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.

Legal Conclusion of Obviousness is Based upon a Structure of Factual Findings whose Foundation Must be Evidentiary

Patent

Elbit Systems v. Thales Visionix (Fed. Cir. 2018)

In its IPR final decision, the PTAB sided with the patentee – holding that Elbit had failed to prove that the challenged claims of Thales patent were obvious. On appeal, the Federal Circuit has affirmed – holding that “substantial evidence” supported the finding.

The challenged (U.S. Patent No. 6,474,159) is directed to a method for tracking motion relative to a moving platform. The claims basically require two inertial motion sensors and a processor “configured to determine an orientation of the object relative to the moving reference frame based on the signals received from the first and second inertial sensors.” The particular claims here are limited to include “angular” measurements.

The decision focuses primarily on the standard of review of PTAB factual findings – substantial evidence. Substantial evidence is a very low standard – simply requiring “more than a mere scintilla of evidence.” In re NuVasive, Inc., 842 F.3d 1376, 1379–80 (Fed. Cir. 2016). Although obviousness is a question of law, that legal conclusion must begin with evidence that serve as the foundation for factual conclusions. The ultimate legal conclusion of obviousness then is based upon the structure built by those factual conclusions.

Here, the PTAB made the factual finding that the prior art reference (McFarlane) did not teach the claimed “relative angular rate signal.” That finding was based upon presented evidence: both the prior art document and expert testimony regarding what was taught by the document. The patentee’s expert explained that the prior art calculated relative angular orientation using a different approach than that claimed by Thales (i.e., did not separately create an intermediary “angular rate signal”). Although the competing expert testified to the opposite (that the prior art approach is mathematically equivalent without any practical difference), the Board chose to believe the patentee’s expert based upon its conclusion that the competing expert did not provide credible citations to support those conclusion.

On appeal, the Federal Circuit held that the PTAB was the best position to determine expert credibility and thus declined to disturb those credibility determinations. Trs. of Columbia Univ. v. Illumina, Inc., 620 F. App’x 916, 922 (Fed. Cir. 2015) (“The PTAB [i]s entitled to weigh the credibility of the witnesses.”) The challenger’s attorneys attempted to support their case with an explanation that PHOSITA would understand the meaning the prior art – That argument was rejected on appeal, however, as attorney argument rather than evidence based. Rather, to make the argument, the party should have actually presented evidence on the level of understanding of a person of skill in the art.

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Note, I’m not sure, but this may be the first precedential decision holding that PTAB has power to weigh credibility of expert testimony in IPR proceedings. The concept was previously stated in Trs. of Columbia Univ. v. Illumina, Inc., 620 F. App’x 916, 922 (Fed. Cir. 2015) (“The PTAB [i]s entitled to weigh the credibility of the witnesses.”) VirnetX Inc. v. Apple Inc., 665 Fed. Appx. 880, 884 (Fed. Cir. 2016).

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Challenged Claim 3 is listed below:

1. A system for tracking the motion of an object relative to a moving reference frame, comprising:

a first inertial sensor mounted on the tracked object;

a second inertial sensor mounted on the moving reference frame; and

an element adapted to receive signals from said first and second inertial sensors and configured to determine an orientation of the object relative to the moving reference frame based on the signals received from the first and second inertial sensors.

2. The system of claim 1 in which the first and second inertial sensors each comprises three angular inertial sensors selected from the set of angular accelerometers, angular rate sensors, and angular position gyroscopes.

3. The system of claim 2, in which the angular inertial sensors comprise angular rate sensors, and the orientation of the object relative to the moving reference frame is determined by integrating a relative angular rate signal determined from the angular rate signals measured by the first and second inertial sensors.

Consider whether this is patent eligible.

Integrating the Objective Indicia of Nonobviousness

Patent

In American Innotek v. US, the patent at issue covers a urine containment bag and the patentee alleges that the “Piddle Pak with powder” bought and used by the US government infringes United States Patent No. 5,116,139.

The lawsuit here is against the U.S. government – as such, it was filed in the U.S. Court of Federal Claims without right to jury trial, punitive damages or injunction.  At the CFC, the court held the patent invalid – finding it obvious even as of its 1989 priority date. On appeal, the Federal Circuit has affirmed, although only after rejecting the lower court’s misapplication of obviousness law.  [Decision]

Role of Objective Indicia of Nonobviousness: The district lower court suggested that the combination of prior art references was so compelling that it was theoretically impossible for secondary indicia of nonobviousness to flip the ruling.  On appeal, the Federal Circuit rejected that conclusion and approach to obviousness – holding that it “goes to far.” Rather, “[o]bjective indicia of nonobviousness must be considered in every case where present.” (quoting Apple Inc. v. Samsung Elecs. Co., Ltd., 839 F.3d 1034 (Fed. Cir. 2016) (en banc)).  The implication here is that not-only must the secondary indicia be considered, but also that there is the potential in every obviousness case that the objective indicia will be sufficient to render the claims non-obvious.

Despite the lower court’s misstatement of the law, the Federal Circuit agreed with the ultimate conclusion that – in this case – the claim are obvious.   Rather than walking through the analysis, the Federal Circuit simply agreed with the conclusion:

Certainly, this court has often determined that particular objective indicia were not decisive in the face of strong other evidence of obviousness, but those results reflect case-specific assessments. In the present case, taking the evidence supported facts found as a given, we weigh the objective indicia with the other facts and agree with the conclusion of obviousness drawn by the Court of Federal Claims.

Affirmed.

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Asserted claim 1 is below:

 

A containment bag for a fluid comprising water or a waterbased liquid such as bodily fluids which comprises:

a bag having a hollow interior defined by two sides meeting at opposite edges, a bottom and a top, with said edges and bottom sealed and said top at least partially open to receive said fluid;

a gellable hydrophilic material within said bag, said material becoming fully gelled within thirty seconds of said contact with said fluid when said fluid is deposited in said bag, said gelation serving to essentially completely sequester said fluid and prevent said fluid from thereafter being expelled from said bag;

funnel means within said interior and having an open top, said funnel means being secured to said bag at said top of said bag, and extending downwardly within said interior to a narrower open bottom for conduction of fluid entering said open top through said funnel means and into said bag, with the open bottom of said funnel being disposed between the top and the bottom of said bag, said open bottom being free from attachment to said sides of said bag such that flow of any unsequestered fluid within said bag back toward said funnel means acts to close said funnel means to prevent escape of unsequestered fluid from said bag; and

closure means for closing the top of said bag after introduction of said fluid into said bag.

Hypothesis alone Does not Make the Results Obvious

Patent,

by Dennis Crouch

My former bosses Paul Berghoff and Alison Baldwin (at MBHB) won an interesting case today on behalf of Genzyme and its corporate parent Sanofi-Aventis.

Genzyme Corp. v. Dr. Reddy’s Labs., Ltd. (Fed. Cir. 2017)

Genzyme’s patent No. 7,897,590 is an important part of modern stem-cell practice in the treatment of non-Hodgkin’s lymphoma and multiple myeloma.  The patented process stimulates mobilization of a donor’s bone marrow by administering both a “granulocyte-colony stimulating factor” and also plerixafor (See Claim 19).  The plerixafor drug (sold under the brand name Mozobil) is no longer patented, but the treatment protocol is patented.

In the ANDA lawsuit, the generic defendants argued that the asserted claim was obvious.  Following a bench trial (no right to jury trial in ANDA cases), the district court sided with the patentee — finding insufficient evidence of obviousness. On appeal, the Federal Circuit has also affirmed.

For obviousness analysis, the first consideration is typically the scope-and-content of the prior art.  Any reference used must qualify as prior art under Section 102 and must also be considered analogous or pertinent.  The key prior art reference – Hendrix discussed the pharmacokinetics and use of plerixafor – but was focused on use of the drug in HIV treatment.  The district court excluded Hendrix – finding that it was not analogous art since one of skill in the art would not have been looking for this type of drug in researching stem cell mobilization.  On appeal, the Federal Circuit did not review that particular holding – instead finding that even if considered pertinent to an obviousness analysis, it still would not be sufficient to render the claim invalid.

For the Federal Circuit, the basic dispute comes down to whether a person of skill would have a “reasonable expectation of success” – i.e., a reasonable expectation that combining Hendrix with the other references would lead to a treatment that mobilizes stem cells as claimed.

Here, the district court found that a skilled artisan would not have had a reasonable expectation of success that plerixafor would mobilize stem cells. DRL has not shown that this determination was clearly erroneous.

The basic difficulty is that the prior art stem-cell mobilization research focused on a “completely different family of receptors” than those triggered by plerixafor; and that stem cells exhibit “around one hundred different types of receptors.”  Thus, according to the court, it would have been a major leap to use plexifora as described in Hendrix for stem cell mobilization.

The one difficulty with the Federal Circuit and District Court analysis is that this key prior art reference “Hendrix” actually states that the drug may cause stem-cell mobilization.

These combined observations suggest that binding of [plexifora] to CXCR4 may inhibit the chemotactic effects of SDF-1α, causing release of WBCs from the endothelium and/or stem cells from bone marrow.

Hendrix. The Federal Circuit recognizes what’s happening here and does an interesting word dance – attempting to explain-away the statement:

Although Hendrix hypothesized in an isolated sentence, without explanation, that plerixafor may cause stem cell mobilization, the rest of the seven-page article focused on the elevation of WBC counts. . . .  A skilled artisan would have recognized that Hendrix never tested for the presence of stem cells. The primary speculation in Hendrix for the phenomenon associated with elevated WBC counts was “demargination,” which refers to the release of WBCs from the endothelium. This emphasis on demargination is consistent with how an independent group of contemporary researchers perceived Hendrix.

The district court’s finding that stem cell mobilization was highly unpredictable at the time of the invention also runs counter to an expectation of success. In particular, there was great uncertainty about the role of SDF-1 or CXCR-4, if any, in the process of stem cell mobilization. …

Holding of non-obviousness affirmed since there was no reasonable expectation of success.

Note here – Although MBHB does not exert any editorial control over Patently-O, they are the primary advertiser for the site, and my former employer. DC. 

¿Does Secret Prior Art Apply to the Obviousness Analysis?

Patent

by Dennis Crouch

It is not clear from ,u reading the AIA revisions that “secret prior art” (102(b)(2) prior art) continues to qualify as prior art for the obviousness analysis.  The obviousness provision (Section 103) refers to prior art in the context of what would be known “before the effective filing date of the claimed invention to a person of ordinary skill in the art.”  And, almost by definition, information only available in a secret patent filing at the PTO would not be known to this mythic POSITA.  In addition, the AIA indicates that one purpose of the amendments is to bring US law in line with that of other nations [who do not rely upon secret prior art for the obviousness analysis.] Despite these argument, I suspect that the Federal Circuit will continue to push to maintain the old rule since there is not clear textual or congressional indications of an intent to change the tradition.

Post-AIA patent applications are now trickling up to the PTAB in ex parte appeals from examiner rejections.  In the recent decision Ex Parte Kirk, APPEAL 2017-003486,  (Patent Tr. & App. Bd. Oct. 26, 2017), the Board affirmed an examiner’s obviousness rejection based upon the combination of a 102(a)(1) reference (an application published prior to Kirk’s effective filing date) and a 102(a)(2) reference (an application published subsequent to Kirk´s effective filing date, but filed prior to that date).   In the appeal, the Board did not expressly consider the propriety of applying 102(a)(2) references to the obviousness analysis.  See also, Ex Parte Linkedin Corp., APPEAL 2017-005043 (Patent Tr. & App. Bd. Sept. 25, 2017).

The use of secret prior art (patents that were unpublished as of the critical date) goes back to the Supreme Court decision in Hazeltine Research, Inc. v. Brenner, 382 U.S. 252 (1965). In that decision, the court held that it was proper for the PTO to consider a pending patent application as prior art to bar a later-filed application.  There the court wrote:

Petitioners’ primary contention is that the term ‘prior art,’ as used in s 103, really means only art previously publicly known. In support of this position they refer to a statement in the legislative history which indicates that prior art means ‘what was known before as described in section 102.’ . . .

When Wallace filed his application [the prior art application], he had done what he could to add his disclosures to the prior art. The rest was up to the Patent Office. Had the Patent Office acted faster, had it issued Wallace’s patent two months earlier, there would have been no question here. As Justice Holmes said in Milburn, ‘The delays of the patent office ought not to cut down the effect of what has been done.’

To adopt the result contended for by petitioners would create an area where patents are awarded for unpatentable advances in the art. We see no reason to read into s 103 a restricted definition of ‘prior art’ which would lower standards of patentability to such an extent that there might exist two patents where the Congress has plainly directed that there should be only one.

Where is that Anticipation Rejection? Isn’t it Obvious!

Patent

by Dennis Crouch

The USPTO released a new data set of office action rejections, including an action-by-action breakdown of the basis for each rejection and the prior art relied upon. The first chart below shows the frequency that obviousness and anticipation rejections are found in office actions.  The shift since 2009 is quite interesting — obviousness rejections are up significantly following KSR while anticipation rejections are way down.

NoveltyRejections79% of what: Note here that the data set only includes office actions that contain at least one rejection.  Thus, for 2017 we could say that, 79% of actions with a rejection include an obviousness rejection.  A second big caveat is that the data set only includes applications that have been laid-open; and they had OCR scanning or other data problems with about 10% of the rejections and those have been excluded from the data set.

[Dataset][USPTO Whitepaper]

Eligibility: Novelty and Nonobviousness Evidence is Irrelevant to the Inventive Concept Question

Patent

by Dennis Crouch

Two-Way Media v. Comcast (Fed. Cir. 2017)

Most internet communications involve unicast communications – one point to one point.  Although Patently-O is accessed by many thousands each day, each HTTP request is treated separately and uniquely.   In some circumstances, you might imagine that multi-casting would be more efficient and capable of reducing certain network traffic.  Two-Way’s  asserted patents (U.S. Patent No. 5,778,187; 5,983,005; 6,434,622; and 7,266,686) are directed to system and methods for multicasting communications over a network.

Claim 1 of the ‘187 patent, for instance, is directed toward a “method for transmitting message packets over a communications network” and includes steps of “converting a plurality of streams of audio and/or visual information into a plurality of streams of
addressed digital packets;” “routing” the streams to “one or more users” based upon “selection signals” received from the users; and “monitoring” the receipt on a user-by-user basis with information about “the time that a user starts [and] stops receiving” the A/V stream.

Two-Way sued Comcast (and others) for infringement. However, the district court granted the defendant’s motion for judgment on the pleadings – holding that the claims were invalid as ineligible under 35 U.S.C. Section 101 as interpreted by the Supreme Court in Alice and Mayo.   In that process, the district court refused to consider evidence of the patents’ novelty and nonobviousness – holding that such evidence would be irrelevant to a Section 101 inquiry.

The proffered materials are irrelevant to the § 101 motion for judgment on the pleadings. None of the materials addresses a § 101 challenge to claims of the asserted patents. The novelty and nonobviousness of the claims under §§ 102 and 103 does not bear on whether the claims are directed to patent-eligible subject matter under § 101. . . . Because the proffered materials are irrelevant to the instant§ 101 issue, I have not considered them.

[District Court Judgement: Two-Way Dismissal].

The district court then went-on to find that the claims were directed to a collection of abstract ideas, including sending information; directing information; and monitoring receipt of information.  The court then went on to hold that the claims lacked any ‘inventive concept’ beyond the abstract idea itself.

On appeal, the Federal Circuit has fully affirmed these holdings – noting particularly that novelty and non-obviousness evidence is not relevant to the inventive concept question:

[The district] court correctly concluded that the [submitted evidence] was relevant to a novelty and obviousness analysis, and not whether the claims were directed to eligible subject matter. Eligibility and novelty are separate inquiries. Affinity Labs (holding that “even assuming” that a particular claimed feature was novel does not “avoid the problem of abstractness”).

Note here that the court seemingly offered a road-map for the patentee — a technological arts test — noting that the specifications appear to describe a “system architecture as a technological innovation” but “the claim—as opposed to something purportedly described in the specification—is missing an inventive concept.”

Invalidity judgment affirmed.

Two-Way Media & the Doctrine of Equivalents

Claim 1 of the ‘187 patent:

1. A method for transmitting message packets over a communications network comprising the steps of:

converting a plurality of streams of audio and/or visual information into a plurality of streams of addressed digital packets complying with the specifications of a network communication protocol, for each stream, routing such stream to one or more users,

controlling the routing of the stream of packets in response to selection signals received from the users, and

monitoring the reception of packets by the users and accumulating records that indicate which streams of packets were received by which users,

wherein at least one stream of packets comprises an audio and/or visual selection and the records that are accumulated indicate the time that a user starts receiving the audio and/or visual selection and the time that the user stops receiving the audio and/or visual selection.

Single Reference Obviousness

Patent,

Idemitsu Kosan Co., Ltd., v. SFC Co. Ltd. (Fed. Cir. 2017).

The decision here is important as one example of a single-reference obviousness decision upheld by the Federal Circuit on appeal.  Here, the prior-art is a published international patent application also owned by the patentee and with overlapping (but not identical) inventorship. 

Idemitsu’s U.S. Patent No. 8,334,648 covers an organic LED and claims priority back to a July 19, 2002 Japanese patent application.  The asserted prior art is an international application (PCT) publication from a two-weeks prior – July 4, 2002. International Publication WO 02/052904 (claiming priority to December 2000 and named Arakane).  At this point it is unclear why, but Idemitsu never challenged the status of prior-art status of Arakane.

In its obviousness analysis, the Board found that Arakane taught all of the elements of ‘648 patent’s challenged claims and that it would have been obvious to combine them in the way claimed. On appeal, the Federal Circuit has affirmed – holding that the Board had made reasonable conclusions both on the facts and the law.

The case includes a couple of procedural findings — importantly the Court permitted (at least in this situation) the PTAB to reach factual and legal conclusions not directly addressed in the petition.

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Note: The opinion here does not discuss why the single-reference decision was based upon OBVIOUSNESS rather than ANTICIPATION.

Functional Limitation Not Inherent, but Still Obvious

Patent

by Dennis Crouch

In a new decision, the Federal Circuit has ruled that the PTAB erred in its inherency analysis, but ultimately affirmed the claim cancellation after finding the error harmless. Southwire v. Cerro Wire (Fed. Cir. 2017) [Southwire]

Back in 2012, Cerro Wire filed an inter partes reexamination request against Southwire’s U.S. Patent No. 7,557,301.  The slow process apparent here is one reason why this type of reexamination was phased-out and replaced by the more aggressive AIA-Trials.  With reexaminations, the issued patent is sent first to a patent examiner for consideration with any decision then being appealable to the PTAB and eventually to the Federal Circuit.

The prior art is our primary source of evidence as to whether a patent claims a new invention.  The best evidence comes from express teachings in the prior art.  However, the courts also allow for teachings to be derived from the prior art so long as they are “inherent” within the evidence.

Example: Prior art disclosing a automobile wheel might not expressly state that the wheel is made of molecules, but that teaching would be seen as inherent.  Thus, an invention directed toward a “wheel comprising molecules” would be anticipated by the reference. 

Although inherency is sometimes useful, its scope has been limited by the courts only to cases where the proposed inherent element is “necessarily … present” in the prior art. See PAR Pharm., Inc. v. TWI Pharm., Inc., 773 F.3d 1186, 1194–95 (Fed. Cir. 2014).

Here, the patented method is directed toward making electric cable.  Lubricant is added to reduce friction and allow the wires to be more easily pulled into the sheath.  The claims require that the lubricant result in “at least about a 30% reduction” in pulling force. (Note here that the claim is written in Jepson form.)

WirePuller

In its decision, the PTAB (board) used inherency in a particular way – finding first that it would have been obvious to combine the prior art to use the method described;  and then finding that the 30% reduction would have inherently resulted from the combination.  On appeal, the Federal Circuit rejected that analysis – holding that “the Board cited no evidence that a reduction of 30% in the pulling force would necessarily result from the claimed process, which contains no steps that ensure such reduction.”  Rather, as the patentee argued, the 30% reduction serves as a guide for selecting the particular lubricants and arrangements.

We have an error, but as I mentioned, it turns out to be harmless because the Board “made the necessary underlying factual findings to support an obviousness determination.”

In particular, the prior art teaches the “substantially identical” process as that claimed with no claim element differing “in any material way” from the prior art, and the prior art might have produced the claimed “30% reduction” in pulling force.  Keeping that in mind, the court looked back to the CCPA’s 1977 In re Best holding:

Where, as here, the claimed and prior art products are identical or substantially identical, or are produced by identical or substantially identical processes, the PTO can require an applicant to prove that the prior art products do not necessarily or inherently possess the characteristics of his claimed product.

In re Best, 562 F.2d 1252 (C.C.P.A. 1977). In Best, the court noted that inherency would be properly used in this situation for an anticipation decision, but that for obviousness, the PTO can simply find a prima facie obviousness case.

Cancellation affirmed.

Federal Circuit: Even the Best Secondary Indicia Cannot Overcome this Prima Facie case of Obviousness

Patent,

In a split opinion, the Federal Circuit has affirmed summary judgment of obviousness in Intercontinenntal Great Brands (Kraft) v. Kellogg (Fed. Cir. 2017). Writing in dissent, Judge Reyna argued that the majority improperly applied a shortcut “prima facie obviousness test” without allowing for a full consideration of the patentee’s objective indicia of non-obviousness that the district court found both substantial and compelling.

The majority opinion, authored by Judge Taranto and joined by Chief Judge Prost begins with a discussion of the resealable cookie package covered by Kraft’s U.S. Patent No. 6,918,532.  Essentially, we have a wet-wipes package for cookies.

US06918532-20050719-D00001

One difference from wet-wipes is that the cookies need a frame to avoid crushing.  The defendants here relied upon a prior art reference showing a rigid re-sealable sushi container (image below).  The container has a tray, and the claimed frame is essentially a tray with higher sides.  When combined with known cookie packaging frames — the district court found that “the only reasonable inference on the record was that a relevant skilled artisan would have been motivated to combine those prior-art references.”

PriorArtCookieBox

In particular, the court noted that the difficulty with opening and closing cookies was well known, and the tray in the Machine Update prior art could simply be replaced with a more complete frame (i.e., a tray with higher sides) to protect the cookies.

In reviewing the lower court decision, the majority wrote:

[T]he court considered the simple and clear teachings of the art, the importance of common sense and ordinary creativity, and the conclusory character of Kraft’s expert’s assertions of nonobviousness.

Despite my love of cookies, I have to admit that I have never purchased one of these re-sealable containers as my preference is to complete a package within a single sitting.  However, the product packaging has apparently met with some amount of commercial success.

Regarding objective indicia of non-obviousness, the district court found it to be highly “substantial” and “compelling” with great commercial success tied to the packaging, industry praise, and copying by the defendant here.  On balance, however, the district court found (on summary judgment) the evidence was insufficient to raise a jury question.

Quite simply, according to the district court, there are some prima facie obviousness cases so strong that they are impossible to overcome even with the best possible secondary indicia of nonobviousness.   On appeal, the majority affirmed this reasoning with a quote from the Supreme Court’s KSR analysis:

Where, as here, the content of the prior art, the scope of the patent claim, and the level of ordinary skill in the art are not in material dispute, and the obviousness of the claim is apparent in light of these factors, summary judgment is appropriate.

KSR v. Teleflex (2007) (note that KSR elsewhere notes the weak objective indicia in that particular dispute).

To be fair, the majority is clear that the ultimate conclusion of obviousness still requires consideration of the objective indicia (even if they could not make a difference).  However, the majority finds that conclusions regarding the evidence – such as a motivation to combine references — may be drawn without consideration of the objective indicia.

Judge Reyna’s dissent goes the other way:

I would find that the district court improperly found a prima facie case of obviousness before considering Kraft’s evidence of objective indicia of nonobviousness. . . . I am left to wonder how “substantial” and “compelling” evidence of objective indicia cannot overcome a prima facie showing. If such significant evidence does not make a difference in this case, it is hard to imagine a situation in which it would.

For many, the problem with Reyna’s dissent is quite simply that it will make summary judgment more difficult — and the conventional wisdom is that winning an obviousness case is extremely difficult before a jury.

The majority-dissent also battle over the ‘correct’ order of consideration of the questions of operation. I’ll save that issue for a separate post.

 

35 U.S.C. 103   CONDITIONS FOR PATENTABILITY; NON-OBVIOUS SUBJECT MATTER.

Patent

35 U.S.C. 103 CONDITIONS FOR PATENTABILITY; NON-OBVIOUS SUBJECT MATTER.

A patent for a claimed invention may not be obtained, notwithstanding that the claimed invention is not identically disclosed as set forth in section 102, if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains.

Patentability shall not be negated by the manner in which the invention was made.

Obviousness Law: A Reasonable Expectation of Success

Patent, ,

In re Stepan Co. (Fed. Cir. 2017)

In a split decision, the Federal Circuit has vacated the PTAB ruling that Stepan’s claims are not patentable.  The claims here are directed to the use of ultra-high concentrate glyphosate and a particular surfactant to ensure “better adherence to leaves, thereby enhancing penetration.”  Although the PTAB (Board) found motivation to combine elements of the prior art to form the claimed system, the Board did not fully support that PHOSITA would have a ‘reasonable expectation’ that the combination would be a success.

Success

The decision here thus goes to the core of obviousness law:

The majority: An obviousness determination requires finding both “that a skilled artisan would have been motivated to combine the teachings of the prior art . . . and that the skilled artisan would have had a reasonable expectation of success in doing so.” quoting Intelligent Bio-Sys., Inc. v. Illumina Cambridge Ltd., 821 F.3d 1359 (Fed. Cir. 2016). . . . Absent some additional reasoning, the Board’s finding that a skilled artisan would have arrived at the claimed invention through routine optimization is insufficient to support a conclusion of obviousness. (Majority opinion by Judge Moore and joined by Judge O’Malley).

The Dissent (Judge Lourie): Where, as here, there is a single prior art reference, there does not need to be a finding of reasonable expectation of success for those skilled in a particular art to make conventional modifications to the prior art and look for improvements in some parameter. See In re Ethicon, Inc., 844 F.3d 1344, 1351 (Fed. Cir. 2017).

Majority’s Response in FN.1: The dissent suggests the PTO need not establish a reasonable expectation of success where there is a single prior art reference. We do not agree. Whether a rejection is based on combining disclosures from multiple references, combining multiple embodiments from a single reference, or selecting from large lists of elements in a single reference, there must be a motivation to make the combination and a reasonable expectation that such a combination would be successful, otherwise a skilled artisan would not arrive at the claimed combination.

To be clear here, the PTAB did appear to find a reasonable expectation of success. [PTAB Decision] The holding here though is that such a broad conclusory finding must also be supported by specific factual findings targeted to the patent at hand.  An important element of this decision is that the majority particularly held that the lack of factual findings supporting the PTO’s conclusion meant that the agency had not even established a prima facie case of obviousness.

Image result for stepan company

When is an the inherent, but unexpected result obvious?

Patent,

Millennium Pharma v. Sandoz (Federal Circuit 2017)

As part of a brand-generic pharma battle, the district court invalidated a set of Millennium’s patent claims covering its Velcade drug used to treat multiple myeloma.[1]  The district court held that the claims (covering the chemical compound active ingredient) were obvious as the inherent result of an obvious process.

In particular, the claims cover a freeze dried (“lyophilized”) version of the compound “D-mannitol N-(2- pyrazine) carbonyl-L-phenylalanine-L-leucine boronate.”  The active portion of the compound is the boronate (bortezomib), which was known to work but was unstable. Researchers tried and failed to create liquid formations and so turned to freeze-drying.  To achieve that end, mannitol was added to the compound in a way formed a chemical bond with the boronate – leading to dramatic improvement in stability.  When a patient ingests the new drug (a “prodrug”), the body breaks-down the compound and allows the active ingredient to work.

The boronate portion was known in the prior art for its medical use and the mannitol portion was a known bulking agent.  The process of freeze-drying was also known.  However:

No reference taught or suggested reacting bortezomib with mannitol, and no reference hinted that … an esterification reaction might occur during lyophilization. No reference taught or suggested that the product of such lyophilization would be a new chemical compound that would solve the problems that had inhibited development of bortezomib in oncology.

In its decision, the district court recognized that the resulting compound was likely unexpected, but focused on the process of getting to that result – holding that the claimed compound was simply the “natural result” inherent to the lyophilized process and that it would have been obvious to try the process on boronate + mannitol.   On appeal, the Federal Circuit has reversed.

The easy part of the decision for the district court focused-in on the motivation to combine boronate and mannitol.  The district court found that an Adams Patent “pointed directly to mannitol” for the combination.  However, according to the Federal Circuit, “the Adams Patent’s fail[s] to mention mannitol.”

In my view, this easy-part is sufficient for the patentee to win, and my preference would be for the court to delete the rest of its muddled opinion – and instead rest its case on the lack of the motivation to combine.  The remainder of the decision is somewhat difficult to follow because it jumps back and forth dancing around but never answering the basic question: If the combination would have been obvious to try, would its natural result also be considered obvious?  At times, the court appears to agree that obviousness would follow, while other sections of the opinion suggest the compound would not have been obvious since its actual structure was so unexpected.

= = = = =

 

A patent claim is obvious when, “if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains.”[2]  Here the appellate panel focused the question to: “whether a person of ordinary skill, seeking to remedy the known instability and insolubility and to produce an efficacious formulation of bortezomib, would obviously produce the D-mannitol ester of bortezomib, a previously unknown compound.”

On the topic of inherency in particular, the court seems to have simply strung together several loosely related sentences.  Take the following pair as an example:

Sandoz argues that although lyophilization in the presence of mannitol produced an unexpected result, the result was “inevitable” and thus “inherent,” and thus not “inventive.” However, invention is not a matter of what the inventor intended when the experiment was performed; obviousness is measured objectively in light of the prior art, as viewed by a person of ordinary skill in the field of the invention . . .

In the end, the reversal makes sense, but the law created is somewhat of a mess.

= = = = =

[1] Millennium Pharm., Inc. v. Sandoz Inc., No. 12-1011, 2015 WL 4966438 (D. Del. Aug. 20, 2015); U.S. Patent No. 6,713,446.

[2] 35 U.S.C. 103.

No real consensus yet on CBM Sunsetting

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

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

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

CBMSunset

 

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

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

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

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

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

Patents need to be strengthened, not weakened. 

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

The PTAB process is either corrupt or incompetent. 

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

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

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

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

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

 

Interpreting the Interpretation of the Broadest Interpretation

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By Dennis Crouch

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

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

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

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

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

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

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

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

= = =

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

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

Court-Agency Allocations of Power and the Limits of Cuozzo

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

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

= = = =

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

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

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

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

The PTAB-District Court Balance of Power

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

The Main Cuozzo Exception: Relatedness to Institution

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

Reconciling Cuozzo’s Majority and Dissent

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

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

The Other Cuozzo Exception: Scope and Impact

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

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

The USPTO Director-Federal Circuit Balance of Power

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

The Source(s) of Uniformity

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

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

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

The APA Presumption of Reviewability

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

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

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

Making the PTAB Better Explain Itself

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

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

Conclusion

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

Case Information

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

Where are we with Secret Commercialization?

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

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

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

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

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

PTAB Must Justify Each of its Obviousness Conclusions

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

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

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

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

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

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

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

SecurusTech

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

Wrongly Affirmed Without Opinion: At the Supreme Court

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Shore v. Lee (Supreme Court 2017)

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

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

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

[Read the petition: 2017_WL_1406097]

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

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

Prof Patterson: Teasing Through a Single FRAND Rate

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

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

A Single FRAND Rate

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

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

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

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

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

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

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

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

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

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

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

The Non-Discrimination Principle

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

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

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

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

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

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

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

Supreme Court: Challenging Quick-Look Eligibility Denials

Patent, , , , ,

by Dennis Crouch

Broadband ITV v. Hawaiian Telecom (Supreme Court 2017)

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

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

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

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

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

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

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

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

Read the petition here: [LINK]

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