Tag Archives: Federal Circuit En Banc

Technology Patents LLC. v. T-Mobile (UK) Ltd.

October 18, 2012PatentClaim Construction, Federal Circuit En Banc, Personal JurisdictionJason Rantanen

By Jason Rantanen

Technology Patents LLC. v. T-Mobile (UK) Ltd. (Fed. Cir. 2012) Download 11-1581
Panel: Bryson (author), Prost, Reyna

This case involves a suit brought by prolific inventor Aris Mardirossian's company Technology Patents LLC against more than 100 domestic and foreign defendants that TPL accused of infringing US Reissue Patent No. RE39870. While the primary subjects addressed by the court are those of claim construction and infringement , there are several additional noteworthy issues discussed at the end of the post.

The '870 patent relates to a global paging system. According to the patent, the prior art was deficient because "it did not fulfill the need for a cheap and efficient global paging system that allows users who expect to receive messages or pages abroad to 'remotely input country designations in which they are to be paged.'" Slip Op. at 13, quoting '870 patent. The '870 patent sought to cure the deficiencies of the prior art: "The ’870 Patent solved this problem by claiming a system which allows for paging of the receiving user (“RU”) in countries where the RU “may be located,” as per a list input by the RU." Id., quoting district court. Claim 4, the primary claim addressed on appeal, recites (claim terms at issue in the appeal are in bold):

4. A system for paging a receiving user in a country-selective paging system, comprising:

a paging system spanning a plurality of different countries of the world, the paging system including a plurality of servers, and wireless transmitters in different countries for transmitting paging messages to receiving users;

interconnecting servers so as to permit digital communication of signals between the plurality of servers via at least the packet-switched digital data network;

a first website or server located in a first country for allowing an originating user to page the receiving user who may be located in a second country different from the first country, the originating user not necessarily knowing what country the receiving user is located in;

wherein the paging system determines if the second country is currently designated by the receiving user as a designated country in which the paging system is to attempt to page the receiving user;

when the paging system determines that the second country has been designated by the receiving user, means for sending a paging communication via at least the packet-switched digital data network to a second website or server, the second website or server being in communication with a wireless transmitter located in the second country, and wherein the paging communication causes the second website or server to initiate paging the receiving user via the wireless transmitter in the second country; and

when the paging system determines that the second country has not been designated by the receiving user, the paging system initiates paging operations in another country in a predetermined order in an attempt to page the receiving user.

The over 100 companies companies that TPL sued roughly fell into three categories: (1) domestic carriers and handset companies, (2) software providers, and (3) foreign carriers. Following claim construction, the district court granted summary judgment of noninfringement to the domestic carriers. On appeal, TPL challenged the district court's claim construction and noninfringement rulings.

Claim Construction: Much of the claim construction dispute revolved around the meaning of "receiving user." The district court construed this term to mean a "person or party," while TPL contended that it means "the combination of the person and the handset."

Applying what has often been described as a holistic approach to claim construction, the Federal Circuit affirmed the district court's construction. In other words, the court applied a flexible, relatively unstructured approach to construing the claim terms as opposed to a rigid rules-based approach. In this particular case, that meant looking closely at the intrinsic evidence. "The text of the patent makes clear that the term “receiving user” does not refer to a person-pager combination." Slip Op. at 19. The court applied a similar approach to the two remaining claim terms.

Holistic Infringement Analysis: TPL also argued that, even if the CAFC affirmed the district court's claim constructions, it nevertheless erred in its grant of summary judgment of noninfringement. On this point, too, the Federal Circuit affirmed. While much of the CAFC's conclusion was based on the "receiving user" limitation, the court's overall approach bore many similarities to its holistic claim construction: the court made frequent reference back to the specification even as it assessed the question of infringement, rather than rigidly applying its claim construction.

For example, in responding to TPL's argument that because the accused systems permitted users to select the carrier when traveling abroad, some of which contained country information (see below figure), the court pointed out that "The specification and the claims make clear that the invention is concerned with the country in which the receiving user is located, not with the receiving user’s carrier." Slip Op. at 29. This carried through to the assessment of infringement under the doctrine of equivalents, as the court concluded that "the distinction betwen selecting a carrier and selecting a country is not insignificant in the context of the patent….That is a fundamental difference between the accused systems and the claimed invention that goes to the heart of the claimed invention." Slip Op. at 34.

Additional notes:

This lawsuit was filed in 2007 – well before the September 16, 2011 enactment of the America Invents Act, which substantially altered the rules for joining multiple unrelated defendants within a single infringement lawsuit.
The district court granted summary judgment of noninfringement to the software providers as well, in part on the ground that it concluded that certain claims required mutiple actors and TPL failed to show that the defendants have discretion or control over the end users. The Federal Circuit concluded that it was unnecessary to consider the recent en banc decision in Akamai Technologies v. Limelight addressing divided infringement because the claimed software system could be "used" by a single actor even if the user did not have physical control over all elements of a system. Slip Op. at 36 (citing Centillion Data Sys. v. Qwest Communications, 631 F.3d 1279, 1284 (Fed. Cir. 2011).
The district court found that it lacked jurisdiction over the foreign carriers. On appeal, the Federal Circuit did not address the jurisdictional question, instead concluding that "Our ruling sustaining the district court’s decision in favor of the domestic carriers thus dooms TPL’s claim of infringement against the foreign carriers as well. For that reason, it is unnecessary for us to decide whether the district court was correct in dismissing the case against the foreign carriers for lack of personal jurisdiction." Slip Op. at 39.

Federal Circuit To Announce Whether Software is Patentable?: En Banc Rehearing on Section 101 Issues

October 9, 2012PatentAbstract Idea, Federal Circuit En Banc, Subject Matter Eligibility, USPTO DirectorDennis Crouch

By Dennis Crouch

CLS Bank Int’l v. Alice Corp, App. No. 2011-1301 (Fed. Cir. 2012) (en banc order)

The Federal Circuit has refocused its attention on the question of patentable subject matter and has ordered an en banc rehearing of CLS Bank Int’l. v. Alice Corp. (Fed. Cir. 2012). In its initial panel opinion, the Federal Circuit held that, when considered as a whole, the claimed data processing invention was patent eligible. Judge Linn wrote the majority opinion suggesting that a court should only reach Section 101 issues when subject matter ineligibility is “manifestly evident”. Judge Prost wrote in dissent and argued that the majority improperly ignored the Supreme Court’s most recent statements on the topic found in Prometheus. The patentable subject matter question in CLS Bank is virtually indistinguishable from the parallel issue in Bancorp v. Sun Life. In that case, however, the Federal Circuit ruled the invention ineligible.

In its en banc order, the court reformulated the questions presented as follows:

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?

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?

The Federal Circuit has asked for the USPTO to file a brief as amicus curiae. Further amicus briefs may be filed without consent of the parties or leave of the court but must otherwise follow Federal Circuit’s Rule 29.

Supreme Court Questions Whether Patent Law Malpractice Claims “Arise Under” the US Patent Laws (And Thus Are Amenable to Federal Jurisdiction).

October 5, 2012PatentDamages, Enablement, Federal Circuit En Banc, Licenses, Supreme CourtDennis Crouch

By Dennis Crouch

Gunn v. Minton (Supreme Court 2012)

Over the past few years we have seen an ongoing subject matter jurisdictional battle between state courts, regional federal circuit courts of appeal, and the Court of Appeals for the Federal Circuit. The issue as raised in various context is when a complaint stating a non-patent cause of action should be considered to “arise under” the patent laws so as to ensure that the case is heard by a federal district court and subsequently by the Court of Appeals for the Federal Circuit. These non-patent / patent cases can arise in a variety of disputes, including disputes over legal malpractice, contracts and licenses, employment disputes, bankruptcy, challenges to arbitrations, and antitrust disputes.

The issue in the present case is whether state courts in Texas properly have jurisdiction over legal malpractice claims against patent attorneys (or patent litigators). Legal malpractice is generally a state law tort claim, but the Federal Courts have jurisdiction over claims arising under the patent laws. Although there is Federal Circuit precedent on point, this case actually arises from a Texas state court dismissal of Mr. Minton’s malpractice claim based upon the state court’s interpretation of federal law.

Now, the Supreme Court has agreed offer its final view on the question of when the Federal Courts (and the Court of Appeals for the Federal Circuit) have jurisdiction here. Although nominally a patent case, the case could have much broader impact because it will essentially be interpreting the generic constitutional and statutory limitation of “arising under” jurisdiction.

Background on the Dispute: The case started several years ago when Mr. Vernon Minton developed a set of software that he leased to the Texas Int’l Stock Exchange (TISE). That lease to TISE occurred more than one year before he filed a provisional patent application on the invention embodied by the product. The USPTO granted Minton U.S. Patent No. 6,014,643. However, in a later lawsuit against NASDAQ, the patent was invalidated via the on-sale bar of 35 U.S.C. § 102(b) and that invalidity finding was upheld by the Federal Circuit on appeal. Minton v. Nat’l Ass’n of Sec. Dealers, Inc., 336 F.3d 1373 (Fed. Cir. 2003). In that decision, the Federal Circuit confirmed that the lease to TISE constituted a “sale” for 102(b). In a post-judgment motion, Minton asked the district court to consider whether the use by TISE was an experimental use. However, the district court refused to consider that issue because of its untimely introduction.

The present lawsuit arose when Minton sued his patent litigation counsel (who have now joined the Fulbright & Jaworski firm). The crux of the malpractice claim is that the litigation counsel failed to timely plead the experimental use question. Minton filed the lawsuit in Texas state court and lost on a pretrial motion based upon the trial court’s judgment that Minton had failed to present “a scintilla of proof . . . to support his claims.” That no-damages judgment was affirmed by the Texas court of appeals. However, the Supreme Court of Texas took an orthogonal view and held that Texas courts actually lacked subject matter jurisdiction over case. In particular, the Texas Supreme Court held that Minton’s malpractice claim required resolution of a substantial question of patent law and therefore fell within the exclusive “arising under” jurisdiction of the federal courts and, eventually, the Court of Appeals for the Federal Circuit. This ruling gives Minton another shot at winning the case – this time in federal district court. The Texas court wrote:

This case arises out of patent infringement litigation. We consider whether federal courts possess exclusive subject-matter jurisdiction over state-based legal malpractice claims that require the application of federal patent law. The federal patent issue presented here is necessary, disputed, and substantial within the context of the overlying state legal malpractice lawsuit. Additionally, the patent issue may be determined without creating a jurisdictional imbalance between state and federal courts. We conclude that exclusive federal jurisdiction exists in this case. Accordingly, without reaching the merits of the legal malpractice claim, we reverse the court of appeals’ judgment and dismiss this case.

The 5-3 Texas Supreme Court decision follows the lead set by the Court of Appeals for the Federal Circuit in Air Measurement Tech., Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P., 504 F.3d 1262 (Fed. Cir. 2007) and Immunocept, L.L.C. v. Fulbright & Jaworski, L.L.P., 504 F.3d 1281 (Fed. Cir. 2007). In those cases the Federal Circuit gave a broad interpretation to arising under jurisdiction based upon the court’s congressionally mandated goal of national uniformity in the patent system. Both the Akin Gump and the Fulbright Jaworski cases were decided on the same day by the same panel and both penned by then Chief Judge Paul Michel. (Judges Lourie and Rader joined). Although the Texas court did not treat the Federal Circuit decisions as binding precedent, the Court chose to adopt the logic of those decisions. The dissent argued that the State of Texas has a strong interest in (and a regulatory scheme in place for) ensuring that Texas attorneys maintain a high level of quality and that federalism concerns suggest that many of these cases should be adjudged at the state court level. In a non-patent case, the Supreme Court approved of this more nuanced analysis of arising under jurisdiction in the case of Grable & Sons Metal Products, Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005). In 2012, the Federal Circuit has decided at least three other jurisdictional disputes over attorney malpractice. In each case, Judge O’Malley argued against federal circuit jurisdiction based upon her reading of Grable. See Landmark Screens, LLC v. Morgan Lewis & Bockius, LLP (Fed. Cir. 2012)(O’Malley, J., concurring); Byrne v. Wood, Herron & Evans, LLP (Fed. Cir. 2012)(O’Malley, J., joined by Wallach, J., dissenting from denial of the petition for en banc rehearing); and USPPS, Ltd. v. Avery Dennison Corp. (Fed. Cir. 2012)(O’Malley, J., joined by Mayer, J., concurring).

Question Presented: The attorneys challenging federal jurisdiction raised the following questions:

Did the Federal Circuit depart from the standard this Court articulated in Grable & Sons Metal Products, Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005), for “arising under” jurisdiction of the federal courts under 28 U.S.C. § 1338, when it held that state law legal malpractice claims against trial lawyers for their handling of underlying patent matters come within the exclusive jurisdiction of the federal courts? Because the Federal Circuit has exclusive jurisdiction over appeals involving patents, are state courts and federal courts strictly following the Federal Circuit’s mistaken standard, thereby magnifying its jurisdictional error and sweeping broad swaths of state law claims – which involve no actual patents and have no impact on actual patent rights – into the federal courts?

In his responsive brief, Minton reframed the question as follows:

Minton filed a legal malpractice claim against the Attorneys arising from a patent infringement lawsuit. Do federal courts have exclusive “arising under” jurisdiction where the sole substantive issue is the application of a patent law doctrine which is an essential element of Minton’s malpractice claim?

Underlying Law: As suggested by both questions presented, the underlying law on federal court jurisdiction over patent cases begins with the federal statute – 28 U.S.C. § 1338(a).

The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases.

28 U.S.C. § 1338(a). There are two key phrases here. First, federal jurisdiction only exists when the civil action is considered to be “arising under [an] Act of Congress relating to patents.” Second, if federal circuit exists then it is exclusive of state jurisdiction.

Not a Constitutional Question: The statutory “arising under” language is intended to reflect the parallel language found in Article III, Section 2 of the U.S. Constitution that limits federal judicial power to cases “arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority…” However, the two sources have been interpreted somewhat differently. The constitutional “arising under” limits have been broadly interpreted to allow courts to hear cases even when the federal claim is only raised in a defense or counterclaim. See Osborn v. Bank of the United States, 22 U.S. 738 (1824). On the other hand, the “arising under” language in sections 1338 and 1331 have been more narrowly interpreted under the well pleaded complaint rule. In his 2004 article on Holmes Group, Professor Cotropia writes:

The phrase “arising under” originated from Article III of the Constitution, defining the jurisdiction of the federal court system. The Supreme Court interpreted this phrase, as it appears in Article III, to extend the constitutional grant of federal judiciary power to every case where federal law potentially forms an ingredient of a claim. Article III allowed “[t]he mere existence of a latent federal ‘ingredient’ that might in theory be dispositive of the outcome of a case . . . to bring the entire case, including ancillary nonfederal issues, within the jurisdiction of the federal courts.” An implementing statute is needed, however, for lower federal courts to exercise the powers conferred by Article III. With such an implementing statute, lower federal courts could enjoy some or all of the constitutional “arising under” grant of jurisdiction.

Christopher Cotropia, Counterclaims, the Well-Pleaded Complaint, and Federal Jurisdiction, 33 Hofstra L. Rev. 1 (Fall 2004); See also Donald L. Doernberg, There’s No Reason for It; It’s Just Our Policy: Why the Well-Pleaded Complaint Rule Sabotages the Purposes of Federal Question Jurisdiction, 38 Hastings L.J. 597 (1987).Because the Constitutional limitation has been so broadly interpreted, all of the practical discussion is focused on the meaning of “arising under” as it is found in the statutory context.

In Grable (following a long line of precedent), the Supreme Court confirmed that – under the statute – a case may “arise under” federal law even when the cause of action is purely a non-federal state-law claim. However, when the cause of action is not based on a federal claim, Grable requires (1) a substantial underlying contested federal issue and (2) that federal jurisdiction over the case “be consistent with congressional judgment about the sound division of labor between state and federal courts.” Grable interpreted the “arising under” language of 28 U.S.C. § 1331 rather than the patent jurisdictional statute of section 1338. However, in Christianson v. Colt Industries Operating Corp., 486 U.S. 800 (1988), the Supreme Court recognized that those two statutes should be interpreted in parallel.

Is Patent Law Different?: Although I wrote above that the case has non-patent implications, patent law presents some particulars that might not exist in other areas of law. These involve the particular exclusive jurisdictional statute for patent law. Thus, although state courts have jurisdiction to also decide most federal claims, they cannot decide patent claims. In addition, Congress has spoken regarding its desire for uniformity in the application of the patent laws. These stated federal interests could be sufficient to explain a difference between federal jurisdiction over patent law malpractice claims and not over say trademark law malpractice claims. The malpractice is a relatively minor question compared with jurisdiction over contract claims that involve patent rights (such as a patent license or sale). It would be a big deal if the Supreme Court opened the door to greater federal jurisdiction over these claims. As I explain in the next paragraph, I think it is unlikely that this case would be a vehicle for expanding federal jurisdiction and instead will more likely be a vehicle for contracting federal jurisdiction – at least when compared with the holdings in Akin Gump and Fulbright jurisdictional decisions discussed above.

Grable is the Supreme Court’s most recent pronouncement on this issue and that case the court tempered federal arising under jurisdiction by requiring courts to be mindful of the appropriate balance of power between state and federal courts. Despite Grable, both the Federal Circuit and now the Texas Supreme Court have continued to maintain broad jurisdictional reach over these malpractice cases. In these cases, the minority dissenting viewpoint has argued for less expansive jurisdiction. In this setup, the Supreme Court is more likely to resolve the conflict between these ranges than it is to identify a result to the extreme. In addition, in the years since Grable, there has been a continued focus and recognition of legitimizing State’s rights. This notion of the importance of State’s rights places an additional thumb the scale of reduced federal jurisdiction over these types of cases.

AIA Expands Arising Under Jurisdiction: Although not applicable for this case, the Leahy-Smith America Invents Act (AIA) has altered federal court jurisdiction in a way that overrules the Supreme Court decision in Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826 (2002). In that case, the Supreme Court interpreted the applied the well pleaded complaint rule to the Federal Circuit appellate jurisdiction statute (28 U.S.C. § 1295) in holding that patent issues raised only in counterclaims do not “arise under” the patent law in a way that creates Federal Circuit jurisdiction. The AIA amends the statute to clarify that Federal Circuit jurisdiction includes cases where the patent issue is first raised in a compulsory counterclaim. In addition, the new law indicates that “No State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents” and also provides a right of removal from state court if either party raises a claim for relief “arising under any Act of Congress relating to patents.”

Trans-Border Active Patent Inducement under Akamai

October 1, 2012PatentFederal Circuit En Banc, VenueDennis Crouch

By Dennis Crouch

This post discusses Professor Holbrook’s new essay on the extraterritorial consequences of the recent Akamai decision.

In Akamai v. Limelight, an en banc Federal Circuit (CAFC) expanded the scope of liability for actively inducing patent infringement (inducement). Under the old rule, an active inducement charge required proof that an induced third party actually practiced the patented method. Akamai loosened that constraint a bit. Under the new rule, actively inducing infringement of a patented method no longer requires underlying infringement by the third party. The court replaced that element with a requirement of proof that each step of the patented method be performed. Thus, the difference between the old and the new is that active inducement no longer follows the single infringing actor rule that is *still* applied in the context of direct infringement. Under the new rule, a defendant could be held liable for active inducement even when it took three different actors to collectively perform the patented-steps. The statutory basis for active inducement is 35 U.S.C. §271(b) (“Whoever actively induces infringement of a patent shall be liable as an infringer.”). At least as interpreted, the statute does not provide any help in understanding which of these two interpretations (old & new) are correct.

Akamai raises a host of further more detailed question about application of the newly revised doctrine.

In his most recent essay, Professor Timothy Holbrook (Emory) focuses on one of his specialties – international application of the patent laws – and considers how the new law of inducement applies in the international and trans-border patent infringement context.

The crux of Holbrook’s essay begins with the statutory definition of direct patent infringement that uses the phrase “within the United States” as a territorial limitation on patent infringement actions. 35 U.S.C. § 271(a). The old rule of active inducement was linked to this definition and thus included an implicit territorial limitation as well. In Akamai, the court decoupled active inducement from the direct infringement definition of 271(a) and challenges whether (and how) a territorial limitation will be applied moving forward.

One suggestion is that the Federal Circuit should rely upon its control-and-beneficial use doctrine developed in NTP v. Research-in-Motion, 418 F.3d 1282 (Fed. Cir. 2005), to determine whether the territorial limits of the patent laws bar an inducement action. However, NTP is a deeply unsatisfying opinion and has little basis in the law, and such an extension of that opinion would have even less basis in law. Holbrook suggests that when portions of the induced activity occurs in another country, the court should focus on whether the patentee bringing the infringement action has a parallel patent in that other country. If so, then the inducement action can move forward. On the other hand, the absence of such parallel patents suggest that the trans-border inducement action unduly extends US law. Holbrook writes:

The baseline principle would be as follows: if there would not be infringement of the patent in the foreign country, then there would be no infringement of the United States. As I have advocated elsewhere, this approach takes into account potential conflicts with foreign law, which is one of the justifications for the presumption against extraterritoriality.

I should note that Holbrook has offered his solution more broadly as a replacement for the NTP test.

For patentees, the interesting result of Professor Holbrook’s approach is that provides an additional incentive for patentees obtain foreign patent protection because that protection bolsters their US patent rights. In this sense, it gives an edge to non-US innovators who are already much more likely to obtain foreign rights than are US based entities. The approach also offers a straightforward avenue for someone to receive the benefit of practicing the invention without paying royalties and without infringement liability. The approach would be to identify countries where the patent is not protected and induce performance of some steps of the method there. However, in most cases that approach is likely too far-fetched for most situations.

Read the essay: Timothy Holbrook, The Potential Extraterritorial Consequences of Akamai, forthcoming in the Emory International Law Review (2012) online at http://ssrn.com/abstract=2154277.

Appellate Review of Patent Claim Construction: The Reality and Wisdom of a “Mongrel” Standard

September 27, 2012PatentAIA Trials, Claim Construction, Federal Circuit En Banc, PGRJason Rantanen

Guest Post by Professors J. Jonas Anderson (American University) and Peter S. Menell (Berkeley)

Patent scope plays a central role in the operation of the patent system, making patent claim construction a critical aspect of nearly every patent litigation. With the resurgence of patent jury trials in the 1980s, the allocation of responsibility for interpreting patent claims between trial judge and jury emerged as a salient issue. While the Supreme Court’s Markman decision usefully removed claim construction from the black box of jury deliberations notwithstanding its "mongrel" (mixed fact/law) character, the Federal Circuit’s adherence to the view that claim construction is a pure question of law subject to de novo appellate review produced an unusually high reversal rate. The high rate of reversal distorted the evidentiary foundation of claim construction determinations, delayed settlement of patent cases, ran up litigation costs, and turned appellate review of nearly every patent case into re-litigation of patent claim terms.

In 2004, the Federal Circuit undertook to reassess this regime in the Phillips case. On its face, the majority en banc opinion largely stayed the course. Indeed, the studies to have emerged since Phillips suggest that not much has changed, finding that the reversal rate remained high and that the Federal Circuit’s analytical framework remained largely unchanged.

Our recent article reports the results of a longer term, comprehensive, empirical analysis of the Federal Circuit’s claim construction jurisprudence from 2000 through 2011. See “From de novo Review to Informal Deference: An Historical, Empirical, and Normative Analysis of the Standard of Appellate Review for Patent Claim Construction,” available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2150360. In contrast to prior analyses, we find that the claim construction reversal rate has dropped precipitously since the Phillips decision.

	Pre-Phillips	Post-Phillips
Percentage of terms reversed	37.6%	23.8%
Percentage of cases with at least one reversed claim term	40.7%	29.9%
Percentage of cases resulting in remand, reversal, or vacation due to claim construction error	35%	24.1%

The following figure shows the term-by-term reversal rate as a rolling average over 100 terms. The blue line indicates the date that the Federal Circuit granted en banc review in Phillips. The green line indicates the date of the oral argument. The red line indicates the date that the decision issued.

As our article explains, although a majority of the Federal Circuit declined to overturn the de novo standard, just about all members of the Federal Circuit apparently concluded at or around the time of the Phillips argument that they should lighten up on their scrutiny of district court decisions. The immediate drop in reversals that occurs following the Phillips argument suggests that the change in reversal rates cannot simply be explained by district courts having changed their practices in response to the Phillips decision. If the real benefit of Phillips was the opinion’s value in instructing district court judges, we would expect to see a delayed and gradual drop in reversals followed by a later increase as litigants began selecting only the strongest cases for appeal. Instead, we see an immediate and sustained drop in reversals.

As the following chart indicates, affirmance rates for all members of the Federal Circuit rose after Phillips.

In addition, use of summary affirmances increased significantly following the Phillips decision and has remained higher than the pre-Phillips period.

Reversal rates have fallen across all technology fields except business methods.

During 2011, the average reversal rate dipped to 17%. In the two years prior to Phillips, the rate was in the mid-40s.

This does not mean, however, that the problems of de novo review have been adequately resolved. So long as the Federal Circuit subscribes to the view that claim construction is a question of law subject to de novo review, district courts will downplay their resort to experts and fact-finding in managing claim construction in an effort to avoid reversal. This will undermine the quality of adjudication and appellate review by failing to elicit relevant evidence and perpetuating opaque analysis and reasoning. We propose a “mongrel” standard of appellate review of claim construction decisions that better reflects the comparative strengths of trial judges in determining how skilled artisans understand patent claim terms.

The proper standard integrates fact-finding based on experts who can illuminate the perspective of skilled artisans and claim draftpersons with careful review of the intrinsic record. Lower courts’ assessments of such evidence should be upheld if not clearly erroneous or clearly contradicted by the specification or prosecution history. The Federal Circuit would review the intrinsic record on a more independent basis, but with due regard for the district court’s deliberations, proximity to the full record, and integration of the skilled artisan perspective. Were the Federal Circuit to embrace such a standard, lower courts would openly exercise their discretion to receive such evidence and build a forthright record supporting their interpretation. Such a “mongrel” appellate standard would foster better development of the basis for claim construction analysis while promoting earlier settlement of patent litigation and lower litigation cost. Where the disputed claim term is particularly susceptible to skilled artisan construction, the district court’s ruling would carry great weight. But where the term is set forth or substantially constrained by the specification or prosecution history, then the intrinsic record would control. But even in the latter circumstance, we believe that the Federal Circuit should apply a heightened standard – a showing by the appellant of unambiguous evidence in the intrinsic record supporting an alternative construction – so as to promote settlement and reduce litigation costs and uncertainty.

Recognizing this more limited role for appellate review of claim construction should not be viewed as abandoning the effort to improve the clarity of patent claims. That remains a critical component of improving the efficacy of the patent system. What our analysis shows is that achieving that goal through de novo review of patent claim construction misapprehends comparative institutional analysis at a heavy cost. Claim clarity can and should be handled through the claim indefiniteness doctrine and through greater efforts by the Patent Office to ensure that patent claims are clear at the front end of patent protection.

The Supreme Court is currently considering whether to grant a writ of certiorari in a case presenting the standard of appellate review for claim construction decisions in Retractable Technologies, Inc. v. Becton, Dickinson and Co. We believe that the time is ripe to formalize a “mongrel” standard.

Outside the Box Innovations v. Travel Caddy

September 26, 2012PatentAIA Trials, Claim Construction, Federal Circuit En Banc, Inequitable Conduct, Licenses, obviousness, PGR, VenueJason Rantanen

By Jason Rantanen and Dennis Crouch

Outside the Box Innovations LLC (Union Rich) v. Travel Caddy (Fed. Cir. 2012) Download 09-1171
Panel: Newman (concurring in part and dissenting in part), Prost, O'Malley (opinion for the court Per Curiam)

A major criticism of the inequitable conduct doctrine has been that patents could be held unenforceable based upon even "minor and inadvertent errors" that occurred during prosecution of a patent. A major purpose of the Supplemental Examination provision of the America Invents Act was to provide an avenue for correcting the potential unenforceability of patent rights due to those errors. While the AIA was percolating through Congress, however, the Federal Circuit issued its en banc opinion in Therasense v. Becton Dickinson. Under the revised legal framework for inequitable conduct articulated in Therasense, it is highly questionable whether these "minor" violations continue to meet the materiality requirement of inequitable conduct.

Unsurprisingly, post-Therasense, the Federal Circuit has been skeptical of these types of claims. Last fall, in Powell v. Home Depot, 663 F.3d 1221, the Federal Circuit affirmed a district court determination that the patentee did not commit inequitable conduct by failing to update a Petition to Make Special as this was "not the type of unequivocal act, 'such as the filing of an unmistakably false affidavit,' that would rise to the level of affirmative egregious misconduct.'" (PatentlyO discussion here). In Outside the Box Innovations v. Travel Caddy, the Federal Circuit continues in the direction set by Powell, although it does not appear to be ready to completely abandon the notion that certain "minor" violations can constitute inequitable conduct – perhaps maintaining a bit of the "bark" of inequitable conduct despite curtailing its "bite."

Small Entity Fees and Inequitable Conduct

The USPTO offers a major price-break for “small entities” – a 50% reduction in fees if the patent owner qualifies for “small entity status.” In practice, small entities can actually be quite large. The usual rule is that the organizational structure be less than 500 employees. Small entities can lose their status, however, by inter alia licensing the patent to a non-small entity. See Ulead Systems, Inc. v. Lex Computer & Management Corp., 351 F.3d 1139, 1142 (Fed. Cir. 2003). (It's worth noting that the America Invents Act offers an even more aggressive price reduction of 75% for "micro entities," which the USPTO plans to implement in early 2013.)

Prior to Therasense, the Federal Circuit had held that inequitable conduct could arise when a large entity pays only the small entity fees. See Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1231-33 (Fed. Cir. 2007). Here, the patentee (Travel Caddy) paid the small entity fee when it should have paid the large entity fee (based upon licensing affiliates). The district court held the patents unenforceable. On appeal, the Federal Circuit reversed not on the ground of materiality, but on the basis of a lack of intent. The court thus deferred to another day the question of whether the false statement associated with the small entity fee payment could rise to the level of "affirmative egregious misconduct," leaving it intact, if somewhat dinged up:

[A] false affidavit or declaration is per se material. Although on its face, it appears that a false declaration of small entity status would fall within the definition of an “unmistakably false affidavit,” particularly since a party that claims entitlement to small entity status does so in a sworn written declaration, we need not decide that question.[] Even if a false assertion of small entity status were per se material, the requirements of Therasense are not met here because there was no clear and convincing evidence of intent to deceive the PTO. Specifically, there was no evidence that anyone involved in the patent prosecution knew that a patent license had been granted to a large entity and deliberately withheld that information in order to pay small entity fees.

Slip Op. at 13.

Writing in dissent, Judge Newman argued that the majority did not go far enough in its reversal because the filing of the small entity statement by affidavit should not render the incorrect statement “per se material.” Judge Newman also argued that a contingent patent license to a distributor should not necessarily defeat the small entity status.

Failure to Inform Patent Office of Pending Litigation

Manual of Patent Examining Procedure §2001.06(c) states that "Where the subject matter for which a patent is being sought is or has been involved in litigation, the existence of such litigation and any other material information arising therefrom must be brought to the attention of the U.S. Patent and Trademark Office." The application leading to Patent No. 6,991,104 was a continuation of the application that led to Patent No. 6,823,992. On September 23, 2005, a declaratory judgment was filed seeking a declaration of noninfringement of the '992 patent; Travel Caddy did not inform the patent examiner of the existence of this litigation prior to the '104 patent's issuance on January 31, 2006.

The Federal Circuit reversed the district court's pre-Therasense finding of both materiality and intent on this theory of inequitable conduct as well. On materiality, the Federal Circuit ruled that the failure to disclose the existence of a litigation "when there was no citation of prior art, nor any pleading of invalidity or unpatentability in the ’992 complaint as it existed during pendency of the ’104 application" did not constitute "clear and convincing evidence" of materiality. Slip Op. at 7. On intent, "the record contains no suggestion of how the withholding of the information concerning the ’992 litigation could have deceived the examiner and no suggestion of deliberate action to withhold it in order to deceive the examiner." Id. at 8.

Experts Need Not Be Lawyers: In a somewhat bizzare ruling, the district court excluded an expert offered by one of the parties on the ground that he was not a lawyer. "To be sure, many lawyers have technical training, but it is technological experience in the field of the invention that guides the determination of obviousness, not the rhetorical skill or nuanced advocacy of the lawyer." Slip Op. at 19. The Federal Circuit concluded that this constituted an abuse of discretion, and that the error had a "substantial influence" on the outcome of the case.

Claim Construction: The opinion also includes a detailed discussion of claim construction procedure in the context of a prior interpretation by a CAFC panel reviewing a denial of a preliminary injunction (although no final resolution of the issue is reached), and addresses issues of claim construction generally. Judge Newman dissented from the opinion on these issues as well.

Who Decides Obviousness: Judge or Jury?

September 17, 2012Obviousness, PatentClaim Construction, Federal Circuit En Banc, motivation to combine, obviousnessDennis Crouch

By Dennis Crouch

Kinetic Concepts and Wake Forest University v. Smith & Nephew (Fed. Cir. 2012)

Wake Forest’s asserted patents cover a medical technique that uses suction to close a gaping wound. In certain situations, the suction method – also called Negative Pressure Wound Therapy – is apparently better than stitches or – my personal favorite – super glue. Smith & Nephew’s product has become popular – thus the lawsuit. My wife is an MD, so my usual wound therapy involves me saying “go see your momma.”

The issue in the Kinetic appeal involves the question of obviousness and whether the ultimate question of obviousness should be decided by a judge or by the jury. The Supreme Court has repeatedly stated that obviousness is a question of law based upon a set of underlying facts. However, most district court judges allow the jury to decide the legal question of obvious. Further, few judges pose interrogatory questions to the jury regarding the factual underpinnings of their legal determination.

Here, S&N proposed that the jury only be asked to resolve the disputed questions of fact outlined in the Supreme Court’s landmark 1966 decision Graham v. John Deere — questions such as the level of skill in the art and the scope and content of the prior art. Under S&N’s proposal, the judge would then take those answers and form a conclusion on the ultimate legal question of obviousness. The patentees responsive brief identified this process as “one of the worst suggestions of all time.” Here, the district court took a somewhat middle ground – deciding to give the legal issue to the jury, but also ask the jury to identify the underlying factual Graham factors. In addition, the district court indicated that it would see the jury’s obviousness conclusion “as advisory.”

The court wanted some factual guidance from the jury, but was also wary of asking the jury to write its response in narrative form. (Why?) In the end, the jury was asked several yes/no questions about the scope of the prior art; the differences between the prior art and the claimed invention; and whether secondary indicia of non-obviousness existed. After eight days of deliberation, the jury returned its verdict. Samples from the verdict form are shown below.

In its verdict, the jury concluded that the defendant had failed to prove the asserted claims to be obvious.

On JMOL, the district court rejected the jury verdict and held instead that the differences between the prior art and the claimed invention were so minimal as to be obvious to anyone of skill in the art. This holding thus left the asserted claims invalid. On appeal, the Federal Circuit has reinstated the jury verdict upholding the patent and held that the “district court committed error by failing to defer to the jury’s factual findings and granting JMOL on obviousness.” Professor Jason Rantanen wrote on this earlier:

Wake Forest, the patent holder, appealed a district court grant of JMOL of invalidity for obviousness of a claimed invention for treating difficult-to-heal wounds by applying suction (negative pressure). The CAFC reversed, holding that (1) the jury’s “advisory” opinion on the ultimate issue obviousness gave rise to implied findings of facts that the district court was required to accept provided that they were supported by substantial evidence, despite the presence of special interrogatories on the verdict form; (2) the jury’s implied findings of facts on the Graham factors were supported by substantial evidence; and (3) the ultimate conclusion of obviousness was that the claims were not obvious.

In arriving at the ultimate (legal) conclusion of nonobvious, the Federal Circuit focused its discussion on the lack of a reason to combine the prior art references (itself a factual finding), referencing concerns about hindsight reconstruction. In a statement suggesting a technology-based limitation on the use of common sense, the court held that “although expert testimony regarding motivation to combine is not always required, the technology at issue here is not the type of technology where common sense would provide the motivation to combine these references.”

The court’s usual approach to jury obviousness decisions typically begins with the jury’s ultimate conclusion of obviousness/nonobviousness and then works back to the factual determinations necessary to reach that conclusion. In the absence of a special verdict spelling out the factual determinations, the court presumes that the jury made those necessary factual determinations and will affirm the jury verdict so long as those facts were supported by substantial evidence at the trial. In Kinetic, there was a special verdict where the jury particularly identified some of its factual conclusions. However, even here, there were a number of factual determinations necessary to reach the nonobviousness verdict – and those are typically implied into the jury verdict. The basic conclusion of the Federal Circuit in this case was that Smith & Nephew’s obviousness argument was – at base – an attempt to challenge those underlying assumed factual determinations and, that challenge must fail because those determinations were supported by substantial evidence presented at trial.

Smith & Nephew challenged this working-back approach as wrong on (at least) two levels. First, since obviousness is a conclusion of law, the adjudged infringer argued that it couldn’t be the basis for presuming particular factual conclusions that were not expressly decided by the jury. This is even further bolstered by the fact that the district court judge identified the jury’s conclusion on obviousness as ‘advisory.’ The appellate court rejected those arguments by relying on its own precedent supporting the working-back approach and by determining that the district court’s reference to the ‘advisory’ nature of the jury verdict had no meaning.

The court went on to specifically indicate that it is proper to submit legal arguments to a jury:

[I]t is neither error nor dangerous to justice to submit legal issues to juries, the submission being accompanied by appropriate instructions on the law from the trial judge. The rules relating to interrogatories, jury instructions, motions for directed verdict, JNOV, and new trial, and the rules governing appeals following jury trials, are fully adequate to provide for interposition of the judge as guardian of the law at the proper point and when necessary. There is no question that the judge must remain the ultimate arbiter on the question of obviousness. He or she exercises that role first in exercising the judge’s duty of giving proper instructions on the law to the jury before it considers its verdict. The judge exercises control on the question again when presented with a motion for JNOV or new trial. In no sense need the judge abdicate the guardianship role.

R.R. Dynamics, Inc. v. A. Stucki Co., 727 F.2d 1506 (Fed. Cir. 1984).

En Banc Rehearing: Now, Smith & Nephew is preparing to ask the Court of Appeals for the Federal Circuit to rehear the case en banc asking the Federal Circuit to give meaning to the legal nature of an obviousness conclusion and ensure that an accused infringer has a right to an independent determination by a judge on the ultimate question of obviousness.

Notes

Cal Crary followed the trial and posted the following in-depth analysis following the jury verdict.

Inequitable Conduct: Federal Circuit Places another Nail in the Coffin

September 14, 2012PatentFederal Circuit En Banc, Inequitable Conduct, obviousnessDennis Crouch

By Dennis Crouch

1^st Media v. Electronic Arts (Fed. Cir. 2012)

In a strong opinion, the Federal Circuit has rejected a district court holding of inequitable conduct in a failure-to-submit case. The appellate court held that the defendant had failed to prove that the failure to submit was a deliberate fraud on the PTO under the standard outlined in the court’s 2011 en banc Therasense decision.

Individuals sufficiently involved with the prosecution of a patent application bears a “duty of candor and good faith dealing with the [USPTO], which includes a duty to disclose to the Office all information known to that individual to be material to patentability.” 37 C.F.R. § 1.56 (Rule 56). This duty is particularly applied to each inventor named in the application and “each attorney or agent who prepares or prosecutes the application.” A patent attorney’s failure to comply with the duty of candor can lead to disciplinary hearings by the USPTO’s office of enrollment and discipline (OED) and, as a rule, the USPTO refuses to grant patents “on an application in connection with which fraud on the Office was practiced or attempted or the duty of disclosure was violated through bad faith or intentional misconduct.”

The fiercely adversarial litigation system in the US is comparably quite good at rooting out (and thus discouraging) fraud. Whenever a patent is being enforced, accused infringers scour the records and available evidence to look for any way failures to comply with Rule 56. When those failures rise to intentional and material misconduct, a court has the equitable power to hold the patent (and its patent family) unenforceable due to inequitable conduct in the prosecution of the application. Of course, attorney fraud is a serious charge, and even false claims create difficulties for the accused wrongdoer. As such, the courts have taken some steps toward limiting those types of claims. The two key recent cases on this point are Excergen and Therasense.

Excergen: The Federal Rules of Civil Procedure (FRCP) as interpreted by the Excergen decision, inequitable conduct may only be alleged as a defense if it can be pled with particularity (as opposed to other types of claims that may be pled much more generally).

Therasense: Under Therasense, inequitable conduct requires proof that the alleged wrongdoing was deliberately and knowingly wrong and that the result of the wrongdoing during patent prosecution impacted the issuance of the eventual patent and that each element be proven with clear and convincing evidence. In the failure-to-disclose situation, the court writes that a defendant must prove “that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it.”

In 1^st Media, the asserted patent was part of a family of applications that had been filed in various countries around the world. Three references used to reject the foreign applications were never submitted for consideration by the US examiners. Nevada district court Judge Mahan considered this issue and found that both the patent attorney and the listed inventor were at fault for failing to submit the references and held the patent unenforceable.

On appeal, the Federal Circuit reversed – making clear (again) that in a failure-to-disclose situation, the defendant must prove that individuals with a Rule 56 duty “made a deliberate decision to withhold” the references. Further, that deliberate decision element must be proven with clear and convincing evidence and that proof cannot be inferred from the fact that the individuals had knowledge of the references and their materiality.

A court can no longer infer intent to deceive from non-disclosure of a reference solely because that reference was known and material. Moreover, a patentee need not offer any good faith explanation for his conduct unless and until an accused infringer has met his burden to prove an intent to deceive by clear and convincing evidence.

In the bench trial, Judge Mahan found the explanations given by the inventor and his patent attorney to lacking. On appeal, the Federal Circuit made clear that the burden is on the defendant to provide clear and convincing evidence.

The court provided a nice quite for patent attorneys:

Moreover, it is not enough to argue carelessness, lack of attention, poor docketing or cross-referencing, or anything else that might be considered negligent or even grossly negligent. To sustain a charge of inequitable conduct, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference. Whatever one might conclude about Lewis’s and Sawyer’s conduct and interactions relating to the Bush reference, and the nature of Sawyer’s practice at the relevant time, the record does not support the inference that Lewis and Sawyer deliberately chose to withhold Bush.

Because one element of the inequitable conduct charge is missing, the court concluded that it cannot be proven. Of course, “carelessness, lack of attention, [or] poor docketing” will still lead to malpractice claims.

Notes:

In its opinion, the Federal Circuit foreclosed any possibility for the defendants to re-open their inequitable conduct charges for a rehearing. However, the judge has not yet determined validity. Thus, if the withheld references are truly material then we’ll see the jury hold the asserted claims obvious.
Beginning September 16, 2012, patentees will also be able to request a supplemental examination at the USPTO to ensure that any references that had been previously withheld do not impact patentability. However, if the USPTO finds that the previously withheld references create a major patentability question then the Office will institute a reexamination.
We now have a situation where inequitable conduct is quite difficult to prove – meaning that patent owners will rarely be harmed by a violation of the duty of candor and good faith dealing. Consequently, patent attorneys will faced increased pressure to push the boundaries.

CLS Bank v. Alice Corp: Patenting Software Ideas

September 7, 2012PatentAbstract Idea, Enablement, Federal Circuit En Banc, First to Invent, obviousness, Subject Matter EligibilityDennis Crouch

By Dennis Crouch

"Settlement risk" is real in almost every transaction. When a lawyer does legal work, how does she know that she'll get paid. Conversely, if a client pays up-front, how does he know that the work will actually be performed. There is always a possibility of filing a lawsuit to demand fulfillment. However, most businesses would prefer a system that better guarantees a more immediate positive result. A trusted (and bonded) escrow agent can help relieve the problem, but even an escrow agent needs assurances. Further, in the age of electronic funding of transactions, we should be able to take advantage of features of a computer network that might not have been available in an offline world.

The recent Federal Circuit decision in CLS Bank v. Alice Corp. focuses on the subject matter eligibility of Alice's claim to a computer system for assisting with closing financial transactions in a way that avoids settlement risk. The system includes two elements: (1) data storage with various "shadow" variables stored therein; and (2) a computer that is programmed to conduct the transaction. Basically, the transaction is initially conducted in the shadow (i.e., mock) system and then, if the shadow system shows that the parties have sufficient funds to conduct the transaction, post the obligation to the real exchange institution.

The claim reads as follows:

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

a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and

a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.

The district court initially ruled that the patent claim lacked subject matter eligibility. I wrote about that decision in a 2011 post entitled Bilski Applied to Invalidate Computer System Claims. In 2012, a divided Court of Appeals for the Federal Circuit revered – holding that that, when considered as a whole, the claim is patent eligible. Judge Linn wrote the majority opinion that was joined by Judge O'Malley. In many ways, Judge Linn's opinion follows the advice that Professor Rob Merges and I gave in our paper titled Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making. Judge Linn's approach is to only reach Section 101 issues when subject matter ineligibility is "manifestly evident". Judge Prost wrote in dissent and argued that the majority improperly ignored the Supreme Court's most recent statements on the topic found in Prometheus. Professor Jason Rantanen wrote a nice post on the Federal Circuit decision titled CLS Bank v. Alice: The "Nothing More Than" Limitation on Abstract Ideas.

When I consider this claim, a few thoughts arise:

This is a system claim rather than a method claim. However, the structure of the claim is such that the system is designed around the method that it is intended to perform. This makes me think that the teaching of Bilski and Mayo v. Prometheus cannot be ignored here even though those cases were focused on the eligibility of method claims.
The claim requires computer hardware as an integral portion of the invention. However, the particularly claimed computer hardware is entirely conventional and being used in an unsurprisingly conventional manner. Further, if we relax the claim requirements of a computer and "electronic" communications then this same transaction could be fully conducted offline with paper as the data storage unit and contracts creating the time invariant obligation.
Use of the system does not require any physical transformation recognized by the courts (unless you interpret the claim to be limited to only include data storage units that work by physical transformation). The claim does require changes in bank account values and legal obligations, but those have not traditionally been seen as qualifying transformations in the patent eligibility context.
Finally, and most importantly for me, the invention is designed to solve a particular problem in industry and claims a system that operates by performing a series of identified steps to address that particular problem.

Many of you know that, in my view, the Supreme Court precedent on subject matter eligibility has not been internally reconciled. That ongoing precedential conflict coupled with the fuzziness of boundary lines continue to fuel debate on the topic both within and outside of the courthouse. On balance, both sides of this debate have strong arguments based upon patent law history and precedent and I can understand why someone versed in Supreme Court patent eligibility precedent could end up with a conclusion on either side.

Despite the Federal Circuit opinion, this case has not gone away. In recent days, the accused infringer (CLS Bank) has filed a request for rehearing and that request is supported by three amicus briefs. CLS Bank's main point in its brief is that the CLS Bank computer system claim is unpatentable when fully analyzed against Bilski and Prometheus. The brief asks two questions:

Whether the new test for patent-eligibility articulated by the panel majority is inconsistent with Bilski's and Mayo's approach to 35 U.S.C. § 101; and
Whether the method, system, and media claims at issue are patent ineligible because, albeit computer-implemented, they recite no more than an abstract fundamental mechanism of financial intermediation with no inventive concept.

The CLS Bank brief was filed by Mark Perry and his team at Gibson Dunn in DC. This is a change from the Kaye Scholer firm that represented CLS Bank at the district court and in the original appeal.

An amicus brief filed on behalf of a diverse group of five companies including British Airways and LinkedIN (and who all tend to be defendants in patent cases) spelled out how the "course filter" approach used by Judge Linn went against both recent and old Supreme Court precedent. That brief asks two additional questions:

Should courts enforce the patent eligibility requirement evenhandedly without imposing a "manifestly evident" or "coarse filter" hurdle on the patent challenger?
Is patent eligibility a threshold requirement well suited for decision on the pleadings and on early summary judgment?

John Vandenberg of Klarquist Sparkman filed the BA/LinkedIN brief.

Daryl Joseffer of King & Spalding filed a second amicus brief on behalf of Google, HP, Red Hat and Twitter. The brief explains how Mayo identifies four "guideposts" for determining whether an invention lacks subject matter eligibility under the prohibitions of abstract ideas and laws of nature. The four clues all begin with the notion that a patentable invention must be "significantly more than an abstract idea." Thus, if you begin with an abstract idea, "(1) adding steps that are conventional or obvious is insufficient to confer patentable subject matter (Mayo at 1294, 1298, 1299); (2) adding steps that are so general and non-specific that they do not significantly limit the claim's scope is insufficient (id. at 1300, 1302); (3) limiting an idea to a particular technological environment is insufficient (id. at 1294, 1297); and (4) claims that fail the machine-or-transformation test are likewise dubious (id. at 1296, 1303). Explaining the first point, the brief argues that a claim must contain an "inventive concept" apart from the identified law of nature or abstract idea.

The EFF brief filed by Julie Samuel reminds the court of the extensive literature concluding that software patents are bad – especially when in the hands of "patent trolls."

The patentee's responsive brief is due later this month.

*****

At least two additional software patent cases are pending at the Federal Circuit. In Bancorp v. Sun Life, a different panel of Federal Circuit judges considered software patents similar to those in CLS Bank but found the claims ineligible under Section 101. In WildTangent v. Ultramercial, the Federal Circuit initially ruled that patented method of distributing copyrighted media was eligible. However, that case was vacated and remanded by the Supreme Court following its decision in Mayo and with instructions to reconsider the holding based upon the new Supreme Court precedent. WildTangent has also requested an en banc hearing. WildTangent's petition asks: "When does a patent's reference to the use of a general purpose computer or an Internet website transform an otherwise unpatentable abstract concept into a process that satisfies the subject-matter eligibility requirement of 35 U.S. C. § 101?" Arguing from the other side (asking for its patent to be revalidated), Bancorp identifies the conflict with CLS Bank and argues that the "manifestly abstract" standard should be applied to its case.

*****

Judge Linn, author of the CLS Bank decision has announced his move to Senior Status in November 2012. Senior judges ordinarily do not decide whether to hear cases en banc and do not sit en banc. The one significant exception to that rule is that a senior judge will be a part of the en banc panel if that judge was a part of the original panel that heard the case. For this particular contentious issue, Judge Linn's status may well impact the results.

*****

Counting votes is always difficult and may not be worthwhile, but I pulled-up seven recent software patent eligibility decisions and classified the results based upon how the various panel member voted on the eligibility question. If I leave out judges Schall and Plager (Senior judges), the result is that three of the judges sit on the "claims eligible" side (Chief Judge Rader and Judges O'Malley and Newman); five of the judges are on the "claims ineligible" side (Judges Prost, Bryson, Dyk, Moore, and Wallach); two have decisions on both sides (Judges Linn and Lourie); and one is not in my sample (Judge Reyna).

Case	Claims Eligible	Claims Ineligible
WildTangent	Rader, Lourie, O'Malley
CLS Bank	Linn, O'Malley	Prost
Bancorp		Lourie, Prost, Wallach
RCT v. Microsoft	Rader, Newman, Plager
Cybersource		Bryson, Dyk, Prost
Dealtracker*	Plager	Linn, Dyk
Fort Properties		Prost, Schall, Moore

Dissenting Opinions at the Federal Circuit

September 2, 2012PatentFederal Circuit En BancDennis Crouch

The chart below is based upon an analysis of about 2,300 federal decisions that Westlaw classified as a “patent” decisions based upon the Westlaw Headnote. To make the chart, I tallied the number of times that each Federal Circuit judge was a panel member on a patent decision. Then, I looked to each of those decisions to identify whether a dissenting opinion was filed in the case. The red bar shows the results of this inquiry. Thus, about 27% of the patent decisions that include Judge Pauline Newman as a panel member include a dissenting opinion. Now, Judge Newman is in the majority in some of those cases and dissents in others. The blue bars represent the percent of cases where the given judge joined the dissent. Thus, Judge Newman joined the dissent in about 18% of the patent decisions where she was a panel member.

As is apparent from the chart, Judge Rader has the greatest frequency of being on a unanimous panel and, when there is a dissent, he is the least likely to to be the one dissenting. These are likely good qualities to have in a Chief Judge. Of course, these results primarily rely on decisions that came out before Judge Rader became Chief.

Of course, dissenting views at the Federal Circuit are particularly important because of the lack of other regional circuits deciding patent cases. Highlighting the ongoing debate in dissenting opinions cues attorneys to consider nuanced viewpoints. Dissents also help to highlight cases for the Supreme Court.

A few important caveats with the results.

The search was limited to decisions released between 8/1/2002 and 8/1/2012 that are included in the Westlaw CTAF database and that had been provided with a headnote mentioning the term “patent.” This strategy includes all the major patent decisions and most non-precendential decisions with written opinions. It ordinarily excludes Rule 36 affirmances.
The results include en banc decisions. These very often include dissenting opinions.
The results include includes opinions classified as dissenting opinions by Westlaw. This includes in-part dissents as well as Judge Reyna's recent opinion dubitante.
I included Judge Reyna and O'Malley in the results. However, their low decision total means that their results are not yet stable.

It is not news that Judge Newman is the most frequent dissenter on the Court of Appeals for the Federal Circuit. Gov't contracts attorney Stanfield Johnson recently penned an article titled “The Federal Circuit's Great Dissenter” in the area of government contract jurisprudence. In the view of Mr. Johnson, the dissents arise because Judge Newman is more likely than her colleagues to force the government to defend its actions.

Joint Infringement: Federal Circuit Changes the Law of Inducement

August 31, 2012PatentFederal Circuit En Banc, Licenses, obviousnessDennis Crouch

by Dennis Crouch

Akamai Tech. v. Limelight Networks (Fed. Cir. 2012) (En Banc)
Mckesson Tech. v. Epic Systems (Fed. Cir. 2012) (En Banc)

In a 6–5 en banc decision, the Federal Circuit has loosened the rules for proving liability under the doctrine of inducing infringement. In particular, the court here rejects the prior rule that inducement requires proof of a single actor directly infringing the patent. Rather, the court now holds that the underlying direct “infringement” of a process claim can still lead to inducement liability so long as all of the steps of the method were actually performed. “[I]t is no longer necessary to prove that all the steps were committed by a single entity.”

Inducement is defined by 35 U.S.C. 271(b). That one sentence provision states in its entirety that “whoever actively induces infringement of a patent shall be liable as an infringer.” Before this case, the Federal Circuit had repeatedly held that inducement requires both (1) the act of knowing inducement to infringe (with knowledge of the patent) and (2) actual direct infringement of the patent as defined by Section 271(a). The patentees in this case had a problem with this structure because the accused infringer had allegedly knowingly encouraged different parties to perform different steps of the patented method. Since direct infringement under 271(a) traditionally requires proof that a single-actor performed all of the claimed steps, the patentee was unable to satisfy the second prong of the inducement test. Now, under the new rule, inducement liability exists where the accused infringer (1) knew of the patent; (2) induced performance of the steps of the method; and (3) those steps were actually performed. It follows also that the accused infringer will also be liable if it performs some of the steps of the method and then actively induces performance of the other steps.

In my view, this decision is important because it closes a major loophole that has allowed some entities to knowingly and intentionally take advantage of a patented invention while avoiding the need to take a license.

The decision is important, but fairly narrow because inducement still requires that the accused infringer have knowingly induced the infringement — that is with knowledge that the steps it is encouraging are covered by the patent. The greatest fear of the case is that it might have created liability for parties who innocently performed one or more of the steps of the claimed invention. That fear has not been realized. Michael Barclay who assisted EFF with its brief noted as much in an e-mail this morning:

It’s not as bad as I thought when I saw that they overruled BMC v. Paymentech. The majority merely holds that an active inducer will be held liable so long as one or more parties are induced to practice all the steps of a claimed method. It appears that innocent actors who were “induced” by someone else will **not** be individually liable (unless, of course, they perform all the steps of the method claim themselves and thus are direct infringers). That was one point of EFF’s amicus brief, so from that standpoint, the decision was not all bad. Our brief urged that innocent third parties (those with no level of intent) not be held strictly liable for direct infringement. It appears that is the law.

Barclay has a good point here (in my view) and the decision does a fairly good job of balancing the competing themes of protecting patentees from intentional infringement and also protecting innocent parties who are only one cog in the machine. One issue going forward will be the scope of knowledge required for inducement and how the changes in willful infringement standards will impact inducement. Judge Newman’s dissent raises a host of additional complications. In her view, the decision opens a can of worms that will continue to squirm for years to come.

The majority opinion is limited to allegations of induced infringement under 35 U.S.C. 271(b) and the court expressly refuses in this case to decide the question joint direct infringement under 271(a). In my reading of the case, however, there are insufficient votes on the court to further expand the law of infringement to include joint direct infringement. The majority also limited its opinion to infringement of method claims.

The majority opinion (36 pages) was filed PER CURIAM and signed by Chief Judge Rader and Judges Lourie, Bryson, Moore, Reyna, and Wallach. Judge Linn’s dissent (29 pages) was joined by Judges Dyk, Prost, and O’Malley. Judge Newman separately dissented (38 pages).

Moving forward, this case obviously adds value to method claims. It also adds value to “bigger” methods that achieve value through the interaction of multiple individuals in perhaps asynchronous fashion.

Judge Linn writes a powerful dissent:

The majority opinion is rooted in its conception of what Congress ought to have done rather than what it did. It is also an abdication of this court’s obligation to interpret Congressional policy rather than alter it. When this court convenes en banc, it frees itself of the obligation to follow its own prior precedential decisions. But it is beyond our power to rewrite Congress’s laws. Similarly, we are obliged to follow the pronouncements of the Supreme Court concerning the proper interpretation of those acts.

The losing parties here will certainly take Judge Linn’s words to the Supreme Court in search of a new pronouncement.

Guest Post: Federal Circuit Continues Split on Scope of 271(e)(1)

August 25, 2012PatentFederal Circuit En Banc, LicensesDennis Crouch

The following is a reprint from the Orange Book Blog and was written by my former office-mate Aaron Barkoff. Aaron is an IP litigator at McAndrews in Chicago – Dennis Crouch

+++++

by Aaron Barkoff

Momenta Pharms. v. Amphastar Pharms., No. 2012-1062 (Fed. Cir.)

Last year, in Classen v. Biogen IDEC, a three-judge panel of the Federal Circuit held that the safe harbor of Section 271(e)(1) "does not apply to information that may be routinely reported to the FDA, long after marketing approval has been obtained." The majority opinion was written by Judge Newman, with Chief Judge Rader concurring and providing additional views, and Judge Moore dissenting. A petition for certiorari in the case is currently pending at the Supreme Court, and the Court recently asked the Solicitor General's office to weigh in with its views.

Last Friday, in Momenta v. Amphastar, a case between two manufacturers of generic Lovenox (enoxaparin), a slightly different three-judge panel of the Federal Circuit held that the safe harbor does apply to certain post-approval activities. In the case, Judge Moore wrote the majority opinion, joined by Judge Dyk, and Chief Judge Rader wrote a blistering 29-page dissent. The decisions in the two cases do not seem entirely consistent with each other, which likely raises the odds that the Supreme Court will agree to hear the Classen case.

Momenta is the assignee of U.S. Patent No. 7,575,886, which generally relates "to methods for analyzing heterogeneous populations of sulfated polysaccharides, e.g. heparin [and] . . . LMWH [low molecular weight heparin–e.g., enoxaparin]." Two days after Amphastar received final FDA approval to market its generic enoxaparin (and more than a year after Momenta received its own approval), Momenta filed suit against Amphastar, accusing Amphastar of "manufacturing generic enoxaparin for commercial sale" and performing "in their process for manufacturing batches of enoxaparin" an analytical method that infringes the '886 patent. According to the majority opinion, Momenta also alleged that this infringing testing was necessary to "satisfy the FDA's requirements."

The district court granted Momenta a preliminary injunction, concluding that Amphastar's testing falls outside the scope of the safe harbor under Section 271(e)(1): "although the safe harbor provision permits otherwise infringing activity that is conducted to obtain regulatory approval of a product, it does not permit a generic manufacturer to continue in that otherwise infringing activity after obtaining approval." Amphastar appealed, contending that the district court adopted an overly restrictive view of the safe harbor.

The Federal Circuit majority opinion began by addressing Momenta's "contention that the information in question was not 'submitted' to the FDA, but rather was retained by the ANDA holder." Here, the majority concluded that "the fact that the FDA does not in most cases actually inspect [Amphastar's manufacturing test records] does not change the fact that they are for the development and submission of information under a Federal law." The majority cited the Supreme Court's Merck v. Integra decision for "holding that uses which are not ultimately included in a submission to the FDA are nonetheless exempted by the safe harbor."

The majority then turned to whether Amphastar's submissions are protected by the safe harbor. Here, the majority took pains to distinguish Classen:

At issue in Classen were [post-marketing] studies to evaluate the association between the timing of childhood vaccinations and the risk of developing certain immune-mediated disorders. The studies themselves were not mandated by the FDA, but any vaccine license holder was required to report to the FDA "adverse experience information," such as adverse side effects, it acquired as a result of vaccine studies. We found that the studies conducted by the vaccine license holder according to patented methods were not insulated by the safe harbor because the studies did not facilitate marketing a generic drug by "expediting development of information for regulatory approval." We, of course, are bound by the Classen decision unless it is overruled en banc or by the Supreme Court. Accordingly, the scope of the safe harbor provision does not extend to "information that may be routinely reported to the FDA, long after marketing approval has been obtained."

This case, however, fits well within Classen because the information submitted is necessary both to the continued approval of the ANDA and to the ability to market the generic drug. Here, the submissions are not "routine submissions" to the FDA, but instead are submissions that are required to maintain FDA approval. . . . Failure to comply with these requirements could result in suspension or revocation of Amphastar's ANDA approval to market the drug.

We also note that, unlike in Classen where the patented studies performed were not mandated by the FDA, the information here is not generated voluntarily by the manufacturer but is generated by FDA requirements the manufacturer is obligated under penalty of law to follow. Under such circumstances, the information can be said to have been gathered solely for submission to the FDA and not, as in Classen, primarily for non-FDA purposes. While Momenta urges us to adopt the pre-/post-approval distinction used by the district court, we cannot: Classen did not turn on this artificial distinction, and the plain language of the statute is not restricted to pre-approval activities.

Unlike Classen, where the allegedly infringing activity "may" have eventually led to an FDA submission, there is no dispute in this case that Amphastar's allegedly infringing activities are carried out to "satisfy the FDA's requirements."

In a strongly-worded dissent, Chief Judge Rader repeatedly refers to Amphastar as a "trespasser" and "infringer." He traces the legislative history of Section 271(e)(1)–which is curious given that the Supreme Court has twice minimized the legislative history and based its decisions instead on the plain (and broad) language of the statute. And he takes great exception to the majority opinion's basis for distinguishing Classen. Finally, he claims that the majority's "interpretation of 271(e)(1) would essentially render manufacturing method patents worthless." While this is an exaggeration, the Supreme Court might reply: "that is a problem for Congress to fix, if they so choose."

Where the scope of the 271(e)(1) safe harbor ends up matters a great deal, particularly as we approach the era of biosimilar patent litigation. Like enoxaparin, biologics are complex molecules and thus analytical-method patents figure to be in the patent portfolios protecting them. The sooner the courts can agree on the scope of the safe harbor, the better for everyone.

Gene Patent Debate Continues: Federal Circuit Finds Isolated Human Genes Patentable

August 16, 2012Patentanticipation, Federal Circuit En Banc, Licenses, obviousness, Personal JurisdictionDennis Crouch

By Dennis Crouch

Association for Molecular Pathology (AMP) and ACLU v. USPTO and Myriad Genetics (Fed. Cir. 2012)

On remand from the Supreme Court (GVR), a three-member panel of the Court of Appeals for the Federal Circuit has released its highly anticipated decision in AMP v. Myriad. The key results:

Affirmed: The courts properly have jurisdiction over the declaratory judgment case.
Reversed: Myriad's composition claims to isolated DNAs, including cDNAs fall within the scope of Section 101 patentable subject matter.
Affirmed: Myriad's method claims directed to comparing or analyzing gene sequences are not subject matter eligible.
Reversed: Myriad's method claim to screening potential cancer therapeutics via in vitro changes is subject matter eligible.

This decision largely follows the decision previously released by the same panel in 2011. Each member of the court wrote separate opinions, with the opinion of the court filed by Judge Lourie, Judge Moore concurring in part and Judge Bryson dissenting in part. In dissent, Judge Bryson again employed his leaf analogy – arguing that a gene that was merely isolated from the human body cannot itself be patentable in the same way that a naturally grown leaf does not become patentable simply because it is plucked from its tree. Judge Bryson writes:

[E]xtracting a gene is akin to snapping a leaf from a tree. Like a gene, a leaf has a natural starting and stopping point. It buds during spring from the same place that it breaks off and falls during autumn. Yet prematurely plucking the leaf would not turn it into a human-made invention. That would remain true if there were minor differences between the plucked leaf and the fallen autumn leaf, unless those differences imparted "markedly different characteristics" to the plucked leaf.

The majority (here judges Lourie and Moore) disputed the leaf analogy based upon the apparent technical difficulty of isolating human DNA.

It is also important to dispute the dissent's analogy to snapping a leaf from a tree. With respect, no one could contemplate that snapping a leaf from a tree would be worthy of a patent, whereas isolating genes to provide useful diagnostic tools and medicines is surely what the patent laws are intended to encourage and protect. Snapping a leaf from a tree is a physical separation, easily done by anyone. Creating a new chemical entity is the work of human transformation, requiring skill, knowledge, and effort.

Although it may well be comparatively difficult to isolate DNA, at the time of the invention (and even more so today) the process of isolating human DNA was well known and (once the gene sequence was known) was not something difficult for one skilled in this art. I personally isolated selected portions of DNA (non-human) back in 1992 (before the priority date) as part of the introductory biology course that I took in college. It was easy. The majority's analysis here essentially rejects any notion that the Mayo court would find an invention consisting of a combination of old-technology + newly-discovered-product-of-nature to be subject matter ineligible.

The core of the majority argument regarding the isolated DNA claims is that the process of removing the DNA from the human body necessarily transforms those molecules into something new and different. As Locke might say, the mixture of the naturally occurring DNA with human ingenuity and labor resulted in a new arrangement of matter heretofore never seen. The Judge Lourie writes:

The isolated DNA molecules before us are not found in nature. They are obtained in the laboratory and are man-made, the product of human ingenuity. While they are prepared from products of nature, so is every other composition of matter. All new chemical or biological molecules, whether made by synthesis or decomposition, are made from natural materials. For example, virtually every medicine utilized by today's medical practitioners, and every manufactured plastic product, is either synthesized from natural materials (most often petroleum fractions) or derived from natural plant materials. But, as such, they are different from natural materials, even if they are ultimately derived from them. The same is true of isolated DNA molecules. . . .

While purified natural products thus may or may not qualify for patent under § 101, the isolated DNAs of the present patents constitute an a fortiori situation, where they are not only purified; they are different from the natural products in "name, character, and use." (quoting Chakrabarty).

To be clear, the change in the molecule that the court is discussing is that the isolated DNA molecule is cleaved from the larger chromosomal DNA molecule by enzymatically cutting it off at each end and slightly altering the terminal amino acid groups. In a concurring opinion, Judge Moore agreed that the isolated DNA is patent eligible, but rejected the notion that the chemical difference between the in situ gene (part of the chromosome) and the isolated gene is sufficient to justify the conclusion. Rather, Judge Moore identified the altered chemical along with the new and beneficial utility achieved because of the isolation as dual keys to patent eligibility. (Note – for further study – Lourie's dicta that isolation for new purpose is insufficient).

The point of this rehearing was to consider the impact of Mayo on this case. As suggested by the above paragraph, the Judge Lourie's answer here is basically that Mayo has no impact here. Of importance, the court indicated that the holding in Mayo should be limited to method claims and thus cannot be applicable to Myriad's DNA composition claims.

The principal claims of the patents before us on remand relate to isolated DNA molecules. Mayo does not control the question of patent-eligibility of such claims.

This cabining of Mayo will be the key to any petition for a writ of certiorari. To be fair, when considering the Supreme Court's analysis in Mayo v. Prometheus, the CAFC found that precedent applicable to analysis of the method claims. Of course, the CAFC had already held those method claims ineligible even before Mayo (in its prior decision). Interestingly, even though in dissent, Judge Bryson agreed that the "Supreme Court's recent decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289, 1293 (2012), does not decide this case." Judge Bryson implicitly agrees that the distinction is based upon claim form – because Mayo "involved method claims." However, he did draw the same analogy that I penned immediately following the Mayo decision – that the discovery of the DNA sequence is the heart of the invention and that the rest of the claim structure is merely window dressing.

In Mayo, which involved method claims, the representative claim involved the steps of administering a drug to a subject, determining a metabolite concentration in the subject's blood, and inferring the need for a change in dosage based on that metabolite concentration. The [Supreme] Court found that the method was not directed to patent-eligible subject matter because it contributed nothing "inventive" to the law of nature that lay at the heart of the claimed invention. . . . In concluding that the claims did not add "enough" to the natural laws, the Court was particularly persuaded by the fact that "the steps of the claimed processes . . . involve well-understood, routine, conventional activity previously engaged in by researchers in the field."

Just as a patent involving a law of nature must have an "inventive concept" that does "significantly more than simply describe . . . natural relations," a patent involving a product of nature should have an inventive concept that involves more than merely incidental changes to the naturally occurring product. In cases such as this one, in which the applicant claims a composition of matter that is nearly identical to a product of nature, it is appropriate to ask whether the applicant has done "enough" to distinguish his alleged invention from the similar product of nature. Has the applicant made an "inventive" contribution to the product of nature? Does the claimed composition involve more than "well-understood, routine, conventional" elements? Here, the answer to those questions is no.

Neither isolation of the naturally occurring material nor the resulting breaking of covalent bonds makes the claimed molecules patentable. We have previously stated that "isolation of interesting compounds is a mainstay of the chemist's art," and that "[i]f it is known how to per-form such an isolation doing so 'is likely the product not of innovation but of ordinary skill and common sense.'" Aventis Pharma Deutschland GmbH v. Lupin, Ltd., 499 F.3d 1293, 1302 (Fed. Cir. 2007). Similarly, the structural changes ancillary to the isolation of the gene do not render these claims patentable. The cleaving of covalent bonds incident to isolation is itself not inventive, and the fact that the cleaved molecules have terminal groups that differ from the naturally occurring nucleotide sequences does nothing to add any inventive character to the claimed molecules. The functional portion of the composition—the nucleotide sequence—remains identical to that of the naturally occurring gene.

The majority suggests that I have "focus[ed] not on the differences between isolated and native DNAs, but on one similarity: their informational content." In light of Mayo, that approach seems appropriate. The informational content of the nucleotide sequences is the critical aspect of these molecules; the terminal groups added to the molecules when the covalent bonds are broken—to which the majority and concurring opinions attribute such significance—are not even mentioned in the claims. The nucleotide sequences of the claimed molecules are the same as the nucleotide sequences found in naturally occurring human genes. In my view, that structural similarity dwarfs the significance of the structural differences between isolated DNA and naturally occurring DNA, especially where the structural differences are merely ancillary to the breaking of covalent bonds, a process that is itself not inventive.

Regardless of your policy perspective on patent eligibility, Judge Bryson's opinion is clearly the most faithful to the Supreme Court's Mayo decision. The only problem is that Judge Bryson ignores other relevant subject matter eligibility cases such as Chakrabarty and Funk Bros. Of course, this highlights a real problem with subject matter eligibility doctrine – the cases do not fit together in any coherent fashion.

+ + + + +

An interesting aspect of Judge Lourie's opinion is his attempt to wash his hands of the public policy results of the decision:

[I]t is important to state what this appeal is not about. It is not about whether individuals suspected of having an increased risk of developing breast cancer are entitled to a second opinion. Nor is it about whether the University of Utah, the owner of the instant patents, or Myriad, the exclusive licensee, has acted improperly in its licensing or enforcement policies with respect to the patents. The question is also not whether is it desirable for one company to hold a patent or license covering a test that may save people's lives, or for other companies to be excluded from the market encompassed by such a patent—that is the basic right provided by a patent, i.e., to exclude others from practicing the patented subject matter. It is also not whether the claims at issue are novel or nonobvious or too broad. Those questions are not before us. It is solely whether the claims to isolated BRCA DNA, to methods for comparing DNA sequences, and to a process for screening potential cancer therapeutics meet the threshold test for patent-eligible subject matter under 35 U.S.C. § 101 in light of various Supreme Court holdings, particularly including Mayo.…

Congress is presumed to have been aware of the issue [of gene patents], having enacted a comprehensive patent reform act during the pendency of this case, and it is ultimately for Congress if it wishes to overturn case law and the long practice of the PTO to determine that isolated DNA must be treated differently from other compositions of matter to account for its perceived special function. We therefore reject the district court's unwarranted categorical exclusion of isolated DNA molecules.

In other words, we don't make policy, we just call balls and strikes.

Next Steps: In my estimation, this case is not over. There is a strong possibility of either an en banc rehearing by the full 12-member Federal Circuit and/or a grant of certiorari by the US Supreme Court.

More to come, but for now read the opinion here: /media/docs/2012/08/10-1406.pdf

Federal Circuit to Hear En Banc Appeal on Its Jurisdiction over All-But-Accounting Patent Decisions

August 7, 2012PatentDamages, Federal Circuit En BancDennis Crouch

By Dennis Crouch

Robert Bosch LLC v. Pylon Mfg. Corp. (Fed. Cir. 2012)

In a sua sponte order, the Federal Circuit has announced that case to be heard en banc to determine whether the appellate court has jurisdiction over a judgment on patent infringement liability in a bifurcated case even before issues of damages and willfulness have been adjudged. The en banc order highlights 28 U.S.C. § 1292(c)(2) as likely governing the case. That statute provides the Federal Circuit with:

exclusive jurisdiction … (2) of an appeal from a judgment in a civil action for patent infringement which would otherwise be appealable to the United States Court of Appeals for the Federal Circuit and is final except for an accounting.

The question on appeal is thus, whether the district court case is “final except for an accounting.”

Current precedent is somewhat confused. In Majorette Toys (U.S.) Inc. v. Darda, Inc. U.S.A., 798 F.2d 1390 (Fed. Cir. 1996), the court arguably classified the calculation of attorney fees and court costs as “accounting” but did not place the principle damages award in that category. In a recent order, the Federal Circuit took a narrow interpretation of Majorette by refusing to hear an appeal of an attorney-sanction before the dollar value of the sanction had been set. Orenshteyn v. Citrix Systems, Inc., — F.3d —-, 2012 WL 3101666 (Fed. Cir. 2012). Judge Newman dissented in Orenshteyn – arguing that the sanction dollar value constituted “accounting” under the law. In Falana v. Kent State University, 669 F.3d 1349 (Fed. Cir. 2012), the court ruled that “the district court’s exceptional case finding and award of attorney fees” were not properly before the court because the dollar values had not been calculated and those values were more than “accounting” under the statute. Falana was decided by Judges Linn, Reyna and Prost.

The en banc order raises two particular questions:

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?
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.

Briefs of amici curae may be filed without consent of the parties or leave of the court.

Ongoing Debate: Is Software Patentable?

July 27, 2012PatentFederal Circuit En BancDennis Crouch

by Dennis Crouch

A pair of recent Federal Circuit decisions continue to highlight ongoing ambiguities and difficulties regarding the scope of patent subject matter eligibility for software related patents.

Bancorp Services, L.L.C. v. Sun Life Assur. Co. of Canada (U.S.), — F.3d —-, 2012 WL 3037176 (Fed. Cir. 2012) (computer related financial claims are not patent eligible).
CLS Bank Intern. v. Alice Corp. Pty. Ltd., 103 U.S.P.Q.2d 1297 (Fed. Cir. 2012) (computerized stock trading platform claims are patent eligible).

Both decisions agree on several main points: that the mere inclusion of a computer limitation does not make a claim patent eligible and that the claim form (method, system, etc.) does not change the subject matter eligibility analysis. Although perhaps a revisionist history, Bancorp explains that the differing outcomes are based upon factual distinctions in the two cases:

In CLS, we reversed the district court and held that method, system, and medium claims directed to a specific application of exchanging obligations between parties using a computer were patent eligible under § 101. In faulting the district court for “ignoring claim limitations in order to abstract a process down to a fundamental truth,” we explained that the asserted claims in CLS were patent eligible because “it [wa]s difficult to conclude that the computer limitations … d[id] not play a significant part in the performance of the invention or that the claims [we]re not limited to a very specific application of the [inventive] concept.” Here, in contrast, the district court evaluated the limitations of the claims as a whole before concluding that they were invalid under § 101. As we explained above, the computer limitations do not play a “significant part” in the performance of the claimed invention. And unlike in CLS, the claims here are not directed to a “very specific application” of the inventive concept; as noted, Bancorp seeks to broadly claim the unpatentable abstract concept of managing a stable value protected life insurance policy.

Despite this attempted reconciliation, it is clear that the CLS majority has a different approach to subject matter eligibility questions. Perhaps the key difference is the question of how we think of “the invention.” In CLS, the invention is defined by the claim. In Bancorp and the CLS dissent, the court looks for the core inventive concept as the starting-point for its subject matter eligibility analysis.

It is simply ridiculous that after 40 years of debate, we still do not have an answer to the simple question of whether (or when) software is patentable.

Enhanced Damages: The Seagate Objectively Reckless Standard is Now a Question of Law to be Decided by a Judge and Reviewed De Novo on Appeal

June 18, 2012PatentClaim Construction, Damages, Federal Circuit En Banc, First to InventDennis Crouch

By Dennis Crouch

Bard Peripheral v. W.L.Gore (Fed. Cir. 2012) (on rehearing)

In an important decision, the Federal Circuit has ruled that the “objective prong” of the test for willful patent infringement is a separate question of law. Moving forward, it will be the trial court’s duty to determine whether the defendant’s actions were objectively reckless. Further, the objective prong will now be subject to de novo review on appeal.

This new system somewhat parallels the judge-determined claim construction that must occur before a jury can determine infringement. As with claim construction, this new judge-focused sub-test will likely drive results in most cases. Because it will be prior-in-time, the judicial decision on objective recklessness will filter-out many willfulness allegations before they reach the jury. And the jury, once it is told that the judge has determined the behavior objectively reckless, is likely to find any infringed patent to be willfully infringed.

Right to Jury: The right to a jury decision on the issue of willfulness already stood on shaky foundation because, by statute, the judge decides the monetary award. The changes in the law brought about here in Bard coupled with those outlined in Seagate suggest that right may now be fully eroded. Further, the decision suggests that it may be proper to treat the entire issue of willfulness as a question of law.

+ + + + +

Treble Damages: The text of the Patent Act appears to provide courts with broad power to treble any damages awarded. The statute reads that “the court may increase the damages up to three times the amount found or assessed.” Although the text offers no limitation on that power, the Federal Circuit has limited the use of enhanced damages to only apply when the adjudged infringement is found to be willful. In Seagate, the Federal Circuit defined a two-prong test for willfulness that requires clear and convincing evidence (1) “that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and (2) that the infringer had knowledge (or should have known) of this risk.

Willfulness is a question of fact that has been traditionally decided by a jury. However, as the statute suggests, it is the judge who determines the extent of any enhanced damages (with the limit of three-times the compensatory damage award). Here, the infringer argued that a court (rather than a jury) should first decide the sub-question of whether there existed (at the time of the infringement) an objectively high-likelihood that the infringer’s action’s constituted infringement. The appellate court agreed:

After reviewing the Supreme Court’s precedent in similar contexts, as well as our own, we conclude that simply stating that willfulness is a question of fact over-simplifies the issue. While the ultimate question of willfulness based on an assessment of the second prong of Seagate may be a question of fact, Seagate also requires a threshold determination of objective recklessness. That determination entails an objective assessment of potential defenses based on the risk presented by the patent. Those defenses may include questions of infringement but also can be expected in almost every case to entail questions of validity that are not necessarily dependent on the factual circumstances of the particular party accused of infringement.

In considering the standard applicable to the objective prong of Seagate, it can be appreciated that “the decision to label an issue a ‘question of law,’ a ‘question of fact,’ or a ‘mixed question of law and fact’ is sometimes as much a matter of allocation as it is of analysis.” Miller v. Fenton, 474 U.S. 104, 113-14 (1985). When an “issue falls some-where between a pristine legal standard and a simple historical fact, the fact/law distinction at times has turned on a determination that, as a matter of sound administration of justice, one judicial actor is better positioned than another to decide the issue in question.” Id. at 114; see also Markman v. Westview Instruments, Inc., 517 U.S. 370, 388 (1996) (applying this test to determine that claim construction is best left to the judge). We believe that the court is in the best position for making the determination of reasonableness. This court therefore holds that the objective determination of recklessness, even though predicated on underlying mixed questions of law and fact, is best decided by the judge as a question of law subject to de novo review.

On remand, the district court will be required to specifically consider the question of objective recklessness.

+ + + + +

Clear and Convincing Evidence Standard for a Question of Law?: Seagate requires that objective recklessness be proven with clear and convincing evidence. As the en banc court wrote in 2007 “to establish willful infringement, a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” Normally, clear-and-convincing evidence is a standard for proving facts. Here in Bard, however, the court now holds that the objective recklessness prong is a question of law. Since the panel here has no power to modify Seagate, the odd joining of these decisions is that the issue of law must still be proven by clear and convincing evidence. In a concurring opinion to the i4i decision, Supreme Court Justice Breyer wrote on this topic – noting that the clear and convincing evidence standard of proof “applies to questions of fact and not to questions of law.” The panel opinion here in Bard either did not recognize this problem or chose to ignore it. The tension here between Seagate and Bard is genuine.

+ + + + +

The majority opinion was written Judge Gajarsa (Senior Judge) and joined by Judge Linn. Judge Newman wrote in dissent and argued that there was no need for a remand because the jury willfulness determination was clearly wrong.

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This case has been brewing for 38 years! Initially it was an inventorship dispute that took 28 years to settle at the PTO, followed by a litigation battle for the past 8 years. The patent covers a prosthetic vascular graft used in bypass surgeries and was originally filed as an application in 1974. U.S. Patent No. 6,436,135.

Predicting En Banc Issues

June 13, 2012PatentClaim Construction, Federal Circuit En Banc, Inequitable Conduct, obviousness, USPTO DirectorJason Rantanen

By Jason Rantanen

Dissenting opinions are generally considered to be good predictors of en banc review. On one level, this is largely indisputable: most appeals that the Federal Circuit takes en banc involve a divided panel decision, and appellate practitioners are well aware that the chances of getting en banc review of an opinion that contains a dissent are much better than persuading the full court to review a unanimous opinion. Of course, knowing that dissenting opinions are the more likely candidates for en banc review isn't particularly helpful by itself, since Federal Circuit judges pen more than thirty patent-related dissents each year.

There's an extension of this theory, however, based on the idea that a high number of dissents on a particular patent law issue is a signal that the court may take that issue en banc in the near future. There are several reasons why this extended theory is plausible: dissents may indicate that the court is cognizant of the importance of a particular legal issue; they may demonstrate awareness by the court of an intra-circuit split that it needs to resolve; they may also represent a pre-en banc dialogue between the judges. Dissents are not costless, after all – sometimes they can be as much work or more as writing the majority opinion, and most judges do not write them as a matter of course.

Empirical observations support this theory, at least for some grants of en banc review. In the two years prior to the Federal Circuit's grant of en banc review of inequitable conduct in Therasense v. Becton Dickinson, for example, there were four dissents on the issue of inequitable conduct. On the other hand, in the two years prior to the grant of en banc review in In re Seagate there were no dissenting opinions on the issue of willful infringement. Thus while there may be value in keeping an eye on areas where dissents are common, it's by no means a perfect predictor.

With that caveat, I read through the patent-related dissents for the past two years to assemble a picture of recent Federal Circuit dissents. All together, there were 64 of these dissents in panel opinions. The following chart depicts the authors of those dissents.

The next chart depicts the issues addressed by those dissents that arose with a frequency of greater than 1. Note that there were four dissents that involved two issues. In order to prepare the chart below based on dissenting opinions, I included only the first issue, but the second issue would also be relevant. Those second issues were joint infringement(1), infringement(3), inequitable conduct(2), and doctrine of equivalents(2) (totals dissents addressing this issue in parentheses).

One nuance that is not conveyed by this chart is the degree to which the judges dissent on specific issues. Two are noteworthy: Judge Dyk wrote four of the dissents on claim construction, while four separate judges (Bryson, Moore, Plager and Mayer) wrote the dissents on the issue of subject matter patentability. Judge Newman wrote on a variety of issues.

The final chart depicts the issues that the Federal Circuit declined to consider en banc with at least one judge dissenting from that decision. Note that for several of the issues included in the previous chart (state law malpractice claims, assignment, claim construction, and preliminary injunctions), the court has also declined to consider those issues en banc over the views of at least one judge.

These statistics hardly tell the whole story, of course. Both litigation and appeals – let alone en banc review – are rare events, and thus attempting to divine highly predictive information is difficult. Furthermore, two judges (Judges Newman and Dyk) together wrote almost half of the dissents. Nevertheless, when combined with other insights, the above data may be helpful. Claim construction and obviousness are hot topics (although last fall the CAFC declined to take claim construction en banc). There is also significant disagreement among the judges on subject matter patentability, although they may not be willing address that issue through an en banc court given the Supreme Court's substantial interest in the topic. In addition, my own sense is that there is more disagreement among the judges on the issue of the standard for preliminary injunctions than is apparent from the statistics alone. It would not surprise me if the court were to grant en banc review on this issue – although admittedly it declined to do so recently.

What are your views on the next issue that the Federal Circuit reviews en banc?

For more on predicting en banc review generally, see Tracey E. George, The Dynamics and Determinants of the Decision to Grant En Banc Review, 74 Wash. L. Rev. 213 (1999). For a discussion of Federal Circuit en banc practice, see Christopher A. Cotropia, Determining Uniformity within the Federal Circuit by Measuring Dissent and En Banc Review, 73 Loyola Los Angeles L. Rev. 801 (2010) (available at http://digitalcommons.lmu.edu/cgi/viewcontent.cgi?article=2720&context=llr).

Edit: minor correction to charts.

Guest Post by Michael Risch: America’s First Patents

May 30, 2012PatentFederal Circuit En Banc, obviousnessJason Rantanen

Guest Post by Michael Risch, Associate Professor of Law, Villanova University School of Law

My forthcoming Florida Law Review article, America’s First Patents, examines every available patent issued during the first 50 years of patenting in the United States. A full draft is accessible at this SSRN page. The article reaches three conclusions:

Our patentable subject matter jurisprudence with respect to methods can, in part, blame its current unclarity on early decisions by a few important judges to import British law into the new patent system.
Early patenting trends suggest that Congress has never intended new subject areas be limited until Congress explicitly allowed the new subject area.
The machine-or-transformation test, which allows a method patent only if the process involves a machine or transforms matter, has no basis in historic patenting practices.

When the Federal Circuit first issued its en banc opinion in In re Bilski, I believed that its machine or transformation rule could not have been based on history. I wrote in my 2010 article Forward to the Past that:

in its effort to deal with high technology, the [Federal Circuit] abandoned low technology. There are many patented processes that have nothing to do with machines or transformations—methods for measuring fabric, methods for harvesting fruit, and methods for manufacturing products by hand (for example, forming wrought iron). At worst, these types of historically patentable inventions would now be unpatentable. At best, determining what is patentable and what is excluded became much more difficult.

However, I did not have any real proof to support this statement, so I thought I would test the assertion with some quasi-empirical evidence. I spent the summers of 2010 and 2011 working with several research assistants, and we read every available patent we could find, a total of about 2500 before 1836 (most of our pre-1836 patents were destroyed in an 1836 Patent Office fire), and 1200 between 1836 and 1839. The goal was, first, to categorize patents as methods and, second, to determine whether each method used a machine or transformed matter to a new thing.

This was no easy task. Many early patents were difficult to read, and not just because they were handwritten. At the time, inventors did not have to claim their subject matter. As a result, patents usually described how to make or do something, and nothing more. It was often difficult to tell whether the making or the thing made was purportedly inventive. Even after more inventors started using claims, patentees would claim the exclusive right to “manufacture product X by doing Y,” which still left matters unclear.

This difficulty leads to my first conclusion. While courts often talked about “principles” in early judicial opinions, quite often they were attempting to determine the “principle of the machine” to identify what was patented for infringement purposes. Even when courts mentioned that principles were not patentable, the statement was usually a side issue and “principles” meant very basic principles, like “motion.” Because principles were not patentable, courts attempted to construe the patent in a way that was not a principle. This, it seems, is contrary to how we do things under recent cases.

In reading this old history, I discovered something interesting (and I don’t claim to be the first person to discover it – merely the first to tie the content of old patents to support the conclusion). Specifically, early judges imported British law into interpretation of the American statute. This might seem reasonable, except that methods were not patentable in England until after 1840. But methods were explicitly patentable (called “art” in the statute) in the U.S. Indeed, the very first patent covered a method of making pot and pearl ash. But Justice Story, who sat as a Circuit Justice in many patent cases, did not think methods should be patentable, and as such issued statements in many cases about what could not be patented – statements that have been repeated even until today. My article looks at these statements in detail, and shows how unclarity in early patents allowed the courts to perpetuate a (wrong) view that we must limit method patents in particular ways.

In the second part of the article, I discuss some general findings about the patents. Some were dangerous (lead paint and asbestos), some were ridiculous, and some were enduring. There were many business methods related to teaching , music, and exercise, and there was even a rudimentary software patent (on a Jacquard loom, though I know some think that this is not really software). This was an entertaining part of the article to write; it was interesting to see how industries developed through patents. However, there is one overriding theme: the patents started simple, grew more complex over time, and expanded to new subject matter over time. Further, very little of the subject matter that dominates today’s inventions—such as electronics, chemicals, and pharmaceuticals—was apparent in early patenting. My conclusion from this analysis is that the patent system was designed to handle new subject matter as it is invented, and that Congress never expected to step in and approve new subject matter over time.

The final part of the article examines the motivating issue: whether the machine or transformation test was historically used. Because patents from 1793-1836 were not examined by the Patent Office but those from 1836-1839 were, I could test whether inventors had a different view of this issue than patent examiners had. It turns out that the groups did not differ; the results are statistically the same before and after 1836.

And those results show that our first inventors did not limit methods to those that used machines or transformed matter. About 40% of the methods patents between 1790 and 1793 did not use a machine or transform matter. These would all be invalid under the modern test. To be sure, the test was very good at identifying business methods—nearly all of the business methods fell into that 40%, so it is hard to fault the test for failing to identify early business methods. Of course, today’s business methods do use machines, so I am not sure how accurate the test would be today.

However, there were many patents –many more than the business methods—that did not use a machine or transform matter. This, to me, suggests that among the tests other failings, it has no real basis in past practice or understanding. While we can debate the merits of the recent Prometheus opinion, I applaud its rejection (again) of the machine or transformation test as a way to determine patentable subject matter.

This post presents the basic conclusions of my article. There is obviously much more in this 50 page paper than I can write here. I detail my methodology (and its limits), 19^th century law, and the patents in the full paper.

Patentable Subject Matter: Supreme Court Challenges Chief Judge Rader’s Broad Notion of Software Patentability

May 21, 2012PatentAbstract Idea, Federal Circuit En Banc, Subject Matter Eligibility, Supreme CourtDennis Crouch

by Dennis Crouch

WIldTangent v. Ultramercial (Supreme Court 2012) Docket No 11-962

The Supreme Court has rejected another Federal Circuit patentable subject matter decision with a GVR and has ordered the appellate court to review its patentability decision with further consideration of Mayo Collaborative Services v.Prometheus Laboratories, Inc., 566 U.S. ___ (2012). In its standard GVR language, the Supreme Court wrote:

The petition for a writ of certiorari is granted [G]. The judgment is vacated [V], and the case is remanded [R] to the United States Court of Appeals for the Federal Circuit for further consideration in light of Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. ___ (2012).

The patent at issue in this case claims a particular method for distributing copyrighted products over the Internet. Patent No. 7,346,545. The basic gist of the invention is that the consumer receives a copyrighted product in exchange for viewing an advertisement — and it all takes place over the internet and with a particular monetization scheme.

In its broadly written opinion, the Federal Circuit (Rader, C.J.) found the claimed invention patentable under Section 101 based upon the requirement that a computer be used to perform the method and the programming complexity required to carry out the claimed elements. The court wrote that while “the mere idea that advertising can be used as a form of currency is abstract, just as the vague, unapplied concept of hedging proved patent-ineligible in Bilski,…the ‘545 patent does not simply claim the age-old idea that advertising can serve as a currency. Instead, the ‘545 patent discloses a practical application of this idea.”

Following the Federal Circuit decision in Ultramercial, the Supreme Court decided Mayo v. Prometheus. In that case, the Supreme Court rejected the Prometheus patent as effectively encompassing an unpatentable law of nature. That revives the historic notion that the scope of knowledge held in the prior art is an important aspect of the Section 101 analysis.

The Supreme Court issued a parallel GVR in the gene-patent case of Myriad Genetics. Other pending 101 appeals include Fort Properties v. American Master Lease (en banc petition); Accenture Global v. Guidewire; Bancorp Services v. Sun Life; and others.

Claim one the ‘545 patent reads as follows:

1. A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:

a first step of receiving, from a content provider, media products that are covered by intellectual-property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;

a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message;

a third step of providing the media product for sale at an Internet website;

a fourth step of restricting general public access to said media product;

a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;

a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;

a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;

an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message;

a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;

a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and

an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

Patent Malpractice Jurisdiction

May 7, 2012PatentFederal Circuit En BancDennis Crouch

by Dennis Crouch

Minkin v. Gibbons P.C (Fed. Cir. 2012)

In yet another malpractice action, the Federal Circuit has granted itself jurisdiction and ruled in favor of the law firm defendant (here, Gibbons). Attorney malpractice is normally a state-law cause of action brought in state court. However, the Federal Circuit has increasingly claimed appellate jurisdiction over these cases based upon its arising under jurisdiction.

Federal Circuit Appellate Jurisdiction. As amended in the AIA, 28 U.S.C. § 1295 defines the Federal Circuit's appellate jurisdiction to include “exclusive jurisdiction” over “an appeal from a final decision” in “a civil action arising under . . . any Act of Congress relating to patents.”

The new statute overrules Holmes Group, Inc., v. Vornado Air Circulation Systems, Inc. 535 U.S. 826 (2002). In that decision, the Supreme Court held that the existence of a patent law issue in a counterclaim is insufficient to create Federal Circuit jurisdiction. The revised statute makes clear that the Federal Circuit has exclusive jurisdiction over appeals that only raise patent issues in “a compulsory counterclaim.”

The new statute does not change the “arising under” language itself. The Supreme Court interpreted that language in Christianson v. Colt Industries Operating Corp., 486 U.S. 800 (1988). In Christianson, the court wrote that the Federal Circuit's jurisdiction extended only to those cases in which a well-pleaded complaint established either (1) that the federal patent law created the cause of action or (2) that the plaintiff's right to relief necessarily depended upon resolution of a “substantial question of federal patent law.” (New statute is no longer bound by a “complaint.”).

In non-patent cases, the Supreme Court has placed some limitations on the exercise of arising under jurisdiction when the underlying cause of action is – as here – a state law claim. In Grable & Sons Metal Products v. Darue Eng'g, 545 U.S. 308 (2005), the court explained that the exercise of jurisdiction over state-law claims with an embedded issue of federal law should occur only when the state-law claim contains a federal issue that is “disputed” and “substantial,” and when the exercise of federal jurisdiction is “consistent with congressional judgment about the sound division of labor between state and federal courts.” Grable made clear that the mere presence of a disputed federal question is insufficient to create federal jurisdiction. Rather, a court must also assess “any disruptive portent in exercising federal jurisdiction.” This sentiment was repeated by the Court in the later case of Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677, 701 (2006) (“it takes more than a federal element ‘to open the ‘arising under’ door”).

In this case, the Gibbons firm handled prosecution of Minkin's U.S. Patent No. 6,012,363 (Extended Reach Pliers). Soon after Minkin went to market, one of his customers designed its own version of the device that avoided Minkin's patent claim. Minkin then sued Gibbons for negligence – arguing that the claims offered no meaningful protection for Minkin's invention. At trial expert witness Richard Gearhart presented an alternative claim that was arguably patentable. Because Gearhart did not present a patentability analysis under Section 103(a), the district court rejected the evidence as insufficient and awarded summary judgment for the law firm. On appeal, the Federal Circuit affirmed that finding. “We find that the 37-page Gearhart report contains nothing to assist the trier of fact with respect to the unique tests and proofs of § 103(a), and provides no insight into the question of whether the alternate claims would ultimately have been allowed by the PTO.”

Regarding Jurisdiction, the Federal Circuit noted that the malpractice claim (under N.J. Law) requires that the plaintiff prove that better representation would have resulted in a better outcome. Here, that proof requires analysis of patentability of a hypothetical claim and thus raises substantial a question of Patent Law and therefore the case falls within the exclusive jurisdiction of the Federal Circuit.

Writing in concurrence, Judge O'Malley again repeated her call for an en banc rehearing on the issue of jurisdiction.

Notes: