On February 8, 2013, the Federal Circuit held oral arguments en banc in this important subject matter eligibility dispute that focuses on the extent that software can be patented. Under Federal Circuit rules, en banc rehearings include all of the regular circuit court judges as well as any other judge who sat on the original panel. For this case, the nine regular members of the court were joined by Senior Judge Richard Linn who sat on the original panel and penned the opinion of the court that has offended so many anti-software-patent advocates. In the opinion, Judge Linn cabined-in the definition of “abstract” with regard to computer implemented inventions and also indicated that §101 should only be used to invalidate a claim when that result is “manifestly evident.” [UPDATED] With a ten-member panel the accused infringer (CLS Bank) needs six votes to overturn the original panel decision. With a ten member panel, six votes are needed to win. Since the original appellate decision was vacated, this appeal comes directly from the district court. As such, a five-five tie will affirm the lower court holding of invalidity. While I suspect that Linn’s language putting Section 101 on the back burner will not survive, I suspect that at least some claims will be seen to pass muster under Section 101.
The parties are in relative agreement on many points. None of the parties seriously argue that software per se is patentable – apparently assuming that software apart from its computer implementation always embodies an abstract idea. All of the parties also agreed that a computer specially designed to perform a particular function can also be patentable. The dispute centers on what test should be used to determine when you have such a “specialized computer” and on whether Alice Corp’s claimed invention meets that standard.
Most notably absent from the oral arguments was any discussion of the meaning of an “abstract idea.” Of course it is the ambiguity in the definition of abstract idea that is causing most of the confusion regarding subject matter eligibility.
For decades, patent attorneys have known that software can be patentable if properly claimed in a way that directs attention away from the software nature of the invention. I suspect that the rule-of-thumb for patent eligibility will focus on complexity of the relationship between software and hardware. And, if that is the case patent attorneys will renew their reputation for taking simple ideas and making them appear quite complex.
Mark Perry represented the accused infringer (CLS Bank) and argued that one starting point for subject matter eligibility is the notion that a process accomplished “entirely in the human mind or made with pen and paper” cannot be patent eligible. Further, merely speeding-up that process by using a computer does not somehow transform the process into a patentable invention – “it simply accelerates the process.” The bulk of the questioning focused whether CLS had overgeneralized the claims. For instance, when Mr. Perry began reading from the patent’s invention summary he was stopped by Judge Linn who responded that every claim can be distilled to an abstract summary but “that’s not the way that we assess patent eligibility or patentability.”
Judge Moore focused the questioning on the CLS Bank claim that included the most physical structure. Claim 26 of the ‘375 patent reads as follows:
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.
Judge Moore rightly suggested that a computer by itself is clearly a machine and subject-matter eligible. She queried then, how can a more particular invention – the computer with particular functionality – be ineligible? Perry offered two responses. First, he argued that the claim here is really method claim masquerading as a machine claim – that method itself is an abstract idea and the addition of the computer hardware does not make the claims eligible. Further, Perry argued that the claims here are not directed to any particular computer but instead a generic system. Judges Moore and Newman then queried whether the real focus should be on obviousness. Perry admitted that the claims may also be invalid under Section 103, but that the Supreme Court has indicated that Section 101 is a threshold inquiry. In addition, he argued, Section 101 inquiries are often easy because they do not require substantial discovery.
Perry also suggested that the requirement for extensive particular hardware rightly favors companies like CLS Bank and Google who spend millions of dollars to build systems that actually work rather than companies like Alice who merely develop a “McKinsey Report” and file for patent protection.
With Ray Chen on the sideline pending confirmation of his Federal Circuit judicial nomination, Deputy Solicitor Nathan Kelley stepped up and primarily sided with CLS Bank – arguing that software per se cannot be patent eligible because it is an abstract idea and that merely connecting software to a computer is likewise patent ineligible. The oddball test suggested by the PTO borrows the separability concept from copyright law. In copyright, a useful article is only copyrightable if the original expression is at least conceptually separable from the utility of the article. The PTO argues that an inseparability requirement should be put in place for computer implemented inventions. Under that construct, a computer implemented invention that applies an abstract idea would only be patent eligible if the computer is inseparably and inextricably linked to the invention. In oral arguments, Kelley suggested that the approach requires the “fact finder” to “go deeper” in considering whether an inextricable link exists. Mr. Kelly did agree (on questioning from Judge Moore) that the focus in this process should be on the language of the claims.
What the PTO wants out of this is a practical test that its examiners can follow rather than just the notion of an “abstract idea.” I believe that the agency would have been better served if he had focused on that point rather introducing a new concept into the law that does little or nothing to resolve ambiguity.
Adam Perlman argued for the patentee (Alice Corp) and likewise did not defend software patents. Rather, Perlman argued that his client’s patents were technology-focused inventions that wove together software and hardware in a way that “creates a new machine” that clearly satisfies the requirements of Section 101.
There was some back and forth about preemption. Neither party mentioned this, but a point relevant to preemption is likely CLS’s allegations at the district court level that it did not infringe the patents.
The Federal Circuit will likely take a few months to decide this appeal. An important issue will be to see whether the court decides this case quickly or waits for the Supreme Court to release its decision in Myriad. Although not computer implemented, the outcome of Myriad case could impact the law here.
On February 8, 2013 (this Friday), the Federal Circuit will sit en banc and hear arguments on two important patent cases. In CLS Bank v. Alice Corp the court will focus on the patenting of inventions implemented through software. The two particular questions highlighted in the en banc order are:
a. What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible “abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?; and
b. In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for § 101 purposes?
In addition to the parties, the Federal Circuit has also granted leave for the USPTO to participate at oral arguments. The USPTO’s brief focused on practical mechanisms for the process of determining § 101 eligibility. The agency wrote “the essential question under § 101 is whether the claim, properly construed, incorporates enough meaningful limitations to ensure that it amounts to more than a claim for the abstract idea itself . . . This Court should identify a non-exhaustive list of factors for district courts and examiners to consider in resolving that essential question on a case-by-case basis.”
The second patent case (argued first on the 8th) is that of Robert Bosch v. Pylon Mfg. In Bosch, the court is focusing on the “final judgment rule” that limits a losing party’s right to appeal until the district court judgment is finalized. Particularly, 28 U.S.C. § 1292(c)(2) indicates that the Federal Circuit has jurisdiction over patent appeals once the case is “final except for an accounting. The basic question on appeal is: Define “an accounting.” The en banc order asks two particular questions:
a) Does 28 U.S.C. § 1292(c)(2) confer jurisdiction on this Court to entertain appeals from patent infringement liability determinations when a trial on damages has not yet occurred?
b) Does 28 U.S.C. § 1292(c)(2) confer jurisdiction on this Court to entertain appeals from patent infringement liability determinations when willfulness issues are outstanding and remain undecided?
In its brief of the case, the U.S. Government argued that “accounting” encompasses the damage award. As such, the Government argues that appeal is appropriate once liability is determined.
At the Supreme Court, oral argument in Bowman v. Monsanto (patent exhaustion doctrine) is scheduled for February 19; and FTC v. Watson (reverse payment settlements) is scheduled for March 25. Arguments for Association for Molecular Pathology v. Myriad Genetics, Inc. have not yet been scheduled.
Lighting Ballast Control v. Philips Electronics (Fed. Cir. 2013) on petition for en banc rehearing
The patentee in this case has now filed its brief requesting that the court sit en banc and overturn its 15-years-old decision, Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448 (Fed. Cir. 1998) (en banc). In Cybor, the Federal Circuit held that district court claim construction should be given no deference on appeal, facts-be-damned.
The major claim construction issue in the case turns on whether a particular claim phrase should be interpreted under 35 U.S.C. 112¶6. The asserted claim requires a "voltage source means providing a constant or variable magnitude DC voltage between the DC input terminals." U.S. Patent No. 5,436,529. In preparing for a claim construction decision, the district court was presented with evidence on the technology in question and the level of ordinary skill in the art and then made a number of seemingly factual conclusions — The most pertinent conclusion being that a person of skill in the art would interpret the disputed term as covering a class of structures that include "a rectifier, or structure to rectify the AC power line into a DC voltage." Once that factual conclusion was reached, it was easy for the district court to make its claim construction decision that the term was not limited by 112¶6. The district court particularly held that interpreting the term as a means-plus-function limitation would have "exalted form over substance and disregarded the knowledge of a person of ordinary skill in the art." Based upon district court's construction, a jury sided with the patentee in finding infringement.
On appeal, the Federal Circuit reversed that decision – following Cybor and its progeny in holding that the entire claim construction process is reviewed de novo. On de novo review, the appellate panel found that the better interpretation of the claims limited their scope to that available under 112¶6. Further, because the asserted patent did not spell-out how to build a voltage source, the Federal Circuit ruled that the claim was invalid as indefinite.
In its decision, the Federal Circuit held that the lower court decision "concerned only questions of law." Everyone understands that conclusion is wrong but that it a required constructive conclusion based upon Federal Circuit precedent. Of course, the Supreme Court has written on the topic too and found claim construction a "mongrel practice" involving a mixture of fact and law. Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996) (holding for policy reasons that judges, not juries, should decide claim construction).
Why is this important for Lighting Ballast? If the Federal Circuit is able to recognize that the court made some factual conclusions then it will likely give some deference to those conclusions on appeal. And, in this case, that deference may be sufficient to flip the decision back in favor of the patentee.
Allflex USA, Inc. v. Avid Identification Systems, Inc. (Fed. Cir. 2013) Download 11-1621 Panel: Lourie, Clevenger, Bryson (author)
Allflex v. Avid involves the situation where a party to litigation settles the case but seeks to preserve its ability to appeal the district court's adverse rulings by structuring the settlement agreement to include a contingency payment that turns on the outcome of the appeal. Here, the Federal Circuit imposes some constraints on parties' ability to avoid mootness through what effectively amounts to a "side bet."
Allflex sued Avid for, among other things, a declaratory judgment that it did not infringe several of Avid's patents. During the litigation, it came to light that Avid and its (former) counsel "should be sanctioned" because they had failed to disclose the existence of reexamination proceedings that were pending with respect to the patents in suit. (Due to the settlement the parties later entered into, no actual sanctions were apparently ever assessed against Avid). The court subsequently granted partial summary judgment on Allflex's inequitable conduct claim, holding that Avid's failure to disclose information about prior public use and an offer of sale was material. The court declined to enter summary jugment on the issue of intent, concluding that a genuine issue of fact remained. (Note: the court's ruling issued a few months before the Federal Circuit's en banc decision in Therasense v. Becton Dickinson.) Shortly thereafter, the parties entered into a settlement agreement under which Avid agreed to pay Allflex $6.55 million.
Comment: it's noteworthy that in this case the patent holder paid the accused infringer a substantial sum of money to settle the case. After skimming through Allflex's Complaint, this does not appear to me to be (at first glance) an instance of a reverse payment, since Allflex's complaint alleged several other claims,including breach of a settlement agreement, against Avid, and Allflex potentially stood to recover monetary sanctions. However, those who are interested in reverse payment cases may wish to take a closer look, particularly in light of the court's statement on p. 13 that "Avid is not and never was at risk of having to pay a monetary judgment on that claim, as inequitable conduct is a defense or an equitable remedy, not a claim for damages, even when it is pleaded as an affirmative claim in a declaratory judgment action."
The settlement agreement contained a contingency clause, however. Avid reserved the right to appeal the district court's grant of summary judgment of noninfringement, as well as the materiality and sanction rulings, and if it was successful in overturning any or all of those three findings Allflex would pay Avid $50,000. Avid did appeal, challenging the district court's rulings on all three issues. Allflex declined to file a brief.
In general, a party who is unhappy with the district court's rulings may not appeal those rulings after it has settled the litigation: the settlement agreement renders the case moot because the parties are no longer adversaries. For example, a patent holder who enters into an agreement with its opponent to settle the case in its entirety after the district court grants summary judgment of invalidity could not subsequently appeal the invalidity ruling.
On the other hand, where the parties agree to a sum of damages that would be paid or not paid depending on the outcome of the case on appeal, a live controversy may remain. Avid's own past illustrates this point: in a separate litigation, it had obtained a jury verdict of $26,981 for a patent that was subsequently held by the court to be unenforceable due to inequitable conduct. The parties settled all issues, but agreed that if Avid prevailed on its appeal of the inequitable conduct issue, it would recover the $26,981 in damages. Avid Identification Systems, Inc. v. Crystal Import Corp., 603 F.3d 967 (Fed. Cir. 2010). Even though the defendant in that case declined to contest the merits of the appeal, the $26,981 was "not a token or arbitrary sum introduced for the purpose of manufacturing a controversy." Id. at 972.
Here, however, the $50,000 did constitute such a "token or arbitrary sum introduced for the purpose of manufacturing a controversy." It did not reflect an actual damages award, as in Crystal Import, nor was it a "reasonable estimate of the value of any of the issues on appeal." Slip Op. at 12. Instead, it was just a number that Avid had hoped would be large enough to persuade the court that a controversy remained. The court found particularly problematic the fact that the $50,000 would be awarded whether Avid prevailed on any one or more of the issues: this indicated that the $50,000 was completely untethered to the value of any one of those issues.
The court's ultimate holding on the issue: "We hold that where, as here, the appellant has identified no relationship between the valuation placed on the appeal and the issues the appellant wishes to challenge, the parties have simply placed a “side bet” on the outcome of the appeal, which is not enough to avoid a ruling of mootness." Slip Op. at 14. There are good reasons for this rule:
When one party wishes to maximize its prospects of prevailing on an issue that has been the subject of a settlement agreement similar to the one in this case, it would no doubt be tempting to set the contingency payment at a level that would be sufficient to avoid the mootness rule of Aqua Marine, yet low enough to avoid encouraging the adverse party to participate in the appeal. As this case demonstrates, that results in the highly unsatisfactory situation in which the court finds itself with a one-party appeal, where there is no adversarial presentation and the court consequently has reduced confidence in any ruling it might enter. In some instances, as we pointed out in Crystal Import, one-party appeals are unavoidable. But where, as in this case, the appellant has failed to satisfy us that the arrangement leading to the one-party appeal reflects the existence of a legitimate, continuing case or controversy, we decline to be a party to the exercise.
Hal Wegner recently sent around an interesting note regarding the Federal Circuit and the fact that there are only nine regular judges on the court (excluding senior judges). This number is down from the court's usual contingent of twelve judges. Notably absent are Retired Chief Judge Michel, Senior Judge Linn, and Senior Judge Bryson. Richard Taranto has been nominated to fill Chief Judge Michel's position that has been vacant since 2010. No nominees have been put forward yet to replace either Judge Linn or Judge Bryson who took senior status in November 2012 and January 2013 respectively.
The current nine-member circuit is important in the context of petitions for en banc (re)hearing. The court's normal operating procedure is that a case will only be heard en banc if a majority of judges favor an en banc hearing. With the current slate of nine regular members, a majority requires only five votes.
This is particularly relevant to claim construction because a majority of current member have suggested that Cybor should be reviewed and have thus implied that judges should be given some amount of deference – at least for the factual conclusions that lead to the claim construction.
The most recent en banc vote on revisiting Cybor case was the 2012 Highmark petition that lost on a 6-5 vote. Since that vote, two judges from the majority have left the court. Wegner writes:
En banc review was denied by a 6-5 vote in Highmark, Inc. v. Allcare Health Management Systems, Inc., 701 F.3d 1351 (Fed. Cir. 2012). Two voices from the per curiam majority opinion have since taken senior status and thus will not vote on en banc review, Linn, Bryson, JJ. The Highmark dissent by five votes in a minority thus could translate into a five vote majority in any new en banc vote: The five votes of Rader, C.J., Moore, O'Malley, Reyna, Wallach, JJ., create the necessary majority for en banc review.
Once Richard Taranto is confirmed, a majority will immediately require six votes – a much less likely outcome.
Next step: Finding the right case, right away. One potential suggestion is Lighting Ballast Control LLC v. Phillips Electronics North America Corp. et al.
InterDigital v. USITC and Nokia (Fed. Cir. 2013) (en banc)
An en banc request for rehearing in the Interdigital case has been denied, but the panel majority has released a new opinion particularly addressing the patent-troll-domestic-industry question. Judge Newman has also released a new dissenting opinion.
The question in the appeal raised by Nokia is whether InterDigital's patent licensing activities satisfied the "domestic industry" requirement of section 337 of the Tariff Act of 1930, 19 U.S.C. §§ 1337(a)(2) and 1337(a)(3). Here, the court again sided with InterDigital and held that the "most natural reading" of the statute indicates that section 337 relief is "available to a party that has a substantial investment in exploitation of a patent through either engineering, research and development, or licensing." There is no requirement for manufacture by the patentee or any other domestic party. Rather, "[a]s long as the patent covers the article that is the subject of the exclusion proceeding, and as long as the party seeking relief can show that it has a sufficiently substantial investment in the exploitation of the intellectual property to satisfy the domestic industry requirement of the statute, that party is entitled to seek relief under section 337." The majority opinion was written by Judge Bryson and joined by Judge Mayer.
In dissent, Judge Newman argued that a domestic industry requires domestic manufacture. No other judge joined Judge Newman in dissent – suggesting that the majority opinion is on solid footing with the court. And the result is that NPE lawsuits in the ITC are also on solid footing. The benefit of ITC litigation is the stronger likelihood of injunctive relief and the potential of industry-wide enforcement. To collect monetary damages, that injunction would need to be translated into a license agreement.
= = = = =
19 U.S.C. §1337(a)(2) creates a prerequisite to IP enforcement in the USITC that "an industry in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established."
19 U.S.C. §1337(a)(3), as amended in 1988 describes the "industry in the United States" as follows:
[A]n industry in the United States shall be considered to exist if there is in the United States, with respect to the articles protected by the patent, copyright, trademark, mask work, or design concerned—
(A) significant investment in plant and equipment;
(B) significant employment of labor or capital; or
(C) substantial investment in its exploitation, including engineering, research and development, or licensing.
= = = = =
Apart from jurisdiction, there has been a recent push for the USITC to consider delaying, reducing, and rejecting injunctive relief in situations where the patentee's motivation for an injunction is to force a monetary settlement. See Colleen V. Chien and Mark A. Lemley, Patent Holdup, the ITC, and the Public Interest, 98 Cornell Law Review 1 (2012). The statute provides that:
If the Commission determines, as a result of an investigation under this section, that there is a violation of this section, it shall direct that the articles concerned, imported by any person violating the provision of this section, be excluded from entry into the United States, unless, after considering the effect of such exclusion upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers, it finds that such articles should not be excluded from entry.
19 U.S.C. § 1337(d)(1).
= = = = =
Nokia is expected to file a petition on this issue to the Supreme Court.
In re Chevalier (Fed. Cir. 2013) (nonprecedential) (Patent Application Ser. No. 11/407,778)
In a non-precedential but instructive opinion, the Federal Circuit has affirmed the USPTO's obviousness rejection of L'Air Liquide's application covering devices used to form gas-liquid dispersions. The Board rejected claim 1 as obvious, over a combination two prior art references – finding that it "would have been obvious to one skilled in the art to modify the Kwak device in view of the teachings of Howk."
= = = = =
The difficulty with appealing PTAB decisions is that conclusions of fact made by the USPTO's appellate board are reviewed for substantial evidence. In order to win an appeal on a factual question, the patent applicant must go quite a bit further than simply proving that the PTAB's decision was wrong. Rather, the PTAB decision will only be overturned if not based on "more than a mere scintilla" of evidence. Restated, the question is whether the factual conclusion is based upon "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." "[T]he possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence." Consolo v. Fed. Mar. Comm'n, 383 U.S. 607 (1966).
This case represent the most frequent form of PTAB decision – that the applied-for patent claim is unpatentable as obvious over a combination of references. The ultimate question of obviousness is a question of law (reviewed de novo on appeal). However, that ultimate conclusion is based upon a set of factual underpinnings as explained by Graham v. Deere. The Federal Circuit has also held that "[t]he presence or absence of a motivation to combine references in an obviousness determination is a pure question of fact." In re Gartside, 203 F.3d 1305 (Fed. Cir. 2000).
= = = = =
Chevalier challenged the combination of references – arguing that the combination of Kwak and Howk would be inoperable. Apparently Chevalier took the drawings from Kwak and Howk and unsuccessfully tried to jam them together. The Federal Circuit saw that process as "misapprehend[ing] the nature of the obviousness inquiry."
The obviousness inquiry does not ask "whether the references could be physically combined but whether the claimed inventions are rendered obvious by the teachings of the prior art as a whole." In re Etter, 756 F.2d 852 (Fed. Cir. 1985) (en banc); see also In re Keller, 642 F.2d 413 (CCPA 1981) (stating "[t]he test for obviousness is not whether the features of a secondary reference may be bodily incorporated into the structure of the primary reference"). Rather, in a case such as this where each of the elements of the claim are known to the art, the obviousness inquiry requires a finding that the combination of known elements was obvious to a person with ordinary skill in the art.
Here, each of the elements of the claim is taught by Kwak with the exception that the Kwak deflector is not attached to the drive shaft. This deficiency in Kwak is supplemented by Howk, which teaches a deflector attached to the drive shaft. The examiner found, and the Board affirmed, that one of ordinary skill would be motivated to modify Kwak in view of Howk because the modification "would facilitate a more rapid and more complete conversion from axial flow to radial flow of the liquid exiting from the bottom of the device." Ex Parte Gilbert Chevalier, 2011 WL 6747404 (B.P.A.I. Dec. 21, 2011). Chevalier does not challenge this finding. Accordingly, we find no error in the Board's determination that Kwak and Howk could be combined to achieve the claimed invention, nor do we find any error in the Board's determination that one of ordinary skill would be motivated to combine these references to achieve an aeration device that more rapidly and more completely converts axial flow to radial flow in the gas-liquid mixture.
The appellate panel then moved to KSR v. Teleflex to bolster its decision:
Our conclusion is strengthened by Chevalier's admission that the deflectors of Kwak and Howk are "recognized equivalents performing the same function of converting axial flow to radial flow." Appellant's Br. 9. The Supreme Court stated in KSR that "when a patent claims a structure already known in the prior art that is altered by the mere substitution of one element for another known in the field, the combination must do more than yield a predictable result." KSR. Here, the claimed invention merely substitutes the deflector of Howk, which is attached to the drive shaft, for the deflector of Kwak, which is attached to the floor of the basin. This substitution achieved only the predictable result of converting the axial flow of the gas-liquid mixture to radial flow.
Rejection affirmed
= = = = =
The problem with the appeal here is that the appellate arguments are essentially a repeat of the lawyerly discussion of facts made to the examiner and PTAB. When those do not work at the PTO, they are highly unlikely to work on appeal to the Federal Circuit. (No factual affidavits were submitted in the case at the PTO). If Air Liquide had wanted to win the case, they would have been better served to hire expert witnesses to provide testimony either as affidavits to the PTAB or else bring forth that evidence in a civil action. Of course, that approach is likely more expensive and raises a greater potential of inequitable conduct charges down the line – especially in cases like these where other members of the patent family have already issued.
Guest Post by Julie Samuels. Samuels holds an endowed chair at EFF aptly named the Mark Cuban Chair to Elimiate Stupid Patents. EFF's brief in the CLS Bank case is available here: /media/docs/2012/12/eff–iso-cls.pdf.
Since the Supreme Court’s 2010 Bilski ruling, the Federal Circuit has been consistent on only one point in its § 101 jurisprudence—and that’s on being inconsistent. In the face of the Federal Circuit’s failure to provide a workable § 101 standard, the Supreme Court issued its unanimous ruling in Mayo v. Prometheus, essentially telling the Federal Circuit to take the patentable subject matter inquiry seriously. Yet the Federal Circuit paid no heed when it issued ruled in CLS Bank v. Alice, all but ignoring the Supreme Court(for many of us court watchers, the Federal Circuit’s failure to address Mayo was shocking; even Judge Prost, in her dissent, admonished the majority for “fail[ing] to follow the Supreme Court’s instructions—not just in its holding, but more importantly in its approach.”).
So it really was no surprise when the Federal Circuit agreed to take CLS en banc. We, along with many others, hope that this case would provide the Court an opportunity to head the Bilski Court’s warning that:
The Information Age empowers people with new capacities to perform statistical analyses and mathematical calculations with a speed and sophistication that enable the design of protocols for more efficient performance of a vast number of business tasks. If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change. (130 S. Ct. at 3229).
As currently interpreted, § 101 leaves parties unable to discern a patent’s metes and bounds or assess its validity, making inadvertent infringement an unfortunate cost of doing business. This has led to a dangerous and dramatic increase in patent litigation, particularly surrounding business method patents or those covering software. For better or worse (and I think worse), the major uptick in these cases involved non-practicing entities. Some data that we included in our amicus brief filed in CLS Bank:
From 200-2002, NPE litigation accounting for only about five percent of patent litigation;[1] in 2007 that figure was 22 percent and in 2011 it was 40 percent.[2]
Litigation surrounding software patents has also greatly increased:
For the first time in 2011, spending by both Apple and Google on patents exceeded the firms’ spending on new product research and development.[4]
NPEs now disproportionately target small companies; at least 55% of unique defendants sued by NPEs make under $10 million a year.[5]
These statistics are a direct result of the legal instability surrounding § 101. One way to stem this problem is to create incentives for those facing litigation (or litigation threats) to pursue their meritorious defenses of noninfringement and invalidity. Section 101 could play that role, in fact, the Mayo Court seemed to state as much: “to shift the patent-eligibility inquiry entirely to these late sections [§§102, 103, 112] risks creating significantly greater legal uncertainty, while assuming that those sections can do work that they are not equipped to do.” 132 S. Ct. at 1304.
Yet no version of recent § 101 jurisprudence offers much hope of settling the law. Instead, we recommended in our brief (filed along with Public Knowledge) that the Federal Circuit take another route and adopt a stricter construction of § 112(f), as recently proposed by Prof. Mark Lemley. Specifically, instead of attempting to figure out whether a broad, functional claim is abstract or not, a court may first use § 112(f) to narrow the claim to the structures and their equivalents recited in the patent and then, if questions remain, make a § 101 inquiry.
While § 112(f) has traditionally been applied to apparatus claims, it’s clear that Congress intended it to apply to method claims as well. Despite this, software patents often do not detail actual algorithms or explain how to actually carry out the methods they attempt to claim; as such they should be indefinite under cases like Aristocrat Techs. v. Int’l Game Tech. If the claims do specify the algorithms, then the § 101 inquiry will be limited to those algorithms and their equivalents. These questions—of whether §112(f) applies; if it does, how the claims should be limited; and then if § 101 permits that narrowed claim—could all be accomplished at early stages of litigation, before expensive discovery and motion practice.
[1] James Bessen, Jennifer Ford and Michael Meurer, The Private and Social Costs of Patent Trolls, Boston Univ. School of Law, Working Paper No. 11-45, 2011 (“Bessen 2011”), at 6.
[2] Sara Jeruss, Robin Feldman & Joshua Walker, The America Invents Act 500: Effects of Patent Monetization Entities on US Litigation (2012) at 5, 25.
[3] James Bessen, A Generation of Software Patents, Boston Univ. School of Law, Working Paper No. 11-31 (June 21, 2011), at 19
[4] Zak Islam, Smartphone Industry Spent $20 Billion on Patents in 2011, tom’s hardware (October 9, 2012), http://www.tomshardware.com/news/Patents-Smartphone-Apple-Google-Motorola,18231.html
[5] Colleen Chien, Startups and Patent Trolls, Santa Clara Univ. School of Law, Accepted Paper No. 09-12 (September 28, 2012)
Briefing continues in the CLS Bank software patent case. The accused infringer (CLS Bank) has filed its brief arguing that the Alice patent lacks any core inventive concept and therefore lacks subject matter eligibility under Section 101 of the Patent Act. Briefs in support of CLS and those nominally in support of neither party have also been filed. Alice will file its brief in January and I expect a set of additional briefs in support. As in the Bilski case, Alice's asserted claim here is one that appears invalid on other grounds — namely obviousness. However, the district court ruled on summary judgment (and before claim construction) that the claim was invalid as lacking patent eligiblity under Section 101.
The text of the asserted claim is below:
A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party's shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and
(d) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.
In its first opinion, the Federal Circuit reversed the lower court ruling – finding that the claim did not merely encompass an abstract idea but instead embodied a practical implementation that fits within the scope of patent eligible subject matter. In a subsequent en banc order, the court asked that the parties focus on two particular questions of law:
I. What test should the court adopt to determine whether a computerimplemented invention is a patent ineligible “abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?
II. In assessing patent eligibility under 35 U.S.C. § 101 of a computerimplemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for § 101 purposes?
I have attempted to extract some core elements of each brief. I should note that all of these brief have much more nuance than is shown. I attempted to categorize the briefs filed on behalf of neither party. My approach was quite subjective and I am confident that others would have classified them in a different manner.
Practical keys here are (1) whether subject matter eligibility is about the inventive concept or instead more focused on the scope of a well construed claim; (2) invention
"Simple economics makes clear that, if patent protection for software were curtailed, the adverse consequences would be swift and severe. . . . Two factors are of particular significance—whether a claim can be implemented solely via a mental process or necessarily relies upon a machine for execution; and whether the claim uses an abstract idea or law of nature in a way that is novel, useful, and limited. When an invention falls short under both of these standards, it most likey is not patentable under Section 101. . . . Assessed under this framework, the software at issue here is not patentable. . . . It is plain that credit intermediation long preexisted computer implementation, and that it is a process that can be performed in the human mind, or by a human with pencil and paper. In addition, the computer aspect of the claims here does not add anything of substance to the mental process at issue. The computer implementation of the abstract idea is not limited in any fashion. And there is no suggestion that the process here is in anyway dependent upon computer technology to accomplish the directed end."
Download EFF–ISO CLSPatents are causing more harm than benefit. This is especially true for software patents that regularly include broad functional claims. However, Section 101 analysis is problematic because of its ambiguity. The EFF brief argues that the way to cure this is to more broadly interpret 35 U.S.C. § 112(f) (2012) so that functional software claims be given limited scope under the Federal Circuit's Means-Plus-Function doctrine. This approach stems from a recent article by Mark Lemley and fits directly within the avoidance doctrine that Professor Merges and I suggested in our 2010 article.
File Attachment: Clearing House Ass'n–ISO CLS.pdf (819 KB) Banking industry brief argues that "threshold" language means that "the Section 101 inquiry is the first step in the legal framework to determine patentability" and should be rigorously enforced.
File Attachment: Google et al.–ISO CLS.pdf (982 KB). Google acknowledges the difficulty with the abstract idea test because the term "abstract" is so difficult to define. However, Google argues that the abstract ideas are much easier to identify individually than to define generally. This is roughly the same as know-it-when-you-see-it test for obscinity. Google also writes that "abstract patents are a plague on the high-tech sector."
File Attachment: Stites Amicus Brief.pdf (262 KB) "The software patent game is a less than a zero sum game for the participants and has a large inhibiting effect on software innovation." Stites argues that the court should simply eliminate software patents.
In Support of Neither Party, but Promoting a Stronger § 101 Requirement
File Attachment: British Airways et al–ISO Neither Party.pdf (191 KB) Supreme Court has rejected the "course-filter" "manifestly-evident" approach offered by the original CLS panel. Whether a claim fails under Section 101 can ordinarily be determined very early in a case and without and detailed claim construction.
File Attachment: Juhasz Law Firm–ISO Neither Party.pdf (285 KB) "The test to determine whether a computer-implemented invention is a patent ineligible "abstract idea" should be whether steps that are central to the claim (i.e., not token extra-solution activity) have a "physical" or "virtual" link to a specific real or tangible object."
File Attachment: Internet Retailers–ISO Neither Party.pdf (2454 KB) Simply rewriting a method claim as a system or storage medium cannot render the claim subject matter eligible. The Federal Circuit should empower district courts to make 101 determinations very early in cases – well before claim construction or the completion of discovery. "The savings to the parties in money and the courts in time are self-evident. And those savings are more likely to be obtained in precisely those cases in which the patents are least likely to be valid or valuable, cases brought under low-quality patents. Judicious application of Section 101 is likely to winnow out the worst patents at the lowest cost."
In Support of Neither Party, but Promoting a Weaker § 101 Requirement
File Attachment: IP Owners Ass'n–ISO Neither Party.pdf (301 KB) Software is generally patentable under Section 101. However, a claim "must describe the use of [a] computer with sufficient detail to avoid preempting other uses of the idea and the computer implementation must be a meaningful and significant element of the invention." A detailed claim construction is ordinarily necessary to determine whether that claim is directed to statutory subject matter.
File Attachment: NY IP Law Ass'n–ISO Neither Party.pdf (735 KB) Efforts in some decisions to dissect the claim into old and new parts or computer and non-computer elements, should be rejected as squarely inconsistent with the Supreme Court's holdings in Diamond v. Diehr, 450 U.S. 175 (1981), and Bilski. "NYIPLA does not agree that method, system and storage medium claims should ipso facto rise and fall together. Rather, each claim (regardless of its type) should be considered independently as a whole to determine whether it is directed to patent-eligible subject matter."
File Attachment: IP Law Ass'n of Chicago–ISO Neither Party.pdf (1024 KB) Subject matter eligibility should be broad and flexible. IPLAC's test is similar to the government's factor's in its brief. However, the tone of the IPLAC questions suggest broader eligibility. When a claim includes a computer program, IPLAC would ask: "(a) Are the claims drawn to subject matter otherwise statutory, because if so, they do not become nonstatutory simply because they use a mathematical formula, computer program or digital computer. Diehr. (b) Are process claims, as a whole, without regard to the novelty of any element or steps, or even of the process itself, nothing more than a statutory process and not an attempt to patent a mathematical formula, because if so, they are not nonstatutory. (c) Do the claims implement or apply a formula in a structure or process which, when considered as a whole, is performing a function which the patent laws were designed to protect (e.g., transforming or reducing an article to a different state or thing), because if so, the claims are statutory. (d) Do the claims apply the laws to a new and useful end, because if so, they are statutory."
File Attachment: IBM–ISO Neither Party.pdf (1624 KB) "In the exceptional case when the patent eligibility of a computer implemented invention is not readily apparent, the functional requirement of a computer counsels in favor of patent eligibility." Methods are different from systems and are different from storage media. As such, the subject matter eligibility issues are also different and thus, a system claim might be patent eligible while its parallel method claim may be ineligible.
The US Government has filed its amicus brief in the pending en banc CLS Bank case that focuses on the patentability of software systems. Download CLS-Bank_v_Alice_USA-amicus-ISO-Neither-Party. The brief generally rejects the idea that software per se represents patentable subject matter but is favorable toward the patenting of computerized applications that either improve computer performance, use technology in a unique technological way, or transform the local environment.
Unlike some recent briefs, this has been filed with the support of both the USPTO and the DOJ. The brief suggests a claim-by-claim subject matter analysis that begins with claim construction and only then asks "whether the challenged claim, properly construed, incorporates enough meaningful limitations to ensure that it amounts to more than a claim for the abstract idea itself." The brief then lists a set of factors that the government sees as important in making that determination:
Is the computer only nominally or tangentially related to the performance of the invention?
Is the computer generically recited or, instead are specific, unconventional computer equipment or tools required?
Is the invention focused primarily on non-technological fields or does the invention improve the ability of a computer to function as a computer?
Is the computer used generically for its automation or communication functions or does the computer manipulate particular data in particular, specific, and useful ways?
Is the abstract idea merely described within a particular environment or is the abstract idea part of an invention that transforms its environment.
Are the computer related elements merely conventional steps described at a high level of generality in a way that would be employed by anyone wanting to apply the abstract idea.
Each of these determinations is riddled with problems as is the potential weighting in an overall abstract-idea analysis. However, the overall approach adds substantially to the the
The brief suggests that all claimed features can contribute to subject matter eligibility, but some caution should be used to not allow "mere 'drafting effort designed to monopolize [an abstract idea] itself'" (quoting Mayo). Regarding the product/process divide, the government writes that the form of the claim should not impact subject matter eligibility because those differences come from the "draftsman's art" rather than the invention itself.
Perhaps attempting to endear itself to the Federal Circuit, the brief implicitly criticizes Supreme Court patent decisions by arguing that "the §101 inquiry should focus on the actual language of each challenged claim, properly construed, not a paraphrase or parody of the claims. Unfortunately, the government does not have any Supreme Court precedent to back-up this argument.
As a final point, the government brief argues that the presumption of validity associated with patent rights lead to a conclusion that a patent can only be invalidated on subject matter eligibility grounds based upon "clear and convincing evidence." Reading between the lines, this seems to mean that any conclusions draw from the factors above must be proven with clear and convincing evidence. While §101 eligibility may be a question of law, the government additionally argues that it is a factual question as to whether "limitations recited in a claim do not, in practice, impose any meaningful limitations on their claim scope." Of course, prior to issuance or during post-grant review there is no presumption of validity.
Highmark, Inc. v. Allcare Health Management Systems, Inc. (Fed. Cir. 2012) (Order Denying Rehearing En Banc) Download 11-1219 order Concurring opinion by Judge Dyk, joined by Judge Newman Dissenting opinion by Judge Moore, joined by Judges Rader, O'Malley, Reyna, and Wallach Dissenting opinion by Judge Reyna, joined by Judge Moore, O'Malley, and Wallach, and Chief Judge Rader in part
Earlier this year, a divided panel of the Federal Circuit held that the element of objective baselessness in an exceptional case determination is subject to de novo review as opposed to a more deferential form of review in Highmark v. Allcare. Yesterday, the Federal Circuit declined to grant en banc review of that holding, a decision that spawned two dissents signed by what now constitutes half the court. (Judge Linn assumed senior status shortly after participating the decision). As discussed below, in declining to grant en banc review the court preserved—and arguably increased—the uncertainty about which standard of review applies.
David Hricik previously wrote an extensive discussion of the panel decision in Highmark; background details are available there. Following that decision, Highmark filed a petition for rehearing en banc challenging the majority's application of a de novo standard when reviewing the issue of whether the litigation was objectively baseless in connection with an exceptional case determination under 35 U.S.C. § 285. The full court declined to rehear the appeal en banc.
The Dissenting Judges: Objective Baselessness is Reviewed for Clear Error. In an act that speaks volumes about the strength of the views of the dissenting judges, two separate judges, Judge Moore and Judge Reyna, each wrote dissents and also signed on to each other's opinions. Both dissents essentially contain the same themes: that the majority's holding regarding the standard of review in Highmark is (1) contrary to the court's own precedent; (2) inconsistent with the Supreme Court's prior rulings; (3) inconsistent with other court's approaches to similar issues in the Rule 11 and Equal Access to Justice Act context; and (4) fundamentally unsound. There are nuanced differences between the opinions; for example, Judge Reyna sharply criticizes the panel majority's over-reliance on developments in the willful infringement context, a part of the opinion that Judge Rader does not join, while Judge Moore offers a milder disagreement. The overarching point of the dissenting judges, however, is that all elements of the exceptional case determination, including that of objective baselessness, are reviewed for clear error, with deference given to the district court judge on factual determinations.
The Concurring Judges: Objective Baselessness is Reviewed De Novo. Writing in support of the decision not to grant rehearing en banc, Judge Dyk joined by Judge Newman argued that (1) the prior opinions did not involve a dispute between the litigants as to whether objective baselessness is a question of law to be reviewed de novo on appeal; (2) that Supreme Court precedent requires objective baselessness to be treated as a question of law; (3) that sections 284 (willful infringement) and section 285 (exceptional case) should be read as involving the same inquiry with the same standard of review; and (4) that policy supports de novo review of the issue of objective baselessness. Judge Dyk further pointed out that the court is in agreement on most of the legal issues in exceptional case determinations — just not this one.
Substantial Implications. The opinions of the dissenting judges raise two substantial implications. The first is the enhanced uncertainty surrounding the standard of review for exceptional case determinations. I read the dissenting judges as saying that not only do they it think the decision not to grant a rehearing en banc was wrong, but that they view the Highmark holding as invalid. Both dissents stress the point that the Highmark holding is inconsistent with the court's prior precedent. Judge Reyna also points out the well-established rule that to the extent a panel's decision on a point of law is inconsistent with an earlier panel's decision on that point, the earlier holding controls. See Reyna Dissent at 4-5. While the court acting en banc can overrule the first panel's holding, a decision not to grant en banc review of the second panel would seem not to be the same as the en banc court actually adopting the second panel's holding. As a result, it may be that the dissenting judges, who now comprise half the voting judges for en banc purposes (and in a month will comprise a majority when Judge Bryson assumes senior status), may not believe themselves bound by the Highmark holding. If this is the case, the split will continue until it is eventually resolved by the en banc Federal Circuit or the Supreme Court.
A second implication is that both Judge Moore and Judge Reyna appear to be skeptical of the court's recent holding in Bard Peripheral Vascular v. W.L. Gore that objective recklessness in a wilfulness determination is subject to de novo review, and are joined by at least two other judges in their skepticism. See, e.g., Moore dissent at 3, n. 1 ("For reasons simlar to those discussed below, this court should also revisit Bard en banc.).
Guest Post by Peter S. Menell (UC Berkeley School of Law) and Jonas Anderson (American University Washington College of Law).
After nearly two decades of lower court confusion, there was a glimmer of hope that the Supreme Court might intervene to clarify the standard of appellate review of claim constructions determinations. Following strongly worded dissents from denial of rehearing en banc, the Supreme Court invited the Solicitor General’s views on the certiorari petition in Retractable Technologies, Inc. v. Becton, Dickinson and Co., 653 F.3d 1296 (Fed. Cir. 2011), denial of rehearing en banc, 659 F.3d 1369 (2012).
In its filing last week, the Solicitor General has unfortunately recommended against Supreme Court review principally on the ground that Retractable Technologies is not an “appropriate vehicle” because the district court did not specifically rely upon factual findings. Therein lies the Catch-22. No district court since at least the Federal Circuit’s 1998 en banc Cybor ruling has been willing to make factual findings in construing patent claims for the pragmatic, logical, and legal reason that to do so would contradict Federal Circuit law that claim construction is a pure question of law.
As we have chronicled at length elsewhere, see Anderson & Menell, From De Novo Review to Informal Deference: An Historical, Empirical, and Normative Analysis of the Standard of Appellate Review for Patent Claim Construction (2012) available at <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2150360>, Anderson & Menell, Appellate Review of Patent Claim Construction: The Reality and Wisdom of a “Mongrel” Standard the Federal Circuit, the Federal Circuit has struggled mightily over the standard of appellate review since the Markman case. A slim majority adheres to de novo review notwithstanding the Supreme Court’s recognition of the “mongrel” character of claim construction. The confusion has contributed to a high, variable, panel-dependent reversal rate of claim construction determinations. Fearing reversal for relying upon expert testimony, district judges avoid and/or mask use of experts in determining how skilled artisans interpret patent claims. Numerous studies indicate — and district court and several Federal Circuit jurists believe — that the de novo standard has significantly increased the uncertainty and costs of patent litigation, reduced settlement rates, and misapplied the Supreme Court’s Markman ruling.
The SG’s rationale overlooks a critical and unique structural feature of the federal patent system: the Federal Circuit’s exclusive jurisdiction over patent appeals. Circuit splits are not possible on patent issues and district courts throughout the land are bound by the Federal Circuit’s interpretation of patent law. Under the SG’s logic, therefore, the standard of appellate review will not be ripe for Supreme Court review unless a district court defies the Federal Circuit. Such logic nearly guarantees that there will never be an “appropriate vehicle” for considering this issue, notwithstanding the vehement cries for help from Chief Judge Rader, Judge Moore, and Judge O’Malley.
It is possible that the Federal Circuit will eventually revisit this standard on its own, although the historical record does not inspire confidence. As we chronicle in our article, members of the Federal Circuit have repeatedly sought to revisit the de novo standard since the Markman decision to no avail. Meanwhile, district courts and the patent system have endured a doubtful application of the Supreme Court’s Markman ruling, causing substantial disruption and wasted resources.
To avoid the Catch-22, the Supreme Court should view dissents from rehearing en banc in the Federal Circuit as a proxy for a circuit split. Furthermore, the fact that a “split” has festered since the time of Markman strongly indicates that the standard of appellate review is ripe for Supreme Court consideration. The SG has missed these critical points in its assessment of the Retractable Technologies certiorari petition.
The U.S. Solicitor General has recommended that the Supreme Court deny certiorari in Retractable Technologies, Inc. v. Becton, Dickinson and Co. The key issues in Retractable concern i) the role of the specification in interpreting patent claim language and ii) the level of deference, if any, the Federal Circuit should give to trial court claim constructions. The SG's recommendation is a setback for those who hope the Court will address these two fundamental questions of patent law and procedure. In recent years, the Court has followed about 80% of the SG's recommendations that certiorari be denied. See, e.g., p. 276 of this 2009 George Mason Law Review article.
A Supreme Court decision in Retractable could fundamentally alter the way trial courts construe patent claims and how the Federal Circuit reviews claim constructions. If the Court decides to review the case, it might limit or overrule the Federal Circuit's en banc decisions in both Phillips v. AWH Corp. and Cybor Corp. v. FAS Techs., Inc.Or the Court might deny review and leave the status quo intact.
Pertinent Facts and Procedural History
Retractable Technologies, Inc. ("RTI") and Becton, Dickinson ("BD") manufacture retractable medical syringes that are designed to reduce the risk of needlestick injuries and infections to health care workers. RTI accuses BD of infringing U.S. Patents 5,632,733 and 7,351,224. The disputed issue of greatest precedential importance concerns the meaning of the claim term "body" as it is used in both patents to describe the structure of RTI's claimed retractable syringe. BD's accused syringe has a two-piece body, so the question of literal infringement hinges largely on whether "body" is limited to a one-piece structure.
Judge David Folsom (E.D. Tex.) sided with RTI on the construction of "body" as not being limited to a single-piece structure. Judge Folsom gave the construction short treatment in his claim construction order, adopting the reasoning and conclusion of his fellow Eastern District of Texas jurist, Leonard Davis, who construed the same term in related patents in earlier litigation RTI brought against New Medical Technologies.
In the earlier case, Judge Davis observed that the specifications of the patents-in-suit did suggest a one-piece structure limitation. Still, he opined, the claims themselves pointed in the opposite direction:
In sum, the Court finds that "body" . . . simply means "hollow outer structure that houses the syringe's components." . . . The only construction of "body" that is consistent with the . . . claim language is a structure that may be one or more pieces. This reading is consistent with the specification, despite some indications to the contrary.
A divided Federal Circuit panel reversed based on the district court's claim construction of "body". Circuit Judge Alan Lourie wrote the Court's opinion, joined by Senior Circuit Judge S. Jay Plager. The majority "agree[d] with BD that the claimed 'body' is limited to a one-piece structure in light of the specifications." Chief Judge Randall Rader dissented: "Because the language of the claims make clear that 'body' does not contain [a one-piece structural] limitation, and it is improper to import limitations from the specification into the claims, I respectfully dissent."
Judge Plager wrote a short concurrence to underscore the majority's position that claims must not be interpreted in ways that go beyond what the inventor disclosed:
However much desired by the claim drafters, who want claims that serve as business weapons and litigation threats … the claims cannot go beyond the actual invention that entitles the inventor to a patent. For that we look to the written description.
RTI petitioned for rehearing en banc, which the Court denied. Circuit Judge Kimberly Moore, joined by Chief Judge Rader, dissented from the denial of the petition. Judge Moore opined that the panel majority "attempt[ed] to rewrite the claims to better conform to what it discerns is the 'invention' of the patent instead of construing the language of the claim." This ran afoul of proper claim construction under Phillips, she contended, and it has happened with such frequency to warrant en banc review.
Judge Moore also suggested that the Court should reconsider Cyboren banc.
We have waited five years (since Amgen Inc. v. Hoechst Marion Roussel, Inc., 469 F.3d 1039 (Fed. Cir. 2006), where six judges claimed a willingness to review Cybor) for that ever-elusive perfect vehicle to review the issue of deference to the district court's claim construction. The Supreme Court held that claim construction was a "mongrel practice." Markman v. Westview Instruments, Inc., 517 U.S. 370, 378 (1996). As such it is clearly a mixed question of law and fact and deference should be given to the factual parts.
Circuit Judge Kathleen O'Malley also dissented from the denial of RTI's petition, but her concern was limited to the de novo standard of review mandated by Cybor.
The SG's Denial Recommendation
In response to RTI's petition for a writ of certiorari, the Supreme Court solicited the SG's views on whether to review the case. The SG recommended a denial of the petition, opining that "[n]either of the questions set forth in the petition for a writ of certiorari warrants review in this case."
On the first question concerning the role of the specification in interpreting patent claim language, the SG contends that there is general doctrinal agreement among Federal Circuit judges:
There is broad agreement among the judges on the Federal Circuit about the principles of law that govern that inquiry, and the Federal Circuit's claim-construction jurisprudence is fully consistent with this Court's precedents. Although different judges sometimes disagree about the proper interpretation of particular claim terms, that is simply the inevitable result of case-by-case adjudication, not a reason for this Court's intervention.
Regarding the second question about the standard of appellate review for claim constructions, the SG agreed that the issue might warrant review in a future case, but not this one:
In an appropriate case, this Court's intervention might be warranted to determine the appropriate standard of review when a district court makes subsidiary factual findings in the course of construing a disputed patent claim. The district court in this case, however, did not make any factual findings about the meaning of the term "body," the state of the relevant art, or any other matter…. Nor did the court consider any expert testimony, make any credibility determinations, or receive any documentary evidence. Rather, the district court's hearing consisted entirely of the oral argument of counsel regarding the claim language, the specification, and pertinent legal authorities…. Because the district court's claim-construction ruling did not depend on the resolution of any questions of fact, this case does not present the question whether a claim-construction ruling that is predicated on factual determinations should nevertheless be subject entirely to de novo appellate review.
RTI may now file a brief responding to the SG's recommendation. The Court will likely decide whether to grant or deny RTI's petition in one of its January conferences.
Andrew Dhuey is an appellate lawyer in Berkeley, California.
Ritz Camera & Image, LLC v. Sandisk Corporation (Fed. Cir. 2012) Download 12-1183 Panel: Bryson (author), Dyk, and Moore
In Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the Supreme Court held that a party who uses a patent procured through intentional fraud on the PTO to obtain or preserve a monopoly may be subject to antitrust liability. Ritz Camera addresses an important standing issue for Walker Process claims: whether a direct purchaser of goods covered by the patent has standing to bring a Walker Process antitrust claim against the patentee even if the purchaser would not be entitled to seek declaratory relief against the patentee under the patent laws. In an opinion authored by Judge Bryson, the court held that such direct purchasers do have standing.
Background: SanDisk is a major producer of NAND flash memory; allegedly, SanDisk controls about three-quarters of the market. It holds several patents relating to the memory products under which it sells and licenses flash memory technology. Ritz is a retailer that purchases flash memory products from SanDisk and its licenses.
In 2010, Ritz filed suit alleging that SanDisk had violated Section 2 of the Sherman Act. Ritz contended that SanDisk had fraudulently procured two patents central to its flash memory business by failing to disclose known prior art and making affirmative misrepresentations to the PTO, that SanDisk established its monopoly position by enforcing those patents and by threats of enforcement, and that these actions caused direct purchasers to pay supra-competitive prices for NAND flash memory products. SanDisk sought to dismiss the complaint on the ground that Ritz lacked standing, an argument that the district court rejected. The appeal arrived at the Federal Circuit on a petition for interlocutory review.
Antitrust Standing Even When No Patent Law Standing: The sole question at issue was:
Whether direct purchasers who cannot challenge a patent's validity or unenforceability through a declaratory judgment action (have not been sued for infringement, and so cannot assert invalidity or unenforceability as a defense in the infringement action) may nevertheless bring a Walker Process antitrust claim that includes as one of its elements the need to show that the patent was procured through fraud.
Slip op. at 5. The Federal Circuit held that direct purchasers do have such standing and, more broadly, that antitrust standing is not limited by the rules of patent standing. Rather, "[t]he “full play” of antitrust remedies encompasses the standing requirements that apply in the antitrust setting,… including the recognition that direct purchasers are not only eligible to sue under the antitrust laws, but have been characterized as “preferred” antitrust plaintiffs." Slip Op. at 6 (internal citations omitted). In Walker Process itself, "[t]he Court did not suggest that the class of “those injured by any monopolistic action” should be limited to those within that class who would have standing to bring an independent challenge to the patents at issue." Id.
In reaching this conclusion, the court expressly rejected SanDisk's argument "that allowing direct purchasers to bring Walker Process claims would allow an intolerable end-run around the patent laws because parties unable to pursue invalidity claims could achieve the same result by way of a Sherman Act claim." Slip Op. at 9. The court noted that a Walker Process claim "is a separate cause of action from a patent declaratory judgment action." Id. It is governed by antitrust law, and the patent issue is only one of several elements that must be proven by the claimant.
Nor did the court agree that the result here "would trigger a flood of litigation and stem innovation," particularly given the demanding proof requirements of a Walker Process claim. Walker Process claims involve patents procurred through intentional fraud, which "cannot well be thought to impinge upon the policy of the patent laws to encourage inventions and their disclosure." Id., quoting Walker Process, 382 U.S. at 176 (Harlan, J., concurring).
Note: Judge Bryson recently annouced his move to senior status, effective January 7, 2013. He has written a number of significant opinions over his tenure, including Phillips v. AWH. Once he assumes senior status, he will have a likely have a reduced caseload and will no longer be eligible to participate in en banc decisions unless he is part of the original panel that heard the case. I will certainly miss reading his opinions as often as I was previously able.
Zoltek Corporation v. United States (Fed. Cir. 2012) (en banc in part) Download 09-5135 Majority: Rader, Newman, Lourie, Bryson, Linn, Prost, Moore, O'Malley, Reyna, and Wallach Dissent: Dyk
We recently discussed the Federal Circuit's en banc opinion in Zoltek v. United States from this past spring in the Contemporary Issues in Patent Law tutorial that I run here at Iowa, and it prompted me to write up a summary.
Zoltek is different from your typical infringement case in that it involves a patent claim brought against the Federal Government for a contractor's actions, and thus liability arises through a separate statutory scheme. Zoltek is the assignee of a patent relating to methods of manufacturing carbon fiber sheets with controlled surface electrical resistivity. Lockheed Martin designed and built F-22 fighter jets for the Federal Government; the F-22 contains carbon fiber sheets that allegedly were produced through the method claimed in Zoltek's patents. However, the process for making the sheets was begun in Japan, the partially completed product was imported into the United States, and the process was completed in the United States, which created a significant problem for Zoltek's infringement claim.
In 1996, Zoltek filed a Complaint against the Federal Government in the Court of Federal Claims under 28 U.S.C. § 1498(a). Section 1498(a) states:
Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.
This statute does two things: first, it acts as a waiver of the government's immunity, and second, it operates an assumption of liability by the government, thus insulating the government contractor itself from liability. However, during an earlier stage of this case, the government argued that because the process was partially performed abroad, it did not fall under Section 1498(a). In a 2006 opinion (Zoltek III), a panel of the Federal Circuit agreed, and held that the scope of 1498(a) was limited to direct infringement under 35 U.S.C. § 271(a). (That opinion also rejected a Fifth-Amendment takings argument). Because 271(a) does not include manufacturing processes that are begun abroad and completed in the United States, the court concluded that the United States had not assumed liability under 1498(a).
The practical effect of the Federal Circuit's ruling was that on remand, Zoltek sought leave to amend its Complaint to add a claim against Lockheed for infringement of the patent under 271(g) and to transfer the action to federal district court. In granting Zoltek's motion, the trial court rejected the Government's argument that 1498(a) insulates government contractors from suit even when the government could not be liable. The Court of Federal Claims certified for interlocutory review the question "“whether 28 U.S.C. § 1498(c) must be construed to nullify any government contractor immunity provided in § 1498(a) when a patent infringement claim aris[es] in a foreign country.”
The Federal Circuit did not directly answer that question. Instead, the new appeal caused it to "re-examine the premises on which our earlier opinion in Zoltek III was based, and to reconsider the consequences of that opinion." 672 F.3d 1314. In other words, the panel had erred.
Revisiting the issue en banc, the court concluded that the correct interpretation of 1498(a) is that it creates a cause of action for direct infringement that is separate and different from 271(a), and that it could include conduct falling under 271(g). Infringement under 271(a) is thus not a necessary predicate for liablity under § 1498(a) as the earlier panel had held. Instead, the court reasoned, the Government's liability "under 1498(a) is linked to the scope of the patent holder's rights as granted by the patent grant in title 35 U.S.C. section 154(a)(1). As the patent grant has expanded over the years, so too has the coverage of § 1498(a)." 672 F.3d 1323. Applying this reasoning, the court concluded that the government could be liable here: "we hold that for the purposes of section 1498, the use or importation “within the United States [of] a product which is made by a process patented in the United States” constitutes use of the invention without lawful right because the products embody the invention itself." 672 F.3d 1326.
Judge Dyk, writing in dissent, disagreed both that the court had jurisdiction to address the issue of the scope of 1498 sua sponte, as well with as the court's revised interpretation.
The scope of 271(g): In concluding that the Government could be liable for Lockheed's conduct, the court held that "[i]f a private party had used Zoltek's patented process to create the resulting product there would be liability for infringing Zoltek's patent right under § 154(a)(1) and § 271(g)." 672 F.3d 1323. However, 271(g) states that:
Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent….A product which is made by a patented process will, for purposes of this title, not be considered to be so made after—
(1) it is materially changed by subsequent processes; or
(2) it becomes a trivial and nonessential component of another product.
Here, Lockheed was not importing "a product which is made by a process patented in the United States"; instead, it was importing a nearly-finished component of that process. I haven't found any cases dealing with this scenario in the regular 271(g) context, so it may be a novel issue. The court essentially avoids the issue in Zoltek by imbuing the product of the process with the essence of the process itself: "In the context of § 1498, the product of a patented process is not only the product, but also the physical embodiment of the invention." 672 F.3d 1326. Zoltek itself is of limited use in settling this issue, however, since by the court's express instruction, "nothing in this opinion should be construed to affect our Title 35 jurisprudence." Id.
Voter Verified v. Premier Election Solutions and Diebold (Fed. Cir. 2012)
On the eve of the 2012 US Presidential Election, the Federal Circuit has released its opinion affirming two Florida district court judgments that 93 of Voter Verified’s asserted patent claims are invalid and the one remaining claim is not infringed by either that the remaining are not infringed by the automated voting systems sold by Premier Election Solutions and Diebold. This result rescues the court from deciding whether injunctive relief to stop voting in Florida would be against the public interest. See eBay v. MercExchange, 547 U.S. 388 (2006)
The asserted patent was originally filed as a patent application in December of 2000 in the wake of the Bush-Gore election debacle in Florida. The patent lists two inventors, including patent attorney Anthony Provitola who prosecuted the patent and litigated the case. The basic idea of the invention is to print a paper copy of the electronically-entered vote and then using the paper copy to verify that the recorded information is correct. See RE40,449.
The decision includes two topics for discussion:
Internet postings as prior art: One prior art reference used to invalidate various claims came from an online posting available through the niche website “Risks Digest.” There was clear evidence of its posting date, however, the patentee argued that the posting did not qualify as a “printed publication” under Section 102(b) because it was not sufficiently accessible to the public interested in the art by the critical date. Rejecting that criticism, the Federal Circuit noted that proof of indexing is not a requirement. Rather, what is necessary is proof that the reference was “available to the extent that persons interested and ordinarily skilled in the subject matter or art, exercising reasonable diligence, can locate it.” (Quoting SRI v. ISS and Bruckelmyer). Applying a totality-of-the-circumstances approach, the court found that availability was proven by the facts that: the reference was available online before the critical date; the site was well known to relevant individuals (those concerned with electronic voting technologies); by the critical date the site included more than 100 electronic voting articles; users of the site consider submissions to be public disclosures; and the site includes an internal search engine that would retrieve the prior art article based on searches for “voting” or “election.”
Joint Infringement: Some of asserted method claims required action by multiple parties (including “the voter”) that could potentially be actionable under Akamai Technologies, Inc. v. Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012) (en banc). However, the appellate panel found that the patentee had waived that argument at the trial level and could not raise it on appeal even though the law has changed in the interim.
Of note, in Akamai the en banc Federal Circuit focused exclusively on indirect infringement and expressly refused to comment on whether prior panel decisions had unduly narrowed the scope of direct infringement. However, the court did vacate the panel decisions in Akamai and McKesson. Here, however, the court falls back on the still-standing precedent in the parallel decision of BMC and Muniauction to limit the scope of direct infringement liability only to cases where the accused direct infringer “either performs every step of the claimed method or exerts ‘direction or control’ over any such steps performed by others.” Since control of “the voter” would be akin to voter fraud, the court here held that no such direct control exists.
Don’t forget to Vote. Below is a photo of Obama that I posted back in 2004 when he was running for senate and voting near my home in Hyde Park (Chicago), IL.
Notes: Just to clear up any confusion from my reference to eBay above, there is no chance that the Federal Circuit would have ordered an injunction to stop the election even if the devices were infringing VV’s exclusive patent rights.
Icon Health & Fitness v. Octane Fitness (Fed. Cir. 2012)
Following claim construction, the district court ruled on summary judgment that Octane’s elliptical machines did not infringe Icon’s U.S. Patent No. 6,019,710. However, the district court refused to find the case “exceptional” under 35 U.S.C. § 285. Under the statute, a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” And, without that exceptional case ruling, the defendant had no opportunity to recoup the money spent defending the case.
U.S. patent cases follow the “American rule” that largely forbids fee shifting except in “exceptional” cases. In Cybor, the Federal Circuit described the adjudication process as involving two steps: First determining whether the case is “exceptional” and then determining the scope of fee shifting that is appropriate (if any). The court wrote:
The determination of whether a case is exceptional and, thus, eligible for an award of attorney fees under § 285 is a two-step process. First, the district court must determine whether a case is exceptional, a factual determination reviewed for clear error. After determining that a case is exceptional, the district court must determine whether attorney fees are appropriate, a determination that we review for an abuse of discretion. A district court abuses its discretion when its decision is based on clearly erroneous findings of fact, is based on erroneous interpretations of the law, or is clearly unreasonable, arbitrary or fanciful.
Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448 (Fed.Cir.1998) (en banc) (citations omitted). This process is akin to that used for enhanced damages where the court first considers whether the infringement was willful and then determines the scope of damage enhancement (if any). One key difference is that Section 285 provides the “exceptional” standard while the “willful infringement” requirement for enhanced damages was created by the court without any statutory key.
We call this the “American rule” of fee shifting because there is an alternate “British rule” that regularly awards fees to the prevailing party regardless of exceptionality of the case.
+++++
In a short nonprecedential opinion, the Federal Circuit affirmed the denial of Octane’s exceptional case motion. Its opinion confirms the traditional stance that an exceptional case award requires significant evidence of misconduct and that denial of a motion for attorney fees is within the discretion of the trial court. “[W]e have reviewed the record and conclude that the court did not err in denying Octane’s motion to find the case exceptional.”
+++++
Of most interest, Octane requested that the court revisit (i.e., lower) the standard for determining whether a case is exceptional. As it must, the panel here rejected that request because it is bound by prior Federal Circuit precedent. However, an en banc request on this point may garner some traction with the court.
Traditionally, there has been something of a bias relatively in favor of exceptional case findings for prevailing plaintiffs but not for prevailing defendants. The bias comes about because a prevailing plaintiff can typically include out-of-court activities such as willful infringement as part of its proof of exceptional case while a prevailing defendant can typically only prove an exceptional case based upon a patent plaintiffs activities during litigation or when securing patent rights.
I like to divide the “bad” plaintiff activities leading to an exceptional case finding into three categories: (1) inequitable conduct during prosecution; (2) litigation misconduct (such as discovery violations or destroying evidence); and (3) bringing a subjectively and objectively baseless lawsuit. Brooks Furniture Mfg., Inc. v. Dutailer International, Inc., 393 F.3d 1378 (Fed. Cir. 2005). Thus, if a prevailing defendant seeks an “exceptional case” award based upon the filing of a worthless lawsuit, the plaintiff must provide clear and convincing evidence that the infringement claims were subjectively and objectively baseless. Globetrotter Software, Inc. v. Elan Computer Group, Inc., 362 F.3d 1367 (Fed. Cir. 2004); see also Reactive Metals & Alloys Corp. v. ESM, Inc., 769 F.2d 1578 (Fed. Cir. 1985) (The person seeking attorney fees must establish the facts showing exceptionality by clear and convincing evidence.)
In its brief, Octane argued that the “subjectively and objectively baseless” requirement is unduly limiting and should be reduced to a standard that considers whether the claim was “objectively unreasonable.” Octane writes:
Patent litigation is expensive. According to a survey published in 2009 by the American Intellectual Property Law Association (“AIPLA”) the median cost for a patent litigation in which the amount in controversy is from $1-25 million, through the end of discovery, is $2.5 million (inclusive of all costs). Unscrupulous large companies know this, and, unfortunately, can use patent litigation as a weapon against competitors, especially smaller competitors. Many smaller competitors simply do not have the financial resources or wherewithal to defend a patent infringement case, no matter how spurious the contentions. Judge Story once wrote that patent litigation is the “sport of kings.” Larger companies can exploit this fact to the detriment of their smaller competitors.
Complicating matters, there is almost no economical or expeditious way for an accused infringer to extract itself from baseless litigation. Unlike certain forms of litigation ( e.g., securities litigation or antitrust litigation) rarely is a patent infringement action dismissed at the pleading stage. Rather, before a defendant accused of infringement has any hope of extricating itself from a litigation, often-times (as here) substantial discovery (both fact and expert), Markman briefing and hearing, and summary judgment briefing and hearing, must occur. By the time summary judgment is granted, substantial time is invested in the case not only by the parties, but by the district court, as well.
For their part, district court judges–who, in many instances, have no technical background and little familiarity with the patent system–are often faced with complex technology, difficult-to-read patent language and a body of case law that is both robust and nuanced. No matter how preposterous the merits of the infringement position may be, in order to reach a resolution on the merits, the district court judge must invest significant time and energy, to decipher the claim scope and understand the defendant’s position. For these reasons, no matter how unreasonable the patentee’s contentions, it is a rare district court judge who will have the courage to call a patentee’s claims “frivolous” after the investment of time and effort necessitated by these cases.
For these reasons, and because of the inconsistent application of the “exceptional case” findings by district courts, Octane proposes that in the context of a prevailing accused-infringer, the legal standard for exceptional case should be re-evaluated. Octane respectfully proposes that a case should be deemed “exceptional” if the infringement claims asserted by the patentee were objectively unreasonable. If they were objectively unreasonable (as here), then the case should be deemed exceptional, and, unless equitable considerations counsel otherwise in the context of the particular case, fees awarded. Octane’s rationale for this proposal are set forth below, as well as factors this Court might articulate to better assist district courts in identifying objectively unreasonable cases.
1. The Rationale for Fee Shifting Where a Patentee Asserts an Objectively Unreasonable Claim of Infringement Against a Competitor.
A patent grants to its holder a legalized monopoly. See Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969) (“The heart of [the patentee’s] legal monopoly is the right to invoke the State’s power to prevent others from utilizing his discovery without consent”); see also Precision Instrument Mfg. Co. v. Auto. Maint. Mack Co., 324 U.S. 806, 816 (1945) (“a patent is an exception to the general rule against monopolies and to the right of access to a free and open market.”) This is permitted because the overall good of encouraging innovation and promoting disclosure is thought to outweigh the anticompetitive effects of a time-limited monopoly. See generally Bilski v. Kappos, 130 S.Ct. 3218, 3255 (2010) (“even when patents encourage innovation and disclosure, ‘too much patent protection can impede rather than ‘promote the Progress of … useful Arts’.’ “). But a patent is, nevertheless, by its nature anticompetitive, and for this reason, the ways in which a patentee may have granted, utilize and leverage a patent are not without limit and are often carefully scrutinized. See In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323, 1333 (Fed. Cir. 2008) (noting that patents are by nature anticompetitive and examining whether agreements improperly restricted competition beyond the exclusionary zone of the patent); see also Bilski, 130 S.Ct. at 3229 (noting “the tension, ever present in patent law, between stimulating innovation by protecting inventors and impeding progress by granting patents when not justified by the statutory design.”)
Title 35 of the United States Code, § 285 authorizes such scrutiny in the context of infringement litigation and specifically authorizes an award of attorney fees in “exceptional” cases. But what is an “exceptional” case? This Court has endeavored to provide guidance to district courts as to the meaning of an “exceptional” case. This Court has indicated that fees are properly awarded in a variety of contexts, including “vexatious or unjustified litigation” or “frivolous filings.” See, e.g., Takeda, 549 F.3d at 1388; Eon-Net LP, 653 F.3d at 1324; Waner v. Ford Motor Co., 331 F.3d 851, 857 (Fed. Cir. 2003); Bayer AG v. Duphar Int’l Research B.V., 738 F.2d 1237, 1242 (Fed. Cir. 1984). However, this Court has also indicated that absent litigation misconduct or fraud in securing a patent, a district court can award attorney fees only if the litigation is both: (1) brought in subjective bad faith and (2) objectively baseless. See, e.g., Eon-Net LP, 653 F.3d at 1324. These differing statements of the standard and other factors noted below, have led to inconsistent application of the exceptional case designation by district courts, particularly in the case of a prevailing alleged infringer.
Octane respectfully submits that commencement and maintenance of objectively unreasonable infringement contentions should be sufficient, standing alone, to deem a case exceptional. This standard is, in many ways, consistent with this Court’s cases holding that unjustified or frivolous suits may be deemed “exceptional.” Octane, however, advocates for reconsideration of the case precedent that indicates litigation misconduct or subjective bad faith should be required – in addition to baseless contentions – before finding a case exceptional.
Additionally, Octane proposes use of the words “objectively unreasonable” rather than “frivolous” or “baseless.” As explained in more detail below, the words “frivolous” or “baseless” often imply misconduct by counsel, and perhaps even violation of Rule 11. Octane respectfully suggests that an action should not have to rise to the level of a Rule 11 violation, before a case could be deemed exceptional; else the remedies are duplicative.
Rather, patentees (including non-practicing patentees) asserting their legal monopoly should at least have to assert objectively reasonable causes of action, or else the risk of paying for the litigation should shift to the patentee, regardless of counsel’s conduct. This is fair and consistent with the overarching goals of the patent system. The alternative–leaving patentees unchecked to assert thin-beyond-reason causes of action–has a huge anticompetitive impact on society and constitutes a gross injustice to innocent defendants.
As any defendant accused of patent infringement could attest, the mere existence of litigation typically has a detrimental impact on business, as customers become nervous about buying a product accused of infringement. This translates into higher costs for end customers as the patentee is able to prevent competition (often legitimate competition) and maintain monopoly prices. Meanwhile, the only recourse for a wrongfully accused infringer, apart from recouping fees under the present standard, is to bring a separate tort cause of action after conclusion of the Federal patent case in state court (which has even less experience with patent law than most district courts), or advance a cost-prohibitive antitrust action, if market share and other elements can be established. For these reasons, district courts need to know that they can find a case exceptional when a patentee fails to assert its legal monopoly responsibly and asserts and maintains objectively unreasonable causes of action.
Considerations a district court might consider when evaluating whether the patentee’s contentions were objectively unreasonable include: (1) more than one claim element was missing in the accused device, (2) the case was resolved on summary judgment, (3) the patentee was not practicing the claimed invention, (4) the patentee’s claim of infringement was based on a claim construction position that: (a) contradicted the prosecution history, or (b) read a limitation out of the claim entirely, or (c) was not rationally related to what was actually invented, (5) the patentee ignored or reargued the court’s claims construction, (6) the accused device incorporated technology that pre-dated the asserted patent, in lieu of the technology disclosed in the patent-in-suit, and (7) the accused infringer communicated to the patentee near the start of the case an alleged design around or element(s) not present in the accused product; the patentee proceeds forward unreasonably; and the defendant ultimately prevails on that issue.
Octane submits that the above factors are examples of factors a district court may consider when determining if a case was objectively unreasonable. These factors encourage early candid discussions between the parties and potentially fosters early settlement, which has been recognized as a laudable goal of the judicial system. Foster v. Hallco Mfg. Co., Inc., 947 F.2d 469, 477 (Fed. Cir. 1991). Moreover, the standard appropriately shifts the risk of fees to a patentee that proceeds forward with weak claims having no reasonable chance of success. Accused infringers should not have to bear the heavy cost of patent litigation where patent owners proceed forward with no more than a scintilla of hope or a desire that the accused infringer will collapse when confronted with a weak claim.
To be clear Octane is not proposing that “exceptional case” means any case in which an alleged infringer prevails. But cases that are objectively unreasonable should be “exceptional”, and not the norm. The cost of spurious infringement claims should be borne by the patentee, not the alleged infringer trying to compete fairly in the marketplace. In those instances (instances which would be even less frequent under this standard than at present), fee shifting is appropriate.
2. Exceptional Case Status Should Not Require Proof of a Rule 11 Violation.
By calling for a standard that allows for the award of fees in “objectively unreasonable” cases Octane is not necessarily arguing for a departure from the line of cases that would allow an award of fees in “frivolous” or “baseless” cases. However, Octane is proposing that the “exceptional” case standard of 35 U.S.C. § 285 should not be commensurate with a Rule 11 violation.
To begin, Rule 11 already includes provisions for sanctions, which would render Section 285 unnecessary if they require proof of the same conduct. Fed. R. Civ. P. 11. Beyond this, labeling a case “frivolous” such that it constitutes a violation of Rule 11 is not a step that most courts take lightly, not only because of the time and money investment in these cases, but also because labeling a case “frivolous” such that it constitutes a violation of Rule 11 requires condemnation of litigation counsel’s conduct. Rule 11 provides, among other things, that by signing all materials submitted to the Court an attorney is representing that “the claims, defenses, and other legal contentions are warranted by existing law or by a non-frivolous argument for extending, modifying, or reversing existing law or for establishing new law. . .” If a case is “frivolous” under Rule 11, then a patentee’s counsel must have acted inappropriately, a conclusion that most courts are loathe to reach.
A case should not have to rise to the level of a Rule 11 violation before it is deemed “exceptional.” Pursuing objectively unreasonable claims (though perhaps not rising to the level of a Rule 11 violation), should not be the norm for patentees, and when it does occur and the patentee is unsuccessful, the case should bear the moniker of an “exceptional case.”
3. Exceptional Case Status Should Not Require Litigation Misconduct Apart from Asserting an Objectively Unreasonable Claim.
Asserting an objectively unreasonable claim is a form of litigation misconduct. Nevertheless, no separate requirement for litigation misconduct should be necessary to establish an exceptional case. A patentee that pursues an objectively unreasonable claim but otherwise responds to discovery in a timely manner, does not destroy relevant documents, shows up to depositions, etc… should still bear the cost of its competitor’s fees, when the unreasonably maintained cause of action fails. No additional litigation misconduct should be necessary.
Moreover, the Federal Rules provide for sanctions for specific litigation misconduct as it occurs. See e.g., Fed. R. Civ. P. 26(g)(3) (authorizing sanctions for improper certification of disclosures and discovery responses); Fed. R. Civ. P. 30 (providing for sanctions for failure to attend a deposition); Fed. R. Civ. P. 37 (authorizing motions and sanctions if a party fails to respond or make appropriate disclosure to discovery requests); see also 28 U.S.C. § 1927 (“any attorney. . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct”). To the extent a patentee (or its counsel) takes some action in litigation that is wrongful, drives up costs, or otherwise violates litigation rules, then the alleged-infringer may bring that conduct to the district court’s attention at the appropriate time, and the district court should order appropriate sanctions, including fines. Encouraging district courts to deal with litigation misconduct in this manner, promotes professionalism and civility and better addresses the specific issues in a timely manner.
Though litigation misconduct could, of course, also be a factor in deeming a case “exceptional”, Octane propose that it should not be a requirement for finding a case exceptional in the face of objectively unreasonable claims.
4. Exceptional Case Status Should Not Require Proof of Bad Faith.
In a patent case, the most an accused infringer can ever hope for is recoupment of attorney’s fees and costs. Even in the rare cases where this is awarded, however, the accused infringer is not made whole. That party is still out the hundreds of hours dedicated by company personnel to the defense of the case (hours that could have been spent on research and development, sales efforts and other endeavors), not to mention the often-significant cost that the suit may have had on the accused infringer in the marketplace. Unlike on the patentee side, where the plaintiff may get treble damages against a willful infringer, the wrongfully-accused infringer has no such remedy against a patentee. The accused infringer is entitled to, at most, recoupment of reasonable fees.
Why is this significant? It is significant because under the law, subjective bad faith ( i.e., the willful, wonton or reprehensible nature of a party’s conduct), while the critical factor in an award of punitive damages (which an alleged infringer cannot recover), is not a pre-requisite, in most statutory schemes, to an award of reasonable attorney fees. See, e.g., 42 U.S.C. § 1988 (allowing court, in its discretion, to award attorney fees to the prevailing party in civil rights actions); 15 U.S.C. § 15 (mandating the award of reasonable attorney fees for any person injured by violation of the antitrust laws); 42 U.S.C. § 3613 (allowing court, in its discretion, to award attorney fees to the prevailing party in fair housing actions). In this instance, the statute merely requires that the court find the case “exceptional” before awarding fees. It says nothing about requiring a showing of subjective bad faith. Octane submits that in view of the differences between punitive damages and reasonable attorney fees and the ways in which these are typically dealt with in statutes and by the courts, an alleged infringer should not have to make a showing of subjective bad faith in order to show that an objectively unreasonable case is “exceptional.”
Regardless of intent (which is inevitably almost impossible to prove), a patentee that asserts an objectively unreasonable cause of action against its competitor should bear the risk of paying that competitors fees if it is unsuccessful.
This is an interesting problem. At the end of the case, a prevailing party has generally proven that the losing party’s case is without merit (i.e., it lost). In that sense, at the end of the case, the position is subjectively, reasonably, and objectively baseless. The question is, however, at the beginning of the case (and to some extent throughout the case) did the position have some merit?
At first cut the proposed fee shifting appears to be a good mechanism for shifting risk onto plaintiffs who, in turn, will avoid filing baseless claims. A benefit of the current rule (objectively baseless) is that it is fairly clear and so the self-weeding is easy. Octane’s multi-factor proposal makes this a much more difficult if not impossible task – meaning that the new rule would also end up discouraging some amount of valid patent claims.
Notes:
Octane is represented by Rudy Telscher and Kara Fussner of Harness Dickey’s St. Louis office. Larry Laycock and his team at Workman Nydegger in Salt Lake represent Iconn.
There is a good chance that Octane won’t push this case any further since it won the underlying decision (non-infringement) and that decision was affirmed on appeal.
Flo Healthcare v. Kappos and Rioux Vision (Fed. Cir. 2012), Inter Partes Reexamination No. 95/000,251.
In an interesting three-way opinion, the Federal Circuit has affirmed the USPTO’s rejection of Flo’s reexamined patent claims. In the process, however, the court provided significant additional guidance for the PTO on when claim elements that do not include the magical word “means” should nevertheless be interpreted as means-plus-function elements. See 35 U.S.C. 112(6). Here, the court found that the claim term “height adjustment mechanism” as used in the context of the patent specification should not be interpreted as a means-plus-function element.
Senior Judge Plager wrote the unanimous majority opinion and also filed a concurring opinion with “additional views” regarding appellate review of PTO claim construction Judge Plager argued that Federal Circuit precedent is unclear:
[W]e now appear to have two contradictory lines of authority on the question of how this court reviews Board claim constructions—a deferential “reasonable” (arbitrary/capricious-type) review, and a no-deference “pure” law type review. [Compare In re Morris, 127 F.3d 1048 (Fed. Cir. 1997) with In re Baker Hughes, 215 F.3d 1297 (Fed. Cir. 2000).] The fact that the APA now governs our review of PTO decisions does not provide guidance on which is the right standard. This is because the APA itself provides one standard for “pure” questions of law—which are reviewed without deference—and different, more deferential, standards for questions of fact and for mixed questions of fact and law.
The question then becomes whether claim construction by the Board is to be considered a question of “pure” law—the way this court treats claim construction in district court litigation under Cybor—and thus to be reviewed without deference; or whether it is something else, a blend of law and fact and judgment—as the Supreme Court said in Markman, a “mongrel practice”—in which case it is at least arguably subject to the “arbitrary and capricious” standard of APA § 706. Interestingly, none of the cases applying the Baker Hughes no-deference standard has paused to explain why that is the preferable standard as a matter of law or policy, or how it relates to the review standard that the Board uses.
Three additional factors weigh relatively in favor of deference toward PTO claim construction decisions even if court claim construction decisions continue to be reviewed de novo. First, claim construction at the PTO is decided initially by technical fact finders (patent examiners) and then by mixed fact/law specialists (PTAB judges). Second, the PTO’s form of claim construction “broadest reasonable construction” is a factual standard as is (virtually) any reasonableness judgment. Finally, the Supreme Court’s placement of decision making authority with a judge rather than a jury (Markman) that led to the Cybor no deference standard is tangential to the PTO’s role in claim construction. The decision makers in patent prosecution are defined by statute and codified rules rather than by the Supreme Court.
Judge Plager does not here suggest that one approach is correct, but does argue in favor of en banc rehearing to provide clear guidance to patentees and others concerned with patent rights. Judge Plager also offers an apology for the confusion since he authored the Morris opinion and was on the Baker Hughes panel.
This case involves a direct challenge to PTO claim construction decisions. The next step removed will involve collateral challenges during infringement litigation. In that case, what deference should be given to PTO conclusions at the time of the patent grant?
Judge Newman also agreed with the majority decision and provided her own additional views on the topic of the “broadest reasonable interpretation” standard used in patent prosecution. Judge Newman argues that the PTO should conduct claim construction applying the same standard as a court would later in litigation. The problem, according to Judge Newman is that the “broadest reasonable interpretation” is being applied as a standard of claim construction whereas it is actually merely an “examination protocol, not a rule of law.”
In its implementation, the examiner starts with a blank slate on which the applicant has described the subject matter he wishes to patent. The examiner is charged with searching the entire world knowledge, and to decide what the applicant is entitled to claim, as a matter of law. See Manual of Patent Examining Procedure §706 (“After the application has been read and the claimed invention understood, a prior art search for the claimed invention is made.”). In this demanding process, the examiner views the applicant’s presentation broadly, in order to assure that all possibly relevant prior art is explored. That is the role of “broadest reasonable interpretation”: it is an examination tool whereby the applicant and the examiner work together to determine and define the “invention” to be claimed.
Regardless of the path used to get there, Judge Newman argues, the claim construction is either correct or it is incorrect and it is the Federal Circuit’s role to make that determination accurately and uniformly. Thus, Judge Newman sees an acute problem in situations such as this case “where the same issue can be finally adjudicated to different appellate outcomes, depending on the tribunal from which it came.” An en banc hearing is also requested to remedy this “pernicious” conflict.
Notes:
The infringement lawsuit between these parties was filed in 2007 (the same year as the inter partes reexamination request). That litigation settled in 2010, but there is not a clear mechanism for settling inter partes reexaminations once they get rolling. The new inter partes reviews can be settled.
Ex parte Thomsen (PTAB 2012) (App S.N. 11/314,709)
SAP’s patent claims are directed to a “method to determine statistics for a field of a database table.” In the appeal, the claim in question has three particular steps:
determining that the field of the table is associated with a field of a check table;
determining a relationship between a number of distinct values of the field in the table and a number of distinct values of the field in the check table; and
determining the number of distinct values of the field in the table based on the relationship and on the number of distinct values of the field in the check table.
In its recent decision, the PTAB affirmed the examiner rejection of this claim on statutory subject matter grounds. The panel wrote:
Considering the language of independent claim 1 as a whole, we agree with the Examiner that the process of claim 1 does not meet Bilski‘s “machine or transformation test” and could be performed within the human mind or by a human writing on a piece of paper. The claim recites a number of steps that are not tied to a particular machine — the claim does not recite any machine performing the functions of the steps, e.g., a processor. Nor do these steps transform data into a different state — the claim simply recites: (1) “determining that the field of the table is associated with a field of a check table;” (2) “determining a relationship between a number of distinct values of the field in the table and a number of distinct values of the field in the check table;” and (3) “determining the number of distinct values of the field in the table based on the relationship and on the number of distinct values of the field in the check table. See In re Bilski, 545 F.3d 943, 962-63 (Fed. Cir. 2008) (en banc), aff’d sub nom. Bilski v. Kappos, 130 S.Ct. 3218 (2010).
Here, to the extent any transformation takes place, the transformation is of one type of data into another type of data — (a) determining an association, (b) determining a relationship, and (c) determining a number. This is not a “transformation or reduction of an article into a different state or thing constituting patent-eligible subject matter.” In re Bilski, at 962; see id. at 963-64 (discussing patent-eligible data transformations). More importantly, the claim is entirely devoid of any mention of a “machine.” While Appellant urges that “[t]he claimed database tables, fields and values necessarily involve the use of a computer or machine” in actuality the “determining” steps could be accomplished within one’s mind or utilizing a pen and paper.
Our reviewing court guides that “a method that can be performed by human thought alone is merely an abstract idea and is not patent-eligible under § 101.” CyberSource, 654 F.3d at 1373. Because we conclude that the scope of claim 1’s method steps covers functions that can be performed in the human mind, or by a human using a pen and paper, we conclude that unpatentable abstract mental processes fall within the subject matter of claim 1.
In the past year, the BPAI has similarly cited CyberSource in several dozen cases.
=====
Ex parte Battles (PTAB 2012) (App. S.N. 10/859,029)
HP’s patent application is directed to a “computer-readable medium that stores a program that, when executed by a digital camera causes the camera to perform” various functions associated with a histogram of light information from a photo-sensor on the camera.
The PTAB has affirmed the examiner’s Section 101 rejection – finding that the claim unduly includes patentable subject matter because the computer-readable medium might be a signal.
Appellant contends that the “computer readable medium,” as recited in claim 21, is drawn to statutory subject matter because the computer readable medium is further recited to store programs, and that transitory, propagating signals cannot store programs. We agree with the Examiner that the “computer readable medium,” as recited in claim 21 and as construed in light of the disclosure is drawn to non-statutory subject matter.
In the originally filed disclosure, Appellant discloses, “a ‘computer readable medium’ can be any means that can store, communicate, propagate, or transport the data … [and it] can be, for example, but not limited to … infrared… or propagation medium now known or later developed.” Per the originally filed disclosure, the claimed “computer readable medium” can be a transitory, propagating signal and transitory, propagating signals are ineligible. In re Nuijten, 500 F.3d 1346, 1357 (Fed. Cir. 2007).
Nuijten continues to be regularly cited by the PTAB – with almost 500 citations in the past five years.
During patent litigation, it is normally the patentee that has the burden of proving infringement. In this case, however, the Federal Circuit flipped the burden and instead began with a presumption of infringement. The court recognized that its decision went against the weight of precedent, but based its conclusion upon the special circumstances in this case and the Supreme Court's holding in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007).
Now, this case is different from typical patent litigation because the plaintiff who filed the case (Medtronic) is not the patentee seeking to enforce a patent. Rather, Medtronichas asked the court to issue a declaratory judgment that its operation does not infringe the Mirowski patent. U.S. Patent No. 4,928,688. Further, unlike the ordinary declaratory judgment case, Medtronic has signed the contract and given its word to pay ongoing royalties. The key holding in MedImmune is that a current patent licensee has standing to seek a declaratory judgment "that the underlying patent is invalid, unenforceable, or not infringed." Thus, under MedImmune, a licensee is not required to breach its contract before seeking declaratory relief. Prior to that case, the Federal Circuit had repeatedly ruled that a licensee in good standing could not challenge a patent because it had no apprehension of suit.
The present case falls squarely within the MedImmune expansion of declaratory judgment jurisdiction. The situation is interesting because the patentee would likely have no standing to sue for infringement even though the licensee now has standing. This situation, although unique, falls within the Supreme Court's general policy of encouraging licensees to challenge patent rights that it announced in Lear v. Adkins, 395 U.S. 653 (1969).
Because of this special factual background of the case, the patentee could not file an infringement counterclaim and therefore asked the court to place the burden of proving non-infringement onto the DJ plaintiff. Considering this issue, the Federal Circuit agreed – holding that the licensee had the burden of proving non-infringement in this situation. Writing for a unanimous panel, Judge Linn wrote:
This case requires us to determine the proper allocation of the burden of persuasion in the post-MedImmune world, under circumstances in which a declaratory judgment plaintiff licensee seeks a judicial decree absolving it of its responsibilities under its license while at the same time the declaratory judgment defendant is foreclosed from counterclaiming for infringement by the continued existence of that license. . . . [I]n the limited circumstance when an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, a licensee seeking a declaratory judgment of noninfringement and of no consequent liability under the license bears the burden of persuasion. . . .
In its petition for rehearing, Medtronic directly challenges this holding. The question presented is:
Whether a legal presumption of patent infringement should exist such that in a declaratory judgment action brought by a licensee seeking a declaration of noninfringement the burden of proof is shifted to the declaratory judgment plaintiff to prove non-infringement.
In my view, it is a bit of an overstatement to say that the court applied a presumption of patent infringement. While we usually think of a simple dichotomy between infringement and non-infringement, it is fair to say that this case presents a potential third option. Because the patentee has not alleged infringement. If the patentee wins the ultimate lawsuit, the final holding should not be that of infringement but rather should merely be a denial of the request for declaratory relief.
For its part, the challenger makes a strong case that the holding here (if overstated) still goes against the weight of Federal Circuit precedent and more than 100 years of Supreme Court precedent.
Judges Linn, Lourie, and Prost were on the original panel. It will be interesting to see how the other eight judges respond.
![6a00d8341c588553ef017c34cf3367970b-pi[1]](https://cdn.patentlyo.com/media/images/2012/12/6a00d8341c588553ef017c34cf3b69970b-pi.jpg "6a00d8341c588553ef017c34cf3367970b-pi[1]")
By Dennis Crouch 
By Dennis Crouch 
By Dennis Crouch