Lodsys has filed a patent infringement suit against several developers of applications for Apple. [Complaint] Lodsys claims that patent numbers 7,620,565 and 7,222,078 were used by the developers without their consent. The suit was filed after Apple sent a warning letter to Lodsys, telling Lodsys to leave the developers alone. Apple claims that the license that they received from Lodsys allows the developers to use the patented technology for making Apps for Apple products. The Apps that the complaint reference are Twitterrific, Labyrinth, and Quickoffice Connect just to name a few. [Link]
USPTO’s Patent Experience Externship Program (PEEP)
This year the USPTO will have its largest student program ever; over 200 students (including myself) have been accepted to work at the USPTO. The PEEP gives future patent attorneys and students a view into the day to day operations at the USPTO. Also the PEEP helps the USPTO identify and recruit future patent examiners. The PEEP integrates theories learned at universities with real-world practice and implementation of those theories. The PEEP officially started on June 1 and will run until the middle of August. [Link]
New Secretary of Commerce?
President Obama has nominated John Bryson as the next Secretary of Commerce. The current Secretary of Commerce Gary Locke will become the new Ambassador to China. John Bryson is the former CEO of Edison International and co-founder of the Natural Resources Defense Council. [Link]
New Patent Blog!
www.ipreglaw.com is a new patent blog started by Scott Bialecki.The blog's purpose is to offer practical advice and insight from a former Federal Trade Commission (FTC) staffer that became an IP litigator. Scott was with the FTC for over 5 years, and brings his regulatory knowledge to the Intellectual Property world to offer great advice on his blog.
Patent Jobs:
Toler Law Group is searching for patent attorneys to work in their Austin, TX office. Toler Law group is evaluating both lateral and newly graduated attorneys. [Link]
Solazyme is seeking an IP attorney with 4-5 years of experience to work at their San Francisco location.[Link]
Sterne, Kessler, Goldstein & Fox is looking for a biotechnology patent attorney with at least 3 years of experience to work in their Washington, DC office. [Link]
Choate, Hall & Stewart is searching for an attorney, patent agent or staff scientists with an EE background and 2 years of patent prosecution experience.[Link]
Upcoming Events:
The Biotechnology Industry Organization (BIO) will hold its annual BIO International Convention on June 27-30 in Washington, DC. BIO brings together 15,000 – 17,000 industry experts from over 60 countries. The convention will hold several sessions strictly related to IP. [Link]
The American Conference Institute (ACI) will hold a Hatch-Waxman Boot Camp July 18-19 in San Diego. ACI’s Hatch-Waxman Boot Camp has been designed to give counsel and advisors to brand name and generic drug critical insights into commercialization and the pre-approval process, and also provide an in-depth review of Hatch-Waxman and other IP basics relative to small molecules and biologics. [Link]
American University Washington College of Law will host the first annual Global Congress on Public Interest Intellectual Property August 25-27 in Washington DC.The Global Congress on Public Interest Intellectual Property will serve as a site for the sharing of research, ideas and policy proposals for how international intellectual property law should be constructed to better protect the full range of global public interest concerns. [Link]
Lodsys has filed a patent infringement suit against several developers of applications for Apple. [Complaint] Lodsys claims that patent numbers 7,620,565 and 7,222,078 were used by the developers without their consent. The suit was filed after Apple sent a warning letter to Lodsys, telling Lodsys to leave the developers alone. Apple claims that the license that they received from Lodsys allows the developers to use the patented technology for making Apps for Apple products. The Apps that the complaint reference are Twitterrific, Labyrinth, and Quickoffice Connect just to name a few. [Link]
USPTO’s Patent Experience Externship Program (PEEP)
This year the USPTO will have its largest student program ever; over 200 students (including myself) have been accepted to work at the USPTO. The PEEP gives future patent attorneys and students a view into the day to day operations at the USPTO. Also the PEEP helps the USPTO identify and recruit future patent examiners. The PEEP integrates theories learned at universities with real-world practice and implementation of those theories. The PEEP officially started on June 1 and will run until the middle of August. [Link]
New Secretary of Commerce?
President Obama has nominated John Bryson as the next Secretary of Commerce. The current Secretary of Commerce Gary Locke will become the new Ambassador to China. John Bryson is the former CEO of Edison International and co-founder of the Natural Resources Defense Council. [Link]
New Patent Blog!
www.ipreglaw.com is a new patent blog started by Scott Bialecki.The blog's purpose is to offer practical advice and insight from a former Federal Trade Commission (FTC) staffer that became an IP litigator. Scott was with the FTC for over 5 years, and brings his regulatory knowledge to the Intellectual Property world to offer great advice on his blog.
Patent Jobs:
Toler Law Group is searching for patent attorneys to work in their Austin, TX office. Toler Law group is evaluating both lateral and newly graduated attorneys. [Link]
Solazyme is seeking an IP attorney with 4-5 years of experience to work at their San Francisco location.[Link]
Sterne, Kessler, Goldstein & Fox is looking for a biotechnology patent attorney with at least 3 years of experience to work in their Washington, DC office. [Link]
Choate, Hall & Stewart is searching for an attorney, patent agent or staff scientists with an EE background and 2 years of patent prosecution experience.[Link]
Upcoming Events:
The Biotechnology Industry Organization (BIO) will hold its annual BIO International Convention on June 27-30 in Washington, DC. BIO brings together 15,000 – 17,000 industry experts from over 60 countries. The convention will hold several sessions strictly related to IP. [Link]
The American Conference Institute (ACI) will hold a Hatch-Waxman Boot Camp July 18-19 in San Diego. ACI’s Hatch-Waxman Boot Camp has been designed to give counsel and advisors to brand name and generic drug critical insights into commercialization and the pre-approval process, and also provide an in-depth review of Hatch-Waxman and other IP basics relative to small molecules and biologics. [Link]
American University Washington College of Law will host the first annual Global Congress on Public Interest Intellectual Property August 25-27 in Washington DC.The Global Congress on Public Interest Intellectual Property will serve as a site for the sharing of research, ideas and policy proposals for how international intellectual property law should be constructed to better protect the full range of global public interest concerns. [Link]
Arris Group, Inc. v. British Telecommunications PLC (Fed. Cir. 2011) Download 10-1292 Panel: Rader, Newman, Dyk (author)
Arris Group manufactures cable telephony and data products for cable system operators, such as its customer Cable One, to use in Voice over Internet Protecol (VoIP) telephone services. In 2007, British Telecommunications (BT) sent a letter to Cable One accusing it of infringing various system and method patents held by BT and requesting that the parties begin licensing negotiations. During those negotiations, BT provided Cable One with a 118-page presentation showing how selected claim elements were met by Cable One's services. That presentation identified Arris's products as embodying numerous elements and performing numerous method steps of the asserted claims; however, the presentation did not assert that Arris directly or indirectly infringed BT's patents. Nearly two years of negotiations (which were expanded to include Arris) followed, but no license agreement was consummated.
In 2009, Arris filed a declaratory judgment action seeking a declaration that it does not infringe the BT patents and that the patents are invalid, as well as an injunction preventing BT from instituting infringement proceedings against Arris or its customers. The district court dismissed the action for lack of subject matter jurisdiction, finding that there was no case or controversy between the parties. Arris appealed.
An Economic Injury is Insufficient to Establish a Case or Controversy The CAFC first rejected Arris's contention that there is an Article III case or controversy simply because Arris has suffered an economic injury as a result of BT's infringement threats. "[I]n patent cases before the Supreme Court's decision in MedImmune, the regional circuits and our court held that economic injury is not alone sufficient to confer standing. MedImmune did not abandon this rule." Slip Op. at 8-9. Rather, there must be an "adverse legal interest," which "requires a dispute as to a legal right – for example, an underlying legal cause of action that the declaratory defendant could have brought or threatened to bring." Slip Op. at 9 (emphasis added).
But an Implicit Contributory Infringement Threat is Sufficient The CAFC did conclude, however, that a case or controversy existed based on BT's implicit assertion that Arris was contributing to the infringement of BT's patents. "When the holder of a patent with system claims accuses a customer of direct infringement based on the customer's making, using, or selling of an allegedly infringing system in which a supplier's product functions as a material component, there may be an implicit assertion that the supplier has indirectly infringed the patent." Slip Op. at 11. Here, the court found that BT's assertion of direct infringement against Cable One, which "made it clear that Cable One's use of Arris's CMTSs and E-MTAs was central to BT's infringement contentions," Slip Op. at 14, established an Article III case or controversy regarding whether Arris was contributorily infringing BT's patent.
The "central" nature of Arris's products, itself not an element of contributory infringement, nevertheless drove the court's conclusion. Although the court did step through the various elements of contributory infringement, it did so in only a single paragraph, and even that analysis relied heavily on the significant degree to which BT's infringement presentation to Cable One focused on Arris's products. See Slip Op. at 16-17. The court also found the inclusion of Arris in BT's licensing and infringement negotiations to be a relevant factor. Thus, while a discussion of the actual elements of contributory infringement will doubtless be important to future declaratory plaintiffs relying on an indirect infringement theory, the actual outcome may be driven more by the underlying relationship between the patent holder and its infringement allegations to the declaratory plaintiff than by a formal analysis of contributory infringement.
Joyce invented a heuristic computer firewall system and exclusively licensed the patent rights (“royalty free”) to his newly formed company, TechGuard. TechGuard was primarily owned by Joyce and his wife Suzanne Magee. Actually, Magee held more shares than anyone else — an arrangement designed to allow the company to qualify for grants and contracts designated for women and minority owned businesses.
Teasdale represented both Joyce and the new company and drafted the license agreement. According to Joyce's malpractice complaint, Teasdale advised Joyce to sign the agreement and also that it was “not necessary for him to have separate legal counsel” and that Joyce's rights were fully protected because he and his wife were the majority shareholders in the new company.
Joyce & Magee then divorced. In the divorce decree, Magee was awarded 50% of ownership rights of the patent and has seemingly taken full control of TechGuard. Magee is the CEO of TechGuard (now a multi-million dollar company) and Joyce is not even listed in the company history.
Malpractice Allegations: Now, Joyce has sued Teasdale for malpractice — alleging that the firm breached a fiduciary duty by acting in conflict with Joyce's interests in representing TechGuard.
Statute of Limitations: The present appeal focuses on the five-year Missouri statute of limitations. The district court had dismissed the case on the pleadings after finding that the alleged malpractice and potential damages would have been ascertainable in 2001 when the agreements were signed and that the complaint was not filed until 2008. On appeal, the 8th Circuit reversed — holding that in Missouri, the statute of limitations does not begin to run until a "reasonably prudent person is on notice of a potentially actionable injury,” quoting Powel v. Chaminade Coll. Preparatory, Inc., 197 S.W.3d 576, 582 (Mo. 2006), and that “Missouri does not impose upon a layperson the duty to double-check the attorney's work or to understand that an attorney's conduct caused harm unless a source external to the attorney-client relationship reasonably puts the layperson on notice the attorney has caused harm.”
In the complaint, Joyce alleged that the firm had advised him against obtaining separate counsel. Based at least partially on that allegation, the appellate court held that the signed agreements by themselves do not serve as “notice of a potentially actionable injury under the circumstances pleaded in Joyce's complaint.”
On remand, the firm may still win the statute of limitations argument, but it must first provide evidence that “a reasonably prudent person in Joyce's position would not only know the effect of the agreements, but would also know the effect of the agreements would give rise to a potentially actionable injury.”)
XILINX, Inc. v. Intellectual Ventures LLC (N.D. Cal. 2011)
XILINX is a billion dollar company that manufactures programmable memory chips. In February 2011, XILINX filed a declaratory judgment lawsuit against Intellectual Ventures and its subsidiary corporations – asking the Northern District of California court to rule that it could not be liable for infringing a set of fifteen (15) intellectual ventures patents. The case will be interesting to watch, although it will most likely end with a confidential license well prior to a judgment on the merits.
Intellectual Ventures is important because they are now one of the Top-Five owners of US Patents. Although the company has played extensive games in an attempt to stifle the utility of the patent ownership recording system, it has been reported to hold at least 30,000 patents. Intellectual Ventures is quickly becoming more aggressive at packaging and licensing its broad patent portfolio.
One interesting aspect of the case is each party’s choice of litigation counsel. XILINX has hired Jones Day, which is one of the largest law firms in the world. Intellectual Ventures has hired John Desmarais and his small upstart firm of patent litigators. (Desmarais was formerly a top litigator at Kirkland & Ellis). IV’s local counsel is Bradford Black who also has his own two-person law firm. Over the past two years, the largest law firms shed about 10% of their lawyers (not even counting the complete collapse of Howrey LLP). During that time, Desmarais & Black left big-law and founded their own small firms focused on providing very high quality services and costs naturally controlled by a limited overhead and limited number of lawyers available. This trend appears likely to continue over the next several years as the market for top-quality lawyers resets itself.
Another interesting aspect of the case is Intellectual Ventures recent filing that lists its major investors as required by Fed. R. Civ. Pro. R. 71. (File Attachment: Financial Interest in IV.pdf (104 KB)) These include:
Technology Companies – For the most part, these tech companies appear to have invested in intellectual ventures as part of a licensing agreement.
Adobe
Amazon.com
American Express
Apple
Cisco Systems
Detelle Relay KG
eBay, Inc.
Google
Microsoft
Nokia
Nvidia
OC Applications Research (merged with IV)
SAP
Sony Corp.
TR Technologies
Verizon
Xilinx (yes, the plaintiff is also an investor)
Yahoo
Universities – It appears that the university ownership is not directly related to any transfer of patent rights from the Universities to IV.
First Lawsuit & Settlement: In 2003, Viking and several other fire sprinkler manufacturers were sued for infringing Central Sprinkler's patent rights. In 2005, the parties settled the case with a non-exclusive license agreement that included the payment of ongoing royalties and $1,000,000 for past damages. Although Central Sprinkler was (and still is) a subsidiary of Tyco International, the agreement did not expressly bind Tyco or its other divisions.
Second Lawsuit & Settlement: In 2007, Tyco sued Viking for infringement of two additional patents and Viking again settled the case by paying additional royalties and damages. One of the patents had already issued by time of the 2005 agreement. The other did not issue until 2007.
Malpractice Allegations: Viking then sued its original litigation counsel for malpractice. Viking's position was that it had understood the 2005 agreement to bind the entire family of Tyco companies and that Viking would have no further liability to Tyco with respect to its large “K factor sprinklers.” The particular alleged acts of malpractice were (1) advising Viking to enter into the 2005 agreement, (2) failing to include the new Tyco patents in the 2005 agreement or to at least advise Viking that they were excluded, and 3) failing to bind Tyco in the 2005 agreement or to at least advise Viking that Tyco was not bound.
On summary judgment, the trial court dismissed the case — holding that Viking was estopped from claiming that it did not understand the 2005 settlement agreement. Critical to this holding were the conclusions that the law firm made no affirmative misrepresentations regarding the agreement and, as a signatory to the agreement, Viking was presumed to have read and understood the terms of the agreement.
On appeal, the Michigan appellate court affirmed — holding that absent fraud, coercion, or mistake, the law generally presumes that a signatory to an agreement knows the nature of the agreement.
Defendants claim, and we agree, that because plaintiff signed the 2005 agreement, it should be presumed to know and understand the nature of the document—especially the fact that Tyco was not a party to the agreement and Tyco would not be bound by it. In addition, plaintiff offers no evidence that defendants advised it otherwise. Plaintiff's executives claim that a release from Tyco was one of the goals of the 2005 settlement negotiations and that they believed Tyco and Central were the same entity. However, Van Dyke testified, and [Viking's Vice President] confirmed, that Van Dyke never told plaintiff that Tyco would be bound by the 2005 agreement. On the contrary, Van Dyke explained that Central flatly rejected a draft including Central and its parents, but plaintiff's executives thereafter continued reviewing and negotiating drafts that excluded Central's parents.
Here, the court went on to hold that there was no malpractice liability even if the firm's actions rose to the level of negligence because the alleged negligence was not the proximate cause of harm.
Rembrandt Data Technologies, LP v. AOL, LLC (Fed. Cir. 2011) Download 10-1002 Panel: Gajarsa (Linn), Linn, and Dyk
In 2008, Rembrandt sued Canon and Hewlett-Packard, among others, for infringement of Patent Nos. 5,251,236 and 5,311,578. Rembrandt contended that Canon and HP infringed by marketing office products containing modem chips capable of implementing International Telecommunications Union protocol V.32. The modem chipsets in the accused products are manufactured by a third party, Conexant.
At the trial court level, the district court granted summary judgment in favor of the defendants on the basis that because Conexant was a licensee of the '236 and '578 patent, Rembrandt's rights were exhausted and it could not recover from Canon and HP. The court further held that claims 3-11 of the '236 patent were invalid for indefiniteness as they improperly mixed method and apparatus elements and that claims 1-11 (all of the asserted claims) were invalid for indefiniteness for failing ot disclose algorithms corresponding to functions set out in the claims. Rembrandt appealed.
Patent Rights Exhausted Through Prior License The patents-in-suit were originally owned by AT&T, who granted a license to Rockwell International in the late 1980's. Under a 1995 side letter, AT&T also granted Rockwell the right to sublicense "to any future divested present business of Rockwell." That license was subsequently assigned to a reorganized Rockwell ("New Rockwell"), and then to Conexant as part of a spin-off of its modem business. The patents themselves changed hands several times through a series of divestitures and acquisitions until finally owned by Rembrandt.
On appeal, Rembrandt argued that patent exhaustion did not apply because Conextant was not a valid licensee under the terms of the agreements. Looking to the terms of the contact, the CAFC held that contrary to Rembrandt's argument, sublicensing did not require AT&T's consent as long as it occured as part of a divestiture of Rockwell's present business. Nor did the general rule that "the law does not recognize any right of a nonexclusive licensee to assign the license or to further sublicense" apply because the contract expressly allowed for such sublicenses to be granted.
The CAFC also applied a pro-licensee interpretation of the scope of the license. In connection with the sublicense provision, the 1995 Side Letter limited that right "only to the extent applicable to products and services sold by the future divested business prior to its divestiture." Rembrandt contended that this meant the specific models being sold by Rockwell in 1996, when it divested its semiconductor business to New Rockwell. The CAFC disagreed. Looking to the 1988 and 1995 agreements, the court noted that neither refers to specific models of modems, instead specifying product types in general, functional terms. Thus, because Old Rockwell sold modems prior to the transfer to New Rockwell, and because New Rockwell sold V.34 protocol-compliant modem chipsets prior to the divestiture to Conexant, the court concluded that the sublicensing conditions were satisfied.
Indefiniteness The CAFC also addressed three separate indefiniteness issues. The court first affirmed the district court's grant of summary judgment that claims 3-11 of the '236 patent were indefinite because they contained both apparatus and method claims. "[R]eciting both an apparatus and a method of using that apparatus renders a claim indefinite under section 112, paragraph 2." Slip Op. at 15, quoting IPXL Holdings, L.L.C. v. Amazon.com, Inc., 430 F.3d 1377, 1384 (Fed. Cir. 2005). Rembrandt's only argument in response was to request that the court insert apparatus language into claim 3, from which claims 4-11 depended. Unsurprisingly, the court declined to do so. "[T]he correction suggested by Rembrandt is "not minor, obvious, free from reasonable debate or evident from the prosecution history.'" Slip Op. at 17 (quoting district court opinion).
Rembrandt fared somewhat better on claims 1 and 2. The district court invalidated these claims (as well as claims 3-11), construing them to contain several means-plus-function elements and holding them indefinite due to the patent's failure to disclose an algorithm able to perform the recited functions.
The CAFC disagreed that two of these elements were drafted in means-plus-function form. Although the elements contained the word "means," that created only a presumption that the limitation was drafted in means-plus-function format. "This presumption can be rebutted if the claim limitation itself recites sufficient structure to perform the claimed function in its entirety." Slip Op. at 19. That determination involves a 'one skilled in the art' analysis: "When determining whether a claim term recites sufficient structure, we examine whether it has an understood meaning in the art." Id.
Here, there was no dispute that two of the claim elements, "fractional rate encoding means" and "trellis rate encoding means" recited sufficient structure. Rembrandt's expert testified that these terms were used in publications and published patents in the early 1990's and were self-descriptive to one of ordinary skill in the art, testimony that went undisputed by the parties. Thus, these elements recited sufficient structure by themselves to overcome the presumption of treatment under § 112, ¶ 6.
The CAFC did recognize a dispute over two other terms, "buffer means" and "combining means." Here, the panel appears to have agreed with the district court's interpretation of these elements being in means-plus-function format. However, the panel could not agree that the specification failed to disclose algorithms for these elements. Remrandt's expert testified that the figures, text, and table in the '236 patent disclose complete algorithms to a person skilled in the art; Canon argued that they did not. Thus, the court reversed the district court's grant of summary judgment of invalidity of claims 1 and 2 of the '236 patent.
Radio Systems Corp. v. Accession, Inc. (Fed. Cir. 2011) – Part II
As the facts are alleged in this case, after learning that Radio Systems had received a notice of allowance on its “SmartDoor” patent application, Accession’s patent counsel telephoned the USPTO Examiner handling the Radio Systems. Because the Examiner did not answer the telephone call, Accession’s attorney left a voice message. Six days later, the Examiner returned the telephone call and spoke directly with Accession’s attorney. During the conversation, the examiner apparently learned about the existence and relevance of the Sullivan prior art patent. (Mr. Sullivan is the founder of Accession). After considering the prior art, the examiner withdrew the patent from issue and filed a new rejection of independent claim 17 based on the Sullivan prior art. Without comment, Radio Systems cancelled claim 17 and the patent issued.
These conversations all occurred in August 2009. For the three years prior to that time, Radio Systems and Accession had been engaging in a slow conversation regarding the Sullivan patent and whether Radio Systems would license the patent rights. During that time, Radio Systems never submitted the reference as prior art to the patent examiner.
To recap, a patent attorney representing a third party (who was interested in ensuring that no patent issued) provided the USPTO Examiner with valuable prior art and likely an explanation of how the prior art related to the patent application under examination. The Examiner had a verbal conversation with the patent attorney and concluded that the prior art rendered the pending claims invalid. The patent applicant had previously been made aware of the prior art but had failed to inform the Examiner of its existence. Without argument, the patent applicant cancelled its claim after it was rejected by the Examiner.
Illegitimate Means to a Legitimate End?: From all appearances, the result of this sequence of events is that third-party contact helped the USPTO avoid issuing a patent with invalid claims. The problem is that the examiner and attorneys had to violate USPTO rules to achieve that beneficial result. When rules in-place frustrate beneficial ends, the proper solution may well be to change the rules.
Legitimizing the Means: What is needed here is a simple straightforward mechanism for third parties to provide information to patent examiners regarding reasons why a particular pending application should be rejected. The submission should be written and preferably in the English language, but there is no reason why it must follow any other formality requirements. At that point, the patent examiner should have independent authority to consider the submission on its merits. Written correspondence (such as e-mail correspondence) between the third party and the examiners could also be allowed to give the examiner a better opportunity to understand the submission. The written record is helpful to avoid the appearance of any secret or improper dealings between the examiner and a third party.
Background on Third Party Attempts to Protest or Otherwise Oppose the Grant of a Published Application
US patent applications were not published prior to 2001. As Congress considered implementing the publication system, some patent applicants complained that competitors and others would raise the cost of patenting by filing needless oppositions. Thus, the law was written to limit third party oppositions. The relevant statute, 35 U.S.C. § 122(c), states that:
The Director shall establish appropriate procedures to ensure that no protest or other form of pre-issuance opposition to the grant of a patent on an application may be initiated after publication of the application without the express written consent of the applicant.
The USPTO has given a somewhat narrow interpretation to the restrictions blocking any post-publication “protest or other form of pre-issuance opposition to the grant.” In its rulemaking for 37 C.F.R. § 1.99, the USPTO decided to allow third parties to submit prior art during a limited two-month period after publication but prohibited any explanation of the patents or publications or the submission of any other information. 1239 Off. Gaz. Pat. Office 71. Thus, according to the rulemaking, the mere third-party submissions of prior art is not considered a “protest” or “pre-issuance opposition.”
In 2003, Steve Kunin was the Deputy Commissioner for Patent Examination Policy at the USPTO. In March of that year, Kunin published a notice in the USPTO Official Gazette explaining further limitations on the examination corps in dealing with non-party contact with examiners during ex parte prosecution. Kunin writes:
[T]he USPTO is instructing the Patent Examining Corps to: (1) not reply to any third-party inquiry or other submission in a published application that is still pending before the USPTO; (2) not act upon any third-party inquiry or other submission in a published application, except for written submissions that are provided for in 37 CFR 1.99 and written submissions in applications in which the applicant has provided an express written consent to protest or pre-issuance opposition; and (3) decline to accept oral or telephoned comments or submissions about published applications from third parties. When refusing third-party telephone or oral discussions, examiners may call the party’s attention to the statutory prohibition on initiating protests, to this Notice, or to 37 CFR 1.2 (all Office business should be transacted in writing), if appropriate. The USPTO may also refer third-party inquiries or submissions not provided for in 37 CFR 1.99 by registered practitioners in published applications in which the applicant has not provided an express written consent to protest or pre-issuance opposition to the Office of Enrollment and Discipline for appropriate action.
The USPTO’s interpretation of the law is that examiners should refuse to consider any submissions by non-parties. However, Kunin’s notice further indicated that the USPTO retains the right to use the material submitted if it is relevant to patentability:
[T]he provisions of 35 U.S.C. § 122(c) and 37 CFR 1.99, 1.291, and 1.292 limit a third party’s ability to protest, oppose the grant of, or have information entered and considered in an application pending before the USPTO. However, these provisions (and this notice) do not limit the USPTO’s authority to independently re-open the prosecution of a pending application on the USPTO’s own initiative and consider information deemed relevant to the patentability of any claim in the application.
This approach follows a recent examiner comment on Patently-O that “what has been seen cannot then be unseen.”
Changing the Rule without Changing the Law: The law forbids non-party “protests” and other forms of “pre-issuance opposition to the grant of a patent” subsequent to publication of the application. The law also requires the USPTO Director to establish appropriate procedures to ensure that those activities do not take place. However, USPTO has already decided that the law does not forbid submission of prior art documents during a limited time period post-publication so long as the examiner retains independent authority to analyze for patentability and craft rejections. The USPTO would likely be well within its powers to expand the document submission program in a way that (1) allows for submission of explanations; (2) extends the timing of submissions; and (3) reduces or eliminates the fee associated with the submission.
We have previously discussed Google's $900 million Stalking Horse bid to purchase Nortel's portfolio of more than 6,000 patents. Nortel was a Canadian-based telecommunications equipment manufacturer. The company is now bankrupt and the company's assets have largely been sold to pay its debts. The patent portfolio represents one of the last remaining company assets.
Over the years, Nortel has licensed its technology and its patent rights to various other companies, including Research-in-Motion, Microsoft, Plantronics, Foundry Networks, and others.
An interesting aspect of the proposed transfer would involve "vesting all of Nortel's right, title and interest in and to such patent assets absolutely in the purchaser free and clear of and from all encumbrances." Ongoing licenses would also be rejected and terminated as permissible by law.
Bankruptcy has a tendency to disturb well-settled contracts. In particular, a bankruptcy trustee has the right to either assume or reject executory agreements. Executory agreements are typically seen as any ongoing contract where both parties have ongoing material obligations. When the bankruptcy trustee rejects an executor agreement, the wronged-party has a right to collect for breach of contract, but only as an unsecured creditor. (Unsecured creditors typically receive very little money from the liquidating party.)
Both US and Canadian law provide an important exception for executory licenses of patents and copyrights. See Section 365(n) of the Bankruptcy Code. A patent licensee can continue to enforce its rights under the license if it continues to pay any royalty due. Courts do typically allow the trustee to prevent assignment of non-exclusive licenses. In this case, Nortel's trustee has "affirmatively and reasonably refused to give consent … to any renewal, extension, assignment, amendment, waiver or modification of any license [or] any Cross-License Agreement…. [No licensee] shall have the right or power to transfer any of its obligations, right, title or interest in the licenses." The trustee's proposal also indicates that licensees who do not come forward to explicitly claim their right as licensees will lose their rights: The licenses will be terminated at "closing and shall forever be barred, released and extinguished."
Moving forward, the scope of rights granted to licensees and the potential licensing revenue stream will likely have a major impact on whether competitors bid against Google. Microsoft has publicly claimed its belief that its rights as a licensee will continue to bind subsequent purchasers of the Nortel patents.
Guest Post by Megan M. La Belle, Catholic University Columbus School of Law
Professor La Belle attended the oral argument in Microsoft v. i4i Limited Partnership this morning and was kind enough to prepare this summary for Patently-O.
Today, the United States Supreme Court heard oral argument in Microsoft Corporation v. i4i Limited Partnership, in which Microsoft has challenged the Federal Circuit’s clear and convincing evidence standard for overcoming the presumption of patent validity set forth in 35 U.S.C. § 282. The argument was held before a full courtroom, with former Deputy Solicitor General Thomas G. Hungar representing Microsoft, former Solicitor General Seth P. Waxman representing i4i, and Deputy Solicitor General Malcolm Stuart arguing as amicus curiae on behalf of the United States in support of i4i.
Mr. Hungar began his argument by referring to the Court’s statement in KSR Int’l Co. v. Teleflex, Inc. that the presumption of validity “seems much diminished” where, as here, the prior art was not considered by the U.S. Patent & Trademark Office. Justice Scalia quickly responded, asking whether Microsoft was arguing that a preponderance of the evidence standard should apply across the board, or only when the prior art was not considered by the USPTO. Mr. Hungar explained that Microsoft’s position is that the more relaxed standard should apply in all cases where patent validity is challenged.
The Justices then asked a series of questions about the state of the law and congressional intent in 1952 when § 282 was enacted, since the statute itself is silent as to the evidentiary standard. The Court focused on Radio Corporation of America (RCA) v. Radio Eng’g Labs., Inc., 293 U.S. 1 (1934), in which Justice Cardozo made some broad statements about the presumption of patent validity, including that the challenger “bears a heavy burden of persuasion” and that the presumption cannot be overcome “except by clear and cogent evidence.” Relying on RCA, i4i argued that Congress intended to codify the existing presumption of patent validity when it enacted § 282, and therefore clear and convincing evidence is the correct standard. Microsoft countered that the law regarding the presumption of validity was “all over the map” in 1952, and that some courts did not recognize any presumption of validity, much less a presumption that could only be overcome by clear and convincing evidence. Microsoft further argued that the quoted language from RCA was mere dicta, and that the case was distinguishable because RCA involved a question of priority of invention, not validity.
In addition to arguing that Congress intended to codify the clear and convincing standard, counsel for both i4i and the United States emphasized Congress’s acquiescence in that standard over the years. They contended that Congress is well aware of the Federal Circuit’s clear and convincing standard, and that Congress has been very active in the patent arena both in the past and in the present. Yet, despite its many other proposals to reform the patent system, Congress has made no attempt to change the long-standing evidentiary standard for overcoming a presumption of validity.
Some Justices inquired about solutions other than altering the evidentiary standard. Justices Breyer and Sotomayor wondered if perhaps the issues raised by this case could be addressed with careful jury instructions. Justice Sotomayor suggested, for example, that a jury could be instructed that the burden of proof to overcome the presumption of validity is clear and convincing evidence, but that the challenger’s burden is more easily satisfied with respect to evidence of prior art that was not considered by the USPTO. Microsoft responded that such a jury instruction could be confusing for the jury, as the Federal Circuit held in an earlier case between Microsoft and z4 Technologies.
Finally, the Court returned to the question as to why the presumption of validity should apply when the prior art was not considered by the USPTO. In response to Justice Ginsburg’s request to justify such a rule, Mr. Waxman offered four reasons. First, a validity challenge is a “collateral attack” on a governmental decision to issue a patent. Second, if a patent is erroneously invalidated, the harm to the patent owner is significant because of the preclusive effect such a determination has under Blonder Tongue v. University of Illinois, 402 U.S. 313 (1971). Third, i4i argued that such a presumption is warranted because patent owners, investors, and licensees rely on patents once they are issued. Finally, i4i claimed that it is “far from black and white what the PTO does or doesn’t consider,” and that rejecting the long-standing clear and convincing standard would marginalize the agency. In response, Justice Breyer stated that i4i’s reasons “are all along the lines of how important patents are and what a disaster [it is when] patents are invalidated.” Justice Breyer then commented that, in today’s world, perhaps a “worse disaster for the country is to have protection given to things that don’t deserve it….”
The Court is expected to issue its decision before the end of June 2011. Chief Justice Roberts recused himself, so the case will be decided by the remaining eight justices.
Megan M. La Belle is an assistant professor at the Catholic University of America, Columbus School of Law, where she teaches and researches in the area of intellectual property law and procedure. Her article "Patent Litigation, Personal Jurisdiction, and the Public Good" recently appeared in the George Mason Law Review.
Although the US Patent & Trademark Office (USPTO) and the Department of Justice (DOJ) have been at odds on the issue of the patent eligibility of genetic material isolated from a living organism, the two agencies are speaking with one voice against the Federal Circuit's recent decision in Hyatt v. Kappos. In that en banc opinion, the court broadened a patent applicant's rights associated with the "remedy by civil action" provided by Section 145 of the Patent Act. Under § 145, an applicant can file a civil action in DC District Court whenever "[a]n applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences."
In a 6-2-1 decision, the Federal Circuit reversed its prior precedent and held that a patent applicant is allowed to introduce new evidence in a Section 145 civil action filed to challenge a USPTO refusal to grant patent rights and that the issues implicated by the new facts must be considered de novo.
Judge Moore wrote in the majority opinion that:
[W]e hold that the only limitations on the admissibility of evidence applicable to a § 145 proceeding are the limitations imposed by the Federal Rules of Evidence and Federal Rules of Civil Procedure. Therefore, we hold that the district court applied the wrong legal standard for the admissibility of evidence in a § 145 proceeding and abused its discretion when it excluded Mr. Hyatt's declaration. . . .
The particular significance of a § 145 civil action is that it affords an applicant the opportunity to introduce new evidence after the close of the administrative proceedings—and once an applicant introduces new evidence on an issue, the district court reviews that issue de novo.
However, the Court also held that an applicant may still be barred from presenting new "issues" in the civil action and that, when no new evidence is presented, that BPAI findings and rulings should be given deference under the Administrative Procedures Act.
Petition for Writ of Certiorari: In its petition to the Supreme Court, the US Government argues that the Federal Circuit decision is faulty because it "disregards fundamental principles of administrative law" and diverges from the traditional understanding of the statute.
Getting from the PTO to the Court: After losing at the Board, an applicant has two primary avenues for challenging the Board's decision: (1) Appeal to the Court of Appeals for the Federal Circuit under 35 U.S.C. § 141; or (2) File a civil action in district court under 35 U.S.C. § 145. In Dickinson v. Zurko, the Supreme Court held that Federal Circuit direct review of BPAI decisions under Section 141 must follow the deferential standards that govern judicial review of final agency action under the Administrative Procedure Act (APA). 527 U.S. 150 (1999). In that decision, the Supreme Court distinguished between Section 145 and Section 141 actions – noting that Section 145 actions "permit the disappointed applicant to present to the court evidence that the applicant did not present to the PTO." However, the court did not address the particular circumstances in which new evidence may be permitted nor did it address how the new evidence should be treated.
Here, the government asks the Supreme Court to fill the gap in Zurko by holding that:
The plaintiff in a Section 145 action may not introduce new evidence that could have been presented to the PTO in the first place; and
When new evidence is introduced, the district court should still give deference to the prior decisions of the PTO.
Background: Gilbert Hyatt is a well-known inventor and successful patentee. Hyatt filed a civil action in 2003 after the BPAI sustained written description and enablement rejections for seventy-nine of Hyatt's claims. The examiner had issued "2546 separate rejections of Mr. Hyatt's 117 claims" based on the doctrines of inadequate "written description, lack of enablement, double patenting, anticipation, and obviousness." The Board reversed all of the examiner rejections except for the § 112 p1 arguments. Complicating this case is the fact that the application's claimed priority date is 1975. Hyatt has aggressively pushed the bounds of USPTO practice. This decision is one of more than a dozen Federal Circuit decisions focusing on Hyatt's patent rights. If the Supreme Court takes the case, it will be the second for Hyatt who won a 2002 case against California income tax collectors. In that case, California was pursuing Hyatt for tax revenue for his patent licenses. Hyatt took the case to the Supreme Court and eventually won a $388 million judgment against the state of California for invasion of privacy.
In re violation of Rule 28(D) (Fed. Cir. 2011) (precedential order) Download 11-m976 order Panel: Dyk (author), Prost, and Moore
Patent litigations, by their nature, often invove commercially sensitive information. Unsurprisingly, parties are frequently reluctant to reveal the innermost workings of their manufacturing processes or valuable financial data. To preserve the confidentiality of this information, parties enter into agreed-upon protective orders that help ensure that their proprietary information is not disclosed outside the confines of the litigation.
The difficulty arises when it comes time for judicial resolution of the dispute. Although parties can readily agree to keep materials they exchange among themselves confidential, once that information must be presented in court or placed into a judicial opinion, it is much more difficult to prevent public access. In part this is due to practical realities (for example, although it is a possible approach, clearing a courtroom during a trial or hearing is a cumbersome process), but it is also due to the public's right of access to court proceedings, as recognized in Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 597-99 (1978).
The difficulty of maintaining the confidentiality of particular information becomes even greater when the lawsuit is on appeal. Federal Circuit Rule 28(d) does permit the use of confidentiality markings in briefs, but in general the Federal Circuit has demonstrated a dislike for the overuse of confidentiality designations, especially when it would interfere with the preparation and dissemination of its opinions.
The Federal Circuit's view on confidentiality designations is particular apparent in a recent precedential order imposing a monetary sanction on Sun Pharmaceutical Industries, Ltd. and Caraco Pharmaceutical Laboratires, Ltd. (collectively "Sun") for the extensive use of improper confidentiality markings. Sun was apparently so concerned about revealing the contents of a confidential license agreement and proposed consent judgment that it marked vast swaths of its brief as confidential, including essentially all of its legal argument.
Following oral argument, the CAFC issued an order instructing Sun to show cause why it should not be sanctioned for the violation of Rule 28(d). In response, Sun attempted to justify its use of extensive confidentiality designations, an approach that did not sway the court. Even leaving aside the question of whether the the agreements were properly designated, Sun's designations nevertheless fell far on the side of error.
Particular concerning to the court was Sun's designation of its legal arguments. This type of material is generally afforded little, if any, protection:
The marking as confidential of legal argument concerning the propriety of a decision by the court is generally inappropriate given the strong presumption of public access to court proceedings and records. Rule 26(c)(1)(G) is limited to commercial information that has competitive significance. The marking of legal argument as confidential under Rule 26(c)(1)(G) cannot be justified unless the argument discloses facts or figures of genuine competitive or commercial significance. That is certainly not the case here, and there is no claim that it is.
…
Further, much of the material marked as confidential does not even disclose the nature of the triggering event. For example, legal argument regarding the preclusive effect of consent judgments was marked as confidential in the briefs submitted by Sun. See Addendum at i–ii. One of the most blatant examples of improper confidentiality markings involves case citations and parentheticals describing the cited cases which are used to support the proposition that “parol evidence should have been examined to resolve the ambiguity and determine the intent of the parties.” See id. at iii–iv.
Slip Op. at 14. Due to the severity of the improper confidentiality designations, the CAFC imposed a sanction of $1,000 on counsel for Sun. Although perhaps a relatively small monetary sanction, the CAFC rarely imposes such a penalty, suggesting that the conduct in this case was particularly troubling to the court. For those interested in examples of improper confidentiality markings in Sun's brief, the court included an addendum containing relevant quotations.
This is a guest post by Professor ColleenChien of Santa Clara University School of Law. The FTC relied heavily on Professor Chien’s empirical work for several aspects of its report.
While most of the focus right now is on Congress, the Federal Trade Commission (FTC) has recently weighed in on the patent system through its publication of “TheEvolvingIPMarketplace.“ Though readers of the entire 302-page report may be limited in number, if the past is any indication of the future, they are likely to be well-placed. The report’s 2003 prequel, “ToPromoteInnovation” has been cited by the Supreme Court (in Ebay), the Solicitor General (intheUSbriefinKSR), and in Congress, and by lower courts, amicus briefs, and observers of the patent system. That report was a landmark, underscoring the need to strike a balance between competition and innovation, and drawing attention to the problem of “questionable patents.” A number of its recommendations, in some form, have been adopted (elevation of the wilfulness standard, changing the obviousness standard) or are under consideration (post-grant opposition, modifying the presumption of validity). As with the 2003 report, this report bases its findings on hours of public testimony, provided over nine days of hearings and a workshop, by many members of the patent community.
The impetus for the current report has been changes in the patent marketplace, through which inventions may be transferred prior to the invention’s commercialization, ex ante, or licensed after the technology has been put into practice, ex post. The report notes that of these, ex ante transfers are increasingly important as more and more innovation comes from small and younger firms. In 1981, 70% of US R&D came from large companies (25K+ employees), and only 4.4% from companies with less than 1,000 employees; in 2005, the proportions were 37.6% and 24.1%, respectively. (p.36-7). The report is less sanguine about ex post transactions, which it criticizes for distorting competition in high-tech industries and deterring certain kinds of innovation. In noting that such transactions are increasing, the report gives certain kinds of NPEs – those focused on buying and asserting patents, rather than developing and transferring them – a new name: patent assertion entity (or “PAE”). (Side note: I have used this term in my own work, and agree with others that the relationship between PAEs and practicing entities is complex: as Idescribe, like PAEs, practicing entities also buy and sell into the marketplace, sue in areas in which they don’t operate, and in some cases, maystealthilypartnerwithPAEs in their activities).
To improve the efficiency of the patent system vis a vis both ex ante and ex post transactions, the report says, patent notice and patent remedies both need to be addressed. What’s notable is not only what the report recommends, but, as described below, who the report says should implement its recommendations.
Multi-Dimensional Patent Notice Problem. The report describes the problem of a lack of patent notice, particularly in high-tech industries, with reference to many aspects of the patent system. Companies can’t clear their rights at the product planning stage because they can’t sift through a multitude of patents. Even when particular patents are identified, their boundaries are unclear, and can also change a lot between publication and issue. You can’t necessarily tell who owns a patent because patentees don’t have to record their transfers. To cure these problems, the report recommends, for example, bolstering enforcement of 112 para. 1 and requiring recording of transactions as well as identification of the real parties in interest to a transaction.
Replicating the Market Reward. The FTC adds its voice to the chorus of those who believe that remedies law, in particular damages law, needs repair, but also articulates the principles and theory it believes should guide change. Patent remedies should reflect the economic value of inventions, and replicate the reward provided by the marketplace. The report provides a point by point analysis of the factors that district courts and the ITC consider in awarding remedies, setting forth “an economically-grounded approach” to remedies.
Post-Ebay Injunctions: In a side analysis, the report addresses the sense that, post-Ebay, it’s much more difficult for non-practicing entities to get permanent injunctions. The report indicates that that’s not necessarily true: through March 2010, district courts granted about half of the requests for injunction they received from non-practicing entities (seven of thirteen, or a rate of 54%, as compared to a general grant rate at 72-77%) (p.217). The successful requests tended to come from universities and research and development organizations (p.262-4), however, who arguably don’t fit the definition of “PAE.”
Recommendations – Differentiated Roles for the PTO, courts, Congress, and the Public: What the FTC recommends, and who it says should implement its recommendations are both worth noting. Congress’ list of to-do’s, for example (shoring up PTO funding and requiring recordation of assignments – neither of which are in the current bills), is notably short. The bulk of the work has instead been assigned to courts, which, as Dennis detailedbeforeCongresshave taken the laboring oar in reforming patent law. The FTC tasks district courts and the Federal Circuit with fixing damages law, carefully considering injunctions, and enforcing 35 USC 112 para. 1. Many suggestions are also aimed at the PTO, who the report says should work alone or together with the public to, for example, foster uniformity in software inventions, put examiner interviews on the record, and press applicants for improved disclosure. As the Federal Circuit’s Unilocdecision, and the PTO’s recently introduced supplementary 112 guidelines show, their work is well underway.
Colleen Chien, Assistant Professor at Santa Clara University Law School
The White House today released a white paper on its recommendations for intellectual property enforcement legislation. The recommendations all involve increasing rights and increasing penalties “so as to more effectively address the substantial harm caused by intellectual property crimes.”
Recommended changes include:
Increase prison term for counterfeit drug distributors;
Increase prison terms for theft of trade secrets;
Increase prison terms for intellectual property offences that risk serious bodily injury;
Clarify that unlicensed streaming of copyrighted material is a felony;
Provide the federal government with authority to conduct wiretaps when pursuing criminal copyright and trademark offenses;
Create a new right of public performance for copyright owners for sound recordings transmitted by over-the-air broadcast stations;
As a reminder, willful copyright infringement is a crime so long as committed either (a) for commercial advantage or private financial gain; (b) by copying or distributing works with a retail value of more than $1,000 within a 180-day period; or (c) making a commercial work “available on a computer network accessible to members of the public.” 17 U.S.C. § 506. Federal law also makes it a crime to steal, appropriate, take, carry away, or conceal a trade secret or to obtain the trade secret by fraud, artifice, or deception – with intent to convert the trade secret and for the economic benefit of someone other than the trade secret owner. 18 U.S.C. § 1832. The trade secret law creates a criminal cause of action against someone “copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information” or “receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization.” Finally, the trade secret law also creates a criminal cause of action for attempts and conspiracies.
Earlier today, I testified in Congress before the House of Representatives Judiciary Committee’s Subcommittee on Intellectual Property, Competition, and the Internet. [Link] The IP subcommittee will have jurisdiction over any patent reform measures introduced to the House. The other two witnesses were Professor Dan Burk (UC Irvine) and Andrew Pincus (Mayer Brown, representing BSA). The focus of today’s hearing was on the changes that have occurred in patent law since the patent reform process began in 2004. I.e., what is left for Congress to reform? Our written and recorded testimony is available online here: http://judiciary.house.gov/hearings/hear_03102011_2.html.
Questioning was extensive and included questions from subcommittee Chairman Goodlatte (R-VA), Vice-Chairman Watt (D-NC), and Representatives Conyers (D-Mich), Nadler (D-NY), Chu (D-CA), Reed (R-NY), and Adams (R-FL). Representatives Coble (R-NC) and Quayle were also in attendance.
My written Testimony Follows:
Committee on the Judiciary< ?xml:namespace prefix ="" o />
United States House of Representatives
Subcommittee on Intellectual Property, Competition and the Internet
Hearing
“Review of Recent Judicial Decisions on Patent Law”
We are likely nearing a turning point in a decade-long process of patent reform.Although there is still clearly a strong demand for legislative measures, much has changed since the landmark FTC and NAS point-by-point criticisms of the patent law system were released in 2003 and 2004 respectively.[1] Likewise, much has changed in the six years since the Patent Reform Act of 2005 was introduced in the House of Representatives.[2]Perhaps in response to these external pressures, the Federal Courts have taken a more active role in shaping patent policy from the bench and have particularly addressed many of the concerns raised by the various patent reform initiatives.
In most areas of law, court-developed doctrines mature quite slowly.Over the past decade, however, patent law has been a dramatic counter-example.The courts have substantially altered many longstanding patent doctrines in the course of a few short years.[3]Several factors combine to explain this phenomenon.First, unlike most other federal legal questions appealed to regional Circuit Courts of Appeal, virtually all patent law related appeals from across the country are heard by the Court of Appeals for the Federal Circuit (the “Federal Circuit”).The national reach of the Federal Circuit means that a ruling by the court has an automatic nationwide impact in much the same way that decisions by the United States Supreme Court have a nationwide impact.However, unlike the Supreme Court, the Federal Circuit hears hundreds of patent cases each year.Over the past ten years, the funneling of patent appeals to the Federal Circuit has resulted in the court hearing over four thousand patent infringement appeals in addition to its review of patent decisions from the United States Patent and Trademark Office (the “Patent Office”) and the International Trade Commission.[4]The large number of cases provides the court with the opportunity to rapidly shift the law, even when each case presents only an incremental change. In addition to the means to effect change, it is apparent that both the Federal Circuit and the Supreme Court have taken an interest in shaping patent law policy.[5]Finally, unlike many Federal statutes, the Patent Act as codified in Title 35 of the United States Code is a relatively sparse statute that leaves tremendous leeway for interpretation.
Over the past six years, the Supreme Court granted certiorari and issued a number of important patent decisions that:
·Make it easier to invalidate (or reject) a patent on obviousness grounds, KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007) (eliminating technical hurdles for proving an invention obvious and instead applying a “common sense” analysis for assessing patentability);
·Make it more difficult for a patent holding company to obtain injunctive relief to stop ongoing infringement, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (holding that even an adjudged infringer should not be automatically enjoined from continuing to infringe; rather an injunction should only issue after consideration of the traditional four-factor test for equitable injunctive relief);
·Make it easier for a manufacturer to obtain a declaratory judgment of non-infringement, MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) (holding that declaratory judgment (“DJ”) jurisdiction may exist even if the patent holder could not have sued the DJ plaintiff for infringement; apprehension that patentee will sue for infringement is not a necessary element for Article III jurisdiction);
·Solidify our understanding of the scope of patentable subject matter available for business method patents, Bilski v. Kappos, 130 S. Ct. 3218 (2010) (invalidating Bilski’s claimed invention – a method of hedging against the occurrence of bad weather – as an unpatentable abstract idea);
·Limit the doctrine of export infringement under 35 U.S.C. § 271(f), Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007) (holding that Microsoft could not be held liable for exporting software code because the exported source code does not qualify as a “component” under the statute); and
·Provide roadmaps for stronger patent licensing agreements, see Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617 (2008) (patent “exhausted” under first sale doctrine because patentee did not restrict licensee’s sales to third party purchasers) and Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006) (holding that in antitrust tying cases, courts should not presume that a patent confers market power).
During this time, the Federal Circuit has also actively addressed patent reform issues with decisions that:
·Attempt to implement venue reform in a way that limits unreasonable forum shopping, In re TS Tech United States Corp., 551 F.3d 1315 (Fed. Cir. 2009) (on writ of mandamus, ordering case transferred out of venue that had no meaningful ties to the patent infringement case);[6]
·Rationalize patent damage awards, Uniloc USA, Inc. v. Microsoft Corp., ___ F.3d ___, 2011 U.S. App. LEXIS 11 (Fed. Cir. 2011) (holding that the 25% Rule for calculating patent damages is “fundamentally flawed” and that total product revenue cannot be considered in the reasonable royalty analysis unless the Entire Market Value Rule applies.) and Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009) (requiring a proof that purported “comparable” licenses used for calculating a royalty rate are, in fact, comparable); Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc., 609 F.3d 1308 (Fed. Cir. 2010).
·Limit enhanced damages, In re Seagate, 497 F. 3d 1360 (Fed. Cir. 2007) (limiting the potential for treble damages to cases where the adjudged infringer’s actions were at least “objectively reckless”) (see Chart 1);
·Expand the false marking doctrine, Forest Group Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009);
·Limit inequitable conduct pleadings, Exergen Corporation v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009) (requiring that inequitable conduct pleadings include “specific who, what, when, where, and how of [any] material misrepresentation or omission”); and
As we sit here today, the courts also have a number of important cases pending resolution. Among others, these include:
·A challenge to the presumption of validity associated with issued patents, Microsoft Corp. v. I4I Ltd. P’ship, 131 S. Ct. 647 (2010) (certiorari granted on the issue of whether the presumption of validity associated with an issued patent must always be overcome with clear and convincing evidence);
·A challenge to the patentability of genetic material, See Ass’n for Molecular Pathology v. United States PTO, 2010 U.S. Dist. LEXIS 35418 (S.D.N.Y. 2010) (holding BRCA gene patents invalid for being directed to a law of nature);
·A Constitutional challenge to the False Marking provisions of the Patent Act, Unique Prod. Solutions, Ltd. v. Hy-Grade Valve, Inc., 2011 U.S. Dist. LEXIS 18237 (N.D. Ohio 2011) (holding the False Marking statute unconstitutional) and United States ex rel. FLFMC, LLC v. Wham-O, Inc., Fed. Cir. App. No. 2011-1067 (pending appeal challenging Constitutionality of the statute);[8]
·A question regarding the mens rea requirement for inducing infringement under 35 U.S.C. § 271(b), Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 458 (2010) (grant of certiorari);
·A major challenge to the implementation of the judge made law of inequitable conduct, TheraSense, Inc. v. Becton, Dickinson & Co., 374 Fed. Appx. 35 (Fed. Cir. April 26, 2010) (en banc order requesting briefing); and
·A challenge to patent ownership rights under the Bayh-Dole Act, Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S. Ct. 502 (2010) (grant of certiorari).
For better or worse, the courts have substantially shifted the playing field over the past six years. And, the cases currently pending and in the pipeline appear poised to continue this process.Of course, the courts have limited power and cannot make statutory amendments or offer funding to the Patent Office. It is safe to say, however, that the courts have addressed (or are addressing) virtually all of the legitimately raised patent reform issues that fall squarely within their purview. Within this dynamic, an important ongoing role of Congress is at least to ensure that the courts are making the right policy choices.
Patent Office Backlog: A key issue of patent law policy that has not been adequately addressed in the past six years is the growing backlog of patent applications pending at the Patent Office.Although the current Patent Office management team is quite focused on reducing the backlog, their efforts have not been overwhelmingly successful to-date.As seen in Chart 2 (below), the overall backlog of patent applications pending at the USPTO has increased more than 30% since 2005.The forced delay is troubling for patent applicants because the exclusive patent right is only enforceable once the patent issues, and typically only against post-issuance infringement.The multi-year prosecution delay is also troubling for potential competitors and customers because the patent right may eventually spring-forth to re-capture exclusive rights that had been in public use for years.
Even more dramatic, is the twenty seven fold (~2700%) increase in the backlog of cases awaiting decision at the Board of Patent Appeals and Interferences (BPAI). (Chart 3).The long and growing backlog of appeals more than doubles the expected duration of the patent prosecution process for the almost 50% of patent applicants that achieve at least a partial victory on appeal.
These backlogs likely cannot be directly corrected by the courts. Instead, every effort must be made to ensure that the Patent Office is enabled and encouraged to right its own ship.In the short term, the Patent Office will need to hire more examiners; re-work its failing information technology system; and apply effective negotiation theories to the examination process.In the longer term, world patent offices must work-share when examining duplicate patent applications that have been filed in multiple countries.[9]In addition, there are some relatively easy steps that can be taken to help ensure that patent applications are filed in a way that make them easier to examine.This may include (1) requiring applicants to better delineate their invention and its purposes and (2) more rigorously enforcing the requirement that claims be clearly drafted in a way that relates to the invention as disclosed.
Obviousness and the Backlog: The bulk of time spent in the patent examination process and in appeals to the BPAI revolves around the issue of obviousness.[10]In other words, the backlogs can be largely attributed to time spent arguing the difficult issue of obviousness. Unfortunately, nothing in the proposed legislation does anything directly to alleviate this burden.Although the process of examining patents for obviousness may seem to be one best left to the administrative agency, the Patent Office is bound to follow the examination processes laid out by the courts in KSR v. Teleflex[11] and Graham v. John Deere Co.[12]Because so much time and energy is spent on this issue during the examination process, it may be one where increased substantive rulemaking authority would allow the Patent Office to create a more manageable approach to the statutory question.
Foreign Inventor Influence on the US Patent System: Through a number of reciprocal international agreements such as Paris Convention, the US has promised citizens of other countries access to the US patent system.[13]Under these agreements, an innovative Japanese company seeking exclusive rights in the US market could obtain US patent protection and enforce those rights in US courts against US competitors.Despite this offer of rights, the bulk of issued US patent have always been based on US originated inventions.This practical statistic meant that, historically, US patent reform primarily impacted US companies and US inventors.Over the past six years, the statistic changed, and for the first time in history, the majority of US patents are now being issued on foreign-originated inventions. (Chart 4).
For some, this decline in US-centric dominance of the US patent system will serve as a sign that US innovation could use additional encouragement. In addition, however, the decline may signal a need to change our outlook on the role of patent rights in US policy. Certainly, the offer of patent rights encourages innovation and disclosure of new inventions.However, this incentive is felt around the world – encouraging companies in Australia or Germany to innovate in their home countries in order to capture an exclusive slice of the US market.[14]In this framework, patent reform is much more than a domestic policy issue. Rather, it becomes an issue of rooted in international trade and international relations.This is not a new concept, but one that should be kept in mind as the legislation moves forward.
Rise in Patent Reexamination Filings: The US has two primary post-grant opposition processes already in place: (1) inter partes reexamination and (2) third-party requested (or prompted) ex parte reexamination.Prior to 2005, it appeared that many potential defendants and accused infringers were reluctant to use the post-grant opposition processes.That reluctance has largely evaporated – in part because of the USPTO’s successful implementation of a Central Reexamination Unit (CRU) composed of elite and highly trained patent examiners in sufficient quantity to have a high response rate.[15]In addition, patent law professionals have seen that reexamination can be an effective and relatively inexpensive alternative to litigation.At this point, high-dollar patent infringement lawsuits are usually associated with a parallel reexamination of the patents in-suit – so long as the defendant has a credible obviousness argument based on published materials.Table 1, shows the rise in popularity of reexaminations over the past few years.
Percent Change in Number of Reexamination Requests
Inter Partes Reexamination Requests
53
903
1704%
Ex Parte Reexamination Requests
1,719
3,272
190%
A notable limitation of the current reexamination system is that reexaminations are only allowed to consider certain invalidity arguments (obviousness and anticipation) and apply a limited set of prior art (patents and printed publications).Many countries offer broader latitude in their opposition proceedings, although some of those countries completely divide duties between the administrative agency (handling invalidity issues) and the court (handling infringement).[17]The dramatic shift in usage of available post grant options gives me pause to consider whether the proposed reforms in 2005 offered a permanent solution to what was merely a temporary problem.
A more straightforward approach to issues now before the Committee is to identify elements of prior patent reform measures that have not been addressed by the courts. These include:
(1)Easing the USPTO’s ability to set fees for its services and to retain all fees collected;
(2)Moving from a “first-to-invent” system to a “first-to-file” system;
(3)Expanding prior-user rights;
(4)Requiring that all patent applications be published by the USPTO;
(5)Allowing pre-issuance protests (or prior art submissions) by third parties;
(6)Expanding the scope of post-grant reexamination or adding an additional post-grant opposition proceedings;
(7)Eliminating the “best mode” requirement; and
(8)Easing the rules for assignee submission of patent filings without the inventor’s express permission.
Each of these reform measures have their own potential benefits and detriments that vary according to the implementation approach chosen.
Thank you for this opportunity to present my remarks.
Dennis Crouch
March 10, 2011
[1] Federal Trade Commission, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, A Report by the Federal Trade Commission, October 2003; Nat’l Res. Council of the Nat’l Acads., A Patent System for the 21st Century (Stephen A. Merrill et al. eds., National Academies Press).
[3] See William C. Rooklidge & Alyson G. Barker, Reform of a Fast-Moving Target: The Development of Patent Law Since fee 2004 National Academies Report, 91 J. Pat. & Trademark Off. Soc’y 153 (2009).
[4] Federal Circuit Statistics, Filings of Patent Infringement Appeals from the U.S. District Courts at http://www.cafc.uscourts.gov.
[5] Polk Wagner & Lee Petherbridge, Is the Federal Circuit Succeeding? An Empirical Assessment of Judicial Performance, 152 U. Pa. L. Rev. 1105 (2004) (“since its inception, the [Federal Circuit]—with some assistance from the Supreme Court—has moved aggressively in support of its widely perceived mandate”); Paul R. Michel, Assuring Consistency and Uniformity of Precedent and Legal Doctrine in the Areas of Subject Matter Jurisdiction Entrusted Exclusively to the U.S. Courts of Appeals for the Federal Circuit: A View from the Top, 58 AM. U. L. REV. 699, 702 (2009); Craig Allen Nard & John F. Duffy, Rethinking Patent Law’s Uniformity Principle, 101 Nw. U. L. Rev. 1619 (2007); Dan L. Burk & Mark A. Lemley, The Patent Crisis and How the Courts Can Solve It (2009)
[6] The TS Tech decision appears to have had a major impact on patent venue jurisprudence. In the two years since the case was decided, its analysis has been followed by almost four dozen different courts.See, for example, Promote Innovation LLC v. Leviton Mfg. Co., 2011 U.S. Dist. LEXIS 16294 (E.D. Tex. Feb. 17, 2011) (granting accused infringer’s motion to transfer venue from the Eastern District of Texas to the Eastern District of New York).
[7] The Tafas decision was vacated pending rehearing en banc and eventually dropped after the USPTO retracted its planned implementation of rules that would limit both the number of claims that an applicant could file per patent application and the number of continuation applications an applicant could file based on a single invention disclosure. See also, Arti K. Rai, Growing Pains in the Administrative State: The Patent Office’s Troubled Quest for Managerial Control, 157 U. PA. L. REV. 2051 (2009).
[10] Dennis Crouch, Understanding the Role of the Board of Patent Appeals: Ex Parte Rejection Rates on Appeal, University of Missouri School of Law Legal Studies Research Paper No. 2009-16 (2009) at http://ssrn.com/abstract=1423922. (90% of BPAI appeals involve a question of obviousness).
[12] 383 U.S. 1 (1966) (setting out the process of the obviousness inquiry as used in both courts and the Patent Office).
[13]Paris Convention for the Protection of Industrial Property, art. 2.
[14] See Commonwealth Sci. & Indus. Research Organisation v. Buffalo Tech., 542 F.3d 1363 (Fed. Cir. 2008) (Australian government entity suing on its US software related patent in the Eastern District of Texas).
[15] Gregory Novak, Concurrent Reexaminations as a Strategic Patent Litigation Defense Tool, 1020 PLI/Pat 797 (2010) (“since the inception of the Central Reexamination Unit (CRU), reexamination proceedings are producing favorable results [for the third-party] in a more timely manner”).
[17] To my knowledge, no one has studied the potential impact of increasing the scope of US reexamination practice or adding a broader layer of post grant opposition.
ABB Inc. v. Cooper Industries, LLC (Fed. Cir. 2011) Download 10-1227 Panel: Rader, Lourie, and Dyk (author)
In ABB v. Cooper, the CAFC addressed the previously unanswered question of whether federal subject matter jurisdiction exists over a declaratory judgment patent infringement action where the alleged infringer raises only a state law defense to infringement.
Four years prior to the litigation on appeal the parties had entered into a license agreement to settle a lawsuit in which Cooper asserted that ABB's manufacture of a vegetable oil based dielectric fluid, called BIOTEMP, infringed several of Cooper's patents. That license permitted ABB to make or "have made" its dielectric fluid; however, it did not include "the right of any third party to make BIOTEMP or any other fluid covered by the Cooper Patents." ABB also acknowledged in the agreement that each of the Cooper patents are valid and enforceable and that BIOTEMP is covered by one or more of their claims.
ABB subsequently outsourced the manufacture of BIOTEMP to Dow Chemicals, which it agreed to indemnify against claims of infringement by Cooper. In response, Cooper wrote to ABB and Dow to indicate that it viewed this as a material breach of the license agreement and would "act vigorously to protect its rights in that event." This led to ABB's filing of a declaratory judgment action in federal court in which it sought a declaration that its activities were authorized under the license agreement and, in an amended complaint, seeking declarations that it does not infringe the Cooper patents. The district judge concluded that ABB's complaint presents no federal question, and thus dismissed the case for lack of subject matter jurisdiction.
Comment: Although not completely clear, the opinion's treatment of the issue suggests that the noninfringement contention is based entirely on ABB's license defense.
No specific threat of infringement litigation required On appeal, the CAFC first rejected Cooper's argument that no actual controversy existed. After dismissing the view that there must be a specific threat of infringement litigation by the patentee as being an impermissible attempt to revive the "reasonable apprehension of imminent suit" test rejected by the Supreme Court in MedImmune, the CAFC concluded that the facts of this case were sufficiently similar to those of MedImmune and Micron Tech., v. Mosaid Techs., Inc., 518 F.3d 897 (Fed. Cir. 2008) to warrant the issuance of a declaratory judgment. Focusing on the warning letters, the court concluded that "under Micron and MedImmune, there was an immediate controversy surrounding infringement. ABB had an interest in determining whether it would incur liability for induced infringement, and it had an interest in determining whether it would be liable for indemnification, which turned on whether Dow would be liable for infringement." Slip Op. at 6-7.
Resolution of the state law defense issue left open by Textron The CAFC also resolved a jurisdictional question left open by the Supreme Court in Textron Lycoming Reciprocating Engine Div., AVCO Corp. v. Auto. Workers, 523 U.S. 653 (1998): "whether federal courts have jurisdiction over a declaratory judgment action where there is a federal cause of action but only a state law defense." Slip Op. at 9. While a longstanding rule holds that subject matter jurisdiction exists over declaratory judgment actions that are based on a claim of patent infringement, Cooper contended that it did not apply because the only defense raised by ABB in the district court was its state law license defense. Although discussed in Justice Breyer's concurrence, the Supreme Court explicitly left the issue open in Textron, and it remained unresolved by subsequent courts of appeals.
Addressing the issue as one of first impression, the CAFC reached the same conclusion as Justice Breyer:
[W]e conclude that federal question jurisdiction exists here. The general rule, articulated repeatedly by the Supreme Court, is that declaratory judgment jurisdiction exists where the defendant’s coercive action arises under federal law. See Franchise Tax Bd., 463 U.S. at 16, 19; Wycoff, 344 U.S. at 248; see also Speedco, 853 F.2d at 912. We see no reason to depart from that general principle where the defense is non-federal in nature.
Slip Op. at 11-12. In short, the subject matter inquiry for a declaratory judgment action focuses on the defendant's hypothetical well-pleaded Complaint, and thus the defenses raised by the declaratory judgment plaintiff are irrelevant to the inquiry:
According to Franchise Tax Board, then, federal jurisdiction in this type of case depends on the federal character of the hypothetical infringement suit and not the federal character of the invalidity defense. Indeed, “it now seems settled that [a party threatened with an infringement suit] can sue for a declaratory judgment of invalidity or noninfringement [because] the federal nature of the claims appears on the complaint . . . and the precise issue could have been litigated in federal court in a coercive action brought by [the patentee].” 10B Wright, Miller & Kane, Federal Practice and Procedure § 2767, at 650–51 (3d ed. 1998) (emphasis added)).
Licensing Executives Society will hold its winter meeting in San Jose from February 10-11. Speakers include Damon Matteo, Nola Masterson, and Bruce Lehman. Patently-O readers get $200 of the registration rate by using code PO11. [Link]
Practising Law Institute (PLI) will hold its 5th annual Patent Law Institute in New York from February 17-18. Deputy Director Sharon R. Barner will deliver the USPTO keynote address. [Link]
The Texas Intellectual Property Law Journal will host its 12th annual Intellectual Property Symposium on February 18th in Austin. [Link]
The Missouri Law Review is hosting a Symposium on February 25th in Columbia Missouri about the patent jurisprudence of the Court of Appeals for the Federal Circuit. We’ll have a number of great speakers, including USPTO Director David Kappos. [Link] (Free event and free CLE).
13th Annual Richard C. Sughrue Symposium on Intellectual Property Law and Policy will be held in Akron on March 21. Guest Speakers include Donald Chisum, Judge Paul Michel, and Marybeth Peters. [Link]
Johnson & Johnson loses patent infringement suit
A jury in Texas has ordered J&J to pay $482 million to inventor Bruce Saffran for infringing his patent. Saffran’s patent # 5,653,760 [Link]was for a cardiac stent, which is used after heart surgery. Saffran previously won a $50 million settlement from Boston Scientific for infringing the same patent. [Link]
Virginia State Bar IP Section Law Student Writing Competition
The Virginia State Bar Intellectual Property Section is seeking papers written by law students who are attending law school in Virginia or are residents of Virginia attending law school outside of Virginia relating to an intellectual property law issue or the practice of intellectual property law. The winner receives a cash prize of $4,000. [Link]
Apple Patents Glove for Use with Electronic Devices
Apple has been issued a patent for what they call a “High tactility glove system”. Patent # 7,874,021 states that this glove may be used with an electronic device in cold weather, since regular gloves do work well when using devices like the iPod. [Link]
Sharp files patent infringement suit
Sharp filed a patent infringement suit against Au Optronics, in regards to crystal display (LCD) technology. The companies had a license agreement which expired on December 31st; Sharp wishes to block sales and imports of products that infringe the patent. [Link]
Patent Jobs:
Euro-Pro is seeking a patent agent with an engineering background and 3-5 years experience. [Link]
Roberts Mlotkowski Safran & Cole is looking for an experienced patent attorney with a chemical/chemical engineering degree to work for its Virginia office. [Link]
Ice Miller is seeking a patent attorney with an engineering background and 2-4 years of experience. [Link]
Uniloc USA, Inc. v. Microsoft Corp. (Fed. Cir. 2011) Panel: Rader, Linn (author), Moore
Uniloc v. Microsoft involves a host of issues, although one stands out as particularly noteworthy. While "passively tolerat[ing]" the 25 percent 'rule of thumb' (a method for calculating a reasonable royalty for purposes of infringement damages) in past cases, the CAFC held today that the rule "is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation," thus precluding its use for damages calculations.
Uniloc is the owner of Patent No. 5,490,216, an early patent covering a mechanism for combating "casual copying" of software, where users install copies of a software program on multiple computers in violation of applicable software licenses. In general terms, the patented invention involves the creation of a registration number generated by the software on the user's computer. The number is sent to the vendor's system, which uses an identical algorithm to create a remote license ID. If the numbers match when the application boots, the program enters a "use mode;" if they do not, it enters a "demo mode."
In the suit against Microsoft, Uniloc alleged that the Product Activation feature for Microsoft's Word XP, Word 2003, and Windows XP software programs infringed the '216 patent. A jury agreed, finding that Microsoft not only infringed the patent, but did so willfully. The jury also rejected Microsoft's invalidity defenses and awarded Uniloc $388 million in damages. Following the trial, the district court granted Microsoft's motion for JMOL of noninfringement and lack of willfulness (and in the alternative, ordered a new trial on these issues), but denied its request for a JMOL on invalidity. The court also ordered a new trial on the issue of damages. On appeal, Uniloc challenged the district court's noninfringement, willfulness, and damages rulings, while Microsoft cross-appealed the denial of its JMOL on invalidity. The Federal Circuit affirmed the district judge's rulings on willfulness, damages and invalidity, but reversed on the question of infringement, both with respect to JMOL and the grant of a new trial.
Damages The damages section of the opinion is by far the most significant portion. At trial, the jury awarded Uniloc $388 million in damages, relying on the testimony of Uniloc's expert, who opined that damages should be $564,946,803 based on a hypothetical negotiation between Uniloc and Microsoft and the Georgia-Pacific factors. Using an internal Microsoft document relating to the value of product keys, the expert applied the 25 percent "rule of thumb" to the minimum value reported ($10 each), obtaining a value of $2.50 per key. After applying the Georgia-Pacific factors, which he concluded did not modify the base rate, he multiplied it by the number of new licenses to Office and Windows products, producing the $565 million value. He confirmed his valuation by "checking" it against the total market value of sales of the Microsoft products (approximately $19 billion, noting that it represented only 2.9% of the gross revenue of the products.
The 25 Percent Rule: On appeal, the CAFC first rejected the use of the 25 percent rule to calculate patent damages. "The 25 percent rule of thumb is a tool that has been used to approximate the reasonable royalty rate that the manufacturer of a patented product would be willing to offer to pay to the patentee during a hypothetical negotiation." Slip Op. at 36, citing Robert Goldscheider, John Jarosz and Carla Mulhern, USE OF THE 25 PER CENT RULE IN VALUING IP, 37 les Nouvelles 123, 123 (Dec. 2002). Under the rule, "licensees pay a royalty rate equivalent to 25 per cent of its expected profits for the product that incorporates the IP at issue." Id., quoting Goldscheider et al. Included in the court's discussion of the rule is an extensive survey of the relevant literature (covering no less than nine articles), as well as an acknowledgement that the "court has passively tolerated its use where its acceptability has not been the focus of the case." Slip Op. at 39. However, the court recognized that it never squarely addressed the use of the rule.
Treating the issue as one of first principles, and after considering the relevant Supreme Court caselaw, the CAFC concluded that, as an abstract theory untied to particular factual circumstances of a given case, the 25 percent rule simply cannot be used for damages calculations:
This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.
Slip Op. at 41. The court based its reasoning on the Daubert standard for expert testimony, concluding that general theories are only permissible if the expert adequately ties the theory to the specific facts of the case. Under Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) and General Electric Co. v. Joiner, 522 US 136 (1997), "one major determinant of whether an expert should be excluded under Daubert is whether he has justified the application of a general theory to the facts of the case." Slip Op. at 43.
Applying this principle, the CAFC criticized the application of the 25 percent rule because there was no link between the rule and the specific case:
The meaning of these cases is clear: there must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party.
Slip Op. at 45. In addition, the court pointed to the lack of testimony by Uniloc's expert suggesting that the starting point of a 25 percent royalty had any relation to the facts of the case, and thus the use of the rule was "arbitrary, unreliable, and irrelevant," failing to pass muster under Daubert and tainting the jury's damages calculation. Id. at 47.
Entire Market Value Rule: The CAFC also rejected the expert's application of the entire market value rule, which he used as a check on the total damages. "The entire market value rule allows a patentee to assess damages based on the entire market value of the accused product only where the patented feature creates the 'basis for customer demand' or 'substantially create[s] the value of the component parts.'" Slip Op. at 48. Here, however, there was no evidence that the patented component created the basis for customer demand, as required by the rule: "This case provides a good example of the danger of admitting consideration of the entire market value of the accused where the patented component does not create the basis for customer demand." Slip Op. at 51.
Infringement In opposing Uniloc's challenge on the issue of infringement, Microsoft argued that several grounds supported affirmance of the district court's grant of JMOL of noninfringement. The CAFC rejected each argument in turn, concluding that substantial evidence supported the jury's finding of infringement.
Standard of Review: One issue that sophisticated parties often dispute is the relevant standard that applies when reviewing jury verdicts. This appeal was no different – Microsoft contended that the jury verdict should be reviewed de novo, while Uniloc argued that it should be reviewed for substantial evidence. The CAFC responded by distinguishing situations where "the parties conceded that under one claim construction there was infringement and under the other there was none, and were arguing only over which claim construction was appropriate." Slip Op. at 15. In these cases, de novo review applies. On the other hand, where "the claim construction itself is not contested, but the application of that claim construction to the accused device is," the court applies the substantial evidence standard. Id.
Comment: This distinction reinforces a basic principle of Federal Circuit appellate practice: Parties challenging a jury verdict on the issue of infringement will likely want to frame the dispute on appeal as a question of claim construction; parties defending the verdict will likely want to frame it as a question of application of an accepted construction to the accused product or method. Of course, whether a party will be able to frame the question in a particular way depends largely on how the issue was set up in the district court – which itself is ideally part of counsel's long term strategic thinking.
Applying this standard, the Federal Circuit concluded that the jury's verdict of infringement was supported by substantial evidence, rejecting Microsoft's arguments to the contrary. The court also rejected Microsoft's argument that a critical "means-plus-function" limitation should be read narrowly. To the contrary, the court held, it should be read broadly, applying language from IMS Tech., Inc. v. Haas Automation, Inc., 206 F.3d 1422, 1436 (Fed. Cir. 2000) stating that "when in a claimed 'means' limitation the disclosed physical structure is of little or no importance to the claimed invention, there may be a broader range of equivalent structures than if the physical characteristics of the structure are critical in performing the claimed function."
Expert Testimony, redux: Also of note is the court's ruling with respect to expert testimony as it pertains to infringment. Although the district court rejected the testimony of Uniloc's expert as "incomplete, oversimplified and frankly inappropriate," the CAFC concluded that this rejection was improper because the district court had already fulfilled its gatekeeping function under Daubert when it explicitly noted that the expert was "qualified." Thus, it was up to the jury "to evaluate the weight to be given to the testimony of dueling qualified experts." This application of Daubert seems to be somewhat in tension with the court's treatment of expert testimony in the damages context, which focused on the content of the testimony, not the qualifications of the person giving it.
Joint Infringement: The CAFC also rejected Microsoft's joint infringement argument. Rather than implicating joint conduct, the court ruled, Uniloc's claim was structured so as to capture infringement by a single party by focusing on one entity. "That other parties are necessary to complete the environment in which the claimed element functions does not necessarily divide the infringement between the necessary parties. For example, a claim that reads “An algorithm incorporating means for receiving e-mails” may require two parties to function, but could nevertheless be infringed by the single party who uses an algorithm that receives e-mails." Slip Op. at 29.
Willful Infringement: On the issue of willfulness, the CAFC continued to apply its objective super-threshold for proving willfulness. "If the accused infringer's position is susceptible to a reasonable conclusion of no infringement, the first prong of Seagate cannot be met." Slip Op. at 32. Particularly obtuse is the court's triple-negative articulation of the factual holding: "Uniloc has not presented any evidence at trial or on appeal showing why Microsoft, at the time it began infringement, could not have reasonably determined that [Microsoft's algorithms] did not meet the “licensee unique ID generating means,” “licensee unique ID,” or “registration system”/“mode switching means” limitations."
Presumption of Validity: in addressing Microsoft's cross-appeal of the denial of its motion for JMOL and a new trial on invalidity, the court declined to back away from the "clear and convincing" standard for invalidity. Rejecting Microsoft's argument that its burden was to show invalidity simply by a preponderance of the evidence – as opposed to clear and convincing evidence – because the prior art reference was not before the PTO, the court continued to apply the higher standard. "Until changed by the Supreme Court or this court sitting en ban, this is still the law." Slip Op. at 55. Applying this standard, the court rejected Microsoft's argument that it was simply practicing the prior art, and thus a finding of infringement necessitated a finding of invalidity.
WiAV Solutions LLC v. Motorola, Inc. (Fed. Cir. 2010) Panel: Rader, Linn (author), Dyk
WiAV is the purported exclusive licensee of seven patents relating to aspects of signal transmission and data encoding/decoding owned by Mindspeed Technologies, Inc. In 2009, WiAV sued a set of companies including Motorola, Inc.; Nokia Corporation; Palm, Inc.; and Sony Ericsson Mobile Communications (USA), Inc. for infringement of the Mindspeed patents. The defendants contended, and the district court agreed, that WiAV lacked constitutional standing to assert the patents because WiAV is not an exclusive licensee of the patents under Textile Productions, Inc. v. Mead. Corp., 134 F.3d 1481 (Fed. Cir. 1998), which they argued holds that a party cannot be an exclusive licensee of a patent when a third party has the right to license the patent.
In reversing the district court's dismissal, the CAFC rejected this argument, instead holding that "a licensee is an exclusive licensee of a patent if it holds any of the exclusionary rights that accompany a patent." Slip. Op. at 17 (emphasis added). This decision is in the vein of the court's earlier decision this year in Alfred E. Mann Foundation For Scientific Research v. Cochlear Corp., 604 F.3d 1354, in which it concluded that a licensee is an exclusive licensee of a patent despite retaining the ability to license the patent to settle lawsuits.
Scope of the Licensing The licensing rights at issue were held by six third parties, and stemmed from a series of spin-offs and other agreements that occurred as the patents were transferred from company to company. For example, when Rockwell International Corporation, the original owner of the Mindspeed patents, assigned them to Conexant, the second owner, its subsidiary, Rockwell Science Center, received a limited, non-exclusive license to use the patents in connection with its business, along with the right to sublicense to Rockwell International and its "Affiliates," or to transfer the license in connection with the sale of the respective businesses to which the intellectual property rights relate. The district court found that several of these licensees retained a limited right to license the patents in the field of wireless handsets, and concluded that under Textile Productions, WiAV could thus not be an exclusive licensee of the Mindspeed Patents.
Any Exclusionary Rights On appeal, the CAFC rejected the argument that, under Textile Productions "a licensee cannot be an exclusive licensee of a patent if others retain the right to license the patent." Slip. Op. at 11. Turning straight to the constitutional analysis, the court held that the standing determination focuses only on whether a party has any exclusionary right in a patent:
Because the legally protected interests in a patent are the exclusionary rights created by the Patent Act, a party holding one or more of those exclusionary rights—such as an exclusive licensee—suffers a legally cognizable injury when an unauthorized party encroaches upon those rights and therefore has standing to sue. … Thus, the touchstone of constitutional standing in a patent infringement suit is whether a party can establish that it has an exclusionary right in a patent that, if violated by another, would cause the party holding the exclusionary right to suffer legal injury. Contrary to the suggestion of the Defendants, neither this court’s Textile Productions nor Mars decision freed the constitutional standing inquiry from its legal injury mooring.
Slip Op. at 14-15. Textile Productions, on the other hand, involved only the narrow question of whether a particular type of contract, a requirements contract for a patented product, automatically converts the exclusive supplier into an exclusive licensee. "Nowhere did the Textile Productions court suggest that a party holding one or more of the exclusionary rights in a patent does not have standing to sue to protect those rights against infringement by an unauthorized third party. Nor is there any indication that the court created a bright-line rule that a party cannot be an exclusive licensee of a patent if others have the right to license the patent." Slip. Op. at 16.
The CAFC did impose one important limitation on the broad rule for standing: "Because an exclusive licensee derives its standing from the exclusionary rights it holds, it follows that its standing will ordinarily be coterminous with those rights." Slip Op. at 17. Thus, an exclusive licensee may have standing to sue some parties, but not others; it may also lack standing to sue a party who has the ability to obtain a license from another party with the right to grant it.
Applying its holding, the court concluded that none of the pre-existing licenses granted the right to license the Defendants to practice the patents in WiAV's field of exclusivity, and thus WiAV possessed constitutional standing for this case.
Note: WiAV does not disturb the requirement that "[a]n exclusive licenseee generally must join the patent owner to the suit to satisfy prudential standing constraints, i.e., the 'judicially self-imposed limits on the exercise of federal jurisdiction.'" Slip Op. at 14-15, fn. 1. Here, WiAV had satisfied those concerns by adding Mindspeed to the suit as the "defendant patent owner."
In a bold move, the patent holding company Intellectual Ventures has filed three separate patent infringement lawsuits against major industry players.
Over the past several years, Intellectual Ventures has amassed a large patent portfolio that is held by a complex web of subsidiary companies. According to its court filings:
Intellectual Ventures has purchased more than 30,000 patents and patent applications and, in the process, has paid hundreds of millions of dollars to individual inventors for their inventions. Intellectual Ventures, in turn, has earned nearly $2 billion by licensing these patents to some of the world's most innovative and successful technology companies.
In the first suit, Intellectual Ventures sued Check Point Software, McAfee, Symantec, and Trend Micro for infringement of Patent Nos. 5,987,610, 6,073,142, 6,460,050, and 7,506,155. These patents were originally owned by Ameritech which merged with SBC. According to USPTO assignment records, SBC assigned its rights to the University of Texas which then assigned rights to Verve, an IP broker. Verve then assigned its rights to AUCTNYC8. The assignment to Intellectual Ventures itself has not been recorded. To be clear, the case caption actually states that the plaintiff is "Intellectual Ventures I LLC." The other two lawsuits involve some combination of Intellectual Ventures I, II, and III, respectively. Other defendants include Hynix Semiconductor, Elpida Memory, Altera, Lattice Semiconductor, and Microsemi (Actel). At least some of the patents being asserted against Altera and Lattice Semiconductor were originally owned by AMD, and then transferred to Legerity. At least one other patent asserted in the lawsuits was invented by noted chip designer Bob Proebsting. After his death, the patent was held by the Proebsting estate. Although Intellectual Ventures (I – III) claims ownership in their complaints, PTO records do not reflect that ownership.
In a press release, Intellectual Ventures issued a warning blow to other potential defendants:
Over the years, Intellectual Ventures has successfully negotiated license agreements with some of the top technology companies in the world. However, some companies have chosen to ignore our requests for good faith negotiations and discussions. Protecting our invention rights through these actions is the right choice for our investors, inventors and current licensees.
Intellectual Venture's chief litigation counsel is Melissa Finocchio who was previously with Micron, Orrick, and Cooley. The company's outside counsel include an all-star cast of Former Delaware Judge Joseph Farnan; John Desmarais; Jared Bobrow; and Parker Folse. All the suits have been filed in Judge Farnan's hometown District of Delaware.
