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.

High Level Patent Reform

Patent

GUEST POST by Ken Salazar, WilmerHale Partner & Former US Secretary of the Interior and Quentin Palfrey, WilmerHale Senior Counsel and Former Senior Advisor for Jobs & Competitiveness in the White House Office of Science & Technology Policy

Patent politics have not always been front page news. Last year, the hilarious faux newspaper The Onion quipped that “Expansive Obama State Of The Union Speech To Touch On Patent Law, Entomology, The Films Of Robert Altman”.

While still not exactly sexy, patent policy has steadily emerged as a major economic policy issue on the national stage over the past few years. After nearly a decade of debate, Congress passed the America Invents Act in in 2011 – a major piece of reform legislation that was also notable for the bipartisan nature of its backers. In addition to President Obama and Senator Patrick Leahy (D-VT), America Invents benefited greatly from the support of a number of influential Republicans. At a time when entrenched partisan divisions have made meaningful legislative reforms nearly unthinkable in most areas, patent policy stands as a notable and nearly unique exception.

With the ink barely dry on the America Invents Act, President Obama remarked that “[o]ur efforts at patent reform are only about halfway to where we need to go.” Obama twice followed this statement up by issuing a series of executive actions and legislative recommendations in June 2013 and February 2014. While it is doubtful that the President was inspired by The Onion’s coverage, President Obama did indeed use the occasion of his 2014 State of the Union speech to call on Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation.” Meanwhile, the House of Representatives passed a patent litigation reform bill at breakneck speed in December 2013, and the Senate has taken up a parallel measure.

Whatever the merits of various proposals, it is clear that patent policy and politics are experiencing a dynamic renaissance that creates challenges and opportunities for companies and individuals at every level of the economy. President Obama and Congress are not alone in seeing patent reform as an important policy area. Last week, Wisconsin joined Oregon and Vermont in passing a bill touted as a measure to crack down on demand letter abuses by patent trolls. The Federal Trade Commission has launched a study of patent litigation abuses and is reportedly pursuing investigations against entities it believes have committed unfair and deceptive trade practices. Beyond implementing the America Invents Act, the U.S. Patent & Trademark Office has launched a series of initiatives that it says will improve patent quality and provide tools to help those facing litigation abuses. Not to be overlooked are important U.S. Supreme Court cases such as CLS Bank and Octane Fitness that could significantly affect the patent litigation landscape by altering the circumstances under which software patents can be granted and fees can be awarded to prevailing parties, respectively.

Last month, our firm was proud to host a roundtable featuring Vermont Attorney General William Sorrell, who has emerged as a leader in state law enforcement efforts to combat unfair and deceptive trade practices in the patent space. Along with his colleagues from across the country, AG Sorrell has investigated and sued the notorious MPHJ Technology Investments, a company that reportedly acquired a number of scanner patents for the purpose of sending thousands of demand letters to small businesses and nonprofits. MPHJ claimed to hold a patent that covers scanning a document and attaching it to an email — a function common to numerous “off the shelf” technology products — and demanding a licensing fee of $1,000 or more per worker.

The state AG’s efforts in this space highlight the complexity of the patent policy efforts in this dynamic time. To understand developments that are proceeding at a dizzying pace, it is now imperative for policymakers, innovators, and the attorneys who advise them to constantly stay abreast of issues unfolding in all three branches of the federal government, at the state level, and even internationally.

Client, Firm Lose 12(b)(6) Motion to Inventor who Claims Firm Stole his Trade Secrets

Ethics, Trade Secret,

Nicolo v. Patterson Belknap Webb & Tyler, LLP, is a suit brought by an inventor-patentee who claims that a Patterson attorney met with him under the guise of seeking to represent him in a suit against third-parties, while the real purpose was to obtain information for its client, Ethicon.  The judge recently denied the defendants’ 12(b)(6) motion, reasoning that Pennsylvania law protects against mere acquisition of trade secrets through improper means (subsequent use/disclosure need not be alleged, in other words).  The opinion doing so is here.

In addition to the obvious lessons, at the Emory conference I mentioned, one of the panelists asked how often large corporations take advantage of solo inventors. If the allegations here are true, this could be one such example.  “Troll” is a word that might have been applied to the inventor had he sued Ethicon, in other words.

Stay tuned.

Federal Circuit: An Author is not an Inventor (And Thus, a Claim of “Authorship” Does Not Raise an Inventorship Dispute).

Patent,

By Dennis Crouch

StoneEagle Services v. Gillman and Nextpay (Fed. Cir. 2014)

This case offers an important reminder that patent ownership is largely a matter of local law – be it state or foreign-national. The result is that disputes over ownership (as opposed to inventorship) do not raise a federal cause of action. Here, the DJ plaintiff also pled inventorship (normally a federal claim under 35 U.S.C. §256), but that claim failed to keep the case in Federal Court because there was no actual dispute over inventorship. From an academic standpoint, the case is also interesting based upon the Federal Circuit’s conclusion that a claim of “authorship” is nothing like a claim of “inventorship.”

Partnership with Joint Ownership: Several years ago, David Gillman collaborated with Bobby Allen (StoneEagle’s CEO at right) on a project to convert StoneEagle’s automotive industry electronic payment system into one that would also work to process health care claims. The subsequent patent application named only Allen. U.S. Patent No. 7,792,686. According to the documents, Gillman has never claimed to be a co-inventor of the ‘686 patent. However, based upon the collaboration agreement, Gillman was a 50% owner of the patent application. Gillman did eventually assign his rights in the application to StoneEagle.

The dispute arose when Gillman later declared at a meeting that he held ownership rights and that the patent documents were on his PC. According to the complaint “Gillman suddenly and falsely claimed that it is his patent, that he wrote the patent, that it is on his computer, and that he ‘authored’ or ‘wrote’ it, or words to that effect.’ Gillman allegedly threw down his business cards and left the meeting.”

StoneEagle then sued for declaratory judgment that it was sole owner and that Allen was the sole inventor. In addition, the lawsuit alleged a variety of state law trade secret and contract claims. The district court issued a preliminary injunction against Gillman on the trade-secret and contract claims that gave Gillman the immediate right to appeal.

The declaratory judgment act provides that

In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration . . .

28 U.S.C. §2201. The Supreme Court broadly interprets the DJ act has extending to the constitutional limits of Article III jurisdiction. Thus, “the facts alleged, under all the circumstances, [must] show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune. Here, Gillman’s attorney basically admitted that an actual case-or-controversy exists between the parties, but that controversy is over a state-law-claim of ownership and the DJ statute requires a case-or-controversy over an issue “within [the federal court’s] jurisdiction.”

In reading StoneEagle’s complaint here, the Federal Circuit found that the pleading lacks sufficient allegations of a controversy concerning inventorship.

[J]urisdiction in this case turns on whether StoneEagle’s complaint alleges a sufficient controversy concerning inventorship. It does not. . . . As StoneEagle’s only factual allegations concerning inventorship are that Gillman authored the patent application, the complaint, viewed in its totality, has not alleged a controversy over inventorship that satisfies Article III.

On remand the case will be dismissed and perhaps re-filed in Texas state court.

= = = =

The case has some interesting discussion of the role of patent attorneys in this process. Here, Gillman (a non patent-law professional) had drafted the patent application at issue. At oral arguments, Judge Rader noted that, although only certain folks are allowed to actually file a patent application with the USPTO, “anyone can help write it.” The decision then goes into some detail on how a patent drafter should not be considered an inventor:

In this case, the most favorable inference from the record in favor of StoneEagle shows only that Gillman assisted in constructively reducing an invention to practice. See Solvay S.A. v. Honeywell Int’l, Inc., 622 F.3d 1367, 1376 (Fed. Cir. 2010). Those activities confer no more rights of inventorship than activities in furtherance of an actual reduction to practice. Otherwise, patent attorneys and patent agents would be co-inventors on nearly every patent. Of course, this proposition cannot be correct.

No inventing happens by scriveners who merely write down the invention.

= = = =

In part, this decision turns on the Federal Circuit’s knowledge that copyright law is very different from patent law, although both arise from the same Constitutional provision, “authors” get copyright and “inventors” get patent. Although the court understands this distinction quite well, most people do not. On at least a weekly basis, I talk with incredibly intelligent people who get confused over the differences and their importance. [Note here – Monday’s Supreme Court oral arguments]. It looks like the DJ plaintiff could have done a much better job of providing evidence alerting the court to this real-world fact that people are confused on this topic and that Gillman’s claim of authorship was reasonably understood by folks in the room as a claim of inventorship.

 

The meaning of “intellectual property”

Patent

Energy Recovery, Inc. v. Hauge (Fed. Cir. 2014) 13-1515.Opinion.3-18-2014.1
Panel: Rader, Reyna, and Wallach (author)

At the heart of this case lies the question of “what is intellectual property?”  Here, the answer has more than philosophical implications: a finding of contempt hinges on it.

Leif Hauge was a former president of Energy Recovery, Inc. (“ERI”), a company specializing in “pressure exchangers,” which are used in reverse osmosis.  Mr. Hague and ERI apparently had a falling out, and in 2001 they entered into a settlement agreement, adopted by the district court, that included a section entitled “ABSOLUTE TRANSFER OF ALL RIGHTS IN PATENTS, PATENT APPLICATIONS AND ALL RELATED INTELLECTUAL PROPERTY, TO ENERGY RECOVERY.”  That paragraph specified that Mr. Hauge:

“irrevocably and absolutely assign[s]” to ERI “all right, title and interest along with any and all patent rights,” [], which Mr. Hauge had in “(i) the patents and patent applications . . . ; (ii) any and all patent rights . . . , intellectual property rights, property rights . . . ; and (iv) all other intellectual property and other rights relating to pressure exchanger technology predating this Order.”

Slip Op. at 8 (citations to Joint Appendix omitted).  He also agreed to a non-compete clause that prohibited him from making or selling energy recovery devices for use in RO salt water desalination for two years.  Id. at 3.

After the non-compete clause expired, Mr. Hauge obtained a new patent on pressure exchanger technology and formed a company, Isobarix, that began selling its own pressure exchanger.  In 2013, the District Court (acting on ERI’s Motion for Order to Show Cause) entered an order finding that allowing Mr. Hauge “to . . . develop new products using the very technology he assigned to ERI solely because those new inventions post-date the Agreement would render the Settlement Agreement and its assignment of ownership rights useless,” finding him in contempt of the 2001 Order, and enjoining him and Isobarix “from manufacturing and selling pressure exchangers and replacement parts for ERI’s pressure exchangers.”  Slip Op. at 4.

On appeal, the analysis focused on whether Mr. Hauge had violated clause (iv) of the agreement, which required him to “irrevocably and absolutely assign”…”all right,
title and interest along with any and all patent rights,” which he had in “(iv) all other intellectual property and other rights relating to pressure exchanger technology predating this Order.”

Here is where the split over the meaning of “intellectual property” comes into play.  ERI argued that Mr. Hauge was not, under the settlement agreement, able “to appropriate the very pressure exchanger technology” that he explicitly transferred to ERI in 2001.  This was a view that the district court apparently agreed with when it concluded that Mr. Hauge should not be allowed to “develop new products using the very technology he assigned to ERI.”  Id. at 4.  Both approaches treat “intellectual property” as meaning “technology.”  In other words, what mattered was that Mr. Hauge was allegedly using ERI’s own technology, including technical knowledge that he acquired while its president.

The Federal Circuit, on the other hand, agreed with Mr. Hauge’s view: that he had complied with the settlement agreement by “transfer[ring] ownership of the pre-Agreement pressure exchanger intellectual property.”  Slip Op. at 8.  He was “not claiming ownership of ERI’s intellectual property,” id. at 9, and “[n]othing in the 2001 Order expressly precludes Mr. Hauge from using any manufacturing process.”  Id. at 8.  Under the Federal Circuit’s approach, “intellectual property” is not treated as the technology itself, but the rights over that technology, rights that Mr. Hauge properly assigned to ERI.  (To spark yet another debate: This is, in my view, the only correct way to view the term.  Using “intellectual property” to refer to the underlying technology, as opposed to the legal regimes surrounding that technology, leads to chaos, confusion, and erroneous views about the law).

What about the argument that Mr. Hauge maintained ownership of ERI’s trade secrets, which operate a much grayer area of intellectual property law?  The Federal Circuit declined to treat these as “intellectual property and other rights,” at least for purposes of a civil contempt finding.  “Civil contempt is an appropriate sanction only if the district court can point to an order of the court which ‘sets forth in specific detail an unequivocal command which a party has violated.'”  Id.  Here, there was no such command.

Industry Responds to White House Calls for Prior Art, Examiner Training

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Guest Post by Professor Jorge L. Contreras

As previously reported, on February 20 the White House highlighted its progress on five patent-related policy initiatives introduced in June 2013, announced three new patent-related initiatives, and renewed its call for legislation to combat “patent trolling”. In all, ten different initiatives were discussed. Below is a quick guide to making sense of the most significant ones, as well as a summary of private sector responses to date.

Patent Assertion Entities (PAEs) – In this year’s State of the Union address, President Obama came out publicly against unfair litigation tactics deployed by “patent trolls” and has called on Congress to enact legislation to “curtail abusive patent litigation.” Two of the Administration’s June 2013 initiatives relate to PAE litigation: a proposed PTO rule that would require reporting of real party in interest (re-branded as “attributable ownership”) information in patents and patent applications, and an online toolkit providing links and other information for the recipients of patent demand letters. Among the most useful features of the toolkit are links to advanced demand letter and patent litigation analytics provided by Lex Machina and Docket Navigator. Although the toolkit is available to anyone, its intended beneficiaries are small businesses that have been targeted by some of the more notorious PAEs for using off-the-shelf office equipment like scanners and wireless routers. The Administration seems to realize that both of these initiatives are relatively modest, and it has again urged Congress to enact measures that will have a meaningful impact on reducing abusive patent litigation.

PTO Fixes – The Patent and Trademark Office (PTO) has, fairly or unfairly, come under increasing fire for procedural lapses and staffing inadequacies that allow the issuance of too many “bad” patents. Last week’s announcements contain some meaningful proposals that could help to address this situation.

  • Claim Clarity – the PTO has implemented new training programs for examiners and judges relating to “functional claims“, which have been widely criticized as overly broad and unclear. The PTO also highlighted an upcoming pilot program involving the use of glossaries in patent specifications to clarify claim language. The details of this program remain to be seen, but anything that will bring greater consistency and rationality to claim interpretation can only help.
  • Examiner Technology Training – One perceived problem with the patent examination system is the inability of examiners to keep up with rapidly changing technologies. Gaps in technical knowledge can result in examiners’ failure to identify relevant prior art, to appreciate the interaction of different system elements, and to make cogent assumptions and conclusions about inventiveness, anticipation and nonobviousness. To address this issue, the Administration has called for private sector volunteers to provide state-of-the-art technical training to patent examiners through a program coordinated by the PTO. This is clearly an area in which the private sector can help to solve a known weakness in the patent system. Several private sector entities have already committed to participate in this project. For example, The Clearing House, a financial services industry association, has pledged to develop educational materials and offer seminars to examiners in the area of financial infrastructure technology, and Verizon, which has already begun to train PTO examiners in the areas of network architecture and communications, will continue these efforts.

    While commitments such as this are a welcome start, important details will likely need to be worked out as this program grows. Though examiners work in specific art units, they must still cover a wide range of products and technologies. In complex and fast-moving fields, one could easily see some examiners spending virtually all of their working hours being trained. Moreover, one can envision competition among businesses to “educate” examiners regarding their competitors’ product lines without providing a balanced or realistic survey of the field. Accordingly, the PTO will need to exercise some oversight regarding both the scope and content of this program, and to ensure that whatever training is provided is likely to enhance the patent examination system, rather than burden or bias it.

  • Crowdsourcing Non-Patent Prior Art – Perhaps the most interesting and ambitious announcement made last week was the Administration’s call for the private sector to disclose and share prior art. The problem of non-patent prior art is a real but difficult one. It goes without saying that patent examiners examining an application should seek prior art relevant to the claimed invention from whatever sources are available. Traditionally, examiners have focused primarily on prior art contained in other patents and patent applications. While patents and patent applications are admittedly easy to search, this technique is sure to miss relevant art that has not been included in patent applications. In fast-moving industries such as software, it is likely that most of the relevant art is contained in “non-patent literature” (NPL). Yet NPL is notoriously difficult to search, particularly outside of the biosciences in which scientific publications are regularly reviewed and cited by examiners. In the software arts, NPL could include old product brochures, documentation manuals, technical drawings, and obsolete code. Even finding, let alone analyzing, prior art from this diffuse and heterogeneous mass of information presents a daunting challenge.

    The problem of NPL has been understood for some time, and “crowdsourcing” of prior art searching has long been viewed as a potential solution. In 2007, the PTO announced its pilot “Peer to Patent” program, which was intended to recruit members of the public to submit prior art relevant to applications under review, initially in the areas of software and business methods. The program was funded by a number of large companies and received a reasonable amount of press coverage, both favorable and unfavorable. The initial pilot program ran from 2007-09, with a second pilot from 2010-11. Perhaps it was the enactment of the America Invents Act in 2011, with its battery of new pre-grant challenge mechanisms, or the difficulty in finding qualified volunteer peer reviewers in highly specific technology categories, but the Peer-to-Patent project has quietly faded into oblivion.

    The Administration’s current “crowdsourcing” approach is different, in that it calls directly on companies, the repositories of most NPL, to help. It is encouraging that a number of private firms have already answered the Administration’s call and pledged to make large quantities of previously non-public technical material available to the PTO. To date, pledges to this effect have been made by:

    • The Clearing House (to provide the PTO with access to documents describing the national financial infrastructure),
    • Microsoft (to provide PTO with access to more than 10 million archived Microsoft technical documents),
    • SAS (to provide 38 years of user documentation and technical papers to IP.com, working in conjunction with the PTO), and
    • Yahoo (to continue to share prior art relevant to its business).

    The amount of data contained within the private coffers of the world’s technology companies is mind-boggling; and collecting, formatting and presenting this data in a cost-effective manner that is useful to patent examiners could prove to be a monumental task. Nevertheless, the effort must be undertaken if patents will continue to be issued in fast-moving technology fields. Google, the world’s largest search engine, has started down this path with its Prior Art Finder, an outgrowth of the popular Google Patent Search launched in 2006. The Administration’s leadership in this area is to be commended, and one can only hope that many more companies will follow those who have already pledged to assist with this vital project.

  • Patent Pledges? – It is notable that both the Examiner Technology Training and the Crowdsourcing Prior Art programs announced last week rely heavily on voluntary engagement by the private sector. The Administration has called upon industry to take a leading role in addressing some of the problems that have emerged in the patent system. This approach is sensible, as the technological expertise necessary to evaluate patents in complex and rapidly evolving technical areas resides within the companies that create those technologies, not in the PTO. However, such calls to action are also risky. What if they are ignored, or too few companies heed the call? Governmental calls to action have been around since the Crusades and have recently sought to address social issues from healthy eating and blood diamonds to financial reform and climate change. Over the past few years, spurred by the increase in PAE litigation, among other things, companies have begun to make voluntary pledges relating to patents. These have included pledges not to assert patents, or not to seek injunctions, against standardized technologies and common technology platforms, to charge royalties that are fair, reasonable and non-discriminatory (FRAND), to refrain from transferring patents to PAEs, and a variety of other activities. As I have written elsewhere, these pledges are intended to assure the market that the pledgor’s patents will not be used to disrupt valuable social activity. The recent pledges made in response to the Administration’s call are of a slightly different variety. Rather than impose “negative” encumbrances on the pledgor’s patents or its ability to enforce them, they create “positive” obligations on the pledgors to contribute knowledge, technology and (presumably) trade secrets to the PTO and/or the public. These new positive patent pledges are an intriguing and potentially game-changing development, and it will be interesting to see how many additional companies elect to commit themselves in this manner. I oversee a project at American University that catalogs patent-related pledges made outside formal standards-setting organizations, and look forward to adding many new commitments from the private sector in response to the Administration’s latest call.

Patent Pro Bono/Pro Se Assistance – Another of the new initiatives announced last week relates to the allocation of “dedicated educational and practical” PTO resources to help pro se (unrepresented by counsel) patent applicants navigate their way through the patent application process. Presumably this means that better documentation, explanatory screens and improved help resources will be made available on the PTO web site, all of which would be useful additions. The Administration also called for private sector volunteers to offer increased pro bono (free) legal assistance to small inventors. While these initiatives are welcome, the vast majority of U.S. patents are filed by businesses that can comfortably afford patent counsel, and the Edisonian conception of the sole inventor has been show largely to be a myth. Thus, while politically appealing, it is not clear that these initiatives will have a meaningful impact on the market or the patent system overall.

One wonders, in fact, why the PTO’s pro bono program is limited to patent prosecution, a relatively inexpensive legal task in the grand scheme of things. Perhaps this program would be more useful, and more aligned with the Administration’s other initiatives, if the pro bono program made lawyers available to advise retailers, small businesses and non-profit organizations about how to respond to PAE patent demand letters. While the analytics and information provided through the new PTO patent litigation toolkit are a gold mine for academics and patent litigators, it is not clear that members of the lay public will be able to make effective use of them without professional legal assistance. The PTO’s pro bono program could nicely fill this gap and make the most of the electronic tools that have already been developed and deployed by the Administration.

Conclusion – There are problems with the U.S. patent system. Rather than avoiding them, the Administration has taken positive and productive steps toward addressing them. While the long-term benefits of some of these initiatives are uncertain, programs such as the PTO’s solicitation of non-patent prior art and enhanced technical training for patent examiners could yield meaningful benefits for the system. The companies that have already pledged their support of these initiatives deserve to be commended. Let’s hope that both the Administration and the private sector follow-through on these promising first steps.

White House Fact Sheet on Patent Reform

Patent, , , ,

THE WHITE HOUSE

Office of the Press Secretary

FOR IMMEDIATE RELEASE

February 20, 2014

Executive Actions: Answering the President’s Call to Strengthen Our Patent System and Foster Innovation

 Year of Action: Making Progress Through Executive Action 

In his State of the Union address, President Obama set an ambitious agenda to make 2014 a year of   action. As part of that commitment, and recognizing that innovation is the lifeblood of our economy, the Administration today is announcing major progress on a series of initiatives designed to combat patent trolls and further strengthen our patent system and foster innovation; issuing new executive actions to build on these efforts; and renewing its call on Congress to finish the job by passing common-sense patent reform legislation.

Since last June, when the White House pledged to protect innovators from frivolous litigation, the Administration has been working to implement a series of executive actions to improve the U.S. patent system. Today the White House is announcing delivery on these commitments:

  • Promoting Transparency — The United States Patent and Trademark Office (USPTO) recently published a draft rule to ensure patent owners accurately record and regularly update ownership information when they are involved in proceedings before the USPTO. This effort is aimed at improving the quality of patents issued, enhancing competition, facilitating technology transfer, and making it harder to hide abusive litigation tactics behind shell companies. After receiving input from the public, the USPTO aims to issue a final rule in the coming months.
  • Making Patents Clear — The USPTO has developed and implemented a training program to help its examiners rigorously examine so-called “functional claims” to ensure claims are clear and can be consistently enforced. In the coming weeks, the USPTO will launch a pilot program that uses glossaries in patent specifications to promote patent clarity.
  • Protecting Main Street from Abuse — To help ensure consumers and main-street retailers know their rights before entering into costly litigation or settlements, the USPTO is today launching an online toolkit aimed at empowering consumers with answers to common questions, information about patent suits, and details about specific patents. The toolkit will include information and links to services and websites that can help consumers understand the risks and benefits of litigation or settlement, and pick their best course of action.
  • Expanding Outreach & Focused Study — Today, the USPTO is announcing the expansion of its Edison Scholars Program, which brings distinguished academic experts to the USPTO to develop and make available to the public more robust data and research on issues bearing on abusive litigation. USPTO will also continue to expand its engagement with stakeholders—including patent holders, researchers, advocates, and others—and build on the successful roundtables the agency hosted across the country over the past year on high-tech patent issues.
  • Strengthening Exclusion Order Enforcement — To make the enforcement of exclusion orders issued by the International Trade Commission more transparent, effective, and efficient, the Office of the U.S. Intellectual Property Enforcement Coordinator launched an interagency review and will, in the coming months, deliver its recommendations on refining that process.

         Innovation For Global Development — In addition, today, the Administration is committing to sustain, going forward, the Patents for Humanity Program, which creates business incentives for using patented technology to address global humanitarian needs.

Today, the White House is also announcing three new executive actions to encourage innovation and further strengthen the quality and accessibility of the patent system:

 Crowdsourcing Prior Art — To help ensure that U.S. patents are of the highest quality, the USPTO is announcing a new initiative focused on expanding ways for companies, experts, and the general public to help patent examiners, holders, and applicants find relevant “prior art”—that is, the technical information patent examiners need to make a determination of whether an invention is truly novel.

  • More Robust Technical Training — The USPTO is expanding its Patent Examiner Technical Training Program to help patent examiners keep up with fast-changing technological fields by making it easier for technologists, engineers, and other experts to provide relevant technical training and guidance to patent examiners. To make the most of these changes, the Administration is calling on innovators to volunteer their time and expertise to help ensure that USPTO training is robust and reflects the state of the art.
  • Pro Bono and Pro Se Assistance — To increase the accessibility of the patent system, the USPTO will dedicate educational and practical resources to assist inventors who lack legal representation, appoint a full-time Pro Bono Coordinator, and help expand the existing America Invents Act pro bono program to cover all 50 states. The Administration is calling on members of the patent bar to participate in the program.

Renewing the Call for Meaningful Legislation to Combat Patent Trolls: In his State of the Union address President Obama renewed his call for Congress to pass patent reform legislation, which enjoys strong bipartisan support. The Administration looks forward to continuing to work with Congress to deliver focused and effective patent reform legislation to the American people in the coming months.

   Year of Action: Making Progress Through Executive Action 

 Further Detail on Answering the President’s Call to

Improve our Patent System and Foster Innovation, not Litigation

 A strong intellectual property system supports and enables the innovation that is the lifeblood of our economy. Our patent system is enshrined in our Constitution to encourage invention and to reward Americans for their hard work and risk-taking. But in recent years, that system has also seen the growth  of abusive patent litigation designed not to reward innovation but to threaten inventors and companies based on questionable claims. That’s why President Obama has made it a priority to reform that system to ensure it encourages innovation and invention and provides the right incentives to drive investment, inspire and reward creativity, and spur job creation.

 In 2011, the President signed the Leahy-Smith America Invents Act (AIA), a landmark piece of legislation designed to help make our patent system more efficient and responsive to innovators. The United States Patent and Trademark Office (USPTO) has now successfully implemented that law, enabling many reforms that are leading to higher patent quality, including post-grant patent review proceedings at the USPTO that offer faster and less expensive alternatives to litigation in Federal courts. Yet many innovators have continued to face challenges by patent-assertion entities or patent “trolls”– entities that have, over the past decade, increasingly used patents to extract settlements based on the high cost of defense.

 Building upon the strong foundation of AIA reforms, on February 14, 2013, President Obama stated that “our efforts at patent reform only went about halfway to where we need to go. What we need to do is pull together additional stakeholders and see if we can build some additional consensus on smarter patent laws.”

 On June 4, 2013, the White House set forth a series of executive actions and legislative recommendations designed to protect innovators from frivolous litigation and ensure high-quality patents.

 During his State of the Union address in January 2014, the President renewed his called for passage of a patent reform bill that would allow businesses to stay focused on innovation, not litigation. To complement this legislative effort, today the White House is highlighting progress to date on the previously announced executive actions, and is announcing three new actions to further respond to the President’s call-to-action to level the playing field for all innovators and increase patent quality.

 Progress on the June 2013 Executive Actions

1.                  Transparency in Patent Ownership.  Patent trolls often set up shell companies to hide their activities. This tactic prevents those facing litigation from knowing the full extent of the patents that their adversaries hold when negotiating settlements; keeps innovators from being able to find each other; and undermines companies’ understanding of the competitive landscape.  That’s why the USPTO recently proposed a new rule, informed by extensive stakeholder input, requiring the reporting of people or companies with ownership interests in a patent or application, called the “attributable owners.” Attributable owner information will provide the public with more complete information about the competitive landscape; facilitate more efficient technology transfer by making patent ownership information more readily available; and reduce abusive patent litigation by helping the public better defend itself against meritless assertions. The USPTO is currently soliciting and accepting written comments from the public here, and hosting stakeholder engagement events to solicit additional valuable feedback.

2.      Enhancing Claim Clarity. The AIA reforms made important improvements to the patent examination process and overall patent quality, but stakeholders remained concerned about patents with overly broad claims in certain high-tech fields. In response, the USPTO has developed an extensive, multi-phased training program for all examiners and judges focused on evaluating functional claims and improving examination consistency and the clarity of the examination record.  The agency has also conducted extensive stakeholder outreach and engagement to solicit ideas and collect feedback, experiences, and insights on improving patent quality. In the coming weeks the USPTO will launch a pilot program aimed at encouraging the use of clearer language within patent claims through the use of glossaries in patent specifications.

3. Empowering Consumers and Main Street Retailers. Unsuspecting retailers, consumers, small businesses, and other users of products containing patented technology have increasingly found themselves targeted by letters alleging patent infringement and demanding money—even in instances where a small business is using an off-the-shelf product. To help level the playing field and ensure individuals and businesses know their rights and are aware of available resources before entering into costly litigation or settlements, the USPTO is launching today a robust online toolkit of information, available at www.uspto.gov or www.uspto.gov/patentlitigation. This new portal brings together for the first time in one place a wide-ranging, powerful set of patent-relevant tools and information, including answers to commonly asked questions about patent-demand letters and a catalog of third-party sites that users can access to find out, for example, whether the patent has ever been asserted in litigation.

4. Expanding Outreach and Focused Study. Since last June’s announcement, the USPTO has significantly increased its already extensive public outreach efforts to more actively engage key stakeholders in the high-tech community, trade and bar associations, business and university groups, and advocacy organizations, resulting in a wealth of valuable input on patent clarity, transparency, and high-tech patents. The USPTO has also expanded its Thomas Alva Edison Visiting Scholars Program and has now selected three new scholars who will engage in focused study of various aspects of our patent system, to provide insights on how to further reduce unnecessary litigation and improve the quality of issued patents.  This empirical research will help the Administration better understand our current patent system and better inform the development of new ideas and consensus around improvements to patent policies and laws.

5.      Strengthening Exclusion Order Enforcement. When patent-infringing products are banned from importation to the United States, U.S. Customs and Border Protection and the U.S. International Trade Commission are responsible for the application of exclusion orders and determining whether imported products fall within the scope of an order. Implementing these orders presents unique challenges, particularly when a technologically sophisticated product has been redesigned to avoid the order. To address this growing challenge, the U.S. Intellectual Property Enforcement Coordinator has launched a review of the processes and standards used during exclusion order enforcement activities and, in the coming months, will issue recommendations and guidance to executive agencies to improve the efficacy, transparency, and efficiency of exclusion order enforcement activities.

 
 

In addition, the Administration is today committing to sustain the Patents for Humanity Program, which aims to increase the accessibility of the patent system for innovators who are delivering game-changing technologies to address global humanitarian needs. Past award recipients have used their patent portfolios to decrease the price of HIV and malaria drugs, develop more nutritious food sources, bring solar energy to off-grid villages, combat toxic counterfeit drugs, and purify billions of liters of water using inexpensive chemical packets. 

 
 

New Executive Actions Announced Today

1.      Crowdsourcing Prior Art. To determine whether an invention is novel, examiners in the USPTO must find and apply information about the state-of-the-art in the relevant technology. However, documents reflecting this state of knowledge can sometimes be difficult to find and incorporate into the patent-examination process. Today, the USPTO is announcing that it is exploring a series of measures to make it easier for the public to provide information about relevant prior art in patent applications, including by refining its third-party submission program, exploring other ways for the public to submit prior art to the agency, and updating its guidance and training to empower examiners to more effectively use crowd-sourced prior art. This effort will focus on driving valuable contributions to the patent process and to patent quality, strengthening a process that is vital to innovation and economic growth. The USPTO will seek public input on these efforts, as the Administration calls on the public and expert stakeholders to partner with us to encourage the disclosure and sharing of prior art, particularly hard-to-find references.

2.      More Robust Technical Training and Expertise. Patent examiners must be skilled in determining whether a particular application should be granted based upon the state of the art. Building upon its existing “Patent Examiner Technical Training Program,” the USPTO will take steps to make it easier for technologists and engineers from industry and academia to provide relevant, technical training and expertise to patent examiners regarding the state of the art. The Administration is calling upon volunteers to assist in this training effort and ensure that training is systematic, robust, and covers all disciplines. In addition the USPTO is making permanent each of its four regional satellite offices, which will make it even easier for stakeholders to contribute  in-person or virtually from these locations nationwide.  

3.      Patent Pro Bono and Pro Se Assistance. Due to a lack of resources, independent inventors and small businesses sometimes struggle with how to file and prosecute a patent application to protect their invention. The USPTO will be  providing dedicated educational and practical resources to those who lack legal representation (i.e., pro se applicants) and will work with the AIA Pro Bono Advisory Council—and through a newly appointed full-time Pro Bono Coordinator—to expand the existing pro bono program established under the AIA to cover all 50 states. The Administration is calling on members of the patent bar to participate in the program.

 
 

Renewing the President’s State of the Union Call for Legislation to Combat Patent Trolling


The Administration stands ready to work with Congress on these issues, which are crucial to our economy, American jobs, and the Nation’s engine of innovation. Building upon the President’s State of the Union remarks, the Administration urges Congress to pass a bipartisan law designed to curtail abusive patent litigation and improve transparency in the patent system. We are encouraged by Congress’s strong, bipartisan attention to these issues and look forward to working with the Congress and stakeholders to bring this important bipartisan legislation to the President’s desk this year.

Patent Reform 2014: Via Executive Action

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By Dennis Crouch

The White House is expected to announce today (February 20) a round of new patent reform initiatives. This comes eight months after the President announced a set patent reforms via executive action in June of 2013 along with a set of suggested legislative reforms. Today’s announcements are expected to fit within the guidelines outlined in 2013 but will include more particular action items – with special focus on transparency of ownership and clarity of claim scope. President Obama also called for further reforms in his 2014 State of the Union Address.

The meeting is expected to be led by Secretary of Commerce Penny Pritzker who will be joined by the USPTO’s Michelle Lee (Head of the USPTO) and the leading White House patent reformers: Gene Sperling (Director of the National Economic Council), Todd Park (U.S. Chief Technology Officer), and Colleen Chien (White House Senior Advisor for Intellectual Property and Innovation in the OSTP).

The proposed executive actions from 2013 include:

  1. Making “Real Party-in-Interest” the New Default. Patent trolls often set up shell companies to hide their activities and enable their abusive litigation and extraction of settlements. This tactic prevents those facing litigation from knowing the full extent of the patents that their adversaries hold when negotiating settlements, or even knowing connections between multiple trolls. The PTO will begin a rulemaking process to require patent applicants and owners to regularly update ownership information when they are involved in proceedings before the PTO, specifically designating the “ultimate parent entity” in control of the patent or application.
  2. Tightening Functional Claiming. The AIA made important improvements to the examination process and overall patent quality, but stakeholders remain concerned about patents with overly broad claims — particularly in the context of software. The PTO will provide new targeted training to its examiners on scrutiny of functional claims and will, over the next six months develop strategies to improve claim clarity, such as by use of glossaries in patent specifications to assist examiners in the software field.
  3. Empowering Downstream Users. Patent trolls are increasingly targeting Main Street retailers, consumers and other end-users of products containing patented technology — for instance, for using point-of-sale software or a particular business method. End-users should not be subject to lawsuits for simply using a product as intended, and need an easier way to know their rights before entering into costly litigation or settlement. The PTO will publish new education and outreach materials, including an accessible, plain-English web site offering answers to common questions by those facing demands from a possible troll.
  4. Expanding Dedicated Outreach and Study. Challenges to U.S. innovation using tools available in the patent space are particularly dynamic, and require both dedicated attention and meaningful data. Engagement with stakeholders — including patent holders, research institutions, consumer advocates, public interest groups, and the general public — is also an important part of our work moving forward. Roundtables and workshops that the PTO, DOJ, and FTC have held in 2012 have offered invaluable input to this process. We are announcing an expansion of our outreach efforts, including six months of high-profile events across the country to develop new ideas and consensus around updates to patent policies and laws. We are also announcing an expansion of the PTO Edison Scholars Program, which will bring distinguished academic experts to the PTO to develop — and make available to the public — more robust data and research on the issues bearing on abusive litigation.
  5. Strengthen Enforcement Process of Exclusion Orders. Once the U.S. International Trade Commission (ITC) finds a violation of Section 337 and issues an exclusion order barring the importation of infringing goods, Customs and Border Protection (CBP) and the ITC are responsible for determining whether imported articles fall within the scope of the exclusion order. Implementing these orders present unique challenges given these shared responsibilities and the complexity of making this determination, particularly in cases in which a technologically sophisticated product such as a smartphone has been successfully redesigned to not fall within the scope of the exclusion order. To address this concern, the U.S. Intellectual Property Enforcement Coordinator will launch an interagency review of existing procedures that CBP and the ITC use to evaluate the scope of exclusion orders and work to ensure the process and standards utilized during exclusion order enforcement activities are transparent, effective, and efficient.

What is Intellectual Property Law?

Patent

By Dennis Crouch

Intellectual Property Law is really a general term used to describe a host of more particular legal regimes. Parties do not apply for “intellectual property rights” or go to court to enforce “IP rights.” Rather, parties hold and enforce patents, copyrights, trademarks, trade secrets, etc. In writing about the area, legal academics often use the broader term Intellectual Property to suggest that their results and conclusions apply broadly. It turns out though that very often, articles that purport to be directed to Intellectual Property in general are not so broad in their specifics but instead focus on only one or perhaps two particular areas of intellectual property law. To look into this process, I collected set of about 350 law journal articles published 2011-2013 that include the phrase “Intellectual Property” in their title. I then parsed the articles to identify which particular areas of intellectual property law served as the article focal points. I did this simply by counting the usage of words such as “patent”, “copyright,” “trademark,” and “trade secret” in each article.

Results: Of the self-styled “Intellectual Property” articles, a full 1/3 focused almost entirely on one area of intellectual property. The threshold for this result was that >90% of specific references were directed to one particular area of IP law. Another 1/3 of the articles focused almost entirely on two areas of intellectual property. Intellectual Property articles in this sample were most likely to focus on patent law as shown in the chart below. Of the paired-areas, the most common are Patent+Copyright and Copyright+Trademark but not Patent+Trademark.

Michelle Lee: USPTO to Push Administration Goals in both Prosecution and Litigation

Patent,

From Michelle Lee who is Deputy Under Secretary of Commerce for Intellectual Property; Deputy Director of the USPTO; and is de Facto Director of the USPTO. [Link]

Over the last five years . . . the agency’s senior leadership has made good progress to ensure our country has a strong and robust patent and trademark system for the 21st century.

. . . Going forward, the USPTO will continue to actively engage with our stakeholders, members of Congress from both political parties, as well as with others in the administration, to further improve our patent and patent litigation systems. That includes supporting Congress’ current consideration of legislation to target abusive patent litigation tactics and speed resolution of disputes over IP rights. And the USPTO will work to further the U.S. Department of Commerce’s vital role in ensuring the effective protection of IP to encourage innovation and retain America’s global competitiveness in a rapidly evolving online marketplace. I am especially eager to work with Commerce Secretary Penny Pritzker to “foster a more innovative U.S. economy—one that is better at inventing, improving and commercializing products and technologies that lead to higher productivity and competitiveness,” one of the key strategic goals articulated in the Commerce Department’s “Open for Business Agenda.” . . .

Having been born and raised in Silicon Valley—one of the most innovative regions in our nation—and having built my 25-year career as an engineer and IP attorney there, I have spent most of my life focused on creating innovative technologies and/or supporting and enabling those who do. It is indeed an honor to be able to continue on this path at the USPTO in my new role as Deputy Director of the agency. I am committed to working together with all our stakeholders to advance our shared goal of fueling the unique American ingenuity that fuels our nation’s job growth and economy.

“Top 10” Patent Cases of All Time

Patent,

By Jason Rantanen

I teach the Introduction to Intellectual Property course each spring here at Iowa.  Because this is a survey course that covers multiple areas of law that themselves each can be covered in an intermediate-level course, I always find it a fascinating challenge to balance breadth and depth in a way that maximizes students' ability to learn and apply the law. 

This coming semester I'm trying something new: rather than use a regular casebook, I'm taking a "top 40" cases approach combined with a hornbook.  The idea here is to use the hornbook together with lectures to cover the breadth of intellectual property while using discussion of the cases to dig more deeply into particularly significant or interesting moments in patents, copyrights, trademarks, trade secrets, and associated areas of law.  (For those of you not familiar with conventional casebooks, they're typically structured so that preparing for a single class involves reading 2-4 opinions plus associated casenotes.)

My current "top 10" list of patent cases is:

Bowman v. Monsanto, 133 S.Ct. 1761 (2012)
Diamond v. Chakrabarty, 447 U.S. 303 (1980)
Bilski v. Kappos, 561 U.S. __ (2010)
Egbert v. Lippmann, 104 U.S. 333 (1881); City of Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126 (1878) (taught together; yes, this technically makes it 11 cases)
KSR v. Teleflex, 550 U.S. 398 (2007)
The Incandescent Lamp Patent case, 159 U.S. 465 (1895)
Phillips v. AWH, 415 F.3d 1303 (Fed. Cir. 2005) (en banc)
Therasense v. Becton Dickinson, 649 F.3d 1276 (Fed. Cir. 2011) (en banc)
Global-Tech Appliances v. SEB, 563 U.S. __ (2011)
Bonito Boats v. Thunder Craft Boats, 489 U.S. 141 (1989)

These cases track the subject matter I cover in the classroom, so while there are more great cases in each area, I've limited it to just the top case or cases in each.   Also, I recognize that Bowman v. Monsanto is probably not on most folks' top 10 lists; however, I think it's a great way to introduce students to patent law and is particularly relevant here in the midwest.

Are there other cases that you think are even more important or interesting?  Keep in mind that adding cases also requires removing an equivalent number of cases from the list.

PTO Transitions: Director and Deputy Director Positions Open

Patent,

In September 2013, USPTO Acting Director Teresa Stanek Rea gave notice that she would step down from the agency in the near future. She has now acted-on that notice and has left the agency. Rea has been Acting Director since January 2013 when David Kappos left to take at the NY Corporate firm of Cravath. Congratulations to Director Rea on her successful tenure that will largely be seen as working toward practical goals of implementing the first-to-file and post-issuance review provisions of the America Invents Act (AIA) in a time of budget cuts and Washington contention. Prior to joining the USPTO in 2011, Rea was a partner at Crowell & Morning.

Peggy Focarino, the commissioner of patents, has now stepped in with the duties of acting director. The PTO’s closest link with the White House now is through its Chief of Staff Andrew Byrnes. Unfortunately, Mr. Byrnes has only been in the role since September 2013. Prior to that Byrnes was a litigator at Covington & Burling.

Under the patent statute, the USPTO Director “shall be appointed by the President, by and with the advice and consent of the Senate. The Director shall be a person who has a professional background and experience in patent or trademark law.” 35 U.S.C. § 3. The Deputy is then chosen by the Secretary of Commerce upon nomination by the PTO Director. The next director is expected to be a PTO outsider, but no names are forthcoming at this point.

In an email this morning, Hal Wegner distributed the above screen-shot with the caption: Whither Administration Leadership in Patents?

Bits & Bytes from Jonathan Hummel

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RECENTLY

#1. Paradigm: Intellectual Property as an Asset?

Our friends over at IPKat posted a great article about how the private sector might view intellectual property. The author compares a business centric definition of “asset” to intellectual property and explains why there are “five problems” with calling IP an “asset.”

Some of the “problems” discussed are: “intention” (acquisition v. creation) recognition in accounting books; “valuation” citing the fluctuation in price of the Kodak portfolio; “markets” public/private, primary/secondary, and “identification” whereas registered patents are easily identifiable, trade secrets and some other forms of IP are not so discreetly identifiable.

            -read the article here.

#2. Intellectual Ventures Faces Novel Attack on Business Model

Symantec and Trend Micro are fighting back against Intellectual Ventures. IV is asking for a combined $310 million from the companies for licensing a patent that cost IV $750,000 seven years ago. Symantec and Trend Micro are advancing a novel attack that basically says they shouldn’t have to pay such a large amount of money for a patent bought so “cheaply.” The two companies are asking a federal judge to bar IV from seeking such large licensing fees on the grounds that a patent acquired for so little couldn't possibly be worth so much.

            -read the Reuters article here.

#3. Public Citizen Blog: What’s this Anonymous Firm Hiding?

Scott Michelman at Public Citizen posts about the Company Doe Case. In the fall of 2011, a company calling itself “Company Doe” sued the CPSC to keep a report about one of its products out of the database, and it also sought to litigate its case under seal and without revealing its name. Public Citizen, along with Consumer Federation of America and Consumers Union (the publisher of Consumer Reports), objected to the seal. The consumer groups have appealed the sealing and pseudonymity rulings to the U.S. Court of Appeals for Fourth Circuit.

The case, Company Doe v. Public Citizen, is a first of its kind in several respects. First, it appears to be the first time a federal court has sealed the record in a civil case because of concern about a company’s reputation. Second, it appears to be the first time a court has allowed a company plaintiff to proceed under a fictitious name to protect its reputation.

 

#4. As Twitter Trots IPO, IBM Claims Infringement

Ingrid Lunden at TechCrunch reports: Twitter recently amended it’s S-1 filing and changed the share price from $17-20 up to $23-25. This increase comes in the midst of Twitter’s investor tour in anticipation of it’s IPO. Last week, I mentioned Twitter’s Puny Patent Portfolio and how that might be seen as a weakness. A spokesman said, “Many companies in these industries, including many of our competitors, have substantially larger patent and intellectual property portfolios than we do, which could make us a target for litigation…”

  • The specific patents in question are:
    • U.S. Patent No. 6,957,224: Efficient retrieval of uniform resource locators;
    • U.S. Patent No. 7,072,849: Method for presenting advertising in an interactive service; and
    • U.S. Patent No. 7,099,862: Programmatic discovery of common contacts.

 

#5. SpicyIP Leads the Way in the Push for Transparency in Indian Patent Law

Shamnad Basheer, Professor at India’s National University of Juridical Sciences writes for a the newly redesigned site SpicyIP. The website pushes for transparency in Indian IP law.

New this week, a quote from the debut: “The week saw the official unveiling of the new SpicyIP. SpicyIP 2.0 is now a website purely dedicated to covering the latest developments in the Indian intellectual property arena and all things relevant. Apart from the revamped look, we have a host of new features such as IP Polls, IP Petitions, IP Jobs and IP Events.”

 

COOL TECH

Noise Cancellation for your Windows

While noise canceling technology has been around for a years now, it seems new applications are always cropping up. Sonos has a new gadget in development that might make your house quieter than ever. Check out the product here.

 

ISSUED

Lance Whitney at C|Net reports that Apple has been granted a patent covering technology that monitors your location and then performs automation tasks. It is U.S. Patent No. 8,577,392.

 

UPCOMING

Fordham Law School’s IP Summit: Post AIA – Strategies in Litigation and Patent Prosecution

  • November 18th and 19th, 2013 – New York, NY
  • Keynote Address: Hon. Paul R. Michel, Chief Judge (ret.), U.S. Court of Appeals for the Federal Circuit
  • Approved for 12 hours CLE
  • Website for the event here.

 

Suffolk University IP conference: Design Patents: Modernizing an Old Property Interest

  • November 22, 2013 – Boston, MA
  • Highlights include:

o      Attorneys involved in Apple & Samsung saga
o      Jong K. Choi of Samsung will moderate
o      Attorneys from the U.S. Patent & Trademark Office will provide an insider’s view of how design patents are handled.
o      Two nationally known experts in design protection, Christopher V. Carani and Perry Saidman, will discuss design protection legal issues.
o      Finally, the special damage provisions for Design Patents will be analyzed by a leading expert on patent damages.

 

Whittier Law School IP Symposium

  • The Global Medicine Challenge: The Fine Line Between Incentivizing Innovation and Protecting Human Rights
    • The Keynote Speaker will be James Love, director of Knowledge Ecology International, and NGO dealing with issues involving Intellectual Property.
    • This event has been approved for 5.5 hours of CLE
    • View the Program Flyer here.

 

Essay Contest

Cyberweek Ethical Dilemma Essay Contest 2013

In conjunction with 2013 ABA Mediation Week, the Ethical Dilemma for Cyberweek 2013 concerns a mediation that is conducted online.  Students, let the ABA Section of Dispute Resolution’s Ethics Committee know your thoughts.  The contest is limited to Students 18 years of age or older.  Each participant is asked to submit an online analysis of the mediator’s performance, in 750 words or less, to Cyberweek Ethical Dilemma during Cyberweek, November 4 to November 8, 2013.  Each submission will be read by two members of the Ethics Committee, scored, and the winning submission will receive $100.00 and will be published in an upcoming issue of the Section’s Just Resolutions eNewsletter.  Read the full contest rules. Each participant will receive a certificate of participation upon submission of their analysis. Read the full hypothetical. 

 

JOBS

Patent Associate/Agent (Electrical) – Law Firm – Alexandria, Va.

  • The Alexandria office of Buchanan Ingersoll & Rooney PC has an immediate opening for an Electrical patent associate or agent with a minimum of 2 years of patent experience and a degree in Electrical Engineering or Computer Science.

Patent Attorney or Agent – Law Firm – Flexible Location

  • Guntin & Gust is seeking highly skilled and productive Patent Attorneys or Patent Agents. As part of our team you will be working with a diverse group of clients ranging from sophisticated mid-sized corporations to Fortune 100 companies.
  • We work in the areas of electrical engineering, telecommunications, medical products, RF products, gaming products, nanotechnologies, and other fields.

Ocean Tomo versus PatentRatings

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Ocean Tomo, LLC v. Jonathan Barney and PatentRatings LLC, Docket No. 12-cv-8450 (N.D. Ill. 2013)

Jonathan Barney is the founder of PatentRatings, the company that holds the patent on rating patents based upon a variety of objective criteria. See U.S. patent No. 6,556,992, 7,657,476, 7,716,226, 7,949,581, 7,962,511, 8,131,701, 8,504,560. In 2005, Barney joined Ocean Tomo and the company licensed use of his patent ratings information. According to the court documents, that agreement ended on a bad note in 2011:

After Barney began to work at Ocean Tomo, he quickly soured on the company as he discovered that "the environment at Ocean Tomo was rife with conflict, back-biting, and shady business and accounting practices." According to Barney, Ocean Tomo attempted to freeze him out, deprive him of the benefits he had been promised, and destroy him and PatentRatings financially so Ocean Tomo could appropriate the PatentRatings system and the associated intellectual property. Barney alleges that by February of 2011, the working environment at Ocean Tomo was so intolerable that he had no choice but to resign. He also alleges that Ocean Tomo used his resignation as an excuse to redeem a portion of his equity units without paying consideration and to reduce his share of profits and equity based on groundless claims of misconduct. . . . Barney also contends that Ocean Tomo wrongfully disclosed PatentRatings' confidential information to third-party software developers so they could reverse engineer the PatentRatings system and develop knock-off products based on PatentRatings' intellectual property. In addition, Barney asserts that Ocean Tomo wrongfully accessed PatentRatings' computer servers in Irvine, California, copied confidential data on the servers, and transferred that data to its own servers so it could attempt to reverse-engineer PatentRatings' product.

Prior to this lawsuit, the parties had actually arbitrated some of their disputes and a three-member panel found largely for Barney in rejecting Ocean Tomo's request for $2.5 million in damages. However, Ocean Tomo then sued in Illinois state court Barney for violation of his employment agreement, violation of the Illinois Trade Secret Act, violation of the Computer Fraud and Abuse Act (CFAA), and conversion. Barney removed the case to Federal Court countersued as noted above.

Although the case is still ongoing, the district court has dismissed several of Barney's claims for failure to state a claim upon which relief can be granted. These include Barney's claims of violation of an implied covenant of good faith and fair dealing; fraud; and the CFAA violation allegation. In particular, under Illionois law there is no independent cause of action for violation of the implied covenant of good faith and fair dealing, but rather that covenant is a part of each contract and thus must instead be alleged as part of a breach of contract claim. Barney's claim that Ocean Tomo committed fraud stemmed from his joining with the firm in 2005 and was thus barred by the Illinois five-year statute of limitations. Finally, the CFAA claim alleges that in September 2012 (long after the break-up) Ocean Tomo accessed PatentRatings' servers without authorization, copied confidential data and thereby caused at least $5,000 in damages. For a CFAA civil action, the damage threshold is a required element of a claim. However, in oral arguments PatentRatings admitted it was in the process of evaluating the damage an/or loss. The court therefore also dismissed the CFAA claim based upon PatentRatings' "tacit concession that its CFAA claim is deficient."

= = = = =

Based upon an ongoing license, In Ocean Tomo continues to use the PatentRatings algorithms to report on patent quality through its Ocean Tomo Ratings.

= = = = =

District Court Decision: Download Gov.uscourts.ilnd.275661.52.0

Patent Reform 2013 – A Discussion Draft

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by Dennis Crouch

House Judiciary Chairman Bob Goodlatte has released a new version of a "discussion draft" of proposed legislation focusing attention on "abusive" litigation tactics. In a major way, the Bill is focused on making it more difficult for patentees to enforce their patents and is designed to put additional financial risk on patentees who lose in court. Members of both the House and Senate are looking for constituent input on this topic. Senator Leahy is also likely to distribute a draft bill within the next month or so.

[Download Goodlatte – Patent Discussion Draft]

1. Raising Pleading Requirements for Allegations of Patent Infringement

Under current Federal Circuit precedent, a patentee pleading patent infringement can file a bare-bones complaint that basically only indicates the patent at suit and the general activity by the defendant that leads to the infringement accusation. In Iqbal and Twombly, the Supreme Court generally raised the pleading standards and federal courts now require significantly more factual assertions in complaints than they did a few years ago. However, the Federal Circuit found that patent infringement complaints fall within an exception that allows less-informative pleadings so long as they comply with Form 18 of the FRCP. The court has applied the higher Iqbal standards to other pleadings such as defenses and counterclaims raised in an answer and especially focused on allegations of inequitable conduct.

The bare-bones approach of Form 18 leaves tremendous wiggle. And, patentees typically do not identify, for instance, (1) which claims of the patent are being asserted, or (2) what products or services of the defendant are allegedly infringing. The amendment would essentially tell patentees that patent infringement must be pled with particularity. And, at least the patentee must identify those two important elements listed above (if known). In addition, the proposal in its current form asks for a claim chart showing "where each element of each claim . . . is found within the accused instrumentality" and a description, "with detailed specificity, how the terms in each claim … correspond to the functionality of the accused instrumentality." The complaint would also be required to list all other cases where the patent has been asserted and identify whether the patents at issue are subject to any FRAND commitment.

One exemption that appears throughout the proposal is that these changes do not apply when an innovator drug company is suing a would-be generic manufacturer. Rather, throughout the proposal an exception is made for cases where the cause of action arises under 35 U.S.C. § 271(e)(2) (the typical statutory provision invoked in innovator-generic patent litigation).

Federal courts have been using a "notice pleading" system since the 1930's – requiring a "short and plain statement of the claim showing that the pleader is entitled to relief." FRCP 8. It would be interesting to see some pre-1938 complaints and consider whether the apocryphal tale that "fact pleading" was actually much more comprehensive. But the changes appear to move the patent world into the world of fact pleading. The idea behind notice pleading is to provide the accused with sufficient notice of the claim without unduly burdening the plaintiff or creating overly formalistic rules. However, for at least some cases, the current standard does not provide sufficient notice for an accused infringer to actually understand what the patentee is claiming. In addition to providing better notice, the proposed legislation would also significantly raise the burden of filing a patent infringement complaint.

The statute also requires that the Judicial Conference propose rules that would eliminate Form 18 as it stands and create a new form that complies with the new factual pleading described above.

How the courts will likely solve this problem before Congress takes action: The courts recognize that the current pleading standard is too low in patent cases (including a likely majority of Federal Circuit judges). To deal with this the court basically has two options: (1) amend Form 18 through the Judicial Conference procedures; or (2) decide that the court is not bound by Form 18.

2. Award Attorney Fees for Prevailing Parties – And Against All Interested Parties

The new bill creates a presumption in favor of attorney fees being awarded to the prevailing party. Unlike other proposals during the past couple of years, the discussion proposal here is not overtly biased against patent assertion. Rather, the attorney fee statute (§ 285) would require courts to award "reasonable fees and other expenses" to the prevailing party "unless the court finds that the position [of the losing party] was substantially justified or that special circumstances make an award unjust."

Now, in order to ensure that patent holding companies are able to pay as losing party, the provision allows for attorney fee recovery against "interested parties" that have been joined under new provision 299(d). Under 299(d), interested parties include assignees, anyone with a right to sue, anyone with a right to sublicense, and anyone with a direct financial interest in the patents. However, neither ordinary contingency fees attorneys nor equity owners of the patentee qualify for joinder despite their obvious financial interests.

3. Limit Discovery in Patent Cases.

For many reasons, patent lawsuits are hotly litigated and the discovery process is long+expensive. The discussion bill provides for particular limits on discovery prior to claim construction. Under the proposal, a court would be barred from allowing discovery prior to a claim construction decision (except for discovery necessary for claim construction).

In addition, the bill would require the judicial conference to propose a number of limits on discovery that have the potential of significantly changing the process of patent some litigation.

4. Additional Initial Disclosures for Public Release

Under current law, information on each patent lawsuit is sent to the USPTO and placed on public record there. The proposed legislation would extend that program by requiring the patentee in an infringement lawsuit to disclose (1) any assignees of the patent; (2) any entities with the right to enforce or sublicense the patent; (3) any entity with a financial interest in either the patent or the plaintiff; (4) the ultimate parent entity of any of the entities named.

In addition, the law would mandate updates of assignee information for all patents within 90-days of any change of assignee.

5. Exception for Customer Lawsuits that Allows for Stay of those Actions

Sometimes alleged infringement is simply based on the defendant's use of an infringing product. The proposed legislation would require a court to stay actions against such customers pending resolution of the case against the manufacturer. However, the grant of stay requires that the customer agrees that the court decisions in the manufacturer suit will become res judicata have preclusive affect against the customer.

6. Foreign Bankruptcy Effect on US Patent License

Business bankruptcy and reorganization is sometimes mind-bending. Bankruptcy trustees are generally authorized to choose whether to reject or enforce (assume) any of the contracts that were binding on the debtor at the time of bankruptcy filing. However, the Bankruptcy code significantly reduces that power when the contract involves the a license of the debtor's intellectual property rights. 35 U.S.C. §365(n). One issue that has arisen lately is the impact of foreign bankruptcy on the debtor's US intellectual property rights holdings. The proposed bill protect the creditor-licensees in those cases so that an IP owner's foreign bankruptcy cannot be used to unilaterally cancel one of its licensee's US IP rights. To be clear, 365(n) applies to US IP rights, but not Trademark rights or state-law rights other than trade secret rights.

Federal Circuit: Secret Patent Trials are OK

Patent,

By Dennis Crouch

By their nature, patents have the power to control the ways that we can use our property. Gun laws can prohibit gun owners from shooting in certain areas. In the same way, a patent covering a particular gun will prohibit an individual (without license) from building or using a gun with that design. This is true even if the individual owns all the raw materials necessary to build the gun. Following this train reasoning, Courts have historically recognized that the public has a right to access patent information. Traditionally, US courts have operated in a manner that is open and public. However, in recent years more and more judges have allowed the courts to become a largely secret adjudication forum. [Note here that this issue will be a topic of one of our panels at the October 4 Conference here at Mizzou]. This parallels the rise in the ongoing secret adjudication both for grand juries and national security issues.

In Apple Inc. v. Samsung Electronics Co. (Fed. Cir. 2013), the Federal Circuit largely rejects any general public interest in patent and litigation information and instead holds that the public interest must be definite and particularized in order to have merit. The court writes:

We recognize the importance of protecting the public’s interest in judicial proceedings and of facilitating its understanding of those proceedings. That interest, however, does not extend to mere curiosity about the parties’ confidential information where that information is not central to a decision on the merits. While protecting the public’s interest in access to the courts, we must remain mindful of the parties’ right to access those same courts upon terms which will not unduly harm their competitive interest. For the reasons set forth above, we hold that the district court abused its discretion in refusing to seal the particular documents that Apple and Samsung challenge in these appeals.

Ordinarily, this type of appeal does not reach a court of appeals because most district court judges are extremely willing to allow parties to keep file documents, briefs, and testimony under seal in a way that is generally kept secret from the public. As with most disputes, the judge does not intervene when all parties agree to keep information secret. Here, Judge Koh refused to keep documents under seal even though both parties (Apple and Samsung) had stipulated that they could be so filed.

Writing for the court, Judge Prost highlights what the “extraordinary” notion that a patent trial should be open to the public.

Consistent with the extraordinary level of interest in the case, the press was given extraordinary access to the judicial proceedings. Unlike many patent trials, which often contain mountains of sealed exhibits and occasionally have closed courtroom proceedings, the district court explained to the parties before the trial that “the whole trial is going to be open.” Consequently, the district court agreed to seal only a small number of trial exhibits. And shortly after the close of business each day, the parties, by order of the court, provided the press with electronic copies of every exhibit used at trial that day. Similarly, most exhibits attached to pre-trial and post-trial motions were ordered unsealed.

In its decision, the Federal Circuit purported to follow Ninth Circuit law requiring that “That is, the party [wanting to seal records] must articulate compelling reasons supported by specific factual findings that outweigh the general history of access and the public policies favoring disclosure, such as the public interest in understanding the judicial process.” Here, the inclusion of trade secret information is often sufficient to warrant sealing of records.

In rejecting the district court’s decision, the Federal Circuit held that Judge Koh had applied a too stringent standard. In particular, Judge Koh asked for “compelling reasons” for sealing the documents while the law only requires “good cause.”

Federal Circuit: Preliminary Injunctions More Available in Trade Secret Cases (Than in Patent Cases)

Patent, Trade Secret

Core Labs v. Spectrum Tracer Services (Fed. Cir. 2013)

This case is about stopping former employees from becoming marketplace competitors. Two of Core Labs employees left the company and started a competing firm (Spectrum) servicing the hydraulic fracturing (fracking) industry. Core sued alleging trade secret misappropriation (under Texas Law), copyright infringement and patent infringement. During the lawsuit, Cole received the following email from a new Spectrum employee/whistleblower:

I recently have been contracting with Spectrum. . . . Not long ago I was handed some documents that have your company logos and such on them and had them ask me to recreate the same functionality in other documents and programs for them. From what I have been able to learn I believe you have been in a law suit with my company, and I am not very happy with trying to re-create someone else’s work. I have provided one of the worksheets I have been provided with and have others I can provide if they would be of any assistance. I am not sure if you gave my company permission or not to use these, but it is my intention to learn what the truth of the matter is.

The documents were in fact a copy of Core’s particular Microsoft Excel template file that it used to for its fracking services. In addition to making calculations, the file also includes some customer and price lists. And, the whistleblower had been asked to “incorporate field work functions” into the Spectrum software he was developing.

Despite this evidence, the district court rejected Core’s plea for a preliminary injunction based on the company’s failure to show irreparable harm due to ongoing infringement. On appeal, however, the Federal Circuit has reversed and ordered that the preliminary injunction be instituted.

Patent plaintiffs have been having some difficulty proving irreparable harm at the preliminary injunction stage. Here, however, the Core Labs requested the PI as a mechanism to support its Texas state law trade secret rights. Under Texas state law, a defendant’s possession of a plaintiffs’ trade secret rights is sufficient to create a presumption of irreparable harm. In general, irreparable harm tends to be easier to show in trade secret cases as compared with patent cases since information secrecy is so difficult regain once it is lost. The U.S. Supreme Court wrote on this point in a 1984 Monsanto case: “The economic value of [a trade secret] lies in the competitive advantage over others that [the trade secret holder] enjoys by virtue of its exclusive access to the data, and disclosure or use by others of the data would destroy that competitive edge.”

= = = = =

In most cases, parties must wait until to appeal until a district court makes its final decision concluding the case. However, the appellate jurisdiction statute provides for interlocutory appeals based on a district court’s grant or denial of injunctive relief. 28 U.S.C. 1292. One interesting aspect of this case is the fact that the Federal Circuit has jurisdiction (rather than the 10th Circuit Court of Appeals since the District Court is located in Oklahoma). The Federal Circuit has jurisdiction over patent cases, but the original complaint (filed in Texas in March 2011) did not include a patent claim. The Texas District court granted defendants’ motion to transfer the case to Oklahoma (10/2011). The plaintiff (Core) later added the patent infringement claim alleging infringement of U.S. Patent No. 6,659,175. Spectrum then filed an inter partes reexamination request and the district court litigation stayed pending resolution of that USPTO procedure. What is unclear to me is how (under old §1295) is how this case “arises under” the patent laws.

= = = = =

Section 101 issue? The claims of the ‘175 patent are interesting because they look very similar to those invalidated by the Supreme Court in Mayo v. Prometheus. In the fracking process, liquid is injected into the well to create small fractures in the subsurface in order to allow better access to the valuable hydrocarbons. For environmental reasons, it is important to recover as much of the injected liquid as possible (it basically squirts back out under pressure). Thus, it is important for the process to measure amount of fluid recovered. The proposed method here is to add a “chemical tracer” to the injected liquid and then use the concentration of chemical tracer recovered as a basis for measuring the amount recovered.

1. A method for determining the extent of recovery of materials injected into a oil well comprising the steps of:

a) preparing a material to be injected into an oil well;

b) admixing therewith a chemical tracer compound at a predetermined concentration;

c) injecting the admixture into an oil well;

d) recovering from the oil well a production fluid;

e) analyzing the production fluid for the concentration of the chemical tracer present in the production fluid; and

f) calculating the amount of admixture recovered from the oil well using the concentration of the chemical tracer present in the production fluid as a basis for the calculation.

= = = = =

As per its usual, the Federal Circuit did not enter into a debate on the benefit/detriment of invention in question – here fracking.

Obama Administration Rejects USITC Decision Blocking Apple Imports

Patent,

Patentees tend to fare well in proceedings before the US International Trade Commission (USITC). Under Section 337 of the 1930 Tariff Act (as amended), patentees can file a complaint with the agency that alleges importation of infringing products. Unlike ordinary courts, the USITC is not authorized to award monetary damages. However, the agency can (and regularly does) issue injunctive relief in the form of exclusion orders enforced by US Customs and Border Control agents. A second hitch with USITC proceedings is that the US President is given the opportunity to reject any exclusion order issued by the USITC.

As part of the mobile patent wars, Samsung filed a Section 337 complaint against Apple alleging patent infringement. Although Apple is a US company, it still imports its products from China and is thus susceptible to USITC action. And, although the USITC’s stated mission is to protect US domestic industry, foreign-based companies (such as Samsung) are still permitted to file complaints with the agency to protect their US intellectual property rights.

After a full process, the USITC determined that Apple’s iPhone 4 infringes Samsung’s US Patent No. 7,706,348 (claims 75, 76, 82, 83, 84). The USITC consequently issued an exclusion order. Now, however, the US Trade Representative (as official representative of the Obama Administration) has issued a letter of disapproval based upon the conclusion that Samsung’s commitment to FRAND licensing of its patents. http://www.ustr.gov/sites/default/files/08032013%20Letter_1.PDF. The denial effectively ends Samsung’s case at the USITC. However, Samsung has also asserted the patent in a parallel lawsuit in Federal Court (Delaware). That Delaware case has been stayed (with consent of both parties) pending outcome of the USITC case.

Contractual Override of Trade Secret Law

Patent, Trade Secret, , ,

By Dennis Crouch

Convolve and MIT v. Compaq and Seagate (Fed. Cir. 2013)

MIT has a long history with patent enforcement, including its historic link with Franklin Pierce Law Center (now UNH) and housing of the Lemelson-MIT Program. Of late, the not-for-profit institution has become quite a patent plaintiff. In addition to this case, MIT is the patent-owner-plaintiff in the Akamai and Ariad cases as well as many others. This case reaches back more than a decade when MIT and Convolve sued a group of defendants for both trade secret misappropriation and infringement of its U.S. Patent Nos. 6,314,473 and 4,916,635. In 2007, the Federal Circuit decided a prior appeal in this case on mandamus – In re Seagate Tech., LLC, 497 F.3d 1360 (Fed.Cir. 2007) (en banc) (holding that willful patent infringement at least requires showing of objective recklessness).

The present case began with a non-disclosure agreement and then failed license negotiation between Convolve and Compaq. The signal shaping technology in question is useful in computer read/write operations and Convolve agreed that Seagate (Compaq’s hard drive supplier) could be included in the conversation. No license was reached but Convolve and MIT sued two years later when the features (allegedly) showed up in Compaq/Seagate technology.

Contractual Override of Trade Secret Law: The main trade secret problem for Convolve in this case is the language of the non-disclosure agreement (NDA) that the parties signed. The agreement states that any confidential material or presentations must be particularly identified as confidential and Convolve was unable to show that it followed the procedures required by the NDA. In addition the trade secret claims regarding marketing information failed under NY law because NY trade secret law does not extend to marketing concepts. The Federal Circuit writes:

[B]arring waiver of the NDAs marking requirements (discussed below) we conclude that Seagate did not breach the NDA to the extent it may have appropriated the information disclosed. Because the disclosure of the information was not subject to the confidentiality obligations of the NDAs, moreover, barring some other basis upon which to predicate a promise of confidentiality (which we also discuss below) information relating to those ATSIs lost any trade secret status it might have had upon disclosure.

A major legal and practical point here, that should already be well understood, is that is that a contractual agreement to transfer otherwise secret information will override trade secret protections that may be in place.

Patent Infringement: The district court also dismissed the patent infringement side of the action based upon a finding of non-infringement. On appeal, the Federal Circuit vacated that decision – finding that sufficient factual dispute existed to allow the plaintiff to overcome the summary judgment motion of non-infringement for the ‘473 patent.

While a very close call, we find that Convolve presented enough evidence to preclude summary judgment on its inducement claims. Convolve did not merely demonstrate that the drives are capable of infringing, but provided evidence of specific tools, with attendant instructions, on how to use the drives in an infringing way. Unlike Fujitsu Ltd. v. Netgear, Inc., 620 F.3d 1321 (Fed. Cir. 2010), upon which the district court relied, the evidence here does not demonstrate that the infringing option in the Seagate drives was disabled by default. See Toshiba Corp., 681 F.3d at 1365 (analyzing the holding in Fujitsu). Accordingly, given the procedural posture in which the claim is presented to us, we conclude that Convolve may proceed with its inducement claims on remand.

Thus, on remand, the case will continue to determine whether the ‘473 patent was actually infringed.

Twenty Thoughts on the Importance of Myriad

Patent, , ,

By Dennis Crouch

I asked a number of colleagues for their thoughts on the Supreme Court’s recent Myriad Decision. However, I only allowed a 40 word statement from each.

Most patent law specialists look at Supreme Court review with some trepidation. For many, the split decision comes with a sigh of relief. Gregory Dolin (U Baltimore) writes that “the decision could have been much worse. The decision could have been much worse. After all, the petitioners argued that neither isolated DNA nor cDNA should be patent eligible. So the fact that the Supreme Court concluded that cDNA is patent eligible is a victory for Myriad.” Jorge Contreras (American) calls the decision a “common sense” application focused on “the fundamental purposes of the patent system.” Professor John Duffy (UVA) sees the decisions as “a half-loss to inventors, a half-loss to advocates for a broader public domain but, unfortunately, a full victory for patent lawyers, who will have lots of business opining on, and litigating, the complexities of this decision.” Barbara Rudolph (Finnegan) notes that the decision “could have an immediate [negative] effect on existing patent portfolios of some biotech companies, particularly those in the fields of diagnostics and personalized medicine. . . . It is, however, a positive development for companies that rely on [non-patented] cDNA for the development and manufacture of novel therapeutic proteins.”

The decision is in some tension with the Court’s most recent prior section 101 case of Mayo. Jeffrey Lefstin (UC Hastings) queries “is Mayo‘s ‘inventive concept’ still required for patent-eligibility? The Court’s endorsement of cDNA relies on cDNA being ‘new’ within the meaning of § 101, not whether creation of cDNA involved anything beyond the ‘routine and conventional’ activity disparaged in Mayo.” David Berry (Cooley Law) praised this aspect of the decision because the Court “didn’t concoct a new, off-the-cuff standard; punt on fashioning a useful test, confuse ‘eligibility’ with ‘patentability;’ use the word ‘obvious’ to mean something else again; disparage the art of claim drafting; or leave a whole industry up in the air about the limits of patent protection.” Along these lines but in a lamenting tone, Timothy Holbrook (Emory) that “sadly the Court provided very little guidance as to future issues relevant to biotech, such as isolated/purified proteins or other organic chemicals. The Court took pains to make the decision narrow, but for the first time since JEM, it did find something to be patent eligible.” Mark Lemley (Stanford) argues that Mayo still holds weight: “if I were a biotech patent owner I wouldn’t be celebrating just yet. cDNA patents are easier to design around, and under Prometheus v. Mayo they are probably obvious once we assume knowledge of the naturally-occurring gene sequence.”

Moving forward, we have a question of whether the reduced coverage of patent law will still provide sufficient incentive to invest in biotech focused research. Jonathan Masur, professor at The University of Chicago School of Law says yes: “This is the rare case in which the Court’s reflexive tendency to split the baby worked well. Biotech companies should have sufficient research incentives going forward, without firms like Myriad exerting too much control over consumers and future R&D.”

One problem with Supreme Court review of Section 101 cases is the risk of alienating entire market areas from patent protection. That is why many of us support a broader fair-use regime that could be used as a lever for protecting public interest uses of inventions without eliminating the market value of innovation. Along this line Thomas Cotter (Minnesota) writes: “Ultimately the merits depend on whether the benefits of access outweigh the costs to incentives. The ideal policy solution would be for DNA to be patent-eligible, coupled with an experimental use defense and a guarantee of universal health care.” Andrew Chin (UNC) agrees here that the scientific and medical progress are not served by this decision. Chin writes: “Patents on DNA probes are problematic for § 101 doctrine and for DNA research regardless of whether the probes are produced by isolation or synthesis. The distinction will distort scientific and medical progress and ultimately prove to be doctrinally unstable.” Former Lead House Staffer in the IP area, Christal Sheppard (U Nebraska) agrees that “Naturally occurring versus synthetic is a ridiculous outdated distinction.” Her approach, however, would not be to create a fair-use but instead to fall back on the old rules of novelty. Sheppard writes “The proper distinction should be new-ness (novelty) irrespective of origin.”

For innovative companies the first question is how they can take advantage of the Opinion. Eileen Kane (Penn State) offers a clue in the distinction as between genetics and chemistry. Kane writes that “the decision recognizes the complexity of DNA for a patent eligibility analysis and finds that genetics trumps chemistry in establishing the isolated gene as an unpatentable natural product.” Dan Burk (UC Irvine) nails this further by noting that the “opinion seems to say that had the gDNA claims been drafted in terms of the chemical structure rather than genetic information, Judge Lourie’s view from the opinion below might prevail. Perhaps future claim drafters should think like biochemists and not like geneticists.” Professor Kane also notes that the decision reaffirms the non-statutory principle that “discovery does not equal invention.”

For the past several years, Myriad (and many others) have been relying on trade secrets as part of their intellectual property scheme. Thus, although Myriad disclosed the BRCA1/BRCA2 gene sequences in their patent applications, the company holds a vast amount of information (such as the genetic code of all of its customers) as trade secrets. Brenda Simon (Thomas Jefferson School of Law) notes that Myriad “does not impact one of the most valuable aspects made possible through Myriad’s patent protection: a private biobank of patient data containing information about additional mutations that Myriad can maintain as a trade secret.” Barbara Rudolph (Finnegan) agrees that the decision “may presage a shift towards more reliance on trade secret protection for DNA-based inventions.”

Looking at the trend over the past decade, Andrew Torrance (Kansas) writes: “For better or worse, the Supreme Court’s AMP v. Myriad decision caps a decade-long trend away from the patentability of the human body, human embryonic stem cells, human physiology, diagnosis of human disease, human thoughts, and, now, human genes.”

Coming Soon: What does Myriad Say about Software Patents? And, in the words of Professor Holbrook “Will they take CLS?” Professor Srividhya Ragavan (Oklahoma) writes that “Too much of anything – even patents – is good for nothing. Charkabarty exemplified patent law’s ability to spur invention while Myriad represents the end of an out-of-control patenting phenomenon which became increasingly disconnected with the system’s objectives. Time for software patent-holders to take notice.”

Finally, Megan Labelle (Catholic University) highlights the value that Dan Ravicher and PubPat have brought to the table. Professor Labelle writes: “The patent community will rightfully spend much time debating the merits of Myriad. While that debate is important, let’s remember that there would be nothing to debate if the ACLU and PubPat hadn’t filed this suit in the first place. Myriad has, and should continue to, inform the discussion about the role public interest organizations ought to play in our patent system.”

What Is Happening In Vermont? Patent Law Reform From The Bottom Up

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Guest post by Camilla A. Hrdy, Resident Fellow at the Yale Law School Information Society Project.

Although there have been various proposals for curbing abusive threats of patent litigation by Patent Assertion Entities (PAE’s), or so-called patent “trolls,” and the Federal Circuit appears willing to sanction PAE’s for baseless lawsuits, the U.S. Patent Act does not directly address the problem. Dissatisfied with this situation, the state of Vermont has just passed a new and innovative law amending its Consumer Fraud statute to prohibit “bad faith assertions of patent infringement” against individuals or companies based in Vermont. The law creates a factor-based test for courts to determine when acts constitute “bad faith assertions,” and lists several non-exhaustive factors that courts may consider as evidence of bad faith, including sending demand letters that lack basic information about the infringement claim or that seek payment of unreasonable royalty fees. Targets of bad faith assertions can bring actions (in state or federal district court1) to obtain compensatory damages and exemplary damages, plus costs and fees. Vermont’s Attorney General simultaneously filed a complaint under existing Vermont consumer protection law against a PAE that sent out demand letters to thousands of small businesses in Vermont and around the country.

Some commentators suggest Vermont’s new law is preempted by federal patent law. This is not necessarily the case – so long as courts apply the law in a way that satisfies the Federal Circuit’s standard for a finding of “bad faith.” This requires, at minimum, “clear and convincing evidence” that the infringement assertions are “objectively baseless” to avoid dismissal on summary judgment or a motion to dismiss. As the Federal Circuit explained in Globetrotter, the idea is that patent holders should not be penalized simply for asking the government to enforce their patent rights. That said, as Vermont Attorney Justin McCabe points out, if courts do adhere to the Federal Circuit’s current standard, this will certainly weaken the Vermont law’s utility as a supplement to current options.

Putting aside the question of whether the Vermont law will be preempted, should it be? According to Eric Goldman, we should be wary of state-by-state contributions to patent law (and IP law in general) for numerous reasons, including higher costs for patent owners to enforce their rights and comply with different or inconsistent state standards. Goldman concludes that while he would “enthusiastically favor a nation-wide threats action,” if the choice is between no threats action at all versus state-level threats actions, he might favor the former.

I disagree.

There are certainly costs to introducing decentralization into the patent system, just as there are for any area of law where state and federal governments have concurrent power (immigration, tax, corporate law, to name just a few). But the creation of a novel, state-level solution to the problem of unfounded patent assertions highlights the reasons we accept some of these costs by continuing to support a system of dual sovereignty. Robust federalism can produce a range of benefits, including involvement from local officials in designing policies to support their jurisdictions’ development goals, promoting intergovernmental competition and experimentation, and diffusing authority among different sovereigns in order to avoid consolidation of power in a single lawmaking body or administrative agency (i.e. the U.S. Patent & Trademark Office).

But for federalism to actually benefit patent law and innovation policy generally, states require some autonomy to disagree with federal patent policy and to use state law to grow local innovation ecosystems, like California has with Silicon Valley. According to the preamble of the new law, Vermont is “striving to build an entrepreneurial and knowledge based economy.” State representatives decided the law will facilitate their goal of attracting IT and other knowledge based companies facing costly threats of litigation from PAE’s. Vermont has every right to make this attempt, and we should encourage other states to do the same.

Obviously, as the Supreme Court has made clear, state laws should be preempted when they interfere with the goals and objectives of federal patent law. But Vermont’s law doesn’t: like U.S. patent law, it strives to promote innovation and does not interfere with inventors’ decision to file for U.S. patents and disclose information about their inventions to the public.2 Far from needlessly raising the cost for patent owners to enforce their rights, Vermont’s local solution to a national problem is a prime example of how federalism is supposed to work.

As I argue in a forthcoming article and a recent essay, given the benefits of state involvement in patent law and innovation policy, federal courts should be wary of preempting state laws that attempt to influence national patent policy. I hope the Vermont law is the first, not the last, of its kind, and that it inspires other states to take a greater role in helping federal institutions fix the patent system’s problems. Meanwhile, innovators themselves – whether businesses aggrieved by PAE’s or inventors who are dissatisfied with patent law’s emphasis on propertization versus free access to knowledge – should begin to actively encourage their state and local governments to dissent against federal patent norms by experimenting with laws to make the system work better for everyone. We may ultimately decide that some, or even all, state patent policy innovations are not workable in practice. But the results of a bottom up reform movement will inevitably surprise us. And this is the point.

= = = =

1. Federal district courts have exclusive jurisdiction over patent cases, and the jurisdiction statute was recently amended to clarify that “[n]o State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.” 28 U.S.C. §    338(a). However, if none of the claims for relief under the Vermont law necessarily requires the resolution of a patent law issue, then federal district courts would not have jurisdiction absent diversity citizenship. See ClearPlay, Inc. v. Nissim Corp., 602 F.3d 1364, 1369 (Fed. Cir. 2010).

2. The same cannot be said for state trade secret laws, which we permit despite the risk that inventors of patentable inventions will keep their inventions secret, due to the independent benefits derived from more information sharing within companies and protection of valuable, if not always patentable, information from misappropriation by competitors. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 490-93 (1974).