Tag Archives: IPR

Post-PTO Trials: Party must Prove Injury-in-Fact for Appellate Standing

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Phigenix v. ImmunoGen (Fed. Cir. 2017)

In this case, the patentee ImmunoGen won its case before the Patent Trial & Appeal Board (PTAB) with a judgment that the challenged claims are not obvious.  U.S. Patent No. 8,337,856. Phigenix appealed, but the appellate court has dismissed the case for lack of standing – holding that the challenger-appellant failed provide “sufficient proof establishing that it has suffered an injury in fact.”

Article III of the U.S. Constitution provides for federal judicial power over “cases [and] controversies.”  Although not found in the text, the Supreme Court requires existence of an “actual” conflict between the parties — thus prohibiting the courts from issuing advisory opinions.  The doctrine of standing requires that a plaintiff/appellant “have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the [defendant/appellee], (3) that is likely to be redressed by a favorable judicial decision.” (quoting Spokeo (2016)).  As a Constitional limit on judicial power, standing must always exist during a lawsuit and may be raised sua sponte by a trial or appellate court.

The case here began with Phigenix’ filing its inter partes review (IPR) petition.  Since the PTO/PTAB is an administrative agency empowered by statute and Article I of the Constitution, its power is not limited by Article III.  Thus, for IPR petitions, the PTO Director need not concern herself with the question of whether the petitioner has standing in the Federal Courts sense.  When the case is appealed, however, the appellant must provide the required proof of injury.

In this case, Phigenix is something of a competitor of the patentee ImmunoGen and, although Phigenix does not plan to use the patented invention itself (at this point the company is only a licensor), the appellant argues that the existence of the patent makes ImmunoGen a stronger market competitor – leading to actual economic injury. In the appeal, the Federal Circuit suggests that the injury might be sufficient – but that Phigenix failed to prove its existence.

The conclusory statements in the Gold Declaration and the [attorney] letter as to the hypothetical licensing injury therefore do not satisfy the requirements of Rule 56(c)(4).

Without providing the evidence of injury, the court could not hear the case.   The court also reiterated its prior position that the right-to-appeal created by 35 U.S.C. 141(c) does not replace the standing requirement. See Lujan and Consumer Watchdog.

 

 

Wi-Fi One v. Broadcom: Mine-Runs and Shenanigans in Inter Partes Review

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by Dennis Crouch

Wi-Fi One v. Broadcom (Fed. Cir. 2017)

First en banc order of the year: the Federal Circuit will review the following question:

Should this court overrule Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015) and hold that judicial review is available for a patent owner to challenge the PTO’s determination that the petitioner satisfied the timeliness requirement of 35 U.S.C. § 315(b) governing the filing of petitions for inter partes review?

en banc order. Briefs of amicus curiae may be filed without consent.

One Year Filing Deadline: Section 315(b) creates a statute of limitations for inter partes review proceedings – indicating that the petition for IPR must be filed within one-year of “the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.”  Here, Wi-Fi argues that Broadcom was in privity with entities involved in parallel district court litigation involving challenged patents — creating a time bar under 315(b).

The PTAB rejected Wi-Fi’s argument and call for discovery on the issue — holding that the “privy” requirement could only be met if Broadcom had the right to control the District Court litigation.

No Appeal: On appeal, the Federal Circuit affirmed – holding Section 314(d) prohibits appellate review of the institution issue.  In particular Section 314(d) states that

The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.

In Achates, the court ruled that the one-year-deadline determination is an institution decision – “even if such assessment is reconsidered during the merits phase of proceedins and restated as part of the Board’s final written decision.”

In the background stands the 2016 Supreme Court decision in Cuozzo.  In that case, the Supreme Court gave effect to the no-appeal provision of 314(d).  However, the Supreme Court noted that unusual questions – such as constitutional questions – might still be appealable.  The foundation for the en banc review decision will be its interpretation of the following Cuozzo excerpts:

We conclude that [314(d)], though it may not bar consideration of a constitutional question, for example, does bar judicial review of the kind of mine-run claim at issue here, involving the Patent Office’s decision to institute inter partes review. . . .

Nevertheless, in light of §314(d)’s own text and the presumption favoring review, we emphasize that our interpretation applies where the grounds for attacking the decision to institute inter partes review consist of questions that are closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review. See §314(d) (barring appeals of “determinations . . . to initiate an inter partes review under this section” (emphasis added)). This means that we need not, and do not, decide the precise effect of §314(d) on appeals that implicate constitutional questions, that depend on other less closely related statutes, or that present other questions of interpretation that reach, in terms of scope and impact, well beyond “this section.” . . .  Thus, contrary to the dissent’s suggestion, we do not categorically preclude review of a final decision where a petition fails to give “sufficient notice” such that there is a due process problem with the entire proceeding, nor does our interpretation enable the agency to act outside its statutory limits by, for example, canceling a patent claim for “indefiniteness under §112” in inter partes review. Such “shenanigans” may be properly reviewable in the context of §319 and under the Administrative Procedure Act, which enables reviewing courts to “set aside agency action” that is “contrary to constitutional right,” “in excess of statutory jurisdiction,” or “arbitrary [and] capricious.”

The question then for court is whether we have a shenanigan here.

 

 

When is the PTO’s claim construction “reasonable”?

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dagostinoimageD’Agostino v. Mastercard (Fed. Cir. 2016)

John D’Agostino’s patents cover processes for creating limited-use transaction codes to improve credit card security. U.S. Patent Nos. 7,840,486 and 8,036,988.  The approach basically keeps the card number out of the hands of the merchant (where most scamming occurs).  After being sued for infringement, MasterCard filed for inter partes review and successfully challenged many of the claims as obvious and anticipated by Cohen (U.S. Patent No. 6,422,462). On appeal, however, the Federal Circuit has vacated – holding that the PTAB’s claim interpretation was unreasonable.

Claim construction continues its reign as a messy hairball.  Rather than looking to the “proper” claim construction as defined by Phillips v. AWH, the PTAB defines claims according to their Broadest Reasonable Construction (BRI). That approach largely follows Phillips, but allows the PTO to select the “broadest” construction for any given limitation from the potential set of reasonable constructions.  The express intent here is to broaden the claims in order to make it easier to invalidate them during the IPR process. The idea then is that claims which survive the IPR-scope-puffery-gauntlet will be strong – giving confidence to judges and juries and fear into the hearts of infringers.

Reasonable is a Question of Law: In most areas of law ‘reasonableness‘ is considered a factual conclusion and conclusions regarding reasonableness are given deference on appeal.  The Federal Circuit however has ruled that the reasonableness of claim construction in the BRI context is reviewed de novo on appeal. Unfortunately, the court has not provided much helpful guidance in terms of knowing when a given construction is reasonable.  Their koan states that – although the BRI construction need not be the correct interpretation, the chosen BRI construction may not be “a legally incorrect interpretation.” (Quoting Skvorecz 2009).

Here, the question was whether the claims required a temporal separation between two communications.  The PTAB said no – since it was not expressly required and broadened the claims.   On appeal, the court looked at the claims and found that the express language did in fact require two separate communications: A first request that occurs “prior to” the merchant being identified  and then a second communication that includes the merchant ID.  According to the court, the PTAB’s interpretation (allowing for a single communication) was simply not reasonable.

On remand, the PTAB will decide whether the prior art the claim elements as they are more narrowly defined.

= = = = =

PTO Bound by its own Prior Construction?: Interesting issue ducked by the Federal Circuit involved the prior reexam of the patent where the PTO expressly narrowly construed the same claim scope. Court did not remark on the patentee’s suggestion here that PTO should be bound by its prior express constructions.  Seems reasonable to me.

 

The “Right” to Challenge a Patent

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by Dennis Crouch

The Supreme Court in Lear, Inc. v. Adkins (1969) held that a licensee can challenge a patent’s validity — overruling the prior presumption of licensee estoppel found by Automatic Radio Mfg. v. Hazeltine Research (1950).

In his recent article, Antitrust Economist (and lawyer) Erik Hovenkamp argues that the “right to challenge a patent” should also be an important consideration in antitrust analysis.  Hovenkamp defines these “challenge rights” as “the (statutory) rights of third parties to challenge patents as invalid or uninfringed.” Antitrust comes into play when a license or settlement agreement includes challenge restraints that would contractually prevent the exercise of the challenge rights.

There are obvious collateral problems with the way that Hovenkamp identifies the ability to challenge a patent as a “right” – especially if we call it a property right. However, for antitrust-contract consideration, forbearing the ability-to-challenge at least fits the definition of a legal detriment incurred by the promisee.

Although patent licenses are entitled to substantial safe harbor from antitrust regulations, Hovenkamp argues that challenge restraints should not be so entitled “but rather exist within antitrust’s domain” and barred when impermissible anticompetitive.

A problem with the argument is the way that Hovenkamp lumps-together validity and non-infringement challenges as roughly equivalent.  However, I see the two as substantially distinct.

Read the Paper: Challenge Restraints and the Scope of the Patent

The contractual waiver of challenge rights has risen in importance since the Supreme Court’s decision in MedImmune (2007) (licensee retains right to challenge patent without breaching) and creation of the Inter Partes Review system following enactment of the AIA (2011).  Prior to the availability of IPRs (and CBM/PRG), settlement of an infringement lawsuit would effectively preclude later validity challenges even without specific contractual terms. (Res Judicata).  However, those estoppel principles do not apply the same way in AIA proceedings.

What it takes to Prove a Motivation to Combine

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by Dennis Crouch

In re NuVasive (Fed. Cir. 2016)

In an important obviousness decision, the Federal Circuit has reversed the PTAB IPR decision – holding that the PTAB failed to sufficiently explain its ruling that a person having ordinary skill in the art (PHOSITA) would have been motivated to combine the prior art teachings to create the patented invention.  Although expressing its intent to follow KSR, the court here comes closer to trodding upon that (oft maligned) precedent.

The case involves an Inter Partes Review (IPR) challenge of NuVasive’s spinal fusion implant patent (U.S. Patent No. 8,361,156).  The claims require that the implants include, inter alia, radiopaque markers on the medial plane. The PTAB found the claims invalid as obvious based upon a collection of prior art references related to spinal fusion.

Doctrine of Obviousness: A claim is invalid if the differences between the prior art and the claim (considered “as a whole”) would have been obvious to PHOSITA considering the issue at the time the invention was made.  35 U.S.C. § 103.

Motivation to Combine: In many US obviousness cases, each of the claim limitations are found in some form within the body of prior art imputed to PHOSITA and the obviousness question becomes whether it would have been obvious to combine those references to form the claimed invention. In KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007), the Supreme Court held that the motivation to combine references need not be found expressly in the prior art itself but may be explained by the fact finder using common sense.  Still, the KSR Court wrote that it “can be important to identify a reason that would have prompted [PHOSITA] to combine the elements in the way the claimed new invention does.”  Extending that decion, the Federal Circuit ruled that the PTAB must (1) “articulate a reason why a PHOSITA would combine the prior art references”; (2) have an adequate evidentiary basis for that finding; and (3) provide a “satisfactory explanation” for the motivation finding that includes an express and “rational” connection with the evidence presented.  See, In re Lee (conclusory statements are insufficient); Cutsforth v. MotivePower (must positively explain motivation – not just reject arguments against motivation); and Arendi v. Apple (PTAB “cannot rely solely on common knowledge or common sense to support its findings” of motivation).

Here, the basic question is whether it would have been obvious to combine prior art teaching the spinal fusion implant with references showing the use and importance of radiopaque markers in implants.  However, according to the appellate panel, “the PTAB failed to explain the reason why a PHOSITA would have been motivated to modify [the prior art], to place radiopaque markers ‘proximate to said medial plane'” as required by the challenged claims.

After discrediting the PTAB decision, the court also looked at the evidence presented by the challenger Medtronic.  Medtronic’s expert had explained that the motivation for adding the additional markers would be to provide surgens with “additional information” and that it would have been common sense to add the additional markers.

Medtronic’s arguments amount to nothing more than conclusory statements that a PHOSITA would have been motivated to combine the prior art references to obtain additional information.  According to the court, these “arguments amount to nothing more than conclusory statements” and thus should not be credited.  One key reference did explain that the medial markers were beneficial during the alignment process.  However, the Federal Circuit rejected that reference because it was published after the patent-in-question’s priority date and not cited in the prior art references.  Because they came after the priority date, the court found that the motivation “could not have been obtained . . . at the time of the invention.”

The Federal Circuit and Appeals from the Patent Office

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By Jason Rantanen

As expected, for the fiscal year ending on October 31, 2016, the Federal Circuit docketed more appeals arising from the U.S. Patent and Trademark Office than from the district courts.  This result will almost certainly hold true for the calendar year as well: from January through October of this year, the Federal Circuit received 471 appeals arising from the district courts and 560 appeals arising from the PTO.

The below chart is an updated version of a chart I’ve posted before.  It shows the annual number of appeals docketed at the Federal Circuit per fiscal year (which runs from the beginning of October to the end of September.

Appeals filed at CAFC (Fiscal Year)

Changes over smaller periods of time:  To get a sense of whether appeals from the PTO are continuing to rise, I created a chart of the number of appeals arising from the PTO on a monthly basis.  Although there’s substantial  month-to-month variation, the overall trend for the last year does not suggest to me that the appeals from this source are continuing to increase.  However they remain at a much higher level as compared with the period before 2014.

Appeals filed at CAFC (monthly)

Makeup of appeals arising from the PTO: Using data from the USPTO’s annual Performance and Accountability Report, I constructed the below pie charts to illustrate how the composition of appeals from the PTO has changed over the last several years.  These graphs provide a vivid image of how dramatically that composition has changed in a short period of time.

2012 appeals from PTO2014 appeals from PTO2016 appeals from PTO

Note that this data is not an exact reflection of the appeals that reach the Federal Circuit due to a few limitations in the underlying reported data.  In particular, there are a handful of appeals (my understanding is <10) that might be counted in multiple years due to the way the data is reported for 2016.  In addition, the data is reported for all appeals to federal appellate courts, not just appeals to the Federal Circuit.  Due to variations in appeal pathway, a handful will end up in the regional circuits (especially trademark cases for which review is sought in the district court.  Pro-Football v. Blackhorse is an example).

What will the future bring? Going forward, I’d expect the number of appeals arising from the PTO to decline to some—but not a great—extent.   Data from the USPTO’s annual Performance and Accountability Report indicates that the number of newly filed inter partes review proceedings has remained roughly constant over since 2014, with 1310 cases filed in FY 2014, 1737 cases filed in FY 2015, and 1565 cases filed during FY 2016.   (Source: USPTO Performance and Accountability Reports, Table 15).  Since most of the appeals are from inter partes review proceedings (as there are relatively few of the other types of inter partes proceedings), a modest decline in the broader pool will likely result in a modest decline in the subset.  In addition, as attorneys obtain greater information about the probability of outcomes at the Federal Circuit, it is likely that appeals will fall as parties choose not to incur the expense of an appeal, at least in cases at the extreme.

Microsoft v. Enfish: Turns Out the Claims Are Obvious

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This is a discussion of the new Federal Circuit Decision Microsoft v. Enfish appealing a PTAB final decision.

In the prior parallel decision – Enfish v. Microsoft, 822 F.3d 1327 (Fed. Cir. 2016), the Federal Circuit reversed a district court ruling that Enfish’s asserted software claims were ineligible under § 101 and also vacated the lower court’s holding that some of the claims were invalid as anticipated. U.S. Patent Nos. 6,151,604 and 6,163,775 (inventions relating to a “self-referential” database).

Enfish sued Microsoft for infringement in 2012. In addition to its litigation defenses, Microsoft marshaled a collateral attack on the patents with five petitions with the US Patent Office for inter partes review of the ’604 and ’775 patents.

After instituting review, the Patent Trial and Appeal Board found some of the patent claims invalid as anticipated/obvious.  On appeal, PTAB factual findings are generally given deference but legal conclusions are reviewed without deference.  After reviewing the claim construction and rejections, the Federal Circuit affirmed in a non-precedential decision.

Collateral Attacks: These collateral attacks work well to cancel patent claims with obviousness arguments that would have been unlikely to be accepted by a trial court or jury.  This is a pointed example here since the previously rejected district court’s judgment was based upon a more simplistic Section 101 analysis that is easier for the Federal Circuit to overturn.

Not Amenable to Construction:  The most interesting aspect of the decision is hidden in a single sentence statement:  “As to claims 1–26 and 30 of both patents—which are not at issue before us—the Board terminated proceedings after concluding that those claims were not amenable to construction.”

In its final judgment, the Board explained that those claims include a means-plus-function element (“means for configuring said memory according to a logical table“) but that no embodiments of the element were provided in the specification.  And, although a person of skill in the art may know how to construct the element, our 112(f) jurisprudence requires embodiments in the specification and does not allow a patentee to “rely on the knowledge of one skilled in the art to address the deficiencies” See Function Media, LLC v. Google Inc., 708 F.3d 1310 (Fed. Cir. 2013).  The statute states permits means-plus-function claims but also provides a guide for narrowly construing those claims.

35 U.S.C. 112(f) ELEMENT IN CLAIM FOR A COMBINATION.—An element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof.

In both patent prosecution and district court litigation, failure to properly disclose structural embodiments for a means-plus-function limitation results in the claim being held invalid as indefinite since the limitation’s scope cannot be properly construed.  In the inter partes review situation, however, the Board’s power is limited to cancelling patents on novelty or obviousness grounds.  As such, the Board simply terminated the IPR trial with respect to these non-construable claims. The Board writes:

In the circumstance when the specification of the challenged patent lacks sufficient disclosure of structure under 35 U.S.C. § 112, sixth paragraph, the scope of the claims cannot be determined without speculation and, consequently, the differences between the claimed invention and the prior art cannot be ascertained. For the reasons given, we determine that independent claims 1, 11, and 15 are not amenable to construction and, thus, we terminate this proceeding with respect to claims 1, 11, and 15 under 37 C.F.R. § 42.72.

[PTAB Final Decision].

No Appeal of Termination: Neither party appealed the termination, although the Federal Circuit previously held that its appellate jurisdiction over these cases is limited to appeals of “final written decision[s] with respect to the patentability of any patent claim challenged by the petitioner …”  A termination decision was seen as essentially an extension of the institution decision that is not itself appealable.

 

Of course, the original Federal Enfish decision mentioned above also addressed this indefiniteness issue and held that the claims were not indefinite because sufficient structure was disclosed — holding that the scant description was adequate because “the sufficiency of the structure is viewed through the lens of a person of skill in the art and without need to ‘disclose structures well known in the art.’  I guess that this means that those claims are OK.

Federal Circuit Orders PTO to limit business method review trials (CBM) to “financial products or services” since that is the law

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by Dennis Crouch

In Unwired Planet v. Google, the Federal Circuit has vacated a PTAB covered business method decision – holding that the PTO’s definition of a “covered business method” was unduly broad.

The America Invents Act created a powerful set of post-issuance administrative review procedures known generally as AIA trials, including the covered business method (CBM) review. CBM is designed as a transitional proceeding that will sunset in the year 2020 barring congressional action. The most popular form of AIA trial is inter partes review (IPR) that allows for review of any issued patent but is limited to only novelty and obviousness challenges based upon prior art.  CBM review applies to a much narrower set of patents – only “covered business methods” – but those patents can be challenged on almost any patentability ground, including eligibility.  Here, the Board found the challenged claims unpatentable subject matter under section 101.

The term covered business method is particularly defined to include any patent “that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.” AIA § 18(d)(1).  In its implementing rules, the PTO did not further define or explain the CBM definition within its official rules – although the PTO did propose the “incidental” or “complementary” language in its official responses to comments on its proposed rules.  On appeal, the Federal Circuit has rejected the more expansive definition as contrary to the statute.

Here Unwired’s Patent No. 7,203,752 claims a method of using privacy preferences to configure when various applications are permitted to access a wireless device’s location information.  PTAB found CBM claims by noting that businesses may want “to know a wireless device is in its area so relevant advertising may be transmitted.” The PTAB’s finding here was not conjecture but instead came from the patent’s written description.  On appeal, however, the Federal Circuit found the required “financial product or service” link too tenuous.  The court explains:

The Board’s application of the “incidental to” and “complementary to” language from the PTO policy statement instead of the statutory definition renders superfluous the limits Congress placed on the definition of a CBM patent.

The court then provides a few analogies:

The patent for a novel lightbulb that is found to work particularly well in bank vaults does not become a CBM patent because of its incidental or complementary use in banks. Likewise, it cannot be the case that a patent covering a method and corresponding apparatuses becomes a CBM patent because its practice could involve a potential sale of a good or service. All patents, at some level, relate to potential sale of a good or service. Take, for example, a patent for an apparatus for digging ditches. Does the sale of the dirt that results from use of the ditch digger render the patent a CBM patent? No, because the claims of the ditch-digging method or apparatus are not directed to “performing data processing or other operations” or “used in the practice, administration, or management of a financial product or service,” as required by the statute. It is not enough that a sale has occurred or may occur, or even that the specification speculates such a potential sale might occur.

The decision here thus appears to eliminate any chance that the patent will be considered a CBM and thus the Section 101 decision by the PTAB goes away.

No Appeal? Like IPR proceedings, CBM proceedings begin with an initiation decision followed by a trial decision.  And, like IPR proceedings, the decision to initiate a CBM is not appealable.  In Versata, however, the Federal Circuit held that the initiation question of whether a patent is a CBM patent may be reviewed on appeal.  Despite the statutory language and the intervening Supreme Court decision in Cuozzo, the court here held that it still has jurisdiction to review the CBM initiation question on appeal.

Deference: In reviewing the PTAB determination, the court gave no deference to the Board’s interpretation of the law. “We review the Board’s statutory interpretation de novo.”  The Court also gave no deference to the PTO’s “policy statement” made in its notice of final rules.  The court does implicitly suggest – as it did in Versata – that implementation of a more thorough definition in the CFR rules would be given deference. However, the PTO has not taken that approach.

I do not know yet whether Google will push this case to the Supreme Court.  The strongest argument is that Cuozzo implicitly overruled Versata. That is the holding suggested by Alito’s dissenting interpretation of the Cuozzo majority.

 

Partial-Institution Decisions Blessed by En Banc Federal Circuit

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SAS v ComplementSoft (Fed. Cir. 2016)

Today, the Federal Circuit denied SAS’s en banc request challenging the USPTO’s approach to partial-institution of inter partes review petitions.  In a substantial number of cases, the PTO only partially agrees with the IPR petition and thus grants a trial on only some of the challenged claims.  In the present case, for instance, SAS’s IPR Petition challenged all of the claims (1-16) found in ComplementSoft’s Patent No. 7,110,936, but the Director (via the Board) instituted review only on claims 1 and 3-10.

The statute seems to side with SAS: The Board “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner” 35 U.S.C. § 318(a).  However, the appellate panel in this case (following prior precedent) held that “Section 318(a) only requires the Board to address claims as to which review was granted.”

In its petition, SAS wrotes:

Because § 318(a) is clear and unambiguous in requiring a final written decision as to “any patent claim challenged by the petitioner,” the PTO had no authority to adopt a contrary rule authorizing IPRs “to proceed on all or some of the challenged claims,” 37 C.F.R. § 42.108(a). Regardless of efficiency or workload concerns, the PTO’s rulemaking authority “does not include a power to revise clear statutory terms.” Utility Air Regulatory Grp. v. Environmental Protection Agency, 134 S. Ct. 2427, 2446 (2014).

In what appears to be a 10-1 decision, the Federal Circuit has denied SAS’s petition for en banc review.  Although the majority offered no opinion, Judge Newman did offer her dissent (as she did in the original panel decision).

 

 

 

SCA Hygiene Laches Oral Arguments: How Do we Interpret Congressional Silence?

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Today the Supreme Court heard oral arguments in SCA Hygiene v. First Quality with the following question presented:

Whether and to what extent the defense of laches may bar a claim for patent infringement brought within the Patent Act’s six-year statutory limitations period, 35 U.S.C. § 286.

Sitting in the background is the Supreme Court’s parallel copyright decision in Petrella v. MGM (2014) holding that the doctrine of laches cannot bar a claim for legal damages brought within the three-year statutory limitations of copyright law. In its opinion, the Federal Circuit distinguished Petrella – finding that in this situation patents should be treated differently than copyrights.

Martin Black (Dechert) argued for petitioner-patentee SCA Hygiene and suggested that Petrella paves the way: “There is nothing in the Patent Act which compels the creation of a unique patent law rule, and if the Court were to create an exception here, that would invite litigation in the lower courts over a wide range of Federal statutes.”

According to Black, the focus should be on the statute – and the statute does not provide for laches. Further, section 286 is entitled “Time Limitation on Damages” — that is the section that should be applied when determining whether a patentee unduly delayed its enforcement.

Mr. Black: Laches has never been applied in the face of the Federal statute of limitations. The Court looked at that issue exhaustively in Petrella and could not find Respondents one single example.

Petrella was decided 6-3 and with Justice Scalia’s death the result would be 5-3.  Justice Breyer dissented then and indicated in oral argument “Just to repeat, I’m still dissenting.”

Mr. Waxman, representing the accused infringer in this case (who won on laches) began by highlighting the background of the 1952 Patent Act — “This Court has repeatedly recognized that the 1952 Patent Act sought to retain and reflect patent law as it then existed.”  And, at that time (1952), laches was thought to be an available defense.

Mr. Waxman: The question  in this case is what Congress understood the patent law doctrine was in 1952. And we think that there is a literal mountain of cases. Every single case that was decided in any court at any level from 1897 when the six-year damages cap was put into place until today, with the exception of one district court decision in Massachusetts which demonstrably misapplied the two authorities that it cited, every single case has recognized that — that laches was a defense in an appropriate case to claims for damages. And no case has ever said or suggested to the contrary.

CHIEF JUSTICE ROBERTS: That mountain of cases were in equity, right? . . .  that’s where your mountain becomes a mole hill, right? . . .

Mr. Waxman: But the point I’m trying to make — and if I make no other point, please let me not be misunderstood here — Congress in 1952 simply continued in haec verba the statute that had existed on the books since it was put in on the equity side in 1897. And there were — whether it is a mountain, a mole hill, or a mesa, all of the — okay. Never mind. I’ll just stick with mountain or mole hill. All of the — I mean, I — I don’t think — I hope I live long enough to have another case where I can come to Court and say, all of the case law that decide — that examine this question, all of which was adjudicating the applicability of laches to claims of damages alongside the six-year damages limitation provision, all of them recognize that laches existed comfortably alongside that provision. And there is nothing really anomalous about that.

 

The difference then, according to Waxman, between patents and copyright is not really found in the statutory text itself but instead emanates from the history and congressional sense at the times of enactment.  For patents, the background law allowed laches and congress intended to implement that background law in 1952.

Mr. Black disagreed with the state-of-the-law:

So it was in front of Congress in 1952 with three things. This Court’s precedent that said that  laches could not be used to bar legal relief. You had the merger of law and equity in 1938 which scrambled all the eggs. You had the 1946 Lanham Act, which also went through the committee on patents and copyrights where they specifically included the word “laches” in the statute. And you had the abolition of the remedy that parties had been seeking as the primary means of monetary relief in patent law for 60 years. There is no way that you can look at that, that fact, and get around it by pointing to a book, a treatise, which, by the way, does not have a section in it on unenforceability.

A practical problem with eliminating laches is the lying-in-wait scenario — do we allow a patentee to simply wait for years until the defendant is locked-in and then sue? Mr. Black argued that Congress offered a solution — concerned third parties can file a declaratory judgment action or else a petition for inter partes review.   Black also argued that the lying-in-wait scenerio doesn’t happen in practice because the patent term ends too soon (unlike in copyright law).  The discussion also entered into patent trolls and the FTC recent report.  Mr. Black argued that “The companies that get hurt by [Laches] are operating companies who don’t like to sue and therefore wait until they have to [while] patent trolls . . . have to sue to monetize.”

In re Aqua: Ambiguity in the Statute Means Deference to the PTO

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In re Aqua (Fed. Cir. 2016)

In its newly filed brief in this pending en banc case, the USPTO sets forth the three statutory provisions of 35 U.S.C. § 316 that are related to amendment practice in an Inter Partes Review (IPR) proceedings: §§ 316(a)(9); (d)(1); and (e). [Aqua Products–PTO brief.] Taking them out of order: Section (d) allows for one motion to amend; Section (a)(9) gives the PTO broad regulatory authority to set the standards and procedures associated with the motion to amend; and finally Section (e) indicates that petitioner has the burden of proving unpatentability. The friction between these sections may not be inherent to the statute, but arose when the PTO created the rule that the patentee must prove patentability of any amended claim before the motion will be allowed. The patentee argues in Aqua that the PTO approach is contrary to § 316(e) while the PTO argues that its approach is allowed by the broad rule-making-authority granted by § 316(a)(9).

316(a) Regulations. —The Director shall prescribe regulations— (9) setting forth standards and procedures for allowing the patent owner to move to amend the patent under subsection (d).

316(d) Amendment of the Patent.— (1) In general.—During an [IPR], the patent owner may file 1 motion to amend the patent in 1 or more of the following ways:(A) Cancel any challenged patent claim; (B) For each challenged claim, propose a reasonable number of substitute claims.

316(e) Evidentiary Standards.— In an inter partes review instituted under this chapter, the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.

In its brief, the PTO explains that assigning burdens associated with the motion to amend is a “standard” expressly falling within its rulemaking authority and thus must be granted deference by the Federal Circuit on appeal. That portion of the argument appears clearly correct. The difficulty for the PTO comes into play in distinguishing Section 316(e) — its best and first argument is that the provision does not expressly discuss amendments: “For one thing, § 316(e) never mentions amended claims.” The PTO goes on to argue that 316(e)’s implicit focus is on burden’s associated with claims-at-issue and not proposed claims. “§ 316(e) speaks only to the petitioner’s burden of proving the unpatentability of existing claims; it does not specify who has the burden of proving the patentability of new, never-before-examined substitute claims.”

The brief also takes the interesting tack of walking through the amici filings and pointing out that none of them fully agree on the meaning of the supposedly unambiguous Section 316(e).  If the section is seen as ambiguous, then the PTO’s deference level kicks-in once again.

Any amicus brief supporting the USPTO petition will be due by November 2, 2016 with oral arguments set before the entire court on December 9, 2016.

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More Reading:

 

In re Aqua: Amending Claims Post Grant in an IPR

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The only pending en banc patent case before the Federal Circuit is In re Aqua Products (Appeal No. 15-1177) involving claim amendments during inter partes review.  The Patent Statute contemplates claim amendments as a possibility but not a right — notably, 35 U.S.C. 316(d) states that “the patent owner may file 1 motion to amend the patent” with additional motions to amend permitted in limited situations.  The scope of amendment is also limited to (A) cancelling challenged claims and (B) proposing “a reasonable number of substitute claims” that do not “enlarge the scope of the claims of the patent or introduce new matter.”

In its implementation regulations, the USPTO interpreted the right to a motion as something much less than a right to amend and required, inter alia, that the patentee provide evidence that any proposed substitute claims be patentable over the known prior art. See Idle Free Sys., Inc. v. Bergstrom, Inc., IPR2012–00027, 2013 WL 5947697 (PTAB June 11, 2013).

 

The short panel opinion in Aqua the Federal Circuit reaffirmed the USPTO’s tightly restrictive approach – following its own prior holdings. See, for example, Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292, 1307−08 (Fed. Cir. 2015).

The underlying case involves a self-propelled robotic swimming pool cleaner that uses an internal pump both as a vacuum cleaner and as the propulsion system.   U.S. Patent No. 8,273,183.  After the IPR was initiated, Aqua moved to amend three of the claims to include the limitations found in the claims that had not been challenged. In particular, the patentee asked to substitute claims 1, 8, and 20 with claims 22-24 respectively.  The new claims included a set of new limitations, including a propulsion “vector limitation” that required a jet stream configured to create a downward vector force rear of the front wheels.  This appeared to be a reasonable request that would move the case toward conclusion, and the PTAB agreed that these new claims satisfied the formal requirements of Section 316(d).   However, the PTAB refused to allow the amendment – holding that the patentee had failed to show that the amended claims were sufficiently beyond the prior art.

In rejecting the amendment motion, the PTAB did not conduct a fully obviousness analysis, but instead focused on the new elements and considered whether the patentee had shown those elements to render the claim valid over the prior art.  Defending that approach on appeal, the Agency has defiantly argued that its rules regarding amendments and its application of those rules are both reasonable and entitled to substantial deference from the Court of Appeals.

Thus, the pending en banc questions focus on this stance:

1) In an IPR, when the patent owner moves to amend claims under 35 U.S.C. § 316(d), may the USPTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims?

2) When the petitioner in an IPR does not challenge the patentability of proposed amended claims or the Board finds the challenge inadequate, may the Board raise a patentability challenge on its own, and if so, where would the burdens lie?

Although prior Federal Circuit cases have supported the PTAB approach, the September 2016 decision in Veritas Tech v. Veeam Software (Fed. Cir. 2016) reversed that trend.  In that case, the court held that the PTAB had acted in an arbitrary and capricious manner by denying the patentee’s motion to amend its challenged claims after failing to discuss each added feature separately.

The top-side briefs have been filed in the case with Amicus support for petitioner:

  • [AquaRehearingBriefPatentee]
  • [AquaRehearingBriefPhRMA] [AquaRehearingBriefCWRU] [AquaRehearingBriefAmiciTop]
  • IPO (Section 316(e) applies here and places the burden of proving a proposition of unpatentability onto the petitioner, not the patentee.)
  • AIPLA (The current amendment practice “does not provide patent owners with the fair and meaningful opportunity to amend claims that Congress envisioned”.)
  • PhRMA (Amendments are very important to patentees)
  • BIO (PTO may not impose any burden of proving patentability in an IPR process. Rather, the focus is on unpatentability – and that burden is upon the petitioner.)
  • Case Western Law Clinic (Although the PTO has rulemaking authority in this area, it exceeds that authority by ceding authority to the administrative patent judges.)
  • Houston IP Law Ass’n (The very small number of successful motions to amend reveals a problem.)

The PTO Brief along with any amicus in support are due over the next two weeks.

 

Medtronic: On Rehearing the Court Restates that IPR Termination Decision is Not Appealable

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by Dennis Crouch

On rehearing in Medtronic v. Robert Bosch, the Federal Circuit panel has reaffirmed its earlier determining that the PTAB’s vacatur of an IPR institution decision is a decision as to “whether to institute an inter partes review” and therefore is “final and nonappealable.”  The original Medtronic decision had been released prior to Cuozzo v. Lee (2016) and the rehearing decision now explains that “nothing in Cuozzo is to the contrary.”

Although I continue to cringe at the prospect of no appeal, the decision here makes logical sense based upon the statutory and procedural structure. Here, the termination decision was based upon the petitioner’s failure to identify all real parties at interest — a core requirement of a complete petition.  Base upon that failure, the Board determined that the petitions were incomplete and therefore “cannot be considered.”  With that conclusion, the Board terminated the petitions and vacated the prior institution decisions.   In this framework, it makes sense for the termination/vacatur to be a decision on institution and thus not subject to appeal.  I could imagine a different scenario where the PTAB terminates an IPR based upon some other ground that is not a petition requirement — such as failure to prosecute or improper post-institution attorney conduct. In that hypothetical situation, the termination would be substantially divorced from the institution and – in my view – would no longer fall under the no-appeal requirement.

An additional difficulty with all of this stems from the pending Ethicon petition and the difference between action by the Director and action by the PTAB.  The statute separates the roles – indicating that the PTO Director’s role is in determining “whether to institute” an IPR.  Under the statute, the PTAB then steps in to conduct the trial.  Those separate roles were then combined by PTO regulation which states “The Board institutes the trial on behalf of the Director.” 37 CFR 42.4.   A question – unanswered in this case – is whether the Director’s regulatory delegation above should be interpreted to also extend to vacating and terminating petitions.  I’m not sure that it does. 

TC Heartland Law Professor Amicus Brief

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In TC Heartland, the accused infringer has asked the Supreme Court to reset the law of venue and give effect to the statutory statement that infringement actions be brought either (1) “in the judicial district where the defendant resides” or (2)” where the defendant has committed acts of infringement and has a regular and established place of business.”  28 U.S.C. § 1400(b).   In its 1957 Fourco decision, the Supreme Court affirmatively answered this question.  However, Fourco has been undermined by subsequent Federal Circuit decisions.  Thus, the question presented again is the same as what was originally asked in Fourco: “Whether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by 28 U.S.C. § 1391(c).”

From a policy perspective, the case is seen as a vehicle for defendants who do not like being sued in the Eastern District of Texas and into more venues perceived as more defendant friendly.

A group of 50+ law and economics professors led by Mark Lemley, Colleen Chien, Brian Love, and Arti Rai have filed an important brief in support of the TC Heartland petition that I have copied below.  Their position is (1) the Federal Circuit has erred on interpreting the law; and (2) the permissive venue result has fueled many of the problems of our patent system.

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INTEREST OF AMICI[1]

Amici are 53 professors and researchers of law and economics at universities throughout the United States. We have no personal interest in the outcome of this case, but a professional interest in seeing patent law develop in a way that encourages innovation and creativity as efficiently as possible.

SUMMARY OF ARGUMENT

28 U.S.C. § 1400(b) provides that a defendant in a patent case may be sued where the defendant is incorporated or has a regular and established place of business and has infringed the patent. This Court made clear in Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 223 (1957), that those were the only permissible venues for a patent case.  But the Federal Circuit has rejected Fourco and the plain meaning of § 1400(b), instead permitting a patent plaintiff to file suit against a defendant anywhere there is personal jurisdiction over that defendant.  The result has been rampant forum shopping, particularly by patent trolls. 44% of 2015 patent lawsuits were filed in a single district: the Eastern District of Texas, a forum with plaintiff-friendly rules and practices, and where few of the defendants are incorporated or have established places of business.  And an estimated 86% of 2015 patent cases were filed somewhere other than the jurisdictions specified in the statute. Colleen V. Chien & Michael Risch, Recalibrating Patent Venue, Santa Clara Univ. Legal Studies Research Paper No. 10-1 (Sept. 1, 2016), Table 3. This Court should grant certiorari to review the meaning of 28 U.S.C. § 1400(b) because the Federal Circuit’s dubious interpretation of the statute plays an outsized and detrimental role, both legally and economically, in the patent system.

ARGUMENT

1. The Federal Circuit’s Expansive and Incorrect Interpretation of 28 U.S.C. § 1400(b) Allows Patentholders to Sue Anywhere in the Nation

Section 48 of the Judiciary Act of 1897 limited jurisdiction in patent cases to districts that the defendant inhabited or had a place of business and committed infringing acts. Act of March 3, 1897, c. 395, 29 Stat. 695. In 1942, this Court confirmed that “Congress did not intend the Act of 1897 to dovetail with the general provisions relating to the venue of civil suits, but rather that it alone should control venue in patent infringement proceedings.” Stonite Prods. Co. v. Melvin Lloyd Co., 315 U.S. 561, 563 (1942).

In 1948, Congress enacted 28 U.S.C. § 1400(b), specifying that “patent venue is proper in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” In 1957, this Court confirmed that patent venue should not be interpreted with reference to the general jurisdiction statute, holding that “28 U.S.C. 1400(b) . . . is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. 1391(c).” Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 223 (1957).

In 1990, the Federal Circuit declined to apply this Court’s longstanding precedent and decided that the general venue statute should define interpretation of the patent venue statute.  It made this decision on the basis of a ministerial change Congress made in 1988 to 28 U.S.C. § 1391. VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1583 (Fed. Cir. 1990). That statutory language changed the wording in 28 U.S.C. § 1391, from defining residence “for venue purposes” to defining residence “for purposes of venue under this chapter.” There was no indication that Congress intended this change to impact the patent venue statute.

The Federal Circuit’s conclusion that Congress’s ministerial change overruled this Court’s longstanding precedent is incorrect for at least two reasons.  First, it violates fundamental rules of statutory construction.  It is well-established that Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes.” Whitman v. American Trucking Assns., Inc., 531 U.S. 457, 468 (2001) (citing MCI Telecomm. Corp. v. American Tel. & Tel. Co., 512 U.S. 218, 231 (1994); FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159-60 (2000)).

Second, the Federal Circuit’s interpretation renders the second half of § 1400(b) largely superfluous.  That section provides:

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

The term “resides” in § 1400(b) must mean something different than having “a regular and established place of business.” Otherwise, there would have been no reason to include both provisions in the venue statute, or to link them through the disjunctive term “or.”  In Brunette, this Court, interpreting 28 U.S.C. § 1400(b) as well as 28 U.S.C. § 1391(d), confirmed that where a corporation “resides” is where it is incorporated. Brunette Mach. Works v. Kockum Indus., 406 U.S. 706, n.2 (1972).

Instead of parsing § 1400(b) carefully, the Federal Circuit has chosen to read the § 1391(c)(2) definition of corporate residence for general venue purposes into the specific patent venue provision.  In relevant part, § 1391(c)(2) provides that corporate defendants:

shall be deemed to reside . . . in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question . . . .

For patent infringement cases, the relevant aspect of personal jurisdiction is typically specific jurisdiction, which focuses on whether the defendant’s suit-related conduct establishes a “substantial connection” with the judicial forum in question.  Walden v. Fiore, 134 S.Ct. 1115, 1121 (2014).  But a corporation will have established a suit-related “substantial connection” with, and thus be subject to jurisdiction in, any district in which it “has committed acts of infringement and has a regular and established place of business.” So the Federal Circuit’s decision to read the § 1391(c) definition of “resid[ing]” into § 1400(b) renders the second half of the latter section superfluous as to corporations, a category which includes virtually all patent defendants.  A judicial reading that renders half of a statutory provision superfluous is strongly disfavored.  United States v. Jicarilla Apache Nation, 131 S.Ct. 2313, 2330 (2011) (“‘As our cases have noted in the past, we are hesitant to adopt an interpretation of a congressional enactment which renders superfluous another portion of that same law.’” (quoting Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 837 (1988))); Babbitt v. Sweet Home Chapter of Communities for a Great Oregon, 515 U.S. 687, 698 (1995) (noting “[a] reluctance to treat statutory terms as surplusage”).

The Federal Circuit’s expansive, and we believe incorrect, interpretation of 28 U.S.C. § 1400(b) effectively allows patent owners to file suit in any federal district where an allegedly infringing product is sold.  In re TC Heartland, LLC, No. 2016-105, at 10 (Fed. Cir. Apr. 29, 2016) (holding that jurisdiction is proper in a patent suit “where a nonresident defendant purposefully shipped accused products into the forum through an established distribution channel and the cause of action for patent infringement was alleged to arise out of those activities”).  The widespread availability of products over the internet means, in effect, that patentholders can bring their suits in any district in any state in the country.

2. Permissive Venue has Fueled and Enabled Forum Shopping and Selling, Patent Trolls, and Case Concentration

The Federal Circuit’s expansive interpretation of 28 U.S.C. §1400(b) has harmed the patent system in three distinct ways. It has led to forum selling and forum shopping, it has contributed to the growth of opportunistic patent litigation by patent trolls, and it has led to undue case concentration.

Patent lawyers today spend a great deal of time figuring out the best districts in which to file patent cases, and for good reason. The district in which you file your patent case has consequences for how much your case will cost, how long it will last, and whether you will prevail in court. Mark A. Lemley, Where to File Your Patent Case, 38 AIPLA Q.J. 401 (2010); Brian J. Love & James C. Yoon, Predictably Expensive: A Critical Look at Patent Litigation in the Eastern District of Texas, Stan. Tech. L. Rev. ___ (forthcoming, 2016).

The choice of venue enabled by the Federal Circuit’s liberal interpretation of the statute has created an incentive for courts to differentiate themselves in order to compete for litigants and “sell” their forum to prospective plaintiffs. See J. Jonas Anderson, Court Competition for Patent Cases, 163 U. Pa. L. Rev. 631 (2015); Daniel M. Klerman & Greg Reilly, Forum Selling, 89 S. Cal. L. Rev. 241 (2016).

Among district courts, the Eastern District of Texas is the clear forum of choice for patent plaintiffs. It has been the most popular venue for patent cases in eight of the last ten years. Chien & Risch, supra at 3.  Whether intentionally or not, judges in the Eastern District of Texas have adopted rules and practices relating to case assignment, joinder, discovery, transfer, and summary judgment that attract patent plaintiffs to their district. Klerman & Reilly, supra; Matthew Sag, IP Litigation in U.S. District Courts: 1994-2014, 101 Iowa L. Rev. 1065 (2016) (detailing evidence of “forum selling” and five advantages to plaintiffs of filing suit in the Eastern District of Texas).

A study of all patent cases filed from 2014 to June 2016 quantifies some of the advantages. Love & Yoon, supra.  Compared to their colleagues across the nation, judges in the Eastern District of Texas take 150 additional days on average to rule on motions to transfer, id. at 15, and are 10 percentage points less likely to stay the case in favor of an expert adjudication on the validity of the patent by Patent and Trademark Office (PTO) in inter partes review, id. at 26., despite the fact that patents asserted in the Eastern District of Texas are challenged in inter partes review more often than patents asserted in any other district. Saurabh Vishnubhakat, Arti Rai, & Jay Kesan, Strategic Decision Making in Dual PTAB and District Court Proceedings, 31 Berkeley Tech. Law J. 45, 109 (2016).  At the same time, judges in the Eastern District of Texas have adopted discovery rules that begin earlier, end sooner, and require broader disclosure than just about anywhere else in the country. Love and Yoon, supra at 19-22 (comparing discovery and other pretrial deadlines applicable in the Eastern District of Texas and District of Delaware).  In combination, relatively early and broad discovery requirements and relatively late rulings on motions to transfer ensure that defendants sued in the Eastern District of Texas will be forced to incur large discovery costs, regardless of the case’s connection to the venue.

However, not all types of plaintiffs choose to take advantage of the leverage that these rules and procedures make possible.  Patent assertion entities (PAEs), or patent “trolls” use patents primarily to gain licensing fees rather than to commercialize or transfer technology. Colleen V. Chien, From Arms Race to Marketplace: The Complex Patent Ecosystem and Its Implications for the Patent System, 62 Hastings L.J. 297 (2010) Trolls make particular use of the advantages provided by the Federal Circuit’s permissive approach to forum shopping. Since 2014, over 90 percent of patent suits brought in the Eastern District of Texas were filed by trolls established for the purpose of litigating patent suits.  Love & Yoon, supra at 9. By contrast, operating companies, individuals, and universities are more likely to sue in other districts.  Chien & Risch, supra at 3-4, 40.

The troll business model explains this difference in behavior. As the FTC’s recent report describes, “litigation PAEs” sign licenses that are “less than the lower bounds of early stage litigation costs,” a finding “consistent with nuisance litigation, in which defendant companies decide to settle based on the cost of litigation rather than the likelihood of their infringement.” Federal Trade Commission, Patent Assertion Entity Activity: An FTC Study, https://www.ftc.gov/reports/patent-assertion-entity-activity-ftc-study.   Rather than a decision on the merits and damages commensurate with the value of patented technology, litigation PAEs instead seek to leverage the high cost of litigation to coerce nuisance-value settlements keyed not to the merits of the lawsuit, but the cost of litigation.  Mark A. Lemley & A. Douglas Melamed, Missing the Forest for the Trolls, 113 Colum. L. Rev. 2117 (2013). Further, unlike operating companies that sell products, litigation PAEs generally lack customers and regular operations and therefore have the flexibility to incorporate and file suit based solely on litigation considerations, through shell companies or otherwise.

While forum shopping in general impairs the operation of law, disadvantages those who lack the resources to engage in forum shopping, and creates economic waste, Jeanne C. Fromer, Patentography, 85 N.Y.U. L. Rev. 1444, 1464-1465 (2010), the rise of the troll business model exacerbates these problems in patent litigation, creating a particularly urgent need for the Court to hear this case. This Court has previously warned against the problems of abusive patent litigation.  More than a century ago, it worried about the rise of “a class of speculative schemers who make it their business to watch the advancing wave of improvement, and gather its foam in the form of patented monopolies, which enable them to lay a heavy tax upon the industry of the country, without contributing anything to the real advancement of the arts.”  Atlantic Works v. Brady, 107 U.S. 192, 200 (1883).  And in Commil v. Cisco, this Court said:

The Court is well aware that an “industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.” eBay Inc. v. MercExchange, L. L. C., 547 U. S. 388, 396 (2006) (KENNEDY, J., concurring). Some companies may use patents as a sword to go after defendants for money, even when their claims are frivolous.

576  U.S. __, 135 S.Ct. 1920 (2015).

Because troll suits now dominate patent litigation nationwide, their filing patterns have led to an overall concentration of 44% of all patent cases in the Eastern District of Texas in 2015. Among cases initiated 2014 through 2016, one U.S. District Judge on the Eastern District of Texas—Judge Rodney Gilstrap of Marshall, Texas—was assigned almost one quarter of all patent case filings nationwide, more than the total number of patent cases assigned to all federal judges in California, New York, and Florida combined.[2]

This level of concentration is a problem for the legal system whatever one thinks of the decisions of the Eastern District of Texas and regardless of how fair and capable the judges there are. Simply from a logistical standpoint, the current caseload in the Eastern District of Texas is problematic.  If even 10 percent of the 1,686 patent cases assigned to Judge Gilstrap in 2015 go to trial, he will need to preside over three to four patent trials per week every week for an entire year to avoid creating a backlog.

Further, when Congress decided to consolidate patent appeals in the newly-created United States Court of Appeals for the Federal Circuit, it deliberately chose to include both appeals from the United States Patent and Trademark Office and the district courts, so the new court would not hear only appeals from patent owners.  And it considered and rejected proposals to create a specialized district court to hear patent cases.  But the Federal Circuit’s interpretation of § 1400(b) has in practice created just such a court.

The current distribution of patent litigation filings is the result of strategic behavior by a specific type of patent enforcer, not an artifact of proximity to the original locus of invention or alleged infringement. Forum-shopping plaintiffs will naturally gravitate towards whatever district seems to have the most favorable rules. The effect of the Federal Circuit’s decision to expand patent venue beyond the scope of the statute and this Court’s decisions has been to create a de-facto specialized patent trial court, one chosen by litigants on one side rather than by Congress.

CONCLUSION

The Federal Circuit’s permissive venue rule has fundamentally shaped the landscape of patent litigation in ways that harm the patent system, by enabling extensive forum shopping and forum selling, supporting opportunistic patent litigation by patent trolls, and creating undue case concentration.  This Court should grant certiorari in order to curb abuse of venue based on its misinterpretation of § 1400(b).

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[1] No person other than the amici and their counsel participated in the writing of this brief or made a financial contribution to the brief. Letters signifying the parties’ consent to the filing of this brief are on file with the Court.

[2] According to Lex Machina, between January 1, 2014 and June 30, 2016 Judge Gilstrap was assigned 3,166 new patent suits, more than the combined total of all district courts in California, Florida, and New York: 2,656. Love & Yoon, supra, at 5 (collecting these statistics).

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Signed, Professor John R. Allison (Texas); Professor Margo Bagley (Emory); Professor James Bessen (BU); Professor Jeremy Bock (Memphis); Professor Daniel H. Brean (Akron); Professor Michael A. Carrier (Rutgers); Professor Michael W. Carroll (American); Professor Bernard Chao (Denver); Professor Tun-Jen Chiang (George Mason); Professor Colleen V. Chien (Santa Clara); Professor Andrew Chin (UNC); Professor Robert Cook-Deegan (ASU); Professor Rochelle Dreyfuss (NYU); Dr. Dieter Ernst (Honolulu); Professor Robin C. Feldman (Hastings); Professor Lee Fleming (Berkeley); Professor Brian Frye (Kentucky); Professor William Gallagher (Golden Gate); Professor Shubha Ghosh (Wisconsin); Professor Eric Goldman (Santa Clara); Professor Bronwyn H. Hall (Berkeley); Professor Yaniv Heled (Georgia State); Professor Christian Helmers (Santa Clara); Professor Joachim Henkel (Technische Universität München); Professor Susan Helper (CWRU); Professor Tim Holbrook (Emory); Professor Herbert Hovenkamp (Iowa); Professor William Hubbard (Baltimore); Dr. Xavier Jaravel (Stanford); Professor Dennis S. Karjala (ASU); Professor Peter Lee (UC Davis); Professor Mark A. Lemley (Stanford); Professor David K. Levine (WashU); Professor David S. Levine (Elon); Professor Doug Lichtman (UCLA); Professor Yvette Joy Liebesman (SLU); Professor Orly Lobel (USD); Professor Brian Love (Santa Clara); Professor Phil Malone (Stanford); Professor Michael J. Meurer (BU); Dr. Shawn Miller (Stanford); Professor Matthew Mitchell (Toronto); Professor Susan Barbieri Montgomery (Northeastern); Professor Sean Pager (Michigan State); Professor Arti K. Rai (Duke); Professor Jacob H. Rooksby (Duquesne); Professor Jorge R. Roig (Charleston); Professor Matthew Sag (Loyola Chicago); Professor Pamela Samuelson (Berkeley); Ana Santos Rutschman (DePaul); Professor Lea Bishop Shaver (Indiana); Professor John L. Turner (Georgia); Professor Jennifer Urban (Berkeley); Professor Eric von Hippel (MIT).

One Last Try: Is the Inter Partes Review system Unconstitutional?

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Cooper v. Square is the final pending constitutional challenge to the inter partes and post grant review proceedings created by Congress in the America Invents Act of 2011 and briefing in the case is now complete.

In the final reply brief in the petition process, Cooper explains how this case is a good vehicle for the challenge:

This case is the only one left of three that raised a facial constitutional challenge to inter partes review (IPR). This Court relisted in Cooper v. Lee, No. 15-955, and MCM Portfolio v. HP, No. 15-1330, before denying cert on October 11, 2016. This case is distinct from both of those, and far more amenable to adjudication by this Court. This case does not have the vehicle problem identified by the federal respondent in Cooper v. Lee (since this case arises directly from an agency final decision, whereas Cooper v. Lee arose from a collateral proceeding). And this case does not seek the extreme constitutional remedies of the petitioner in MCM Portfolio (since this case seeks relief in the form of making IPR outcomes advisory, not in the form of annihilating an entire section of a federal agency).

In its responsive brief Square argued that Cooper waived his constitutional argument by not repeatedly raising the issue.  The Cooper brief does a nice job of explaining the errors in that conclusion.

Patent Academic Ray Mercado also took advantage of the request for a responsive brief to file an amicus brief. Mercado argues that patents should be seen as “private rights” and therefore cannot be administratively cancelled.  He writes: “Once the historical uniqueness of patent law is taken into account, it is clear that patents are ‘private rights’ for purposes of this Court’s separation of powers jurisprudence, and their validity must be decided by Article III courts.”

Supreme Court Update: Extending the ITC’s Reach Beyond US Borders

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by Dennis Crouch

Constitutional Challenge to Inter Partes Review: Although the Constitutional issues in Cooper v. Lee and MCM v. HP were law-professor-interesting, they were not substantial enough for certiorari.  The Supreme Court has now denied the Cooper and MCM petitions — leaving the IPR regime unchanged.  Although Cooper v. Square is still pending, its chances are slight. The Supreme Court has also denied certiorari in Encyclopaedia Britannica (malpractice), Gnosis (appellate review), and GeoTag (case-or-controversy).

A new 101 Challenge: In its first conference of the term, the Supreme Court denied all of the pending petitions regarding patent eligibility.  However, Trading Technologies has filed a new petition asking whether a new card game is categorically unpatentable so long as it uses a standard deck (rather than a novel deck) of cards.  My post on the case asks: Does the Patent Statute Cabin-in the Abstract Idea Exception?  That question references Section 100 of the Patent Act that expressly allows for the patenting of new use of a known manufacture.

Extra Territoriality of Trade Secrecy Law: On the trade secrecy front, Sino Legend has petitioned to review the Federal Circuit’s affirmance of the International Trade Commision’s ban on Legend’s importation of rubber resins used for tire production. The underlying bad-act was a trade secret misappropriation that occurred in China and the question on appeal asks: Whether Section 337(a)(1)(A) permits the ITC to adjudicate claims regarding trade secret misappropriation alleged to have occurred outside the United States.  A Chinese court looked at the same case and found no misappropriation.

Design Patent Damages: Oral arguments were held earlier this week in Samsung v. Apple. During the arguments, all parties agreed that (1) the statute does not allow for apportionment of damages but rather requires profit disgorgement; (2) the article-of-manufacture from which profits can be calculated may be a component of the product sold to consumers; and (3) the determination of what counts as the article-of-manufacture is a question of fact to be determined by the jury.   The only dispute then was on the factors that a jury should be considered and when the “inside gears” of a product should ever be included in the calculation.

Upcoming Supreme Court Oral Argument: SCA Hygiene (laches) on November 1; Star Athletica (copyright of cheerleader outfit) on October 31.

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Fees Rising: USPTO Proposes New Fees in Search of New Revenue

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The USPTO has issued a notice of proposed rulemaking (NPRM) on patent and PTAB fees with the goal of raising revenue in order to improve patent quality and examination timeliness. Public comments are due by December 2, 2016.

The proposal includes:

  • Major increase in inter partes review fees – from $23,000 to $30,500 (petition + institution).  Similar increases for PGR and CBM.
  • Large fee increase for patent applications with > 3 independent claims or > 20 dependent claims
  • Large fee increase for design patent search, examination, and issue fees — hopefully the PTO will increase its quality on that front.
  • New fee for sequence listing submissions of > 300 MB ($1000) and > 800 MB ($10,000).
  • Ex parte appeals +25% (up to $3,500)
  • Standard fees for utility applications are relatively steady => only about 10% increase.

 

Read More and Comment:

Ethicon v. Covidien: Delegation of Institution Decisions to the PTAB

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Ethicon has filed its expected petition for writ of certiorari challenging the USPTO’s delegation of IPR Institution Decisions to the Patent Trial and Appeal Board.  I wrote about the case earlier:

The newly filed petition argues pure statutory interpretation:

Whether the [AIA] permits the Patent Trial and Appeal Board instead of the Director to make inter partes review institution decisions.

The setup: The statute requires “The Director” to “determine whether to institute.” 35 U.S.C. § 314(b).  Under the statute, the PTAB picks up its role after institution in order to “conduct each inter partes review instituted under this chapter,” § 316(c).  Rather than making the determinations herself, the PTO issued a rule that the PTAB makes the institution decisions “on behalf of the Director.” 37 C.F.R. § 42.4(a).

Although the statute does not expressly prevent the Director from delegating her authority, Ethicon argues that the statute should be interpreted in light of the “longstanding policy of separation-of-functions whereby adjudicatory officers inside an agency (such as administrative law judges or, here, administrative patent judges) are insulated from discretionary executive functions.”  Of course, the Director does not have to personally do all the work – The idea here though is that it is impermissible to delegate policy issues to the administrative patent judges.  And, the AIA is clear that the institution decision is at least partially based upon policy and institutional competency determinations.

Read the Petition: Ethicon Petition for Certiorari 

In the background, patentees see the separation of institution from trial as a mechanism for getting two-bites at the apple.

 

Traditional equitable defenses do not apply to IPR proceedings

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Husky Injection Molding v. Athena Automation (Fed. Cir. 2016)

Referring to the headline. The PTAB (acting on behalf of the PTO Director) held that traditional equitable defenses do not apply to IPR proceedings.  Because this holding was made as part of an IPR institution decision, the appeal was dismissed for lack of jurisdiction. 

The case here is interesting because Husky’s former owner (Schad) is the founder of competitor Athena.  Schad is also co-inventor of Husky’s U.S. Patent No. 7,670,536 – that Schad’s company challenged in an IPR proceedings.  The PTAB ultimately found some of the challenged claims valid and cancelled others.

On appeal Husky argues that assignor estoppel bars the IPR proceeding.  The PTAB rejected that contention – holding that traditional equitable defenses do not apply to IPR proceedings.  Athena v. Husky, IPR No. 2013-00290 (P.T.A.B. Oct. 25, 2013) (Institution Decision on behalf of the Director).    On appeal, the Federal Circuit dismissed — holding that the institution decision is not appealable. 35 U.S.C. 314(d) (“The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.”); Although the Supreme Court in Cuozzo suggested that some appeals of institution decisions may be available.  Here, however, the court rejected the idea of venturing into that abyss:

[Prior cases] establish a two-part inquiry for determining whether we may review a particular challenge to the decision whether to institute. First, we must determine whether the challenge at issue is “closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review,” or if it instead “implicate[s] constitutional questions,” “depend[s] on other less closely related statutes,” or “present[s] other questions of interpretation that reach, in terms of scope and impact,” “well beyond ‘this section.’” Cuozzo.  If the latter, our authority to review the decision to institute appears unfettered. But if the former, § 314(d) forbids our review. One further exception remains, however. At the second step of the inquiry, we must ask if, despite the challenge being grounded in a “statute closely related to that decision to institute,” it is nevertheless directed to the Board’s ultimate invalidation authority with respect to a specific patent. Id.; see also Versata; and Achates. If so, we may review the challenge.

After rejecting Husky’s challenge of the institution decision, the Federal Circuit moved to Athena’s appeal.

Incorporation by Reference: Athena challenged the portion of the Board’s opinion finding some of the claims not anticipated.  The basic issue is that the prior art (Glaesener – U.S. Patent Pub. No. 2004-0208950) did not itself disclose all of the claimed elements.  However Glaesener referred particularly to a prior patent (Choi): noting that Choi described “pineapple and toothed-ring mechanism” and in a separate paragraph stating that “All cross-referenced patents and application[s] referred to in this specification are hereby incorporated by reference.”  The combination of Choi and Glaesener do (arguably) teach all of the claim element but the Board refused to treat them as a single document despite the incorporation by reference. On appeal, the Federal Circuit has vacated that holding.

The standard:

A host document incorporates material by reference if it “identif[ies] with detailed particularity what specific material it incorporates and clearly indicate[s] where that material is found in the various documents.” Advanced Display Sys., Inc. v. Kent State Univ., 212 F.3d 1272 (Fed. Cir. 2000). . . .  In making such a determination, we assess whether a skilled artisan would understand the host document to describe with sufficient particularity the material to be incorporated [giving no deference on appeal].  . . . [Thus t]he incorporation standard relies only on the reasonably skilled artisan and his or her ability to deduce from language, however imprecise, what a host document aims to incorporate

Here, the court found sufficient particularity to incorporate Choi by reference – noting that PHOSITA would “appreciate Glaesener’s reference of ‘pineapple and toothed-ring’ to describe, with sufficient particularity” the securing assemblies in Choi. “To find otherwise would be to undervalue the knowledge of a skilled artisan.”  On remand, the Board will need to re-evaluate anticipation based upon Glaesener now expanded by Choi.

Obviousness does not Require Prior Art to Fit Together Exactly

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ClassCo v. Apple (Fed. Cir. 2016)

In response to being sued for patent infringement, Apple filed for inter partes reexamination of ClassCo’s Patent No. 6,970,695. That litigation (originally filed in 2011) has been stayed pending the resolution here.  Although the patent had survived a prior reexamination, this time the Examiner rejected the majority of the patent claims as obvious; the PTAB affirmed those rejections; and the Federal Circuit has now re-affirmed.

The patent relates to a “caller announcement” system that uses a phone’s speaker (rather than screen or separate speaker) to announce caller identity information.  The system includes a “memory storage” that stores identify information being announced.

The examiner identified the prior art as U.S. Patent No. 4,894,861 (Fujioka) that teaches all of the claimed elements (of representative claim 2) except for use of the phone’s regular audio speaker (rather than a separate speaker) to announce a caller’s identity (claimed as the “audio transducer”).  A second prior art reference was then identified as U.S. Patent No. 5,199,064 (Gulick) that taught the use of the audio transducer for providing a variety of call related alerts.

On appeal, ClassCo argued that the combination of Fujioka and Gulick was unreasonable because it would involve changing the function of the known elements.  The Federal Circuit disagreed writing that:

KSR does not require that a combination only unite old elements without changing their respective functions. . . . Instead, KSR teaches that ‘[a] person of ordinary skill is also a person of ordinary creativity, not an automaton.’ And it explains that the ordinary artisan recognizes ‘that familiar items may have obvious uses beyond their primary purposes, and in many cases a person of ordinary skill will be able to fit the teachings of multiple patents together like pieces of a puzzle.

Slip opinion at 8 (quoting KSR).  The court goes on to explain that a combination of known elements can be obvious even the elements don’t fit perfectly together like puzzle pieces.  Rather, the approach is “flexible” in its pursuit of determining whether the combination would have been “predictable” – i.e., obvious.

Although KSR rejected a strict application of a motivation-to-combine, the court consistently required at least an explanation of that motivation.  Here, the court found that “substantial evidence” supports the PTO conclusions since some of the benefits were suggested by both prior art references.

Secondary Indicia: During reexamination, ClassCo had also presented evidence of industry praise for its products covered by the patent.  That evidence was disregarded by the PTO as, inter alia, not commiserate commensurate with the scope of the claims. 🙂 In particular, the Board noted that the industry praised particular embodiments but did not praise other potential embodiments. On appeal, the Federal Circuit rejected those conclusions.  The court found that some of the evidence praised ClassCo features that were not available in the prior art and that were “within the scope” of the representative claims.

[T]he Board found the evidence not commensurate in scope with these claims on the ground that they are too broad, encompassing other embodiments. But “we do not require a patentee to produce objective evidence of nonobviousness for every potential embodiment of the claim.” Rambus. Rather, “we have consistently held that a patent applicant ‘need not sell every conceivable embodiment of the claims in order to rely upon evidence of [objective indicia of nonobviousness].’” In re Glatt Air Techniques, 630 F.3d 1026 (Fed. Cir. 2011) (quoting In re DBC, 545 F.3d 1373 (Fed. Cir. 2008)).

Although the Board erred in its approach to objective indica, that was harmless error since the prior art evidence was strong. “We nonetheless agree that the value this evidence possesses in establishing nonobviousness is not strong in comparison to the findings and evidence regarding the prior art under the first three Graham factors.”  Obviousness affirmed.

Although a different product, the following ClassCo video review is a fun throw-back: