence in section 145 proceedings? In particular—

(i) Does the Administrative Procedure Act require review on the agency record in proceedings pursuant to section 145?
(ii) Does section 145 provide for a de novo proceeding in the district court?
(iii) If section 145 does not provide for a de novo proceeding in the district court, what limitations exist on the presentation of new evidence before the district court?

(b) Did the district court properly exclude the Hyatt declaration?

Background: Hyatt's district court action was originally filed in 2003 as Hyatt v. Rogan after the BPAI sustained written description and enablement rejections for seventy-nine of Hyatt's claims. The examiner had issued 45 separate rejections of Hyatt's claims based on the doctrines of inadequate "written description, lack of enablement, double patenting, anticipation, and obviousness." Complicating the case is the fact that the application's claimed priority date is 1975.

The issues in this appeal case arose when Hyatt filed a civil action in DC District Court to challenge the BPAI decision. In the civil action, Hyatt submitted a new declaration offering additional evidence of enablement and written description. However, the district court excluded that inventor-declaration from evidence based on Hyatt's "negligence" in failing to previously submit the information to the PTO.

Writing for the majority in the original panel opinion, Judge Michel affirmed the exclusion of evidence – holding that the district court may properly exclude evidence that Hyatt should have produced to the PTO. Judge Moore penned a compelling dissent in support of the patent applicant's right to a full civil action including the right to submit additional evidence when challenging a PTO decision.

Briefing: Hyatt's en banc brief will be due around March 31 and the USPTO's response due 28-days later. Briefs of amici curiae may be filed without leave of the court, but must otherwise comply with FRAP 29 and Fed Cir R 29.

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35 U.S.C. 145 Civil action to obtain patent.

An applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences in an appeal under section 134(a) of this title may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the District of Columbia if commenced within such time after such decision, not less than sixty days, as the Director appoints. The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Board of Patent Appeals and Interferences, as the facts in the case may appear, and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law. All the expenses of the proceedings shall be paid by the applicant.

Dear Patent Attorney and Patent Agent: Consider Joining to the PTO

Patent

The following letter has been sent to many patent attorneys and patent agents asking them to consider joining the USPTO examiner corps.

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February 5, 2010

Dear ______

Deputy Under Secretary Sharon Barner and I wanted to contact you directly to let you know about an exciting opportunity for a career as a USPTO patent examiner. The USPTO has recently announced a targeted hiring initiative for experienced IP professionals. We ask that you consider applying for these openings at the USPTO to become a patent examiner.

A career as a patent examiner is both challenging and rewarding. As you consider this opportunity, you should know that USPTO management has undertaken a myriad of initiatives to make the USPTO an outstanding professional work environment. In addition, our modern campus in Alexandria, Virginia, has world-class facilities, including a gym, child-care center, excellent dining and recreational activities nearby. We also have extensive Hoteling programs, where qualified examiners may telework from home.

If you are interested in being considered as a patent examiner, we encourage you to apply to the open USPTO vacancy announcement at http://tiny.cc/ls8j7. Or if you know someone who is interested, please let them know about our open opportunities. If you have questions, please call (800) 786-9757, or send an e-mail to Recruitment@uspto.gov. We hope that you will give serious consideration to applying for our open vacancies. There has never been a more important or promising time to work at the USPTO.

Sincerely,

PatentLawPic927

David J. Kappos

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[File Attachment: KapposRecruitingLetter.pdf (33 KB)]

Note: The text above is created by my OCR software which created some errors.

Appealing BPAI Rejections in Ex Parte Reexaminations

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I have to admit some prior confusion as to the rules governing appeals from adverse BPAI decisions during an ex parte reexamination. My confusion stems from three potentially conflicting provisions in the Patent Act.

35 U.S.C. 145 indicates that “[a]n applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences in an appeal under section 134(a) of this title may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the District of Columbia . . . .

35 U.S.C. 306 indicates that “[t]he patent owner involved in a reexamination proceeding . . . may seek court review under the provisions of sections 141 to 145 of this title, with respect to any decision adverse to the patentability of any original or proposed amended or new claim of the patent.

35 U.S.C. 141 indicates that “[a] patent owner, or a third-party requester in an inter partes reexamination proceeding, who is in any reexamination proceeding dissatisfied with the final decision in an appeal to the Board of Patent Appeals and Interferences under section 134 may appeal the decision only to the United States Court of Appeals for the Federal Circuit.”

§145 was part of the original 1952 Patent Act. §306 was added to the Patent Act in 1980 when ex parte reexaminations were introduced. In 1999, §141 was amended to add the limitation that “[a] patent owner in any reexamination proceeding dissatisfied with the final decision in an appeal to the Board of Patent Appeals and Interferences under §134 may appeal the decision only to the United States Court of Appeals for the Federal Circuit.” In 2002, the portion regarding “inter partes reexaminations” was added to §141.

Conflicting: §141 indicates that a patent owner in reexam may only appeal a BPAI decision to the CAFC; Section 306 indicates that the patent owner in reexam may appeal under either §141 or §145; §145 indicates the availability of an appeal in district court.  Of course, §145 focuses on an “applicant” rather than a patent owner, but pre 1999–cases held that patent owners whose patents are undergoing reexamination are “applicants” for the purposes of §145.

Solution: The PTO interpretation found in 37 C.F.R. § 1.303 and in MPEP § 2279 is that §145 controls and that reexaminations may only be appealed to the Federal Circuit. The caveat is that reexaminations filed prior to the 1999 amendment of §145 may also be appealed to a district court  under §141.

In a 2009 decision, an Eastern District of Virginia court recognized the statutory tension but substantially agreed with the PTO interpretation:

[T]he fact that § 306 continues to cross-reference §§ 141 to 145 following the AIPA’s enactment appears to be in tension with the AIPA amendment to § 141: Although § 145 authorizes a patent applicant–and thus a patent owner under the plain terms of § 306–to file a civil action in the D.C. District Court, § 141 was specifically amended to allow patent owners dissatisfied with a BPAI decision to “appeal the decision only to the United States Court of Appeals for the Federal Circuit.” Id. § 141 (emphasis added). Despite this tension, the statutory provisions continue to make clear that a patent owner’s right to seek court review of a BPAI decision accrues only after the BPAI renders a “decision adverse to the patentability of any original or proposed amended or new claim of the patent.” Id. § 306; see also id. §§ 141-145. Sigram Schindler v. Kappos, 2009 WL 4981473 (E.D. Va. Dec. 18, 2009).

Charles Miller of Dickstein Shapiro has worked on this issue and directed me to the statutory problem. In a forthcoming article, Miller and Daniel Archibald argue that the PTO’s interpretation is wrong and constitutes an unlawful extension of the agency’s authority. In particular, they argue that “Congress did not entrust the PTO with administering, nor did it authorize the agency to enact rules interpreting § 141, § 145, and § 306 of the Patent Act . . . these statutes pertain only to rights in proceedings outside the PTO’s jurisdiction and operational domain, and are exclusively for the courts to interpret and apply in cases that they decide.”

Notes:

  • Read the Sigram Schindler Opinion [File Attachment: SigramSchindlerMemo.pdf (1522 KB)]
  • Read the (losing) arguments by Sigram Schindler [File Attachment: SigramSchindlerBrief.pdf (86 KB)]
  • Reexam Center discusses the Sigram Schindler decision [Link]
  • Note, the Sigram Schindler decision was filed in E.D.Va. because the patentee was challenging the USPTO interpretation of the statutes rather than actually attempting to appeal BPAI decision.
  • The Schindler reexamination was filed by Cisco on US Patent No. 6,954,453. Cisco and Schindler (Teles) are currently litigating an infringement suit over the patent.

 

Viagra, Cialis, & Levitra: Board of Patent Appeals Affirms Rejection of Pfizer’s Broad Patent over ED Treatment

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Ex parte Pfizer (BPAI 2010)

Pfizer’s broadest patent covering its bestselling drug Viagra is in the midst of an ex parte reexamination. See Patent 6,469,012. The reexamination was separately requested by Lilly & ICOS (makers of Cialis) and Bayer (maker of Levitra). In addition, the PTO director (then James Rogan) independently ordered reexamination. These separate actions were all merged into one proceeding before the PTO. In parallel, Pfizer has sued Lilly & ICOS – asserting that Cialis infringes the Viagra patent. See Pfizer Inc., et al. v. Lilly ICOS LLC et al, Civil Action No. 02-1561 (D. Del. Oct. 22, 2002). The litigation has been stayed pending reexamination since 2003.

The broad claim (that is said to cover both Levitra and Cialis) is claim 24:

24. A method of treating erectile dysfunction in a male human, comprising orally administering to a male human in need of such treatment an effective amount of a selective cGMP PDEv inhibitor, or a pharmaceutically acceptable salt thereof, of a pharmaceutical composition containing either entity.

During the reexamination, the examiner rejected Claim 24 as anticipated by each of five different references and also issued an obviousness-type double patenting rejection based on three other Pfizer patents. In a 56-page opinion, the BPAI rejected some of the examiner’s reasoning, but affirmed the decision as a whole.

In particular, the Board agreed that prior art descriptions of oral administration of the herb Yin Yang Huo (AKA Horny Goat Weed) serve as anticipatory prior art:

It is undisputed that the herb is orally administered, that icariin is an active component of the herb and that icariin is a selective PDEv inhibitor. Thus, the issue is whether the Yin Yang Huo references describe oral administration of the selective PDEV inhibitor icariin in an amount effective to treat ED. . . .

Appellant argues that a single dosage of Yin Yang Huo fails to provide an amount of icariin sufficient to treat ED . . . However, the selective PDEv inhibitor of claim 24 is not required to have a minimum % inhibition. . . . or a maximum Ki or other enzyme kinetics inhibition value or other defined parameter that would exclude Yin Yang Huo from the claimed method. Moreover, Yin Yang Huo is not administered as a single daily dosage when treating ED. Yin expressly defines one course of treatment as comprising administering 2.5 grams Yin Yang Huo 3 times per day for 20 days (FF 51). Therefore, this rebuttal evidence is insufficient to establish by a preponderance of the evidence that the Yin Yang Huo references fail to disclose oral administration of icariin in an amount effective to treat ED, particularly in view of [the prior art’s] disclosed successful treatment of 50 cases of impotence.

Examiner Rejection Affirmed.

Notes

  • [Updated based on Jon’s comment below] Pfizer has the opportunity to request a re-hearing and may also appeal the BPAI decision. Regarding a further appeal, the pertinent portion of 35 U.S.C. § 141 reads as follows: A patent owner, or a third-party requester in an inter partes reexamination proceeding, who is in any reexamination proceeding dissatisfied with the final decision in an appeal to the Board of Patent Appeals and Interferences under section 134 may appeal the decision only to the United States Court of Appeals for the Federal Circuit. Although the language is amenable to multiple interpretations, the best interpretation of this is that a patent owner undergoing an ex parte reexamination may only appeal to the CAFC.
  • The re-examination file history is quite long and includes over seventy-three-thousand pages (this total does not include the USPTO patent-documents cited as prior art).
  • What is the expiration date of this patent? Its earliest priority date is a Great Britain from June 9, 1993. A European PCT was then filed on May 13, 1994 which was published on December 22, 1994. The US National Stage application was filed March 4, 1996 and the patent issued October 22, 2002. There is no terminal disclaimer apparent from the file history and the PTO does not indicate any patent term extension due to FDA regulatory delay. [Patent][Granted FDA Extensions][FDA Orange Book Listing]

Top-Ten Pending Patent Cases

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Foley attorney Hal Wegner regularly updates his list of the top-ten most important pending patent cases ranked according to their likely impact on the law. The list follows with my own annotations.

  1. Ariad v. Eli Lilly: This en banc case is fully briefed and pending decision on the question of whether the written description requirement of Section 112 should be considered separate and distinct from the enablement requirement. In many ways, the case is about how the law should define the inventor’s “possession” of the invention.
  2. I4i v. Microsoft: A petition for en banc rehearing has been filed on issues of damages and injunctive relief.
  3. Mayo v. Prometheus: This case is on petition for certiorari to the Supreme Court on the question of patentable subject matter for medical diagnostic methods. It has the potential to be a Bilski follow-on.
  4. Bilski v. Kappos: This patentable subject matter case is pending decision at the Supreme Court.
  5. Pequignot v. Solo Cup: Question of intent necessary for false marking charges.
  6. Microsoft v. Lucent: Microsoft is expected to file a petition for certiorari on the “clear and convincing” standard required for invalidating a patent. Microsoft argues that the standard should be lowered when the most pertinent prior art was not considered during patent prosecution.
  7. Arkansas Carpenters: [UPDATED AND CORRECTED] The Second Circuit is considering whether a “reverse payment” from a patentee to an ANDA generic challenger to settle a patent challenge should be considered an antitrust violation.
  8. Costco v. Omega: This case is pending certiorari with an outstanding request for the views of the Obama administration. The case raises an important question of copyright exhaustion in the context of authorized sales of copyrighted material on foreign soil. If decided by the Supreme Court, the case will likely impact patent doctrine.
  9. Princo v. ITC: En banc argument is scheduled for March 3, 2010 on the contours of antitrust and patent misuse in the standard-setting processes.
  10. Acushnet v. Callaway: Whether the legal determination of obviousness should be made by a judge – rendering a jury’s conclusion on that question “entirely advisory.”

Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases

Patent

[Update — SSRN Link Now Works] Download my five-page essay that forms the newest entry in the Patently-O Patent Law Journal: Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent Law Journal 19 (2010). The essay is an expansion of my prior post on the SEB v. Montgomery Ward.

Abstract: Federal Circuit patent jurisprudence has typically focused on Federal Circuit law and Federal Circuit precedent. However, recent Supreme Court decisions such as eBay v. MercExchange, MedImmune v. Genentech, MGM v. Grokster, and KSR Intl. v. Teleflex cases have challenged that default position. These cases represent a directive from the Supreme Court that the interpretation of patent law doctrine requires a consideration of history and doctrines that arise from other areas of law. In this essay, I examine the recent Federal Circuit decision of SEB v. Montgomery Ward and consider whether that case represents a shift in Federal Circuit jurisprudence toward an increased influence of non-patent considerations when deciding patent cases and patent issues.

Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases

Patent

[Update — SSRN Link Now Works] Download my five-page essay that forms the newest entry in the Patently-O Patent Law Journal: Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent Law Journal 19 (2010). The essay is an expansion of my prior post on the SEB v. Montgomery Ward.

Abstract: Federal Circuit patent jurisprudence has typically focused on Federal Circuit law and Federal Circuit precedent. However, recent Supreme Court decisions such as eBay v. MercExchange, MedImmune v. Genentech, MGM v. Grokster, and KSR Intl. v. Teleflex cases have challenged that default position. These cases represent a directive from the Supreme Court that the interpretation of patent law doctrine requires a consideration of history and doctrines that arise from other areas of law. In this essay, I examine the recent Federal Circuit decision of SEB v. Montgomery Ward and consider whether that case represents a shift in Federal Circuit jurisprudence toward an increased influence of non-patent considerations when deciding patent cases and patent issues.

The North Face versus The South Butt

Patent, ,

In late 2009, The North Face sued its mocking upstart rival The South Butt for trademark infringement and dilution. South Butt is owned and run by a University of Missouri student James Winkelmann who, according to his attorney, “is just a great kid” being beaten-down by the system.

In his first opinion of the case, Judge Sippel has denied the South Butt’s motion to dismiss – finding it without merit. In a style the fitting of the case, the Judge also warned South Butt’s attorney that “[a]lthough [South Butt’s motion] may not reach the level of frivolity, it approaches the line.” In the media, South Butt has been framing the legal question of whether consumers can “tell the difference between a face and a butt.”

As Professor Chiang notes, the classic line from the decision may be “I do not find it to be implausible that the marks cannot cause a likelihood of confusion or dilution.” (Emphasis of negatives added).

In a pre-litigation letter, Winkelmann indicated that he would sell the company to the North Face for $1,000,000.

* * * * *

THE NORTH FACE APPAREL CORP. v. WILLIAMS PHARMACY, INC., JAMES A. WINKELMANN, JR., and THE SOUTH BUTT. LLC., 2010 U.S. Dist. LEXIS 11157 (E.D. Mo. Feb. 9, 2010)

MEMORANDUM AND ORDER

It’s a strange world of language in which skating on thin ice can get you into hot water.

~ Franklin P. Jones

Plaintiff The North Face Apparel Corp. brings this lawsuit for trademark infringement and dilution against Defendants Williams Pharmacy, Inc., James A. Winkelmann, Jr., and The South Butt, LLC. The North Face is an outdoor equipment and apparel company with an international market. In 2007, Winkelmann launched The South Butt as an apparel company in Missouri. Williams Pharmacy is a retail pharmacy that carries The South Butt products.

In this lawsuit, The North Face seeks an order preliminarily and permanently enjoining the defendants from infringing and diluting The North Face trademarks by using or selling The South Butt products under a confusingly similar trademark. Defendants Winkelmann and The South Butt have moved to dismiss all counts for failure to state a claim. For the reasons set forth below, I will deny Winkelmann and The South Butt’s motion.

Background relevant to this motion

The North Face filed a seven-count complaint which contains the following counts: (1) Trademark Infringement under 15 U.S.C. § 1114; (2) Federal Trademark Dilution under 15 U.S.C. § 1125(c); (3) False Designation of Origin under 15 U.S.C. § 1125(a); (4) Contributory Trademark Infringement; (5) Common Law Trademark Infringement; (6) Common Law Unfair Competition; and (7) Violation of Missouri Anti-Dilution Statute.

The complaint begins with a three paragraph “introduction” that describes the history of The North Face, summarizes the nature of the claims, and describes The North Face’s “iconic” Denali jacket. The North Face refers to its “best-selling” and “iconic” Denali jacket in paragraphs 12, 15, 23, and 49. In paragraphs 15, 49, 50 and 52, The North Face alleges that it has trade dress rights in the Denali jacket and that Defendants are trading on its trademarks and trade dress.

The complaint also alleges that the Defendants willfully intended to trade on The North Face’s reputation and willfully caused dilution of The North Face’s trademarks. Another allegation in the complaint is that Defendants have misrepresented and falsely described to the general public the origin and source of Defendants’ products. Attached to the complaint as Exhibits H, I and K were press releases and news articles that quoted Defendants informing the media that their products are not affiliated with The North Face and indicating it is not their intent to infringe on The North Face’s trademarks.

Legal Standard

When ruling on a motion to dismiss for failure to state a claim, I must accept as true all factual allegations in the complaint and view them in the light most favorable to the plaintiff. . . . An action fails to state a claim upon which relief can be granted if it does not plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1974 (2007). To avoid dismissal for failure to state a claim, the complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Erickson, 127 S. Ct. at 2200. Although the specific facts are not necessary, the plaintiff must allege facts sufficient to give fair notice of what the claim is and the grounds upon which it rests. Id. “The plausibility standard requires a plaintiff to show at the pleading stage that success on the merits is more that an ‘sheer possibility.’ It is not however a ‘probability requirement.'” Braden v. Wal-Mart Stores, 588 F.3d 585, 594 (8th Cir. 2009).

Discussion

Winkelmann and The South Butt argue The North Face’s claims should be dismissed on two bases. Winkelmann and The South Butt argue that The North Face has failed to state a claim for trade dress infringement. 1 Winkelmann and The South Butt also argue that because the complaint contains attachments quoting their attorney and Winkelmann that are inconsistent with The North Face’s allegations, the complaint should be dismissed in its entirety.

1 In the prayer for relief, Winkelmann and The South Butt ask to the Court to strike all references to trade dress, but the motion is titled a motion to dismiss. Winkelmann and The South Butt’s argument appears to be under Rule 12(b)(6) and not under Rule 12(f). Therefore, I interpret their motion as one to dismiss a trade dress claim and not one to strike references to trade dress. If Winkelmann and The South Butt intended this filing as a motion to strike, I would deny their motion for the reasons stated in my order denying Williams Pharmacy’s motion to strike.

Trade dress

Winkelmann and The South Butt argue that The North Face has failed to state a claim for trade dress infringement because it has failed to plead what qualifies its alleged trade dress as distinctive or arbitrary with sufficient specificity to support the notion that those features are distinctive, nonfunctional and have secondary meaning. The North Face acknowledges that the complaint does not contain a count alleging trade dress infringement. As a result, I will deny as moot Winkelmann and The South Butt’s motion to dismiss the trade dress claim.

The complaint in its entirety

Winkelmann and The South Butt acknowledge that The North Face has pleaded the requisite elements to state a claim for relief. They argue, however, that the complaint should be dismissed in its entirety because the complaint contains attachments quoting Winkelmann and his attorney that are inconsistent with The North Face’s allegations and because a comparison of the marks shows that The North Face cannot possibly show a likelihood of confusion or dilution. The North Face argues that Winkelmann and The South Butt’s motion could be described as frivolous.

The complaint alleges that the Defendants willfully intended to trade on The North Face’s reputation and willfully caused dilution of The North Face’s trademarks and that Defendants have misrepresented and falsely described to the general public the origin and source of Defendants’ products. The attachments that Defendants deem fatal to The North Face’s complaint were press releases and news articles that quoted the Defendants informing the media that their products are not affiliated with The North Face and indicating it is not their intent to infringe on The North Face’s trademarks. The North Face correctly argues that the Defendants’ self-serving statements made in anticipation of this litigation are not an appropriate basis for a motion to dismiss. Whether Defendants’ statements are credible is an issue to be determined at a later time and not in a motion to dismiss.

Winkelmann and The South Butt also argue that the marks are so dissimilar that The North Face cannot possibly prevail. I do not find it to be implausible that the marks cannot cause a likelihood of confusion or dilution.

I remind counsel of their obligations under Rule 11 and that, with each filing, they certify to the Court that the motion is not being presented to harass, cause unnecessary delay or needlessly increase the cost of litigation and that the legal contentions are warranted by existing law or nonfrivolous arguments for extending, modifying, or reversing existing law or for establishing new law. Although this filing may not reach the level of frivolity, it approaches the line.

Accordingly,

IT IS HEREBY ORDERED that Defendants Winkelmann and The South Butt’s joint motion to dismiss is DENIED.

Dated this 9th Day of February, 2010.

/s/ Rodney W. Sippel

RODNEY W. SIPPEL

UNITED STATES DISTRICT JUDGE

Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases

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Download the (5–page) Essay here: Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent Law Journal 19 (2010).

By Dennis Crouch

After the Federal Circuit’s 2006 en banc decision in DSU Medical, charges of inducing patent infringement were thought to require that the accused infringer have actual knowledge of the asserted patent.  In its recent decision in SEB v. Montgomery Ward, the Federal Circuit rejected that conventional wisdom and instead held that “deliberate indifference” to the existence of a patent would be sufficient to support an inducement finding.  Thus, “a claim for inducement is viable even where the patentee has not produced direct evidence that the accused infringer actually knew of the patent-in-suit.”

An interesting aspect of the recent SEB decision is the court’s use of non-patent and non-Federal Circuit cases to aid its interpretation of the law.  Specifically, the decision relies on three cases that are decidedly non-patent: Farmer v. Brennan, 511 U.S. 825 (1994); United States v. Carani, 492 F.3d 867, 873 (7th Cir. 2007); and Woodman v. WWOR-TV, Inc., 411 F.3d 69 (2d Cir. 2005).

Farmer v. Brennan involved the question of whether an incarcerated pre-operative transsexual who projects female characteristics could be held in a men-only prison. The Supreme Court there held that a prison official could be liable for “deliberate indifference” to inmate safety.  US v. Carani involved an appeal of a child pornography conviction and the Seventh Circuit ruled that the defendant’s knowledge of the child-status of the pornography was satisfied by the defendant’s deliberate avoidance of or indifference to the truth. Woodman v. WWOR-TV involved an age discrimination charge against FOX and noted that knowledge of a fact may be proven through evidence that the party “consciously avoided knowledge of what would otherwise have been obvious him.”

Interestingly, the cases cited above are not found in the appellate briefs. Rather, the SEB court’s concept of “deliberate indifference” was raised sua sponte by the Federal Circuit.

A Broader Jurisprudential Outlook: In the past, I have spoken with appellate attorneys who suggested that briefs to the Federal Circuit should almost exclusively cite to prior Federal Circuit patent cases.  I wonder if this decision is indicative of a shift in the court’s jurisprudence.  In recent cases such as eBay, MedImmune, and Grokster, the Supreme Court pushed the Federal Circuit to consider non-patent jurisprudence when deciding patent cases.  In KSR, the Supreme Court also suggested that the Federal Circuit should not overly bind itself to doctrine.  These bits of Supreme Court guidance suggest a broader jurisprudential outlook.  Additionally, soon-to-be Chief Judge Rader has a penchant for drawing connections across doctrinal lines. It will be interesting see whether this case is a sign of a new era or perhaps simply an aberration.

   

  

Inducing Infringement: Knowledge-of-Patent Element Satisfied by “Deliberate Indifference”

Patent,

SEB (T-Fal) v. Montgomery Ward & Co. (Fed. Cir. 2010)

Part of the SEB decision revolved around the question of induced infringement. Under 35 U.S.C. 271(b) “[w]hoever actively induces infringement of a patent shall be liable as an infringer.” The defendant argued that it could not have induced infringement because it had no actual knowledge of the patent. That argument is supported by the Federal Circuit’s 2006 holding in DSU Medical v. JMS that the “requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent.”

In this case, the Federal Circuit further fleshed-out that requirement of knowledge after first suggesting that the quoted DSU Medical statement was dicta. “The facts of DSU Medical did not require this court to address the scope of the knowledge requirement for intent.” Despite the “knowledge” language of DSU Medical, the SEB court here held that “deliberate indifference” to potential patent rights is be sufficient to satisfy the knowledge requirement of inducement charges.  Thus, “a claim for inducement is viable even where the patentee has not produced direct evidence that the accused infringer actually knew of the patent-in-suit.”

To be clear, the court made a distinction between “deliberate indifference” and a “should-have-known” standard.

At the outset, this court notes that the Supreme Court has indicated, in a different civil context, that “deliberate indifference” is not necessarily a “should have known” standard. Farmer v. Brennan, 511 U.S. 825, 840 (1994). The latter implies a solely objective test, whereas the former may require a subjective determination that the defendant knew of and disregarded the overt risk that an element of the offense existed. . . . For example, an accused infringer may defeat a showing of subjective deliberate indifference to the existence of a patent where it shows that it was genuinely “unaware even of an obvious risk.” More importantly, and as courts have observed in a variety of settings, the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge. See, e.g., United States v. Carani, 492 F.3d 867 (7th Cir. 2007) (“Deliberate avoidance is not a standard less than knowledge; it is simply another way that knowledge may be proved.”).

Here, the Federal Circuit agreed with the district court that there was “adequate evidence to support a conclusion that [the Defendant] deliberately disregarded a known risk that SEB had a protective patent.” In particular, the Federal Circuit noted (1) that the defendant had copied SEB’s product; and (2) that the defendant hired a patent attorney to conduct a right-to-use study but did not tell the patent attorney that it had copied the SEB product; and (3) that the defendant’s president was well versed in US patent law. Taking these facts together, the court found “considerable evidence of deliberate indifference.”

A failure to inform one’s counsel of copying would be highly suggestive of deliberate indifference in most circumstances.

Jury Verdict of Inducement Affirmed

Patently-O Bits and Bytes No. 320: LegalZoom

Patent
  • Today, the Antitrust & Competition Policy Blog is hosting a “Competition in Agriculture Blog Symposium.” Much of the focus will be on the interplay between antitrust and patent law in the world of genetically modified seeds.
  • LegalZoom has brought low-cost legal forms and legal filings to the masses.
  • LegalZoom offers a “provisional patent package” for $199. I have not tried their service, but the advertising indicates that the inventor completes a “simple online questionnaire” and LegalZoom then “create[s] your Provisional Application for Patent and file[s] it electronically with the U.S. Patent Office.” An extra $329 buys Attorney Review and Preparation.” Perhaps the most misleading aspect of their promotions is the discussion of “provisional patents.” Of course, there is no such thing as a provisional patent.

PatentLawPic924

  • LegalZoom also offers to prepare a utility patent application (up to four pages of specification and ten claims) for $3788 and a design patent for $899. In both cases, legal zoom relies on “expert patent professionals” to provide “expert review, advice and suggestions for improvement.” At the same time, LegalZoom makes clear (repeatedly) that LegalZoom is not acting as your attorney.
  • In the past, Gene Quinn has written about LegalZoom alleging their unauthorized practice of law in both trademarks [here] and patents. Recently, LegalZoom has been sued in Missouri for engaging in the unauthorized practice of law. That case, however is based upon LegalZoom’s preparation of a “customized last will and testament.”
  • I would be interested in hearing comments regarding LegalZoom’s approach. Do any Patently-O readers work as patent attorneys for LegalZoom?

Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II

Patent,

Edward Reines and Nathan Greenblatt have returned with an extension of their 2009 article on the proposed right of interlocutory appeals of claim construction.  This new article considers the impact of the recent Supreme Court decision of Mohawk Industries, Inc. v. Carpenter as well as proposed modifications to the Patent Reform Act of 2009. Cite as Edward Reines and Nathan Greenblatt, Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II, 2010 Patently-O Patent L.J. 7 (2010). [Download Part II Reines.2010][Download Part I, Reines,2009]

Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II

Patent,

Edward Reines and Nathan Greenblatt have returned with an extension of their 2009 article on the proposed right of interlocutory appeals of claim construction.  This new article considers the impact of the recent Supreme Court decision of Mohawk Industries, Inc. v. Carpenter as well as proposed modifications to the Patent Reform Act of 2009. Cite as Edward Reines and Nathan Greenblatt, Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II, 2010 Patently-O Patent L.J. 7 (2010). [Download Part II Reines.2010][Download Part I, Reines,2009]

Damages: Federal Circuit Again Demands More Substance from Damages Experts

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PatentLawPic923ResQNet.com and Jeffrey Kaplan v. Lansa, Inc. (Fed. Cir. 2010)

The district court held that one of ResQNet’s patents was infringed and awarded $500k in past damages based on a 12.5% royalty rate. The court denied the patentee’s requested permanent injunction but instead ordered an ongoing license at the 12.5% royalty rate. The court also awarded sanctions against ResQNet’s counsel for failing to withdraw patents from suit that were clearly not infringed.

On appeal, the Federal Circuit took issue with the damages calculation — holding that the lower court had “relied on speculative and unreliable evidence divorced from proof of economic harm linked to the claimed invention.” 

This appellate decision should be seen as an extension of the Federal Circuit’s 2009 Lucent v. Gateway decision.  The issue of sufficiency of expert testimony on damages has been brewing for some time. I remember sitting near Judge Rader (one of the authors of this opinion) and both of us listening to Northern District of California Judge Ron Whyte refer to economic damages experts as the “most intellectually dishonest witnesses” that testify in his court.

Hypothesize Rather than Speculate: The statutory minimum damages for patent infringement is a “reasonable royalty.” That calculation typically involves a “hypothetical negotiation” in an attempt to calculate the rate at which the patentee would have licensed the patent to the infringer prior to the infringement.  Although the hypothetical negotiation is always involves guesswork, here the Federal Circuit reiterated the koan that the guesses must be based on evidence: “a reasonable royalty analysis requires a court to hypothesize, not to speculate.” Everyone understands that the arguments must have some evidentiary basis. Here, the real question was the type of evidence that can be applicable.  In particular, the appellate court held that the only relevant evidence is evidence related to “compensation for the economic harm caused by infringement of the claimed invention.”

Past Royalty Rate Must be Tied to Invention: The first problem with ResQNet’s evidence was that it presented past ResQNet license rates that were not bare patent licenses.  Addressing a similar issue, the CAFC wrote in its 2009 Lucent decision that a reasonable royalty damage award “cannot stand solely on evidence which amounts to little more than a recitation of royalty numbers, one of which is arguably in the ball-park of the jury’s award, particularly when it is doubtful that the technology of those license agreements is in any way similar to the technology being litigated here.”  Lucent.  According to the appellate panel, ResQNet’s expert witness Dr. Jesse David “used licenses with no relationship to the claimed invention to drive the royalty rate up to unjustified double-digit levels.”  The court indicated that experts need even more credible justification when the proposed royalty rate is much higher than might be expected.

Although the discredited prior licenses used by Dr. David were ResQNet licenses, those licenses were directed to the software code and re-branding rights but apparently did not specifically mention the patent number in suit and the evidence did not tie the licenses directly to the claimed invention. The appellate panel rejected these licenses as irrelevant to estimating royalty rate for the infringed patent: “In simple terms, the ’075 patent deals with a method of communicating between host computers and remote terminals—not training, marketing, and customer support services. The re-bundling licenses simply have no place in this case.”

The defendant Lansa did not offer any expert testimony on damages to counter Dr. David.  However, that failure does not remove the patentee’s burden to properly prove its damages. “As a matter of simple procedure, Lansa had no obligation to rebut until ResQNet met its burden with reliable and sufficient evidence.”

Judge Newman writing in dissent argued that the appellate panel over-stepped its bounds:

This is not a case of constructing, and applying, a royalty rate from totally unrelated content; it is simply a case of determining the evidentiary value of the infringed subject matter by looking at the various licenses involving that subject matter, and allocating their proportional value, with the assistance of undisputed expert testimony.

In the district court, ResQNet’s damages expert Dr. David, a qualified economist with experience in the field, followed the traditional application of the Georgia-Pacific factors, analyzing the impact of all of these factors in an extensive Expert Report and in testimony at trial. He was subject to examination and cross-examination in the district court, and the district court provided a full and reasoned analysis of the evidence. No flaw in this reasoning has been assigned by my colleagues, who, instead, create a new rule whereby no licenses involving the patented technology can be considered, in determining the value of the infringement, if the patents themselves are not directly licensed or if the licenses include subject matter in addition to that which was infringed by the defendant here. In this case, the added subject matter was usually the software code that implements the patented method, as the district court recognized, and whose contribution to the value of the license was evaluated by the damages expert and discussed by the court. My colleagues’ ruling today that none of that information is relevant to the assessment of damages is unprecedented, and incorrect.

Judge Newman was a member of the Lucent panel and argues that the majority decision here is “distorting the principles” of that case.

Ongoing damages: The appellate panel did not consider the issue of ongoing damages (compulsory license) because that question was not appealed.

Sanctions: The appellate panel did reverse the imposition of sanctions on Jeffrey Kaplan’s firm. In its decision, the court noted (i) the untimeliness of the motion for sanctions; (2) Kaplan’s prompt withdrawal of one of the three patents-in-suit; and (3) the actual “litigation substance” concerning the patent that was only withdrawn at the last minute.