Tag Archives: Supreme Court

Global-Tech v. SEB: Supreme Court Affirms CAFC Result But Not “Deliberate Indifference” Standard

Patent,

By Jason Rantanen

Global-Tech Appliances, inc. v. SEB S.A. (2011)  Download Global-Tech v SEB
Majority: Alito (author), Roberts, C.J., Scalia, Thomas, Ginsburg, Breyer, Sotomayor, Kagan.  Dissent: Kennedy.

In an 8-1 decision this morning, the Supreme Court affirmed the result in Global-Tech v. SEB, holding that while inducement of infringement of infringement requires knowledge that the induced conduct itself infringes, that knowledge element can be met by a showing of "willful blindness."  In reaching this conclusion, the Court rejected the Federal Circuit's adoption of a "deliberate indifference" standard.  By endorsing a "willful blindness" approach to knowledge – which Justice Kennedy's dissent indicates is a novel move – this opinion may have profound implications well beyond the area of intellectual property law.

Inducement of Infringement Requires Knowledge That the Induced Acts Constitute Patent Infringement
The Court first held that, like contributory infringement, inducement of infringement requires that the accused inducer know that the third party's conduct constitutes an infringement.  This is separate from any intent required to produce the acts themselves (i.e.: making, using, offering to sell, selling, or importing of a patented invention).  After recognizing that there are two conflicting interpretations of 35 U.S.C. § 271(b), the court looked to inducement's common origin with contributory infringement (which the Court in Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U. S. 476 (Aro II) held required knowledge of infringement) and concluded that the same knowledge requirement applies to inducement:

Based on this premise [that contributory infringement requires knowledge of infringement], it follows that the same knowledge is needed for induced infringement under §271(b). As noted, the two provisions have a common origin in the pre-1952 understanding of contributory infringement, and the language of the two provisions creates the same difficult interpretive choice. It would thus be strange to hold that knowledge of the relevant patent is needed under §271(c) but not under §271(b).

Knowledge Requirement Satisfied by Willful Blindness
Turning to the question directly presented by the case, the Court further held that while deliberate indifference does not satisfy the knowledge required for § 271(b), willful blindness does.  In reaching this conclusion, the Court looked to criminal law, which holds that defendants cannot escape the reach of the law by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances.

Willful blindness exists when two requirements are met.  First, "the defendant must subjectively believe that there is a high probabilty that a fact exists."  Slip Op. at 13.  Second, "the defendant must take deliberate actions to avoid learning of that fact."  Id.  According to the Court, "[t]hese requirements give willful blindness an appropriately limited scope that surpasses recklessness and negligence."  Slip Op. at 14.  Furthermore, "[u]nder this formulation, a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts."  Id.  "By contrast, a reckless defendant is one who merely knows of a substantial and unjustified risk of such wrongdoing, see ALI, Model Penal Code §2.02(2)(c) (1985), and a negligent defendant is one who should have known of a similar risk but, in fact, did not, see §2.02(2)(d)."

While this was not the test applied by the Federal Circuit, the Court concluded that the evidence, when considered under the appropriate standard of review, met its willful blindness standard.  In reaching this conclusion, the Court looked to the Pentalpha's decision to copy all but the cosmetic features of SEB's fryer; its decision to copy an overseas model of SEB's fryer, and its decision not to inform its attorny that the product "was simply a knockoff of SEB's fryer." 

Justice Kennedy: Inducement Should Require Actual Knowledge
Writing in dissent, Justice Kennedy would have held that willful blindness is insufficient to satisfy the knowledge requirement of inducement.  "Willful blindness is not knowledge; and judges should not broaden a legislative proscription by analogy."  Kennedy Dissent at 1.  In particular, the Justice disagreed that the Court had a long precedent of invoking the doctrine of willful blindness as constituting knowledge in the criminal context.  "[T]his Court has never before held that willful blindness can substitute for a statutory requirement of knowledge."  Dissent at 3.

Following from this, Justice Kennedy warns of the enormous ramifications Global-Tech may have:

The Court appears to endorse the willful blindness doctrine here for all federal criminal cases involving knowledge. It does so in a civil case where it has received no briefing or argument from the criminal defense bar, which might have provided important counsel on this difficult issue.

There is no need to invoke willful blindness for the first time in this case. Facts that support willful blindness are like these tend to be the only available evidence in any event, for the jury lacks direct access to the defendant’smind. The jury must often infer knowledge from conduct,and attempts to eliminate evidence of knowledge may justify such inference, as where an accused inducer avoids further confirming what he already believes with good reason to be true. The majority’s decision to expand the statute’s scope appears to depend on the unstated premisethat knowledge requires certainty, but the law often permits probabilistic judgments to count as knowledge.

Dissent at 3-4.

US Government Asks for Increased Deference When Patent Applicants Challenge BPAI Decisions in Court

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Kappos v. Hyatt (On petition for writ of certiorari, 2011) (Download Hyatt.GovtBrief)

Although the US Patent & Trademark Office (USPTO) and the Department of Justice (DOJ) have been at odds on the issue of the patent eligibility of genetic material isolated from a living organism, the two agencies are speaking with one voice against the Federal Circuit's recent decision in Hyatt v. Kappos. In that en banc opinion, the court broadened a patent applicant's rights associated with the "remedy by civil action" provided by Section 145 of the Patent Act. Under § 145, an applicant can file a civil action in DC District Court whenever "[a]n applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences."

In a 6-2-1 decision, the Federal Circuit reversed its prior precedent and held that a patent applicant is allowed to introduce new evidence in a Section 145 civil action filed to challenge a USPTO refusal to grant patent rights and that the issues implicated by the new facts must be considered de novo.

Judge Moore wrote in the majority opinion that:

[W]e hold that the only limitations on the admissibility of evidence applicable to a § 145 proceeding are the limitations imposed by the Federal Rules of Evidence and Federal Rules of Civil Procedure. Therefore, we hold that the district court applied the wrong legal standard for the admissibility of evidence in a § 145 proceeding and abused its discretion when it excluded Mr. Hyatt's declaration. . . .

The particular significance of a § 145 civil action is that it affords an applicant the opportunity to introduce new evidence after the close of the administrative proceedings—and once an applicant introduces new evidence on an issue, the district court reviews that issue de novo.

However, the Court also held that an applicant may still be barred from presenting new "issues" in the civil action and that, when no new evidence is presented, that BPAI findings and rulings should be given deference under the Administrative Procedures Act.

Petition for Writ of Certiorari: In its petition to the Supreme Court, the US Government argues that the Federal Circuit decision is faulty because it "disregards fundamental principles of administrative law" and diverges from the traditional understanding of the statute.

Getting from the PTO to the Court: After losing at the Board, an applicant has two primary avenues for challenging the Board's decision: (1) Appeal to the Court of Appeals for the Federal Circuit under 35 U.S.C. § 141; or (2) File a civil action in district court under 35 U.S.C. § 145. In Dickinson v. Zurko, the Supreme Court held that Federal Circuit direct review of BPAI decisions under Section 141 must follow the deferential standards that govern judicial review of final agency action under the Administrative Procedure Act (APA). 527 U.S. 150 (1999).  In that decision, the Supreme Court distinguished between Section 145 and Section 141 actions – noting that Section 145 actions "permit the disappointed applicant to present to the court evidence that the applicant did not present to the PTO." However, the court did not address the particular circumstances in which new evidence may be permitted nor did it address how the new evidence should be treated.

Here, the government asks the Supreme Court to fill the gap in Zurko by holding that:

  1. The plaintiff in a Section 145 action may not introduce new evidence that could have been presented to the PTO in the first place; and
  2. When new evidence is introduced, the district court should still give deference to the prior decisions of the PTO.

Background: Gilbert Hyatt is a well-known inventor and successful patentee. Hyatt filed a civil action in 2003 after the BPAI sustained written description and enablement rejections for seventy-nine of Hyatt's claims. The examiner had issued "2546 separate rejections of Mr. Hyatt's 117 claims" based on the doctrines of inadequate "written description, lack of enablement, double patenting, anticipation, and obviousness." The Board reversed all of the examiner rejections except for the § 112 p1 arguments. Complicating this case is the fact that the application's claimed priority date is 1975. Hyatt has aggressively pushed the bounds of USPTO practice. This decision is one of more than a dozen Federal Circuit decisions focusing on Hyatt's patent rights. If the Supreme Court takes the case, it will be the second for Hyatt who won a 2002 case against California income tax collectors. In that case, California was pursuing Hyatt for tax revenue for his patent licenses. Hyatt took the case to the Supreme Court and eventually won a $388 million judgment against the state of California for invasion of privacy.

FTC Report Gives NPEs a new name (PAE), Recommends That Courts and the PTO improve Patent Notice and Damages

Patent, , ,

This is a guest post by Professor Colleen Chien of Santa Clara University School of Law. The FTC relied heavily on Professor Chien’s empirical work for several aspects of its report.

While most of the focus right now is on Congress, the Federal Trade Commission (FTC) has recently weighed in on the patent system through its publication of “The Evolving IP Marketplace.“ Though readers of the entire 302-page report may be limited in number, if the past is any indication of the future, they are likely to be well-placed. The report’s 2003 prequel, “To Promote Innovation” has been cited by the Supreme Court (in Ebay), the Solicitor General (in the US brief in KSR), and in Congress, and by lower courts, amicus briefs, and observers of the patent system. That report was a landmark, underscoring the need to strike a balance between competition and innovation, and drawing attention to the problem of “questionable patents.” A number of its recommendations, in some form, have been adopted (elevation of the wilfulness standard, changing the obviousness standard) or are under consideration (post-grant opposition, modifying the presumption of validity). As with the 2003 report, this report bases its findings on hours of public testimony, provided over nine days of hearings and a workshop, by many members of the patent community.

The impetus for the current report has been changes in the patent marketplace, through which inventions may be transferred prior to the invention’s commercialization, ex ante, or licensed after the technology has been put into practice, ex post. The report notes that of these, ex ante transfers are increasingly important as more and more innovation comes from small and younger firms. In 1981, 70% of US R&D came from large companies (25K+ employees), and only 4.4% from companies with less than 1,000 employees; in 2005, the proportions were 37.6% and 24.1%, respectively. (p.36-7). The report is less sanguine about ex post transactions, which it criticizes for distorting competition in high-tech industries and deterring certain kinds of innovation. In noting that such transactions are increasing, the report gives certain kinds of NPEs – those focused on buying and asserting patents, rather than developing and transferring them – a new name: patent assertion entity (or “PAE”). (Side note: I have used this term in my own work, and agree with others that the relationship between PAEs and practicing entities is complex: as I describe, like PAEs, practicing entities also buy and sell into the marketplace, sue in areas in which they don’t operate, and in some cases, may stealthily partner with PAEs in their activities).

To improve the efficiency of the patent system vis a vis both ex ante and ex post transactions, the report says, patent notice and patent remedies both need to be addressed. What’s notable is not only what the report recommends, but, as described below, who the report says should implement its recommendations.

Multi-Dimensional Patent Notice Problem. The report describes the problem of a lack of patent notice, particularly in high-tech industries, with reference to many aspects of the patent system. Companies can’t clear their rights at the product planning stage because they can’t sift through a multitude of patents. Even when particular patents are identified, their boundaries are unclear, and can also change a lot between publication and issue. You can’t necessarily tell who owns a patent because patentees don’t have to record their transfers. To cure these problems, the report recommends, for example, bolstering enforcement of 112 para. 1 and requiring recording of transactions as well as identification of the real parties in interest to a transaction.

Replicating the Market Reward. The FTC adds its voice to the chorus of those who believe that remedies law, in particular damages law, needs repair, but also articulates the principles and theory it believes should guide change. Patent remedies should reflect the economic value of inventions, and replicate the reward provided by the marketplace. The report provides a point by point analysis of the factors that district courts and the ITC consider in awarding remedies, setting forth “an economically-grounded approach” to remedies.

Post-Ebay Injunctions: In a side analysis, the report addresses the sense that, post-Ebay, it’s much more difficult for non-practicing entities to get permanent injunctions. The report indicates that that’s not necessarily true: through March 2010, district courts granted about half of the requests for injunction they received from non-practicing entities (seven of thirteen, or a rate of 54%, as compared to a general grant rate at 72-77%) (p.217). The successful requests tended to come from universities and research and development organizations (p.262-4), however, who arguably don’t fit the definition of “PAE.”

Recommendations – Differentiated Roles for the PTO, courts, Congress, and the Public: What the FTC recommends, and who it says should implement its recommendations are both worth noting. Congress’ list of to-do’s, for example (shoring up PTO funding and requiring recordation of assignments – neither of which are in the current bills), is notably short. The bulk of the work has instead been assigned to courts, which, as Dennis detailed before Congress have taken the laboring oar in reforming patent law. The FTC tasks district courts and the Federal Circuit with fixing damages law, carefully considering injunctions, and enforcing 35 USC 112 para. 1. Many suggestions are also aimed at the PTO, who the report says should work alone or together with the public to, for example, foster uniformity in software inventions, put examiner interviews on the record, and press applicants for improved disclosure. As the Federal Circuit’s Uniloc decision, and the PTO’s recently introduced supplementary 112 guidelines show, their work is well underway.

Colleen Chien, Assistant Professor at Santa Clara University Law School

Copyright: Supreme Court to Hear Constitutional Challenge to Copyright Restoration

Patent,

Golan v. Holder (Supreme Court 2011) (materials from SCOTUS blog)

Symphony Conductor Lawrence Golan along with a group of supporters have successfully petitioned the Supreme Court for a writ of certiorari in their public domain copyright case. The lawsuit arose after Congress enacted the Uruguay Round Agreements Act (URAA) of 1994. Section 514 of URAA restored the copyright term for works created by foreign authors who had lost their rights due to some reason other than expiration of the copyright term. Most frequently, the authors had either failed to renew their copyrights or failed to include a notice of copyright on the works. According to the petitioners, Section 514 restored copyright protection to thousands of works that had previously been in the public domain, including symphonies by Stravinski, books by C.S. Lewis, films by Federico Fellini, and artwork by Pablo Picasso. These works had been previously recognized as public domain in the US and had been used extensively by the petitioners.

The petition for certiorari asks two questions:

  1. Whether the “Progress Clause” of the US Constitution prohibits Congress from removing works from the public domain?
  2. Whether the removal of those works from the public domain violates the First Amendment of the United States Constitution?

The District Court (Colorado) held the law unconstitutional on First Amendment grounds at least “to the extent Section 514 suppresses the right of reliance parties to use works they exploited while the works were in the public domain.” On appeal, a 10th Circuit panel reversed – explicitly rejecting both Constitutionality arguments.

This case is similar to Eldred v. Ashcroft. In that case, the Supreme Court upheld the constitutionality of the 1998 Sonny Bono Copyright Term Extension Act (CTEA) that had extended copyright terms by an additional 20-years. In Eldred, the Supreme Court recognized that Congressional authority to grant copyright was limited by the “limited times” provision of the Progress Clause of the US Constitution. However, the Court concluded that the 20-year extension was sufficiently limited.

Documents:

Global-Tech v. SEB: Supreme Court Argument Tomorrow

Patent

By Jason Rantanen

Tomorrow, February 23rd, the Supreme Court will hear arguments in Global-Tech v. SEB, a case with broad implications for the doctrine of inducement of patent infringement.  Previous Patently-O postings on the subject, including summaries of several of the briefs, are provided below.  Unsurprisingly, there are a wide range of opinions as to the proper standard, with positions ranging from strict liability on the question of infringement to recklessness to requiring knowledge or purpose to infringe a patent. 

Other Patently-O writings on the subject:

Briefing Microsoft v. i4i: Amicus Briefs Supporting Easier Invalidation of Patents in Court

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Microsoft v. i4i, Docket No. 10–290 (Supreme Court 2011)

Briefing has begun in earnest.  Microsoft recently filed its opening brief on the merits (File Attachment: microsoftopen.pdf (250 KB)) and now twenty-five self-proclaimed friends-of-the-court have added their respective two-cents.  The case focuses on the burden of proof required to invalidate an issued patent. Microsoft has challenged the Federal Circuit’s rule that clear-and-convincing evidence is necessary. Instead, the software giant argues that a preponderance of the evidence should be sufficient to invalidate a patent — especially when a court is considering evidence of invalidity that was not considered by the Patent Office during examination. 

In many ways, this case would only shift marginal cases — such as when an accused infringer is able to prove that a patent is probably invalid, but cannot provide clear and convincing evidence of that fact.  The specific marginal problem for Microsoft is that it presented only limited evidence of the existence of custom built prior-art software that would invalidate i4i’s patent. Unfortunately for Microsoft, that twenty-year-old software code is no longer available and the parties presented competing factual testimony as to the operation of the prior art software.

Of the twenty-five friend-of-the-court (FOTC) briefs filed thus far, twenty explicitly and officially support Microsoft’s position that the standard should be lowered.  Five briefs claim to support “neither party.” (Briefs supporting i4i will be filed in March, 2011).  The official claim of support often has limited meaning. I would roughly divide the briefs into four groups: (1) Seven briefs support Microsoft’s position that the clear-and-convincing standard should not apply when the evidence of invalidity was not considered by the USPTO. (2) thirteen briefs further argue that the standard should be lowered-across-the-board in [essentially] all cases.  (3) Two briefs take the opposite position — that the standard should remain clear and convincing. Although these two briefs officially support neither party, I expect many similar briefs to be filed in support of i4i next month. (4) Three briefs focus on interesting issues of whether we should have dual (or variable) standards that depend upon whether the PTO considered the evidence during prosecution. The following is a discussion of some of the more interesting aspects of the briefs that I noticed.

Lowering the Standard when the PTO has not Considered the Arguably Invalidating Evidence:

The well respected Supreme Court patent team at Fried Frank of Jim Dabney, Professor John Duffy, and Steve Rabinowitz filed a brief on behalf several corporations, including SAP, Symantec, Facebook, and Yahoo!. Their brief agrees with Microsoft that the standard for invalidating a patent should be lowered unless the file wrapper “shows that the PTO has engaged in reasoned decisionmaking with regard to a factual issue.”  The brief grounds its argument in  the Administrative Procedures Act (APA). As suggested above, the brief indicates that the APA “reasoned decisionmaking” analysis should occur on a fact-by-fact basis — with deference only given when evidence shows that the PTO made a reasoned decision regarding the fact in question.  File Attachment: sap.pdf (170 KB). Writing for a group of 37 Professors, Professor Mark Lemley adds that APA deference may be appropriate only in very limited circumstances — such as when a particular factual question was decided in the course of an adversarial inter partes reexamination proceeding. File Attachment: lemley.pdf (229 KB). In a complementary brief, WM Mitchell Law School’s IP Institute (led by Profs Moy and Erstling) reviews 150 years of Supreme Court case to reach its conclusion that the clear-and-convincing evidence rule “was extended to issues not before the USPTO only recently.” File Attachment: wmmitchell.pdf (178 KB). See also File Attachment: bsa.pdf (196 KB). 

Generic pharmaceutical companies generally support Microsoft’s position that “bad” patents should be easier to invalidate. Shashank Upadhye (Apotex’s IP chief) generally presents interesting arguments. The gist of his brief is that courts would do better to err on the side of free competition (i.e., invalidity). File Attachment: apotex.pdf (181 KB). Teva argues that C&C standard encourages applicant to conceal prior art. The logic behind that argument is that applicants would prefer to sneak through the PTO and then rely on the C&C standard in litigation to win the case or force settlement. File Attachment: tevapharma.pdf (234 KB). The Bar Association of DC argues the other-side — that increasing the incentive to submit prior art references during prosecution will not lead to better patent quality. File Attachment: badc.pdf (104 KB).

Apple and Intel support Microsoft’s position. However, it is clear that the companies (likely Apple) strained to avoid saying that they support “Microsoft” or even the “petitioner.”  Overall, I would say that the brief does more harm to its cause than good.  The problem is that the brief offers no additional arguments except for a three page section regarding “practical” and “empirical” evidence that the C&C standard makes a difference to juries. Unfortunately for Apple, the evidence presented is glaringly weak. File Attachment: apple.pdf (109 KB).  However, evidence from other briefs, such as that filed by Prof Hollaar may provide a cumulative bulk sufficient to make this case.  File Attachment: hollaar.pdf (262 KB).

EFF and PubPat: As might be expected, the Electronic Frontier Foundation (EFF) and the Public Patent Foundation (PubPat) both argued that a preponderance of the evidence should be sufficient to invalidate a patent in all cases. EFF’s brief (penned primarily by Michael Barclay) focuses primarily on policy — arguing that the sheer number of issued-but-invalid patents makes this an important issue that needs resolution. File Attachment: eff.pdf (293 KB). Dan Ravicher at PubPat similarly writes that the “extremely poor quality” of US patents screams for a lowering of the standard. File Attachment: pubpat.pdf (92 KB). See also, File Attachment: ctia.pdf (200 KB), File Attachment: hercules.pdf (207 KB).  The brief by Google, et al., takes this a step further than the normal “lack of time” and “incompetence” statements –  arguing that the current law and practice “tilt the scales heavily in favor of granting patent applications based on incomplete analyses.” File Attachment: google.pdf (241 KB).

Cisco, Ebay, Netflix, Toyota, and others argue that the advent of third-party requested reexaminations changes the system in a way that impacts the proper standard used in district court litigation. The brief argues (in a way that I don’t yet fully understand) that the existence of reexaminations suggests that the litigation standard should be a preponderance of the evidence. File Attachment: cisco.pdf (187 KB).

Supporting a High Standard: As the largest US patent holder, it might be no surprise that IBM supports a high standard for invalidating a patent.  Of course, across the “v” sits Microsoft as another very large patent holder.  I would point to three primary differences between IBM and Microsoft: (1) IBM has a long and extensive pro-patent stance; (2) IBM has an extremely strong and lucrative patent monetization program; and (3) perhaps most importantly, IBM itself has only rarely been sued for patent infringement.  File Attachment: IBM.pdf (274 KB). The AIPLA –  the largest association of US patent lawyers – also supports the status quo. File Attachment: aipla.pdf (157 KB).

Professor Morris does not take a position regarding a high or low standard. Rather, her focus is on whether it makes sense to have two standards of proof that vary according to whether the particular fact in question was considered by the USPTO. File Attachment: Morris.pdf (494 KB).

Notes:

 

 

 

 

Reverse Payment Settlements Return to the Supreme Court

Patent, Settlement

Louisiana Wholesale Drug Co. v. Bayer AG (On Petition for a Writ of Certiorari 2011)

Ordinarily, a patent is valuable when it offers some degree of market exclusivity. Over the past decade, we have seen a number of examples where a patent holder felt it necessary to take some additional steps to secure a term of exclusivity – namely paying would-be competitors to (1) not enter the market; (2) not challenge the patent's validity, enforceability, or scope; and/or (3) delay market entry. This situation most often emerges in the pharmaceutical market between innovator companies and generic manufacturers. In several cases, the innovator company (patentee) has paid a generic challenger to give up or delay market entry. This situation is often termed a "reverse payment settlement" because the settlement payment flows in the opposite direction of what we ordinarily expect in patent litigation. (Ordinarily, to settle a patent case, an accused infringer pays a dollar amount to the patentee. In these cases, the patentee is paying a dollar amount to the accused infringer). Intricacies of the Hatch-Waxman Act provides some incentive for the reverse payment settlements. See, Christopher Holman, Do Reverse Payment Settlements Violate the Antitrust Laws?, 23 Santa Clara Computer and High Technology L.J. 489 (2007).

In this case, reverse payment settlements are being challenged as unlawful under the Sherman Act. Although paying a competitor not-to-compete would normally be seen as an antitrust violation, patentee's argue that reverse settlements are per se lawful's so long as they are closely related to the exclusionary potential of the patent.

The question now presented to the Supreme Court is:

Whether an agreement by a patent owner to pay a potential competitor not to enter the market is legal per se, as the Second and Federal Circuits have held, to be treated under the rule of reason, as the Eleventh Circuit has held, or illegal per se, as the Sixth Circuit has held?

In a friend-of-the-court brief filed by Stanford Prof. Mark Lemley, a group of 80+ professors argue that the Supreme Court should certainly hear the case and that the 2nd Circuit rule of per se legality is wrong. The professors write:

This rule [of per se legality] is based on the mistaken premise that (absent a fraudulent procurement) a patent grants full immunity from antitrust scrutiny for any and all anti-competitive effects within the exclusionary power of the patent.

A large group of state attorneys general also filed a friend-of-the-court brief arguing that a "surge in reverse payment agreements is threatening the existence of generic competition and the availability of affordable drugs to the states and their citizens."

Documents:

 

Supreme Court to hear Bayh-Dole Patent Ownership Dispute: Stanford v. Roche

Bayh-Dole, Ownership, Patent

Bd. of Trustees of Leland Stanford Jr. University v. Roche Molecular Systems, 09-1159 (Supreme Court 2010)

The Supreme Court has granted Stanford's petition for a writ of certiorari in Stanford v. Roche on an issue of patent ownership. Although the case may turn on federal patent law statutes, it looks substantially like derivative title issues considered in the law of property. The rule of derivative title generally bars a property owner from transferring rights greater than his own. One exception to the rule of derivative title is that, in certain situations, a bona fide purchaser can take title free of prior claims to the property.

The patents in this case involve methods for using PCR techniques to measure HIV concentration in blood plasma. Stanford scientists first created the invention while subject to a contractual duty to assign any inventions to Stanford. After agreeing to assign rights, but prior to the invention, one of the inventors (Holodniy) assigned his rights in his future inventions to Cetus (who later became Roche). Rather than a promise-to-assign, the assignment to Roche was an actual assignment of future inventions. Thus, on the contracts, Holodniy first promised-to-assign rights to Stanford but first actually-assigned rights to Cetus. Stanford later filed for patent protection and then demanded a royalty from Roche. The Federal Circuit held that Roche could not be liable for infringement because it held ownership rights based on the Holodniy assignment.

On appeal to the Supreme Court, Stanford has argued that its receipt of federal funding for the research somehow results in a superior claim to title. Stanford framed the question as follows:

Whether a federal contractor university's statutory right under the Bayh-Dole Act, 35 U.S.C. §§ 200-212, in inventions arising from federally funded research can be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor's rights to a third party.

The US Department of Justice filed a brief supporting the petition and argues that the Bayh-Dole Act does indeed establish a "framework for determining ownership interests in federally funded inventions." The Government brief argues that the Bayh-Dole Act flips the normal statutory rule that patent rights first vest with the inventor. Instead, in their view, by virtue of receiving federal funding, the university or federal contractor automatically receives title to the invention and then may "elect" to not "retain title." Under that interpretation of the law, Stanford retains full title because it received federal funding for the research and elected to pursue patent protection. The Government frames the question as follows:

Whether an inventor who is employed by a [federal] contractor that elects to retain rights in an invention may defeat the contractor's right to retain title under the Bayh-Dole Act by contractually assigning his putative rights in the invention to a third party.

The Federal Circuit rejected these questions – holding instead that the Bayh-Dole Act was not designed to automatically void contractual transfers made by an inventor simply because the research received federal funded.

In addition to the Government Brief, additional petitions-stage briefs were filed by a number of universities and university-controlled organizations that all supported the petition.

Comment: The cause of Stanford's plight is the University's failure to negotiate a tight assignment agreement with its researchers and scientists. If it has not done so yet, Stanford could fix the issue by forcing its students and employees to agree to a new assignment agreement. Thus, this particular issue is solved by contract law. A real ongoing question that the Supreme Court should focus-on with this decision involves the rights of third-party inventors who are not under any contractual duty to assign rights to a university or federal contractor. Does that third party retain rights when the University can show that the invention process was at last partially federally funded. This issue arises in collaborative projects where the work of a subset of inventors receives federal funding.

Challenging the Clear and Convincing Standard of Proof for Invalidating Patents in Court

Invalidity, Patent

Microsoft Corp. v. i4i Limited Partnership (on petition for certiorari 2010)

By Dennis Crouch

In 2009, an Eastern District of Texas jury awarded $200 million to i4i after finding that Microsoft willfully infringed the Canadian company’s patent. Judge Davis subsequently added-on $40 million of punitive damages for willful infringement.  The judge also issued an injunction ordering Microsoft to stop selling Word products with the capability of using “custom XML.” That injunction was stayed by the Federal Circuit pending appeal.  On appeal, the Federal Circuit affirmed the lower court’s findings of validity, willful infringement, enhanced damages, and permanent injunctive relief. Despite the injunction, Microsoft continues to sell its software based on a “patch” that apparently prevents the use of custom XML in Word.

Meanwhile, the USPTO conducted a reexamination of the i4i patent and confirmed that the claims at issue were properly patentable.   However, the reexamination did not consider what Microsoft's (now) argues is its key invalidity argument.  That invalidity argument is based on a prior offer-for-sale, and offers-for-sale are excluded from consideration during reexaminations.  The prior offer-for-sale was likewise not considered during the original prosecution of the i4i patent.

This summer, Microsoft petitioned the Supreme Court to take a fresh look at the case —  specifically asking the Court to reject the Federal Circuit's requirement that invalidity be proven with “clear and convincing evidence” when the invalidity argument is one that was not specifically considered by the Patent Office when granting the patent.  Microsoft raised the following  question:

The Patent Act provides that “[a] patent shall be presumed valid” and that “[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.” 35 U.S.C. § 282.The Federal Circuit held below that Microsoft was required to prove its defense of invalidity under 35 U.S.C. § 102(b) by “clear and convincing evidence,” even though the prior art on which the invalidity defense rests was not considered by the Patent and Trademark Office prior to the issuance of the asserted patent. The question presented is:

Whether the court of appeals erred in holding that Microsoft’s invalidity defense must be proved by clear and convincing evidence.

This petition is one similar to that raised by Microsoft in z4. That petition was withdrawn when the parties settled. 

Eleven parties have filed amicus briefs supporting the petition for certiorari.  Microsoft's counsel makes the point that the companies signing in their own name “employ more than three million people and the publicly-traded companies have a combined market capitalization of more than $1.2 trillion.”  Briefs opposing the petition as well as i4i's opposition appear to be due on October 29, 2010.

Chief Judge Roberts has recused himself from the case.

A review of the briefs follow.  Many of the briefs cover similar material and I have attempted to point out some of the differences. Of course, all of these briefs listed argue that the current evidentiary standard is too-high.

* * * * *

Briefs in support of the Petition:

36 Professors led by Mark Lemley:  The professors suggest that the clear and convincing standard does not make sense based on the known bureaucratic difficulties of the USPTO and the result that many issued patents would not survive a serious Section 103(a) analysis. The professors also write that the Supreme Court offered a signal in KSR that the Federal Circuit should reconsider its standard, but that the Federal Circuit has refused to do so.

Brief by Acushnet, SAP, and Others: James Dabney and John Duffy collaborated to examine the history of invalidity defenses. The brief does an especially good job of spelling out different aspects of an invalidity argument that may need a higher standard of proof.  Thus, Acushnet seemingly argues that uncorroborated oral testimony should still be excluded even if the general standard of proof was lowered.  This is one of the more nuanced briefs.

Teva, Cisco, and the Generic Pharma Association: The current standard creates an incentive for patent applicants to conceal material information from the USPTO. An issued patent is valuable — even if it would eventually be found invalid. The cost of invalidating a patent is so high that a patentee can usually obtain significant settlements even for a patent that should have never issued.

Google, Verizon, Dell, HP, Wal-Mart: A preponderance-of-the-evidence is the default burden of proof in civil cases.  The Federal Circuit has no legal justification for its clear-and-convincing standard that unduly burdens accused infringers.  The USPTO normal examination of patents is insufficient to warrant a high level of deference.

Yahoo!: “In requiring clear and convincing proof of facts bearing on patent invalidity, the Federal Circuit’s rule conflicts with this Court’s teaching that a heightened evidentiary standard should not apply where a statute does not prescribe the heightened standard.”

Intel: We have “a thicket of invalid patents that stifles competition and impedes further innovation.”

Securities Industry and Financial Markets Association:  “The Federal Circuit’s stance is contrary to the guidance of this Court as well as to the standards applied by the regional circuits before 1982.”  The flood of bad patents is especially troublesome in the area of business methods and financial software. New transparency laws make it more likely that these patents will be enforced.

Facebook, Netflix, et al.: An important goal of the patent system is to encourage innovation without disrupting other-innovation through mistaken government “grants of monopolies.” To harmonize with the reexamination statute, court's should at least lower the threshold for proving invalidity once a substantial new question of patentability is established.  (I wonder if Facebook's loose use of the “monopoly” term here will come back to haunt them.).

EFF et al.: Giving value to illegitimate patents creates perverse incentives.  These problems are particularly concerning in the software and internet realms for several reasons, including that they impede alternative innovation models such as FOSS.  In addition, the clear and convincing standard is a non-statutory extension of the law.

Apple: Apple argues that the current system makes it too difficult and costly to obtain a judicial decision that a patent is invalid. “”The clear and convincing standard shields a growing number of poor quality patents from the truthseeking function of our adversarial system.”

CTIA –  The Wireless Association: The clear and convincing standard makes a difference in litigation — making it much more likely that a patent will survive validity attacks.  This reality has created practical problems in dealing with holders of low-quality patents who seek large damage awards.

Documents:

Links


 

Bilski, Kenny Rogers and Supreme Court Rule 46

Guest Post, Patent, Patentable Subject Matter, , , ,

by Professor John F. Duffy, George Washington University Law School

You got to know when to hold 'em, know when to fold 'em
Know when to walk away, know when to run                       
                                                       — Kenny Rogers in The Gambler
_____________________________

Kenny Rogers’ hit song The Gambler provides some wise strategic advice, valid not only in cards and but also in law and perhaps in life generally:   If “fold ’em” is an option, sometimes it is the best one. Supreme Court Rule 46 on “Dismissing Cases” provides petitioners in Supreme Court cases the opportunity to “fold ’em,” and in the days remaining before the Supreme Court delivers an opinion in its Bilski v. Kappos case, the most puzzling question in the case has become this: Why won’t the petititoners in Bilski fold?

From the perspective of the petitioners, the case for seeking dismissal seems overwhelmingly strong. In the months since the oral argument in Bilski, every Justice save Justice Stevens has delivered an opinion from the set of cases argued in the November sitting. Bilski remains the only case not decided from that sitting. Because only one case remains undecided and only one Justice has yet to deliver an opinion from that month, there is widespread agreement among those familiar with Supreme Court practice that Justice Stevens is writing the Court’s opinion in Bilski. Thus, the petitioners are now reduced to hoping that Justice Stevens, who once argued in dissent that all software should be outside patentable subject matter, will author an opinion that will be more pro-patent than the positions taken by all but one of the Federal Circuit judges.

But there’s more. Not only do petitioners have no realistic hope of winning anything in the case, they also have much to lose by persisting in the appeal. Petitioners—the named inventors in the application, Bernard Bilski and Rand Warsaw—and their firm WeatherWise have other patent claims, some issued and some pending, that pass the machine-or-transformation test but that may not pass whatever test Justice Stevens is busy constructing.

That’s a quick summary of the case for the petitioners seeking dismissal of Bilski. The details only make the case stronger. Then again, there is also a distinct possibility that petitioners’ side of the case may want to lose.

The Petitioners’ Chances for Victory: Nil.

Any rational consideration of persisting in a legal case should begin with a frank assessment of the chances for gain and loss.   I’ll begin with the chances for gain, for they are as close to zero as can be imagined.

Good poker players learn to read other players’ “tells,” subtle clues which give hints about the likely outcomes if the hand is played to completion. In Bilski, the Supreme Court has also given some awfully clear “tells” that do not bode well for the petitioners.

Most importantly, the assignment pattern of the Court’s opinions strongly suggests that Justice Stevens is writing the opinion. The assignment of opinions in the Court is typically done with two goals in mind: (1) to give each Justice the chance to author at least one majority opinion from each sitting; and (2) to average out the number of majority opinions written by each Justice. Twelve separate cases were argued in the November sitting, including Bilski. (This counts two cases—Graham v. Florida and Sullivan v. Florida—as effectively one case, as the two cases involved the same issue and were eventually decided the same day.) Every Justice has delivered a majority opinion from that month, with the exception of the Justice Stevens. Thus, most Supreme Court watchers would predict that the one remaining opinion from the month—Bilski—was assigned to Justice Stevens.

There is some uncertainty about this result, however. Pursuant to Supreme Court Rule 46, one of those twelve cases (Pottawattamie County v. McGhee) was dismissed two months after the oral argument, so the Justice assigned to write the opinion in that case is not publicly known. Still, Stevens still remains the most likely candidate to have been assigned the Bilski opinion because of the larger pattern of assignments from the Court’s first three sittings (September, October and November). During those three months, 26 cases were argued. If the Court were trying to average out the workload among the Justices, then every Justice save one should have been assigned three majority opinions to write.

By now, all Justices have delivered three majority opinions from those first sittings with the exception of Justices Stevens and Sotomayor. Justice Stevens has delivered only one majority opinion (a case argued in October); Justice Sotomayor has delivered two majority opinions (one each from October and November). It seems highly likely that Justice Stevens was assigned only two majority opinions to write from the first three sittings because Stevens was also writing the principal dissent in Citizens United v. FEC, the hugely important campaign finance case to which the Court gave expedited consideration.   (If, however, Justice Stevens was originally assigned three majority opinions, then he would have definitely been assigned Bilski.) Assuming Justice Stevens was assigned only two majority opinions, then the assignments to write majority opinions in Bilski and the now-dismissed Pottawattamie County case would have been distributed to Stevens and Sotomayor. Sotomayor would seem like the natural for Pottawattamie County, which involved the immunity of state prosecutors from civil liability, because Sotomayor served as a state criminal prosecutor under New York City’s Robert Morgenthau. Stevens, by contrast, was an antitrust lawyer before becoming a judge, and he has shown significant interest in patentable subject matter.

Another clue to the authorship of Bilski comes from the lengthy delay in announcing the opinion. As previously mentioned, Justice Stevens wrote the principal dissent in the Citizens United case, which was heard and decided on an expedited basis by the Court because of the case’s importance to the spring primary season. Stevens’ impassioned dissent in that case ran for 90 pages, and that opinion seems to have delayed the release Stevens’ other majority opinions. Indeed, for two months after the January decision in the Citizens United case, Justice Stevens was the only Justice on the Court not to have delivered any majority opinion during the entire Term.

If, as seems likely, Justice Stevens is writing the majority opinion in Bilski, that is an awful omen for the petitioners. Justice Stevens wrote the majority opinion for the Court in Parker v. Flook (1978), which created the enigmatic rule that certain forms of “post-solution activity” cannot transform an unpatentable principle into a patentable process. Justice Stevens is also one of the few Justices ever to attempt to draw bright-line rules for excluding whole fields from the patent system. His dissent in Diamond v. Diehr, 450 U.S. 175, 193 (1981), sought to promulgate “an unequivocal holding that no program-related invention is a patentable process under § 101 unless it makes a contribution to the art that is not dependent entirely on the utilization of a computer.” 450 U.S. at 219.

In addition to the Court’s fairly clear “tell” that Justice Stevens will deliver the opinion of the Court, there are other signs that the petitioners’ chances for ultimate success are nil. The oral argument did not go well at all for petitioners’ counsel (to put it mildly), and a significant portion of the government’s argument was devoted to arguing that the Court should not impose a more restrictive rule than that sought by the PTO (e.g., a complete ban on business method patents, whether machine implemented or not). See Transcript of Argument at 40-50. In addition, at the Federal Circuit, even Judge Rader—one of the two judges willing to take a more comprehensive view of patentable subject matter—stated explicitly that he would agree the petitioners’ claims were unpatentable as abstract ideas.

Finally, if more evidence were needed, there is the PTO’s extraordinary record of success at the Supreme Court in patent cases. Two recent articles, one by Colleen Chien of Santa Clara University and one of my own, have independently noted that, since the creation of the Federal Circuit, the government’s substantive positions on patent law have always prevailed at the Supreme Court. See Colleen Chien, Patent Amicus Briefs: What the Courts’ Friends Can Teach Us About the Patent System (2010); John F. Duffy, The Federal Circuit in the Shadow of the Solicitor General, 78 G.W.U. L. Rev. 518 (2010).   The petitioners in Bilski must hope that the Supreme Court will finally rule against the government, and in an opinion by Justice Stevens, stake out a much more pro-patent position than every judge on the Federal Circuit save one.

The Value of Dismissal.

The impossibly slim odds of winning would not matter to the petitioners if they had nothing to lose from persisting in the appeal. But petitioners Bilski and Warsaw have at least two pending patent applications on business methods for hedging risk. See U.S. Pat. App. 200030233323 A1 (Dec. 18, 2003); U.S. Pat. App. 20040122764 A1 (June 24, 2004). Furthermore, Petitioner Warsaw also is the named inventor on several issued claims in a patent assigned to the firm WeatherWise.   See U.S. Pat. No. 6,785,620 (2004). Many of the claims in that patent would seem to pass the machine-or-transformation test, as the claims cover “system[s]” that include various modules for storing and manipulating data. Some claims are also directed to a “computer-readable medium having stored thereon instructions,” which is a form of claim for covering business software that the government currently views as permissible but that could be jeopardized by an unfavorable Supreme Court opinion in Bilski.   

If the Bilski case were dismissed, a decision about patentable subject matter would be left for the future. From the standpoint of petitioners, the future would better for two reason. First, Justice Stevens would be replaced by a new Justice, likely Elana Kagan. That change has to favor those on the side of the petitioners since Justice Stevens takes a more restrictive view of patentable subject matter than many of the other Justices on the Court. By contrast, the Solicitor General’s Office under Kagan expressly endorsed the position (stated during the Bilski oral argument) that the Federal Circuit had correctly decided State Street Bank v. Signature Financial. See Transcript of Oral Argument at 44. The future also presents the possibility of a different case, with perhaps more attractive facts.

Dismissal: Still Time?

Supreme Court Rule 46.1 allows any case to be dismissed, even after the oral argument, by agreement of the parties. The Rule directs that, upon filing of such an agreement, the Clerk of the Court, “without further reference to the Court, will enter an order of dismissal.” Furthermore, Rule 46.2 allows petitioners unilaterally to seek dismissal by agreeing to pay all the court costs and fees due. (Such costs and fees are not attorneys’ fees but merely the minor costs associated with the appeal that are paid by the losing party in any case.) The grounds on which respondents may object to such a filing are strictly “limited to the amount of damages and costs in this Court alleged to be payable or to showing that the moving party does not represent all petitioners or appellants.” The Clerk of the Court is directed “not [to] file any objection not so limited.”

The Rule reflects a very clear policy that the Court will not plunge ahead to decide a case if the petitioners have decided to “fold ’em,” and that policy makes perfect sense from the Court’s perspective. The Supreme Court has plenty of cases to decide, and important issues eventually percolate back up to the Court if they really need to be decided. Indeed, in the November sitting alone, the Pottawattamie County case was dismissed even though argument had been heard two months earlier and the case involved an important issue about the scope of prosecutors’ immunity.

True, if the Solicitor General’s Office were unwilling to agree to the dismissal, it is unclear what would happen. At oral argument, however, the advocate for the Solicitor General’s Office emphasized that the government thought the Court should never have taken the case because it was an “unsuitable vehicle” to decide questions of patentable subject matter. Transcript of Argument at 48. Moreover, the Solicitor General’s Office is very much a repeat player at the Supreme Court, and thus the Office tends to be willing to follow not just the letter but also the spirit of the Court’s rules. Since those rules reflect a fairly clear policy that petitioners’ dismissals should not be opposed unless the petitioner either is not willing to pay costs or does not represent all petitioners, the Solicitor General’s Office seems unlikely to attempt to thwart dismissal where the petitioners comply with the conditions of Rule 46.

A Final Point: A Desired Defeat?

All of the above makes the crucial assumption that the petitioners in Biski want to sustain the patentability of business method patents such as their own. But that assumption may be wrong. The patent application at issue is no longer owned by Bernard Bilski, Rand Warsaw or even WeatherWise, the small start-up company that holds similar patent claims on hedging energy consumption risks and is merely a licensee of the patent application at issue in the case (see Paul Schaafsma news article noting the licensing relationship). As the petitioners’ briefs in the Supreme Court disclose, the real party in interest in the case is Equitable Resources Inc., renamed EQT Inc. during the pendency of the case. See Petitioners’ Reply Brief at (i). That corporation has market capitalization of $5.4 billion (see EQT Financial Report). A quick search of the PTO’s database does not show any issued patents owned by this corporation, and the company’s most recent annual report filed with the SEC makes no mention of patents or intellectual property. It is not at all clear that such a company really wants to have patent protection for innovative ways to manage energy costs or risks, or for any other form of business method. Large companies are often the targets of patent infringement litigation, and start-ups often see patents as a means to compete against established firms. Indeed, the Warsaw patent on hedging risk—which is assigned to WeatherWise, not EQT—could itself provide a reason why the petitioners’ side of the case would welcome defeat.

It remains a puzzle why the petitioners in this case are persisting in an appeal that seems not only doomed but also capable of establishing new and unpredictable restrictions to the scope of patentable subject matter. I had previously thought that “irrational exuberance” provided the best answer—that the Bilski petitioners were likely to remain unrealistically optimistic about their chances for success right up to the end. But the presence of a multibillion-dollar corporation controlling the litigation decreases the chances that the strategy is due to simple inventor over-optimism. Perhaps the entity controlling the petitioners’ side of the case is really quite wily, for there would be no cause to “fold ’em,” if the petitioners’ side would view thorough defeat as victory. That would explain much.  

Bilski Watch: Timing of Supreme Court Decisions

Patent

The US Patent world continues to await the Supreme Court’s decision in Bilski v. Kappos. The case was argued on November 9, 2009 — 204 days ago.  Professor Joe Miller (Lewis & Clark) looked at the timing of 18 other recent Supreme Court patent decisions and concludes: “if you feel like you’ve been waiting a long time to see the Bilski opinion, it’s because you *have* been waiting a longer time than usual.” 

The chart below is based on Prof. Miller’s data and reports the number of days elapsed from the oral argument to the release of the decision for each case.  The average delay is about 90 days (median of 77 days).  As seen in the chart, Bilski has the longest delay (and that delay continues to grow).  A decision in Bilski is expected by June 28, 2010.

PatentLawPic995
 

Chien: Recent History Suggests that Supreme Court will Rule Bilski’s Claim Unpatentable

Patent,

Professor Colleen Chien (Santa Clara) has written an interesting new article on the importance of amicus briefs in patent cases. Her article is titled Patent Amicus Briefs: What the Courts’ Friends Can Teach Us About the Patent System and is available online at SSRN.

Bilski v. Kappos: Professor Chien reminded me that as Solicitor General, Elena Kagan authored both the US government’s merits brief in Bilski case arguing that Bilski’s claim is unpatentable and the US government’s brief opposing cert. The article reports that “in the last 20 years, every single amicus brief authored by the US Government in a Supreme Court patent case except one predicted the case outcome.” Chien writes “If history is any indication, the Supreme Court will almost certainly follow the US Government’s lead and rule that the method is unpatentable and likely adopt some of its reasoning as well.” (Note that Bilski is a bit different because the Government is a party).

The abstract:

Over the last two decades, more than 1500 amici, representing thousands of organizations, companies, and individuals, have signed onto amicus briefs in over a hundred patent cases, many of them representing landmark decisions. This paper turns the spotlight on these “behind-the-scenes” actors in the patent system. It combines theoretical insights with an empirical study of amicus briefs filed in patent cases over the last 20 years in an examination of who is interested in the patent system, the positions they have advocated, and the effectiveness of their advocacy. Amicus filers have been instrumental in shaping the courts’ agenda; the Supreme Court was seven times more likely to grant cert, and the Federal Circuit eight times likely grant a petition for en banc rehearing, if urged to by an amicus. However, while certain briefs have been important, overall the balance of briefs on the merits have not had a measurable impact on the courts’ rulings. One exception has been the briefs of the US Government, which have been exceptionally prescient. Over the 20 years studied, every single amicus brief authored by the US Government in a Supreme Court patent case except one predicted the case outcome. That is to say, in almost all cases, the Court affirmed or rejected the lower court holding when the Government told it to, and in one case, dismissed cert as improvidently granted when the Government recommended doing so. In terms of who files briefs and their agenda, the results are somewhat surprising. Although debates about the patent system are usually cast as a fight between the pharmaceutical and hi-tech industries, patent lawyers comprise a powerful interest group, filing the most briefs of any single group. In addition, among companies, what seems largely to determine how they advocate is their business model – non-practicing entities, for example, nearly always weighed in for the patentee and public companies, often against the patentee. These and other results have implications for those seeking to understand the patent system and those seeking to influence it.

Download the article.

Supreme Court to Decide Case of International Copyright Exhaustion

Patent,

PatentLawPic972Costco Wholesale Corp. v. Omega, S.A., Docket No. 08-1423 (Supreme Court 2010)

The Supreme Court announced today that it would decide the international copyright exhaustion case of Costco v. Omega. Costco purchased Omega watches from a third-party importer and sold the watch for $1,300 instead of the $2,000 suggested retail price. Omega (a division of Swatch) then sued Costco for copyright infringement – alleging that the sale violated the Swiss Company’s US Copyright covering the “Omega globe design” on the back of the watch. In a 2008 decision, the Ninth Circuit agreed with Omega, holding that the US Copyright was not exhausted because Omega had originally sold the watches to distributors in Egypt and Paraguay. This arbitrage was available because Omega sells its watches for a higher price in the US than it does elsewhere.

The question on appeal is whether Omega’s authorized foreign sale exhausted its US copyright.

Under the Copyright Act’s first-sale doctrine, 17 U.S.C. § 109(a), the owner of any particular copy “lawfully made under this title” may resell that good without the authority of the copyright holder. The closest Supreme Court precedent is Quality King Distribs., Inc. v. L’Anza Research Int’l, Inc., 523 U.S. 135, 138 (1998). In that case, the unanimous court held that the copyright was exhausted and therefore that the copyright holder could not block imports of shampoo bottles with copyrighted labels. The Ninth Circuit distinguished Quality King based on the fact that the labels were originally made in the US then shipped abroad before being re-imported. According to the Ninth Circuit, the Omega watches are not subject to the first sale doctrine because they were not “lawfully made under” the US Copyright Act.

The US Patent Laws are also subject to an exhaustion doctrine – although patent exhaustion is entirely judge-made and not subject to statutory interpretation. In Fuji Photo Film Co. v. ITC, 474 F.3d 1281 (Fed. Cir. 2007), the Federal Circuit held that US patent rights are only exhausted through a first sale “in the United States.” In that case, the Federal Circuit recognized that “a different rule applies in copyright cases.” Of course, the Supreme Court’s copyright decisions often interplay its discussion of the two intellectual property forms.

Patent holders that rely upon the current law to block parallel imports will likely want to file an amicus brief to justify a difference between the two regimes.

Thriving Resale Market: EBay argues that the Omega ruling “could have a detrimental effect on the ability of buyers and sellers of secondary-market goods to engage in commerce in the United States.”

Copyright?: Of course, Omega would be hard-pressed to claim copyright in the watch itself. Rather, the copyright claim is in the arrangement of the 8 mm OMEGA symbol and name.  Although not strictly at issue here, the Supreme Court is not likely to overlook the fact that the copyright claim is an artificial construct that Omega is asserting to control downstream uses of its non-copyrighted watch that it otherwise could not control.

Notes:

Court: Essentially All Gene Patents Are Invalid

Patent

Association for Molecular Pathology and ACLU v. USPTO and Myriad (S.D.N.Y. 2010) (Judge Sweet)

In a powerful move away from standard thoughts on patentability standards, the district court for the Southern District of New York has held that Myriad's patents claiming "isolated DNA" do not qualify as patentable subject matter under 35 USC 101.

The claims-in-suit directed to "isolated DNA" containing human BRCA1/2 gene sequences reflect the USPTO's practice of granting patents on DNA sequences so long as those sequences are claimed in the form of "isolated DNA." THis practice is premised on the view that DNA should be treated no differently from any other chemical compound, and that its purification from the body, using well-known techniques, renders it patentable by transforming it into something distinctly different in character. Many, however, including scientists in the field of molecular biology and genomics, have considered this practice a "lawyer's trick" that circumvents the prohibitions on the direct patenting of DNA in our bodies but which, in practice, reaches the same result. The resolution of these motions is based upon long recognized principles of molecular biology and genetics: DNA represents the physical embodiment of biological information, distinct in its essential characteristics from any other chemical found in nature. It is concluded that DNA's existence in an "isolated" form alters neither this fundamental quality of DNA as it exists in the body nor the information it encodes. Therefore, the patents at issue directed to "isolated DNA" containing sequences found in nature are unsustainable as a matter of law and are deemed unpatentable subject matter under 35 USC 101.

Similarly, because the claimed comparisons of DNA sequences are abstract mental processes, they also constitute unpatentable subjct matter under Section 101.

This decision is the result of an action brought by a coalition of scientists and public interest groups in 2009. The group challenged Myriad's breast cancer gene patents as violating both the patent laws and the US Constitution.

The Federal Circuit is likely to reverse this decision — opening the door to an important Supreme Court showdown.

Download Myriad Opinion

Appellate Court Enforces Permanent Injunction against Microsoft Word

Patent, ,

By Dennis Crouch

i4i Limited Partnership v. Microsoft Corp. (Fed. Cir. 2009) (Judges Schall, Prost, & Moore; opinion by Judge Prost)

The i4i district court decision created some turmoil this past summer when the Eastern District of Texas court ordered Microsoft to stop selling versions of its flagship MS Word product that infringe i4i’s patent covering xml editing technology. The injunction was stayed pending appeal, but now the Court of Appeals for the Federal Circuit (CAFC) has affirmed the lower court’s findings of validity and willful infringement and its award of enhanced damages and permanent injunctive relief. The only modification made by the court was to push-back the effective date of the injunction from sixty-days to five months (from the original order). Thus, “[t]he injunction’s effective date is now January 11, 2010.”

To be clear, the permanent injunction “applies only to users who purchase or license Word after the date the injunction takes effect. Users who purchase or license Word before the injunction’s effective date may continue using Word’s custom XML editor, and receiving technical support.” Beginning January 11, 2010, Microsoft will be prohibited from “(1) selling, offering to sell, and/or importing into the United States any infringing Word products with the capability of opening XML files containing custom XML; (2) using Word to open an XML file containing custom XML; (3) instructing or encouraging anyone to use Word to open an XML containing custom XML; (4) providing support or assistance that describes how to use Word to open an XML file containing custom XML; and (5) testing, demonstrating, or marketing Word’s ability to open an XML file containing custom XML.”

Because the injunction only applies to future purchasers, Microsoft does not need to back-fix its already-distributed software. Rather, it only needs to ensure that software sold on or after January 11, 2010 is non-infringing. Microsoft may request another emergency stay of relief in order to seek en banc review of the decision. However, that process has a low likelihood of success. Because of the large damage award of $240 million, Microsoft will likely push-forward with requests for rehearing en banc and eventually a petition for a writ of certiorari to the U.S. Supreme Court.

Judging Injunctive Relief: A patentee seeking a permanent injunction must show that (1) it has suffered an irreparable injury due to the infringement; (2) remedies available at law (typically monetary damages) are inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) the public interest would not be “disserved” by a permanent injunction. eBay, 547 U.S. at 391. Here the irreparable harm was proven by “evidence that Microsoft’s infringement rendered i4i’s product obsolete for much of the custom XML market, causing i4i to lose market share and change its business strategy to survive.” Monetary damages were inadequate because “a loss of market share, brand recognition, and customer goodwill” typically defy valuation “particularly when the infringing acts significantly change the relevant market, as occurred here.” The balance of the hardships favor i4i because the patented technology is “central” to i4i’s business, but only a small factor in Microsoft’s business. Here, the court held that the “cost of redesigning the infringing products” is irrelevant to the hardship consideration. “Microsoft is not entitled to continue infringing simply because it successfully exploited its infringement.” Likewise, the public interest favors upholding patent rights especially here where the injunction is of a “narrow scope.” “By excluding users who purchased or licensed infringing Word products before the injunction’s effective date, the injunction greatly minimizes adverse effects on the public.”

Notes:

Bilski v. Kappos: Supreme Court Arguments

Patent, , , , ,

Bilski v. Kappos (Supreme Court 2009) (oral arguments)

The transcript from the hour-long oral arguments are available online here. The following is the five-minute version of the questions and statements that I found most interesting. They are a bit out-of-order.

 

JUSTICE SCALIA: Well, if the government says that the — that the term on which it hangs its hat is the term useful arts and that that meant, originally, and still means manufacturing arts, arts dealing with workmen, with — you know, inventors, like Lorenzo Jones, not — not somebody who writes a book on how to win friends and influence people. What is wrong with [the] analysis, that …”useful arts” … always was thought to deal with machines and inventions?

JUSTICE BREYER: You know, I have a great, wonderful, really original method of teaching antitrust law, and it kept 80 percent of the students awake. … And I could probably have reduced it to a set of steps and other teachers could have followed it. That you are going to say is patentable, too?

JUSTICE SCALIA: . . . Let’s take training horses. Don’t you think that — that some people, horse whisperers or others, had some, you know, some insights into the best way to train horses? And that should have been patentable on your theory.

JUSTICE SOTOMAYOR: So how do we limit it to something that is reasonable? Meaning, if we don’t limit it to inventions or to technology, as some amici have, or to some tie or tether, borrowing the Solicitor General’s phraseology, to the sciences, to the useful arts, then why not patent the method of speed dating?

JUSTICE SOTOMAYOR: But a patent limits the free flow of information. It requires licensing fees and other steps, legal steps. So you can’t argue that your definition is improving the free flow of information.

 

MR. JAKES: . . . I think that we should go back to the first principles that were enunciated in Diehr and other cases, that abstract ideas per se are not patentable. That’s my position, and what I would advocate in this case and any case…

MR. STEWART: Well, I think the Court could say — could do essentially what was done in Benson and Flook, namely acknowledge that there had never been a case up to this point in which a process had been held patent eligible that didn’t involve a machine or a transformation. It could leave open the possibility that some new and as yet unforeseen technology could necessitate the creation of an exception.

 

MR. JAKES: [L]ooking at what are useful arts, it does exclude some things. It does exclude the fine arts. Speaking, literature, poems, I think we all agree that those are not included, and there are other things as well. For example, a corporation, a human being, these are things that are not covered by the statutory categories. . . . Now, the patent on the data, that’s another category that’s not included in the subject matter of those four categories. The data itself is not patentable, but if it is a series of steps, it should be eligible as long as it meets the other statutory requirements as a process.

 

CHIEF JUSTICE ROBERTS: Well, but your Claim 1 it seems to me is classic commodity hedging that has been going on for centuries.

MR. JAKES: Your Honor, if that were true, then we should run afoul of the obviousness provision under section 103.

 

JUSTICE BREYER: There are actually four things in the patent law which everyone accepts. There are two that are plus and two that are minus. And the two that are plus is by giving people a monopoly, you get them to produce more. As you said, you get them to disclose. The two minuses are they charge a higher price, so people use the product less; and moreover, the act of getting permissions and having to get permission can really slow things down and destroy advance. So there is a balance. In the nineteenth century, they made it one way with respect to machines. Now you’re telling us: Make it today in respect to information. And if you ask me as a person how to make that balance in respect to information, if I am honest, I have to tell you: I don’t know. And I don’t know whether across the board or in this area or that area patent protection will do no harm or more harm than good.

 

MR. STEWART: And you know, Justice Scalia, you mentioned how to win friends and influence people. I think at a certain level of generality you could describe both Dale Carnegie and Alexander Graham Bell as people who devised methods of communicating more effectively. The reason that Bell’s method was patentable was that it operated in the realm of the physical. Bell had devised a process implemented through machines by which sound was transformed into electronic current. The current was then transmitted over a distance and transformed back into sound. Innovations as to new techniques of public speaking, new techniques of negotiations, techniques that go to the substance of what is said may be innovative. They may be valuable. They are not patent eligible because they don’t deal in the realm of the physical —

 

JUSTICE SOTOMAYOR: How about if we say something as simple as patent law doesn’t cover business matters

MR. STEWART: I think that would be incorrect, and it would create problems of its own. . . . So to say that business methods were ruled out would itself be a fairly sweeping holding.

JUSTICE SCALIA: Also you could say business methods apart from machines are not patentable. How about that?

MR. STEWART: If the Court said that in the limited area of business methods, if there is no machine or transformation there is no patent eligibility —

 

CHIEF JUSTICE ROBERTS: Mr. Stewart, I thought I understood your argument up until the very last footnote in your brief. And you say this is not –simply the method isn’t patentable because it doesn’t involve a machine. But then you say but it might be if you use a computer to identify the parties that you are setting a price between and if you used a microprocessor to calculate the price. That’s like saying if you use a typewriter to type out the — the process then it is patentable. . . . that takes away everything that you spent 53 pages establishing. . . . [I]f you look at your footnote, that involves the most tangential and insignificant use of a machine. And yet you say that might be enough to take something from patentability to not patentable.

MR. STEWART: And all we’ve said is that it might be enough; that is, hard questions will arise down the road as to where do you draw the line, to what extent must the machine or the transformation be central —

CHIEF JUSTICE ROBERTS: So you think it’s a hard question. If you develop a process that says look to the historical averages of oil consumption over a certain period and divide it by 2, that process would not be patentable. But if you say use a calculator, then it — then it is?

MR. STEWART: I think if it’s simply using a calculator for its preexisting functionality to crunch numbers, very likely that would not be enough. But what we see in some analogous areas is that the computer will be programmed with new software, it will be given functionality it didn’t have before in order to allow it to perform a series of calculations, and that gets closer to the line. . . . I guess the point I’m trying to make is simply that we don’t want the Court, for instance, in the area of software innovations or medical diagnostic techniques to be trying to use this case as the vehicle for identifying the circumstances in which innovations of that sort would and would not be patent eligible, because the case really doesn’t present any — any question regarding those technologies.

 

JUSTICE KENNEDY: How would you come out in the State Street case today, if all of the arguments were made under your test?

MR. STEWART: Well, under our test, we would come out the same way because the computer would be a machine. The only question would be whether the programming of the computer with new software caused it to be a patentable different machine from the one that existed previously.

 

JUSTICE STEVENS: It’s not on a computer, which the only difference from the old computer is it’s using a new program. You can’t say that’s a new machine.

MR. STEWART: [The] PTO agrees … that programming a computer by means of software to produce — to perform new functions can create a novel —

JUSTICE BREYER: But then all we do is every example that I just gave, that I thought were examples that certainly would not be patented, you simply patent them. All you do is just have a set of instructions for saying how to set a computer to do it. Anyone can do that. Now, it’s a machine.

MR. STEWART: … we recognize that there are difficult problems out there in terms of patentability of software innovations and medical diagnostics.

JUSTICE KENNEDY: You thought we — you thought we would mess it up.

MR. STEWART: We didn’t think the Court would mess it up. We thought that this case would provide an unsuitable vehicle for resolving the hard questions because the case doesn’t involve computer software or medical diagnostic techniques, and therefore, we thought the Court would arrive at the position that I think, at least some members are feeling that you have arrived at, that you will decide this case, and most of the hard questions remain unresolved.

Supreme Court Hears Bilski v. Kappos

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As she has done with past cases, Jill Browning provides the following same-day analysis of the Supreme Court oral arguments in Bilski v. Kappos.

By Jill Browning

The Federal Circuit, sitting en banc, affirmed the Patent Office's decision that the applicant's claims directed to a method of hedging risk in the field of commodities trading did not meet the patent eligibility standard of  35 U.S.C. § 101.  The Federal Circuit found that a "process" must be tied to a particular machine or apparatus, or must transform a particular article into a different state or thing (the "machine-or-transformation" test), to be eligible for patenting under 35 U.S.C. § 101.

The Supreme Court heard oral argument on the appeal from the Federal Circuit today, wherein the central issue is whether the Federal Circuit erred by holding that a "process" must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing ("machine-or-transformation" test), to be eligible for patenting under 35 U.S.C. § 101. 

Justices Sotomayor, Kennedy and Breyer were particularly active, with only slightly lesser participation by Justices Scalia and Ginsburg and Chief Justice Roberts. The Justices appeared to be struggling to come up with the "right" answer and appeared to be mindful of the potential consequences their ruling may have.

Justice Scalia initially indicated that the "useful arts" should mean the manufacturing arts, but not someone who writes a book on "how to win friends and influence people."  Justice Sotomayor followed up with a question regarding the difficulty in where to draw the line if there is no tie to science/technology, reciting the parade of horrors of potentially patentable methods for estate plans or tax avoidance.  Justice Breyer followed up with a question asking whether the framers of the Constitution intended for every  "new" method that helps the business owner to conduct business should be patentable, intimidating that the petitioner's proposed test could be too encompassing and asking for an alternative to limit it to something more reasonable, such as "useful arts."  Justice Sotomayor asked whether a method to cure someone that involves only human activity would fall within the Patent Act.  In response, Petitioner responded that yes, many of these things, if there were new and useful and met the other requirements of the Patent Act, should be patentable, giving the specific example of surgical methods.

Justice Breyer asked for a proposed "back up" principle if the Court "hypothetically" decided to reject the test that "any steps" may potentially be patentable.  Chief Justice Roberts and Justice Kennedy both followed up with comments indicating that certain "ideas" that are abstract should not be patentable, indicating that it would be difficult for him to think that the actuarial tables used in the insurance industry should have been limited to 1 person.  

Justice Ginsburg appeared to be in favor of something similar to the European system, which, she understood to require that the invention be tied to "science or technology".  The petitioner pointed out that the United States is different and that it would be difficult to define "technology based" in the United States.  Petitioner indicated that Europe defines "technology based" to exclude business methods.   Justice Scalia asked why, in a horse-based economy (in the 1800's) there were no patents directed to methods of training horses, as this would certainly have been useful at the time.

Justice Sotomayor indicated that "how" to approach a problem can't be enough to make it patentable, rather, it has to involve some transformation.  She also asked how to discern Congressional intent.  Further to the "intent" issue, Justice Stevens asked whether the original drafter of the Patent Act had any comments on this issue.

Justice Breyer indicated that there were four things to consider when making this ruling, two positive and two negative.  The two positives were the monopoly power the patent provides and the disclosure to the public.  The two negatives were the higher prices that result when a monopoly is in play and having to get a license or permission to practice a patented invention takes time and slows progress.  He indicated that in the past, we respected machines, now, this was asking to respect information, and he was grappling with whether providing patent protection would do more harm than good.

Justice Sotomayor commented that maybe it be sufficient to patent useful knowledge if it were tied to some transformation and the patenting of the Morse Code was discussed.

This concluded the Petitioner's opening argument.

The Respondent began by indicating that the Federal Circuit's test was not "inflexible," but only required some link between the method and the transformation.  At least Justice Sotomayor expressed concern regarding applying a  rigid exclusive test, in that potential patentable subject matter would be excluded from the patenting process.  Justice Ginsberg was curious regarding whether the Federal Circuit sua sponte came up with the test or whether the Government proposed the test during briefing.

The Respondent indicated a couple of different times during the argument that there would be many difficult questions to answer in the future, but that the test could accommodate the difficult questions and allow for exceptions to the machine or transformation test.

The State Street case was discussed and Justices Stevens, Scalia and Breyer wanted to know whether this case would come out the same way if the Federal Circuit's test were utilized.  The Justices appeared to expect a "no" answer, but Respondent indicated that State Street would have ended with the same result because the claims were directed to a machine (a computer).

This led to a discussion regarding the Respondent's apparent position, set forth in its last footnote on its brief, which Chief Justice Roberts was troubled about, that if the method is simply tied to a calculator or a computer, then it would be patentable, and this seemed to place form over substance.  Both Justices Kennedy and Stevens were curious with respect to what was "transformed" by the State Street computer program, indicating that it appeared to be merely a new process on an old machine.  The Respondent did not have a ready answer, deflecting the question by indicating that hardware could be present which would transform the machine.

In rebuttal, the Petitioner stressed its position against a rigid test, which could be avoided by simply looking at whether the "invention" is attempting to patent an abstract idea.

Supreme Court Clustering of Patent Cases

Patent

The last time that the Supreme Court directly addressed the issue of subject matter eligibility under 35 U.S.C. § 101 was in the early 1980’s. In the waning days of the pre-CAFC era, the Supreme Court decided Diamond v. Chakrabarty, 447 U.S. 303 (1980) and Diamond v. Diehr, 450 U.S. 175 (1981).

An interesting tidbit of history involves the grant of certiorari in the 1981 Diehr case. The Diehr grant of certiorari occurred on March 17, 1980 – the same day that the court heard oral arguments in Chakrabarty. By that time the court had apparently realized that the patent office needed more Section 101 guidance than the one biotechnology case could provide.

Today’s parallel of Bilski v. Kappos and Mayo v. Prometheus is strikingly similar. Of course, the Supreme Court is a different body than it was in 1980 and the Court hears about 50% fewer cases than it did back then. In patent cases where the Government is not a party – such as Mayo v. Prometheus – the court has more recently tended to ask for the views of the Solicitor General (CVSG) before moving forward with a grant of certiorari. The CVSG delay would push-back any decision on certiorari in Mayo v. Prometheus until the spring of 2010 – well after the scheduled November 9 oral arguments in Bilski. Although the Court may not have released a decision in Bilski by that time, the justices will almost certainly know the eventual outcome of that case.

If (1) the Supreme Court’s Bilski decision substantially shifts the patentable subject matter doctrine and (2) the Supreme Court sees Mayo v. Prometheus as important, the court may issue a “grant, vacate, and remand” or GVR order. In that scenario, the Federal Circuit would be asked to apply the new law of patentable subject matter to the facts in the case. In an e-mail, Hal Wegner suggested to me that this is a likely outcome.

  • Chakrabarty
    • Certiorari Granted October 29, 1979
    • Argued March 17, 1980
    • Decided June 16, 1980
  • Diehr
    • Certiorari Granted, March 17, 1980
    • Argued October 14, 1980
    • Decided March 3, 1981

As an aside, up-to-date versions of Mr. Wegner’s highly informative top-ten lists are being maintained online here.