Tag Archives: Inequitable Conduct

Trends in Inequitable Conduct

By Jason Rantanen

Last fall, I presented a set of data on inequitable conduct pleadings at the America Invents Act: One Year Later conference at the Indiana University Mauer School of Law. That data revealed two significant findings: first, that the rate at which inequitable conduct pleadings rose between 2000-2008 was much slower than previously believed (and never came close to the alleged 80% of all patent cases) and second, that since 2008 the rate at which inequitable conduct is pled has fallen substantially.  The results of that study have since been published in IP Theory; you can read the relatively short article here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2266041.

Since the article only included data up to the end of 2012, however, I thought it would be useful to update it to include 2013 data.  The below chart compares the number of patent cases in which an Answer was filed to the number of patent cases in which an Answer was filed containing the term "inequitable conduct" for each year based on searches performed in LexMachina.  The 2013 data is as of 9/18/2013.

 Inequitable Conduct Chart

This chart indicates that the rate at which inequitable conduct is being pled continues to decline (at least measured through this crude metric), although it may have reached a plateau.  I've also generated a similar chart that shows Answers containing "inequitable conduct" as a percentage of all "Answers" in patent cases that are searchable using LexMachina; it shows a similar pattern.  

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Solicitor General: Don’t Grant Cert to Analyze Inequitable Conduct

A petition for cert was filed in a decision by Judge Linn, 1st Media, LLC v. Electronic Arts, Inc., 694 F.3d 1367 (Fed. Cir. 2012), asserting error essentially in Therasense's cabined view of inequitable conduct.  See Sony Computer Entertainment America LLC v. 1st Media, LLC, Supreme Court No. 12-1086.  The Solicitor General has filed a brief recommending against cert.  The petitioner's question presented was:

"Did the Court of Appeals for the Federal Circuit err in restricting district courts' equitable discretion in evaluating patent unenforceability, contrary to this Court's precedent in Keystone Driller, Hazel- Atlas, and Precision Instrument, by applying a rigid test that (a) forecloses district courts from considering the entire circumstantial record; and (b) precludes district courts from granting equitable remedies where a patent applicant has violated the PTO's duty of candor."

I filed an amicus brief in Therasense, and no one listened, but I still hold a lot of the same views expressed there.

Exergen as the Guidepost for Findings to Support Inequitable Conduct

As everyone knows, Therasense changed the substantive law of inequitable conduct, requiring but-for materiality (with the "affirmative egregious misconduct") exception, and intent to deceive the office.  (Debates rage on some aspects of this, but that's the core.)  Exergen, of course, held that Rule 9(b) applies to inequitable conduct allegations, requiring that the "who, what, when, where, and why" be pled.

Yet, I have seen examples of district court opinions finding inequitable conduct that do not, themselves, meet the pleading requirements.  It cannot be that findings that would not satisfy Exergen can, nonetheless, support inequitable conduct.

I'm surprised that no one has, as yet, made this argument (that I know of).  Exergen provides a roadmap for district court findings and conclusions, and also the means to attack findings of nequitable conduct on appeal when they fail to meet that standard.

Am I missing something?

Supreme Court Looks More Closely at Reviewing Therasense

By Dennis Crouch

Sony Computer v. 1st Media LLC, Docket No 12-1086 (on petition for writ of certiorari 2013)

In a recent order, the Supreme Court has asked the Solicitor General to file a brief in this expressing the views of the United States in this pending inequitable conduct case. (CVSG). The case is essentially a challenge of the Federal Circuit’s en banc decision in Therasense that strongly cabined-in the doctrine of inequitable conduct. In this case, the Federal Circuit rejected a district court holding of inequitable conduct in a failure-to-submit case. According to the lower court, three references used to reject the equivalent foreign cases were never submitted for consideration by the US examiners. Nevada district court Judge Mahan found that both the patent attorney and the listed inventor were at fault for failing to submit the references and consequently held the patent unenforceable due to inequitable conduct.

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 of intent cannot be inferred merely from the fact that the individuals had knowledge of the references and their materiality. The Federal Circuit wrote:

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. . . . 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 the charge cannot be proven. Of course, “carelessness, lack of attention, [or] poor docketing” will still lead to malpractice claims.

In the petition for writ of certiorari, the accused infringer asks the following question:

Did the Court of Appeals for the Federal Circuit err in restricting district courts’ equitable discretion in evaluating patent unenforceability, contrary to this Court’s precedent in Keystone Driller, Hazel-Atlas, and Precision Instrument, by applying a rigid test that (a) forecloses district courts from considering the entire circumstantial record; and (b) precludes district courts from granting equitable remedies where a patent applicant has violated the PTO’s duty of candor.

In Therasense, the Federal Circuit added some flexibility to its analysis in cases involving sufficiently egregious misconduct. Sony responds that the limited carve-out “is flawed because it creates a rigid threshold [of an egregious affirmative act of misconduct] as a prerequisite to the equitable discretion called for by this Court’s precedent. The flexibility embodied in this Court’s precedent should apply in all cases, not just those involving affirmative egregious misconduct.”

Supreme Court has a history of hearing fraud cases and this CVSG adds to the likelihood that it will hear this case.

Revisiting Inequitable Conduct at the Supreme Court

By Dennis Crouch

The US Supreme Court has decided a number of patent cases that raise questions of unenforceability. Perhaps most notable among these are:

  • Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240 (1933);
  • Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944); and
  • Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806 (1945).

This trio of cases explains that inequitable conduct fits within the scope of the traditional equitable doctrine of unclean hands.

Keystone involved a patentee paying another party to lie about its prior use of a patented invention where that use might have been a prior public use. Similarly, in Hazel-Atlas, the patentee wrote an article and had it published under the name of a well-known expert (with the expert's consent). After seeing how the article lauded the invention (and without knowing the connection), the PTO was willing to issue the patent. Precision involved perjury in the course of an interference proceeding. In each of these cases, the Supreme Court held that that the unclean hands doctrine could be used to render the patent unenforceable.

For many years, the doctrine of unclean hands (and, as we call it now inequitable conduct) was a powerful in-court tool for accused infringers to challenge patent enforcement. Almost since the Federal Circuit beginning, Federal Circuit judges have been on a crusade to limit the doctrine. The court's most recent pronouncement found in Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011) (en banc) continues this trajectory and strongly limits the scope of inequitable conduct allegations.

In Therasense, the Federal Circuit offers two pathways for proving inequitable conduct in the patent prosecution process. The first and primary pathway clear and convincing proof of (1) intentional misconduct and (2) that the misconduct is a but-for cause of the patent issuing. As shorthand, we speak of (1) intentionality and (2) materiality. The Therasense majority, also offered a second pathway for proving inequitable conduct based upon "egregious affirmative acts of misconduct." According to the court, the mere non-disclosure or omission of required information will always fit within the primary pathway while intentional affirmative misstatements that go beyond attorney argument could fit within the second pathway if sufficiently egregious. In reading the trio of Supreme Court cases, the Federal Circuit found that Keyston, Hazel-Atlas, and Precision all fit the definition of egregious misconduct.

Writing in dissent Judge O'Malley criticized the majority opinion as unduly rigid in its formulation of the unclean hands doctrine.

[B]oth the majority and [other] dissenting opinions eschew flexibility in favor of rigidity. Both opinions suggest tests for materiality to apply in all cases. Their respective materiality inquiries are black or white, while equity requires judicial consideration of shades of gray.

The majority defines materiality under a but-for test, with an exception for intentionally false affidavits filed with the PTO. The dissent, on the other hand, defines materiality according to Rule [37 C.F.R. 1.56]. Both tests fail to provide district courts with flexibility to find inequitable conduct in an extraordinary case where the conduct in question would not be defined as such under either test. This result is contrary to the very nature of equity and centuries of Supreme Court precedent. I cannot, accordingly, lend support to either of the immutable tests proposed by my colleagues.

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Sony Computer v. 1st Media LLC (on petition for writ of certiorari 2013)

In a recently filed petition for writ of certiorari, Sony and Viacom have asked the Supreme Court return the law to the flexible tests of its old precedent. Raising the following question:

Did the Court of Appeals for the Federal Circuit err in restricting district courts' equitable discretion in evaluating patent unenforceability, contrary to this Court's precedent in Keystone Driller, Hazel-Atlas, and Precision Instrument, by applying a rigid test that (a) forecloses district courts from considering the entire circumstantial record; and (b) precludes district courts from granting equitable remedies where a patent applicant has violated the PTO's duty of candor.

The Federal Circuit intended that the second pathway for egregious misconduct add sufficient flexibility to fit within the Supreme Court's doctrine. Sony responds that the limited carve-out "is flawed because it creates a rigid threshold [of an egregious affirmative act of misconduct] as a prerequisite to the equitable discretion called for by this Court's precedent. The flexibility embodied in this Court's precedent should apply in all cases, not just those involving affirmative egregious misconduct."

Read Sony's Petition:  Download 1st Media Certiorari Petition

Arbitrary $50,000 contingency payment does not prevent mootness

By Jason Rantanen

Allflex USA, Inc. v. Avid Identification Systems, Inc. (Fed. Cir. 2013) Download 11-1621
Panel: Lourie, Clevenger, Bryson (author)

Allflex v. Avid involves the situation where a party to litigation settles the case but seeks to preserve its ability to appeal the district court's adverse rulings by structuring the settlement agreement to include a contingency payment that turns on the outcome of the appeal.  Here, the Federal Circuit imposes some constraints on parties' ability to avoid mootness through what effectively amounts to a "side bet."

Allflex sued Avid for, among other things, a declaratory judgment that it did not infringe several of Avid's patents.  During the litigation, it came to light that Avid and its (former) counsel "should be sanctioned" because they had failed to disclose the existence of reexamination proceedings that were pending with respect to the patents in suit.  (Due to the settlement the parties later entered into, no actual sanctions were apparently ever assessed against Avid).  The court subsequently granted partial summary judgment on Allflex's inequitable conduct claim, holding that Avid's failure to disclose information about prior public use and an offer of sale was material.  The court declined to enter summary jugment on the issue of intent, concluding that a genuine issue of fact remained.  (Note: the court's ruling issued a few months before the Federal Circuit's en banc decision in Therasense v. Becton Dickinson.) Shortly thereafter, the parties entered into a settlement agreement under which Avid agreed to pay Allflex $6.55 million.

Comment: it's noteworthy that in this case the patent holder paid the accused infringer a substantial sum of money to settle the case.  After skimming through Allflex's Complaint, this does not appear to me to be (at first glance) an instance of a reverse payment, since Allflex's complaint alleged several other claims,including breach of a settlement agreement, against Avid, and Allflex potentially stood to recover monetary sanctions.  However, those who are interested in reverse payment cases may wish to take a closer look, particularly in light of the court's statement on p. 13 that "Avid is not and never was at risk of having to pay a monetary judgment on that claim, as inequitable conduct is a defense or an equitable remedy, not a claim for damages, even when it is pleaded as an affirmative claim in a declaratory judgment action." 

The settlement agreement contained a contingency clause, however.  Avid reserved the right to appeal the district court's grant of summary judgment of noninfringement, as well as the materiality and sanction rulings, and if it was successful in overturning any or all of those three findings Allflex would pay Avid $50,000.  Avid did appeal, challenging the district court's rulings on all three issues.  Allflex declined to file a brief. 

In general, a party who is unhappy with the district court's rulings may not appeal those rulings after it has settled the litigation: the settlement agreement renders the case moot because the parties are no longer adversaries.  For example, a patent holder who enters into an agreement with its opponent to settle the case in its entirety after the district court grants summary judgment of invalidity could not subsequently appeal the invalidity ruling. 

On the other hand, where the parties agree to a sum of damages that would be paid or not paid depending on the outcome of the case on appeal, a live controversy may remain.  Avid's own past illustrates this point: in a separate litigation, it had obtained a jury verdict of $26,981 for a patent that was subsequently held by the court to be unenforceable due to inequitable conduct.  The parties settled all issues, but agreed that if Avid prevailed on its appeal of the inequitable conduct issue, it would recover the $26,981 in damages.  Avid Identification Systems, Inc. v. Crystal Import Corp., 603 F.3d 967 (Fed. Cir. 2010).  Even though the defendant in that case declined to contest the merits of the appeal, the $26,981 was "not a token or arbitrary sum introduced for the purpose of manufacturing a controversy."  Id. at 972. 

Here, however, the $50,000 did constitute such a "token or arbitrary sum introduced for the purpose of manufacturing a controversy."  It did not reflect an actual damages award, as in Crystal Import, nor was it a "reasonable estimate of the value of any of the issues on appeal."  Slip Op. at 12.  Instead, it was just a number that Avid had hoped would be large enough to persuade the court that a controversy remained.  The court found particularly problematic the fact that the $50,000 would be awarded whether Avid prevailed on any one or more of the issues: this indicated that the $50,000 was completely untethered to the value of any one of those issues. 

The court's ultimate holding on the issue: "We hold that where, as here, the appellant has identified no relationship between the valuation placed on the appeal and the issues the appellant wishes to challenge, the parties have simply placed a “side bet” on the outcome of the appeal, which is not enough to avoid a ruling of mootness."  Slip Op. at 14.  There are good reasons for this rule:

When one party wishes to maximize its prospects of prevailing on an issue that has been the subject of a settlement agreement similar to the one in this case, it would no doubt be tempting to set the contingency payment at a level that would be sufficient to avoid the mootness rule of Aqua Marine, yet low enough to avoid encouraging the adverse party to participate in the appeal. As this case demonstrates, that results in the highly unsatisfactory situation in which the court finds itself with a one-party appeal, where there is no adversarial presentation and the court consequently has reduced confidence in any ruling it might enter. In some instances, as we pointed out in Crystal Import, one-party appeals are unavoidable. But where, as in this case, the appellant has failed to satisfy us that the arrangement leading to the one-party appeal reflects the existence of a legitimate, continuing case or controversy, we decline to be a party to the exercise.

How [Not] to Fight PTAB Obviousness Decisions

By Dennis Crouch

In re Chevalier (Fed. Cir. 2013) (nonprecedential) (Patent Application Ser. No. 11/407,778)

In a non-precedential but instructive opinion, the Federal Circuit has affirmed the USPTO's obviousness rejection of L'Air Liquide's application covering devices used to form gas-liquid dispersions. The Board rejected claim 1 as obvious, over a combination two prior art references – finding that it "would have been obvious to one skilled in the art to modify the Kwak device in view of the teachings of Howk."

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The difficulty with appealing PTAB decisions is that conclusions of fact made by the USPTO's appellate board are reviewed for substantial evidence. In order to win an appeal on a factual question, the patent applicant must go quite a bit further than simply proving that the PTAB's decision was wrong. Rather, the PTAB decision will only be overturned if not based on "more than a mere scintilla" of evidence. Restated, the question is whether the factual conclusion is based upon "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." "[T]he possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence." Consolo v. Fed. Mar. Comm'n, 383 U.S. 607 (1966).

This case represent the most frequent form of PTAB decision – that the applied-for patent claim is unpatentable as obvious over a combination of references. The ultimate question of obviousness is a question of law (reviewed de novo on appeal). However, that ultimate conclusion is based upon a set of factual underpinnings as explained by Graham v. Deere. The Federal Circuit has also held that "[t]he presence or absence of a motivation to combine references in an obviousness determination is a pure question of fact." In re Gartside, 203 F.3d 1305 (Fed. Cir. 2000).

= = = = =

Chevalier challenged the combination of references – arguing that the combination of Kwak and Howk would be inoperable. Apparently Chevalier took the drawings from Kwak and Howk and unsuccessfully tried to jam them together. The Federal Circuit saw that process as "misapprehend[ing] the nature of the obviousness inquiry."

The obviousness inquiry does not ask "whether the references could be physically combined but whether the claimed inventions are rendered obvious by the teachings of the prior art as a whole." In re Etter, 756 F.2d 852 (Fed. Cir. 1985) (en banc); see also In re Keller, 642 F.2d 413 (CCPA 1981) (stating "[t]he test for obviousness is not whether the features of a secondary reference may be bodily incorporated into the structure of the primary reference"). Rather, in a case such as this where each of the elements of the claim are known to the art, the obviousness inquiry requires a finding that the combination of known elements was obvious to a person with ordinary skill in the art.

Here, each of the elements of the claim is taught by Kwak with the exception that the Kwak deflector is not attached to the drive shaft. This deficiency in Kwak is supplemented by Howk, which teaches a deflector attached to the drive shaft. The examiner found, and the Board affirmed, that one of ordinary skill would be motivated to modify Kwak in view of Howk because the modification "would facilitate a more rapid and more complete conversion from axial flow to radial flow of the liquid exiting from the bottom of the device." Ex Parte Gilbert Chevalier, 2011 WL 6747404 (B.P.A.I. Dec. 21, 2011). Chevalier does not challenge this finding. Accordingly, we find no error in the Board's determination that Kwak and Howk could be combined to achieve the claimed invention, nor do we find any error in the Board's determination that one of ordinary skill would be motivated to combine these references to achieve an aeration device that more rapidly and more completely converts axial flow to radial flow in the gas-liquid mixture.

The appellate panel then moved to KSR v. Teleflex to bolster its decision:

Our conclusion is strengthened by Chevalier's admission that the deflectors of Kwak and Howk are "recognized equivalents performing the same function of converting axial flow to radial flow." Appellant's Br. 9. The Supreme Court stated in KSR that "when a patent claims a structure already known in the prior art that is altered by the mere substitution of one element for another known in the field, the combination must do more than yield a predictable result." KSR. Here, the claimed invention merely substitutes the deflector of Howk, which is attached to the drive shaft, for the deflector of Kwak, which is attached to the floor of the basin. This substitution achieved only the predictable result of converting the axial flow of the gas-liquid mixture to radial flow.

Rejection affirmed

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The problem with the appeal here is that the appellate arguments are essentially a repeat of the lawyerly discussion of facts made to the examiner and PTAB. When those do not work at the PTO, they are highly unlikely to work on appeal to the Federal Circuit. (No factual affidavits were submitted in the case at the PTO). If Air Liquide had wanted to win the case, they would have been better served to hire expert witnesses to provide testimony either as affidavits to the PTAB or else bring forth that evidence in a civil action. Of course, that approach is likely more expensive and raises a greater potential of inequitable conduct charges down the line – especially in cases like these where other members of the patent family have already issued.

In re Rosuvastatin Calcium Patent Litigation

By Jason Rantanen

In re Rosuvastatin Calcium Patent Litigation (Fed. Cir. 2012) Download 10-1460
Panel: Newman (author), Plager (concurring), Mayer (dissenting)

This appeal arises in the context of the patent war over rosuvastatin, a multi-billion dollar pharmaceutical product sold by Astrazeneca under the name CRESTOR.  At issue on appeal was the central component of Astrazeneca's protection for rosuvastatin: the composition patent (RE 37,314).  The short version is that Astrazeneca has won for the time being: the Federal Circuit ruled in favor of Astrazeneca on all issues.  However, the composition patent is set to expire in 2016, and Astrazeneca previously failed in its bid to enforce its later-expiring method-of-use patents against the generic manufacturers.

Reissue: The '314 patent is a reissue of Patent No. 5,260,440, whose specification describes rosuvastatin as the preferred embodiment.  During the prosecution of the '440 patent, the prosecuting attorney became aware of two potentially relevant prior art references through an internal search report.  The prosecuting attorney did not disclose the references to the PTO, however (no IDS was filed at all), and when the '440 patent issued the patent contained a broad genus claim that overlapped with one of the references.

Several years after the patent issued, it was discovered during licensing negotiations that no IDS had been filed during prosecution of the '440 application and that the examiner had not cited the two references.  The patent holder initiated reissue proceedings, which ultimately resulted in the patent being limited to the specific compound rosuvastatin and its salts. 

In addition to raising an inequitable conduct argument (which the court rejected on lack of intent grounds), the defendants argued that reissue was improper because there was no error and because there was deceptive intent.  While the AIA removed the statutory requirement that the error providing the basis of the reissue occur "without any deceptive intention," this opinion is significant for its broad interpretation of what constitutes "error" in the context of a reissue, an issue that will have ongoing importance:

Precedent establishes that for reissue purposes “error is established where there is no evidence that the appellant intentionally omitted or abandoned the claimed subject matter.” Ball Corp. v. United States, 729 F.2d 1429, 1435–36 (Fed. Cir. 1984). Here, the district court found as fact that Shionogi erred by failing to file an IDS citing the Sandoz and Bayer references, and by omitting a specific claim to the preferred species. However, the court found no evidence of a deliberate choice to omit or abandon the rosuvastatin species, which was described in the specification as the most effective product. 

Slip Op. at 21.  The court further noted that past precedent supports the practice of narrowing claims through reissue. 

On deceptive intent (which will still be relevant for any reissue proceedings initiated prior to September 16, 2012), the majority held that deceptive intent for reissue purposes applies the same standard as deceptive intent in the inequitable conduct context.

Judge Mayer, writing in dissent, disagreed that reissue was proper.  "A patentee cannot establish correctible "error" under section 251 simply by demonstrating that his original patent contains a defect…Instead, reissue is warranted only where a patentee "supplies…facts indicating how…ignorance," accident, or mistake caused an error in his claims." Dissent at 6-7.  He also expressed concern about the consequences of the majority's broad reading of "error":

The claims of a validly-issued patent serve an important notice function, alerting the public of the metes and bounds of an inventor’s discovery. [] This public notice function will be subverted if the “error” requirement is read out of the reissue statute and patentees are given free reign to rewrite their claims whenever they find it expedient to do so. []

Dissent at 13 (citations omitted).

ANDA Filing by a US Subsidiary "On Behalf Of": One of the generic manufacturers, Apotex, raised a creative theory of noninfringement.  Apotex Corp. is a United States affiliate of the Canadian Company Apotex Inc.  The Abbreviated New Drug Application that triggered the infringement suit was signed and filed by the US affiliate on behalf of the Canadian company.  Given this arrangement, Apotex raised a number of arguments supporting the theory that the US affiliate did not "submit" the ANDA within the meaning of the infringement statute, 35 U.S.C. §271(e)(2)(A), and thus it could not infringe the patent.  (The Canadian company was not a party to the suit).

Judge Newman, writing for the majority, affirmed the district court's rejection of this theory without substantial analysis.  Slip Op. at 31.  Judge Plager's concurrence, however, provides a detailed analysis of why Apotex's arguments fail to preclude liability for infringement.  One key bit: 

More directly, however, in this case Apotex U.S. clearly intends to engage in, and presumably submitted the ANDA for the purpose of, selling the approved drug in the United States. The statute speaks not only in terms of engaging in commercial manufacture, but, disjunctively, in terms of engaging in the drug’s “use or sale.” As an acknowledged sales agent for the primary applicant, Apotex U.S. can be treated as simply having “submit[ted]” an application for an ANDA for the purpose of “engag[ing] in the commercial . . . sale of [the] drug . . . claimed in a patent.”  

Concurrence at 6.

Nonobviousness and No Inequitable Conduct: The Federal Circuit also affirmed the district court's ruling that the '314 patent was nonobvious and that it was not unenforceable due to inequitable conduct.  On obviousness, the defendants used a "lead compound" theory, arguing that a prior art patent publication suggested that a particular compound ("Compound 1b") would be a good "lead compound" for further research and that there was a motivation to modify that compound to arrive at the claimed invention.  The Federal Circuit affirmed the district court's conclusion that the defendants failed to demonstrate that there was a motivation for selecting Compound 1b as a lead compound or making the relevant modification.  It further agreed that the idea that it might be "obvious to try" making and testing this compound was negated by evidence of skepticism in the field. 

On inequitable conduct, the Federal Circuit affirmed the district court's finding of lack of deceptive intent.  It declined to disturb the court's finding that the withheld references were material.

Unenforceability

By Jason Rantanen

A few months ago Polk Wagner, Lee Petherbridge, and I circulated an early draft of our empirical study on the characteristics of patents that the Federal Circuit has held to be unenforceable due to inequitable conduct.  In response to comments, including many from this site, we have substantially revised the piece (now called simply Unenforceability). We've also put together a 4 page Research Report version that summarizes the key findings.  Here's the abstract:

There has been no systematic attempt to determine whether the patent doctrine of inequitable conduct is or is not working as theorized. This study fills that gap. We find that patents held unenforceable have clear hallmarks of risky prosecution behavior, such as longer pendency and fewer disclosures of prior art as compared to other types of litigated patents. The results indicate that the doctrine is likely to be operating better than the conventional wisdom would suggest.

The shorter Research Report is available here.   For those interested in the full-length version, it can be downloaded here. As always, comments are welcome.

Supplemental Examination: Looking at the First Supplemental Examination Request

By Dennis Crouch

Supplemental examination has been seen by many as a complete replacement for the filing of ex parte reexaminations. The process offers an added level of legal benefits to patentees for a relatively small additional cost and no change to the timing structure. The America Invents Act of 2011 (AIA) created the supplemental examination option but delayed implementation until the one-year anniversary of AIA enactment in order to allow the USPTO sufficient time to finalize its procedures and prepare for the influx of supplemental examination requests. Thus, on September 16, 2012 (the one-year anniversary) supplemental examination became an option available to all patent owners.

Supplemental examination requests become public as soon as they are given a filing date by the USPTO. However, prior to today, no supplemental examination request has been given a filing date. The first public request is 96/000,007, filed on October 31, 2012 by a company known as "Merchandising Technologies" asking for supplemental examination of its U.S. Patent No. 7,909,641 that claims a cable-management system that swivels, extends, and retracts. The product is used for electronic device displays in retail stores such as Best Buy and Target. Earlier this year, a competitor sued MTI asking for a declaratory judgment of noninfringement, invalidity and unenforceability. Invue Security Products Inc v. Merchandising Technologies, Inc,.C. Docked No. 3:12cv88 (filed February 9, 2012, W.D. N.C). The judge dismissed that case without prejudice for lack of case or controversy. If the same case arises again, this supplemental examination should prevent a recurrence of the unenforceability claim.

Now, it appears from the serial number given to this particular supplemental examination number that it was the seventh one filed by now – at the two month point – we may be up to ten on file. In its final rules, the USPTO had estimated a filing rate more than twenty-times this. See Changes To Implement the Supplemental Examination Provisions of the Leahy-Smith America Invents Act and To Revise Reexamination Fees; Final Rule, 77 Fed. Reg. 48827 (2012) (Estimating 1,430 supplemental examination requests per year). The seemingly low number of actual filings may be due, in part, to the glut of ex parte requests filed just before the seven-fold fee increase in September 2012. Other explanations involve the high cost of supplemental examination; novelty of the program; and weakening of the inequitable conduct doctrine by the courts.

A second concern is why this supplemental reexamination is the first to publish. I have communicated with attorneys who filed some of the non-published cases. Apparently many of those are being rejected for failing to comply with the supplemental examination rules. I don't have any further information at this point on why those were rejected. Unfortunately we may never have that information if the PTO continues its practice of providing no public access to supplemental examinations prior to awarding a filing date.

The petition filed in this case is quite simple:

  • $21,260 filing fee ($16,120 reimbursed if there is no reexamination ordered);
  • Submission of seven prior art documents;
  • An explanation of what is provided by the prior art with relation to the patent and a claim chart showing that relationship; and
  • An explanation of how the claims are still valid over the prior art.

The request itself is six pages long. [Download 96000007]. There is no admission that these references were improperly withheld during prosecution since that statement is not called for even if it were true.

Now, the USPTO has until December 31, 2012 to determine whether the identified references raise a substantial new question of patentability and, if so, order a reexamination. If not, the PTO will issue the first supplemental examination certificate.

Patently-O Bits & Bytes by Lawrence Higgins

Chisum Patent Academy

  • The Chisum Patent Academy will hold its next Advanced Patent Law seminar February 20-22, 2013, in New York City (Midtown Manhattan). Because each three-day Chisum Patent Academy seminar is uniquely limited to ten (10) participants, they offer an unparalleled opportunity for interactive roundtable discussion and debate. Each seminar is led by patent law educators and treatise authors Donald Chisum and Janice Mueller. The New York seminar will focus in great depth on two timely and controversial patent law topics: patent claim interpretation and active inducement. They will also cover America Invents Act developments including the USPTO's final rules on first inventor to file (taking effect three weeks after the New York seminar); preliminary injunctions and design patents; and inequitable conduct decisions post-Therasense. A more detailed description of the topics to be covered and registration details are available on the Academy's website. [Link]

New start-up company (Evtron)

  • Evtron is a new start-up company that specializes in data storage. The company made a storage device (Evtron CELL) that can fit 120 hard disk drives into a storage platform. The design created by Evtron will supposedly make it 60% more efficient in data density, when compared to similar data storage products currently available on the market. NetApp and EMC are the two leading companies in this technology market, with annual revenue between $7 billion and $22 billion. Evtron may be able to compete with these companies but only if they are granted their pending patent and the patent cannot be worked around. The patent application to my knowledge is not currently public. There have been rumors that Facebook may be interested in the technology. This should be a very interesting company to watch, in terms of the patent application, lawsuits that may arise, and the change of the data storage space.

Patent Jobs:

  • Fenwick & West is seeking patent associates with 1-4 years of experience and an EE, CS, CE, or physics background, or equivalent experience to work at their Silicon Valley office. [Link]
  • Armstrong Teasdale is looking for an experienced trademark associate to work at their St. Louis office. [Link]
  • Harrington & Smith is seeking a patent associate with a degree in EE or physics and at least 2 years of experience to work at their Shelton, Connecticut office. [Link]
  • Krieg DeVault is looking for an IP associate with 3-7 years of experience to work at their Indianapolis office. [Link]
  • Harrity & Harrity is searching for patent attorneys/agents with a background in EE, computer science, or physics and a minimum of 2 years of experience to work at their Fairfax, VA office. [Link]
  • Honigman is seeking a patent attorney/agent with a degree in EE or computer science to work at their Oakland Count, Michigan office. [Link]
  • Byrne Poh is looking for a patent attorney/agent with a degree in EE or computer science to work at their New York office. [Link]
  • The Ollila Law Group is seeking a patent attorney with an EE and at least 2 years of experience to work at their Boulder office. [Link]
  • Abel Law Group is seeking a chemical practitioner with 2+ years of experience to work at their Austin office. [Link]
  • Klarquist Sparkman is seeking an IP Litigation Associate with 1-2 years of experience to work at their Portland office. [Link]

Upcoming Events:

  • Santa Clara Law will be hosting its conference Solutions to the Patent Problem this Friday, November 16, featuring industry and government folks such as Kent Walker (Google), Brad Burnham (USVentures), Ben Lee (Twitter), Edith Ramirez (FTC), and Paul Grewal (N.D. Cal) in addition to about 20 academics. The event will be streamed and Wired is running opeds from the conference as part of its Patent Fix series.
  • IBC Legal's 6th Annual Standards and Patents Conference 2012 will be held on November 27-28 in London. The dynamics of the relationship between standards and patents poses a plethora of challenges for patentees, licensees, standard setting organizations, innovators, commercial users and implementers. Guest speakers include Mr. Justice Ford (Jude, Patent Court) and Richard Vary. [Link] (PatentlyO readers save 10% by quoting VIP code: FKW82336PTOL)
  • ACI's 14th Advanced Forum on Biotech Patents will be held on November 28-29, in Boston. ACI's 14th Advanced Forum on Biotech Patents brings together another top-notch faculty of expert biotech patent practitioners who will share their experience and knowledge to help you avoid pitfalls and maximize the value of your intellectual property. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • The ACI's Orphan Drugs and Rare Diseases conference will take place on November 28-29 in Boston. There are an estimated 6,000 rare diseases currently recognized in the U.S. alone; European authorities recognize as many as 8,000 rare diseases. With only approximately 150 treatments for these diseases approved so far according to the FDA's orphan designation database, there is a unique opportunity for companies of all sizes to invest in research and development to try to capture this lucrative market share. Indeed, according to a leading industry report, the orphan disease therapeutics market will continue to see a marked increase in value through the decade, increasing from 2010's $2.3 billion to an estimated $6 billion in 2018. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • ACI's Paragraph IV Disputes conference will be held on December 4-5 in San Francisco. An experienced faculty of renowned litigators and judges will guide you through every stage of a Paragraph IV challenge. Additionally, in the wake of major developments in pay-for –delay, learn what the FTC deems foul and fair in the settlements of Paragraph IV disputes in order to draft and structure settlements that will receive FTC approval. [Link] (PatentlyO readers use code PO 200 a discount)
  • C5's 5th Annual Forum on Biotech and Pharma Patent Litigation is scheduled for January 29-30 in Amsterdam. [Link] (PatentlyO readers use code PO10 for a 10% discount)

Contact Lawrence.Higgins@patentlyo.com with leads for future Bits and Bytes.

Patently-O Bits & Bytes by Lawrence Higgins

Chisum Patent Academy

  • The Chisum Patent Academy will hold its next Advanced Patent Law seminar February 20-22, 2013, in New York City (Midtown Manhattan). Because each three-day Chisum Patent Academy seminar is uniquely limited to ten (10) participants, they offer an unparalleled opportunity for interactive roundtable discussion and debate. Each seminar is led by patent law educators and treatise authors Donald Chisum and Janice Mueller. The New York seminar will focus in great depth on two timely and controversial patent law topics: patent claim interpretation and active inducement. They will also cover America Invents Act developments including the USPTO's final rules on first inventor to file (taking effect three weeks after the New York seminar); preliminary injunctions and design patents; and inequitable conduct decisions post-Therasense. A more detailed description of the topics to be covered and registration details are available on the Academy's website. [Link]

New start-up company (Evtron)

  • Evtron is a new start-up company that specializes in data storage. The company made a storage device (Evtron CELL) that can fit 120 hard disk drives into a storage platform. The design created by Evtron will supposedly make it 60% more efficient in data density, when compared to similar data storage products currently available on the market. NetApp and EMC are the two leading companies in this technology market, with annual revenue between $7 billion and $22 billion. Evtron may be able to compete with these companies but only if they are granted their pending patent and the patent cannot be worked around. The patent application to my knowledge is not currently public. There have been rumors that Facebook may be interested in the technology. This should be a very interesting company to watch, in terms of the patent application, lawsuits that may arise, and the change of the data storage space.

Patent Jobs:

  • Fenwick & West is seeking patent associates with 1-4 years of experience and an EE, CS, CE, or physics background, or equivalent experience to work at their Silicon Valley office. [Link]
  • Armstrong Teasdale is looking for an experienced trademark associate to work at their St. Louis office. [Link]
  • Harrington & Smith is seeking a patent associate with a degree in EE or physics and at least 2 years of experience to work at their Shelton, Connecticut office. [Link]
  • Krieg DeVault is looking for an IP associate with 3-7 years of experience to work at their Indianapolis office. [Link]
  • Harrity & Harrity is searching for patent attorneys/agents with a background in EE, computer science, or physics and a minimum of 2 years of experience to work at their Fairfax, VA office. [Link]
  • Honigman is seeking a patent attorney/agent with a degree in EE or computer science to work at their Oakland Count, Michigan office. [Link]
  • Byrne Poh is looking for a patent attorney/agent with a degree in EE or computer science to work at their New York office. [Link]
  • The Ollila Law Group is seeking a patent attorney with an EE and at least 2 years of experience to work at their Boulder office. [Link]
  • Abel Law Group is seeking a chemical practitioner with 2+ years of experience to work at their Austin office. [Link]
  • Klarquist Sparkman is seeking an IP Litigation Associate with 1-2 years of experience to work at their Portland office. [Link]

Upcoming Events:

  • Santa Clara Law will be hosting its conference Solutions to the Patent Problem this Friday, November 16, featuring industry and government folks such as Kent Walker (Google), Brad Burnham (USVentures), Ben Lee (Twitter), Edith Ramirez (FTC), and Paul Grewal (N.D. Cal) in addition to about 20 academics. The event will be streamed and Wired is running opeds from the conference as part of its Patent Fix series.
  • IBC Legal's 6th Annual Standards and Patents Conference 2012 will be held on November 27-28 in London. The dynamics of the relationship between standards and patents poses a plethora of challenges for patentees, licensees, standard setting organizations, innovators, commercial users and implementers. Guest speakers include Mr. Justice Ford (Jude, Patent Court) and Richard Vary. [Link] (PatentlyO readers save 10% by quoting VIP code: FKW82336PTOL)
  • ACI's 14th Advanced Forum on Biotech Patents will be held on November 28-29, in Boston. ACI's 14th Advanced Forum on Biotech Patents brings together another top-notch faculty of expert biotech patent practitioners who will share their experience and knowledge to help you avoid pitfalls and maximize the value of your intellectual property. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • The ACI's Orphan Drugs and Rare Diseases conference will take place on November 28-29 in Boston. There are an estimated 6,000 rare diseases currently recognized in the U.S. alone; European authorities recognize as many as 8,000 rare diseases. With only approximately 150 treatments for these diseases approved so far according to the FDA's orphan designation database, there is a unique opportunity for companies of all sizes to invest in research and development to try to capture this lucrative market share. Indeed, according to a leading industry report, the orphan disease therapeutics market will continue to see a marked increase in value through the decade, increasing from 2010's $2.3 billion to an estimated $6 billion in 2018. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • ACI's Paragraph IV Disputes conference will be held on December 4-5 in San Francisco. An experienced faculty of renowned litigators and judges will guide you through every stage of a Paragraph IV challenge. Additionally, in the wake of major developments in pay-for –delay, learn what the FTC deems foul and fair in the settlements of Paragraph IV disputes in order to draft and structure settlements that will receive FTC approval. [Link] (PatentlyO readers use code PO 200 a discount)
  • C5's 5th Annual Forum on Biotech and Pharma Patent Litigation is scheduled for January 29-30 in Amsterdam. [Link] (PatentlyO readers use code PO10 for a 10% discount)

Contact Lawrence.Higgins@patentlyo.com with leads for future Bits and Bytes.

Patently-O Bits & Bytes by Lawrence Higgins

Chisum Patent Academy

  • The Chisum Patent Academy will hold its next Advanced Patent Law seminar February 20-22, 2013, in New York City (Midtown Manhattan). Because each three-day Chisum Patent Academy seminar is uniquely limited to ten (10) participants, they offer an unparalleled opportunity for interactive roundtable discussion and debate. Each seminar is led by patent law educators and treatise authors Donald Chisum and Janice Mueller. The New York seminar will focus in great depth on two timely and controversial patent law topics: patent claim interpretation and active inducement. They will also cover America Invents Act developments including the USPTO's final rules on first inventor to file (taking effect three weeks after the New York seminar); preliminary injunctions and design patents; and inequitable conduct decisions post-Therasense. A more detailed description of the topics to be covered and registration details are available on the Academy's website. [Link]

New start-up company (Evtron)

  • Evtron is a new start-up company that specializes in data storage. The company made a storage device (Evtron CELL) that can fit 120 hard disk drives into a storage platform. The design created by Evtron will supposedly make it 60% more efficient in data density, when compared to similar data storage products currently available on the market. NetApp and EMC are the two leading companies in this technology market, with annual revenue between $7 billion and $22 billion. Evtron may be able to compete with these companies but only if they are granted their pending patent and the patent cannot be worked around. The patent application to my knowledge is not currently public. There have been rumors that Facebook may be interested in the technology. This should be a very interesting company to watch, in terms of the patent application, lawsuits that may arise, and the change of the data storage space.

Patent Jobs:

  • Fenwick & West is seeking patent associates with 1-4 years of experience and an EE, CS, CE, or physics background, or equivalent experience to work at their Silicon Valley office. [Link]
  • Armstrong Teasdale is looking for an experienced trademark associate to work at their St. Louis office. [Link]
  • Harrington & Smith is seeking a patent associate with a degree in EE or physics and at least 2 years of experience to work at their Shelton, Connecticut office. [Link]
  • Krieg DeVault is looking for an IP associate with 3-7 years of experience to work at their Indianapolis office. [Link]
  • Harrity & Harrity is searching for patent attorneys/agents with a background in EE, computer science, or physics and a minimum of 2 years of experience to work at their Fairfax, VA office. [Link]
  • Honigman is seeking a patent attorney/agent with a degree in EE or computer science to work at their Oakland Count, Michigan office. [Link]
  • Byrne Poh is looking for a patent attorney/agent with a degree in EE or computer science to work at their New York office. [Link]
  • The Ollila Law Group is seeking a patent attorney with an EE and at least 2 years of experience to work at their Boulder office. [Link]
  • Abel Law Group is seeking a chemical practitioner with 2+ years of experience to work at their Austin office. [Link]
  • Klarquist Sparkman is seeking an IP Litigation Associate with 1-2 years of experience to work at their Portland office. [Link]

Upcoming Events:

  • Santa Clara Law will be hosting its conference Solutions to the Patent Problem this Friday, November 16, featuring industry and government folks such as Kent Walker (Google), Brad Burnham (USVentures), Ben Lee (Twitter), Edith Ramirez (FTC), and Paul Grewal (N.D. Cal) in addition to about 20 academics. The event will be streamed and Wired is running opeds from the conference as part of its Patent Fix series.
  • IBC Legal's 6th Annual Standards and Patents Conference 2012 will be held on November 27-28 in London. The dynamics of the relationship between standards and patents poses a plethora of challenges for patentees, licensees, standard setting organizations, innovators, commercial users and implementers. Guest speakers include Mr. Justice Ford (Jude, Patent Court) and Richard Vary. [Link] (PatentlyO readers save 10% by quoting VIP code: FKW82336PTOL)
  • ACI's 14th Advanced Forum on Biotech Patents will be held on November 28-29, in Boston. ACI's 14th Advanced Forum on Biotech Patents brings together another top-notch faculty of expert biotech patent practitioners who will share their experience and knowledge to help you avoid pitfalls and maximize the value of your intellectual property. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • The ACI's Orphan Drugs and Rare Diseases conference will take place on November 28-29 in Boston. There are an estimated 6,000 rare diseases currently recognized in the U.S. alone; European authorities recognize as many as 8,000 rare diseases. With only approximately 150 treatments for these diseases approved so far according to the FDA's orphan designation database, there is a unique opportunity for companies of all sizes to invest in research and development to try to capture this lucrative market share. Indeed, according to a leading industry report, the orphan disease therapeutics market will continue to see a marked increase in value through the decade, increasing from 2010's $2.3 billion to an estimated $6 billion in 2018. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • ACI's Paragraph IV Disputes conference will be held on December 4-5 in San Francisco. An experienced faculty of renowned litigators and judges will guide you through every stage of a Paragraph IV challenge. Additionally, in the wake of major developments in pay-for –delay, learn what the FTC deems foul and fair in the settlements of Paragraph IV disputes in order to draft and structure settlements that will receive FTC approval. [Link] (PatentlyO readers use code PO 200 a discount)
  • C5's 5th Annual Forum on Biotech and Pharma Patent Litigation is scheduled for January 29-30 in Amsterdam. [Link] (PatentlyO readers use code PO10 for a 10% discount)

Contact Lawrence.Higgins@patentlyo.com with leads for future Bits and Bytes.

Should we Move Toward More Fee Shifting in Patent Cases?

By Dennis Crouch

Icon Health & Fitness v. Octane Fitness (Fed. Cir. 2012)

Following claim construction, the district court ruled on summary judgment that Octane’s elliptical machines did not infringe Icon’s U.S. Patent No. 6,019,710. However, the district court refused to find the case “exceptional” under 35 U.S.C. § 285. Under the statute, a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” And, without that exceptional case ruling, the defendant had no opportunity to recoup the money spent defending the case.

U.S. patent cases follow the “American rule” that largely forbids fee shifting except in “exceptional” cases. In Cybor, the Federal Circuit described the adjudication process as involving two steps: First determining whether the case is “exceptional” and then determining the scope of fee shifting that is appropriate (if any). The court wrote:

The determination of whether a case is exceptional and, thus, eligible for an award of attorney fees under § 285 is a two-step process. First, the district court must determine whether a case is exceptional, a factual determination reviewed for clear error. After determining that a case is exceptional, the district court must determine whether attorney fees are appropriate, a determination that we review for an abuse of discretion. A district court abuses its discretion when its decision is based on clearly erroneous findings of fact, is based on erroneous interpretations of the law, or is clearly unreasonable, arbitrary or fanciful.

Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448 (Fed.Cir.1998) (en banc) (citations omitted). This process is akin to that used for enhanced damages where the court first considers whether the infringement was willful and then determines the scope of damage enhancement (if any). One key difference is that Section 285 provides the “exceptional” standard while the “willful infringement” requirement for enhanced damages was created by the court without any statutory key.

We call this the “American rule” of fee shifting because there is an alternate “British rule” that regularly awards fees to the prevailing party regardless of exceptionality of the case.

+++++

In a short nonprecedential opinion, the Federal Circuit affirmed the denial of Octane’s exceptional case motion. Its opinion confirms the traditional stance that an exceptional case award requires significant evidence of misconduct and that denial of a motion for attorney fees is within the discretion of the trial court. “[W]e have reviewed the record and conclude that the court did not err in denying Octane’s motion to find the case exceptional.”

+++++

Of most interest, Octane requested that the court revisit (i.e., lower) the standard for determining whether a case is exceptional. As it must, the panel here rejected that request because it is bound by prior Federal Circuit precedent. However, an en banc request on this point may garner some traction with the court.

Traditionally, there has been something of a bias relatively in favor of exceptional case findings for prevailing plaintiffs but not for prevailing defendants. The bias comes about because a prevailing plaintiff can typically include out-of-court activities such as willful infringement as part of its proof of exceptional case while a prevailing defendant can typically only prove an exceptional case based upon a patent plaintiffs activities during litigation or when securing patent rights.

I like to divide the “bad” plaintiff activities leading to an exceptional case finding into three categories: (1) inequitable conduct during prosecution; (2) litigation misconduct (such as discovery violations or destroying evidence); and (3) bringing a subjectively and objectively baseless lawsuit. Brooks Furniture Mfg., Inc. v. Dutailer International, Inc., 393 F.3d 1378 (Fed. Cir. 2005). Thus, if a prevailing defendant seeks an “exceptional case” award based upon the filing of a worthless lawsuit, the plaintiff must provide clear and convincing evidence that the infringement claims were subjectively and objectively baseless. Globetrotter Software, Inc. v. Elan Computer Group, Inc., 362 F.3d 1367 (Fed. Cir. 2004); see also Reactive Metals & Alloys Corp. v. ESM, Inc., 769 F.2d 1578 (Fed. Cir. 1985) (The person seeking attorney fees must establish the facts showing exceptionality by clear and convincing evidence.)

In its brief, Octane argued that the “subjectively and objectively baseless” requirement is unduly limiting and should be reduced to a standard that considers whether the claim was “objectively unreasonable.” Octane writes:

Patent litigation is expensive. According to a survey published in 2009 by the American Intellectual Property Law Association (“AIPLA”) the median cost for a patent litigation in which the amount in controversy is from $1-25 million, through the end of discovery, is $2.5 million (inclusive of all costs). Unscrupulous large companies know this, and, unfortunately, can use patent litigation as a weapon against competitors, especially smaller competitors. Many smaller competitors simply do not have the financial resources or wherewithal to defend a patent infringement case, no matter how spurious the contentions. Judge Story once wrote that patent litigation is the “sport of kings.” Larger companies can exploit this fact to the detriment of their smaller competitors.

Complicating matters, there is almost no economical or expeditious way for an accused infringer to extract itself from baseless litigation. Unlike certain forms of litigation ( e.g., securities litigation or antitrust litigation) rarely is a patent infringement action dismissed at the pleading stage. Rather, before a defendant accused of infringement has any hope of extricating itself from a litigation, often-times (as here) substantial discovery (both fact and expert), Markman briefing and hearing, and summary judgment briefing and hearing, must occur. By the time summary judgment is granted, substantial time is invested in the case not only by the parties, but by the district court, as well.

For their part, district court judges–who, in many instances, have no technical background and little familiarity with the patent system–are often faced with complex technology, difficult-to-read patent language and a body of case law that is both robust and nuanced. No matter how preposterous the merits of the infringement position may be, in order to reach a resolution on the merits, the district court judge must invest significant time and energy, to decipher the claim scope and understand the defendant’s position. For these reasons, no matter how unreasonable the patentee’s contentions, it is a rare district court judge who will have the courage to call a patentee’s claims “frivolous” after the investment of time and effort necessitated by these cases.

For these reasons, and because of the inconsistent application of the “exceptional case” findings by district courts, Octane proposes that in the context of a prevailing accused-infringer, the legal standard for exceptional case should be re-evaluated. Octane respectfully proposes that a case should be deemed “exceptional” if the infringement claims asserted by the patentee were objectively unreasonable. If they were objectively unreasonable (as here), then the case should be deemed exceptional, and, unless equitable considerations counsel otherwise in the context of the particular case, fees awarded. Octane’s rationale for this proposal are set forth below, as well as factors this Court might articulate to better assist district courts in identifying objectively unreasonable cases.

1. The Rationale for Fee Shifting Where a Patentee Asserts an Objectively Unreasonable Claim of Infringement Against a Competitor.

A patent grants to its holder a legalized monopoly. See Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969) (“The heart of [the patentee’s] legal monopoly is the right to invoke the State’s power to prevent others from utilizing his discovery without consent”); see also Precision Instrument Mfg. Co. v. Auto. Maint. Mack Co., 324 U.S. 806, 816 (1945) (“a patent is an exception to the general rule against monopolies and to the right of access to a free and open market.”) This is permitted because the overall good of encouraging innovation and promoting disclosure is thought to outweigh the anticompetitive effects of a time-limited monopoly. See generally Bilski v. Kappos, 130 S.Ct. 3218, 3255 (2010) (“even when patents encourage innovation and disclosure, ‘too much patent protection can impede rather than ‘promote the Progress of … useful Arts’.’ “). But a patent is, nevertheless, by its nature anticompetitive, and for this reason, the ways in which a patentee may have granted, utilize and leverage a patent are not without limit and are often carefully scrutinized. See In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323, 1333 (Fed. Cir. 2008) (noting that patents are by nature anticompetitive and examining whether agreements improperly restricted competition beyond the exclusionary zone of the patent); see also Bilski, 130 S.Ct. at 3229 (noting “the tension, ever present in patent law, between stimulating innovation by protecting inventors and impeding progress by granting patents when not justified by the statutory design.”)

Title 35 of the United States Code, § 285 authorizes such scrutiny in the context of infringement litigation and specifically authorizes an award of attorney fees in “exceptional” cases. But what is an “exceptional” case? This Court has endeavored to provide guidance to district courts as to the meaning of an “exceptional” case. This Court has indicated that fees are properly awarded in a variety of contexts, including “vexatious or unjustified litigation” or “frivolous filings.” See, e.g., Takeda, 549 F.3d at 1388; Eon-Net LP, 653 F.3d at 1324; Waner v. Ford Motor Co., 331 F.3d 851, 857 (Fed. Cir. 2003); Bayer AG v. Duphar Int’l Research B.V., 738 F.2d 1237, 1242 (Fed. Cir. 1984). However, this Court has also indicated that absent litigation misconduct or fraud in securing a patent, a district court can award attorney fees only if the litigation is both: (1) brought in subjective bad faith and (2) objectively baseless. See, e.g., Eon-Net LP, 653 F.3d at 1324. These differing statements of the standard and other factors noted below, have led to inconsistent application of the exceptional case designation by district courts, particularly in the case of a prevailing alleged infringer.

Octane respectfully submits that commencement and maintenance of objectively unreasonable infringement contentions should be sufficient, standing alone, to deem a case exceptional. This standard is, in many ways, consistent with this Court’s cases holding that unjustified or frivolous suits may be deemed “exceptional.” Octane, however, advocates for reconsideration of the case precedent that indicates litigation misconduct or subjective bad faith should be required – in addition to baseless contentions – before finding a case exceptional.

Additionally, Octane proposes use of the words “objectively unreasonable” rather than “frivolous” or “baseless.” As explained in more detail below, the words “frivolous” or “baseless” often imply misconduct by counsel, and perhaps even violation of Rule 11. Octane respectfully suggests that an action should not have to rise to the level of a Rule 11 violation, before a case could be deemed exceptional; else the remedies are duplicative.

Rather, patentees (including non-practicing patentees) asserting their legal monopoly should at least have to assert objectively reasonable causes of action, or else the risk of paying for the litigation should shift to the patentee, regardless of counsel’s conduct. This is fair and consistent with the overarching goals of the patent system. The alternative–leaving patentees unchecked to assert thin-beyond-reason causes of action–has a huge anticompetitive impact on society and constitutes a gross injustice to innocent defendants.

As any defendant accused of patent infringement could attest, the mere existence of litigation typically has a detrimental impact on business, as customers become nervous about buying a product accused of infringement. This translates into higher costs for end customers as the patentee is able to prevent competition (often legitimate competition) and maintain monopoly prices. Meanwhile, the only recourse for a wrongfully accused infringer, apart from recouping fees under the present standard, is to bring a separate tort cause of action after conclusion of the Federal patent case in state court (which has even less experience with patent law than most district courts), or advance a cost-prohibitive antitrust action, if market share and other elements can be established. For these reasons, district courts need to know that they can find a case exceptional when a patentee fails to assert its legal monopoly responsibly and asserts and maintains objectively unreasonable causes of action.

Considerations a district court might consider when evaluating whether the patentee’s contentions were objectively unreasonable include: (1) more than one claim element was missing in the accused device, (2) the case was resolved on summary judgment, (3) the patentee was not practicing the claimed invention, (4) the patentee’s claim of infringement was based on a claim construction position that: (a) contradicted the prosecution history, or (b) read a limitation out of the claim entirely, or (c) was not rationally related to what was actually invented, (5) the patentee ignored or reargued the court’s claims construction, (6) the accused device incorporated technology that pre-dated the asserted patent, in lieu of the technology disclosed in the patent-in-suit, and (7) the accused infringer communicated to the patentee near the start of the case an alleged design around or element(s) not present in the accused product; the patentee proceeds forward unreasonably; and the defendant ultimately prevails on that issue.

Octane submits that the above factors are examples of factors a district court may consider when determining if a case was objectively unreasonable. These factors encourage early candid discussions between the parties and potentially fosters early settlement, which has been recognized as a laudable goal of the judicial system. Foster v. Hallco Mfg. Co., Inc., 947 F.2d 469, 477 (Fed. Cir. 1991). Moreover, the standard appropriately shifts the risk of fees to a patentee that proceeds forward with weak claims having no reasonable chance of success. Accused infringers should not have to bear the heavy cost of patent litigation where patent owners proceed forward with no more than a scintilla of hope or a desire that the accused infringer will collapse when confronted with a weak claim.

To be clear Octane is not proposing that “exceptional case” means any case in which an alleged infringer prevails. But cases that are objectively unreasonable should be “exceptional”, and not the norm. The cost of spurious infringement claims should be borne by the patentee, not the alleged infringer trying to compete fairly in the marketplace. In those instances (instances which would be even less frequent under this standard than at present), fee shifting is appropriate.

2. Exceptional Case Status Should Not Require Proof of a Rule 11 Violation.

By calling for a standard that allows for the award of fees in “objectively unreasonable” cases Octane is not necessarily arguing for a departure from the line of cases that would allow an award of fees in “frivolous” or “baseless” cases. However, Octane is proposing that the “exceptional” case standard of 35 U.S.C. § 285 should not be commensurate with a Rule 11 violation.

To begin, Rule 11 already includes provisions for sanctions, which would render Section 285 unnecessary if they require proof of the same conduct. Fed. R. Civ. P. 11. Beyond this, labeling a case “frivolous” such that it constitutes a violation of Rule 11 is not a step that most courts take lightly, not only because of the time and money investment in these cases, but also because labeling a case “frivolous” such that it constitutes a violation of Rule 11 requires condemnation of litigation counsel’s conduct. Rule 11 provides, among other things, that by signing all materials submitted to the Court an attorney is representing that “the claims, defenses, and other legal contentions are warranted by existing law or by a non-frivolous argument for extending, modifying, or reversing existing law or for establishing new law. . .” If a case is “frivolous” under Rule 11, then a patentee’s counsel must have acted inappropriately, a conclusion that most courts are loathe to reach.

A case should not have to rise to the level of a Rule 11 violation before it is deemed “exceptional.” Pursuing objectively unreasonable claims (though perhaps not rising to the level of a Rule 11 violation), should not be the norm for patentees, and when it does occur and the patentee is unsuccessful, the case should bear the moniker of an “exceptional case.”

3. Exceptional Case Status Should Not Require Litigation Misconduct Apart from Asserting an Objectively Unreasonable Claim.

Asserting an objectively unreasonable claim is a form of litigation misconduct. Nevertheless, no separate requirement for litigation misconduct should be necessary to establish an exceptional case. A patentee that pursues an objectively unreasonable claim but otherwise responds to discovery in a timely manner, does not destroy relevant documents, shows up to depositions, etc… should still bear the cost of its competitor’s fees, when the unreasonably maintained cause of action fails. No additional litigation misconduct should be necessary.

Moreover, the Federal Rules provide for sanctions for specific litigation misconduct as it occurs. See e.g., Fed. R. Civ. P. 26(g)(3) (authorizing sanctions for improper certification of disclosures and discovery responses); Fed. R. Civ. P. 30 (providing for sanctions for failure to attend a deposition); Fed. R. Civ. P. 37 (authorizing motions and sanctions if a party fails to respond or make appropriate disclosure to discovery requests); see also 28 U.S.C. § 1927 (“any attorney. . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct”). To the extent a patentee (or its counsel) takes some action in litigation that is wrongful, drives up costs, or otherwise violates litigation rules, then the alleged-infringer may bring that conduct to the district court’s attention at the appropriate time, and the district court should order appropriate sanctions, including fines. Encouraging district courts to deal with litigation misconduct in this manner, promotes professionalism and civility and better addresses the specific issues in a timely manner.

Though litigation misconduct could, of course, also be a factor in deeming a case “exceptional”, Octane propose that it should not be a requirement for finding a case exceptional in the face of objectively unreasonable claims.

4. Exceptional Case Status Should Not Require Proof of Bad Faith.

In a patent case, the most an accused infringer can ever hope for is recoupment of attorney’s fees and costs. Even in the rare cases where this is awarded, however, the accused infringer is not made whole. That party is still out the hundreds of hours dedicated by company personnel to the defense of the case (hours that could have been spent on research and development, sales efforts and other endeavors), not to mention the often-significant cost that the suit may have had on the accused infringer in the marketplace. Unlike on the patentee side, where the plaintiff may get treble damages against a willful infringer, the wrongfully-accused infringer has no such remedy against a patentee. The accused infringer is entitled to, at most, recoupment of reasonable fees.

Why is this significant? It is significant because under the law, subjective bad faith ( i.e., the willful, wonton or reprehensible nature of a party’s conduct), while the critical factor in an award of punitive damages (which an alleged infringer cannot recover), is not a pre-requisite, in most statutory schemes, to an award of reasonable attorney fees. See, e.g., 42 U.S.C. § 1988 (allowing court, in its discretion, to award attorney fees to the prevailing party in civil rights actions); 15 U.S.C. § 15 (mandating the award of reasonable attorney fees for any person injured by violation of the antitrust laws); 42 U.S.C. § 3613 (allowing court, in its discretion, to award attorney fees to the prevailing party in fair housing actions). In this instance, the statute merely requires that the court find the case “exceptional” before awarding fees. It says nothing about requiring a showing of subjective bad faith. Octane submits that in view of the differences between punitive damages and reasonable attorney fees and the ways in which these are typically dealt with in statutes and by the courts, an alleged infringer should not have to make a showing of subjective bad faith in order to show that an objectively unreasonable case is “exceptional.”

Regardless of intent (which is inevitably almost impossible to prove), a patentee that asserts an objectively unreasonable cause of action against its competitor should bear the risk of paying that competitors fees if it is unsuccessful.

This is an interesting problem. At the end of the case, a prevailing party has generally proven that the losing party’s case is without merit (i.e., it lost). In that sense, at the end of the case, the position is subjectively, reasonably, and objectively baseless. The question is, however, at the beginning of the case (and to some extent throughout the case) did the position have some merit?

At first cut the proposed fee shifting appears to be a good mechanism for shifting risk onto plaintiffs who, in turn, will avoid filing baseless claims. A benefit of the current rule (objectively baseless) is that it is fairly clear and so the self-weeding is easy. Octane’s multi-factor proposal makes this a much more difficult if not impossible task – meaning that the new rule would also end up discouraging some amount of valid patent claims.

Notes:

  • Octane is represented by Rudy Telscher and Kara Fussner of Harness Dickey’s St. Louis office. Larry Laycock and his team at Workman Nydegger in Salt Lake represent Iconn.
  • There is a good chance that Octane won’t push this case any further since it won the underlying decision (non-infringement) and that decision was affirmed on appeal.

Guest Post: New USPTO Proposed Ethics Rules, Part I

Guest Post by Professor Lisa Dolak.

On October 18, 2012, U.S. Patent and Trademark Office issued a Notice of proposed rulemaking relating to "Changes to Representation of Others Before The United States Patent and Trademark Office." The essence of the proposal is to replace the current ABA Model Code-based USPTO ethics rules with a version of the ABA Model Rules, versions of which have been adopted in 50 jurisdictions (49 states and the District of Columbia).

In the Notice, the USPTO indicates that its goal is to modernize its ethics rules and to harmonize them with those that already govern most of the registered and non-registered practitioners who represent others before the USPTO, "while addressing circumstances particular to practice before the office". The Notice references several sources that may provide useful interpretative guidance regarding the proposed rules, including existing USPTO-specific precedent, "the Comments and Annotations to the ABA Model Rules", and "opinions issued by State bars and disciplinary decisions based on similar professional conduct rules in the States." Significantly, however, the Notice expressly disclaims the imposition of significantly new standards on those who are subject to USPTO enrollment and discipline oversight, stating "any change is not a significant deviation from rules of professional conduct for practitioners that are already required by the Office."

For the most part, the USPTO seeks to conform its rules governing professional conduct to the ABA Model Rules, with certain specific language tailored to the specialized nature of practice before the USPTO. The Notice also highlights, however, the ways in which the USPTO's new rules would deviate from the ABA Model Rules. And it proposes revisions to certain provisions of the rules governing the conduct of disciplinary investigations, which rules were adopted in 2008.

The first thing to note is the proposed numbering scheme for the new USPTO Rules of Professional Conduct. For example, proposed USPTO Rule of Professional Conduct 11.107 corresponds to ABA Model Rule 1.7. USPTO Rule 11.302 would parallel Model Rule 3.2, and USPTO Rule 11.804 – the proposed new USPTO rule relating to "misconduct" – corresponds to Model Rule 8.4. It appears, in fact, that the USPTO has endeavored to match up its proposed rules to the Model Rules by subsection, where appropriate. Thus, proposed "Sections 11.804(a) – (f) correspond to the ABA Model Rules of Professional Conduct 8.4(a) – (f), respectively."

Some examples of the many instances where the USPTO indicates an intent to conform with the corresponding ABA Model Rule include proposed sections:

  • 11.107, relating to concurrent conflicts of interest (see ABA Model Rule 1.7);
  • 11.109, relating to conflicts of interest and duties to former clients (see ABA Model Rule 1.9);
  • 11.110, relating to the imputation of conflicts within law firms (see ABA Model Rule 1.10);
  • 11.116, relating to a practitioner's obligations in declining or terminating client representations (see ABA Model Rule 1.16);
  • 11.401, relating to a practitioner's obligation to be truthful when dealing with third parties on a client's behalf (see ABA Model Rule 4.1); and
  • 11.501 and 11.502, relating to the responsibilities, respectively, of a supervisory practitioner and a subordinate practitioner (see ABA Model Rules 5.1 and 5.2).

In other respects, the proposed rules would be tailored to account for particularized aspects of USPTO practice. For example,

  • with regard to proposed Section 11.105 relating to a practitioner's responsibilities regarding fees, the Notice states that "[n]othing in paragraph (c) should be construed to prohibit practitioners gaining proprietary interests in patents" in accordance with USPTO rules.

In addition, there are several proposed rules that are modified to reinforce or accommodate the duty of disclosure or the inequitable conduct doctrine. The proposed rule (Section 11.106) relating to confidentiality obligations "includes exceptions in the case of inequitable conduct before the Office in addition to crimes and frauds". A subsection of this rule would permit a practitioner to reveal information relating to a representation to the extent the practitioner reasonably believes necessary "[t]o prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from . . . inequitable conduct before the Office." Significantly, another subsection of Section 11.106 would expressly reinforce a practitioner's duty of disclosure, notwithstanding his or her confidentiality obligations ("A practitioner shall disclose to the Office information necessary to comply with applicable duty of disclosure provisions.").

Similarly, proposed Section 11.303(e) provides: "In a proceeding before the Office, a practitioner shall disclose to the Office information necessary to comply with applicable duty of disclosure provisions." According to the USPTO, "[t]he practitioner's responsibility to present the client's case with persuasive force is qualified by the practitioner's duty of candor to the tribunal. See Lipman v. Dickinson, 174 F.3d 1363, 50 USPQ2d 1490 (Fed. Cir. 1999)."

Another manifestation of the USPTO's efforts to implement specialized patent-related policy is found in proposed Section 11.303(a)(2), which extends the practitioner's duty to disclose adverse controlling legal authority beyond inter partes situations to ex parte proceedings (where the authority is not otherwise disclosed). In the Notice of proposed rulemaking, the USPTO indicates that this rule is justified by the effect that USPTO decisions have on the public interest.

In other notable aspects of the Notice, the USPTO:

  • notes that it has not incorporated into the proposed rules any of the recently(August 2012)-adopted changes to the Model Rules, "since the states have not adopted those changes at this time";
  • reminds practitioners that "[f]ailure to comply with [state professional conduct] rules may lead to . . . possible reciprocal action against the practitioner by the USPTO"; and
  • proposes to remove the practitioner maintenance fee currently set forth in 37 C.F.R. § 11. 8(b), because "the Office has suspended collection of those fees".

Finally, proposed section 11.1 would provide definitions of terms used in the proposed professional conduct rules, including "practitioner" (which would include registered attorneys and agents as well as persons authorized to represent persons before the USPTO in trademark and non-patent matters and persons given limited recognition in patent matters), "informed consent", "reasonable belief"/"reasonably believes", "screened", "writing", and "written". One of the more notable subsections would define "[f]raud" and "fraudulent", as follows:

Fraud or fraudulent means conduct that involves a misrepresentation of material fact made with intent to deceive or a state of mind so reckless respecting consequences as to be the equivalent of intent, where there is justifiable reliance on the misrepresentation by the party deceived, inducing the party to act thereon, and where there is injury to the party deceived resulting from reliance on the misrepresentation. Fraud also may be established by a purposeful omission or failure to state a material fact, which omission or failure to state makes other statements misleading, and where the other elements of justifiable reliance and injury are established.

With regard to fraud and fraudulent behavior, the Notice expressly acknowledges the USPTO's decision not to adopt the corresponding ABA Model Rules definitions. "Instead, the Office believes a uniform definition based on common law should apply to all individuals subject to the USPTO Rules of Professional Conduct." "Accordingly," the Notice states, the proposed rules adopt "the definition of common law fraud . . . discussed by the United States Court of Appeals for the Federal Circuit." The proposed adoption of a specific definition of "fraud" is notable, given the USPTO's obligations under the AIA to report instances of detected "material fraud" in the context of supplemental examination to the Attorney General, and its decision not to include a definition of "material fraud" in the final rules governing supplemental examination.

Other aspects of the Notice, including key ways in which the proposed rules deviate from the Model Rules, and how the USPTO proposes to modify existing rules relating to disciplinary investigations, will be highlighted in subsequent posts.

Comments relating to the proposed rules are due 60 days after their publication in the Federal Register. Based on the anticipated publication of the proposed rules on Thursday, October 18, the deadline for comments will be Monday, December 17, 2012.

Is the New Supplemental Examination a Complete Replacement for Owner Initiated Ex Parte Reexamination?

By Dennis Crouch

This essay focuses on supplemental examination but, perhaps surprisingly, the essay does not consider inequitable conduct inoculation. The ability of supplemental examination to cure inequitable conduct has received a significant amount of attention. However, supplemental examination is likely to have a broader value for patent owners. In particular, supplemental examination offers an expanded and beneficial avenue for patent owners to subtly enter ex parte reexamination. In its official estimates, the USPTO predicts that patent owners will entirely stop filing ex parte reexaminations. Rather, in the USPTO’s estimation, 100% of the cases that would have been filed as owner-filed reexaminations will now be filed as supplemental examinations. The USPTO writes:

[T]he Office estimates that it receives approximately 110 requests for ex parte reexamination filed by patent owners annually. In view of the benefits to patent owners afforded by supplemental examination under 35 U.S.C. 257(c), the Office is estimating that all 110 requests for ex parte reexamination that would have been filed annually by patent owners will instead be filed as requests for supplemental examination. However, the Office is also estimating that more than 110 requests for supplemental examination will be filed annually due to a combination of: (1) the benefits to patent owners afforded by supplemental examination; (2) the fact that the “information” that may form the basis of a request for supplemental examination is not limited to patents and printed publications; and (3) the fact that the issues that may be raised during supplemental examination may include issues in addition to those permitted to be raised in ex parte reexamination (e.g., issues under 35 U.S.C. 112).

See Changes To Implement the Supplemental Examination Provisions of the Leahy-Smith America Invents Act and To Revise Reexamination Fees; Final Rule, 77 Fed. Reg. 48827 (2012). Although not suggested by the USPTO, there is some thought that the supplemental reexamination will also take some demand away from the current reissue system.

As a starting point on this topic, it is useful to remember that ex parte reexamination has been left virtually unchanged by the America Invents Act (AIA). The greatest exception is not a process change but rather a seven-fold increase in the price-tag for filing a request for ex parte. This takes the price from $2,500 to almost $18k. Ex parte reexaminations will still be conducted by examiners in the central reexamination unit (CRU) and the Board (now the PTAB) will handle first level appeals. The AIA “clarifies” the law that adverse decisions from the PTAB may be appealed only to the Court of Appeals for the Federal Circuit and that the patentee has now right to file a civil action in district court to overturn an adverse decision during the reexamination.

The reissue process was also left untouched except that the AIA removes the “without any deceptive intention” language from 35 U.S.C. § 251. The reissue statute now reads as follows:

Whenever any patent is, through error without any deceptive intention, deemed wholly or partly inoperative or invalid, by reason of a defective specification or drawing, or by reason of the patentee claiming more or less than he had a right to claim in the patent, the Director shall, on the surrender of such patent and the payment of the fee required by law, reissue the patent for the invention disclosed in the original patent, and in accordance with a new and amended application, for the unexpired part of the term of the original patent. No new matter shall be introduced into the application for reissue.

However, unlike reexaminations, reissue fees associated with reissue applications have been kept low – remaining mostly equivalent to fees associated with original prosecution. For patents in litigation (or likely to be litigated) the fee differential will be a relatively minor factor in the ultimate choice. However, that fee differential could be quite important for more average patents – those part of a large portfolio but that would become more valuable if given a secondary review. Since this post is getting quite long, I’m going to save the comparison between supplemental examination and reissues for a different post.

Comparing Supplemental Examination with Ex Parte Reexamination: The process of supplemental examination is quite similar to that of ex parte reexamination. You can think of ex parte reexamination as having two main parts: (1) request stage; and (2) examination stage. At the request stage, the USPTO must decide whether the reexamination request raises patentability issues that are significant enough to warrant full reexamination. If the issues presented are not significant enough then the reexamination request is denied and the case is over. However, if the issues are deemed significant then the patent is fully reexamined. That reexamination can result in claims being cancelled, amended, or confirmed as patentable. In many ways, supplemental examination can be seen as simply changing name of the request stage. For supplemental examination, the request stage is the supplemental examination. In that stage, the USPTO is simply conducting a cursory review to determine whether the issues presented in the supplemental examination request raise a substantial new question of patentability. If not, then the supplemental examination is concluded (with a certificate). If substantial questions are raised then a full reexamination is ordered and conducted. As in the request stage of ex parte reexaminations, supplemental examination is completed very quickly (3-months) and without any additional outside input beyond the request itself.

Supplemental examination offers four primary benefits for a patent owner as compared with directly filing a request for ex parte reexamination:

  • When a patent owner files a reexamination request on its own patent, it has to first convince the USPTO that its patent has a problem. With supplemental examination, the patentee need not make any such statement. Rather, the supplemental examination request simply points to material that should be considered with minor explanation and the PTO makes the judgment as to whether the submitted material raises any substantial new questions of patentability. This helps patentees avoid potential prosecution history issues that often trap patentees in the reexamination process. This may also mean that the supplemental examination document request is less expensive to prepare.
  • In ordinary circumstances, Ex parte reexaminations are instituted based upon printed publications or patents. Supplemental examination can be used to raise all sorts of issues based upon “any supporting document” or legal issue (such as patentable subject matter).
  • If the PTO concludes that no substantial question of patentability is raised by the request then, with supplemental examination, it issues a “supplemental examination certificate” that the patentee can take and show to a district court judge and jury. While the decision in supplemental examination is effectively the same as a denial of a request for ex parte reexamination, the cognitive impact is different. In the ex parte reexamination scenario, the PTO merely denied a request to review the case. On the other hand, in the supplemental examination scenario, the PTO actually conducted a supplemental examination; determined that the submitted issues do not raise a substantial question of patentability; and issued an official certificate saying as much.
  • As discussed elsewhere, the supplemental examination also provides the inoculation against inequitable conduct charges.

There are some downsides to supplemental examination, but in most cases it will be a better option when compared with an owner-requested ex parte reexamination.

Patently-O Bits & Bytes by Lawrence Higgins

Patent Backlog to fall below 600K by end of the year!

  • The current patent backlog is around 623,000 patents and is decreasing by an average of about 5,000 patents per month. This time last year the USPTO had a backlog of an estimated 683,000 patents and in 2010 it was 728,000 patents backlogged. By the end of the year the backlog should be under 600,000. The decrease from 2011 to 2012 is by almost 60,000 patents and this can be contributed to the hiring initiative that the USPTO implemented. The USPTO currently has around 7,600 patent examiners with plans to hire more in the near future. However, the patent backlog will be expected to start to slightly increase around March of 2013 due to the first-to-file patent system. [Link]

Great new free educational website!

  • Coursera.org offers online classes in many different subject matters online for free. For example, they offer courses in electrical and materials engineering, computer science, biology & life sciences, and many more. The classes are taught by some of the leading institutions in the world. Some classes even offer a certificate of completion. I am currently enrolled in a computer science course taught by faculty from the University of Toronto.

Patent Jobs:

  • Harrington & Smith is seeking a patent associate with a degree in EE or physics and at least 2 years of experience to work at their Shelton, Connecticut office. [Link]
  • Krieg DeVault is looking for an IP associate with 3-7 years of experience to work at their Indianapolis office. [Link]
  • Harrity & Harrity is searching for patent attorneys/agents with a background in EE, computer science, or physics and a minimum of 2 years of experience to work at their Fairfax, VA office. [Link]
  • Honigman is seeking a patent attorney/agent with a degree in EE or computer science to work at their Oakland Count, Michigan office. [Link]
  • Byrne Poh is looking for a patent attorney/agent with a degree in EE or computer science to work at their New York office. [Link]
  • The Ollila Law Group is seeking a patent attorney with an EE and at least 2 years of experience to work at their Boulder office. [Link]
  • Abel Law Group is seeking a chemical practitioner with 2+ years of experience to work at their Austin office. [Link]
  • Klarquist Sparkman is seeking an IP Litigation Associate with 1-2 years of experience to work at their Portland office. [Link]

Upcoming Events:

  • The Synopsis under IP/Patents Telecom Sourcing (SUITS) Conference is presented in conjunction with the ITEXPO on October 2 and 3, 2012 in Austin, Texas. The SUITS Conference provides a unique forum for innovators of in the field of telecommunications, including developers, executives, implementers, licenses, licensors, end users, and carriers, to learn about and discuss intellectual property issues. Key topics will include the changing patent law landscape, litigating in the telecom space post Apple v. Samsung, monetizing telecom patents and more. The conference includes moderators Christopher Douglas of Alston and Bird, Jeb Dykstra of technology Sector Law, Raffi Gostanian of Open Invention Network and Todd Juneau of Juneau Partners with guest speakers that include John Horvath of Google, Ross Barton and Stacey White of Alston and Bird, Robert Johnson of AmelioWave, Noreen Rucinski of Schneider Rucinski Enterprises and more. http://itexpo.tmcnet.com/suits/
  • The 13th Annual Maximizing Pharmaceutical Patent Lifecycles is scheduled for October 10-11 in New York. The conference will feature, Presentations from key representatives from the USPTO who will provide you with direct insights and the logic of this agency on some of most pressing life cycle management strategies that the industry is facing today, Analyses of recent critical cases affecting patent life cycle planning including: Caraco (use codes); Prometheus (subject matter eligibility); Sun Pharma (double patenting); Ariad (patentability); and Therasense (inequitable conduct) – and strategies for using these cases to your advantage and many more topics. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • The University of Akron School of Law's Center for IP & Technology will host the 6th Annual IP Scholars Forum on October 26, 2012, from 9:00AM – 2:00 PM. The Forum's purpose is to bring together a small group of prominent scholars for intensive, high-level discussions on cutting-edge issues of common interest. This year's Forum will discuss "The Impact of IP on Public Health." Guest include: Frank Pasquale, Andrew Torrance, Jim Chen Jay Dratler, Jr., Katherine Van Tassel, and many others. [Link]
  • The IP Section of the Nevada State Bar is hosting its annual CLE program in Las Vegas on November 2. The program will have sessions on trademarks, the top 10 patent cases of the year, IP strategy war stories, and many more. Guest speakers include: Mary LaFrance, Marketa Trimble, Mikio Ishimaru, Sean Carter, Jason Smalley, and many others. [Link]
  • ACI's 14th Advanced Forum on Biotech Patents will be held on November 28-29, in Boston. ACI's 14th Advanced Forum on Biotech Patents brings together another top-notch faculty of expert biotech patent practitioners who will share their experience and knowledge to help you avoid pitfalls and maximize the value of your intellectual property. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • The ACI's Orphan Drugs and Rare Diseases conference will take place on November 28-29 in Boston. There are an estimated 6,000 rare diseases currently recognized in the U.S. alone; European authorities recognize as many as 8,000 rare diseases. With only approximately 150 treatments for these diseases approved so far according to the FDA's orphan designation database, there is a unique opportunity for companies of all sizes to invest in research and development to try to capture this lucrative market share. Indeed, according to a leading industry report, the orphan disease therapeutics market will continue to see a marked increase in value through the decade, increasing from 2010's $2.3 billion to an estimated $6 billion in 2018. [Link] (PatentlyO readers register for with PO 200 for a discount)

Contact Lawrence.Higgins@patentlyo.com with leads for future Bits and Bytes.

Outside the Box Innovations v. Travel Caddy

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.

Supplemental Examination: Inequitable Conduct Amnesty and Beyond

By Dennis Crouch

Introduction to Supplemental Examination: The new supplemental examination procedure is a creation of the America Invents Act (AIA) and is effective as of September 16, 2012. At its most basic, the new procedure allows a patent owner to seek a low-level review of an issued patent to make sure that it was properly issued based upon some newly submitted information. If – on initial review – PTO agrees that the patent is still viable despite the new information the USPTO will conclude the review and issue a certificate indicating that the information presented in the request does not raise a substantial new question of patentability. On the other hand, if the USPTO finds a substantial new question of patentability, then the USPTO will order a full (ex parte) reexamination.

Inoculating Against Inequitable Conduct: Supplemental examination is often tied to inequitable conduct because the new statute indicates that a patent cannot be held unenforceable for failure-to-disclose (or mis-disclosure of) information during a prior examination once that information is considered in a supplemental examination. Professors Jason Rantanen and Lee Petherbridge have identified supplemental examination as an "amnesty program." They write in the Michigan Law Review that:

New § 257 is thus a patent amnesty program. It encourages patent applicants to use any number of strategies that would never have been countenanced under pre-AIA law to obtain patents, and it offers to cure all but the most extreme through filing a supplemental examination request. For example, potential descriptions of a claimed invention in a prior art printed publication, or possible instances of prior patenting of the claimed invention by another, that are known to a patent applicant, and that might have a high probability of barring a patent or limiting claim scope, may not be disclosed during the initial examination. Similarly, sales and public uses that are known to a patent applicant and that may have a high probability of barring the patentability of a claimed invention may be withheld at least until supplemental examination if the applicant likes (and perhaps longer depending on an applicant's risk tolerance). Even the use of false data to obtain the patent in the initial examination can be exonerated by filing a supplemental examination request, which by the statutorily required process can be expected to produce a director's certificate within three months.

Jason Rantanen and Lee Petherbridge, Toward a System of Invention Registration: The Leahy-Smith America Invents Act, 110 Mich. L. Rev. First Impressions 24 (2011).

To be clear, the strategies identified by Rantanen and Petherbridge would violate the professional ethics of a patent attorney or patent agent who deliberately chose that strategy. The argument here is that the supplemental examination rules (coupled with Theresense, Excergen, and their progeny) provide a marginal incentive to applicants to avoid fully complying with the duties of candor and good faith in all dealings with the USPTO. They write "the analysis provided here relates to the marginal effects of a supplemental examination system." In the end, however, it is unclear whether the new incentive will actually change any behavior. I.e., will the availability of supplemental examination mean that some important evidence will now be buried that would have otherwise been disclosed?

There are two statutory exceptions to the inoculation and both relate to times where the patentee waited too long to request the supplemental examination. The statute labels these prior enforcement allegations and prior allegations. Basically, the supplemental examination (and any subsequent reexamination) must be completed prior to the filing of a lawsuit where inequitable conduct may be raised as a defense. In addition, the supplemental examination must be filed prior to the inequitable conduct being alleged in a pleading or Paragraph IV certification. If the patentee fails either prong then the amnesty fails and a court will have power to adjudge the inequitable conduct.

Timing of Declaratory Judgment Actions: The distinction between the two exceptions can be seen in the context of declaratory judgment (DJ) actions. DJ actions are regularly filed in cases where would-be accused infringers take the preemptive measure of asking a court to declare a patent not-infringed, invalid, or unenforceable. Most (but certainly not all) DJ actions filed in the past few years are primarily venue contests and are filed shortly after the original complementary infringement action.

In thinking about supplemental examination amnesty in the context of DJ actions, it is easiest to begin with the understanding that, with two exceptions, the patent cannot be held unenforceable due to inequitable conduct once the patent properly passes through the supplemental examination amnesty program. In the ordinary infringement litigation filed by the patentee, one of the exceptions block the inoculation in cases where the litigation if filed prior to completion of the supplemental examination. This conclusion is based upon the statutory provision explaining that the inoculation "shall not apply to any defense raised [in infringement litigation] unless the supplemental examination, and any reexamination ordered pursuant to the request, are concluded before the date on which the action is brought." Notice here that the exception to inoculation specifically applies to "any defense." In the declaratory judgment context, the inequitable conduct allegation is not filed as a "defense" but rather as part of the complaint. This means that the § 257(c)(2)(B) exception does not apply to declaratory judgment actions. However, the § 257(c)(2)(A) exception will apply to declaratory judgment actions – leading to the conclusion that supplemental examination will provide amnesty against DJ inequitable conduct actions so long as the request for supplemental examination is filed prior to the filing of a DJ pleading that particularly alleges the inequitable conduct. Here, it appears that to satisfy the filing trigger, the request must meet the requirements set forth in the USPTO's implementation regulations. The USPTO will not grant a filing date to applications that fail to follow those guidelines.

Timing of Supplemental Examinations. In the paragraphs above, I identified instances where the inequitable conduct amnesty is triggered by either the filing of a supplemental examination request or else the completing of the supplemental examination. In many cases, the difference between those two will be minimal. The USPTO has announced its intention to complete all supplemental examination reviews within three months. That interpretation follows the statutory guidance that "Within 3 months after the date a request for supplemental examination meeting the requirements of this section is received, the Director shall conduct the supplemental examination and shall conclude such examination by issuing a certificate indicating whether the information presented in the request raises a substantial new question of patentability." This three-month deadline means that the USPTO will likely be sticklers for the filing requirements and may also mean that the USPTO will frequently order reexamination. The major exception to this quick timeline is that the supplemental examination will not be considered complete for amnesty purposes if a SNQ is raised in a way that triggers the automatic reexamination.

Statutory Provision Section 257: The new supplemental exam procedure is codified at 35 U.S.C. § 257 and reads as follows:

§ 257. Supplemental examinations to consider, reconsider, or correct information

(a) REQUEST FOR SUPPLEMENTAL EXAMINATION.—A patent owner may request supplemental examination of a patent in the Office to consider, reconsider, or correct information believed to be relevant to the patent, in accordance with such requirements as the Director may establish. Within 3 months after the date a request for supplemental examination meeting the requirements of this section is received, the Director shall conduct the supplemental examination and shall conclude such examination by issuing a certificate indicating whether the information presented in the request raises a substantial new question of patentability.

(b) REEXAMINATION ORDERED.—If the certificate issued under subsection (a) indicates that a substantial new question of patentability is raised by 1 or more items of information in the request, the Director shall order reexamination of the patent. The reexamination shall be conducted according to procedures established by chapter 30, except that the patent owner shall not have the right to file a statement pursuant to section 304. During the reexamination, the Director shall address each substantial new question of patentability identified during the supplemental examination, notwithstanding the limitations in chapter 30 relating to patents and printed publication or any other provision of such chapter.

(c) EFFECT.—

(1) IN GENERAL.—A patent shall not be held unenforceable on the basis of conduct relating to information that had not been considered, was inadequately considered, or was incorrect in a prior examination of the patent if the information was considered, reconsidered, or corrected during a supplemental examination of the patent. The making of a request under subsection (a), or the absence thereof, shall not be relevant to enforceability of the patent under section 282.

(2) EXCEPTIONS.—

(A) PRIOR ALLEGATIONS.—Paragraph (1) shall not apply to an allegation pled with particularity in a civil action, or set forth with particularity in a notice received by the patent owner under section 505(j)(2)(B)(iv)(II) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(2)(B)(iv)(II)), before the date of a supplemental examination request under subsection (a) to consider, reconsider, or correct information forming the basis for the allegation.

(B) PATENT ENFORCEMENT ACTIONS.—In an action brought under section 337(a) of the Tariff Act of 1930 (19 U.S.C. 1337(a)), or section 281 of this title, paragraph (1) shall not apply to any defense raised in the action that is based upon information that was considered, reconsidered, or corrected pursuant to a supplemental examination request under subsection (a), unless the supplemental examination, and any reexamination ordered pursuant to the request, are concluded before the date on which the action is brought.

(d) FEES AND REGULATIONS.—

(1) FEES.—The Director shall, by regulation, establish fees for the submission of a request for supplemental examination of a patent, and to consider each item of information submitted in the request. If reexamination is ordered under subsection (b), fees established and applicable to ex parte reexamination proceedings under chapter 30 shall be paid, in addition to fees applicable to supplemental examination.

(2) REGULATIONS.—The Director shall issue regulations governing the form, content, and other requirements of requests for supplemental examination, and establishing procedures for reviewing information submitted in such requests.

(e) FRAUD.—If the Director becomes aware, during the course of a supplemental examination or reexamination proceeding ordered under this section, that a material fraud on the Office may have been committed in connection with the patent that is the subject of the supplemental examination, then in addition to any other actions the Director is authorized to take, including the cancellation of any claims found to be invalid under section 307 as a result of a reexamination ordered under this section, the Director shall also refer the matter to the Attorney General for such further action as the Attorney General may deem appropriate. Any such referral shall be treated as confidential, shall not be included in the file of the patent, and shall not be disclosed to the public unless the United States charges a person with a criminal offense in connection with such referral.

(f) RULE OF CONSTRUCTION.—Nothing in this section shall be construed—

(1) to preclude the imposition of sanctions based upon criminal or antitrust laws (including section 1001(a) of title 18, the first section of the Clayton Act, and section 5 of the Federal Trade Commission Act to the extent that section relates to unfair methods of competition);

(2) to limit the authority of the Director to investigate issues of possible misconduct and impose sanctions for misconduct in connection with matters or proceedings before the Office; or

(3) to limit the authority of the Director to issue regulations under chapter 3 relating to sanctions for misconduct by representatives practicing before the Office.

As mentioned above, the effective date of the new supplementary examination procedure is September 16, 2012 and applies to all patents.

Costs and Fees for Supplemental Examination: The USPTO has indicated that its plans are to – for the most part – charge a fee for supplemental examination that is roughly equivalent to its expected cost for conducting the supplemental examination. In a prior post, Professor Rantanen explained: "The cost for filing a supplemental examination request remains steep: $5,140 for the initial request plus $16,120 for the ex parte re-examination fee. Both must be paid at the time of initial request, and the $16,120 will be refunded if no re-examination is ordered." In a proposed change in the fee structure, the USPTO has suggested that it lower the costs by a small amount and also allow for a 50% and 75% reduction in fees for small-entity and micro-entity patent owners. Those new fees will not be effective until early 2013.

Regulatory Process: As instructed by the statute, the USPTO has promulgated a set of rules that more fully govern the process of supplemental examination.

Other Purposes of Supplemental Examination: There are strong suggestions that supplemental examination may be useful outside of the inequitable conduct situation. In particular, patentees may want to ensure that defendants can't argue in court that the best references were never seen by the USPTO. Other patentees may rely on supplemental examination as a mechanism for entering reexamination without having to first admit that something is wrong with the patent. I'll save consideration of these strategies for a later post.

The America Invents Act: One Year Later (Pt. 5)

By Jason Rantanen

Liveblogging the America Invents Act: One Year Later conference at the Indiana University Mauer School of Law. Warning and disclaimer: Quality may vary and these don't necessary reflect my opinions.

 

Panel 3: What did the AIA accomplish? What did it omit?

Mark Chandler (Cisco) – Not a patent lawyer; instead offers a high level perspective from tech industry. 

Issues from his perspective: Predictability is a key, but certainty means different things to different people.  Uncertainty in his industry is uncertainty about damages.  Ranges of outcome that lead to total unpredictability about valuation. The patent system is an industrial policy; it needs to be pared with a good commercial law system where the court decisions are defined by good predictability of result.  But parties aren't willing to have fruitful negotiations because of uncertainty as to damages.

Bad patents – very hard to overturn validity patents in court; estoppel provisions in inter partes reexamination made them a hard tool to use.  Also, backlog of patents. 

Effect of these issues was an increase value of litigation gamesmanship over the value of innovation. This was the context in which they came to the table.  For his industry, uncertainty as to scope of rights/quality of rights was not as important as uncertainty over damages.  But this is not something that he believes can be fixed legislatively.  From the point of view of the technology industry, the AIA accomplished very little in terms of the uncertainty they care about.

In terms of bad patents, he sees the mechanisms as positive.   On backlog, the funding provisions are excellent.

Looking forward, he is skeptical of having Congress dive into the damages issues.  Change is coming from the courts.  Judge Rader is a major mover here.  Clean up the Georgia-Pacific factors is something he sees as coming. 

Joinder provision – some judges, when confronted with the anti-joineder rule, are now consoldiating cases.  Work needs to be done here. 

Rocelle Dreyfuss (NYU) – Act focuses with laser like attention on getting a patent, but largely ignores what is being done with the patents.  Her focus is on research exemptions.  Long been two exemptions: Common law exemption and limited statutory Hatch-Waxman exemptions.  Common law exemption has largely been undermined by CAFC, especially in Madey v. Duke and Embrex v. Service Engineering; most recently, Judge Lourie's opinion in AMP v. USPTO (Myriad). 

Absence of such exception has become more worrisome over time.  Earlier studies indicated that scientists largely ignored patents.  More recent work has undermined this conclusion however.  Studies shown that less research conducted in areas where things are patented.

Every foreign country has a substantial research exception.  Japan is a good example. 

Can't you always do your research off shore?  But she'd like to see a strong research industry in the United States. 

Overall effect of a lack of research exception has been to distort other patent law doctrines – examples: Supreme Court/Federal Circuit subject matter cases.  All these cases are based on the view that patents can impact future research.  To some extent, the Supreme Court's exhaustion and injunctive reliefs are based on a concern about what's going on down stream.  A well drafted research exception is better served than twisting these doctrines around to allow downstream research.

Some believe (ex. Hal Wegner) that the common law will correct itself.  Judge Newman's language in this vein was been picked up by Chief Judge Rader in a recent opinion.  Wegner also argues that the fix would be relatively easy to accomplish with judge made law – drawing a distinction between research "on" versus research "with" a patented invention.  Other commentators would go back to the commercial/noncommercial distinction. She's doubtful these will work, however.  Rader's statement was part of a blistering dissent on an expansion of the statutory exemption; Judge Lourie's statement in Myriad was made just a month ago.  In addition, the fix isn't as simple as distinguishing between research "on" and "with"; actual research is actually far more complex – consider the use of diagnostic patents, which could be classified as either research on or research with. 

Copyright law has long had a fair use defense; it could work in patent law.  But complex, so better done as a statute than as a common law rule. 

John Duffy (UVA) – Likes: the new priority rule.  Never been a fan of first-to-file.  But this is not first to file – it's first-to-file or first-to-publicly disclose, which is a great change.  Best argument for first-to-file was administrative convenience.  Best argument for first-to-invent is that the lawyer shouldn't be part of the invention process.  New system takes the best of both: administrative ease (have to have publicly disclosed it) and you don't have to get a lawyer to do this.  Just have to get the rest of the world to follow us…

A partial accomplishment: ending asymmetric judicial review.  Historically, applicants could obtain immediate judicial review of rejections, but competitors could not obtain immediate judicial review of grants.  This was not good.  AIA helps here, with its post-grant processes.  But it still leaves significant holes in the availability of judicial review.  Proposes that the PTO be subject to standard agency review – points to Exela v. Kappos, E.D. Va. (Aug. 22, 2012).  May be a supreme court opinion.  If the country goes to symmetric judicial review, that would be a very good thing.

A partial accomplishment: curbing claim numerosity.  Patents have too many claims. Partial AIA solution: agency has power to set its own fees and thus could charge more for excessive claims. But sometimes there's a legitimate reason for large numbers of claims: legal uncertainty as to how claims will be interpreted.  Ultimate problem here: departed too far from traditional principles of claim construction.  We should instead focus on the invention – the contribution to the art – in interpreting claims.  261 U.S. 45, 63 (1923)

AIA's worst blemish: fueling bureacratic inflation

Gary Grisold (Senior Policy Advisory for the Coalition for 21st Century Patent Reform and former Chief IP Counsel at 3M) – AIA presented a great opportunity to improve the speed and efficiency of the patent system.  The playbook for improving the AIA was largely derived from the 2004 NAS Report.  Most of the recommendations of the 2004 report were put into play in the AIA.

Goals: effective, global patent protection efficiently obtained, maintained and enforced encouraging innovation and commercialization of innovation.  Showed us some of the charts that they used when building support for the patent law. A lot of progress from 2007-2011.

Process error – in the post-grant review, it allows the public to come in and be heard just after a patent is granted.  At some point, someone inserted "reasonably could have raised" judicial estoppel in PGR. Shouldn't be there.  Didn't realize that this happened, though.  Needs to be a technical correction to fix this.

Patent claim construction – For PGR/IPR, should patent claims should be construed the same as in validity challenges under 35 USC 282(b) rather than broadest reasonable construction?

What else might happen in the future?  Best mode – still there as an obligation; this creates a weird tension for the attorney and client.  Inequitable conduct – he believes that supplemental examination will have a lot of utility because firms will do extensive pre-litigation analysis.  Could go further with inequitable conduct, and lessen the effect even more, for the reason that it brings so much inefficiency into the process.  Experimental use exception – needs to be expanded.  Could expand prior user right.  Doctrine of equivalents is another opportunity for change.  Funding issues are always a concern – could be more secure. 

Doug Norman (Eli Lilly) – Going to talk about how in-house counsel deal with specific issues.

Move to first to file – won't preciptate a lot of change in their context, because for the past 40 years they've been living in a first-inventor-to-file world.  So their proceses have not had to change.  The change they feel is when they look at competitors' patents, they can better evaluate patent estates that they want to do a due dilligence study on. 

Grace period and international harmonization – Europeans aren't necessarily ready to accept a grace period. Have a grace period in the US that is clear, crisp and objective.  And very simple.

Fees  – important to point out that after a longrunning diversion of funds away from the PTO, the PTO has feesetting authority to move forward and build a new infrastructure.  It will cost users more, but if it leads to higher quality and faster service, it'll be worth it.

IPR/PGR considerations – A huge unknown right now.  Hopes that patent judges really will be conservative on the issue of discovery.  Is a technical amendment over the "could have raised" estoppel in PGR possible?  He hopes so; otherwise, it will greatly constrain the use of PGR. 

Inequitable conduct/supplemental examination – high point of the bill.  Thinks it will be used quite extensively, if for no other reason to have their own patents drawn into supplemental [think he means reexam] examination.  Plans on doing extensive due dilligence on patent estates they intend to acquire.  (comment – I suspect that in the pharmaceutical industry, there may be strong incentive to conduct extensive due dilligence.  I'm much less convinced this is the case in pretty much every other industry.).  He believes supplemental examination will be revolutionary, at least in the pharma/biological field.

Favors statutory research exemptions and full repeal of best mode requirement.  Related a story that OED is going to take best mode very seriously. 

John Vaughn (AAU): Universities and patent reform – University technology transfer plays an important role in technology innovation in this country.  Univerisity organizations worked together to present the view of the universities.  Two basic objectives: wanted to support those proposals that would enhance the US patent systems' ability to produce innovation, and wanted to support those proposals that would enhance the ability to licensed.  Very much shaped by 2004 NAS report. 

First to invent to first inventor to file – three conditions: (1) effective grace period; (2) continuation of provisional applications; (3) strong inventor declaration (?)  Worked with Congress on these. 

Patent certainty – university inventions inherently have uncertainty because of their early stage nature; adding other uncertainty further complicates that uncertainty.  Problem with statutory instructions on damages is that they would become a cost of doing business rather than something else. 

Strongly supported the new post-grant proceedure.  Agrees with others about the estoppel provision.  Concern that with the estoppel provision, the procedure won't be used. But very concerned about proposals for second window, additional post-grant challenge that would allow a broad capacity to challenge patents throughout their life.  This was viewed as making patents more uncertain, which would make them harder to license.  Compromise: revised and changed inter partes.

Debate over prior user rights.  Pre-AIA, only applied to business methods.  University community hated prior user rights – viewed it as a circumvention of the patent quid-pro-quo.  But at the end of patent reform, prior user rights was one of the primary obstacles at the end.  They worked out a compromise – a substantial expansion of prior user rights that sufficiently protect universities. 

Viewed as accomplishments: FtF – will be helpful to everyone.  Post-grant review – great, problem with estoppel.  Third party submisison of prior art – very helpful.  Enhanced fee setting – very helpful, wished better anti-fee diversion language.  Supplemental examination – very helpful, better to get rid of inequitable conduct altogether.  Scope of grace period – concern over how it will actually be interpreted.