Tag Archives: obviousness

In my view, Obviousness is the most fundamental of patent law doctrines, and certainly much of the work of patent attorneys is to convince patent examiners that the claims are not obvious.

No real consensus yet on CBM Sunsetting

Once initiated, CBMs are identical to post-grant reviews (PGR) – allowing for patents to be challenged on any patentability grounds.  As implemented, this includes 101 and 112 challenges in addition to the more traditional obviousness and novelty grounds.   PGRs, however, are limited to only AIA-patents and must be filed within a 9-month window from issuance.  Those caveats have severely limited the number of PGR petitions filed thus far.   For CBMs, the AIA-patent restriction and 9-month window are both eliminated.  However, the statute creates a subject-matter limitation that restricts CBMs to only non-technological financial-services business method patents.

Another feature of the CBM program is that it is “transitional” – i.e., it sunsets in 2020 and no petitions will be accepted after that date.

Last week, I hosted a quick anonymous survey on the transitional Covered Business Method Review program — asking whether the CBM program should be allowed to sunset or somehow extended.  240 Patently-O readers responded with results shown in the chart below.  About 44% of responses favored ending of the program outright — allowing it to sunset.  About 29% favored extending the program as-is, with the narrow financial-services scope.  The remaining favored extension and expansion: 17% would expand the scope to include all information processing patents, and the remaining 10% would extend the program to include all patents.  This final option would essentially mean ending the 9-month window for PGR filing.



The survey also offered (but did not require) an explanation of the answer.  A variety of themes emerge from that explanation. The following are a few examples.

For patent challengers, the key response is that “it works” as a mechanism for cancelling patents, and could be extended to other technology areas.  

  • CBM is a big success addressing one of the most abused categories of patents. Extend it to the very worst and most abused patents by including all of information processing and it can help clean up the system and make it stronger.
  • Business methods are not the only abstract processes being patented by the Office Patent. A majority of all information processing methods (even those outside of the Business arts) suffer from encompassing non-statutory abstract processes without reciting subject matter that amounts to anything significantly more than said abstract processes.

The historic problem associated with poor business method examination quality has now been fixed. 

  • It was intended to handle a temporary problem in a specific area.  State Street caused a flood of applications in an area that was new to the USPTO.  Now skills and databases have developed and the stats show that there is no particular need for either expanding or extending CBM.  Permanently singling out a particular subject matter for extra scrutiny could cause other countries to do the same in other areas.
  • If the goal was to clean up shoddy and overly broad patents and applications, then most all of the necessary work should be done by then.  There are existing mechanisms in place that should be forcing quality such that this becomes redundant and therefore unnecessary.
  • It was a political sop to begin with and should be allowed to expire per the legislation and the underlying political agreement.  It’s argument was to take care of “low-hanging fruit”, patents of old vintage, issued when the Office’s resources in this area were low.  8 years is more than enough time to pick that fruit.
  • CBM petitions are declining because most of the patents intended for consideration have already been undone.

Patents need to be strengthened, not weakened. 

  • The patent systems is already nearly dead.  Make patent owners in all areas feel the pain of having their patent rights trampled over by a kangaroo administrative court.
  • Broad restrictions on patentability are harming U.S. competitiveness in the areas of its greatest strength.  China and the EU are poised to eat our lunch, and we are serving it up to them.
  • A terrible idea from the outset.
  • It (CBM) deprives some of the best technological innovators the chance to protect their valuable property.  Abandon CBM, and instead seek recourse to the traditional approaches (102, 103 and 112) to rid the patent landscape of those patents that don’t rise to the level of technological innovation.

The PTAB process is either corrupt or incompetent. 

  • It has been abused by petitioners and PTAB has taken it too far.
  • Go back to district court litigation. The present scheme is a disaster.
  • The USPTO is turning into a mini-court system. That is not its competency. It needs to focus on technology, granting patents to those inventions that meet the basic statutory criteria, and leave the legal hair-splitting to courts.
  • This is a corrupt Review that benefits a specific class of infringers and is detrimental to the development of new technology.

The approach should be ended because it violates the constitutional rights of patent owners.

  • Unconstitutional.
  • AIA has overstepped its boundaries on constitutional grounds as patents are private rights.
  • All patent owners are entitled to due process, and that includes the right of access to a court of law before their patents are summarily cancelled by a political, the end-justifies-the means, so-called court.

Of course, there are other responses as well (perhaps more below in the comments).

The bottom line here, as you might expect, is that there is not yet any consensus on whether to extend the CBM program.  My own general framework begins with the recognition that CBM does no longer adds much value post Alice/Mayo and with district court eligibility determinations being done on the pleadings.  However, I would like to see the empirical evidence.   The point of creating legislation that sunsets is that it effectively places the burden of proof on anyone wanting to continue the program.  That work has not yet been done.


Interpreting the Interpretation of the Broadest Interpretation

By Dennis Crouch

Nestle USA v. Steuben Foods (Fed. Cir. 2017) (nonprecedential)

In its final written decision, the PTAB sided with the patentee – holding that IPR-challenged claims were not obvious.  U.S. Patent No. 6,945,013 claims 18-20 (aseptic bottling at > 100 bottles per minute).  On appeal, Nestle has successfully argued that Board incorrectly construed the claim term “aseptic.”

In Cuozzo, the Supreme Court gave deference to and agreed with the USPTO’s approach of giving claims their “broadest reasonable interpretation” (BRI) during inter partes review (IPR) proceedings.[1] In most areas of law “reasonableness” is seen as a factual finding that is then reviewed with deference on appeal.  Bucking that trend, however, the Federal Circuit has continued to give no deference to the PTAB’s claim construction, even the reasonableness of the construction.  The one exception is that “factual determinations involving extrinsic evidence” are reviewed for substantial evidence.[2]

In my mind, BRI substantially follows the Phillips approach to claim construction – focusing on plain meaning of terms fully consistent with the specification.  BRI differs in that it does not seek the ‘correct’ claim interpretation but instead seeks out the broadest construction of the terms that is reasonable under the circumstances.  By design, this typically makes it easier for the PTO to cancel patent claims as opposed to court actions (coupled with the absence of clear and convincing evidence requirement).

Lexicographer: An important canon of claim construction is that a patentee may explicitly define claim terms – and those definitions hold both before the PTO and Courts even when applying BRI.  Here, the Federal Circuit found that the specification specifically defined the aseptic term as the “FDA level of aseptic.”  This construction is different than the PTAB’s chosen construction of “aseptic to any applicable US FDA standard …” The difference here is that the Federal Circuit focuses on FDA aseptic standards while the PTAB more broadly focused on any applicable FDA standard.

Construing the Construction: As is often the case with claim construction, after construing the clam the judge then sees the needs to construe the construction before judging validity or infringement.  Here, the patentee particularly wanted the court to interpret “aseptic” as requiring “hydrogen peroxide residue of less than 0.5 ppm.”  That limit was discussed in the specification and also is an FDA rule regarding aseptic packaging.

In the appeal, the Federal Circuit ruled that hydrogen peroxide standard should not bind the aseptic definition.   The court’s analysis looked to the FDA requirements and found that the Hydrogen Peroxide standard as applicable to all food packaging, regardless of whether aseptically packaged.   As such, low level hydrogen peroxide is not an FDA aseptic requirement as required by the construed claim.  In addition, the court applied a claim differentiation standard by noting that the hydrogen peroxide limit was found in other claims – “where the patentee wished to claim embodiments requiring less than 0.5 ppm of hydrogen peroxide residue, it did so using express language.”

Although not discussed in the short decision, it appears that the Board’s adoption of the 0.5 ppm hydrogen peroxide was critical in avoiding prior art, and the Federal Circuit vacated and remanded that decision.  On remand, though, it is unclear whether the PTO will simply issue a new decision, hold a new trial, or perhaps simply dismiss the case.

= = =

[1] Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016).

[2] See Teva; Microsoft Corp. v. Proxyonn, Inc. 789 F.3d 1292 (Fed. Cir. 2015).

Court-Agency Allocations of Power and the Limits of Cuozzo

Guest post by Saurabh Vishnubhakat, Associate Professor at the Texas A&M University School of Law and the Texas A&M College of Engineering.  Although Prof. Vishnubhakat was an advisor at the USPTO until June, 2015, his arguments here should not be imputed to the USPTO or to any other organization.

Prof. Vishnubhakat was counsel of record for the amicus brief by patent and administrative law professors in this case.

= = = =

Yesterday’s argument in Wi-Fi One, LLC v. Broadcom Corp. suggested that the en banc Federal Circuit are grappling with at least three important issues as they consider the reviewability of PTO decisions to institute inter partes review that arguably violate the one-year bar of 35 U.S.C. § 315(b):

  • How does the IPR statute allocate power between the PTAB and the district courts to reevaluate patent validity?
  • How does the Supreme Court’s opinion last Term in Cuozzo Speed Techs., LLC v. Lee allocate power between the USPTO Director and the Federal Circuit to oversee the PTAB?
  • How might this case resolve (or aggravate) rule-of-law concerns that the Federal Circuit has recently expressed, especially as to separation of powers under the Chenery doctrine?

The Federal Circuit’s panel decision in Achates Reference Publ’g, Inc. v. Apple Inc. held that PTAB decisions to institute IPR are unreviewable even where the § 315(b) time bar may have been violated.  The en banc question here is whether to overrule Achates.

The USPTO’s interest in the case was clear from the large group of agency employees in attendance, including members of the PTAB and the Solicitor’s Office as well as Director Michelle Lee herself.  The USPTO also formally intervened in the case and designated Mark Freeman from the DOJ Civil Division’s Appellate Staff to argue.

The PTAB-District Court Balance of Power

Historically, of course, the power to invalidate patents in the first instance resided in the district courts.  An opening exchange with Chief Judge Prost laid the groundwork that although the AIA sought efficient patent validity review outside the courts, it also constrained the administrative alternatives in a variety of ways.  The USPTO would later elaborate this point as well, that challenges that would have gone to court would now go to the agency, but this reallocation of power would not be total.  District-court defendants and their privies would have to act within a year, or never at all.  Judicial review can police this balance of power—but not without disruption of its own, and so the dispute over appealability.

The Main Cuozzo Exception: Relatedness to Institution

From early in Wi-Fi’s argument, several members of the court starting with Judge Dyk explored whether the § 315(b) time bar is distinguishable from the § 312(a)(3) particularity requirement that was found nonappealable in Cuozzo.  A well-known passage in Cuozzo orients the holding toward institutions that are made “under this section [§ 314]” or that are “closely tied” to institution-related statutes.  Meanwhile, several types of “shenanigans” may still merit review, such as constitutional defects, interpretations of less closely related provisions, or decisions whose scope and impact reach well beyond institution.  As a result, arguments to limit Cuozzo and afford review have often focused on these exceptions, especially on framing the statute as “less closely related” to institution “under this section [§ 314].”  Judges Chen and Stoll also followed up at several points with Broadcom and the USPTO about the “under this section” limitation.

Reconciling Cuozzo’s Majority and Dissent

Judge Chen also took an interesting further approach to how closely related a statute must be for Cuozzo to apply.  He noted that the dissent in Cuozzo complained specifically that the majority’s approach swept broadly and harmfully.  The Cuozzo dissent argued that the majority’s position would foreclose review even of issues such as the § 315(b) time bar because timeliness is “no less . . . closely tied” to institution.  The majority disclaimed various other horribles but was silent about the alleged relatedness of the one-year bar to institution.  Was this colloquy from Cuozzo a signal of consensus that the time bar is, indeed, the type of PTAB decision that is immune from review?

One sensible answer is that the Cuozzo dissent’s argument about the one-year bar should be seen as hortatory, intended first to build a majority and later, when the case was lost, to cabin the impact of the majority’s reasoning.  In other words, the dissent did not merely read the majority’s logic broadly but read it broadly as a reason to reject that logic.  To accept part of the Cuozzo dissent’s premise now while continuing to reject the dissent’s urged conclusion may itself be problematic cherry-picking, especially if any supposed agreement by the Cuozzo majority were to be inferred from its silence on the matter.  Indeed, Wi-Fi answered Judge Chen along just these lines by discussing what the Cuozzo dissent was trying to accomplish—limiting nonappealability to a prohibition of interlocutory review—not merely what the dissent said.

The Other Cuozzo Exception: Scope and Impact

Apart from “less closely related” statutes, the argument also started at times to explore Cuozzo’s “scope and impact” exception, particularly where the PTAB might act outside its statutory authority and thereby lose immunity from review.  It was the USPTO to whom Judge Chen suggested that the one-year bar of § 315(b) may well have been a Congressional allocation of power between the agency and the district courts to resolve patent validity disputes.  This view of the time bar would make it a statutory limit on the agency’s authority, a violation of which would render the PTAB susceptible to appellate review despite Cuozzo.

The scope and impact of § 315(b) are also stark when seen through the lens of court-agency substitution.  Arti Rai, Jay Kesan, and I have reported in recent research that a substantial share of petitioners (about 30%) seek PTAB review before being sued in district court on the patent in question.  This and related findings indicate that, in addition to ordinary court-agency competition over who resolves the validity of a patent in an ongoing infringement lawsuit, the PTAB also competes with the courts over who should resolve preemptive strikes against patents.  As the law professors’ amicus brief argued in this case, the one-year bar of § 315(b) sets an important boundary line in this competition and—as Judge Chen suggests—preserves an inter-branch allocation of power.  Thus, its scope and impact reach well outside the walls of the agency and into the federal courts, empirically as well as analytically.

The USPTO Director-Federal Circuit Balance of Power

One of the most significant aspects of this case, and why it was an apt choice for en banc review, is that the Federal Circuit is shaping its own ability to shape future cases.  Much like the balance of power between the PTAB and the district courts to evaluate patent validity in the first instance, also at stake is the power to correct errors and bring uniformity to the decision-making of the PTAB.  This latter power, too, was reallocated away from the Federal Circuit by the AIA’s nonappealability provisions.

The Source(s) of Uniformity

One might suppose, as Wi-Fi began to argue, that the absence of judicial oversight would leave individual PTAB panels to generate consensus in a common law fashion, and that consensus is unlikely to emerge because of the PTAB’s sometime disregard for its own prior analogous precedents and for prior court judgments regarding the validity of the same patent.  (Even a Federal Circuit panel endorsed the latter as recently as a month ago in Novartis AG v. Noven Pharms. Inc.)

Judge Wallach, however, strongly rejected Wi-Fi’s view that nonreviewability might leave uniformity and oversight to individual panels of the PTAB.  Instead, he noted, the Director of the USPTO can impose uniformity by assigning additional judges to particular panels to resolve contentious issues in a certain way.  To this, one might add that the Director can also generate uniformity directly through the ordinary chain of administrative command as an ex officio member of the PTAB and through the process for designating PTAB opinions as precedential, representative, or informative.  Judge Wallach raised the issue with Broadcom as well, asking whether “stacking the panel” to reach certain outcomes would qualify as judicially reviewable shenanigans.

This alternate view of uniformity is significant for its implicit but direct potential not only for displacing the Federal Circuit but also for making patent validity decisions more responsive to political constituencies.

The APA Presumption of Reviewability

The counterargument to this potential injection of politics into patent adjudication came in the closing minutes of the hearing.  For all the discussion about Cuozzo and its enumerated exceptions, Wi-Fi argued that the Cuozzo holding did not make nonreviewability the new baseline in administrative reviews of patent validity.  Rather, Cuozzo was one instance where the Administrative Procedure Act’s ever-present presumption favoring judicial review was rebutted clearly and convincingly enough as to institution decisions.  To construe the nonappealability statute as to timeliness under § 315(b) or any other issue would require a fresh analysis of statutory text, purpose, legislative history, etc.

Judge Moore engaged this argument, suggesting that Cuozzo need not be limited entirely to its facts with nonappealability decided from scratch each time.  She suggested, for example, that Cuozzo could be seen as precluding a range of appeals from institution and institution-related decisions, but that the opinion’s limitations apply here and thus dispel the indications that were clear and convincing in the Cuozzo case itself.

Notably, Judge Moore was also one of several, including Judges Newman and Reyna, to ask whether PTAB actions that are plainly invalid or ultra vires would enjoy immunity from review.  This concern, too, is of a piece with the balance of power between the Federal Circuit as judicial overseer and the Director of the USPTO as political overseer because it highlights a necessary choice between correcting agency errors and tolerating them in the name of Congressionally intended agency autonomy.

Making the PTAB Better Explain Itself

Finally, the en banc court referred at various points to the need for greater transparency in the PTAB’s own decision-making.  This is a concern that Federal Circuit panel decisions increasingly voice in PTAB appeals.  An early colloquy with Chief Judge Prost explored whether the PTAB might be shielded from review of certain issues in final written decisions simply by omitting discussion of those issues from its final written decisions, in light of the APA’s general requirement that an agency articulate its “findings and conclusions, and the reasons or basis therefor.”  Similarly, in the discussion over political panel-selection by the USPTO Director, Judge Wallach suggested that rule-of-law values such as predictability, uniformity, and transparency of judgments and the neutrality of decision-making may be threatened.

These concerns are also consistent with recent decisions finding fault with the PTAB’s failure to explain its reasoning with enough detail even to enable meaningful review.  For example, citing the Chenery doctrine, the In re NuVasive, Inc. panel decision last December reversed a finding of obviousness not because it was necessarily wrong, but because the reasoning that the PTAB had articulated could not support the decision, while the separation of powers forbade the Federal Circuit to supply its own rationale.  Similarly, in the Shaw Indus. Group., Inc. v. Automated Creel Sys., Inc. panel decision early last year, Judge Reyna wrote separately to chastise the USPTO for its opaque practice of making partial institutions while denying certain grounds or prior art as “redundant.”


The opportunity to clarify these allocations and reallocations of power is likely to be a welcome aspect of en banc consideration.  The power in question may be to adjudicate (as between the PTAB and the district courts), to oversee (as between the USPTO Director and the Federal Circuit), or simply to force a clearer account of the PTAB’s own reasoning.  All of these powers have seen significant revision under the AIA, reflecting the more general ascendancy of administrative adjudication in patent law.  In seeking the right balance for each of these powers, the Federal Circuit appears to be taking seriously the warning that “no legislation pursues its purposes at all costs” and that if the goals of the AIA are important, so also are the particular means that Congress enacted to achieve those goals.

Case Information

  • Oral Argument Recording
  • En Banc Panel: Prost, Newman, Lourie, Bryson, Dyk, Moore, O’Malley, Reyna, Wallach, Taranto, Chen, Hughes, Stoll
  • Arguing for Appellant Wi-Fi One, LLC: Douglas A. Cawley (McKool Smith)
  • Arguing for Appellee Broadcom Corporation: Dominic E. Massa (WilmerHale)
  • Arguing for Intervenor Michelle K. Lee, Director of the USPTO: Mark R. Freeman (DOJ Civil Division, Appellate Staff)

Where are we with Secret Commercialization?

The Federal Circuit’s recent decision in Helsinn Healthcare S.A. v.  Teva Pharmaceuticals (Fed. Cir. May 1, 2017) held the public sale of an invention qualifies as prior art even if the details of the invention are not publicly disclosed.  The PTO has been operating for the past several years that such sales do not qualify as prior art. From the MPEP:

The phrase “on sale” in AIA 35 U.S.C. 102(a)(1) is treated as having the same meaning as “on sale” in pre-AIA 35 U.S.C. 102(b), except that the sale must make the invention available to the public.

MPEP 2152.02(d).  This statement is obviously wrong under Helsinn, and I expect that the Supreme Court would side with the Federal Circuit on this point (but probably won’t take the case).

The court expressly refused to determine whether a non-public sale (or offer-to-sell) also qualifies as prior art under the AIA or must at least the fact-of-the-sale be made public.  The court also refused to make any holding regarding whether secret commercialization (other than sales) by the patentee qualifies as prior art under the AIA.  The AIA does not support expressly support such a notion – of course neither did the statute pre-AIA.  The court also does not discuss the continued relevance of experimental use, but does fall-back on the Pfaff ready-for-patenting on-sale analysis.

Obviousness: These issues involve an interesting and largely unresolved mix between statutory prior art and “non-statutory  bars to patentability.”  The outcome of this mix becomes quite relevant and important once we begin focusing on obviousness.  The Post-AIA obviousness statute redoubles its focus on the prior art – as such any non-statutory-bars eventually developed by the courts should probably  not qualify as prior art for obviousness purposes.

PTAB Must Justify Each of its Obviousness Conclusions

Securus Tech v. Global Tel*Link (Fed. Cir. 2017) (IPR2014-01278) (Pat. No. 7,860,222)

In this nonprecedential decision by Judge Chen, the Federal Circuit has partially-vacated and remanded – finding that the Board (PTAB) had failed to explain its obviousness decision.

Although obviousness is a question of law, essentially all of the building blocks to that conclusion are factual queries.  The result then is that obviousness decisions by the PTAB are difficult to overturn on appeal – since an agency’s factual findings are given substantial deference on appeal.  Unlike a jury, the PTAB has to actually make the necessary factual findings that lead to its obviousness findings.  In addition, the PTAB must explain how the evidence-presented led to its particular conclusion:

First, the Board must “make the necessary findings and have an adequate ‘evidentiary basis for its findings.'” [Quoting In re Nuvasive (Fed. Cir. 2016), internally quoting In re Lee (Fed. Cir. 2002)].  Second, the Board “must examine the relevant data and articulate a satisfactory explanation for its actions including a rational connection between the facts found and the choice made.” Id.

Thus, although a low standard, the PTAB must have at least a rational basis for connecting the evidence to its factual findings.  In its analysis, the Board must also consider counter-arguments.

In this case, the Board “failed to articulate any reasoning for reaching its decision” as to claims 3, 8, 14-15, 17, 19 22-32, and 34-36.  (emphasis in original). Considering the PTAB Decision [IPR2014-01278-FWD-20160121], the Court looks to be absolutely correct that it fails to particularly explain the invalidity of these claims.

There continues to be an internal debate within the Federal Circuit on how the PTAB should handle IPR Failures by the PTAB.  Here, the court vacated and remanded for further consideration.  Other panels have simply reversed without providing the PTAB opportunity to correct its errors (if possible).


Focus on Procedure: Judge Chen’s decision here was careful to focus on procedure since the substance is almost totally lacking.  The ‘222 Patent’s Claim 1 is directed to a communications system whose invalidity was easily affirmed by the Federal Circuit.  Disputed Claim 3 depends from Claim 1 and adds the requirement that “communications between individuals comprise telephone calls.”  Without any prior art, one skill in the art of communications systems would find it obvious to use a telephone to communicate.  Further, the actual prior art relied upon by the Board (U.S. App. Pub No. 2004/0081296) discloses telephones for this purpose.  All this also helps to explain the remand.

Wrongly Affirmed Without Opinion: At the Supreme Court

Shore v. Lee (Supreme Court 2017)

In a new petition for writ of certiorari, patent attorney and inventor Michael Shore has challenged the propriety of the Federal Circuit’s continued approach of affirming patent office decisions without opinion. In a forthcoming article titled “Wrongly Affirmed Without Opinion” (Wake Forest Law Review), I raise the previously unnoticed requirement of 35 U.S.C. § 144 that the Federal Circuit issue an opinion in appeals from the Patent Office (PTO).  Although the Supreme Court generally permits its lower appellate courts to issue summary affirmances, I argue that the Patent and Trademark statutes take precedence in this particular situation.  The issue has come to a head with the large number of no-opinion judgments being issued by the court since the creation of the system of administrative patent trials (IPR/PGR/CBM).

Running with that argument, Shore raises the following three questions:

  1. Does the Federal Circuit’s affirmance without opinion of the PTO’s rejection of Petitioner’s patent application violate 35 U.S.C. § 144?
  2. Does the statute’s requirement that the Federal Circuit issue a “mandate and opinion” govern over Federal Rule of Appellate Procedure 36’s general permission for appellate courts to render judgment without opinion?
  3. Assuming that the Federal Circuit can issue an affirmance without opinion despite the language of § 144, does the Federal Circuit act within its discretion by issuing an affirmance without opinion that does not meet any of the criteria listed in Fed. Cir. R. 36(a)-(e)?

[Read the petition: 2017_WL_1406097]

Certainly, if the PTAB had issued its judgment without opinion, the Federal Circuit would have immediately vacated that decision. However, the appellate court suggests that the rules of opinion writing should not be self applied.

In the underlying case, Shore’s patent application (with co-inventor Charles Attal – founder of Austin City Limits Festival) covers a method for creating a custom video track of a live musical performance.  The claims were rejected as obvious – affirmed by the PTAB.  On appeal, Shore raised several challenges regarding both interpretation of the prior art and claim construction.  Rather than working through those arguments, the Federal Circuit simply affirmed without opinion.

Prof Patterson: Teasing Through a Single FRAND Rate

Guest Post by Prof. Mark R. Patterson, Fordham Law

Last week Professor Jorge Contreras provided here an excellent summary of the April 5 decision of Mr. Justice Birss of the UK’s High Court of Justice in Unwired Planet International Ltd. v Huawei Technologies Co. Ltd., [2017] EWHC 711. The case addresses the problems that arise in determining FRAND (fair, reasonable, and non-discriminatory) licensing terms. Professor Contreras highlighted several novel aspects of the decision.  In the paragraphs below I focus on two of them.

A Single FRAND Rate

Mr. Justice Birss determined that there is only a single set of FRAND terms “in a given set of circumstances” (¶ 164). This approach stands in contrast to the approach of, for example, U.S. District Judge James Robart in Microsoft Corp. v. Motorola, Inc., 963 F. Supp. 2d 1176 (W.D. Wash. 2013), who concluded there would a range of possible FRAND royalties. As Professor Contreras wrote, Justice Birss’s approach poses a number of “logical hurdles . . . with respect to the SEP holder’s initial offer to the implementer and how to assess the SEP holder’s compliance with competition law.”

For one thing, Justice Birss does not seem to contemplate that after the first decision regarding FRAND terms for a particular portfolio, other courts or arbitration tribunals will follow along by applying the same rate. Instead, he appears to anticipate that each judge or arbitrator will make his or her own decision about the “single” FRAND rate, independently assessing the reasoning of prior courts or tribunals: “Decisions of other courts may have persuasive value but that will largely depend on the reasoning that court has given to reach its conclusion” (¶ 411).

Justice Birss makes this comment with reference to an Ericsson license to Huawei, not a license of Unwired Planet’s portfolio to a different licensee. Perhaps he contemplates more deference by subsequent courts to earlier determinations regarding the same portfolio, but that is not clear. Perhaps also, as Dennis Crouch has pointed out to me, there might be preclusive effects, even internationally, as a result of a prior decision, though that would presumably only put a ceiling on a rate, not a floor. In the absence of such effects, one can anticipate a multitude of “single” FRAND rates for a given portfolio.

Another factor that might lead to inconsistency among different rate determinations is what appears to be some reluctance to rely on arbitral decisions:

The decisions of other courts, assuming they are not binding authorities, may be useful as persuasive precedents. A point arises in this case about a licence which was the product of an arbitration. A licence agreement settled in an arbitration is more like terms set by a court than it is like a licence produced by negotiation and agreement. Huawei submitted that such a licence would be evidence of what a party was actually paying and as such was relevant. Aside from certain aspects of nondiscrimination which I will address separately, I do not accept that evidence of what a party is paying as a result of a binding arbitration will carry much weight. (¶ 171).

This skepticism regarding arbitrations is important because international arbitrations are used in the FRAND context to avoid country-by-country litigation. The passage suggests that Justice Birss would not treat rates set in an arbitration involving one licensee as very persuasive in a proceeding involving another licensee. On the other hand, the arbitration to which he was referring was one for which Huawei had introduced only the rates determined in the arbitration, not the award itself (id.). Later in the decision, he writes that “[a]n arbitral award is at least capable of having a similar persuasive value” as a court decision if the reasoning is available (¶ 411). In the end, it is not clear whether Justice Birss’s concern is with arbitration per se—he says that “[t]erms which were settled by an arbitrator are not evidence of what willing, reasonable business people would agree in a negotiation” (id.)—or simply that Huawei did not provide a complete picture of the arbitration at issue.

In any event, the overall picture appears to be that every court and tribunal can determine its own “single” FRAND rate and other terms (even when each is interpreting the same FRAND commitment for the same SEP portfolio). As Justice Birss indicates, there will be some limitations based on the non-discrimination element of FRAND, but he also limits that non-discrimination principle, as described below.

Another problem with the single-rate approach arises in connection with the CJEU’s 2015 decision in Huawei v. ZTE. Under the rules for FRAND negotiations established in that case, which the CJEU established as a template for the avoidance of abuse under Article 102 TFEU, the patentee and potential licensees are required to make FRAND offers. If there is only one single FRAND rate, as Justice Birss says, then of course the chances that either party’s offer, let alone both, will match that FRAND rate are very slim.

Justice Birss acknowledges this problem, and purports to resolve it by saying that “[t]he fact that concrete proposals [i.e., the required FRAND offers] are also required does not mean it is relevant to ask if those proposals are actually FRAND or not” (¶ 744(ii)). But the CJEU is clear that the parties’ proposals must be a “written offer for a licence on FRAND terms” (Huawei v. ZTE, ¶ 63) and “a specific counter-offer that corresponds to FRAND terms” (Huawei v. ZTE, ¶ 66). Justice Birss argues that this means only “that each side must make clear they are willing to conclude a licence on FRAND terms, since that is what matters,” (¶ 738), not that the offers themselves must be on FRAND terms. This claim, though, that “[w]hether a particular concrete proposal is actually FRAND is not what the CJEU is focussing on” (id.) is not the most natural reading of the CJEU’s decision.

Justice Birss does allow that “[n]o doubt a prejudicial demand or a sham proposal may itself be abusive (that issue arises below) but that is another matter” (id.). He says further that “only an offer which is so far above FRAND as to act to disrupt or prejudice the negotiations themselves . . . will fall foul of Art 102(a)” (¶ 738). He then concludes that the Unwired Planet offers and Huawei counteroffers in their negotiations, which were in the range of around three to ten times higher or lower than the actual FRAND rate that he determines, were not abusive given the circumstances of the negotiation (¶¶ 756-784).

In the end it is not clear just what are the implications of Justice Birss’s single FRAND rate. The determined rate does not necessarily constrain other courts or arbitral tribunals to impose the same rate, nor with Justice Birss’s interpretation do offers that deviate from the FRAND rate constitute abuse under Huawei v. ZTE. His approach can be contrasted, as Professor Contreras points out, with that of other courts that have interpreted FRAND as describing a range of rates, and although Justice Birss rejects that approach, his own approach seems likely to produce similar results. (It is possible that he chose the single-rate approach because he seems to have had some misgivings about the task of choosing between the parties’ two rate proposals if they were both FRAND, though in the end he concluded that “the court’s jurisdiction is not restricted to the binary question of assessing a given set of terms but extends to deciding between rival proposals and coming to a conclusion different from either side’s case on such a proposal” (¶ 169).)

The Non-Discrimination Principle

Mr. Justice Birss also addresses the non-discrimination element of FRAND. Here he distinguishes what he calls “general non-discrimination” and “hard-edged non-discrimination” obligations. The former requires that rates do not differ based on the licensee but only based “primarily” on the value of the portfolio licensed (¶ 175). Hard-edged discrimination, on the other hand, “to the extent it exists, is a distinct factor capable of applying to reduce a royalty rate (or adjust any licence term in any way) which would otherwise have been regarded as FRAND” (¶ 177).

Justice Birss rejects any hard-edged non-discrimination requirement beyond that which would be required by competition law. Although one might think that the ETSI FRAND policy imposes obligations independent of competition law, especially given Justice Birss’s conclusion that it creates contracts under French law, Justice Birss takes a different view regarding agreed-to licenses: “If parties agree licence terms then their rights and obligations under the ETSI FRAND undertaking will be discharged and replaced by their contractual rights under the licence” (¶ 155).

Justice Birss does not really explain the basis for this statement, though in other respects he is quite careful in his discussion of French law. First, ETSI is not a party to a license between a patentee and technology implementer/licensee. Hence, it is not clear how the agreement between patentee and licensee on the license could discharge ETSI’s rights under the FRAND contract. Furthermore, even if entry into a license could in principle discharge ETSI’s rights, it is not clear why discharge would result from entry into a license that turns out not to be FRAND when ETSI’s own right is to ensure the patentee’s obligation to license on FRAND terms. Moreover, as Professor Contreras says, it seems unlikely that the ETSI participants (or, I would add, the parties to the license) intend this result. It is likely that we will now see licensees seeking to include license provisions that preserve their rights to seek a remedy for hard-edged discrimination.

Beyond the contract question, Justice Birss turns to competition law: “If . . . the FRAND undertaking also includes a specific non-discrimination obligation whereby a licensee has the right to demand the very same rate as has been granted to another licensee which is lower than the benchmark rate, then that obligation only applies if the difference would distort competition between the two licensees” (¶ 503). That is, ETSI’s FRAND policy does no more than serve to restate competition law.

This surprising conclusion is made more surprising by the way in which Justice Birss applied competition law. Huawei argued that under EU competition law it did not have to show actual harm to competition so long as it provided evidence from which such harm could be inferred, and the court agreed (¶¶ 504-510). But Justice Birss then addressed Huawei’s discrimination claim, which was based on lower rates in an earlier Unwired Planet license to Samsung, by pointing out that the difference in royalty payments would be much smaller than Huawei’s profit margin (¶ 517).

A problem here is that Unwired Planet’s proportion of the total number of relevant SEPs was argued by Huawei to be 0.04% and by Unwired Planet to be 1.25% (¶ 261). Therefore, the aggregate effect over all SEPs of the difference between the Samsung and Huawei rates would be about 100 times greater than the effect the court considers. The judge does not provide the actual Samsung-Huawei royalty difference in the public decision, but the aggregate royalty burden for all SEPs, he wrote, would be about 10% given the FRAND rate he determines (id.). He also noted that Huawei’s profit margin was between $6 and $19 per device on prices between $164 to $185 (¶ 517), which produces profit percentages between 3.2% and 11.6%. Thus, it appears that if Samsung’s rate were half of Huawei’s, the difference would be about one-half or more of Huawei’s profits. Surely one could infer competitive harm from that difference.

Obviously Justice Birss’s decision applies only to Unwired Planet and Huawei, but it seems to be putting on blinders not to consider the overall effect that would result from similar decisions across all holders of SEPs. Would only holders of larger portfolios than Unwired Planet’s be subject to non-discrimination claims, or could such claims only be brought by licensees that have entered into licenses for significant proportions of all SEPs? If the latter, could the non-discrimination claims only be brought against the later-licensing patentees, when the competitive effect became more significant? As long as there is any role for hard-edged discrimination, and Justice Birss does allow it such a role, if only one coincident with competition law, these questions will have to be answered by subsequent decisions.

Supreme Court: Challenging Quick-Look Eligibility Denials

by Dennis Crouch

Broadband ITV v. Hawaiian Telecom (Supreme Court 2017)

A newly filed petition for writ of certiorari offers a substantial challenge to the quick-look eligibility decisions that have been so popular among district courts.  The challenge here is especially focused on no-evidence eligibility decisions that serve as a substitute for an obviousness determination.

In the case, the claims of BBiTV’s U.S. Patent No. 7,631,336 have been repeatedly upheld as non-obvious before a Hawaii district court ruled them ineligible on summary judgment.  In its 103 analysis, the Hawaii court also denied summary judgment of obviousness – finding questions of material fact regarding whether (1) elements of the claims were found in the prior art or (2) PHOSITA would have been motivated to combine those elements.  In its simultaneous 101 decision, however, the court determined as a matter of law that those same elements were “well-understood, routine, conventional activities previously known to the industry” that lack the “inventive concept” required by Alice.  The decision was (as is now common) affirmed without opinion by the Federal Circuit.

The petition challenges the decision and the newly-popular approach of using eligibility as a shortcut to more difficult and fact-intensive obviousness analysis. The three three questions:

1. Evidence for Underlying Factual Findings: Whether the statutory presumption of validity set forth in 35 U.S.C. § 282 applies to claims challenged under 35 U.S.C. § 101, as set forth by this Court in Microsoft Corp. v. i4i L.P., 564 U.S. 91 (2011), when the ultimate legal conclusion relies upon underlying findings of fact, such as whether the additional novel and non-obvious elements of the claims are merely well-understood, routine, and conventional or whether they add an inventive concept.

2. Standard for Summary Judgment: Whether, unlike every other area of law involving motions for summary judgment, as set forth by Fed. R. Civ. P. 56 and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986), and its progeny, a district court may resolve material underlying fact disputes against the non-movant party on a summary judgment motion for lack of patent-eligibility under § 101.

3. Not All Abstraction Are Abstract: Whether the judicially-created exception for “abstract ideas” broadly includes any abstraction of a claim (including novel business practices or methods of organizing human activities) or only “fundamental” and “long-standing” (i.e., pre-existing) practices and methods, as recognized by this Court in Bilski v. Kappos, 561 U.S. 593, 611 (2010) and Alice Corp. Pty. v. CLS Bank Int’l, 134 S. Ct. 2347, 2356- 57 (2014).

The questions begin with the implicit understanding that, although a question of law, eligibility decisions are based upon a set of factual determinations that should be treated like any other factual determination by the court.  This approach is directly contrary to the approach often taken these days that follows Judge Mayer’s concurring opinion in Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014).

An important legal question here is how close the link should be between obviousness and eligibility.  Post-KSR and Alice, there does appear to be substantial connection between the obviousness analysis associated with combining-old-elements and the eligibility analysis of elements that are “well-understood, routine, and conventional.”  The two should often correlate, the court here may have the opportunity to explain the differences both in doctrine and procedure.

Read the petition here: [LINK]

Amicus Briefs in support of the Petition are due by May 17, 2017.


Objective Indicia of Non-Obviousness Must be Tied to Inventive Step

by Dennis Crouch

This post follows-up on my recent essay on Novartis v. Torrent Pharma.  If you recall, that decision by Judge Chen affirmed an IPR trial decision cancelling the claims of the Novartis patent as obvious.

Generics Successful at Invalidating Novartis Gilenya Patent

I did not previously discuss the portion of the case focusing on Novartis’ objective evidence of non-obviousness.  Novartis argued that its drug (1) met a long-felt but unsolved need, (2) received substantial industry praise, and (3) enjoyed commercial success.  The Supreme Court has accepted this type of evidence as relevant based upon the theory that an obvious invention (1) would have already been invented; (2) would not b praised by the industry as groundbreaking; and (3) would have its commercial success undermined by the similar prior art.

In recent years, however, the courts have also pushed a strong nexus doctrine — requiring a nexus or causal relationship between the objective evidence and the claimed invention. In other words, the patentee must show that it was the invention (as claimed) that led to the commercial success and not something else such as marketing. Because this evidence is used to rebut a prima facie case of obviousness, the burden shifts to the patentee to prove the nexus, although at times the court will presume a nexus.

Here, the court explains that the nexus requirement actually goes an important step further.  The secondary indicia of nonobviousness must be tied to the inventive step itself – i.e., what was claimed an not known in the art.

For objective indicia evidence to be accorded substantial weight, we require that a nexus must exist “between the evidence and the merits of the claimed invention.” Wyers v. Master Lock Co., 616 F.3d 1231 (Fed. Cir. 2010). “Where the offered secondary consideration actually results from something other than what is both claimed and novel in the claim, there is no nexus to the merits of the claimed invention.” In re Kao, 639 F.3d 1057 (Fed. Cir. 2011). . . In evaluating whether the requisite nexus exists, the identified objective indicia must be directed to what was not known in the prior art—including patents and publications—which may well be the novel combination or arrangement of known individual elements.

FDA Approval: Moving back to the facts of Novartis, the patentee argued that its commercial success was based upon “Gilenya being the first commercially-available solid oral multiple sclerosis treatment.”  Although that statement is true, the court found the commercial-availability focus misplaced for a non-obviousness argument.  Rather than first-commercial-availability, the focus should be based upon first-invention or disclosure.

The fact that Gilenya was the first to receive FDA approval for commercial marketing does not overcome the fact that solid multiple sclerosis compositions were already known.

With that framework, the court held that the “proffered evidence is not probative of the nonobviousness inquiry.”

[The Decision]

Generics Successful at Invalidating Novartis Gilenya Patent

by Dennis Crouch

Novartis v. Torrent Pharma, Apotex, and Mylan (Fed. Cir. 2017)

At the conclusion of its Inter Partes Review (IPR) Trial, the Patent Trial & Appeal Board (PTAB) found all claims of Novartis U.S. Patent No. 8,324,283 invalid as obvious.  The PTAB had allowed Novartis to include substitute claims as well, but found those also unpatentable as obvious.  On appeal here, the Federal Circuit affirms.

The ‘283 patent covers a solid combination of a sphingosine-1 phosphate (S1P) receptor agonist (fingolimod) and a sugar alcohol (mannitol). The drug – sold under the trade name Gilenya – is used to treat multiple sclerosis.  This is the first oral disease modifying MS drug approved by the FDA and is a big drug with billions in sales each year.

The particular ingredients were already known in the art, and the active ingredient – fingolimod – was already known as useful for treating autoimmune diseases such as MS.  However, none of the references brought-together the entire combination in a “solid pharmaceutical composition” as required by the claims.  However, the Board found that the combination of references would have led an ordinary skilled artisan to the invention claimed here.

On appeal, the Federal Circuit reviews the Board’s factual findings for substantial evidence – a liberal and forgiving standard that only requires “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”  Conclusions of law, however, are reviewed de novo on appeal.  In patent law, the ultimate question of obviousness is deemed a question of law.  However, that ultimate conclusion must be based upon a set of predicate factual conclusions as outlined in Graham v. John Deere.

Perhaps of most relevance for many obviousness cases – the existence of a motivation-to-combine references is deemed a question of fact and thus deference is given to the PTO’s conclusion.  Here, the court noted that the board considered the negative properties of using mannitol (teaching-away), but was not convinced, and sufficient evidence supported the Board’s decision.  The patentee also focused on the fact that the Board’s written decision did not expressly consider all of the patentee’s teaching-away arguments.  On appeal, the Federal Circuit rejected that argument – holding that “there is no requirement that the Board expressly discuss each and every negative and positive piece of evidence lurking in the record to evaluate a cursory argument.” On this point, the court recognized the tension with Medichem‘s holding that the disadvantages of a reference must be considered, but held that Medichem does not create a bright-line rule requiring express discussion of all disadvantages.  Rather, the Board is “not require[d] . . . to address every argument raised by a party or explain every possible reason supporting its conclusion.” Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309, 1322 (Fed. Cir. 2016).

Novartis also raised an APA challenge – arguing that the Board did not provide the required notice and an opportunity since the Board included a new reference (Sakai) in its final decision.  Sakai was raised in the IPR petition, but institution was denied for the particular grounds raising Sakai.  On appeal, the Federal Circuit sided with the PTAB holding that – although institution decision rejected Sakai as anticipatory or the primary obviousness reference – the Board did not exclude Sakai from consideration since it is clearly a relevant reference.  “The Board’s discussion of Sakai in the Final Written Decision was not inconsistent with its review of Sakai in the Institution Decision.”  With this explanation, the court was able to justify the PTAB approach and find that the agency did not “change theories in midstream without giving respondents reasonable notice of the change.”   and ‘the opportunity to present argument under the new theory.” Rodale Press, Inc. v. FTC, 407 F.2d 1252, 1256–57 (D.C. Cir. 1968).

What next: I’ll note here that the ‘283 patent is only one of four patents listed in the Orange Book covering Gilenya, one of which is also currently being challenged at the PTAB.


CAFC: Prior Judicial Opinions Do Not Bind the PTAB

Novartis v. Noven Pharma (Fed. Cir. 2017)

This short opinion by Judge Wallach affirms the PTAB findings that the claims of two Novartis patents are invalid as obvious. See U.S. Patent Nos. 6,316,023 and 6,335,031.  Several prior court decisions (including those involving the petitioner here) had upheld the patent’s validity against parallel obviousness challenges.

The most interesting aspects of the decision are found under the surprising heading: Prior Judicial Opinions Did Not Bind the PTAB.  When taken out-of-context, we can all agree that the statement is silly and wrong. The PTAB is obviously bound by Supreme Court and other precedent.  In my view, the statement is still silly and wrong even when applied in context. 

The context: In Novartis Pharm. Corp. v. Noven Pharm., Inc., 125 F. Supp. 3d 474 (D. Del. 2015)), the district court considered Noven’s obviousness argument and fount it lacking merit. Same story in Novartis Pharm. Corp. v. Par Pharm., Inc., 48 F. Supp. 3d 733 (D. Del. June 18, 2014) and Novartis Pharm. Corp. v. Watson Labs., Inc., 611 F. App’x 988 (Fed. Cir. 2015), albeit with different parties.

In the Inter Partes Review, the USPTO concluded that those prior court decisions regarding obviousness need not be considered since the record was different at the PTAB – albeit admittedly ‘substantively the same.’   [edited] On appeal, the Federal Circuit rejected the PTAB’s reasoning as a trivial likely insufficient distinction, but instead found that the different evidentiary standard was what justified the result:

Nevertheless, even if the record were the same, Novartis’s argument would fail as a matter of law. The PTAB determined that a “petitioner in an inter partes review proves unpatentability by a preponderance of the evidence (see 35 U.S.C. § 316(e)) rather than by clear and convincing evidence[] as required in district court litigation,” meaning that the PTAB properly may reach a different conclusion based on the same evidence.

The idea here is that in litigation, invalidity must be proven with clear and convincing evidence while inter partes review requires only a preponderance of the evidence. As explained by the Supreme Court on Cuozzo, this may lead to different outcomes:

A district court may find a patent claim to be valid, and the [USPTO] may later cancel that claim in its own review. . . . This possibility, however, has long been present in our patent system, which provides different tracks—one in the [USPTO] and one in the courts—for the review and adjudication of patent claims. As we have explained . . . , inter partes review imposes a different burden of proof on the challenger. These different evidentiary burdens mean that the possibility of inconsistent results is inherent to Congress’[s] regulatory design.

Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2146 (2016) (citation omitted).

My view: As suggested here, we have a failure of system design – a party who challenges a patent’s validity in court and loses should not later be allowed to re-challenge validity. [Cite the 100’s of cases and articles supporting finality of judgments.]  In this situation, the PTAB / Federal Circuit should at least be required to distinguish its factual findings from those of the federal courts.

Obviousness Aside: A quirk of this case not addressed by the court is that it is an obviousness case – and obviousness is a question of law.  The differences in invalidation standards for courts and the PTAB are evidentiary standards and do not apply to questions of law. Rather, questions of law should be decided identically in both fora.

Sir Edward Coke and International Patent Exhaustion

GomezArosteguiGuest Post by Professor Tomás Gómez-Arostegui (Lewis & Clark Law School)

One of the questions in Impression Prods., Inc. v. Lexmark Int’l, Inc., on which the Supreme Court recently heard oral argument (March 21), is whether the authorized and foreign first sale of a patented item exhausts a U.S. patent holder’s use and distribution rights. The Patent Act of 1952 contains no pertinent provisions on the effect of the first sale of a patented article, and as a consequence many observers believe that the common law will be especially important in deciding the question. The Petitioner, Impression Products, has gone so far as to argue that the common-law backdrop is dispositive.[1] If the Court agrees and decides that the common law should control or influence the case, then assessing the content of that common law becomes paramount.

So what is the common-law rule? In Kirtsaeng v. John Wiley & Sons, Inc., a copyright case, the Court stated that the first-sale doctrine was a “common-law doctrine with an impeccable historic pedigree” that reached as far back as the 17th century and that made “no geographical distinctions.”[2] In reaching that conclusion, the Court relied in large part on English law, particularly Sir Edward Coke’s 1628 treatise in which he rejected post-sale restraints on the alienation of ordinary chattels. Although Coke was not speaking of chattels encumbered by copyrights or patents, let alone goods made and first sold in a different country, the Court nevertheless stated that this no-restraint principle applied to chattels embodying copyrighted works. Notably, the Court offered no other support for its historical account of the common law, apart from citing its 1908 decision in Bobbs-Merrill Co. v. Straus—which treated national (rather than international) copyright exhaustion.[3]

Not surprisingly, Impression Products refers to Coke repeatedly in its brief,[4] as do many amici who have submitted supporting briefs.[5] And at the oral argument last week, Impression Products began by stating that the “principle goes back, of course, to the 15th century.”[6] It also ended its argument by referring to Coke.[7] But more importantly, as Dennis notes in his recent post recapping the oral argument, Justice Breyer, who wrote the majority opinion in Kirtsaeng, seems very much inclined to continue relying on Coke’s account of English common law. Justice Breyer referred to Coke many times[8] and stated, for example, that a patent rule rejecting mandatory international exhaustion would be “very much contrary to what 300 years of restraints on alienation [doctrine] ha[d] in mind.”[9]

In an article posted on SSRN,[10] I examine and reject the Court’s historical account of English common law. Although Kirtsaeng gave the distinct impression that no early cases in England had ever ruled against gray-market importation in an intangible rights case, this is not so in fact. My article discusses two English cases and a few Scottish ones, decided in the long 18th century, and which have thus far escaped the attention of practitioners and scholars. Some of the cases are reported in print, but not all of them appear in traditional law reports, and some of the records only survive in manuscript. I have posted images of the most important manuscripts and less accessible print sources online. The cases demonstrate that the common law did not recognize international exhaustion. On the contrary, the common law observed foreign legal boundaries and permitted right owners and their licensees to stop gray-market goods that embodied intangible rights.

One of the English cases was decided in the Court of Chancery in 1716–1722, and the other in the Chancery and House of Lords in 1802–1804. Both involved patents for the exclusive right of printing, selling, and importing the Holy Bible, New Testament, and Book of Common Prayer. The King held prerogative copyrights in these works and had licensed them by letters patent separately in England and Scotland. At the request of the English licensees, the courts ruled against London booksellers who had imported books printed and sold by the Scottish licensees. Despite the union of the two countries in 1707, the Chancery and House of Lords viewed Scotland as a foreign country for the purpose of prerogative copyrights because the rights granted in the two countries were territorial, legally separate, and potentially distinct. Outside of English common law, a case decided in the Court of Session in Scotland and then in the House of Lords in 1828, extended the proposition to books traveling in the other direction—from England to Scotland.

Notably, these cases considered many of the same arguments that Lexmark and Kirtsaeng raise, such as the territoriality of patent rights; free trade among countries; the potential benefit to consumers of competition from imported gray-market goods; the potential harm to consumers who purchase goods in one country without any notice of their inability to bring those goods into another country; and the potential negative effect that gray-market imports could have on a domestic licensee.

So what do these cases mean for international patent and copyright exhaustion in the United States?

Two consequences follow. First, they call into question the Supreme Court’s decision in Kirtsaeng. Neither the parties nor the Court were aware of these cases and thus the decision issued on an incomplete record of the common law. Second, and most obviously, these newly revealed cases could have an even greater impact in Lexmark. If the Court or any of its members choose to rely on English common law once more—whether presented as controlling, persuasive, or simply historical narrative—that consultation must now occur with a different view of the common law in mind.

= = = = =

[1] Brief for Petitioner at 10–11, 44–47 (Jan. 17, 2017); Reply Brief for Petitioner at 2–3, 16–17 (Mar. 14, 2017).

[2] 133 S. Ct. 1351, 1363 (2013).

[3] Id. at 1363 (citing Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908)).

[4] Brief for Petitioner at 10, 13, 42, 45–46 (Jan. 17, 2017).

[5] E.g., Brief of Public Knowledge et al. at 5, 9, 13–14 (Jan. 23, 2017); Brief of Costco Wholesale Corp. et al. at 20–21, 33–34 (Jan. 24, 2017); Brief for HTC Corp. et al. at 12, 17 (Jan. 24, 2017); Brief of the Association of Medical Device Reprocessors at 36 (Jan. 24, 2017); Brief of Auto Car Association et al. at 21 (Jan. 24, 2017); Brief of Intellectual Property Professors et al. at 6, 26–27 (Jan. 24, 2017).

[6] Oral Argument Transcript at 3 (Mar. 21, 2017).

[7] Id. at 53.

[8] Id. at 14, 26, 28, 33–34, 36.

[9] Id. at 28; see also id. at 26.

[10] H. Tomás Gómez-Arostegui, Patent and Copyright Exhaustion in England circa 1800, available at http://ssrn.com/abstract=2905847.

Lexmark Oral Arguments: A Boon to the Sticker Industry?

by Dennis Crouch

This is a follow-up on my earlier post on the oral arguments here:

The Cost of Getting the Law Right

On March 21, 2017, the Supreme Court heard oral arguments in the patent exhaustion case captioned Impression Prods., Inc. v. Lexmark Int’l., Inc., Docket No. 15-1189.  [Transcript: 15-1189_6468]  The two questions presented focus on downstream reuse/resale of a patented product and challenge the Federal Circuit’s rulings that: (1) a US patent is not exhausted when the patented product is sold subject to a no reuse/resale provision but instead can be asserted against downstream users/resellers who violate those original provisions; and (2) a US patent is presumptively not exhausted by an authorized and otherwise unreserved foreign sale of the patented product.  Petitioner Impression Prods., buys after-market ink cartridges, refills them and resells them and the patentee, Lexmark, is attempting to use patent rights to block that form of competition.

We can expect Justice Breyer to side with petitioners in this case:

JUSTICE BREYER: I think, that Lord Coke and his great principle of no alienation [restrictions] on chattels is being laughed at.

Truthfully, most of the oral arguments involve Justice Breyer explaining to other members of the court that Lexmark’s approach violate’s Lord Coke’s 300 year old maxims – “that’s been the kind of basic legal principle for an awfully long time.”  Lexmark’s primary answer: “the common law changed a lot after Lord Coke.”  In the two most recent IP Decisions by the Court – Star Athletica and SCA Hygiene – the majority ruled in favor of the IP rights-holder over Justice Breyer dissents in both cases.

Apart from Justice Breyer’s ‘heat’, the rest of the bench was clearly cold on this case – with few questions being asked of any of the parties.


In 2013, the Supreme Court decided the parallel copyright case of Kirtsaeng – siding with the accused infringers on the issue of international exhaustion.  A major difference though, is that exhaustion is codified by the copyright statute – but not in the Patent Act.

JUSTICE KENNEDY: Why hasn’t this been codified? . . . Too buys or what?  . . .

Arguing for the petitioner, Andrew Pincus avoided the question and instead focused on the long history of precedent.

MR. PINCUS: I think the Court’s enunciation of the rule in the cases prior to 1952 was very clear and specific. There’s really no doubt that when Congress enacted the law in 1952, it did so with the knowledge that there was the principle that I’ve recited, and the Bowman recitation is consistent with many, many decisions of this Court dating back to the 1800s that say the same thing, that when there is an authorized sale, the patent rights are exhausted. The Court said in some cases, the — the article falls out of the patent laws and all that applies is State law.

And most importantly, the Court’s sole decision upholding these sort of restrictions, A.B. Dick was expressly overruled a few years later in the motion picture patents case. So we not only have the Court’s consistent enunciation of the doctrine, we have the fact that there was this deviation and then an immediate correction.

Answering this same codification question for the Government, Mr. Stewart pointed to an implicit exception in 35 U.S.C. 154(a)(1). That provision provides “the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States.”

MR. STEWART: The Court’s historic cases in the domestic exhaustion field have located the exhaustion principle in the language of the predecessors of what is now 35 U.S.C. 154(a)(1). That is the provision of the Patent Act that says the patent owner has the right to exclude others from making, using, selling, offering for sale, or importing the patented invention. And in addressing predecessor versions of that language, this Court said those exclusive rights in essence don’t encompass the right to control resale or use of a lawfully sold article.

Finally, upon his turn to argue Mr. Trela suggested the statute goes further – it “provides that infringement occurs when someone makes, sells, uses, offers to sell, or imports into this country a patented article without authority from the patent owner.”

The Lexmark oral arguments actually began with a realization that a loss here for the patentee is not a total loss because an enforceable contract may remain.

MR. PINCUS: The contract law, with its limitations, would allow the enforcement those restrictions if they were a valid contract. This is all about whether the patent law remedies apply.

[later]  CHIEF JUSTICE ROBERTS: Why is normal contract law and normal State law inadequate, for your purposes?

MR. TRELA: If your only remedy is contract and you can’t enforce these limitations downstream . . . there’s going to be an arbitrage.

JUSTICE BREYER: Why can’t you enforce the contract downstream?

MR. TRELA: Well, because you — you don’t have privity, Justice Breyer.

JUSTICE BREYER: Then why don’t you require the person who sells it to just resell it with the requirement that they promise not to, you know, whatever it is? . . . one of the reasons that it’s hard to get away with that is the antitrust laws in the contract area. And another reason is because Lord Coke said 300 years ago, you know, you get into a lot of trouble when you start trying to restrict this buyer who’s got the widget and he would like to use it as he wishes. Now, that’s been the kind of basic legal principle for an awfully long time.


Justice Alito offered some perspective on the extraterritoriality aspects of the case – noting the preference of the court for interpreting US statutes to avoid extraterritorial application.

JUSTICE ALITO: And it’s somewhat surprising to me that none of the briefs in this case talk about our cases regarding extraterritoriality. In recent years, we have said that a statute does not apply outside the United States unless it says that it applies outside the United States. I don’t see why that shouldn’t be the same for a common-law rule like the rule here. And if what’s involved here is the application of U.S. patent law abroad, where is the clear statement that the exhaustion rule applies outside of the borders of the United States? I don’t see where that can be found.

MR. PINCUS: Your Honor, I don’t think this is a question of extraterritorial application anything — any more than the issue in Kirtsaeng was a question of extraterritorial application of the Copyright Act.

The question here is whether the patentee’s acts outside the United States have an impact on its ability to enforce its rights within the United States. No one is saying that the sales outside the United States are governed by the U.S. patent law, they’re obviously not, just as the sales outside the United States under the Copyright Act are not governed by the Copyright Act.

In thinking through the patent infringement claim, one question is that of notice.  What notice is required to limit resale/reuse? Is notice only required at the point of first-sale, or must notice also be provided to subsequent purchasers.

JUSTICE KENNEDY: Can they put a sticker on the products — “Do not sell”? This would be a great boom to the sticker business, right?

Hard for me to predict an outcome at this point, but get your stickers ready.

The Cost of Getting the Law Right

Andrew Pincus (arguing today in Lexmark):

If you look at the Alice case, for example, that obviously had tremendous implications for both the patentees and for people who had entered into license agreements and were paying money for patents that turned out to be invalid. But that was just a consequence of this Court getting the law right.


The Imminent Outpouring from the Eastern District of Texas

The following guest post by Professor Paul Janicke ties-in with his new article published at: Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1. – DC

by Paul M. Janicke

When the Supreme Court reverses the Federal Circuit’s venue ruling in the TC Heartland case, a reversal widely expected, it will return patent venue to the time prior to 1988, when the residence of a corporation for patent venue purpose was limited to (i) a district within the state of incorporation, or (ii) a district where the corporation has a regular and established place of business and has allegedly committed an act of infringement. Presently pending in the Eastern District of Texas are 1,000+ patent cases. The number may go up or down a little before the Court’s ruling, but it’s not likely to change much in that short time.[1] My inquiry is: What will happen to those cases?  My analysis on this subject can be found at Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1..

The new venue statute upon which the Court will base its ruling became effective in January 2012. That means it applies to nearly all the cases now on the Eastern District’s docket, and the venue for hundreds of those cases was likely improper. Those defendants who are not Texas corporations and who lacked any regular and established place of business in Eastern Texas when suit was filed will be entitled to dismissal or transfer to a district that would have been proper under the new law, unless they have waived the improper venue defense. Let’s take a look at the groups of possibly affected defendants.

Local Merchants

Some defendants are local merchants in the Eastern District, accused of infringement only because they sell products made by others. Venue as to these merchants will be proper under either the old or new venue rules, so they are entitled to neither dismissal nor transfer. If the case against a merchant’s vendor is transferred, the merchant’s best bet is to seek a stay of the case against it. While stays are not particularly favored in the Eastern District, a situation like the present one has not likely been encountered before. It may work.

Active Players As Defendants

These are typically manufacturers of high-tech products or vendors of software. Computer-related technology is said to be the subject of over 90% of patent case filings in the district. Most of them lack any regular place of business in Eastern Texas, although we have found some 70 companies who employ 100 or more persons in the district and are defendants in pending patent cases there. Most of these businesses are in Plano, with a few in Beaumont. They too will have to stay put. It isn’t required that the place of business be related to the accused infringing activity.

The Many Other Defendants, And the Problem of Waiver

Those companies lacking a regular business location in the Eastern District will, for the most part, want to exit that district. Some may choose to stay there in order to effect a quick settlement or to show support for their beleaguered customers who have been sued in the district, but I estimate at least 800 will consider seeking a transfer. These break down into two roughly equal groups, those who have waived improper venue and those who have not. Waiver of this defense most typically occurs by failure to plead it in the answer or in an early motion under Rule 12. A sampling of pleadings in pending Eastern District patent cases reveals that in roughly 400 cases the main defendant did not plead improper venue or make a Rule 12 motion. (Note that this is a different subject from inconvenient venue, which is handled under a different statutory section and was sometimes pleaded in the answers.) It is understandable why the improper venue pleading was missing in so many cases: No one knew or even suspected until very recently that the venue rules had been changed by Congress in 2011, effective for all cases filed after January 2012. Good ethical lawyers know they shouldn’t plead a matter for which they have no legal or factual basis, and so they didn’t, and therein lies the waiver. Unfortunately, they cannot undo it by arguing “change in the law.” The change occurred in 2012.

The other group of defendants may have been insightful, but more likely were just following a form-book shotgun answer, and so they did plead improper venue in their answers. Answering this way is usually enough to preserve this defense, but not always. It has been held that taking discovery does not trigger a waiver, nor does proceeding to trial. It is thought that the corporate defendant who has pleaded the defense unsuccessfully has been forced to remain in the improper forum, so these litigation activities are not held against it. However, some courts have held that moving for summary judgment (unsuccessfully of course) is a different matter and does cause a waiver. You are not obliged to seek summary judgment, and you are invoking the court’s power. So some in the second group may find they too have waived.

For Those Exiting, Where Will They Be Sent?

This leaves about 400 non-waived cases. The case law on improper venue cases shows a distinct judicial preference for transfers rather than dismissals. To what districts will these non-waived defendants be transferred? Whatever districts are chosen, we should bear in mind that some of the NPE plaintiffs may not wish to follow, due to the expense involved, so those cases may effectively end. For more serious plaintiffs, we do not know where the cases will go. It depends on subjective factors applicable to each case, but here are some possible options: (1) Choose a district that one or both parties ask for. (2) Select a proper district that has a number of patent pilot judges, the three largest being Northern Illinois, Southern New York, and Central California. (3)  Use history as a guide: In 1997, one year before the large influx to Eastern Texas began, the busiest patent districts were Northern California (172 filings), Central California (162 filings), and Northern Illinois (116 filings). In that year the number of patent cases filed in the Eastern District of Texas was: 10. We shall soon see.

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Professor of Law, University of Houston Law Center

[1] The case is set for argument March 27, with a decision very likely before the end of the Court’s term in June.

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Read the ArticleJanicke.2017.Venue

Prior Patently-O Patent L.J. Articles:

  • Mark A. Lemley, Erik Oliver, Kent Richardson, James Yoon, & Michael Costa, Patent Purchases and Litigation Outcomes, 2016 Patently-O Patent Law Journal 15 (Lemley.2016.PatentMarket)
  • Bernard Chao and Amy Mapes, An Early Look at Mayo’s Impact on Personalized Medicine, 2016 Patently-O Patent Law Journal 10 (Chao.2016.PersonalizedMedicine)
  • James E. Daily, An Empirical Analysis of Some Proponents and Opponents of Patent Reform, 2016 Patently-O Patent Law Journal 1. (Daily.2016.Professors)
  • Tristan Gray–Le Coz and Charles Duan, Apply It to the USPTO: Review of the Implementation of Alice v. CLS Bank in Patent Examination, 2014 Patently-O Patent Law Journal 1. (GrayLeCozDuan)
  • Robert L. Stoll, Maintaining Post-Grant Review Estoppel in the America Invents Act: A Call for Legislative Restraint, 2012 Patently-O Patent Law Journal 1 (Stoll.2012.estoppel.pdf)
  • Paul Morgan, The Ambiguity in Section 102(a)(1) of the Leahy-Smith America Invents Act, 2011 Patently-O Patent Law Journal 29.  (Morgan.2011.AIAAmbiguities)
  • Joshua D. Sarnoff, Derivation and Prior Art Problems with the New Patent Act, 2011 Patently-O Patent Law Journal 12 (sarnoff.2011.derivation.pdf)
  • Bernard Chao, Not So Confidential: A Call for Restraint in Sealing Court Records, 2011 Patently-O Patent Patent Law Journal 6 (chao.sealedrecords.pdf)
  • Benjamin Levi and Rodney R. Sweetland, The Federal Trade Commission’s (FTC) Recommendations to the International Trade Commission (ITC):  Unsound, Unmeasured, and Unauthoritative, 2011 Patently-O Patent Law Journal 1 (levi.ftcunsound.pdf)
  • Kevin Emerson Collins, An Initial Comment on King Pharmaceuticals: The Printed Matter Doctrine as a Structural Doctrine and Its Implications for Prometheus Laboratories, 2010 Patently-O Patent Law Journal 111 (Collins.KingPharma.pdf)
  • Robert A. Matthews, Jr., When Multiple Plaintiffs/Relators Sue for the Same Act of Patent False Marking, 2010 Patently-O Patent Law Journal 95 (matthews.falsemarking.pdf)
  • Kristen Osenga, The Patent Office’s Fast Track Will Not Take Us in the Right Direction, 2010 Patently-O Patent L.J. 89 (Osenga.pdf)
  • Peter S. Menell,  The International Trade Commission’s Section 337 Authority, 2010 Patently-O Patent L.J. 79
  • Donald S. Chisum, Written Description of the Invention: Ariad (2010) and the Overlooked Invention Priority Principle, 2010 Patently‐O Patent L.J. 72
  • Kevin Collins, An Initial Comment on Ariad: Written Description and the Baseline of Patent Protection for After-Arising Technology, 2010 Patently-O Patent L.J. 24
  • Etan Chatlynne, Investigating Patent Law’s Presumption of Validity—An Empirical Analysis, 2010 Patently-O Patent L.J. 37
  • Michael Kasdan and Joseph Casino, Federal Courts Closely Scrutinizing and Slashing Patent Damage Awards, 2010 Patently-O Patent L.J. 24 (Kasdan.Casino.Damages)
  • Dennis Crouch, Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent L.J. 19 (2010)
  • Edward Reines and Nathan Greenblatt, Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II, 2010 Patently‐O Patent L.J. 7  (2010) (Reines.2010)
  • Gregory P. Landis & Loria B. Yeadon, Selecting the Next Nominee for the Federal Circuit: Patently Obvious to Consider Diversity, 2010 Patently-O Patent L.J. 1 (2010) (Nominee Diversity)
  • Paul Cole, Patentability of Computer Software As Such, 2008 Patently-O Patent L.J. 1. (Cole.pdf)
  • John F. Duffy, The Death of Google’s Patents, 2008 Patently O-Pat. L.J. ___ (googlepatents101.pdf)
  • Mark R. Patterson, Reestablishing the Doctrine of Patent Exhaustion, 2007 Patently-O Patent L.J. 38
  • Arti K. Rai, The GSK Case: An Administrative Perspective, 2007 Patently-O Patent L.J. 36
  • Joshua D. Sarnoff, BIO v. DC and the New Need to Eliminate Federal Patent Law Preemption of State and Local Price and Product Regulation, 2007 Patently-O Patent L.J. 30 (Download Sarnoff.BIO.pdf)
  • John F. Duffy, Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Patent L.J. 21. (Duffy.BPAI.pdf)
  • Joseph Casino and Michael Kasdan, In re Seagate Technology: Willfulness and Waiver, a Summary and a Proposal, 2007 Patently-O Patent L.J. 1 (Casino-Seagate)

Prior Settlement Agreement Helps the Jury find Liability and Damages

by Dennis Crouch

Prism Tech v. Sprint Spectrum (Fed. Cir. 2017) [prismtech]

The Nebraska jury found Sprint liable for infringing Prism’s patents and awarded $30 million in reasonable-royalty damages. U.S. Patent Nos. 8,127,345 and 8,387,155. [verdict]prismverdict

AT&T was also sued under the patents but ended up settling the case for [REDACTED LARGE SUM OF MONEY].  On appeal, Sprint argued (unsuccessfully) that the settlement should not have been shown to the jury under Federal Rule of Evidence 403.

FRE 403 permits exclusion of “relevant evidence” when its “probative value is substantially outweighed by a danger of one … unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.”

Prior settlement agreements are obviously probative since they help to establish value of the patented technology in the industry.   Traditionally, the settlement value is modeled as less than the value of the patent once its validity and infringement are established.  However, the mixture of risk aversion and litigation costs lead to some settlements that appear greater than the expected value of patent rights.

Here, the Federal Circuit found found “adequate basis for admitting the AT&T Settlement Agreement.” The agreement covered the same patents and – at trial – Prism’s expert explained differences between usage of AT&T and Sprint to help the jury use the prior agreement as comparable.

That Agreement covered the patents at issue here, though not only the patents at issue here. In that common situation, evidence was needed that reasonably addressed what bearing the amounts in that Agreement had on the value of the particular patents at issue here.

For me, the larger potential issue is that the jury is more likely to find the patent valid and infringed if it know that AT&T already paid a [REDACTED LARGE SUM OF MONEY] to settle the case.  This would suggest at least a bifurcated trial.  However, Sprint did not appear to make that argument on appeal.

= = = =

A very interesting argument raised by Sprint on appeal was based upon Rude v. Wescott, 130 U.S. 152 (1889).  In particular, Sprint argued that prior licenses can be used to prove an “established royalty” but not to prove a “reasonable royalty.”  Of course, a single license would not be sufficient to prove the established royalty. See also Cornely v. Marckwald, 131 U.S. 159 (1889).


The Court held in Rude that there was insufficient evidence to prove what has been called an “established royalty” as a measure of damages at law for patent infringement—i.e., “such a number of sales by a patentee of licenses to make, use and sell his patents, as to establish a regular price for a license.”  On appeal, the Federal Circuit rejected the argument as too-old: “The Court in Rude used both the language of patent damages law and the language of evidence law, and both have changed significantly since Rude.”  In addition, the court likely cut-short certiorari on the issue by finding that Sprint had failed to properly preserve the arguments for appeal.

LA BioMed’s Patent Case against Cialis Revived by Federal Circuit

by Dennis Crouch

LA BioMed v. Eli Lilly (Fed. Cir. 2017) [appeal decision ipr2014-00752] [appeal decision ipr2014-00693]

In a new pair of decisions, the Federal Circuit has again rejected the PTAB’s obviousness findings as inadequate and remanded for further proceedings.  As she has done in the past, Judge Newman agreed with the merits dissented from the remand – arguing that the challenger should not be so freely given what amounts to a new trial.

Lilly filed several separate IPR petitions against LA BioMed’s U.S. Patent No. 8,133,903 which covers a method of treating penile fibrosis which often leads to erectile dysfunction.  The IPR petitions were prompted by LA BioMed’s 2013 lawsuit alleging that Lilly’s popular Cialis drug led to infringement.  The basic idea here is that repeated treatments with Cialis has a long-term positive impact on the fibrosis.

In the two initiated IPR’s, the PTAB determined (1) the asserted prior art reference did not anticipate the challenged ‘903 claims (14-693 IPR); and (2) the asserted prior art references did render the challenged claims invalid as obvious (14-752 IPR).

Here, the claims are directed to a dosing regimine of a known drug treating an issue that it was already known to treat.  The particular claims require “a continuous long term regimen . . . at a dosage up to 1.5 mg/kg/day for not less than 45 days” for treating “an individual with … penile tunical fibrosis …”

On anticipation, the court drew a fine-line with its closest case being AstraZeneca LP v. Apotex, Inc. where the Federal Circuit affirmed that method claims for “once-daily dosing would likely survive an anticipation challenge by a prior advertisement that disclosed twice-daily dosing.”  Here, the prior art suggested “chronic administration” of the drug while the patent particularly requires 45 days of dosage.  A close reading of the prior art led the court to limit “chronic” to “daily administration for at least three days” and less than three-weeks (since the prior art’s study only lasted for three weeks).  Affirmed as Not Anticipated.

On obviousness, the PTAB found the claims obvious.  On appeal, however, the Federal Circuit rejected the PTAB’s claim construction of the requirement of treating “an individual with … penile tunical fibrosis.” In particular, the PTAB allowed-in prior art treating erectile dysfunction even if penile fibrosis had not been formally diagnosed.  On appeal, the Federal Circuit held the PTAB’s approach “reads that limitation out of the claim” since ED may have other causes (such as psychological).  Based upon this linguistic argument, the court made the leap that – therefore “it is unreasonable to use the symptom of erectile dysfunction as a proxy for penile fibrosis.”  In the eyes of the court, this distinction eliminated the motivation-to-combine the references since they did not directly address the penile fibrosis issue.

As mentioned above, the majority ordered a remand to the PTAB to make new findings on the motivation to combine.  Judge Newman dissented from that approach – arguing that the PTAB/Lilly had their chance and that the judgment should be final on appeal.

Provisional Priority:  A final note on the case involves LAB’s claim for priority to its early-filed provisional patent application.  As you might expect, the court ruled that it was not entitled to such priority because the provisional did not expressly disclose the claim limitation of 1.5 mg/kg/day.



Testifying as to Obviousness and Remanding to the PTAB

by Dennis Crouch

Icon Health and Fitness v. Strava (Fed. Cir. 2017) (Reexamination of U.S. Patent No. 7,789,800)

Expert Testimony on the Conclusion of Obviousness:  In the inter partes reexamination case here, the issue arose with the patent challenger (Strava) used an expert witness to testify to the legal conclusion that the claims at issue were obvious.  This is problematic because in ordinary circumstances it is improper for an expert witness to testify as to a question of law. Rather, the ordinary use of expert testimony is solely to “help the trier of fact to understand the evidence or to determine a fact in issue.” FRE 702.  Of course, the Federal Rules of Evidence do not apply to the Patent Trial & Appeal Board proceedings or patent reexaminations.

On appeal here, the Federal Circuit appears to agree with the challenger – that an expert can make conclusions of obviousness/non-obviousness and that the PTO can rely upon those statements.

[T]here is no per se prohibition against relying on an expert’s declaration … solely because the declaration states that something “would have been obvious.” Indeed, we frequently have affirmed PTAB determinations on obviousness that rely on expert declarations that include such statements, so long as other aspects of the declarations contain statements related to factual findings. See Veritas Techs. (Fed. Cir. 2016) (affirming the PTAB’s conclusion of obviousness that relied on, inter alia, an expert’s statements that “it would have been obvious”); MCM Portfolio (Fed. Cir. 2015) (affirming the PTAB’s conclusion of obviousness that was based, in part, upon an expert’s statement that “it would have been obvious”). To determine if an expert’s statement is directed to factual findings or the legal conclusion of obviousness, we look to the statement not in isolation, but in the context of the whole declaration.

The decision here appears to carry the same weight whether a PTAB case or district court litigation.

Spelling Out the Factual Findings: The decision goes on to find some errors in the PTAB merits decision.  In particular, rather than spelling out its factual findings of where each claim element is found in the prior art, the Board issued a general catchall statement that “we agree with [Strava’s] rebuttal . . . as well as the Examiner’s response.”  The statement appeared to incorporate-by-reference a prior examiner’s statement which itself had incorporated statements by Strava’s witness.

On appeal, the Federal Circuit found that such a multi-layered incorporation by reference can be sufficient.  Here, however, none of the PTO created documents actually included the required factual findings.  Although the incorporated documents from Strava’s attorneys did include purported factual findings, the Federal Circuit indicated that those unsworn statements cannot be treated as evidence or factual findings.  [On this last point, I believe that the court incorrectly correlated evidence with factual findings].

Remand or End the Case: The decision splits at this point between the two judge majority (Judges Wallach and Reyna) and dissent-in-part (Judge O’Malley).

Since the error in failing to write-down sufficient factual findings was potentially a merely-technical-error, the majority remanded the case “for further poceedings consistent with this opinion.”  Thus, on remand, the PTAB/Examiner may have another opportunity to explain its judgment as to the invalidity of the claims:

Because the PTAB failed to comport with what these [fact finding] principles demand, the PTAB’s rejection of these claims must be vacated and the case remanded for additional PTAB findings and explanation. See, e.g., In re Van Os, 844 F.3d 1359 (Fed. Cir. 2017) (explaining that the court vacates and remands when additional fact finding and explanation is warranted).


Judge O’Malley dissented from this approach – arguing that remand is not appropriate for cases such as these where the PTAB has failed to establish obviousness or unpatentability generally. In this regard, Judge O’Malley agrees with Judge Newman’s dissent in Van Os.


For CBM Review: _Claims_ Must be Directed to Financial Service

by Dennis Crouch

This case represents an important decision limiting the scope of Covered Business Method reviews.  However, its short consideration of agency-deference leaves it open to further challenge. 

Secure Axcess v. PNC (and other banks) (Fed. Cir. 2017) [secureaxcess]

The America Invents Act created a temporary mechanism (8-year) for challenging certain “covered” business method patents.  The program will sunset for new petitions in the “Transitional Program for Covered Business Method Patents” (“CBM review”) sunsets on September 16, 2020. The program allows for CBM patents to be challenged on any ground of patentability (e.g., Sections 101, 102, 103, and 112) and is not limited to post-AIA patents.

Not all business method patents fit within the program, but only those covering non-technological inventions related to a financial product or service.  In particular, the defintion states:

For purposes of this section, the term “covered business method patent” means a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.

AIA Section 18(d)(1).

Here, Secure Axcess’s patent covers a computer security method that uses an authenticity key to “create formatted data” that is then sent to another computer to be used to locate an authenticity stamp from a preferences file. Patent No. 7,203,838.   Although the the patent is not limited to financial services, the patentee has sued dozens of banks and financial service providers for patent infringement.  In particular, it appears that the patentee has only sued financial service providers.

The PTAB determined that the patent here fits the CBM definition. On appeal, however, the Federal Circuit reversed holding that “the patent at issue is outside the definition of a CBM patent that Congress provided by statute.”  This decision follows the court’s recent decision in Unwired Planet, LLC v. Google Inc., 841 F.3d 1376 (Fed. Cir. 2016).

Claiming Financial Services: In its decision, the court walked through the statute – noting that the focus is on the claimed invention rather than the asserted marketplace or potential uses of the invention.  Thus, the relevant question is not how the invention is used, but rather whether the claims are directed to a financial service.  According to the court, any other reading, would “give the CBM program a virtually unconstrained reach.”

Statutory Interpretation – A Question of Law: A very interesting aspect of the decision is the standard-of-review.  Both parties suggested that the USPTO should be given some deference of its own interpretation of the statute.  With only limited discussion, the Federal Circuit rejected that suggestion and instead held that statutory interpretation is simply a matter of law, reviewed de novo on appeal:

[T]he issue here is whether the Board properly understood the scope of the statutory definition. That is a question of law.

The court did not, however cite or refer to Chevron or other Supreme Court precedents requiring deference to certain agency interpretations of law.

= = = =

The majority opinion was penned by Judge Plager and joined by Judge Taranto. Judge Lourie wrote in dissent.   The dissent would expand the scope of CBM to include patents directed to financial services even when claims themselves are not expressly limited to financial services.  In this case, the exemplary embodiment of the invention uses the security mechanism for financial services.  Further, the only example URL in the patent is “bigbank.com.”  Judge Lourie also found the patentee’s “litigation pattern” relevant to the financial services use (having asserted the patent against dozens of banks, and nobody else).

Of interest for administrative law folks, Judge Lourie also failed to consider whether deference should be given to PTO interpretation of the statute.

= = = = =

In a parallel decision, the Federal Circuit today issued a R.36 judgment (improperly in my view) affirming the PTAB’s cancellation of the the claims of a family member patent as obvious. U.S. Patent No. 7,631,191.



PersonalWeb Tech v. Apple (Fed. Cir. 2017) [personalweb]

Following an administrative trial, the PTAB found the challenged claims of PersonalWeb’s Patent No. 7,802,310 obvious based upon a combination of two prior art references.  On appeal, however, the Federal Circuit has vacated the judgment – holding that the Board’s factual findings  were not supported by substantial evidence. In particular, the Federal Circuit could not find substantial evidence for the conclusions (1) that the prior art taught each element of the challenged claims or (2) that PHOSITA would have been motivated to combine the references to form the invention as claimed.

Substantial Evidence: For me, the substantial evidence rule is a misnomer because it suggests that a decision is based upon a substantial amount of evidence (and thus seems like a reasonable approach).  I would rename it as the “scintilla rule” because, under the rule, factual conclusions made by the PTAB are affirmed on appeal so long as supported by “more than a mere scintilla” of evidence.  I previously wrote:

[T]o be clear, the appellate court will affirm a factual determination even when that determination is likely wrong so long as some amount of evidence supports the determination. We have all heard the adage that ‘reasonable minds can differ.’ I think of the substantial evidence rule as a relaxed version that ‘somewhat reasonable minds can differ.‘ Or, in other words, the PTO’s factual determinations will be affirmed if somewhat reasonable.

Although the PTAB burden is not great, the Board must fully explain its conclusions and their bases.  (This is a major difference when compared with the ‘black box’ of a jury trial).  As part of its explanation, the Board must also specifically contend with evidence that “detracts from an agency’s decision.”  The court explained in its 2002 Lee decision:

For judicial review to be meaningfully achieved within these strictures, the agency tribunal must present a full and reasoned explanation of its decision. The agency tribunal must set forth its findings and the grounds thereof, as supported by the agency record, and explain its application of the law to the found facts.

In re Lee, 277 F.3d 1338, 1343 (Fed. Cir. 2002).  That is, the Board, “must articulate ‘logical and rational’ reasons for its decision.” (quoting Synopsys).

Here, the court explained that the rational in an obviousness case includes

  1. Particularly identifying where each element of each claim is taught by the prior art references.  Here, the Board failed to explain the particular location within Woodhill that taught the claim limitation of comparing a name with a “plurality of values.” (yes, that’s right.)
  2. Explaining the motivation to combine.

Explaining motivation to combine is a big deal because it comes up in almost every patent case before the PTO. Here, the Board simply wrote that:

“a person of ordinary skill in the art reading Woodhill and Stefik would have understood that the combination of Woodhill and Stefik would have allowed for the selective access features of Stefik to be used with Woodhill’s content-dependent identifiers feature.”

On appeal, the Court found that justification inadequate.

Indeed, the Board nowhere clearly explained, or cited evidence showing, how the combination of the two references was supposed to work. At least in this case, such a clear, evidence-supported account of the contemplated workings of the combination is a prerequisite to
adequately explaining and supporting a conclusion that a relevant skilled artisan would have been motivated to make the combination and reasonably expect success in doing so. . . .

A brief explanation may do all that is needed if, for example, the technology is simple and familiar and the prior art is clear in its language and easily understood. See Ariosa, 805 F.3d at 1365–66. On the other hand, complexity or obscurity of the technology or prior-art descriptions may well make more detailed explanations necessary. Here, the Board’s explanation is wanting. Apple’s attempts in this court to explicate both the Board’s explanation and the underlying evidence do not persuade us otherwise.

On remand, the Board will give it another go – and we’ll see whether the exercise of actually explaining its reasoning causes the Board to change its mind as well.

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My explanation of the case skipped over details of the patent at issue.  Claim 1 is shown below and basically includes three steps: (a) sending a “content based name” for a data-item from one computer to another; (b) check to see if the name is on a list; and (c) grant or deny access to the data-item depending upon the result of (b).

1. A computer-implemented method … comprising the steps:

(a) at a first computer, obtaining a content-based name for a particular data item from a second computer …, the content-based name being based at least in part on a function of at least some of the data which comprise the contents of the particular data item, wherein the function comprises a message digest function or a hash function, and wherein two identical data items will have the same content-based name; and

(b) … a processor at said first computer ascertaining whether or not the content-based name for the particular data item corresponds to an entry in a database comprising a plurality of identifiers; and

(c) based at least in part on said ascertaining in (b), determining whether or not access to the particular data item is authorized.

The patentee claims that Apple’s iTunes and iCloud services infringe.