Now that the Supreme Court has issued its opinion in KSR v. Teleflex, the first reaction is what took it so long? During the past six months since oral arguments in late November, I was expecting that the Court was taking its time crafting a historical opinion that delved into the genesis and evolution of the nonobviousness doctrine since the Hotchkiss decision in 1851. The Court does mention the Hotchkiss decision and a few others, but the six month gestation has yielded a compact, thirty page decision that can be summarized with three simple F-words: formalism, functionality, and flexibility.
Patently Funny
KSR v. Teleflex: A Tale Full of Sound and Fury, Signifying Little?
By Professor Gregory Mandel
By Professor Though the Supreme Court’s unanimous reversal in KSR v. Teleflex, No. 04-1350, 550 U.S. ___ (2007), contains some harsh words for the Federal Circuit’s teaching, suggestion, or motivation (TSM) test, the decision itself appears to leave the TSM requirement roughly intact. Justice Kennedy’s opinion emphatically rejects an ‘explicit’ TSM test—one that would require explicit prior art teachings in order to combine given references in the obviousness analysis. At the same time, the decision appears to essentially recreate the ‘implicit’ or ‘flexible’ TSM test—one that would allow implicit suggestions, such as the nature of the problem, to provide the requisite motivation to combine. It is this implicit TSM requirement that represented current Federal Circuit doctrine, pursuant to several decisions published after certiorari was granted in KSR (e.g., In re Kahn, DyStar, & Alza). In fact, the Supreme Court even indicates that the Federal Circuit may have gotten it right in these post-cert cases. The KSR opinion is more a critique of the Circuit’s application of the obviousness (and TSM) standard to the specific facts in 
KSR than a critique of the need to rigorously (and expansively) evaluate what would lead a PHOSITA to combine certain references in the obviousness analysis.
Under KSR, in order to evaluate whether a given combination was obvious, the factfinder must "determine whether there was an apparent reason to combine the known elements in the fashion claimed by the patent at issue." The Supreme Court’s "reason to combine" sounds significantly like "suggestion, teaching, or motivation to combine." It is interesting that the Court used a term as loose as “reason,” given concerns raised during oral argument about the indefiniteness of the term “motivation.” In addition, the Court requires that, "[t]o facilitate review, the analysis should be made explicit," a proposition for which the Court cites Kahn, warning that conclusory statements are not sufficient. The Court goes on to criticize rigid application of TSM, particularly relying solely on published articles and explicit content of issued patents. But, the Court notes, "In the years since the Court of Customs and Patent Appeals set forth the essence of the TSM test, the Court of Appeals no doubt has applied the test in accord with these principles in many cases. There is no necessary inconsistency between the idea underlying the TSM test and the Graham analysis." And, the Court explicitly notes that the post-cert Circuit cases were not before it: "The extent to which [DyStar and Alza] may describe an analysis more consistent with our earlier precedents and our decision here is a matter for the Court of Appeals to consider in its future cases." The opinion also clearly (appropriately in my opinion) invites greater analysis of the PHOSITA and the circumstances surrounding the PHOSITA and the pertinent technology than the Circuit has engaged in in some of its decisions.
Senate Considers Reforms to Importation Rules
Kinik v. ITC: In 2004, the Federal Circuit determined that the language of 271(g) does not apply to Section 337 actions at the ITC. [Opinion] In that decision, court noted that the 271(g) product by process statute explicitly limits itself “for the purposes of this title.”
Thus, when a defendant is accused of improper imports under Section 337, he cannot raise the defenses that the product included material change by subsequent processes or that the imported product is a trivial component of a larger product.
On May 1, 2007, the Senate held testimony regarding a legislative amendment that would apply 271(g) to ITC issues as well. Professor Chris Cotropia presented three specific problems raised by the current differential:
- inconsistent judgments;
- noncompliance with TRIPs; and
- hindrance of the policies behind the exceptions.
AIPLA opposes amendment arguing that it “would only benefit foreign manufacturers accused of unfair trade practices.”
Links:
Microsoft v. AT&T: Extraterritorial Enforcement of US Patents
Microsoft Corp. v. AT&T Corp., 550 U. S. ____ (2007).
In a 7-1 decision, the Supreme Court held that Section 271(f) of the Patent Act does not extend to cover foreign duplication of software.
There is no such thing as a world-wide patent. Rather, patent law is territorial. A US patent covers infringing acts that occur in the US but generally disregards extraterritorial activity. The lone statutory exception is Section 271(f) of the Patent Act, which calls for infringement liability for the unauthorized supply of "components" of a patented invention for "combination" abroad.
Todays business reality has considerably dulled the teeth of 271(f) in the area of manufacturing — few physical components are shipped abroad from the US. Through Microsoft and others, the US continues to be a leader in software development and the export of software. Of course, Microsoft does not export its software by loading millions of CDs on a cargo ship. Rather, it sends only a few copies to foreign OEM distributors who load copies of the software onto PCs for sale.
AT&T is the assignee of a patent covering a computer for encoding and compressing recorded speech. In the US, a computer with Microsoft WIndows installed infringes the patent. The question in this case, is whether the foreign installed software can be considered a "component" supplied from the US under 271(f).
The question before us: Does Microsoft’s liability extend to computers made in another country when loaded with Windows software copied abroad from a master disk or electronic transmission dispatched by Microsoft from the United States? Our answer is "No."
As can be seen from the various amici briefs, reasonable minds can differ regarding two statutory elements: (1) whether software — without being tied to a physical medium — can be classified as a "component;" and (2) whether the foreign-made copy was "supplie[d]" from the US. Abiding by its principle against extraterritorial application of laws — especially patent laws — the Supreme Court answered both of these questions in a restrictive fashion:
- Abstract Software: Until it is expressed as a computer-readable "copy," e.g., on a CD-ROM, Windows software indeed any software
detached from an activating medium remains uncombinable. . . . Abstract software code is an idea without physical embodiment, and as such, it does not match §271(f)’s categorization: "components" amenable to "combination." [DDC: Software is never without a physical embodiment?] - Supply of Copies: [T]he very components supplied from the United States, and not copies thereof, trigger §271(f) liability when combined abroad to form the patented invention at issue. Here, as we have repeatedly noted, the copies of Windows actually
installed on the foreign computers were not themselves supplied from the United States. [Therefore no liability for foreign-made copies]
Dissent by Justice Stevens: In my view, Justice Stevens – in a solo dissent – has the more sensible view of component.
[I]f a disk with software inscribed on it is a "component," I find it difficult to understand why the most important ingredient of that component is not also a component.
Sarnoff Discusses KSR v. Teleflex
By Professor Joshua Sarnoff, Assistant Director of the Glushko-Samuelson Intellectual Property Law Clinic and a Practitioner-in-Residence at the Washington College of Law, American University. Professor Sarnoff filed an amicus brief in support of Petitioner KSR.
In its unanimous decision in KSR Int’l. Co v. Teleflex Inc., No. 04-1350 (April 30, 2007), the Supreme Court expressly overruled the Court of Appeals for the Federal Circuit’s “teaching-suggestion-motivation” (“TSM”) test for finding a claimed invention obvious and reaffirmed the Court’s precedents (in light of the 1952 enactment of Section 103 and its holding in Graham v. John Deere Co. of Kansas City, 383 U.S. 1 (1966)) regarding the obviousness of patents “based on the combination of elements found in the prior art” where there the combination “does no more than yield predictable results.” Slip op. at 11-12. The Court’s decision has therefore called into question the validity of hundreds of thousands of claims in issued patents, and will likely lead to a dramatic change to the method by which the Patent Office, the courts, and the bar conduct their obviousness analyses.
Nevertheless, the Supreme Court’s opinion appears self-consciously narrow and provides little additional guidance for how to apply the Graham approach. The Court’s decision leaves unclear whether the party with the burden of proving obviousness must demonstrate that “there was an apparent reason to combine the known elements in the fashion claimed by the patent at issue,” or only that the claim at issue if patented would reflect an “advance[] that would occur in the ordinary course without real innovation[, which] retards progress and may, in the case of patents combining previously known elements, deprive inventions of their value or utility.” Slip op. at 14, 15. As the Court noted, “as progress beginning from higher levels of achievement is expected in the normal course, the results of ordinary innovation are not the subject of exclusive rights under the patent laws. Were it otherwise patents might stifle, rather than promote, the progress of useful arts.” Slip op. at 24. Although the Court recited the Constitutional language, it did not expressly hold that obviousness is a constitutional requirement. Further, the Court left to later case law any consideration of the extent to which the Court of Appeals’ more recent statements regarding the flexibility of its TSM test is consistent with Graham and the Supreme Court’s earlier precedents. Slip op. at 18.
2007 Patent Reform: Proposed Amendments on Damages
The proposed 2007 Patent Reform Act (the “Leahy-Berman bill”)[1] details modifications to 35 USC § 284 that will most certainly reduce many patent infringement damages awards. Three portions of the Leahy-Berman bill concern monetary compensation: First, the bill seeks to limit reasonable royalty damages to the inventive aspects of the claim. Second, the bill restricts the use of the entire market value rule. Third, the bill expressly confirms a fact finder’s ability to rely on certain types of evidence to measure compensatory harm.[2]
Reasonable Royalty: Relationship to Contribution over the Prior Art and Consideration of Relevant Factors.
Perhaps the most striking change in the Leahy-Berman bill is a proposed limitation to reasonable royalty recovery. Under current law, a reasonable royalty is calculated by envisioning the result of the parties’ hypothetical negotiation for a license to the claimed invention at the time infringement began.[3] This determination is made by a fact finder (whether judge or jury) and is guided by the application of the Georgia Pacific fifteen-factor test.[4]
Current patent law permits a reasonable royalty calculation for use made of “the invention”—that is, an infringed claim. Of course, few–if any–patent claims are entirely novel. Most claims are an improvement over the prior art. Further, combination claims aggregate prior art elements in a novel way, or else a combination of novel elements together with prior art elements.
The Leahy-Berman bill specifically requires a limit on reasonable royalty recovery to the “economic value properly attributable to patent’s specific contributions over the prior art,”—that is, the inventive portion of the claim. Such an aggressive limit on monetary relief for patent infringement has not been apparent in the case law for decades.[5] A statement by Sen. Leahy (link) explains that this limitation is intended to provide for compensation solely for “the truly new ‘thing’ that the patent reflects,” in response to a concern that “litigation has not reliably produced damages awards in infringement cases that correspond to the value of the infringed patent.” This reasonable royalty limitation, which is likely to affect patents in all technology sectors, promises to be controversial.
Additionally, the Leahy-Berman bill asks trial courts to exercise more control over the fact finder’s consideration of the reasonable royalty and to create a more defined record for appellate review. Under current law, a typical reasonable royalty jury instruction lists all fifteen Georgia Pacific factors although fewer than all factors may be relevant in any particular case.[6] Further, a verdict form asks a jury to set a royalty figure, but jurors are rarely asked to create a record as to how their result was reached.
Under the Leahy-Berman bill, the trial court must “identify all factors relevant to the determination of a reasonable royalty” and then the fact finders are limited to consider only the factors identified by the district court in awarding a reasonable royalty. As an example of this provision in operation, a trial court might make an initial determination as to whether derivative or convoyed sales exist, such that the sixth factor of the Georgia Pacific test is relevant. If no such sales are in evidence, under the Leahy-Berman bill a trial court must preclude a jury’s consideration of this sixth factor.
Significantly, the proposed legislation’s use of the word “factors” does not appear to be limited to the Georgia Pacific factors specifically and presumably would apply to any factor that might be considered, including those listed in proposed section 284(a)(4).
Apportionment: The Entire Market Value Rule
As a general rule, patent damages are linked to the subject matter of the invention.[7] In some cases, an infringed claim relates to only one part of an entire multi-functional infringing product or system. In those circumstances, apportionment is the general rule—that is, damages are based on either lost profits or reasonable royalty apportioned for the infringing part as distinct from the remainder of a device that is outside the infringed claim’s scope. For example, damages for a claim directed to an improved windshield wiper are calculated based on the value of the infringing wiper, and not the sales price of the entire car into which the wiper is installed.
This general rule is modified under the judicially created “entire market value rule.” Where the entire market value rule applies, a patentee may recover damages based on the value of an entire apparatus or system that contains both infringing and additional, unpatented features.[8]
In “Let the Games Begin, Incentives To Innovation In The New Economy Of Intellectual Property Law,” I examine how the entire market value rule has recently received expansive application. Historically, the entire market value rule allowed recovery based on the price of entire product only where the “entire value” of the product was attributable to the infringing feature.[9] However, more recently, Federal Circuit cases more broadly apply the entire market value rule so long as there is a “functional relationship” between the infringing and the non-infringing components.[10] Further, patentees can recover for sales of non-infringing components where the patentee demonstrates a “reasonable probability” of selling the non-infringing components with the infringing part.[11]
An example of this expansive application of the entire market value rule can be seen in Lucent v. Newbridge Networks[12], where the district court determined that the jury’s addition of two software programs were properly included in the royalty base even where those programs were non-infringing, were not physically part of the infringing device and were not necessary for the device to operate. More recently, the Alcatel-Lucent verdict against Microsoft concerning the Windows® Media Player was reportedly calculated based on the average cost of a personal computer, and not limited to Microsoft’s Media Player or even Windows®.[13]
The Leahy-Berman bill provides an explicit, definitional standard for the application of the entire market value rule by requiring the patentee to show that the claim’s contribution is “the predominant basis for market demand” of an entire product or process. This standard reigns in the current expansive articulations of the entire market value rule by requiring a patentee to demonstrate that an infringing feature is the single primary reason users select an infringing product or process. If enacted, this subsection will have the overall effect of limiting damages to a particular infringing piece of a multifunctional product or process for both lost profits and reasonable royalty awards.
An open question exists as to the interaction between the proposed subsection (a)(2) governing reasonable royalties and (a)(3) governing the entire market value rule. Specifically, proposed subsection (a)(2) precludes recovery for the value of unpatented features of an infringing product or process. On the other hand, proposed subsection (a)(3) arguably permits such compensation where the inventive element is the “predominant basis for market demand.”
Marketplace Licensing and “Other Factors”.
The Leahy-Berman bill proposes one additional change, which appears of minor importance. That is, the bill expressly states that a fact finder may consider “the terms of a non-exclusive marketplace licensing of the invention” and any “other relevant factors” under the law in the damages determination. This subsection appears to be a codification of the existing law, which permits district courts wide discretion in considering evidence relevant to the damages determination.
Conclusion
As a whole, the Leahy-Berman bill represents an effort to refine and narrow available damages for patent infringement by building on an existing body of case law. The proposed changes to patent damages will undoubtedly present some challenging questions if adopted into law.
Two of the proposed sections require apportionment of inventive claimed matter from that outside the claim scope. The difficulty presented is that apportionment determinations can be difficult to implement. Perhaps the best evidence of this is the pre-1948 law, which relied on apportionment for calculating lost profits and had been described as a “complete failure of justice in almost every case in which supposed profits are recovered or recoverable” due to the time and complexity involved.[14]
Further, the Leahy-Berman bill has the potential for significant consequences for the licensing value of patents more generally. That is, to the extent that licensing determinations may reflect of potential results at trial, one might be expect that licensing negotiations will account for lowered damages the bill is passed into law. 2001).
Continuation and Claim Limitation Rules Submitted for Final Review: Final Publication in Early July
Hal Wegner has done the legwork to evidence the rumors. On April 10, 2007, the USPTO Submitted two sets of final rules to the Office of Management & Budget for regulatory review:
- RIN: 0651-AB93: Changes to Practice for Continuing Applications, Requests for Continued Examination Practice, and Applications Containing Patentably Indistinct Claims
- RIN: 0651-AB94: Changes to Practice for the Examination of Claims in Patent Applications
Summer Implementation Likely: According to self-reports, Bush OMB has maintained a fairly strict adherence to a 90-day time-limit for review. Thus, barring unusual circumstances, publication of the rules can be expected in early July. Implementation would require a 30-day window following publication.
Get Involved: The Review Office has a policy "to meet with any party interested in discussing issues, whether they are from State or local governments, small business or other business or industry interests, or from the environmental, health or safety communities." In addition, third parties may submit written comments on any rule under review. [VIA FAX at (202) 395-3047 or 202-395-5806 or (202) 395-6566].
Earlier this month, Susan Dudley was named the new director of the Office of Information and Regulatory Affairs (OIRA) through a recess appointment. Her office is quite powerful because it "will have an opportunity to change or block all regulations proposed by government agencies."
Wegner on Patent Reform
By Hal Wegner
By Before an overflow hearing room on an internationally available web broadcast, Chairman Howard Berman of the House Judiciary Subcommittee relevant to patents hosted a most informative and candid hearing yesterday afternoon joined by roughly ten of his committee colleagues, including Rep. Dan Issa, undoubtedly the most patent-interested member of Congress in some time (and like Abraham Lincoln an inventor-user of the patent system).
Going into the hearing, the Chairman clearly recognized the total impasse from the last Congress over "second window" post-grant review and that the current legislation as introduced is dead in the water. Yet, the Chairman and the bipartisan participation manifested a determination to find a solution, best marked by the announcement of the intention of the Chairman to hold a markup hearing in May – which, coincidentally or not – will take place in all likelihood shortly after the KSR decision is reached by the Supreme Court, and possibly before the Supreme Court Microsoft decision.
The Public Perception of Patent Importance: Just a decade ago, a patent hearing would have drawn gaping yawns from the public with a smattering of a few Washington regulars and largely vacant seats, both for the members and the audience. Yesterday, eighty minutes before the hearing the attendants’ line stretched down the corridor with numerous ill-dressed folks lounging on the floor or in chairs ("seat holders" selling their places in line to corporate VP’s and lobbyists); those coming later had to sit in an overflow video-feed room; ten or so members of the subcommittee participated in the hearings, some showing significant insight. The press table was overflowing; the beat reporter for Reuters was unable to get a seat at the table. A former Chairman of the Subcommittee staff sat in the very last row of the audience, along with other pooh bahs.
The point? Patent reform is perceived by Congress as important; the presence of myriad lobbyists manifests the money that is being spent by industry to deal with reform. Patent reform legislation will continue center stage, whether it passes or not.
Potential Abuses of the "Second Window": Perhaps the single most constructive development that arose from the hearing was the focus upon the abuse of the current reexamination system that foreshadows similar problems under the proposed post-grant review system: Serial reexaminations and post-litigation reexaminations even after a final court decision have been unreasonable and made it impossible for the winner of a trial costing the parties millions of dollars to enjoy a quiet patent title: Even after winning at trial, reexaminations can be filed that may take many years to resolve, some just rehashing old issues lost at trial.
A Single, Joined Proceeding to Avoid "Second Window" Abuses: A possible solution that was not considered at the hearing; the subcommittee should consider a "one window" solution where a first-filing of a post-grant proceeding would result in a publication in the Official Gazette that would give the public a six month window to join in a single, one time only post-grant proceeding. Additionally, the filing of any patent litigation should also be noticed in the Official Gazette to similarly set a six month period to commence a post-grant proceeding: Failure to file within this period would forever shut the door to a post-grant proceeding to the extent that the litigation goes to a final decision on the merits. And, of course, after a final decision on the merits in patent litigation, no further post-grant proceeding should be permitted.
Rep. Issa’s "One Window" and Judge-Opened Window Proposals: Rep. Issa suggested that perhaps "one window" might be provided for a post-grant proceeding, one shot at a patent, no matter when that window would be. Another thought that was put on the table was the idea that there could be a restricted "first window" but that a trial court could later order reopening a "second window" by referring a case to the post-grant authority. This would have the great benefit to the public of providing a better assurance that a patent-experienced tribunal would consider patent validity. (Presumably, for the roughly ten of the ninety-four District Courts that already provide excellent patent justice in a timely fashion, judges would decline to exercise this option but retain patent validity issues for their own tribunals. But, for the more than eighty other District Courts where a typical judge may be hearing his or her first or second patent case, the option of opening the "second window" may be very attractive.)
KSR, Microsoft, eBay – Looming Shadows from the Supreme Court : The Subcommittee is keenly aware of the presence of the Supreme Court in the patent arena. There was open discussion of the relief that Congress felt with the eBay decision that judicially resolved an issue this past Term that had been a bottleneck to progress on patent reform last year. Several references were made to the absence of any remedy to remove 35 USC § 271(f) and the hope that perhaps there would be a judicial solution in the Microsoft case that would remove yet another contentious issue; it was particularly for the reason of the pendency of the Microsoft case that the current legislation lacks any provision to deal with 35 USC § 271(f) repeal.
The 800 pound gorilla that was not mentioned is the KSR case that in all likelihood will be decided before the May markup session. (The earliest date now that a decision could be forthcoming is this coming Monday when the court sits merely to deliver opinions. The Court has concluded all of its arguments for the October 2006 Term and is now regularly meeting on Mondays to hand down decisions, which will continue until the end of June.) To the extent that the KSR decision may represent a major disruption in the case law of obviousness, this will be a certain signal to the leaders of the patent community that there must be a post-grant solution to cull out invalid patents. The continued grant of "gas pedal" patents cannot be avoided; but, what must be avoided is the continuation of an absence of mechanisms to remove such patents from the rolls.
Witness Selection to Highlight the "Second Window" Impasse: While apportionment of damages in the legislation was also an important theme, it was clearly secondary to the issue of the "second window" for a post-grant review. The Chairman candidly announced that his subcommittee was focusing upon the differences between the industries. (Clearly, without resolution of the "second window" debate, there will be no comprehensive patent reform bill that can be enacted in this or any near term bill.) With this theme in mind, the Chairman noted the appearance of five witnesses:
(1) Kevin Sharer, Chairman and CEO of Amgen, accompanied by Vice-President David W. Beier, III, former Subcommittee Staff Chair , pointed to the necessity for (a) a more reliable post-grant procedure; and (b) the necessity of freedom from a "second window" for biotechnology.
The Sharer testimony and the silent but visible presence of Beier stole the show, both in terms of persuasiveness as well as for the special deference given by the Subcommittee to the Sharer-Beier entourage. Amgen was seeded first at the hearing and, pursuant to a special announcement by the Chairman at the outset, was given a preferred early set of questions to permit a Stage Right exit in the midst of the hearing, leaving the other witnesses at the table.
The Amgen testimony noted that a new biotechnology drug has a development cost running at the rate of $ 1.2 billion spread over a 15 year period. Amgen itself pours out $ 3.4 billion in research costs each year, 90 % of which advances science but represents false starts in terms of any commercial possibilities. Quiet patent title at an early date is an absolute requirement for such expenditures.
One Size Doesn’t Fit All: Quite clearly, the Amgen testimony, better than any representative for any of the various organizations, demonstrated the absolute, positive necessity the biotechnology community has for a highly reliable post-grant proceeding and one where there is early, quiet patent title ensured. Amgen persuasively explained the position of his company in a scenario that is echoed by all major pioneer pharma and biotech entities and manifests the futility of any attempt to ram through Congress a one-size-fits-all "second" window solution.
The Need for Independent PTO-Free Post-Grant Governance: The Amgen testimony implied a need for a very reliable post-grant system. While not a subject of the Congressional testimony yesterday, previous notes by this writer have suggested that as an imperative for any post-grant reform the proceedings must be divorced from the political control of the PTO. The BlackBerryGate and other long-running reexaminations manifest the necessity of this reform. It must be remembered that the 1980 original reexamination law could have been effective, including inter partes participation and including expedited consideration, all possible within the scope of the reexamination law and certainly within the budget of the PTO. The fact that the PTO today denies the "special dispatch" examination of a reexamination proceeding of importance speaks for itself. There is nothing to preclude a PTO-run post-grant review from similar political interference from the Director.
(2) Gary L. Griswold, 3M, for the 21st Century Patent Coalition spoke, as usual, strongly opposing any "second window" post-grant review and opposing other IT/EE initiatives. While the death of the current legislation is a certainty with or without the strident voice of the 21st Century Patent Coalition, the intransigence of the 21st Century Patent Coalition is perhaps the best indicator that no Phoenix can ever arise from the ashes of the current legislation.
Where is the AIPLA? The vast, overwhelming majority of the membership of the AIPLA favors reasonable patent reforms and can hardly be cast in the position of favoring the intransigent position taken by the 21st Century Patent Coalition. To say that the leadership of AIPLA is through an Executive Committee controlled by the common interests of the 21st Century Patent Coalition is difficult to dispute. (Oddly, AIPLA is the only bar association that is a member of this coalition, now just one of forty members of an otherwise industry coalition, "plus Patent Cafe", identified as a post-script to this note.)
IPO has disappeared: It was nowhere to be seen nor heard. [DDC: IPO Continues to be a Major Player in this Reform]
(3) Prof. John R. Thomas, Congress’ CRS in house researcher dismissed the post-grant legislation as "marginal". Rebutting those that portray the post-grant proceeding proposed by Congress as a "sea change", the professor said that the legislation would represent a "marginal change".
(4) William T. Tucker, California university system, stayed away from the "second window" debate, but uniquely focused upon a need to retain the "first inventor" system.
(5) Anthony Peterman, Dell Patent Counsel, expressed EE/IT views on the essential nature of the "second window" for his industry. Pointedly asked by the Chairman whether he understood the viewpoint of the biotech industry as expressed in the earlier testimony to avoid a late-stage "second window", Peterman agreed with the need to see whether a solution could be reached that would satisfy both sectors.
Notes:
The Coalition for 21st Century Patent Reform members include (per its announcement): "3M, Abbott Laboratories, Air Liquide, Air Products, AstraZeneca, Baxter Healthcare Corp., Beckman Coulter, Bridgestone Americas, Bristol-Myers Squibb, Cargill Incorporated, Caterpillar, Cephalon, CheckFree, Corning, Dow Chemical, Eastman Chemical, Electronics for Imaging, E.I. du Pont (DuPont), Eli Lilly, ExxonMobil, General Electric, Genzyme, GlaxoSmithKline, Henkel Corporation, Hoffman-La Roche, Johnson & Johnson, Merck, Millennium Pharmaceuticals, Monsanto, Motorola, Novartis, Patent Cafe.com Inc., Pfizer, Procter & Gamble, Sangamo BioSciences, Texas Instruments, UnitedTechnologies, Weyerhaeuser, Wyeth, and AIPLA."
Patently-O TidBits
- Patent Attorneys: Second most depressing job in Australia (regular lawyers are No. 1). LINK
- The House IP Subcommittee held a hearing on April 26 on patent reform, speakers included Gary Griswold (3M), Anthony Peterman (Dell), Kevin Sharer (CEO Amgen), Jay Thomas (Georgetown professor), and Bill Tucker (Tech Transfer at UC). LINK to WRITTEN TESTIMONY.
- FTC Commish on Tom Rosch on IP-Antitrust issues. LINK.
- World IP Day: I missed it, but IPKat has the (funny) discussion. LINK.
- Bidding for Patents.Com is now up to $420,000.
Upcoming Events
- May 6-9, I will be at the annual BIO International Convention — this year being held in Boston. I’ve been given a press pass — Let me know if you would like to get together to talk about the future of American patent law.
First-to-File or Where to Place the Incentives?
This is a continuation of the interesting chain of comments found here.
The incentive debate is interesting. Unfortunately, we do not have credible evidence about what value society should place on various aspects of the technology development process. We do, however, have hunches:
Invention: There are many of us who believe that the invention process is intrinsically beneficial wholly apart from disclosure of the resulting invention. Often, the result of invention includes new products or more efficient technologies that simply would not have been otherwise available apart from the innovation. At times, the invention may be used by the public without disclosing the invention itself. In those cases, the public still benefits because of the availability of the new technology. In addition to the benefit of new products, there is also an educative effect of innovative efforts. Even if a research initiative fails today, the researchers (and perhaps their organization) will have learned something that will help them in future endeavors.
Disclosure: Few (if any) inventions are stand-alone. Rather, inventors “stand on the shoulders” of those who have come before. Of course, the only way that today’s inventors know yesterday’s technology is through public disclosure. Now, disclosure usually comes from something other than the patent document — such as released products, academic papers, etc. Disclosure also improves the potential for competition in the market.
For invention and disclosure, we also make the assumption that earlier is better.
One aspect of the debate on first-to-file is the question of whether more focus should be placed on invention or disclosure. Today’s first-to-invent favors an early invention date, while the proposed first-to-invent system would push the (relative) focus toward disclosure.
Patent No. 7,018,407: Filed in 1981, Expires in 2026?
In March 2006, Medtronic was awarded Patent No. 7,018,407 — a patent related to a tricuspid heart valve holder. This case is interesting because the patent stems from an application originally filed 24 years earlier in 1981.
In 1988, the applicant appears to have lost an interference proceeding regarding some of the claims. The next correspondence comes 16 years later with an Ex Parte Quayle action that would lead to the 2006 allowance.
According to Alan Harrison, an Intellectual Property Analyst at Nerac, the PTO has also granted a further extension of 1109 days “for the delays in adjudication of the interference.”
Enforcement of pre-1995 patents has an additional twist regarding pre-existing use. Again, Alan Harrison:
35 USC 154(c)(2) REMEDIES moderates enforceability by prohibiting injunction, damages, or award of attorney fees against uses “commenced or for which substantial investment was made” during the pendency of the application prior to June 8, 1995 (pre-existing use).
But Medtronic still may sue competitors who continue their pre-existing use, and to continue such use those competitors must make equitable REMUNERATION under 35 USC 154(c)(3). Following Bristol-Myers Squibb Co. v. Royce, 69 F.3d 1130 (Fed.Cir. 1995), Medtronic may alternatively require deferment of FDA approval for infringing devices during the enforceable life of the patent.
It is unclear whether this patent has any commercial value — and whether its submarine style emergence create other prosecution laches problems.
CAFC Stays Permanent Injunction against Vonage Pending Appeal
Vonage v. Verizon (Fed. Cir. 2007).
In a rare emergency hearing on April 24, the Federal Circuit heard Vonage’s plea for a stay of an injunction that would bar the upstart VOIP company from contracting with new customers. Soon after the hearing, the CAFC agreed — staying any injunctive relief pending appeal. The full appeal will also follow an expedited schedule and is scheduled for oral arguments on June 25, 2007.
This appeal comes on the heel of the jury verdict finding that Vonage infringes three Verizon patents. (6,282,574, 6,104,711, 6,359,880). These patents all relate to various aspects of Internet telephony. Following the jury verdict, the District Court Judge issued a permanent injunction against Vonage, but granted a partial stay. Under the district court’s decision, the stay would have allowed Vonage to continue operation, but would have barred the Internet Telephone company from signing-up any new customers in the interim.
Rule 62(a) of the Federal Rules of Civil Procedure provides the general rule that a permanent injunction "shall not be stayed" pending appeal. According to the rule, however, such a stay is generally within the discretion of the district court. Likewise, the CAFC has, at times, also exerted its discretion to stay injunctive relief pendente lite.
The jurisprudence regarding patent stays is fairly scarce. Perhaps for obvious reasons, emergency stays are usually issued without any substantive opinion. There are a few cases outlining the basic approach to determining whether to issue a stay. In Standard Havens (1990) the Federal Circuit announced a four-factor test for considering whether to issue a stay pending appeal.
- Likelihood of success on the merits of the appeal;
- Irreparable harmed absent a stay;
- Irreparable harm due to a stay (continued infringement); and
- Public interest.
For Vonage, issuance of the permanent injunction would be equivalent to the proverbial fat lady singing through the Internet pipes. A full injunction would seemingly destroy Vonage’s core business — leaving its customers ready for the picking.
The CAFC’s swift action in these cases shows that it understands the critical business importance of the stay.
Omeprazole Manufacturing Patent: 2-1 Inherent Anticipation
Omeprazole is the best-selling proton pump inhibitor sold under brand name Prilosec®. The drug operates by inhibiting the production of gastric acid, but only operates properly when administered within an enteric coating and an additional separating layer. AstraZeneca’s Patent No. 6,013,281 relates to the process of forming the coated pill. In a 2-1 decision, the Court of Appeals for the Federal Circuit (CAFC) found the ‘281 patent invalid as inherently anticipated.
A prior Korean patent application recites all but one claim limitation of the asserted ‘281 patent.* That limitation requires that the separating layer be formed “in situ.” The trial court found, and CAFC affirmed that the in situ separation necessarily formed when practicing the prior art.
The record shows formation of the in situ separating layer in the prior art even though that process was not recognized at the time…. The [prior art] ingredients and protocols … necessarily resulted in in situ formation of a separating layer. Thus, the trial court correctly found inherent anticipation.
Concluding for the 2-1 majority, Judge Rader affirmed the finding of invalidy.
In dissent, Judge Pauline Newman took issue with the majority’s legal analysis.
Applying a novel theory of “inherent anticipation,” the court invalidates Astra’s patent on a newly discovered chemical process. . . . The court’s explanation and citation of authority suggest that my colleagues have confused the law governing patentability of a newly discovered use of a known composition, which is achieved by “process” claim,1 with the unpatentability of the known composition itself.
Judge Newman insisted that inherency requires that the ‘inherent information” still “be known to be present in the subject matter of the reference, when viewed by persons experienced in the field of the invention.” In addition, any secret tests using the Korean method cannot serve as prior art because they are not public.
- * One of the asserted claims (Claim 9) was not inherently anticipated, but was found obvious.
Patent Reform Act of 2007: Preliminary Notes and Comment Part I
This post provides some initial notes from my first read-through of the proposed legislation. More information regarding the proposal is available at an earlier post here.
- Top Secret Development: The proposed legislation was developed in-secret by a closed-group representing industry organizations. As it turns out, however, the major big-industry players are not all on-board and neither are groups of would-be patent plaintiffs. The end-result is a bill that is heavily tilted toward providing additional avenues for challenging patent validity and for reducing the power of all patents. In that sense, the Bill is a gift to potential defendants. In the end, the legislation is so one-sided that it is quite unlikely to move forward without a complete overhaul.
- No Grace Period?: The proposed first-to-file has been contentious for many years. Proponents of the change talk about how Interference proceedings are an awful process and first-to-file avoids that problem. A first-to-file system automatically awards the patent to the first applicant who submits the patent application. The proposed legislation, of course, does far more than ease resolution of interference disputes. The proposal shifts all focus from an invention date to the “effective filing date” and in-the-process eliminates the US one-year grace period. Notably, the grace period would still be intact for the inventor’s own disclosure.
- Joint Research avoids Anticipation: The grace period is also still intact for disclosures made by the patent assignee — a provision clearly favoring companies with larger research-arms. In addition, there is still a one-year filing grace-period for disclosures made by parties to a properly-written joint research agreement.
- Public Use and On Sale Activity outside of the US would now be considered prior art. This is probably justified by recently expanded extraterritorial effect of patent enforcement.
- Damages a new floor: The new damages proposal is very specific and sets a new (lower) floor for damages. Under the proposal, courts must conduct a reasonable royalty analysis focused at the “patent’s specific contribution over the prior art.” The statutory language surrounding this analysis appears to be complex enough to occupy dozens of CAFC opinions explaining the proper methods of determining the economic value of the difference between the invention and the prior art. Reasonable royalty does, however, remain only a floor — although according to the statute, it must now be calculated (even if going after lost-profits). (Jury Trial Issues?)
- Clear Path to Avoid Willfulness: Adios Treble Damages. The patent community spends a considerable amount of time discussing willful infringement and the associated enhanced damages. The current patent statute, however, does not mention willful infringement allowing for additional theories for enhancing damages. The amendment would limit treble damages only to cases where willfulness is found based on clear and convincing evidence of either (1) notice of how particular acts infringed particular claims or (2) intentional copying with knowledge of the patent or (3) continuing to sell the infringing product after being adjudge an infringer. “Good faith” by the infringer avoids willfulness. Although the ‘rules’ regarding increased damages have been becoming ever more stratified, this statute removes the vast majority of the current leeway given to courts and juries.
- Bifurcation of Trials: Many defendants believe that juries are biased simply by hearing that they are accused of willful infringement. The reforms would bar a patentee from even alleging willfulness until after the patent has been found valid and infringed.
- Inter Partes Reexamination: Many patent litigators have warned clients against filing inter partes reexamination requests because of the litigation estoppel created by by 35 USC 315(c). That provision estopps later validity challenges on grounds that a third party “raised or could have raised” during the reexamination. The Patent Reform Act would limit the estoppel to only issues actually raised — striking the “could have raised” language.
CAFC: Claim Differentiation Again
Intamin v. Magnetar Tech (Fed. Cir. 2007).
Intamin owns a patent on a magnetic braking system for a roller coaster and sued Magnetar for infringement.
The claim construction dispute involved an “intermediary” between two magnets. Relying on an ordinary meaning interpretation, the lower court had found that the intermediary could not itself be a magnet: “In short, ordinary meaning supports [a narrow construction], and neither the specification nor the prosecution history changes the ordinary meaning.”
On appeal, the CAFC found an error in claim construction — holding that the claimed intermediary could itself be a magnet. The court based its result on an implication of claim differentiation.
[A dependent claim] discloses “[t]he braking device of claim 1 wherein said intermediary is non-magnetic.” This dependent claim shows both that the claim drafter perceived a distinction between magnetic and non-magnetic intermediaries and that independent claim 1 impliedly embraced non-magnetic intermediaries.
Interestingly, the CAFC allowed the claim differentiation argument despite the fact that “Intamin did not raise this argument until reconsideration.” As a backup, the court implicitly relied on the ordinary (broad) meaning of intermediary to further justify its holding.
At one point, the ‘350 patent describes an embodiment of the invention with a “non-magnetic” intermediary…. The single reference does not expressly limit the entire invention but only describes a single embodiment. Moreover, the term “intermediary,” like the term “baffle” in Phillips, embraces more than the limited specification disclosure.
Vacated and Remanded.
IP Hall of Fame
The London-based publication Intellecutal Asset Management (IAM) magazine has created the “IP Hall of Fame” to honor individuals – both past and present – who have played a major role in creating and improving our intellectual property systems. The Hall of Fame was started in 2006 with inductees such as Thomas Jefferson, James Madison, and Thomas Edison. More modern inductees include Marshall Phelps and Don Banner.
The 2007 induction process has recently begun. Nominations may be submitted by anyone through the IP Hall of Fame website: www.IPHallOfFame.com. The 2007 awards will be presented at a big Ocean Tomo gala in October.
Along with Phelps, Todd Dickinson, Senator Birch Bayh and others, I am a new member of the IP Hall of Fame Academy — the group that selects the inductees. You can blame us if your nominees are not selected this year.
Note: The IP Hall of Fame is quite different from the National Inventors Hall of Fame, which is focused on the accomplishments of inventors.
Patent Reform Act of 2007
On April 18, 2007, bipartisan legislators in both the Senate and House of Representatives introduced sweeping patent reform measures in legislation termed the Patent Reform Act of 2007. The reform measures include the following provisions:
- First-to-file rights and elimination of interference proceedings;
- Reform to make it easier to file a patent application without the inventor’s cooperation;
- Limitation of damages to only the economic value of the improvement as compared to the prior-art;
- Specific limitations on when damages may be trebled for willfulness;
- Post-grant opposition proceedings and a reduction in the litigation estoppel effect of reexaminations;
- Limitations on patent venue;
- Authority to the PTO director to create further regulations.
Although couched in terms of the importance of patents and patent quality. The thrust of many of the measures are clearly directed at “limiting litigation abuses.” The two versions (Senate and House) are appear virtually identical in substance.
Analysis:
- Inter Partes Reexamination: Many patent litigators have warned clients against filing inter partes reexamination requests because of the litigation estoppel created by by 35 USC 315(c). That provision estopps later validity challenges on grounds that a third party “raised or could have raised” during the reexamination. The Patent Reform Act would limit the estoppel to only issues actually raised — striking the “could have raised” language.
Legislative Documents:
- Download SENATE Version of the Bill (S.1145).
- Download HOUSE Version of the Bill (H.R.1908).
Congressional Players:
- The Senate version was introduced by Senators Leahy, Hatch, Schumar, and Cornyn
- The House version was introduced by Representatives Berman, Smith, Conyers, Coble, Boucher, Godlatte, Zoe Lofgren, Issa, Schiff, Cannon, and Jackson-Lee
Lobbying Players:
- www.innovationalliance.net (Tech Companies who want strong patents)
- www.ipo.org (Industry group — Formerly supported strong IP rights — now a consensus builder — noting that “the battle-of-the-industries description of patent reform is simplistic and sensationalist.”)
- www.phrma.org (Big Pharma: Strong patent rights)
- www.patentsmatter.com
- www.patentfairness.org (“Over-broad patent grants stifle future innovators, while unjustified lawsuits that aim to extort settlements”)
- www.aipla.org (Group of lawyers who are, for the most part, unwilling to take a stand)
- www.bsa.org (Microsoft, Apple, HP — all supporting dramatic patent reform that curbs litigation in favor of the more genteel cross-licensing).
Who is writing about patent reform:
News & PR:
- Nothing Cash Can’t Cure (IP Law & Business by John Bringardner)($$$)
- BIO Expresses Concerns Regarding New Patent Reform Legislation (PR)
- Coalition for Patent Fairness Supports Introduction of Bipartisan, Bicameral Patent Reform Bills (PR)
- Apple among supporters of new patent reform bill (PR)
- BSA Applauds new Reforms (PR)
- Patent Reform May have a Chance (AP Report)
Call for Papers:
- I would like to publish a couple of well written editorials on patent reform within the next two weeks. Feel free to submit yours to dcrouch@gmail.com.
Patent Reform Act of 2007
On April 18, 2007, bipartisan legislators in both the Senate and House of Representatives introduced sweeping patent reform measures in legislation termed the Patent Reform Act of 2007. The reform measures include the following provisions:
- First-to-file rights and elimination of interference proceedings;
- Reform to make it easier to file a patent application without the inventor’s cooperation;
- Limitation of damages to only the economic value of the improvement as compared to the prior-art;
- Specific limitations on when damages may be trebled for willfulness;
- Post-grant opposition proceedings with a reduction in the litigation estoppel effect;
- Limitations on patent venue;
- Authority to the PTO director to create further regulations.
Although couched in terms of the importance of patents and patent quality. The thrust of many of the measures are clearly directed at “limiting litigation abuses.” Although a detailed analysis has not been completed, the two versions appear virtually identical.
Legislative Documents:
Congressional Players:
- The Senate version was introduced by Senators Leahy, Hatch, Schumar, and Cornyn
- The House version was introduced by Representatives Berman, Smith, Conyers, Coble, Boucher, Godlatte, Zoe Lofgren, Issa, Schiff, Cannon, and Jackson-Lee
Lobbying Players:
- www.innovationalliance.net (Tech Companies who want strong patents)
- www.ipo.org (Industry group — Formerly supported strong IP rights — now a consensus builder)
- www.phrma.org (Big Pharma: Strong patent rights)
- www.patentsmatter.com
- www.patentfairness.org (“Over-broad patent grants stifle future innovators, while unjustified lawsuits that aim to extort settlements”)
- www.aipla.org (Group of lawyers who are, for the most part, unwilling to take a stand)
- www.bsa.org (Microsoft, Apple, HP — all supporting dramatic patent reform that curbs litigation in favor of the more genteel cross-licensing).
Who is writing about patent reform:
News:
- Nothing Cash Can’t Cure (IP Law & Business by John Bringardner)($$$)
- BIO Expresses Concerns Regarding New Patent Reform Legislation (PR)
- Coalition for Patent Fairness Supports Introduction of Bipartisan, Bicameral Patent Reform Bills (PR)
- Apple among supporters of new patent reform bill (PR)
- BSA Applauds new Reforms (PR)
- Patent Reform May have a Chance (AP Report)
Patently-O plans to publish a couple of well written editorials on patent reform within the next two weeks. Feel free to submit yours to dcrouch@gmail.com.
Pay the Taxman: The Patent Tax
The Software Freedom Law Center is a joint project between Eben Moglen and Dan Ravicher. Clearly pro-FOSS and anti-patent-protection. For tax day, the Center has released their letter describing the patent tax. Here is the gist:
If you run a computer using Windows, you’re not just paying for the programmers who put the program together and the corporate operations that brought it to market. You’re also paying a hidden tax of well over $20 that Microsoft has had to pay to other patent holders.
The letter goes-on to talk about how Linux has never been found liable for patent infringement. . .
Read the patent-tax letter and sing the song:
Let me tell you how it will be
There’s one for you, nineteen for me
‘Cause I’m the taxman, yeah, I’m the taxmanShould five per cent appear too small
Be thankful I don’t take it all
‘Cause I’m the taxman, yeah I’m the taxmanIf you drive a car, I’ll tax the street,
If you try to sit, I’ll tax your seat.
If you get too cold I’ll tax the heat,
If you take a walk, I’ll tax your feet.Don’t ask me what I want it for
If you don’t want to pay some more
‘Cause I’m the taxman, yeah, I’m the taxmanNow my advice for those who die
Declare the pennies on your eyes
‘Cause I’m the taxman, yeah, I’m the taxman
And you’re working for no one but me.
