Tag Archives: obviousness

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

Halo, Civil Procedure, and Defending On-going Infringement Suits

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I was listening to conversation about Halo, the decision of the Supreme Court to make it easier to establish willful infringement.  If the case is “egregious” and not “typical” infringement, enhanced damages are now available.  Further, the key time period is the time of moving forward with what turned out to be infringement of a valid patent, not the time of trial.

Of course, the obvious lesson going forward is that it will be more likely for accused infringers to rely upon an opinion of counsel indicating lack of infringement or invalidity (or some other way to avoid liability, like 101 or unenforceability like inequitable conduct or prosecution laches).  No news flash there.  And, of course, the fact that the timing of the opinion — earlier the better — means that there are likely going to be more opinions generated.

So, looking forward:  there will be more opinions used more often, you would think.

What I think is interesting are pending cases where a decision has already been made not to rely upon an opinion of counsel.

There are, no doubt, many pending cases where it is too late because of a scheduling order to disclose an opinion of counsel previously obtained.  The battle there will be over whether there is good cause to modify the scheduling order.  Lawyers in the position of needing to make that modification should do so quickly. I can imagine arguments cutting both ways in a particular case.  But competent lawyers in need of buttressing a defense against willfulness would get on that analysis, and soon.

What if, in contrast, a lawyer had advised a client– based upon the pre-Halo standard — not to get a formal opinion, with the idea being that the defendant would rely upon litigation defenses that were basically expressed to the client somewhat informally at the time of infringement.  Can the defendant now get into evidence the fact that those litigation defenses were communicated originally informally?  Does this implicate the need to modify the scheduling order or comply with some other local rule about waiver of privilege for opinions?

Finally, lawyers should consider cases where clients may pre-Halo have not needed an opinion but now may want to have one.  That advice needs to be given soon!

There are probably other fact patterns, but those jumped out at me sitting and listening today.  Thoughts?

Finally, and on a related note:   The Supreme Court’s statement that it’s the time of infringement that matters and not later is really unworkable and flawed.  A defendant, for example, who finds another piece of prior art later, closer to trial, surely can rely upon that evidence (and/or opinion analyzing it) as (a) confirming the strength of an earlier opinion or  (b) providing evidence that, from that time forward, its infringement was not “egregious”?

Will the Walls Come Tumbling Down: Jericho v. Axiomatics at the Supreme Court

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In a new petition for writ of certiorari, Jericho Systems has asked the Supreme Court to review its abstract idea test:

Whether, under this Court’s precedent in Alice Corp. Party Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014), and Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012), a patent may be invalidated as an “abstract idea” under 35 U.S.C. § 101 when it claims a specific implementation and does not preempt other uses of the abstract idea.

Jericho Systems Corp v. Axiomatics – Petition for Certiorari.

The district court ended the case with a judgment on the pleadings – finding that the asserted claims of Jericho’s Patent No. 8,560,836 lacked eligibility under Alice and Mayo (focusing on claim 1 as axiomatic).

Using the ‘gist analysis’, the district court found that:

[T]he gist of the claim involves a user entering a request for access, looking up the rule for access, determining what information is needed to apply the rule, obtaining that information, and then applying the information to the rule to make a decision.

This is an abstract idea. The abstract idea being that people who meet certain requirements are allowed to do certain things. This is like Axiomatic’s example of making a determination if somebody is old enough to buy an R rated movie ticket.

Thus, finding that the claim encompasses an abstract idea, the district court moved to Step 2 of the Alice/Mayo analysis – and again sided with the defendant:

As al ready stated, [the claimed invention simply] uses standard computing processes to implement an idea unrelated to computer technology. It does not change [sic] way a computer functions or the way that the internet operates.

On appeal, the Federal Circuit affirmed in a R.36 judgment without opinion.  On this point, the petition cites Jason Rantanen’s recent post indicating that around 50% of Federal Circuit decisions are being resolved without opinion. Jason Rantanen, Data on Federal Circuit Appeals and Decisions, PATENTLY-O (June 2, 2016).

A grant of certiorari in this case would serve as a salutary reminder to the Federal Circuit about the appropriate use of one-word affirmances—which currently resolve over 50 percent of that court’s cases. Rantanen, supra (showing that the percentage of Rule 36 opinions in appeals from district courts has increased from 21 percent to 43 percent in less than a decade). If the Federal Circuit is content to allow district court opinions to effectively substitute for its own opinions at such a high rate, that practice should not be permitted to “cert proof ” issues that are otherwise cleanly presented and worthy of this Court’s review. Cf. Philip P. Mann, When the going gets tough . . . Rule 36!, IP Litigation Blog (Jan. 14, 2016) (arguing that the Federal Circuit relies on summary affirmance under Rule 36 to “sidestep difficult issues on appeal and simply affirm”).

One issue that the district court (and obviously the Federal Circuit) failed to address was that of preemption – what is the relevance of the fact that substantial, practical, an and non-infringing applications of the given abstract idea are available and not covered by the patent.  Petitioner argues that issue is critical to the analysis.  “[T]he lower courts regularly decline any discussion of preemption in favor of rote analysis of patent language at so high a level of generality that the claim language is rendered all but meaningless. This leads to the untenable result that patents—such as the one here—that do not preempt other uses of the alleged “abstract idea” at issue are nevertheless held to violate Alice.”

 

 

Digital Trademark and Design Patent Infringement

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Guest post by Lucas S. Osborn, Associate Professor of Law at Campbell University School of Law. He will be visiting at Denver University School of Law for 2016-17.

Digital technology continues its collision with intellectual property law, this time in BMW’s lawsuit against the online virtual modeling company TurboSquid. TurboSquid sells digital 3D models of various items for use by game developers, architects, visual effects studios, etc.

This case is paradigmatic of a project Mark McKenna and I are working on, which analyzes trademarks in the context of digital goods. BMW complains that TurboSquid’s “marketing of 3-D virtual models” of BMW vehicles infringes BMW’s trademarks, trade dress, and design patents. Specifically, it complains that TurboSquid “markets and tags BMW-trademarked 3-D virtual models of BMW vehicles as suitable for games.”

Interestingly, although some of BMW’s registrations cover “miniature toy vehicles,” “interactive game programs,” and “scale model vehicles,” none of the registrations covers virtual models of vehicles. BMW also alleges that it “licenses its trademarks and patented designs for use in 3-D virtual models for computer games.”

BMW’s claims of infringement raise conceptual difficulties. Does selling a virtual object directly infringe a trademark or design patent that contemplates, or is in fact limited to, a physical good?

In thinking about trademark infringement, the core analysis focuses on whether the digital file is a good about which there is confusion as to source, sponsorship, or the like.  Confusion might arise from at least three mechanisms. First, TurboSquid might create a website environment that looks as if it is a BMW-sanctioned website, such as by using a domain name like BMW.net or by designing the webpage to suggest that it is affiliated with BMW. The TurboSquid website does not do this.

Second, TurboSquid might cause confusion through the external labels attached to each file. If the file name/description read, “BMW authorized model of BMW X3,”  TurboSquid would falsely suggest an affiliation or source. But its external file labels read simply, “BMW X3” and the like. BMW will doubtless argue that this external file labeling provides an indication of source or affiliation, but is this so? Arguably the external description is nominative or descriptive because it merely describes what the file is, i.e., a model of a BMW car. Of course, TurboSquid could change all the external file descriptions to eliminate the potential confusion (i.e., “unauthorized model of BMW X3”), but courts should balance the burden on TurboSquid and the effects on user search costs against any evidence of the extent of actual or potential confusion.

Deciding whether the external file description creates confusion or instead is nominative bleeds into the third potential argument for confusion, which is that the content of the digital file itself causes the confusion. That is, BMW will argue that since the content of the digital file displays a BMW logo on the car, the purchaser will be confused as to source or sponsorship. The Supreme Court, however, seemingly foreclosed this argument in Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003). Dastar directs that a court should not use the content of the digital file to inform the confusion analysis.

Dastar copied footage from Fox’s Crusade in Europe television series and reused portions of that footage in its own videos without attribution to Fox. Id. at 26-27. Fox alleged Dastar committed reverse passing off in violation of § 43(a) of the Lanham Act by representing Fox’s content as its own. Id. at 27. The Supreme Court rejected Dastar’s claim, holding that “origin of goods” refers only to the “producer of the tangible goods that are offered for sale, and not to the author of any idea, concept, or communication embodied in those goods. Id. at 37.

The Court was concerned that allowing claims for reverse passing off in the context of copyrightable works “would create a species of mutant copyright law” that would conflict with the Federal copyright regime. Id. at 34. Dastar’s concern about conflicts between copyright and trademark law channels courts away from finding confusion based on the content of expressive works. See generally Mark P. McKenna, Dastar’s Next Stand, 19 J. Intell. Prop. L. 357 (2012). Thus, the content of TurboSquid’s files cannot form the basis of the confusion. The content of the files is protected, if at all, by some other form of intellectual property law, such as copyright.

Even assuming there is no point-of-sale confusion with the purchase of the digital file, TurboSquid cannot drive away freely just yet; it must contend with post-sale confusion. Post-sale confusion protects trademark owners when there is no point-of-sale confusion because the purchaser of the good knows it is fake. Courts have found that confusion can arise after a sale when the individual wears the infringing good in public, causing observers to see the branded item and become confused about whether it is genuine or not.

TurboSquid’s purchasers obviously will not wear the digital files in public. Nevertheless, they will use the files in downstream productions such as video games, and thus BMW also alleged there will be post-sale confusion. However, use of the models in expressive works like games and other video productions will not likely lead to an actionable trademark claim because the First Amendment protections provided to expressive works would likely trump any trademark claim.  See, e.g., Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989); E.S.S. Entm’t 2000, Inc. v. Rock Star Videos, Inc., 547 F.3d 1095 (9th Cir. 2008). Moreover, once again Dastar suggests that any potential confusion generated from the content of the video game or other expressive work is irrelevant under the Lanham Act.

Trademark law arose in a world of physical goods to protect manufacturers and prevent consumer confusion as to who manufactured the goods. In a digital world, manufacturing will increasingly be done, if at all, by individuals with 3D printers. Other digital models, such as TurboSquid’s BMW models, will never exist as physical objects.  Where consumers care about the quality of a digital file, trademark law can protect consumers from being deceived by indicia external to the file. But if purchasers are not confused about the source of the digital file based on external indicia, courts should channel any other potential claims (if any) to other areas of intellectual property law.

Supreme Court Patent Update: 271(e) Safe Harbor

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by Dennis Crouch

Look for opinions in Halo/Stryker and Cuozzo by the end June 2016.

Post Grant Admin: While we await Cuozzo, a set of follow-on cases continue to pile-up.  My speculation is that the Supreme Court will delay any decision in those cases until it finalizes the outcome of Cuozzo. With a host of new friend-of-the-court briefs and interesting constitutional questions, MCM v. HP is perhaps best positioned for certiorari.  Additional pending cases include Versata v. SAP (scope of CBM review); Cooper v. Lee (whether IPRs violate Separation of Powers); Click-to-Call Tech, LP v. Oracle Corp., (Same questions as Cuozzo and now-dismissed Achates v. Apple); GEA Process Engineering, Inc. v. Steuben Foods, Inc. (Flip-side of Cuozzo: Appeal when PTAB exceeds its authority by terminating an instituted IPR proceeding?); Interval Licensing LLC v. Lee (Same as Cuozzo); and Stephenson v. Game Show Network, LLC (Same as Cuozzo)

Design Patent Damages: Samsung has filed its opening merits briefs in the design patent damages case against Apple.  Design patent infringement leads to profit disgorgment, but the question is what profits? [More from Patently-O].

Versus Cisco: There are a couple of newly filed petitions. Interestingly, both filed by Michael Heim’s firm with Miranda Jones on both briefs representing plaintiff-petitioners.  In both cases Cisco is respondent.

  • CSIRO v. CISCO (fact-law divide in proving infringement damages under 35 U.S.C. § 284).
  • COMMIL v. CISCO (appellate disregard of factual evidence).

Of course, Commil was the subject to a 2015 Supreme Court decision that rejected the Federal Circuit’s original opinion favoring Cisco.  On remand, the Federal Circuit completely changed its decision but again sided with Cisco and rejected the jury verdict — holding “that substantial evidence does not support the jury’s finding that Cisco’s devices, when used, perform the “running” step of the asserted claims.”

Safe Harbor for Federal Submissions: In the newly filed Amphastar Pharma case, the Supreme Court has already requested a response from Momenta. The question presented focuses on the safe-harbor provision of 35 U.S.C. § 271(e)(1) and asks: Whether the safe harbor protects a generic drug manufacturer’s bioequivalence testing that is performed only as a condition of maintaining FDA approval and is documented in records that must be submitted to the FDA upon request.  The federal circuit held that Amphastar’s activity in this case was not protected by the safe harbor because it involved information “routinely reported” to the FDA post-approval. [Amphastar Petition]

The big list:

(more…)

Supreme Court denies Certiorari in Obviousness Case

Patent,

The Supreme Court has denied certiorari in Cubist Pharma v. Hospira.  In the case, the patentee had challenged the Federal Circuit’s increasingly strong limits on the use of secondary indicia of non-obviousness.  Bill Lee’s well written petition argued that the Federal Circuit’s approach conflicted with the flexible doctrine outlined in 35 U.S.C. 103 and explained by Deere and KSR.  [CubistPetition].

Question Presented:

In Graham v. John Deere Co. of Kansas City, 383 U.S. 1 (1966), this Court recognized the relevance of “objective indicia” of nonobviousness (also known as “secondary considerations”) – including the long-felt need for the patented invention, the failure of others to arrive at the invention, and the invention’s subsequent commercial success – in determining whether a patent’s claims were obvious to a person of ordinary skill in the art. In this case, the district court created, and the Federal Circuit affirmed, two categorical limitations on the consideration of objective indicia of nonobviousness that exist nowhere in the Patent Act or this Court’s jurisprudence. The questions presented are:

1. Whether a court may categorically disregard objective indicia of a patent’s nonobviousness merely because the considerations apply to one commercial embodiment of a patented invention, rather than all embodiments.

2. Whether a court may categorically disregard objective evidence of a long-felt need for a patented invention merely because the need is not expressly recited in the patent claims.

In its successful opposition, Hospira explained that both the district court weighed the secondary indicia of non-obviousness and found them “not sufficiently strong to overcome the showing of obviousness arising from an analysis of the prior art.”  To Hospira, the petition was basically a request that the Supreme Court conduct its own factual analysis.

I had previously written that “[a]part from the AIA Trial challenges, the most potential life changing case on the docket for patent attorneys is Cubist v. Hospira that focuses on the role of secondary indicia of non-obviousness. As with most Supreme Court patent cases over the past decade, Cubist argues that the Federal Circuit’s rules are too restrictive and should instead follow a looser factor-based analysis when considering the issue.”

In today’s action, the court also denied certiorari in the subject matter eligibility case of Vehicle Intelligence v. Mercedes-Benz.  Although scheduled for conference, the court took no action in the Cuozzo follow-on case of Stephenson v. Game Show Network, LLC, et al. — GVR is likely following release of the Cuozzo decision.

 

In re Aqua Products

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In re Aqua Products (Fed. Cir. 2016)

In a short opinion, the Federal Circuit has reaffirmed the USPTO’s tightly restrictive approach to amendment practice in Inter Partes Review (IPR) proceedings.  Under the rules, a patentee has one opportunity to propose amendments or substitute claims. However, the motion to amend will only be granted if the patentee also demonstrates in the motion that the proposed amendments would make the claims patentable over the known prior art. See Idle Free Sys., Inc. v. Bergstrom, Inc., IPR2012–00027, 2013 WL 5947697 (PTAB June 11, 2013).

That approach has been upheld in several Federal Circuit cases, including Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292, 1307−08 (Fed. Cir. 2015).  As such, the panel here held that its power was restricted:

Given our precedent, this panel cannot revisit the question of whether the Board may require the patentee to demonstrate the patentability of substitute claims over the art of record.

As such, the Federal Circuit found no abuse of discretion in thte PTAB’s denial of amendment.

We conclude that the Board did not abuse its discretion by denying Aqua’s motion to amend. The Board rebutted Aqua’s sole argument that the vector limitation made the substitute claims patentable over the combination of Henkin and Myers. Because Aqua’s arguments with respect to that combination rested exclusively on the vector limitation, the Board had no obligation to address the other amendments or to consider the issue of objective indicia of non-obviousness, which Aqua did not raise in connection with the Henkin/Myers combination. We affirm.

The case is being handled by Finnegan’s top appellate lawyer James Barney and is now set-up for en banc review.

 

Pending Supreme Court Patent Cases 2016 (May 18 Update)

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by Dennis Crouch

It is now time to begin looking for an opinion in the Halo/Stryker regarding whether the Federal Circuit’s test for willful infringement is too rigid. Those cases were argued in February 2016.  We can also expect a decision in Cuozzo prior to the end June 2016.

Supplying Components Abroad: The Solicitor General has finally filed its brief in Life Tech v. Promega. The brief supports certiorari — but only for one of the two questions presented: namely,

whether a supplier can be held liable for providing ‘all or a substantial portion of the components of a patented invention’ from the United States when the supplier ships for combination abroad only a single commodity component of a multi-component invention

The patent in the case involves a DNA amplification kit used for personal identification.  And, although the allegedly infringing kids were made in the UK, one commodity-component (the Taq polymerase) was supplied from the U.S.  Focusing on the language of the statute, the Solicitor Generals argues that liability for export of a single component of a multi-component invention “is contrary to Section 271(f)’s text and structure, and it is inconsistent with the presumption against extraterritoriality.”  Separately, the brief argues that the Federal Circuit was correct in its holding that a party can actively induce itself – thus 271(f)(1) inducement does not require a third party to be induced. [USPromega CVSG Petition].

Post Grant Admin: I previously discussed GEA Process Engineering. That case involves the Flip-side of Cuozzo and asks whether an appeal can follow when the PTAB exceeds its authority by terminating an already instituted IPR proceeding?  The respondent (Steuben Foods) had previously waived its right to respond, but the Supreme Court has now requested a response.  That move makes certiorari more likely, but the result will depend upon the outcome in Cuozzo.

Attorney Fees: Newegg Inc. v. MacroSolve, Inc., No. 15-1369.  Professor Mark Lemley’s brief on behalf of Newegg asks that the attorney-fee framework of Octane Fitness actually be implemented. [NewEggPetition].  Although Octane Fitness gives district courts discretion in determining whether to award fees, Newegg argues that the E.D. Texas court improperly applied “a special, heightened burden of proof.”  The Supreme Court is currently considering the Kirtsaeng attorney fee case for copyright law. That decision may shed some light on the patent cases as well.

A new petition in Automotive Body Parts, No. 15-1314,  focuses on a question of civil procedure regarding a clerk’s transfer of a design patent case out of E.D.Tx in a manner that violated the local rules.  Here, the clerk transferred the case immediately after the judge ordered transfer even though the local rules call for a 21 day delay.  The case is rising through a petition for mandamus, but my view is that the petition fails to show why transfer is so harmful (except for the reality that patent plaintiffs are usually given more respect in E.D.Tx.).

The court was scheduled to discuss Cooper v. Lee at its May 12 conference. No action was taken following that conference – lightly suggesting to me that the court is holding judgment until it resolves Cuozzo.  Apart from the AIA Trial challenges, most potential life changing case on the docket for patent attorneys is Cubist v. Hospira that focuses on the role of secondary indicia of non-obviousness. As with most Supreme Court patent cases over the past decade, Cubist argues that the Federal Circuit’s rules are too restrictive and should instead follow a looser factor-based analysis when considering the issue.  In the next couple of weeks, the court will consider the Cubist petition as well as that of Dow v. NOVA  (appellate review standard); Vehicle Intelligence (abstract idea); and WesternGeco (damages calculation for 271(f) infringement by exporting components).

Secret Offers to Sell: The Federal Circuit is not slowing down its patent jurisprudence in any way – except for the rash of R.36 affirmances. An important case is Helsinn that focuses on whether the AIA abrogated the rule in Metallizing Engineering.

The big list: (more…)

A Comparison of the EU Trade Secrets Directive and the US Defend Trade Secrets Act

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Guest post by Mark Ridgway and Taly Dvorkis, Allen & Overy, LLP, London. 

It has been a busy year for law makers seeking better protection for trade secrets.  Much coverage has been given to the Defend Trade Secrets Act (DTSA), which provides a federal private right of action for trade secret protection.  President Obama signed the DTSA on May 11, and the law takes effect immediately.  Patently-O has covered the DTSA legislation and legislative process in several posts here.

On May 17 the European Council is expected to formally adopt the Trade Secrets Directive, requiring all Member States to provide certain minimum standards for trade secret protection.  Member States will have two years to implement the provisions of the Directive into their own national laws.

How do the US and EU positions on trade secrets compare?  Below are the key similarities and differences between the DTSA and the European Trade Secrets Directive.

What has led to these Legislative Changes?

The desire for harmonization of trade secret protection has spurred these movements both in the US and the EU.  According to the European Commission, the lack of a uniform European approach has resulted in a “fragmentation of the internal market” and “weakening of the overall deterrent effect of the relevant rules.”  The EU Directive seeks to harmonize the laws of the various member states by providing a consistent definition of what qualifies as a “trade secret.”  Additionally, the Directive addresses the remedies available to trade secret holders and the measures courts can use to prevent the disclosure of trade secrets in legal proceedings.

In the U.S., the DTSA arose from a desire to federalize trade secret protection, which had thus far been dominated by state law (although most states had previously adopted the Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission in 1979).  While certain federal protection previously existed in the form of the Economic Espionage Act of 1996, the DTSA provides an individual right sue in federal court, thus obviating the need to bring private actions in various state courts where procedures differ greatly.

How is “Trade Secret” Defined?

Under both the EU Trade Secrets Directive and the DTSA, to qualify as a trade secret the information at issue must be kept confidential and must derive economic value from being kept confidential.

Article 2 of the Trade Secrets Directive defines a trade secret as information which meets all of the following requirements:

  1. is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
  2. has commercial value because it is secret;
  3. has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

This definition tracks the definition for “undisclosed information” provided in article 39(2) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), which requires all signatories to afford some level of protection for confidential information.

The DTSA definition of “trade secret”, meanwhile, consists of “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if-

  1. the owner thereof has taken reasonable measures to keep such information secret; and
  2. the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.”

As seen, whether in Europe or in the U.S., to be considered a trade secret the information must be kept confidential and derive an economic value from the fact that it is confidential.  Both the EU Directive and the DTSA are aimed at protecting commercial confidential information.  What is not required is that the information be entirely novel, a distinction from other forms of intellectual property.  Further, the EU Directive makes explicit that combinations of otherwise publicly available information can be protected provided they are not readily accessible or generally known.

Confidentiality in Litigation

The EU Directive and DTSA have similar provisions for the preservation of confidentiality during legal proceedings for trade secret misappropriation.  In the U.S. the ability to file confidential documents under seal to maintain secrecy has long been an option open to litigants.  The DTSA specifically sets out that a court may not authorize or direct the disclosure of information unless the owner is first given the opportunity to file a submission under seal describing the interest in keeping the information confidential.  The DTSA therefore extends the option of filing briefs under seal to include disclosure at trial and in court opinions, and also allows non-parties to request that certain information be kept confidential.

The EU Directive similarly addresses preserving confidentiality during legal proceedings.  The Directive sets out that an applicant must first supply a “duly reasoned” application as to why certain information should be kept confidential.  The maintenance of secrecy is therefore not the default position, and requires court approval.  It remains to be seen how the national laws of the Member States will implement the Directive and how courts will interpret what qualifies as a “duly reasoned” application.  In some countries this will require minimum changes (for instance, in the U.K. no change will be required), while in others it will be a more significant cultural and legal shift.

Protection for Whistle-blowers

The protections for whistle-blowers and press freedom have been a significant part of the public debate concerning the EU Directive.  Opponents of the Directive expressed concern that, as a result of the Directive, journalists and whistle-blowers could be criminalized for publishing information that companies consider secret.  However, the EU Directive specifically sets out that it should not prevent whistle-blowers and those publishing trade secrets to serve the public interest from doing so.  Moreover, there are no criminal provisions in the Directive.  The Directive states:

The measures, procedures and remedies provided for in this Directive should not restrict whistleblowing activity. Therefore, the protection of trade secrets should not extend to cases in which disclosure of a trade secret serves the public interest, insofar as directly relevant misconduct, wrongdoing or illegal activity is revealed. This should not be seen as preventing the competent judicial authorities from allowing an exception to the application of measures, procedures and remedies in a case where the respondent had every reason to believe in good faith that his or her conduct satisfied the appropriate criteria set out in this Directive.

This exception for whistle-blower activity is much broader than that provided by the DTSA.  The DTSA provides immunity from liability for disclosing a trade secret only when the disclosure is confidential and made to the government or in a court filing (under seal).  There is no specified exception for journalists or other public good-doers, although arguably the First Amendment provides protection.  The DTSA does include a provision by which employers must notify their employees of the protection available under the new law, a notice requirement which is not present in the EU Directive.  Employee is defined broadly by the DTSA to include those working as contractors or consultants.

Remedies

The most controversial part of the DTSA has been the introduction of an ex parte seizure order as a federal measure.  Under the DTSA, a court can issue an order for the seizure of property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”  Additional remedies include injunctions and damages, where an injunction is deemed most appropriate for any continuing harm.  For previous harm, a court may award damages for actual loss or any unjust enrichment.  A court can also choose to award damages measured by a reasonable royalty for the unauthorized use of the trade secret.  As with other protection of intellectual property, violation of the DTSA done wilfully or maliciously may result in a court awarding enhanced damages as well as attorneys’ fees.

The EU Directive similarly allows for injunctions, damages measured as lost profits, account of profits, or a reasonable royalty for the trade secret use (paid as a lump sum).  The Directive also allows for provisional and precautionary measures, and says that Member States can provide for more far reaching protection, so long as the safeguards in the Directive are met.

The EU Directive does not call for enhanced damages for malicious activity, but rather approaches damages from the opposite viewpoint, specifying that Member States may limit the liability for damages of employees for misappropriating trade secrets if the employee acted without intent.

Employee Mobility and Non-Compete Agreements

In the sensitive area of employee mobility and competition, the Directive specifically states that it shall not offer any ground for restricting the mobility of employees.  However, the Directive does not include any requirement to harmonize the laws in relation to post-termination restrictions or non-compete clauses, meaning that national laws will continue to apply.

The DTSA addresses employee mobility in requiring that an injunction against a former employee be “based on evidence of threatened misappropriation” of trade secret information and not simply on the fact that the person may know certain information.  The DTSA also states that any injunction preventing or limiting future employment cannot conflict with applicable state laws protecting employee mobility.  Shortly before the DTSA took effect, the White House released a report that criticizes non-compete agreements and state laws that offer too much protection for such agreements.  While no immediate action is expected following the report, it is offered as a discussion point in considering what is necessary in non-compete agreements and how states should treat them.

Limitation Period

In the U.S., the limitation period for a company to bring an action under the DTSA is three years after the date on which the misappropriation is discovered or could have been discovered with reasonable diligence.  The EU Directive gives the Member States the freedom to set the limitation period for their respective national laws, but sets the maximum period at six years (albeit Member States have discretion as to when the clock starts to run).

Conclusion

It is obviously desirable that trade secret protection be consistent across borders, whether state or national, as protection is only as strong as its weakest link.  In the U.S., the DTSA specifically sets out a requirement that the Attorney General provide a report on the threats of trade secret theft outside the U.S. and the protection of trade secrets afforded by U.S. trading partners.  How the EU Directive and DTSA play out as Member States implement the Directive and courts interpret the laws will help shape trade secret protection around the globe.

By The Numbers: Is the PTO Underreporting the Rate They Institute IPRs and CBMs?

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Guest post by Michael E. Sander, Founder and CEO of Docket Alarm, Inc.

The Patent Office routinely publishes statistics on IPR and CBM proceedings, but their methodology suggests that the petition institution rate is lower than it really is.

Inter partes review and covered business method review have undoubtedly changed patent litigation. No patent assertion campaign or defense strategy is complete without considering the implications of these AIA procedures.

The Patent Office publishes statistics on these new AIA trials roughly once a month. Practitioners can easily see how many petitions are filed in various technology areas, as well as how often claims survive or are canceled.  They say that a picture is worth a thousand words, and this visual and easy-to-read resource gives stakeholders a quick sense of how the new tribunal is affecting patent law.

But as Mark Twain once said, “[f]acts are stubborn things, but statistics are more pliable.” In publishing these statistics, the PTO has made choices in methodology that may underreport the institution rate of IPR and CBM proceedings.

Background on AIA Trial Procedure

For those unfamiliar with PTAB trial practice, a PTAB proceeding starts with a petitioner filing a petition for inter partes review or covered business method review.[1] See Figure 1 (below). The petition lays out reasons why a claim or set of claims is invalid.

About six months[2] after a petition is filed, the PTAB issues an Institution Decision. See 35 U.S.C. 314(b). In the Institution Decision, the PTAB decides whether or not “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.” See 35 U.S.C. 314(a).  If the PTAB decides that the petitioner is unlikely to prevail, the proceeding is terminated, and the case is disposed of.

If the PTAB determines that the petitioner may prevail, a trial is instituted.  During this stage, evidence and testimony is presented, along with additional briefing.  Within one year of institution, the PTAB issues a Final Written Decision, in which they decide whether or not claims should be canceled.  See 35 U.S.C. 316(a)(11).

Fig1PTAB

Figure 1: IPR and CBM Process

Statistics on AIA Trial Proceedings

The PTO has been regularly publishing statistics on a variety of aspects of AIA proceedings. One important piece of information to patent owners and petitioners alike is the average rate in which the PTAB institutes a petition for IPR or CBM, i.e., the Institution Rate. Fortunately, the Patent Office publishes exactly these figures.

Depicted in Figure 2 below is one page from the PTO’s published statistics. Their statistics depict a snapshot of every IPR petition filed as of February 29, 2016.  The PTO depicts the number of IPR petitions that have proceeded to each stage, including whether a proceeding was instituted or not, whether the case settled, and whether the instituted proceeding resulted in all instituted claims being canceled, some claims canceled, or no claims canceled.

Fig2PTAB

Figure 2: PTAB Statistics
http://www.uspto.gov/sites/default/files/documents/2016-2-29%20PTAB.pdf at 9

This figure is deceptively simple. The figure states that out of 2731 total petitions, 1372 trials were not instituted while 1359 petitions were instituted.  Of the non-instituted cases, 540 were terminated due to non-substantive reasons.

Therefore, of the institution decisions decided on the merits, the PTAB’s reported Petition Institution rate is 62%.[3]

When I first studied the PTO’s chart and saw that the Petition Institution rate was 62%, I was puzzled. Docket Alarm, compiles statistics like these and more, and found that petitions were instituted in 71% percent of proceedings. See Figure 3. This nearly 10-point difference was too large to be explained.

As it turns out, deriving the overall institution rate from the chart provided by the PTO can be misleading.

Fig3PTAB

Figure 3: Docket Alarm Statistics
https://www.docketalarm.com/analytics/PTAB/#q=&v=overview

 

The PTO’s Statistics Methodology

The understand why the PTO’s reported Institution Rate is lower than expected, one must understand the PTO’s methodology, and the implications of the dataset that they used.  Right at the top of the page, their figure states that only proceedings “Completed To Date” are considered in their statistics. See Figure 2.  This seemingly benign statement has profound implications on the result: If a trial is not instituted, it is included in their statistics immediately when the institution decision is published.  However, if a trial is instituted, the decision will not be included in the dataset until the case is disposed, up to a year later.  Petition denials are necessarily included at an earlier point in time than the decisions to institute.  This methodology skews the reported institution rate downward, suggesting that the PTAB is instituting far fewer trials than they are.

The effect is significant, consider the following hypothetical.  Suppose PTAB judges flip a coin to determine whether to institute: 50% of the time they decide to institute, and 50% of the time they decide to not institute.  Further suppose in our hypo that on January 1, 2013, 100 petitions are filed, and no further petitions are filed for the rest of the year.[4]

Given this hypothetical, one would assume that the reported Institution Rate should be 50%, but let’s see how it plays out.

After the first 6 months, on July 1, 2013, the PTAB flips a hundred coins, and 50 petitions are instituted, while 50 are denied. The proceedings that are not instituted are terminated. The instituted proceedings continue onwards.  Using the PTO’s methodology, only the denied petitions are included in the statistics.

Using the PTO’s methodology in the hypothetical above, the institution rate would be 0%. The 50 petitions that were denied are included in their statistics, while the 50 instituted decisions are not because they are not completed.

Taking the hypothetical to the following year, on Jan. 1, 2014, 100 additional petitions are filed.  Again, on July 1, 2014, 50 petitions are instituted and 50 denied. In addition, the 50 instituted petitions that were filed on Jan. 1, 2013, come to completion.  Using the PTO’s methodology, the institution rate calculated in the second year would be 25%, closer to reality but still a far cry from the “real” institution rate of 50%.

One can continue this hypothetical forward, and while the gap between the reported rate and reality narrows, after five years, the difference between what is reported and the expected institution rate is still 10%.  See Table 1 (below).

Table 1: Calculating the Institution Rate Using PTO’s Methodology on Hypothetical Data
Table1

Obviously, Administrative Patent Judges do not flip a coin to decide whether to institute, more than 100 petitions are filed in a year, and petitions are not all filed on the first of the year.  However, the basic point holds true: if one only includes “completed” cases in their statistics, non-instituted cases will be over-counted, and instituted cases will be proportionally under-counted.

Conclusion

Because the PTO clearly states at the top of the chart that they are only including completed cases, technically, their statistics are not incorrect. However, as shown above, their methodology can lead one who is not bringing a critical eye to the statistics to believe that the Institution Rate is 10% lower than it actually is. Mark Twain would feel right at home.

= = = = =

[1] There are several other types of AIA trial proceedings, such as Post Grant Review and Derivation proceedings, but they are not nearly as popular as IPRs and CBMs.

[2] Six months is typical, but it can be earlier at the discretion of the court, or later if the petition is not quickly accorded a filing date.

[3] This value is calculated as:

Total Trials Instituted / (Total Petitions – Petitions Non-Substantively Terminated)
= 1359 / (2731 – 540)

= 62.03%

[4] We additionally assume that no parties settle, and that petitions are afforded a filing date on the same day they are filed. These assumptions are immaterial to the substantive point, but make the numbers easier to deal with.

Hotel Security Checking Co v Lorraine Co, 160 F 467 (2d Cir 1908).

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Hotel Security Checking Co v Lorraine Co, 160 F 467 (2d Cir 1908).

OPINION BY: COXE

OPINION:  Before LACOMBE, COXE, and WARD, Circuit Judges.

COXE, Circuit Judge. The Hicks patent describes and claims a “method of and means for cash-registering and account-checking” designed to prevent frauds and peculation by waiters and cashiers in hotels and restaurants. The object of the alleged invention is accurately to check the account of the cashier and of each waiter. In carrying out the system, each waiter is provided with slips of paper, so marked as to distinguish them from those used by the other waiters in the same establishment. The person in charge of each department,  which fills an order given by waiters, is provided with a sheet of paper ruled lengthwise in parallel columns, each waiter having a particular column exclusively appropriated to him. Each waiter is numbered or otherwise marked. If numbered, and this is the simplest method of designation, the number on the slips given him   will correspond with his own number and his orders will be entered in the sheet column bearing a similar number. For instance, waiter No. 6 is given a badge showing that number, which he is required to wear conspicuously; he is also given slips bearing that number and his orders are entered under column No. 6 by the person in charge of the department filling the orders. The large sheet on which the orders of the different waiters are entered is simply a sheet of plain paper with parallel lines ruled thereon, the columns being numbered at the top; a sheet of legal cap could easily be utilized for this purpose.Each waiter is given a number of slips about 3 1/2 by 5 1/2 inches in size, which are blank except that the waiter’s number is marked thereon. If, for instance, waiter No. 6 receives an order for food, he goes to the kitchen department and when the order is filled he exhibits his tray to the checker, who enters the price of each article on the waiter’s slip and also on his own sheet under the column No. 6. The slip is returned to the waiter, who presents it at the proper time to the customer. Either the waiter or the customer pays the amount to the cashier who retains the   slip. It is usually sufficient in practice to enter the total of any one order and not each item separately. If subsequent orders are given either from the kitchen, the bar or the cigar stand, the same process is repeated and the amounts entered upon the same slip. At the close of business the sum of the slips of waiter No. 6 in the hands of the cashier, can easily be compared with the sum of the items charged to him by the departments collectively and the same is, of course, true of all the other waiters. The amount charged to all the waiters can be compared with the total of all the items of all the slips in the hands of the cashier and with the cash reported by the latter. If there has been no carelessness or dishonesty, the amounts will agree and if there has been, it is easy to discover where the fault lies.

The specification enumerates ten separate results, which it is alleged are accomplished by the use of the patented system, all having in view the protection of the employer from peculation by his servants either individually or in combination with each other.

The claims are as follows:

“1. The herein-described improved means for securing hotel or restaurant proprietors or others from losses by the peculations of waiters, cashiers or other employes, which consists of a sheet provided with separate spaces, having suitable headings, substantially as described, said headings being designatory of the several waiters to whom the several spaces on the sheet are individually appropriated, in conjunction with separate slips, each so marked as to indicate the waiter using it, whereby the selling price of all the articles sold may be entered in duplicate, once upon the slip of the waiter making the sale, and once upon his allotted space upon the main sheet, substantially as and for the purpose specified.

“2. The herein-described improvement in the art of securing hotel or restaurant proprietors and others from losses by the peculations of waiters, cashiers or other employes, which consists in providing separate slips for the waiters, each so marked as to indicate the waiter using it, and in entering upon the slip belonging to each waiter the amount of each sale that he makes, and also in providing a main sheet having separate spaces for the different waiters and suitably marked to correspond with the numbers of the waiters and of their slips,  and in entering upon said main sheet all the amounts marked upon the waiters’ slips so that there may thus be a duplication of the entries, substantially in the manner and for the purpose specified.”

The principal defense is lack of novelty and invention. Section 4886 of the Revised Statutes (U.S. Comp. St. 1901, p. 3382) provides, under certain conditions, that “any person who has invented or discovered any new and useful art, machine, manufacture or composition of matter” may obtain a patent therefor. It is manifest that the subject-matter of the claims is not a machine, manufacture or composition of matter. If within the language of the statute at all, it must be as a “new and useful art.” One of the definitions given by Webster of the word “art” is as follows: “The employment of means to accomplish some desired end; the adaptation of things in the natural world to the uses of life; the application of knowledge or power to practical purposes.” In the sense of the patent law, an art is not a mere abstraction. A system of transacting business disconnected from the means for carrying out the system is not, within the most liberal interpretation of the term, an art. Advice is    not patentable. As this court said in Fowler v. City of New York, 121 Fed. 747, 58 C.C.A. 113:

“No mere abstraction, no idea, however brilliant, can be the subject of a patent irrespective of the means designed to give it effect.”

It cannot be maintained that the physical means described by Hicks, — the sheet and the slips, — apart from the manner of their use, present any new and useful feature. A blank sheet of paper ruled vertically and numbered at the top cannot be the subject of a patent, and, if used in carrying out a method, it can impart no more novelty thereto, than the pen and ink which are also used. In other words, if the “art” described in the specification be old, the claims cannot be upheld because of novelty in the appliances used in carrying it out, — for the reason that there is no novelty.

The patent seems to us to cover simply a system of bookkeeping made applicable to the conditions existing in hotels and restaurants. The fundamental principle of the system is as old as the art of bookkeeping, i.e., charging the goods of the employer to the agent who takes them. Suppose the case of a firm selling goods by agents direct to the public. Before starting out the agent goes to each department and secures the goods needed by him, let us say, 5 dozen pairs of gloves, 3 dozen shirts, 100 neckties, 2 dozen pairs of shoes, etc. As a matter of course, the bookkeeper charges these items to the agent on the books of the firm and gives him a bill, or list, with the items and prices entered thereon. The agent knows from an examination of the list exactly what price he is to charge to the customer. When he makes remittances to the firm with statements showing the goods sold by him and the names of the buyers, the firm knows by an examination of its books what goods he has sold, how his sales compare with those of other agents and what amount, if any, he still owes. This, in essentials, is the scheme of the patent and it is as old as the laws of trade.

The patentee has modified and adapted it to fit the ephemeral character of the business in hand, but it required no exercise of the inventive faculties to do this. In a transaction which is to be concluded within an hour, a ponderous system of bookkeeping is unnecessary; but the substitution of a blank sheet laid on the desk for a blank sheet bound in a book, and a series of slips of uniform size for the ordinary bill heads, may require ingenuity and be more convenient, but it adds nothing of substance to the art.

The patentee is evidently an observant man, and, with large experience in the business, has written a treatise on restaurant account keeping, containing many valuable suggestions for preventing dishonesty by waiters, which may be epitomized as follows: — employ a competent and observant head waiter, have at least one honest man in charge, give each waiter a number and slips with a corresponding number, stamp the price of the articles ordered by him on the slip, and charge the amounts to him on a sheet of paper under his number, printed or written at the top of the sheet. Although the record does not show that this identical system was used prior to the patent, it does show that the underlying idea of keeping a duplicate record of the items taken by the waiter from the kitchen or bar, so that the cashier may know whether the proper amount of cash has been paid or not, had long been known. The essential features were old, the changes, elaborations and improvements of the patent belong to the evolution of the business of restaurant and hotel keeping, and would, we think, occur to any clever and ingenious person familiar with the needs of that business. The truth of this proposition will be made apparent by a brief survey of the prior art.

We agree with the judge of the Circuit Court in thinking that the patent to Smith for “a service and cash check,” while not a direct anticipation, describes a system which in the main corresponds to that of the patent in suit. Smith says:

“The invention has for its object to assure returns to the proprietor to the full value of the food served by preventing collusion of employes and patrons without offense, and also to economize time of patrons and employes and assure more satisfactory service.”

Smith provides each waiter with a package of checks requiring the waiter to write his name on the body and coupon of each check. As the waiter passes the checker on his way to the guest with the food ordered by him, the checker punches from the check the value of the food on the waiter’s tray. When the order has been fully served, the cashier adds up the sums opposite the punch marks and writes the sum total in ink next the dollar mark on the check and coupon. The cashier has at hand a series of numbered spindles, one for each waiter, and on the proper one he places the coupon torn from the check. When a check is paid to the cashier, the coupon is returned to the waiter as a voucher and at the close of the day’s business the cash in hand must correspond with the amount punched on the checks and also with the amounts written in ink on the coupons which are delivered up by the waiters when they have finished work for the day. The Smith claim is not for a system, method or means, but is for “a service of cash check provided,” etc.

Admitting, arguendo, that a system such as Hicks describes is patentable, if absolutely novel, we are of the opinion that the improvements of Hicks over the system disclosed in the Smith patent are such as would occur to anyone conversant with the business. The testimony also shows that several years prior to the Hicks application, there was in vogue in Harvey’s restaurant in Washington, a system similar in all essential details to that of Hicks’. Although we are not prepared to say that the two systems are identical in detail, we are unable to discover any patentable improvements in the latter system over the former. We have no reason to discredit the statement of defendant’s witnesses that Harvey used a checker’s sheet ruled in parallel columns on which the prices of the articles ordered by the waiters, respectively, were entered, being also entered on the waiter’s slip.

The brass check system which was in use prior to the patent is thus described in the complainant’s brief:

“In this system the waiter received from the checker a brass check having thereon the total amount of the food, etc., served to the guest. If the guest gave a second order the waiter gave back the check to the checker and received a larger one in exchange. In some cases a record was made of the total paid by each guest, but this record was not like or comparable with the Hicks main sheet and could not achieve its results. There was no division of the sheet into spaces for the different waiters and there was no duplication of entries. The inadequacy of this system is obvious.”

This statement is adopted because of its conciseness and, although it omits some features of the system, it will close debate upon the facts if it be accepted as correct. The principal differences between this system and the Hicks system are the substitution of paper for brass, recording each item separately instead of the total and using a recording sheet which is ruled instead of one that was not ruled.

Regarding the entry of the total amount upon the brass, or paper, check and upon the sheet, it will be remembered, as before stated, that the patentee says:

“Each item of the order may be entered separately on the slip and on the sheet if so desired, but, in practice, I have found it more convenient and usually sufficient for the purposes of my invention to enter the whole of any one order as a total.”

This language is too plain to admit of doubt. It is a clear declaration on the part of the patentee that if the total be entered on the slip and sheet it will infringe the claims. This being so, if a system, similar in other respects, be found in the prior art where totals are so entered, it will anticipate the claims. The complainant has endeavored to explain away this statement but we are not in the least impressed by his efforts in that direction.

The alleged prior use by McKenna, we dismiss without comment for the reason that the testimony in its support is too uncertain to satisfy the requirements of the rule that prior use must be proved beyond a reasonable doubt.

If at the time of Hicks’ application, there had been no system of bookkeeping of any kind in restaurants, we would be confronted with the question whether a new and useful system of cash-registering and account-checking is such an art as is patentable under the statute. This question seems never to have been decided by a controlling authority and its decision is not necessary now unless we find that Hicks has made a contribution to the art which is new and useful. We are decidedly of the opinion that he has not, the overwhelming weight of authority being that claims granted for such improvements as he has made are invalid for lack of patentability.

The case at bar is not distinguishable in principle, from the case of Hocke v. N.Y. Central & H.R.R. Co., 122 Fed. 467, 58 C.C.A. 627, in which this court, after describing the improvements “for securing against loss of freight” covered by the claims, said, “All this evidences good judgment upon the part of one who is experienced in the particular business, but it does not rise to the level of invention.”

In the case of U.S. Credit System Co. v. American Credit Indem. Co., 59 Fed. 139, 8 C.C.A. 49, this court had before it a patent for “means for securing merchants and others from excessive losses by bad debts, which consist of a sheet provided with separate spaces and suitable headings,” etc. The court says:

“There is nothing peculiar or novel in preparing a sheet of paper with headings generally appropriate to classes of facts to be recorded, and whatever peculiarity there may be about the headings in this case is a peculiarity resulting from the transactions themselves. * * * Given a series of transactions, there is no patentable novelty in recording them, where, as in this case, such record consists simply in setting down some of their details in an order or sequence common to each record.”

It is unnecessary to multiply authorities as we are convinced that there is no patentable novelty either in the physical means employed or in the method described and claimed in the Hicks patent.

The decree is affirmed, with costs.

Automatic Assignment of Future Inventions: A Serious Error of Federal Law that Requires Supreme Court Review

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Guest post by Dr. Shubha Ghosh, Crandall Melvin Professor of Law and Director of the Technology Commercialization Law Program at Syracuse University College of Law

In Stanford v Roche, 563 U.S. 776 (2011), the Supreme Court ruled that the Bayh-Dole Act did not create special rules of patent ownership for universities and other recipients of federal research funding.  Traditional rules of inventor ownership and assignment, developed for for-profit entities applied to research institutes. Nothing in the language of the Bayh-Dole changed the basic rules and created a statutory automatic assignment (one analogous to work made for hire under the Copyright Act).

But what are the traditional rules for patent assignment? One issue the majority ignored in Stanford is the future interest assignment rule created by the Federal Circuit in Filmtec Corp. v. Allied Signal, 939 F.2d 1568 (Fed. Cir. 1991).  By containing the phrase “hereby assigns,” the Federal Circuit stated in Filmtec, an assignment would have priority over another that only contained the word “assigns.” An assignor stating that he “assigns” a future interest is simply conveying a promise to assign in the future. However, the magic phrase “hereby assigns” is a present assignment of a future interest.  Stanford University’s failure to include the word “hereby” in its assignment agreement lost patent rights to Roche, a competing assignee that showed the wisdom to include the word “hereby” in its agreement.

Justices Breyer and Ginsburg in dissent sharply criticized the Filmtec rule of “automatic assignment” through agreement in the Stanford case. This sentiment was echoed in Justice Sotomayor’s concurrence. All three justices, however, recognized that the assignment interpretation issue was not properly before the Court.  Dr. Alexander Shukh, a computer hardware engineer, signed an assignment to his former employer Seagate.  The assignment contained the “hereby” language sanctioned by the Filmtec decision.  Seagate, and the Federal Circuit, reads the hereby language as creating an automatic assignment of Shukh’s rights to his inventions and resulting patents. The Shukh decision does not involve priority of assignments and  goes beyond the Filmtec decision criticized by Justices Breyer, Ginsburg, and Sotomayor.  Under Shukh, the magic words “ hereby assigns” extinguishes all rights of employees in their inventions.

The Court should grant Shukh’s certiori petition. This post demonstrates that there is a serious error of federal law that requires Supreme Court review. It also shows how the Court might correct the misapplication of federal law.

The Federal Circuit created the rule of automatic assignment through agreement without any basis in the Patent Act or in the common law of assignment. Acting from its institutional law as patent law expert, the Federal Circuit seemingly adopted the Filmtec rule as one of patent assignment. But, as Professor Ted Hagelin pointed out in a 2013 article in the AIPLA Law Quarterly, the automatic assignment rule has no foundation in the Patent Act.  Section 261 speaks to writing requirements and priority rules arising from filing.  There is no mention of the magic word “hereby” as a marker between promises to assign in the future and present assignments of future interests.  Professor Hagelin recommended that Congress correct the error by amending Section 261.

But the Federal Circuit’s error is deeper than one of statutory misconstruction. Its decision confuses the relationship between patent law and contract law. The error is in the same category as the controversy over the conditional sale doctrine, a court created rule from Mallinckrodt v. Medipart, 976 F.2d 700 (Fed. Cir. 1992).  In Mallinckrodt, the Federal Circuit examined a patent owner’s power to impose conditions on its grant of rights to a licensee. Through announcing the conditional sale doctrine, the Federal Circuit ruled that a violation of such conditions constituted patent infringement rather than contract breach.  By so ruling, the Federal Circuit expanded its own jurisdiction by transforming questions of state contract law into those of patent law. A similar move occurs in Filmtec.

The usurpation of contract law by patent law is the subject of my 2014 article in the Journal of the Patent and Trademark Office Society.  My argument in that paper is grounded, in part, in Judge Pauline Newman’s criticism of Filmtec in her dissent from denial of en banc review in Abraxis v. Navinta. 672 F.2d 1239 (Fed. Cir. 2011). According to Justice Newman, patent assignments are a matter of contract law, which is in the jurisdiction of the states. Therefore, the Federal Circuit should look more closely at state law in deciding cases about patent assignments.

The judge’s point is particularly salient when one remembers that the Federal Circuit was created as an expert patent court.  It was given jurisdiction to hear some non-patent matters when these matters are related to patent cases.  Patent assignments are one obvious example of when the Federal Circuit has jurisdiction to consider state matters.  But, as Judge Newman points out, jurisdiction to hear a case does not mean authority to create new law, as the Federal Circuit arguably did in Filmtec and in Stanford. Instead, the Federal Circuit should look to other authorities to address non-patent law matters. For contract law matters, what state courts and legislatures have said about assignments generally would be relevant.  Furthermore, state law provides a stable and predictable source of authority for actors engaged in the business practice of negotiating patent assignments and other contracts.

The core problem is that the court has ignored the Erie doctrine. Under the Supreme Court’s 1937 decision in Erie v. Tompkins, a federal court ruling on a matter of state law under its diversity jurisdiction must apply the law of the state from which the dispute arose.  Which state law to apply is a matter of choice of law principles.  What the federal court cannot do is create its own federal common law in lieu of the state statutory or common law. As the Court affirmed in Butner v. United States, 440 U.S. 48 (1979),  the Erie doctrine applies to a court’s supplemental jurisdiction over state law claims attendant to a federal question. By creating its own federal common law of contracts, the Federal Circuit reveals a fundamental error in its understanding of the federal court system.

State law offers a different analysis of patent assignments from what the Federal Circuit adopts. Justice Breyer, in his Stanford dissent, cited a treatise on patent law by George Ticknor Curtis from 1873 that discusses patent assignments.  Curtis addresses how state law treats assignments and cites a Massachusetts case from 1841 dealing with patent assignments.  Relevant to the issues in Stanford, the assignment involved the present assignment of an invention that had not been made yet.  The court analyzed the assignment as it would any contract, identifying the terms of the document as a key to the expectations of the parties. State law precedents perhaps offer an alternative to the questionable Federal Circuit jurisprudence, at least with respect to patent assignments.

One related area in state law is that of security interests, a part of debtor-creditor law.  In entering into credit agreements, creditors ask for security in the form of collateral for a loan. The collateral may be a legal interest that is not in existence at the time of the loan.  An example would be the future sales or proceeds from a debtor’s business. Another example would be inventory remaining at the end of an accounting period.  These future interests are analogous to the future inventions or patents that I have been discussing.  Rights can be claimed in these properties that are nonexistent at the time of the contract formation between creditor and debtor.

Security interests provide the most common situation in which conflicting obligations arise.  Debtors often take multiple mortgages, hypothetic future proceeds to multiple creditors, and take multiple loans out on the same collateral.  As long as the value of the collateral can cover all the debts, then there is no problem in general.  However, if not all creditors can be satisfied, priority rules are necessary.  In the case of future interests, the law does not fall back on simple rules like first in time because there are multiple interests involved.  A creditor does not want to run the risk of not receiving any return on the debt.  The legal rules of priority allow the creditor to investigate the collateral and through such due diligence identify competing claimants on the collateral.  Priority rules, consequently, depend not only on the timing of the contract, but also on recording and notice requirements.

The case of conflicting patent assignments bears some similarity to the law on intangible future interests in creditor-debtor law.  Both entail rights in property that has yet to come into being.  The main lesson from creditor-debtor law, which is largely a matter of state law, is that many interests are implicated and therefore simple rules are not satisfactory.  The Federal Circuit has arguably adopted too simple and misguided a rule in the Filmtec.  The Supreme Court has confounded the error in the Stanford decision by ignoring the issue of automatic assignments. One way to correct course is by granting Shukh’s petition for certiori and restore the proper balance between federal patent law and state commercial law.

Pending Supreme Court Patent Cases 2016 (May 3 Update)

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by Dennis Crouch

Laches: The Supreme Court granted SCA’s writ of certiorari on the question of whether laches defense applies to block back-damages in patent cases. The Federal Circuit says “yes” while the Supreme Court recently said “no” in a parallel copyright case (Patrella).  The Supreme Court decided Patrella 6-3 with Justice Scalia in the majority offering the potential of a tight-split in this case.  The court looks to be sitting-on the parallel case of Medinol v. Cordis until SCA is decided.

CheerCopyrightCopyright on Useful Articles: Although not a patent case, the court also decided to hear a “useful article” copyright case.  Star Athletica v. Varsity Brands.  The case asks whether the stripes and chevrons found in a cheerleader uniform are sufficiently “separable” from the uniform in order to be copyrightable.  The useful article doctrine is generally considered to be setting up a boundary line between the domains of copyright and patent.

More Challenges to USPTO Authority: MCM filed its petition for writ of certiorari directly challenging USPTO authority to conduct inter partes review proceedings with two easy questions:

  1. Does IPR violate Article III of the Constitution?
  2. Does IPR violate the Seventh Amendment to the Constitution?

[MCM Petition and Appendix] MCM’s brief was filed Tom Goldstein along with Ned Heller.  The question for the Supreme Court is whether to extend or contract from its position in Stern v. Marshall, 131 S. Ct. 2594 (2011) where the court held that Article III of the U.S. Constitution prohibits Congress from withdrawing “from judicial
cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty.” Quoting Murray’s Lessee v. Hoboken Land & Improvement Co., 59 U.S. 272  (1856)).

The brief raises a set of interesting old cases focusing both on the separation of powers and the tradition that patent-revocation for invalidity requires a jury to decide disputed facts.

  • Ex Parte Wood & Brundage, 22 U.S. 603 (1824)
  • McCormick Harvesting Mach. Co. v. C. Aultman & Co., 169 U.S. 606 (1898)
  • Mowry v. Whitney, 81 U.S. 434 (1871)
  • Murray’s Lessee v. Hoboken Land & Improvement Co., 59 U.S. 272 (1856)
  • Neilson v. Harford, Webster’s Patent Cases 295 (1841)
  • Pennock v. Dialogue, 27 U.S. 1 (1829)
  • United States v. Am. Bell Tel. Co., 128 U.S. 315 (1888)

Cooper v. Lee raises some parallel issues. Its petition will be considered by the Court in its May 12. [Update: The court has “rescheduled” consideration of Cooper’s brief – perhaps awaiting its own determination in Cuozzo.]

Hereby Assign Future Inventions: In Shukh v. Seagate, the petitioner raises the long-brewing question involving the Federal Circuit’s interpretation of patent assignments.  In particular, the Federal Circuit has ruled – as a matter of federal patent law – that patent rights are assignable before their invention is even contemplated. The petition asks:

[W]hether FilmTec’s “automatic assignment” rule should be overruled because it extinguishes inventors’ constitutional and statutory rights to inventorship and ownership.

In Stanford v. Roche, Justices Breyer, Ginsburg and Sotomayor criticized the Federal Circuit’s rule and suggested that the issue should be presented in a future case. The majority expressly noted that its opinion did not decide the issue. [Shukh v. Seagate – Redacted Public Petition]

Disparaging Trademarks: A pair of disparaging trademark cases have also been petitioned: Lee v. Tam (“Slants”) and  Pro-Football v. Blackhorse (“Redskins”).   The Federal Circuit previously held the limit on registering disparaging marks to be an unconstitutional abrogation of the freedom of speech.

The big list: (more…)

Patent Quality Symposium Report – USPTO Patent Quality Initiative Moving Forward

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Guest Post by Professors Colleen Chien, Santa Clara University Law School and Arti Rai, Duke Law School

On Wednesday, April 27, 2016, the USPTO hosted a day-long conference around the one-year anniversary of its Enhanced Patent Quality Initiative. We were among the over 1,800 virtual attendees (in addition to over 400 participants at USPTO headquarters and in the satellite offices) and provide this brief summary of some of the highlights. A recording of the day is available here, and information on the launch of the Office’s Stakeholder Training on Examination Practice and Procedure (STEPP) program is here. The USPTO’s current request for comments on patent quality metrics, including the Master Review Form (MRF), is due May 24. Santa Clara Law research assistant Angela Habbibi is pulling together a summary of the USPTO’s request for comments on quality case studies here, and the hardworking students of the Berkeley Technology Law Journal have done the same, with respect to comments submitted to the USPTO from last year, here, and comments submitted to the Journal here.

USPTO Director Michelle Lee and Deputy Commissioner for Patent Quality Valencia Martin-Wallace opened the day by highlighting four inter-related components: 1) the clarity of the record pilot; 2) new quality metrics, as embodied in a new Master Review Form; 3) using post-grant outcomes to improve patent examination; and 4) improved prior art search, so as to accomplish “compact prosecution.”  Subsequent speakers discussed each of these components in detail, generally with a focus on one or more of the following themes – clarity, consistency, accountability, and collaboration.

Clarity of Record Pilot

Robin Evans, Director of TC 2800, focused on the clarity of the record pilot, which started in March and will run for 6 months. The pilot includes approximately 130 randomly selected examiner participants, (all GS 11-15 with at least years of 2 years of experience) and 45 SPEs.  The USPTO anticipates processing about 2000 applications through the pilot.

Examiners in the pilot will focus on enhancing documentation of claim interpretation (including functional/112(f) language), giving more precise reasons for allowance, doing pre-search interviews at the request of the examiner, and giving more detailed interview summaries.  Examiners are also supposed to document the amount of time they spend improving clarity. Examination conducted in the pilot will be compared with that conducted by a control group composed of similar examiners.

Master Review Form, Consistency, and Data Collection and Analysis

According to Director Lee and Brian Hanlon, the Director of the Office of Patent Legal Administration, the pilot’s emphasis on record clarity is also embodied in the new 25-page Master Review Form for quality, which places equal weight on clarity and correctness.  As Marty Rater, Chief Statistician of the Office of Patent Quality Assurance explained in the afternoon, the MRF is the Office’s response to a general perception that the quality composite that the Office has long relied upon needed to be replaced.  While not all 25-pages would be used for any one application, having a single uniform form will enable previously siloed reviews, carried on (for example) at the TC, OPQA, and other levels, to draw from a common core of data and improve consistency across the agency. Stakeholders in the afternoon session provided feedback on how the MRF could be made clearer and shorter, so as to facilitate consistent reviews.

A look at the 135 quality case study topics submitted for consideration to the USPTO in response to a recent request highlights that consistency in the application of Sections 101, 103, and 112 is perhaps the greatest concern. Consistency has ramifications for compact prosecution and continuation practice as well. If an applicant is confident that her applications are consistently subjected to high-quality examination, she may find it easier to appeal or abandon on the basis of a final rejection, rather than continuing the case in hopes of a different outcome from a different examiner on the same patent application.

In line with the case study suggestions, the USPTO aims to address concerns about particular types of examiner rejections and consistency across technology groups within the patent corps. To that end, it will be conducting studies on the use of section 101 and 112(f) by examiners; on the correctness and clarity of motivation statements in obviousness rejections based on combining references; and enforcement of written description requirements in continuation applications.

The release by the Patent Office of large amounts of data in accordance with the Obama Administration’s decision to treat government data as a national asset of the American people has led to the burgeoning of patent data companies and innovation, with at least 135 companies relying on patent data, according to a count by one of us. But a question regarding data analysis by external sources prompted Valencia Martin-Wallace to note that these external sources produced results that didn’t always match the USPTO’s own analyses.  Deputy Director Russ Slifer elaborated on this theme by noting that the USPTO wanted to be part of the community dialogue on data analysis and had recently put out a large amount of publicly available, freely analyzable data at https://developer.uspto.gov.

Use of Post-Grant Outcomes

Jack Harvey, the Acting Assistant Deputy Commissioner for Patent Operations, discussed several objectives with respect to a just-initiated pilot, expected to last 3-4 months, that will use of post-grant outcomes to enhance quality.  First, in cases where patents petitioned before the PTAB have related applications pending, the examiner on the related applications will receive the petition. Second, and more broadly, data collected from post-grant proceedings will be used to improve examiner search strategy, both at the level of the individual examiner and also across the corps. It’s our understanding that such “feedback loops” have also been a feature of EPO practice: in which nullity proceedings involve the original patent examining team that granted the patent, which can then learn from the post-grant proceedings.

Improved Search and Training

According to Maria Holtmann, Director of International Programs, the goal of improved search will also be pursued through a pilot, to be begun later this year, that will “jumpstart” search by providing automated pre-examination search results.  Ongoing pilots are currently providing examiners with JPO and KIPO search reports prior to the first office action.  And the Global Dossier now provides examiners and the public with “one-stop access” to dossiers of all related applications in the IP5.

We were happy to hear that access to comprehensive prior art sources – including non-patent sources – earlier in the examination process is seen as a major patent quality lever. Work by one of us suggests that European Patent Office search reports cite non-patent literature sources more than USPTO examiners rely upon on them in their own examination, but a number of existing and future initiatives could close this gap. As Donald Hajec, Assistant Deputy Commissioner for Patent Operations, described, the USPTO  is promoting greater awareness of non-patent technical sources, through the STIC, crowdsourcing of NPL, and technical training by outside scientists through the PETTP program, for example. And in line with numerous commentators who have emphasized the importance of Section 112 in policing quality, Hajec stressed the extensive training examiners, particularly those in electrical/mechanical and computer/software art units, have received on Section 112(a) (written description and enablement), 112(b) definiteness, and 112(f).

Collaboration

During the last set of panels, moderated by Deputy Director Russ Slifer, participants from companies and law firms acknowledged the responsibility for patent quality that stakeholders share with the USPTO. The participants on the panel provided their sense of 1) what initiatives of the USPTO initiatives are working for stakeholders and what needs improvement, 2)  the wide variability in the business uses of patents based on company size and industry, and 3) what stakeholders could do, on their own or in conjunction with Examiners, to improve the quality of submitted applications and patent prosecution.

In particular, props were given to Track One, which Bill Bunker of Knobbe commented that certain clients (not small entities) use exclusively, with a much more efficient outcome. He also described the First Action Interview Program as a good early opportunity to achieve a meeting of the minds. Other panelists applauded the USPTO for focusing on patent quality, a topic that they thought had significant economic consequences and was imperative to the functioning and perception of the patent system. However, Laura Sheridan of Google observed that the voluntary nature of certain initiatives like the glossary pilot program limited their impact, and that mandatory enforcement would likely be more effective at raising quality uniformly across applications.

An interesting question is whether or not all patents “need” to be of the highest quality, given the diverse business uses of patents by different types of companies and industries. SAS files patents primarily for defensive reasons, commented Tim Wilson, and needs to have reliable patents for negotiations. In contrast, according to Bill Nydegger of Workman Nydeggerr commented, startups are often just trying to validate their technology and get an issued patent, rather than thinking about it being tested in court or negotiations. Biopharma patents often prove their value in the last five years of a patent’s life, with written description and utility requirements providing the most important filters, Kevin Noonan of MBHB commented.

For both the USPTO and prosecutors, the challenge of increasing quality in the face of flat budgets and price pressure is quite real, although perhaps less of an issue in the biopharma sector. In that vein, several ways to do more with less were discussed. In response to a question from Deputy Director Slifer, panelists discussed how they could continue to ensure that patent prosecutors were actually pursuing a strategy that serves the business use – whether that be to cover one’s own product or that of a competitor. Although getting an issued patent is often the goal of the prosecutor, if its scope is diminished to such a degree that it doesn’t make business sense, cutting off prosecution earlier may be the right approach. In addition, greater collaboration between examiners and applicants earlier in the process could streamline the process. Examiners would probably appreciate applicant summaries of the subject matter. Though applicants are loath to put material into the record, examiners could perhaps get a demonstration of the technology before examination and search began, enabling a substantive discussion of the prior art early in the process.

One question that deserves more attention, in our opinion, is whether the USPTO could provide “model applications” or patents to facilitate  public understanding of what a “quality” application looks like from the standpoint of the USPTO. Shared responsibility comes from shared understanding. The newly devised STEPP program, to educate law-firm and in-house practitioners on how Patent Examiners review applications, starting in July, as well as the Symposium overall, are important steps in achieving shared understanding, and we join the patent community in applauding USPTO efforts.

To further these efforts, our institutions, Santa Clara and Duke Law Schools, will be hosting two conferences on USPTO initiatives and other levers for improving patent quality later this year.  The conferences will be held in Santa Clara and also in the DC area and will focus on empirical evaluation of patent quality levers.  We will provide more information on these forthcoming conferences shortly.

Federal Circuit Rejects Reduced-Deference for AIA-Trial Decisions

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by Dennis Crouch

En banc denials in Merck & Cie v. Gnosis (Fed. Cir. 2016) and S. Alabama Medical v. Gnosis (Fed. Cir. 2016)

The Federal Circuit has denied en banc review of decisions in four inter partes review proceedings brought by Gnosis. Federal Circuit had previously affirmed the Patent Trial and Appeal Board’s IPR determination that the challenged Merck and SAMSF patent claims were invalid as obvious.[1]

The petitions focused on the standard-for-review of factual findings made by the PTAB. The appellate panel applied the “substantial evidence” standard that requires affirmance of challenged factual findings when those conclusions are based upon “more than a mere scintilla” of evidence.  The Supreme Court has restated this standard only requiring that “a reasonable mind might accept [the evidence] as adequate to support [the] conclusion.”  In the appeal, the patentees agreed it is appropriate that PTAB factual conclusions be given deference. However, the patentees argued that the standard should be “clear error” – a lower level of deference.  A way to think about the difference between the two of these is to consider that factual findings by a jury are generally reviewed for substantial evidence (higher deference) while a judge’s factual findings are reviewed for clear error (lower deference).

In most administrative law areas, agency factual determinations are reviewed for substantial evidence.  However, the patentees here argued that the litigation-like setup in this case calls for a litigation-like standard of review, i.e., clear error.  Thus, the primary question presented:

Should PTAB factual findings be reviewed for “clear error” or “substantial evidence” in an appeal of a final written decision in an inter partes review?

In an 11-1 split, the Federal Circuit has denied en banc rehearing on this issue.  Judge O’Malley (joined by Judges Wallach and Stoll) offered her opinion explaining the denial.  Judge Newman dissented.

Judge O’Malley’s opinion appears to be designed to set-up Supreme Court review (if Cuozzo wins its case) or Congressional action.  She writes:

I agree that application of the substantial evidence standard of review is seemingly inconsistent with the purpose and content of the AIA. This court is bound by binding Supreme Court precedent—Dickinson v. Zurko, 527 U.S. 150 (1999)—and this court’s own—In re Gartside, 203 F.3d 1305 (Fed. Cir. 2000)—to apply the substantial evidence standard of review to factual findings by the Board, however. Because Congress failed to expressly change the standard of review employed by this court in reviewing Board decisions when it created IPR proceedings via the AIA, we are not free to do so now. I, thus, concur in the denial of en banc rehearing in this case because there is nothing that could come of our en banc consideration of the question posed. I write separately, however, because I agree with the dissent to the extent it argues that a substantial evidence standard of review makes little sense in the context of an appeal from an IPR proceeding. But the question is one for Congress.

Judge Newman argues that the trial-like setup of the AIA proceedings allows for an important distinction from the Zurko and Gartside decision that requires a full reconsideration of the standards applied to PTAB determinations.

= = = = =

[1] Merck owns U.S. Patent No. 6,011,040; and SAMSF owns U.S. Patent Nos. 5,997,915, 6,673,381, and 7,172,778 that are licensed to Merck.  The patents relate to methods of using folate to lower a patent’s homocysteine level.

The Gatekeeping Function of Patent Eligibility as Part of a More Complete Understanding of § 101 Principles

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Guest Post by Bruce Wexler and Edwin Mok

From a review of the opinions expressed in the majority decision and rehearing denial in Ariosa Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371, reh’g en banc denied, 809 F.3d 1282 (Fed. Cir. 2015), petition for cert. filed (No. 15-1182, Mar. 21, 2016), and in the briefs filed by various parties in relation to Sequenom Inc.’s petition for writ of certiorari, we can see several different viewpoints emerge with respect to the case.  Some express the viewpoint that the case reached the wrong outcome, either because the Court (a) misunderstood the facts relating to the invention or patent, (b) misapplied existing § 101 principles, or (c) both.  Others express the viewpoint that the case reached the right outcome, either because the Court (a) correctly applied § 101 principles, or (b) incorrectly did so but would have reached the same outcome under a correct analysis.  And there are also some who express the viewpoint that the case correctly applied current § 101 eligibility principles but still reached a wrong outcome, such that § 101 requires a serious overhaul, or should be done away with altogether as a patentability criterion.  In this article, we do not take a position on any of these viewpoints.  Rather, we write to shed more light on the gatekeeping function of patent eligibility which we see permeating judicial decisions on § 101, making it worthy of careful contemplation when considering any one of the positions expressed above.

Analysis of § 101 patent eligibility generally involves discourse using the term “preemption.”  The Supreme Court, for example, has described preemption as driving the exclusionary principle under § 101.  Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S.Ct. 2347, 2354 (2014); see also Mayo Collaborative Services v. Prometheus Labs. Inc., 132 S.Ct. 1289, 1294 (2012) (“[Our precedents] warn us against upholding patents that claim processes that too broadly preempt the use of a natural law.”).  But, at the same time, we see in the cases that complete preemption by a patent claim—in the sense of a claim so broad it just recites an abstract idea or natural phenomenon—has not been the sine qua non of patent ineligibility.  For example, we have seen the Supreme Court reject eligibility arguments that merely contend that the claim in fact recites some physical structure, and so does not completely preempt the underlying abstract idea or natural phenomenon itself (putting aside for the moment what that structure is).  The late Chief Judge Archer explained why such arguments are unsatisfactory in a dissent he authored over twenty years ago in In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994), in which he opposed the patentability per se of a mathematical algorithm just because the claim referenced generic computing structures.  His reasoning was strikingly similar to that appearing more recently in Mayo.  As Chief Judge Archer observed, if patent eligibility was necessarily satisfied by reciting any physical structure, then Diamond v. Diehr would have been a much shorter opinion, and Flook and Benson would have come out the other way.  Alappat, 33 F.3d at 1557.  Alice too would have come out the other way, since some of the claims there recited generic computing structures.  See Alice, 134 S.Ct. at 2358-59 (“There is no dispute that a computer is a tangible system (in § 101 terms, a ‘machine’) . . . [b]ut if that were the end of the § 101 inquiry, an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.”).

A way to make sense of this situation is to consider the gatekeeping function that § 101 plays within the patent law, also discussed within the Supreme Court cases but at times in a more subtle way.  To understand this function more clearly, we can look to the hypothetical discussed by Chief Judge Archer to explain how § 101, when correctly applied, “lays the predicate for the other provisions of the patent law.”  Alappat, 33 F.3d at 1553.  This hypothetical illustrates that, but for § 101 eligibility principles, a patent could be awarded for originating a new musical composition—something generally agreed to be outside the subject of patent law—by claiming the song in a generic physical form such as a CD (it was the 1990s, after all).  Id. at 1553-54.  Assuming the musical composition was original, the physical structure of the CD would contain a unique assembly of pits and lands specific to that new piece of music, and thus it would be a composition of matter that is structurally novel under § 102.  And because “the patent law cannot examine music for ‘nonobviousness,’ the Patent and Trademark Office could not a make a showing of obviousness under § 103” (which it would be their burden to do).  Id. at 1554.  And even if they could examine this question, the PTO examiners ought not to be judging musical compositions for obviousness (e.g., imagine patent examiners charged with determining whether a guitar lick or chord progression is obvious under patent law).  The result of allowing through the eligibility gate a claim reciting a CD (or equivalent generic structure) embodying the new song could be patent exclusivity granted for discovering a new musical composition.  Chief Judge Archer posited that § 101 acts as a gatekeeper to prevent such discoveries from being eligible themselves for analysis of patentability under the remaining patent law provisions.

The Supreme Court has also discussed this gatekeeping aspect of patent eligibility.  In Mayo, the Court rejected the government’s argument as an amicus that “virtually any step beyond a statement of a law of nature itself should transform an unpatentable law of nature into a potentially patentable application sufficient to satisfy § 101’s demands.”  Mayo, 132 S.Ct. at 1303.  In so doing, the Court discussed the limitations of patent law’s other provisions to judge ineligible subject matter:

We recognize that, in evaluating the significance of additional steps, the § 101 patent-eligibility inquiry and, say, the § 102 novelty inquiry might sometimes overlap.  But that need not always be so.  And to shift the patent-eligibility inquiry entirely to these later sections risks creating significantly greater legal uncertainty, while assuming that those sections can do work that they are not equipped to do.

Id. at 1304 (concluding that §§ 102, 103, and 112 cannot “substitute . . . for the better established inquiry under § 101”).  The Court recognized that the presence of a law of nature in a claim would not be entirely ignored when analyzing novelty and nonobviousness, since it is indeed an aspect of the claimed invention.  Id.  In other words, the entirety of the claimed subject matter that passes through the eligibility gate is evaluated for novelty and nonobviousness.  This operation of the patent law is viewed as supporting a need for an eligibility inquiry up front, which asks whether the invention as described and claimed by the patentee as a whole resides in something more than just the new idea or law of nature itself, so that it is appropriate to allow the claim as a whole to be judged by the remaining substantive patentability provisions.  And, from this perspective, we can also understand how very basic questions of a patent’s stated novelty for the claimed subject matter, and the breadth of the claim, can impact how the eligibility question is answered.  See, e.g., id. at 1295, 1297-98; Alice, 134 S.Ct. at 2359-60; Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 133 S.Ct. 2107, 2116-19 (2013).

Chief Judge Archer’s hypothetical in dissent wound up playing out in the area of business method patents.  The Federal Circuit’s decision in State St. Bank & Trust Co. v. Signature Fin. Grp., Inc., 149 F.3d 1368 (Fed. Cir. 1998), having as a foundation the majority opinion in Alappat, opened the floodgates for patenting new methods of conducting business.  Seismic changes in the way banking was done during the late 1980s (see The Big Short for a dramatization of that happening) fostered this eventual patenting explosion.  Although these patents generated controversy, it would take over a decade and a half, until Alice, for the Supreme Court to rule that inventions residing in a way of doing banking business were simply beyond the realm of patent law, even where the claims recited generic computing structures.  See Alice, 134 S.Ct. at 2360.  This decision has dramatically changed how lower courts look at business method patents.  See, e.g., Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014) (reversing its own two pre-Alice rulings that had upheld validity, and finding the patents in suit to be ineligible).

Currently, the gateway through which a proposed invention must pass is based on Supreme Court precedent, including the Mayo ruling.  In close cases, the § 101 principles may not be so easy to apply, especially since inventions generally speaking are constituted from arrangements of physical forms, which call into operation laws of nature and natural principles, arriving at a useful result.  See, e.g., Alappat, 33 F.3d at 1551-52 (quoting G. Curtis, A Treatise on the Law of Patents for Useful Inventions at xxiii-xxv (4th ed. 1873)); cf. Graver Tank & Mfg. Co. v. Linde Air Products Co., 339 U.S. 605, 609-10 (1950) (underlying a claimed invention is its “way,” the physical form; “function,” the principles of operation; and “result,” the effect achieved).  Thus, the task of separating what is appropriate for the subject of patent law from what is not appears to inevitably demand a set of core principles, rather than a detailed recitation of rules that neatly answers every case in all technical areas.  Historical efforts by courts to construct rigid mechanical tests for eligibility have, after struggling and evolving, ultimately failed.  For example, in the late 1970s and early 1980s, the Federal Circuit’s predecessor court developed a series of rules for eligibility, which lengthened in name as subsequent cases recognized the need to address existing inadequacies—the so-called Freeman‑Walter‑Abele test—before it was finally rejected.  See, e.g., State St. Bank, 149 F.3d at 1374.  As Chief Judge Archer explained, “[w]ithout particular claimed subject matter in mind, it is impossible to generalize with bright line rules the dividing line between what is in substance [a patent-eligible application] versus merely the discovery of an abstract idea or law of nature or principle outside § 101.”  Alappat, 33 F.3d at 1554.  He observed that the copyright law has long lived with a similar tension in the idea/expression dichotomy (i.e., the principle that the expression of ideas can be protected by copyright but not ideas themselves).  Id. at 1554 n.15; see also 17 U.S.C. § 102(b).  However, as he explained, “[t]here are . . . answers in every § 101 case.”  Alappat, 33 F.3d at 1554.  One question that has arisen is whether the Federal Circuit’s more recent decision in Genetic Techs. Ltd. v. Merial L.L.C., Nos. 2015-1202, 2015-1203 (Fed. Cir. Apr. 8, 2016)—which stated (slip op. at 11) that it was effectively bound to its outcome by Ariosa, which was itself said to be compelled by Mayo in the opinion of Judge Lourie (Ariosa, 809 F.3d at 1284)—altogether signals an attempt to return to a set of bright-line rules, or whether these cases instead reflect a genuine acceptance and application of the Supreme Court’s § 101 principles on their specific facts.  Either way, the Supreme Court precedents are ultimately bookends for understanding how to apply the law of eligibility in any particular situation.

As we can therefore see, § 101’s gatekeeping role is not distinct from the provision’s policy purpose of preventing undue preemption.  A possible way to think about it is that if the Mayo test is properly applied, and the totality of claimed subject matter is allowed through the eligibility gate, then the law of novelty and nonobviousness and claim breadth should, for example, be operating on subject matter in a way that is appropriate under the patent law.  This is a way to make sense of the different outcomes in Diamond v. Diehr (finding eligible a claim to an improved rubber-curing process that involved use of a computer algorithm) and Parker v. Flook (finding ineligible a claim to a method for using an algorithm to adjust alarm limits).  See Alice, 132 S.Ct. at 2358.  From a practice standpoint, thinking about § 101’s gatekeeping function in relation to the totality of the claimed subject matter may in some cases serve as a useful check on understanding how a court may perceive the patent eligibility issue.  For example, if the novelty or nonobviousness analyses would devolve into an evaluation of the novelty or nonobviousness of an idea or natural phenomenon itself, without significantly more to that inquiry, that may indicate to the inventor, the patent examiner, or the court that the invention is treading near the borderline of patent-ineligible subject matter.  This is a more nuanced understanding than simply regarding Mayo as articulating a “two-part test,” without adequate recognition as to what that test is trying to do.

In our next post, we consider the different opinions in the denial of the petition for rehearing in Ariosa and particularly their expressed commentary on principles of patent eligibility.

Bruce Wexler is a partner, and Edwin Mok an associate, in the New York office of Paul Hastings.  Their practice focuses on patent litigation and trials.  Mr. Wexler is also an adjunct professor at New York University School of Law, where he teaches an advanced patent course.

Patent Protection for Scientific Discoveries: Sequenom, Mayo, and the Meaning of § 101

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Guest post by Jeffrey A. Lefstin, Professor, University of California, Hastings College of Law, and Peter S.  Menell, Professor, University of California, at Berkeley School of Law.  Professors Lefstin and Menell recently filed an amicus brief in support of Sequenom’s petition for certiorari.

The Supreme Court’s decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. (2012) triggered the most radical redefinition of patent-eligible subject matter in U.S. history by engrafting onto § 101 an ‘inventive application’ requirement for patenting practical applications of scientific discoveries. In Ariosa v. Sequenom (2015), the Federal Circuit held that under Mayo, a diagnostic process based on the discovery of cell-free fetal DNA in the maternal bloodstream was not patent-eligible under § 101, because the steps of amplifying and detecting DNA were conventional at the time the invention was made. Now that Sequenom has filed its petition for certiorari, the Supreme Court has the opportunity to revisit its holding in Mayo that discoveries are not patent-eligible unless inventively applied.

The decision in Mayo came as a shock to patent practitioners and the inventive community.  How could the Supreme Court overlook the clear language running throughout the history of patent law authorizing patent protection for inventions and discoveries? Why would the Court turn away from the long tradition holding that practical application, not inventive application, suffices to render a discovery patent-eligible?

As we have discovered, highly pertinent material in the patent statutes, legislative history, and jurisprudence was never presented to the Mayo Court. The result is a deeply flawed decision that contradicts Congress’s patentability framework and misinterprets critical precedent.

The Mayo Court did not discuss the statutory basis for patent-eligibility of scientific discoveries. Instead, the Court revived Parker v. Flook (1978), which had been supplanted by Diamond v. Diehr (1981), to require that scientific discoveries be inventively applied to be patent-eligible.  Mayo, like Flook, relies upon a single quotation from Neilson v. Harford, an 1841 English case—“We think the case must be considered as if the principle being well known”—to conclude that courts must treat scientific discoveries as part of the prior art in assessing the eligibility of applications of such discoveries. Therefore, unless the scientific discovery is inventively applied, the claim is ineligible for patent protection under § 101.

Unfortunately, many patent litigators – and many of the amicus briefs filed in Sequenom – have shied away from directly confronting the fundamental mistakes in the Mayo decision. They understandably fear that the Supreme Court will not be willing to acknowledge error.  We hope otherwise.  It is critically important that the Court be apprised of the proper basis – the clear text of the statute, legislative history, and the meaning and context of key cases – for interpreting patent eligibility.

Our brief filed in support of Sequenom’s petition makes three basic arguments:

First, the patent statutes have always defined inventions and discoveries to be patent-eligible subject matter. The very first patent statute, the Act of 1790, permitted patents for an “invention or discovery,” and every subsequent statute – the Acts of 1793, 1836, 1870, and 1952 – incorporated both “inventions” and “discoveries” into its text. Legislative history, such as the House and Senate Reports accompanying the Plant Patent Act of 1930, expresses Congress’s understanding that the patent laws have always applied “both to the acts of inventing and discovery.”

Furthermore, the intent to protect conventional applications of new discoveries was incorporated directly into § 101 of the 1952 Act. The legislative history of the Plant Patent Act shows that Congress defined routine and conventional applications of new discoveries as patent-eligible subject matter under § 101’s predecessor statute, R.S. § 4886. And the legislative history of the 1952 Act shows that Congress intended to carry forward that standard of patent-eligibility in § 101.

Even more significantly for Sequenom’s claims, the 1952 Act added a new definition of “process” in § 100(b), defining “process” to include “a new use of a known process, machine, manufacture, composition of matter, or material.” P.J. Federico, one of the chief drafters of the Act, explained that § 100(b) was intended to clarify that the new use of a known material in a known process was patent-eligible subject matter under § 101:

[A] method claim is not vulnerable to attack, on the ground of not being within the field of patentable subject matter, merely because it may recite steps conventional from a a procedural standpoint and the novelty resides in the recitation of a particular substance, which is old as such, used in the process.

Section 100(b) removes any doubt that a process based on the discovery of a new property in a known substance is patent-eligible – even if the process merely recites conventional steps.

Second, Flook and Mayo’s grounding of the ‘inventive application’ requirement in Neilson v. Harford profoundly misinterprets that case. The Exchequer’s reference to treating Neilson’s discovery as “well known” was merely invoking an earlier case, Minter v. Wells (1834), to rule that Neilson had claimed a patentable application of his discovery – a machine – rather than an unpatentable abstract principle. Moreover, Mayo could not have been further from the truth when it claimed that Neilson’s patent was sustained because Neilson had applied his discovery in an inventive way. Neilson’s patent was sustained against an enablement challenge precisely because his means of application were routine, conventional, and well-known. In both English and American law, Neilson became the principal authority for the well-accepted proposition that specific and practical applications of discoveries were patentable, without any novelty or ‘invention’ in the means of application, provided that the patent supplied an enabling disclosure.

Third, a test of inventive application or undue preemption in § 101 disregards the framework established by Congress in the 1952 Act. The great advance of the 1952 Act was to differentiate the amorphous concepts of “invention” and “undue breadth” into the non-obviousness and disclosure requirements of §§ 103 and 112. Shoehorning an extra requirement for ‘inventiveness’ or lack of preemption into § 101 reverses those doctrinal innovations. The Supreme Court recognized as far back as O’Reilly v. Morse (1854) that disclosure, not subject matter, polices the patent bargain against unduly broad claims. That an inventor’s claim might practically preempt all use of a discovery will, as the Court said in The Telephone Cases (1888), “show more clearly the great importance of his discovery, but it will not invalidate his patent.”

Applying §§ 103 and 112 may require fact-intensive inquiries into the state of the prior art, the capabilities of skilled artisans, and the claim scope permissible based on the specification. But that is the structure prescribed by Congress under the 1952 Act. The judicial branch may not discard that statutory framework in favor of an “I-know-it-when-I-see- it” standard for patentability under § 101.

Pending Supreme Court Patent Cases 2016 (April 18 Update)

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by Dennis Crouch

Cuozzo: Prof Mann provides his preview of the April 25 oral arguments in Cuozzo v. Lee; and Cuozzo has filed its reply brief. Neither document address my the mootness concern regarding Cuozzo’s demand for an ordinary construction of claim terms rather than their broadest reasonable interpretation.  As far as I have seen, nothing in the record suggests that a change in claim interpretation standard would alter the PTO’s determination.

Following its April 15 Conference, the Supreme Court denied certiorari in a set of cases, including Vermont v. MPHJ; Limelight v. Akamai; Hemopet v. Hill’s Pet Nutrition; and Tas v. Beachy. In its April 1 Conference, the Court denied cert in Retirement Capital v. US Bancorp. That case had questioned whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2).

The only patent cases surviving the April 15 conference are (1) Interval Licensing v. Lee that asks the same question as Cuozzo: Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?; and (2) Medinol v. Cordis that focuses on whether “the equitable defense of laches [may be used to] bar legal claims for damages that are timely under the express terms of the Patent Act.”   Medinol is conceptually linked to the SCA Hygiene case that also raises the laches issue. The court will consider both cases in its April 22 conference and may likely couple the decision to grant/deny.  The court is also scheduled to consider Cloud Satchel (abstract idea eligibility) and Globus Medical (appellate jurisdiction) at Friday’s conference. Neither of these cases offer much hope for the respective petitioner.

In Cooper v. Lee, the US Government filed its brief opposing certiorari. The government argues that Cooper’s Article III challenge to the IPR system “lack’s merit.”

[P]atents are quintessential “public rights” whose issuance and cancellation Congress may permissible entrust to a non-Article III tribunal. . . . Pursuant to its constitutional authority to “promote the Progress of Science and useful Arts” by establishing a patent system, Congress created the PTO – an agency with “special expertise in evaluating patent applications.” Kappos v. Hyatt, 132 S. Ct. 1690 (2012). It directed that agency to issue a patent if “it appears that the applicant is entitled to a patent” under standards set by federal law, 35 U.S.C. 131. Patents are accordingly rights that “exist only by virtue of statute.” Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 229 n.5 (1964). They “dispose of public rights held by the government on behalf of the people.” Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831, 849 n.2 (2015) (Thomas, J., dissenting).

The government also argues that the posture of the case lacks merits – in particular that Cooper’s collateral challenge to the procedures doesn’t work.  Cooper has argued that “inter partes review violates Article III of the Constitution by authorizing an Executive Branch agency, rather than a court, to invalidate a previously issued patent.”

Daniel Bohnen has filed a brief on behalf of UK’s Chartered Institute of Patent Attorneys (CIPA) in support of the Sequenom v. Ariosa petition.   The brief argues that the court should look to “maintain international harmonisation in the law of patent-eligibility.”[AriosaCIPA].  More briefs in support of the petitioner are expected this week as is Ariosa’s opposition brief (if any).

Finally, Nova has filed its opposition in Dow v. Nova and is attempting to refocus attention on the merits of the indefiniteness decision rather than the procedure for reaching that decision.  The difference in question presented is interesting:

Dow: Whether factual findings underlying a district court’s determination on the definiteness of a patent claim under the Patent Act, 35 U.S.C. 112, like a district court’s factual findings underlying construction of a patent claim, are subject to appellate review only for clear error or substantial evidence rather than de novo review.

Nova: Whether the court of appeals correctly invalidated Dow’s patent claims as indefinite under 35 U.S.C. § 112.

Explaining its shift of the question, Nova argues that “Dow’s petition rests on a false premise that the Federal Circuit refuses to give deference to factual findings” that underlie the definiteness determination.  Nova is correct as to the Federal Circuit’s position — the only question here is whether the Supreme Court will order the appellate court to follow its own law in this case. [DowPetition][NovaOpposition]

The big list: (more…)

Cardpool: Amending Claims in Reexam after Court Judgment of Invalidity

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by Dennis Crouch

The timing of a settlement is sometimes really important for patentees — especially if a court is about to find your patent invalid.

Slightly complex story: In Cardpool v. Plastic Jungle, the district court ruled on summary judgment that Cardpool’s gift-card-exchange patent claims invalid under 35 U.S.C. 101 and dismissed the case with prejudice. U.S. Patent No. 7,494,048.  That decision was initially affirmed by the Federal Circuit in a R.36 Judgment Without Opinion. Shortly thereafter, however, the USPTO issued a reexamination certificate finding the claims (as amended in reexam) patentable (of course, the PTO did not consider eligibility but only novelty and nonobviousness).

The timing of the reexamination certificate gave Cardpool the opportunity to request rehearing from the Federal Circuit. The appellate court agreed and vacated its prior summary affirmance (although not the district court’s opinion) and remanded to the district court to consider the impact of the reexamination changes.

The parties apparently came to some agreement and thus on remand the parties jointly moved for the district court to vacate its invalidity judgment since the claims had been amended and since the PTO certificate issued before the appellate mandate. See Fresenius USA, Inc. v. Baxter Int’l, Inc., 721 F.3d 1330, 1346 (Fed. Cir. 2013).

However, the district court rejected the plea for vacatur — finding that the PTO decision does not “displace a district court judgment” and that it would be “against the public interest” to allow a patentee to overcome an invalidity judgment simply by “amending its invalid claims.”

No Vacation: Now, on appeal again, the Federal Circuit has affirmed the lower court ruling that vacatur is not necessary or proper:

The Supreme Court counsels that “vacatur must be decreed for those judgments whose review is . . . ‘prevented through happenstance’—that is to say, where a controversy presented for review has ‘become moot due to circumstances unattributable to any of the parties.’” U.S. Bancorp Mortg. Co. v. Bonner Mall P’ship, 513 U.S. 18, 23 (1994).

Here, the mootness is due to amendments made by the patentee.  As such, the appellate court refused to vacate the district court judgment.

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Res Judicata: What is unclear here is the level of claim & issue preclusion that will apply going forward when Cardpool asserts the patent against some third party.  Claim 1 was found invalid by a final judgment. However, Claim 1 has now been amended.   Could Cardpool sue Plastic Jungle (or its assigns) on the revised Claim 1?  Could Cardpool sue an unrelated alleged infringer? Writing for the majority, Judge Newman suggests (but does not hold) that Cardpool will be able to do so:

On the facts and procedures of this case, the issue of validity of the reexamined claims remains to be addressed in any future proceeding. In the initial proceeding the original claims were adjudicated only on the ground of subject matter eligibility under section 101. As in Aspex, the effect of a prior judgment rendered on specific issues as applied to the original claims, depends on the facts and issues of the reexamination, and invokes equity as well as law.

I pulled-up the reexamined claims and found that they were extensively amended to require that the method be computer-implemented using a processor, computer program, data requests, validation process by the processor, etc.  I would be truly surprised, if these amendments are sufficient to overcome the Alice Corp. test for eligibility (as implemented).

 

An Early Review of the Impact of Form 18’s Elimination on Pleading Direct Infringement

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Guest Post by Leeron Morad & Andrew J. Bramhall of Quinn Emanuel[i]

Introduction

On December 1, 2015, as part of a sweeping set of amendments to the Federal Rules of Civil Procedure, Rule 84 and its Appendix of Forms were abrogated.  Patent litigators are no doubt well acquainted with Form 18, which set forth a generic complaint for patent infringement.  Under the guise of notice pleading, the Form 18 complaint recited only the most basic factual allegations: it did not identify any asserted patent claims or any specific accused product models, nor provide an explanation of how those products allegedly infringe.  Nevertheless, a direct infringement claim could survive a motion to dismiss simply by complying with Form 18.[ii]

As the effective date for the new amendments approached, practitioners began to consider how Form 18’s elimination might affect the pleading of direct infringement.  In particular, they questioned whether newly filed claims would be analyzed under the “plausibility” standard established by the Supreme Court in Twombly and Iqbal[iii] and thus would require “enough facts to state a claim to relief that is plausible on its face.”[iv]  The possibility of a heightened pleading standard caused a considerable spike in the filing of complaints in the days leading up to December 2015: more than 250 patent infringement complaints were filed on November 30 alone.[v]

Early indications from the few issued district court decisions interpreting the amended Rules confirm that the pleading standard for direct infringement claims may indeed have changed.  In this article, we look at two decisions applying the amended Rules—one from the District of Delaware and the other from the Central District of California—that provide an interesting glimpse of what may or may not suffice when pleading direct infringement today.

Case 1: RainDance Techs. Inc. v. 10x Genomics, Inc., No. 15-cv-00152, Dkt. 28 (D. Del. Mar. 4, 2016). [RainDance Decision]

In RainDance Techs., Inc. v. 10x Genomics, Inc., Judge Andrews of the District of Delaware granted 10x Genomics’ motion to dismiss RainDance’s and the University of Chicago’s claims for direct infringement of seven patents, finding that “Plaintiffs have not plausibly alleged any infringement.”[vi]  RainDance and the University of Chicago (collectively, the RainDance Plaintiffs) filed their original complaint against 10x Genomics in February 2015, and then filed an amended complaint in April 2015.  10x Genomics filed its motion to dismiss in May 2015, arguing (among other things) that the direct infringement claim fell short of the plausibility standard of Twombly and Iqbal.[vii]

The level of detail in the RainDance Plaintiffs’ complaint, which clocked in at 35 pages, almost certainly would have passed muster under Form 18.  For each of the seven asserted patents, the RainDance Plaintiffs identified a representative claim that they alleged had been directly infringed.[viii]  They also identified 10x Genomics’ accused product—a microfluidic DNA and RNA analysis platform—as well as the specific platform components implicated by the alleged infringement.  As support for their allegations, the RainDance Plaintiffs included figures from 10x Genomics’ conference presentations describing the accused platform’s structure and its chemical workflow, as well as excerpts from 10x Genomics’ website.[ix]

Judge Andrews, however, found the RainDance Plaintiffs’ amended complaint lacking.  He first noted that, despite the complaint’s length, the “essential factual allegations d[id] not take up much space.”[x]  He took issue in particular with the RainDance Plaintiffs’ reliance on 10x Genomics’ promotional materials, adding that it did not appear the plaintiffs had “purchased one of [10x Genomics’] products to see how it actually works.”[xi]  Judge Andrews also noted that the RainDance Plaintiffs filed the complaint “less than a month” after first learning about the 10x Genomics platform, suggesting they might have benefited from spending more time investigating the accused product before filing suit.

In assessing the adequacy of the direct infringement allegations, Judge Andrews also performed his own analysis of the exemplary patent claims identified in the complaint.  He appeared to be searching for express factual allegations tying each asserted claim limitation to the accused products in a way that bridged the gap between technical claim language and the accused features.[xii]  For example, Judge Andrews concluded that the complaint failed to address the “adjusting pressure” limitation of one asserted method claim: “[t]here is nothing in the complaint (at least so far as I can see) that hints at the role of pressure in Defendant’s products.”[xiii]  In reference to a different asserted claim, he likewise noted that “[i]t is not obvious to me that what Plaintiffs described is an ‘autocatalytic reaction.’”[xiv]  He ultimately determined that the RainDance Plaintiffs “ma[d]e no attempt to relate any of their factual assertions with any of the asserted claims” and dismissed the direct infringement claim as not plausibly alleged.[xv]

It is noteworthy that although the RainDance Plaintiffs filed their amended complaint in April 2015—nearly eight months before the new amendments went into effect—Judge Andrews chose “to apply the post-December 1, 2015, direct infringement pleading standard to the amended complaint” because “it would be in the interest of justice” to do so.[xvi]  He did not, however, explain his reasoning for this conclusion or give an indication of whether he would come to the same conclusion in other already pending cases.

Case 2: InCom Corp. v. The Walt Disney Co., No. 15-cv-3011, Dkt. 26 (C.D. Cal. Feb. 4, 2016). [InCom Decision]

In contrast to Judge Andrews’ decision in RainDance, Judge Gutierrez’s decision in Incom Corp. v. The Walt Disney Co. provides an example of what at least one court considers to be sufficient to plead direct infringement under the amended Rules.[xvii]  InCom filed its original complaint on April 22, 2015, and an amended complaint seven months later on Nov. 23, 2015, alleging infringement of three patents related to tracking systems using Radio Frequency Identification.  Like the RainDance plaintiffs, InCom identified specific accused products in the complaint—namely, Disney’s attendance tracking device, “MagicBand,” and the “MyMagic+” attendance monitoring system.  On December 10, 2015, not long after the new amended Rules went into effect, Disney moved to dismiss InCom’s amended complaint, arguing that it did not plausibly allege a claim for direct or indirect infringement.

Judge Gutierrez denied Disney’s motion to dismiss to the extent it sought to dismiss InCom’s direct infringement claims.  As in RainDance, he first rejected InCom’s argument that the amended Rules should not apply because it filed the complaint before their effective date, December 1, 2015.[xviii]  Citing the Supreme Court’s order adopting the amended Rules, which stated that the amendments should apply “insofar as just and practicable [in] all proceedings then pending,” Judge Gutierrez held that it was appropriate to require InCom to meet the “plausibility” standard in its amended complaint.[xix]

Even under the heightened pleading standard, however, Judge Gutierrez held that InCom’s amended complaint sufficiently pleaded a direct infringement claim.  While acknowledging that “merely naming a product and providing a conclusory statement that it infringes a patent is insufficient to meet the ‘plausibility’ standard set forth in Twombly and Iqbal,” he found that InCom had done enough “by specifically identifying Defendants’ products and alleging that they perform the same unique function as Plaintiff’s patented system.”[xx]  In particular, Judge Gutierrez emphasized that InCom “describe[d] how its Attendance Tracking System uses RFID technology and ID badges to track human presence in large volumes,” and “name[d] specific products developed, manufactured and used by Defendants which, like Plaintiff’s system, track human presence in large volumes.”[xxi]

Notably, in contrast with Judge Andrews, Judge Gutierrez did not require InCom to identify any exemplary asserted claims in its complaint, much less conduct any element-by-element analysis.  Despite these missing details, he concluded that “[a]t this stage, it is sufficient that Plaintiff has made plausible allegations that each Defendant is responsible for direct infringement.”[xxii]  In comparison with the RainDance decision, the InCom decision therefore appears to establish a lower threshold for “plausibly” alleging direct infringement under the amended Rules.

Conclusion

These two early decisions, while by no means definitive of the pleading standards under the amended Rules, suggest that patent plaintiffs were right to be concerned about a heightened requirement for pleading direct infringement.  Because the amendments only went into effect fairly recently, however, only time will tell whether other district courts will apply the “plausibility” standard to direct infringement claims as well.  It also remains possible that, despite the abrogation of Rule 84 and the Appendix of Forms, some courts may find that compliance with Form 18 is still enough to survive a motion to dismiss.[xxiii]

Yet even under the heightened “plausibility” standard, we would not be surprised to see meaningful differences emerge in the ways different districts—and even individual judges within districts—apply that standard to direct infringement claims.  The decisions discussed in this article suggest such a trend: one seems to demand allegations that directly tie the claim language to the accused product, whereas the other accepts general discussion of the patented invention without the identification of any asserted claims.

Before filing suit, litigants should be mindful of these differences, lest they be faced with the prospect of having to amend and re-file their complaint—or perhaps worse.  Indeed, it would be prudent for would-be plaintiffs to closely follow this area of law in the year to come, as it appears Form 18’s elimination is already changing how patents are litigated.  Finally, existing plaintiffs should be aware that merely filing a complaint prior to December 1, 2015—even many months before that date—does not guarantee application of the Form 18 pleading standard.

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[i] Leeron Morad is an associate and Andrew Bramhall is a partner in Quinn Emanuel’s Silicon Valley office.  The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[ii] In re Bill of Lading Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1336 (Fed. Cir. 2012).

[iii] Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009).

[iv] Twombly, 550 U.S. at 554-55, 570.

[v] Based on a Docket Navigator search of cases filed on November 30, 2015.  By comparison, in the entirety of 2015, plaintiffs filed approximately 5,500 new patent cases.  The filing of 250 cases represents almost 5% of the total for the year.  http://www.law360.com/articles/755311/how-2015-s-crush-of-patent-lawsuits-kept-ip-attys-busy.

[vi] Case No. 15-cv-00152, Dkt. 28, at 5 (D. Del. Mar. 4, 2016).

[vii] According to 10x Genomics, the “plausibility” pleading standard should apply to the RainDance Plaintiffs’ direct infringement claim because pleading is governed by regional circuit law in the Third Circuit.  Id., Dkt. 16, at 14-17.  10x Genomics also argued that the “plausibility” standard should apply because Form 18 was expected to be abrogated “during the early stages of this case.”  Id. at 17.

[viii] E.g., id., Dkt. 12 ¶ 26.

[ix] Id. ¶¶ 16-20.

[x] Id., Dkt. 28, at 1.

[xi] Id. at 3.

[xii] See id. at 4 (“The requirements of the next to last element might be met, but involves quite a bit of supposition.  I think, but am not sure, that partitioning samples is the same as amplification. . . .”).

[xiii] Id. at 3.

[xiv] Id. at 4.

[xv] Id.  Judge Andrews dismissed the complaint without prejudice, however, because “Plaintiffs might very well be able to [plausibly allege infringement],” and gave the RainDance Plaintiffs three weeks to re-file.  Id. at 5.

[xvi] Id. at 4-5.

[xvii] Case No. 15-cv-3011, Dkt. 39 (C.D. Cal. Feb. 4, 2016).

[xviii] Id. at 3.

[xix] Id. at 3-4 (quoting Supreme Court of the United States, Order Regarding Amendments to the Federal Rules of Civil Procedure (Apr. 29, 2015)).

[xx] Id. at 4.

[xxi] Id.

[xxii] Id. at 5.

[xxiii] According to the Committee Notes to the amended Rules, “[t]he abrogation of Rule 84 does not alter existing pleading standards or otherwise change the requirements of Civil Rule 8.”  It seems possible that a court could interpret this as intending to maintain the notice pleading standard for direct infringement claims.

Again with the Redundancy: Although MPHJ’s claim might be obvious, HP can’t pursue that argument

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HP v. MPHJ (Fed. Cir. 2016)

Over the past few years, MPHJ has raised the ire of many with its enforcement campaign of U.S. Patent No. 6,771,381.  The claims seemingly cover HP’s multi-function scanner-printers that can be configured to email the scanned documents.  However, rather than suing HP for infringement, MPHJ sent letters to tens of thousands of businesses who HP printers seeking royalties.  A number of states took direct action against MPHJ, including Vermont and Nebraska.

HP’s response to this was to file an inter partes review proceeding challenging all 15 claims of the ‘381 patent.  IPR2013-00309.  The PTAB largely sided with HP – finding 14 of the claims unpatentable, but confirmed the patentability of claim 13.  HP appealed on claim 13, but the Federal Circuit has affirmed the Board ruling.

HP challenged claim 13 on both obviousness and anticipation grounds. However, the Board refused to institute review on the obviousness grounds — seeing that ground a ‘redundant’ to the two counts of anticipation.  The unique aspect of claim 13 is that it requires a “list of available module means for maintaining a registry” (e.g., “input, output, and process modules”).  This list was not found in either of the two separate anticipation references (Cotte or SJ5) as such, the Board found no anticipation. 

As a question of fact, an anticipation conclusion by the Board is given substantial deference on appeal and will be affirmed if “a reasonable mind might accept the evidence presented as sufficient to support the finding.” Here, the appellate panel agreed that at least some evidence supported the conclusion that the element was missing from the prior art since HP was “unable to specify” how the required list was disclosed in the prior art.

HP also challenged the Board’s refusal to institute on obviousness grounds and its failure to explain its redundancy conclusion.  On appeal, the Federal Circuit refused to address that issue — finding that appellate review of the institution decision is barred by statute.

Allowing an APA challenge to the Board’s decision to institute on the basis that the Board had insufficiently articulated its reasoning would eviscerate § 314(d) by allowing substantive review of the institution decision. Although there is a strong presumption of judicial review of administrative action, that presumption may be overcome where “there is persuasive reason to believe that such was the purpose of Congress.” Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667 (1986). Congress, through § 314(d), has explicitly stated that the Board’s institution decision “shall be final and nonappealable.” Thus, that specific statutory language precludes our review.

It is unclear to me at this point whether Claim 13 is valuable – i.e., do the current HP models infringe? I guess that we’ll see.

 

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MPHJ’s case against Vermont is still pending before the U.S. Supreme Court.

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The court here did not address how HP had standing to appeal, from the briefs neither party addressed that issue as well.