IV has asserted a set of computer security patents against JPMorgan, some of which are directly related to electronic transactions. Within a month of the civil action filing, JPMorgan responded by filing petitions for post-grant Covered-Business-Method (CBM) review of two of the five asserted patents. JPMorgan then immediately requested a stay of litigation (noting that the patents-in-suit are also undergoing inter partes review proceedings).
The district court rejected JPMorgan’s stay request and the company filed this interlocutory appeal. On appeal, however, the Federal Circuit has dismissed the case – finding that it does not (yet) have jurisdiction over the interlocutory case.
Section 18 of the America Invents Act provides a four factor test for determining whether to stay a civil action pending the outcome of a CBM transitional proceeding.
(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;
(B) whether discovery is complete and whether a trial date has been set;
(C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and
(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.
The statute goes on to provide for “immediate interlocutory appeal” of a district court decision on the motion for stay that is related to a CBM Proceeding and that the Federal Circuit will review the decision de novo. Of course, that provision is an exception to the normal rule that the appellate courts only have jurisdiction to review final judgments of the district courts. 28 U.S.C. § 1295(a)(1) (2012). And further, judgments on motions to stay are normally considered interlocutory orders that are not subject to immediate appeal.
CBM Petition is not a CBM Proceeding: As I said, the statute provides for immediate appeal of district court stay decisions relating to CBM proceedings. Here, the Federal Circuit made a thin but important distinction by noting that the filing of a CBM petition is not itself a CBM proceeding. Rather, the CBM review only becomes a “proceeding” once the petition is granted. Truthfully, the statute is not entirely clear on this point, but the court cobbled together is conclusion by noting: (1) the statute indicates that that the process is begun with the filing of a “petition for a [CBM] proceeding” which indicates that “a petition is a request for a CBM[] proceeding, not that the petition itself is part of the proceeding.” The statute then indicates that it is the USPTO Director who “may institute a [CBM] proceeding” — an event that occurs after the filing of the petition.
Because the statute provides for no immediate appeal pre-CBM-proceeding, the Federal Circuit dismissed the case for lack of appellate jurisdiction.
= = = = =
In the big picture, this means that the challenger will likely still move for a stay immediately following the filing of a CBM/PGR, but if that is denied will need to renew that motion once the proceeding is initiated in order to create appellate jurisdiction. Meanwhile, the patentee may be looking to delay the petition decision and push the civil action more quickly in order to shift the balance of factors in its direction (toward denying the stay).
Guest post by Cynthia M. Ho, Clifford E. Vickrey Research Professor, Loyola University of Chicago School of Law.
Philip Morris and Eli Lilly think that they are entitled to millions in compensation from countries that limit or deny desired intellectual property rights. These companies are the first to challenge IP issues pursuant to international agreements protecting investments of foreign companies. However, they join a trend of companies increasingly suing states before a panel of private arbitrators pursuant to investor-dispute settlement (ISDS). The substantial financial stakes may have a chilling effect on traditional domestic laws and policies.
Although there are only two IP related ISDS disputes so far, IP policy makers should be concerned and oppose pending fast-track legislation that would permit President Obama to easily conclude more agreements with these problematic provisions. Indeed, pending agreements have been criticized by a diverse group of individuals and countries including Nobel Prize winner Joseph Stiglitz, Elizabeth Warren, the Cato Institute and countries such as France and Germany. The USTR recently issued a fact sheet, which was promptly debunked.
What is ISDS?
ISDS is a mechanism in over 3000 international agreements that permit foreign investors to seek compensation against countries. The agreements guarantee freedom from discriminatory measures, a guarantee of being treated no less favorably than domestic companies, compensation for expropriation of investments, and “fair and equitable treatment.” If these rights are allegedly violated, investors can bring a dispute before a tribunal of private (usually commercial) lawyers chosen by the parties to the dispute. There is not only no independent judiciary, but also no binding precedent and no appellate review, such that there can be inconsistent and unpredictable results.
Historically, these provisions were first added to international agreements promoting investments after World War II when newly independent nations wanted to encourage foreign investment. ISDS was intended to provide protection to companies that lacked any legal recourse against unlawful state action. ISDS was conceived as an improvement over “gunboat diplomacy” that nations used to protect their companies.
Why is ISDS relevant to IP?
Although ISDS was not originally designed to protect IP, companies are trying to use it for this purpose.
Most agreements providing ISDS do so only for investments of foreign companies. These investments can include not only tangible, but also intangible property, which would seem to include IP.
Is a Canceled IP Right an “Investment” Subject to ISDS?
Even if IP is within the scope of covered investments, a critical question is whether this should include canceled IP. IP lawyers and even students know that IP is at most presumptively valid, such that it can and often is canceled when found to not meet basic requirements. Although canceled IP has never been considered to provide rights, Eli Lilly assumes it has rights. In particular, it is seeking $500 million from Canada after failing to convince both a trial and appellate court that two of its patents were valid.
Highlights of Existing ISDS Claims Regarding IP
Eli Lilly’s case involves a challenge to Canada’s “promise doctrine” for assessing utility of patents and applications that make certain promises. The promise doctrine is unusual as a utility requirement, but similar to disclosure and other patentability requirements of other countries. Eli Lilly claims that because this doctrine developed after its patents were granted (a point that is contested, even by some lawyers), it is improper to retroactively apply it to invalidate its patents, such that its patents have been improperly “expropriated,” which is roughly similar, but broader than US takings. However, patents are routinely invalidated after common law modifications to laws, such as the scope of patentable subject matter with no claims of takings.
Eli Lilly seems to assume both that an issued patent is a state representation that it will remain forever valid and also that a nation can not modify its laws without violating legitimate expectations. The supposed violation of its legitimate expectations figures prominently in a claim for denial of the amorphous condition of “fair and equitable treatment.”
Problematically, although a patent lawyer would readily reject the idea that patents are always valid and untouchable by subsequent law, they will not be deciding Eli Lilly’s case. Notably, when I presented a forthcoming article about this case to an international law colloquium, I was surprised that the audience resisted the basic principle that patent rights can and should be invalidated when found not to satisfy fundamental requirements.
Philip Morris also claims its legitimate expectations were violated, but in a different way. Philip Morris asserts that it had a legitimate expectation that Australia would uphold its obligation to comply with TRIPS requirements for trademarks. This suit fundamentally challenges the process for resolving alleged TRIPS violations. Only countries, not companies, have standing to adjudicate alleged violations under TRIPS. Thus far, countries have been cautious in doing so since there are often political implications for their actions. Moreover, permitting violations of TRIPS to be litigated outside of the WTO forum would seem wholly inconsistent with the WTO dispute settlement process that is intended to be the only forum for litigating such disputes. In addition, there could be conflicting results; indeed, there is a pending WTO case.
ISDS for IP Threatens Flexibilities Under TRIPS
Eli Lilly’s case poses a serious threat to the minimum standard approach of TRIPS (and NAFTA). Although these agreements have been widely understood to permit nations flexibility to define key terms, such as what is “new” or what counts as “useful,” Eli Lilly falsely claims that Canada’s definition is impermissible.
Ironically, these cases are arising at a time when many academics and policy makers (Eastern Europe,South Africa) have been encouraging countries to take greater advantage of their already limited flexibilities under TRIPS. The present disputes may have chilling effects at a time when countries such as South Africa and Brazil have been considering modifying patent laws.
Future Problems
In the near future, companies may use ISDS to challenge patent provisions, such as compulsory licensing and India’s patent law designed to prevent “evergreening” of drugs that have attracted criticism, but no WTO dispute. Moreover, regulatory provisions are also ripe for challenge. For example, countries that fail to provide data exclusivity desired by the pharmaceutical industry could be subject to challenge. In addition, a pending EU lawhailed by public health advocates for increasing transparency concerning data of approved drugs is also at risk.
In B&B Hardware v. Hargis Indus. (2015), the U.S. Supreme Court involved a trademark opposition running in parallel with a trademark infringement lawsuit over the mark SEALTITE/SEALTIGHT. The general holding is that a final decision by the US Patent & Trademark Office’s Trademark Trial and Appeal Board (TTAB) can serve as issue preclusion to collaterally estop a court from re-judging already-decided issues. The particular issue being precluded here is the likelihood-of-confusion between the two marks, and the Supreme Court held that the TTAB’s final decision on likelihood-of-confusion could preclude that issue from being later litigated in the collateral action between the parties.
A court should give preclusive effect to TTAB decisions if the ordinary elements of issue preclusion are met.
Here, the “ordinary elements” of issue preclusion are that “[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” Restatement (Second) of Judgments §27.
In its decision, the Supreme Court recognized (1) that the TTAB is an administrative agency and not an Article III court; (2) that a right to a jury trial would exist in the infringement action absent preclusion; (3) that the details and procedures associated with the TTAB judging likelihood-of-confusion were somewhat different (but not fundamentally different) than that applied in the 8th Circuit; and (4) that – had the TTAB decision been challenged – it was not appealed.
And it is undisputed that a civil action in district court would entail de novo review of the TTAB’s decision. Ante, at 5.
Going forward, the court is clear that many TTAB decisions will not have preclusive effective — but that is because they fail the ordinary elements of preclusion and not simply because the TTAB is an administrative agency or because the TTAB usually decides cases in a certain way.
The 7-2 decision was penned by Justice Alito with a concurring opinion by Justice Ginsburg. Justice Thomas wrote in dissent and was joined by Justice Scalia. The dissent argued that the court should not simply presume that Congress intended agency decision to have preclusive effect.
= = = = =
For patent attorneys, the case will have an obvious impact on the interplay between the Patent Trial and Appeal Board (PTAB) and parallel district court litigation. The same reasoning that led the Supreme Court to its decision in B&B will apply equally with determinations made during inter partes and post grant review proceedings. Importantly, issue preclusion applies to individual decisions of fact or law and thus may be important for sub-issues such as claim construction, scope and content of the prior art, level of skill in the art, etc.
Although B&B focused on traditional mutual issue preclusion, there is should also apply to defensive non-mutual issue preclusion that might arise when the defendant in an infringement action was not one of the parties in the IPR/PGR.
An important caveat: The Supreme Court recognized that issue preclusion won’t apply to agency decision when Congress so indicates. Here, there is an argument that the estoppel provisions in the IPR/PGR statutes suggest that Congress has opted out of the issue preclusion arena for these decisions.
= = = = =
One of the most interesting lines from the opinion: “federal law does not create trademarks.” For that line, the court cited Trade-Mark Cases, 100 U. S. 82, 92 (1879) (“This exclusive right was not created by the act of Congress, and does not now depend upon it for its enforcement. The whole system of trade-mark property and the civil remedies for its protection existed long anterior to that act, and have remained in full force since its passage.”).
The U.S. Senate has now confirmed President Obama’s nomination of Michelle Lee as Undersecretary of Commerce and Director of the USPTO. Congratulations to Director Lee on this expected but long awaited final step to filling the post left by David Kappos more than two years ago. Lee has been with the PTO since 2012 and was previously Google’s chief patent counsel.
We will see Director Lee staying the course that she has already set with a focus on patent quality and efficient operations. The larger and ongoing battles will be fought over patent litigation reform and the role of our post grant review system. Lee is the first female director of the agency, whose top three leaders are now all women (with Peggy Focarino as Commissioner of Patents and Mary Boney Denison as Commissioner of Trademarks).
Lee will likely be given latitude in naming her deputy director. Hal Wegner – very often correct in his insight – suggests two potential candidates: Russ Slifer (Director of the USPTO Denver Office) and Christal Sheppard (Director of the USPTO Detroit Office). Slifer and Sheppard are current USPTO executives who have spent most of their careers outside the agency.
Senator Coons is expected to introduce his competing patent reform bill into the Senate this week under the title Strong Patents Act. As the name suggests, these provisions here tend to strongly favor patent holders. With his usual understated tone, Herb Wamsley writes that Coons’ bill “will differ substantially from Rep. GOODLATTE’s bill H.R. 9.” In the current political state, this provision has no hope of being enacted. However, I suspect that supporters of provision see it as having strong gridlock-creating potential.
The following is a fairly high-level review of the particular proposals as well as a link to the text of the bill.
Claim Construction during Post-Issuance Review Proceedings shall be according to the “ordinary and customary meaning” and in the same way that a court would construe the claim in an action to invalidate a patent. This provision would have the beneficial impact of better-linking the parallel court and PTO proceedings. The provision would also make it more difficult for the PTAB to invalidate patents because the claims would no longer be given their broadest reasonable interpretation.
Amendments to the Claims during Post-Issuance Review Proceedings will be allowed if “reasonable.”
Presumption of Validity will Apply to patents being challenged in post-issuance review proceedings such that unpatentability of a previously issued claim would require clear and convincing evidence.
Standing to File Post-Issuance Review Proceedings will be limited to only entities charged with infringement.
In Response to a Post-Issuance Review Petition, the patentee will be allowed to submit supporting evidence.
Separating the Two Steps of Post-Issuance Review Proceedings: Under the proposed law, a PTAB judge who participates in the decision to grant a PGR/IPR petition will not then be allowed to decide the merits of the case.
Blocking Anonymous Petitions: The proposed law would allow the patentee to discover the real party in interest associated with the filing of either a reexamination or an PGR/IPR petition.
A One Year Deadline will be instituted for filing requests for ex part reexamination triggered by service of a complaint alleging infringement.
Civil Procedure:
Form 18 is to be eliminated.
USPTO Funding:
Fees collected by the USPTO will be made available to the Director until expended including past each fiscal year.
Infringement:
The Punitive Damages Provision would be amended to allow the court “in its discretion” to treble damages “upon determining, by a preponderance of the evidence, that the infringement was willful or in bad faith.”
Inducement of Infringement becomes a cause of action as outlined by the Federal Circuit in Akamai. This would effectively overrule the Supreme Court’s decision in the case.
Universities:
The provision would fix a seeming gap in the current micro-entity status requirements that don’t actually allow universities to claim micro-entity status (for a 75% fee reduction) but instead only those with a duty to assign rights to the university.
Rogue and Opaque Demand Letters:
The new law would specify that certain bad-faith demand letters are unlawful under the FTC Act and the FTC would have power to enforce the law with a maximum penalty of $5 million.
Guest Post by Professor Daryl Lim (John Marshall Law School)
Apple and Samsung will once again lock horns at an appeals court. Apple is seeking a permanent sales ban on patented features contained in Samsung’s Galaxy S3 smartphone and nine other older smartphone models. The U.S Court of Appeals for the Federal Circuit, which will hear the oral arguments on March 4, had earlier ruled that those seeking injunctive relief must show a “causal nexus” between the infringement and the asserted “irreparable” harm.
The patents cover user-interface designs for software covering the “autocorrect,” “slide to unlock,” and “quick link” features. A lower court ruled (ruling here) that Apple had failed in carrying its burden to show the infringed features drove consumer demand for Samsung’s products. It also rejected Apple’s argument that its reputation had suffered “irreparable” harm.
1. Feature-Based Injunctions
Apple has argued that the narrow ban it sought covering the infringing features should have been granted. A ban focusing on infringing features rather than whole products has much to commend itself. It better tailors the remedy to address the harm and comports with the equitable basis of injunctive relief. The need for proportionality also manifests itself in the requirement that courts weigh the relative hardships to the parties in deciding whether to grant or deny an injunction, as well as in deciding whether the injunction is in the public’s interest.
At the same time, Apple’s view that a nexus “necessarily” exists because its injunction is narrowly tailored leans too far in the other direction. That kind of categorical thinking was rejected by the Supreme Court in its seminal eBay decision, which required courts to undertake an approach that emphasizes a careful balancing of the effects of granting the request for an injunction. Google, LG and others also cautioned against it, warning that it would breed patent hold-ups, with smartphones typically containing 250,000 patents. Rather than devoting time and resources to develop new products or improving existing ones, companies could be consumed with waves of vexatious litigation by patentees seeking feature-specific injunctions.\
On the other hand, Nokia warned that the value of exclusive licenses turns on robust exclusion rights, and their absence “would devalue those patent rights and stifle incentives for further innovation.” However, the Supreme Court has repeatedly held that the exclusive rights are a means to furthering the public interest by facilitating the dissemination of new and useful technology. The proper remedy for infringement is monetary compensation; unless eBay standards are met. Sales bans are the exceptions to that norm.
2. Reputation as a Proxy for “Irreparable Harm”
Apple also sought to show that infringement by a rival would harm its reputation. According to Apple, this qualifies for “irreparable harm,” warranting an injunction. As with all cases for injunctive relief, the facts are crucial in providing the proper context for delineating the scope of its applicability.
Apple relied principally on Douglas Dynamics, where the Federal Circuit held that the patentee’s reputation as an innovator would be damaged if customers found the same features in snowplows sold by its rivals. The owner promoted this “easy on, easy off” feature in its advertising, and the infringer had marketed itself as the patentee at “half the price.”
Apple argues that Douglas Dynamics did not require patent-specific proof in finding reputational harm. But it cannot have it both ways. If Apple seeks a feature-specific injunction to remedy a specific harm, then it must also accept that the harm to reputation must be similarly linked to the patented feature. Injunctions are a response to threats of imminent harm. It will be difficult for Apple to show this nexus.
First, during the relevant period Samsung launched nine flagship devices containing features Apple did not offer, such as near field communications technology. The lower court found its products independently reputable.
Second, consumers are unlikely to link the patented features with Apple. In the same way an infringing cooling fan in a computer does not harm the innovator’s reputation as a computer maker, features such “quick link”, “slide to unlock” and “autocorrect” do not harm Apple’s reputation for making smartphones. Moreover, Apple’s latest operating system, iOS7 has already abandoned features like the spot-specific “slide to unlock” feature.
Third, few would have missed Apple’s muscular pursuit of patent litigation. Its reputation cuts against the conclusion that “irreparable” harm has resulted from the infringement.
Fourth, its reputation as an innovator remains stellar. At $700 billion, Apple is the world’s largest company by market capitalization.
Fifth, if Apple is truly concerned about Samsung misappropriating its goodwill or consumer confusion, it is barking up the wrong tree. Trademark law, not patent law is Apple’s remedy to protecting its reputation.
This case represents one of the last in Apple-Samsung global litigation. Many in the tech world will watch with great interest where the Federal Circuit stands on both issues. Its pronouncements will define the final contours of the end-game.
Daryl Lim is an Assistant Professor at The John Marshall Law School where he teaches courses in intellectual property law as well as antitrust law. In 2014, he was nominated “Professor of the Year”, and was one of 24 law professors worldwide nominated for a list of top 10 antitrust/competition law professors under 40 on the Antitrust & Competition Policy Blog. His latest article “Standard Essential Patents, Trolls, and the Smartphone Wars: Triangulating the End Game” may be found here.
Fenner Investments, Ltd. v. Cellco Partnership (Fed. Cir. 2015) Download Fenner v Cellco Panel: Newman (author), Schall, Hughes
In Fenner v. CellcoPartnership, Judge Newman adds another voice to the chorus of Federal Circuit judges reading Teva v. Sandoz as having little effect on the court’s routine review of district court claim constructions. Here, the panel affirms the district court’s construction of the term “personal identification number” under what appears to be a de novo standard of review Frustratingly, the opinion never states which standard of review it is applying either generally or to any given issue, but I read all of the issues it addresses as either consisting of intrinsic evidence or going to the “ultimate question” of claim construction.
Judge Newman’s Articulation of the Post-Teva standard of review. The appellate analysis begins with the established reading of Teva as reinforcing a largely de novo standard of review for claim construction:
We review de novo the ultimate question of the proper construction of patent claims and the evidence intrinsic to the patent. Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831, 841 (2015); id. (“[W]hen the district court reviews only evidence intrinsic to the patent (the patent claims and specifications, along with the patent’s prosecution history), the judge’s determination will amount solely to a determination of law, and the Court of Appeals will review that construction de novo.”). The district court’s determination of subsidiary facts based on extrinsic evidence is reviewed for clear error. Id. at 835, 841.
After noting that the appellant’s argument rested on a plain meaning versus the specification & prosecution history tension, the opinion summarizes the claim construction process:
The terms used in patent claims are not construed in the abstract, but in the context in which the term was presented and used by the patentee, as it would have been understood by a person of ordinary skill in the field of the invention on reading the patent documents. See Biogen Idec, Inc. v. GlaxoSmithKline LLC, 713 F.3d 1090, 1095 (Fed. Cir. 2013) (“[A] term’s ordinary meaning must be considered in the context of all the intrinsic evidence, including the claims, specification, and prosecution history.”). Thus, a claim receives the meaning it would have to persons in the field of the invention, when read and understood in light of the entire specification and prosecution history. Phillips v. AWH Corp., 415 F.3d 1303, 1312– 1317 (Fed. Cir. 2005) (en banc). Any explanation, elaboration, or qualification presented by the inventor during patent examination is relevant, for the role of claim construction is to “capture the scope of the actual invention” that is disclosed, described, and patented. Retractable Techs., Inc. v. Becton, Dickinson & Co., 653 F.3d 1296, 1305 (Fed. Cir. 2011).
In this articulation of the process, both the specification and the prosecution history play an important role. But Judge Newman does not stop with this summary; she digs into the meaning of claim construction itself:
Words are symbols, linguistic embodiments of information sought to be communicated, and, as such, can be imperfect at representing their subject. The Supreme Court recently observed this challenge to patent claim interpretation, stating in Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120, 2128-29 (2014), that “the definiteness requirement must take into account the inherent limitations of language,” and that clarity is required although “recognizing that absolute precision is unattainable.” When the disputed words describe technology, the terse usage of patent claims often requires “construction” in order to define and establish the legal right. Judicial “construction” of patent claims aims to state the boundaries of the patented subject matter, not to change that which was invented.
Beginning with the written description issue, the opinion concludes that the district court used that portion of the patent properly:
The foundation of judicial claim construction is the “written description” in the specification. The patent statute requires that the claims “particularly point[] out
and distinctly claim[] the subject matter” that the applicant regards as the invention. 35 U.S.C. §112(b). The district court appropriately consulted the description in the ’706 specification “for the purpose of better understanding the meaning of the claim.” White v. Dunbar, 119 U.S. 47, 51 (1886).
The prosecution history further bolstered the district court’s construction even though the examiner did not appear to have relied upon the relevant statements by the applicant in granting the patent:
Fenner argues that these purportedly limiting statements he made during prosecution do not limit the claims, arguing that the statements and the limitations discussed were not the basis for grant of the patent. However, the interested public has the right to rely on the inventor’s statements made during prosecution, without attempting to decipher whether the examiner relied on them, or how much weight they were given. See Microsoft Corp. v. Multi-Tech Sys., Inc., 357 F.3d 1340, 1350 (Fed. Cir. 2004) (“[A] patentee’s statements during prosecution, whether relied on by the examiner or not, are relevant to claim interpretation.”); Laitram Corp. v. Morehouse Indus., Inc., 143 F.3d 1456, 1462 (Fed. Cir. 1998) (“The fact that an examiner placed no reliance on an applicant’s statement distinguishing prior art does not mean that the statement is inconsequential for purposes of claim construction.”)
The court also rejected the appellant’s arguments based on interoperability (concluding that the district court’s construction did not render the claim inoperable) and claim differentiation:
Although claim differentiation is a useful analytic tool, it cannot enlarge the meaning of a claim beyond that which is supported by the patent documents, or relieve any claim of limitations imposed by the prosecution history. See, e.g., Retractable Techs., 653 F.3d at 1305 (“[A]ny presumption created by the doctrine of claim differentiation ‘will be overcome by a contrary construction dictated by the written description or prosecution history.’” (quoting Seachange Int’l, Inc. v. C-COR, Inc.,413 F.3d 1361, 1369 (Fed. Cir. 2005))); Toro Co. v. White Consol. Indus., Inc., 199 F.3d 1295, 1302 (Fed. Cir. 1999) (“[T]he doctrine of claim differentiation does not serve to broaden claims beyond their meaning in light of the specification, and does not override clear statements of scope in the specification and the prosecution history.” (citation omitted)).
Many patent attorneys—including me—went through law school thinking “Administrative law? What do I care?” Administrative law matters; it is as important to intra-PTO litigation and to Federal Circuit appeals as the Federal Rules of Civil Procedure are during district court proceedings.
Administrative law provides a rich set of tools to for a party to guide rational agency decision making while a proceeding is in progress, and to challenge adverse decisions on judicial review. Administrative law tools can:
require the agency to follow its own regulations as written, without ad hoc “interpretation” or creation of on-the-fly rules,
require the agency to consider all relevant evidence and arguments,
establish jurisdiction for judicial review,
on judicial review, obtain favorable standards of review by slotting issues into exceptions to the high deference normally accorded agency action,
turn weak policy-based arguments into strong arguments based on statute and Supreme Court authority,
challenge the agency’s evidentiary and factual rulings on standards that are often far more favorable than the standard of review applied to Article III courts—indeed, the standard of review in some instances can be less deferential than the standard applicable to jury findings,
adduce new evidence on appeal,
limit the agency’s ability to wiggle out of a case by requesting remand, and instead force the issue to a binding judgment against the agency, and
confine the arguments that the agency can make to defend its action, and
require the agency to meet the requirements of the Administrative Procedure Act and other relevant laws when promulgating its regulations or guidelines.
Competence in administrative law is essential in complex patent prosecution, ex parte appeals, PTAB trials, and appeals to the Federal Circuit from PTO and ITC actions.
The Administrative Law Requires Courts to Accept Jurisdiction to Review Agency Non-Compliance with Their Own Regulations
For example, last Wednesday, the Federal Circuit in In re Cuozzo Speed Technologies, LLC ruled that the court has no jurisdiction to review decisions by the Patent Trial and Appeal Board (PTAB) whether to institute an Inter Partes Review (IPR). An argument based on administrative law would have established the Federal Circuit’s jurisdiction, but that argument was not raised.
The Federal Circuit’s holding was so broad as to oust the court of jurisdiction to review whether the PTAB’s decision was made on criteria contrary to statute or the regulations that the PTAB promulgated for itself. The court read 35 U.S.C. § 314(b) so broadly as to insulate from judicial review all decisions to institute or not institute an IPR, in all circumstances.
But the administrative law requires a court to exercise jurisdiction to review agency compliance with the agency’s own regulations and guidance, and to set aside agency action issued “without observance of procedure required by law.”[1] The Supreme Court has addressed the following fact pattern on about a dozen occasions. An agency acts outside its procedures. The aggrieved party sues. The agency points to a statute that precludes review, and asks the court to deny jurisdiction on that basis. In every such case, the Supreme Court holds that even if a statute purports to preclude review, jurisdiction remains to review the agency’s procedures, to assess whether the agency action was “without observance of procedure required by law.” “Only in the rare—some say non-existent—case … may review for ‘abuse’ be precluded.”[2] The Court holds that preclusion statutes must be read narrowly, to preclude review only of the ultimate decision on the merits, leaving intact jurisdiction to review whether the agency departed from procedural requirements. The Supreme Court has applied this principle to statutes even broader and clearer than § 314(b), and to government interests far more fundamental. It is a very strong principle.
Had that administrative law argument been raised, the Federal Circuit would unquestionably have accepted jurisdiction in Cuozzo.
The Administrative Law Confines the Board’s Discretion to Deny Motions to Amend During IPR’s
Cuozzo’s brief argues that the Board erred in denying a motion to amend claims. The argument cites no authority. This argument could have been converted from a weak argument to a very strong one, by grounding it in the administrative law.
When an agency promulgates a regulation, it is required to explain the regulation in a Final Rule notice in the Federal Register. Any gloss put on the regulation in that notice binds the public under Chevron[3] deference (though the many exceptions to Chevron are far less known). This gloss is binding on the agency as well—an agency can’t twist its regulations like a nose of wax. Nor can an agency move regulatory burden from one regulation to another, like a confidence man moving a pea from under one shell to another, by giving inconsistent rationales and interpretations for regulations.
In promulgating the IPR regulations, the PTO justified its choice of a “broadest reasonable interpretation” standard for claim construction by pointing to “a party’s ability to amend claims to avoid prior art—which exists in these proceedings (§ 42.221).”[4] But the PTAB almost never grants these motions to amend.[5] Thus, as a practical matter, the agency’s basis for adopting “broadest reasonable interpretation” is illusory. The administrative law does not allow agencies to have things both ways—the PTO can’t both uniformly deny motions to amend and point to that “right” as justification for broadest reasonable interpretation.
The strong argument is based in administrative law. While most “arbitrary and capricious” cases are hard, a few subcategories are easy. PTAB decisions frequently raise issues that can be slotted into these easy subcategories for appeal.
The PTAB’s Trial Regulations Were Issued with Insufficient Attention to Rulemaking Procedure
Cuozzo also affirms the PTO’s choice of “broadest reasonable interpretation” as the standard for claim construction. However, the PTO’s “broadest reasonable interpretation” rule—like many of the PTO’s other regulations—is subject to challenge because the PTO was less than rigorous in following rulemaking procedure.
Agency rulemaking is governed by a number of statutes, including the Administrative Procedure Act, Regulatory Flexibility Act, Paperwork Reduction Act, Information Quality Act, E-Government Act of 2002, Independent Offices Appropriations Act, regulations on Information Collections, guidelines on Information Quality, and Executive Order 12,866. These laws require specific procedures, disclosures, and analyses. For example, they require an agency to disclose its assumptions, factual and statistical information and models and their underlying support on the agency’s web site. The agency must ask specific questions to seek comment. The agency must show cost-benefit analyses to asses effect on small entities and overall economic effect, and must show that the agency has sought to minimize (not just reduce, but minimize) paperwork burdens. The agency must show its work, and provide supporting evidence, similar to that required for a peer-reviewed journal article.
The Paperwork Reduction Act is especially interesting, because it is little known and exceptionally powerful. As you may recall, the PTO had to stand down on its Appeal regulation on the morning it was to go into effect because the Office of Management and Budget withheld the PTO’s power to enforce those regulations, after a number of letters pointed out PTO violations of the PRA. (I had a little influence in that outcome.) Likewise, OMB directed PTO to stand down on the Continuations, 5/25 Claims, and IDS regulations (I also had something to do with that).
During the rulemaking process for the PTO’s AIA regulations, several of the comment letters noted procedural deficiencies in the PTO’s Notices of Proposed Rulemaking and its supporting materials. The letters warned that these deficiencies would expose the PTAB’s decisions to challenge because the PTAB’s regulations were not validly promulgated. The oversights were not corrected before the final regulations were published.
Many PTAB decisions present winnable issues for appeal based on faulty procedure during rulemaking. Cuozzo likely could have been such a case, but administrative law opportunities were missed.
Conclusion
Some administrative law statutes permit issues to be raised at any time, and such issues have been successfully raised for the first time in courts of appeals. Unfortunately, in Cuozzo, these administrative law arguments weren’t squarely raised. The lesson of Cuozzo is that patent attorneys—especially those that practice in contested cases before the PTAB and in appeals to the Federal Circuit—need to know the administrative law as well as they know the patent law.
= = = = =
David Boundy is a patent attorney in Cambridge Massachusetts, specializing at the intersection of administrative law and patent law. While Vice President for Intellectual Property at Cantor Fitzgerald, in 2006-10 Mr. Boundy led teams that advocated with the Office of Management and Budget in the Executive Office of the President for the withdrawal by the PTO of the Continuations, 5/25 Claims, IDS, and Appeal rules. Mr. Boundy consults and provides legal services on administrative law issues for intra-PTO trials and judicial review cases.
= = = = =
[1] 5 U.S.C. § 706(2)(D).
[2] Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 672 n.3 (1986)
[3] Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
[4] Patent and Trademark Office, Changes to Implement Inter Partes Review Proceedings, Post-Grant Review Proceedings, and Transitional Program for Covered Business Method Patents; Final Rule, 77 Fed. Reg. 48680, 48693 (Aug. 14, 2012).
Guest Post by Dr. Kate Gaudry and Prof. Shine Tu. Professor Tu is an Associate Professor of Law at the West Virginia College of Law. Dr. Gaudry is a patent attorney with Kilpatrick Townsend.
The Sensitive Application Warning System, or SAWS, program is a secretive program operated by the U.S. Patent and Trademark Office that flags certain patent applications for a heightened level of scrutiny. In October 2014, the PTO responded to one of our requests for information about SAWS. This post discusses the data the PTO provided, highlights areas where it is incomplete, and explains our concerns about the information the PTO declined to provide.
The SAWS program operates like this: If an examiner determines that a criterion applied to an application being examined, he/she is to propose that the application be characterized as a SAWS applications. When an application is entered into the SAWS program, multiple other people (seemingly up to eight or more people) must review and approve examiner-proposed notices of allowances. This enhanced-scrutiny review can negatively impact the applicant. For example, it would likely result in a reduced probability that an application would be allowed, an increased number of office actions issued and an increased pendency. Further, it would appear to prevent the applicant from being able to talk to (via an interview) or even identify the decision-makers controlling an application’s fate. Despite these potential consequences, applicants are not informed when an application is entered into the SAWS program, and the PTO refused to respond to multiple of our requests to identify SAWS application numbers. The PTO instead has insisted that SAWS has a minimal impact on prosecution. (See http://www.corpcounsel.com/id=1202678064286/Secret-PTO-Program-Delays-Patent-Approvals.) This conclusion would be surprising given the structure of the program, and is contradicted by our preliminary data.
Sixty pages of memos indicated that there were approximately 100 SAWS-eligibility criteria. Some criteria seem reasonable: for example, “applications claiming inventions which would endanger individuals, the environment, the security of our nation, or public safety.” However, some criteria seem extremely broad, vague and/or frivolous, such as applications “dealing with inventions, which, if issued, would potentially generate unwanted media coverage;” “disclosing seemingly frivolous or silly subject matter;” “with claims of pioneering scope;” “claiming the prevention or curing of diseases which were previously considered impossible to prevent or cure, such as … Alzheimer’s disease, … [or] HIV infection;” and “[directed to] smartphones and other convergence-intensive devices.”) (A full summary of the released SAWS information and criteria can be found here: http://www.kilpatricktownsend.com/en/Knowledge_Center/Publications/Articles/2014/12/Secret_PTO_Program_Subjects_Apps_To_Heightened_Scrutiny.aspx). Given the breadth and vagueness of these categories, we are concerned that the SAWS program seems to be designed to allow the PTO to arbitrarily heighten the criteria of patentability for certain applications.
The PTO recently granted one or our requests to identify high-level statistics pertaining to the program. An initial report of some of these statistics can be found here [http://www.kilpatricktownsend.com/en/Knowledge_Center/Publications/Articles/2015/01/Secret_PatentExamination_Program_Rare_But_Consequential.aspx]. In sum, the PTO provided data regarding the total number of applications that were flagged for SAWS evaluation in fiscal years 2006, 2008, and 2010 having each of three statuses: patented, pending or abandoned. Additionally, the PTO provided information segmenting these applications based on technology center assignment and prosecution statistics for individual application sets (each set corresponding to a SAWS designation, filing year and current status).
In short, very few applications are evaluated under the SAWS program (approximately 1 in 2500). However, for those that are – contrary to the PTO’s contentions – the PTO’s own data shows that the SAWS program has a sizable impact on prosecution, both in increasing prosecution duration and reduction in allowance rates.
SAWS Impact
Reduced Allowance Rate
One impact is that SAWS applications appear to be less likely to issue as patents and more likely to be pending for extended durations. We had requested data identifying the status for published, utility SAWS applications filed in fiscal year 2006 and for published, utility applications filed in the same time period. As reported in the January 2015 Law360 article [http://www.kilpatricktownsend.com/~/media/Files/articles/2014/Secret%20Patent-Examination%20Program%20Rare%20But%20Consequential.ashx], far fewer SAWS applications had issued as compared to the greater application set (see Table 1), and many more were pending.
FIG. 1 below breaks this result down by technology center. (“BM” is representative of the business-method art units in technology center 3600, which includes art units 3621-29, 3681-89 and 3691-96.) As shown, SAWS applications are generally substantially less likely than other applications to have issued as patents (FIG. 1A) and are substantially more likely to be pending (FIG. 1B).
Figure 1
It is impossible for us to evaluate the appropriateness of SAWS applications being less likely to be patented 9 years after filing than other applications because the PTO has not released the application numbers. Potentially, these SAWS applications include “silly” applications (however that is defined), or potentially these SAWS applications include a novel drug that will cure Alzheimer’s disease. But without the application numbers, we can only hypothesize about the contents of the SAWS-tracked applications.
Extended Prosecution of Patents
What we can, at least quantitatively, evaluate are those applications that the PTO eventually determined were worthy of a patent. As initially reported in the above-referenced Law360 article, the prosecutions of these patent-worthy applications were dramatically affected. In particular, it took substantially longer to receive notices of allowances. FIG. 2 is a new graph showing the time from application filing to patent issuance for SAWS patents and other patents filed in fiscal year 2006, separated by technology center.
Figure 2
Thus, years (on average, three years) are added to a patent’s pendency, and this delay will likely be even more substantial as the pending SAWS applications reach final disposition. Technology Center 1600 is one center where this delay is quite apparent. Given that Technology Center 1600 examines patent applications relating to (amongst other subjects) drug compounds and that SAWS applications are more common in Technology Center 1600 than many other technology centers, the delay may be of great societal concern, as it may affect investments devoted to the innovations and thus the accessibility of new treatments. Further, the number of SAWS applications in Technology Center 1600 has approximately doubled between filing year 2006 and 2010.
The prosecution delay could be, due to additional office actions issued against SAWS applications. For applications filed in fiscal year 2006 that have issued as patents, the average number of office actions issued per patent was 4.3 for SAWS patents and 2.3 for the corps-wide patent set. Another one of our upcoming articles on IPWatchDog shows the discrepancy in office-action counts and RCE filings for individual technology centers. This increase in office-action issuances and RCE filings likely requires applicants to invest substantially more money in procurement of a patent. (In our Law360 article [http://www.kilpatricktownsend.com/~/media/Files/articles/2014/Secret%20Patent-Examination%20Program%20Rare%20But%20Consequential.ashx], we estimate the additional costs to be roughly $7000.)
Concerns and Oddities Surrounding SAWS
The PTO is Not Recognizing the Impact of SAWS
This data seems to suggest that the enhanced scrutiny of SAWS is not innocuous. Nonetheless, the PTO seems to be in denial of the data that the agency itself provided. As reported by Corporate Counsel [link to: http://www.corpcounsel.com/id=1202716358836/Data-Shows-Impact-of-PTOs-Secretive-Patent-Program] a PTO spokesperson said, in response to this data that “any time added to the prosecution of the patent is usually minimal.” Given that the average added delay is three years, this assessment seems to be inaccurate.
The PTO is Hiding its SAWS Classifications
The PTO has been repeatedly asked, by us and by others, to indicate whether particular applications are being evaluated under SAWS and/or to identify all SAWS applications. The PTO repeatedly refuses to do so. The agency asserts that the information is privileged as part of an agency’s deliberative process. Dennis Crouch has previously explained why he believes that this privilege assertion is misplaced. [Link to https://patentlyo.com/patent/2015/01/sensitive-application-warning.html] Even if the privilege was proper (which the authors concur is not for multiple reasons), such privilege in this instance could be waived by the PTO. For the sake of transparency and to allow applicants to stay informed as to the true status of their applications, the PTO should choose to release such information. Such disclosure would also allow applicants to be able to identify who the true decision-makers are in relation to SAWS matters, rather than undergoing frustration with seeming inconsistencies between conversations (at which allowable subject matter is identified) with an examiner and official papers issued by the office (nonetheless rejecting an application).
SAWS Violates Proper Rulemaking
If we assume the SAWS program is a procedural, and not a substantive, rule, the PTO could have authority to promulgate such a rule. (The PTO does not have authority to make substantive rules.) However, procedural rules must be appropriately enacted. The PTO frequently complies with informal notice-and-comment rulemaking procedures (e.g., as opposed to formal rulemaking procedures). However, with regard to SAWS, neither notice nor comment opportunity were provided.
Possible property rights seem to be affected by SAWS. Applicants subjected to SAWS appear to be less likely to be patented, and patent issuance is delayed. This delay in issuance may preclude an applicant from protecting an invention during a critical time (e.g., critical in view of a competitive landscape, litigation, or investment opportunity). Despite these consequences, the PTO does not abide by fair procedures in relation to the program.
There is no clear criteria indicating what types of applications will be subjected to SAWS. Rather, the very broad, extensive SAWS-eligibility list could seemingly qualify many more applications to be reviewed under SAWS than the reported 0.04%.
Further, there is no disclosure as to how the program actually operates and which applications are affected. This precludes applicants from challenging or even understanding SAWS designations and immunizes the PTO from improper selection processes.
Our Call to the PTO: Be Transparent about SAWS
The PTO claims that SAWS is a mere quality-control effort, that SAWS applications undergo the same examination review as other applications, and that the SAWS process minimally affects processing delays. Nonetheless, to outsiders, this program is suspicious for at least the following reasons:
One of the top SAWS-eligibility criteria relates to reducing PTO embarrassment.
While the PTO has repeatedly asserted that SAWS does not affect examination delays, we have shown that contention to be wrong.
The SAWS-eligibility list could seemingly qualify most patent applications for SAWS, while only 0.04% are entered into the program. Thus, the actual SAWS-selection criteria is unknown to the public (and creates bias opportunity).
SAWS violates the PTO’s rulemaking authority.
SAWS violates due process.
The PTO has refused to identify which applications are in SAWS, such that it appears as though they are attempting to make the program immune from challenge or embarrassment.
If this program is a fair program, we call for the PTO to release the SAWS application numbers and, going forward, to inform applicants when their applications have been selected for SAWS review. We are not alone in this call, as attorneys from a variety of firms [http://www.law360.com/articles/614522/attys-want-uspto-to-open-up-about-sensitive-patent-apps] stand with us in asking why the PTO has kept this program a secret for decades and why the agency is reluctant to be transparent about its prior and current SAWS reviews.
In re Papst Licensing Digital Camera Patent Litigation (Fed. Cir. 2015) (Download In re Papst) Panel: Taranto (author), Schall, Chen
In its first precedential opinion addressing claim construction after Teva v. Sandoz, a panel of Judges Taranto, Schall and Chen take the approach that it is business at usual for the court—at least, as long as only intrinsic evidence is involved.
The most significant aspect of this opinion is the relationship between this appeal and Teva. Here, the district court heard from the parties’ experts on the technical background, but “declined to admit expert testimony or to rely on an expert declaration from Papst, stating that ‘the intrinsic evidence—the claims, the specification, and the prosecution history—provide the full record necessary for claims construction.” Slip Op. at 7. Given this posture, the Federal Circuit comfortably applied a de novo standard of review. From the opinion:
We review the grant of summary judgment of noninfringement de novo, applying the same standard used by the district court. See Bender v. Dudas, 490 F.3d 1361, 1366 (Fed. Cir. 2007). The infringement inquiry, which asks if an accused device contains every claim limitation or its equivalent, Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 29 (1997), depends on the proper construction of the claims. See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1454 (Fed. Cir. 1998) (en banc). In this case, we review the district court’s claim constructions de novo, because intrinsic evidence fully determines the proper constructions. See Teva Pharm. U.S.A. Inc. v. Sandoz, Inc., 135 S. Ct. 831, 840–42 (2015). As we have noted, the district court relied only on the intrinsic record, not on any testimony about skilled artisans’ understandings of claim terms in the relevant field, and neither party challenges that approach.
Slip Op. at 8. Operating within this framework, the court drew upon its “familiar approach to claim construction”:
“We generally give words of a claim their ordinary meaning in the context of the claim and the whole patent document; the specification particularly, but also the prosecution history, informs the determination of claim meaning in context, including by resolving ambiguities; and even if the meaning is plain on the face of the claim language, the patentee can, by acting with sufficient clarity, disclaim such a plain meaning or prescribe a special definition.”…We apply, in particular, the principle that “[t]he construction that stays true to the claim language and most naturally aligns with the patent’s description of the invention will be, in the end, the correct construction.”
Slip Op. at 9-10 (internal citations omitted). Using that approach, the Federal Circuit reversed all of the district court’s claim constructions at issue.
While this appeal appears to involve Teva‘s paradigmatic scenario in which de novo review is appropriate, future appeals are less likely to offer such a relatively simple posture. Rather, the expectation is that district judges will seek to insulate themselves from review by relying upon evidence that the Supreme Court said is due deferential review. This increasing reliance on extrinsic evidence by district courts will result in appeals that intertwine the intrinsic with the extrinic. That said, the above sections of the opinion suggest to me that the court is probably going to focus its review on the intrinsic evidence first and, if that is clear, will decide the appeal on that ground alone.
There’s another layer of complexity going on here that relates to the starting meaning* of words. In Teva, the Court observed that:
Construction of written instruments often presents a “question solely of law,” at least when the words in those instruments are “used in their ordinary meaning.”…But sometimes, say when a written instrument uses “technical words or phrases not commonly understood,” id., at 292, those words may give rise to a factual dispute. If so, extrinsic evidence may help to “establish a usage of trade or locality.” []. And in that circumstance, the “determination of the matter of fact” will “preced[e]” the “function of construction.”…This factual determination, like all other factual determinations, must be reviewed for clear error.
Teva v. Sandoz at 5-6 (internal citations omitted). A tension that emerges from this passage is the tension between “ordinary meaning” and “technical words or phrases not commonly understood.” The latter, the Court’s opinion states, may be due deference; but when “ordinary meaning” is involved, it is a “question solely of law.”
Here, the claim construction did require some discussion of the ordinary meaning of words. At issue was the meaning of the claim term “virtual files,” which the district court construed as meaning “files that appear to be but are not physically stored; rather, they are constructed or derived from existing data when their contents are requested by an application program so that they appear to exist as files from the point of view of the host device.” Slip Op. at 21. This construction, in the district court’s eyes, limited “the “virtual files” of the “virtual file system” to files “not physically stored on the interface device,” whose content is data “originating from the data transmit/receive device.” Id.
In reversing the district court’s construction, the Federal Circuit began with its —not the district court’s—ordinary meaning. “‘Virtual’ conveys some kind of as if action, one thing emulating another; the term was prominently used that way in the computer field at the time of the inventions here. See CardSoft v. Verifone, Inc., 769 F.3d 1114, 1117–18 (Fed. Cir. 2014) (discussing Java Virtual Machine in patent dating to 1998).” Slip Op. at 22. With this meaning as the starting point, the CAFC concluded that the patent identifies this emulation as not turning “on whether data in a ‘virtual file’ is physically located in the interface device or a data device when the host seeks it.” Id.
The district court, however, relied on a different source for its starting meaning:
The 1993 New IEEE Dictionary defined the term similarly to the construction proposed by the Camera Manufacturers. In the context of a “virtual record,” “virtual” was defined as: “a record that appears to be but is not physically stored; rather, it is constructed or derived from existing data when its contents are requested by an application program….The Court adopts the definition from the New IEEE Dictionary as the most clear and pertinent….”
In re Papst Licensing GmbH & Co. KG Litig., 670 F. Supp. 2d 16, 60 (D.D.C. 2009). It’s unclear why the Federal Circuit didn’t address the district judge’s choice of starting meaning, substituting its own with no explanation of why. It’s also not clear to me that the different starting point really matters for the ultimate issue of whether the claim term excludes files stored on the interface device. But this kind of dispute, where a district judge relied on an extrinsic source for its starting point when construing a claim term, seems to be one that parties will try to make hay with in future appeals on claim construction.
*I’m using “starting meaning” to refer to the meaning that the party construing the claim term begins with; it may or may not be the “ordinary meaning.” For some words, that may be our individual “mental lexicons,” as Kristen Osenga has described ; for other words, those meanings may come about when we look up the word in a dictionary. For court opinions on claim constructions, the court will sometimes, but not always, state what it’s using as the starting meaning for a term. Here, the Federal Circuit started with its meaning from the cited case, while the district court began from the point of the IEEE dictionary and the OED.
As President Clinton taught, the meaning of words is always up for debate. In the patent realm, actual claim scope often depends upon the particular meaning given to the individual words and terms. We have seen that claim construction can vary widely – easily flipping the outcome of cases. Litigators know the construction is only ‘probabilistic’ until decided by the court. And, district courts know that their decisions are likely to be overturned – at least partially because claim construction is a question of law reviewed de novo and without deference on appeal
In Teva v. Sandoz, the US Supreme Court has changed the litigation game – holding that factual conclusions that underpin claim construction rulings must be reviewed for “clear error” – i.e., given substantial deference on appeal.
Up-to-now, many litigants have not worried much about the fact/law divide because all aspects of a claim construction decision were to be reviewed de novo in the eventual appeal. More-so, district court litigants have likely shaded toward arguments asking for legal conclusion because those conclusions do not require the same level of evidentiary support as factual conclusions. I expect for (some) litigants and district courts to shift their behavior and focus much more on evidentiary aspects of the case — such as the understanding of a person having ordinary skill in the art at the time of the patent. The traditional approach is for plaintiffs to focus more on facts so that the case will end if they win at the district court level and for defendants to focus more on legal issues that – in case of a loss – are more easily appealable. Thus, on balance, the outcome here likely favors patentees as compared to the prior full de novo review system.
Under the new rule, determinations regarding evidence “intrinsic to the patent” will continue to be reviewed de novo on appeal. This intrinsic evidence includes both the patent document and the prosecution history of record. The change, is that conclusions regarding other evidence considered – so called “extrinsic evidence” – are subject to the ordinary fact-finding rules of court and will be reviewed with deference on appeal. Finally, the Supreme Court was also clear that application of the extrinsic evidence to the patent-in-question will also be seen as an issue of law reviewed de novo.
A major open question is the extent that the decision here modifies the standard approach to claim construction that has been explained by the Federal Circuit in Phillips v. AWH Corp – namely the rule that extrinsic evidence is of secondary importance and perhaps should not be considered absent ambiguity in the intrinsic evidence. In my view, that approach is contrary to the rule that the interpretation should be based upon the contemporary understanding of a person having ordinary skill in the art.
At the prosecution level there is a bit of a logical conundrum – parties that present factual evidence during prosecution may get the USPTO to make factual conclusions and agree with that construction. However, if the case later goes into litigation that evidence and those conclusions will be seen as purely intrinsic evidence and thus given no deference in a Federal Circuit appeal. It will be interesting to see how this works on a contemporary basis for the administrative post-issuance review proceedings where any testimony or extrinsic evidence presented instantly becomes part of the prosecution history record.
The 7-2 majority opinion was penned by Justice Breyer and joined by Chief Justice Roberts and Justices Scalia, Kennedy, Ginsburg, Sotomayor, and Kagen. Justice Thomas wrote in dissent an was joined by Justice Alito.
Statute vs Contract: In his dissenting opinion, Justice Thomas drew an analogy between claim construction and statutory construction and found that neither involve “finding of facts” even when conclusions are drawn from extrinsic evidence. At least at a rhetoric level, this argument makes tremendous sense – the word “patent” itself references a publicly documented grant by a sovereign – something that seems awfully close to a statute. Replying to the dissent, Justice Breyer argues for stare decisis — pointing to the fact that the Court already ruled in Markman that claim construction can have “evidentiary underpinnings.” Rather, the majority links claim construction to that of a deed or contract where factual conclusions are sometimes needed.
Federal Circuit Exceptionalism: A theme running through most recent Supreme Court patent cases is that, when applicable, common-law patent doctrines should follow the common law approach rather than some specialized patent rule. Here, one aspect of the majority opinion is that the process of patent claim construction should look like the process of construing a deed or contract. As Professor Ouellette wrote this morning: “Today’s opinion joins a long line of Supreme Court decisions rebuking the Federal Circuit for patent law exceptionalism.” Of course, the link to deeds and contracts only goes so-far because with claim construction we’re not really looking to figure out what the patentee intended by the words but rather what is the proper public understanding of the words (as J. Scalia noted). Nevertheless, it will be interesting to see how district courts fare with that analogy and the extent to which the Federal Circuit is accepting.
Cybor No Longer Subject to Challenge: The Federal Circuit’s decision in Cybor has long been subject to renewed efforts for en-banc review. This happened most recently in Lighting Ballast Control LLC v. Philips Electronics N.A. Corp. (Fed. Cir. 2014) (En banc). Although the Supreme Court here modified Cybor and Lighting Ballast, it also foreclosed future challenges to increase the level of deference. Rather, the Court is clear in Teva that – apart from factual conclusions regarding extrinsic evidence – that no deference should be given on appeal.
Masking the Problem of Claim Ambiguity: My problem with the decision is that giving deference on appellate review only masks the major problem that claim scope is not well understood until decided by a court. Claim scope should be clearly understood at the time of issuance rather than years later following an expensive litigation effort.
Three upcoming conferences that may be of interest to readers:
This Friday and Saturday, January 16 and 17, the University of San Diego School of Law’s Center for Intellectual Property Law & Markets is holding its 5th Annual Patent Law Conference. This year’s topic is “Patent Invalidity after the America Invents Act.” Speakers include Judges Bencivengo, Bartick & Chen. I attended last year as part of PatCon and thought it was a great event. More details here: http://www.sandiego.edu/law/centers/ciplm/detail.php?_focus=49377#overview
Hal Wegner’s 3rd Annual Naples Patent Law Experts Conference will be held February 9 and 10. This beachfront Conference in Naples, Florida, will involve an interactive discussion by more than thirty faculty members. Topics to be covered include recent and pending Supreme Court patent law decisions, potential legislative activity, issues of international law, and more. Further information from the sponsoring organization, the University of Akron, is available here: http://www.uakron.edu/law/ip/naples-midwinter.dot
On March 5-6, Don Chisum and Janice Mueller will conduct a two-day patent roundtable seminar. The program is limited to a total of ten participants to maximize opportunities for interactive discussion and debate. All sessions are led by treatise authors and educators Don Chisum and Janice Mueller. Coverage focuses on recent significant patent decisions of the Federal Circuit and U.S. Supreme Court. Topics currently planned for discussion include:
The Supreme Court’s Alice Corp. decision on patent-eligible subject matter and subsequent Federal Circuit decisions applying Alice;
The Supreme Court’s grant of certiorari in Commil USA concerning the intent requirement for inducing infringement;
The Supreme Court’s grant of certiorari in Kimble v. Marvel concerning the propriety of post-patent expiration royalties;
The Supreme Court’s pending decision in Teva v. Sandoz on review of patent claim construction;
The Federal Circuit’s grant of en banc review in SCA Hygiene to determine whether the Supreme Court’s Petrella decision changed the law of laches as a defense to patent infringement;
Patent Practice Gone Wrong: Lessons from Patent Malpractice, Exceptional Case and Rule 11 Sanctions, and Inequitable Conduct Cases;
Patent Claim Construction and Definiteness in the Wake of Nautilus (and Anticipating Teva); and
Inter Partes Review: Two-Year Snapshot and Lessons from Case Studies.
Bard Peripheral Vascular, Inc. v. W.L. Gore & Associates, Inc. (Fed. Cir. 2015) 14-1114.Opinion.1-7-2015.1 Panel: Prost (author), Hughes (concurring), Newman (dissenting)
Professor Tom Cotter has an excellent write-up of this opinion over on his blog, Comparative Patent Remedies. The main issue involves willful infringement: applying the de novo standard of review to the objective prong of the willfulness inquiry, as per Seagate and the earlier Bard decision, the majority affirmed the district court’s conclusion that Bard willfully infringed because its noninfringement defense is not “susceptible to a reasonable conclusion of no infringement. ” Judge Hughes wrote separately to reiterate his “belief that the full court should review our willfulness jurisprudence in light of the Supreme Court’s recent decisions” in Highmark and Octane Fitness. Judge Newman dissented; in her view, the majority failed to apply the de novo standard of review required by Seagate; applying that standard, the district court erred. Judge Newman also questioned the imposition of double damages.
Judge Hughes’ concurrence, like Judge O’Malley’s concurrence in Halo v. Pulselast fall, suggests that the Federal Circuit remains divided on the appropriate legal standard for willful infringement post-Highmark and Octane Fitness. Panels remain bound by the de novo standard set out in Seagate, but Judges Hughes and O’Malley strongly believe that the court should reconsider that precedent. It may be only a matter of time before the Federal Circuit either addresses this divide en banc or the Supreme Court grants cert. It’s also possible that the Court will provide some guidance on the issue in Commil v. Cisco; we’ll know later this year.
Last week, in writing about the Federal Circuit’s grant of en banc review in SCA Hygiene Products v. First Quality Baby Products, I observed that the order was not yet available on the court’s website. Upon checking again this morning, I noted that it continues to be unavailable.
As a general matter, I tend to favor the existence of the Federal Circuit and believe that the judges who sit on that court are largely just folks who are trying to do the best they can in deciding very challenging cases. I don’t always agree with the judges’ reasoning, but I appreciate the difficulty of what they are called upon to do (as well as how much easier it is to criticize an analysis than it is to assemble an analysis).
Where I tend to be most disappointed is with those aspects of the court that do not operate at this high level; or even at a “pretty good” level. In particular, I am routinely unimpressed with the lack of public transparency when it comes to information about the court’s decisions. One example is the court’s statistics page, which contains data that can be difficult to interpret because no methodology is provided. Worse, the variety of statistics that the court has publicly released has shrunk over the years. The court used to provide data on the dispositions of patent infringement cases, for example; that data is no longer provided by the court.
Much greater than problems with the court’s statistical data, however, is the lack of transparency in connection with the court’s decisions themselves. This is not to say that there is no information: the court deserves credit for deciding, several years ago, to post its opinions on the Federal Circuit webpage. These opinions are published at http://www.cafc.uscourts.gov/opinions-orders/ throughout the day. Since around the middle of 2007, the material released at this location has included summary affirmances under Rule 36, and for the past few years “selected” orders have been published there as well.
Unfortunately, no criteria for which orders are “selected” for publication on the website are provided, and extremely significant and important orders are sometimes not released there. For example, even though the Federal Circuit’s announcements page contains an announcement about the grant of en banc review in SCA Hygiene and an invitation for amicus participation, the order itself (which contains the questions presented) is not available on the court’s website. Instead, users are directed to download the order from PACER, a registration-required, fee-based system that is routinely criticized on access to justice grounds. Surely, such an important order would be easily available to the interested public. It is not.
In addition, as Hal Wegner recently pointed out in his email newsletter, the court’s public revelation of its decisions via PACER creates a second, possibly more significant, issue: those folks who do have PACER access will know about the court’s decisions before those who merely follow its public website. This is because the decisions can appear on PACER up to two hours before they appear on the Federal Circuit’s website. The result is that those who follow that particular docket on PACER will gain first knowledge about the outcome of the case, something that may have significant financial implications.
There are some actions that followers of the Federal Circuit can take if they want to stay on the cutting edge of the court’s dispositions. First, the court has an RSS feed through which it announces releases of opinions on PACER. You can subscribe to the RSS feed here: http://www.cafc.uscourts.gov/rss-opinions.php (thanks to Hal Wegner for the tip!). I’m told, but haven’t yet confirmed, that this feed updates at the same time that an opinion is released on PACER. Second, if you have access to a document monitoring service, such as BNA, you can set it to alert you when individual dockets are updated. Again, I haven’t yet confirmed how “real time” the alert is. Both approaches have drawbacks, but they do provide partial solutions.
But the bigger problem remains: the challenge of gaining access to all of the court’s theoretically “public” decisions. PACER is not like, say, the USPTO‘s trademark search system, which a model of transparency and ease of use. Instead, it is the electronic equivalent of the warehouse at the end of Indiana Jones and the Raiders of the Lost Ark, with the addition of a fee to open each box. And the court’s recent elimination of the “daily disposition sheet” has only made it more difficult to even know what’s kept in that warehouse.
With all the technological and political issues surrounding PACER, figuring out how to open up all the court’s judicial decisions to greater public access is, perhaps, not an easy problem to solve. But given the court’s ability to address complex issues of fact and law in its decisions, it’s rather disappointing that it hasn’t applied that same ability to releasing those decisions in a more transparent way.
One possible start might be to ensure that court opinions and orders are released simultaneously on the court’s website and PACER. Another would be to post all the court’s orders on the website, not just those that are “selected.” And a third would be to create an electronic, publicly-available historic set of all the court’s decisions, not just the incomplete set that is currently provided. All three would would go a substantial way to ensuring greater judicial transparency and to avoid any more embarrassing lapses like the SCA Hygiene snafu.
By the way – if you are looking for that particular order, you can download it here: SCA Hygiene en banc order
My moderation policy is in effect for comments on this post. Off-topic, excessive and abusive comments will be removed.
Edit to add a reference to the elimination of the daily disposition sheet after the comment from Pilgrim. Some additional minor edits for clarification.
Halo has petitioned the Federal Circuit to rehear its electronics patent case against Pulse with two questions presented:
Willfulness: Whether an infringer who subjectively knew pre-suit that it was infringing a valid patent (after being given notice of the patent, and failing to design around, seek a license, or stop infringing) can use an unsuccessful defense developed post-suit as a per se bar to liability for pre-suit willful infringement, despite the flexible text of 35 U.S.C. § 284.
Sale/Offer for Sale: Whether a requirements contract for a patented product that is negotiated and executed in the U.S., subject to California law, and includes binding pricing and quantity terms constitutes a “sale” and “offer for sale” under 35 U.S.C. § 271(a).
The petition is well designed and holds a strong possibility of review. In the original panel decision, Judge O’Malley (joined by Judge Hughes) called for en banc review of the court’s willfulness jurisprudence. Jason Rantanen wrote more here. The case also has interesting links with Commil v. Ciscothat is now pending before the Supreme Court.
Regarding the Sale issue, I see less merit. As Lucas Osborne writes, although the contract was negotiated and signed within the US, the actual performance was to be done outside of the US. In the litigation, the patentee was able to capture royalties for all of the products imported into the U.S., but here is seeking damages for worldwide sales.
In November, I wrote about a decline in patent suits pending in district court. Using Lex Machina, I recently put together an updated set of data that includes patent cases pending as of December 1 and January 1. The figure below shows a continued drop in cases through November, followed by no real change in December. The lack of movement for December is the result of a modest increase in new case filings and a substantial drop in terminations relative to the previous month. (Keep in mind that the underlying data is highly dynamic: in December, for example, there were about 380 new case filings and about 400 terminations of existing cases.)
Some folks have asked about the effect of co-pending PTO proceedings. Lex Machina doesn’t presently offer a way to easily determine whether a proceeding is stayed pending an administrative proceeding at the PTO, so I can’t directly count these stays in the graph. But my intuition is that they aren’t going to make an enormous difference. Love & Ambwani report that between September 2012 and September 2014, courts granted litigation stays in 140 suits where there was a co-pending instituted inter partes review. For comparison, the drop in pending I just don’t see these stays making a significant impact on the above graph regardless of whether they are counted as open cases or terminated cases.
Thanks to my research assistant, Alex Lodge, for collecting the data for the above chart.
Comment policy: At the suggestion of a few folks, I will try an active moderation policy on this post. Posts containing name calling, character attacks, or an unnecessarily aggressive tone will be deleted, as will excessive commenting.
On December 30, 2014, the Federal Circuit granted en banc review in a case (SCA Hyiene), to consider whether to overrule the 1992 A.C. Aukerman decision, which upheld the defense of laches (unreasonable, prejudicial delay) for patent infringement damage claims, in light of the Supreme Court’s 2014 Petrella decision, which held that laches did not apply to claims for damages for acts of copyright infringement occurring within the Copyright Act’s three year statute of limitations.
For a variety of reasons, it is absolutely clear (to me) that neither the Federal Circuit nor the Supreme Court should alter Aukerman. Here are some of those reasons.
At first blush, the argument for applying the holding and reasoning of Petrella to patent cases to overturn A.C. Aukerman is strong. Petrella reasoned that Congress established three years as a reasonable period for recovering for pre-suit infringements and courts should not “second-guess” Congress in that respect. Similarly, for patents, Congress set a six-year period for recovering for pre-suit infringements. In Petrella, the Supreme Court stated, in general terms, that it had never “approved the application of laches to bar a claim for damages brought within the time allowed by a federal statute of limitations.” It reiterated that it had “never applied laches to bar in their entirety claims for discrete wrongs occurring within a federally prescribed limitations period.” The Section 286 six-year period is not, in technical terms, a “statute of limitations.” Nevertheless, it is a Congressionally prescribed period for recovering for patent infringement.
However, there are stronger arguments for distinguishing patent suits from copyright suits.
First, the history of the Section 286 six year limit for patent infringement damages is considerably different from that of the three year statute of limitations for copyright infringement. Congress added the copyright limitation in 1957 and codified it without change in 1976. There was, apparently, no consistent interpretation of the statute by the lower courts as either permitting or precluding laches; a split arose among the circuits. In contrast, Congress enacted the six-year limitation for patent infringement in 1897. As discussed in Aukerman, the courts continued after 1897 to apply laches in patent suits. In 1952, Congress codified the statute, presumably thereby approving the prior practice. The legislative history states as much, as noted in Aukerman.
Second, unlike the copyright statute as to which there was a split among the circuits, a split the Supreme Court was obliged to resolve, the Federal Circuit has consistently interpreted the patent statute as permitting laches to restrict damages under carefully defined circumstances. The Federal Circuit has virtually exclusive jurisdiction over appeals in patent infringements. Hence, there is no danger of a split arising.
In recent years, the Supreme Court has, with some regularity, repudiated Federal Circuit positions as unsound. Often, the Court found that the Federal Circuit had not adequately considered prior, binding Supreme Court precedent on an issue. Also, Federal Circuit panels decisions reached inconsistent results as to the issue.
None of these criticisms can be fairly directed to the Federal Circuit’s Aukerman decision on laches. Aukerman was an en banc decision, that is, one by the full complement of judges. Judge Helen Nies wrote a thorough, lengthy opinion exploring history, policy and precedent. It was unanimous on the basic issue of the viability of laches as a defense; Judge Plager dissented only in regard to the operation of a presumption. And, the Federal Circuit has consistently followed Aukerman since 1992.
Uncertainty and unpredictability in claim construction outcomes is one of the most important problems in patent litigation today. But patent law isn’t the only context in which judges struggle to determine the meaning of legal texts. In a recent article in the Yale Law Journal, The Interpretation-Construction Distinction in Patent Law, T.J. Chiang and Lawrence Solum argue that construing a patent is no different from any other form of legal analysis performed by judges, whether in constitutional law, statutory law, or contract law. As in these contexts, judges proceed in two distinct stages when determining the legal meaning of a patent’s claims. First, they “interpret” the claims’ linguistic meaning. Second, they “construe” the claims according to their normative beliefs about what the claims’ legal effect should be. According to Chiang and Solum, uncertainty in claim construction outcomes is caused mainly by judges’ disagreements in the “construction” phase, not the “interpretation” phase. In other words, judges disagree over policy, not language.
In a response in the Yale Law Journal Forum, Ben Picozzi and I argue that the “interpretation-construction distinction” does not fully capture how judges construe patent claims because it does not take into account the difference between the statutory context in which claim construction occurs and the constitutional context in which the interpretation-construction distinction evolved. In constitutional analysis, judges are relatively free to interpret and construct the text based on their prior beliefs about which policy outcomes or which form of interpretive methodology (e.g., textualism or anti-textualism) is superior. In contrast, when judges construe the terms of a patent, they must do so in light of the requirements of the Patent Act – in particular, 35 U.S.C. § 112. Section 112 imposes several requirements for minimum disclosure and definiteness. If a patent does not meet these requirements, judges are obligated to find it invalid under one of several doctrines.
We agree with Chiang and Solum, as well as other commentators such as Thomas Krause and Heather Auyang, that significant policy disagreements underlie judges’ divergent views on the legal meaning of patent claims, and that one of the major debates is whether claims should be interpreted broadly, according to how a patentee wrote them, or narrowly, according to what the judge finds to be the “real invention.” But in our view, these debates are based on judges’ disagreements over the precise levels of disclosure and definiteness that section 112 requires. Simply put, what Chiang and Solum call “claim construction” versus “claim interpretation” is actually statutory construction. In our response, we analyze the major claim construction cases that Chiang and Solum use as examples of their theory and show that in each of these examples, the judges’ disagreement over the meaning of the claims at issue was motivated by their disagreement over the meaning of the statute. Specifically, judges’ approaches to claim construction closely followed—and were likely influenced by—their constructions of section 112(a)’s written description requirement and section 112(b)’s definiteness requirement.
Our disagreement with Chiang and Solum is not just theoretical. It is highly relevant for the Supreme Court’s upcoming decision in Teva v. Sandoz,where the Court will decide what standard the Federal Circuit must apply in reviewing district courts’ claim construction decisions. Is claim construction a purely legal question that must be reviewed de novo? Or should at least some aspects of claim construction be reviewed under the more deferential “clear error” standard ordinarily applied to district courts’ factual findings? Most commentators—and the Solicitor General—argue that many issues that arise in claim construction, such as expert testimony on the level of ordinary skill in the art, are factual issues that should be reviewed deferentially. Chiang and Solum disagree, arguing that claim construction should be treated as a question of law and reviewed without deference. The reason they give for their somewhat unusual stance is their view that many important disputes over claim meaning involve construction, not interpretation of claims. If district courts were free to engage in construction without significant oversight from courts of appeal, this would increase, not reduce, uncertainty in outcomes, with “hundreds of district court judges across the nation each following their own individually preferred methodologies in the individual cases that come before them.”
We agree with Chiang and Solum’s conclusion that some purely legal questions underlie judicial disagreements over the meaning of patent claims and that many of these questions are in need of appellate review. But this is because they are questions of statutory construction. Judges disagree over issues like the contours of section 112’s disclosure and claim definiteness requirements, and consequently disagree over the proper construction of claims.
On this view, granting deference to district courts with respect to questions that do not involve statutory construction would not necessarily increase uncertainty and disuniformity in claim construction outcomes. Moreover, even if the Federal Circuit must review many facets of district courts’ claim construction decisions under the more deferential clear error standard, the Federal Circuit could still do much to increase certainty by resolving a number of outstanding statutory debates. For instance, does section 112(a), which the Federal Circuit has held contains a separate written description requirement, also require claims to be construed according to what the inventor “actually invented,” as Judge Lourie and other members of the court have suggested in several claim construction decisions? Does section 112(b), as construed by the Supreme Court in Nautilus v. Biosig, require courts to review more expert evidence in order to determine whether a patent’s claims would inform those skilled in the art “with reasonable certainty” about the scope of the invention?
If the Federal Circuit or the Supreme Court cannot resolve such issues, then Congress should amend the statute to provide greater clarity. This is how patent law has historically progressed and, we believe, is how lawmaking should work within a well-functioning statutory framework. Chiang and Solum’s analysis is a good start, but it doesn’t take this framework into account. Doing so would lead to conclusions that are less pessimistic and more complete.
Guest commentary by Peter S. Menell. Professor Menell is Koret Professor of Law and at UC Berkeley School of Law and Director of the Berkeley Center for Law & Technology. Professor Menell filed an amicus brief along with Professors Jonas Anderson and Arti Rai in Teva Pharmaceuticals USA Inc. v. Sandoz Inc., 13-854. That brief can be accessed at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id= 2457958.
The U.S. Supreme Court heard argument six weeks ago in Teva Pharmaceuticals USA v. Sandoz, a case addressing the scope of appellate review of claim construction rulings. While less headline-grabbing than recent cases addressing the patentability of business methods, computer software, and DNA, Teva nonetheless confronts a critical issue that has long plagued the patent adjudication system.
Nearly two decades ago, the Supreme Court sought to promote more effective, transparent patent litigation through its ruling in Markman v. Westview Instruments that “the construction of a patent, including terms of art within its claim, is exclusively within the province of the court.” While carefully avoiding characterizing claim construction as a pure question of law, the court nonetheless removed interpretation of patent claims from the black box of jury deliberations by holding that the Seventh Amendment right of trial by jury did not extend to patent claim construction and that trial judges were better equipped than juries to resolve the mixed fact/law controversies inherent in construing disputed patent claim terms. The decision ushered in a new patent adjudication era in which judges construe patent claims before trial through a process that has come to be known as a “Markman” hearing.
Notwithstanding this shift, the transparency that the Supreme Court sought has only been partially achieved and the quality of claim constructions falls short on evidentiary and analytical rigor. The U.S. Court of Appeals for the Federal Circuit’s sharply divided 1998 en banc decision in Cybor Corp. v. FAS Technologies held that claim construction is purely a legal issue subject to de novo appellate review, downplaying the Supreme Court’s more nuanced description of claim construction as a “mongrel practice.”
The Cybor decision dissuaded district judges from holding evidentiary hearings regarding the meaning of disputed claims and discouraged judges from explaining their reasoning. As several district judges have candidly acknowledged, why go through all of that trouble if the Federal Circuit is going to construe the terms de novo on appeal? Claim construction reversal rates and consternation among district (and some Federal Circuit) judges rose precipitously following Cybor. And although the Federal Circuit has twice revisited this issue en banc since Cybor and reversal rates have subsided (but not as a result of more transparent records), the controversy has festered, leading to the Supreme Court’s review.
Why the Fuss?
Patent law requires that claim terms be construed from the standpoint of persons of ordinary skill in the technical art using the patent specification and prosecution history (intrinsic evidence) as well as pertinent scientific and technical sources (extrinsic evidence) where necessary as of the time of the patent filing.
Federal district judges are thus thrust into challenging, but not unfamiliar, territory. As in other areas of their docket — such as products liability, toxic torts or even criminal cases turning on forensics — in which they are called upon to resolve factual disputes about scientific and technological matters, judges have at their disposal a familiar toolbox — presentation of evidence and expert testimony. And when district courts assemble a record and explain their reasoning, Federal Rule of Civil Procedure 52(a)(6) provides that their determinations “must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court’s opportunity to judge the witnesses’ credibility.”
Patent claim constructions add a few additional twists to this well-established general judicial framework. Even if a district judge found that a patent claim term meant “X” to skilled artisans as of the effective patent filing date, the court would still have to construe the term to mean “Y” if the intrinsic evidence established that the patentee intended such a specialized meaning. Furthermore, many disputes about patent claim meaning turn not on meaning within the technical art but rather on claim drafting conventions. Thus, courts must pay special attention to the intrinsic evidence. But the understandings of skilled artisans will be pertinent in many claim constructions, and such subsidiary factual determinations should be subject to deference under general judicial rules as well as trial judges’ proximity to the extrinsic evidence.
For these reasons, the Supreme Court should adopt a hybrid appellate standard for claim construction: Factual determinations underlying claim construction rulings should be subject to the “clearly erroneous” standard of review, while the Federal Circuit should retain de novo review over the ultimate claim construction decision. In this manner, district court judges, in their capacity as fact-finders, could better surmount the distinctive challenges posed by the technical, mixed fact/law controversies inherent in patent claim construction. The Federal Circuit would ensure that trial judges’ constructions comport with the intrinsic evidence supporting the patents.
Parsing the Supreme Court Argument
The Teva argument began with a colloquy regarding what constitutes a “subsidiary fact” and how it relates to the ultimate claim construction determination. Midway through Teva’s opening argument, Justice Samuel Alito expressed doubt that departing from the de novo standard was worth the candle. He noted that a recent empirical study could not find any case in which a shift from the de novo standard to clear error review of factual determinations would have affected the appellate review outcome.
In an unintended manner, Justice Alito’s query highlights the reason de novo review of factual determinations raises serious concerns for a justice system. The study to which he refers does not and cannot establish the “fact” that it is purported to prove. Its analysis — which is not revealed or scrutinized in the Supreme Court colloquy — boils down to the following logic: (1) three-judge panels of the Federal Circuit will be better than a single generalist district court judge at applying the appellate court’s rules of claim construction; and (2) because most claim construction reversals (77.1 percent) are unanimous, a shift to a clear error standard would not change the outcome of any cases. The first point ignores the distinctive role of judges in fact-finding, a pillar on which our court system is based. The second point does not prove that no cases would come out differently. It also overlooks the norm that appellate judges rarely dissent unless they disagree on legal questions.
More fundamentally, according greater deference to trial courts through clear error review would encourage district judges to use focused evidentiary hearings (in conjunction with the technical tutorials that are common) to substantiate the basis for their claim constructions, thereby promoting more systematic, well-founded claim construction analysis. Contrary to the study to which Alito referred, we have reason to expect clearer substantive analysis, more settlements following claim construction and trial, more effective appellate review, and fewer reversals and remands in a parallel universe in which Rule 52(a)(6) applies to claim constructions — not business as usual in the Cybor regime.
The Court also probed how deference on subsidiary facts would affect uniformity in patent interpretation. At a basic structural level, it is difficult to see how to achieve such uniformity to the extent that claim construction has a factual component. Under Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313 (1971), the Federal Circuit’s interpretation of a patent in one case cannot be asserted offensively by the patentee in a later infringement action against other defendants to the extent that there are disputed factual underpinnings. At most, that prior adjudication can bar the patentee from seeking an alternative interpretation under judicial estoppel principles. Because the patent system has no mechanism for conclusively establishing patent scope with regard to all potential infringers where subsidiary factual disputes exist, the certainty that flows from appellate interpretations is not ironclad, as subsequent defendants can potentially bring new evidence or more effective advocacy to bear on claim meaning. Nonetheless, district courts routinely consider prior interpretations of patent claim terms in conducting claim construction. Moreover, concerns about the clarity of patent claims are more appropriately addressed through improvements to the patent prosecution process, post-grant review and reexamination, consolidation of claim construction through multi-district litigation, and adjustments to substantive claim construction jurisprudence.
Back to Basics
The Teva case poses a fundamental question going to the heart of the American justice system. Should factual determinations underlying patent claim construction be subject to substantially less deference (or more distrust) than the factual determinations made in every other area of federal adjudication? In view of the Supreme Court’s efforts over the past decade to bring patent adjudication more in line with general civil litigation principles, it is difficult to see why the Court would make an exception here. Combining deferential review of factual findings with de novo review of the overarching claim construction determination — focused on ensuring that claim construction comports with the intrinsic evidence and that the trial court followed generally applicable rules of claim construction — would enhance the quality of claim constructions, produce a more capacious and transparent appellate record, and provide the appropriate appellate safeguard.
In Versata v. Callidus, the Federal Circuit holds that the erred by refusing to stay litigation to await the outcome of an CBM post-grant review proceedings. Generally, stays of litigation are given to the discretion of the district court judge and reviewed only for abuse of discretion. However, the AIA provides that Federal Circuit review on this issue is de novo when the justification for a stay is CBM review.
Versata filed its lawsuit in 2012 — alleging infringement of three different patents. U.S. Patent Nos. 7,904,326; 7,908,304; and 7,958,024. More than one year later, in August 2013, Callidus filed three petitions for CBM post-grant review respectively challenging the asserted patents (although not all claims of all of the patents). Then, in March of 2014 the PTAB instituted its CBM review for each patent — finding that each challenged claim was most likely unpatentable as abstract under 35 U.S.C. 101. In April 2014 Callidus filed three new CBM petitions that challenge all of the remaining asserted claims in the patents. In May 2014, the district court granted a stay of proceedings as to the ‘326 infringement action but denied it as to the other two patents and prepared to move forward for a October 2015 trial date. Callidus then filed for interocutory appeal of the stay denial. And finally, while awaiting appeal, the PTO acted on the second-round of petitions and agreed that all of the claims are likely invalid under Section 101. The CBM reviews are still ongoing, but Callidus would like the district court to stop its proceedings and wait for the PTAB to finalize its results.
The AIA provides statutory guidance for dealing with stays of litigation in light of CBM reviews. In particular, the AIA provides that the judge should consider:
(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial; (B) whether discovery is complete and whether a trial date has been set; (C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and (D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.
AIA § 18(b)(1). The AIA also provides for immediate interlocutory appeal of decisions on stays pending CBM review and de novo review on appeal.
On appeal, the Federal Circuit has reversed – finding that the CBM review as a good chance of greatly simplifying the issues in the case. Of notable importance, the court found that, although the relevant time for judging a stay is as of the motion filing, the court may (and did) take judicial notice of the ongoing PTAB proceedings.
