Tag Archives: AIA Trials

The America Invents Act (AIA) of 2011 authorized the creation of a set of administrative trials (AIA Trials), including Inter Partes Review (IPR) proceedings, Post Grant Review (PGR) proceedings and transitional Covered Business Method Review (CBM) proceedings. In each of these proceedings, anyone can file a petition to challenge an issued patent, and, after instituting the trial, the Patent Trial and Appeal Board (PTAB) will decide whether the challenged claims should be confirmed or cancelled.

Guest Post by Camilla Hrdy on The Interpretation-Construction Distinction in Patent Law

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Camilla Hrdy is the Center for Technology, Innovation & Competition Fellow at the University of Pennsylvania Law School and a Visiting Fellow at the Yale Law School Information Society Project.  Below, she comments on The Interpretation-Construction Distinction in Patent Law by Professors Chiang and Solum. The “real name” rule applies to comments on this post.

Uncertainty and unpredictability in claim construction outcomes is one of the most important problems in patent litigation today. But patent law isn’t the only context in which judges struggle to determine the meaning of legal texts. In a recent article in the Yale Law Journal, The Interpretation-Construction Distinction in Patent Law, T.J. Chiang and Lawrence Solum argue that construing a patent is no different from any other form of legal analysis performed by judges, whether in constitutional law, statutory law, or contract law. As in these contexts, judges proceed in two distinct stages when determining the legal meaning of a patent’s claims. First, they “interpret” the claims’ linguistic meaning. Second, they “construe” the claims according to their normative beliefs about what the claims’ legal effect should be. According to Chiang and Solum, uncertainty in claim construction outcomes is caused mainly by judges’ disagreements in the “construction” phase, not the “interpretation” phase. In other words, judges disagree over policy, not language.

In a response in the Yale Law Journal Forum, Ben Picozzi and I argue that the “interpretation-construction distinction” does not fully capture how judges construe patent claims because it does not take into account the difference between the statutory context in which claim construction occurs and the constitutional context in which the interpretation-construction distinction evolved. In constitutional analysis, judges are relatively free to interpret and construct the text based on their prior beliefs about which policy outcomes or which form of interpretive methodology (e.g., textualism or anti-textualism) is superior. In contrast, when judges construe the terms of a patent, they must do so in light of the requirements of the Patent Act – in particular, 35 U.S.C. § 112. Section 112 imposes several requirements for minimum disclosure and definiteness. If a patent does not meet these requirements, judges are obligated to find it invalid under one of several doctrines.

We agree with Chiang and Solum, as well as other commentators such as Thomas Krause and Heather Auyang, that significant policy disagreements underlie judges’ divergent views on the legal meaning of patent claims, and that one of the major debates is whether claims should be interpreted broadly, according to how a patentee wrote them, or narrowly, according to what the judge finds to be the “real invention.” But in our view, these debates are based on judges’ disagreements over the precise levels of disclosure and definiteness that section 112 requires. Simply put, what Chiang and Solum call “claim construction” versus “claim interpretation” is actually statutory construction. In our response, we analyze the major claim construction cases that Chiang and Solum use as examples of their theory and show that in each of these examples, the judges’ disagreement over the meaning of the claims at issue was motivated by their disagreement over the meaning of the statute. Specifically, judges’ approaches to claim construction closely followed—and were likely influenced by—their constructions of section 112(a)’s written description requirement and section 112(b)’s definiteness requirement.

Our disagreement with Chiang and Solum is not just theoretical. It is highly relevant for the Supreme Court’s upcoming decision in Teva v. Sandoz, where the Court will decide what standard the Federal Circuit must apply in reviewing district courts’ claim construction decisions. Is claim construction a purely legal question that must be reviewed de novo? Or should at least some aspects of claim construction be reviewed under the more deferential “clear error” standard ordinarily applied to district courts’ factual findings? Most commentators—and the Solicitor General—argue that many issues that arise in claim construction, such as expert testimony on the level of ordinary skill in the art, are factual issues that should be reviewed deferentially. Chiang and Solum disagree, arguing that claim construction should be treated as a question of law and reviewed without deference. The reason they give for their somewhat unusual stance is their view that many important disputes over claim meaning involve construction, not interpretation of claims. If district courts were free to engage in construction without significant oversight from courts of appeal, this would increase, not reduce, uncertainty in outcomes, with “hundreds of district court judges across the nation each following their own individually preferred methodologies in the individual cases that come before them.”

We agree with Chiang and Solum’s conclusion that some purely legal questions underlie judicial disagreements over the meaning of patent claims and that many of these questions are in need of appellate review. But this is because they are questions of statutory construction. Judges disagree over issues like the contours of section 112’s disclosure and claim definiteness requirements, and consequently disagree over the proper construction of claims.

On this view, granting deference to district courts with respect to questions that do not involve statutory construction would not necessarily increase uncertainty and disuniformity in claim construction outcomes. Moreover, even if the Federal Circuit must review many facets of district courts’ claim construction decisions under the more deferential clear error standard, the Federal Circuit could still do much to increase certainty by resolving a number of outstanding statutory debates. For instance, does section 112(a), which the Federal Circuit has held contains a separate written description requirement, also require claims to be construed according to what the inventor “actually invented,” as Judge Lourie and other members of the court have suggested in several claim construction decisions? Does section 112(b), as construed by the Supreme Court in Nautilus v. Biosig, require courts to review more expert evidence in order to determine whether a patent’s claims would inform those skilled in the art “with reasonable certainty” about the scope of the invention?

If the Federal Circuit or the Supreme Court cannot resolve such issues, then Congress should amend the statute to provide greater clarity. This is how patent law has historically progressed and, we believe, is how lawmaking should work within a well-functioning statutory framework. Chiang and Solum’s analysis is a good start, but it doesn’t take this framework into account. Doing so would lead to conclusions that are less pessimistic and more complete.

Guest Commentary by Prof. Peter Menell: Appellate Review of Patent Claim Construction and Institutional Competence

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Guest commentary by Peter S. Menell.  Professor Menell is Koret Professor of Law and at UC Berkeley School of Law and Director of the Berkeley Center for Law & Technology. Professor Menell filed an amicus brief along with Professors Jonas Anderson and Arti Rai in Teva Pharmaceuticals USA Inc. v. Sandoz Inc., 13-854. That brief can be accessed at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id= 2457958.

The U.S. Supreme Court heard argument six weeks ago in Teva Pharmaceuticals USA v. Sandoz, a case addressing the scope of appellate review of claim construction rulings. While less headline-grabbing than recent cases addressing the patentability of business methods, computer software, and DNA, Teva nonetheless confronts a critical issue that has long plagued the patent adjudication system.

Nearly two decades ago, the Supreme Court sought to promote more effective, transparent patent litigation through its ruling in Markman v. Westview Instruments that “the construction of a patent, including terms of art within its claim, is exclusively within the province of the court.” While carefully avoiding characterizing claim construction as a pure question of law, the court nonetheless removed interpretation of patent claims from the black box of jury deliberations by holding that the Seventh Amendment right of trial by jury did not extend to patent claim construction and that trial judges were better equipped than juries to resolve the mixed fact/law controversies inherent in construing disputed patent claim terms. The decision ushered in a new patent adjudication era in which judges construe patent claims before trial through a process that has come to be known as a “Markman” hearing.

Notwithstanding this shift, the transparency that the Supreme Court sought has only been partially achieved and the quality of claim constructions falls short on evidentiary and analytical rigor. The U.S. Court of Appeals for the Federal Circuit’s sharply divided 1998 en banc decision in Cybor Corp. v. FAS Technologies held that claim construction is purely a legal issue subject to de novo appellate review, downplaying the Supreme Court’s more nuanced description of claim construction as a “mongrel practice.”

The Cybor decision dissuaded district judges from holding evidentiary hearings regarding the meaning of disputed claims and discouraged judges from explaining their reasoning. As several district judges have candidly acknowledged, why go through all of that trouble if the Federal Circuit is going to construe the terms de novo on appeal? Claim construction reversal rates and consternation among district (and some Federal Circuit) judges rose precipitously following Cybor. And although the Federal Circuit has twice revisited this issue en banc since Cybor and reversal rates have subsided (but not as a result of more transparent records), the controversy has festered, leading to the Supreme Court’s review.

Why the Fuss?

Patent law requires that claim terms be construed from the standpoint of persons of ordinary skill in the technical art using the patent specification and prosecution history (intrinsic evidence) as well as pertinent scientific and technical sources (extrinsic evidence) where necessary as of the time of the patent filing.

Federal district judges are thus thrust into challenging, but not unfamiliar, territory. As in other areas of their docket — such as products liability, toxic torts or even criminal cases turning on forensics — in which they are called upon to resolve factual disputes about scientific and technological matters, judges have at their disposal a familiar toolbox — presentation of evidence and expert testimony. And when district courts assemble a record and explain their reasoning, Federal Rule of Civil Procedure 52(a)(6) provides that their determinations “must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court’s opportunity to judge the witnesses’ credibility.”

Patent claim constructions add a few additional twists to this well-established general judicial framework. Even if a district judge found that a patent claim term meant “X” to skilled artisans as of the effective patent filing date, the court would still have to construe the term to mean “Y” if the intrinsic evidence established that the patentee intended such a specialized meaning. Furthermore, many disputes about patent claim meaning turn not on meaning within the technical art but rather on claim drafting conventions. Thus, courts must pay special attention to the intrinsic evidence. But the understandings of skilled artisans will be pertinent in many claim constructions, and such subsidiary factual determinations should be subject to deference under general judicial rules as well as trial judges’ proximity to the extrinsic evidence.

For these reasons, the Supreme Court should adopt a hybrid appellate standard for claim construction: Factual determinations underlying claim construction rulings should be subject to the “clearly erroneous” standard of review, while the Federal Circuit should retain de novo review over the ultimate claim construction decision. In this manner, district court judges, in their capacity as fact-finders, could better surmount the distinctive challenges posed by the technical, mixed fact/law controversies inherent in patent claim construction. The Federal Circuit would ensure that trial judges’ constructions comport with the intrinsic evidence supporting the patents.

Parsing the Supreme Court Argument

The Teva argument began with a colloquy regarding what constitutes a “subsidiary fact” and how it relates to the ultimate claim construction determination. Midway through Teva’s opening argument, Justice Samuel Alito expressed doubt that departing from the de novo standard was worth the candle. He noted that a recent empirical study could not find any case in which a shift from the de novo standard to clear error review of factual determinations would have affected the appellate review outcome.

In an unintended manner, Justice Alito’s query highlights the reason de novo review of factual determinations raises serious concerns for a justice system. The study to which he refers does not and cannot establish the “fact” that it is purported to prove. Its analysis — which is not revealed or scrutinized in the Supreme Court colloquy — boils down to the following logic: (1) three-judge panels of the Federal Circuit will be better than a single generalist district court judge at applying the appellate court’s rules of claim construction; and (2) because most claim construction reversals (77.1 percent) are unanimous, a shift to a clear error standard would not change the outcome of any cases. The first point ignores the distinctive role of judges in fact-finding, a pillar on which our court system is based. The second point does not prove that no cases would come out differently. It also overlooks the norm that appellate judges rarely dissent unless they disagree on legal questions.

More fundamentally, according greater deference to trial courts through clear error review would encourage district judges to use focused evidentiary hearings (in conjunction with the technical tutorials that are common) to substantiate the basis for their claim constructions, thereby promoting more systematic, well-founded claim construction analysis. Contrary to the study to which Alito referred, we have reason to expect clearer substantive analysis, more settlements following claim construction and trial, more effective appellate review, and fewer reversals and remands in a parallel universe in which Rule 52(a)(6) applies to claim constructions — not business as usual in the Cybor regime.

The Court also probed how deference on subsidiary facts would affect uniformity in patent interpretation. At a basic structural level, it is difficult to see how to achieve such uniformity to the extent that claim construction has a factual component. Under Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313 (1971), the Federal Circuit’s interpretation of a patent in one case cannot be asserted offensively by the patentee in a later infringement action against other defendants to the extent that there are disputed factual underpinnings. At most, that prior adjudication can bar the patentee from seeking an alternative interpretation under judicial estoppel principles. Because the patent system has no mechanism for conclusively establishing patent scope with regard to all potential infringers where subsidiary factual disputes exist, the certainty that flows from appellate interpretations is not ironclad, as subsequent defendants can potentially bring new evidence or more effective advocacy to bear on claim meaning. Nonetheless, district courts routinely consider prior interpretations of patent claim terms in conducting claim construction. Moreover, concerns about the clarity of patent claims are more appropriately addressed through improvements to the patent prosecution process, post-grant review and reexamination, consolidation of claim construction through multi-district litigation, and adjustments to substantive claim construction jurisprudence.

Back to Basics

The Teva case poses a fundamental question going to the heart of the American justice system. Should factual determinations underlying patent claim construction be subject to substantially less deference (or more distrust) than the factual determinations made in every other area of federal adjudication? In view of the Supreme Court’s efforts over the past decade to bring patent adjudication more in line with general civil litigation principles, it is difficult to see why the Court would make an exception here. Combining deferential review of factual findings with de novo review of the overarching claim construction determination — focused on ensuring that claim construction comports with the intrinsic evidence and that the trial court followed generally applicable rules of claim construction — would enhance the quality of claim constructions, produce a more capacious and transparent appellate record, and provide the appropriate appellate safeguard.

Stays Pending Review

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In Versata v. Callidus, the Federal Circuit holds that the erred by refusing to stay litigation to await the outcome of an CBM post-grant review proceedings.  Generally, stays of litigation are given to the discretion of the district court judge and reviewed only for abuse of discretion. However, the AIA provides that Federal Circuit review on this issue is de novo when the justification for a stay is CBM review.

Versata filed its lawsuit in 2012 — alleging infringement of three different patents. U.S. Patent Nos. 7,904,326; 7,908,304; and 7,958,024.  More than one year later, in August 2013, Callidus filed three petitions for CBM post-grant review respectively challenging the asserted patents (although not all claims of all of the patents).  Then, in March of 2014 the PTAB instituted its CBM review for each patent — finding that each challenged claim was most likely unpatentable as abstract under 35 U.S.C. 101.  In April 2014 Callidus filed three new CBM petitions that challenge all of the remaining asserted claims in the patents.  In May 2014, the district court granted a stay of proceedings as to the ‘326 infringement action but denied it as to the other two patents and prepared to move forward for a October 2015 trial date.  Callidus then filed for interocutory appeal of the stay denial.  And finally, while awaiting appeal, the PTO acted on the second-round of petitions and agreed that all of the claims are likely invalid under Section 101.  The CBM reviews are still ongoing, but Callidus would like the district court to stop its proceedings and wait for the PTAB to finalize its results.

The AIA provides statutory guidance for dealing with stays of litigation in light of CBM reviews. In particular, the AIA provides that the judge should consider:

(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial; (B) whether discovery is complete and whether a trial date has been set; (C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and (D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

AIA § 18(b)(1).  The AIA also provides for immediate interlocutory appeal of decisions on stays pending CBM review and de novo review on appeal.

On appeal, the Federal Circuit has reversed – finding that the CBM review as a good chance of greatly simplifying the issues in the case.  Of notable importance, the court found that, although the relevant time for judging a stay is as of the motion filing, the court may (and did) take judicial notice of the ongoing PTAB proceedings.

 

Looking at Inter Partes Reviews

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Since the new procedure launched in 2011, third parties have filed more than two thousand requests for Inter Partes Review.

IPR Filings

In their new University of Chicago Law Review essay, Professor Brian Love and Shawn Ambwani explore some of the results from these past two years. See Inter Partes Review: An Early Look at the Numbers, 81 U Chi L Rev Dialogue 93 (2014) [Essay].

Love, who tends to favor a strong post-issuance review regime, suggests that (based upon the initial numbers) the regime is doing its job:

Though it would be premature to make sweeping claims about IPR at this time, so far IPR appears to be a powerful shield for those accused of patent infringement (and those who anticipate that they may soon be). Compared to requests for inter partes reexamination, petitions for IPR are currently granted at a similar rate, but once instituted, they result in the elimination of every challenged claim about twice as often, reach a final decision almost twice as quickly, and make accused infringers almost twice as likely to win motions to stay co-pending litigation. In its attempt to create a formidable avenue for administratively challenging issued patents, Congress appears to have hit the mark—but only time will tell for sure.

Looking particularly at NPEs, the article reports that IPR-challenges of patents being elsewhere asserted by NPE are more likely to be instituted (as compared with the population), but less likely to result in cancellation of claims.

Over the next year, the number of results will grow tremendously and we will have a better understanding of the process and its merits. In addition, I suspect that the results will vary over time as Office hones its approach and the composition and leadership of the PTAB changes.

 

An Update on Patent Reform 2015

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by Dennis Crouch

The current outlook for legislative patent reform in 2015 is not so much whether reforms will be enacted but instead how far they will go.  In a Chamber of Commerce IP event on November 18, Representative Goodlatte and Senator Coons will discuss their outlook on IP legislation in the new term.  Goodlatte has championed strong legislative patent reforms that include a presumption of attorney fee shifting, broadening of post-issuance review proceedings, heightened pleading requirements, and patent ownership transparency.  Senator Coons has also favored patent reform as well as sponsoring bills to nationalize trade secret law.

Emerging as a leading Senate Republican on patent reform is Senator Cornyn of Texas. Julian Hattem (The Hill) quotes Sen. Cornyn as saying that the 2015 Senate will “absolutely” pass legislative patent reforms to address the problem of “patent trolls.”  In 2014, Senators Cornyn and Schumer drafted a compromise bill that was less extreme than the Goodlatte version (that passed the House).  However, that compromise was never strongly supported by members of either party.  For his part, President Obama appears to be willing and ready to sign the Goodlatte bill if approved by Congress.

In the longer game, members of both parties see these patent reforms as potentially offering experimental results for major tort reform initiatives.  The test of success is whether the reforms limit the enforcement of “bad” patents while upholding both the value of “good” patents and the research-incentives offered by the patent system.

With Democrats out of the majority in the Senate, it is unclear whether patent reformers will now push for reforms that go beyond the recent legislative proposals.  A major open issue is that of the short nine-month window for filing of post-grant review proceedings.  A simple proposal would extend that window to 18-months post issuance and additionally open a second window to challenge very old patents.  In the past, I have proposed a USPTO claim-construction proceeding that could be a simple and cost-effective tool for formally establishing claim scope.

Congressional Oversight of the USPTO

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by Dennis Crouch

With the America Invents Act of 2011 (AIA), Congress handed the USPTO a central role in implementing major legislative patent reforms. Those include both designing the structure and procedure for post-issuance review and also taking the first steps at interpreting the new rules of patentability under the first-to-invent system.  For the past few decades, it has been the Federal Circuit’s assumed role to monitor and moderate USPTO activity and decision-making. However, the Supreme Court’s recent repeated rejections of Federal Circuit decisions has significantly reduced that court’s perceived strength.  Further, the express grant of authority in some areas severely limit the Federal Circuit’s review capabilities.  These factors come together to suggest that the PTO is now largely operating without direct checks on its behavior outside of the Administration.

Filling the Oversight Void: Given that members of the Republican party will soon control both the Senate and House of Representatives, I expect this gap in oversight will be at least partially filled by Congressional Oversight.  Adding to the likelihood of oversight is the partisan dynamic associated with shifting into the final two-years of the Obama administration with a high-level of conflict expected between the powerful branches of government.

Unlike Federal Circuit review, rigorous Congressional Oversight would likely not focus on merits of individual decisions but instead on policy implementation, budgetary allocations, overarching policy goals and agency activities.

House Judiciary Chair Bob Goodlatte spoke on this point a couple of months ago:

As the PTO carries out its Constitutional mission, we need to conduct appropriate oversight to ensure that our IP laws are being implemented fairly and in line with Congressional intent.

In recent years the PTO has been tasked with implementing the America Invents Act (AIA). The AIA was the most significant reform to U.S. patent law in my lifetime. I believe that it is imperative for this committee to examine the rules and procedures that the PTO has adopted to implement this important law, in particular the various post grant proceedings called for in the AIA.

Congressional Oversight by itself cannot compel the President to change course.  However, the expectation is that oversight (and the threat of oversight) will encourage a change of behavior and also raise public awareness of administrative issues.  A difficult issue is that we need to drill down beyond the soundbites and Congressional Oversight often remains at too-high a level.  A second difficulty is that none of the Congressional subcommittees are directed toward USPTO policy (or intellectual property administration in general).

The benefit of Congressional Oversight is also that it provides Congress with the opportunity to investigate and perhaps gain a better understanding of the system before passing legislative reforms.

Pending Patent Cases in Decline

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By Jason Rantanen

Over the past few months, I have heard numerous comments from folks about the perception that patents – or at least, enforcement of patents – is in decline.  Major substantive decisions by the Supreme Court – in Mayo, Alice, Nautilus, and Octane Fitness – have provided new tools for patent challengers to draw upon in infringement suits, and inter partes review has become an almost automatic procedure.   So far, the empirical evidence has supported this perception.  Last month, Dennis wrote about Lex Machina recent report on numbers of new patent case filings, which revealed a substantial drop in patent case filings over the past few months and a 40% decrease in numbers of filings in September 2014 as compared to September 2013.  Edit: yesterday Brian Howard of Lex Machina posted an update with October data showing a slight uptick over September.

Case filings tend to be highly stochastic, however, and a case that’s filed one day could be terminated the next or live on for quite a while.  To take another look at the state of patent litigation, I wanted to see whether there are changes in numbers of pending cases.  If cases are terminating faster than new cases are being filed, then the number of pending cases would drop.  On the other hand, if despite the drop in new filings the termination rate is also down, then the number of pending cases would remain stable or even go up.  My methodology is at the end of this post, but the bottom line is that the below chart reports the number of patent cases that are pending as of the first of each month using Lex Machina as my database.

Patent Cases PendingThe below chart shows the deltas from the above chart; in other words, how big the positive or negative change was from the previous month.

Pending Case DeltasThese charts are consistent with the conclusion that the number of patent litigations is indeed in a declining state, although it’s worth observing that the number of pending cases is still well above what it was as of October 2010.  Of course, one important piece of context is the anti-joinder provisions of the AIA, which led to at least some of the increase after September 2011.  If anyone has ideas for parsing these out (short of manual review), I’d be interested in hearing them. And this data doesn’t tell us anything about the quality of the patent litigation.

In addition to the decline in pending cases, I also thought it would be interesting to consider these numbers in contrast with the numbers of new applications, which, as the below chart indicates, do not exhibit a similar decline.  (Note that I set the vertical axis to start at 20,000 in order to improve readability).  One explanation is that it takes longer to shift out of application filing mode than it does to shut down a litigation.  That said, it’s also possible that companies continue to file patents based on the belief that patent law is like a pendulum and perhaps it will swing back in the other direction.  A third possibility is that the real value of patents lies not in their enforcement value, but in other areas: in signalling, in incentivizing employees, or in defensive publication. Apps

Methodology: For the first two charts, go to the “Cases” tab on Lex Machina.  Select “Patent” under “Case Type.”  Under “Filed On,” choose FROM 2000-01-01 TO YEAR-MONTH-01.  Run the search on a monthly basis (i.e.: as of the first of the month).  In addition, run a second search adding the TERMINATED “TO” field using the same YEAR-MONTH-01 dates.  Record those numbers as well.  To obtain the numbers of open cases as of each date, subtract the “Terminated” cases from the cases filed to that date.

For the second charts, the data is obtained from the Patent Dashboard (which appears to be very unstable at the present time and works only intermittently for me).  I used the downloadable excel file.  Also, as Chris Cotropia pointed out to me, pure continuations are included in the “new application” portion, and these are more like RCEs than new applications, or divisionals or CIPs.

Thanks to my research assistant, Alex Lodge, for help in collecting the Lex Machina data.

Edit: Anon observed that RCEs looked fairly constant and asked about a flipped graph.  Here is the graph with RCEs on the bottom. RCEs on bottom

Patent Reform 2015: Republican Agenda

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by Dennis Crouch

Although the Washington DC politics of patent law is somewhat confusing, the divide on tort reform is much more clear and the pending patent reform legislation in Congress is largely tort reform (but with a focus on patents).  The Republican led House of Representatives passed the Goodlatte Innovation Act in 2013 (H.R.3309), but Democrats in the Senate have stymied the Bill’s progress despite support from the White House.  With Senate control now in Republican hands, I expect that a revised version of the Innovation Act will be able to pass through both houses of congress in 2015 and be signed by President Obama.

Meanwhile, changes in the patent system since 2013 have somewhat tempered demands for reform. Particularly the Supreme Court took strong pro-defendant positions in Alice Corp (patent eligibility), Nautilus (indefiniteness), and Octane Fitness (attorney fees) and, at the same time, the new post-issuance review proceedings have proven to be effective mechanisms for challenging patents in parallel to court actions. Further, it is likely that Supreme Court will raise pleading standards for patent cases (by eliminating Form 18) this calendar year as part of a larger reform of the rules of civil procedure. Likely as a result of  all of these factors, new infringement lawsuits are down as is the market-value of patents.  To be clear though, pro-reformers are still calling for reforms and this may be low-hanging fruit for Republican lawmakers.

H.R. 3309 as passed includes:

  • Substantially raising the pleading standards in patent cases – well above Iqbal and Twombly;
  • Creating presumption of fee shifting and ability to join ‘interested’ parties to pay fees when a losing-patentee is under-capitalized;
  • Severely limit pre-claim-construction discovery;
  • Partially limiting the availability of pre-suit demand letters for proving willfulness when seeking punitive (willfulness) damages;
  • Requiring transparancy of ownership;
  • Allowing for stays of customer-lawsuits in certain situations;
  • Narrowing the estoppel provision for Post-Grant Review filings; and
  • Codifying double patenting.

Indications are that President Obama’s administration and USPTO Director Nominee Michelle Lee support these changes (with some modification) — making this an area of early bipartisan cooperation in the new Congressional term.

Supreme Court: A Web of Post-Issuance Licensing Restrictions

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by Dennis Crouch

Last year I wrote about the patent licensing decision captioned Kimble v. Marvel Enterprises Inc. (9th Circuit 2013). Kimble involved a patent license agreement tied to Marvel’s web-shooter toy sales. On its face, the agreement appears to remain in force so long as Marvel sold the toys.  However, the 9th Circuit held that the license ended once the patent term lapsed.  The 9th Circuit decision was easy because there is a Supreme Court case on point: Brulotte v. Thys Co., 379 U.S. 29 (1964) (licensing agreement unenforceable because it required royalty payments beyond the expiration date of the underlying patent).

Kimble has now pushed the case to the Supreme Court and presents a straightforward petition:

The question presented is: Whether this Court should overrule Brulotte v. Thys Co., 379 U.S. 29 (1964).

SCOTUS-Blog Link.

The basic argument is that the Brulotte improperly imposes a per se limit on contract structure and forces any royalty payments to be amortized only within the term of the patent.  Often, that result does not make business sense. Kimble suggests that the court do-away with the per se rule and replace it with a rule of reason as it has done in other cases – most notably in the area of patent-tying.  See Illinois Tool Works v. Independent Ink, 547 U.S. 28 (2006).

The petition also characterizes Brulotte as “the most widely criticized of [the Supreme] Court’s intellectual property and competition law decisions.”

Three panels of the courts of appeals (including the panel below), the Justice Department, the Federal Trade Commission, and virtually every treatise and article in the field have called on this Court to reconsider Brulotte, and to replace its rigid per se prohibition on post-expiration patent royalties with a contextualized rule of reason analysis.

The Supreme Court requested that the Solicitor General file the views of the US Government and those have just been filed – with a somewhat surprising recommendation against a grant of certiorari.  The SG’s position is that stare decisis should prevail. Hal Wegner writes about the case in his review of top pending patent cases: See Wegner’s Top Ten.

Unduly Extending Patent Term: An important element of the analysis here is whether overturning Brulotte would somehow allows the patentee to extend its patent term and thereby prevent the public from taking advantage of the invention.  Kimble argues “no” — all that the longterm license agreement did was amortize the license value over the life of the product rather than the life of the patent.  Certainly, once the patent expires then no-one can be liable for infringement and any generic (or branded) company can make, use, and sell the invention as it wishes. However, if we look at this case in particular, all of the products on the market using the patented invention are Kimble-licensed products — even though the patent has been expired now for years.  This suggests to me that the post-expiry-license is having a market impact that is reducing the potential customer surplus.  I suspect that in most situations, the most likely post-patent-expiry suppliers of a product are the companies who were supplying that product pre-patent-expiry.  If those entities are required to continue to pay license post-patent-expiry then consumers may never see the benefits typically associated with patent expirations.

= = = = =

One factor pushing toward grant of certiorari is the underlying subject-matter.  The patent at issue covers a nifty web-shooting toy designed to mimic (in toy form) spider-man’s super powers. See U.S. Patent No. 5,072,856.

Spidey

The New Role for Post Grant Review Proceedings (PGR)

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by Dennis Crouch

It has now been just over 18-months since we started filing patent applications under the new first-to-file patent system mandated by the America Invents Act (AIA) of 2011.  And, slowly but surely, FTF patents are now beginning to issue.  Those new patents also bring us into a new era of Post-Grant-Review-Proceedings (PGR).

My expectation is that PGR will quickly prove itself as an incredibly powerful tool for challenging patents. Importantly, PGR proceedings allow a third party to challenge the validity of a patent on any of the validity grounds that could be raised in court as a defense under 35 U.S.C. 282 – these include novelty, obviousness, written description, enablement, indefiniteness, utility, and subject matter eligibility. This list represents a major expansion of challenge-justifications over inter partes review (IPR) proceedings or reexaminations. These same doctrines have already been available for covered-business-method review (CBM) proceedings and have been used successfully if only on a narrow class of patents (those covering financial business methods).

Two recent PGR proceedings have been filed.  In one case, LaRose Indus. has challenged Patent No. 8,684,420 that covers the popular children’s “Rainbow Loom.”  Although the patent claims a 2010 priority date, the particular application was filed as a continuation in July 2013 and, at least according to the petitioner, added new mater to the claims at that point.  The second case PGR case involves Patent No. 8,598,291 that covers a liquid formulation of a particular nausea control drug used by chemotherapy patients. The petition argues that the claims fail the requirements of written description, enablement, and definiteness.

The most important limitation on the PGR process is the relatively short 9-month window for filing a PGR petition. Namely, the petition must be filed within 9-months of the patent issuance.  This puts some pressure on parties to monitor competitor patents and patent families.  It also provides patent owners at least some incentive to hold-off asserting their patent until after that window has closed (unless the patentee would welcome the review).  I suspect that the set-up in the LaRose Rainbow Loom market will be fairly common. The patentee (Choon) had previously sued LaRose on a previous patent and so LaRose has been closely monitoring the continuation applications.

= = = = =

In thinking about how soon the AIA cases will come on-board, I created the chart below. The chart provides some information on the timing of patent issuance — showing the percentage of patents issued with 18-months of filing and 36-months of filing respectively.  A big caveat for this particular chart is that it looks at the actual application filing date and does not consider the priority date that will typically control whether a patent will be examined under the AIA. Thus, even at the three-year date (March 2015), I would expect that significantly less than half of the recently issued patents would be FTF patents.

You’ll note the trend beginning in FY2011 of issuing more patents more quickly.  I largely attribute the change to two initiatives pushed by David Kappos during his term as PTO Director that resulted in (1) more funding to hire more examiners; and (2) a greater allowance rate.  Those factors have continued through the succeeding interim leadership terms of Terry Rea, Peggy Focarino, and now  Michelle Lee.

TimingOfPatentIssuance

Update: Using IPR to Manipulate the Stock Price of Patentees Which Won in District Court

Ethics, Patent, , , ,

The creativity of American lawyers never ceases to amaze.  I’ve heard of variations on this theme:  using an IPR to coerce payment, a license, or something from the patentee.  Variation on the theme:

A third party sees that a patentee has won a big judgment, defending its patent against a charge of invalidity.  The third party then cobbles together an IPR petition based upon the arguments that failed in the district court, relying upon the lower burden of proof and broader claim construction that will apply in IPR, and sends it to the patentee with a note:  “pay us or we’ll file this.”  This was discussed a few months back here.

A third party uses IPR as a tool to manipulate stock price:  sell the stock short and then file the IPR.  Or, it sees the patentee is in litigation and says, “give us a license (which we’ll turn around and use to license the defendants) or we’ll file an IPR.”  A story about that allegedly happening is here.

Gotta love America.

The ethics of this are fascinating:  it may be that the OED could be brought in to show that the IPR was filed for an improper purpose and nip it in the bud.  But that’s probably a long shot, given the right to petition and what-not.  Perhaps Congress limiting standing in IPRs to competitors?  It’s too early for me to think in depth about a creative solution to this creative problem.

What would you ask a District Judge?

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By Jason Rantanen

On Friday, October 3, I will be moderating a panel of three district court judges at the Iowa Intellectual Property Law Association annual conference.  This gives me a great opportunity to seek the collective wisdom of the new, higher quality commenting section!  So if there’s a question that you’re dying to pose to a typical district court judge about intellectual property law, or even practice before the court generally, I’d love to hear it.

Other speakers at the conference include: Tom Irving of Finnegan on Section 101 and 112 issues, Chris McKee of Banner and Witcoff on inter partes review, Alan Datri of the Office of the Deputy Director General at WIPO on the International Design System, Jim Voegeli, Assistant Chief Intellectual Property Counsel at 3M on trademark policing programs, and John White of PLI and Berepato & White on post-AIA Sections 102 and 103 at the PTAB.

More information available here: http://www.iipla.com/announcements/2014-annual-conference-registration

Guest Post: The Case Against Federalizing Trade Secrecy

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Guest post by Christopher B. Seaman, Assistant Professor of Law at Washington and Lee University School of Law. 

As Dennis recently discussed, the idea of creating a private cause of action for trade secret misappropriation under federal law appears to be gaining traction. Bipartisan legislation has been introduced in both the House and the Senate, and congressional action on these bills may occur as early as this fall. A number of influential actors in the intellectual property world, including the AIPLA, former USPTO Director David Kappos, and a coalition of large manufacturing and technology firms, have publicly supported federalizing trade secrecy. And several legal academics have advocated adoption of a federal trade secrets act.[1]

In a forthcoming article in the Virginia Law Review, I contend there are several important reasons why trade secrecy should remain primarily the province of state law. First, despite claims by proponents, the adoption of a federal civil cause of action would not create greater uniformity for trade secret protection. Currently, there is widespread agreement regarding the basic principles of trade secrecy under state law.   For instance, to establish the existence of a trade secret, both the UTSA (adopted by 47 states) and the Restatement of Torts (largely followed by the remaining jurisdictions) require the trade secret holder to prove that the allege secret has value because it is not generally known or used, and that the holder of the trade secret took sufficient efforts to keep the information secret from others. Similarly, the UTSA and Restatement largely agree on what conduct qualifies as “improper means” of acquiring a trade secret, and both recognize that reverse engineering and independent invention cannot create liability for misappropriation. While there are some variations between states regarding the particular details of trade secret protection, these differences are relatively minor, as the Federal Circuit has recognized.[2]

In fact, adopting federal legislation likely would result in less uniformity by creating two parallel regimes—federal and state—with overlapping authority over trade secret claims. As noted in the recent letter signed by 31 law professors, none of the current bills pending Congress would preempt state law, thus permitting a federal cause of action to exist in parallel with existing state remedies. Notably, there are important differences between the Economic Espionage Act (“EEA”), which would be amended to create a private cause of action, and current state law, such as the EEA’s mens rea (intent) requirements and its lack of express protection for reverse engineering. Moreover because trade secret claims frequently turn on the resolution of related state law issues—such as the scope and enforceability of nondisclosure agreements, or the fiduciary duties of an employee to a current or former employer—courts would either have to borrow from existing state law or create a new body of federal law in these areas to supplement the statutory text.

Second, proponents claim that federal legislation is needed to secure access to a federal forum, which they argue is imperative to adequately protect vital trade secret information. However, a substantial number of trade secret claims are already litigated in federal courts under diversity and/or supplemental jurisdiction, with the number of reported trade secret decisions increasing at least fourfold since the late 1980s.[3] In particular, acts of misappropriation by foreign actors and entities—which feature prominently in proponents’ arguments for federalization—generally would fall within the scope of district courts’ so-called alienage jurisdiction.[4] Others claim that additional federal remedies, like the ex parte seizure provisions in the House and Senate bills, are necessary to prevent irreparable harm after a trade secret has been stolen. However, they fail to explain why existing procedures, such as temporary restraining orders,[5] preliminary injunctions,[6] and civil seizures pursuant to state law under Federal Rule of Civil Procedure 64, are inadequate to protect trade secret holders.

Third, and perhaps most significantly, the proposed federalization of trade secrecy may negatively impact innovation by undermining a key objective of patent law: the disclosure of patentable inventions. Innovators who develop a potentially patentable invention often face the dilemma of whether to incur the cost, delay, and uncertainty of seeking patent protection, or instead maintaining the invention as a trade secret. Stronger trade secret protection via federalization will likely cause more inventors to opt out of the patent system in favor of trade secrecy. This, in turn, will reduce the amount of public disclosure regarding patentable inventions that can be used by others to improve upon the invention and to practice it after the patent’s expiration. In contrast to patenting, trade secret protection is “theoretically unlimited in duration, lasting so long as the information remains a trade secret.”[7]

As an alternative to federalization, my article instead proposes a modest expansion of federal courts’ jurisdiction over state law trade secret claims that could be achieved by tweaking some existing jurisdictional rules. For instance, Congress could adopt a so-called “minimal diversity” standard in trade secret cases that would make a federal forum available whenever at least one party is a citizen of another state from the other parties. Congress also could adopt a “national contacts” standard that would allow a U.S. company to rely on a foreign misappropriator’s contacts with the United States a whole, rather than just the forum state, to establish personal jurisdiction over foreign defendants. This proposal would offer the benefits of a federal forum for more trade secret claims, while at the same time avoiding the potential drawbacks of creating a new federal private cause of action for trade secret misappropriation.

[1] David L. Almeling, Four Reasons to Enact a Federal Trade Secrets Act, 19 Fordham Intell. Prop. Media & Ent. L.J. 769, 770 (2009); Marina Lao, Federalizing Trade Secrets Law in an Information Economy, 59 Ohio St. L.J. 1633, 1653 (1998); Christopher Rebel J. Pace, The Case for a Federal Trade Secrets Act, 8 Harv. J.L. & Tech. 427, 433-34 (1995).

[2] See TianRui Grp. Co. v. U.S. Int’l Trade Comm’n, 661 F.3d 1322, 1327-28 (Fed. Cir. 2011) (noting that “trade secret law varies little from state to state”).

[3] David S. Almeling et al., A Statistical Analysis of Trade Secret Litigation in Federal Court, 45 Gonzaga L. Rev. 291, 293, 302 tbl.1 (2010).

[4] See 28 U.S.C. § 1332(a)(2) (granting the district courts original jurisdiction over civil actions between “citizen of a State and citizens or subjects of a foreign state”).

[5] See, e.g., V’Guara Inc. v. Dec, 925 F. Supp. 2d 1120 (D. Nev. 2013) (granting a TRO to prevent trade secret misappropriation).

[6] See, e.g., Core Labs v. Spectrum Tracer Servs., 532 Fed. Appx. 904 (Fed. Cir. 2013) (granting preliminary injunctive relief for a trade secret misappropriation claim).

[7] Nova Chems., Inc. v. Sekisui Plastics Co., 579 F.3d 319, 327 (3d Cir. 2009).

Guest Post: Publishing Design Patent Applications: Time to Act

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Gary L. Griswold

Mr. Griswold is a Consultant residing in Hudson, WI and was formerly President and Chief Intellectual Property Counsel for 3M Innovative Properties Company. The essay reflects the views of the author. He wishes to thank Bob Armitage and Mike Kirk for their excellent contributions to the essay.

Overview

Design patenting has come of age. According to a recent World Intellectual Property Organization (WIPO) study, the filing of design patent applications more than doubled between 2004 and 2011.[1] The stakes in design patent litigation today can be enormous. One commentator on the recent Apple-Samsung iPhone IP wars noted, “After operating in the intellectual property backwaters for years, design patents took center stage in the epic battle.”[2]

Enterprises of all sizes have come to recognize the value to be had from securing patents on their innovative designs. This also means that more businesses now need to consider whether design patents of others might impair their freedom to operate when placing a new product on the market.

Unlike conventional (“utility”) patent applications, design patent applications are not subject to the “publication” provisions that were placed in the U.S. patent law in 1999 with the enactment of the American Inventors Protection Act (AIPA). Utility patent applications, with a few exceptions, must all be published and made publicly available within 18 months after filing.[3]   However, all design patent applications are required to be kept in secret in the United States Patent and Trademark Office (USPTO) until the patent issues on the application.

Today this secrecy can have significant and negative consequences – for the design’s creator and for those who commit resources to manufacture a similar product before the issuance of the design patent. Unlike most utility patents today, the first inkling that a patent is being sought on a new product’s design may come with grant of a design patent, in other words come at the end of the examination process in the USPTO.

The growing importance of design patents suggests that this exclusion from publication with respect to design patent application publication should be rectified by Congress. This can best be done by requiring that all pending design patent applications be made available to the public by publishing these applications at 6 months after the date that they were originally filed.

Doing so would put the public on notice, shortly after the design patent application is filed, that a new product’s design may be protected. The growing prominence of design patenting, as well as other developments in the law since 1999, now make it timely for Congress to act.

Background

Two major pieces of patent legislation over the past 15 years have worked to make the U.S. patent law operate with vastly greater transparency, predictability and simplicity. The AIPA, with its requirement that most new non-design patent filings must be published at 18-months after their original filing dates was followed by a host of even more significant patent reforms. These were contained in the Leahy-Smith America Invents Act (AIA) of 2011.[4]

Key provisions of the AIA were designed to allow inventors to accurately assess whether they could secure – or had secured – a valid patent. For utility patents, access to earlier-filed patent applications comes though the AIPA’s publication provisions. Clearly, since some patents can take years to issue, holding earlier-filed patent applications in secrecy in the United States Patent and Trademark Office (USPTO) until a patent issued meant that an inventor might mistakenly invest based on the apparent validity of a patent that might then evaporate upon the issuance of a patent on a never-published, earlier-filed patent application.

The AIA also sought to assure that members of the public could more effectively participate in the patenting process. It allowed members of the public to be involved in the determination of whether a claimed invention in a patent application can be validly issued as a patent, both before the patent issues and after the patent issuance.

If action is taken promptly after a pending patent application is published, the AIA permits a member of the public to make a “pre-grant submission” of relevant prior art that the patent examiner handling the patent application must consider in deciding whether a patent should issue on the application.[5] These submissions, most notably include the earlier-sought patent applications of other inventors that have been published under the AIPA’s provisions.

In addition, the new “post-grant review” or “PGR” provisions of the AIA permit a member of the public to raise in a USPTO proceeding any issue of a patent’s validity that could be raised in court by someone accused of infringing the patent. However, these PGR provisions, like the pre-grant submission provisions, require that an individual act promptly. In this case, the PGR petition must be filed within nine months of the issue date of the patent that is being opposed.

Given the formidable requirements for requesting a PGR, most individuals making a PGR request will benefit from advance notice that a patent is about to issue. This notice, of course, is automatic when the patent application has been published under the AIPA’s provisions.

The manner in which the AIA built upon the AIPA’s provisions, both with pre-grant submissions and with post-grant review, work to benefit patent owners and their potential competitors alike. However, while these new pre-grant and post-grant provisions technically apply both to design and utility patents, the lack of any “publication provision” for design patents means that these provisions are now significantly less effective for designs.

The Rationale for Excluding Design Patents from the AIPA Publication Provisions No Longer Makes Sense

When the AIPA was enacted, there were two significant exceptions to the rule that pending applications for patent would be published and made publicly accessible. First, these provisions allowed inventors seeking only U.S. patents to opt-out of the publication requirement. This was done for inventors interested in patent protection only for the U.S. market on the assumption that at least some of them might not want their inventions publicly disclosed if they were ultimately not going to be able to receive a valid patent. However, for almost all such inventions, marketing the invention necessarily discloses to the public what the invention is and, in fact, discloses much more about the invention to the public than would normally be found in an inventor’s patent application if published.

Thus, this rationale, particularly today, makes little sense. The inventor can be “protected” from public disclosure by opting-out of the publication provisions of the AIPA only in the situation where the invention is never commercialized and essentially has no economic value, or in the limited situations where the invention can be effectively practiced as a trade secret. Consequently, it is a protection that seldom affords any economic value to the inventor.

Under the AIA, the publication of an invention in a pending patent application provides an inventor with a guarantee that no one else will be able to successfully secure a patent on the same or a similar invention based on an application filed after the inventor’s patent filing. Where someone subsequently files for a patent, the earlier-filed application limits the later-filing inventor to validly patenting only subject matter both novel and non-obvious over what was disclosed in the earlier-filed application.

Design patents were totally excluded from the 18-month publication provisions. The rationale for the design patent exclusion can be found in the legislative history of the AIPA: “Since design applications do not disclose technology, inventors do not have a particular interest in having them published.” That statement, whatever its validity then, was made before design patenting came of age and has little relevance today, as evidenced by the litigation between Apple and Samsung.

Another reason given for the design exception was that “The Hague Agreement Concerning the International Registration of Industrial Designs” was being revised and that any change to the design patent law should await the outcome of that exercise. That outcome is now clear; Congress has acted to remove the exception for design patents filed under The Hague Agreement.[6]

Yet another reason that design patents may have been left out of the mix when the publication provisions of the AIPA were being drafted was the short pendency of a design patent application. “Pendency” is the time taken by a patent examiner between filing and issuance of the design patent. With pre-grant submissions of prior art and post-grant review under the AIA now in place, that relatively shorter pendency before the Patent Office for design applications versus utility applications makes it much more important to have design applications not only published, but published quite promptly, i.e., at six months from the patent filing.[7]

The last reason Congress may have excepted design patents from publication is that some manufacturers may not have wanted the designs for new products to be prematurely disclosed, prior to market introduction.[8] Under the AIA, however, the filing of a design patent application assures that no similar designs can be patented based upon a later-filed design patent application. In addition, early publication puts competitors on notice that there is a “patent pending” on the design so that they dare not copy the design without the risk of infringing a subsequently issued design patent. Instead of a problem for manufacturers, pre-grant publication carries with it undeniably important benefits.

In addition to the “notice” function that arises from publishing a design patent application, inventors whose design patent applications publish secure yet another benefit under the AIPA. They can qualify for “provisional rights” – that is the right to collect reasonable royalty damages from anyone who uses the design during the period from the date the user received notice of the published design application until issuance of the patent on the design.[9] This again reflects the upsides of publication, much potential gain with a negligible prospect of incurring any pain.

Conclusions

The AIA increased the openness and transparency of the patent system by providing for pre-grant submissions and post- grant review. These provisions work to protect the public against patents that lack valid claims – and similarly protect the inventor from making investments in reliance on patents that could never be successfully enforced. Those aspects of the AIA are premised in part on the publication of pending patent applications.   Whatever reasons can be cited for excluding design patent applications from these important provisions of the AIPA, such reasons now have only historic significance. Today, all design patent inventors deserve equal treatment. The availability of the benefits of publishing pending design patent applications should not depend on where a design patent inventor seeks patent protection.

In sum, the agreement to allow publication of design patent applications filed by U.S. inventors under The Hague Agreement represents a significant step by the United States toward achieving the open, transparent 21st century patent system contemplated by the AIPA and AIA. The increase in design patent application activity – and the prominence of design patent enforcement efforts – renders this a perfect time to remove the exclusion from publication of those design patent applications filed only in the United States.

 

[1] According to WIPO, in 2012, “the 1.22 million industrial designs contained in applications grew by 17%—the highest growth on record.” http://www.wipo.int/export/sites/www/freepublications/en/statistics/943/wipo_pub_943_2013.pdf, at p. 4.

[2] See http://designpatentattorney.com/wp-content/uploads/2013/01/Carani-Lanslide-Article-Design-Patents-Take-Center-Stage-Jan-Feb-2013.pdf.

[3] Most utility patent applications must be published under the AIPA’s publication provisions. The time period set for publishing utility patents is 18 months after the initial patent filing date. 35 U.S.C. § 122(b).

[4] The United States adopted a so-called first-inventor-to-file system as the principle for determining what subject matter can represent “prior art” to a claimed invention. Also, a number of subjective and non-transparent aspects of the rules on patenting were removed.

[5] Because prior art can be submitted to the USPTO anonymously, members of the public and competitors of the applicant are normally comfortable in making such submissions. Since the processing time is shorter for design patent applications than that of utility patent applications, a narrower time window (e.g., before the earlier of a notice of allowance and the later of (1) the first rejection or (2) 2 months after publication) would be necessary for submitting third party submissions.

[6] The implementing legislation for the Geneva Act of The Hague Agreement has been enacted by the United States and rules for its implementation are being finalized by the USPTO. Once the rules are completed, the formal process for membership will be initiated and completed. The Common Regulations Under the 1999 [Geneva] Act and the 1960 Act of The Hague Agreement provide for publication of international applications six months after the date of the international Registration (which occurs upon receipt by WIPO of the international application). This publication of the international application will be considered a publication in the U.S. under 35 USC 390. The U.S. will not allow deferral of publication. Thus, any concerns related to the early publication of design patent applications as a policy matter have already been decided by Congress in favor of publication.

[7] As with utility patent applications, the public may well be aware of better prior art for design patent applications than the USPTO. If design patent applications were published, interested members of the public could submit prior art to the USPTO with the result that any issuing design patents would have been more thoroughly examined, benefiting both the applicant and public.

[8] Because of the speed of issuance, design applications filed only in the U.S. would need to be published 6 months after their U.S. filing date. Any concern with timing of publication relative to commercialization would seem to be handled by a 6 month period between filing and publication, which mirrors The Hague Agreement, and the relatively rapid grant (typically 15 months) of design patents.

[9] By providing that publication under The Hague Agreement will be deemed a publication under 35 USC 122(b), the implementing legislation (35 U.S.C. 390) makes such design patent applications eligible for provisional rights under 35 USC 154(d).

Accelerating ex parte PTAB Appeals: For a Fee

Patent,

By Dennis Crouch

The Patent Trial and Appeal Board (PTAB) is burdened with a statutory mandate to quickly reach final determination in its post-issuance review trials. To meet that requirement, the PTAB has put tremendous resources into its trial teams to ensure sufficient bandwidth to handle the hundreds of inter partes trials. At the same time, a 25,000 case backlog of pending ex parte appeals persists at the Patent Trial and Appeal Board.  Those cases do not have as clear of a statutory-mandate for rapid processing and, as a result, have clearly languished as the Board developed its post-issuance review trial program with most cases now waiting more than three years for a decision from the Board. (Notice-of-Appeal to Board Decision).  Rather than dealing with its poor statistics, the PTAB appears to have simply stopped publishing them.

For many patent applicants (though certainly not all), the appeal delay is costly because it extends a period of ambiguity and it delays issuance of the patent rights.  Certainly, the vast majority of long-pendency patent applications (those that issue more than 7 years after filing) spent considerable time in the appeal queue awaiting a reversal of an examiner rejection. Those late-issued patents have the potentially of being disruptive to marketplaces that have developed and grown in the absence of an issued patent.

A few months ago, I conducted what I called a “10-second”survey on Patently-O regarding the potential market for accelerated PTAB decisions in ex parte cases.  I asked:

Would you pay an extra $5,000 for accelerated PTAB decisions in ex parte cases that issue[] within nine months rather than waiting the standard 2 1/2 years?

I should note that the 2 ½ year figure had increased. The results are instructive and somewhat fit the model seen with the $4,000 fee for prioritized “track one” examination, although the market for accelerated appeals seems somewhat greater.  The vast majority of the 614 responses indicated that they would use the fast track in at least some cases – with most indicating that the fast track would be used in >5% of cases.

AcceleratedAppeals

Although not any final word on the market for accelerated appeals, the chart is indicative of a demand for accelerated appeals.  And, although not a solution to the docket problem, acceleration of a subset of appeals offers the potential of alieviating the most some of the more pointed needs.

I should note here that a subset of accelerated examination cases (“made special”) are also accelerated when pending before the PTAB. However, those do not include prioritized examination cases under the pay-for-speed program.  I do not have any statistics on how that acceleration impacts the timing of appeals.

Court Finds Patent Invalid; Then Orders Defendant to Stop Infringing

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By Dennis Crouch

Following the Supreme Court’s equitable relief decision in eBay, many patentees have found it difficult to obtain injunctive relief to stop ongoing infringement – even after final judgment that the patent is both valid and infringed.

In a recent decision, the District Court Judge Blake (D.Md.) seemingly flipped eBay on its head by enjoining TWi Pharma from making or selling a generic version of Par’s patented Megace ES formulary. The upside-down element of the decision is that the order granting the injunction issued only after the court found the patent claims invalid as obvious. Par Pharma v. TWi Pharma, 1-11-cv-02466 (MDD August 12, 2014, Order). To be clear, the order here is not for permanent relief, but only relates to injunction pending appeal.

The doctrine involving the grant of equitable relief pending appeal is a bit squirrelly – especially at the district court level because the general setup involves the court deciding that its decisions are likely wrong. Recognizing that, the law does not require the moving party to show that its case is a likely winner but only a substantial likelihood that the requested equitable relief will be entered as a result of the appeal. Applying this standard, the district court writes:

Par claims that it will succeed on the merits because this court erred in its application of the law with respect to motivations to combine the prior art and inherency. Although the court stands by its judgment, it recognizes that the case presents a close call. Further, the Federal Circuit will conduct a de novo review of whether the ‘576 patent is obvious, including whether this court properly interpreted the law regarding motivation and inherency. . . . The court is not persuaded Par has demonstrated a “strong” likelihood of success on appeal—especially given that most of its dispute with this court’s earlier decision is only rehashing the legal arguments it has already made. Par has, however, made a showing of a substantial case.

The district court joined this “substantial case” on appeal with strong evidence of irreparable harm absent relief in its decision to grant the injunction pendente lite.

Regarding the ‘public interest’ element of equitable relief, the court found that element neutral.

The court recognizes that the public is served by the availability of low-cost generic medications, especially where an invalid patent has previously barred their entry into the market. On the other hand, the public also has an interest in the protection of valid patents because it promotes innovation. This factor, therefore, is neutral.

An interesting and problematic element of the court’s decision here is that the doctrinal approach makes it easier for a patentee to obtain temporary relief following an adverse final judgment (of invalidity) than prior to such a judgment. The doctrinal difference highlighted by the court between preliminary injunctive relief pending final judgment and post-decision relief pending appeal is simply that the proof of likelihood-of-success is reduced for relief pending appeal. This is obviously problematic because in the second case, the court will have already reached a final judgment that the patentee loses.

In making its decision, the district court applied Federal Circuit precedent regarding relief pending appeal. However, those cases relate generally to the asymmetrical situation of staying-injunctive relief pending appeal rather than, as here, granting injunctive relief pending appeal.

There is a better approach that still recognizes the potential need for injunctive relief pending appeal and that is simply requiring a greater showing of need for relief (irreparable harm; balance of hardships; public interest) when the likelihood-of-success element is reduced.

Myriad Patents Now Challenged at the PTO

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Myriad v. Gene Dx, Inc.

In 2013, the US Supreme Court invalidated Myriad’s patent claims covering isolated DNA coding for the cancer causing BRCA1/BRCA2 by ruling that those isolated genes were unpatentable products of nature. However, the Supreme Court also ruled that the ‘created’ cDNA versions of the genes were patent eligible – or at least not excluded by the product-of-nature exception to subject matter eligibility.

Following that decision, a number of companies indicated that they would enter the market and begin BRCA1/BRCA2 diagnostic genetic testing in violation of the patents. Myriad responded aggressively by filing lawsuits against several companies, including Gene Dx for patent infringement. The case against Gene DX alleges infringement of sixteen different Myriad patents and is still pending in Federal Court in Utah where the parties have jointly agreed that settlement prospects are “low.” The case has been centralized before a multidistrict panel that is handling parallel cases against Gene DX, Quest Diagnostics, Ambry, and Counsyl.

In a bold move, Gene DX has now filed a set of inter partes review (IPR) requests – challenging 11 of the Myriad (or Myriad Licensed) patents. I should note, these challenged patents are different from the ones ruled-upon by the Supreme Court. In the IPR regime, patents can only be challenged on prior art grounds. Here, each of these patents have been challenged on either 103 (obviousness) or 102 (novelty) grounds.

Update on USPTO’s Implementation of ‘Alice v. CLS Bank’

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The following guest post comes from USPTO Commissioner for Patents Peggy Focarino and is a re-publication of what Commissioner Focarino published on the USPTO Director’s Blog.

Today I would like to address our ongoing implementation of the June 19, 2014, unanimous Supreme Court decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al. (Alice Corp.). In the decision, the court held claims to a computerized scheme for mitigating settlement risk patent-ineligible because they are drawn to an abstract idea. I want to share with you the steps we’re taking to implement the decision.

First, on June 25th, we issued preliminary examination instructions to assist examiners when evaluating subject matter eligibility of claims involving abstract ideas, particularly computer-implemented abstract ideas, in view of Alice Corp.

Second, the USPTO has applications that were indicated as allowable prior to Alice Corp., but that have not yet issued as patents. Given our duty to issue patents in compliance with existing case law, we have taken steps to avoid granting patents on those applications containing patent ineligible claims in view of Alice Corp. To this end, our primary examiners and supervisory patent examiners (SPEs) promptly reviewed the small group of such applications that were most likely to be affected by the Alice Corp. ruling.

We withdrew notice of allowances for some of these applications due to the presence of at least one claim having an abstract idea and no more than a generic computer to perform generic computer functions. After withdrawal, the applications were returned to the originally assigned examiner for further prosecution. Over the past several days, our examiners have proactively notified those applicants whose applications were withdrawn. (Applicants who had already paid the issue fee for applications withdrawn from allowance may request a refund, a credit to a deposit account, or reapplication of the fee if the applications return to allowed status.)

This limited action was closely-tailored and taken specifically in reaction to the Alice Corp. decision. We do not anticipate further review of any applications indicated as allowable under this process, as examiners are currently following the Alice Corp. preliminary instructions during examination (i.e., prior to allowance).

Third, as we continue to study Alice Corp. in the context of existing and developing precedent, public feedback will assist us in formulating further guidance for our examiners. On June 30th, a Federal Register Notice was published to solicit written comments from the public on the preliminary examination instructions. The period for submitting those comments ended July 31, 2014. We appreciate the comments we have received to date. All input will be carefully considered as we work to develop further examination guidance, which we anticipate issuing this coming fall.

We look forward to working with our stakeholders in refining our examination guidance, and will continue to seek feedback as we implement changes as the laws evolve.

Studying the Mongrel: Why Teva v. Sandoz Won’t Solve Claim Construction

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Guest post by Heather F. Auyang, Senior Counsel at LTL Trial Attorneys in San Francisco, California. The views and opinions expressed herein are those of the author and do not reflect the views or opinions of LTL Trial Attorneys.

This is the Teva-update to last summer’s Patently-O Guest Post titled “Why Lighting Ballast Won’t Solve Claim Construction” (https://patentlyo.com/patent/2013/07/guest-post-why-lighting-ballast-wont-solve-claim-construction.html), which discussed two then-recently published empirical studies – a study of “close cases” (analyzing all post-Markman claim construction cases where the Federal Circuit panel was split) and a study of “reversals” (analyzing all post-Phillips claim construction cases in which the Federal Circuit reversed the district court).   Updates to both studies have now been published in a sequel article, which provides further explanation and answers to some of the questions that were raised in this very forum last year.  The past year’s data is unsurprising – it is exactly what the models provided by the original studies predicted, and it confirms, yet again, that changing the standard of review will not have a particularly beneficial effect on claim construction predictability or consistency. This conclusion is based on two key facts shown by the data:  (1) that Federal Circuit judges remain divided on how to approach the task of claim construction, and (2) that when district courts are reversed, it’s almost always because they have misapplied settled claim construction principles.  In fact, giving more deference to district courts will likely exacerbate, rather than fix, problems with claim construction.

The close cases study (of 105 cases) continues to show that each Federal Circuit judge who has participated in more than five close cases falls into a distinct camp.  Judges Wallach, Linn, Clevenger, and Moore “go broad” in over 66% of close cases (Judge Rader was also in this group); Judges Bryson, Prost, Mayer, Schall, and Dyk “go broad” in between 47% and 55% of close cases; and Judges Newman and Lourie “go broad” in under 31 percent of close cases.

As pointed out last year, if the goal is to make claim construction more predictable, a good place to start would be to ensure that all the Federal Circuit judges are following the same rules of claim construction.  This data clearly shows that they are not.  While any given judge in any given opinion can cite the same agreed-upon rules, the rules are not preventing significant differences in approach among the judges.  Last year’s post and article posited that some judges are expressly or implicitly following an “actually invented” standard that other judges reject.  Whatever the explanation, until these differences are ironed out, tinkering with other issues – like deference to district courts – is unlikely to be productive.

The reversals data (based on 153 cases) is even more relevant to the question of deference than is the close cases data, since it deals directly with the relationship between the Federal Circuit and the district courts.  Focusing on reversals makes sense because this dataset, presumably, includes the cases whose results would change if the Supreme Court determines that district courts should get more deference in claim construction.  Accordingly, these are the decisions that should be studied before one concludes that the current standard of de novo review should be changed.  As it turns out, the reversals data suggests that the high reversal rate is caused by district court error, not Federal Circuit arbitrariness. If that’s the case, why in the world are people advocating more deference to district courts?

The reversals study coded for whether the Federal Circuit decision was in a broadening or a narrowing direction.  The result for the 11-month period since the last study was a broadening rate of 87.5%, even higher than the previously-reported overall broadening rate of 72.5%.  In other words, in cases where district courts are “getting it wrong,” according to the Federal Circuit, they are systematically interpreting the claims too narrowly.  As pointed out last year, these narrowing interpretations typically enable district courts to grant summary judgment of non-infringement (or encourage the parties to enter such a stipulation), and thereby permit the Federal Circuit to review the claim construction issue without going through the trouble and expense of a trial.  In the year since then, we have not heard any other plausible explanation.  Last year’s post and article also challenged any advocate of deference to provide one or more examples from the “reversals” cases that (1) would have come out differently under a deference regime, and (2) should have come out differently.  We haven’t heard anything on that either.

This year’s article – including fancy color charts analyzing Federal Circuit judge proclivities across broad/narrow, less spec/more spec, pro-patent/anti-patent, and pro-affirm/pro- reverse; and pie-charts and tables for the reversals data –  is What Reversals and Close Cases Reveal About Claim Construction at the Federal Circuit – The Sequel, 13 J. Marshall Rev. Intell. Prop. L. 525 (2014) (available at http://repository.jmls.edu/ripl/vol13/iss3/3/). The comments here on last year’s article were of a very high caliber; hoping for the same again this time!

 

 

Federal Circuit Orders District Court to Stay Litigation to Await Conclusion of Later-Filed Post-Issuance Review (CBM) Proceeding

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By Dennis Crouch

VirtualAgility Inc., v. Salesforce.com, Dell, Dr. Pepper, et al. (Fed. Cir. 2014)

The America-Invents-Act (AIA) created set of new and powerful administrative proceedings that allow third parties to challenge issued patents. These include post-grant review (PGR), covered business method review (CBM), and inter partes review (IPR). Congress maintained the less-powerful but still important third-party requested ex parte reexamination. In the coming months, the Federal Circuit will be challenged with reviewing various aspects of the new proceedings. Perhaps most importantly, the court will be challenged with determining how much deference and leeway to give the USPTO in developing its own procedures and interpretation of the law.

Apart from the agency deference issue, a second major issue whose steam continues to build involves the rising number of conflicts between federal courts and the patent office. Traditionally, post-issuance challenges have been handled by the courts, but the new procedures have shifted the balance of power. It turns out that most patents involved in post-issuance administrative challenges are also involved in parallel challenges in federal district court. These parallel proceedings will often have somewhat different results, and many remain confused over the potential result of such a conflict. In the extreme, the issue raises constitutional questions of separation of powers between the executive (the PTO) and the courts.

One solution to the conflict is to have the decision-makers take turns and apply principles of estoppel, preclusion, and comity to resolve the delayed process in a way that avoids conflict with the first-decided case. The PTO has generally refused to stay its proceedings and many district court judges have difficulty ordering stays – especially in cases such as this where the review request is filed several months after the infringement lawsuit. It is important to recognize that post-issuance review requests are limited by law to only challenge issues that can also be challenged in court. Thus, for a judge, the post-issuance review request serves as a transparent statement that the defendant does not trust the judge or jury to make the call.

The Timeline Here: In January 2013, VA sued the defendants in the Eastern District of Texas, alleging infringement of its U.S. Patent No. 8,095,413. Five months later (May 2013) one of the defendants (Salesforce.Com) filed a covered business method review (CBM) petition alleging that that the claim of the patent were all invalid under Sections 101, 102, and 103 of the Patent Act. In November 2013, the PTAB partially granted the CBM petition and ordered review of the claims under Sections 101 and 102 (but not 103) and setting a July 2014 PTAB trial date with a final decision expected by November 2014. At that point, the district court was made-aware of the PTAB’s late-start but rapid progress. However, the district court refused to stay the litigation pending outcome of the PTAB case and continued moving forward with claim construction hearing set for April 2014 and trial also set for November 2014.

One aspect of the new CBM process is that the statute allows for interlocutory appeal of a district court’s decision to grant or deny a stay of litigation pending CBM review. Thus, after the district court refused to grant the stay, Salesforce appealed. The Federal Circuit quickly granted a stay of the district court litigation pending appeal and has now ordered that the district court to stay its proceedings pending the CBM review. The majority decision here is written by Judge Moore and joined by Judge Chen. Judge Newman wrote in dissent arguing that the decision here removes the discretion given to district courts.

The statute provides four factors that a district court must consider when determining whether or not to grant a stay of a late-filed CBM review.

[T]he court shall decide whether to enter a stay based on—

(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;

(B) whether discovery is complete and whether a trial date has been set;

(C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and

(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

AIA §18(b)(1). Regarding appeals, the statute indicates that the Federal Circuit’s “shall review the district court’s decision to ensure consistent application of established precedent, and such review may be de novo.” AIA §18(b)(2). Thus, Judge Newman’s call for deference is likely misplaced. For its part, the majority refused to determine whether any deference is required and instead held that reversal was warranted even under an abuse of discretion standard.

The result here provides a strong suggestion to district courts that they should stay litigation once the PTAB has indicated that it will review the identical claims being litigated in court.