Tag Archives: Enablement

Indefiniteness “Can Be” Difficult under Nautilus

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Ex parte Breed, Appeal No. 2012-003990 (PTAB 2014)

On June 2, 2014, the Supreme Court decided Nautilus, Inc. v. Biosig Instruments, Inc., 134 S.Ct. 2120 (2014) lowering the standard for negating patentability due to indefiniteness. The new test requires that the claim scope be “reasonably certain” to one skilled in the art at the time of the patent.

On June 4, 2014, the Patent Trial and Appeal Board (PTAB) issued its first decision interpreting Nautilus. David Breed is a prolific inventor and is named on more than 300 patents and is one of the inventors of the airbag. More recently, Breed has collaborated with Acacia Research Corp to enforce his patents.

The application at issue in this case is part of a large family of at least seven issued patents that claim priority back to a 2000 provisional application and is directed to a highway monitoring system that provides reports and information on road conditions. Application No. 12/020,684.

Claim 1 is a system claim that includes a whereby clause indicating that “whereby roadway conditions from multiple roadways can be obtained and processed at the remote facility.” The examiner rejected the claim as indefinite based upon the “can be” limitation and the PTAB has now affirmed that finding:

Patent applicants face powerful incentives to inject ambiguity into their claims, a temptation that needs to be mitigated by the courts. See Nautilus, Inc. v. Biosig Instr., Inc., 2014 WL 2440536 at *7, __ U.S. __ (June 2, 2014). Patent drafters are in the best position to resolve ambiguities in their claims. See Halliburton Energy Servs., Inc. v. M-I LLC, 514 F.3d 1244, 1255 (Fed. Cir. 2008). Section 112 places the burden of precise claim drafting on the applicant. See In re Morris, 127 F.3d 1048, 1056-57 (Fed. Cir. 1997).

. . .

Claim 1 recites that roadway conditions from multiple roadways “can be” obtained and processed at the remote facility and “can be” directed from the remote facility to other vehicles. The Examiner rejected claim 1 as indefinite. The Examiner stated that it is not clear if Appellants intended the “can be” claim limitation to be optional or that the phrase should be interpreted as a definite statement. . . .

Appellants now argue that the features following the “can be” phrases should be interpreted as optional and, as such, the claim is not indefinite. The verb form of the word “can” carries multiple meanings in the English language. It can be used to indicate a physical ability or some other specified capability. It can also be used to indicate a possibility or probability.

During examination of a patent application, pending claims are given their broadest reasonable construction consistent with the specification. In re Am. Acad. of Sci. Tech Ctr., 367 F.3d 1359, 1364 (Fed. Cir. 2004). In the instant case, Appellants have not directed us to any language in the Specification that supports a construction of “can be” that yields a particular and distinct meaning in claim 1. Instead, Appellants merely urge us to adopt one of two plausible interpretations. . . .

We agree with the Examiner that “can be” is indefinite, because it is susceptible to more than one plausible construction. It is unclear whether the limitation refers to a capability that is required to be present in the invention or whether it refers to a system capability that is a mere possibility that is not required. In other words, it is unclear whether a vehicle monitoring system can practice the invention of claim 1 by satisfying all of the other limitations of claim 1, without necessarily being required to possess the capability to obtain and process roadway conditions at a remote facility or to direct information from a remote facility to other vehicles on a roadway.

During prosecution, a claim is properly rejected as indefinite if it is “amenable to two or more plausible claim constructions.” Ex parte Miyazaki, 2008 WL 5105055 at *5 (BPAI Nov. 19, 2008) (precedential). The Miyazaki standard for indefinite rejection is justified, at least in part, because the applicant has the opportunity and the obligation to define his or her invention precisely during prosecution before the PTO.

Here, Appellants’ use of the phrase “can be” renders claim 1 indefinite and we sustain the Examiner’s rejection of claim 1 under 35 U.S.C. § 112(b).

The PTAB also quoted the Supreme Court’s nose-of-wax statement from its 1886 decision:

Some persons seem to suppose that a claim in a patent is like a nose of wax which may be turned and twisted in any direction, by merely referring to the specification, so as to make it include something more than, or something different from, what its words express. The context may, undoubtedly, be resorted to, and often is resorted to, for the purpose of better understanding the meaning of the claim; but not for the purpose of changing it, and making it different from what it is. The claim is a statutory requirement, prescribed for the very purpose of making the patentee define precisely what his invention is; and it is unjust to the public, as well as an evasion of the law, to construe it in a manner different from the plain import of its terms. This has been so often expressed in the opinions of this court that it is unnecessary to pursue the subject further.

White v. Dunbar, 119 U.S. 47, 51-52 (1886) (emphasis added by PTAB).

I think that the decision here is correct and the USPTO is right to force the patent applicant to nail-down the particular scope of the invention being claimed. One interesting counter-point comes from the Supreme Court’s notion that definiteness requires examination of the prosecution history – here Breed argued that the term meant “optional,” but the PTAB here indicates that it is not sufficient to merely indicate which of two possible interpretations is the correct – rather a claim amendment is in order to solidify and provide express notice of that applicant decision.

Akamai: Is the Answer in the Common Law?

Patent,

Guest Post by Professor Lynda J. Oswald. Editor’s Note – I asked Professor Oswald to write a guest post that links together her prior writing on divided infringement with the Supreme Court’s most recent decision on the subject-matter.

In its recent decision in Limelight Networks Inc. v. Akamai Techs., Inc., the Supreme Court decided the easy question—whether inducement must be supported by direct infringement—on precedent grounds, yet avoided the much more difficult question of how the courts should deal with multi-actor infringement of a method or process patent.

Precedent is indeed clear that direct infringement is a predicate to indirect infringement, and the Court’s decision on this question was exactly right. The interesting questions remaining, however, are why did the Federal Circuit attempt to rewrite precedent in this manner and what should the Federal Circuit do with multi-actor infringement doctrine on remand?

The answer to the why question is driven by the courts’ fundamental discomfort with strict liability. The Federal Circuit’s inartful attempt in its en banc decision in Akamai to move multi-actor infringement from direct infringement to inducement was an effort to relocate such infringement from the harsh rules of strict liability to the more forgiving rules of intent-based indirect liability. Justice Kagan highlighted this at oral argument:

But the reason [the Federal Circuit] put this under 271(b) rather than 271(a) is because of what Justice Scalia said, that 271(b) is not a strict liability offense . . . . [T[hey thought they were being very clever by putting it into a 271(b) box and avoiding the strict liability consequences of what they were doing, but also avoiding the possibility of an end run of the patent law.

As I explore in a work-in-progress, the courts similarly attempt to avoid the strictures of strict liability in other IP contexts such as imposition of officer liability in patent and copyright cases. Although strict liability is antithetical to the notions of fault-based liability that permeate most of American law, the courts are bound by the statutory language and the Supreme Court’s rejection of the Federal Circuit’s attempt to circumvent direct infringement’s strict liability requirement was spot-on.

The what question is harder to answer. The Supreme Court expressed significant skepticism about the Muniauction Inc. v. Thomson Corp. test, appearing, in fact, to characterize any current doctrinal difficulties as self-inflicted by the Federal Circuit:

[R]espondents, like the Federal Circuit, criticize our interpretation of §271(b) as permitting a would-be infringer to evade liability by dividing performance of a method patent’s steps with another whom the defendant neither directs nor controls. We acknowledge this concern. Any such anomaly, however, would result from the Federal Circuit’s interpretation of §271(a) in Muniauction. A desire to avoid Muniauction’s natural consequences does not justify fundamentally altering the rules of inducement liability that the text and structure of the Patent Act clearly require—an alteration that would result in its own serious and problematic consequences . . . .

The Court viewed the Federal Circuit’s multi-actor infringement precedent too narrowly, however. To adequately address the multi-actor infringement issue on remand, the Federal Circuit needs to reexamine not just Muniauction, but two additional decisions as well: BMC Resources, Inc. v. Paymentech and the panel decision in Akamai.

BMC Resources provided the foundation of the Federal Circuit’s current multi-actor infringement doctrine by stating that: (1) for inducement to exist, some other single entity must be liable for direct infringement but (2) a mastermind who controls or directs the activities of another party incurs vicarious liability for the actions of that other party such that the combination of acts would be deemed the act of a single actor for purposes of establishing liability. Muniauction‘s contribution was to refine the BMC Resources test by identifying a “spectrum” of relationships: at one pole is “mere arms-length cooperation,” which does not lead to liability; at the other is “control or direction over the entire process such that every step is attributable to the controlling party, i.e., the mastermind.” The panel decision in Akamai attempted to further clarify the standard by setting up two-pronged test of the type that the Federal Circuit seems to prefer these days: multi-actor infringement occurs only when the parties involved are in either (1) in an agency relationship or (2) contractually obligated to each other.

Perhaps it is a function of its narrow jurisdiction, but the Federal Circuit often misses the opportunity to apply traditional common law doctrines in a manner that would reconcile statutory language with the policies underlying the statute. As I discuss in a recent article, the Federal Circuit could resolve much (but not all—some aspects of this issue are amenable only to legislative resolution) of the confusion surrounding multi-actor infringement by explicitly invoking common law doctrines of tort and agency. The panel decision in Akamai got much of this right by looking at agency and contractual relationships. However, the Akamai panel decision ignored the possibility that there could be co-equals involved in the infringement, not bound by contract or agent-principal relationships but acting in concert in a joint tortfeasorship relationship. Early (pre-Federal Circuit) cases did recognize the role that joint torts can play in establishing multi-actor liability but that relationship was lost in the BMC Resources single-entity rule.

The Akamai Court issued a clear call to the Federal Circuit to revisit (and revamp) its troublesome multi-actor infringement standard. Judge Newman provided an elegant statement of how the court should approach this issue in her dissent in the Akamai en banc decision:

The court should simply acknowledge that a broad, all-purpose single-entity requirement is flawed, and restore infringement to its status as occurring when all of the claimed steps are performed, whether by a single entity or more than one entity, whether by direction or control, or jointly, or in collaboration or interaction.

On remand, the Federal Circuit will have the opportunity to articulate liability rules that are more principled, more grounded in traditional legal doctrine, and more consistent with the general patent law scheme; Judge Newman’s characterization provides an excellent starting point for that analysis.

How will Nautilus affect indefiniteness at the PTO?

Indefinite, Patent, ,

Guest post by Lisa Larrimore Ouellette (Visiting Fellow, Yale Law School Information Society Project) and Jonathan Masur (Deputy Dean and Professor of Law, University of Chicago Law School).

In our new draft article, Deference Mistakes, we examine indefiniteness doctrine as one example of how decisionmakers sometimes mistakenly rely on precedents in inapposite contexts. So we were very interested in the Supreme Court’s reformulation of the indefiniteness standard in Nautilus v. Biosig on Monday, and particularly in how this decision will affect the indefiniteness standard applied in the examination context.

Pre-Nautilus, claims under examination at the PTO were supposed to be evaluated under a stricter indefiniteness standard than granted claims. In Exxon Research (2001), the Federal Circuit stated that to “accord respect to the statutory presumption of patent validity,” it would find granted patent claims indefinite “only if reasonable efforts at claim construction proved futile” and the claim was “insolubly ambiguous.”

The obvious corollary to the Federal Circuit’s holding in Exxon is that when the presumption of validity does not apply, the indefiniteness standard should be more stringent. The BPAI explicitly clarified this point in the precedential Ex parte Miyazaki (2008) when it held that examiners should use “a lower threshold of ambiguity” such that claims are indefinite if “amenable to two or more plausible constructions,” and the MPEP emphasizes this point.

As we describe in Deference Mistakes, however, the less stringent “insolubly ambiguous” standard was mistakenly imported into the examination context and repeatedly cited in BPAI and PTAB decisions even after Miyazaki. And once ambiguous claims are granted, they are entitled to the presumption of validity and are less likely to be struck down, notwithstanding that they were granted under a mistaken standard.  The affirmance of these patents on appeal following infringement proceedings likely led to the PTO granting even more indefinite patents, which were then upheld on appeal, a vicious cycle. And if these patents came to be seen as the new normal, that could have made the PTO even more permissive. The result could have been creeping decay of the PTO’s effective indefiniteness standard, with indefinite patents begetting ever more indefinite patents.

At first glance, Nautilus appears to fix this problem of two different legal standards that might be mistakenly applied in the wrong context. In footnote 10, the Supreme Court states that the “presumption of validity does not alter the degree of clarity that §112, ¶2 demands from patent applicants,” suggesting that the legal test for indefiniteness should be the same in the infringement and examination contexts. The Court expressly leaves open whether this evaluation of the claims involves subsidiary factual findings and whether deference is due to any such findings—issues the Court will return to next Term in Teva v. Sandoz. But however these fact-based issues are resolved, it seems that Miyazaki‘s articulation of the legal standard for indefiniteness is no longer good law (unless, of course, the Federal Circuit adopts this as the unitary test).

Doctrinally, this requirement of a unitary legal standard for indefiniteness seems clearly right: as the Supreme Court explained in Microsoft v. i4i, the presumption of validity required by §282 is an evidentiary standard that requires invalidity to be proven by clear-and-convincing evidence, and it is thus inapplicable to questions of law. Eliminating the dual standard also has the apparent benefit of preventing the kinds of overt mistakes we point out in Deference Mistakes.

As we explain in Deference Mistakes, however, eliminating the formal legal distinctions between “deference regimes” may not solve the problem where such deference arises from functional considerations. We worry that preventing the PTO from applying “a lower threshold of ambiguity” might inadvertently undermine the PTO’s current efforts to improve patent claim clarity. Although the EFF cheered Nautilus for being likely to “invalidate many more patents,” the Court suggested at p. 12 that the test “the Federal Circuit applies in practice” may be fine, so on remand the Federal Circuit may well use the same analysis under a new name. Even if indefiniteness is a purely legal question such that the presumption of validity has no formal effect, in practice courts may apply a relatively loose standard due to an understandable reluctance to impose the drastic penalty of invalidity just because a claim could have been written more clearly. In the examination context, where applicants have the ability to amend vague claims, the PTO’s efforts to demand greater clarity make sense. But if the looser indefiniteness standard from the infringement context is incorporated into the examination context—no longer as a doctrinal mistake, but as a legal requirement—it may subvert these efforts and exacerbate the problem of ambiguous patents.

No Patent Office Director – 486 Days Later

Patent, , ,

By Dennis Crouch

David Kappos has been an instrumental leader in patent reform over the past several years. In the lead-up to the America Invents Act of 2011, it was Kappos – acting then in his role as USPTO Director – who serve as a trusted advisor to leaders on the Hill who were developing appropriate statutory language. In 2014, Kappos – now acting as an industry lobbyist in private practice – spearheaded a successful initiative to table further patent reforms for now.

Although now an outsider, Kappos’ influence remained so strong in the 2014 cycle because the USPTO Director hole that he left is still empty. Rather, that slot has remained vacant since Kappos left the job more than a year ago. During that time, White House has not stepped forward with a nomination for the next director. I would argue that the failure of the 2014 reforms was more about the lack of a USPTO Director guiding the changes than about the challenge brought by Mr. Kappos.

In a new letter to President Obama, Senator Hatch calls for movement:

June 2, 2014

Dear President Obama:

I write concerning the director vacancy at the U.S. Patent and Trademark Office (USPTO). Since the departure of Director David Kappos in January 2013, the USPTO has been without a permanent director. This vacancy, which has gone unfilled for over sixteen months and counting without so much as a statement from the White House, hampers the agency’s ability to influence policy and make long-term plans. We all can agree that these are challenging times that demand strong leadership at the USPTO to fuel our nation’s economic strength by harnessing our intellectual property capital.

By all accounts Deputy Director Michelle Lee has done an admirable job juggling the functions and duties of both director and deputy director. But this arrangement simply cannot continue. Without a director backed by a presidential nomination and Senate confirmation, the USPTO does not have a leader who can engage in the type of strategic and long-term planning that is crucial for ensuring the USPTO’s continued effectiveness.

Ms. Lee’s ability to take on major or controversial challenges is further limited by legitimate questions as to whether her appointment as Deputy Director was consistent with 35 U.S.C. § 3(b)(1). I hope that you did not casually disregard the clear statutory requirement that the deputy director be nominated by the director. In any case, the question underscores that Ms. Lee does not possess the same clear mandate as would a presidentially-nominated and Senate-confirmed director. Leaving Ms. Lee to shoulder the burden of USPTO leadership alone is unfair, untenable, and unacceptable for our country’s intellectual property agency.

The USPTO is forging ahead with important initiatives like opening satellite offices across the country and implementing post-grant review programs under the America Invents Act. And while the agency has reduced its backlog of patent applications in recent years, as of April 2014, there were still 619,204 unexamined patent applications. These are just a few of the challenges and opportunities facing the USPTO that are needlessly complicated by the absence of a director to provide a forward-looking vision.

When one considers what intellectual property means to our economy, the failure to put in place a strong leadership team at the USPTO is unfathomable. Effective leadership requires a director, deputy director, and their assembled team. Leaving the agency without a permanent director for nearly a year and a half without so much as a public explanation is inexcusable. I look forward to hearing your plans with regard to this vacancy, and I urge you to take prompt action to nominate a USPTO director. We cannot afford to wait any longer.

The White House is unlikely to respond publicly to this message, but will perhaps take some action before the 2016 presidential election.

Supreme Court: To Be Valid, Patent Claims Must Provide Reasonable Certainty Regarding the Claim Scope

Patent, ,

By Dennis Crouch

Nautilus v. BioSig (Supreme Court 2014) [New download here: 13-369_k53m]

Patents provide exclusive rights that are defined by a set of claims. The claims spell out the metes-and-bounds of the invention being claimed and are designed to put the world on notice of what is and what is not infringement. To facilitate this notice function of patent claims, the patent statute requires that the “claims particularly point[] out and distinctly claim[] the subject matter which the inventor or a joint inventor regards as the invention.” 35 U.S.C. § 112(b). The courts have wrapped these requirements in a doctrine known as indefiniteness. A patent claim that fails the test of indefiniteness is deemed unpatentable, invalid, and unenforceable.

Most patent claims have some amount of ambiguity in their scope. The question before the court in this case is how much is too much? Through a series of cases, the Federal Circuit has implemented was arguably a stiff test of indefiniteness – making it quite difficult to find a claim invalid as indefinite. As the Supreme Court writes:

According to the Federal Circuit, a patent claim passes the §112, ¶2 threshold so long as the claim is “amenable to construction,” and the claim, as construed, is not “insolubly ambiguous.”

In its opinion here, the Supreme Court found that the insolubly ambiguous fails to apply the statutory requirement noted above. In its place, the court has created a new test as follows:

A patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art [at the time the patent was filed] about the scope of the invention. . . . .

The standard we adopt accords with opinions of this Court stating that “the certainty which the law requires in patents is not greater than is reasonable, having regard to their subject-matter.” Minerals Separation, Ltd. v. Hyde, 242 U. S. 261, 270 (1916). . . .

It cannot be sufficient that a court can ascribe some meaning to a patent’s claims; the definiteness inquiry trains on the understanding of a skilled artisan at the time of the patent application, not that of a court viewing matters post hoc. To tolerate imprecision just short of that rendering a claim “insolubly ambiguous” would diminish the definiteness requirement’s public-notice function and foster the innovation-discouraging “zone of uncertainty,” against which this Court has warned.

On remand, the Federal Circuit will decide whether the particular claims at issue here meet that test.

In the decision, the court highlights the reality that the old rule offers an incentive for patentees to intentionally “inject ambiguity into their claims.” The new standard is intended to help eliminate that standard.

Key points and ongoing issues from the opinion:

  • The addition of a reasonableness inquiry into the analysis means that indefiniteness appears to be moving be moving away from a question of law and into factual territory. The issue has traditionally been seen as part-and-parcel of claim construction, but now has the potential of being shifted to a question for trial. Of particular note here is the Supreme Court’s reluctance to decide the particular case and its allusion to the notion that the result “may turn on evaluations of expert testimony.” (quoting Markman).
  • The Supreme Court indicates that “a patent” will be invalid based upon the failure of its claims. The longstanding practice of the Federal Circuit is that indefiniteness is done on a claim-by-claim basis, but here the court suggests that approach should change.  Assuming that indefiniteness is still considered on a claim-by-claim basis, one outcome of this decision is that it adds additional value to patents with multiple claim formulations.
  • The Supreme Court indicates that any ambiguity should be considered “at the time the patent was filed” and also that the patent’s prosecution history are important in the consideration. What is unclear then is whether the court intended to mean that the consideration should be at the patent issuance, the application actual filing date, the application’s effective filing date (taking into account priority claims to prior filed applications), or the date that the claims in question were filed / amended.

Guest Post: Are APIs Patent or Copyright Subject Matter?

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Guest Post by Pamela Samuelson, Richard M. Sherman Distinguished Professor of Law at Berkeley Law School. I asked Professor Samuelson to provide a discussion of the recent Federal Circuit decision in Oracle v. Google. DC.

Application programming interfaces (APIs) are informational equivalents of the familiar plug and socket design through which appliances, such as lamps, interoperate with the electrical grid. Just as a plug must conform precisely to the contours of the socket in order for electricity to flow to enable the appliance to operate, a computer program designed to be compatible with another program must conform precisely to the API of the first program which establishes rules about how other programs must send and receive information so that the two programs can work together to execute specific tasks.

No matter how much creativity might have gone into the design of the existing program’s interfaces and no matter how many choices the first programmer had when creating this design, once that the API exists, it becomes a constraint on the design of follow-on programs developed to interoperate with it. Anyone who develops an API is, in a very real sense, designing that aspect of the program for itself and for others.

One of the many errors in Judge O’Malley’s decision in the Oracle v. Google case was her insistence that the merger of idea and expression in computer program copyright cases can only be found when the developer of an API had no choice except to design the interface in a particular way. If there is any creativity in the design of the API and if its designer had choices among different ways to accomplish the objective, then copyright’s originality standard has been satisfied and not just the program code in which the API is embodied, but the SSO of the API, becomes copyrightable. Indeed, harkening back to an earlier era, Judge O’Malley repeated the unfortunate dicta from the Apple v. Franklin case about compatibility being a “commercial and competitive objective” which is irrelevant to whether program ideas and expressions have merged.

The Ninth Circuit in the Sega v. Accolade case, as well as the Second Circuit in Computer Associates v. Altai, have rejected this hostility toward achieving software compatibility and toward reuse of the APIs in subsequent programs.

Although purporting to follow Ninth Circuit caselaw, Judge O’Malley in Oracle v. Google ignored some key aspects of the holding in Sega. Accolade reverse-engineered Sega programs in order to discern the SSO of the Sega interface so that it could adapt its videogames to run on the Sega platform. The principal reason that the Ninth Circuit upheld Accolade’s fair use defense as to copies made in the reverse engineering process was because “[i]f disassembly of copyrighted object code is per se an unfair use, the owner of the copyright gains a de facto monopoly over the functional aspects of his work—aspects that were expressly denied copyright protection by Congress,” citing § 102(b). To get the kind of protection Sega was seeking, the Ninth Circuit said it “must satisfy the more stringent standards imposed by the patent laws.”

Judge O’Malley in Oracle also ignored the Ninth Circuit rejection of Sega’s claim that Accolade infringed based on the literal copying of some Sega code insofar as that code was essential to enabling the Accolade program to run on the Sega platform. That Sega code might have been original in the sense of being creative when first written in source code form, but by making that code essential to interoperability, the expression in that program merged with its function, and hence Accolade’s reproduction of it was not an infringement.

The SSO of the Sega interface was almost certainly creative initially as well. Yet, once that interface was developed, it was a constraint on the design choices that Accolade and other software developers faced when trying to make videogames to run on Sega platforms. The Second Circuit similarly rejected Computer Associates’ claim that Altai had infringed the SSO of its program interface and suggested that patents might be a more suitable form of legal protection for many innovations embodied in software.

Under Sega and Altai, the SSO of APIs are not within the scope of copyright protection for computer programs. Subsequent cases—at least until the Federal Circuit decision in Oracle v. Google—have overwhelmingly endorsed this approach to compatibility issues in software cases.

Perhaps Judge O’Malley was worried that if she did not extend copyright protection to the Java APIs in Oracle v. Google, there would be too little intellectual property protection available to computer programs. After all, she was one of the Federal Circuit judges who would have upheld all of the patent claims for computer-implemented inventions in the CLS Bank v. Alice Corp. case that is now pending before the U.S. Supreme Court. She joined an opinion that warned that if courts struck down the claims in CLS Bank, this mean that hundreds of thousands of software and business method patents would be invalidated. Given the Supreme Court’s skepticism about the Federal Circuit’s rulings on patentable subject matter, there is reason to think that at least some software patents may indeed fall when the Court issues its opinion in Alice. Would such invalidations affect the scope of copyright protection for software?

In the most expansive interpretation of software copyright law since Whelan v. Jaslow, Judge O’Malley in Oracle v. Google endorsed dual protection for APIs from both copyright and patent law. This ignored an important statement from that court’s earlier ruling in Atari Games v. Nintendo that “patent and copyright laws protect distinct aspects of a computer program.” The Oracle opinion instead invoked the dicta from Mazer v. Stein that “[n]either the Copyright Statute nor any other says that because a thing is patentable it may not be copyrighted.”

While it may have been true that the statuette of a Balinese dancer in Mazer was eligible for both copyright as a sculpture and a design patent for an ornamental design of an article of manufacture (as a lamp base), nothing in that decision or any other has upheld utility patent and copyright protection in the same aspect of the same creation, and it seems unlikely that the Supreme Court would abrogate the longstanding tradition tracing back to Baker v. Selden that copyrights protects expression in works of authorship and patents protect utilitarian designs.

In “The Strange Odyssey of Software Interfaces as Intellectual Property,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1323818, I traced the tortuous evolution of the law in relation to the protection of software interfaces. At first, they were not treated as intellectual property at all. Firms published APIs so that others would make programs to run on their computing systems. As firms recognized that they could license interface information to generate revenues, APIs were protected as trade secrets. In the mid- to late 1980s, some argued that the “structure, sequence, and organization” (SSO) of APIs should be protected by copyright law, but by the early 1990s, courts decided they were unprotectable elements of programs, more suited to patent than to copyright protection. And so firms began patenting interface designs, as well as continuing to license them as trade secrets.

If Judge O’Malley’s opinion in the Oracle v. Google case is to be believed, APIs have migrated back into copyright’s realm big time. Unless overturned by the Supreme Court or repudiated or distinguished in subsequent cases, the Oracle decision may well reignite the software copyright wars that so many of us thought had died out after the Sega, Altai, and their progeny.

Spouses of Inventors as Co-Owners

Ethics, , , , , ,

I’ve written about this issue:  in a community property state, does the spouse of an inventor own the patent?  The answer every “family law” expert I know of says yes; every patent lawyer says “no.”  It’s come up in at least one CAFC opinion, and now came up tangentially in a non-prec opinion that did not decide the issue.  That case, Taylor v. Taylor Made Plastics, Inc., is here. (Why does the opinion call James Taylor “James T.” and his wife “Mary T.”?)

Here’s my article on this, which I think I posted a few months ago somewhere. Someday this is going to matter, big time, or not!

DRAFT

A Fifty-Fifty Split:  What if the Spouse of Every Inventor in a Community Property State has an Undivided Interest in an Invention?

By David Hricik*

I. Introduction

If you think the title raises a wild possibility, consider what happened in a recent case appealed to the Federal Circuit.  After being sued for infringement, the defendant had the ex-wife of the inventor effectively grant to it any interest she had in the patent-in-suit.  As a result, the defendant argued that there could be no infringement, both because lack of standing and because it had acquired an undivided interest in the patent.

It almost worked.

The Federal Circuit recognized that under California law the patent was “presumptively community property in which [the wife] had an undivided half interest.”  Fortunately for the accused infringer, the wife had not listed the patent as community property when she was divorcing, and so the court held that res judicata precluded her from arguing that she in fact had an interest in the patent.

But, the odd facts of that case should not give great comfort.  It is important to recognize that if something is community property, it means it belongs to both spouses.  If the spouse of every inventor in a community property state has an undivided equal interest in every patent granted during marriage to the other spouse, then employers of inventors may need to obtain assignment of both spouse’s interests for the employer to have full title. If that is the law, then many patent infringement suits can proceed only if the spouse of the inventor is joined as a party.  If that is the law, many companies do not own, outright, the patents that they believe they do.

This article shows, first, that every court that has addressed the issue has held that a patent issued during marriage to one spouse is community property.  Second, many states hold that property rights can arise prior to issuance, and sometimes even at the time of conception.  Third, it shows that the general rule appears to allow just one spouse to alienate personal community property, but with some exceptions.  Finally, it describes the implications for this body of law on patent practitioners.

2. Basic Community Property Law

No federal statute addresses ownership of a patent application, let alone an “idea” that has simply been conceived: state law would apply. Likewise, the question of who has title to even an issued patent is a question of state law.

Eleven states currently follow community property law:  Alaska, Arizona, California, Hawaii, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin. Obviously, the laws of these states likely vary significantly on some issues, but a few basic points seem true among them all:

The statutes of several community property states provide that each spouse has a present, vested, one-half ownership interest in community property with equal management…. The equal management statutes give each spouse managerial rights over community property.  A spouse may prevent the disposition of certain community assets by the other spouse. Further, either spouse may contract debts during the marriage that may be satisfied with community property.

The concept expressed in the first sentence is worth repeating, since those unfamiliar with community property law often think of it as mattering only upon divorce. This is dangerously incorrect: when something is community property, each spouse owns it – then and there, not just in divorce court.  Also, it is important to emphasize that the community presumptively owns all property acquired during marriage, each spouse holding an undivided equal interest.[6]

With these basic principles in mind, the first question is what is “property” under these statutes, and does it include intellectual property and, most particularly, inventions, patent applications, and patents?

2. “Property” Includes Patents, and Sometimes Applications and Even Intangible Intellectual Property. 

As one would expect, “property” is construed very broadly.[7]  As one court stated:

The word “property” is in law a generic term of extensive application. It is not confined to tangible or corporeal objects, but is a word of unusually broad meaning. It is a general term to designate the right of ownership and includes every subject of whatever nature, upon which such a right can legally attach. It includes choses in action and is employed to signify any valuable right or interest protected by law and the subject matter or things in which rights or interests exists.[8]

An issued patent is, of course, by federal statute to be treated as personal property under state law.[9]  Thus, presumptively a patent acquired by one spouse during marriage belongs to the community, not separately to the inventor.[10]

Numerous divorce courts have divided patents issued during marriage as “property” under community property statutes[11]  Typically these courts assume a patent issued during marriage is community property and do not analyze whether that assumption is correct.[12]   Occasionally a court engages in at least a minor amount of analysis.  For example, a Florida appellate court stated that “[c]ourts outside Florida have reached the same logical conclusion — a patent is personal property that may be the subject of equitable distribution when the inventor and his or her spouse dissolve their marriage.”[13] The Kansas Supreme Court is the only court to have engaged in a lengthy analysis of the question, stating in part:

Vincent believes that the interest in the patents does not have the qualities listed [in the definition of property.] This is not self-evident….

[I]ntellectual property, once it has been created, is less inextricably related to its creditor than other assets now characterized as marital property, such as pensions and professional goodwill. Unlike pensions and professional goodwill, rights in intellectual property are highly transferable, and title may be placed in the name of one who did not originally produce them.[14]

The point here is that state courts either assume or readily conclude that patents issued during marriage are community property.

In some states, a spouse has interests even before the patent issues, depending on which approach to the “inception of title” doctrine the jurisdiction takes:

Arguably, inception [of title] may occur at any of three times:  (1) when the concept is sufficiently developed to generate a plan to build the invention [i.e., conception]; (2) when the invention is actually built [i.e., actual reduction to practice]; or (3) on the effective date of the patent [i.e., constructive reduction to practice].[15]

Courts have applied each view, though often not using the bracketed terms of art that patent practitioners would find comforting.

As an example of the first view, a California court divided patents that had been “perfected” during marriage but issued afterward.[16]  In addition, in a rare case that provided somewhat extended discussion, a Florida appellate court reasoned that a patent application was property that was subject to equitable division because it had been “deemed sufficiently well developed to submit to the federal patent authorities on a non-provisional basis.”[17]

As an example of the third view, a Washington appellate court held that a patent issued during the marriage was community property even though the invention had been conceived prior to marriage.[18]

Some courts adopt a muddled view that seems to reflect both the third and first views.  For example, the Supreme Court of Hawaii stated that “a patent does not exist until it is granted,” and so there was no property right “unless and until the patent issues.”[19] Nonetheless, it recognized that in making equitable division trial courts should determine “whether there was value in the pre-patent intangible intellectual property and the patent itself.”[20]

This shows that patents, and in some states applications and even merely conceived inventions, are “property.” All property acquired during marriage is presumptively community property, belonging to both spouses, not just the inventor.

The approach of state courts and state divorce lawyers to this question stands in stark contrast to common patent practice, at least as I know it.  In my experience patent practitioners do not obtain assignments from an inventor’s spouse.  Similarly, a key treatise on acquisitions makes no mention of spousal rights even as a part of due diligence during acquisition of patents.  I have never seen litigated the question of whether an inventor’s spouse must be joined as an indispensable party to a patent infringement brought by the inventor’s assignee.

The incongruity between how patent lawyers and divorce lawyers look at spousal rights is significant:  if the state courts are right, then spouses may have rights in patents that assignees may think they own outright.  If the spouse has an undivided equal interest in the patent, then they have the unfettered right to do exactly what the assignee can: sue, license, or otherwise enforce the patent.  Either state divorce courts or patent lawyers have it wrong.

Whether those rights exist means turns on the myriad facts that can arise, as well as application of particular state law. This article cannot examine all the permutations, but instead next includes several scenarios that may commonly arise where state courts have found that the spouse holds an ownership interest.  It concludes by describing potential avenues to reduce the uncertainty that may face assignees, attorneys, inventors, and spouses.

II. Federal Statutes Governing Ownership of Patents and Common Practice

The Constitution of the United States rejects the proposition that inventions should at least initially belong to anyone other than their creator.  In light of this, federal statutes provide that a patent must be applied for in the name of the inventor.  If nothing further is done, the patent will issue in the inventor’s name.  At that point, state law determines ownership.  “It is important to note that only inventorship, the question of who actually invented the subject matter claimed in a patent,’ is a question of federal patent law.  ‘Ownership, however, is a question of who owns legal title to the subject matter claimed in the patent, patents having attributes of personal property.’”  Consequently, for example, absent written assignment, an inventor’s employer will not own any patent naming the employee as the inventor.  This is true even if the employee uses only the employer’s equipment to make the invention and is paid a general salary while conceiving of or reducing to practice the patented invention.

State law determines whether there is an obligation of assignment and its scope.  By federal statute, assignments are to be construed under state law.  Thus, the Supreme Court has held that state courts “may try questions of title, and may construe an enforce contracts relating to patents.”  Similarly, state intestacy laws govern ownership of patents of deceased inventors, and foreign intestacy laws govern patents owned by foreign individuals.

There are other circumstances where state law determines ownership of an invention.  The point here is that nothing in the Patent Act, at least,  indicates that state marital property law should not also apply.  Thus, absent operation of state law to the contrary, the inventor owns the patent.

As a result, it is routine for corporations and other entities that employ those likely to invent patents to require that employees assign any ownership rights to the entity. The assumption is that because the inventor has assigned his invention to the entity, the entity holds full legal title, and thus is the not just the only party with standing to enforce the patent, but also the only party necessary to enforce the patent. All rights, lawyers and assignees believe, belong to the assignee.

Consistent with this practice and beliefs, in my experience no patent lawyer seeks assignment of any right from any inventor’s spouse.  The form assignment used by patent practitioners that originated with the USPTO does not do so. Thus, if the spouse has an interest, then on its face the typical form and practice do not accomplish assignment of the spouse’s interest, especially – for reasons that will become clear —  if the assignment is obtained after the patent has issued.  The next question is: does the spouse have an interest?

III. State Court Application of Community Property Laws to Patent Ownership

The precise contours of each particular community property state are beyond the scope of this article.  No doubt in particular circumstances those facts will matter greatly.  However, three basic principles seem to apply across the jurisdictions, with no doubt differences at their margins but not at their core.

First, the community presumptively owns all property acquired during marriage, each spouse holding an undivided equal interest in the whole.   While it is just that – a presumption – nonetheless it is the starting point.

Second, with narrow exceptions addressed below, one spouse cannot alienate community property; only both spouses can.  For example, a Louisiana statute provides:

A spouse may not alienate, encumber, or lease to a third person his undivided interest in the community or in particular things of the community prior to the termination of the regime.

Under this statute, any contract not signed by both spouses to alienate community property is void.

Again, the statutes and case law do vary.  Washington has a similar statute, but requires that both parties sign any agreement conveying community property only if it is real property.  Thus, it may be that in some community property states patents may be alienable by only the inventor.

Third, with respect to personalty, “property” is construed very broadly.  As one court stated:

The word “property” is in law a generic term of extensive application. It is not confined to tangible or corporeal objects, but is a word of unusually broad meaning. It is a general term to designate the right of ownership and includes every subject of whatever nature, upon which such a right can legally attach. It includes choses in action and is employed to signify any valuable right or interest protected by law and the subject matter or things in which rights or interests exists.

Patents are, of course, by federal statute to be treated as personal property under state law.  Thus, presumptively a patent acquired by one spouse during marriage belongs to the community, not separately to the inventor.  As next shown, that is in fact the result that the courts have uniformly reached in the family law context, when addressing divorce, alimony, or child support.

While patents are personal property and treated as such by state courts, there is less agreement on whether intangible intellectual property that leads to or could lead to a patent is community property.  The “inception of title” doctrine is a critical concept in community property states, and perhaps should be to patent lawyers, because if title is obtained prior to marriage, that property is separately owned. Thus, for example, if a husband conceives of an invention during marriage, and then gets divorced, the spouse may have an interest in any resulting patent.  Conversely, if title only arises when the patent issues, then the spouse would have no interest in patents issued after divorce from an employed inventor.

The state courts have recognized that inception of title to patent rights can occur before a patent issues:

 Arguably, inception [of title] may occur at any of three times:  (1) when the concept is sufficiently developed to generate a plan to build the invention [i.e., conception]; (2) when the invention is actually built [i.e., actual reduction to practice]; or (3) on the effective date of the patent [i.e., constructive reduction to practice].

Courts have adopted the second view.  For example, a Washington appellate court held that a patent issued during the marriage was community property even though the invention had been conceived prior to marriage.  A California court likewise divided patents which had been “perfected” during marriage.  In a rare case that provided somewhat extended discussion, a Florida appellate court reasoned that a patent application was subject to equitable division because it had been “deemed sufficiently well developed to submit to the federal patent authorities on a non-provisional basis.”  Thus, a spouse can have an interest in patent applications filed during marriage, not just patents issued during marriage.

Some courts adopt a muddled view that seems to reflect both the third and first views.  For example, the Supreme Court of Hawaii stated that “a patent does not exist until it is granted,” and so there was no right protected “unless and until the patent issues.” Nonetheless, it recognized that in making equitable division trial courts should determine “whether there was value in the pre-patent intangible intellectual property and the patent itself.”  Further, it held that a trade secret became community property when the trade secret had presently existing value.  “[O]ne ‘owns’ a trade secret when one knows of it….”  This holding could, of course, create a conflict between the spouses over whether to file for a patent application or to maintain protection of the invention only as a trade secret. The employer’s interests may conflict with the spouse’s.

Numerous courts have divided patents issued during marriage as “property” under community property without needing to address whether inception of title could have occurred earlier.  Several cases have simply assumed that patents are community property subject to division by just dividing them.

Typically these courts assume a patent issued during marriage is community property and do not analyze whether that assumption is correct.   Occasionally a court engages in at least a minor amount of analysis.  For example, a Florida appellate court stated that “[c]ourts outside Florida have reached the same logical conclusion — a patent is personal property that may be the subject of equitable distribution when the inventor and his or her spouse dissolve their marriage.”  The point here is that frequently state courts either assume or readily conclude that patents issued during marriage are community property.

The Kansas Supreme Court is the only court to have engaged in a lengthy analysis of the question, stating:

Vincent believes that the interest in the patents does not have the qualities listed [in the definition of property.] This is not self-evident. The business plan, which is built on the patented concept, undoubtedly will be used in an effort to raise capital for the enterprise. Thus, there is a sense in which the patents may be said to have loan value. Another, perhaps more typical, arrangement is for a patent holder to enter into a licensing agreement with a manufacturer/distributor for use of a patent. Consideration under the licensing agreement might be a lump sum. An initial fee and royalties is another likely form for consideration to take.

The court went on to state that:

  [I]ntellectual property, once it has been created, is less inextricably related to its creditor than other assets now characterized as marital property, such as pensions and professional goodwill. Unlike pensions and professional goodwill, rights in intellectual property are highly transferable, and title may be placed in the name of one who did not originally produce them.

Thus, state courts either assume, conclude, or have held that patents issued during marriage are community property.  The most-cited treatise by these courts as indicating that patents are community property does not aggressively take that position, instead discussing the cases and stating among other things that “a spouse would expect to share as fully in intellectual property acquired during marriage as in any other variety of property.”

Finally, while obviously income from patents that are community property belongs to the community, the majority of courts that have addressed the issue have also held that income received during a marriage from even separately owned patents is community property.

III. Federal Law Allowing for Prosecution by Persons With a Proprietary Interest in the Application May Permit Spouses to Control or Interfere with Prosecution.

While it is clear that an assignee of the entire interest in application may prosecute it, federal law sometimes permits even those with merely a “proprietary interest” to continue and even undertake prosecution, at least where the inventor refuses to do so. Specifically, Section 118 of the Patent Act states:

Whenever an inventor refuses to execute an application for patent, or cannot be found or reached after diligent effort, [1] a person to whom the inventor has assigned or agreed in writing to assign the invention or [2] who otherwise shows sufficient proprietary interest in the matter justifying such action, may make application for patent on behalf of and as agent for the inventor on proof of the pertinent facts and a showing that such action is necessary to preserve the rights of the parties or to prevent irreparable damage; and the Director may grant a patent to such inventor upon such notice to him as the Director deems sufficient, and on compliance with such regulations as he prescribes.

The PTO has interpreted this statute to permit heirs, for example, to not only continue prosecution upon the death of an inventor, but to file an application for an inventor who dies prior to filing the application.  The heirs thus must have a proprietary interest in the application or patent.

Does a spouse in a community property state?  The meaning of “proprietary interest” would seem to encompass rights of a spouse in a community property state.  “A ‘proprietary’ interest at the very least suggests some element of ownership or dominion….”  Given, as shown above, that a spouse in a community property state may have an undivided equal interest in the patent, that interest would clearly qualify as “ownership or dominion.”  Thus, federal law would seem to permit spouse to control prosecution if the inventor dies.

IV. Possible Ways to Defeat a Spouse’s Interest

A. Federal Preemption of State Community Property Law

Courts have uniformly held that state law determines ownership of patents – in every context in which the issue has arisen.  Federal law thus is held to apply, and so there is no conflict, and nothing to preempt state law.

In fact, the few courts that have analyzed whether federal law preempts state law have each rejected preemption, though without rigorous analysis.   Divorce lawyers believe there is no conflict between state and federal law.  As a leading commentator wrote:

The federal statute on the transfer of patents, 35 U.S.C. § 261, states generally that patents constitute property and that they are subject to assignment. Courts considering the issue have held that an inventor’s creditors can reach the inventor’s patents, although with somewhat more difficulty than other types of assets. 60 Am. Jur. 2d Patents § 1168 (1987). Given these points, there is general agreement that federal law does not prevent a court from treating a patent as divisible property in a divorce case.

Significantly, state courts have not analyzed this question at length, but instead seem to accept the proposition that patent law does not preempt state community property law.  State courts regularly divide patents among divorcing spouses — despite federal statutes and the Constitution and the obvious federal source of patent rights.

There is a distinction between the cases that apply state law relied upon by these courts and applying state law in this context:  in the other instances, the state law determines who owns a patent or application from the inventor, while application of community property law divests sole ownership from the inventor.

B. The Exception for Sole Management Community Property

Some states allow one spouse to alienate certain property, even if community property.  The Washington Statute quoted above, for example, requires both spouses to consent to alienation of real, but not personal, property.

Other states recognize similar doctrines, including recognizing that some community property is, nonetheless, subject to the “sole management” of one spouse.  Under this doctrine, it may be that an invention qualifies as “sole management” community property, and so assignment by the spouse is not required

C. Estoppel

Estoppel likely would not be a useful tool at least in those states that require that both spouses engage in the conduct that gives rise to the estoppel.  So, for example, in an Arizona case the fact that the husband engaged in conduct that might have estopped him from denying an agreement to sell property did not mean that the wife, or the community was estopped.  While facts could of course give rise to an estoppel against both, in routine transactions that seems unlikely.

IV. Application of State Law to Common Fact Patterns

As explained in the introduction, accused infringers have raised ownership interests in spouses as a defense to standing in a few cases, but have lost due to procedural issues.  The case law suggests that there may be more opportunities for this defense, and some thorny issues concerning ownership of existing patents that lawyers and owners of intellectual property need to consider.

Suppose, for example, that an inventor acquires a patent while married.  If the buyer fails to obtain assignment from the spouse, then the buyer may acquire merely an undivided equal interest with the inventor’s spouse.

Or, suppose that the employee is subject to an obligation to assign any patent issued during assignment.  The spouse may have an interest in a patent application filed on that invention before the obligation to assign the patent arises.  Again, the purported assignor may own only an equal undivided interest in the patent.

There are myriad fact patterns that could arise.  State law may provide the answer to some of them, indicating that the spouse has no interest, or that the inventor alone can alienate the property.  But where state law indicates that the spouse has an interest, then only if state law is preempted or the spouse assigns its interest can the assignee feel comfortable in believing it owns full and clear title.

V. Conclusion: What to Do?

As noted at the outset, this article was intended to raise the issues arising from the conflicting approaches of divorce lawyers and patent lawyers to patent ownership.  It may be that state laws will need to be reformed to exclude patents from community property, or to allow for the inventor to alienate all rights without its spouse’s consent.  It may be that a condition of employment must be that the spouse either relinquish any community property rights or to permit the inventor to alienate any intellectual property rights without permission.

In pending cases, there may be standing defenses that can be raised, since the plaintiff may not have full title.  Further, particularly thorny issues may face corporations that have acquired intellectual property from inventors or from small companies in bulk without due diligence on these issues.

 

Oral Arguments: Can the Supreme Court Force Clarity in Claim Scope?

Patent, Supreme Court, , ,

By Dennis Crouch

Nautilus v. Biosig (Supreme Court 2014) [Transcript of Oral Arguments]

On April 28, 2014, the Supreme Court heard oral arguments in the important indefiniteness case concerning a fitness monitor patent. In my estimation, most issued patents have claim terms that are arguably indefinite. The usual litigation resolution of that problem is through the process of claim construction. The patent statute requires A patent can be held invalid as indefinite under 35 U.S.C. §112(b) for failing to “particularly point[] out and distinctly claim[]” the invention. However, the Federal Circuit has repeatedly found that the invalid-as-indefinite doctrine is quite narrow and only applies when a term is “insolubly ambiguous” and when “reasonable efforts at claim construction result in a definition that does not provide sufficient particularity and clarity to inform skilled artisans of the bounds of the claim.”

The result of this policy is that it provides patentees an incentive to seek a claimset that includes some “solubly” ambiguous terms that create colorable infringement argument and whose scope retains malleability. We only learn the true scope of a claim once it is interpreted in court – an often only after an appeal to the Federal Circuit. One approach to push against this downward spiral would be to follow the contract canon of construing claims against the drafter. Another approach is what Nautilus suggests – make it easier to invalidate claims on indefiniteness grounds. At the same time, lowering the standard could open the door to a new intensity of linguistic-noodling by accused infringers.

In this case, two questions are presented:

1. Does the Federal Circuit’s acceptance of ambiguous patent claims with multiple reasonable interpretations—so long as the ambiguity is not “insoluble” by a court—defeat the statutory requirement of particular and distinct patent claiming?

2. Does the presumption of validity dilute the requirement of particular and distinct patent claiming?

Claim construction is an issue in the vast majority of patent infringement lawsuits and, over the years, the Federal Circuit has altered a district court’s claim construction in hundreds of different cases. In many of those, the district court’s opinion was a reasonable interpretation of the claim scope even if not what the Federal Circuit saw as the very best interpretation. In that framework, it is easy to see how the Nautilus focus on “multiple reasonable interpretations” could have a dramatic impact on the validity since all of those claims would seemingly be invalidated based upon the existence of multiple reasonable interpretations.

Predicting Outcome: The oral arguments suggest that the Federal Circuit’s “insolubly ambiguous” test will be thrown out as too strict. However, none of the Justices appeared interested in the seemingly too loose rule that would invalidate claims that are open to multiple reasonable interpretations. The middle ground of requiring claim scope be of “reasonable certainty” seems to be the likely course.

The claim term at issue in this case involves two electrodes of a heart monitor being in a “spaced relationship” with each other. The district court held that term indefinite because the patent did not include any parameters as to the scope of that space. On appeal, the Federal Circuit reversed, determining that the term was amenable to construction since the purpose of the space was recited in a whereby clause (to help remove EMG signals coming from a single hand). In particular, the court held that the term had an upper and lower bound: each half must be held within a hand and it cannot physically be infinitesimally small. Now, one interesting aspect that relates to prior functional-claim cases is that on reexamination, the examiner found that the functional whereby clause to be the crucial limitation that made the claim patentable. Federal Circuit cited and discussed Halliburton. However, the court did not address the Taboo against functional element at the point of novelty but instead cited to a list of Federal Circuit decisions holding that functional claim limitations are just fine.

The arguments: Patent litigator John Vandenberg argued on behalf of the petitioner Nautilus while appellate specialist Mark Harris argued for the patentee Biosig. Harris shared time with US Assistant Solicitor Curtis Gannon as amicus. Overall, the oral arguments were not highly elucidating the one major area of new ground covered was an analogy to Chevron analysis whose first step is to determine whether a statute is ambiguous (or silent) as to a particular issue. In Chevron, statutory ambiguity allows government agencies more leeway in interpreting the law. In this context, the ambiguity would lead to a patent being held invalid. However, the court was clearly not comfortable with that test essentially because it is too loose for the resulting reaction (patent invalidity). Of course, invalidating a patent claim does not involve the same level of drama as invalidating a congressionally mandated statute. Apart from the constitutional-political issues, the patent claim being invalidated is typically one of many claims within the patent and that patent is one of many covering the accused activity. In addition, unlike statutes, the party benefiting most from the patent has full control of the language used in the patent grant.

In the oral arguments, Vandenberg makes two compelling points: (1) that ambiguity in the patents is intentional but not justified; and (2) that its requested rule is parallel to that already applied by the USPTO:

MR. VANDENBERG: I think it’s important to remember here that there is no legitimate need or excuse for ambiguity in patent claims. Once the applicant has satisfied paragraph one [of section 112] and its strict requirements for describing the invention, it is easy to claim the invention particularly and distinctly. The only reason that there are so many ambiguous claims out there today is that patent attorneys are trained to deliberately include ambiguous claims. Ambiguous claims make the patent monopoly more valuable. Every patent attorney knows that. . . .

There is no legitimate need for ambiguous claims. There is a strong economic incentive for patent attorneys to draft ambiguous claims, not to put all their eggs in that basket. They want some clear claims in case some copyist comes along, but they want ambiguous claims so they can ­­ their client can treat it as a nose of wax later, as happened here. That is well established in the patent bar, that there is this strong economic incentive. But patent attorneys have ample tools to avoid ambiguous claims if this Court tells them that it will no longer be permitted. That ­­that is the key here, is that there’s a strong economic incentive. The patent attorney and the inventor are in the best position to avoid the ambiguity that Congress prohibits and therefore, the problem is, the Federal Circuit has blessed ambiguity with its test. And in order to stop all of the problems that the amici have pointed out that are caused by ambiguous claims, we submit this Court needs to be clear and go back to United Carbon and General Electric and to the statutory text and be clear that ambiguity is simply not permitted.

After a bit of dancing, Vandenberg began to hit his stride in a discussion with Justice Kennedy:

JUSTICE KENNEDY: Do you agree that the standard at the PTO, and let’s say that it’s whether or not ­­ the claim is definite if a person skilled in the art would be reasonably certain of its scope. Is the standard used by the PTO the same standard that the CA Fed ought to use?

MR. VANDENBERG: Yes, it is, Your Honor.

JUSTICE KENNEDY: All right, that’s a sensible answer, I think. Now, how does the presumption of validity bear on the application of that same standard in the court of appeals?

MR. VANDENBERG: The presumption of validity certain applies to this defense. It requires the challenger to raise the defense, to preserve the defense, plead it as affirmative defense, to make the initial argument as to why the claim is ­­

JUSTICE KENNEDY: Doesn’t that imply some deference on findings of fact?

MR. VANDENBERG: Your Honor, it would be rare for there to be, in an indefiniteness case, to be any underlying finding of fact. The ­­ the issue of indefiniteness is really subsidiary.

JUSTICE KENNEDY: That is, the presumption of validity, does that accord some deference to the PTO? And how would that apply or not apply here?

MR. VANDENBERG: It would apply ­­ it does not apply in this case. There are no fact findings out of the Patent Office regarding indefiniteness. But if there was ­­ the same indefiniteness issue came up and the Patent Office found, for instance, that a term of art, let’s say nanotechnology, biotechnology term of art had a particular meaning, then that fact­finding may be entitled to deference by the trial court.

However, indefiniteness itself is a legal determination. The Federal Circuit said that.

JUSTICE KENNEDY: So there’s no deference to the PTO as to that legal interpretation.

MR. VANDENBERG: No, Your Honor, no more than there’d be deference to the Patent Office claim construction or any other legal decision.

Mr. Harris began his argument defending the Federal Circuit, but immediately ran from the insolubly ambiguous language of that decision.

MR. HARRIS: The decision of the Federal Circuit should be affirmed for two reasons: First, that court correctly held that the test for definiteness is whether a claim puts a skilled artisan on reasonable notice of the boundaries of the invention, and secondly, whatever

JUSTICE SCALIA: If that’s what it held we wouldn’t have taken this case. I thought we took it because [the Federal Circuit used] some really extravagant language.

I mean, it’s one thing to run away from that language, as your brief does. It’s another thing to deny that it exists.

MR. HARRIS: Justice Scalia, we are not denying that those words exist, “insolubly ambiguous,” but what I think this court below, the Federal Circuit, in this case explained, and it’s explained consistently, is that that ­­ those two words are not the test all by themselves.

CHIEF JUSTICE ROBERTS: So it was fair, as I suggested earlier, nobody agrees with that formulation [of insolubly ambiguous]?

MR. HARRIS: Yes, I guess so, Your Honor. . . .

Beyond the particular quibble over language, Harris seems to provide a convincing case that, even under a lower standard, the Biosig claims are still definite because of the uncontroverted evidence provided that one skilled in the art at the time would have been able to understand the meaning of the claim.

The role of the US Government in this case is interesting because it is in some tension with President Obama’s ongoing initiatives to push for clarity in claim scope. However, Gannon (from USDOJ) did argue that the presumption of validity should not play a role in the claim construction process. And rather that the resulting validity of a claim should not impact which construction is chosen.

Unpatentable: See Bilski, Mayo, Flook, and Benson

Patent, , , ,

By Dennis Crouch

The question of patentable subject matter is nominally grounded in the statute 35 U.S.C. § 101. That statute offers patent rights to anyone who “invents or discovers any new and useful process, machine, manufacture, or composition of matter.” However, very few section 101 cases actually refer to the statutory text. Rather, the focus is on the Supreme interpretative stance that the statute also prohibits patents on abstract ideas, products of nature, and natural phenomena. It is the definition of Abstract Idea that is at stake in Alice Corporation Pty. Ltd. v. CLS Bank Int’l. [TRANSCRIPT OF ORAL ARGUMENTS]

Alice Corp.’s patent covers a computerized escrow system and method that CLS Bank allegedly uses in the process of settling trillions of dollars in transactions each week. After Alice Corp., sued CLS Bank for infringement, CLS responsively argued that the patent claims are invalid as impermissibly encompassing an abstract idea.

In the background, the Supreme Court has decided three recent Section 101 cases: Bilski, Mayo, and Myriad. Arguing for CLS Bank, Mark Perry argued that these two cases determine the outcome here.

MR. PERRY: Bilski holds that a fundamental economic principle is an abstract idea and Mayo holds that running such a principle on a computer is, quote, “not a patentable application of that principle.” Those two propositions are sufficient to dispose of this case. If Bilski and Mayo stand, Alice’s patents fail.

Rather, to be patent eligible, CLS Bank argues, the computer implementation must offer a “technological solution.”

MR. PERRY: We know from Benson, the Court’s seminal computer implementation case, that if you can do it by head and hand, then the computer doesn’t add anything inventive within the meaning of the 101 exception. That is the holding of Benson. And the Court reiterated that in Mayo. Flook said exactly the same thing. If you can do it with pencil and paper, then the computer is not offering anything that the patent laws are or should be concerned with.

It is only where the method will not work without a computer, which is not these claims, and where the computer itself is doing something that the patent law is willing to protect.

Justice Ginsburg asked why – if it is such a simple case – why the Federal Circuit struggled so:

JUSTICE GINSBURG: The Federal Circuit in this case split in many ways, and it had our decisions to deal with. You said, given Bilski and Mayo, this is an easy case. What is the instruction that escaped a good number of judges on the Federal Circuit? How would you state the rule?

MR. PERRY: Your Honor, I think there’s a significant element to the Federal Circuit that disagrees with Mayo and has been resistant in applying it. Chief Judge former Chief Judge Michel filed a brief in this Court essentially saying Mayo is a life sciences case, You should limit it to that because if you apply it to everything else, then these patents are no good. Mayo we submit is a technology-neutral, Industry-neutral, exception-neutral framework that can be used to answer all of these questions.

We should note here, that, although CLS Bank sees the Mayo test as exception-neutral, the respondent was not asked to explain why the test was not applied the most recent Section 101 case of Myriad.

The reference to Mayo/Flook is important – with the notion that to be patent eligible there must be a technological innovation rather than discovery of an abstract idea followed by routine technological implementation of that idea. The result of the Mayo/Flook approach is that patent eligibility is temporally dependent. In particular, innovations that were once patent eligible will later be not eligible once the implementing-technology becomes well known. Mr. Perry explains:

JUSTICE SOTOMAYOR: How about email and just word processing programs?

MR. PERRY: At a point in time in the past, I think both of those would have been technological advances that were patentable. . . . Because they would have provided a technological solution to a then unmet problem. Today, reciting, and do it on a word processor is no different than and do it on a typewriter or and do it on a calculator.

The inventive contribution component, which uses specifically the language of conventional and routine and well understood, will evolve with technology. That’s why it’s different than the abstract idea component.

Mr. Phillips responds somewhat weakly that there must be “significant limitations on the extent to which novelty has to be built into 101.

There is some potential that the decision will be rather small – deciding that an escrow-settlement method is an abstract idea and that the routine addition of computers to facilitate the method does not alter that original conclusion. This result would essentially parallel the results of Bilski v. Kappos and would potentially add nothing of substance to the law. Many of the questions followed this line of thinking and Alice’s attorney, Carter Phillips, repeatedly worked to explain how the technological aspect of the invention is much more complex that has been commonly caricaturized. CLS Bank argued the opposite.

JUSTICE GINSBURG: On the abstract idea, you know that the Bilski case held that hedging qualified as an abstract idea. So how is intermediate settlement a less abstract than hedging?

MR. PHILLIPS: … What we claim is a very specific way of dealing with a problem that came into being in the early 1970s of how to try to eliminate the risk of nonsettlement in these very massive multiparty problems in which you need to deal with difficulties that exist at different time zones simultaneously and to do it with a computer so that you not only take them on chronologically, deal with them sequentially, based on the kind software analysis that the patent specifically describes by function.

And it goes even further than that, and does something that no escrow agent and no … settler that I know of. It actually blocks specific transactions that, in the shadow account, would violate the terms of the settlement that would ultimately be implemented.

. . . [This is an invention that] you cannot, absolutely cannot [implement this system without a computer], because it is so complex and so many interrelated parts.

. . . I believe that if you analyze the claims and you don’t caricature them and you don’t strip them out of the limitations that are embedded in there, this is not some kind of an abstract concept. This is not some kind it’s not an abstract idea..

JUSTICE KAGAN: There is something that you’ve patented that has that is not just simple use a third party to do a settlement. . . . And what is that, putting the computer aside?

MR. PHILLIPS: It is well and again, it’s difficult to do that because you absolutely need the computer in order to implement this. But the key to the invention is the notion of being able simultaneously, dealing with it on a chronological basis to stop transactions that will otherwise interfere with the ability to settle on time and under the appropriate circumstances. And the only way you can do that in a realtime basis when you’re dealing with a global economy is to use a computer. It is necessary to the efficacy of this. So in that sense, I can’t I can’t disaggregate it the way in some sense you’re suggesting. It seems to me it’s bound up with in it’s bounds up with the whole notion of is this an abstract concept. . . .

MR. PERRY: On the abstract idea, Justice Ginsburg, you asked Mr. Phillips what’s the difference between hedging and this claim. There is no difference. This is hedging. It is hedging against credit default rather than price fluctuation, but it is simply hedging. . . . Mr. Phillips suggests, well, we have multilateral transactions, global things, chronological, time zones and so forth. None of those are claimed, Your Honor. Those are all recited in specification. The claims read on a single transaction involving two parties.

JUSTICE SCALIA: Why isn’t it why isn’t doing it through a computer not enough? I mean, was the cotton gin not an invention because it just means you’re doing through a machine what people used to do by hand? It’s not an invention. It’s the same old, same old. Why is a computer any different in that respect?

MR. PHILLIPS: At one level I agree with you completely. There is no difference between them.

This Court has, however, said on more than a few occasions, albeit in dicta, that coming up with an idea and then say, use a computer, is not sufficient. And what I’m trying to suggest to you is we don’t fall within that dicta. Now, if you don’t accept the dicta and you say use a computer is fine, then I think we’re done.

MR. PERRY: Of course, a patent that describes sufficiently how a computer does a new and useful thing, whether it’s data compression or any other technological solution to a business problem, a social problem, or a technological problem, would be within the realm of the of the patent laws. That is what the patent laws have always been for. . . . Those algorithms, those inventions are undoubtedly technological. And if they are used in a trading platform or a hedging system or something else, that wouldn’t disable them [as patent eligible].

The bigger version of the decision would more particularly address software patenting. Here, Alice suggests that the case is very much about the ongoing viability of software patents:

JUSTICE KENNEDY: You understand the government to say no software patents.

MR. PHILLIPS: That’s the way I interpret the government’s the government’s brief.

However, both CLS Bank and the Government argue otherwise. Mr. Perry states “this will not affect software patents. . . . [Rather,] we are talking about a group of patents … that’s way out at the tail end of the distribution.” Likewise, the Solicitor General Verrilli argued that “it’s just not correct to say that our approach would make software patenting ineligible. [In our proposed test] any software patent that improves the functioning of the computer technology is eligible. Any software patent that improves that is used to improve another technology is eligible.” In thinking about the consequences for patentees who already hold patents that may become ineligible, Mr. Perry suggested that their problems are minimal because “the patent holder would have the opportunity to institute a reexamination proceeding or some sort of administration process to address that issue.”

Justice Breyer indicated the importance of creating a rule that works:

JUSTICE BREYER: There is a risk that you will take business in the United States or large segments and instead of having competition on price, service and better production methods, we’ll have competition on who has the best patent lawyer. . . . And if you go the other way and say never, then what you do is you rule out real inventions with computers. . . . [The amicus briefs provide] a number of suggestions as to how to go between Scylla and Charybdis. . . . I need to know what in your opinion is the best way of sailing between these two serious arms.

MR. PHILLIPS: Well, Justice Breyer, I guess I would suggest to you that you might want to deal with the problem you know as opposed to the problems you don’t know at this stage. I mean, we have had business method patents and software patents in existence for well over a decade and they’re obviously quite significant in number. And and we know what the system is we have. And Congress looked at that system, right, and didn’t say no to business methods patents, didn’t say no to software patents, instead said the solution to this problem is to get it out of the judicial process and create an administrative process, but leave the substantive standards intact.

So my suggestion to you would be follow that same advice, a liberal interpretation of 101 and not a caricature of the claims, analyze the claims as written, and therefore say that the solution is 102 and 103 and use the administrative process.

. . . . So on the one hand, you’ve got a problem that it seems to me Congress to some extent has said is okay and we’ve got a solution and that solution’s playing through. On the other hand, if this Court were to say much more categorically either that there’s no such thing as business method patents or adopt the Solicitor General’s interpretation, which is to say that there cannot be software unless the software somehow actually improves the computer, as opposed to software improving every other device or any other mechanism that might be out there.

What we know is that this would inherently declare and in one fell swoop hundreds of thousands of patents invalid, and the consequences of that it seems to me are utterly unknowable. And before the Court goes down that path, I would think it would think long and hard about whether isn’t that a judgment that Congress ought to make. And It seems to me in that sense you’re essentially where the Court was in Chakrabarty, where everybody was saying you’ve got to act in one way or the other or the world comes to an end, and the courts have said, we’ll apply 101 directly. . . .

MR. PERRY: That path between Scylla and Charybdis was charted in Bilski and Mayo. Bilski holds that a fundamental economic principle is an abstract idea and Mayo holds that running such a principle on a computer is, quote, “not a patentable application of that principle.” Those two propositions are sufficient to dispose of this case. If Bilski and Mayo stand, Alice’s patents fail.

The Government test is a bit difficult to fully discern and even General Verrili had some trouble explaining:

JUSTICE BREYER: I think you say a computer improvement that, in fact, leads to an improvement in harvesting cotton is an improvement through a computer of technology, so it qualifies. But then I think you were going to say, or I got this also from the brief, a computer improvement that leads to an improvement in the methods of selling bonds over the telephone is not an improvement in technology reached by the computer. Am I right about the distinction you’re making?

GENERAL VERRILLI: I don’t think there’s a yes or no answer to that question. [But,] that is generally the line we’re drawing.

JUSTICE GINSBURG: I have a question about how do you identify an abstract concept. A natural phenomenon, a mathematical formula, those are easy to identify, but there has been some confusion on what qualifies as an abstract concept.

GENERAL VERRILLI: We would define abstract an abstract concept as a claim that is not directed to a concrete innovation in technology, science, or the industrial arts. So it’s the it’s abstract in the sense that it is not a concrete innovation in the traditional realm of patent law.

Although seemingly not relevant to the present case, Alice took some pains to explain why their patent includes no software code:

MR. PHILLIPS: what we did here is what the Patent and Trademark Office encourages us to do and encourages all software patent writers to do, which is to identify the functions that you want to be provided for with the software and leave it then to the software writers, who I gather are, you know, quite capable of converting these functions into very specific code. . . .

It doesn’t actually, obviously, put in the code, but that’s what the PTO says don’t do. Don’t put in the code because nobody understands code, so but put in the functions, and we know and we know that someone skilled in the art will be able to put in the code. And if they aren’t, if they can’t do that, then it’s not enabled and that’s a 112 problem.

This discussion of functionality may foreshadow the upcoming Nautilus case. On that point, Justice Sotomayor asked whether Alice is “trying to revive the patenting of a function?” Mr. Phillips did not directly respond.

In the end, Alice Corp’s case of technological innovation is slight. Mr. Phillips agreed with Justice Kennedy that it would be “fairly easy” for a “second year college class in engineering” to draft the claimed software – giving the court additional fodder for rejecting this case merely with a string citation to Bilski, Flook, and Benson.

Software Patent Eligibility: Alice Corp v. CLS Bank on the Briefs

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By Dennis Crouch

Alice Corporation Pty. Ltd. v. CLS Bank International, Supreme Court Docket No 13-298 (2014)

Later this term, the US Supreme Court will shift its focus toward the fundamental question of whether software and business methods are patentable. More particularly, because an outright ban is unlikely, the court’s more narrow focus will be on providing a further explanation of its non-statutory “abstract idea” test. The Supreme Court addressed this exclusionary test in its 2010 Bilski decision, although in unsatisfactory form. As Mark Lemley, et al., wrote in 2011: “the problem is that no one understands what makes an idea ‘abstract,’ and hence ineligible for patent protection.” Lemley, Risch, Sichelman, and Wagner, Life After Bilski, 63 Stan. L. Rev. 1315 (2011).

In this case, a fractured Federal Circuit found Alice Corp’s computer-related invention to be unpatentable as effectively claiming an abstract idea. See, U.S. Patent No. 7,725,375. In its petition for writ of certiorari, Alice presented the following question:

Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

Oral arguments are set for Mar 31, 2014 and a decision is expected by the end of June 2014. In addition to the parties, a host of amici has filed briefs in the case, including 11 briefs at the petition stage and 41 briefs on the merits. Although not a party to the lawsuit, the Solicitor General has filed a motion to participate in oral arguments and steal some of the accused-infringer’s time.

The invention: There are several patents at issue, but the ‘375 patent is an important starting point. Claim 1 is directed to a “data processing system” that includes a number of elements, including “a computer” configured to generate certain instructions, “electronically adjust” stored values, and send/receive data between both a “data storage unit” a “first party device.” The claims also include “computer program products” and computer implemented methods. The underlying purpose of the invention is to provide certain settlement risks during a time-extended transaction by creating a set of shadow credit and debit records that are monitored for sufficient potential funds and that – at a certain point in the transaction the shadow records are automatically and irrevocably shifted to the “real world.”

It is unclear to me what makes this invention novel or nonobvious and many believe that it would fail on those grounds. However, the sole legal hook for the appeal at this stage is subject matter eligibility. One thing that we do know is that CLS Bank is alleged to be using the patented invention to ensure settlement for more than a trillion dollars daily.

Important case: The claim structure here is quite similar to that seen in hundreds-of-thousands of already issued patents and pending patent applications where the advance in software engineering is a fairly straightforward, but is done in a way that has an important impact on the marketplace. One difference from many software patents is that the underlying functionality is to solve a business transaction problem. However, there is a likelihood that the decision will not turn (one way or the other) on that field-of-use limitation.  In his brief, Tony Dutra argues that the key here is utility, and that an advance in contract-settlement is not useful in the patent law context.

[Brief of the US Government] The most important brief in a pile such as this is often that filed by the U.S. Government. Here, Solicitor General Donald Verrilli and USPTO Solicitor Nathan Kelley joined forces in filing their brief in support of CLS Bank and a broad reading of the abstract idea test. In particular, the U.S. Government argues that none of the claims discussed are subject matter eligible. The brief begins with an importance argument – that “the abstract idea exception is patent law’s sole mechanism for excluding claims directed to manipulation of non-technological concepts and relationships.” This notion – that the abstract idea is the final and ultimate bulwark – places a tremendous pressure on the Court to create a highly flexible test. In my view, the Government largely loses its credibility with that argument – somehow forgetting about the host of other overlapping patent law doctrines that each address this issue in their own way, including requirements that any patented invention be useful, enabled, described in definite claims, and nonobvious. The ultimate backstop is likely the US Constitutional statement regarding “Inventors” and their “Discoveries.”

The government brief goes on to endorse the approach of first identifying whether the claim would be abstract if the computer technology were removed from the method claims and, if so, move on to consider whether the computer technology limitations are sufficient to transform a non-patentable abstract idea into a sufficiently concrete innovation in technology, science, or the industrial arts. “The ultimate inquiry is whether the claims are directed to an innovation in computing or other technical fields.” The brief then reviews the precedent on this topic from Bilski, Mayo and Flook.

Addressing the computer system and software claims, the U.S. Government agrees that they are certainly directed toward “machines” and “manufactures.” However, according to the government, those claims to physical products are properly termed abstract ideas because the physical elements “do not add anything of substance.”

One interesting element from the brief is that the US Government notes that, although a question of law, invalidity for lack of subject matter eligibility requires clear and convincing evidence in order to overcome the presumption of validity. In its brief, CLS Bank argues otherwise as does Google, who actually takes time to cogently spell out the argument with citation to leading authorities.

[Brief of CLS Bank] In its merits brief, CLS Bank somewhat rewrote the question presented – focusing attention on the Supreme Court’s decisions in Mayo.

Question Re-framed: An abstract idea, including a fundamental economic concept, is not eligible for patenting under 35 U.S.C. §101. Bilski v. Kappos, 130 S. Ct. 3218 (2010). Adding conventional elements to an abstract idea does not render it patent-eligible. Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012). The asserted claim of the patents-in-suit recite the fundamental economic concept of intermediated settlement, implemented using conventional computer functions. The question presented is:

Whether the courts below correctly concluded that all of the asserted claims are not patent-eligible.

The basic setup of the CLS Bank is the argument that a newly discovered abstract idea coupled with conventional technology is not patent eligible. CLS Bank’s point is well taken that an outright win for Alice Corp. here would involve something of a disavowal rewriting of Mayo.

[Brief of Alice Corp.] Alice Corp’s brief obviously takes a different stance – and argues first that the non-statutory exceptions to patentability should be narrowly construed and focused on the purpose of granting patents on creations of human ingenuity and that the idea behind Alice’s invention is not the type of “preexisting, fundamental truth” that should be the subject of an abstract idea test. Alice also reiterated its position that the claimed invention should be examined as a whole rather than divided up as suggested by the Government brief.

[Brief of Trading Technologies, et al.] TT’s brief (joined by a group of 40 patent-holding software companies as well as Prof. Richard Epstein) argues that the “abstract idea” test is focused on scientific truths and scientific principles. In that construct, Alice Corp’s ideas regarding the settlement system would not be seen as ineligible. TT also challenges the court to think beyond the computer as “merely a calculator and that programming merely instructs the computer to perform basic mathematical calculations. “While this may have been true of many of the applications programmed on the earliest computers over 40 years ago, it is simply not the case today. . . . Viewing computers as merely calculators is completely disconnected from the reality of where innovation is occurring today and where most innovation will occur in the future.” In his brief, Dale Cook agrees and further makes the argument that a distinction between hardware and software is illusory – citing Aristotle to make his point. [Brief of Dale Cook]. Supporting that notion is the Microsoft brief that sees “software-enabled inventions” as the “modern-day heirs to mechanical inventions. [Brief of Microsoft HP]. Pushing back on this argument, Public Knowledge seemingly shows that the entire claimed method can be implemented in seven lines of software code. Thus, while some software is complex. PK makes the argument that the software at issue here is exceedingly simple.

TT also warns against the Government’s position that a strong eligibility guideline is needed in cases such as this. In particular, explains “inventions that do nothing more than use a computer to implement time-worn concepts in obvious and traditional ways will not receive patent protection notwithstanding the fact that they concern eligible subject matter. On that note, TT asks for clarification from the Supreme Court that “Mayo does not support importation of novelty, nonobviousness, and other patentability criteria into the ‘abstract idea’ analysis.”

[Brief of ABL] The final brief in support of petitioner was filed on behalf of Advanced Biological Labs by Robert Sachs. ABL argues that a claim should only be seen as problematic under the abstract idea test when there are no practical alternative non-infringing ways of practicing the abstract idea. On that point, ABL further pushes for the notion that the test should be considered from the framework of one skilled in the art rather than simply the-mind-of-the-judge and based upon clear and convincing evidence. Pushing back against this notion is the brief of the American Antitrust Institute (AAI) drafted by Professor Shubha Ghosh. The AAI argues that the purpose of the Abstract Idea exclusion is to prevent undue harm to competition and innovation. Seemingly, the AAI contends that a claim directed an abstract idea is per se anticompetitive and that even when coupled with technology it may still be unduly preemptive. Oddly however, later in the brief AAI argues for a test that is not based upon market competition or preemption.

[Shultz Love Brief] A leading brief on the side of ineligibility is that filed by Professors Jason Shultz and Bryan Love on behalf of about 22 other professors. The professors make the argument that the world would be a better place without software patents. For its conclusions, the brief largely relies on the work of Brian Love, Christina Mulligan, Colleen Chien, James Bessen, & Michael Meurer. The EFF brief from Professor Pamela Samuelson, Julie Samuels, and Michael Barclay make a parallel argument: “If anything, evidence shows that the U.S. software industry is harmed by the exponential growth of vague software patents.” Without denying the problems created by software patents, Professors Peter Menell and Jeff Lefstin argue that the solution is not to rely upon the “abstract idea” test to solve that problem. IBM offers the starkest contrast to the Shultz-Love brief – arguing that the failure to clearly offer patent rights for software inventions “endangers a critical part of our nation’s economy and threatens innovation.”

The ACLU has been more frequently involved with patent law issues and was a backer of the Myriad case. In its brief, the ACLU argues that the abstract idea exception is the patent law proxy for free speech and that monopolization of abstract ideas would be a violation of the First Amendment. That conclusion is supported by the Software Freedom Law Center & Eben Moglen. The First Amendment argument has the potential of twisting on the ACLU: if the justices fail to see that patents create any First Amendment concern then they may be more likely to support a narrowing of the abstract idea exception. Notably, in the most recent patent law oral arguments on fee-shifting, Justice Roberts arguably suggested that patents did not create any first amendment concerns.

I mentioned Microsoft’s brief earlier. Microsoft argues that software should be patentable – but not the software in this case. In particular, Microsoft agrees with the notion that simply adding “a computer” to an otherwise abstract idea does not fix the problem. Microsoft’s solution is to consider “whether the claim as a whole recites a specific, practical application of the idea rather than merely reciting steps inherent in the idea itself.” Microsoft goes on to admit that its test adds little predictability.

The Intellectual Property Owners Association and AIPLA similarly argue that software “if properly claimed” is patent eligible. On its face, that argument may not sit well with the Court who may see the “as claimed” notion designed to create loopholes for sly patent drafters whose noses are made of wax. A collective brief from Google, Facebook, Amazon, and others support this notion that patent eligibility should not turn on “clever drafting.” On an ancillary (but important) point Google argues that Section 101 defenses should be considered at the outset of most cases. cf. Crouch & Merges, Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making.

Court: Claim Term Lacks Definiteness but is not Legally Indefinite

Indefinite, Patent,

Every Penny Counts v. Wells Fargo Bank, 2014 U.S. Dist. LEXIS 28106 (M.D. Fl. 2014).

In a ruling this week, Judge Merryday rejected Wells Fargo’s indefiniteness argument made in a pre-trial summary judgment motion. Like claim construction, indefiniteness is seen as a question of law that can be resolved by a district court judge. In fact, the Federal Circuit has written that “Indefiniteness is a matter of claim construction, and the same principles that generally govern claim construction are applicable to determining whether allegedly indefinite claim language is subject to construction.” Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306, 1319 (Fed. Cir. 2008).

EPC’s invention is software for rounding-up credit and debit transactions to the nearest dollar and then putting the extra money to a special use. See U.S. Patent 8,025,217. Claim 1 of the ‘217 patent is listed as follows:

1. A system for accumulating credits from a customer account belonging to the customer and managed by an institution and placing the credits into a provider account, comprising:

an information processor; said information processor including a data store with data identifying the customer, the rounding determinant, the managed institution, and the account;

said data store including machine readable instructions authorizing the processor to access and read the customer account;

said data store including machine readable instructions to calculate rounders after receiving a plurality of payment transactions from the read customer account and to calculate an excess based on the rounders;

said data store including machine readable instructions to withdraw the excess from the customer account;

said data store including machine readable instructions to transfer the withdrawn excess to the provider account.

The indefiniteness issue with the claim is that the claim introduces two types of accounts – a customer account and a provider account – and then refers to “the account” without identifying which of the two accounts are being referenced. Wells Fargo argues that there are “at least four equally plausible interpretations” of “the account” – it could be the customer account, the provider account, both accounts, or some other account. Adding to the difficulty of interpreting the term, Wells Fargo highlights the fact that the patent itself is riddled with seeming typographical errors that make interpretation difficult. The court writes:

The patent is infested with scrivener’s (and other) errors, and the prospect of a missing “s” fits comfortably within the patterns discernible in the patent. For example, the patent states, “The actual transfer . . . concludes with the [transfer of] funds to each listed PC (provider account) . . . .” “PC” is used nowhere else in the patent, and the patent later clarifies that “PA” is the intended acronym for “provider account(s).” But even the creation of the correct acronym, “PA,” is tardy – by the time the patent defines the acronym, the patent has already deployed either “provider account” or “provider accounts” four times and “PA” twelve times. And after the “PA” acronym is created, the patent no longer uses the acronym but uses “provider accounts.” In other examples of error, the patent bungles nearly every acronym, conflates “i.e.” and “e.g.,” and writes “invention invention,” “FIG. 7A” (not “FIG. 7” – no figure 7A exists), “FIG. 4B” (although Figure 4B exists, “FIG. 4C” is intended), step “8120” (not”120″), “2 $300.14” (not “$300.14”), “pa id” (not “paid”), “saving s,” and “piece s.” These errors – which say nothing of the drafter’s grammatical and syntactical incompetence and bemusing judgment – confirm that “account” lacking an “s” by mistake accords with the level of compositional adroitness and dexterity that pervades the patent.

In sum, as used in claims 1 and 2, the phrase “the account” lacks definiteness. “[T]he account” might mean “the customer account,” “the provider account,” or otherwise; no informed and confident choice is available among the contending definitions.

Now, here’s the trick – after finding that the phrase lacks definiteness, the court next went on to hold that the phrase is not legally indefinite. Rather, there exist a spectrum of definiteness levels, and the forfeiture of patent rights due to indefiniteness (currently) requires extreme indefiniteness. Thus, a claim term that is only somewhat indefinite will not render its respective claim invalid as indefinite. And, because of the conceptual separation of most patentability doctrines, the lack of definiteness shown here will have no other adverse impact on the patent.

In particular, a claim term is only found indefinite if clear and convincing evidence sufficient to overcome the statutory presumption of validity proves that the claim is “insolubly ambiguous” and “not amenable to claim construction.” Taking that standard, the court could only find the claim sufficiently definite:

Although the entire patent is awkwardly drafted, the oppugned claim is simple. The specification is simple. The drawings are simple. The patent as a whole, notwithstanding the deficiencies, seems understandable; the claim seems understandable. In short, the indefiniteness of the term “the account” leaves no unmanageable gap in the information available for determining the scope of the claim. No practical incapacity or disabling uncertainty appears as a consequence of the fact that “the account” might mean one thing or the other. In sum, the extent of the indefiniteness in the term “the account” is inconsequential and falls far short of the “insoluble ambiguity” required to invalidate the claim.

Holding: Claim not invalid as indefinite.

This case tightly linked to the outcome in Nautilus. If the court changes the standard for determining indefiniteness there then we’ll likely see a modified holding here as well.

[Updated on 3/8/14 with updated information that opinion was written by Judge Merryday not Magistrate Judge McCoun. Via W.Pollack]

 

Federal Circuit: Enablement More Difficult When Invention Faces Skepticism

Enablement, Patent, ,

By Dennis Crouch In re Hoffman (Fed. Cir. 2014) (non-precedential decision) Gene Hoffman and David Lund’s patent application is directed to method of weakening the strength of tropical cyclones by delivering super-coolant from an aircraft into the eye of the hurricane. The inventors here have never tested their method, but did provide some preliminary calculations that – they argue – suggest success. The USPTO rejected the application for failing to enable the claimed invention under 35 U.S.C. 112(a). In particular, the examiner identified three failures: (1) the preliminary calculations contained unexplained assumptions and mathematical errors; (2) the specification noted a need for experimentation to determine the proper amount of coolant to add and the optimal strike time; and (3) a number of weather scientists have expressed doubt as to whether similar approaches would work. In reviewing the rejection, the PTAB affirmed and that decision (rejecting the application) has now been affirmed on appeal. Pending claim 36 is identified as representative and claims:

A process for disrupting a formed or forming tropical cyclone eye wall or eye or center of lowest pressure comprising:

Introduction of a super coolant chemical agent sprayed with force (the super coolant is stored in a vessel under pressure) and or released from pre-measured containers from an appropriate number of large aircraft to reduce the temperature within the eye wall (top to bottom at sea level),

thereby circulating the super coolant throughout the eye wall by the centrifugal force of the eye wall, alternatively into the eye or center of lowest pressure to reduce the temperature in the eye or center of lowest pressure and the water beneath,

[t]hereby reducing the wind and storm surge of the eye wall or raising the pressure in the eye or center of lowest pressure and converting it back to a tropical rainstorm.

The claim form here does not really follow the standard ordinarily used by professional patent drafters. Here, it appears that claim drafting and prosecution were handled pro-se by the inventors. For more than 150 years, patent law has been seen as an arcane area of law full of traps for non-experts. In some ways, this decision confirms that tradition. The first sub-section of 35 U.S.C. § 112 requires that the patent document disclose enough about the invention so as to enable an artisan skilled in the particular area of science and technology to make and use the invention. The statute reads:

[The patent must disclose] 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.

35 U.S.C. §112(a). The court has added some gloss to the statute in that precedent allows missing elements from the specification so long as the skilled artisan could fill-in those gaps without undue experimentation. The court also uses the “Wands factors” to help determine whether the disclosure meets the enablement standard. These factors include:

  1. The quantity of experimentation necessary,
  2. The amount of direction or guidance presented,
  3. The presence or absence of working examples,
  4. The nature of the invention,
  5. The state of the prior art,
  6. The relative skill of those in the art,
  7. The predictability or unpredictability of the art, and
  8. The breadth of the claims.

In re Wands, 858 F.2d 731 (Fed. Cir. 1988). In applying these, the Federal Circuit found that there was no doubt that the USPTO’s decision was correct. Although the court did not go into depth in its analysis, one interesting aspect of the decision is that the Federal Circuit identifies skepticism in the scientific community as the most important factor here. The court writes:

And perhaps most significantly, the very efficacy of the method itself is subject to considerable doubt in the scientific community.

In other words, the enablement burden is more difficult to meet when the invention is surprising or when it goes against conventional wisdom. Of course, those same inventions will more easily surpass the central patentability test of non-obviousness. My point here, though, is that patentees with clearly groundbreaking inventions should take extra pause to ensure that the surprising result has been properly enabled.

“Inventive Concept” and the Hot-Blast Cases

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Guest post by Jeffrey A. Lefstin, Professor of Law, University of California, Hastings College of Law

As the Supreme Court prepares to take up Alice Corp. v. CLS Bank, a major question the Court may confront is to what extent an “inventive concept” is necessary for patent eligibility under § 101. In Mayo v. Prometheus, the Court suggested that “conventional and obvious” activity cannot transform a law of nature or abstract idea into a patent-eligible invention. The Court seemingly revived Parker v. Flook, which held that only “inventive applications” of abstract ideas are patent-eligible. But when the Federal Circuit heard CLS Bank, divided as the court was, both Judge Rader and Judge Lourie emphatically rejected the idea that Mayo demands “inventiveness” for patent-eligibility.

In both Flook and Mayo, the Supreme Court anchored the requirement for inventive application in Neilson v. Harford, the famous English case on James Neilson’s hot-blast smelting process. The Court in Flook and Mayo focused on this passage appearing in Baron Parke’s opinion for the Court of Exchequer:

We think the case must be considered as if the principle being well known, the plaintiff had first invented a mode of applying it by a mechanical apparatus to furnaces; and his invention then consists in this—by interposing a receptacle for heated air between the blowing apparatus and the furnace.

Flook took this language to mean that an underlying idea or discovery should be treated as part of the prior art; Mayo took it to mean that a claim is patent-eligible only if the application of a discovery or idea is inventive or unconventional.

However, a reading of the Exchequer’s full opinion tells the opposite story. Neilson’s patent was sustained because his application was entirely conventional and obvious. The defendant’s challenge in Neilson was primarily a scope of enablement argument: Neilson had disclosed that the blast should be heated before introducing it into the furnace, but disclosed next to nothing about the heating means. In refuting the defendant’s challenge, both the patentee and the judges of the Exchequer emphasized that the mode and apparatus for heating air were old and well known in the field, and represented no invention by Neilson.

So why did Baron Parke write that Neilson’s discovery – his ‘principle’ – should be regarded as “well known”? The court was wrestling with the question of whether Neilson had claimed a patentable manufacture, or the abstract principle that hot air was superior to cold. And if a manufacture, was Neilson entitled to reach the accused blast furnace, which employed a different heating apparatus? The Exchequer had faced the same questions seven years earlier in Minter v. Wells, involving a patent to an adjustable chair. The defendant in Minter had argued that the patentee was trying to claim a well-known principle of mechanics: the self-adjusting lever. Alternatively, if the claim was to the chair rather than the principle, the patent should be restricted to the inventor’s particular embodiment. Baron Parke concluded instead that the patentee had claimed the application of the self-adjusting leverage to an adjustable chair. Therefore, the patent was not drawn to an abstract principle, and might extend to other chairs embodying the same application but with a different arrangement.

Minter thereby established that a patent might claim the application of a well-known principle to new ends, and might extend beyond the exact machinery employed by the patentee. In the famous passage from Neilson, Parke was applying the same doctrine to Neilson’s patent – except that Neilson’s ‘principle’ was new rather than well-known. Neilson was a more difficult case because, given Neilson’s minimal disclosure, the scope of enablement was more dubious than in Minter. But a special jury verdict on that point ultimately carried the day for Neilson.

Neilson was only one of some twenty cases asserted by Neilson in England and Scotland. Other decisions following and interpreting Neilson leave no doubt that the case stood not for inventive application, but for the distinction between principles in the abstract and patentable applications. For example, in a case litigated the next year, Househill v. Neilson, the Court of Sessions stated:

The main merit, the most important part of the invention, may consist in the conception of the original idea—in the discovery of the principle in science, or of the law of nature, stated in the patent, and little or no pains may have been taken in working out the best manner and mode of the application of the principle to the purpose set forth in the patent.

Neilson was understood the same way in the Supreme Court’s landmark 19th-century opinions that discussed Neilson extensively, such as Le Roy, Morse, and Tilghman. Further, in late 19th-century and early 20th-century American cases and treatises, it was black-letter law that while abstract principles and discoveries could not be patented, a practical application was patent-eligible without the need for inventive application – subject to certain exclusions such as the ‘mental steps’ rule.

As I wrote about last year, the actual origin of the inventive application test was Justice Douglas’s opinion in Funk Brothers, in 1948. The dubious history of the inventive application test in the wake of Funk suggests we would have been better served by following Justice Frankfurter instead of Justice Douglas. For it was Frankfurter’s concurrence that embraced the spirit of Neilson and the historical tradition: the claims to bacterial compositions in Funk were unpatentable not because they added or changed little relative to a law of nature or natural phenomenon, but because the patentee was claiming the idea of compatible strains instead of his practical application.

I write about the hot-blast cases, and the history of the inventive application test, in an article available here.

White House Fact Sheet on Patent Reform

Patent, , , ,

THE WHITE HOUSE

Office of the Press Secretary

FOR IMMEDIATE RELEASE

February 20, 2014

Executive Actions: Answering the President’s Call to Strengthen Our Patent System and Foster Innovation

 Year of Action: Making Progress Through Executive Action 

In his State of the Union address, President Obama set an ambitious agenda to make 2014 a year of   action. As part of that commitment, and recognizing that innovation is the lifeblood of our economy, the Administration today is announcing major progress on a series of initiatives designed to combat patent trolls and further strengthen our patent system and foster innovation; issuing new executive actions to build on these efforts; and renewing its call on Congress to finish the job by passing common-sense patent reform legislation.

Since last June, when the White House pledged to protect innovators from frivolous litigation, the Administration has been working to implement a series of executive actions to improve the U.S. patent system. Today the White House is announcing delivery on these commitments:

  • Promoting Transparency — The United States Patent and Trademark Office (USPTO) recently published a draft rule to ensure patent owners accurately record and regularly update ownership information when they are involved in proceedings before the USPTO. This effort is aimed at improving the quality of patents issued, enhancing competition, facilitating technology transfer, and making it harder to hide abusive litigation tactics behind shell companies. After receiving input from the public, the USPTO aims to issue a final rule in the coming months.
  • Making Patents Clear — The USPTO has developed and implemented a training program to help its examiners rigorously examine so-called “functional claims” to ensure claims are clear and can be consistently enforced. In the coming weeks, the USPTO will launch a pilot program that uses glossaries in patent specifications to promote patent clarity.
  • Protecting Main Street from Abuse — To help ensure consumers and main-street retailers know their rights before entering into costly litigation or settlements, the USPTO is today launching an online toolkit aimed at empowering consumers with answers to common questions, information about patent suits, and details about specific patents. The toolkit will include information and links to services and websites that can help consumers understand the risks and benefits of litigation or settlement, and pick their best course of action.
  • Expanding Outreach & Focused Study — Today, the USPTO is announcing the expansion of its Edison Scholars Program, which brings distinguished academic experts to the USPTO to develop and make available to the public more robust data and research on issues bearing on abusive litigation. USPTO will also continue to expand its engagement with stakeholders—including patent holders, researchers, advocates, and others—and build on the successful roundtables the agency hosted across the country over the past year on high-tech patent issues.
  • Strengthening Exclusion Order Enforcement — To make the enforcement of exclusion orders issued by the International Trade Commission more transparent, effective, and efficient, the Office of the U.S. Intellectual Property Enforcement Coordinator launched an interagency review and will, in the coming months, deliver its recommendations on refining that process.

         Innovation For Global Development — In addition, today, the Administration is committing to sustain, going forward, the Patents for Humanity Program, which creates business incentives for using patented technology to address global humanitarian needs.

Today, the White House is also announcing three new executive actions to encourage innovation and further strengthen the quality and accessibility of the patent system:

 Crowdsourcing Prior Art — To help ensure that U.S. patents are of the highest quality, the USPTO is announcing a new initiative focused on expanding ways for companies, experts, and the general public to help patent examiners, holders, and applicants find relevant “prior art”—that is, the technical information patent examiners need to make a determination of whether an invention is truly novel.

  • More Robust Technical Training — The USPTO is expanding its Patent Examiner Technical Training Program to help patent examiners keep up with fast-changing technological fields by making it easier for technologists, engineers, and other experts to provide relevant technical training and guidance to patent examiners. To make the most of these changes, the Administration is calling on innovators to volunteer their time and expertise to help ensure that USPTO training is robust and reflects the state of the art.
  • Pro Bono and Pro Se Assistance — To increase the accessibility of the patent system, the USPTO will dedicate educational and practical resources to assist inventors who lack legal representation, appoint a full-time Pro Bono Coordinator, and help expand the existing America Invents Act pro bono program to cover all 50 states. The Administration is calling on members of the patent bar to participate in the program.

Renewing the Call for Meaningful Legislation to Combat Patent Trolls: In his State of the Union address President Obama renewed his call for Congress to pass patent reform legislation, which enjoys strong bipartisan support. The Administration looks forward to continuing to work with Congress to deliver focused and effective patent reform legislation to the American people in the coming months.

   Year of Action: Making Progress Through Executive Action 

 Further Detail on Answering the President’s Call to

Improve our Patent System and Foster Innovation, not Litigation

 A strong intellectual property system supports and enables the innovation that is the lifeblood of our economy. Our patent system is enshrined in our Constitution to encourage invention and to reward Americans for their hard work and risk-taking. But in recent years, that system has also seen the growth  of abusive patent litigation designed not to reward innovation but to threaten inventors and companies based on questionable claims. That’s why President Obama has made it a priority to reform that system to ensure it encourages innovation and invention and provides the right incentives to drive investment, inspire and reward creativity, and spur job creation.

 In 2011, the President signed the Leahy-Smith America Invents Act (AIA), a landmark piece of legislation designed to help make our patent system more efficient and responsive to innovators. The United States Patent and Trademark Office (USPTO) has now successfully implemented that law, enabling many reforms that are leading to higher patent quality, including post-grant patent review proceedings at the USPTO that offer faster and less expensive alternatives to litigation in Federal courts. Yet many innovators have continued to face challenges by patent-assertion entities or patent “trolls”– entities that have, over the past decade, increasingly used patents to extract settlements based on the high cost of defense.

 Building upon the strong foundation of AIA reforms, on February 14, 2013, President Obama stated that “our efforts at patent reform only went about halfway to where we need to go. What we need to do is pull together additional stakeholders and see if we can build some additional consensus on smarter patent laws.”

 On June 4, 2013, the White House set forth a series of executive actions and legislative recommendations designed to protect innovators from frivolous litigation and ensure high-quality patents.

 During his State of the Union address in January 2014, the President renewed his called for passage of a patent reform bill that would allow businesses to stay focused on innovation, not litigation. To complement this legislative effort, today the White House is highlighting progress to date on the previously announced executive actions, and is announcing three new actions to further respond to the President’s call-to-action to level the playing field for all innovators and increase patent quality.

 Progress on the June 2013 Executive Actions

1.                  Transparency in Patent Ownership.  Patent trolls often set up shell companies to hide their activities. This tactic prevents those facing litigation from knowing the full extent of the patents that their adversaries hold when negotiating settlements; keeps innovators from being able to find each other; and undermines companies’ understanding of the competitive landscape.  That’s why the USPTO recently proposed a new rule, informed by extensive stakeholder input, requiring the reporting of people or companies with ownership interests in a patent or application, called the “attributable owners.” Attributable owner information will provide the public with more complete information about the competitive landscape; facilitate more efficient technology transfer by making patent ownership information more readily available; and reduce abusive patent litigation by helping the public better defend itself against meritless assertions. The USPTO is currently soliciting and accepting written comments from the public here, and hosting stakeholder engagement events to solicit additional valuable feedback.

2.      Enhancing Claim Clarity. The AIA reforms made important improvements to the patent examination process and overall patent quality, but stakeholders remained concerned about patents with overly broad claims in certain high-tech fields. In response, the USPTO has developed an extensive, multi-phased training program for all examiners and judges focused on evaluating functional claims and improving examination consistency and the clarity of the examination record.  The agency has also conducted extensive stakeholder outreach and engagement to solicit ideas and collect feedback, experiences, and insights on improving patent quality. In the coming weeks the USPTO will launch a pilot program aimed at encouraging the use of clearer language within patent claims through the use of glossaries in patent specifications.

3. Empowering Consumers and Main Street Retailers. Unsuspecting retailers, consumers, small businesses, and other users of products containing patented technology have increasingly found themselves targeted by letters alleging patent infringement and demanding money—even in instances where a small business is using an off-the-shelf product. To help level the playing field and ensure individuals and businesses know their rights and are aware of available resources before entering into costly litigation or settlements, the USPTO is launching today a robust online toolkit of information, available at www.uspto.gov or www.uspto.gov/patentlitigation. This new portal brings together for the first time in one place a wide-ranging, powerful set of patent-relevant tools and information, including answers to commonly asked questions about patent-demand letters and a catalog of third-party sites that users can access to find out, for example, whether the patent has ever been asserted in litigation.

4. Expanding Outreach and Focused Study. Since last June’s announcement, the USPTO has significantly increased its already extensive public outreach efforts to more actively engage key stakeholders in the high-tech community, trade and bar associations, business and university groups, and advocacy organizations, resulting in a wealth of valuable input on patent clarity, transparency, and high-tech patents. The USPTO has also expanded its Thomas Alva Edison Visiting Scholars Program and has now selected three new scholars who will engage in focused study of various aspects of our patent system, to provide insights on how to further reduce unnecessary litigation and improve the quality of issued patents.  This empirical research will help the Administration better understand our current patent system and better inform the development of new ideas and consensus around improvements to patent policies and laws.

5.      Strengthening Exclusion Order Enforcement. When patent-infringing products are banned from importation to the United States, U.S. Customs and Border Protection and the U.S. International Trade Commission are responsible for the application of exclusion orders and determining whether imported products fall within the scope of an order. Implementing these orders presents unique challenges, particularly when a technologically sophisticated product has been redesigned to avoid the order. To address this growing challenge, the U.S. Intellectual Property Enforcement Coordinator has launched a review of the processes and standards used during exclusion order enforcement activities and, in the coming months, will issue recommendations and guidance to executive agencies to improve the efficacy, transparency, and efficiency of exclusion order enforcement activities.

 
 

In addition, the Administration is today committing to sustain the Patents for Humanity Program, which aims to increase the accessibility of the patent system for innovators who are delivering game-changing technologies to address global humanitarian needs. Past award recipients have used their patent portfolios to decrease the price of HIV and malaria drugs, develop more nutritious food sources, bring solar energy to off-grid villages, combat toxic counterfeit drugs, and purify billions of liters of water using inexpensive chemical packets. 

 
 

New Executive Actions Announced Today

1.      Crowdsourcing Prior Art. To determine whether an invention is novel, examiners in the USPTO must find and apply information about the state-of-the-art in the relevant technology. However, documents reflecting this state of knowledge can sometimes be difficult to find and incorporate into the patent-examination process. Today, the USPTO is announcing that it is exploring a series of measures to make it easier for the public to provide information about relevant prior art in patent applications, including by refining its third-party submission program, exploring other ways for the public to submit prior art to the agency, and updating its guidance and training to empower examiners to more effectively use crowd-sourced prior art. This effort will focus on driving valuable contributions to the patent process and to patent quality, strengthening a process that is vital to innovation and economic growth. The USPTO will seek public input on these efforts, as the Administration calls on the public and expert stakeholders to partner with us to encourage the disclosure and sharing of prior art, particularly hard-to-find references.

2.      More Robust Technical Training and Expertise. Patent examiners must be skilled in determining whether a particular application should be granted based upon the state of the art. Building upon its existing “Patent Examiner Technical Training Program,” the USPTO will take steps to make it easier for technologists and engineers from industry and academia to provide relevant, technical training and expertise to patent examiners regarding the state of the art. The Administration is calling upon volunteers to assist in this training effort and ensure that training is systematic, robust, and covers all disciplines. In addition the USPTO is making permanent each of its four regional satellite offices, which will make it even easier for stakeholders to contribute  in-person or virtually from these locations nationwide.  

3.      Patent Pro Bono and Pro Se Assistance. Due to a lack of resources, independent inventors and small businesses sometimes struggle with how to file and prosecute a patent application to protect their invention. The USPTO will be  providing dedicated educational and practical resources to those who lack legal representation (i.e., pro se applicants) and will work with the AIA Pro Bono Advisory Council—and through a newly appointed full-time Pro Bono Coordinator—to expand the existing pro bono program established under the AIA to cover all 50 states. The Administration is calling on members of the patent bar to participate in the program.

 
 

Renewing the President’s State of the Union Call for Legislation to Combat Patent Trolling


The Administration stands ready to work with Congress on these issues, which are crucial to our economy, American jobs, and the Nation’s engine of innovation. Building upon the President’s State of the Union remarks, the Administration urges Congress to pass a bipartisan law designed to curtail abusive patent litigation and improve transparency in the patent system. We are encouraged by Congress’s strong, bipartisan attention to these issues and look forward to working with the Congress and stakeholders to bring this important bipartisan legislation to the President’s desk this year.

Patent Reform 2014: Via Executive Action

Patent, ,

By Dennis Crouch

The White House is expected to announce today (February 20) a round of new patent reform initiatives. This comes eight months after the President announced a set patent reforms via executive action in June of 2013 along with a set of suggested legislative reforms. Today’s announcements are expected to fit within the guidelines outlined in 2013 but will include more particular action items – with special focus on transparency of ownership and clarity of claim scope. President Obama also called for further reforms in his 2014 State of the Union Address.

The meeting is expected to be led by Secretary of Commerce Penny Pritzker who will be joined by the USPTO’s Michelle Lee (Head of the USPTO) and the leading White House patent reformers: Gene Sperling (Director of the National Economic Council), Todd Park (U.S. Chief Technology Officer), and Colleen Chien (White House Senior Advisor for Intellectual Property and Innovation in the OSTP).

The proposed executive actions from 2013 include:

  1. Making “Real Party-in-Interest” the New Default. Patent trolls often set up shell companies to hide their activities and enable their abusive litigation and extraction of settlements. This tactic prevents those facing litigation from knowing the full extent of the patents that their adversaries hold when negotiating settlements, or even knowing connections between multiple trolls. The PTO will begin a rulemaking process to require patent applicants and owners to regularly update ownership information when they are involved in proceedings before the PTO, specifically designating the “ultimate parent entity” in control of the patent or application.
  2. Tightening Functional Claiming. The AIA made important improvements to the examination process and overall patent quality, but stakeholders remain concerned about patents with overly broad claims — particularly in the context of software. The PTO will provide new targeted training to its examiners on scrutiny of functional claims and will, over the next six months develop strategies to improve claim clarity, such as by use of glossaries in patent specifications to assist examiners in the software field.
  3. Empowering Downstream Users. Patent trolls are increasingly targeting Main Street retailers, consumers and other end-users of products containing patented technology — for instance, for using point-of-sale software or a particular business method. End-users should not be subject to lawsuits for simply using a product as intended, and need an easier way to know their rights before entering into costly litigation or settlement. The PTO will publish new education and outreach materials, including an accessible, plain-English web site offering answers to common questions by those facing demands from a possible troll.
  4. Expanding Dedicated Outreach and Study. Challenges to U.S. innovation using tools available in the patent space are particularly dynamic, and require both dedicated attention and meaningful data. Engagement with stakeholders — including patent holders, research institutions, consumer advocates, public interest groups, and the general public — is also an important part of our work moving forward. Roundtables and workshops that the PTO, DOJ, and FTC have held in 2012 have offered invaluable input to this process. We are announcing an expansion of our outreach efforts, including six months of high-profile events across the country to develop new ideas and consensus around updates to patent policies and laws. We are also announcing an expansion of the PTO Edison Scholars Program, which will bring distinguished academic experts to the PTO to develop — and make available to the public — more robust data and research on the issues bearing on abusive litigation.
  5. Strengthen Enforcement Process of Exclusion Orders. Once the U.S. International Trade Commission (ITC) finds a violation of Section 337 and issues an exclusion order barring the importation of infringing goods, Customs and Border Protection (CBP) and the ITC are responsible for determining whether imported articles fall within the scope of the exclusion order. Implementing these orders present unique challenges given these shared responsibilities and the complexity of making this determination, particularly in cases in which a technologically sophisticated product such as a smartphone has been successfully redesigned to not fall within the scope of the exclusion order. To address this concern, the U.S. Intellectual Property Enforcement Coordinator will launch an interagency review of existing procedures that CBP and the ITC use to evaluate the scope of exclusion orders and work to ensure the process and standards utilized during exclusion order enforcement activities are transparent, effective, and efficient.

Proposed Rules: Identify the True Owner on Pain of Abandonment

Patent, ,

By Dennis Crouch

In one of her first acts as de facto USPTO Director, Michelle Lee has proposed a new set of rules associated with patent assignment recordation. The proposal is quite complicated (occupying 18,000 words in the Federal Register) but the general idea is (1) that information regarding who owns which patents should be available to the public; (2) some rights-holders have been taking steps to hide their identity; and therefore (3) the USPTO proposes to require greater transparency. Although the proposal is signed by Deputy Director Lee, it was a White House initiative well before she took office.

The Office is proposing … to require that the attributable owner, including the ultimate parent entity, be identified … on filing of an application (or shortly thereafter), when there is a change in the attributable owner during the pendency of an application, at the time of issue fee and maintenance fee payments, and when a patent is involved in supplemental examination, ex parte reexamination, or a trial proceeding before the Patent Trial and Appeal Board (PTAB). The Office is also seeking comments on whether the Office should enable patent applicants and owners to voluntarily report licensing offers and related information to the Office, which the Office will then make available to the public in an accessible online format.

The recordation requirement would be retroactive and apply to all live patents and patent applications. However, the USPTO suggests that “most additional reporting will need to be done by companies that have complicated corporate structures and licenses, which often include the complex structures used by certain patent assertion entities (“PAEs”) to hide their true identities from the public.” The proposed penalty for failure to comply would have some teeth: abandonment.

Comments on the proposed rules are due by March 25, 2014 and can be emailed directly to: AC90.comments@uspto.gov. The review is being spearheaded by James Engel and Erin Harriman who are attorney advisors in the Office of Patent Legal Administration (OPLA).

Why: Before getting into the details of the proposal, we might pause to consider why the USPTO is proposing this new requirement. The USPTO identifies several potential benefits of a more complete ownership record. According to the USPTO, enhanced assignment information will:

  • “[A]llow [competitors] to better understand the competitive environment in which they operate.”
  • “[E]nhance technology transfer and reduce the costs of transactions for patent rights since patent ownership information will be more readily and easily accessible.”
  • “[R]educe risk of abusive patent litigation by helping the public defend itself against such abusive assertions by providing more information about all the parties that have an interest in patents or patent applications.”

In addition to these public benefits, the USPTO argues that the assignment information will help the office in several ways, such as avoiding conflicts of interest and better identifying double-patenting problems.

The key issues regarding the rules are (1) which rights-holders must be named? (2) Under what circumstances must a parent-entity be named? (3) What is the timeline for providing information to the USPTO? And (4) what would be the consequences for failure to fully comply with the regulations.

Who is an Attributable Owner?: In my 1L property law class, we discuss all sorts of way that property rights can be divided amongst present and future interest holders; lienholders; easement holders; those with equitable rather than legal title; etc. The proposed requirement here identifies three particular class of rights-holders who will be required to record their interest: (1) titleholders (someone who has been assigned title); (2) those with rights-of-enforcement (such as exclusive licensees or others that would be a necessary party to an enforcement action); and (3) entities created in order to temporarily divest (or prevent vesting) of title or enforcement rights (such as a trust, proxy, etc.). One difficulty here is that patent ownership interests are defined by a mixture of local law (state and/or foreign) and federal law. It is quite difficult to create a simple rule that fits to each of the hundreds of potential local jurisdictional mechanisms of operation.

Parent Entities: In addition to the attributable owner, the law would also require the recordation of any “ultimate parent entity” of any of the attributable owners. As a term of art, ultimate parent entity is already defined by 16 CFR 801.1(a)(3) and the USPTO is intending to follow that approach. Chapter 16 of the CFR generally relates to commercial practices and is promulgated by the Federal Trade Commission (FTC). The definition is as follows: “The term ultimate parent entity means an entity which is not controlled by any other entity.” The CFR provides the following three examples:

1. If corporation A holds 100 percent of the stock of subsidiary B, and B holds 75 percent of the stock of its subsidiary C, corporation A is the ultimate parent entity, since it controls subsidiary B directly and subsidiary C indirectly, and since it is the entity within the person which is not controlled by any other entity.

2. If corporation A is controlled by natural person D, natural person D is the ultimate parent entity.

3. P and Q are the ultimate parent entities within persons “P” and “Q.” If P and Q each own 50 percent of the voting securities of R, then P and Q are both ultimate parents of R, and R is part of both persons “P” and “Q.”

Although not clear from the definition, there is an idea that a parent entity must exhibit some amount of control over the subsidiary. One purpose here is to identify “hidden beneficial owners.”

Penalty for Failure to Comply: Abandonment.

Read the Rules and Comment: 79 FR 4105 (2014).

Nazomi v. Nokia

Patent, ,

By Jason Rantanen

Nazomi Communications, Inc. v. Nokia Corp. (Fed. Cir. 2014) Download 13-1165.Opinion.1-8-2014.1
Panel: Lourie (concurring), Dyk (author), Wallach

Nazomi is a small software and semiconductor development company that sued a set of large technology companies for patent infringement in a series of lawsuits.  This appeal involved the district court's initial claim construction order in one of these suits and its grant of summary judgment of noninfringement in favor of Western Digital and Sling Media. 

Two of Nazomi's patents were at issue in this appeal: Nos. 7,225,436 and 7,080,362.  During the district court proceeding, the defendants moved for a "preliminary" construction of the asserted claims, arguing that all the claims "require that the processor of the claimed apparatus, when operated, will perform the recited functions related to the processing of stack-based instructions without modification."  The court analyzed the issue in the context of representative claim 48 of the '362 patent

48. A central processing unit (CPU) capable of executing a plurality of instruction sets comprising:

an execution unit and associated register file, the execution unit to execute instructions of a plurality of instruction sets, including a stack based and a register-based instruction set;

a mechanism to maintain at least some data for the plurality of instruction sets in the register file, including maintaining an operand stack for the stack-based instructions in the register file and an indication of a depth of the operand stack;

a stack control mechanism that includes at least one of an overflow and underflow mechanism, wherein at least some of the operands are moved between the register file and memory; and

a mechanism to generate an exception in respect of selected stack-based instructions.

Nazomi contended that the claim required only hardware that was capable of performing the claimed functionalities (here, indicated by italics). The district court concluded, however, that the asserted claims required a combination of hardware and software capable of performing the functional limitations.

To understand why this distinction matters, some background in the defendants' products is useful.  Western Digital and Sling Media use a processor designed by another company, ARM.  In 2000, ARM developed a design involving a hardware component called "Jazelle."  However, recognizing that not every product would use every circuitry feature in its processors, ARM also designed its processors so that unused functionality would remain dormant unless activated (and thus not unnecessarily drain resources).  In order to activate the Jazelle circuitry, it is necessary to first install a software package called "JTEK."  In both the accused Western Digital and Sling Media products, Jazelle is dormant and there was no evidence that any end user had installed JTEK.  Nazomi's argument, however, was that Jazelle's presence in the accused products was sufficient sufficient for a finding of infringement (i.e.: hardware "capable").

On appeal, the Federal Circuit agreed with the district court's construction as requiring both hardware and software.  It reasoned that because hardware cannot meet the functional limitations in the absence of enabling software, "the claims are properly construed as claiming an apparatus comprising a combination of hardware and software capable of practicing the claim limitations."  (my emphasis).  In reaching this conclusion, it distinguished cases involving "programmable" language, such as Intel Corporation v. U.S. International Trade Commission, 946 F.2d 821, 832 (Fed. Cir. 1991).  Here, the claims did not merely cover hardware that could be programmed to perform the claimed functionality; they required that the processor be capable of executing the stated instruction sets.  Since hardware alone cannot do that in the absence of enabling software, the only possibility was that the claims required both hardware and software.  

The panel also affirmed the district court's grant of summary judgment of noninfringement (Judge Lourie agreed with outcome, but did not join as to the bulk of the court's reasoning), drawing on precedent that "“an apparatus claim directed to a computer that is claimed in functional terms is nonetheless infringed so long as the product is designed in such a way as to enable the user of that [product] to utilize the function without having to modify the product.”  Silicon Graphics, Inc. v. ATI Technologies, Inc., 607 F.3d 784, 794 (Fed. Cir. 2010).  The critical issue was thus whether the installation of the JTEK software would constitute a "modification" of the accused product. 

The Federal Circuit concluded that installation of the software would constitute a modification because in the asserted claims the software is part of the claimed structure.  In other words, this is not a case where the software component already resided on the hardware and could be unlocked by using a key, or where the claims recited programable software that also resided on the hardware.  Rather, the software was a necessary structural component of the claimed invention and its addition would constitute the addition of functionality that is not currently present.

Is Software Patentable?: Supreme Court to Decide

Patent, ,

By Dennis Crouch

50-years on, we still don’t have the answer as to whether computer programs are patentable.

The Supreme Court has granted a writ of certiorari in the software patent case of ALICE CORPORATION PTY. LTD. V. CLS BANK INTERNATIONAL, ET AL., Docket No. 13-298 (Supreme Court 2013). The Australian patent holder Alice Corp presented the following question:

Issue: Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

In a highly fractured en banc decision, the Federal Circuit determined that Alice Corp’s claims lacked eligibility. Because none of the opinions in the decision carried a majority, the result was that the Federal Circuit only added confusion to the area.

Alice Corp’s Patent No. 7,725,375 covers software for managing the risk associated with an online transaction essentially by using an electronic escrow service. Claim 26 recites how the system would work:

26. A data processing system to enable the exchange of an obligation between parties, the system comprising:

a communications controller,

a first party device, coupled to said communications controller,

a data storage unit having stored therein (a) information about a first account for a first party, independent from a second account maintained by a first exchange institution, and (b) information about a third account for a second party, independent from a fourth account maintained by a second exchange institution; and

a computer, coupled to said data storage unit and said communications controller, that is configured to (a) receive a transaction from said first party device via said communications controller; (b) electronically adjust said first account and said third account in order to effect an exchange obligation arising from said transaction between said first party and said second party after ensuring that said first party and/or said second party have adequate value in said first account and/or said third account, respectively; and (c) generate an instruction to said first exchange institution and/or said second exchange institution to adjust said second account and/or said fourth account in accordance with the adjustment of said first account and/or said third account, wherein said instruction being an irrevocable, time invariant obligation placed on said first exchange institution and/or said second exchange institution.

The patent also claims “a computer program” for accomplishing the same result.

IP Law Professors Rise-Up Against Patent Assertion Entities

Patent, , , ,

By Dennis Crouch

A group of sixty US intellectual property law professors have signed a letter to Congress supporting anti-troll patent reform legislation. This effort was driven by Professor Love of Santa Clara and is also signed by Professors Bessen, Goldman, Ghosh, Lemley, Meurer, Samuelson, Sprigman, and others. [Download ProfessorsLetterOnTrolls].

A key introductory line from the letter:

Despite our differences, we all share concern that an increasing number of patent owners are taking advantage of weaknesses in the system to exploit their rights in ways that on net deter, rather than encourage, the development of new technology.

The basic argument is that patent litigation is expensive and frontloaded in such a way that "creates an opportunity for abuse" because early-state settlement is focused more on the cost of litigation rather than the value of the patent or its underlying technology. And, it is the recent "rise of patent assertion entities" that has "disrupted [the] delicate balance" of the patent system.

The professors propose the following six general reforms:

  1. To discourage weak claims of patent infringement brought at least in part for nuisance value, we recommend an increase in the frequency of attorneys' fee awards to accused patent infringers who choose to fight, rather than settle, and ultimately defeat the infringement allegations levelled against them.
  2. To reduce the size and front-loaded nature of patent litigation costs, we recommend limitations on the scope of discovery in patent cases prior to the issuance of a claim construction order, particularly with respect to the discovery of electronic materials like software source code, emails, and other electronic communications.
  3. To further protect innocent retailers and end-users that are particularly vulnerable to litigation cost hold-up, we recommend that courts begin to stay suits filed against parties that simply sell or use allegedly infringing technology until after the conclusion of parallel litigation between the patentee and the technology's manufacturer.
  4. To facilitate the early adjudication of patent infringement suits, we recommend that patentees be required to plead their infringement allegations with greater specificity.
  5. [To increase transparency and confidence in the market for patent licensing, we recommend that Congress require] patentees … to disclose and keep up-to-date the identity of parties with an ownership stake or other direct financial interest in their patent rights.
  6. [To increase transparency and confidence in the market for patent licensing, we recommend that] Congress consider additional legislation designed to deter fraudulent, misleading, or otherwise abusive patent licensing demands made outside of court.

Without a doubt, there is merit to the professors' case, although I bristle at the letter's broad-brush statements and overt stance that is pro-large-corporate-entity. I have a few thoughts regarding the specific suggestions:

(1): Anti-plaintiff fee shifting will have the obvious impact of altering the availability of contingency-fee counsel which may be the motivation of the suggestion. One problem is that almost every patent in litigation is amenable to a good-faith challenge on either invalidity or non-infringement grounds. Predicting winners and losers is a difficult prospect and this gives me little faith that the fee-shifting proposal will primarily target low-quality claims but instead will target risk-averse plaintiffs. The professors' suggestion here to reward non-settlement does not provide me with any confidence that overall litigation costs will be reduced. On the other hand, this proposal (especially if focused on invalidating patents) could serve as something like a bounty for attorneys to challenge bad patents and, as a consequence, would lessen the free-rider problem associated with a single company challenging a patent that is also being asserted against competitors.

(2) & (4): I agree that there is plenty room for reducing discovery costs and for raising pleading requirements without substantially harming patentee rights. However, one problem for both software and method patents is that some forms of infringement are difficult to truly pin-down absent discovery. Some work must be done on any particular proposals to ensure that the result is not a clear pathway unactionable infringement.

(3) Regarding customer lawsuits, we have a difficulty in line drawing because, for the most part, these are not simply customer lawsuits. Rather, the patents being asserted cover particular methods or systems that take advantage of a particular device on-the-market (such as a wireless router or flat-panel television). In this situation, the differences are such that the manufacturer and retailer typically refuse to honor their implied warrantee that the good is "free of the rightful claim … of infringement or the like." UCC 2-312(3). And so, the question is whether these use cases will fit within the definition. One reason for the downstream lawsuits is that downstreamers typically value the technology more than upstreamers with the result of greater damage award. (We know the downstreamers valued it more because they purchased it from the upstreamers). Since the exhaustion doctrine only allows a patentee to recoup at one point in the stream-of-commerce, it makes sense that they would focus on the highest valued user.

= = = = =

Text of the letter:

To Members of the United States Congress:

We, the undersigned, are 60 professors from 26 states and the District of Columbia who teach and write about intellectual property law and policy. We write to you today to express our support for ongoing efforts to pass patent reform legislation that, we believe, will improve our nation's patent system and accelerate the pace of innovation in our country.

As a group we hold a diversity of views on the ideal structure and scope of our nation's intellectual property laws. Despite our differences, we all share concern that an increasing number of patent owners are taking advantage of weaknesses in the system to exploit their rights in ways that on net deter, rather than encourage, the development of new technology.

Several trends, each unmistakable and well supported by empirical evidence, fuel our concern. First, the cost of defending against patent infringement allegations is high and rising. The American Intellectual Property Law Association estimates that the median cost of litigating a moderately-sized patent suit is now $2.6 million, an amount that has increased over 70% since 2001. These and other surveys suggest that the expense of defending even a low-stakes patent suit will generally exceed $600,000. Moreover, the bulk of these expenses are incurred during the discovery phase of litigation, before the party accused of infringement has an opportunity to test the merits of the claims made against it in front of a judge or jury.

The magnitude and front-loaded nature of patent litigation expenses creates an opportunity for abuse. Patent holders can file suit and quickly impose large discovery costs on their opponents regardless of the validity of their patent rights and the merits of their infringement allegations. Companies accused of infringement, thus, have a strong incentive to fold and settle patent suits early, even when they believe the claims against them are meritless.

Historically, this problem has largely been a self-correcting one. In suits between product-producing technology companies, the party accused of infringement can file a counterclaim and impose a roughly equal amount of discovery costs on the plaintiff. The costs, though high, are symmetrical and, as a result, tend to encourage technology companies to compete in the marketplace with their products and prices, rather than in the courtroom with their patents.

In recent years, however, a second trend – the rise of "patent assertion entities" (PAEs) – has disrupted this delicate balance, making the high cost of patent litigation even more problematic. PAEs are businesses that do not make or sell products, but rather specialize in enforcing patent rights. Because PAEs do not make or sell any products of their own, they cannot be countersued for infringement. As a result, PAEs can use the high cost of patent litigation to their advantage. They can sue, threaten to impose large discovery costs that overwhelmingly fall on the accused infringer, and thereby extract settlements from their targets that primarily reflect a desire to avoid the cost of fighting, rather than the chance and consequences of actually losing the suit.

To be sure, PAEs can in theory play a beneficial role in the market for innovation and some undoubtedly do. However, empirical evidence strongly suggests that many PAEs have a net negative impact on innovation. Technology companies – which, themselves, are innovators – spend tens of billions of dollars every year litigating and settling lawsuits filed by PAEs, funds that these tech companies might otherwise spend on additional research and design. Surveys also reveal that a large percentage of these suits settle for less than the cost of fighting, and multiple empirical studies conclude that PAEs lose about nine out of every ten times when their claims are actually adjudicated on their merits before a judge or jury.

The impact of these suits is made more troubling by the fact that PAE activity appears to be on the rise. Empirical studies suggest that at least 40%, and perhaps as high as 59% or more, of all companies sued for patent infringement in recent years were sued by PAEs. PAE suits were relatively rare more than a decade ago, and they remain relatively rare today elsewhere in the world.

More worrisome than these bare statistics is the fact that PAEs are increasingly targeting not large tech firms, but rather small business well outside the tech sector. Studies suggest that the majority of companies targeted by PAEs in recent years earn less than $10 million in annual revenue.

When PAEs target the numerous small companies downstream in the supply chain, rather than large technology manufacturers upstream, they benefit in two ways. First, for every product manufacturer, there may be dozens or hundreds of retailers who sell the product, and hundreds or thousands of customers who purchase and use the technology. Patent law allows patent owners to sue makers, sellers, or users. Suing sellers or users means more individual targets; some PAEs have sued hundreds of individual companies. And, more targets means more lawyers, more case filings, more discovery, and thus more litigation costs overall to induce a larger total settlement amount.

Second, compared to large manufacturers, small companies like retailers are less familiar with patent law, are less familiar with the accused technology, have smaller litigation budgets, and thus are more likely to settle instead of fight. In fact, many small businesses fear patent litigation to such an extent that they are willing to pay to settle vague infringement allegations made in lawyers' letters sent from unknown companies. Like spammers, some patent owners have indiscriminately sent thousands of demand letters to small businesses, with little or no intent of actually filing suit but instead with hopes that at least a few will pay to avoid the risk.

This egregious practice in particular, but also all abusive patent enforcement to some extent, thrives due to a lack of reliable information about patent rights. Brazen patent owners have been known to assert patents they actually do not own or, conversely, to go to great lengths to hide the fact that they actually do own patents being used in abusive ways. Some patent owners have also sought double recovery by accusing companies selling or using products made by manufacturers that already paid to license the asserted patent. Still others have threatened or initiated litigation without first disclosing any specific information about how, if at all, their targets arguably infringe the asserted patents.

In short, high litigation costs and a widespread lack of transparency in the patent system together make abusive patent enforcement a common occurrence both in and outside the technology sector. As a result, billions of dollars that might otherwise be used to hire and retain employees, to improve existing products, and to launch new products are, instead, diverted to socially wasteful litigation.

Accordingly, we believe that the U.S. patent system would benefit from at least the following six reforms, which together will help reduce the cost of patent litigation and expose abusive practices without degrading inventors' ability to protect genuine, valuable innovations:

  1. To discourage weak claims of patent infringement brought at least in part for nuisance value, we recommend an increase in the frequency of attorneys' fee awards to accused patent infringers who choose to fight, rather than settle, and ultimately defeat the infringement allegations levelled against them.
  2. To reduce the size and front-loaded nature of patent litigation costs, we recommend limitations on the scope of discovery in patent cases prior to the issuance of a claim construction order, particularly with respect to the discovery of electronic materials like software source code, emails, and other electronic communications.
  3. To further protect innocent retailers and end-users that are particularly vulnerable to litigation cost hold-up, we recommend that courts begin to stay suits filed against parties that simply sell or use allegedly infringing technology until after the conclusion of parallel litigation between the patentee and the technology's manufacturer.
  4. To facilitate the early adjudication of patent infringement suits, we recommend that patentees be required to plead their infringement allegations with greater specificity.

And finally, to increase transparency and confidence in the market for patent licensing, we recommend:

  1. that patentees be required to disclose and keep up-to-date the identity of parties with an ownership stake or other direct financial interest in their patent rights, and
  2. that Congress consider additional legislation designed to deter fraudulent, misleading, or otherwise abusive patent licensing demands made outside of court.

In closing, we also wish to stress that as scholars and researchers we have no direct financial stake in the outcome of legislative efforts to reform our patent laws. We do not write on behalf of any specific industry or trade association. Rather, we are motivated solely by our own convictions informed by years of study and research that the above proposals will on net advance the best interests of our country as a whole. We urge you to enact them.

Sincerely,

John R. Allison (Texas); Clark D. Asay (Penn State); Jonathan Askin (Brooklyn); Gaia Bernstein (Seton Hall); James E. Bessen (BU); Jeremy W. Bock (Memphis); Annemarie Bridy (Idaho); Irene Calboli (Marquette); Michael A. Carrier (Rutgers); Bernard Chao (Denver); Andrew Chin (UNC); Ralph D. Clifford (UMass); Jorge L. Contreras (American); Rebecca Curtin (Suffolk); Samuel F. Ernst (Chapman); Robin Feldman (Hastings); William T. Gallagher (Golden Gate); Jon M. Garon (Northern Kentucky); Shubha Ghosh (Wisconsin); Eric Goldman (Santa Clara); Leah Chan Grinvald (Suffolk); Debora J. Halbert (Hawaii); Bronwyn H. Hall (Berkeley); Yaniv Heled (Georgia State); Christian Helmers (Santa Clara School of Business); Sapna Kumar (Houston); Mary LaFrance (UNLV); Peter Lee (Davis); Mark A. Lemley (Stanford); Yvette Joy Liebesman (SLU); Lee Ann W. Lockridge (LSU); Brian J. Love (Santa Clara); Glynn S. Lunney, Jr. (Tulane); Phil Malone (Stanford); Mark P. McKenna (Notre Dame); Michael J. Meurer (BU); Joseph Scott Miller (Georgia); Fiona M. Scott Morton (Yale); Lateef Mtima (Howard); Ira Steven Nathenson (St. Thomas); Laura Lee Norris (Santa Clara); Tyler T. Ochoa (Santa Clara); Sean A. Pager (Michigan State); Cheryl B. Preston (BYU); Jorge R. Roig (Charleston); Jacob H. Rooksby (Duquesne); Brian Rowe (Seattle); Matthew Sag (Loyola Chicago); Pamela Samuelson (Berkeley); Jason Schultz (NYU); Christopher B. Seaman (W&L); Carl Shapiro (Berkeley); Lea Shaver (Indiana); Jessica Silbey (Suffolk); Christopher Jon Sprigman (NYU); Madhavi Sunder (Davis); Toshiko Takenaka (Washington); Sarah Tran (SMU); Jennifer M. Urban (Berkeley); Samson Vermont (Charlotte)

Summary of Oral Argument in Medtronic v. Boston Scientific by Prof. La Belle

Patent,

Guest Post by Megan M. La Belle, Assistant Professor at Catholic University of America, Columbus School of Law

Yesterday, the Supreme Court heard oral argument in Medtronic v. Boston Scientific, the first patent case of the term.  The issue before the Court is whether the burden of proof in a declaratory judgment action should be on the patent owner to prove infringement or on the accused infringer to prove noninfringement.  Ordinarily, the patent owner bears the burden of proving infringement, and the declaratory posture of a suit does not shift that burden.  In Medtronic, however, the Federal Circuit created an exception for “MedImmune-type” cases since the patent owner cannot counterclaim for infringement.  “Because the declaratory judgment plaintiff is the only party seeking the aid of the court,” the Federal Circuit reasoned, it should bear the burden of proving noninfringement.

Seth Waxman, on behalf of Medtronic, started his argument with the non-controversial proposition that patent law places the burden of proving infringement on the patent owner.  Mr. Waxman went on to argue that the burden should not shift when the infringement question is raised in a declaratory judgment action –  including MedImmune-type suits – because the Declaratory Judgment Act is merely a procedural device that does not alter substantive rights.  For the most part, the justices appeared to agree with Mr. Waxman.  However, a few questions were raised by Chief Justice Roberts, Justice Kagan, and Justice Kennedy about the fairness of allowing an accused infringer to enter into a license and then turn around and sue the patent owner for declaratory relief.  In the Chief Justice’s words: “The idea is you’re moving along with the license, everybody’s happy.  All of a sudden you jump into court.  Why shouldn’t you have the burden as the party who seeks to disturb the status quo?”

Both Mr. Waxman and Curtis Gannon, arguing on behalf of the government as amicus curiae, addressed these questions of potential unfairness to the patent owner.  They asserted that shifting the burden of proof was not the appropriate way to address the problem.  Mr. Waxman suggested, instead, that patent owners could take certain steps to protect themselves, for instance by including specific contractual provisions in the license that contemplate a declaratory judgment action by the licensee.  Mr. Waxman proposed a number of possible license provisions, including one that would increase the royalty rate if the accused infringer brings a declaratory judgment action, or a provision that makes the filing of a declaratory judgment action a breach of the license agreement.  Mr. Gannon agreed with Mr. Waxman, and made one additional point.  He said this problem of potential unfairness to the patent owner – assuming it is a problem – should be addressed by estoppel, not by shifting the burden of proof:

But even if there were some concern about the licensee turning around and challenging the agreement that it had previously made, it seems like the problem there is either that they should be estopped by what they already said in the agreement or Lear [v. Adkins] needs to be extended to keep them from being estopped in that way.  But shifting the burden of proof seems like an odd way to get at solving whatever the quandary there might be.       

The looming question since MedImmune is whether Lear allows patent owners to “license around” this problem as suggested, or whether such provisions undermine Lear’s policy of encouraging patent challenges.  Unfortunately, Medtronic is unlikely to answer that question, so licensing parties will to continue to wonder if these types of provisions are in fact valid and enforceable.

            Arguing on behalf of the patent owner, Mirowski Family Ventures, Arthur Neustadt defended the Federal Circuit’s decision in Medtronic.  Mr. Neustadt contended that the Federal Circuit correctly applied the “default rule,” which allocates the burden of proof to the party seeking relief.  Because Medtronic was the only party seeking relief in this case, Mr. Neustadt reasoned, it should bear the burden of proving noninfringement.  Justice Scalia began the questioning by stating that this default rule generally doesn’t apply to declaratory judgment actions.  So, Justice Scalia asked, “[w]hat’s different here?”  Mr. Neustadt responded that this case is different because the patent owner could not assert a counterclaim for infringement due to the license.  Justice Scalia was not persuaded by that argument because, as he explained, defendants in declaratory judgment actions often cannot counterclaim:

The whole purpose of the declaratory judgment statute is to enable you to sue before the other side has a cause of action against you.  That’s the whole purpose of it.  So – so why should the fact that the other side doesn’t have a counterclaim change anything?  That’s usually the situation.

Following up on this line of questioning, Justice Ginsburg asked whether Mr. Neustadt was saying that the burden of proof should shift in every declaratory judgment action where only one party is seeking relief.  Mr. Neustadt confirmed that that was his position; in his view, the burden shifting rule established in Medtronic should not be limited to patent cases.  This question of how far the Medtronic rule might extend is also explored in an essay I recently published.

            Throughout his argument, Mr. Neustadt made the point that this isn’t a dispute about infringement, it’s a dispute about claim coverage under the license agreement.  In other words, because there’s a license in place, Medtronic cannot be infringing the patent.  The justices seemed to think this was a distinction without a difference, however.  At one point Justice Breyer said: “[Y]ou want to call that a claim coverage.  I would call it no infringement.  Call it what you wish.”  Later in the argument, Justice Kagan disagreed with Mr. Neustadt’s characterization more directly: “You keep on saying it’s a question of claim coverage, but the question of claim coverage, all that is, is part of an infringement analysis.”  

            One issue the Court did not ask many questions about at oral argument was subject matter jurisdiction.  While subject matter jurisdiction was not raised by the parties, an amicus brief filed by Tessera Technologies argued that the case does not arise under the patent laws because it’s really a contractual royalty dispute, not a dispute about patent infringement.  Tessera relied heavily on the Supreme Court’s recent decision in Gunn v. Minton, which concerned the question of jurisdiction over patent malpractice actions.  Yet, at yesterday’s argument, the only question raised on the topic was by Justice Ginsburg who asked the government for its views on subject matter jurisdiction.    Mr. Gannon stated that the government believes this case arises under the patent laws.  He explained that, in declaratory judgment actions, subject matter jurisdiction is determined by considering what claims would be asserted in the hypothetical coercive action brought against Medtronic.  In other words, if Medtronic were to stop paying royalties and breach its license agreement, the patent owner would sue not only for breach of contract, but for patent infringement as well.   Although the Court did not devote much time to subject matter jurisdiction, the issue was discussed at some length at a post-argument discussion hosted yesterday afternoon by the American University Washington College of Law.  It will be interesting to see to what extent the Court addresses this jurisdictional question in its final decision.

A copy of the full transcript is available here.

The Court is expected to issue its decision before the end of June 2014.