Tag Archives: Licenses

Ericsson v D-Link: Standards, Patents, and Damages

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By Jason Rantanen

Ericsson, Inc. v. D-Link Systems, Inc. (Fed. Cir. 2014) Download Ericsson v D-Link
Panel: O’Malley (author), Taranto (dissenting-in-part), Hughes

Standard Essential Patents (SEPs) are an integral part of the modern technological landscape.  As an example, Ericsson, the patent holder in this case, alleged that the patents at issue were essential to a common Wi-Fi standard, 802.11(n); thus all 802.11(n) compliant devices infringe the patents.  Due to their nature (they cover technologies whose widespread use can be as at least as much due to the adoption of the standard as the incremental value of the invention), SEPs pose particular issues when dealing with the question of remedies.

Two well-recognized problems are hold-up and royalty stacking.  “Patent hold-up exists when the holder of a SEP demands excessive royalties after companies are locked into using a standard. Royalty stacking can arise when a standard implicates numerous patents, perhaps hundreds, if not thousands. If companies are forced to pay royalties to all SEP holders, the royalties will “stack” on top of each other and may become excessive in the aggregate.”  Slip Op. at 7-8.  Organizations that develop standards, such as IEEE, typically address these potential problems by seeking pledges from their members “that they will grant licenses to an unrestricted number of applicants on “reasonable, and nondiscriminatory’ (‘RAND’) terms.”  Id. at 8.  Ericsson promised to offer such licenses for its 802.11(b) SEPs.

Background: In 2010, Ericsson filed an infringement suit against D-Link, accusing it of infringing a set of its 802.11(b) SEPs.  Ericsson prevailed at the district court, with a jury finding infringement of three patents, rejecting a validity challenge to one, and awarding Ericsson $10 million in damages (a royalty rate of $0.15 per product).  Based on the jury award, the judge found $0.15 per product to be an appropriate running royalty.  On appeal, the Federal Circuit affirmed enough of the district court findings as to liability for the issue to be one of damages.  (Judge Taranto dissented as to one of the infringement conclusions but agreed with the rest of the majority opinion).

Damages and SEPs: The below paragraph from the court’s opinion summarizes its key holdings on damages:

In sum, we hold that, in all cases, a district court must instruct the jury only on factors that are relevant to the specific case at issue. There is no Georgia-Pacific-like list of factors that district courts can parrot for every case involving RAND-encumbered patents. The court should instruct the jury on the actual RAND commitment at issue and must be cautious not to instruct the jury on any factors that are not relevant to the record developed at trial. We further hold that district courts must make clear to the jury that any royalty award must be based on the incremental value of the invention, not the value of the standard as a whole or any increased value the patented feature gains from its inclusion in the standard. We also conclude that, if an accused infringer wants an instruction on patent hold-up and royalty stacking, it must provide evidence on the record of patent hold-up and royalty stacking in relation to both the RAND commitment at issue and the specific technology referenced therein.

Slip Op. at 56.  The first sentence is probably the most widely applicable, and arguably applies beyond the RAND context.  It is legal error to simply recite the Georgia-Pacific factors in a set of jury instructions.  Courts must be cognizant of which factors actually apply in a given situation.  “Although we recognize the desire for bright line rules and the need for district courts to start somewhere, courts must consider the facts of record when instructing the jury and should avoid rote reference to any particular damages formula.”  Slip Op. at 50.

Of course, legal error in a jury instruction does not mandate reversal; that error must still be prejudicial.  Here, the errors were significant and in combination sufficiently prejudicial.  For example, some Georgia-Pacific factors are directly contrary to the RAND commitment, such as factor 4, “'[t]he licensor’s established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.’ Georgia-Pacific, 318 F. Supp. at 1120. Because of Ericsson’s RAND commitment, however, it cannot have that kind of policy for maintaining a patent monopoly.”  Slip Op. at 48.

Another important piece of the court’s holding is its clarification of what the patent remedy must relate to in the context of SEPs: the “incremental value of the invention not the value of the standard as a whole or any increased value the patented feature gains from its inclusion in the standard.”  In other words, just as modern devices incorporate many different technological components, so too do standards include multiple technologies.  “Just as we apportion damages for a patent that covers a small part of a device, we must also apportion damages for SEPs that cover only a small part of a standard.”  Id. at 52.

Finally, on patent hold-up and royalty stacking, an accused infringer can obtain such an instruction but there must be record evidence: “The district court need not instruct the jury on hold-up or stacking unless the accused infringer presents
actual evidence of hold-up or stacking. Certainly something more than a general argument that these phenomena are possibilities is necessary.”  Id. at 54.

Copyrighting Software? Google v. Oracle

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by Dennis Crouch

When Google wrote its program-interface (API) for Android, the company made a strategic decision to mimic the method call structure of Java.  Java is an extremely popular and powerful programming language and Google determined that free-riding on Java popularity would facilitate its catch-up game in the  third-party app marketplace.  As an example, Google used the Java method header “java.lang.Math.max(a,b)”.  When called, the “max” function returns the greater of the two inputs.  In Android’s API, Google copied a set of 37 different Java “packages” that each contain many classes and method calls (such as “max()”).  Overall, Google copied the header structure for more than six-thousand methods.  Although Java is offered for both open source and commercial licenses, Google refused to comply with either regime.

Java’s originator Sun Microsystems was known for broadly sharing its creations without enforcing its IP rights.  That aura changed when Sun was purchased by Oracle and certainly when Oracle sued Google for copyright infringement, inter alia.

In the Copyright lawsuit, the district court held that the API method headers were not protectable under copyright. However, the Federal Circuit reversed on appeal — finding the Java API taxonomy copyrightable as a whole. In particular, the appellate panel led by Judge O’Malley rejected the idea/expression merger doctrine since there are many other ways that functionally equivalent method-calls could have been constructed besides those found in Java.  “Merger cannot bar copyright protection for any lines of declaring source code unless Sun/Oracle had only one way, or a limited number of ways, to write them.”

Now, Google has petitioned the Supreme Court for a writ of certiorari asking:

Whether copyright protection extends to all elements of an original work of computer software, including a system or method of operation, that an author could have written in more than one way.

Here, Google references 17 U.S.C. 102(b) which bars copyright protection for “any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of [its] form [of expression].”  And, Google pushes-back against the notion that the merger doctrine accounts for the limits of 102(b) as suggested by the Federal Circuit.

Google also interestingly notes that the Federal Circuit opinion here “erases a fundamental boundary between patent and copyright law.”  However, rather than supporting software patents, Google argues that copyright protection here would serve as an end-run around the limitations set by Alice Corp.

Just last Term, this Court confirmed that, while some software-related patent claims may be eligible for patent protection under 35 U.S.C. § 101, many are not. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). Like Section 102(b) of the Copyright Act, Section 101 of the Patent Act protects future innovation by preventing anyone from “ ‘inhibit[ing] further discovery by improperly tying up the future use of’ the[] building blocks of human ingenuity.”

Extending copyright protection to methods and systems of operation would undermine the limits on patent protection.

The argument is interesting because it turns the usual analysis on its head. Ordinarily folks argue that copyright and patent should be complementary and that overlap should be avoided. Here, however, the petitioner argues that copyright should not cover a particular subject matter area precisely because it is not covered by patent. This also generally suggests that the case will have an impact on software patent eligibility.

The petition was filed by Daryl Joseffer’s team at King & Spalding and I give a more-likely-than-not chance of grant.  In this type of case, the Supreme Court is likely to request input from the Solicitor General and I would expect that the SG/White-House would support grant.  If granted, the Federal Circuit will almost certainly be reversed.  The merger doctrine is a mess and genuinely needs clarity.  The difficult question in my mind is whether the court will be able articulate a reasoned boundary between software that is protectable and that which is not.

In an amicus brief (supporting certiorari) a group of computer scientists (with the Electronic Frontier Foundation) argues that companies should not be able to use copyright to prevent others from interfacing with their systems.

Petition Briefs:

FTC Extracts Settlement from Notorious “Troll;” Seeks Public Comments

Ethics,

According to the FTC’s complaint, MPHJ Technology Investments LLC acquired patents relating to network computer scanning technology.  Nothing wrong with that.  But then it sent letters to thousands of small businesses asserting that they were likely infringing its patents and so needed a license.  Perhaps nothing wrong with that (if true).  But, MPHJ also allegedly falsely represented that other companies had already paid thousands of dollars for licenses.

The FTC also alleged that MPHJ’s law firm, Farney Daniels, P.C., authorized letters on its letterhead be sent to about 4,800 small businesses. Those letters threatened a patent suit if the recipient did not respond to the letter within a two-week letter, and included a purported complaint for patent infringement. However, the FTC alleged that there was no intention—and no preparations—to file those suits, and none were filed.

The FTC filed a complaint to stop this, available here.  The agreement containing a consent order (which it seems is subject to public comment) is available here.  It would impose $16,000 in fines for every inappropriate letter.  In addition, it prohibits these communications (sorry for the auto numbering errors).

    1. that a particular Patent has been licensed to a substantial number of licensees,
    2. that a particular Patent has been licensed at particular prices or within particular price ranges, or
    3. otherwise concerning the results of licensing, sales, settlement, or litigation of a particular Patent,

    unless the representation is non-misleading and, at the time such representation is made, Respondents possess and rely upon competent and reliable evidence sufficient to substantiate that the representation is true;

    B.  Make any representation in a Patent Assertion Communication, expressly or by implication, about the licenses for a Patent or the responses of recipients of Patent Assertion Communications unless the representation is non-misleading, and, at the time the representation is made, Respondents possess and rely upon competent and reliable evidence that substantiates that the representation is true;

    C.  Make any representation in a Patent Assertion Communication, expressly or by implication, that Respondents or an Affiliate have taken any action with respect to the filing of a Lawsuit, including initiating a Lawsuit, unless the representation is true and non-misleading; or

    D. Make any representation in a Patent Assertion Communication, expressly or by implication, that Respondents or an Affiliate will take any action with respect to the filing of a Lawsuit, including

    1. that they will initiate a Lawsuit;
    2. that they will initiate a Lawsuit if the recipient of a Patent Assertion Communication does not agree to a license, pay compensation, or otherwise respond to the Patent Assertion Communication as requested;
    3. that they will initiate a Lawsuit imminently or within a specified time; or
    4. that they will initiate a Lawsuit imminently or within a specified period of time if the recipient of a Patent Assertion Communication does not agree to a license, pay compensation, or otherwise respond to the Patent Assertion Communication as requested;

    unless at the time such representation is made, Respondents have decided to take such action and possess and rely upon competent and reliable evidence sufficient to substantiate that they are prepared to and able to take the action necessary to make the representation true. Evidence that an action was not taken because of a change in circumstances or information obtained subsequent to making a representation covered by this Subpart I.D, including a change in the decision by a client on whose behalf a representation was made on whether to initiate a lawsuit, shall be considered in determining whether a representation was substantiated at the time it was made.

    Provided that, for purposes of Subpart I.D of this order, a statement made in a Patent Assertion Communication that Respondents

    (1) believe the recipient of the letter is or may be infringing a patent; (2) believe the recipient does or may need a license to a Patent; or

    (3) reserve their rights under the Patent with respect to the recipient’s conduct

    shall not be considered, in and of itself, to be a representation that Respondents will initiate a Lawsuit.

Of course, this is a good development, though probably not of enormously broad impact.

The FTC’s press release is here.

Patent Ownership and Standing: Legal Title vs Effective Title

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by Dennis Crouch

Azure Networks and Tri-County Excelsior v. CSR, et. al (Fed. Cir. 2014)

The court here holds that the legal owner of the patent has no standing to be a co-plaintiff with the exclusive licensee. When all substantial rights in the patent are transferred to an exclusive licensee that entity becomes the effective owner and the license is an effective assignment. In my mind, the decision here is an incorrect results-oriented decision in reaction to the plaintiffs’ too-clever pre-filing actions. 

The ownership and control history of U.S. Patent No. 7,756,129 is fairly interesting, if also obscuer.  The “personal area networking” patent was originally owned by the innovative company BBN, but by 2009 Azure Networks was the owner.  Missing from the USPTO records is the chain-of-title from BBN to Azue. In its opinion here, the court alluded to the chain by mentioning that the patent has “passed through many hands of ownership.”  From context, I believe that the chain of title was discussed in the Federal Circuit briefs, but those portions are confidential and non-public.

In an odd move, Azure transferred ownership of the patent (as a gift) to a non-profit organization – the Tri-County Excelsior Foundation which is a sub-org of the E.D.Texas Court Appointed Special Advocates (CASA) group. As part of the transfer, Azure retained (or was transferred-back) an exclusive license of “all substantial rights” that include “the exclusive, worldwide, transferable right to bring enforcement actions, unfettered control over litigation, and exclusive authority to reach settlements and grant sub-licenses” further, under the agreement the charity “may participate in litigation only at Azure’s sole discretion.” In return for grantin the back-license, the charity receives 1/3 of proceeds on the patent.

The court here suggests that the motivation for the donation was largely to ensure that the case venue would remain in the Eastern District of Texas.

In this lawsuit, Azure and Tri-County jointly filed the complaint and the question on appeal is whether Tri-County – as the patent owner – has standing as a co-plaintiff. In its decision, the Federal Circuit ruled no – the owner has no standing to join the lawsuit because it had transferred substantially all rights to the exclusive licensee.

As the district court recognized, nothing about this relationship structure indicates that Tri-County has control over any aspect of litigation involving the ’129 patent. Rather, it is clear that Azure is holding all the strings. In sum, Azure’s exclusive right to sue, exclusive license, and freedom to sublicense are factors that strongly suggest that the Agreement constitutes an effective assignment.

There are several problems with this conclusion.  First, legal title remains with the charity and the tradition is that a party with legal title can be joined as a plaintiff with an exclusive licensee who has the right to enforce.  Second, the charity here retains a major and direct interest in the outcome of the case (33%) that creates a genuine conflict in fact. Third, the agreement also gives the charity the right to cancel the license at will (during an annual window) or for breach (anytime). And fourth, the implicit good faith elements of the contract provide additional rights to the legal title holder.

Need Not vs Shall Not: The usual rule is that all owners of a patent must be joined-together in a lawsuit asserting the patent.  In a number of prior cases, the Federal Circuit has held that a title-owner need not be joined if the plaintiff/exclusive-licensee holds all substantial rights in the patent.  See Morrow v. Microsoft, 499 F.3d 1332 (Fed. Cir. 2007).  Here, the court turns takes that approach substantially further by holding that the title-holder shall not be joined in this situation.

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Recording License Agreements: License agreements are not normally recorded with the USPTO. What this means is that someone who purchases a patent (or receives the patent as a security interest) without notice of the license will still be bound by the license.  However, when a license is (as here) an “effective assignment,” the implicit suggestion is that it must be recorded to fully secure rights against future bonafide purchasers and creditors.

Supreme Court: A Web of Post-Issuance Licensing Restrictions

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by Dennis Crouch

Last year I wrote about the patent licensing decision captioned Kimble v. Marvel Enterprises Inc. (9th Circuit 2013). Kimble involved a patent license agreement tied to Marvel’s web-shooter toy sales. On its face, the agreement appears to remain in force so long as Marvel sold the toys.  However, the 9th Circuit held that the license ended once the patent term lapsed.  The 9th Circuit decision was easy because there is a Supreme Court case on point: Brulotte v. Thys Co., 379 U.S. 29 (1964) (licensing agreement unenforceable because it required royalty payments beyond the expiration date of the underlying patent).

Kimble has now pushed the case to the Supreme Court and presents a straightforward petition:

The question presented is: Whether this Court should overrule Brulotte v. Thys Co., 379 U.S. 29 (1964).

SCOTUS-Blog Link.

The basic argument is that the Brulotte improperly imposes a per se limit on contract structure and forces any royalty payments to be amortized only within the term of the patent.  Often, that result does not make business sense. Kimble suggests that the court do-away with the per se rule and replace it with a rule of reason as it has done in other cases – most notably in the area of patent-tying.  See Illinois Tool Works v. Independent Ink, 547 U.S. 28 (2006).

The petition also characterizes Brulotte as “the most widely criticized of [the Supreme] Court’s intellectual property and competition law decisions.”

Three panels of the courts of appeals (including the panel below), the Justice Department, the Federal Trade Commission, and virtually every treatise and article in the field have called on this Court to reconsider Brulotte, and to replace its rigid per se prohibition on post-expiration patent royalties with a contextualized rule of reason analysis.

The Supreme Court requested that the Solicitor General file the views of the US Government and those have just been filed – with a somewhat surprising recommendation against a grant of certiorari.  The SG’s position is that stare decisis should prevail. Hal Wegner writes about the case in his review of top pending patent cases: See Wegner’s Top Ten.

Unduly Extending Patent Term: An important element of the analysis here is whether overturning Brulotte would somehow allows the patentee to extend its patent term and thereby prevent the public from taking advantage of the invention.  Kimble argues “no” — all that the longterm license agreement did was amortize the license value over the life of the product rather than the life of the patent.  Certainly, once the patent expires then no-one can be liable for infringement and any generic (or branded) company can make, use, and sell the invention as it wishes. However, if we look at this case in particular, all of the products on the market using the patented invention are Kimble-licensed products — even though the patent has been expired now for years.  This suggests to me that the post-expiry-license is having a market impact that is reducing the potential customer surplus.  I suspect that in most situations, the most likely post-patent-expiry suppliers of a product are the companies who were supplying that product pre-patent-expiry.  If those entities are required to continue to pay license post-patent-expiry then consumers may never see the benefits typically associated with patent expirations.

= = = = =

One factor pushing toward grant of certiorari is the underlying subject-matter.  The patent at issue covers a nifty web-shooting toy designed to mimic (in toy form) spider-man’s super powers. See U.S. Patent No. 5,072,856.

Spidey

US Government Volunteers to Pay for Infringement by Japan Airlines

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by Dennis Crouch

The US Federal Government does not get a free-pass on patent infringement.  Rather, the Government’s unlicensed use of a privately held patent constitutes infringement and is actionable. However, Congress created a special court to hear the cases (the Court of Federal Claims), and implemented a number of restrictions on both the adjudication process and the substantive rights that all tend to favor the government as defendant.  See 28 U.S.C. § 1498.  Generally, patentees would prefer to litigate in Federal District court.

Further, Congress created a special indemnity that bars lawsuits against government contractors and others doing the work of the Government. Under the statutory indemnity, when a patented invention “is used or manufactured . . . for the United States [Government] . . . the owner’s [only] remedy shall be by action against the United States in the [US] Court of Federal Claims.” 28 U.S.C. § 1498(a).

In Iris Corp. v. Japan Airlines Corp. (Fed. Cir. 2014), the patent at issue basically covers the method of manufacturing an identification document (such as a national Passport) with an in-laminated RFID chip.  US Patent No. 6,111,506.  As required by US Law, Japan Airlines examines passports before allowing its passengers to board international flights leaving the US  The patent holder here is the Malaysian company Iris Corp. who competes in the market for this type of ID technology.

Iris sued in Federal District Court under 271(g) for using the electronic passports that had been made abroad (namely Japan) but in a manner within the scope of the patented claims.  In response, Japan Air and the US Government (as amicus) argue that the indemnity provision of Section 1498 eliminates both (a) the jurisdiction of the District Court and also (b) the liability of Japan Airlines.

Infringement Done for the United States: The legal question on appeal is whether’s Japan Airline’s alleged use of the patented invention was done “for the United States.” The statute spells out a partial definition of “for the United States” as being done “for the Government and with the authorization or consent of the Government.” In its 2009 decision, the Federal Circuit further explained that the infringement must be “for the benefit” of the US and that benefit may not be merely “incidental.”  Advance Software.  The court here finds that, under this framework, Japan Airline’s activities were done for the Government and thus the case falls under Section 1498.

Is Infringement Required?: A critically element of the court’s decision (in my view) was the court’s factual conclusion that “JAL cannot comply with its legal obligations without engaging in the allegedly infringing activities.”

At first this statements appears at odds with the reality that, although the law requires Japan Air to inspect passports, it does not require that the e-chip be used.  Rather, it appears that manual inspection without reliance on the e-chip is also fully acceptable under the law.  The US Government writes: “While there may be some ability for the airline to determine the best way to make the needed comparison, it may not decline to examine the passport.”

One way to reach the court’s conclusion that infringement is required is to recognize that the case is a 271(g) infringement action that would create liability for any use of a product made by the patented process even if the particular-use does not take advantage of the product benefits.  Under that theory, every US-inspection of an e-chipped-passport, regardless of how it is conducted and even if manual, constitutes infringement.

In addition to the fact that infringement was required by federal law in order to participate in the marketplace element, the court here also found it relevant that border security is a core role of the federal government and that Japan Air’s actions here are quasi-governmental. That finding led to the conclusion that the alleged infringement was done for the non-incidental benefit of the US.

Although in this case the US Government agreed that it should be the defendant, and important take-away from this decision is that the company infringing need not have any contractual relationship with the US Government or that the US Government be given any notice of the ongoing infringement.  Rather, under the law, a private company (her Japan Air) is able to decide to conduct its business in a way that infringes a patent but that only creates liability for the Government.

Next stop Court of Federal Claims?: One reason why the patentee sued in district court was that – at the time of the filing – it appeared that 271(g) actions could not be brought against the US under 1498.  The Federal Circuit changed that rule in Zoltek Corp. v. United States, 672 F.3d 1309, 1323 (Fed. Cir. 2012) (en banc).  One question is whether the long delay in filing in the CFC has tripped some statute of limitations for filing suit.

This case would be much more interesting (from my academic perspective) if Japan Air could carry out its required function without infringing, but had made the business decision to inspect the passports in a way that infringed.

Considerations for International Inventions – Foreign Filing Licenses

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Guest Post by Brent M. Dougal and Philip M. Nelson.  Dougal and Nelson are IP Attorneys with Knobbe Martens Olson & Bear LLP.

In today’s age of international commerce, product development often takes place on an international scale.  Many companies have design centers in multiple countries, with design teams that span the globe.  What are the patent implications if an invention is developed in China or some other country outside the U.S. and the company wants to obtain international patent protection?

U.S. law requires that inventors obtain a “foreign filing license” before filing foreign patent applications on inventions that occur in the U.S.  This allows the government to assess, for example, whether the technology could threaten U.S. national security.  Some other countries such as Spain (Article 119-122), Italy, and India also require foreign filing licenses for inventions developed domestically but for which foreign patent protection is sought.  In countries that provide foreign filing licenses, these licenses generally do not issue quickly or efficiently.  Thus, it is advisable to file first in the country of invention to avoid the delay and difficulty of obtaining the foreign filing license. (The US and Canada are notable exceptions to this general rule.)

By contrast, other countries, such as China (Article 20) and Vietnam, have no provisions for obtaining a foreign filing license. These countries require that patent applications on domestic inventions be filed first domestically.  In China, domestic inventions include all inventions occurring in China, whether or not funded by a foreign company.  Failure to file in China may lead to invalidity of a corresponding Chinese application and criminal penalties if the invention relates to security or other vital state interests.  One way a U.S. or English-language company can deal with this requirement is to file a Patent Cooperation Treaty (PCT) application in English with the Chinese Patent Office as the PCT receiving office.

Canada has one of the most unique foreign filing laws.  There a foreign filing license is only required—and indeed, only available—if the inventor is an employee of the Canadian government. Instead of review by a separate government entity as in the U.S., Canadian government employees must obtain permission of the minister of his or her department.

Other countries, including the U.K. and Germany, have limited restrictions related to national security and military applications (requirements for EPO countries can be found here).  Thus, a foreign filing license is only required for select technologies.

The table below summarizes many of the current restrictions, breaking down the listed countries into four main groups:

 

Foreign Patent Filing Restrictions

None

Limited to National Security and Military Applications

License Required 

First Filing Must be Domestic

Countries

Argentina, Australia, Austria, Brazil, Hong Kong, Indonesia , Ireland, Japan, Liechtenstein, Mexico, Monaco, New Zealand, Philippines, Poland, Portugal, South Africa, Sri Lanka, Switzerland, Taiwan, Thailand, Venezuela

Belgium, Czech Republic, Denmark, Finland, Germany, Israel, Korea, Luxembourg, Netherlands, Slovak Republic, Sweden, United Kingdom

Canada1, France2, India, Italy, Malaysia, Singapore, Spain, United States

Belarus, China, Cyprus3, Greece3, Hungary3, Kazakhstan, Russia, Vietnam4

1 Only required for government employees.

2 Only applies where inventors are French nationals or the company’s principle place of business is France (Article L. 614-18, 614-20). A European patent application can also be filed as the first filing without obtaining a foreign filing license.

3 First filing must be domestic where inventors are nationals (and in some cases permanent residents).

4 Also requires Vietnamese inventors without an obligation to assign to file first in Vietnam.

Though only a limited number of countries have foreign filing restrictions, those that do include many significant markets, not to mention the world’s most populous countries.  As companies continue to expand internationally, their attorneys will need to take an international perspective.  In order to preserve international rights, attorneys should explore inventorship and the foreign filing laws of the country of invention early on in the disclosure and application preparation process.

__________________________

This discussion is provided without guarantees and is not to be considered legal advice. We highly recommend seeking legal counsel in the country of invention.  The information has been compiled with the assistance of foreign associates from various countries, with some independent verification.

Any invention which may have a military application or could be considered important to national security is likely restricted not only by a country’s patent laws, but also by export laws, which are not addressed here.  We highly recommend seeking legal counsel in the country of invention.

STC.UMN v. Intel: Co-owners are necessary parties but may not be involuntarily joined

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By Jason Rantanen

STC.UMN v. Intel Corp. (Fed. Cir. 2014)

Original panel: Rader (author), Dyk, Newman (dissenting)
Denial of rehearing en banc: Dyk, concurring (joined by Moore and Taranto); Newman, dissenting (joined by Lourie, O’Malley, and Wallach); O’Malley, dissenting (joined by Newman, Lourie and Wallach)

Panel opinion

Denial of rehearing en banc

The issue at the core of this appeal was whether a co-owner of a patent can be forced to join an infringement lawsuit brought by another co-owner or instead effectively block the suit by refusing to participate. The Federal Circuit is deeply split on this issue, as evidenced by both the June 2-1 panel opinion  and the 6-4 refusal to rehear the decision en banc. The panel majority held that a co-owner may not be forced to join the infringement suit and because the full court denied rehearing en banc, that holding stands unless the Court grants cert. Judge Newman and Judge O’Malley both wrote dissenting opinions.

The patent right and co-owners. Co-owners of a patent may separately exercise all the rights of a patent owner: they may make, use, offer for sale, and import the patented invention without needing the permission of the other co-owner. They may also grant a license to the patent. Importantly, they may do all of this without giving the other co-owner a dime; unlike for copyrighted works, there is no right of accounting for patents.

A consequence of this is that if there are co-owners of a patent, a prospective infringer need only obtain a license from one co-owner. This makes unity of patent rights important for any party who wishes to actually enforce those rights as against future conduct.

This rule is clear as to future conduct; the complexity comes about when dealing with past infringing activities. A patent co-owner may only grant a prospective license to the patent and a release as to its own claims for liability for past infringing conduct; it may not release infringers from liability to the other co-owner for past infringement. However, it is also blackletter law that all owners of a patent must be parties to an infringement suit for there to be standing. But not all co-owners may cooperate with the party wanting to bring the suit. Perhaps they have some contractual obligation to the accused infringer; perhaps they are even directly connected to the accused infringer. Or perhaps, as in this case, the co-owner just wants to remain “neutral.” Does the uncooperative co-owner have the right to do so?

This case can be seen as an old fight renewed. The origins of the split go back to the Federal Circuit’s 1998 decision in Ethicon v. United States Surgical, 135 F.3d 1456. The majority opinion, written by Judge Rader, dismissed the suit on the ground that a co-owner could not and did not consent to the infringement. This conclusion followed the following statement of law:

Further, as a matter of substantive patent law, all co-owners must ordinarily consent to join as plaintiffs in an infringement suit.9 Consequently, “one co-owner has the right to impede the other co-owner’s ability to sue infringers by refusing to voluntarily join in such a suit.” Schering, 104 F.3d at 345.

Footnote 9 referred to two exceptions: where the co-owner has waived its right to refuse to join the suit and where there is an exclusive licensee, the exclusive licensee may sue in the owner’s name.

Judge Newman dissented in Ethicon. While much of her dissent focused on the issue of whether an inventor on only some of the claims is a co-owner of the patent as a whole (Judge Newman would have held no), she also pointed out that Rule 19’s involuntary joinder rule should apply here.

Involuntary Joinder Does Not Apply: Drawing heavily upon Ethicon, the panel opinion in this case – also written by Judge Rader -extended the rule that co-owners of a patent may refuse to voluntarily join an infringement suit to preclude operation of Federal Rule of Civil Procedure 19(a). The relevant portion of that rule states:

(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:

(A) in that person’s absence, the court cannot accord complete relief among existing parties; or

(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may:

(i) as a practical matter impair or impede the person’s ability to protect the interest; or

(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

(2) Joinder by Court Order. If a person has not been joined as required, the court must order that the person be made a party. A person who refuses to join as a plaintiff may be made either a defendant or, in a proper case, an involuntary plaintiff.

A few things to note: First, no one appears to be disputing that Rule 19 has the force of law or that a co-owner may refuse to voluntarily participate in a patent infringement suit. Rather, the disagreement boils down to (1) whether the co-owner has a “substantive right” not to participate in a patent infringement suit and (2) if there is such a right, whether it preclude the application of Rule 19.

Unfortunately, as Judge O’Malley’s dissent points out with particular rigor, the panel majority opinion is is quite short on the basis for this “substantive right.” The basic legal move the majority makes is to rely on precedent holding that a co-owner may refuse to voluntarily participate in a patent suit as providing the basis for a substantive right not to join an infringement suit, with the policy basis that the anti-involuntary joinder rule ” protects, inter alia, a co-owner’s right not to be thrust into costly litigation where its patent is subject to potential invalidation.”

Concurring in the denial of en banc review, Judge Dyk’s opinion fleshes out the argument in more detail. In Judge Dyk’s articulation, the question is whether there is a “substantive obligation” for the co-owner of a patent to join the suit; in the absence of a “substantive obligation,” the co-owner cannot be forced to join through the operation of procedural rules, such as Rule 19. Judge Dyk thus flips the question: while he points to cases where the co-owner did not consent, and thus the suit was dismissed, he also points out the lack of patent cases imposing a “substantive obligation on a patent co-owner to consent to the assertion of an infringement claim.” This allocation of substantive rights cannot be changed by application of Rule 19.

Writing in dissent to the denial of rehearing en banc, Judge O’Malley challenged both the basis for the substantive right as well as way such a “right” interacts with Rule 19. Walking through Ethicon and the other cases cited by Judges Rader and Dyk, Judge O’Malley challenges the precedential basis for such a “right.” Nor, Judge O’Malley argues, is there any basis in statute for this “right;” indeed, it is directly contradicted by other statutory “rights,” particularly Section 154(a)(1), “the right to exclude others.” And in any event, Rule 19 is *mandatory.* “By its terms, therefore, when a person satisfies the requirements of Rule 19(a), joinder of that person is required.”

So what’s going to happen? As Hal Wegner has noted in his email newsletter, a petition for certiorari is expected in this case. And, given that the core issue is one of civil procedure, albeit intertwined with an issue of the nature of the patent right, it may be particularly appealing for the Court – especially coupled with the deep split and thoughtful opinions of two of the Federal Circuit’s sharpest thinkers.

An odd issue raised by the majority rule here: What happens when one co-owner sends out threatening letters to an accused infringer but the other does not. Can the accused infringer bring a declaratory judgment action against both co-owners? If not, must the declaratory judgment action be dismissed for lack of standing? Or is this sufficiently different from an affirmative suit for infringement as to make the “all parties required” rule not apply?

Update: Using IPR to Manipulate the Stock Price of Patentees Which Won in District Court

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The creativity of American lawyers never ceases to amaze.  I’ve heard of variations on this theme:  using an IPR to coerce payment, a license, or something from the patentee.  Variation on the theme:

A third party sees that a patentee has won a big judgment, defending its patent against a charge of invalidity.  The third party then cobbles together an IPR petition based upon the arguments that failed in the district court, relying upon the lower burden of proof and broader claim construction that will apply in IPR, and sends it to the patentee with a note:  “pay us or we’ll file this.”  This was discussed a few months back here.

A third party uses IPR as a tool to manipulate stock price:  sell the stock short and then file the IPR.  Or, it sees the patentee is in litigation and says, “give us a license (which we’ll turn around and use to license the defendants) or we’ll file an IPR.”  A story about that allegedly happening is here.

Gotta love America.

The ethics of this are fascinating:  it may be that the OED could be brought in to show that the IPR was filed for an improper purpose and nip it in the bud.  But that’s probably a long shot, given the right to petition and what-not.  Perhaps Congress limiting standing in IPRs to competitors?  It’s too early for me to think in depth about a creative solution to this creative problem.

11th Circuit: Because Client Loses Faith in Lawyer, and so Lawyer Quits, Lawyer Still gets Contingent Fee

Ethics,

Lewis v. Haskell Slaughter Young & Rediker (11th Cir. Sept. 11, 2014) is definitely going to be on my speaking agenda this year.  I love it, as a speaker, when courts give me decisions like this, though I regret that they exist.

The plaintiff hires a lawyer (“Lawyer A”) on a 45% contingent fee basis to bring a discrimination claim.  After 13 months of litigation, during which Lawyer A had sought five continuance,  had submitted no dispositive motions, had taken no depositions, and had submitted no expert reports.  The judge said there would be no more continuances.

Understandably, the client wrote a somewhat pointed email to an associate of Lawyer A, writing in part that it was “unacceptable for you to be uninformed on these things.  Has there been no progress…?”  Lawyer A immediately wrote back and said that she was “immediately” terminating the case and “your file has been boxed and is in the lobby with the receptionist.”  Lawyer A also wrote that she’d file a motion to withdraw with the court three weeks later.

Lawyer A didn’t withdraw.  A settlement offer came from the other side to Lawyer A, which she forwarded to the plaintiff, who had by then secured separate counsel.  Through separate counsel plaintiff accepted the $85,000 settlement offer.

Lawyer A then shows up demanding fees.  The district court awarded Lawyer A $38,250.

On appeal, the panel split 2-1.  The majority reasoned (and I am not making this up) that because the client no longer trusted the work of Lawyer A, Lawyer A had “just cause” to withdraw, and so was entitled to quantum meruit, which was supposedly $38,250.

The dissent disagreed.  It pointed out, among other things, that what the majority rule amounted to was a license to use poor service to get paid.  The dissent emphasized that the court failed to take into account the fact that it was not the client who had caused the relationship to deteriorate, but the lawyer.  The dissent also emphasized that by withdrawing immediately and putting the file in a box in the lobby, Lawyer A had violated basic precepts of the ethical rules concerning withdrawal.

This is an embarrassing case for the 11th Circuit.  Thankfully, it is unpublished.

Then the lawyer

YODA: You Own Devices Act

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A magical aspect of intellectual property is in the way that rights can pervade a system without the need for the rights-holder to physically engage with the supply chain. Someone may have personal property rights in their chattel, but IP rights control aspects of how that chattel can be used or transformed.  For example, although I own my computer, there are certain ways I might use my computer that would infringe patents or copyrights held by others. In this framework, IP rights can be thought of as a form of regulation – albeit with increased private involvement.

Ordinarily, when someone purchase goods, the purchase comes with all rights to use that good. However, the sale of goods with underlying IP rights certainly does not pass all rights in the IP.  The exhaustion (first-sale) doctrines of copyright and patent laws provide some linkage by giving the purchaser of goods certain use-rights to the underlying intellectual property. However in the computer-related fields required end-user-license-agreements (EULAs) have now become the industry standard for limiting ownership rights — especially for digitally delivered media. Rather than “owning” the media, in many cases these contracts purport to only give users a limited and personal license.  The common law tradition is to strike-down substantial use restrictions as effectively being unreasonable restraints on the market. However, it seems that the underlying IP rights have served as a basis for courts to favor “freedom of contract” over the traditional unreasonable-restraint-of-trade doctrines.

Representative Blake Farenthold (R-TX) has proposed a partial fix in his bill known as YODA: the You Own Device Act.  The key provision focuses on copyright law and would add the following to Section 109 of the Copyright Act:

(1) IN GENERAL.—Notwithstanding section
106 or section 117, if a computer program enables any part of a machine or other product to operate, the owner of the machine or other product is entitled to transfer an authorized copy of the computer program, or the right to obtain such copy, when the owner sells, leases, or otherwise transfers the machine or other product to another person. The right to transfer provided under this subsection may not be waived by any agreement.

The EFF has praised the bill, but has also called for particular digital-first-sale rights and rights to access and modify software stored on your devices, and

Important Damages Opinion: VirnetX v. Cisco and Apple

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By Jason Rantanen

VirnetX, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2014)  Virnetx v Cisco
Panel: Prost (author) and Chen

Plaintiffs VirnetX and Science Applications International Corporation obtained a successful verdict against Apple based on infringement by its Facetime and VPN On Demand products.  The two accused products are programs that run on Apple’s iOS platforms (e.g.: iPhones, iPads, iMacs, MacBooks, etc.).  FaceTime is a videoconferencing platform (similar to Skype) and VPN On Demand is a feature that allows iOS users to establish secure virtual private networks.  The patents involved were Nos. 6,502,135 and 7,490,151, which were asserted with respect to VPN On Demand, and 7,418,504 and 7,921,211, which were asserted against FaceTime.   The jury found the four patents were valid and infringed, awarding damages of $368,160,000.  Apple appealed.

On appeal, the Federal Circuit upheld the jury verdict of no invalidity and infringement as to most of the ‘135 and ‘151 claims (i.e.: the ones being asserted against VPN On Demand).  However, it reversed as to a doctrine-of-equivalents finding on one claim of the ‘151 and as to claim construction of a term in the ‘504 and ‘211 patents (i.e.: the ones being asserted against Facetime), thus resulting in a remand as to those claims.

The most important legal aspect of the court’s opinion, however, relates to damages.  At trial, VirnetX’s expert offered three reasonable royalty theories: one that began with the lowest sales price of each iOS device containing the accused feature and applying a 1% royalty to that base, and two that relied on the “Nash Bargaining Solution,” a mathematical theorem proved by Nobel Laureate John Nash.

“Smallest Salable Unit”: A key issue in calculating the infringement damages for complex technological products is whether it is appropriate to use the value of the entire device in the damages calculation.  Generally speaking it is not appropriate to do so: “when claims are drawn to an individual component of a multi-component product, it is the exception, not the rule, that damages may be based upon the value of the multi-component product.”  Slip Op. at 27.  Rather, “‘[a] patentee may 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 creates the value of the component parts.'” Id., quoting Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1268 (Fed. Cir. 2013) (emphasis added by court).  This is due to the general requirement that damages must be actually attributable to the infringing features within a reasonable degree of precision.

However, there is a line of cases suggesting that royalties may be based off of the “smallest salable patent-practicing unit.”  It was this line of cases that the district court presumably drew upon when it issued the relevant jury instruction:

In determining a royalty base, you should not use the value of the entire apparatus or product unless either: (1) the patented feature creates the basis for the customers’ demand for the product, or the patented feature substantially creates the value of the other component parts of the product; or (2) the product in question constitutes the smallest saleable unit containing the patented feature.

On appeal, the Federal Circuit held that the “smallest salable unit” case law does not mean that “when the smallest salable unit is used as the royalty base, there is necessarily no further constraint on the selection of the base.”  Id. at 28.  Rather, “the smallest salable unit approach was intended to produce a royalty base much more closely tied to the claimed invention than the entire market value of the accused products.” Id. at 29.  Thus,

“Where the smallest salable unit is, in fact, a multi-component product containing several non-infringing features with no relation to the patented feature (as VirnetX claims it was here), the patentee must do more to estimate what portion of the value of that product is attributable to the patented technology. To hold otherwise would permit the entire market value exception to swallow the rule of apportionment.”

Id.  Since the VirnetX’s expert relied on the iOS devices as the “‘smallest salable units,’ without attempting to apportion the value attributable to the VPN On Demand and Facetime features,” the legal error was not harmless.  Put another way, VirnetX sought to have the jury use the sales price of an iPhone when calculating infringement of its patents that covered two specific components of that product, without demonstrating that those components drove customer demand for the phones.

Royalty Base * Royalty Rate Theory:  For similar reasons, the Federal Circuit reversed the district court’s ruling to allow the expert’s testimony that used the sales price of iOS devices as the royalty base.  The accused products included both hardware and software components; the expert “made no attempt to separate software from hardware, much less to separate the FaceTime software from other valuable software components.”  Slip Op. at 31.  This was particularly problematic, since in his Nash Bargaining Solution approaches, the expert did attempt to break out the patentable contributions to the devices.  More, “a patentee’s obligation to apportion damages only to the patented features does not end with the identification of the smallest salable unit if that unit still contains significant unpatented features.”  Id. at 32.  Thus, it did not matter that Apple did not sell FaceTime separately on many of its iOS products: 

There is no “necessity-based exception to the entire market value rule.” Id. at 70. On the contrary, a patentee must be reasonable (though may be approximate) when seeking to identify a patent-practicing unit, tangible or intangible, with a close relation to the patented feature.

Id.  Apple also challenged the expert’s 1% royalty rate, which relied on six allegedly comparable licenses and VirnetX’s “policy” of licensing its patents for 1-2%.  The Federal Circuit concluded that reliance on the six challenged licenses was permissible.

Nash Bargaining Solution Theories: In addition to its ruling on the “smallest salable unit” issue, the Federal Circuit also rejected the invocation of the Nash Bargaining Solution as a model for reasonable royalty damages.  As described by the court, this theorem states that “under the conditions stated in the premises, where two person bargain over a matter, there is a ‘solution’…in which ‘each bargainer get[s] the same money profit.”  (The Nash Bargaining Solution).  The Nash Bargaining Solution is invoked to support the argument that the parties would have split between themselves the incremental profit associated with the patent technology.

Here, VirnetX’s expert used the Nash Bargaining Solution to support royalty rate that allocated 45% of the profits from the Facetime feature to VirtnetX.  (For these calculations, the expert used a much lower valuation of the feature than in the first approach discussed above).

The Federal Circuit held that the Nash Bargaining Solution may not be invoked “without sufficiently establishing that the premises of the theorem actually apply to the facts of the case at hand.”  Id. at 38.  That was not done here; rather, the use of the Nash Solution was as much an inappropriate “rule of thumb” as the “25 percent rule of thumb” rejected in Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1320 (Fed. Cir. 2011):

The Nash theorem arrives at a result that follows from a certain set of premises. It itself asserts nothing about what situations in the real world fit those premises. Anyone seeking to invoke the theorem as applicable to a particular situation must establish that fit, because the 50/50 profit-split result is proven by the theorem only on those premises. [The expert] did not do so. This was an essential failing in invoking the Solution.

Slip Op. at 38-39.  Indeed, “even if an expert could identify all of the factors that would cause negotiating parties to deviate from the 50/50 baseline in a particular case, the use of this methodology would nevertheless run the significant risk of inappropriately skewing the jury’s verdict.”  Id.

Why FRAND Commitments are Not (usually) Contracts

Patent,

Guest Post by Professor Jorge L. Contreras

There has been a fair amount of controversy recently over commitments that patent holders make to license patents on terms that are “fair, reasonable and non-discriminatory” (FRAND).  As I have previously written here and here, FRAND commitments generally arise when a patent holder wishes to assure the marketplace that it will not seek to block implementation of a common technology platform or product interoperability standard.  Making such a public commitment encourages widespread adoption of these technologies, which is often beneficial for both the patent holder and the market.  As such, it is important that these commitments be enforced.

The dominant theory that several U.S. courts and commentators have adopted to justify the enforcement of FRAND commitments is common law contract.  The argument goes like this:  the patent holder makes a promise to a standards-development organization (SDO) that it will license its essential patents to others on FRAND terms.  The SDO accepts this promise as consideration for permitting the patent holder to participate in the relevant standardization effort.  Hence, the common law elements of offer, acceptance and consideration are all present.  Then, after the relevant standard is adopted and a vendor incorporates it into a product, the vendor can insist that the patent holder grant it a patent license on FRAND terms.  Even if the vendor was not a member of the SDO, it can seek to enforce the patent holder’s promise as a third party beneficiary.  This line of reasoning was accepted by the federal district courts in Microsoft v. Motorola (W.D. Wash. 2012) and Apple v. Motorola (D. Wis. 2012), by the Federal Trade Commission in its settlement with Google/Motorola, and by several commentators.

Nevertheless, as I discuss in a forthcoming article, common law contract is a poor fit for the enforcement of most FRAND commitments, and relying too heavily on it is likely to have unwelcome results.  Contract law fails as a general-purpose FRAND enforcement theory on several grounds.  First, the simplified offer-acceptance-consideration model laid out above does not reflect the actual manner in which most FRAND commitments are made.  Most of these commitments are not set forth in an agreement between the patent holder and the SDO.  Rather, they are contained in SDO policies, bylaws and other types of statements.  In addition, many of these policies (including those adopted by leading SDOs such as IEEE) do not actually require the patent holder to commit to license its patents on FRAND terms, but only to disclose to the SDO the terms on which it will, or on which it intends to, license its essential patents.  Moreover, FRAND commitments are typically a sentence or two in length, and fail to set forth any of the relevant details of the promised license agreement, whether they be royalty rates, grant-back requirements, terms on which the license may be suspended or terminated, and the like.  As such, whatever “contract” is formed is likely void for want of detail, a mere “agreement to agree”.  Finally, the attempt to extend third party beneficiary rights to every product vendor in the world, whether or not it competed in the relevant business, or even existed, when the promise was made, stretches this venerable doctrine beyond any sensible boundaries.  As a result, except perhaps in a few cases in which standards are developed by small groups of firms that have actual contractual arrangements amongst themselves, common law contract is a poor choice as a general enforcement mechanism for FRAND commitments.

At least one Administrative Law Judge at the International Trade Commission has recently come to the same conclusion in the ITC’s case against Interdigital (337-TA-868, June 18, 2014), expressly ruling that the FRAND policy adopted by the European telecom SDO ETSI “is not a contract”, and merely “contains rules to guide the parties in their interactions with the organization, other members and third parties.”  I couldn’t agree more.

I am not arguing, of course, that FRAND commitments should not be enforced.  I feel quite the opposite, and have argued that these promises form an important subset of a larger category of “patent pledges” that ought to be enforced for the benefit of the market.  However, there are many more sound and coherent theories for enforcing patent pledges, and FRAND commitments in particular, than common law contract.  These include various antitrust and competition law approaches, which have been advanced by the FTC and others, as well as my personal favorite, a modified variant of promissory estoppel that I call “market reliance”.  The market reliance theory is grounded in the fact that patent pledges are promises, whether or not they fulfill the requirements of common law contract, and promises ought to be enforced.  The theory overcomes the requirement that specific and actual reliance be proved in promissory estoppel cases by introducing a presumption of reliance based on the “fraud on the market” theory used in Federal securities law.

But whichever theory eventually prevails for the enforcement of FRAND commitments and other patent pledges, it seems fairly clear that common law contract is useful, at most, in a small subset of these cases.

Myriad Patents Now Challenged at the PTO

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Myriad v. Gene Dx, Inc.

In 2013, the US Supreme Court invalidated Myriad’s patent claims covering isolated DNA coding for the cancer causing BRCA1/BRCA2 by ruling that those isolated genes were unpatentable products of nature. However, the Supreme Court also ruled that the ‘created’ cDNA versions of the genes were patent eligible – or at least not excluded by the product-of-nature exception to subject matter eligibility.

Following that decision, a number of companies indicated that they would enter the market and begin BRCA1/BRCA2 diagnostic genetic testing in violation of the patents. Myriad responded aggressively by filing lawsuits against several companies, including Gene Dx for patent infringement. The case against Gene DX alleges infringement of sixteen different Myriad patents and is still pending in Federal Court in Utah where the parties have jointly agreed that settlement prospects are “low.” The case has been centralized before a multidistrict panel that is handling parallel cases against Gene DX, Quest Diagnostics, Ambry, and Counsyl.

In a bold move, Gene DX has now filed a set of inter partes review (IPR) requests – challenging 11 of the Myriad (or Myriad Licensed) patents. I should note, these challenged patents are different from the ones ruled-upon by the Supreme Court. In the IPR regime, patents can only be challenged on prior art grounds. Here, each of these patents have been challenged on either 103 (obviousness) or 102 (novelty) grounds.

Pendency from Filing to First Action

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One common complaint of the U.S. patent system is delay. Most patents take over three years to issue. Adding in priority claims moves-out the average timeline (original priority filing date to issuance) to over five years. [Link]. One way that the PTO is addressing that concern is to focus on reducing the backlog of unexamined applications – those that have been filed but that have not yet received a first action on the merits (FAOM). Under Director David Kappos, the goal was to reduce the FAOM timeline to < 10 months – that goal appeared quite amazing at the time, but is now somewhat into focus.

In its Official Gazette, the USPTO occasionally reports average filing-date for recently issued FAOMs. I used those reports to create the above chart considers the timeline for receiving first-actions across the various technology centers within the USPTO. Two salient points appear from the chart. First, the average pendency of unexamined applications has dropped significantly since 2011 and all technology centers are under two-years pendency. Second, the variance between the technology centers has been significantly reduced. This second result has come about based upon efforts at the PTO to move examining resources to areas that are suffering the most from the backlog. Although still the shortest pendency, design patents (TC2900) have come roughly in-line with the rest of the technology areas.

As an interim marker, the time-to-first-action is fairly meaningless. However, the PTO hopes that its reduction will result in an overall reduction in pendency. Time will tell whether that hope is realized. For patentees, the timing can be eliminated by requesting accelerated examination ($4,000 fee).

As suggested by the above discussion, the USPTO patent examination corps is divided into a number of technology centers, and each technology center is sub-divided into one or more art units. The technology focus of each tech center is listed below.

  • 1600 – Biotechnology and Organic Chemistry
  • 1700 – Chemical and Materials Engineering
  • 2100 – Computer Architecture, Software, and Information Security
  • 2400 – Computer Networks, Multiplex communication, Video Distribution, and Security
  • 2600 – Communications
  • 2800 – Semiconductors, Electrical and Optical Systems and Components
  • 2900 – Designs
  • 3600 – Transportation, Construction, Electronic Commerce, Agriculture, National Security and License & Review
  • 3700 – Mechanical Engineering, Manufacturing, Products

Supreme Court Patent Cases Per Decade

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The Chart below is an update of one I published earlier this year. The new chart adds in a couple of extra cases that I had previously not included and also takes account of the Supreme Court’s spate of decisions this term, including Alice v. CLS Bank (subject matter eligibility); Nautilus v. Biosig (indefiniteness); Limelight v. Akamai (divided infringement for inducement); Highmark v. Allcare (attorney fee awards in exceptional cases); Octane Fitness v. Icon Health & Fitness (attorney fee awards in exceptional cases); and Medtronic v. Boston Scientific (burden of proving infringement always falls on patentee even in licensee DJ actions). Readers should also note that the decade of 2010’s is not yet ½ completed and the Court has already granted writ of certiorari in one pending action: Teva v. Sandoz (standard of appellate review for factual findings that serve as the underpinnings for claim construction). We can expect that the trend will continue over the next several years with special focus on the new rules and procedures stemming from the America Invents Act of 2011. Note – my list largely agrees with Prof Ouellette’s

Federal Circuit Sends Patent Case to Eighth Circuit

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By Dennis Crouch

US Water Services, Inc. v. ChemTreat (Fed. Cir. 2014)

The Federal Circuit has determined that it lacks subject-matter appellate jurisdiction over the patent infringement appeal and has thus transferred the case to its sister-court, the Court of Appeals for the Eighth Circuit.

The unusual outcome stems from the parties pleading posture that began pre-AIA. Under the law when the case was filed, the Federal Circuit has subject-matter appellate jurisdiction over cases that “arise under” federal patent law. Arising-under jurisdiction is a term of art that follows the “well-pled complaint rule” which requires the patent law question appear on the face of the plaintiff’s original complaint as outlined in the Supreme Court’s 2002 decision on point. Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 534 U.S. 826 (2002).

Here, the original complaint was filed by USWS against ChemTreat for trade secret misappropriation under Minnesota law. In a counter claim, ChemTreat alleged invalidity and non-infringement of one of USWS’s issued patents. The parties then settled the trade secret claim and the district court subsequently granted ChemTreat’s motion for summary judgment of non-infringement. USWS now appeals that noninfringement determination. Since the patent issue was first raised in the responsive pleading (rather than in the complaint), the case cannot be said to arise under the federal patent laws. The result then is that the Federal Circuit has no subject matter appellate jurisdiction over the appeal.

As the patentee with a technical argument on appeal, the USWS was looking for Federal Circuit jurisdiction. It raised two arguments on the appeal (1) that it consented to the counterclaim filing; and (2) that the counterclaim joined additional parties (the patent owners since USWS was merely the exclusive licensee) and thus should be seen as the equivalent to a complaint under the well-pled-complaint rule. In its decision here, the Federal Circuit rejected both of those arguments, finding instead that the rule is hard and inflexible. See also Wawrzynski v. H.J. Heinz Co., 728 F.3d 1374 (Fed. Cir. 2013).

tl;dr: patent issue was first raised in a counterclaim so the case did not arise under the US patent laws.

If the same lawsuit had been more recently filed, it is possible but still unlikely that the Federal Circuit would have subject matter appellate jurisdiction based upon the AIA amendments made in 2011. In particular, the Federal Circuit jurisdiction now additionally extends to cases where the patent law issue is raised only in a “compulsory counterclaim.” Although not expressly decided it does not appear that the patent issue here should be seen as compulsory under the rules of civil procedure but instead merely supplemental. As such, even the broader appellate subject matter jurisdiction rules of the AIA would not permit the Federal Circuit to hear the case.

= = = = =

The decision here was based upon appellate subject matter jurisdiction and did not reach the merits of the underlying appeal. Those underlying merits focused on whether the district court held declaratory judgment jurisdiction since (according to USWS), USWS never threatened patent infringement and the challenged patent was so different from ChemTreat’s activities that it would be silly to fear such an action.

Compulsory License as a Remedy for Trade Secret Misappropriation

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by Dennis Crouch

Sabatino Bianco, M.D. v. Globus Medical, 2:12-cv-00147 (E.D. Tex 2014) (Decision)

Spinal FusionFederal Circuit Judge William Bryson is sitting by designation in this trade-secret misappropriation case brought by the Dr. Bianco, a Texas Neurosurgeon. According to the allegations, Bianco shared his intervertebral fusion device with Globus (under a confidentiality agreement) and then Globus began selling its version of the device. The jury sided with the doctor, finding Globus liable for trade-secret misappropriation and awarded $4.2 million in past damages. Following the jury verdict, Judge Bryson denied Bianco’s request for permanent injunctive relief. In that decision, the court concluded that three of the eBay factors pushed against such a ‘dramatic’ award: irreparable harm; balance of the hardships; and the public interest.

In his most recent opinion in the case, Judge Bryson has awarded ongoing damages of 5% of Globus’s future sales of the device (for the next 15-years). The one problem with the Judge’s decision is that he did not cite a single case where ongoing royalties have been awarded for trade secret misappropriation under Texas law. Rather, Judge Bryson analogized to the Federal Circuit’s decision in Paice LLC v. Toyota Motor Corp., 504 F.3d 1293 (Fed.Cir.2007) that permitted the award of ongoing (future) damages for patent infringement at a set reasonable royalty rate. Judge Bryson writes here:

Although this case involves trade secret misappropriation rather than patent infringement, the two torts are sufficiently analogous that the Federal Circuit’s decision in Paice, as supplemented by cases from the Federal Circuit and from this district that have applied Paice [in the patent context] provide an appropriate starting point for this Court in deciding whether to grant an ongoing royalty and what the amount of that royalty should be.

Of course, this trade secret case is based upon Texas state law and not on Federal Patent law and the remedy must be guided by Texas law even if limited by the Federal Court’s equitable power. In the interesting case of Guarantee Trust Co. of New York v. York, 326 U.S. 99 (1945), the Supreme Court explained:

This does not mean that whatever equitable remedy is available in a State court must be available in a diversity suit in a federal court, or conversely, that a federal court may not afford an equitable remedy not available in a State court. . . . State law cannot define the remedies which a federal court must give simply because a federal court in diversity jurisdiction is available as an alternative tribunal to the State’s courts. Contrariwise, a federal court may afford an equitable remedy for a substantive right recognized by a State even though a State court cannot give it. Whatever contradiction or confusion may be produced by a medley of judicial phrases severed from their environment, the body of adjudications concerning equitable relief in diversity cases leaves no doubt that the federal courts enforced State-created substantive rights if the mode of proceeding and remedy were consonant with the traditional body of equitable remedies, practice and procedure, and in so doing they were enforcing rights created by the States and not arising under any inherent or statutory federal law.

To be clear, the ongoing damages award in Paice has been classified as equitable because it goes beyond what would have been available to a court of law.

In eBay, the Supreme Court spelled out the factors that must be considered as a pre-requisite before a Federal Court can award permanent injunctive relief. Although that case focused on injunctive relief, the Supreme Court requires federal courts to walk through several steps before any equitable relief is awarded. In the York case cited above, the court wrote that any award of equitable relief by a Federal Court “is of course subject to restrictions: the suit must be within the traditional scope of equity as historically evolved in the English Court of Chancery. . . ; explicit Congressional curtailment of equity powers must be respected. . .; the constitutional right to trial by jury cannot be evaded. . . ”  In general, any ongoing royalty award should also also include a determination that the remedies available at law are inadequate to protect the interest of the right holder.

Where to Appeal?: It will be interesting to see how the Federal Circuit handles this case on appeal. (The complaint also requests change of inventorship under 35 U.S.C. 256).

The case should also serve as a warning against parties seeking injunctive relief in Federal Courts. Namely, Federal Courts are required to follow eBay even when enforcing State law.  State courts are not so limited.

Patent Examiners and Litigation Study

Patent, , , ,

Guest Post by Prof. Shine Tu.  Dr. Tu is an Associate Professor of Law at the West Virginia University College of Law and a shareholder in PatentCore. His research focuses on large-scale empirical studies of the patent examination system.

In August of 2013, the GAO recommended that the PTO examine trends in patent infringement litigation and link this information to internal data on patent examination to improve the quality of issued patents and the patent examination process.  In our current study, we attempt to answer these questions: (1) which patent examiners are issuing litigated patents, (2) are examiners who are “rubber stamping” patents issuing litigated patents at a disproportionately higher rate, and (3) are examiners with less experience issuing more litigated patents?  In sum, do patent examiners who issue litigated patents have common characteristics?  Intuition would argue that those examiners who issue the most patents (approximately one patent every three business days) would exhibit a higher litigation rate.  Surprisingly, this study suggests that this is wrong.

This study uses two new patent databases, that code for nearly 1.7 million patents and approximately 12,000 patents that were litigated between 2010 and 2011.  This study determined that litigated patents mainly come from primary examiners who grant between 45-60 patents per year with between three to five years of experience.  These examiners are contributing to the litigated patent pool at a higher rate than expected.  Interestingly, the highest volume primary examiners (examiners who on average grant more than 80 patents per year and have more than 8 years of experience) do better than expected.

In the figures below, the dotted line represents the “expected litigation” based on the proportion of patents issued by the examiner.  The solid line represents the “actual litigation” rates seen.  Thus, when the solid line is above the dotted line, the examiners in that group issue more litigated patents than expected.  Conversely, when the dotted line is above the solid line, the examiners in that group issue less litigated patents than expected.

Figure 1Figure 2Certain structural factors, combined with the Preist-Klein type selection may explain the phenomena that primary examiners with 3-5 years of experience have higher than expected rate of litigated patents. During the first four or five years, when the examiner does not yet have full signatory authority, the examiner is under heavier scrutiny (review by a primary examiner as well as Quality Control).  During these years, the examiner removes easy cases from their docket (by allowing the clearly allowable cases, or by rejecting the unpatentable cases), and builds up a docket of “on the fence” applications.  Once a primary examiner obtains permanent full signatory authority (usually years 3 and above) are no longer heavily scrutinized. Additionally, production rates increase when a primary examiners acquires full signatory authority (usually an examiner moves to a GS-14 after gaining permanent full signatory status). Thus, new primary examiners who have permanent full signatory authority are in the new position of increased production rates while experiencing reduced supervision, with a larger docket of “on the fence” applications. Accordingly, these primary examiners (usually with more than 2-3 years of experience as a primary examiner) may issue these “on the fence” applications on their docket that they would have been hesitant to allow beforehand. Furthermore, applications that are “on the fence” might be more litigated than most patents. This is because strong patents could be allowed quickly by the examiner, and competitors would most likely need to license these patents, thereby avoiding litigation. Correspondingly, weak patents might take longer to issue, but would most likely not be litigated because of their weak standing. However, patents where validity is unclear may require litigation. These more uncertain patents may be issued at a higher rate when the primary examiner first receives full signatory authority (without supervision), thereby explaining the higher litigation rates in years 3-6.

There are many limitations to this study.  First, the database that we use is a broad database but suffers from some selection bias due to the examiner-matching step. Specifically, temporal selection bias occurs in the database since the examiner database contains only those patents that were issued between 2001 and 2012. Accordingly, litigations dealing with “older patents” (i.e., those patents issued before 2001) are not included in our database. Additionally, since we only have data starting from 2001, there may be a “left justification” issue.  Because we start at 2001, examiners who have worked prior to 2001 (inclusive) will be coded as working less years than they actually have worked.  For example, if an examiner started working in 1998 and quit in 2003, our database would code the examiner as working for 3 years, while in actuality the examiner was at the office for 6 years. We are currently segmenting the data to account for these examiners.  Accordingly, our results may be slightly positively skewed.

Another limitation is based on the fact that there are many reasons to bring litigation, but many of these reasons may not represent errors by the patent examiner. For example, a patent could be litigated and found invalid because of inequitable conduct. In this situation, the patent examiner may have issued a valid patent based on the fraudulent information given to her by the applicant. Another example deals with a patent that was found valid, but non-infringed. Here, the litigated patent may have been correctly issued, but litigated due to incorrect interpretation of the scope of the claims. Accordingly, simply because a patent is litigated, does not mean that there were errors made at the patent office.

To address these issues, we are currently working on a study that reviews only those patents that have been litigated to final judgment and found invalid. We then connect these invalidated patents to their corresponding examiners to determine if there are any common characteristics among the examiners who issue invalidated patents. However, we note that the pool of litigations that are litigated to final judgment dramatically reduces the sample size.

The paper will be published in 17 Stan. Tech. L. Rev. 507 (2014).  A draft of the paper is available on ssrn at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2458140

Patent Agent and Criminal Defense Lawyer? Not.

Ethics,

In re Campbell was a recent default judgment taken by the OED against a patent agent.  Among other things, the default states that the patent agent took money without doing the prosecution work he’d promised to do. But he also showed up in Colorado state court to defend a criminal case, and basically represented to the judge that he was an attorney… licensed by the PTO.  That didn’t sit well with the judge, the Colorado bar, or the OED.

I’m filing this under:  “I hope that this is prohibited is not news to you.”