Eon-Net LP v. Flagstar Bancorp (Fed. Cir. 2011) Download 09-1308 Panel: Lourie (author), Mayer and O'Malley
This decision is an important opinion in the area of litigation sanctions entered against a patentee, and should be read in conjunction with two cases issued earlier this year, iLor v. Google, 631 F.3d 1372 (Fed. Cir. 2011), and Old Reliable v. Cornell, 635 F.3d 539 (Fed. Cir. 2011). Patently-O commentary on those cases can be found here and here.
Background Eon-Net is a patent holding company formed to enforce the three patents in suit, which it did with vigor. While most of its lawsuits resulted in early settlements or dismissals, Eon-Net's suit against Flagstar took a different turn. The district court initially entered summary judgment of non-infringement on the sua sponte ground "that the written description limited the claims to processing information originating from a hard copy document and Eon-Net's position that the claims covered the processing of information entered on a website was baseless," and awarded Rule 11 sanctions. Slip Op. at 7. However, that decision was vacated by the Federal Circuit because Eon-Net had not been given an opportunity to respond, and thus "it was impossible to determine if Eon-Net's claim construction and infringement positions were without merit." Id. at 8.
On remand, the case was reassigned to a new judge and the parties engaged in the claim construction process, after which the court again limited the disputed elements to information originating from a hard copy document. Eon-Net stipulated to non-infringement. Upon motion by Flagstar, the district court found the case exceptional under 35 U.S.C. 285 and in violation of Rule 11 of the Federal Rules of Civil Procedure. On appeal, the CAFC first affirmed the district court's claim construction before turning to the exceptional case finding.
Many Varieties of Misconduct Can Support an Exceptional Case Finding Before engaging in analysis of the specific bases for the district court's exceptional case finding, the CAFC first noted that many varieties of misconduct can support an exceptional case finding under 35 U.S.C. § 285: lodging frivolous filings, engaging in vexatious or unjustified litigation, and litigation misconduct and unprofessional behavior. The court reiterated, however, that absent litigation misconduct or misconduct in securing the patent, "sanctions under § 285 may be imposed against the patentee only if both (1) the patentee brought the litigation in bad faith; and (2) the litigation is objectively baseless." Slip Op. at 17.
Eon-Net Filed Objectively Baseless Litigation in Bad Faith Affirming the district court's exceptional case finding, the Federal Circuit agreed that this lawsuit was objectively baseless, filed in bad faith and for an improper purpose. After distinguishing iLor v. Google, in which the CAFC also addressed the issue of whether a claim construction was objectively baseless, the court turned to the question of whether Eon-Net had filed the lawsuit in bad faith and for an improper purpose, concluding that it had:
In particular, the district court found that Eon-Net’s case against Flagstar had “indicia of extortion” because it was part of Eon-Net’s history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation.
Slip Op. at 22. This strategy of exploiting the high cost to defend complex patent litigation in order to extract nuisance value settlements constituted bad faith. The court pointed to Eon-Net's pattern of filing complaints, then demanding quick settlements at a price far lower than the cost of litigation. Parties must either expend significant resources to defend against the suit – as Flagstar did in this case – or give in to the nuissance settlement demand. FIling such a meritless lawsuit also is also a waste of judicial resources, as it "unnecessarily require[s] the district court to engage in excessive claim construction analysis before it is able to see the lack of merit of the patentee's infringement allegations." Slip Op. at 23.
Of course, patentees should be able to enforce their patent rights or offer licensing terms. Nevertheless, "the appetite for licensing revenue cannot overpower a litigant’s and its counsel’s obligation to file cases reasonably based in law and fact and to litigate those cases in good faith." Slip Op. at 24.
Comment: although the CAFC affirmed the district court's finding that Eon-Net had acted with an improper purpose, it did not suggest that that requirement should be grafted onto the "bad faith" element.
The CAFC also affirmed the district court's finding that Eon-Net and Zimmerman had engaged in litigation misconduct and its imposition of Rule 11 sanctions.
ASSOCIATION FOR MOLECULAR PATHOLOGY V. MYRIAD GENETICS (Fed. Cir. 2011)
In a much anticipated decision, the Court of Appeals for the Federal Circuit has rejected the Southern District of New York’s court’s holding that could have rendered invalid all patents claiming isolated forms of naturally occurring DNA molecules. However, the decision is somewhat nuanced and will be appealed.
Judge Lourie drafted the opinion of the court that was joined in-part by the entire panel. Judge Moore drafted a concurring opinion that agrees with the conclusion that the isolated DNA is patentable but disagrees with Judge Lourie’s methodology for determining when an isolated compound is sufficiently “man made” to no longer be considered a natural phenomenon or product of nature. Judge Bryson concurred in part, but dissented on the issue of whether an isolated human DNA molecule should not be patentable. Judge Bryson writes:
We are therefore required to decide whether the process of isolating genetic material from a human DNA molecule makes the isolated genetic material a patentable invention. The court concludes that it does; I conclude that it does not.
Focusing here briefly on the majority opinion, the court made four specific holdings:
Affirmed: The District Court properly had jurisdiction over the case;
Reversed: The district court erred in holding that Myriad’s claims directed to isolated DNA were invalid;
Affirmed: The district court properly held that Myriad’s claims directed to comparing or analyzing gene sequences were invalid; and
Reversed: The district court erred in holding that Myriad’s claims directed to screening potential cancer therapeutics via changes in cell growth rates were invalid.
The result here is that Myriad’s BRCA Gene patents are somewhat damaged, but remain strong. The plaintiffs are likely to either request an en banc rehearing or immediately file a petition for a writ of certiorari with the Supreme Court. Myriad is likely to request a rehearing on the issue of subject matter jurisdiction.
James Brookshire of the Federal Circuit Bar Association (FCBA) sent me a note today that Judge Glenn Archer has died. Judge Archer first joined the Court of Appeals for the Federal Circuit in 1985 after a career as a JAG lawyer, a private practitioner, and an Assistant Attorney General of the Department of Justice Tax Division. Judge Archer was born in my home state of Kansas and left to attend Yale in the late 1940’s. After Yale, he attended law school at George Washington in DC.
Judge Archer was Chief Judge of the Federal Circuit from 1994-1997 when he took senior status at the age of 68. His line on the court was not filled until 2000 when Judge Dyk was confirmed by the Senate. Judge Archer’s last opinion for the court was in January 2011 in a case captioned Wiley v. Merit Systems Protection Bd. Chief Judge Rader and Judge Gajarsa joined Judge Archer’s opinion holding that the MSPB had failed to properly follow the procedural requirements concerning a retired federal employee’s survivor annuity. As a senior judge in 1998, Judge Archer was tasked with drafting the majority opinion in the en banc case of Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998). His opinion, written in the wake of the Supreme Court’s Markman decision, held that claim construction was a “purely legal issue” subject to “de novo review on appeal.” That still-controversial decision has now been cited more than 8,000 times.
A 2008 IP Law & Business article discussed the close connection between Judge Archer’s former clerks. These clerks include Judge Kimberly Moore, Professor Tim Holbrook, Frank Angileri, and Teresa Lavenue.
In a four-page Federal Register notice of proposed rulemaking of proposed rulemaking, the US Patent Office has indicated its intent to revise its duty-to-disclose standards based upon the recent Federal Circuit en banc decision in Therasense, Inc. v. Becton, Dickinson & Co., — F.3d — (Fed. Cir. 2011).
In Therasense, the Federal Circuit held that, apart from potentially affirmative egregious misconduct, inequitable conduct in patent prosecution should not be found unless it is proven that the misconduct was a “but for” cause of the patent issuing. Focusing specifically on the failure to disclose prior art, the court wrote: “[w]hen an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” The office introduces its proposal as follows:
Specifically, the Office is proposing to revise the materiality standard for the duty to disclose to match the materiality standard, as defined in Therasense, for the inequitable conduct doctrine. While Therasense does not require the Office to harmonize the materiality standards underlying the duty of disclosure and the inequitable conduct doctrine, the Office believes that there are important reasons to do so. The materiality standard set forth in Therasense should reduce the frequency with which applicants and practitioners are being charged with inequitable conduct, consequently reducing the incentive to submit information disclosure statements containing marginally relevant information and enabling applicants to be more forthcoming and helpful to the Office. At the same time, it should also continue to prevent fraud on the Office and other egregious forms of misconduct. Additionally, harmonization of the materiality standards is simpler for the patent system as a whole.
The newly proposed Rule 56(b) (37 C.F.R. 1.56(b)) would read as follows:
Sec. 1.56 Duty to disclose information material to patentability.
* * * * *
(b) Information is material to patentability if it is material under the standard set forth in Therasense, Inc. v. Becton, Dickinson & Co., — F.3d — (Fed. Cir. 2011). Information is material to patentability under Therasense if:
(1) The Office would not allow a claim if it were aware of the information, applying the preponderance of the evidence standard and giving the claim its broadest reasonable construction; or
(2) The applicant engages in affirmative egregious misconduct before the Office as to the information.
* * * * *
Under the new rule, the mere failure to disclose information will never be considered material to patentability if the pending claim is allowable. A parallel change would be made to the disclosure rules governing reexaminations.
The current Rule 56(b) defines material information as non-cumulative information that either (1) “by itself or in combination with other information…compels a conclusion that a claim is unpatentable under the preponderance of evidence, burden-of-proof standard” or (2) is inconsistent with “a position the applicant takes” arguing that the claim is patentable. The current rule implemented in 1992 and was itself an attempt by the USPTO to limit the scope of materiality. The pre-1992 rule required submission of information whenever there was a “substantial likelihood that a reasonable examiner would consider [the information] important in deciding whether to allow the application to issue a patent.”
Thus far in 2011, the average issued patent cites 42 prior art references. This number is highly skewed because of a minority of patents that cite to an excessively large number of prior art references. The median patent in 2011 cites 17 references. Only 8% of the 2011 patents cite more than 100 references, but those patents collectively cite more references than the other 92% combined.
The USPTO is also seeking comment on other actions that “may provide an incentive for applicants to assist the Office by explaining/clarifying the relationship of prior art to the claimed invention.”
Written comments regarding the proposed rule change should be submitted to AC58.comments@uspto.gov within the next 60 days (by September 19, 2011).
Retractable Technologies v. Becton, Dickinson and Company (BD) (Fed. Cir. 2011)
In 2010, Judge Folsom of the Eastern District of Texas confirmed the jury finding that BD was liable for infringing three of RTI’s retractable syringe patents and that BD’s invalidity arguments were not convincing. On appeal a two-member majority (Judges Lourie and Plager) reversed-in-part — finding that the district court had erred in its construing of the term “body” too broadly by not limiting the term to a “one piece body.” The majority opinion was written by Judge Lourie. Judge Plager filed a concurring opinion asking courts to focus on the “actual invention” when construing claims. Chief Judge Rader wrote in dissent that the majority’s construction improperly imported limitations from the specification into the claims.
I begin with Judge Plager’s minority view of focusing attention on the actual invention (rather than solely on the written claim language) that has been a recent topic for discussion in the legal academy.
Plager writes:
However much desired by the claim drafters, who want claims that serve as business weapons and litigation threats, the claims cannot go beyond the actual invention that entitles the inventor to a patent. For that we look to the written description. I have written elsewhere about the curse of indefinite and ambiguous claims, divorced from the written description, that we regularly are asked to construe, and the need for more stringent rules to control the curse.
I understand how a perfectly competent trial judge can be persuaded by the siren song of litigation counsel to give the jury wide scope regarding what is claimed. But it is a song to which courts should turn a deaf ear if patents are to serve the purposes for which they exist, including the obligation to make full disclosure of what is actually invented, and to claim that and nothing more.
Although the written description and enablement requirements are intended to ensure that the claim scope is commensurate with the disclosure, Plager’s approach has some merit as a mechanism for allowing courts to adjust patent scope based on disclosure problems rather than the binary valid/invalid choice available under Section 112 p1 defenses.
The Majority Claim Construction: The meaning of a patent claim is considered a question of law that is reviewed de novo on appeal. That is, on appeal, no deference is to be given to the lower court’s opinion. In the 2005 en banc decision of Phillips v. AWH, 415 F.3d 1303, the Federal Circuit wrote that claim meaning should be determined by looking at the words of the claims themselves; the patent specification; the prosecution history; and any relevant extrinsic evidence. Phillips changed the law of claim construction by requiring that clams always be construed “in view of the written description.”
One-Piece Body: The claimed syringe includes a limitation to “a hollow syringe body comprising a barrel and having a front end portion and a back end portion, the back end portion further comprising at least one radially extending member providing finger grips for the syringe body.” The district court looked primarily to the claim language in ruling that the claimed “body” is not limited to a one-piece structure (except for dependent claim 25 that did explicitly limit the body to “one piece”).
Claim Differentiation: On appeal, the Federal Circuit first addressed the claim differentiation argument and found a weak implication that a claimed “body” should be broader than a claimed “one piece body.”
While the patents contain an independent claim that recites a “body,” with a dependent claim that limits the “body” to a “one-piece body,” none of the claims expressly recite a body that contains multiple pieces. Thus, while the claims can be read to imply that a “body” is not limited to a one-piece structure, that implication is not a strong one.
The decision suggests that the claim differentiation would have been a much stronger argument if a separate dependant claim had been limited to “a multiple-piece body” or “a non-one-piece body.”
Specification: In several decisions, the Federal Circuit has ruled that claim differentiation arguments will be outweighed by a contrary construction “dictated by the written description or prosecution history.” Here, the court found that the specification’s background section discussing the prior dictated the a narrow construction. In particular, the background section of one of the asserted patents included the following line:
The prior art has not recognized that such a structure can be molded as a one piece outer body
And, the Summary of the Invention stated that the invented syringe “features a one piece hollow outer body.” The specification discusses several embodiments of a one piece body and never discloses a body that consists of anything other than a one-piece body (except in disparaging the prior art).
In considering these competing arguments, the court noted that there is a very “fine line between construing the claims in light of the specification and improperly importing a limitation from the specification into the claims.” Here, the court ruled the one piece body is necessary “to tether the claims to what the specifications indicate the inventor actually invented.”
Chief Judge Rader’s dissent evokes the pre-Phillips notion that a patent claim can often be read in a vacuum unless scope is disclaimed during prosecution or terms specially defined in the specification.
He writes:
[Under Phillips] Claim language is to be given its ordinary and customary meaning, as understood by a person of ordinary skill in the art at the time of the invention. In this case, neither party contends that “body” has a special, technical meaning in the field of art, and thus claim construction requires “little more than the application of the widely accepted meaning of commonly understood words.” (quoting Phillips). The ordinary and customary meaning of “body” does not inherently contain a one-piece structural limitation. Moreover, neither the claim language nor the written description evinces intent by the patentee to limit the scope of “body” to one-piece bodies.
. . .
Certainly, the claims do not stand alone and must be read in light of the specifications. Nothing in the specifications, however, rebuts the strong presumption created by the claim language that “body” does not contain a one-piece structural limitation. The specifications do not reveal a special definition given by the inventor to the word “body.” Nor do the specifications contain an intentional disclaimer or disavowal of claim scope by the inventor.
This opinion serves as evidence that the court continues to struggle with claim construction and that there continues to be some amount of panel dependence in the results.
The Supreme Court has granted writs of certiorari in two pending patent cases.
In Kappos v. Hyatt, the Supreme Court will decide (1) whether a patent applicant who files a Section 145 civil action has a right to present new evidence to the Federal District Court that could have been (but was not) presented during the proceedings before the USPTO and (2) when new evidence is presented, whether the court may decide the related factual questions de novo and without deference to prior PTO findings. An en banc Federal Circuit previously sided with the applicant, Hyatt, and held that the district court must allow new evidence and that factual conclusions affected by the new evidence must be decided de novo even if previously determined by the PTO. Judge Kimberly Moore penned the en banc opinion after dissenting from the original panel that had arrived at the opposite conclusion. This is Hyatt’s second case at the Supreme Court. He won the first against the State of California who was attempting to tax his receipts from patent licensing awards. Hyatt’s patents are related to computer micro-controller designs and claim a 1975 priority date.
Caraco Pharmaceutical Laboratories, Ltd. v. Novo Nordisk A/Sis a brand versus generic pharmaceutical dispute involving the scope of a generic company’s right to counterclaim against the brand based upon a brand’s overbroad description of claim scope submitted to the FDA. The Federal Circuit held that the Hatch-Waxman Act only allows for deleting of improperly listed patents while the petitioner here argues that the Act also allows for correction of misstatements for patent scope.
The Supreme Court today also decided two personal jurisdiction that could have some impact on how foreign entities are treated in US patent cases. In J. McIntyre Machinery v. Nicastro, the court held that a the “stream of commerce” theory of personal jurisdiction was being taken too far and that the foreign manufacturer (Nicastro) could not be subject to courts located in New Jersey because it had not engaged in activities in that state that “revealed an intent to involde or benefit from the protection of the [New Jersey] laws.” In Goodyear Luxembourg Tires v. Brown, the court held that courts located in North Carolina did not have general jurisdiction over Goodyear’s foreign subsidiary.
McKesson Technologies Inc. v. Epic Systems Corp., (Fed. Cir. 2011) (en banc order)
The Court of Appeals for the Federal Circuit has ordered an en banc rehearing to further address questions of when multi-party actions can lead to a finding of patent infringement. In McKesson, no single party had performed each and every step of the claimed method. However, one party (the health care provider) had completed a portion and had allegedly induced separate parties (users) to complete the remaining steps. Of importance to the decision, the encouragement offered by health care provider did not amount to “control” over the users. Taking these facts, the original Federal Circuit panel held the patent not infringed because (1) no party could be considered a direct infringer of the patent and (2) liability for inducing infringement is not actionable because there is no underlying direct infringement.
In the en banc order, the court identified two questions to be addressed by the parties in their briefs:
If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement? See Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565 (Fed. Cir. 1983).
Does the nature of the relationship between the relevant actors—e.g., service provider/user; doc-tor/patient—affect the question of direct or indirect infringement liability?
A second en banc rehearing on the topic of joint infringement is already pending. In April 2011, the Federal Circuit ordered en banc rehearing of Akamai Technologies, Inc. v. Limelight Networks, Inc. In that case, the court asked the following question
If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable?
Although not explicitly announced, it is likely that the Federal Circuit will hold oral arguments for these two cases on the same day. To account for the timing difference, the court had shortened the briefing deadlines in McKesson
In a 6–1–4 decision, an en banc Federal Circuit has attempted to cure the “plague” of inequitable conduct pleadings by raising the standards for proving that the alleged bad act was material to patentability and that the patentee undertook the alleged bad act with intent to deceive the USPTO. The court has also rejected the sliding scale approach that previously allowed strong evidence of materiality to compensate for weak evidence of intent to deceive (and vice-versa). Finally, the the court held that a finding of inequitable conduct should not immediately render a patent unenforceable. Rather, the court must also “weigh the equities” to determine whether the inequitable conduct warrants the unenforceability remedy.
To prevail on the defense of inequitable conduct, the accused infringer must prove that the applicant misrepresented or omitted material information with the specific intent to deceive the PTO. The accused infringer must prove both elements—intent and materiality—by clear and convincing evidence. If the accused infringer meets its burden, then the district court must weigh the equities to determine whether the applicant’s conduct before the PTO warrants rendering the entire patent unenforceable.
Intent: For the element of intent to deceive the USPTO, the Federal Circuit now demands evidence of a “deliberate decision” to deceive. Focusing on the failure to submit material prior art, the court held that the intent element requires “clear and convincing evidence that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it. . . . Proving that the applicant knew of a reference, should have known of its materiality, and decided not to submit it to the PTO does not prove specific intent to deceive.” When circumstantial evidence is used, intent to deceive must be the “most reasonable inference.”
Materiality: For the element of materiality, the Federal Circuit now demands evidence of “but-for materiality.” In other words, the court must find that, but for the deception, the PTO would not [should not] have allowed the claim. “In making this patentability determination, the court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction.”
Exceptions: As a major exception, the court here held that in cases involving affirmative egregious misconduct, but-for material need not be proven.
Unenforceable: [UPDATED] Even when material and intent are proven, the court held that a patent should only be rendered unenforceable due to inequitable conduct “where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim.” As in eBay v. MercExchange, this equitable analysis is intended to serve as a substantial requirement that limits the discretion of district courts.
TiVo Inc. v. EchoStar Corp. (Fed. Cir. 2011) (en banc nonprecedential order) Download Tivo 2009-1374 5 10 11 adl order to aso_new Before Rader, Newman, Mayer, Lourie, Bryson, Gajarsa, Linn, Dyk, Prost, Moore, O'Malley, and Reyna
The saga of TiVo v. EchoStar plays on. Shortly after the Federal Circuit issued its en banc opinion on April 20, 2011, discussed here, TiVo and EchoStar reached a widely publicized settlement. On May 2, the parties informed the CAFC of the settlement and asked the court to dismiss the appeal.
The court, again ruling en banc, declined to do so as it would effectively nullify the en banc opinion. Drawing upon the law of the Seventh, Ninth, and Eleventh Circuits, the CAFC concluded that "[i]f we were to grant the parties’ motion, the judgment would be that the appeal is dismissed. Although the parties do not ask us to vacate our decision, at this stage, days before issuance of a mandate, we determine that granting the motion to dismiss, which would result in a modification or vacatur of our en banc judgment, is neither required nor a proper use of the judicial system." Slip Op. at 2.
Unless and until: In noting that the parties are free to request that the district court dismiss the complaint and vacate its previously imposed sanctions, the CAFC commented that the district court would lack jurisdiction to take this action "unless and until we return the case to its docket." Slip Op. at 3. Presumably the CAFC does not intend to modify its en banc opinion, but the court's choice of words leaves open that possibility.
Lexicon Medical v. Northgate Technologies and Smith & Nephews (Fed. Cir. 2011)
Judge Rader begins his claim construction decision with an interesting conclusion:
Because the record amply supports the trial court’s interpretation of this claim term … this court affirms.
Of course the Federal Circuit’s en banc decision in Cybor requires that claims be reviewed de novo and without deference to the lower court decision. Thus ,the proper question on appeal is not whether the evidence supports the lower court’s decision but instead whether the lower court made the correct determination. In its actual analysis of the claim construction, the appellate panel here appears to have actually performed a complete de novo review and concluded that, indeed, the trial court’s conclusions were correct. The seeming slip in the opening statement of the opinion is understandable – district court opinions on claim construction should be given some deference.
Part of the trouble with claim construction is that the analysis is rarely a binary decision for the court. Rather, there are often a large number of potential interpretations for any particular claim phrase and, courts typically construe (or refuse to construe) multiple claim phrases. Thus, the idea that a random claim construction should be correct 50% of the time is completely wrong. We also know that well informed, reasonable decision makers often disagree on the particular “best” construction of a particular claim phrase. In a recent article, Peter Menell wrote “If nothing else, the past two decades revealed the inherent difficulties of using language to define the boundaries of abstract and intangible rights.” Menell, Powers, & Carlson, Patent Claim Construction: A Modern Synthesis and Structured Framework, 25 Berkeley Tech. Law Journal 711 (2011).
District courts do make mistakes in construing claims, and those should be corrected on appeal. However, apart from clear district court errors, there is no evidence that the Federal Circuit judges do a better job of construing claims than do district court judges. Offering some deference to district court decisions would give a modicum of finality to those decisions and would give some credence to the reality that claim construction involves substantial factual analysis. In his article, Menell writes that “the Federal Circuit is likely to formally rule that there is a role for district court fact-finding in the claim construction process.” We will be waiting to see if Menell’s prediction comes true.
Akamai Technologies, Inc. v. Limelight Networks, Inc., (Fed. Cir. 2011) (en banc order)
The Federal Circuit has ordered an en banc rehearing of Akamai's appeal focusing on the following question:
If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable?
Briefs of amici curiae may be filed without consent from the parties or leave of the court. This decision follows on the heels of Judge Bryson's recent public plea in McKesson for rehearing en banc on the issue of joint infringement. The leading article on the topic is Mark A. Lemley et al., Divided Infringement Claims, 33 AIPLA Q.J. 255, 283 (2005). In that article, Lemley argues that virtually all divided infringement problems could have been prevented by better claim drafting. To date, I have not seen a careful or complete retort to the Lemley's article.
Tivo Inc. v. Echostar Corp. (Fed. Cir. 2011) (en banc)
At trial, Echostar was held liable as an infringer and was permanently enjoined from making or selling the infringing products as well as “all other products that are only colorably different therefrom.” Echostar then modified and continued to market its product. Rather than filing a new lawsuit, Tivo filed a contempt action arguing that Echostar’s activities violated the permanent injunction already in place. The district court held Echostar in contempt after ruling that the modified product was not colorably different from the infringing product and therefore that its sale violated the permanent injunction.
Normally, a contempt proceeding is the appropriate vehicle for judging violations of a permanent injunction. However, when a company’s new product is sufficiently different from its prior infringing product, courts instead require the patentee to pursue an entirely new case on the merits of the new product. In a rare en banc decision penned by Judge Lourie, the Court of Appeals for the Federal Circuit has provided new guidance as how courts should structure a contempt proceeding when an adjudged infringer releases a new or modified product.
The new rules of contempt proceedings for modified products following an injunction:
Good Faith Design Around: A good faith effort to modify a product in order to avoid infringement will not avoid a contempt proceeding. However, the good faith of someone held in contempt may be used in lessening the penalty for contempt.
Overrule Two-Step Process: The two-step test defined in KSM Fastening Sys., Inc. v. H.A. Jones Co., 776 F.2d 1522, 1530–32 (Fed. Cir. 1985), is overruled as unworkable. That test required courts to first determine whether a contempt proceeding is appropriate based upon the colorable difference test and then determine whether contempt actually occurred. Under the new approach, courts will have broad discretion in judging whether to hold a contempt proceeding so long as the injured party offers “a detailed accusation … setting forth the alleged facts constituting the contempt.”
Appealing Decision to Hold a Contempt Proceeding: A confused aspect of the decision is whether the lower court’s decision to hold a contempt proceeding will be appealable. In one portion of the opinion, the court states that the question of whether the contempt proceeding was proper will not be directly appealable. “As with appeals from findings of civil contempt in other areas of law, we will only review whether the injunction at issue is both enforceable and violated, and whether the sanctions imposed were proper.” In the next paragraph, however, the court notes “that there may be circumstances in which the initiation of contempt proceedings would constitute an abuse of discretion by the district court.” The court then went on to hold that the decision in this particular case was not an abuse of discretion.
Colorably Different: In order win a contempt proceeding, the patentee must show that “the newly accused product is [not] so different from the product previously found to infringe that it raises ‘a fair ground of doubt as to the wrongfulness of the defendant’s conduct.'” In conducting this analysis, the court should focus on the portions of the accused product that were a basis for the prior finding of infringement and consider whether those portions have been significantly modified or removed. “If those differences between the old and new elements are significant, the newly accused product as a whole shall be deemed more than colorably different from the adjudged infringing one” and a contempt finding would be inappropriate. At that point, the patentee could still pursue a full infringement action.
Infringement and Claim Construction: Even when the new product is not colorably different from the prior infringing products, the court must also determine that the new product actually infringes the asserted patent claims. In this process, the court will be bound by its prior claim construction ruling.
In this case, the district court failed to explicitly consider whether Echostar’s modified product met each limitation of the asserted claim. On remand, the district court must make that factual determination.
The court was unanimous as to this new approach to contempt proceedings.
Dissent: The dissent filed by Judge Dyk primarily challenges whether a particular portion of the injunction can be challenged as vague and overbroad in a contempt proceeding. Judge Dyk’s dissent was joined by Chief Judge Rader and Judges Gajarsa, Linn, and Prost. Looking at the tallies, for this portion of the opinion, there were seven judges in the majority and five in dissent. [updated to fix counting error] The majority included Judges O’Malley and Reyna who were not on the bench until well after briefing and oral arguments had been complete.
McKesson Technologies Inc. v. Epic Systems Corp. (Fed. Cir. 2011)
The Court of Appeals for the Federal Circuit has again ruled that infringement of a patented method requires that a single entity performs all steps of the method. Other recent cases on point include BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007) and Muniauction, Inc. v. Thomson Corp., 552 F.3d 1318 (Fed. Cir. 2008). According to these cases, actions by third parties only count toward infringement if those parties are acting as agents of or under the control and direction of the single direct infringer.
In McKesson, the patented communications method requires action from a health care provider as well as multiple users. There was no infringement here because the users were not acting under the “control and direction” of the health care provider.
Inducement <> Control: Although the users were encouraged by the health care provider to take the would-be infringing step, encouragement alone is doctrinally insufficient to consider the users as agents of the health care provider. In his opinion for the court, Judge Linn noted that the users were not under a contractual duty to use the system and that the “voluntary actions of patients” were did not create an agency relationship.
An interesting aspect of the decision is that each judge filed an opinion.
Judge Linn, writing the “opinion for the court” indicated that the court was bound by prior precedent, but also argued that patentee’s facing a joint infringement situation simply should have done a better job in claim drafting.
[I]n patent law, unlike in other areas of tort law, the patentee specifically defines the boundaries of his or her exclusive rights and provides notice to the public to permit avoidance of infringement. This stands in sharp contrast to the circumstances surrounding a joint tort where the victim has no ability to define the injurious conduct upfront and where, absent joint liability, the victim would stand uncompensated as a consequence.
This approach is supported by an interesting article by Mark Lemley, et al., that argues most divided infringement situations could be solved by better claim drafting.
Judge Bryson concurred in the judgment based upon binding precedent, but called for an en banc re-hearing.
I agree that the decision in this case is correct in light of this court’s decisions in BMC Resources, Muniauction, and Akamai Technologies. Whether those decisions are correct is another question, one that is close enough and important enough that it may warrant review by the en banc court in an appropriate case.
Judge Newman dissented – arguing that the approach conflicts with prior precedent:
Earlier cases applied the law of infringement as a straightforward matter of tortious responsibility. For example, in Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565 (Fed. Cir. 1985), the court held that contributory infringement was possible when a step of a method claim was practiced by the customer, and explained that “because [the manufacturer’s] customers, not [the manufacturer], applied the diazo coating, [the manufacturer] cannot be liable for direct infringement with respect to those plates but could be liable for contributory infringement.” Id. at 1568. This has been the law. It has never had en banc reversal.
Interestingly, the Fromson case has been repeatedly cited for the notion that customer actions cannot be used to support a direct infringement charge against a manufacturer. The case has only rarely been cited this additional teaching that inducing infringement does not require a single direct infringer. The first Federal Circuit decision holding that inducement requires proof of direct infringement appears to be Met-Coil Systems Corp. v. Korners Unlimited, Inc., 803 F.2d 684, 687 (Fed. Cir. 1986). In several post-1952 cases, the Supreme Court has stated that an invention must actually be infringed – i.e., practiced – before someone can be liable for indirect infringement. However, in those cases, the Supreme Court did not state that the actual infringement must be performed by a single entity, and a fair reading of those cases would allow for infringement-by-conspiracy.
Although the US Patent & Trademark Office (USPTO) and the Department of Justice (DOJ) have been at odds on the issue of the patent eligibility of genetic material isolated from a living organism, the two agencies are speaking with one voice against the Federal Circuit's recent decision in Hyatt v. Kappos. In that en banc opinion, the court broadened a patent applicant's rights associated with the "remedy by civil action" provided by Section 145 of the Patent Act. Under § 145, an applicant can file a civil action in DC District Court whenever "[a]n applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences."
In a 6-2-1 decision, the Federal Circuit reversed its prior precedent and held that a patent applicant is allowed to introduce new evidence in a Section 145 civil action filed to challenge a USPTO refusal to grant patent rights and that the issues implicated by the new facts must be considered de novo.
Judge Moore wrote in the majority opinion that:
[W]e hold that the only limitations on the admissibility of evidence applicable to a § 145 proceeding are the limitations imposed by the Federal Rules of Evidence and Federal Rules of Civil Procedure. Therefore, we hold that the district court applied the wrong legal standard for the admissibility of evidence in a § 145 proceeding and abused its discretion when it excluded Mr. Hyatt's declaration. . . .
The particular significance of a § 145 civil action is that it affords an applicant the opportunity to introduce new evidence after the close of the administrative proceedings—and once an applicant introduces new evidence on an issue, the district court reviews that issue de novo.
However, the Court also held that an applicant may still be barred from presenting new "issues" in the civil action and that, when no new evidence is presented, that BPAI findings and rulings should be given deference under the Administrative Procedures Act.
Petition for Writ of Certiorari: In its petition to the Supreme Court, the US Government argues that the Federal Circuit decision is faulty because it "disregards fundamental principles of administrative law" and diverges from the traditional understanding of the statute.
Getting from the PTO to the Court: After losing at the Board, an applicant has two primary avenues for challenging the Board's decision: (1) Appeal to the Court of Appeals for the Federal Circuit under 35 U.S.C. § 141; or (2) File a civil action in district court under 35 U.S.C. § 145. In Dickinson v. Zurko, the Supreme Court held that Federal Circuit direct review of BPAI decisions under Section 141 must follow the deferential standards that govern judicial review of final agency action under the Administrative Procedure Act (APA). 527 U.S. 150 (1999). In that decision, the Supreme Court distinguished between Section 145 and Section 141 actions – noting that Section 145 actions "permit the disappointed applicant to present to the court evidence that the applicant did not present to the PTO." However, the court did not address the particular circumstances in which new evidence may be permitted nor did it address how the new evidence should be treated.
Here, the government asks the Supreme Court to fill the gap in Zurko by holding that:
The plaintiff in a Section 145 action may not introduce new evidence that could have been presented to the PTO in the first place; and
When new evidence is introduced, the district court should still give deference to the prior decisions of the PTO.
Background: Gilbert Hyatt is a well-known inventor and successful patentee. Hyatt filed a civil action in 2003 after the BPAI sustained written description and enablement rejections for seventy-nine of Hyatt's claims. The examiner had issued "2546 separate rejections of Mr. Hyatt's 117 claims" based on the doctrines of inadequate "written description, lack of enablement, double patenting, anticipation, and obviousness." The Board reversed all of the examiner rejections except for the § 112 p1 arguments. Complicating this case is the fact that the application's claimed priority date is 1975. Hyatt has aggressively pushed the bounds of USPTO practice. This decision is one of more than a dozen Federal Circuit decisions focusing on Hyatt's patent rights. If the Supreme Court takes the case, it will be the second for Hyatt who won a 2002 case against California income tax collectors. In that case, California was pursuing Hyatt for tax revenue for his patent licenses. Hyatt took the case to the Supreme Court and eventually won a $388 million judgment against the state of California for invasion of privacy.
New Federal Circuit judge Kathleen O’Malley has begun her tenure at the Federal Circuit by joining with Judge Newman dissenting from the court’s denial of en banc rehearing. In her first patent opinion as a full member of the court, Judge O’Malley issued a tour-de-force – arguing that the original Abraxis panel erred by creating special federal rules governing assignment of patent rights rather than relying upon the usual rule that state contract and property laws govern the assignment of patent rights.
The case centers on patents covering the anesthetic Naropin and Navinta’s attempt to begin manufacturing a generic version. Abraxis sued Navinta after that company filed its abbreviated new drug application (ANDA) with the Food & Drug Administration (FDA). See 35 U.S.C. §271(e)(2).
Problem of Ownership: In the original appeal, Judges Gajarsa and Linn found that the plaintiff, Abraxis, lacked standing because it did not own the patents in suit at the time that the complaint was filed. Although Abraxis had an asset assignment agreement from AstraZeneca with an effective date of June 2006, AstraZeneca had not actually received title from two of its subsidiaries by that date. Just before the lawsuit was filed, AstraZeneca received title to the patents from its subsidiaries and Abraxis argued that the 2006 agreement operated to automatically shift title to Abraxis. The chart below largely captures this (simplified) sequence of events.
The agreements spelled-out that New York state law should be the source of contract interpretation for these transfers. When applying New York law, the district court sided with Abraxis – holding that the circumstances in this case meant that the 2007 transfer should be deemed retroactive to 2006, nunc pro tunc.
The New York law may seem a bit strange to some, but the dispute between Judge O’Malley and the majority opinion is not about the interpretation of New York law. Rather, the questions is whether patent ownership should even be governed by New York law at all – as opposed to the federal rules of patent ownership and transfer that stem from the statutory guidance of 35 U.S.C. § 261 (both patents and applications are “assignable in law by an instrument in writing”). In several cases involving the interpretation of patent rights, the Federal Circuit has taken the opportunity to develop its own law. Examples of these include, DDB Techs., L.L.C. v. MLB Advanced Media, L.P., 517 F.3d 1284, 1290 (Fed. Cir. 2008); Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000) (stating that while the ownership of patent rights is typically a question exclusively for state courts, the question of whether contractual language effects a present assignment of patent rights, or an agreement to assign rights in the future, is resolved by Federal Circuit law); and Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583 F.3d 832, 841-42 (Fed. Cir. 2009) (cert. granted Nov. 1, 2010). The court claimed jurisdiction over the assignment/contract questions in these cases because answer to the questions would determine the plaintiff’s standing to sue for patent infringement.
Here, Judge Gajarsa also found the interpretation of the purchase agreement to be an issue of Federal Law – writing that “[n]otwithstanding New York law, it is not possible to transfer an interest in a patent unless one owns the patents at the time of the transfer.”
In dissent, Judge O’Malley would have left the interpretation of the contract and property rights transfer as a matter of state law.
[B]y virtue of this decision, this court now requires the application of Federal Circuit contract law to transfers of existing patent rights, without regard for the state law jointly chosen by the contracting parties. The consequences of this decision are not slight. This creation of a new body of law to govern transfers of patent rights – one applicable in this Circuit only – will disrupt substantial expectations with respect to the ownership of existing patents and impose unnecessary burdens on future transfers thereof. Parties may now be barred from pursuing claims for infringement of patents they indisputably own under state law, and choice of law provisions in large-scale asset purchase agreements such as that at issue here will become meaningless where patents are involved.
Because this decision conflicts with Supreme Court precedent and needlessly destabilizes parties’ expectations, we should take the opportunity to correct this flawed precedent.
This decision is important for several reasons:
Now, any major or complex asset purchase or corporate reorganization must be reviewed by someone familiar with Federal Circuit Patent Transfer Law in order to ensure that the patent portion of the transfer is done in accordance with federal law.
It is unclear whether this Federal Circuit interpretation of the law applies only when the resolution is related to a standing issue. Namely, when judging a contract dispute would a state court be required to apply this law in their interpretation of the patent ownership rights or, alternatively, do the federal courts now have federal question jurisdiction over contract cases that require resolution of this type of contract language?
It is interesting that Judge O’Malley’s first patent opinion is a dissent to an en banc re-hearing that is joined by Judge Newman. Is this a sign to come for her tenure?
Jason Rantanen’s Patently-O post cited by District Court
In Arlington Industries, Inc. v. Bridgeport Fittings, Inc., 2011 WL 703612 (M.D.Pa. Feb 18, 2011), the district court cited Jason Rantanen’s Patently-O post discussing the Federal Circuit opinion in that case. [Link]The citation was support for the argument that the Federal Circuit decision is controversial and has some likelihood of being re-heard en banc. The district court favorably noted the “over 100” comments that had been added to the post.
Mary Wong named Franklin Pierce Center for Intellectual Property Director
The Franklin Pierce Center for IP was formed after the Franklin Pierce Law Center and the University of New Hampshire (UNH) decided to unite. Wong has been with UNH since 2005 and is currently a professor and the Chair of the Intellectual Property Graduate Programs. Wong’s research interest focuses mainly on the international intellectual property rights framework. [Link]
AT&T and Sony Ericsson sued over expired patent
Romek Figa is suing AT&T and Sony Ericcson over a patent issued to him in 1990 and that expired on May 12, 2008. The patent at issue is patent # 4,924,496, which essentially claims a caller-id device. Figa contends certain Sony Ericcson mobile phones that were sold through AT&T infringed patent 496. In the complaint Figa asserts that prior to the expiration of the patent at issue he notified Sony and AT&T that they were infringing patent 496. Thereafter, Figa and the parties were in negotiations about licensing the patent, but no agreement was ever reached. [Link]
Article One hired to help find prior art that will invalidate the patents in the Interval Licensing lawsuit
Article One Partners is a company that makes a profit by using crowdsourcing to try to find prior art to invalidate patents that are at issue in patent infringement lawsuits. Article One will pay researchers money, if they find prior art used to help invalidate a patent. According to Article One Partners CEO Cheryl Milone, multiple stakeholders are sponsoring a project to try to find prior art that would invalidate Interval Licensing’s patents. [Link]
New Patent Blog
www.ReexamLink.com is a blog about patent reexamination, reissue, opposition and related patent procedures. ReexamLink.com will include the interplay between ex parte prosecution, reexamination, litigation, and appeals. It is intended to provide useful content for litigators, prosecutors, and anyone interested in patent law. The blog is written by Timothy Bianchi a patent attorney with 17 years experience in patent law.
Patent Jobs:
Synaptics is searching for an IP Engineer for their Santa Clara location. [Link]
DuPont is looking for an experienced Patent Agent with 3-5 years experience for their Delaware location. [Link]
International IP Law Group is looking for a Patent Engineer/Agent with 2-3 years technical experience to work in their Houston Office. [Link]
Fiala & Weaver is searching for Patent Attorneys/Agents to work in their D.C Office or to work remotely. [Link]
Upcoming Events:
The Wake Forest Journal of Business and Intellectual Property Law will host its Spring Symposium on March 25th. The Symposium will discuss “Creative Capital: Intellectual Property Creation and Venture Capital.” The Keynote Speaker is Bob Young CEO and Founder of Lulu.com; other speakers include Michael Mireles, Therese Maynard, and Daniel Egger. [Link]
The Columbus School of Law will host the Dean William Callyhan Robinson Intellectual Property Lecture Series on March 29th. The lecture will be delivered by Jeffrey Lefstin, with an introduction by Judge Alvin Schall. [Link]
The University of Dayton, School of Law will host a Symposium Series on Current Issues in Intellectual Property Law on March 31st. The guest speaker will be Scott Kief of The George Washington University Law School. [Link]
Jason Rantanen’s Patently-O post cited by District Court
In Arlington Industries, Inc. v. Bridgeport Fittings, Inc., 2011 WL 703612 (M.D.Pa. Feb 18, 2011), the district court cited Jason Rantanen’s Patently-O post discussing the Federal Circuit opinion in that case. [Link]The citation was support for the argument that the Federal Circuit decision is controversial and has some likelihood of being re-heard en banc. The district court favorably noted the “over 100” comments that had been added to the post.
Mary Wong named Franklin Pierce Center for Intellectual Property Director
The Franklin Pierce Center for IP was formed after the Franklin Pierce Law Center and the University of New Hampshire (UNH) decided to unite. Wong has been with UNH since 2005 and is currently a professor and the Chair of the Intellectual Property Graduate Programs. Wong’s research interest focuses mainly on the international intellectual property rights framework. [Link]
AT&T and Sony Ericsson sued over expired patent
Romek Figa is suing AT&T and Sony Ericcson over a patent issued to him in 1990 and that expired on May 12, 2008. The patent at issue is patent # 4,924,496, which essentially claims a caller-id device. Figa contends certain Sony Ericcson mobile phones that were sold through AT&T infringed patent 496. In the complaint Figa asserts that prior to the expiration of the patent at issue he notified Sony and AT&T that they were infringing patent 496. Thereafter, Figa and the parties were in negotiations about licensing the patent, but no agreement was ever reached. [Link]
Article One hired to help find prior art that will invalidate the patents in the Interval Licensing lawsuit
Article One Partners is a company that makes a profit by using crowdsourcing to try to find prior art to invalidate patents that are at issue in patent infringement lawsuits. Article One will pay researchers money, if they find prior art used to help invalidate a patent. According to Article One Partners CEO Cheryl Milone, multiple stakeholders are sponsoring a project to try to find prior art that would invalidate Interval Licensing’s patents. [Link]
New Patent Blog
www.ReexamLink.com is a blog about patent reexamination, reissue, opposition and related patent procedures. ReexamLink.com will include the interplay between ex parte prosecution, reexamination, litigation, and appeals. It is intended to provide useful content for litigators, prosecutors, and anyone interested in patent law. The blog is written by Timothy Bianchi a patent attorney with 17 years experience in patent law.
Patent Jobs:
Synaptics is searching for an IP Engineer for their Santa Clara location. [Link]
DuPont is looking for an experienced Patent Agent with 3-5 years experience for their Delaware location. [Link]
International IP Law Group is looking for a Patent Engineer/Agent with 2-3 years technical experience to work in their Houston Office. [Link]
Fiala & Weaver is searching for Patent Attorneys/Agents to work in their D.C Office or to work remotely. [Link]
Upcoming Events:
The Wake Forest Journal of Business and Intellectual Property Law will host its Spring Symposium on March 25th. The Symposium will discuss “Creative Capital: Intellectual Property Creation and Venture Capital.” The Keynote Speaker is Bob Young CEO and Founder of Lulu.com; other speakers include Michael Mireles, Therese Maynard, and Daniel Egger. [Link]
The Columbus School of Law will host the Dean William Callyhan Robinson Intellectual Property Lecture Series on March 29th. The lecture will be delivered by Jeffrey Lefstin, with an introduction by Judge Alvin Schall. [Link]
The University of Dayton, School of Law will host a Symposium Series on Current Issues in Intellectual Property Law on March 31st. The guest speaker will be Scott Kief of The George Washington University Law School. [Link]
Jason Rantanen’s Patently-O post cited by District Court
In Arlington Industries, Inc. v. Bridgeport Fittings, Inc., 2011 WL 703612 (M.D.Pa. Feb 18, 2011), the district court cited Jason Rantanen’s Patently-O post discussing the Federal Circuit opinion in that case. [Link]The citation was support for the argument that the Federal Circuit decision is controversial and has some likelihood of being re-heard en banc. The district court favorably noted the “over 100” comments that had been added to the post.
Mary Wong named Franklin Pierce Center for Intellectual Property Director
The Franklin Pierce Center for IP was formed after the Franklin Pierce Law Center and the University of New Hampshire (UNH) decided to unite. Wong has been with UNH since 2005 and is currently a professor and the Chair of the Intellectual Property Graduate Programs. Wong’s research interest focuses mainly on the international intellectual property rights framework. [Link]
AT&T and Sony Ericsson sued over expired patent
Romek Figa is suing AT&T and Sony Ericcson over a patent issued to him in 1990 and that expired on May 12, 2008. The patent at issue is patent # 4,924,496, which essentially claims a caller-id device. Figa contends certain Sony Ericcson mobile phones that were sold through AT&T infringed patent 496. In the complaint Figa asserts that prior to the expiration of the patent at issue he notified Sony and AT&T that they were infringing patent 496. Thereafter, Figa and the parties were in negotiations about licensing the patent, but no agreement was ever reached. [Link]
Article One hired to help find prior art that will invalidate the patents in the Interval Licensing lawsuit
Article One Partners is a company that makes a profit by using crowdsourcing to try to find prior art to invalidate patents that are at issue in patent infringement lawsuits. Article One will pay researchers money, if they find prior art used to help invalidate a patent. According to Article One Partners CEO Cheryl Milone, multiple stakeholders are sponsoring a project to try to find prior art that would invalidate Interval Licensing’s patents. [Link]
New Patent Blog
www.ReexamLink.com is a blog about patent reexamination, reissue, opposition and related patent procedures. ReexamLink.com will include the interplay between ex parte prosecution, reexamination, litigation, and appeals. It is intended to provide useful content for litigators, prosecutors, and anyone interested in patent law. The blog is written by Timothy Bianchi a patent attorney with 17 years experience in patent law.
Patent Jobs:
Synaptics is searching for an IP Engineer for their Santa Clara location. [Link]
DuPont is looking for an experienced Patent Agent with 3-5 years experience for their Delaware location. [Link]
International IP Law Group is looking for a Patent Engineer/Agent with 2-3 years technical experience to work in their Houston Office. [Link]
Fiala & Weaver is searching for Patent Attorneys/Agents to work in their D.C Office or to work remotely. [Link]
Upcoming Events:
The Wake Forest Journal of Business and Intellectual Property Law will host its Spring Symposium on March 25th. The Symposium will discuss “Creative Capital: Intellectual Property Creation and Venture Capital.” The Keynote Speaker is Bob Young CEO and Founder of Lulu.com; other speakers include Michael Mireles, Therese Maynard, and Daniel Egger. [Link]
The Columbus School of Law will host the Dean William Callyhan Robinson Intellectual Property Lecture Series on March 29th. The lecture will be delivered by Jeffrey Lefstin, with an introduction by Judge Alvin Schall. [Link]
The University of Dayton, School of Law will host a Symposium Series on Current Issues in Intellectual Property Law on March 31st. The guest speaker will be Scott Kief of The George Washington University Law School. [Link]
Earlier today, I testified in Congress before the House of Representatives Judiciary Committee’s Subcommittee on Intellectual Property, Competition, and the Internet. [Link] The IP subcommittee will have jurisdiction over any patent reform measures introduced to the House. The other two witnesses were Professor Dan Burk (UC Irvine) and Andrew Pincus (Mayer Brown, representing BSA). The focus of today’s hearing was on the changes that have occurred in patent law since the patent reform process began in 2004. I.e., what is left for Congress to reform? Our written and recorded testimony is available online here: http://judiciary.house.gov/hearings/hear_03102011_2.html.
Questioning was extensive and included questions from subcommittee Chairman Goodlatte (R-VA), Vice-Chairman Watt (D-NC), and Representatives Conyers (D-Mich), Nadler (D-NY), Chu (D-CA), Reed (R-NY), and Adams (R-FL). Representatives Coble (R-NC) and Quayle were also in attendance.
My written Testimony Follows:
Committee on the Judiciary< ?xml:namespace prefix ="" o />
United States House of Representatives
Subcommittee on Intellectual Property, Competition and the Internet
Hearing
“Review of Recent Judicial Decisions on Patent Law”
We are likely nearing a turning point in a decade-long process of patent reform.Although there is still clearly a strong demand for legislative measures, much has changed since the landmark FTC and NAS point-by-point criticisms of the patent law system were released in 2003 and 2004 respectively.[1] Likewise, much has changed in the six years since the Patent Reform Act of 2005 was introduced in the House of Representatives.[2]Perhaps in response to these external pressures, the Federal Courts have taken a more active role in shaping patent policy from the bench and have particularly addressed many of the concerns raised by the various patent reform initiatives.
In most areas of law, court-developed doctrines mature quite slowly.Over the past decade, however, patent law has been a dramatic counter-example.The courts have substantially altered many longstanding patent doctrines in the course of a few short years.[3]Several factors combine to explain this phenomenon.First, unlike most other federal legal questions appealed to regional Circuit Courts of Appeal, virtually all patent law related appeals from across the country are heard by the Court of Appeals for the Federal Circuit (the “Federal Circuit”).The national reach of the Federal Circuit means that a ruling by the court has an automatic nationwide impact in much the same way that decisions by the United States Supreme Court have a nationwide impact.However, unlike the Supreme Court, the Federal Circuit hears hundreds of patent cases each year.Over the past ten years, the funneling of patent appeals to the Federal Circuit has resulted in the court hearing over four thousand patent infringement appeals in addition to its review of patent decisions from the United States Patent and Trademark Office (the “Patent Office”) and the International Trade Commission.[4]The large number of cases provides the court with the opportunity to rapidly shift the law, even when each case presents only an incremental change. In addition to the means to effect change, it is apparent that both the Federal Circuit and the Supreme Court have taken an interest in shaping patent law policy.[5]Finally, unlike many Federal statutes, the Patent Act as codified in Title 35 of the United States Code is a relatively sparse statute that leaves tremendous leeway for interpretation.
Over the past six years, the Supreme Court granted certiorari and issued a number of important patent decisions that:
·Make it easier to invalidate (or reject) a patent on obviousness grounds, KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007) (eliminating technical hurdles for proving an invention obvious and instead applying a “common sense” analysis for assessing patentability);
·Make it more difficult for a patent holding company to obtain injunctive relief to stop ongoing infringement, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (holding that even an adjudged infringer should not be automatically enjoined from continuing to infringe; rather an injunction should only issue after consideration of the traditional four-factor test for equitable injunctive relief);
·Make it easier for a manufacturer to obtain a declaratory judgment of non-infringement, MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) (holding that declaratory judgment (“DJ”) jurisdiction may exist even if the patent holder could not have sued the DJ plaintiff for infringement; apprehension that patentee will sue for infringement is not a necessary element for Article III jurisdiction);
·Solidify our understanding of the scope of patentable subject matter available for business method patents, Bilski v. Kappos, 130 S. Ct. 3218 (2010) (invalidating Bilski’s claimed invention – a method of hedging against the occurrence of bad weather – as an unpatentable abstract idea);
·Limit the doctrine of export infringement under 35 U.S.C. § 271(f), Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007) (holding that Microsoft could not be held liable for exporting software code because the exported source code does not qualify as a “component” under the statute); and
·Provide roadmaps for stronger patent licensing agreements, see Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617 (2008) (patent “exhausted” under first sale doctrine because patentee did not restrict licensee’s sales to third party purchasers) and Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006) (holding that in antitrust tying cases, courts should not presume that a patent confers market power).
During this time, the Federal Circuit has also actively addressed patent reform issues with decisions that:
·Attempt to implement venue reform in a way that limits unreasonable forum shopping, In re TS Tech United States Corp., 551 F.3d 1315 (Fed. Cir. 2009) (on writ of mandamus, ordering case transferred out of venue that had no meaningful ties to the patent infringement case);[6]
·Rationalize patent damage awards, Uniloc USA, Inc. v. Microsoft Corp., ___ F.3d ___, 2011 U.S. App. LEXIS 11 (Fed. Cir. 2011) (holding that the 25% Rule for calculating patent damages is “fundamentally flawed” and that total product revenue cannot be considered in the reasonable royalty analysis unless the Entire Market Value Rule applies.) and Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009) (requiring a proof that purported “comparable” licenses used for calculating a royalty rate are, in fact, comparable); Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc., 609 F.3d 1308 (Fed. Cir. 2010).
·Limit enhanced damages, In re Seagate, 497 F. 3d 1360 (Fed. Cir. 2007) (limiting the potential for treble damages to cases where the adjudged infringer’s actions were at least “objectively reckless”) (see Chart 1);
·Expand the false marking doctrine, Forest Group Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009);
·Limit inequitable conduct pleadings, Exergen Corporation v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009) (requiring that inequitable conduct pleadings include “specific who, what, when, where, and how of [any] material misrepresentation or omission”); and
As we sit here today, the courts also have a number of important cases pending resolution. Among others, these include:
·A challenge to the presumption of validity associated with issued patents, Microsoft Corp. v. I4I Ltd. P’ship, 131 S. Ct. 647 (2010) (certiorari granted on the issue of whether the presumption of validity associated with an issued patent must always be overcome with clear and convincing evidence);
·A challenge to the patentability of genetic material, See Ass’n for Molecular Pathology v. United States PTO, 2010 U.S. Dist. LEXIS 35418 (S.D.N.Y. 2010) (holding BRCA gene patents invalid for being directed to a law of nature);
·A Constitutional challenge to the False Marking provisions of the Patent Act, Unique Prod. Solutions, Ltd. v. Hy-Grade Valve, Inc., 2011 U.S. Dist. LEXIS 18237 (N.D. Ohio 2011) (holding the False Marking statute unconstitutional) and United States ex rel. FLFMC, LLC v. Wham-O, Inc., Fed. Cir. App. No. 2011-1067 (pending appeal challenging Constitutionality of the statute);[8]
·A question regarding the mens rea requirement for inducing infringement under 35 U.S.C. § 271(b), Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 458 (2010) (grant of certiorari);
·A major challenge to the implementation of the judge made law of inequitable conduct, TheraSense, Inc. v. Becton, Dickinson & Co., 374 Fed. Appx. 35 (Fed. Cir. April 26, 2010) (en banc order requesting briefing); and
·A challenge to patent ownership rights under the Bayh-Dole Act, Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S. Ct. 502 (2010) (grant of certiorari).
For better or worse, the courts have substantially shifted the playing field over the past six years. And, the cases currently pending and in the pipeline appear poised to continue this process.Of course, the courts have limited power and cannot make statutory amendments or offer funding to the Patent Office. It is safe to say, however, that the courts have addressed (or are addressing) virtually all of the legitimately raised patent reform issues that fall squarely within their purview. Within this dynamic, an important ongoing role of Congress is at least to ensure that the courts are making the right policy choices.
Patent Office Backlog: A key issue of patent law policy that has not been adequately addressed in the past six years is the growing backlog of patent applications pending at the Patent Office.Although the current Patent Office management team is quite focused on reducing the backlog, their efforts have not been overwhelmingly successful to-date.As seen in Chart 2 (below), the overall backlog of patent applications pending at the USPTO has increased more than 30% since 2005.The forced delay is troubling for patent applicants because the exclusive patent right is only enforceable once the patent issues, and typically only against post-issuance infringement.The multi-year prosecution delay is also troubling for potential competitors and customers because the patent right may eventually spring-forth to re-capture exclusive rights that had been in public use for years.
Even more dramatic, is the twenty seven fold (~2700%) increase in the backlog of cases awaiting decision at the Board of Patent Appeals and Interferences (BPAI). (Chart 3).The long and growing backlog of appeals more than doubles the expected duration of the patent prosecution process for the almost 50% of patent applicants that achieve at least a partial victory on appeal.
These backlogs likely cannot be directly corrected by the courts. Instead, every effort must be made to ensure that the Patent Office is enabled and encouraged to right its own ship.In the short term, the Patent Office will need to hire more examiners; re-work its failing information technology system; and apply effective negotiation theories to the examination process.In the longer term, world patent offices must work-share when examining duplicate patent applications that have been filed in multiple countries.[9]In addition, there are some relatively easy steps that can be taken to help ensure that patent applications are filed in a way that make them easier to examine.This may include (1) requiring applicants to better delineate their invention and its purposes and (2) more rigorously enforcing the requirement that claims be clearly drafted in a way that relates to the invention as disclosed.
Obviousness and the Backlog: The bulk of time spent in the patent examination process and in appeals to the BPAI revolves around the issue of obviousness.[10]In other words, the backlogs can be largely attributed to time spent arguing the difficult issue of obviousness. Unfortunately, nothing in the proposed legislation does anything directly to alleviate this burden.Although the process of examining patents for obviousness may seem to be one best left to the administrative agency, the Patent Office is bound to follow the examination processes laid out by the courts in KSR v. Teleflex[11] and Graham v. John Deere Co.[12]Because so much time and energy is spent on this issue during the examination process, it may be one where increased substantive rulemaking authority would allow the Patent Office to create a more manageable approach to the statutory question.
Foreign Inventor Influence on the US Patent System: Through a number of reciprocal international agreements such as Paris Convention, the US has promised citizens of other countries access to the US patent system.[13]Under these agreements, an innovative Japanese company seeking exclusive rights in the US market could obtain US patent protection and enforce those rights in US courts against US competitors.Despite this offer of rights, the bulk of issued US patent have always been based on US originated inventions.This practical statistic meant that, historically, US patent reform primarily impacted US companies and US inventors.Over the past six years, the statistic changed, and for the first time in history, the majority of US patents are now being issued on foreign-originated inventions. (Chart 4).
For some, this decline in US-centric dominance of the US patent system will serve as a sign that US innovation could use additional encouragement. In addition, however, the decline may signal a need to change our outlook on the role of patent rights in US policy. Certainly, the offer of patent rights encourages innovation and disclosure of new inventions.However, this incentive is felt around the world – encouraging companies in Australia or Germany to innovate in their home countries in order to capture an exclusive slice of the US market.[14]In this framework, patent reform is much more than a domestic policy issue. Rather, it becomes an issue of rooted in international trade and international relations.This is not a new concept, but one that should be kept in mind as the legislation moves forward.
Rise in Patent Reexamination Filings: The US has two primary post-grant opposition processes already in place: (1) inter partes reexamination and (2) third-party requested (or prompted) ex parte reexamination.Prior to 2005, it appeared that many potential defendants and accused infringers were reluctant to use the post-grant opposition processes.That reluctance has largely evaporated – in part because of the USPTO’s successful implementation of a Central Reexamination Unit (CRU) composed of elite and highly trained patent examiners in sufficient quantity to have a high response rate.[15]In addition, patent law professionals have seen that reexamination can be an effective and relatively inexpensive alternative to litigation.At this point, high-dollar patent infringement lawsuits are usually associated with a parallel reexamination of the patents in-suit – so long as the defendant has a credible obviousness argument based on published materials.Table 1, shows the rise in popularity of reexaminations over the past few years.
Percent Change in Number of Reexamination Requests
Inter Partes Reexamination Requests
53
903
1704%
Ex Parte Reexamination Requests
1,719
3,272
190%
A notable limitation of the current reexamination system is that reexaminations are only allowed to consider certain invalidity arguments (obviousness and anticipation) and apply a limited set of prior art (patents and printed publications).Many countries offer broader latitude in their opposition proceedings, although some of those countries completely divide duties between the administrative agency (handling invalidity issues) and the court (handling infringement).[17]The dramatic shift in usage of available post grant options gives me pause to consider whether the proposed reforms in 2005 offered a permanent solution to what was merely a temporary problem.
A more straightforward approach to issues now before the Committee is to identify elements of prior patent reform measures that have not been addressed by the courts. These include:
(1)Easing the USPTO’s ability to set fees for its services and to retain all fees collected;
(2)Moving from a “first-to-invent” system to a “first-to-file” system;
(3)Expanding prior-user rights;
(4)Requiring that all patent applications be published by the USPTO;
(5)Allowing pre-issuance protests (or prior art submissions) by third parties;
(6)Expanding the scope of post-grant reexamination or adding an additional post-grant opposition proceedings;
(7)Eliminating the “best mode” requirement; and
(8)Easing the rules for assignee submission of patent filings without the inventor’s express permission.
Each of these reform measures have their own potential benefits and detriments that vary according to the implementation approach chosen.
Thank you for this opportunity to present my remarks.
Dennis Crouch
March 10, 2011
[1] Federal Trade Commission, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, A Report by the Federal Trade Commission, October 2003; Nat’l Res. Council of the Nat’l Acads., A Patent System for the 21st Century (Stephen A. Merrill et al. eds., National Academies Press).
[3] See William C. Rooklidge & Alyson G. Barker, Reform of a Fast-Moving Target: The Development of Patent Law Since fee 2004 National Academies Report, 91 J. Pat. & Trademark Off. Soc’y 153 (2009).
[4] Federal Circuit Statistics, Filings of Patent Infringement Appeals from the U.S. District Courts at http://www.cafc.uscourts.gov.
[5] Polk Wagner & Lee Petherbridge, Is the Federal Circuit Succeeding? An Empirical Assessment of Judicial Performance, 152 U. Pa. L. Rev. 1105 (2004) (“since its inception, the [Federal Circuit]—with some assistance from the Supreme Court—has moved aggressively in support of its widely perceived mandate”); Paul R. Michel, Assuring Consistency and Uniformity of Precedent and Legal Doctrine in the Areas of Subject Matter Jurisdiction Entrusted Exclusively to the U.S. Courts of Appeals for the Federal Circuit: A View from the Top, 58 AM. U. L. REV. 699, 702 (2009); Craig Allen Nard & John F. Duffy, Rethinking Patent Law’s Uniformity Principle, 101 Nw. U. L. Rev. 1619 (2007); Dan L. Burk & Mark A. Lemley, The Patent Crisis and How the Courts Can Solve It (2009)
[6] The TS Tech decision appears to have had a major impact on patent venue jurisprudence. In the two years since the case was decided, its analysis has been followed by almost four dozen different courts.See, for example, Promote Innovation LLC v. Leviton Mfg. Co., 2011 U.S. Dist. LEXIS 16294 (E.D. Tex. Feb. 17, 2011) (granting accused infringer’s motion to transfer venue from the Eastern District of Texas to the Eastern District of New York).
[7] The Tafas decision was vacated pending rehearing en banc and eventually dropped after the USPTO retracted its planned implementation of rules that would limit both the number of claims that an applicant could file per patent application and the number of continuation applications an applicant could file based on a single invention disclosure. See also, Arti K. Rai, Growing Pains in the Administrative State: The Patent Office’s Troubled Quest for Managerial Control, 157 U. PA. L. REV. 2051 (2009).
[10] Dennis Crouch, Understanding the Role of the Board of Patent Appeals: Ex Parte Rejection Rates on Appeal, University of Missouri School of Law Legal Studies Research Paper No. 2009-16 (2009) at http://ssrn.com/abstract=1423922. (90% of BPAI appeals involve a question of obviousness).
[12] 383 U.S. 1 (1966) (setting out the process of the obviousness inquiry as used in both courts and the Patent Office).
[13]Paris Convention for the Protection of Industrial Property, art. 2.
[14] See Commonwealth Sci. & Indus. Research Organisation v. Buffalo Tech., 542 F.3d 1363 (Fed. Cir. 2008) (Australian government entity suing on its US software related patent in the Eastern District of Texas).
[15] Gregory Novak, Concurrent Reexaminations as a Strategic Patent Litigation Defense Tool, 1020 PLI/Pat 797 (2010) (“since the inception of the Central Reexamination Unit (CRU), reexamination proceedings are producing favorable results [for the third-party] in a more timely manner”).
[17] To my knowledge, no one has studied the potential impact of increasing the scope of US reexamination practice or adding a broader layer of post grant opposition.
In strong bipartisan fashion, the Senate today passed the America Invents Act (S. 23). Attention now moves to the Judiciary Committee in the House of Representatives.
The Senate measure includes:
The ability for the US Patent & Trademark office to set its own fees and to eliminate the practice of fee-diversion.
A transition to a first-to-file system as discussed previously on Patently-O.
Broader leeway for third-party submissions with explanations during ex parte patent prosecution.
A new “first-window” post-grant patent opposition system with broader jurisdiction (but a shorter timeframe) than reexaminations.
A provision that eliminates certain tax strategy patents.
Although not entirely clear at this point, it looks like damages limitations were removed from the bill prior to passage.
Republican leadership in the House, including Judiciary Chairman Lamar Smith (Tx) and Majority Leader Eric Cantor (Va) appear ready to move forward with their own version of legislation. Six years ago, Representative Smith introduced the Patent Reform Act of 2005. Under the new Republican leadership, a revived and modified Subcommittee on Intellectual Property, Competition, and the Internet has jurisdiction over patent reform measures. The new Chairman of that Subcommittee is Representative Bob Goodlatte (Va) who co-sponsored prior patent reform measures as did the Vice-Chairman, Representative Howard Coble (NC).
On March 10, 2011, I will testify before the Judiciary Committee as members consider how to draft corresponding legislation. I have specifically been asked to address judicial changes to the patent law landscape since the reform process began in 2005. During that period, the Supreme Court has taken an active role in addressing patent policy concerns in cases such as KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007) (eliminating technical hurdles for proving an invention obvious and instead applying a “common sense” analysis for assessing patentability); MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) (holding that declaratory judgment jurisdiction may exist even if the patent holder could not have sued for infringement and that the apprehension that patentee will sue for infringement is not a necessary element for Article III jurisdiction); Bilski v. Kappos, 130 S. Ct. 3218 (2010) (holding the claimed invention – a method of hedging – unpatentable as an abstract idea); and Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007) (holding that Microsoft could not be held liable for exporting software code because source code does not qualify as a “component” of a patented invention as required under 35 U.S.C. § 271(f)). During this time, the Federal Circuit has decided more than two thousand patent appeals (including a dozen en banc decisions), many of which address the exact concerns raised in the original 2005 patent reform bill. Of course, over this period, the PTO administrative nightmare has grown to a backlog of 1.2 million pending patent applications and the Board of Patent Appeals (BPAI) backlog of pending ex parte cases has grown from 742 in March 2005 to over 20,000 today.
Retractable Technologies v. Becton, Dickinson and Company (BD) (
New Federal Circuit judge 
