Tag Archives: Trade Secrets

The following are a collection of posts on trade secrets. Trade secrets are essentially of two kinds. On the one hand, trade secrets may concern inventions or manufacturing processes that do not meet the patentability criteria and therefore can only be protected as trade secrets. This would be the case of customers lists or manufacturing processes that are not sufficiently inventive to be granted a patent (though they may qualify for protection as a utility model). On the other hand, trade secrets may concern inventions that would fulfill the patentability criteria and could therefore be protected by patents. In the latter case, the SME will face a choice: to patent the invention or to keep it as a trade secret.

Trade Secret Information can be Purely Mental

Patent

Ohio-sealAl Minor & Assoc v. Martin, 2008 Ohio 292 (2008)

One aspect of the upcoming Bilski considers whether “mental methods” can be patentable. There are various types of mental methods — running from the most innocuous situation where a portion of a process could be performed in the human mind to the most questionable situation where an entire process must be performed in the human mind.

Opining on Patent’s legal cousin – trade secret law – the Ohio Supreme Court has held customer lists compiled by former employees strictly from memory can be the basis for a trade secret violation.

“[W]e have concluded that the client information at issue in this case did not lose its status as a trade secret, or the protection of the UTSA, because it had been memorized by a former employee.”

As part of his employment contract with AMA, Martin was not required to sign a noncompete agreement or even an employment contract. When he left AMA, Martin was careful not to take any documents belonging to AMA. However, Martin did remember the names of 15 AMA clients and solicited their business.

In its decision, the Ohio court could not find any legal or policy reason to “distinguish between information that has been reduced to some tangible form and information that has been memorized.” (Noting that the statute makes “no mention of writings or other physical forms that such information might take.”

One real problem is that “employee will of course have memories casually retained from the ordinary course of employment.”  In response to this problem, the court gave the unsatisfactory statement that former employees can use their non trade secret memories. “The [UTSA] does not apply to the use of memorized information that is not a trade secret.”

This decision follows the “modern trend” amongst most states to eliminate any “written-memorized distinction.” See Pooley, Trade Secrets (7th Ed.2001).

Challenge to BPAI Appointments Moves to Supreme Court

Patent, ,

Translogic Tech. v. Dudas (on petition for certiorari 2008)

In 2007, Professor John Duffy wrote a Patently-O Patent Law Journal article challenging the constitutionality of the current system for appointing administrative patent judges. The Patent Act requires the Director of the PTO to appoint BPAI judges. 35 U.S.C. §6. However, under Article II of the constitution, appointment of “inferior officers” such as these may only be delegated as far as a “Head of Department.”  In this case, the head of department would be the Secretary of Commerce – not the PTO Director.

Now, Translogic has repackaged Professor Duffy’s article in its petition for certiorari to the Supreme Court — arguing that the BPAI’s rejection of the Translogic patent during reexamination should be vacated because one of the APJs was unconstitutionally appointed. (Based on the BPAI decision, the CAFC Set aside an $80 million jury verdict against Hitachi).

The question presented:

Under the Appointments Clause of the Constitution, art. II, § 2, cl. 2, Congress may vest the appointment of inferior officers in the President, in the Courts of Law, or in the Heads of Departments. In this case, one of the three members of a panel of the Board of Patent Appeals and Interferences (“Board”) of the United States Patent and Trademark Office (“PTO”) that ruled on the claims of Petitioner’s patent was appointed by the Director of the PTO, who is not the Head of a Department.

The Questions Presented are:

  1. Whether one of the members of the panel of the Board was appointed in violation of the Appointments Clause; and
  2. If so, whether there must be a vacatur of the Board’s decision.

Translogic’s brief is clean and could be an easy grant. It raises questions that the Supreme Court is designed to answer: how the Constitution limits federal law. The only knock is that this issue was not raised at the BPAI or the CAFC (until a rehearing request) – primarily because Professor Duffy’s article was not yet published. 

Notes and Documents:

Challenging Patent Validity: Microsoft Asks Supreme Court to Reduce “Clear and Convincing” Standard

Patent,

Microsoft Corp. v. z4 Tech. (on petition for certiorari 2008)

After a jury verdict that z4’s patent was infringed and not invalid, the Eastern District of Texas district court ordered Microsoft to pay over $100M in damages to the patentee (a small Michigan company)  The award was affirmed by the Court of Appeals for the Federal Circuit (CAFC).

Now, Microsoft has asked the Supreme Court to hear its case. The appeal focuses on the CAFC’s hard-line stance of requiring “clear and convincing evidence” to invalidate a patent even when a defendant presents evidence of invalidity that was not considered by the PTO.  The question presented is:

When a defense of invalidity under Section 282 rests on documentary evidence that was not considered by the United States Patent and Trademark Office, whether the factual predicates of the defense must be proved by “clear and convincing evidence” or some lower burden of proof.

According to Microsoft’s brief (filed by Ted Olson), prior to the founding of the CAFC, “all twelve regional circuits” required a lower evidentiary burden when the invalidity argument “rests on evidence that the PTO never had an opportunity to consider.”  The petition also uses KSR as a hook — in that case, the Supreme Court stated in dicta that the “rationale underlying the presumption [of validity is] that the PTO, in its expertise, has approved the claim.” In KSR, the court found the rationale “seem[ed] much diminished” because the references were unavailable to the PTO during prosecution. 

In KSR, the Supreme Court truly did beg the question of whether the standard for proving invalidity should be lessened in certain cases. In its decision here, the the CAFC held the line, by quoting an old Uniroyal case: “The burden of proof is not reduced when prior art is presented to the court which was not considered by the PTO.”*

A weak point of Microsoft’s petition is that its claim for invalidity falls under 102(g). Microsoft is arguing that its own non-published prior invention should invalidate the z4 patent. (Specifically, Microsoft’s asserted prior art was included in a Brazilian version of Publisher). 102(g) cases provide additional rationales for a high evidentiary standard: 102(g) prior art is generally less trustworthy because the asserted prior art was not public but rather emerges from the accused infringer’s files at the opportune time. In addition, lowering the standard for 102(g) prior art encourages potential defendants to keep their developments in secret rather than publicly disclose them or present them to the PTO.  The same issues arise from non-documentary prior art, such as evidence of prior use.  In its question presented Microsoft attempts an end run around the issue by focusing on “documentary evidence.”

Related Notes:

Extending the Patent Term: Most Patents Are Extended Due to PTO Delay

Academic Studies, Patent

ScreenShot04435 U.S.C. 154(b) provides for an adjustment of the standard patent term in cases where a patent’s issuance is delayed because of delay at the U.S. patent and Trademark Office.

I looked at all 6155 original utility patents issued between March 1 and March 13, 2008 to see how often patent terms are adjusted. In this sample, the vast majority of issued patents have an extended patent term due to Patent Office delay. Specifically, 72% of the issued patents include at least some 154(b) extended patent term. Among those with an extended term, the average extension is 392 days. A few patents from the group have very long extensions that approach five years. These are generally explained by (1) secrecy orders and (2) BPAI reversals. (See Patent Nos. 7,342,534 and 7,339,604). 

The first chart below is a histogram of the the patent extensions. As can be deduced from above, 28% of the issued patents have no extension. Slightly over 10% of the issued patents were granted an extension of three months (0.25 years) or less. A cumulative frequency chart of this same data would show that just over 50% of all the issued patents have a term extension lasting more than six months.

ScreenShot042

Of course, the extension term is correlated with the length of time in prosecution. The following scatter plot shows this relationship quite well. The demarcated boundary on the plot is an indication of the potential extension when the entire delay is attributable to the PTO.

ScreenShot043

Other studies show that primary examiners are “quicker” — i.e., that patents examined by a primary examiner issue more quickly and with fewer amendments than those examined by assistant examiners.   Here, I also found a difference between the type of examiner.  As may be guessed, issued patents associated with an “assistant examiner” are much more likely to have an extension. (78% of patents with assistant examiner have extension compared with 69% of patents examined only by a primary examiner). It appears that at least some of the quickness is due to the examiner actually acting more quickly (rather than merely compromising more easily).  Similarly, continuations are much less likely to receive extensions than patents without any ancestral history.  (78% of patents with no ancestry have extension compared with only 61% of patents that reference one or more parent).  That result is explained by the PTO’s procedure of reviewing continuation applications on a priority basis.  Combining these numbers, I find a recipe for delay: In this study a patent with no ancestry that is examined by an assistant examiner has an 83% chance of received extensions due to PTO delay.

As with every measure of patents, the results vary dramatically according to the area of technology. Here, we see that Computer & Communication related patents (according to classification) are much more likely to receive a term extension due to PTO delay and, when an extension is proper, those same patents have a much higher expected extension duration.

Category Percent Receiving Extension Count of Patents Average Extension (Days)
Chemical 73% 606 343
Computers & Communications 82% 1690 544
Drugs & Medical 74% 536 387
Electrical & Electronic 64% 1369 270
Mechanical 67% 900 268
Others 65% 713 297

There are several potential practical implications of these findings: (1) a prosecuting attorney should be careful to avoid delay because applicant delay will naturally push-back the issue date and additionally reduce the eventual patent term; (2) In many cases, quicker issuance is preferable to an equivalent extension. However, it is important to consider whether delay is preferable for your case. (Of course taking affirmative steps to increase delay could be interpreted as a form of laches.

Do Patents Stimulate R&D Investment and Promote Growth?

Academic Studies, Patent,

James Bessen and Michael J. Meurer have authored a new book presenting a careful empirical analysis of whether patent rights encourage innovation. Their conclusion: for the most part, today’s patent system does not achieve its stated goal. I asked them to provide Patently-O readers with a cut from their analysis. The following post is the first in a series of four by the authors. The book is titled: Patent Failure and published by Princeton [Web Link]. The analysis done in this book put Bessen and Meurer at the forefront of leaders in economic analysis of patent laws. I suspect that their results will become the talking points of the next round of patent reform discussions. A live symposium will be held at UGA Law School on March 29 focusing on the book and its results. [LINK]

==========

by James Bessen and Michael J. Meurer

As background material, this post reviews the sizable body of empirical research analyzing the impact of patents on R&D investment and economic growth. Three future posts will present new empirical research featured in our book Patent Failure. The theme across all four posts is that patents often fail to perform effectively as property rights. [DDC: To work well as property, the right should be predictably valid; have discernible boundaries; and not have an overly fragmented ownership scheme.]

Economists cherish property rights that provide strong incentives for investment and trade, and that thereby contribute to economic growth. Potentially, patent rights could accomplish these three goals, and surely they sometimes do. Apparently though, it is hard to set up and maintain a patent system that works as property.

The rise of new market economies and strengthening of property rights around the globe in the last two decades provides economists with “natural experiments” that help us evaluate whether and how much property rights contribute to investment and growth. The empirical results are impressive. Countries that expanded the role of markets and strengthened property rights have prospered from these choices. Economic historians find the same results hold going back to the Industrial Revolution.

Comparable studies of patent systems are discouraging. The evidence certainly is consistent with the notion that patents encourage American pharmaceutical R&D. But otherwise, it is hard to find evidence suggesting patents are a major factor spurring R&D investment, that patents contribute to economic growth, or even that the patent system is a source of great wealth to important inventors and innovators (outside of a few industries like pharmaceuticals).

(more…)

Patent Troll Tracker, Trade Secrets, and other Bits, No. 16

Patent,
  • Troll Tracker Revealed: After learning that Ray Niro paid $10,000+ for information leading to his actual identity, the Patent Troll Tracker has revealed his identity — Cisco IP Director Rick Frenkel [LINK]
  • Trade Secret: Although perhaps a novel theory, I would argue that an anonymous blogger’s identity is a protectable trade secret. Improper means used to reveal the trade secret can create liability.
  • Quote of the day (from 1895):

    “It should also be borne in mind that no property is so uncertain as “patent rights”; no property more speculative in character or held by a more precarious tenure. An applicant who goes into the patent office with claims expanded to correspond with his unbounded faith in the invention, may emerge therefrom with a shriveled parchment which protects only that which any ingenious infringer can evade. Even this may be taken from him by the courts. Indeed, it is only after a patentee has passed successfully the ordeal of judicial interpretation that he can speak with any real certainty as to the scope and character of his invention. Especially is this true of patents on spring-tooth harrows.” [1]

[1] E. Bement & Sons v. La Dow (C.C.) 66 Fed. 185 (Circuit Ct. N.Y. 1895)

Tafas v. Dudas: Summary Judgment Hearing February 8, 2008

Patent,
Jill M. BrowningPatent attorney Jill Browning attended today’s Tafas v. Dudas hearing on behalf of Patently-O and provides the following report.
Judge Cacheris entertained arguments relating to the three pending summary judgment motions in the consolidated cases of Tafas and GSK vs. Dudas, taking the matters under advisement and indicating that the Court would present a final decision as soon as his docket permitted. A brief summary of the almost 2 hours of argument follows.

Substantive vs. Procedural: The Court actively directed the parties with questions throughout the argument, beginning with questions directed to why the proposed rule changes were “substantive” and following up with a question regarding the proposed remedy if the Court were to determine that the proposed rules were substantive.

GSK responded by indicating that the proposed rules were substantive because they (i) affect individual applicants’ rights and/or obligations (i.e., limit the number of continuations and claims); (ii) reflect a change in existing law and/or policy and (iii) interpret the patent statute.

In response, the USPTO argued that the debate between identifying the rules as either “substantive” or “procedural” was the plaintiffs’ attempt to distract the Court from the real issue, which, according to the USPTO, is whether Congress delegated the proper authority to the USPTO to enact the proposed rules.

The PTO’s authority arises from 35 U.S.C. § 2(b)(2). The arguments primarily focusing on subsections (A) and (B), which state, in relevant part, that the USPTO:

  • (2) may establish regulations, not inconsistent with law, which-
  • (A) shall govern the conduct of proceedings in the Office;
  • (B) shall be made in accordance with section 553 of title 5;

Plaintiffs read the above statute as requiring the USPTO to comply with both (A) and (B), which would mean that the USPTO may only enact rules that (i) are not inconsistent with law; (ii) govern the procedures to handle the applications at the USPTO; and (iii) that are enacted only after the USPTO engages in the notice and comment rulemaking procedures of the Administrative Procedures Act (“APA”). Thus, plaintiffs indicated that the USPTO would not properly be permitted to enact even procedural rules without engaging in the notice/comment procedures of the APA.

The USPTO advanced the position that a fair reading of 35 U.S.C. § 2 clearly supports its position that Congress delegated the authority to the USPTO to enact the proposed rules.

PatentLawPic199Further, the USPTO argued that the proposed rules are not “substantive” because they are not directed to the substantive eligibility requirements (such as novelty or written description) for an applicant to obtain a patent. According to the PTO, the proposed rules merely affect the “timing,” as they encourage applicants to claim their invention early.

To support this position, the USPTO analogized to powers granted to other agencies to impose timing restrictions, pointing out that agencies’ ability to completely cut-off third parties benefits applications have been upheld. In response, Plaintiffs pointed out that the USPTO, as an agency, is different from other agencies because the USPTO was not awarding “benefits” as other agencies such as, for example, the FCC when it grants the right to certain bandwidths. Here, the patents applicants have the “benefit” and are electing to confer that benefit to the public in return for the limited right to exclude others for the term of the patent.

Remedy – Void Rules: With respect to the proposed remedy, GSK and Tafas argued that, should the Court find that the rules proposed are “substantive” in nature, as opposed to only affecting the procedural aspects of examining patent applications, then the rules should be struck as void and not remanded to the patent office. The USPTO indicated that, should the rules be found to be “substantive,” then they should be accorded less deference.

Plaintiffs argued that the proposed rules retroactively impact applications already on file, abrogating the quid pro quo the applicants believed it had when it filed the application (i.e., disclosing its trade secrets to the public in return for the limited monopoly). When an applicant filed its application, it was permitted to file an unlimited number of continuations, RCE’s and claims (subject to extreme cases wherein the Federal Circuit has permitted the USPTO to refuse further applications).

PatentLawPic201Property Interest in Patent Application: The USPTO argued that the “quid pro quo” is a fallacy because an application is not a property right (only patents are property rights) and, moreover, there are no property rights in “procedures.” Further, the USPTO argued that the applicant is the party who elects to disclose the trade secret – the USPTO is willing to maintain the confidentiality of all applications filed. Further, the USPTO appeared to concede that substantive rules cannot be applied retroactively, but compared the proposed rules to newly enacted Federal Rules of Civil Procedure, indicating that newly enacted Federal Rules were routinely applied to pending cases, as these proposed rules should be applied to pending applications. The USPTO indicated that, should the Court find the rules have an improper retroactive impact, the Court should simply change the effective date of the Rules.

Mr. Walsh of the USPTO presented arguments relating to Sections 120 and 132. Echoing the concerns already articulated by his co-counsel, Mr. Walsh further indicated that the USPTO had experienced a significant increase in applications, particularly continuation applications. The proposed rules were a reasonable restriction on the growing numbers of applications and provide ample opportunity (at least 8) for the applicant to present its position to the Examiner, after which, they should appeal to the Board. Further, if the applicant believes that it requires additional applications, the applicant can petition for permission to file an additional application, he must only indicate why they need additional bites at the apple.

He further indicated that delay in presenting claims has never been favored and that Section 120 does not compel the USPTO to accept an unlimited number of continuation applications. With respect to Section 132, the USPTO’s proposed new rule 114 limits application families to a single RCE. The USPTO argued this limit is justified (and more stringent requirements could be imposed) because the wording of § 132 is that the applicant can “request” the continued application, indicating discretion on the USPTO’s part regarding whether or not to grant the request. The USPTO further argued that, should the petition to file additional RCE’s be denied, the applicant has the remedy of judicial review.

In response, plaintiffs pointed out that an increase in patent application filings or other administrative burdens cannot grant the USPTO the authority to enact rules.

Notes:

  • Arguing Attorneys included John Desmerais of K&E for GSK; Lauren Wetzler and Steve Walsh for the Administration; Jim Nealon of Kelley Drye for Tafas.
  • Insider prediction (not DDC): Court may rule that rules are substantive and that PTO lacks substantive rulemaking authority. This allows the court to give a clean ruling without worrying potentially more difficult secondary issues.

Patently-O Bits and Bytes No. 9

Patent, Patent Legislation,
  • Bush Administration Opposes Aspects of Patent Reform: [LINK] (But will support an amended version)
  • Additional Senate Comments on Patent Reform: [LINK (836 KB)]
  • Senator Kyl: Congress should eliminate business method patents because they create monopoly costs without any new beneficial technology.
  • Senators Spector & Brownback: The S.1145 “remains a work in progress;” the damage apportionment language would create uncertainity and litigation — especially determining an invention’s “specific contribution over the prior art.”
  • Senators Feingold and Coburn — If the bill is passed without serious amendment “Patents will be devalued and many inventors will opt for trade secrecy instead, undermining the Framers’ intent to promote disclosure and public benefit through a strong patent system.”
  • General Remarks from a minority of Judiciary Committee members: “Primum non nocere is Latin phrase that means `First, do no harm.’ … In our opinion, the intervention the bill proposes will create real and certain damage to our patent system and the ability of America’s inventors and innovation industries to protect their intellectual property rights.”
  • The link above includes the formal Judiciary Committee report on the proposed patent reform legislation now pending in the Senate.
  • Spare Parts: Spare parts manufacturers continue to lobby congress to include a special provision in the reform bill that would eliminate the potential of protecting automobile spare parts with design patents.  Several car companies are currently attempting to limit the off-brand repair market. http://www.qualitypartscoalition.com/
  • KSR Rejections: PTO provides examples of how to use KSR to reject Business Method claims. [LINK] [via PatentHawk]
  • See the Forest: A new IP analytics site titled “See the Forest” is lets you create some interesting patent maps: http://see-the-forest.com.  The company behind the site is IPVision.

    •  

    Remembering Mark Banner

    Patent

    With regret, I report the passing of leading patent attorney Mark T. Banner. Mark was generous and helpful to me in my first few years of practice in Chicago. He was also an occasional Patently-O contributor.

    Mark T. Banner, a Partner in the law firm of Banner & Witcoff, Ltd., died in Tucson, Arizona, Sunday, December 30, at age 57. At the time of his death he was with his wife of thirty two years, Kathie German, and surrounded by those he loved and who loved him.

    Mark was a leader in the field of intellectual property law, specializing in jury trials of technologically complex cases for both plaintiffs and defendants across the country. He was an avid user of the latest technology in an effort to improve cost-effective trial presentations. Mark lectured frequently on patent law, trade secrets, and other intellectual property matters, as well as how to conduct patent trials. He served as a faculty member of the first National Institute of Trial Advocacy program specifically geared to patent litigation trial skills. He was also an adjunct professor at the John Marshall Law School and the Georgetown Law Center, teaching courses on patent law advocacy and enhanced use of technology in the trial of complex cases. Mark served as Chair of the American Bar Section of Intellectual Property Law, and was a bar course administrator for the Master Class on Appellate Advocacy, taught by the Hon. Paul R. Michel, Chief Judge, United States Court of Appeals for the Federal Circuit. For his work in intellectual property law, Mark was listed in Euromoney’s “Guide to the World’s Leading Patent Law Experts” and featured in The Best Lawyers in America, the Leading American Attorneys, The International Who’s Who of Patent Lawyers and the Illinois Super Lawyers.

    Mark received a B.A. degree from Purdue University and went on to receive his law degree from the John Marshall Law School, where he was a member of the Law Review and graduated with high honors.

    Those in the intellectual property law field know well Mark’s rich legacy of accomplishments and recognitions for those accomplishments. He spoke and published widely on the patent law and its importance to encouraging creativity and promoting the general welfare of our country. Those who knew him loved him for his wit, his integrity, his determination, his passion for life and his commitment to teaching.

    In addition to his wife, Mark is survived by his two sisters – Peggy (Mrs. James) Dau of Bartlesville, and Pamela (Mrs. Robert) Banner Krupka of Los Angeles, two brothers Donald J. (Helen) of Pueblo  (Colo.),Brian E. (Cathleen) of Washington, DC., his step-mother Jean Banner of Tucson,  and his step sisters Nancy (Mrs. Robert) Phipps of Nashville, Helen (Mrs. George) Smith of Atlanta, and Louise ( Mrs. Robert) Whitaker of Franklin  (Tenn.).

    A memorial service will be held in Chicago in January 2008.

    The family requests that memorials be made to the Donald W. Banner and Mark T. Banner Scholarship Fund at the John Marshall Law School (315 South Plymouth Court, Chicago IL 60604).

     

    Mitt Romney on Patents (And More from Barack Obama)

    Patent,

    Romney.TimeMitt Romeny’s primary business experience comes from heading Bain Capital, the Boston based private equity venture fund. Its not surprising then that Romney believes in a “strong U.S. patent system.” In a letter, Romney announced three initial patent office reforms:

    1. Ensure that the Undersecretary of Commerce and Director of the PTO will be a distinguished U.S. patent lawyer with many years of experience.
    2. Propose to Congress and/or support only such patent reform legislation as will strengthen the U.S. patent system; and
    3. Carefully consider appointing to the United States Court of Appeals for the Federal Circuit, as vacancies arise, excellent lawyers who have experience practicing U.S. patent law, particularly since all decisions in patent cases by the United States district courts are appealable to the Federal Circuit.

    Romney also praised the October 31 injunction against the PTO Rules as an appropriate way to stop this “anti-innovation governmental meddling.”

    Of course, a “strong patent system” does not mean that patents are lightly issued or that the PTO should not limit unreasonable tricks.

    Obama_time_cover_102306In a recent Q&A with TechCrunch, Democratic hopeful, Barack Obama indicated that he believes we can do better:

    TechCrunch: Do you think changes are needed in the way the U.S. Patent and Trademark Office reviews and grants patents?

    Barack Obama: I know that it is essential we have a system that produces timely, high-quality patents. By improving predictability and clarity in our patent system, we will help foster an environment that encourages innovation. Giving the Patent and Trademark Office (PTO) the resources to improve patent quality and opening up the patent process to citizen review will reduce the uncertainty and wasteful litigation that is currently a significant drag on innovation. With better informational resources, the Patent and Trademark Office could offer patent applicants who know they have significant inventions the option of a rigorous and public peer review that would produce a “gold-plated” patent much less vulnerable to court challenge. Where dubious patents are being asserted, the PTO could conduct low-cost, timely administrative proceedings to determine patent validity. As president, I will ensure that our patent laws protect legitimate rights while not stifling innovation and collaboration.

    Other candidates have been silent on patent issues.

    Court Blocks PTO Rules on Eve of Effective Date; All Four Equitable Relief Factors Suggest Injunction

    Patent,

    Tafas v. Dudas (E.D. Va. October 31, 2007)

    After a two-year long notice, comment, and review process, the US Patent & Trademark Office (PTO) published a set of final rules in August 2007 to effectively limit the number of claims filed in each patent application and to limit the number of continuation applications stemming from an original patent application.  (Current rules allow unlimited claims and unlimited continuations).  Tafas, an individual inventor, immediately filed suit — asking the Virginia based Federal Court to block the rules. Later, Glaxo Smithkline (GSK) filed a preliminary injunction to stop the rules before their November 1, 2007 effective date. Other parties, including the AIPLA, Élan, Hexas, the Roskamp Institute,and Tikvah Therapeutics, IBM, SanDisk, & Senator Schumer, then filed briefs or declarations supporting preliminary relief.

    In granting the requested preliminary injunction, the district court walked through the four relevant factors: (1) likelihood that the plaintiff will succeed on the merits of the case; (2) irreparable harm without an injunction; (3) a balance of hardships weighing in favor of an injunction; and (4) the public interest supporting an injunction.  Although the four factors are considered as a whole, the first to factors are clearly the most important and must always be proven.

    Likelihood of Success: In its brief analysis of the issues, the court found a “genuine possibility” that the PTO will lose. In particular, the Court noted two particular GSK arguments as likely winners: (1) the facial illegality of limiting the number of continuation applications under 35 USC 120; and (2) problems created by the retroactive effect on settled rights. A third argument – vagueness of the ESD requirements – also has some value according to the Court.

    Continuation Applications: 35 USC 120 can be read various ways, but the Court found that Federal Circuit law “suggests that a decision by the PTO to limit the number of continuing applications would run contrary to the mandate of Section 120.”  See Symbol. This conclusion is made easier because the PTO would deserve no rulemaking deference for any rules that extends into substantive grounds. GSK’s position on the illegality of claim limitations is not as strong because there is no statutory provision to the contrary. Thus, the court found that “neither party can claim a strong likelihood of success on this issue.”

    Retroactive Effect: The doctrine of retroactive effect is interesting here. Unless expressly granted by Congress, an agency’s rulemaking cannot be retroactive. The court found vested rights in the ability to file continuations and claims under the old rules. Those rights vested at the time when the patentee chose to file for patent protection and give up trade secret protection.

    While “an individual [that] discloses his trade secret to others who are under no obligation to protect the confidentiality of the information, or otherwise publicly discloses the secret,” loses that property right, Rucklehaus, 467 U.S. 1002, the Final Rules retroactively alter the bargain on which inventors like GSK rely in making their decision to surrender their rights. The Final Rules thus impair GSK’s right to this bargain.

    ESD Requirements: The after publishing the final rules, the PTO published a series of clarification papers and guidelines for how to properly prepare an examination support document (ESD) under the new rules. The Court turned that guidance on its head — suggesting an admission of vagueness and noting that the additional guidance cannot be used to help vague rules overcome due process violations.

    An alternative way to block the rules is to show that they are “arbitrary and capricious.” The Court found the PTO’s reasoning coherent enough to give the agency a pass.

    Thus, the PTO’s rationale appears to be sufficient to satisfy arbitrary and capricious review, and the Court will find that GSK has not shown a real likelihood of success on this issue.

    Irreparable Harm: The Court agreed that the “uncertainty” created by the new regulations was sufficient to cause irreparable harm because they would change investment and patent filing incentives. Without an injunction, GSK would be unable to recover from its lost protection if the rules are ultimately determined to be invalid.

    Balance of Hardships: For the preliminary injunction, the balance of hardships weigh in GSK’s favor because GSK’s woes are instant once the new rules are effective. On the other hand, the PTO will simply experience a gradual continued increase in pendency.

    Public Interest: The public interest is in a stable patent system. Thus, a preliminary injunction to preserve the status quo is appropriate.

    Notes:

    PTO Continuation and Claim Rules Temporarily Blocked by District Court

    Patent,

    On October 31, 2007, Judge Cacheris of the Eastern District of Virginia held court in the case of Tafas v. Dudas. In that case, several plaintiffs have joined together in an attempt to block implementation of a set of new patent prosecution rules proposed by the USPTO. The jist of those rules would be to effectively limit the number of claims filed in each patent application and to limit the number of ‘continuation’ applications that may stem from any original patent application.

    At the conclusion of the hearing, the Court issued an oral decision temporarily enjoining the PTO from implementing the new rules that were set to become effective on November 1, 2007. John White, who attended the hearing, noted that the crowd clearly supported the plaintiffs and were quite relieved by the decision. Jill Browning of the Ashe firm also attended today’s hearing and provides the following analysis of Judge Cacheris’ hearing on the PTO’s Continuation and Claim Limitations:

    With respect to the arguments presented, the Court was clearly well prepared on all the issues.  The attending members of the patent bar (of which there were many) were grateful to the Court for making its decision granting the injunction before the critical November 1 deadline and before the rules had a chance to become effective.   

    The Court, at the outset, asked why GSK had delayed in filing its motion.  GSK indicated that the rules issued in August, 2007, were so different from the rules the public commented on in January, that, given the complexity of the rules, GSK’s filing of the motion was timely.  On this point, the USPTO later argued that the Final Rules were merely a “logical outgrowth” of the public comments provided and, thus, acceptable under the law.  GSK took issue with this point, but indicated that this topic would be more germane to the summary judgment briefing and did not need to be decided now. 

    GSK began its argument by focusing on the public interest.  GSK argued that the public’s interest would best be served by not implementing the rules and, as support for this, pointed out that every amicus and declaration (and a letter from a Senator) filed by a third party had supported GSK’s position, as opposed to the USPTO’s. [Link] GSK pointed out that the public interest would best be served by maintaining the status quo, as opposed to implementing rules that would require applicants (and specifically GSK) to make substantive choices and decisions regarding their patent portfolios that could never be “undone.”  One particularly persuasive point GSK made during argument wsa that the “contract” between the applicant and the government (i.e., the applicant discloses its trade secret in return for patent protection) was broken by the USPTO’s enactment of the rules.  GSK pointed out that the “quid” of submitting the applications was already accomplished, and now the USPTO wanted to change the “quo.” 

    In response, the USPTO argued that the USPTO was not deaf to the public outcry – but that the outcry of “change is bad” is not enough to outweigh an agency’s need to conduct its business in a way that alleviates an over burdened system.  In fact, at one point the USPTO, in a somewhat contradictory argument, noted that it was not enacting a “mechanical” rule eliminating additional continuations. Rather, the rules were simply directed at a way to relieve an overburdened system.  The USPTO stated that the New Rules would increase efficiency and decrease backlog.

    GSK rebutted the USPTO’s argument that a delay would cause irreparable harm (i.e., loss of money in changing to the new implementation) by pointing out that the money was already spent, and delaying the implementation of the rules would not cause the USPTO to lose additional money.  On rebuttal, the USPTO indicated that the government would have to expend additional money re-training the examiners, as they could not be expected to maintain their understanding of such complicated and detailed rules for any extended period of time.

    With respect to the merits of the case, the Court specifically asked each party whether the USPTO was acting in an arbitrary and capricious manner.  While GSK indicated that they did not need to address this question until summary judgment briefing, it believed that the USPTO was so acting, as evidenced by the Final Rules contradicting over 100 years of court precedent.  The USPTO, in response to the Court’s question, clung to the argument that the rules were merely procedural, and, thus, are well within the USPTO’s authority.  The USPTO also indicated that the 10,000 page record, which included a public comment period, supported the USPTO’s careful and extensive consideration of the issues and stands in stark contradiction to any allegation that the USPTO acted in an arbitrary and capricious manner.

    The Court also asked each party what makes the New Rules “substantive” vs. “procedural.”  GSK argued that the rules were substantive primarily because the rules represent a break with over 100 years of substantive patent practice (focusing primarily on the ability to file unlimited continuations, excepting very narrow prosecution laches situations that should be applied on a very limited case-by-case basis).  The USPTO responded by arguing that the Final Rules were procedural because they do not affect the substantive rights of applicants to file, and do not even limit the number of continuations that an applicant can file – the applicant, to file additional applications (i.e., more than the 2 + 1) need only file a petition, which will be decided on a case-by-case basis.

    GSK argued that the effect of the Final Rules was, in fact retroactive because it impaired the rights of a party, relying on Supreme Court precedent.  The USPTO indicated that Final Rules were not retroactive, merely because they “upset expectations” and that there is no property right in a patent application or in any particular procedure adopted by the USPTO.   

    While, as the USPTO pointed out, an injunction is an extraordinary measure, GSK argued out that agencies are enjoined “all the time” when they promulgate rules that are challenged as being beyond the agencies’ authority.  Apparently, the Court agreed with GSK.  The reasoning for Judge Cacheris’ decision will be found in an opinion that he will issue before close of business today.

    1.  When we can expect a final decision on the merits:  The summary judgment briefing schedule that the USPTO had agreed upon with Tafas appears to no longer be in effect for several reasons.  First, the USPTO claims that the expedited briefing schedule was agreed to based on Tafas’ agreement not to seek an injunction.  The USPTO indicated that Tafas reneged on the agreement and joined the motion for a preliminary injunction or TRO and, thus, this alone was grounds to vacate the government’s agreement.  Second, even if the court determined that Mr. Tafas’ actions did not repudiate the agreement, given the additional amicus briefs, and joining GSK as a party, the USPTO requires additional time to adequately address the briefs.  Further, the USPTO pointed out that, because the injunction was granted, plaintiff’s arguments for a speedy hearing on the summary judgment motion are less pertinent.  The Court instructed the parties to attempt to agree on a briefing schedule.  Hopefully, the briefing schedule will be presented as an order so that we will be able to determine when it will be heard, as this will determine when ultimate resolution of the case.

    Of course, the preliminary injunction is not a decision on the merits of the rules — it is only preliminary relief. A full decision will likely be delayed until at least early January.  The PTO may still choose to appeal.

    In other prosecution news… New IDS rules are expected to be published soon.

    USPTO Continuation and Claim Rules: AIPLA Request Injunction to Halt New Rules

    Patent,

    Feeling some pressure from its members, the AIPLA has now filed an amici brief in support of GSK’s motion for a preliminary injunction to stop enforcement of the PTO’s new rules on continuations and claim count.

    A preliminary injunction requires the moving party to satisfy a four factor test of equitable relief:

    • Likelihood of success on the merits of the case;
    • Irreparable harm that will persist without relief;
    • Balance of hardships weights in favor of relief; and
    • The public interest supports relief.

    In its brief, the AIPLA focused on how the new rules work to destroy established interests. The brief focuses on a tradeoff between patents and trade-secrets — indicating that the inventions embodied by many currently pending applications would have been kept as trade-secrets but for the longstanding “guarantee of a full and fair opportunity to seek a spectrum of patent protection.”  According to the AIPLA, the limitations on claims and and continuations severely inhibit that guarantee and thus create an irreparable harm to current applicants.

    David Kappos, Chief of IP at IBM, filed a declaration in support of the AIPLA brief. Kappos noted the incredible cost that it will incur to review its 25,000+ pending patent applications to ensure compliance. Writing on behalf of SanDisk, two attorneys noted that the technology company will lose at least $200,000 in filing fees due to required consolidation. Writing as a paid expert for SKB, former PTO Director Harry Manbeck has filed a declaration explaining why, in his view, the new rules are illegal.

    Files:

    Links:

    Prepare for the new IDS rules.

    Patent,

    For the past two years, the PTO has been discussing its trio of rules — Continuation Rules; Claim Rules; and Disclosure Rules. The first two sets are in final form and are set to be implemented November 1, 2007. The third set — disclosure rules — are in “secret final form” and are waiting for White House (OMB) approval before being implemented.

    Under patent office rules, everyone involved with the prosecution of a patent application has a duty to disclose any information to the PTO that may be material to patentability. This information is typically prior art known to the inventor or attorney and or evidence of prior use or sale. Failure to comply with the duty of disclosure can result in the patent being held unenforceable (after a showing of intent & materiality).

    In some cases, extensive pre-filing prior art searches reveal dozens (if not hundreds) of prior art references that are all then submitted to the PTO for review. Understandably, patent examiners do not have time to review all those references in any detail — and my own empirical evidence suggests that examiners do not examine more than twenty references. [LINK]

    The PTO’s disclosure proposal would set a breaking point of twenty references that may be submitted to the Office ‘without explanation.’ Applicants who submit more than twenty references (or “very long” documents) will be required to personally review the submissions and provide information regarding their materiality as well as an explanation as to why the particular application is not preempted by the prior art reference.

    Although the Final Version of the rules is not yet available (it is being kept secret by the PTO), their one-paragraph statement is as follows:

    The U.S. Patent and Trademark Office (Office) amends its regulations on information disclosure statement (IDS) requirements and other related matters to improve the quality and efficiency of the examination process. These changes would enable the examiner to focus in on the relevant portions of submitted prior art at the very beginning of the examination process, give higher quality first actions, and minimize wasted steps. This action would make the following changes relating to submissions of IDSs by applicants: Impose a requirement for the personal review of, and to provide information about, certain citations; eliminate the fees for, but permit only timely, IDS submissions; and only permit the filing of an IDS after the mailing of a notice of allowance if a claim is admitted to be unpatentable and a narrowing amendment is also submitted. The Office would also: permit third parties to submit prior art up until the mailing of a notice of allowance after application publication; no longer permit an IDS to meet the submission requirement for a request for continued examination (RCE); permit, after payment of the issue fee, certain amendments and petitions so applicants will not have to file a continuation application or an RCE for such items; and revise the protest rule to better set forth options that applicants have for dealing with unsolicited information received from third parties. 

    These rules are likely to become effective in early 2008. In the meantime, applicants may be advised to submit their prior art ASAP.

    Continuation Rules to Issue August 21

    Patent, , ,

    After some persistence, the PTO revealed the substance of the new continuation rules to Dow Jones reporter Stuart Weinberg:

    Applicants will have the right to file two so-called continuations and one request for continued examination. Applicants seeking additional continuations will need to explain why the request is necessary. Current practice allows applicants to file an unlimited number of continuations. . . . [The PTO also] plans to limit the number of claims an applicant may include in an initial application to 25. Applicants that include more than 25 claims will be required to include a prior-art search, a detailed report that explains how their invention differs from what’s already in the public domain. The new rules, which will be published on the PTO’s Web site Tuesday [August 21], are scheduled to go into effect Nov. 1.

    …The number of continuation requests has been rising in recent years. In 2006, almost 30% of applications were devoted to continuation requests, up from 27% in 2005 and 25% in 2004, Peterlin said. . . . Peterlin alluded to misuse of continuations when discussing the pending rule changes. “What we have found is, sometimes, people engage in a little
    post-filing research,” she said, adding that, while this may make good business sense, it doesn’t make for an effective patent system.

    Although we have not seen the final rules, it appears that applicants will not be losing rights at the time the final rules are published. Rather, the new rules will become effective on November 1, 2007. Do expect the rules to be retroactive in that they will apply to pending applications.

    Pre-view of rules via Venable Law Firm

    (more…)

    Patently-O TidBits

    Patent,
    • Please send me your write-ups and client-alerts regarding McKesson. I’m looking for your approach to the issues. dcrouch@gmail.com.
    • PatentLawPic003Over the past 25 years approximately 350 CAFC case decisions include dissenting opinions.  Judge Newman is clearly the most prolific dissenter both in terms of absolute numbers and relative rate. Judge Newman has penned 115 of the dissents — 33% of the total, and her dissent rate per year on the court (4+) is almost double the nearest other judge.  Judge Moore may be the rising alternative voice. In less than a year of service, she has already filed two dissents. (Source – Lexis search).
    • Aharonian v. Gutierrez continues rolling along. Patent commentator and activist Greg Aharonian along with David Pressman, David Lentini, and Steve Morsa filed suit against the Government earlier this month. The charge: Margaret Peterlin’s apointment as PTO deputy director was “illegal and an abuse of discretionary power.”  In particular 35 U.S.C. 3(b) requires that the deputy directory have “a professional background and experience in patent or trademark law,” and there has been no showing that Peterlin had any such qualifications prior to taking the job.  Of course, after serving for two months as deputy director, she now does have experience. Like Director Dudas and your Patently-O author, Ms Peterlin graduated from the University of Chicago Law School.
    • The anonymous Patent Troll Tracker has an interesting post on the shift in patent filings from the Northern District of California to the Eastern District of Texas. 2006 was the first year that more patent cases were filed in the EDTX than in the NDCA. Projected 2007 numbers have EDTX with more than twice the number of patent cases as NDCA. [LINK].
    • Patent Law Jobs — One way to track potential law jobs is through an RSS link. http://feeds.feedburner.com/PatentLawJobs.
    • Patently-O on Facebook: Connect with Patently-O readers.

    Commerce Secretary Gutierrez Appoints Margaret Peterlin as PTO Deputy Director

    Patent,

    Margaret J.A. Peterlin has been appointed as the deputy director of the USPTO — second-in-command behind director Jon Dudas. Like the Director, Ms. Peterlin is a University of Chicago Law School graduate and spent most of her legal career in the halls of Congress. The job of deputy director opened-up after Steve Pinkos left to return to Texas.  Jon Dudas was the Deputy Director from 2002 to 2004 when his promotion came-through.

    From the USPTO Press Release:

    “Margaret is a tremendous asset to the USPTO. With an impressive track record of success across several disciplines, she has established herself as a proven leader, strategic legal thinker, and knowledgeable legislative tactician,” said Jon Dudas, Under Secretary of Commerce for Intellectual Property and Director of the USPTO.  “Margaret will apply these skills to USPTO’s challenges, which she well understands from her time representing the leadership of the U.S. House of Representatives.  Margaret’s leadership will be instrumental in the USPTO’s efforts to work with applicants to enhance the quality of their applications, process patents and trademarks in a timely manner, and operate in a way that motivates our employees and inspires our international partners.”

    The role of deputy director is appointed by the “Secretary of Commerce, upon nomination by the Director . . . [and] shall be a citizen of the United States who has a professional background and experience in patent or trademark law.” 35 U.S.C. 3.

    Ms. Peterlin’s full title will be: Deputy Under Secretary of Commerce for Intellectual Property and Deputy Director of the Commerce Department’s United States Patent and Trademark Office.

     

     

    Links:

    Should software code be included in patent applications?

    Patent

    Typically software patents describe the invention through a series of flow-charts and other symbolic representation of operations.  Usually, the software code itself is not included in the application. Rather, the code is often kept as trade secret.  From a practical standpoint, practitioners may want to rethink their approach based on these two associated cases:

    • TouchCom v. Dresser, 427 F.Supp.2d 730 (E.D.Tx. 2005) (holding that the software code should have been present to provide structure for means-plus-function claims).
    • TouchCom v. Bereskin & Parr (D.D.C) (TouchCom has filed suit against the Canadian IP firm, charging that the firm committed malpractice by failing to submit the software code).

    Now, one seemingly important issue in this case is that TouchCom’s patent says that the code is included in “Schedule A” — while in actuality much of the software code was omitted from the Schedule. In addition, TouchCom did not appear to provide any non-code structure either.

    Delay alone cannot constitute intentional concealment

    Patent, Patent Cases 2006,

    Flex-Rest v. Steelcase (Fed. Cir. 2006).

    Flex-Rest holds at least two patents on negative-tilt computer keyboards and sued for infringement.  Steelcase, the defendant, had an earlier conception date, but Flex-Rest argued that 102(g) should not apply because Steelcase had concealed the invention (either intentionally or unreasonably).

    Here, there was a seven month delay from Steelcase’s reduction to practice and public release of its product (timed with the filing of its own patent application).

    Intentional Concealment: As it turns out, a seven month delay alone does not constitute intentional suppression or concealment:

    "Intentional suppression, however, requires more than the passage of time. It requires evidence that the inventor intentionally delayed filing in order to prolong the period during which the invention is maintained in secret." quoting Fujikawa.

    The record demonstrates that after reduction to practice, Steelcase moved almost immediately towards both filing a patent application and commercially disclosing the KBS device at a trade show, actions which indicate an intent to make a public disclosure.

    The CAFC found that keeping the device secret while preparing a patent application and/or preparing for a trade show release "is not, by itself, indicative of intentional suppression or concealment."

    Unreasonable Delay: The failure to bring forth an invention, either publicly or in a patent application within a reasonable amount of time will support an inference of suppression or concealment.  "There is no particular length of delay that is per se unreasonable." Here, the CAFC agreed that the seven month delay was not unreasonable:

    After reduction to practice, Steelcase resolved design issues and spent $775,000 on tooling for the parts to the KBS device. The lead times for creating the tooling varied from four weeks to approximately six months. Therefore, it does not appear that Steelcase could have brought the KBS device to market much sooner than the trade show unveiling in June 1991.

    At the same time, Steelcase’s patent counsel began drafting a patent application for the KBS device, submitting a first draft to Steelcase in March 1991. The draft was reviewed by the four named inventors and filed in May 1991. No evidence indicated that this amount of time was unreasonably long.

    In the process, the Court also shot-down the urban myth of a court sanctioned three-month patent prep deadline derived from the old Shindelar case.

    Flex-Rest’s argument that Shindelar identifies a reasonable amount of time for drafting when the court stated that “a period of approximately three months could possibly be excused” takes that quote out of context. . . . What constitutes a reasonable time for drafting a patent application will vary with the technology and the particular set of facts involved in each case.