- Global Dossier has now been released (November 2015).
- USPTO Collected over $3 billion in user fees in FY2015. That figure was below budget. Spending limit is around $3.5 billion, but is limited by revenue. As a benchmark, in FY2010 USPTO collected $2.1 billion in revenue.
- USPTO is proposing increase in fees
- Ex parte prosecution: filing fee up $120 (filing+search+exam) to $1,720; Independent claims (more than three) up $40 to $460; RCE up $300 to $1,500 or $2,000 for 2nd+ RCE; late IDS – $300 after First Action; $600 after Notice of Allowance; Notice of Appeal – up $200 to $1,000; Appeal – up $500 to $2,500; However, no proposed increase in maintenance fees or extension-of-time fees.
- Post Grant: Inter partes review up $7,500 to $30,500 (request + institution fee); Decrease in fee – reduced fee for reexaminations with <45 pages.
- Median first action pendency is now 17-months.
- Design patent filings continue to steadily rise – as does the backlog of unexamined design patent applications.
- USPTO Ex Parte Appeals Backlog Continues to Decline – down to 21,000 pending appeals.
Tag Archives: IPR
Cuozzo Amicus Briefs from IPO, AIPLA, BIO, et al., all arguing against Broadest Reasonable Interpretation of Claims During IPR proceedings
By Dennis Crouch
Following a 6-5 split by the Federal Circuit, Cuozzo filed a petition for writ of certiorari – asking two important questions (as paraphrased by me):
- During a post-issuance inter partes review (IPR) proceeding, is it proper for the Patent Trial & Appeal Board (PTAB) to construe claims according to their “broadest reasonable interpretation” rather than their proper construction being applied in court?
- Is the PTAB’s decision whether to institute an IPR proceeding judicially unreviewable even if the PTAB exceeds its statutory authority in instituting the IPR?
See Cuozzo Takes IPR Challenge to the Supreme Court.
Eight different friend-of-the-court briefs have now been filed and the U.S. Government’s responsive brief is due December 9, 2015.
The majority of the briefs focus solely on the claim construction issue and make three basic arguments:
- Policy: IPRs are designed as validity judgments rather than a new examination of the patent; and claim amendments are almost always prohibited. Because IPRs are acting in parallel with court proceedings, the different standards create instability and uncertainty while using the same claim construction as an infringement-court would promote efficiency. All this undermines the PTO’s reasons justifying application of BRI construction rather than standard construction.
- Deference: Congress did not give the PTO rulemaking authority to decide to implement BRI in these Inter Partes Review proceedings and as a result, the agency’s interpretation should not be given administrative law deference.
- Conflict: The broad standard effectively negates the presumption of validity associated with each and every patent right. The broad standard subtly justifies the PTO to avoid the preclusive effect of prior court decisions.
One amicus brief (NYIPLA) also argued that the Federal Circuit should be able to review whether the PTO exceeded its authority in instituting an IPR, despite statutory language stating that the decision is not appealable. NYIPLA argues that the statute simply bars interlocutory appeals, but that the statute does not “narrow the issues that can be raised in an appeal” of a final written decision under §319.
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I’ll note here that none of the briefs at the petition stage raise the MCM/Cooper/Affinity arguments that the whole IPR proceedings are unlawful because “a patent, upon issuance, is not subject to revocation or cancellation by any executive agent, including by any part of the USPTO.” Citing McCormick Harvesting Mach. Co. v. Aultman, 169 U.S. 606 (1898). In McCormick, the Supreme Court wrote:
[W]hen a patent has … had affixed to it the seal of the Patent Office, it has passed beyond the control and jurisdiction of that office, and is not subject to be revoked or cancelled by the President, or any other officer of the Government. It has become the property of the patentee, and as such is entitled to the same legal protection as other property. . . . The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever [without the patentee’s consent], is vested in the courts of the United States, and not in the department which issued the patent.
I would expect that, if the petition here is successful, some parties will file briefs that collaterally attach the IPR framework and to soften the Supreme Court for the eventual petitions.
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Briefs
IPR Appeal: Federal Circuit Tells PTAB to Reject More Claims
Belden v. Berk-Tek (Fed. Cir. 2015) on appeal from IPR2013-00057 (Patent Trial & Appeal Board) .
In an inter partes review appeal, the Federal Circuit has sided with the patent challenger – finding that the PTAB had erred by upholding the patentability of two of Belden’s claims. This case is important largely for its result. The case is also one to be studied for some attempt to tease out the Federal Circuit’s purported legal analysis.
In the IPR of U.S. Patent No. 6,074,503, the PTAB cancelled claims 1-4 as obvious over a combination of prior art references but upheld claims 5-6. In this process, the Federal Circuit must give substantial deference to PTAB factual findings (such as the factual underpinnings of the obviousness analysis) but reviews questions of law (such as the ultimate determination of obviousness) de novo on appeal. Thus, all other things being equal, it is a much less daunting process to base your appeal on an issue of law rather than upon a factual dispute.
In reversing the PTAB’s decision upholding claims 5-6, the Federal Circuit wrote that the Board’s “contrary finding rests on legal errors.” However, the analysis in the analysis that followed, the court appeared to point out a series of incorrect factual conclusions and perhaps suggests that ‘motivation to combine’ should truly be considered a question of law rather than of fact.
There is no meaningful dispute here, and the Board did not deny, that the two pieces of prior art in combination teach or suggest the methods of claims 5 and 6. The dispute concerns motivation to combine. The Petition and the Institution Decision reveal the two related ways in which that issue was presented and considered: whether a skilled artisan would substitute the twisted pairs of CA ’046 into the method of JP ’910; alternatively, whether a skilled artisan making the cable of CA ’046 would look to the JP ’910 method to make it. The brief discussion in the Petition suggests both views of the matter. …
As the Board found, it is “undisputed that CA ’046 discloses ‘a helically twisted cable.’” There is no dispute that the twisted pairs in CA ’046 need to fit into the notches of (i.e., be aligned with) the separator, as shown in the two figures from CA ’046 reproduced above, for the resulting cable to be made. And the Board correctly recognized in its discussion of claims 1 and 2 that JP ’910 clearly teaches the importance of aligning conductors with a separator (core), and suggests doing so with a die to prevent twisting of the separator, before they are all bunched together for twisting in a stranding device. That evidence points clearly toward a motivation of a skilled artisan to arrive at the methods of claims 5 and 6 based on JP ’910 and CA ’046, as the Board reasoned in its preliminary determination in the Institution Decision.
None of the Board’s reasons for concluding otherwise in its Final Written Decision withstands scrutiny through the lens of governing law. The Board’s first reason was that JP ’910 shows only conductors that are not individually insulated, so that “one of ordinary skill…would not have been motivated … simply to substitute twisted pairs of insulated conductors for the bare metal conductors.” But JP ’910 plainly discloses the need to align the conducting wires with the core and how to do so, as the Board recognized in its analysis of claims 1 and 4. The alignment problem and solution do not depend on whether the wires are insulated. The Board’s disregard of the insulation-independent alignment teaching of JP ’910 violates the principle that “[a] reference must be considered for everything it teaches by way of technology and is not limited to the particular invention it is describing and attempting to protect.” EWP Corp. v. Reliance Universal Inc., 755 F.2d 898, 907 (Fed. Cir. 1985) (emphases in original); see In re Applied Materials, Inc., 692 F.3d 1289, 1298 (Fed. Cir. 2012). . . .
The Board, returning to its focus on insulation of individual conductors, further reasoned: “Berk-Tek also has not explained why a person of ordinary skill in the art would have had sufficient reason to use the final jacketing/extrusion step of JP ’910, which serves to insulate electrically the bare-metal conductors of JP ’910, to manufacture a cable comprising twisted pairs of individually insulated conductors that do not require additional electrical insulation.” The Board found no answer to Belden’s statement that the final jacketing step, if the conductors themselves were insulated, would be “‘redundant.’ ” But that logic misconstrues the claim language and overlooks on-point evidence. . . .
In short, the record is one-sided on the proper question of whether JP ’910 taught a solution to the problem of aligning cable components that a skilled artisan would have been motivated to use in making CA ’046’s cables. The Board erred in determining that Berk-Tek had not proven the obviousness of the methods of claims 5 and 6 of the ’503 patent by a preponderance of the evidence.
Read the decision here: http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/14-1575.Opinion.11-3-2015.1.PDF.
Impact of an Inter Partes Review Petition Denial on Willfulness
WARF v. Apple (W.D. Wisconsin 2015)
Following a jury verdict on infringement and validity (October 10) and another verdict on damages awarding $230 million in reasonable royalty (October 19), Judge Conley (W.D.Wisc.) has now quickly disposed of the case by entering judgment in favor of the patentee (WARF) the amount awarded and denying Apple’s motion for judgment as a matter of law. The case is now set for appeal to the Federal Circuit.
During trial the Judge rejected WARF’s willfulness claim – finding that Apple had a pretty good – thought ultimately losing – obviousness argument:
Apple demonstrated at trial that the elements of the asserted claims of the ‘752 patent were all known in the prior art, and many were well-known for those skilled in the art. Indeed, WARF did not meaningfully dispute this. As a result, the only factual dispute as to Apple’s obviousness defense was whether a person of ordinary skill in the art would have combined those elements and had a reasonable chance of doing so successfully.
Under the current requirement of both objectively and subjectively willful behavior, the court found that WARF could not prove with clear and convincing evidence that Apple acted “despite an objectively high likelihood that its actions constituted infringement of a valid patent.”
It turns out that Apple had also presented its obviousness argument to the PTAB in an inter partes review challenge. In that case, the Board refused to grant the IPR petition – finding that Apple “has not shown, under 35 U.S.C. § 314(a), that there is a reasonable likelihood that it will prevail with respect to at least one of the challenged claims.” Back in the lawsuit, Judge Conley rejected WARF’s argument that the PTAB’s denial is relevant. Unfortunately, it appears that the Judge’s ruling is based upon a misunderstanding of PTAB procedure and burdens. In particular, the judge rested his decision upon the incorrect notions that IPR cancellation requires “clear and convincing evidence” and that granting an IPR petition requires proof that the challenger is “likely to prevail” on the merits. The Judge writes:
All PTAB found was that Apple was not likely to prevail on its defense by proving obviousness by clear and convincing evidence. PTAB did not consider whether this defense was objectively reasonable or raised a substantial question. As such, the PTAB finding — like the jury’s finding rejecting the invalidity challenge — does not settle the issue of whether Apple’s defense was objectively reckless.
Of course, the PTAB cancellation is based upon a substantially lower standard – a preponderance of the evidence – not clear and convincing evidence. In addition, the PTAB decision at the petition stage looks only for a “reasonable likelihood” of prevailing rather than simply being “likely” to prevail. (In most cases, the ‘reasonable’ modifier makes it easier to prove a conjecture: compare “certainty” with “reasonable certainty.”)
Although the PTAB decision is not identically written to the willfulness test, it is not clear to me which standard is higher. And, I think that the statistics would play out here to easily show that it is a rare case where a well-pled obviousness argument was rejected by the PTAB at the petition stage and then relied upon by a jury to invalidate a patent.
The comparison:
- In the Inter Partes Review, the Patent Office determined that Apple’s obviousness argument lacked a reasonable likelihood of winning on validity, keeping in mind that the patent is not presumed valid and that obviousness must be proven by only a preponderance of the evidence.
- For willfulness, the patentee must show that an objective observer would perceive a high likelihood that the patent would be found valid (really, not invalid). Since validity is presumed in court challenges, what happens here is that the willfulness burden shifts to the defense to present a obviousness argument strong enough to convince an objective observer that the patentee had less than a high likelihood of winning on validity, keeping in mind the presumption of validity and requirement of clear-and-convincing evidence of obviousness.
I will pause here to apologize for the complexity of the comparison. You can thank the Federal Circuit for creating these tricky rules to replace what has traditionally (and by statute) been a much more open doctrine. The Supreme Court is addressing these issues in Halo and Stryker.
The point here for me is that Apple was unable to pass the petition stage of an IPR – i.e., they did not have a reasonable chance of winning on the lowered standard for invalidity. At least we can say that they had even less of a shot of winning with the same challenge presented in court with the higher burden. In context, this seems to me that the PTAB decision is quite relevant to the question presented here.
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I’ll note here that the district court briefing on the issue was all filed under seal and not available. In addition, the district court has just agreed to seal a large set of trial evidence and demonstrative exhibits. It appears that WARF offered no objection – why would they? Here, at the least the court should order a redaction rather than complete sealing to support the strong public interest in patent cases and in an open court system. See also, Secret Patent Trials are OK; Access to Courts; A Call for Restraint in Sealing Court Records.
Pending Cases at the Supreme Court
As we sit here today, there are no pending patent cases before the Supreme Court where the court has granted certiorari. That said, there are a large number of pending petitions. These include Cuozzo & Pulse that I have previously discussed. WilmerHale has been covering these, but is a few months behind.
The following are a few recently filed petitions:
Teva Follow-On: FiveTech v. SouthCo: (1) Can the Federal Circuit limit the role of the intrinsic evidence in construing patent claims under the exacting “lexicography and disavowal” standard; (2) Does the “lexicography and disavowal” standard improperly circumscribe the objective standard of the person of ordinary skill in the art in construing claim terms.
Teva Follow-On: Chunghwa Picture Tubes v. Eidos: Whether a district court’s factual finding(s) underlying its construction of a patent claim term must be reviewed for clear error under Rule 52(a)(6) as this Court held in Teva, or is an exception created to clear error review where the appellate court finds the intrinsic record clear after a de novo review of that record, as the Federal Circuit held in this case.
Attorney Fees in Copyright:
Kirtsaeng v. John Wiley (Kirtsaeng II): What is the appropriate standard for awarding attorneys’ fees to a prevailing party under § 505 of the Copyright Act?
Omega v. Costco (Costco II): (1) Can Copyright attorney fees be based on a finding that petitioner engaged in copyright misuse when the issue of misuse was appealed but left undecided on appeal? (2) Can the pursuit of a claim of copyright infringement constitute “copyright misuse” when the allegedly infringing copy is a “pictorial, graphic, or sculptural work” that is reproduced in a “useful” article.
Inter Partes Review Challenges:
Automated Merchandising v. Michelle Lee: (1) Must the federal judiciary await the substantive conclusion of an agency proceeding before it can evaluate whether an express statutory limitation on that agency’s jurisdiction requires that agency to terminate its proceeding? (2) Did the Federal Circuit err in refusing to order the USPTO to terminate the subject inter partes reexaminations under 35 U.S.C. § 317(b)?
Luv N’ Care v. Munchkin: Did the Federal Circuit err by affirming a PTAB administrative judgment based on new issues raised sua sponte by the PTAB at the Final Hearing, thus depriving the patent owner of notice and a meaningful opportunity to respond?
ANDA Loophole Cases:
Mylan v. Apotex: (1) Whether Article III’s case or controversy requirement can be satisfied by a suit which seeks a judgment of non-infringement of a disclaimed patent. (2) Whether Congress can create Article III jurisdiction by imposing statutory consequences that turn on obtaining a judgment of non-infringement of a disclaimed patent.
Daiichi Sankyo v. Apotex: Whether an action seeking a declaration judgment of non-infringement presents a justiciable case or controversy under Article III of the Constitution where the patent at issue was previously disclaimed and thus cannot be enforced.
Design Patent Summary Judgment: Butler v. Balkamp: Is summary judgement proper in a District Court when a factual dispute exists in a Design Patent action and the District Court substitutes its own opinion for that of the ordinary observer?
Reasons to Combine and Obviousness: Arthrex v. KFX Medical: (1) Is the “reason to combine” inquiry a subsidiary question of fact, subject to deferential review on appeal, or a legal question for the court, and reviewed de novo. (2) Should the ultimate legal issue of obviousness be resolved by the court rather than submitted to the jury for resolution.
Cuozzo Takes IPR Challenge to the Supreme Court
Cuozzo Speed Tech v. Lee (Supreme Court 2015)
Cuozzo lost its petition for en banc rehearing in a 6-5 split of Federal Circuit judges. Now, the patentee has raised is challenge to the IPR process to the Supreme Court – asking two questions:
- Whether the [Federal Circuit] erred in holding that, in IPR proceedings, the Board may construe claims in an issued patent according to their broadest reasonable interpretation rather than their plain and ordinary meaning.
- Whether the [Federal Circuit] erred in holding that, even if the Board exceeds its statutory authority in instituting an IPR proceeding, the Board’s decision whether to institute an IPR proceeding is judicially unreviewable.
Answers to these questions will fundamentally alter the inter partes review system. The petition does a good job of walking through the importance of the case and then separately explaining their legal argument.
I’m sure that we’ll cover this case more as the briefing moves forward – amici have 30 days to file. Meanwhile, read the petition here: Cuozzo Speed Technologies LLC v Michelle K Lee Petition for a Writ of Certiorari
The Cuozzo petition was filed by a rising star in Supreme Court practice – Jeffrey Wall, who is partner at Sullivan & Cromwell. Wall was a clerk for Justice Thomas and was an Assistant to the Solicitor General for five years. He also has the distinguishing mark of being my law school classmate (as well as Prof. Rantanen).
No Appeal for Errors in Instituting IPR
Achates References v. Apple (Fed. Cir. 2015)
At the conclusion of its Inter Partes Review Proceeding (IPR), the Administrative Patent Trial and Appeal Board (PTAB) concluded that several claims of Achates’ patents were invalid. U.S. Patents No. 5,982,889 (claims 1-4); and No. 6,173,403 (claims 1-12 and 17-19). (more…)
35 U.S. Code § 314 – Institution of inter partes review
(a)Threshold.—
The Director may not authorize an inter partes review to be instituted unless the Director determines that the information presented in the petition filed under section 311 and any response filed under section 313 shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.
(b)Timing.—The Director shall determine whether to institute an inter partes review under this chapter pursuant to a petition filed under section 311 within 3 months after—
(1) receiving a preliminary response to the petition under section 313; or
(2) if no such preliminary response is filed, the last date on which such response may be filed.
(c)Notice.—
The Director shall notify the petitioner and patent owner, in writing, of the Director’s determination under subsection (a), and shall make such notice available to the public as soon as is practicable. Such notice shall include the date on which the review shall commence.
(d)No Appeal.—
The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.
Intervening Rights 2015
R+L Carriers v. Qualcomm (Fed. Cir. 2015)
Here’s the rough timeline:
- R+L sued Qualcomm for infringement;
- R+L then petitioned for ex parte reexamination of its asserted patent, and that filing resulted in the asserted claims being amended and then confirmed as patentable;
- And, before the reexam was completed, Qualcomm stopped its allegedly infringing activity.
The in the case then is whether the amendment during reexamination allows Qualcomm to entirely avoid liability for pre-reexamination acts through a doctrine known as “intervening right.”
Substantially Identical: The Patent Act provides that back-damages for pre-reexamination infringement is only available if the reexamined claims are “substantially identical” to the original claims. This rule stems from the reissue statute, 35 U.S.C. § 252 (a reissued patent shall have the same effect as the original patent “in so far as the claims of the original and reissued patents are substantially identical”) coupled with the reexamination provision, 35 U.S.C. § 307(b) (“a reexamination proceeding will have the same effect as that specified in section 252 for reissued patents”).
The Substantially Identical test is pretty tough standard. Although it does allow for some amendment, an amended claim will basically fail if the scope of covereage is not identical. As interpreted by the courts, the “substantially identical” standard is judged objectively and it is irrelevant as to whether the patentee thought the change was substantial or not.
The changes: The patent here is directed toward a method of “transferring shipping documentation data … from a transporting vehicle to a remote processing center.” In the original patent, R+L had failed to include the word “comprising” and instead just put a colon following the method claim preamble. In addition, the original claims included a final step of preparing “a loading manifest . . . for further transport of the package on another transporting vehicle.” During reexamination, the patentee added the limitations that it is an “advance” loading manifest “document” for “another transport vehicle.” In issuing the reexamination certificate, the USPTO relied upon this last change because the prior art did not include preparing “an advance loading manifest document for another transporting vehicle.”
The Federal Circuit relied upon the examiner’s statements here to interpret the claims – finding that the amendment did change the claim scope:
The examiner expressly stated he was allowing amended claim 1 because “the manifest discussed by [the prior art] is a manifest for the current shipping vehicle and not an advance loading manifest document for another transporting vehicle.” In other words, the examiner’s focus in allowing the claims was … on the additional limitation that the advance loading manifest be “for another transporting vehicle.” … [T]he examiner’s commentary reveals a method that would be covered by original claim 1 but not amended claim 1: the process of preparing a loading manifest “for the current shipping vehicle.”
In its briefing, R+L acknowledges that the claims were allowed over the prior art because it agreed to add the “for another transporting vehicle” limitation. As R+L stated in its interview summary during reexamination, addition of “loading manifest document for another transportation vehicle” resulted in a tentative agreement that the amendment would overcome the rejections over the prior art. … R+L clearly understood that it was limiting the scope of its claims in another way to get around the prior art.
Thus, amended claim 1 is not “substantially identical” to original claim 1 because original claim 1 encompassed scope that amended claim 1 does not. Accordingly, we conclude that amended claim 1 is not “substantially identical” to original claim 1.
As I mentioned earlier, the reasons for the amendment do not directly impact whether the amendment is substantial or not. However, the above quotation from the opinion shows how those reasons do impact the claim construction which will then impact whether the amendment is substantial.
What’s Important about This Case: The intervening rights doctrine discussed here is not new and the results are not surprising once the claims were construed. The real element of importance of this case seems to be claim construction – and particularly, the heavy reliance placed upon the examiner’s statements during prosecution regarding the claim coverage.
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Although reexaminations are on the decline, the PTAB trials are on the rise. Under the AIA, intervening rights will also be generated whenever a patent claim is amended in an inter partes or post grant (including CBM) review. See 35 U.S.C. § 318(c) and 328(c).
Implementing the AIA: First to File Patents
By Dennis Crouch
It is hard for me to believe that the America Invents Act of 2011 is now four-years old. Some changes (Joinder, Fees, e.g.) had fairly immediate impact. Although somewhat slower coming on-line, the new Inter Partes Review and Covered-Business-Method Review systems are now major fixtures in patent enforcement-defense strategies.
The final major element of the AIA is actual implementation of transformation of the prior art rules in 35 U.S.C. 102. The new first-to-file law applies to patent applications having at least one claim whose earliest effective priority filing date is on or after March 16, 2013. In the past 30 months since then, hundreds of thousands of AIA patent applications have been filed – and those are beginning to trickle out as issued patents. I pulled-up the PAIR files for 800+ recently issued patents (from the first two weeks of Sept 2015) and looked at the reported AIA-Status of those patents. (Table 1 below)
| Table 1: | All Patents | Only Patents Filed Post-AIA |
| AIA Patents |
147 |
147 |
| Non-AIA Patents |
721 |
262 |
| Total |
868 |
409 |
| Percent AIA |
17% |
36% |
| 95% CI (+/-) |
3% |
5% |
Of the 868 patents, 147 are “AIA” patents – meaning that none of the claims of the patent (or application) could have effectively an effective filing date before March 16, 2013 (the “AIA-date”). This represents 17% of the total number of patents in my sample and 36% of the number of patents in my sample that were filed after the AIA-date. I also report the 95% confidence interval that is based upon the simple binomial calculation (p(1-p)/n). The chart below considers the same type of data, but uses a time-series stretching back to the beginning of 2015 showing a linear fit to the data.
Where the AIA Status is Defined: My understanding is that the AIA data field in PAIR has been populated as “no” for any application filed prior to the AIA date; populated as “yes” for any application filed after the AIA-date that has no pre-AIA claims for priority or benefit; and finally, for transitional applications filed post-AIA but with a pre-AIA priority claim, populated according to the AIA-question in the Application Data Sheet. [The AIA-status of an application is obviously information material to patentability and so we will likely see some inequitable conduct allegations down the line.]
Not Yet Litigated: Although there are now several thousand AIA patents issued, there have been no court cases yet involving an AIA patent or patent application. Likewise, we have no Post Grant Review (PGR) final decisions and we have no PTAB decisions from ex parte cases involving AIA applications. Those will come, but meanwhile many patent attorneys will continue to operate with some ambiguity regarding how Section 102 will be interpreted going forward. Important big questions: Do non-enabling commercial uses; confidential sales; and confidential offers-to-sell still qualify as invalidating prior art? What activities will count as “otherwise available to the public?” How narrowly will the narrowed grace period of 102(b)(1) be interpreted? (e.g., does the grace period only apply to pre-filing disclosures of the claimed invention itself as suggested by the text or instead can any pre-filing disclosure by or from the inventor qualify?) What is the impact of elimination of Section 102(f)?
Guest Post: Why the (Previously) Improving Economy Likely (Also) Reduced Patent Litigation Rates
Guest Post by Ted Sichelman, Professor of Law and Director of the Technology Entrepreneurship and Intellectual Property Clinic and Center for Intellectual Property Law & Markets at the University of San Diego School of Law, and Shawn Miller, Lecturer in Law and Teaching Fellow in Law, Science & Technology at Stanford Law School
As Patently-O has described in detail (e.g., here and here), patent litigation rates have been in flux over the last several years. First, in 2010, rates nominally went up because of false marking suits. Then, in 2011, following passage of the America Invents Act (AIA), patent litigation rates appeared to increase (and the media made much ado over this). Yet, the only thing that changed immediately after the AIA was how we counted patent litigation numbers because of new joinder rules. Indeed, the AIA’s joinder rules actually lowered total defendant counts a bit. Next came inter partes review (IPR) and covered business method (CBM) review, which appear to have substantially decreased litigation rates in 2013 and 2014. Then came Alice Corp. v. CLS Bank and its progeny, which some have claimed decreased litigation rates throughout 2014. And now rates seem to be back up in 2015—why, nobody is sure.
To further understand the drivers of patent litigation, Alan Marco (Chief Economist at the USPTO) and the two of us recently conducted the first rigorous study of the effects of the economy as a whole (the “macroeconomy”) on patent litigation rates over the period 1970-2009 (we stopped at 2009 to avoid the counting mess I just described). The study will be published this month in the Journal of Empirical Legal Studies (a draft is available here).
As background, we examined changes in the rates of total litigation, litigation per issued patent, and litigation per in-force patent. To do so, we used a new USPTO dataset that provides the most accurate numbers on total in-force patents by year gathered to date. Figure 1 below shows the number of in-force patents between 1971 and 2009 (the vertical bars represent periods of recession).
Figure 1. U.S. In-Force Patents (1971-2009) [from USPTO data].
Figure 2. U.S. Patent Litigation Per In-Force Patent (1971-2009)
(Total Patent Litigation in Gold (with annual filings on left y-axis) and Litigation Per In-Force Patent in Blue (with annual values on right y-axis)).
We then performed numerous time-series regressions against important macroeconomic variables like GDP, R & D spending, interest rates, and related factors, controlling for in-force patents and other key variables. Our major findings (over the last 20-25 years) are as follows:
- In economic upswings (i.e., increasing productivity, low interest rates, low economy-wide financial risk), patent litigation rates generally fall.
- In recessions, whether rates rise or fall depends on the availability of credit.
- When credit is freely available in a downturn, overall patent litigation rates generally rise.
- However, when credit is scarce (like in the most recent recession), overall patent litigation rates generally fall.
We explain the first finding on a “substitution” theory—namely, when selling products and services is highly profitable, companies and investors are less concerned about earning revenue from patent litigation. We speculate that our second finding is driven by the increasing reliance by plaintiffs on external funding. Indeed, the availability of credit has only played a significant role in patent litigation rates since roughly the mid-1990s, when licensing-driven litigation began to rise—first by practicing entities such as IBM and Texas Instruments and, later, by non-practicing entities (NPEs).
Over the last five years, the mean U.S. real GDP growth rate has been about 2-3% per year. Ignoring other factors, and assuming our model applies on a going forward basis since 2009, this increase in productivity has very roughly amounted to a 6-9% decrease in annual patent litigation counts over the same period. In general, it is likely that a sizeable portion of the decrease in patent litigation rates over the last several years has been not merely due to the rise of IPRs and CBMs, and the issuance of Alice Corp. v. CLS Bank, but also to the economy as a whole. So the next time the economy worsens, if credit remains relatively available, all other factors equal, it is likely that patent litigation rates will rise significantly—not by a huge amount, but enough to notice. Whether the current increase in patent litigation is somehow related to a declining macroeconomy, only time will tell.
Please note that the views expressed herein solely express our personal views and do not express the views of the U.S. Patent & Trademark Office.
Obviousness: Despite KSR, Still Tough to Win in Court
Ivera Medical v. Hospira (Fed. Cir. 2015)
On summary judgment, the district court found Ivera’s asserted patent claims invalid as obvious under 35 U.S.C. § 103. On appeal, the Federal Circuit has reversed – finding that Ivera’s submitted expert testimony raised genuine issues of material fact.
Ivera’s patents are directed to a more reliable mechanism for disinfecting connectors (such as an IV port). The idea is basically a screw-on cap full of disinfectant. 
The patented cap at issue here is an improvement on the original idea found in several prior art references. In particular, Ivera added a vent in the cap “to allow evaporation of the cleaning agent from the inner cavity and to inhibit a buildup of pressure in the cap when the cleaning material is compressed by the site of the medical implement.”
Although the primary prior art reference (Hoang) did not disclose the vent limitations, the district court found – as a matter of law on summary judgment – that a person of skill in the art would have recognized the need for a vent to relieve pressure. I suspect that the district court was swayed by the fact that the patent is also under final-rejection in an inter partes reexamination based upon the same prior art reference. On appeal, the Federal Circuit found that the facts were not so clear.
Law of Obviousness:
“A party seeking to invalidate a patent on obviousness grounds must demonstrate by clear and convincing evidence that a skilled artisan would have been motivated to combine the teachings of the prior art references to achieve the claimed invention, and that the skilled artisan would have had a reasonable expectation of success in doing so.” InTouch Techs., Inc. v. VGO Commc’ns, Inc., 751 F.3d 1327 (Fed. Cir. 2014). Determining whether one of ordinary skill in the art would have been motivated to combine the teachings of different references is a flexible inquiry, and the motivation is not required to be found in any particular prior art reference. KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007).
Here, the evidence before the district court included declarations from Huang (the inventor of the prior art) and others explaining how the Ivera idea was a significant invention because it broke with the conventional wisdom of having a fluid tight seal. The appellate court saw these submissions as sufficient to raise a genuine dispute of fact that cannot be resolved on summary judgment.
The panel also noted in passing that the examiner during the inter partes review had refused to consider the same declarations because they were filed late in the process — leading to the implication that – if filed earlier – the declarations might have changed the examiner’s viewpoint. The examiner’s reexamination decisions have been appealed to the PTAB and are awaiting judgment.
This case again highlights the power of expert evidence to explain the invention within the context of the prior art.
= = = = =
I should also note Ivera has a separate infringement case going against Hospira for another cap patent. In that case, the PTAB instituted an IPR (brought by another defendant) that case was settled before final judgment. In a recent determination, the district court ruled on motion-in-limine to exclude evidence of the PTAB’s decision to institute the inter partes review – finding that it has “little probative value” and “would be confusing to the jury and prejudicial.” [OrderInLimine]
PTO Proposed Pilot Program on IPR Initiation
Inter Partes Review (IPR) Trials have become an effective tool for cancelling invalid patent claims that lack novelty or fail the nonobviousness test. The IPR process has two main stages: Institution and Trial. At the institution stage, the Patent Trial and Appeal Board (PTAB) must determine whether the third-party challenge is sufficient enough to warrant a full trial on the merits of the challenge. The institution test outlined by the statute is a “reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.”
One design choice for IPRs is whether the judges who decide to institute the IPR should be kept-on to decide the ultimate merits of the trial. In its initial design of the process, the PTO determined that keeping the same judges provided for both efficiency and internal consistency. Thus, under the current rules, the same three APJs who decide whether to institute a trial also conduct the trial and ultimately decide the trial outcome.
A number of losing-patentees have argued that the process creates an improper bias or implicit presumption against the patentee during the trial stage. The basic idea is that a judge who sides with the challenger at the institution stage will be mentally locked-in to supporting the petitioner’s case and at trial will improperly give the presumption to the challenger rather.
The USPTO is now requesting comments on a proposed pilot program that would address these concerns. In particular, the PTO’s proposal is that the institution decision would be made by a single judge. If that judge decides to institute then the trial would be held before that single judge along with two additional APJs added to the panel who were not previously involved in the decision to institute.
The statute requires the two-step process and also requires a set of three APJs to decide the trial, but gives the USPTO authority to determine additional process elements. There are a host of alternative designs and structures available, such as an entirely new panel.
The PTO’s proposal benefits the PTO by requiring only one judge at the institution stage – likely allowing it to handle more cases. Right now, the PTO is looking for comments on the proposal. If those seem favorable, the PTO is likely to move ahead with a pilot program. Comments to PTABTrialPilot@uspto.gov by October 26, 2015.
I am personally concerned about the initiation decision by a single APJ. Generally, you might think that three-judge panels would offer more consistent decisions because more eccentric judges would be outvoted. However, there are team-project problems that can arise with panel decision making– often one or more panel member can check-out mentally and simply rely upon the decisions by a single judge. I do not know which of these (if either) is more likely with PTAB judges.
New Rules on PTAB Trials
Earlier this year, the USPTO released a set of ‘quick fixes‘ to AIA trial procedures before the Patent Trial and Appeal Board (PTAB) and also promised second package of rule changes. That second package has now been detailed in the USPTO’s Proposed Rule Changes now found in the Federal Register. The proposed rules focus on a number of practical changes to PTAB Trial Procedures:
- Testimonial Evidence (Such as Expert Declarations) in Patent Owner’s Preliminary Response (to be considered but viewed in the light most favorable to the petitioner when determining whether to institute an inter partes review proceeding)
- Claim construction standards for patents about to expire (use actual construction for patents that “will expire” before final judgment rather than broadest-reasonable-interpretation)
- Rule-11 Requirement associated with all papers filed with the PTAB – giving the USPTO “a more robust means with which to police misconduct.”
In her blog-post on the topic, USPTO Director Michelle Lee indicated that the USPTO will also “amend its Office Patent Trial Practice Guide to reflect developments in practice before the Office concerning how the Office handles additional discovery, live testimony, and confidential information.”
As part of the process, Director Lee also offers a “where we stand” set of statistics for the past three years of AIA filings:
- 3,655 petitions, of which 3,277 are IPRs, 368 are CBMs, and 10 are PGRs.
- 63% focus on patents from electrical/computer technology centers (TCs) and only 9% in the the bio/pharma TC.
- Review Institution: Trials have been instituted on 1,389 of 3,277 IPR petitions, 185 of 368 CBM petitions, and 2 of 10 PGR petitions.
- Trial results: 12% of total claims available to be challenged (4,496 of 38,462), were determined by the PTAB to be unpatentable in a final written decision. Other claims were either not challenged, resolved by settlement, cancelled, or upheld as patentable. Of the first IPRs to reach a conclusion, 25% of claims actually challenged (4,496 of 17,675) were found to be unpatentable.
According to Director Lee, the number of petitions is “around three times more” than what were originally expected by Director Kappos.
These statistics fit with those discussed by Richard Bone in his recent post.
Comments on the proposed rules go to trialrules2015@uspto.gov and discussions will be held at the upcoming roadshows: August 24, 2015 in Santa Clara, August 26, 2015 in Dallas, and August 28, 2015 at USPTO HQ.
Guest Post on Conflicting Claims: The Raw Statistics of PTAB Trials
Guest Post by Richard Bone. Mr. Bone is a partner at the VLP Law Group.
The popular view of the PTO’s new AIA reviews, or “patent trials”, is that they have been disproportionately unfavorable to patentees in their outcomes, provoking characterizations such as “patent death squad” for the Patent Trial and Appeal Board (PTAB), the body that administers the trials.
Yet the PTAB’s own statistics paint a different picture: that, in fact, as few as 25% of patent claims challenged are actually held “invalid” by the PTAB, and that figure actually represents only 11% of all of the claims in all of the patents which received at least one AIA challenge. That being the case, patent owners ought to be less fearful than most commentators suggest.
To understand the discrepancy between published statistics and public perception, it’s necessary to dissect the data. Fortunately the PTAB has made various layers of data available on its website. The data is cumulative over all petitions filed from the inception of AIA trials, in September 2012. For all data, the PTAB counts proceedings that have received a final adjudication, whether that be as a result of a settlement, or a request for adverse judgment by the patent owner, or because the PTAB issued a final written decision. Between September 2014 and April 2015, the data was presented on three occasions, as a sequence of bar-graphs condensed into a single graphic. From April 2015, the PTAB has presented the data monthly in a more informative manner, with multiple graphic representations and an accompanying narrative. From both formats, it’s possible to see what is going on, though the numbers mask a number of subtleties.
Just as patents are asserted on a claim by claim basis, so invalidity is adjudicated claim by claim. The overwhelming majority of patent trials to date have been Inter Partes Reviews (IPRs), with almost all of the remainder being “Covered Business Method Reviews” (CBMs). Although the PTAB’s data through January 2015 was presented in aggregate form for the two types of proceeding, the more recent data shows that, statistically, the outcomes of the two types of proceeding are very similar. In both an IPR and a CBM, the petitioner (party challenging the patent) must identify the claims challenged, and advance a ground of invalidity of each. The fee structure for filing an IPR or a CBM includes a challenge to up to 20 claims of a patent, but exacts an additional fee of $200 per claim challenged in excess of 20. Subsequently, if the petition is accepted and trial proceeds, the PTAB levies a further fee of $400 per claim in excess of 15 on which trial is instituted. With this type of fee structure, and accepting that – beyond the filing fees – there is an effort and therefore a cost to prepare a separate argument for each claim challenged, and that there is also an overall page limit for the petition, many petitioners may have been choosy over which claims to challenge. In some cases that choice will have been based on the patent claims asserted in litigation, which need not have been all of the claims in the patent. In others, it will have been based on an assessment that, after demolishing certain well-chosen claims, what remains of the patent is essentially toothless.
So, according to the PTO, through July 2015, in patents for which AIA petitions were filed, 47% of the claims were challenged. This number is little changed from the 45% figure from September 2014. However, the July 2015 numbers, when broken down into the different types of proceedings, show that across all CBMs 58% of patent claims were challenged. This could be because of the longer page limits for CBM petitions (80 pages vs. 60 pages for IPRs) but could equally be because Section 101 challenges are permissible in CBM’s: when arguing invalidity of an independent claim under section 101, it is not significant additional effort to argue invalidity of claims depending from it.
It has to be assumed from the way that the data is characterized that trials recently instituted that have not yet received a final adjudication are not included in the data. Because of the fact that a patent trial typically takes 18 months from filing a petition to issuance of a final written decision, any large scale trend that has happened recently will take some time to be reflected in the PTAB’s cumulative averages.
In any case, just based on claims challenged to date, patent owners could see – on average – patents surviving with more than half of their claims intact, not adjudicated as patentable per se but simply not challenged. Furthermore, the PTAB’s latest charts suggest that the numbers do not include the petitions that were wholly denied, and thus did not result in a trial. Thus, the reported data is based on petitions that resulted in a trial on at least one challenged claim. The statutes governing inter partes review state that trial should only be instituted if “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition”, and this takes into account any preliminary response filed by the patent owner. If the petition was judged not to have met that standard for any claim challenged then trial does not proceed (the petition is “denied”): those claims are not included in the PTAB’s data and hence the overall numbers of surviving claims are actually slightly more favorable to patent owners because trial is not always instituted. It is difficult to calculate this effect precisely because in many instances multiple petitions are filed against a single patent and those several petitions are consolidated into a single proceeding for trial. It is not clear from the PTAB’s data how such petitions that formally do not proceed to trial on their own because they are subsumed into another proceeding are differentiated from those petitions that fall short on all challenged claims and thus lead to no trial on the challenged patent. Nevertheless, comparing fiscal years 2013, 2014, and the first 10 months of 2015, we are seeing a growing number of petitions denied: rising from 14% in 2013 to 32% in 2015, a trend that can only be welcome to patent owners.
The statistics for those claims on which trial is instituted become more complicated, however. As of September last year, the PTO reported that trial was instituted on 66% of challenged claims. By July of this year, that number had dropped slightly to 63% of all challenged claims in all types of petitions: however, CBM’s had an institution rate that was slightly above the average, at 65%.
At this point, looking at the situation from the point of view most favorable to patent owners, trial is only being instituted on 31% of the claims in the patents that have been challenged in an AIA review (and this may be a smaller proportion overall, if it is accepted that a growing number of petitions are being denied outright). It is also fair to say that any claim whose validity was challenged in an IPR or CBM petition and on which trial was not instituted has emerged from that process as a stronger claim, unless the claim escaped that evaluation because the parties entered a settlement even before the PTAB had issued a decision on whether to institute a trial.
Once trial has been instituted, however, patent owners appreciate that the claims proceeding to trial are in considerable jeopardy. For the claims that proceed to trial, the PTAB identifies 4 distinct categories of outcome: held unpatentable (in a final written decision); held patentable (in a final written decision); cancelled (e.g., by patent owner’s amendment), or disclaimed (by patent owner); and “remaining patentable”.
The last of these categories is perhaps the most controversial in the way that the numbers are presented, and one that has been least well understood. It arises from a settlement that precludes the need for a final written decision by the Board. According to the PTAB, by July 2015, 45% of all IPR’s in which trial was instituted were terminated by settlement. One has to assume that a common form of settlement permits the patent owner to retain their patent without an adjudication of invalidity of any of the challenged claims in return for dropping a contemporaneous infringement suit against the petitioner. Claims subject to a settlement in this way have been undoubtedly weakened by the fact of there being a determination of probable invalidity (an institution of a patent trial) in the public record, but they have nevertheless “survived” a formal written judgment from the PTAB.
Claims cancelled by the patent owner are a casualty of the proceeding and arise – most likely – from a desire by the patent owner to minimize the ongoing costs of defending the patent before the PTAB. In any view of the proceedings, an instituted IPR or a CBM is, to any patent owner, an expensive way to lose a patent.
The most important two categories, those claims that are found invalid, or whose patentability is upheld, by the PTAB in a final written decision are those that grab the headlines. Respectively, 42% and 9% of claims proceeding to trial are found invalid and valid. In the grand scheme of things, these are a small fraction of the total number of claims challenged (26% and 6%), and a still smaller fraction of the total number of claims in patents receiving challenges under the AIA. However, what is clear is that patent owners who have decided to fight to the very end are on the whole being severely bruised in the process. The PTO reinforces this point with a break out of 447 IPR trials to date that have “reached final written decisions”: in 2/3rds of them (295 trials), all claims on which trial had been instituted were found unpatentable; by contrast, only in 16% of final written decisions were all claims adjudicated to be patentable. In CBM’s these numbers are even further skewed in favor of petitioners: 79% of final written decisions in CBM’s involved wholesale invalidation of the claims taken to trial, whereas in only 4% were all of the claims upheld. When considered claim by claim, in CBM’s the validity of just 2% of claims are upheld in a final written decision of the Board.
There are a number of questions that the data do not answer: for instance, how many patents sustained a challenge to all of their claims and were ultimately found invalid in their entireties.
But it is clear how the gap between perception and the actual numbers can be bridged: final written decisions are on balance unfavorable to patentees, more so in CBM’s than in IPR’s. It is likely to be the most valuable claims that are contested in this way. Even though such claims represent a tiny proportion of all patent claims that came under jeopardy in an AIA review, it may be little consolation to patent owners that the claims they are left with – if any – are those they would have least interest in enforcing.
Ex Parte Reexam Filings
By Jason Rantanen
In my Patent Law Year in Review talk this morning at the Wisconsin Bar Association’s Tenth Annual Door County Intellectual Property Law Academy, I touched briefly on ex parte reexamination filings. With the heavy interest in inter partes reviews, ex parte reexam filings probably haven’t been on most people’s radar. And until recently, data from the past year wasn’t available on the PTO’s website. Recently, though, the PTO updated the data on ex parte reexamination filings (available here: http://www.uspto.gov/learning-and-resources/statistics/reexamination-information). As the below figure shows, although there was a drop-off following the steep increase in the fee for filing ex parte reexamination and launch of inter partes review proceedings, parties are still filing about 50-100 requests for ex parte reexamination per quarter. (For comparison, there are about 400-450 requests for inter partes review filed per quarter).
I’d also like to give a shoutout for the assistance I received from calling the PTO’s ex parte reexamination hotline (571-272-7703). It’s always great when a helpful voice is on the other end of the line.
Sharply Divided Federal Circuit Confirms that PTO Can Broadly Construe Claims During Inter Partes Reviews
by Dennis Crouch
In re Cuozzo Speed Tech (Fed. Cir. 2015)
The Federal Circuit simultaneously released two decisions in this appeal of the first inter partes review proceeding before the Patent Trial and Appeal Board (PTAB). The first decision is a revised panel opinion holding:
- that the court lacks “jurisdiction to review the PTO’s decision to institute IPR;”
- that the PTO acted within its statutory rulemaking authority in determining that patent claims subject to an IPR should be given their “broadest reasonable interpretation” and thus that the PTAB’s broad claim construction and subsequent obviousness determination were proper; and
- that the Board properly denied Cuozzo’s motion to narrow its claims in order to avoid the prior art.
Judge Dyk wrote the majority opinion joined by Judge Clevenger; and Judge Newman dissented on almost all points. [I have not fully reviewed the revised opinion, but the holding does not appear to differ significantly from the original that I discussed here. DC]
In the second decision, the en banc court rejected Cuozzo’s petition for en banc rehearing on the Broadest-Reasonable-Interpretation (BRI) standard for administrative review claim construction. The vote was at the slimmest of margins: Six-to-Five with Chief Judge Prost, and Judges Newman, Moore, O’Malley, and Reyna voting for en banc review and Judges Lourie, Dyk, Wallach, Taranto, Chen, and Hughes voting no. Oddly, four of the six judges voting “no” to the en banc review request still felt the need to write an opinion explaining the law.
The BRI supporters write:
Congress conveyed rulemaking authority to the PTO to prescribe regulations, inter alia, “establishing and governing inter partes review,” 35 U.S.C. § 316(a)(4), and the PTO has adopted the broadest reasonable interpretation standard for IPR proceedings, 37 C.F.R. § 42.100(b). In the absence of evidence of congressional intent to abrogate the [historically grounded] broadest reasonable interpretation standard, we should not act to adopt a different standard based on our own notions of appropriate public policy. If the standard is to be changed, that is a matter for Congress. There are pending bills which would do just that.
Dissenting from the en banc denial, Chief Judge Prost (joined by four colleagues) writes:
In adjudicatory proceedings, claims [must be] given their actual meaning, not their broadest reasonable interpretation.
Challenging the grant-of-authority argument, the minority suggests that the rulemaking authority was procedural authority, not substantive authority — and that the standard for claim construction is extremely substantive. “In our view, these subsections are consistent with Congress’s previous grants of authority to prescribe procedural regulations.”
[Read the En Banc Denial Opinions]
This decision is obviously important since many of the obviousness arguments in the pending IPRs depend upon the PTO broadly construing the claim scope. The immediate take-home is the message that Patentees had better win their case at the PTAB rather than looking to the Federal Circuit for reversal. In the background, the judicial split and administrative-law aspects of the decision suggest that it is ripe for Supreme Court review.
Constitutional Challenges to IPR Continue
by Dennis Crouch
Respect for property rights has always been a core American principle. That respect generally means that a government grant of a property rights cannot be cancelled or annulled outside of judicial action. In a set of 19th Century cases, that principle was repeatedly upheld, including in the patent law context (both patents for land and patents for inventions).
See, e.g.:
- McCormick Harvesting Mach. v. Aultman, 169 U.S. 606 (1898) (“[W]hen a patent [issues], it has passed beyond the control and jurisdiction of [the patent] office, and is not subject to be revoked or cancelled by the President, or any other officer of the Government. It has become the property of the patentee, and as such is entitled to the same legal protection as other property.)
- Iron Silver Mining v. Campbell, 135 U.S. 286 (1890) (“[Patent validity] is always and ultimately a question of judicial cognizance.”)
-
US v. Stone, 69 U.S. 525 (1864).
In his 4th Circuit appeal, Carl Cooper now argues that inter partes review proceedings under the AIA violate these principles and are therefore unconstitutional. (Cooper v. Lee) In addition, Cooper argues that IPRs violate patentees Seventh Amendment right to a jury trial on questions of patent invalidity.
Cooper v. Lee began as a lawsuit after Cooper’s patents were challenged in a set of inter partes review proceedings. Rather than awaiting the outcome of the IPR, Cooper quickly filed a civil action in district court arguing that the regime is unconstitutional. However, the district court dismissed the case – finding that it lacked jurisdiction. In particular, the district court held that the AIA provides for particular appellate review and that Cooper must first exhaust the administrative process before raising an external constitutional challenge.
As it did at the lower court, the USPTO largely avoids the merits but instead argues that the appellate court has no jurisdiction over the case – both for the reasons given by the district court and because the case should have been heard by the Federal Circuit rather than the 4th Circuit. [PTO Brief in Cooper v. Lee]. Meanwhile, in May 2015, the USPTO PTAB issued a final order cancelling the challenged patent claims and setting-up a direct Federal Circuit appeal to be filed this month. See IPR2014-00156 (May 14, 2015); IPR2014-00157 (May 14, 2015); IPR2014-00158 (May 8, 2015).
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Incredibly important and difficult Constitutional issues here.
= = = = =
Briefing appears now complete in the parallel case of MCM v. HP that I previously discussed:
VIS v. Samsung: Developing the Role of Extrinsic Evidence post-Teva
By Jason Rantanen
Virginia Innovation Sciences, Inc. v. Samsung Electronics Co., Ltd. (Fed. Cir. 2015) (nonprecedential) Download opinion
Panel: Wallach, Taranto, Chen (author)
In the wake of the Supreme Court’s opinion in Teva v. Sandoz, the Federal Circuit repeatedly obversved that the Phillips hierarchy of intrinsic over extrinsic evidence remains the law for claim construction. Applying that framework, the Federal Circuit has systematically resolved claim construction appeals based on intrinsic evidence alone, allowing it to effectively maintain de novo review. Although a nonprecedential opinion, and thus not binding on future panels, VIS v. Samsung offers the first glance of how extrinsic evidence can play a meaningful role of extrinsic evidence in the post-Teva/still-Phillips world. Here, the court not only concludes that the extrinsic must be consulted because the term meaning remains ambiguous after examining the intrinsic evidence, but finds that the intrinsic evidence affirmatively indicates that the term has a particular technical meaning, thus directing consideration of the extrinsic evidence.
The technology at issue involved “a device that converts compressed video content received by a mobile phone from a wireless network into a video signal format ready for display on a larger external display such as a television.” Slip Op. at 2. At issue were two claim terms: “display format” and “converted video signal.” Based on its construction of these terms, the district court granted Samsung’s motion for summary judgment of invalidity on some asserted claims and summary judgment of noninfringement on the others.
The Federal Circuit first reviewed the construction of “display format.” In a classic application of intrinsic context, the court first rejected VIS’s proposed construction of “display format” as “simply an uncompressed video signal” because that construction “would essentially read the word ‘display’ out of the term and is inconsistent with the surrounding limitations of the asserted claims.” Slip op. at 9-10. However, the court could not resolve claim meaning further based on the intrinsic evidence alone:
In short, although the intrinsic evidence strongly suggests that the claimed “display format” must be a video signal that is “ready for use” by a conventional external monitor, the intrinsic evidence before us does not provide a complete understanding of the term. Thus, while review of the intrinsic evidence is commonly dispositive in understanding the ordinary meaning of a claim, such is not the case in this particular instance.
Slip Op. at 13. Instead, the specification indicates that the term “display format” has a particular meaning to persons of skill in the art:
As a result, our review of the record suggests that one of skill in the art understood a “display format” to have particular technical characteristics describing its compatibility and operational interaction with an external monitor. What those characteristics are, however, has not been established in the record on appeal.
In other words, the extrinisic evidence of record, too, was insufficient to determine that technical meaning. This necessitated a remand:
We therefore remand to the district court with instructions to further develop the record and to determine the meaning of the “display format” to one of skill in the art at the effective filing date of the patents-in-suit, whether by whether by further examination of the prosecution history, evaluation of direct and cross-examination testimony from experts showing and explaining usage in the field, or consultation of other relevant sources as set forth in Phillips.
The Federal Circuit also remanded on “converted video signal.” Here, the district court failed to “explain how the claims or specification provided a clear understanding of ‘converted’.” Id. at 17. Nor could the Federal Circuit discern a meaning based on the intrinsic evidence alone—indeed, it specifically commended the Patent Office’s reliance on extrinsic evidence in its construction of the same term in rejecting a petition for inter partes review:
While we emphasize that the district court is not bound by determinations of the Patent Office, our review of the record suggests that the Patent Office’s approach to rely on relevant treatises and other extrinsic evidence may be more illuminating than the specification in this particular instance.
Guest Post: America Invents Act Cost the US Economy over $1 Trillion
By Richard Baker, President of New England Intellectual Property, LLC
The American Invents Act, passed into law in 2011, is one of the biggest changes to US patent laws in the past fifty years. Its sweeping reforms changed our system from the “First to Invent” to a “First to File” system, and created a new method for infringers to invalidate patents. While many aspects of this legislation had impacts on inventors, the most striking impact has been the devastating financial impact of the post grant review process. The post grant review process, or more specifically, the inter partes review (“IPR”) procedure allows any entity to request that the US Patent Office initiate a review of a valid, issued US Patent. In the two and a half years since the first IPR was filed, 77% of all patent claims reviewed have been invalidated[1].
To obtain a patent in the United States, an inventor must submit his invention to an examination process before a patent examiner. This process involves several years and often many vigorous debates between the examiner and the inventor in papers that are exchanged. If the examiner is convinced at the end of this proceeding that a patent is warranted, the US Patent Office issues a patent to the inventor. By the time a patent issues, there typically is a significant examination of the merits of the patent claims.
In essence, the IPR procedure is a request for the Patent Office to admit that they made a mistake and reverse themselves on the validity of the patent. The problem with this reversal is that the inventor has relied on the patent to build a business or to initiate licensing discussions based on his faith in the original decision of the Patent Office. This is similar to a property owner building a house based on the issuance of a deed to the property. A reversal of the patent, or of the deed, after the fact impacts the investments made in the invention.
Some have argued that the IPR procedure is weeding out the weakest patents in the United States, but experience has shown that the opposite is true. The IPR procedure is only being used against the best United States patents. This is because of pure economics. The cost for a company to file and prosecute an IPR to a decision by the Patent Trial and Appeal Board (“PTAB) is between $200,000 and $500,000. No corporation can afford to file an IPR unless the patent in question is a significant threat. In fact, a review of the IPRs filed in the past month or two shows that almost every patent that is IPR’ed is involved in litigation (the few that are not in litigation are in the pharmaceutical arts). Only a small percentage of all patents are used in litigation or licensing; these patents are considered the top tier of all patents. It is these patents that are the subject of IPRs. Given the high rate of invalidation at the PTAB, most all patent litigation defenses now involve an IPR of the patents in suit.
To quantify the financial impact of the IPR proceedings in the AIA bill, we need to first assess the impact on the price of an average US patent. The lore of the US patent brokers, individuals who help inventors and companies to sell their patents, is that the price of an average US patent has dropped about 66% since the institution of the AIA IPR procedure. According to Scott Bechtel of AmiCOUR IP Group, an experienced patent broker, “US Patents have lost 2/3rds of their value since the AIA was passed in 2011.”
A bigger sampling of deal values can be found in IPOfferring’s Patent Value Quotient Annual Report of patent sales[2]. This report has been issued from 2012 through 2014, giving us three years of sales data to analyze. The deals listed in these reports may not represent all patent sales, as this list consist of deals large enough to be material and thus publicly reported as well as deals that brokers chose to report to IPOfferrings. Furthermore, there is no readily available data from before 2012 to see deal values before the AIA was passed. However, these reports show the dramatic drop in patent values over 13,564 patent sales in 93 deals over a three year period.
| IPOfferings Patent Value | |||
| Year | Dollar Sales | Patents Sold | Average Price |
| 2012 | $2,949,666,000 | 6,985 | $422,286 |
| 2103 | $1,007,902,750 | 3,731 | $270,143 |
| 2014 | $467,731,502 | 2,848 | $164,232 |
| 2012-2013 | -66% | -47% | -36% |
| 2013-2014 | -54% | -24% | -39% |
| 2012-2014 | -84% | -59% | -61% |
This chart shows a dramatic drop in the average price per patent over the three year period, with values dropping 61% from $422,286 per patent to $164,232. In that timeframe, the number of patents sold dropped from just under 7000 to 2800, showing a decrease in liquidity in the patent market. The overall sales dropped from $3 Billion to well under one half billion in patent sales per year, or by 84%.
But this decrease in value of US Patents should be expected given the invalidation rate of the Patent Office’s IPR proceedings. If 77% of all valid patents are canceled through this new proceeding, then the risk adjustments on patent values should also decrease by roughly the same amount. While our empirical data is showing a 60-70% drop in values, the theoretical impact should be 77%. Perhaps this is reflecting an inefficiency in the market, suggesting that patent values will drop another 10-15% in the next year or two. Or it could indicate that our samplings are not fully reflecting the actual decrease in values.
One could suggest that the Alice v CLS Bank Supreme Court decision also had an impact. However, the Alice decision only impacts software patents, and the IPOfferrings numbers come from all fields. The IPOfferrings numbers can be seen across three years since the AIA was implemented; Alice was decided less than a year ago and at first was not seen as a big change in patent law. Only in the past 4-5 months has Alice been expanded by the lower courts to impact a wide set of software patents, thus possibly impacting the value of software patents. Experienced brokers are seeing that software patents with Alice issues are simply not being sold, with buyers afraid to spend anything on these patents and sellers holding until the law settles in this area. Thus we believe the IPOfferrings numbers are primarily showing the impact of the AIA IPR procedure with only a minor impact from the Supreme Court’s Alice decision.
The decrease in value of patents means that the valuations of companies with US patent assets are also devalued accordingly. If a hypothetical company has patent assets on the books (much of which may be in Good Will if the company purchased the patents from others) at $1 Billion from a pre-2011 acquisition, these assets should be written down to about $390 Million based on the impact of the AIA[3].
This raises many questions on the overall impact of the AIA’s IPR procedure on the United States economy. Using one methodology to evaluate the impact, we look at the US economy and approximate the impact from top down. Intellectual capital (patents, copyrights, and other forms of economic ideas are worth about $9 Trillion in the United States[4]. So a 61% markdown of patents (and their resulting goodwill when small companies are bought) corresponds to a 61% markdown of a portion of the $9.2 Trillion. Say patents are worth about 25% of the overall value of intellectual capital[5], or about $2.3 Trillion, then a 61% loss in value is $1.37 Trillion decrease in the value of the US economy based on the impact of the AIA bill. The American Invents Act bill cost the economy about $1.37 Trillion, or an amount equal to about 7% of the US GDP.
Another way to look at the impact of the AIA starts with the count of the number of US Patents in force, about 2.1 Million according to Professor Dennis Crouch of the University of Missouri School of Law[6]. Given our 2012 IPOfferings value of $422,000 per patent, the value of patents to the US economy was $886 Billion. The AIA dropped the value to one third, leaving $344 Billion in value. This one act of Congress, the IPR proceeding of the AIA bill, destroyed $546 Billion of the US economy using this methodology.
While additional study is required to refine the macroeconomic impact of the AIA IPR procedure, it is clear that this bill has wiped out about $1 Trillion of value in the US economy.
But this number is probably greatly underestimated, as it only incorporates the first order loss in value. It does not include lost opportunities, disincentives to innovation, the inability to raise money due to the decrease in collateral, and the loss of jobs without those investments. We leave this analysis to economists in future studies.
Given the huge impact of the AIA and its IPR proceedings on the US economy, on corporate valuations, and on the value provided to individual inventors, it is time for Congress to reevaluate this procedure to assure that a much greater percentage of patents survive the IPR process.
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[1] US Patent and Trademark Office, “Inter Partes Review Petitions Terminated to Date (as of 1/15/2015)”, downloaded from http://www.uspto.gov/sites/default/files/documents/inter_partes_review_petitions_terminated_to_date%2001%2015%202015.pdf on 6 May 2015. In the proceeding where the USPTO decided the merits of the Inter Partes Review petitions, 643 claims were found patentable and 2176 claims were found unpatentable, or 77%.
[2] IPOfferring’s Patent Value Quotient Annual Report is available at http://www.ipofferings.com/patent-value-quotient.html.
[3] Patents generated internally in a company are not valued on a corporation’s balance sheets, according the US accounting rules. Only patents acquired in a purchase or a merger are included on a balance sheet.
[4] See Kevin A. Hassett & Robert Shapiro, What Ideas Are Worth: The Value of Intellectual Capital And Intangible Assets in the American Economy, Sonecon (Sept. 2011), available at www.sonecon.com/docs/studies/Value_of_Intellectual_Capital_in_American_Economy.pdf.
[5] Robert Shapiro estimates in a private email that patents make up 25-30% of intellectual capital, but states that it varies per industry and per company. Additional research is needed to calculate this percentage more precisely.
[6] Crouch, Dennis, “How many US patents are in-force”, May 4, 2012, found at https://patentlyo.com/patent/2012/05/how-many-us-patents-are-in-force.html.