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.
Inter Partes Review (IPR) Trials have become an effective tool for cancelling invalid patent claims that lack novelty or fail the nonobviousness test. The IPR process has two main stages: Institution and Trial. At the institution stage, the Patent Trial and Appeal Board (PTAB) must determine whether the third-party challenge is sufficient enough to warrant a full trial on the merits of the challenge. The institution test outlined by the statute is a “reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.”
One design choice for IPRs is whether the judges who decide to institute the IPR should be kept-on to decide the ultimate merits of the trial. In its initial design of the process, the PTO determined that keeping the same judges provided for both efficiency and internal consistency. Thus, under the current rules, the same three APJs who decide whether to institute a trial also conduct the trial and ultimately decide the trial outcome.
A number of losing-patentees have argued that the process creates an improper bias or implicit presumption against the patentee during the trial stage. The basic idea is that a judge who sides with the challenger at the institution stage will be mentally locked-in to supporting the petitioner’s case and at trial will improperly give the presumption to the challenger rather.
The USPTO is now requesting comments on a proposed pilot program that would address these concerns. In particular, the PTO’s proposal is that the institution decision would be made by a single judge. If that judge decides to institute then the trial would be held before that single judge along with two additional APJs added to the panel who were not previously involved in the decision to institute.
The statute requires the two-step process and also requires a set of three APJs to decide the trial, but gives the USPTO authority to determine additional process elements. There are a host of alternative designs and structures available, such as an entirely new panel.
The PTO’s proposal benefits the PTO by requiring only one judge at the institution stage – likely allowing it to handle more cases. Right now, the PTO is looking for comments on the proposal. If those seem favorable, the PTO is likely to move ahead with a pilot program. Comments to PTABTrialPilot@uspto.gov by October 26, 2015.
I am personally concerned about the initiation decision by a single APJ. Generally, you might think that three-judge panels would offer more consistent decisions because more eccentric judges would be outvoted. However, there are team-project problems that can arise with panel decision making– often one or more panel member can check-out mentally and simply rely upon the decisions by a single judge. I do not know which of these (if either) is more likely with PTAB judges.
Progressive Insurance v. Liberty Mutual Insurance (Fed. Cir. 2015)
This case stems from a set of seven overlapping post-grant-review proceedings (CBM PGR) before the Patent Trial and Appeal Board (PTAB) that Liberty Mutual filed against Progressive’s “business method” patents. The patents relate to auto-insurance pricing based upon customer vehicle use patterns – such as the number of sudden stops over a given period of time – as well as online insurance policy adjustments. See U.S. Patent No. 8,140,358 as an example.
In the Covered-Business-Method Review, the PTAB found a number of Progressive’s claims invalid as either anticipated or obvious. On appeal, the Federal Circuit affirms in all respects.
Two different proceedings for the same patent: Liberty Mutual filed two different CBM proceedings against the ‘358 patent. In one, the Board invalidated all claims except for 1, 19, and 20 while in the other the second the Board invalidated all claims of the patent. These two decisions were released about 1-hour apart.
The first challenge on appeal was that the second judgment was improper because – according to Progressive’s theory – the Board lost jurisdiction once it issued the first decision. That theory stems from Section 325(e)(1) that prohibits a petitioner from “maintain[ing] a proceeding before the Office” on issues that “reasonably could have” been raised during a post-grant review that has already reached a final written decision. The argument here is that, once the PTO reached the first final judgment that the second case should immediately disappear. On appeal, the Federal Circuit rejected that approach finding (1) that the statute does not prevent the PTO from maintaining the proceeding and in any event (2) the PTAB indicated that the two decisions were “concurrent” even though actually made public about 1-hour apart. Finally, the Court noted that the PTO has statutory authority to decide how to deal with multiple related proceedings.
Written Description and Claiming Priority: On the merits, a substantial amount of the problem here dealt with patent families and the difficulty in understanding whether a later claim can properly claim priority to an earlier filed application. The PTO typically (except in Hyatt’s case) does not require a patentee to expressly connect each patent claim with its effective priority date. As a result, those arguments are typically saved until later in litigation (thus, the benefit of filing a CIP . . . )
Here, the claims in question included an interface module that produce a “driver safety score” – construed by the PTAB to mean a “calculated insurance risk value associated with driver safety.” The priority application disclosed “rating factors” that might include safety factors, but did not expressly disclose a risk value associated only with driver safety. (Note the seeming subtle shift in construction by the Federal Circuit). In any event, the ruling is that the priority application disclosed the genus but not the later claimed species – as such it does not meet the written description requirement. In this situation, the result is that the priority filing date for the particular patent at issue here is pushed back to the later filing and that date was predated by the intervening prior art disclosures.
= = = =
It does not appear that Section 101 was raised as a challenge:
1. A system that monitors and facilitates a review of data collected from a vehicle that is used to determine a level of safety or cost of insurance comprising:
a processor that collects vehicle data from a vehicle bus that represents aspects of operating the vehicle;
a memory that stores selected vehicle data related to a level of safety or an insurable risk in operating a vehicle;
a wireless transmitter configured to transfer the selected vehicle data retained within the memory to a distributed network and a server;
a database operatively linked to the server to store the selected vehicle data transmitted by the wireless transmitter, the database comprising a storage system remote from the wireless transmitter and the memory comprising records with operations for searching the records and other functions;
where the server is configured to process selected vehicle data that represents one or more aspects of operating the vehicle with data that reflects how the selected vehicle data affects a premium of an insurance policy, safety or level of risk; and
where the server is further configured to generate a rating factor based on the selected vehicle data stored in the database.
ABT Systems and University of Central Florida v. Emerson Electric (Fed. Cir. 2015)
The patent at issue here is owned by UCF and covers a circulating fan system. U.S. Patent No. 5,547,017. Co-Plaintiff (licensee) ABT is the company started by Armin Rudd who is the named inventor on the ‘017 patent.
Prior art systems, such as the one in my house allow for the circulation fan to be left-on even when the air conditioning system is off in order to better distribute conditioned air. The improvement offered by Rudd is to turn on the fan only periodically “after a preselected time period.” That intermittent approach would save “energy and power.”
A jury found that Emmerson’s high-end “Big Blue” thermostats infringe and awarded $300,000 in damages based upon a royalty of $2.25 per unit. The jury also held that Emerson had failed to prove the claims invalid as obvious.
On appeal, the Federal Circuit has reversed – finding that the district court should have granted JMOL on obviousness.
Invalidating a Patent on Obviousness: The question of obviousness asks whether the “differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time of the invention was made to a person having ordinary skill in the art to which said subject matter pertains.” 35 U.S.C. 103(a)(pre-AIA). In KSR v. Teleflex, the Supreme Court held that a “combination of familiar elements according to known methods” that “yield[s] predictable results” is likely invalid as obvious.
Here, elements of the patented system were all known in the art as was the motivation of improving circulation at reduced cost. Likewise, one prior art reference disclosed a “single-shot” fan operation that came on one-time after a heating/cooling cycle and another disclosed period fan-only cycles at times when there was no call for heating. The question then is whether it would have been obvious to create the claimed system of periodically activating and deactivating the fan after a predetermined time following a cooling cycle. Applying KSR, the Federal Circuit found that the law requires an obviousness finding.
Commercial Success: ABT had also argued that the commercial success and long-felt need of the invention should provide enough weight to prove the invention nonobvious. Objective evidence of nonobviousness, such as commercial success, long-felt need, failure of others, copying, and unexpected results can each provide evidence for the analysis. On appeal, however, the Federal Circuit was not persuaded that ABT had proven its case. In particular, ABT did not present evidence particularly linking product commercial success to the claimed periodic fan operation. Likewise, there was no particular evidence presented that Emerson’s infringing product market was being driven in any way by the recycling feature. ABT does have a number of patent licensees that weigh in favor of nonobviousness. However, the Federal Circuit held that those licenses were insufficient to overcome the convincing case of obviousness coming from the prior art.
I can’t find it on line, but it’s Milwaukee Electric Tool Corp. v. Hilti, 2015 WL 1898393 (E.D. Wis. Apr. 27, 2015). DLA Piper was representing Snap-on Tools. Another client asked it to sue several potential infringers, one of which was Snap-on. The firm appeared in all of the cases — all of which involved the same patent — against every defendant except Snap-on.
Snap-on moved to disqualify DLA Piper. It contended that, by representing the patentee against the non-clients, it was adverse to Snap-on. Basically, the argument that has been made (in this circumstance in several patent cases, and in other contexts) is that a lawyer should not be a part of building a case against his own client.
The court discussed the three other patent cases on this issue, and some of the other cases, but denied the motion to disqualify. It found that DLA Piper was not adverse to Snap-on, but it noted that it was a very close question.
Here’s my question: obviously, DLA Piper cannot coordinate with those lawyers who are adverse to Snap-on. (I can’t do out of court what I couldn’t do in it.) How can a law firm competently represent a patentee in an infringement suit without coordinating arguments (claim construction, etc.) with other counsel? For a discussion of those issues, see Arrowpac Inc. v. Sea Star Line, LLC, 2013 Wl 5460027 (M.D. Fl. Apr. 30, 2013).
This case is somewhat like the Akin Gump case, discussed below, which resulted in a $500,000 judgment against that firm.
Personalized User Model and Konig v. Google (Fed. Cir. 2015)
This case involves a fascinating set of back-door dealings. While Konig was employed at the non-profit research institute SRI, he started a side project with a friend creating a personalized information service – the subject of the patent that he filed (apparently without offocially notifying SRI). It is Konig’s patent that is being allegedly infringed by Google. See U.S. Patents No. 6,981,040.
After Konig’s patent holding company sued Google for infringement, Google management then called-up SRI and obtained a quitclaim deed over “any rights” in the patent held by SRI. With those rights in-hand, Google argued in court that Konig had breached his employment agreement by failing to assign rights to the patents to SRI and that Google was now the rightful owner (of at least a right to have the patents assigned). The district court, however, found the breach-of-contract claim time-barred by its state-law statute of limitations.
Because Konig’s alleged breach-of-contract with SRI was in the 1990’s, it seems likely that the three-year statute of limitations term had passed. However, Delaware (the site of the lawsuit) has a “discovery rule” that tolls any statute of limitations for the period in which an injury is ‘inherently unknowable” and “the claimant is blamelessly ignorant of the wrongful act and the injury.” Of course, a simple search years ago of the patent database would have turned up Konig’s patent rights, but the Search Giant argued that search would have been “practically impossible.” In the appeal, the Federal Circuit agreed with the district court that Google’s arguments were not sufficient proof of the inherent unknowability of Konig’s alleged breach or proof of SRI’s blameless ignorance. In particular, SRI knew that:
Konig was leaving [SRI] to immediately work at a start-up technology company. Considering the competitiveness of companies and institutes in the technical world and, as Google has argued, that the technology was related to Konig’s work at SRI, his departure and new venture could well have been a “red flag” that should have generated an inquiry whether Konig had conceived an invention during his employment with SRI that he might intend to develop and commercialize with his new company.
More importantly, Google failed to show that SRI was blamelessly ignorant of Konig’s alleged breach of contract. Google’s attempts to dispense with its burden of proof for the blamelessly ignorant element of the discovery rule by arguing the futility of any inquiry do not compensate for its failure of proof. Despite the opportunities for SRI to have inquired about Konig’s departure and his new venture—the obvious one being an exit interview, at which an inquiry might have been made regarding whether Konig had made any inventions at SRI that had not been reported to SRI—the record is critically deficient on the minimum quantum of evidence necessary to show that SRI did anything to protect its interests. . . .
Employers do not need to track a former employee’s every movement for an indefinite period of time to look for potential claims, but there should be some basic level of diligence in looking after one’s interests.
Delaware also has a statutory tolling of causes of action when the would-be defendant is out of the state of Delaware. 10 Del. C. § 8117. Although not express in the statute, the district court held that the tolling did not apply when the cause of action had “no connection to Delaware.” On appeal, the Federal Circuit affirmed: “Although the statute on its face does not require any connection to Delaware, we agree with the district court’s disinclination to interpret the statute so broadly as to apply to any claim, claimant, or defendant.”
Recordation Prevents Straight Ownership Claim: Although the court does not go into it here, ownership of patent rights would not generally require proof of breach-of-contract. If SRI owns the patent rights then its sale of rights to Google should shift ownership, regardless of whether Konig was in breach of contract or not. One problem with that theory, however, is that the employment agreement does not appear an effective transfer of rights but only a promise to transfer. Thus, even under the employment agreement Konig remained owner until such time as he transferred ownership to the employer. A second problem with the theory involves the recordation statute – 35 U.S.C. 261, which suggests the recordation of the assignment to Konig’s company may be sufficient to extinguish Google’s purchased rights.
The case here is interesting and important – especially as it relates to patent pools and FRAND license offers. I have posted the relevant holding, while I think more about its potential impact.
In 2012, JVC Kenwood sued Nero, Inc. for infringing its patents relating to methods of playing and burning optical discs (DVD and Blueray). See, for example, U.S. Patent No. 6,141,491. These patents are considered standard-essential parts of the patent pools formed around these technology standards and all of the (legit) disc and hardware manufacturers pay the license fee. That license is obviously designed to cover end-users as well who are the ultimate consumers of the DVD technology.
Nero sells software that helps folks play and burn discs from their computers. As such, Nero does not directly infringe the patents under section 271(a). JVC alleges instead that Nero should be held liable for contributory and induced infringement under 271(b) and (c).
JVC’s case a number of major theoretical problems: Most important to the District Court and Federal Circuit was that the consumers are already licensed to use the discs and, as such, the alleged underlying direct infringement is actually a licensed use.
The court held, on summary judgment, that JVC is “barred from asserting claims of direct infringement against end users for use of Nero software with DVD and Blu-ray optical discs made or sold by a party whose products have been expressly released from claims of infringement by JVC with regard to the Patents.” The court held that, absent direct infringement, Nero cannot be liable for indirect infringement. . . . We affirm on that ground.
The district court also (alternatively) held that the licensed manufacture and sale of the discs exhausted the patent rights as to those discs. On appeal, the Federal Circuit vacated that ruling – finding that the evidence was “sketchy.” It appears to me that the court did not want to further confuse the exhaustion doctrine with this case and perhaps Judges Newman, Dyk, and Reyna could not agree on the correct formulation.
Tomorrow I’ll write about the design patent functionality questions in Ethicon Endo-Surgery v. Covidien, Appeal No. 14-1370 (Fed. Cir. 2015) (medical shears). Today, the focus is on the Federal Circuit’s reversal on indefiniteness. Here, the appellate court held that the district court had improperly invalidated the asserted surgical shear claims of Ethicon’s Patent No. 8,182,501.
Before getting into the legal details, I wanted to write about the legal posture. This case involves Ethicon’s infringement allegations against its market competitor Covidien. In a parallel case, Covidien (Tyco Healthcare) sued Ethicon for infringing its shear patents. In that case, Covidien originally won a $177 million judgment that was then vacated by the Federal Circuit who found that the district court erred in its nonobviousness decision. In a recent filing, Covidien has filed a petition for writ of certiorari on the question of whether evidence of prior invention (“102(g)(2) evidence”) is available for the obviousness analysis as the Federal Circuit held? More subtly, the question is actually phrased: “whether a mere conception that was neither known to the public nor reduced to practice at the time a patented invention was made is “prior art” to that invention under the pre-2013 version of 35 U.S.C. § 103.” [102(g) SCOTUS Petition.] This is an interesting if purely historic question since prior-invention are no longer be a legitimate claim against AIA-patents.
Back to the new indefiniteness decision: The ‘501 patented shears at issue claim an ultrasonic blade and a clamping arm that squeezes blood-vessels against the blade. The pad at the end of the clamping arm is designed with a blade-contact-area (“clamping surface area”) “so that the applied clamp force does not exceed a clamping pressure of 210 psi at the clamping surface area.” Finally, the claims also include a “means for limiting a user applied clamping force on the clamping arm creating an average predetermined clamping pressure between and including 60 psi and 210 psi on tissue disposed between the tissue pad and the blade.” In the specification, the patentee does identify a structure for limiting the pressure as a “torque wrench.” So, the indefiniteness problem here is not the ordinary Donaldson no-structure-for-MPF-element problem.
The district court found the claim invalid as indefinite because the specification did not spell-out how the pressure should be calculated. In particular, the district court identified four different ways to calculate the pressure (averaging / non-averaging / location on pad / angle considerations / etc.) that would each render a different pressure reading. And, without knowing how to calculate the “psi limits”, the claim scope lacked definiteness.
In Nautilus (2014) , the Supreme Court lowered-the-bar on indefiniteness — ending the difficult to prove insolubly ambiguous test and replacing it with a broader question of whether the claims provide a skilled artisan with “reasonable certainty” as to the scope of legal right claimed. Although the district court decided its case under the old standard, it still found the claims invalid as indefinite.
On appeal though, the Federal Circuit has reversed that finding — holding that the district court improperly ignored the intrinsic evidence and misinterpreted the expert testimony. Somewhat oddly, on the intrinsic evidence, the appellate panel found that the the pressure calculation limitation in the patent claims all require consideration of the average pressure across the pad — even though only some of the claims include the “average” limitation. Once that bit of claim construction is done (and once you decide to measure the pressure when the blade closed (~0 degree angle), then the various mechanisms of measuring/calculating average pressure all converge because of linearity involved (assuming a straight blade).
Of interest to litigators, it appears here that the Federal Circuit did give deference to the district court’s factual conclusions regarding expert testimony on indefiniteness – still finding that the district court “arrived at several clearly erroneous factual conclusions.”
On remand, the trial court will next need to interpret the scope of the ‘501 means claim terms and determine whether there is any infringement (or some other reason to invalidate) the claims.
As alluded to above, the lawsuit also involves a set of design patents covering the shears. The district court held them invalid as too functional. On appeal, the Federal Circuit also reversed that holding – finding instead that the district court evaluated the design patent claims “using too high a level of abstraction, focusing on the unclaimed utilitarian aspects . . . instead of the claimed ornamental designs.
In its newest issue, the Economist is coming out strongly against the patent system – based upon the argument that “patent-lawyers are masters of obfuscation” and that patents are being used both by established incumbents and patent trolls to stifle further innovation.
The system has created a parasitic ecology of trolls and defensive patent-holders, who aim to block innovation, or at least to stand in its way unless they can grab a share of the spoils. An early study found that newcomers to the semiconductor business had to buy licences from incumbents for as much as $200m. Patents should spur bursts of innovation; instead, they are used to lock in incumbents’ advantages.
The patent system is expensive. A decade-old study reckons that in 2005, without the temporary monopoly patents bestow, America might have saved three-quarters of its $210 billion bill for prescription drugs. The expense would be worth it if patents brought innovation and prosperity. They don’t.
The Economist has a longstanding pro-competition anti-patent bent. In the 1800’s The Economist proposed full abolition of the patent system. The paper’s stance is no longer opposition, but does come with the interesting statement that “government should force the owners of intellectual property to share.”
Their proposals:
1) Patent Use Requirement – the patent should only be enforceable if the patentee uses it in the marketplace.
2) Patent Opposition – patents should be easier to challenge without going to court and the burden of proof should be lower.
3) The standard for non-obviousness should be raised so that patents are only granted to those “who work hard on big, fresh ideas, rather than those who file the paperwork on a tiddler.”
4) Patent term should be reduced – especially in fast-moving technology areas.
The Federal Circuit has greatly reduced the $1.5 Billion award to Carnegie Mellon University — leaving a still healthy $278 million to be paid by chip manufacturer Marvell Technology (plus interest) with the potential of additional receipts from a new trial on whether foreign sales are actually US sales. [Read the Decision]
1. Willful Infringement: A portion of the original damage award (~20%) in this case came from enhanced damages. The statute provides that “the court may increase the damages up to three times the amount found or assessed.” Although seemingly open-ended, the court has restricted enhanced damages only to the situations involving willful infringement — and further requiring “clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” and “this objectively-defined risk . . . was either known or so obvious that it should have been known.” (quoting Seagate).
The Federal Circuit has ruled that an adjudged infringer who presents an objectively reasonable (though ultimately deficient) defense at trial cannot be held liable for enhanced damages. Here, the court found that Marvell’s invalidity defense had some merit and was not ‘objectively unreasonable.’
2. Foreign Infringement: The original verdict included damages for all of the chips that resulted from Marvell’s use of the infringing methods sold worldwide – including chips that were manufactured abroad and never imported into the US. On remand, the Federal Circuit asked the lower court to reconsider particularly whether those chips made and used outside of the US could be considered as “sold” in the U.S. since, at times, the “place of inking” can be the location of the sale even if delivery is at a different location.
3. Laches: Under the equitable doctrine of laches, a patentee who has unreasonably and prejudicially delayed the filing of an infringement lawsuit will be barred from collecting damages for pre-filing infringement. The non-statutory (and potentially defunct) doctrine of Laches sits atop the statutory limit on collecting back damages that accrued more than six years before the filing of the infringement action. Here, the district court found that CMU’s six-year delay in filing suit after noticing the infringement was “unreasonable and inexcusable” and that Marvell had suffered some amount of evidentiary prejudice. However, the district court found that Marvell did not suffer economic prejudice due to the delay because, “Marvell . . . would have gone ahead with its infringement regardless, accepting the risk of liability.”
Circuit Check Inc. v. QXQ Inc. (Fed. Cir. 2015) Download Opinion Panel: Louie, Dyk, Moore (author)
Although it shows up only occasionally in the Federal Circuit’s opinions, the analogous arts doctrine can play an important role in structuring and limiting obviousness determinations. Here, it is a key component of the Federal Circuit’s reversal of the district judge’s grant of Judgment as a Matter of Law that the patents-in-suit were obvious. An important limitation of this decision, of course, is that the consequence is to reinstate the jury verdict that the patent was not obvious. Put another way, although the Federal Circuit uses the analogous arts doctrine to restrict the scope of obviousness here, the procedural posture of its review maintains some degree of indeterminacy.
While obviousness determinations often invoke the hypothetical person having ordinary skill in the art sitting at a lab bench on which is arrayed every existing prior art reference, the analogous art doctrine functions to limit those references. The basic elements are well established:
To be considered within the prior art for purposes of the obviousness analysis, a
reference must be analogous. Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858, 864 (Fed. Cir. 1993). Whether a reference is analogous art is a question of fact. Wyers v. Master Lock Co., 616 F.3d 1231, 1237 (Fed. Cir. 2010). Prior art is analogous if it is from the same field of endeavor or if it is reasonably pertinent to the particular problem the inventor is trying to solve. Id.
Here, there was no question that “the disputed prior art—rock carvings, engraved signage, and Prussian Blue—is not part of the field of circuit board testers and test figures.” Slip Op. at 6. Thus, the issue was whether the prior art “is reasonably pertinent to the particular problem solved by the inventor.” The Federal Circuit concluded that a reasonable jury could have found that it was not:
Although “familiar items may have obvious uses beyond their primary purposes,” KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398, 420 (2007), a reference is only reasonably pertinent when it “logically would have commended itself to an inventor’s attention in considering his problem,” In re Clay, 966 F.2d 656, 659 (Fed. Cir. 1992). The jury heard testimony that a person of ordinary skill in the art would not have thought about rock carvings, engraved signage, or Prussian Blue in considering how to mark interface plates. J.A. 1387–88, 1397, 1430–32, 1434, 1443–44, 1447. The jury was entitled to weigh this testimony, find that an ordinarily skilled artisan would not find that the disputed prior art “logically would have commended itself to an inventor’s attention,” and thus find the disputed prior art not analogous. See In re Clay, 966 F.2d at 659.
The district judge’s opinion also referenced the idea of keying a car, noting that “any vandal who has ‘keyed’ a car knows that stripping the paint with a key will result in
the underlying metal color showing through.” Slip Op. at 4 (quoting district court). But
Just because keying a car, for example, is within the common knowledge of humankind does not mean that keying a car is analogous art. An alleged infringer should not be able to transform all systems and methods within the common knowledge into analogous prior art simply by stating that anyone would have known of such a system or method. The question is not whether simple concepts such as rock carvings, engraved signage, or Prussian Blue dye are within the knowledge of lay people or even within the knowledge of a person of ordinary skill in the art. Rather, the question is whether an inventor would look to this particular art to solve the particular problem at hand. Here, Circuit Check put forward evidence that an inventor would not have considered the disputed prior art when trying to improve marking. It is not hard to arrive at that conclusion. Even though an inventor may be aware of rock carvings, it is not surprising that the inventor would not have looked to rock carvings to improve the process of painting small dots on interface plates for expensive circuit board testers. And, even though an inventor may work in an office with engraved signage, the inventor would not necessarily have considered using the techniques disclosed in engraved signage to solve the problem of marking circuit board tester interface plates.
The Federal Circuit also found substantial evidence to support the jury’s presumed finding of substantial differences between the prior art and the claims, and in support that objective considerations support nonobviousness.
Thales Visionix v. USA and Elbit Systems (Ct. Fed. Clm. 2015).
Suing the government is always an interesting proposition because it is government-employed judges who decide whether or not the government is liable. In the U.S. claims of patent infringement against the Federal Government (or its contractors, typically) are brought in the Court of Federal Claims (CFC).
Here, Thales sued the Government and its contractor Elbit systems for infringing its U.S. Patent No. 6,474,159 used to track the relative motion between two moving objects. The allegation is that the invention is used in F-35 helmet-mounted displays – when the pilot turns his head, the relative tracking system shifts the display information.
The ‘159 patent is expressly directed to “cockpit helmet-tracking,” although it is not expressly limited to those applications. See Claim 1:
1. A system for tracking the motion of an object relative to a moving reference frame, comprising:
a first inertial sensor mounted on the tracked object;
a second inertial sensor mounted on the moving reference frame; and
an element adapted to receive signals from said first and second inertial sensors and configured to determine an orientation of the object relative to the moving reference frame based on the signals received from the first and second inertial sensors.
Reading claim 1, you’ll note the requirement of two sensors physically mounted upon two different objects as well as a signal receiver configured to receive data and compute the relative orientations. Further claims define the types of sensors as well as mechanisms for computation.
In the lawsuit, the United States Government raised the defense that the patent lacks subject matter eligibility – as impermissibly directed to an abstract idea. In its opinion, the CFC agrees;
Here, the Court … finds that TVI fails the first prong of the Alice analysis because the independent claims of the ‘159 Patent are directed to mathematical equations for determining the relative position of a moving object to a moving reference frame. Derived from Newtonian principles of motion and “borrowing the mathematics that an inertial navigation system uses to track an airplane relative to a rotating earth”, the navigation equation is undoubtedly a complex mathematical concept, and a solution to the problem of tracking two moving objects in relation to each other. However, the Court finds that this concept is a “building block of human ingenuity”, and the solution lies in the mathematical formulae, not the generic devices listed in the system claim. Accordingly, TVI’s claims fail the first prong of the Alice analysis because the claims are directed to the abstract idea of tracking two moving objects, and incorporate laws of nature governing motion, both of which are ineligible for patent protection.
[Regarding Alice Step 2] the system claim fails to transform the method claim into a patent-eligible invention. The plain language of Claim 1 describes generic, fungible inertial sensors that admittedly have already gained “widespread acceptance” in the field of motion tracking. Like the computer elements in Alice, these inertial trackers, when considered as an ordered combination in the claimed system, add nothing transformative to the patent. Although the concept of tracking the motion of a moving object relative to a moving reference frame may have been novel and nonobvious, the claimed system does nothing to ground this abstract idea in a specific way. The claims allow for the application of the navigation equation in almost endless environments, and are not limited to a fighter jet and a pilot’s helmet. . . .
Ultimately, the concern that drives the exclusionary exceptions for abstract ideas and laws of nature from § 101 eligibility “[i]s one of pre-emption.” Alice. The Court finds that the scope of the subject patent’s claims is insufficiently limited under the holdings of Mayo and Diehr, and if the patent were considered to protect eligible subject matter, it would pre-empt the use of the underlying abstract idea of relative motion tracking by others in the field. The patent’s ineligibility is confirmed by the machine-or-transformation test, under which the claims are not tied to any specific machine and do not transform the nature of the patent into something more than the abstract mathematics behind it. At its core, the patent is seeking protection for the mathematical formulae used in determining the relative orientation of two moving objects. The Court is unwilling to afford patent protection to Plaintiff’s claim on this building block of motion tracking technology.
Over on the main page, Dennis has done a good job laying out the court’s “analysis” in Versata v. SAP of whether section 101 is a defense to invalidity. The court recognized that, by the text of the statute, it is not.
But, it reasoned that because, today, section 101 challenges are a cottage industry, that that interpretation must be wrong. It cites to dicta from old Supreme Court cases. And, it says basically, “well, people are doing it so it must be right.”
Um, wrong: See Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177 & 191 (1994) (overruling six decades of case law implying a cause of action), superseded on other grounds by 15 U.S.C. § 78(t)(e). Whatever a court says a statute says, the Constitution makes paramount what the enacted text actually says. Courts can get something wrong for a long time; a judge’s Constitutionally required job is not to continue the nonsense; it is to stop it.
The fact is that no court has ever actually analyzed whether 101 is a defense, particularly after 1952, when (I believe) Congress meant to get rid of this “inventive concept” and other nonsense that courts had, previously, read into the word “invention” in what was then 101. Congress put all of those odd requirements into the objective section 103. But… the point is: no court has analyzed the text — about whether “eligibility” is a defense to any infringement suit (and obviously not in CBM proceedings), and when this court did, it recognized the text did not support Section 101 as an invalidity defense.
That should have been the end of the inquiry, absent (a) an absurd result; (b) ambiguity; or (c) some other narrow exception to ignoring the plain text. But the panel went further, and suggested that some sort of history precluded giving the statutory text its plain meaning. (I wrote a book on statutory interpretation; I won’t bore you with the details.)
Let’s go past the text and look for some strong reason to ignore its plain meaning. What is this evidence?
Courts sometimes use the purpose of a statute to interpret it. Likewise, they look at legislative history to discern meaning or to find purpose. What if there was some huge committee report droning on about 101 and so on? We should likely take that into account.
But it’s not there.
The legislative history shows that the purpose CBM was adopted to address shortcomings with the PTO’s ability in the late 1990’s to find prior art, and that was Congress’s intent. The House report makes clear that the purpose was to deal with the perception that in the late 1990’s, the PTO had not found the best prior art to apply under sections 102 and 103:
A number of patent observers believe the issuance of poor business-method patents during the late 1990’s through the early 2000’s led to the patent ‘‘troll’’ lawsuits that compelled the Committee to launch the patent reform project 6 years ago. At the time, the USPTO lacked a sufficient number of examiners with expertise in the relevant art area. Compounding this problem, there was a dearth of available prior art to assist examiners as they reviewed business method applications. Critics also note that most countries do not grant patents for business methods.
The Act responds to the problem by creating a transitional program 1 year after enactment of the bill to implement a provisional post-grant proceeding for review of the validity of any business method patent. In contrast to the era of the late 1990’s-early 2000’s, examiners will review the best prior art available….
H. Rep. 112-98, at p. 54 (June 1, 2011) (emphases added). Thus, the committee report shows that the purpose of the amendments adding CBM is consistent with the statute’s plain text: to allow people to bring CBM to show that the invention was not new or would have been obvious in light of “the best prior art available.” The report emphasized the lack of “a sufficient number of examiners with expertise in the relevant art area.”
Conversely, nothing in the House report mentions the failure to recognize “abstract ideas” or the failure to properly apply Section 101. Further, it is absurd to suggest that in the late 1990s lack of access to prior art or lack of sufficient examiners with familiarity with prior art had any impact on the ability to determine what is a “law of nature,” or “abstract idea,” or the like. Indeed, courts are doing this now on 12(b)(6) motions based on their own “evidence”(?) of what is known, etc.
So, so far: purpose and history, based on the “good” legislative history (committee reports and such usually get more weight than other stuff), 101 is not a defense.
What about random statements of legislators? Once you get into random statements, the legislative history of the AIA on this transitional program is, like almost all legislative histories in this granular level, murky. I have reviewed the remarks made on the Floor of the Senate, and there is no doubt that a few members of Congress mentioned business method patents. A fair reading is that at least some members of Congress thought the source of the problem to be addressed was with “abstract” patents, while others believed the failure to consider the most pertinent prior art was the source of the problem.
I have also considered other aspects of the legislative history that this panel didn’t cite. For example, then-Director Kappos observed: “a key House Committee Report states that ‘the post-grant review proceeding permits a challenge on any ground related to invalidity under section 282.’ H.R. Rep. No.112-98, at 47 (2011).” Yet, it is undeniable – and the Versata court held — that the text of the adopted statute points to only two subsections of Section 282, and so this sentence from that report flatly contradicts the enacted statute. (It accurately reflects the text at the time Kappos spoke; but Congress didn’t adopt it.) A sentence in a committee report that directly contradicts the enacted language does not control. As with most bills, the legislative history of the AIA contains many statements that are not the law, and a few that contradict the enacted statute.
Others have pointed to this statement from a senator from Arizona, Senator Kyl: “section 101 invention issues” were among those “that can be raised in post-grant review.” 157 Cong. Rec. S1375 (daily ed. Mar. 8, 2011). Relying on this statement for the proposition that eligible subject matter is covered by the text is doubly problematic. Foremost, “section 101 invention issues” is not in the enacted text, as the Versata court correctly held. Further, the Supreme Court has long and repeatedly rejected relying upon one legislator’s statement as having been enacted into federal law. Doing so jeopardizes the Constitutional requirements of enactment and presentment. This is especially true where, as here, that statement contradicts the plain text as well as other more weighty evidence of legislative intent. Those sources – which, if entitled to any weight — are entitled to more weight than one Senator’s floor statement – contradict Senator Kyl’s subjective interpretation of the statute. Again, however, I believe none of this matters here.
So, at best, there is some slight indication that a few members of Congress thought that “abstract” patents (whatever that might mean”) is the problem.
But it is long-settled there has to be some reason, much stronger than a few random statements, to ignore the plain text of an enacted statute. What controls is the language Congress enacted, not our speculation about the intent of a handful of elected representatives.
Let’s go further.
Sometimes courts interpret statutes in light of existing case law, and that’s what the Versata court relied upon. Well, what about case law, and the notion this court adopted that there’s some sort of “long-standing” understanding that 101 is a defense. This is weird: despite the plain language, and despite Congress knowing that 101 should be a defense, it did not list it. Think about judicial activism for a moment.
And let’s be real here.
First, post-1952 it was not until Myriad that there was a challenge in the Supreme Court to an issued patent based on 101. All the others were fights with the PTO. No one in Myriad litigated whether 101 was a defense in terms of section 282. It’s not, as even this panel recognized.
So, saying there’s some long-standing line of cases from the Supreme Court is simply wrong: there’s now two cases, one just decided (Alice). Further, we all know that 101 defenses were about as rare as a blue zebra until a few years ago.
But maybe there is some long-standing interpretation, even in dicta?
Wrong. If you read the authority relied upon by the court, they don’t support the this “history” at all — instead they undermine it.
Foremost, the Supreme Court case relied upon is Graham v. John Deere Co., 383 U.S. 1 (1966). That famous case about Section 103 had nothing to do with whether “eligible subject matter” was a condition for patentability, and did not decide that issue. Instead, in dicta analyzing the “condition for patentability” in Section 103, the court noted:
The Act sets out the conditions of patentability in three sections. An analysis of the structure of these three sections indicates that patentability is dependent upon three explicit conditions: novelty and utility as articulated and defined in § 101 and § 102, and nonobviousness, the new statutory formulation, as set out in § 103. The first two sections, which trace closely the 1874 codification, express the ‘new and useful’ tests which have always existed in the statutory scheme and, for our purposes here, need no clarification. The pivotal section around which the present controversy centers is § 103 . . . .
383 U.S. at 12-13.
That statement actually undermines the argument that “eligible subject matter” is a condition for patentability.
Here’s why:
Graham explains that the Patent Act of 1793 had only two conditions for patentability: utility and novelty (both of which were once in the same statute, a precursor to sections 101 and 102). Id. at 10 (“Although the Patent Act was amended, revised or codified some 50 times between 1790 and 1950, Congress steered clear of a statutory set of requirements other than the bare novelty and utility tests reformulated in Jefferson’s draft of the 1793 Patent Act”). The Graham Court recognized that in 1952 Congress had added a third condition, non-obviousness. See id. at 14 (“Patentability is to depend, in addition to novelty and utility, upon the ‘non-obvious’ nature of the ‘subject matter sought to be patented’ to a person having ordinary skill in the art.’”) (quoting Section 103).
So… the Graham case suggests — if anything, as it is dicta — that “eligible subject matter” is not a condition for patentability. If Graham stated that utility, novelty, and non-obviousness were the three conditions for patentability, then the Court’s statement that there are “three conditions” means “eligible subject matter” is not one: if “eligible subject matter” were also a condition for patentability, then there would be four, not three, conditions.
The panel also cites dicta in a footnote in Aristrocrat Techs., Austl. PTY LTd. v. Int’l Game Tech., 543 F.3d 657, 661 (Fed. Cir. 2008). Although the merits of a Section 101 issue was decided in Dealertrack, the patentee did not contend that Section 101 was not a statutory defense, and the court did not decide that issue. Further, dicta in that case traces directly back to the dicta from Graham. So, there is no long line of cases that, somehow, Congress knew about and intended to adopt.
Worse, there is loose language in other cases saying exactly the opposite, that only 102 and 103 are conditions of patentability (i.e., are consistent with the plain text.). For example, the Federal Circuit has stated: “The two sections of part II that Congress has denominated ‘conditions of patentability’ are § 102 . . . and § 103 . . . .” Myspace, Inc. v. GraphOn Corp., 672 F.3d 1250, 1260-61 (Fed. Cir. 2012). The Supreme Court made essentially the same observation in Diamond v. Diehr, 450 U.S. 175, 190-91 (1981).
So… in fact there is no case law supporting this history, and instead the “case history” is, at best, split and unclear.
The important fact to me is that none of these casesparse the statutory text, or examine the purpose and legislative history of the AIA discussed here. Ignoring the actual text in favor of what courts have said a statute says is obviously incorrect. In that regard, the Supreme Court has overridden judicial interpretations of statutes that failed to adhere to the text, and has done so even after decades of having lower courts adhere to those incorrect constructions. See Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177 & 191 (1994) (overruling six decades of case law implying a cause of action), superseded on other grounds by 15 U.S.C. § 78(t)(e). Whatever a court says a statute says, the Constitution makes paramount what the enacted text actually says.
To sum up, absent some good reason to ignore the plain text, in my opinion random statements from one or two legislators and dicta in cases does not control. Dicta in cases that do not analyze the statutory text do not control. A committee report that flatly contradicts the enacted text does not control. And one Senator’s opinion is not enacted statutory text.
I understand why the panel did what it did. But the Constitution is more important than judicial politics.
Finally, let’s be real again: if you look at what Congress did in 1952, it was to get rid of this subjective nonsense. I strongly believe that then Chief-Judge Rader’s opinion, and “additional views” in CLS Bank v. Alice (which, textually, this panel confirmed in holding 101 is not even a listed defense) need to be raised and litigated. Statutes should matter.
(You can find the original version of this, with citations and footnotes at:
The Federal Circuit simultaneously released two decisions in this appeal of the first inter partes review proceeding before the Patent Trial and Appeal Board (PTAB). The first decision is a revised panel opinion holding:
that the court lacks “jurisdiction to review the PTO’s decision to institute IPR;”
that the PTO acted within its statutory rulemaking authority in determining that patent claims subject to an IPR should be given their “broadest reasonable interpretation” and thus that the PTAB’s broad claim construction and subsequent obviousness determination were proper; and
that the Board properly denied Cuozzo’s motion to narrow its claims in order to avoid the prior art.
Judge Dyk wrote the majority opinion joined by Judge Clevenger; and Judge Newman dissented on almost all points. [I have not fully reviewed the revised opinion, but the holding does not appear to differ significantly from the original that I discussed here. DC]
In the second decision, the en banc court rejected Cuozzo’s petition for en banc rehearing on the Broadest-Reasonable-Interpretation (BRI) standard for administrative review claim construction. The vote was at the slimmest of margins: Six-to-Five with Chief Judge Prost, and Judges Newman, Moore, O’Malley, and Reyna voting for en banc review and Judges Lourie, Dyk, Wallach, Taranto, Chen, and Hughes voting no. Oddly, four of the six judges voting “no” to the en banc review request still felt the need to write an opinion explaining the law.
The BRI supporters write:
Congress conveyed rulemaking authority to the PTO to prescribe regulations, inter alia, “establishing and governing inter partes review,” 35 U.S.C. § 316(a)(4), and the PTO has adopted the broadest reasonable interpretation standard for IPR proceedings, 37 C.F.R. § 42.100(b). In the absence of evidence of congressional intent to abrogate the [historically grounded] broadest reasonable interpretation standard, we should not act to adopt a different standard based on our own notions of appropriate public policy. If the standard is to be changed, that is a matter for Congress. There are pending bills which would do just that.
Dissenting from the en banc denial, Chief Judge Prost (joined by four colleagues) writes:
In adjudicatory proceedings, claims [must be] given their actual meaning, not their broadest reasonable interpretation.
Challenging the grant-of-authority argument, the minority suggests that the rulemaking authority was procedural authority, not substantive authority — and that the standard for claim construction is extremely substantive. “In our view, these subsections are consistent with Congress’s previous grants of authority to prescribe procedural regulations.”
This decision is obviously important since many of the obviousness arguments in the pending IPRs depend upon the PTO broadly construing the claim scope. The immediate take-home is the message that Patentees had better win their case at the PTAB rather than looking to the Federal Circuit for reversal. In the background, the judicial split and administrative-law aspects of the decision suggest that it is ripe for Supreme Court review.
The Patent and Lanham (TM) acts each include a mechanism for filing a civil action when the USPTO refuses to grant/register the applied-for rights. See 35 U.S.C. 145 and 15 U.S.C. 1071(b) respectively.
Both provisions include cost-shifting that forces the applicant to pay the PTO’s expenses of the proceedings, win-or-lose.
Patent Cases: “All the expenses of the proceedings shall be paid by the applicant.”
Trademark Cases: “unless the court finds the expenses to be unreasonable, all the expenses of the proceeding shall be paid by the party bringing the case, whether the final decision is in favor of such party or not.”
The 4th Circuit case of Shammas v. Focarino involves a civil action to force the PTO to register the mark “PROBIOTIC.” The district court sided with the PTO that the mark was not registrable (it is generic) and then awarded attorney fees to the USPTO under the statute quoted above. On appeal, the 4th Circuit has affirmed – finding that the “all the expenses” provision of the statute includes attorney fees.
[I]n ordinary parlance, “expenses” is sufficiently broad to include attorneys fees and paralegals fees. Moreover, in this statute, Congress modified the term “expenses” with the term “all,” clearly indicating that the common meaning of the term “expenses” should not be limited. (internal citations omitted)
The appellate panel rejected the notion that “expenses” should be read as parallel to “taxable costs” that do not include attorney fees — suggesting that Congress wold have used the costs term it it meant costs. In reaching this decision, the court looked back to the statutory language origin found in the 1836 patent act and noted that – even there – the statute distinguished between expenses and costs.
The court also rejected the notion we would need a clearer statement from Congress in order to overcome the presumption against attorney fee shifting in American courts (the “American rule”). Here, the panel came to the odd conclusion that the American-rule presumption here does not apply because that presumption is about whether the loser pay’s the winner’s fees. This situation is different (according to the court) because one side always pays win-or-lose.
Thus, a statute that mandates the payment of attorneys fees without regard to a party’s success is not a fee-shifting statute that operates against the backdrop of the American Rule.
This appears to me an odd conclusion whose conclusion does not logically flow from the premise.
For litigators, the outcome is unsightly because of the rarity of such strict fee-shifting mechanisms within our court systems. For patent and trademark prosecutors, the statute appears more akin to a fee-for-service, which is entirely common within the system. One major difference between other PTO fees is uncertainty since the litigation costs will not be known until the litigation complete.
Whatever its justification, the outcome here obviously adversely impacts patent and trademark applicants considering the filing of a civil action to pursue their claims. (Within the PTO, direct appeal to the Federal Circuit under Section 144 does not directly result in a fee award).
My understanding is that Shammas will be filing a petition for writ of certiorari in the upcoming weeks now that his petition for rehearing was denied. INTA filed a brief in support during the appeal.
Guest post by David Bohrer, Patent Trial Practice, Valorem Law Group.
OIP Technologies v. Amazon.com and IPC v. Active Network are the most recent of a growing number of decisions dismissing software and business method patent lawsuits on the pleadings. In these decisions, the courts are finding that the invention alleged in the complaint is an abstract idea that is not eligible for patent protection.
While early resolution of patent litigation is laudable, motions directed to the pleadings generally may not consider matters outside what is pled in the complaint. Yet this is what courts are doing — they have been coloring outside the lines when deciding whether a patented software or business method is an ineligible abstraction. They are looking beyond the allegations in the complaint to discern “fundamental economic concepts.” Independent of anything pled in the complaint, they are making historical observations about alleged longstanding commercial practices and deciding whether the claimed invention is analogous to such practices.
Coloring outside the lines may not be acceptable. The benefit of providing an early exit from otherwise expensive and burdensome patent litigation may be outweighed by the prejudice to all parties of eroding the rules regarding the matters that may be considered before throwing out a lawsuit. Perhaps there is a better solution. Perhaps pleading motions challenging patent subject matter eligibility should be converted to expedited and limited scope summary judgment motions, thereby allowing the parties to present declarations, testimony and other extrinsic evidence that better address whether a claimed economic practice is an unpatentable idea or a patentable invention.
Alice is being used to obtain early dismissal of lawsuits based on software and business method patents
Courts granting patent ineligible subject matter motions are using the Supreme Court’s 2014 Alice decision as an effective weapon to combat vexatious patent litigation brought by non-practicing entities (NPEs). SeeCuriouser and Curiouser Is Alice the Long Sought Troll Killer _ The Legal Intelligencer. Alice provides relatively easy to satisfy requirements for demonstrating that an asserted software patent is claiming an “abstract idea” and therefore is not eligible for patent protection under section 101 of the patent statute.
Not only have courts found in Alice the tools necessary to dispose of vexatious patent lawsuits asserting software and business method patents, they also are willing to entertain an Alice challenge at the pleadings stage. The procedural posture of a pleading motion is key to using Alice to “kill trolls.” Defendants can challenge the merits of the patent lawsuit at the pleadings stage and before having to incur significant expenses associated with discovery, claim construction, experts and summary judgment. The nuisance value of the lawsuit goes way down. Defendants are less likely to feel they have to pay a distasteful settlement or else bear the much greater expense of defending on the merits.
Recent Federal Circuit decisions continue the trend
On June 11, 2015 and again on June 23, 2015, the Federal Circuit affirmed decisions by the Northern District of California dismissing software patent lawsuits at the pleading stage. In each of these cases, OIP Technologies v. Amazon.com (underlying patent claimed offer-based price optimization) and IPC v. Active Network(retaining information lost in the navigation of online forms) the district courts granted Rule 12(b)(6) motions to dismiss on the grounds that the patents claimed abstract ideas ineligible for patent protection.
In each case, the Federal Circuit approved the resolution of 101 eligibility at the pleading stage with little to no analysis. In IPC, the Federal Circuit’s opinion includes one sentence in which the court states that claim construction (which had not yet occurred) is “not an inviolable concept.” In OIP, the lead opinion does not address how early in litigation alleged ineligibility may be resolved, but in a concurring opinion Judge Mayer supports addressing eligibility at the motion-to-dismiss stage.
Failure to recite statutory subject matter is the sort of “basic deficiency,” that can, and should, “be exposed at the point of minimum expenditure of time and money by the parties and the court,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007) (citations and internal quotation marks omitted). Addressing 35 U.S.C. § 101 at the outset not only conserves scarce judicial resources and spares litigants the staggering costs associated with discovery and protracted claim construction litigation, it also works to stem the tide of vexatious suits brought by the owners of vague and overbroad business method patents. Accordingly, where, as here, asserted claims are plainly directed to a patent ineligible abstract idea, we have repeatedly sanctioned a district court’s decision to dispose of them on the pleadings. See, e.g., Content Extraction & Transmission LLC v. Wells Fargo Bank, 776 F.3d 1343, 1349 (Fed. Cir. 2014); Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 717 (Fed. Cir. 2014); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1352 (Fed. Cir. 2014). I commend the district court’s adherence to the Supreme Court’s instruction that patent eligibility is a “threshold” issue, Bilski v. Kappos, 561 U.S. 593, 602 (2010), by resolving it at the first opportunity.
Contrary to the suggestion made by Judge Mayer, the Supreme Court has not addressed whether it is appropriate to address a 101 challenge at the pleading stage. Bilski’s characterization of patent eligibility as a “threshold” issue was made with reference to the 102 and 103 invalidity defenses and did not address the procedural issue. Bilski also cites to extrinsic economic treatises and other evidence of economic practice in support of the decision reviewing the denial of a patent application. Alice did NOT address patent eligibility in the context of a pleadings motion, but instead reviewed a patent eligibility ruling that was made at summary judgment. Alicecites to the same extrinsic economic evidence relied upon in Bilski.
There is not supposed to be any coloring outside the lines on pleadings motions
The well-established general rule is that Rule 12(b)(6) motions to dismiss as well as Rule 12(c) motions for judgment on the pleadings are limited to the well-pled factual allegations made in the complaint. “A court generally cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits or discovery materials).” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012); In re American Cont’l Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir. 1996) (As recognized in OIP and IPC, the Federal Circuit applies regional circuit law in deciding motions to dismiss.).
Yet this is what is happening
Notwithstanding these rules, OIP and IPC each looked beyond the complaint in determining whether the asserted claims are directed to ineligible abstract ideas. In OIP, the asserted price optimization claims were deemed “similar to other ‘fundamental economic concepts’ found to be abstract ideas.” In IPC, the asserted online information retention claims were deemed “well-understood, routine, conventional activities previously known.” In each instance, the court is looking at practices and activities outside of anything alleged in the complaint.
These Federal Circuit cases teach that it is acceptable to consider matters outside of the complaint, as confirmed by Affinity Labs of Texas v. Amazon.com (June 12, 2015 WD Tex.), in which the magistrate judge, applying 101 precedent from OIP and other Federal Circuit decisions, says that it is making “general historical observations that come to mind.” Based on such extrinsic “historical observations,” the court finds that the claimed invention of delivering selectable media content and subsequently playing the selected content on a portable devices is a “long-standing commercial practice and is therefore abstract.”
The Court notes that the first transistor radio, which delivers selectable audio media to a portable device, was developed in the late 1940s and was immensely popular in the succeeding decades. Similarly, the first portable televisions, another form of delivering “selectable” media content to a portable device, were introduced in the 1980s and 1990s. The above examples represent just a few of the many general historical observations that come to mind as evidence of the long-standing commercial practice of delivering selectable media content and subsequently playing the selected content on a portable device.
Reliance on extrinsic evidence of economic practices and concepts found in precedent
OIP and IPC support their abstract idea findings by equating the economic purpose of the asserted patent with the economic concepts successfully challenged in other cases. For example, in OIP, the Federal Circuit says offer-based price optimization (at issue in OIP) is analogous to using advertising as an exchange or currency (deemed an abstract idea in the earlier Federal Circuit decision Ultramercial v. Hulu). Likewise, in IPC, the Federal Circuit said that recent precedent illustrates the boundary between abstraction and patent eligible subject matter. But how is the court in a position to make the connection between the asserted claims and prior precedent on its own observation and independent of expert testimony or other relevant extrinsic evidence? Judge Mayer and many other respected judges might reply that it is acceptable to make this connection because it is “plain” or “obvious.” Yet this seems to invite the application of 20-20 hindsight and of the “I know it when I see it” standard.
Can’t take judicial notice of truth of findings made in other decisions
Furthermore, while a court may take judicial notice of another court’s opinion in ruling on a motion to dismiss, it may do so only as to the existence of the opinion and not for the truth of the facts recited therein. Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001). It appears that cases such as OIP and IPC are relying on the truth of factual findings made in other decisions regarding whether certain economic concepts are “conventional” or “well-known” – such matters appear outside the scope of what may be judicially noticed in a motion to dismiss.
Possible solution is expedited and limited scope summary judgment motions
A court’s consideration of information outside the four corners of the complaint, assuming it does not fall within exceptions such as judicial notice, converts a motion to dismiss into a summary judgment motion. Lee, 250 F.3d at 688. True enough, this raises the specter of time-consuming discovery and case development (see the criticism of ED Texas Judge Gilstrap’s requirement that the parties demonstrate that there is a good faith basis for such a motion). This said, district courts have the discretion to expedite such motions as well as limit their scope. They could, for example, specifically require the responding party to submit to expedited discovery on the issue whether the asserted patent claims eligible subject matter followed by expedited briefing and submission of evidence on both the question whether the purpose of the asserted claims is a conventional economic concept and therefore an ineligible abstract idea, and if so, whether there is an inventive concept that saves the claim from dismissal. They could stay other case development or discovery during the expedited resolution of the motion. It does not necessarily follow that the court would have to conduct claim construction as part of the process. The parties, as they do now, could brief whether claim construction is necessary, but would also have greater flexibility in terms of their ability to submit proofs in support of their claim construction arguments. Woe unto the party who purports without any reasonable basis to have compelling extrinsic evidence that they are not asserting a conventional economic concept or that their patent is directed to a protected inventive concept– the district courts have ample support in High Octane and its progeny for awarding fees under such circumstances.
If courts are going to color outside the lines, then let the parties do the same thing
Courts are willing to color outside the lines and consider extrinsic evidence upon addressing motions to dismiss challenging alleged ineligible patent subject matter. This contravenes well-established rules and policies regarding pleading challenges and may cause undue prejudice by denying a party the ability to submit extrinsic evidence in support of a well-pled claim. A possible solution is for the court to allow the parties to color outside the lines as well. The court has the discretion to impose time and scope limits on discovery and briefing without opening the door to prolonged, vexatious litigation.
Guest post by Jeffrey A. Lefstin, Professor of Law at the University of California Hastings College of Law. Professor Lefstin’s forthcoming article, Inventive Application: a History, was cited by Judge Linn in his concurrence in Ariosa.
The Federal Circuit has issued its decision in a closely-watched biotechnology case, Ariosa Diagnostics v. Sequenom. The opinion clarifies several aspects of the patent-eligibility inquiry in the wake of Mayo v. Prometheus, and has significant long-term implications for patent-eligibility not only in biotechnology, but in other fields where invention is based primarily on discovery.
The invention in the case derived from the inventors’ discovery that the cell-free fractions (serum and plasma) of a pregnant woman’s blood contain surprisingly large amounts of DNA from the fetus. Based on this discovery, the Sequenom patents claimed methods for prenatal diagnosis of fetal abnormalities, the methods comprising amplifying paternally-inherited sequences from the cell-free fractions of the mother’s circulation.
Applying Mayo, the Federal Circuit held all the claims in suit ineligible. In step one of the Mayo inquiry, the court found that the claims were all directed to a natural phenomenon: the existence of paternally-inherited cell-free fetal DNA (cffDNA) in the maternal bloodstream. In step two, the search for an ‘inventive concept,’ the court invoked Parker v. Flook for the following proposition:
For process claims that encompass natural phenomenon [sic], the process steps are the additional features that must be new and useful.
Because methods of amplifying DNA were well-known at the time of the invention, the court determined that the claims disclosed only well-understood, routine, conventional activity beyond the underlying natural phenomenon. The claims therefore lacked an inventive concept sufficient to transform the natural phenomena into a patent-eligible application. So Ariosa makes clear that the test for patent-eligibility is whether a claim represents an ‘inventive’ application of an underlying natural phenomenon, at the time the invention was made.
Another notable aspect of the case is the court’s discussion of preemption. After Mayo and Alice, some district courts have treated preemption as an operative test for patent-eligibility, while others have regarded preemption as the underlying justification for the doctrine. In Ariosa, the Federal Circuit seemed to adopt the latter view, stating that once claims are determined to disclose only ineligible subject matter under the Mayo test, “preemption concerns are fully addressed and made moot.” However, the court also wrote that “[w]hile preemption may signal ineligible subject matter, the absence of complete preemption does not demonstrate patent eligibility.” So the Federal Circuit seems to be suggesting that arguments regarding preemption can be taxed against the patentee in the § 101 inquiry, but not counted in the patentee’s favor.
In Ariosa, the Federal Circuit has endorsed a highly restrictive interpretation of the test for patent-eligibility, one that was not mandated by Mayo itself. A test for ‘inventive’ application was only one of several possible analytical approaches set forth in Mayo. Mayo also suggested a test of non-generic application for patent-eligibility: that a claim must do more than state a law of nature or abstract idea, and append an instruction to ‘apply it.’ That was the aspect of Mayo stressed by Alice, which emphasized generic application far more than inventive application.
As I argued in a recent paper, under a test of generic application, the claims in Ariosa might fare differently than the claims in Mayo. The claims in Mayo represented generic applications, because they did no more than reveal the results of the underlying relationship between 6-thioguanine levels and therapeutic efficacy. Arguably, at least some of the Ariosa claims do more than that: rather than claiming the natural phenomenon (cffDNA in the maternal circulation) itself, they employ the natural phenomenon as a means to a achieve a different end (diagnosing a genetic condition of the fetus).
Moreover, the Ariosa opinion appears to endorse dissection of the claim to a degree not only contrary to Diehr, but beyond that suggested by Flook itself. While Flook explained that “the process itself” must be new and useful, Ariosa suggests that the individual steps of the process must be new and useful, and identifies the discovery of cffDNA as “[t]he only subject matter new and useful as of the date of the application.” Given that most inventions consist of rearrangements of old elements, it is difficult to understand how the court can refrain from addressing the claim steps as an ordered whole, as mandated by Mayo itself.
And that highlights what is perhaps the most puzzling (or disturbing) aspect of Ariosa. According to Judge Linn’s concurrence, the steps of the method were new: at the time of the invention, no one was amplifying paternally-inherited sequences from maternal serum or plasma, because no one thought that those fractions contained significant amounts of fetal DNA. That contrasts with Mayo, where the acts recited in the method were identical to those performed in the prior art. Yet Judge Linn believed that the Supreme Court’s “blanket dismissal of conventional post-solution steps” in Mayo left no room to distinguish the Ariosa claims on those grounds.
If the step of amplifying paternally inherited DNA from serum or plasma was new, by what analysis could the court could regard it as “well-understood, routine, and conventional activity”? One way would be to sub-dissect that step into the conventional step of obtaining a cell-free fraction, and the conventional step of amplifying a sample containing DNA. That approach seems to lead to the reductio ad absurdum that most biotechnology processes are patent-ineligible, because they consist of the conventional steps of transferring drops of fluid from one tube to another.
The alternative way would be to ask if the step of amplifying paternally inherited DNA would be obvious once it was known that there was cffDNA in the maternal bloodstream. In other works, assume the patentee’s discovery to be already known, and ask if the invention is obvious once the discovery is assumed away. If that is truly the interpretation of Mayo signaled by Ariosa, then the case promises to cast a long shadow on the patent-eligibility of inventions based on discovery in the future.
Hi, all. I’m doing some speaking and writing on IPR ethics. I’ve read Professor Dolak’s article (an earlier version is here; I couldn’t find the recently published version on-line). I’m not sure I agree with her 100%, but it’s a very good piece.
What ethics issues have you run into (or, more precisely, have you heard others have run into) during post-grant proceedings? I’d love to know because that’s where my writings are headed next.
Been thinking about it for a while. One obvious thing is the fun games that a lawyer will play in deciding what “inconsistent” information he must submit. Others?
Guest Post by Professor Shubha Ghosh, University of Wisconsin Law School
Congratualtions to Hannah Jiam for her great work on attorney’s fee shifting after the Supreme Court’s 2014 Octane Fitness and Highmark decisions! The forthcoming article provides a deep portrait of how attorneys have responded to the new regime under Section 285 and how courts have ruled. She also makes an insightful observation about the role of judicial discretion and the need for legislative reform of Section 285 to provide more detailed guidance for judges in order to direct and focus their discretion. Many scholars speak about attorney’s fees as a policy lever to limit frivolous litigation and the questionable practices of NPE’s. What I learned from Hannah’s article is that we also need to consider the torque of any particular policy lever (to take the nerdy techno-metaphor to the next level).
I have been pursuing research on Section 285 during my leave year from the University of Wisconsin as an AAAS Law, Science, and Policy Fellow at the Federal Judicial Center in Washington, DC. A completed paper summarizing my research will be available in a few months. Here, I would like to present some preliminary findings in order to complement Ms. Jiam’s work.
Where my methodology differs is to focus on the regimes pre-Octane Fitness as well as decisions after 2014. I am examining published judicial opinions ruling on 285 motions over three periods: (1) from the founding of the Federal Circuit in 1982 to the Brooks Furniture decision in the first week of 2005; (2) from 2005 to the Octane Fitness decision in 2014; and (3) from 2014 to the present. While there are methodological problems in looking at published opinions (which I address at the end of this post), looking at what courts have done and said with regards to 285 motions offers useful information on when courts have found a case to be exceptional and when not.
My principal finding is that judicial discretion matters regardless of the stated standard for the award of attorney’s fees. In other words, raising the standard, as occurred with Brooks Furniture, or lowering the standard, as occurred with Octane Fitness, may not matter over all as to how courts exercise their discretion. The tentative implication is that the torque of attorney’s fees as policy levers depends on an articulation of what factors courts are required to use in awarding fees and perhaps ultimately on whether or not the fees are automatic.
Some preliminary findings from various data sources illustrate these points. Table 1 reports findings from Lex Machina, which reports on various patent litigation events starting in 2000. The database captures awards of attorney’s fees across jurisdictions. Unfortunately, the database, when examined in March, 2015, did not report denials. Nonetheless, consideration of the three periods for my study, we can see an above average of attorney’s fees awards per year during the Brooks Furniture period (from 2005 to 2014). The relative size of this number, as compared to the pre-Brooks Furniture period, may be surprising since Brooks Furniture presumably made it more difficult to obtain attorney’s fees. The magnitude is most likely the result of increased patent litigation during this period, as reported by other scholars. More careful study of the types of cases arsing during the Brooks Furniture period would explain the larger annual award rate by the district courts.
Terminated cases with award
Yrs
Cases/yr
Period 1 (2000-2005)
113
5
22.6
Period 2 (2005-2014)
292
9.33
31.29
Period 3 (2014-2015)
24
.9
26.67
TOTAL
429
15.23
28.17
TABLE 1: Lex Machina data on awarded attorney’s fees from 2000 to the present
Looking more closely at the 24 identified awards of attorney’s fees post-Octane, 17 of these cases involved awards to patent owners while 7 were awards to the alleged infringer (who of course prevailed at trial). Of the 17 cases in which the patent owner obtained attorney’s fees, 4 were default judgment cases and a different 4 also involved the award of enhanced damages. The last finding suggests that fees are awarded in cases that would not meet the standard for willful infringement.
One way to obtain a sense of types of cases is to look at the time towards final judgment from initial filing, what is reported in Lex Machina as “time to terminate.” Of the 7 cases in which the alleged infringer obtained attorneys’s fees, 5 were cases with above average time to terminate, meaning cases that were initiated sometime before the Octane Fitness decision. Of the 17 cases in which the patent owner received fees, 8 involved above average time to terminate. If cases with longer times to terminate are viewed as more contentious cases, it seems that cases in which alleged infringers prevail on fee shifting are more contentious than the cases in which the patent owner prevails on fees.
The main limitations with respect to the Lex Machina data are the selection effects that arise with respect to examining reported cases and the exclusion of fee denials. Nonetheless, even looking solely at instances of attorney fee awards, there does not seem to be a pro-defendant orientation in judicial decisions. But to fully understand whether Octane Fitness serves as an effective policy lever to control frivolous patent litigation, we need to compare the post-Octane world with the regimes that existed before.
Below, I provide some preliminary summary statistics about the denial and grant of attorney’s fees over three periods from 1982 to the present. These three periods are divided into the pre-Brooks Furniture regime (1982-2004); the Brooks Furniture regime (2005-2014); and the Octane Fitness regime (2014 to the present). The following results are based on reported decisions in Westlaw on 285 motions. The decisions include both grants and denials. I conducted the search of these cases in early January. I am currently working on updating the searches and expanding the coding of the cases for various factors pertinent to understanding what constitutes an exceptional case. I should emphasize that what I am presenting is still preliminary. But I believe there is enough here for discussion especially in light of Ms. Jiam’s study.
My Westlaw search identified 24 reported decisions on attorney’s fees post-Octane, 205 reported cases from the Brooks Furniture regime, and 147 from the period between the formation of the Federal Circuit and the Brooks Furniture ruling. I examined a random sample of 20% of the cases from the Brooks Furniture regime and 16% from the pre-Brooks regime. These two random samples provide the basis for the statistics presented below.
Table 2 reports on the 24 reported cases post-Octane. Of these 24 cases, 12 resulted in grants and 12 in denials. Of the 12 grants, 9 went to the non-patentee as prevailing party. This may suggest that non-patentees are more successful post-Octane in obtaining attorney’s fees awards. But what must also be taken into consideration is that the 12 denials of awards all were in cases where the non-patentee’s motion was denied by the court. Just to be clear, these denials involved cases in which the non-patentee was the prevailing party but the court determined that the case was not exceptional. Unlike the Lex Machina data, the Westlaw reported cases capture both grants and denials. The denials are important to take into consideration in examining the effectiveness of section 285 as a policy lever. To highlight this point, consider the following. Of all the 24 reported cases involving fee shifting, 21 involved motions from the non-patentee. The disproportionate number of non-patentee motions would suggest that the Octane Fitness regime might be more favorable to the non-patentee. But of these 21 motions, only 9 resulted in a grant, suggesting that the motions were successful in less than half the cases, as reported in Westlaw. On the other hand, patent owners had a 100 % success rates based on the 3 reported cases involving a motion brought by the owner.
How the litigation environment has changed under the Octane Fitness decision requires comparison with the world before hand. Tables 3 and 4 report similar statistics for the pre-Brooks and Brooks regimes, although based on random samples from the respective population of cases.
n
Patentee
Nonpatentee
Infringement
DJ
Grant
9
2
7
7
2
Deny
15
6
9
13
2
TOTAL
24
8
16
20
4
Table 3: pre-Brooks reported cases. Total=147. N=24 (16% random sample)
These two tables are based on random samples from the population of cases and hence are very preliminary. Nonetheless they raise some hypotheses to examine in considering the entire population of cases.
The first point to emphasize once again is that denials need to be taken into consideration in gauging the effectiveness of a particular attorney’s fees regime. Under the pre-Brooks regime, there were about 62 % denials among the reported cases ruling on attorney’s fees. By comparison, there were 70 % denials among the reported cases ruling on attorney’s fees during the Brooks Furniture regime. Since the Brooks decision raised the standard for the award of attorney’s fees, it is not surprising that the denial rate is higher. But perhaps surprisingly, the rate may not be significantly higher (I have not done this test yet).
Furthermore, even though reported cases deal with motions from nonpatentees more frequently than motions from patent owners, nonpatentees are more likely to be denied fees under both the the pre-Brooks and Brooks regimes. Nonpatentees had a 44% grant rate under the pre-Brooks regime and a 31 % grant rate under Brooks. By comparison, patentees had a 25% grant rate pre-Brooks and a 28% grant rate under Brooks.
Once again, the various statistical tests of significance have not been applied yet to provide a full interpretation of these data. But two points are important at this stage of the research. In order to understand the effectiveness of Octane Fitness (its torque), we need to understand what the world of attorney’s fees looked like before the 2014 decision. Furthermore, we need to examine how grants and denials are awarded between patentees and nonpatentees. What the data suggest so far is that the various standards, however characterized as easy or hard, do not seem to favor one side over the other in patent litigation. To me, this suggest that judicial discretion may be working around the articulated standards to make decisions on a case by case basis. Part of the research is to determine what courts articulate as the relevant standard.
Table 5 partially addresses the big question of what courts deem to be exceptional cases. The table reports frequently used phrases across the various regimes in the published opinions.
RATIONALES
Grant
Denial
Pre-Brooks Furniture
“dilatory tactics”; “inequitable conduct”; “willfulness”; “failure to investigate”; “fraud on USPTO”
“no intent to deceive”; “no willfulness”; “no vexatious litigation”; failure to meet burden
Brooks Furniture
“vexatious litigation”; “misconduct in USPTO”; “bad faith”; “obj and subj baseless in light of claim construction”
failure to meet burden; “no willfulness”; “no misconduct”
Post-Octane
litigation misconduct; discovery abuse; relitigating arguments; “lit theory inconsisitent with claim construction”; uncivil tacticsnuisance suit; Fogerty factors
No misconduct; Reasonable tactics; No bad faith
Table 5: What courts say and do
An advantage of examining reproted cases, despite the limitations, is the ability to discern what courts are thinking in granting or denying fees. Let me focus on a few highlights here given my space restrictions. First, notice the prevalence of identified misconduct by the patentee or nonpatentee and attorneys as a basis for granting awards. Second, notice the prevalence of failure to meet the burden of proof in denying awards under the Brooks Furniture standard. Finally, notice the discussion of willfulness across the various regimes indicating that the determination of awarding fees occurs in the broader context of inequitable conduct and enhanced damages. My main conclusion from reading and assessing these cases is that courts seemingly exercise their discretion in determining what constitutes an exceptional case in similar ways despite the stated standard for granting fees. The policy prescription would be that the torque from using fee shifting as a policy lever may be dampened by judicial discretion. Whether legislative reform should cabin such discretion is at the core of how effective and politically feasible such reform would be.
One last word about my methodology. There are obvious selection effects from examining reported cases as I have done here. These selection effects are also relevant for Hannah’s article. Reported cases are not the typical case. Although we need to consult reported cases to determine what courts consider “exceptional,” we need to keep in mind that the reported cases are not representative of the population of cases that fee shifting rules are supposed to regulate. One goal of fee shifting rules is to prevent frivolous litigation and specifically extracted settlements based on frivolous claims. The effect of fee shifting on settlement is a complex one. Assuming that frivolous cases can be precisely identified by a judge, patent owners may be less willing to bring frivolous cases. At the same time, nonpatentees may be less willing to settle all cases, particularly frivolous ones. Looking solely at reported cases does not allow a researcher to determine how effective a fee shifting regime is in controlling frivolous litigation and settlement. Therefore, we should be wary of making global conclusions from looking at reported cases. Nonetheless, the summary statistics I provide here, in conjunction with Ms. Jiam’s excellent work on post-Octane developments, shed some light on a critical aspect of the patent reform debate.
Here is a 1-hour quiz that I recently gave my patent law students on some of the basics of 101; 102; 103; and 112. Questions:
1. An employee at Freya’s small start-up company has come up with a new smartphone-app that helps cat-lovers meet. Essentially, the app causes the phone to “meow” when another user is nearby; “purr” when a good match is nearby; and “hiss” when an identified cat-hater or non-compatible is nearby. In her patent application, Freya claims:
A mobile device having a memory and a processor and operating as part of a social network, wherein the memory includes a stored program configured to:
cause the mobile device to emit a first sound based upon the proximity of a mobile device associated with a member of the social network;
cause the mobile device to emit a second sound based upon the proximity of a mobile device associated with a member of the social network who has been identified as a match; and
cause the mobile device to emit a third sound based upon the proximity of a mobile device associated with a member of the social network who has been identified as a bad match.
Is Freya’s claim subject-matter-eligible under 35 U.S.C. § 101? (120 words).
2. Regarding back to Freya’s claim above. Provide a concise argument that the yet-unpatented claim fails for lack of definiteness. (60 words).
3. Sometime during the past decade, Thor invented a new metal alloy known as Midguardium that is extremely hard and exhibits boomerang-like properties when thrown. Thor would like to patent a hammer made from the alloy but keep the actual process of making the alloy a trade-secret. May he do this? (50 words).
4. Following your advice above, Thor does fully disclose the process of making the alloy in his patent application (claiming “A hammer comprising a hammer-head made of Midguardium and a handle”). After Thor created his hammer (but before he filed his patent application), Loki independently invents Midguardium and forms it into scepter that he uses publicly in New York City. Loki does not, however, file for patent protection.
Concisely explain how the dates of invention, public use date, and Thor’s filing date may impact whether Loki’s disclosure counts as prior art against Thor’s patent application (250 words).
5. Assuming that Loki’s public-use counts as prior art against Thor’s patent application, can you make an argument that the scepter anticipates the aforementioned hammer claim? (60 words).
6. Still assuming that Loki’s public-use counts as prior art against Thor’s patent application, what can Thor do/argue in order in order to overcome the USPTO’s initial conclusion that the patent claim is obviousness based upon Loki’s use? (describe up to three approaches/arguments). (100 words).
Note: You are allowed to use a statutory reference (both pre and post AIA) and look-up relevant case law.
As usual, Professor John Duffy is able to cast new insight on a well-worn problem. In the context of exhaustion, he enlists noted commercial law scholar Richard Hynes and together they walk through the underlying sources of the doctrine. Their work will likely have an important impact on the Federal Circuit’s upcoming Lexmark decision. – Dennis
In Lexmark International v. Impression Products, the Federal Circuit has now ordered en banc arguments to consider overturning not just one, but two of the court’s most important precedents on patent exhaustion. See en banc notice on Patently-O (linking to the court’s en banc order). Before discussing those two issues, we want to pose a question:
Q: What is the legal basis for the patent exhaustion doctrine?
(A) The doctrine is based on the U.S. Constitution.
(B) The doctrine is based solely on an interpretation of the Patent Act.
(C) The doctrine is pure judge-made law, and much like any other common-law doctrine, it is based on judicial views about good policy.
(D) The doctrine is a hybrid of statutory law and judge-made law—a judicial gloss on the Patent Act created in an era when courts felt comfortable engaging in surgery on statutes to advance judicial views about good policy.
(E) None of the above.
If the answer to this question is crystal clear to you, then you need not read any further. But we are willing to bet that most sophisticated lawyers would answer this question incorrectly, so you really should read on.
* * *
Let’s start with a tried and true strategy for answering multiple choice questions—eliminating implausible answers. First, let’s get rid of answer (E) “None of the above.” That’s got to be wrong, because the answers essentially cover all plausible bases for any legal doctrine in domestic law. We can also eliminate answer (A). No court or commentator has ever argued that the doctrine is constitutionally required.
That leaves three possible options—that the doctrine is (B) statutory interpretation, (C) judge-made law, or (D) some combination of those two. Most modern lawyers and commentators would choose (C) or (D). They would think that the exhaustion doctrine is—wholly or partially—judge-made “common law” that reflects judicial views about good policy. Indeed, just last month, this blog published commentary asserting that the exhaustion doctrine is based on “two policies,” including a supposed policy against allowing patentees a “double recovery” on the sale of their inventions and a supposed policy against “restraints on the alienation of chattels.” Samuel F. Ernst, Of Printer Cartridges and Patent Exhaustion: The En Banc Federal Circuit is Poised to Clarify Quanta.
Professor Ernst’s blog posting is, it is fair to say, the received wisdom among modern commentators, but we think that received wisdom to be quite clearly wrong. Our view is based on three reasons, which are summarized here but set forth in greater detail in our forthcoming article Statutory Domain and the Commercial Law of Intellectual Property (http://ssrn.com/abstract=2599074) (hereinafter Statutory Domain Article). First, in its foundational cases on both copyright and patent exhaustion, the Supreme Court repeatedly and clearly stated that it was engaged solely in statutory interpretation. For example, the Court in Bobbs-Merrill v. Straus—the foundational copyright exhaustion case—stated explicitly that the case presented “purely a question of statutory construction.” 210 U.S. 339, 350 (1908). Similarly, in Motion Picture Patents Company v. Universal Film—an important case on patent exhaustion from the same era—the Court quoted the language of the patent statute granting exclusive rights; stated that it was “interpreting this language of the statute”; and emphasized that it was trying to “determine the meaning of Congress” in writing that language. 243 U.S. 502, 509-10 (1917). Modern commentators have tended either to ignore these portions of the Supreme Court’s opinions or to assert that the Supreme Court was dissembling in those passages. (For examples, see Statutory Domain Article, at 6 n.16.) We think the Court was telling the truth and that the exhaustion doctrine is based purely on statutory interpretation.
A second reason for doubting the received wisdom about exhaustion is that the foundational cases consistently state their holding in terms of the relevant issue being “outside,” “beyond” or “not within” patent law. See, e.g., Motion Picture Patents, 243 U.S. at 509; Bloomer v. McQuewan, 55 U.S. 539, 549 (1852); Boston Store of Chicago v. American Graphophone Co., 246 US 8, 24 (1918). Such statements are inexplicable if patent law itself were concerned with limiting patentees’ ability to impose post-sale encumbrances on personal property. Those statements are, however, completely consistent with the exhaustion doctrine being based on statutory interpretation, for they fit perfectly with the view that exhaustion represents an inferred limit on the “scope” or “domain” of the Patent Act. (For a much more complete discussion of such domain limitations, see Statutory Domain Article at 24-31.) In other words, the underlying basis for the exhaustion doctrine is not substantive policies such as hostility toward restraints on alienation, but rather an absence of substantive policy on the issue within the Patent Act. Such issues are instead governed by a vast body of commercial law—including the law of contracts, security interests, personal property servitudes, antitrust, etc.—that permits all sorts of restraints on alienation, use restriction and encumbrances in some, but not all, circumstances. The exhaustion doctrine insures that IP law does not displace that vast and complex body of law in circumstances where Congress had no intent to do so.
Third and finally, the principal cases on exhaustion also consistently state that the Court is not deciding on the enforceability of any rights that the patentee may have under non-patent law. One classic statement is found in Keeler v. Standard Folding Bed, 157 US 659, 666 (1895), where the Court concluded its analysis: “Whether a patentee may protect himself and his assignees by special contracts brought home to the purchasers is not a question before us, and upon which we express no opinion. It is, however, obvious that such a question would arise as a question of contract, and not as one under the inherent meaning and effect of the patent laws.”
The correct answer to the question above is thus (B)—the exhaustion doctrine is pure statutory interpretation and does not reflect judicial hostility toward restraints on alienation or encumbrances generally.
This approach throws a new light on the questions that the Federal Circuit will address in its en banc decision. One of the en banc questions is whether the court should overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), and here the answer is surely “yes.” The Supreme Court case law establishes a pretty clear bright-line rule that the exclusive rights to make and use in the Patent Act are exhausted upon the first authorized sale or other transfer of ownership. (See Statutory Domain Article at 46-49.) Importantly, however, that bright-line rule is based on statutory considerations—Congress had no intention to displace the vast and complex law governing property encumbrances and other aspects of general commercial law. The rule is not based on a view that the Patent Act explicitly or implicitly has any hostility towards post-sale restraints on the alienation or use of chattel property. Patentees are therefore free to impose whatever contractual conditions they and their customers agree upon—subject, of course, to any limitations on lawful contracting imposed by state unconscionability doctrine, by federal antitrust doctrines, or by other law.
If patentees want more than mere contract rights to protect those conditions—if they want property rights that follow or “run with” the chattel—then they can encumber the chattel with a security interest. Indeed, for nearly a century, state commercial law has treated any so-called “conditional sale” as a sale subject to a security interest. The Federal Circuit’s Mallinckrodt decision, which allowed conditional sales to be enforced through patent law without any of the nuanced limitations imposed by modern commercial law, appears to be quaintly oblivious to nearly a century’s worth of change—a throw-back to commercial law generally abandoned in this country shortly after the turn of the last century. For the relevant history, see Statutory Domain Article at 53-54 nn. 226-30.
The other en banc question is whether the Federal Circuit should overrule Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), which held that U.S. patent rights are not exhausted by foreign sales. The Supreme Court’s recent decision in Kirtsaeng v. Wiley, 133 S. Ct. 1351 (2013), ruled that foreign sales do trigger copyright exhaustion, and so the Federal Circuit has quite understandably framed the issue in terms of whether foreign sales trigger patent exhaustion. A statutory approach to the exhaustion question would, however, focus not only on the fact of a foreign sale, but also on the structure of the Patent Act’s distinct right to control importation.
In patent law, the right to control importation is a freestanding right, distinct from the exclusive right to control sales. In copyright law, that’s not so. A copyright owner’s exclusive right to import is defined in the statute to be part of the owner’s exclusive right to distribute under § 106(3) of the Copyright Act. The relevant statutory language states that unauthorized importation is “an infringement of the exclusive right to distribute … under section 106.” The statutory definition of the importation right as being within § 106(3)’s distribution rights is crucial because copyright’s codified exhaustion rule specifically points to the distribution right of §106 as the right that is to be exhausted by transfers of ownership. See 17 U.S.C. § 109(a).
How important is this difference—that the right to import is a freestanding right in patent law but not in copyright? Very. The first case cited in Kirtsaeng is Quality King Distributors v. L’anza Research, 523 U.S. 135 (1998), and as Justice Kagan made clear in her Kirtsaeng concurrence, Quality King was essential to gaining a majority of the Justices. Yet the very first step in the Court’s reasoning in Quality King was to emphasize that the Copyright Act “does not categorically prohibit the unauthorized importation [but instead] provides that such importation is an infringement of the exclusive right to distribute copies ‘under section 106.’” From that starting point—the Copyright Act’s blending together of the right to import as part of the distribution right—Quality King was able to reason that the importation right must also be exhausted whenever the right to distribute is also exhausted, and even the copyright owner in that case could not argue that its sales did not exhaust their distribution right.
Patent law’s distinct and separate right to control importation should be controlled not by Kirtsaeng and Quality King, but by the reasoning in Buck v. Jewell-LaSalle Realty Co., 283 U.S. 191 (1931), which held that the copyright’s separate exclusive right to control public performances is generally not subject to exhaustion. If exhaustion doctrine is a matter of statutory interpretation (as the Supreme Court has repeatedly stated), then a proper analysis of the doctrine requires attention to the specificity of rights in each statute. The pending en banc Federal Circuit case is superficially similar as a policy matter to Kirtsaeng and Quality King (because the cases all involve international aspects of exhaustion), but in terms of statutory structure, the en banc case is more like Buck (because both cases concern a right separate from any right traditionally subject to exhaustion).
There are, of course, additional arguments on this point. We cover many of these in our much longer article on the subject, and perhaps we will cover more in an amicus brief. Our overarching point—and our message to other brief writers in the upcoming en banc Federal Circuit case—is that, before jumping into a policy analysis of the pro’s and con’s of various exhaustion rules, parties and amici first address whether the Federal Circuit should be engaged in pure judicial policymaking or whether, as Supreme Court precedent suggests, the court should be determining the correct interpretation of the Patent Act.
