Once initiated, CBMs are identical to post-grant reviews (PGR) – allowing for patents to be challenged on any patentability grounds.  As implemented, this includes 101 and 112 challenges in addition to the more traditional obviousness and novelty grounds.   PGRs, however, are limited to only AIA-patents and must be filed within a 9-month window from issuance.  Those caveats have severely limited the number of PGR petitions filed thus far.   For CBMs, the AIA-patent restriction and 9-month window are both eliminated.  However, the statute creates a subject-matter limitation that restricts CBMs to only non-technological financial-services business method patents.

Another feature of the CBM program is that it is “transitional” – i.e., it sunsets in 2020 and no petitions will be accepted after that date.

Last week, I hosted a quick anonymous survey on the transitional Covered Business Method Review program — asking whether the CBM program should be allowed to sunset or somehow extended.  240 Patently-O readers responded with results shown in the chart below.  About 44% of responses favored ending of the program outright — allowing it to sunset.  About 29% favored extending the program as-is, with the narrow financial-services scope.  The remaining favored extension and expansion: 17% would expand the scope to include all information processing patents, and the remaining 10% would extend the program to include all patents.  This final option would essentially mean ending the 9-month window for PGR filing.

The survey also offered (but did not require) an explanation of the answer.  A variety of themes emerge from that explanation. The following are a few examples.

For patent challengers, the key response is that “it works” as a mechanism for cancelling patents, and could be extended to other technology areas.  

• CBM is a big success addressing one of the most abused categories of patents. Extend it to the very worst and most abused patents by including all of information processing and it can help clean up the system and make it stronger.
• Business methods are not the only abstract processes being patented by the Office Patent. A majority of all information processing methods (even those outside of the Business arts) suffer from encompassing non-statutory abstract processes without reciting subject matter that amounts to anything significantly more than said abstract processes.

The historic problem associated with poor business method examination quality has now been fixed. 

• It was intended to handle a temporary problem in a specific area.  State Street caused a flood of applications in an area that was new to the USPTO.  Now skills and databases have developed and the stats show that there is no particular need for either expanding or extending CBM.  Permanently singling out a particular subject matter for extra scrutiny could cause other countries to do the same in other areas.
• If the goal was to clean up shoddy and overly broad patents and applications, then most all of the necessary work should be done by then.  There are existing mechanisms in place that should be forcing quality such that this becomes redundant and therefore unnecessary.
• It was a political sop to begin with and should be allowed to expire per the legislation and the underlying political agreement.  It’s argument was to take care of “low-hanging fruit”, patents of old vintage, issued when the Office’s resources in this area were low.  8 years is more than enough time to pick that fruit.
• CBM petitions are declining because most of the patents intended for consideration have already been undone.

Patents need to be strengthened, not weakened. 

• The patent systems is already nearly dead.  Make patent owners in all areas feel the pain of having their patent rights trampled over by a kangaroo administrative court.
• Broad restrictions on patentability are harming U.S. competitiveness in the areas of its greatest strength.  China and the EU are poised to eat our lunch, and we are serving it up to them.
• A terrible idea from the outset.
• It (CBM) deprives some of the best technological innovators the chance to protect their valuable property.  Abandon CBM, and instead seek recourse to the traditional approaches (102, 103 and 112) to rid the patent landscape of those patents that don’t rise to the level of technological innovation.

The PTAB process is either corrupt or incompetent. 

• It has been abused by petitioners and PTAB has taken it too far.
• Go back to district court litigation. The present scheme is a disaster.
• The USPTO is turning into a mini-court system. That is not its competency. It needs to focus on technology, granting patents to those inventions that meet the basic statutory criteria, and leave the legal hair-splitting to courts.
• This is a corrupt Review that benefits a specific class of infringers and is detrimental to the development of new technology.

The approach should be ended because it violates the constitutional rights of patent owners.

• Unconstitutional.
• AIA has overstepped its boundaries on constitutional grounds as patents are private rights.
• All patent owners are entitled to due process, and that includes the right of access to a court of law before their patents are summarily cancelled by a political, the end-justifies-the means, so-called court.

Of course, there are other responses as well (perhaps more below in the comments).

The bottom line here, as you might expect, is that there is not yet any consensus on whether to extend the CBM program.  My own general framework begins with the recognition that CBM does no longer adds much value post Alice/Mayo and with district court eligibility determinations being done on the pleadings.  However, I would like to see the empirical evidence.   The point of creating legislation that sunsets is that it effectively places the burden of proof on anyone wanting to continue the program.  That work has not yet been done.

The vast majority of written description problems arise when the patentee amends or adds claims with limitations not found in the original claim set and using language that does not directly map to specification disclosure.  In Cisco Systems v. Cirrex (Fed. Cir. 2017), the Federal Circuit provides an example of this in practice.

[The Decision: Cisco]

After the PTO initiated an inter partes reexamination, the patentee (Cirrex) dropped the original claims (1-34) and added new claims (35-124) of its ‘082 patent.[1]  In its final decision, the PTAB affirmed the examiner’s decision that most of the added claims were invalid as lacking written description support.  The Board did, however, find five of the claims patentable.  On appeal, the Federal Circuit partially reversed – finding all of the claims invalid as lacking written description support.

35 U.S.C. § 112(a) serves as the statutory source for three patentability doctrines: Written Description, Enablement, and Best Mode.

(a) IN GENERAL.—The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor or joint inventor of carrying out the invention.

In Ariad, the Federal Circuit wrote that the original written description filed by the patentee must “clearly allow persons of ordinary skill in the art to recognize that [he] invented what is claimed.”[2]  Channeling the old fox-law case of Pierson v. Post, courts have held that the requirement is intended to show “possession” of the claimed invention at the time of filing.  Whether the written description is sufficient is a question of fact – with the level of detail depending upon “the nature and scope of the claims and on the complexity and predictability of the relevant technology.”  Thus less description is necessary to show possession in simple technologies in predictable areas.  More description is likely required to show possession of novel structures and arrangements as compared to elements found in the prior art.

Here, the added claims at issue here are related to either equalization or discrete attenuation of fiber optic signals inside a lightguide (PLC).

The problem for Cirrex, according to the court, is that the original specification “lacks any disclosure or suggestion of how placing attenuation material inside the PLC … would result in equalizing the intensities of different wavelengths traveling in the PLC, or discretely attenuating a particular wavelength in the PLC.”  Rather, the disclosed embodiments teach equalizing to light energy outside the PLC and only collective (rather than discrete) attenuation within the PLC.   As such, the Federal Circuit held the claims lacked sufficient written description.

= = = = =

Alt: Essential Element Test: An interesting issue that the court avoided stems from an odd line of written description cases that center on what the Federal Circuit repeatedly denies is an “essential element” test.  In Gentry Gallery, Inc. v. Berkline Corp.[3], the patentee amended claims to remove a previously recited limitation (placement of recliner controls between two recliners).  In that case, the court held that the broader claim lacked written description since the specification indicated possession of only a much narrower invention.  The basic conclusion is was that since the specification consistently described the invention as including “A, B, and C all connected together,” the patentee cannot broaden its claims to claim just A and B connected together (even if there would be no enablement problem).  Whenever the court cites Gentry, it almost always restates the seemingly contrary statement that this test should not be seen as an ‘essential element’ test but rather merely an inquiry as to whether the inventor possessed the invention now claimed.

Here, the challenger argued, in the alternative, that if the claims should also be invalid if interpreted to be broad enough to include equalizing activity whether inside or outside the PLC.  The problem is that all disclosed equalizing includes operating on signals outside the PLC, and the challenger argued that the disclosure does not then extend to the full scope of the claims.  This argument roughly follows the LizardTech decision where the court held that a broadened claim lacked written description because there was no showing of possession of the “full breadth of the claim.”[4]

This alternative argument was avoided in the appellate decision because the court more narrowly interpreted the claims as discussed above.

= = = = =

Broadest Reasonable Interpretation vs. Interpretation Most Likely to Invalidate: The court here did not discuss how BRI applies to its claim construction approach.  The theory behind BRI is that a broader claim interpretation typically makes it more likely to invalidate claims, and that approach helps ensure that patents released by the PTO are more likely to be upheld as valid.  The interpretation issue is typically the opposite for written description issues.  Let me explain – since the standard written description problem involves adding new particular limitations into the claims that are absent from the specification, a more narrow interpretation of the claims is actually more likely to invalidate.  (Here, I set aside the aforementioned LizardTech improper broadening issue.)  The query here is whether the PTO should be applying the reasonable interpretation most likely to invalidate rather than broadest reasonable interpretation.

= = = = =

[1] U.S. Patent No. U.S. Patent No. 6,415,082.

[2] Ariad Pharm., Inc. v. Eli Lilly & Co., 598 F.3d 1336, 1351 (Fed. Cir. 2010) (en banc) (quoting Vas-Cath Inc. v. Mahurkar, 935 F.2d 1555, 1563 (Fed. Cir. 1991)).

[3] Gentry Gallery, Inc. v. Berkline Corp., 134 F.3d 1473, 1479 (Fed. Cir. 1998).

[4] LizardTech  v.  Earth Resource  Mapping,  Inc., 424  F.3d  1336 (Fed.  Cir.  2005).

Last week Professor Jorge Contreras provided here an excellent summary of the April 5 decision of Mr. Justice Birss of the UK’s High Court of Justice in Unwired Planet International Ltd. v Huawei Technologies Co. Ltd., [2017] EWHC 711. The case addresses the problems that arise in determining FRAND (fair, reasonable, and non-discriminatory) licensing terms. Professor Contreras highlighted several novel aspects of the decision.  In the paragraphs below I focus on two of them.

A Single FRAND Rate

Mr. Justice Birss determined that there is only a single set of FRAND terms “in a given set of circumstances” (¶ 164). This approach stands in contrast to the approach of, for example, U.S. District Judge James Robart in Microsoft Corp. v. Motorola, Inc., 963 F. Supp. 2d 1176 (W.D. Wash. 2013), who concluded there would a range of possible FRAND royalties. As Professor Contreras wrote, Justice Birss’s approach poses a number of “logical hurdles . . . with respect to the SEP holder’s initial offer to the implementer and how to assess the SEP holder’s compliance with competition law.”

For one thing, Justice Birss does not seem to contemplate that after the first decision regarding FRAND terms for a particular portfolio, other courts or arbitration tribunals will follow along by applying the same rate. Instead, he appears to anticipate that each judge or arbitrator will make his or her own decision about the “single” FRAND rate, independently assessing the reasoning of prior courts or tribunals: “Decisions of other courts may have persuasive value but that will largely depend on the reasoning that court has given to reach its conclusion” (¶ 411).

Justice Birss makes this comment with reference to an Ericsson license to Huawei, not a license of Unwired Planet’s portfolio to a different licensee. Perhaps he contemplates more deference by subsequent courts to earlier determinations regarding the same portfolio, but that is not clear. Perhaps also, as Dennis Crouch has pointed out to me, there might be preclusive effects, even internationally, as a result of a prior decision, though that would presumably only put a ceiling on a rate, not a floor. In the absence of such effects, one can anticipate a multitude of “single” FRAND rates for a given portfolio.

Another factor that might lead to inconsistency among different rate determinations is what appears to be some reluctance to rely on arbitral decisions:

The decisions of other courts, assuming they are not binding authorities, may be useful as persuasive precedents. A point arises in this case about a licence which was the product of an arbitration. A licence agreement settled in an arbitration is more like terms set by a court than it is like a licence produced by negotiation and agreement. Huawei submitted that such a licence would be evidence of what a party was actually paying and as such was relevant. Aside from certain aspects of nondiscrimination which I will address separately, I do not accept that evidence of what a party is paying as a result of a binding arbitration will carry much weight. (¶ 171).

This skepticism regarding arbitrations is important because international arbitrations are used in the FRAND context to avoid country-by-country litigation. The passage suggests that Justice Birss would not treat rates set in an arbitration involving one licensee as very persuasive in a proceeding involving another licensee. On the other hand, the arbitration to which he was referring was one for which Huawei had introduced only the rates determined in the arbitration, not the award itself (id.). Later in the decision, he writes that “[a]n arbitral award is at least capable of having a similar persuasive value” as a court decision if the reasoning is available (¶ 411). In the end, it is not clear whether Justice Birss’s concern is with arbitration per se—he says that “[t]erms which were settled by an arbitrator are not evidence of what willing, reasonable business people would agree in a negotiation” (id.)—or simply that Huawei did not provide a complete picture of the arbitration at issue.

In any event, the overall picture appears to be that every court and tribunal can determine its own “single” FRAND rate and other terms (even when each is interpreting the same FRAND commitment for the same SEP portfolio). As Justice Birss indicates, there will be some limitations based on the non-discrimination element of FRAND, but he also limits that non-discrimination principle, as described below.

Another problem with the single-rate approach arises in connection with the CJEU’s 2015 decision in Huawei v. ZTE. Under the rules for FRAND negotiations established in that case, which the CJEU established as a template for the avoidance of abuse under Article 102 TFEU, the patentee and potential licensees are required to make FRAND offers. If there is only one single FRAND rate, as Justice Birss says, then of course the chances that either party’s offer, let alone both, will match that FRAND rate are very slim.

Justice Birss acknowledges this problem, and purports to resolve it by saying that “[t]he fact that concrete proposals [i.e., the required FRAND offers] are also required does not mean it is relevant to ask if those proposals are actually FRAND or not” (¶ 744(ii)). But the CJEU is clear that the parties’ proposals must be a “written offer for a licence on FRAND terms” (Huawei v. ZTE, ¶ 63) and “a specific counter-offer that corresponds to FRAND terms” (Huawei v. ZTE, ¶ 66). Justice Birss argues that this means only “that each side must make clear they are willing to conclude a licence on FRAND terms, since that is what matters,” (¶ 738), not that the offers themselves must be on FRAND terms. This claim, though, that “[w]hether a particular concrete proposal is actually FRAND is not what the CJEU is focussing on” (id.) is not the most natural reading of the CJEU’s decision.

Justice Birss does allow that “[n]o doubt a prejudicial demand or a sham proposal may itself be abusive (that issue arises below) but that is another matter” (id.). He says further that “only an offer which is so far above FRAND as to act to disrupt or prejudice the negotiations themselves . . . will fall foul of Art 102(a)” (¶ 738). He then concludes that the Unwired Planet offers and Huawei counteroffers in their negotiations, which were in the range of around three to ten times higher or lower than the actual FRAND rate that he determines, were not abusive given the circumstances of the negotiation (¶¶ 756-784).

In the end it is not clear just what are the implications of Justice Birss’s single FRAND rate. The determined rate does not necessarily constrain other courts or arbitral tribunals to impose the same rate, nor with Justice Birss’s interpretation do offers that deviate from the FRAND rate constitute abuse under Huawei v. ZTE. His approach can be contrasted, as Professor Contreras points out, with that of other courts that have interpreted FRAND as describing a range of rates, and although Justice Birss rejects that approach, his own approach seems likely to produce similar results. (It is possible that he chose the single-rate approach because he seems to have had some misgivings about the task of choosing between the parties’ two rate proposals if they were both FRAND, though in the end he concluded that “the court’s jurisdiction is not restricted to the binary question of assessing a given set of terms but extends to deciding between rival proposals and coming to a conclusion different from either side’s case on such a proposal” (¶ 169).)

The Non-Discrimination Principle

Mr. Justice Birss also addresses the non-discrimination element of FRAND. Here he distinguishes what he calls “general non-discrimination” and “hard-edged non-discrimination” obligations. The former requires that rates do not differ based on the licensee but only based “primarily” on the value of the portfolio licensed (¶ 175). Hard-edged discrimination, on the other hand, “to the extent it exists, is a distinct factor capable of applying to reduce a royalty rate (or adjust any licence term in any way) which would otherwise have been regarded as FRAND” (¶ 177).

Justice Birss rejects any hard-edged non-discrimination requirement beyond that which would be required by competition law. Although one might think that the ETSI FRAND policy imposes obligations independent of competition law, especially given Justice Birss’s conclusion that it creates contracts under French law, Justice Birss takes a different view regarding agreed-to licenses: “If parties agree licence terms then their rights and obligations under the ETSI FRAND undertaking will be discharged and replaced by their contractual rights under the licence” (¶ 155).

Justice Birss does not really explain the basis for this statement, though in other respects he is quite careful in his discussion of French law. First, ETSI is not a party to a license between a patentee and technology implementer/licensee. Hence, it is not clear how the agreement between patentee and licensee on the license could discharge ETSI’s rights under the FRAND contract. Furthermore, even if entry into a license could in principle discharge ETSI’s rights, it is not clear why discharge would result from entry into a license that turns out not to be FRAND when ETSI’s own right is to ensure the patentee’s obligation to license on FRAND terms. Moreover, as Professor Contreras says, it seems unlikely that the ETSI participants (or, I would add, the parties to the license) intend this result. It is likely that we will now see licensees seeking to include license provisions that preserve their rights to seek a remedy for hard-edged discrimination.

Beyond the contract question, Justice Birss turns to competition law: “If . . . the FRAND undertaking also includes a specific non-discrimination obligation whereby a licensee has the right to demand the very same rate as has been granted to another licensee which is lower than the benchmark rate, then that obligation only applies if the difference would distort competition between the two licensees” (¶ 503). That is, ETSI’s FRAND policy does no more than serve to restate competition law.

This surprising conclusion is made more surprising by the way in which Justice Birss applied competition law. Huawei argued that under EU competition law it did not have to show actual harm to competition so long as it provided evidence from which such harm could be inferred, and the court agreed (¶¶ 504-510). But Justice Birss then addressed Huawei’s discrimination claim, which was based on lower rates in an earlier Unwired Planet license to Samsung, by pointing out that the difference in royalty payments would be much smaller than Huawei’s profit margin (¶ 517).

A problem here is that Unwired Planet’s proportion of the total number of relevant SEPs was argued by Huawei to be 0.04% and by Unwired Planet to be 1.25% (¶ 261). Therefore, the aggregate effect over all SEPs of the difference between the Samsung and Huawei rates would be about 100 times greater than the effect the court considers. The judge does not provide the actual Samsung-Huawei royalty difference in the public decision, but the aggregate royalty burden for all SEPs, he wrote, would be about 10% given the FRAND rate he determines (id.). He also noted that Huawei’s profit margin was between $6 and $19 per device on prices between $164 to $185 (¶ 517), which produces profit percentages between 3.2% and 11.6%. Thus, it appears that if Samsung’s rate were half of Huawei’s, the difference would be about one-half or more of Huawei’s profits. Surely one could infer competitive harm from that difference.

Obviously Justice Birss’s decision applies only to Unwired Planet and Huawei, but it seems to be putting on blinders not to consider the overall effect that would result from similar decisions across all holders of SEPs. Would only holders of larger portfolios than Unwired Planet’s be subject to non-discrimination claims, or could such claims only be brought by licensees that have entered into licenses for significant proportions of all SEPs? If the latter, could the non-discrimination claims only be brought against the later-licensing patentees, when the competitive effect became more significant? As long as there is any role for hard-edged discrimination, and Justice Birss does allow it such a role, if only one coincident with competition law, these questions will have to be answered by subsequent decisions.

Broadband ITV v. Hawaiian Telecom (Supreme Court 2017)

A newly filed petition for writ of certiorari offers a substantial challenge to the quick-look eligibility decisions that have been so popular among district courts.  The challenge here is especially focused on no-evidence eligibility decisions that serve as a substitute for an obviousness determination.

In the case, the claims of BBiTV’s U.S. Patent No. 7,631,336 have been repeatedly upheld as non-obvious before a Hawaii district court ruled them ineligible on summary judgment.  In its 103 analysis, the Hawaii court also denied summary judgment of obviousness – finding questions of material fact regarding whether (1) elements of the claims were found in the prior art or (2) PHOSITA would have been motivated to combine those elements.  In its simultaneous 101 decision, however, the court determined as a matter of law that those same elements were “well-understood, routine, conventional activities previously known to the industry” that lack the “inventive concept” required by Alice.  The decision was (as is now common) affirmed without opinion by the Federal Circuit.

The petition challenges the decision and the newly-popular approach of using eligibility as a shortcut to more difficult and fact-intensive obviousness analysis. The three three questions:

1. Evidence for Underlying Factual Findings: Whether the statutory presumption of validity set forth in 35 U.S.C. § 282 applies to claims challenged under 35 U.S.C. § 101, as set forth by this Court in Microsoft Corp. v. i4i L.P., 564 U.S. 91 (2011), when the ultimate legal conclusion relies upon underlying findings of fact, such as whether the additional novel and non-obvious elements of the claims are merely well-understood, routine, and conventional or whether they add an inventive concept.

2. Standard for Summary Judgment: Whether, unlike every other area of law involving motions for summary judgment, as set forth by Fed. R. Civ. P. 56 and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986), and its progeny, a district court may resolve material underlying fact disputes against the non-movant party on a summary judgment motion for lack of patent-eligibility under § 101.

3. Not All Abstraction Are Abstract: Whether the judicially-created exception for “abstract ideas” broadly includes any abstraction of a claim (including novel business practices or methods of organizing human activities) or only “fundamental” and “long-standing” (i.e., pre-existing) practices and methods, as recognized by this Court in Bilski v. Kappos, 561 U.S. 593, 611 (2010) and Alice Corp. Pty. v. CLS Bank Int’l, 134 S. Ct. 2347, 2356- 57 (2014).

The questions begin with the implicit understanding that, although a question of law, eligibility decisions are based upon a set of factual determinations that should be treated like any other factual determination by the court.  This approach is directly contrary to the approach often taken these days that follows Judge Mayer’s concurring opinion in Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014).

An important legal question here is how close the link should be between obviousness and eligibility.  Post-KSR and Alice, there does appear to be substantial connection between the obviousness analysis associated with combining-old-elements and the eligibility analysis of elements that are “well-understood, routine, and conventional.”  The two should often correlate, the court here may have the opportunity to explain the differences both in doctrine and procedure.

Read the petition here: [LINK]

Amicus Briefs in support of the Petition are due by May 17, 2017.

This post follows-up on my recent essay on Novartis v. Torrent Pharma.  If you recall, that decision by Judge Chen affirmed an IPR trial decision cancelling the claims of the Novartis patent as obvious.

Generics Successful at Invalidating Novartis Gilenya Patent

I did not previously discuss the portion of the case focusing on Novartis’ objective evidence of non-obviousness.  Novartis argued that its drug (1) met a long-felt but unsolved need, (2) received substantial industry praise, and (3) enjoyed commercial success.  The Supreme Court has accepted this type of evidence as relevant based upon the theory that an obvious invention (1) would have already been invented; (2) would not b praised by the industry as groundbreaking; and (3) would have its commercial success undermined by the similar prior art.

In recent years, however, the courts have also pushed a strong nexus doctrine — requiring a nexus or causal relationship between the objective evidence and the claimed invention. In other words, the patentee must show that it was the invention (as claimed) that led to the commercial success and not something else such as marketing. Because this evidence is used to rebut a prima facie case of obviousness, the burden shifts to the patentee to prove the nexus, although at times the court will presume a nexus.

Here, the court explains that the nexus requirement actually goes an important step further.  The secondary indicia of nonobviousness must be tied to the inventive step itself – i.e., what was claimed an not known in the art.

For objective indicia evidence to be accorded substantial weight, we require that a nexus must exist “between the evidence and the merits of the claimed invention.” Wyers v. Master Lock Co., 616 F.3d 1231 (Fed. Cir. 2010). “Where the offered secondary consideration actually results from something other than what is both claimed and novel in the claim, there is no nexus to the merits of the claimed invention.” In re Kao, 639 F.3d 1057 (Fed. Cir. 2011). . . In evaluating whether the requisite nexus exists, the identified objective indicia must be directed to what was not known in the prior art—including patents and publications—which may well be the novel combination or arrangement of known individual elements.

FDA Approval: Moving back to the facts of Novartis, the patentee argued that its commercial success was based upon “Gilenya being the first commercially-available solid oral multiple sclerosis treatment.”  Although that statement is true, the court found the commercial-availability focus misplaced for a non-obviousness argument.  Rather than first-commercial-availability, the focus should be based upon first-invention or disclosure.

The fact that Gilenya was the first to receive FDA approval for commercial marketing does not overcome the fact that solid multiple sclerosis compositions were already known.

With that framework, the court held that the “proffered evidence is not probative of the nonobviousness inquiry.”

[The Decision]

Novartis v. Torrent Pharma, Apotex, and Mylan (Fed. Cir. 2017)

At the conclusion of its Inter Partes Review (IPR) Trial, the Patent Trial & Appeal Board (PTAB) found all claims of Novartis U.S. Patent No. 8,324,283 invalid as obvious.  The PTAB had allowed Novartis to include substitute claims as well, but found those also unpatentable as obvious.  On appeal here, the Federal Circuit affirms.

The ‘283 patent covers a solid combination of a sphingosine-1 phosphate (S1P) receptor agonist (fingolimod) and a sugar alcohol (mannitol). The drug – sold under the trade name Gilenya – is used to treat multiple sclerosis.  This is the first oral disease modifying MS drug approved by the FDA and is a big drug with billions in sales each year.

The particular ingredients were already known in the art, and the active ingredient – fingolimod – was already known as useful for treating autoimmune diseases such as MS.  However, none of the references brought-together the entire combination in a “solid pharmaceutical composition” as required by the claims.  However, the Board found that the combination of references would have led an ordinary skilled artisan to the invention claimed here.

On appeal, the Federal Circuit reviews the Board’s factual findings for substantial evidence – a liberal and forgiving standard that only requires “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”  Conclusions of law, however, are reviewed de novo on appeal.  In patent law, the ultimate question of obviousness is deemed a question of law.  However, that ultimate conclusion must be based upon a set of predicate factual conclusions as outlined in Graham v. John Deere.

Perhaps of most relevance for many obviousness cases – the existence of a motivation-to-combine references is deemed a question of fact and thus deference is given to the PTO’s conclusion.  Here, the court noted that the board considered the negative properties of using mannitol (teaching-away), but was not convinced, and sufficient evidence supported the Board’s decision.  The patentee also focused on the fact that the Board’s written decision did not expressly consider all of the patentee’s teaching-away arguments.  On appeal, the Federal Circuit rejected that argument – holding that “there is no requirement that the Board expressly discuss each and every negative and positive piece of evidence lurking in the record to evaluate a cursory argument.” On this point, the court recognized the tension with Medichem‘s holding that the disadvantages of a reference must be considered, but held that Medichem does not create a bright-line rule requiring express discussion of all disadvantages.  Rather, the Board is “not require[d] . . . to address every argument raised by a party or explain every possible reason supporting its conclusion.” Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309, 1322 (Fed. Cir. 2016).

Novartis also raised an APA challenge – arguing that the Board did not provide the required notice and an opportunity since the Board included a new reference (Sakai) in its final decision.  Sakai was raised in the IPR petition, but institution was denied for the particular grounds raising Sakai.  On appeal, the Federal Circuit sided with the PTAB holding that – although institution decision rejected Sakai as anticipatory or the primary obviousness reference – the Board did not exclude Sakai from consideration since it is clearly a relevant reference.  “The Board’s discussion of Sakai in the Final Written Decision was not inconsistent with its review of Sakai in the Institution Decision.”  With this explanation, the court was able to justify the PTAB approach and find that the agency did not “change theories in midstream without giving respondents reasonable notice of the change.”   and ‘the opportunity to present argument under the new theory.” Rodale Press, Inc. v. FTC, 407 F.2d 1252, 1256–57 (D.C. Cir. 1968).

What next: I’ll note here that the ‘283 patent is only one of four patents listed in the Orange Book covering Gilenya, one of which is also currently being challenged at the PTAB.

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Guest Post by Professor Jorge L. Contreras

In the latest decision by the UK High Court of Justice (Patents) in Unwired Planet v. Huawei ([2017] EWHC 711 (Pat), 5 Apr. 2017], Mister Justice Colin Birss has issued a detailed and illuminating opinion regarding the assessment of royalties on standards-essential patents (SEPs) that are subject to FRAND (fair, reasonable and non-discriminatory) licensing commitments.  Among the important and potentially controversial rulings in the case are:

1. Single Royalty: there is but a single FRAND royalty rate applicable to any given set of SEPs and circumstances,
2. Significance of Overstep: neither a breach of contract nor a competition claim for abuse of dominance will succeed unless a SEP holder’s offer is significantly above the true FRAND rate,
3. Global License: FRAND licenses for global market players are necessarily global licenses and should not be limited to a single jurisdiction, and
4. Soft-Edge: the “non-discrimination” (ND) prong of the FRAND commitment does not imply a “hard-edged” test in which a licensee may challenge the FRAND license that it has been granted on the basis that another similarly situated licensee has been granted a lower rate, so long as the difference does not distort competition between the two licensees.

Background

This case began in 2014 when Unwired Planet, a U.S.-based patent assertion entity, sued Google, Samsung and Huawei for infringement under six UK patents (corresponding actions were filed in Germany).  Unwired Planet claimed that five of the asserted patents, which it acquired from Ericsson in 2013 as part of a portfolio comprising approximately 2000 patents, were essential to the 2G, 3G and 4G wireless telecommunications standards developed under the auspices of the European Telecommunications Standards Institute (ETSI).  Because Ericsson participated in development of the standards at ETSI, any patents shown to be SEPs would necessarily be encumbered by Ericsson’s FRAND commitment to ETSI.

The UK proceedings involved numerous stages, including five scheduled “technical trials” which would determine whether each of the asserted patents was valid, infringed and essential to the ETSI standards.  During these proceedings Google and Samsung settled with Unwired Planet and Ericsson (which receives a portion of the licensing and settlement revenue earned by Unwired Planet from the patents), leaving Huawei as the sole UK defendant.  By April 2016 three of the technical trials had been completed, resulting in findings that two of the asserted patents were invalid and that two were both valid and essential to the standards.  These findings are currently under appeal. The parties then agreed to suspend further technical trials.  In October 2016 a “non-technical” trial began regarding issues of competition law, FRAND, injunction and damages.  Hearings were concluded in December 2016, and the court’s opinion and judgment were issued on April 5, 2017.

A. The High Court’s Decision – Overview

The principal questions before the court were (1) the level of the FRAND royalty for Unwired Planet’s SEPs, (2) whether Unwired Planet abused a dominant position in violation of Section 102 of the Treaty for the Formation of the European Union (TFEU) by failing to adhere to the procedural requirements for FRAND negotiations outlined by the European Court of Justice (CJEU) in Huawei v. ZTE (2014), and (3) whether an injunction should issue in the case.  In the below discussion, Paragraph numbers (¶) correspond to the numbered paragraphs in the High Court’s April 2017 opinion.

B. FRAND Commitments – General Observations

Justice Birss begins his opinion with some general observations and background about the standard-setting process and FRAND commitments.  A few notable points emerge from this discussion.

B.1 ETSI and French law.  FRAND commitments in standard-setting arise from the voluntary commitments made by participants in the standards-development process.  These commitments are largely the result of written policies adopted by standards-development organizations (SDOs).  There is considerable academic debate regarding the legal treatment of these commitments, and whether they can and should be enforceable as contractual commitments: not by the SDO, but by third party implementers of the SDO’s standards (I discuss this question at some length here).  It is an inconvenient fact, at least to international commentators, that ETSI, one of the principal global SDOs, is chartered under French law, and that French legal principles govern its membership and policy documentation.  In recent cases involving ETSI standards, several non-French courts, particularly in the U.S., have studiously avoided any deep engagement with French law in considering these questions.  The most notable instance of such evasion occurred in Apple, Inc. v. Motorola Mobility, Inc., 886 F.Supp.2d 1061 (W.D. Wis. 2012), in which the trial judge concluded, on the basis of a single affidavit, that French law “requires the same general elements” as Wisconsin law, and made little effort to apply anything other than local law to the case (id. at 1083).

To his credit, Justice Birss undertakes a thorough analysis of French statutory law as applied to ETSI’s FRAND commitments, thoughtfully probing the arguments of both parties’ experts (¶¶ 103-146).  And while he concedes that, as a theoretical matter, “the enforceability of the FRAND undertaking in French law is not a clear cut question” (¶146), he adopts the pragmatic view that FRAND commitments should in any event be viewed as “public, irrevocable and enforceable” on grounds of public policy, if nothing else (id.).  (I discuss FRAND commitments as inherently public-facing obligations here and here.)

B.2 A Single FRAND Rate.  In the earlier case of Vringo v. ZTE ([2015] EWHC 214 (Pat.)), Justice Birss considered the possibility that a SEP holder and a standard implementer could each make the other a FRAND licensing offer, resulting in two competing FRAND offers or a range of possible royalty rates that could qualify as FRAND.  In Unwired Planet, Justice Birss reconsiders this possibility, reasoning that it is far better to maintain, as a matter of law, that there is but a single royalty rate that qualifies as FRAND for any given set of SEPs and products (¶804(4)).  From a practical standpoint, this approach solves several problems, including how to evaluate the conduct of the parties from a competition law standpoint.  In rejecting the parties’ objections to this approach, he makes two additional observations.  First, if there is but a single precise value for the FRAND royalty, it is likely that parties, in private bilateral negotiations over SEP licenses, will agree on some royalty rate that differs from this precise value.  This likelihood does not, however, open up every negotiated agreement to a FRAND-based challenge, as the parties are free to agree on any royalty they wish, absent competition law considerations (¶155) (see Part C below).

I am not wholly convinced by this reasoning.  In essence, the court holds that while the FRAND rate is precise, the conditions under which it may be enforced are fuzzy.  This conclusion results in a number of additional logical hurdles, discussed below, with respect to the SEP holder’s initial offer to the implementer and how to assess the SEP holder’s compliance with competition law. An alternative approach that avoids these problems is the one developed by Judge James Robart in Microsoft Corp. v. Motorola, Inc., 963 F. Supp. 2d 1176 (W.D. Wash. 2013). There, the court determined a FRAND range for the SEPs covering each standard at issue in order to assess the SEP holder’s compliance with its FRAND commitment.  Then, in setting a final royalty, the court picked a specific rate within the allowable range.  This approach seems more in keeping with the parties’ intent during standard-setting, and creates a more definite framework for assessing the parties’ compliance with their FRAND commitments.

B.3 FRAND means Worldwide. Unwired Planet offered Huawei a worldwide license under the asserted SEPs.  Huawei responded that it only wanted a license under Unwired Planet’s UK patents (¶524), and that Unwired Planet’s insistence on a worldwide license was unreasonable.  In evaluating the reasonableness of Unwired Planet’s worldwide license offer, Justice Birss first observed that “the vast majority” of SEP licenses in the industry, including all of the comparable licenses introduced at trial, were granted on a worldwide basis (¶534).  He then observed that Unwired Planet’s patents were issued in 42 countries, while Huawei’s operations extended to 51 countries  (¶538).  In effect, both are global companies.  Against this backdrop, he concluded that “a licensor and licensee acting reasonably and on a willing basis would agree on a worldwide licence” (¶543).  In contrast, he regards the possibility of country-by-country licensing as highly inefficient (¶544).   The prospect of two large multinational companies agreeing to country-by-country licensing, he concludes, would be “madness” (¶543), and that Huawei’s insistence on a UK-only license is not FRAND (¶572). He likewise dismisses Huawei’s arguments that including unwanted patents from certain countries in its portfolio amounts to illegal tying in violation of competition law (¶545-572).   Accordingly, he rules that, in this case, a FRAND license is necessarily a worldwide license.

B.4 FRAND Requires Granting a License, not Merely Offering FRAND Terms.  It has long been a point of debate whether a FRAND commitment requires a SEP holder to offer FRAND terms to a potential licensee, or actually to enter into a license on FRAND terms. Justice Birss answers this question in a novel manner.  Bearing in mind his earlier conclusion that there is only one FRAND rate under a given set of circumstances, if the SEP holder’s obligation were merely to make an offer at the FRAND rate, then the normal process of negotiation “would condemn patentees to always end up with negotiated rates below a FRAND rate”(¶159).  Under this reasoning, it would seem that the SEP holder would be justified in making an initial offer above the FRAND rate, so that the final negotiated rate ended up being FRAND.  This approach seems a dangerous one, as SEP holders may not always negotiate a rate downward, particularly when they use a standard set of rates (which is advisable given the non-discrimination commitment that also makes up part of a FRAND commitment). Thus, this leniency seems to support higher (and supra-FRAND) offers by SEP holders.  More sensible, I believe, is Judge Robart’s approach in Microsoft v. Motorola, in which FRAND represents a range of reasonable royalties into which the SEP holder’s initial offer must fall.

C. The FRAND Negotiation Process and Competition Law

C.1 SEP Holder’s Offer.  In Huawei v. ZTE (2014), the CJEU established a set of procedures that a SEP holder must comply with when negotiating a FRAND license in order to avoid a finding that it abused its dominant position under TFEU Section 102.  To do so, based on the rulings of the CJEU and lower courts in Germany and other EU countries, practitioners and commentators have assumed that in order to avoid a finding of abuse of dominance, a SEP holder must make an initial FRAND offer to a potential licensee.  However, under Justice Birss’s reasoning that there is only a single FRAND rate in a given transaction, requiring the SEP holder to offer this rate at the outset would not be reasonable.  Thus, Justice Birss concludes that it would not be an abuse of dominance under TFEU 102 or the CJEU’s holding in Huawei v. ZTE for a SEP holder to offer a rate that is different from the precise FRAND rate, so long as it is not excessively so (¶153).  That is, an abuse of dominance will not be found unless an offer “is so far above FRAND as to act to disrupt or prejudice the negotiations themselves” (¶765).

C.2 Hold-out. Justice Birss also addresses the behavior of the potential licensee in these negotiations.  If the licensee engages in deliberate delay tactics or other unreasonable behavior to avoid entering into a license (and thus paying royalties), this is referred to as hold-out or reverse hold-up. Justice Birss views the behavior of the potential licensee as relevant in determining whether, from a competition law standpoint, the SEP holder possesses a dominant position (¶806(12)).  Interestingly, however, Justice Birss reasons that evidence of implementer holdout is really only relevant before pricing discussions began.   “Once prices are discussed a delay may just be due to a licensor asking for too much money” (¶667).

D. Non-Discrimination.

The non-discrimination (ND) prong of the FRAND commitment is important, but has received far less attention from courts than other issues. Justice Birss devotes substantial space to the non-discrimination arguments made by the parties, and develops some novel theories in doing so.

D.1 Similarly-Situated Licensees.  There is general consensus (including among the experts in this case) that in order to comply with the non-discrimination prong of the FRAND commitment, a SEP holder must treat “similarly situated” licensees in a similar manner (¶485).  Several commentators have understood this constraint to allow a SEP holder to charge different royalty rates to implementers based on their size or market share (often with the understanding that larger players are likely to sell more licensed products and thus pay higher levels of royalties) (Gilbert (2011), Carlton and Shampine (2013)). Justice Birss, however, reasons that a FRAND royalty rate should be set based on the value of the licensed patents, not on the size of other characteristics of the licensee (¶175).  Thus, “all licensees who need the same kind of licence will be charged the same kind of rate” (id.) and “[s]mall new entrants are entitled to pay a royalty based on the same benchmark as established large entities” (¶806(8)).  This attempt to level the playing field for new market entrants is a positive development, as this issue is currently being debated in other FRAND cases around the world.

D.2 Hard-Edged Non-Discrimination.  But despite bolstering the non-discrimination commitment by eliminating size-based discrimination, Justice Birss then weakens it by holding that a licensee cannot challenge a license allegedly granted on FRAND terms if it later discovers that a similarly-situated implementer received a lower royalty rate unless the difference would “distort competition” between the two licensees (¶501).  In reaching this conclusion, he rejects the notion that the ND prong of FRAND implies a “hard-edged” obligation that establishes a ceiling on the rate that a SEP holder may charge. Justice Birss justifies this conclusion under a competition law rationale, noting that a competition law violation would not occur without a competitive distortion.  This reasoning, however, seems to conflate two issues: the competition law effects of violating a FRAND commitment, and the private “contractual” meaning of the FRAND commitment itself.  I am uncertain whether the participants in an SDO would interpret the non-discrimination prong of FRAND to allow discrimination between similarly situated licensees.  While a competition law violation might not arise absent some distortion to competition, I believe that the underlying contractual meaning of FRAND must impose a stricter definition of non-discrimination that would prevent all but the most inconsequential differences between similarly situated licensees.

E. FRAND Royalty Calculation Methodology

Perhaps the most significant aspect of Justice Birss’s opinion in Unwired Planet is his careful calculation of the FRAND royalty applicable to the parties’ transaction.  He offers two possible methods of calculating the FRAND royalty, one based on an analysis of comparable license rates, the other based on a top-down analysis of the total aggregate royalty that should be attributable to the standards and SEPs at issue.  Both of these methods are discussed in greater detail below.  What is most refreshing about Justice Birss’s opinion, however, is the absence of any attempted application of the 15-factor Georgia-Pacific framework for “reasonable royalty” patent damages, which U.S. courts feel compelled to apply despite the fact that a FRAND royalty calculation is not a remedial damages calculation.  Without the baggage of Georgia-Pacific to clutter the analytical exercise, Justice Birss can focus on the actual task at hand: computing the value of the patented technology as compared to the standard and product at issue.

E.1 No ex ante valuation.  In addition to disregarding the U.S. Georgia-Pacific framework, which clearly has no place in a UK decision, Justice Birss rejects another touchstone of U.S. FRAND analysis: the notion that a FRAND royalty should reflect the ex ante value of the patented technology, without considering any value attributable to the adoption of the technology in a standard. This theoretical construct, which has a solid basis in economic analysis, has been adopted by both scholars (see, e.g., Lemley and Shapiro (2007) and Farrell et al (2007)) and courts in the U.S. (Ericsson v. D-Link, 773 F.3d at 1232). It has, however, come under increasing criticism by commentators who advocate ceding at least part of the value of standardization to the SEP holder (see, e.g., Siebrasse and Cotter (2017) and Sidak (2016)). In rejecting the ex ante valuation approach Justice Birss acknowledges that he is departing from the decisions of U.S. courts in cases such as Innovatio and Ericsson v. D-Link (¶97).  In the end, however, he notes that the point is moot, as neither party pressed to use this approach.

E.2 Comparables Method.  Like many U.S. judges, Justice Birss relies heavily on comparable license agreements to determine a FRAND royalty.  While the use of comparable licenses has been criticized on the basis that most licenses are not really comparable to the desired FRAND license (see, e.g., Masur (2015)), the fact that Unwired Planet obtained each of the asserted patents from Ericsson was convincing proof that at least Ericsson’s licenses were comparable to whatever Unwired Planet would have negotiated with Huawei (¶180).  Indeed, Justice Birss found that most other licenses (i.e., not involving Ericsson) proffered by the parties were not suitable comparables.

After identifying a suitable set of comparable Ericsson licenses, Justice Birss reasoned that the appropriate FRAND royalty rate for Unwired Planet’s 2G/3G/4G SEP portfolio should be the rate charged by Ericsson for its 2G/3G/4G SEP portfolio, multiplied by a factor representing the relative strength of Unwired Planet’s portfolio to Ericsson’s (¶807(4), (7)).  Using these inputs, he calculates the FRAND rates for Unwired Planet’s portfolio as follows (¶807(8)):

a) 4G/LTE: 0.062% for handsets, and 0.072% for infrastructure;
b) 3G/UMTS: 0.032% for handsets, and 0.016% for infrastructure; and
c) 2G/GSM: 0.064% for handsets, and 0.064% for infrastructure.

While this calculation results (as shown below) in a FRAND rate that is validated through other methods, it is questionable whether this methodology (which is dependent on having a comparable license under which the asserted SEPs were previously licensed) has significant applicability to other cases.  That is, FRAND rates in cases such as Microsoft v. Motorola and Ericsson v. D-Link could not have been calculated as simply or reliably as the rate in Unwired Planet because there did not exist an original SEP owner that sold a subset of its SEPs to the licensor in the case.  Thus, the straightforward apportionment of a fraction of the overall Ericsson portfolio to Unwired Planet would not have worked when Motorola or Ericsson itself was the licensor.  As such, the court in Unwired Planet may simply have been the beneficiary of good luck in having at hand such a clear set of comparable licenses.  This being said, the individual circumstances of a case are always key to resolving it, and I have previously observed that similar good fortune (in the availability of patent pools covering the standards at issue) played a significant role in establishing patent pool values as comparables in Microsoft v. Motorola, another well-reasoned decision.

E.3 Top-Down Methodology.

In addition to the comparables method described above, Justice Birss uses a second FRAND calculation methodology as a “cross-check” of the result obtained using the comparables methodology (¶476).  This is a “top down” or “aggregate royalty burden” approach, in which the aggregate royalty attributable to a standard under all SEPs is computed and then allocated to the SEP holder in suit. This approach has been advocated by commentators (Bartlett and Contreras, 2017) and has been attempted in cases including Innovatio (2012), as well as the Japanese IP High Court’s decision in Samsung v Apple Japan.

Under the top down method defined by Justice Birss, the FRAND royalty equals T x S, where T is the total aggregate SEP royalty burden of a particular standard on a product (i.e., the percentage of a smartphone’s price that should be charged for all patents covering 4G), and S is the share of that aggregate royalty that is allocable to the SEP holder (Unwired Planet) (¶178).  To calculate “T”, Justice Birss considered public statements made by Ericsson and other holders of SEPs covering the relevant standards (¶¶264-272) (for a discussion of the usefulness and enforcement of such public patent “pledges”, see Contreras (2015)).  He then calculated “S”, Unwired Planet’s share of the relevant SEPs, using a variety of counting and filtering methodologies proposed by the parties’ experts, including a filter for the likely essentiality of the patents in the asserted portfolio (¶325 et seq.).  The resulting FRAND rates served as validating cross-checks for the rates obtained using the Comparables methodology.

F. Injunctive Relief

The court concludes with a brief discussion of the injunctive relief requested by Unwired Planet: “Since Unwired Planet have established that Huawei have infringed valid patents … and since Huawei have not been prepared to take a licence on the terms I have found to be FRAND, and since Unwired Planet are not in breach of competition law, a final injunction to restrain infringement of these two patents by Huawei should be granted” (¶807(18)).  Accordingly, Justice Birss ordered a hearing in “a few weeks’ time” to determine whether, by then, Huawei had entered into a license agreement with Unwired Planet at the rates he specified and, if not, to consider, and likely issue, the injunction.

Conclusions

In Unwired Planet v. Huawei, Justice Birss adopts a balanced and well-reasoned approach to determining FRAND royalties and assessing the parties’ contractual and competition law obligations in the face of FRAND commitments.  In doing so, he takes several important theoretical stands, which could have significant implications for the manner in which such cases are decided and how parties interact during FRAND negotiations.  Specifically, Justice Birss holds that there is but a single FRAND royalty rate applicable to any given set of SEPs and circumstances, but does not fault the parties for failing to pinpoint that rate in their initial offers or negotiations.  Abuse of dominance under Section 102 TFEU, he reasons, does not occur under Huawei v. ZTE unless a SEP holder’s offer is significantly above the true FRAND rate.  Likewise, he rejects the idea of “hard-edged” non-discrimination, concluding that even if a SEP holder has granted another licensee a lower royalty rate, an implementer may not challenge its own FRAND license so long as the difference does not distort competition between the two licensees. While I do not necessarily agree with all of his conclusions, I applaud Justice Birss’s careful and balanced reasoning in Unwired Planet v. Huawei.  I expect that it will become an important touchstone for courts around the world as they wrestle with the complex issues that arise in FRAND royalty cases.

A N.D. California jury held that TVIIM’s U.S. Patent No. 6,889,168 was both invalid as anticipated and not infringed.  On appeal, the Federal Circuit affirmed.

Here, the patentee argued that the jury’s verdict applied an inconsistent claim construction since, if the claims were broad enough to be anticipated then they would have also been infringed.  Likewise, IVIIM argues that if the claims were so narrow as to not be infringed, then they also would not have been anticipated by the prior art.  On appeal, however, the Federal Circuit rejected that approach for several reasons – most notably, that any error was harmless since “On appeal, TVIIM concedes that substantial evidence supports the jury’s finding for either non-infringement or invalidity but argues it does not support both.”

The result here is that a potentially inconsistent verdict is not improper so long as any possible resolution of the inconsistency reaches the same outcome (here, that the patentee loses).  In this case, any proposed construction of the claim terms resulted in either the patent being invalid or being not infringed.

= = = =

Claim 1 of the asserted patent is listed below:

1. A security system for a computer apparatus, wherein said computer apparatus includes a processor and system memory, said security system comprising:

at least one security module which under direction from the processor accesses and analyzes selected portions of the computer apparatus to identify vulnerabilities;

at least one utility module which under the direction from the processor, performs various utility functions with regards to the computer apparatus in response to the identified vulnerabilities; and

a security system memory which contains security information for performing the analysis of the computer apparatus.

In a short and tidy opinion, the Federal Circuit has reversed a PTAB anticipation decision in an inter partes review – holding that the Board’s decision “is not supported by substantial evidence.”

At issue is claim 21 of Nidec’s U.S. Patent No. 7,208,895, which claims a “permanent magnet rotating machine and controller assembly configured to perform the method of claim 12.”  Claim 12, in turn is a motor control-method that involves calculating  two different phase currents:

The method disclosed in the ‘895 Patent relates to vector control of a permanent magnet machine in the rotating frame of reference. The claimed novel feature requires “combining” calculated Q-axis and d-axis currents to produce an “IQdr current demand” in the rotating frame of reference, which can later be further manipulated and back-transformed into the three phase currents in the stationary frame of reference that drive the motor. Combining the Q-axis and d-axis currents to produce a unitary IQdr demand occurs prior to the back-transformation process.

Appellant Brief.

My reading of the single prior art reference (Kusaka, U.S. Patent No. 5,569,995) is that it also uses the same inputs to achieve a three-part motor-control output, but does not particularly disclose that the transformation happens by first combining the inputs and then transforming the combination into the three-part output.  In its opinion, the Federal Circuit found this analysis compelling:

Because Kusaka does not disclose a signal in the rotating frame of reference, it does not disclose an IQdr demand.

Reversed.

Abstract Idea Creep: The decision approach here is important because it holds the line against encroachment of eligibility issues (Section 101) into the anticipation analysis.  Notably, the identified inventive step here is essentially requiring a two-step mathematical transformation (with IQdr intemediary) rather than a single-step transformation done in the prior art.  Of course, the claims themselves do not indicate how the combination occurs occurs – just requiring “combining” the inputs. I expect that a number of courts thinking about the eligibility analysis would see that step as lacking sufficient concrete inventiveness.

Remand? The court reversed, but did not indicate any remand.  That suggests to me that the case is over with the patentee winning the IPR.

Claim Scope: I’m still somewhat confused about whether the claim structure used here is proper under the law.  35 USC 112 states that “A claim in dependent form shall be construed to incorporate by reference all the limitations of the claim to which it refers.” In my mind, one element of claim 12 is that it is a “method” and claim 21 is a “machine . . . configured to perform the method.”  As such, claim 21 cannot itself meet the method limitation of claim 12.

= = = =

12. A method of controlling a permanent magnet rotating machine, the machine including a stator and a rotor situated to rotate relative to the stator, the stator having a plurality of energizable phase windings situated therein, the method comprising: