Tag Archives: USPTO Director

Guest Post by Prof. McKenna: The Implications of Blackhorse v. Pro-Football, Inc.

Patent, ,

Professor Mark P. McKenna of The University of Notre Dame Law School is one of the leading scholars of trademark law.  Below, he provides his thoughts on the legal consequences of the TTAB’s decision in Blackhorse v. Pro-Football, Inc.

The Trademark Trial and Appeal Board (TTAB) just wrote another chapter in the long-running battle over the registration of the Washington Redskins trademarks. In Blackhorse v. Pro-Football, Inc., the Board cancelled 6 federal registrations of various Redskins marks (including stylized versions and logos – though not the one currently used by the team) on the ground they were disparaging to a significant proportion of Native Americans at the time of registration. As most readers of this blog likely know, this is the second time the TTAB has ordered cancellation of the marks – in 1999, after seven years of litigation, the Board cancelled the marks, finding them scandalous and disparaging. That ruling did not stand up on appeal, and the petitioners in this case are different. (Significantly, unlike the petitioner in Harjo, the petitioners’ claims here were not barred by laches.)

There are many things one could say about this ruling – about its societal significance, about the legal standard the TTAB applied (especially the focus on a “substantial composite” of the affected group), or about the likelihood that the decision with withstand appellate review. I am going to focus here on the legal consequences of the decision, assuming it stands. (The PTO will not actually remove the marks from the register until the team has exhausted its appeals.) Contrary to some of the press reports on the decision, cancellation does not entail loss of exclusivity of the marks. In particular it does not mean that the marks are not enforceable under federal law. It simply means that the marks will no longer be federally registered and therefore will not receive any of the benefits of registration.

The team will lose the benefits of the statutory presumption of validity and incontestability. And it will lose the benefit of nationwide constructive use. For many other parties, limiting protection to the geographic areas of actual use would be a significant consequence, but here that is unlikely to be important since the team very likely has nationwide rights by virtue of its actual use. Of perhaps greatest economic consequence, the government will no longer seize imported goods bearing any of the cancelled marks, since only goods bearing registered trademarks are subject to forfeiture. 19 U.S.C. § 1526. And none of the civil or criminal counterfeiting provisions will apply, as counterfeits are by definition making unauthorized use of registered marks. 15 U.S.C. § 1116; 18 U.S.C. § 2320.

These consequences are not meaningless, of course, but they are not nearly as significant as some have made them out to be. ESPN’s report, for example, claimed that the decision stripped the team of all federal rights, and that, if the decision stands, “any fan can produce and sell Washington Redskins gear without having to pay the league or the team for royalties and wouldn’t be in violation of any law for doing so.” It’s obviously not news that press reports mischaracterize legal decisions, but these kinds of statements pretty egregiously overstate things, in my view. That would be true even if there were no federal enforcement of the cancelled marks, since the logos themselves were not cancelled and any merchandise bearing both the word marks and the logos is almost certainly subject to enforcement. But it’s not even true that there will be no federal enforcement of the cancelled marks.

Of course, all of this depends on the assumption that courts do not interpret §2(a) to impose a limitation on one’s ability to enforce rights in an unregistered mark under §43(a). I would have thought that assumption was pretty uncontroversial, but some discussions of the new decision suggest that not all my colleagues in the academy share my view. One recent district court decision (Renna v. County of Union, N.J., 2014 WL 2435775, No. 2:11–3328 (D.N.J. May 29, 2014)) is on their side – that case held that marks barred from registration (in that case, under § 2(b)) could not be enforced under §43(a) either. (See here for Rebecca Tushnet’s analysis of the case). If that conclusion were generalizable, then today’s decision on the Redskins marks would have much more significant effect, since it would leave the football team with only state law rights, and those rights might be uncertain given courts’ general tendency to interpret state law as identical to federal law. But I think people are reading far too much into a single district court case, and that in any case Renna is wrong to conflate registrability under § 2 with protectability under §43(a).

Section 2 of the Lanham Act begins “No trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless …”. Thus, to be registrable, the claimed designation must (1) be a trademark; and (2) not run afoul of any of the limitations in subsections (a)-(f). That is to say that only a subset of trademarks qualify for registration, and the subsections of § 2 identify the boundaries of that subset. When the Lanham Act was originally drafted, it was fair to say that the limitations on registrability demarcated the universe of trademarks that warranted federal protection. When the Lanham Act was passed, it was clear that only federally registered marks were enforceable under federal law; unregistered marks could be enforced, if at all, only through a common law unfair competition claim. Thus, the unfair competition cases primarily involved unregistrable marks. As I explained here, those common law unfair competition claims were, post-Erie, state law claims. But federal courts were (probably unjustifiably) concerned that this would give rise to a lack of uniformity in the law, and beginning around the mid-1960’s they began to interpret §43(a) to embrace a cause of action for infringement of unregistered marks. In other words, they expanded the federal statute to embrace the claims that previously would have been relegated to the common law.

With this very brief history in mind, one can see just how radical is the claim that the registration bars apply in § 43(a) cases – the claim fully conflates registered and unregistered marks, applying all of the same limitations to unregistered marks despite the fact that § 43(a) was expanded specifically for the purpose of providing a federal cause of action for unregistrable marks. That would be a truly remarkable departure, and one that draws no support from the text of § 43(a), which makes actionable use of “any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which … is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person.” Note that nothing in the section requires that the confusion result from use of a designation that meets the registrability requirements. There’s a reason for that.

It is therefore wrong, in my view, to say that the § 2 bars apply in § 43(a) cases, at least categorically. Nevertheless, one can understand why a court might be attracted to the argument that bars to registrability should be understood as bars to protection, full stop. After all, courts, with the active encouragement of trademark plaintiffs, have spent the last several decades eviscerating the substantive differences between trademark infringement and unfair competition. Indeed, the project has been so successful that courts and commentators alike now routinely say that registration status is largely irrelevant for purposes of enforcement. Such a sweeping claim is, of course, somewhat overstated, since registration obviously can affect priority and the geographic scope of rights in addition to the statutory presumptions and incontestability. Nevertheless, for most purposes courts have treated registered and unregistered marks the same, and the Supreme Court said in Two Pesos that “it is common ground that § 43(a) protects qualifying unregistered trademarks and that the general principles qualifying a mark for registration under § 2 of the Lanham Act are for the most part applicable in determining whether an unregistered mark is entitled to protection under § 43(a).”

I think courts that say this mean to say that the distinctiveness and functionality rules are the same for registered and unregistered marks (save for the question of which party bears the burden), and that infringement is determined the same way in either context. In this respect it is telling that these kinds of statements nearly always precede general statements of legal principles and that they rarely, if ever, accompany any real statutory analysis. The reason is that the registrability requirements and fundamental questions of trademark validity are, and have long been, understood to be distinct issues.  It is not simply that trademark rights arise through use such that one can develop trademark rights without having ever applied for a trademark registration. It is that the Lanham Act imposes requirements for registrability that simply do not apply to unregistered marks. (Some of the registrability requirements – non-genericness, for example – go to validity, and those obviously do apply in §43(a) cases, but not because they are registration requirements.)

It is, of course, possible that courts would import into § 43(a) cases some particular bars to registration for policy reasons, just as common law courts might have had policy reasons to refuse to provide unfair competition remedies in particular cases. And perhaps there are good policy reasons for courts to deny protection to disparaging marks in any context. But it is worth noting that nothing has precluded parties from making these policy arguments before, and hardly anyone has done so. We have not, for example, seen defendants disputing the validity of unregistered marks on the ground that they are primarily geographically deceptively misdescriptive. That could be because it has just taken a long time for litigants to discover these arguments, given how much § 43(a) has changed over time. But I think it’s much more likely that most people have assumed that arguments about registrability have no purchase in the context of enforcement of an unregistered mark.

Finally, even if one thought the § 2 bars ought to apply generally in § 43(a) cases, we should be reluctant to import the § 2(a) bars specifically, since barring enforcement of scandalous, immoral, or disparaging marks raises even more serious constitutional questions than does refusing registration. Section 2(a) has occasionally been challenged on the ground that it denies government benefits on the basis of the content of speech. Courts have rejected that argument primarily on the ground that § 2 only precludes registration and does not proscribe conduct or prevent use of a mark. That reasoning has always been suspect to me, but it is significantly more questionable if it is to be understood to mean that the restrictions are constitutional simply because they do not forbid use rather than because they leave the user with the ability to rely on use-based rights. If we can expect courts to start applying the § 2(a) bars in the context of unregistered marks, we can expect to see this issue litigated much more pointedly.

Mark P. McKenna is the Associate Dean for Faculty Development, Professor of Law, and Notre Dame Presidential Fellow at the Notre Dame Law School.

Regional Director Russ Slifer

Patent,

By Dennis Crouch

USPTO Deputy Director Lee has named Russ Slifer as Regional Director of the Denver USPTO. Russ has been a patent attorney since his graduation from NIU Law in 1994 both in private practice and as Chief Patent Counsel for Micron. I have known Russ for a number of years and am confident in his deep understanding of patent practice, excellent management skills, and his willingness to listen to good ideas.

Congratulations to Russ on this transition and to Michelle Lee on continuing to build an impressive leadership team.

The missing link, of course, continues to be the absence of a Congressionally-Approved USPTO Director – now 500-days and counting.

Although already in operation, the Denver Patent Office is set to officially open on June 30, 2014.

More info: http://www.uspto.gov/blog/director/entry/update_on_our_satellite_offices

No Patent Office Director – 486 Days Later

Patent, , , ,

By Dennis Crouch

David Kappos has been an instrumental leader in patent reform over the past several years. In the lead-up to the America Invents Act of 2011, it was Kappos – acting then in his role as USPTO Director – who serve as a trusted advisor to leaders on the Hill who were developing appropriate statutory language. In 2014, Kappos – now acting as an industry lobbyist in private practice – spearheaded a successful initiative to table further patent reforms for now.

Although now an outsider, Kappos’ influence remained so strong in the 2014 cycle because the USPTO Director hole that he left is still empty. Rather, that slot has remained vacant since Kappos left the job more than a year ago. During that time, White House has not stepped forward with a nomination for the next director. I would argue that the failure of the 2014 reforms was more about the lack of a USPTO Director guiding the changes than about the challenge brought by Mr. Kappos.

In a new letter to President Obama, Senator Hatch calls for movement:

June 2, 2014

Dear President Obama:

I write concerning the director vacancy at the U.S. Patent and Trademark Office (USPTO). Since the departure of Director David Kappos in January 2013, the USPTO has been without a permanent director. This vacancy, which has gone unfilled for over sixteen months and counting without so much as a statement from the White House, hampers the agency’s ability to influence policy and make long-term plans. We all can agree that these are challenging times that demand strong leadership at the USPTO to fuel our nation’s economic strength by harnessing our intellectual property capital.

By all accounts Deputy Director Michelle Lee has done an admirable job juggling the functions and duties of both director and deputy director. But this arrangement simply cannot continue. Without a director backed by a presidential nomination and Senate confirmation, the USPTO does not have a leader who can engage in the type of strategic and long-term planning that is crucial for ensuring the USPTO’s continued effectiveness.

Ms. Lee’s ability to take on major or controversial challenges is further limited by legitimate questions as to whether her appointment as Deputy Director was consistent with 35 U.S.C. § 3(b)(1). I hope that you did not casually disregard the clear statutory requirement that the deputy director be nominated by the director. In any case, the question underscores that Ms. Lee does not possess the same clear mandate as would a presidentially-nominated and Senate-confirmed director. Leaving Ms. Lee to shoulder the burden of USPTO leadership alone is unfair, untenable, and unacceptable for our country’s intellectual property agency.

The USPTO is forging ahead with important initiatives like opening satellite offices across the country and implementing post-grant review programs under the America Invents Act. And while the agency has reduced its backlog of patent applications in recent years, as of April 2014, there were still 619,204 unexamined patent applications. These are just a few of the challenges and opportunities facing the USPTO that are needlessly complicated by the absence of a director to provide a forward-looking vision.

When one considers what intellectual property means to our economy, the failure to put in place a strong leadership team at the USPTO is unfathomable. Effective leadership requires a director, deputy director, and their assembled team. Leaving the agency without a permanent director for nearly a year and a half without so much as a public explanation is inexcusable. I look forward to hearing your plans with regard to this vacancy, and I urge you to take prompt action to nominate a USPTO director. We cannot afford to wait any longer.

The White House is unlikely to respond publicly to this message, but will perhaps take some action before the 2016 presidential election.

Guest Post: PTAB Partial Institution of IPR and CBM Review Violates the AIA– But There Is a Simple Fix

CBM, IPR, Patent, PGR, PTAB, , , ,

Guest Post by Timothy K. Wilson, Senior IP Counsel, and John S. Sieman, Patent Counsel, SAS Institute Inc.

In the provisions of the America Invents Act (AIA) governing inter partes review (IPR), post-grant reviews (PGR), and transitional covered business method review (CBM), Congress provided the Patent Trial and Appeal Board (PTAB) with a binary choice: to either institute or not institute a review of the challenged claims, i.e., the claims identified by the petition.  Rather than pursue one of these two options, however, the PTO took a different path in its implementation of the AIA, permitting the PTAB to select only some challenged claims for review.  The excluded claims receive no further review and the final written decision does not address the patentability of those claims.  Worse, because a decision whether to institute a review is not subject to appeal, this practice (which we refer to as “partial institution”) strips petitioners of their statutory appeal right as to the excluded claims.  The PTAB has already followed the partial institution practice for dozens of IPR and CBM trials.  There is, however, a simple fix for future reviews.

The binary nature of the decision whether to institute review arises from the plain language of the statute, which includes section 314 entitled “Institution of inter partes review”:

(a) Threshold.— The Director may not authorize an inter partes review to be instituted unless the Director determines that the information presented in the petition filed under section 311 and any response filed under section 313 shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.

(b) Timing.— The Director shall determine whether to institute an inter partes review under this chapter pursuant to a petition filed under section 311 within 3 months after—

(1) receiving a preliminary response to the petition under section 313; or

(2) if no such preliminary response is filed, the last date on which such response may be filed.

(c) Notice.— The Director shall notify the petitioner and patent owner, in writing, of the Director’s determination under subsection (a), and shall make such notice available to the public as soon as is practicable. Such notice shall include the date on which the review shall commence.

(d) No Appeal.— The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.

35 U.S.C. § 314 (emphasis added).

Under the AIA, petitioners choose which claims of a patent to include in a petition.  The statute refers to these as the “challenged” claims.  35 U.S.C. § 312(a)(3) (requiring an IPR  petition to “identif[y], in writing and with particularity, each claim challenged”); 35 U.S.C. § 314(a) [fn1] (referring to “claims challenged in the petition”).

The PTAB may institute an IPR if “there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition.”  35 U.S.C. § 314(a).  Because the determination “whether to institute” the IPR is a preliminary decision, the statute makes it “final and nonappealable.”  35 U.S.C. § 314(d).  Congress chose to make appeals available only at the conclusion of the IPR proceeding, after the PTAB issues a final written decision.  35 U.S.C. § 319 (permitting “[a] party dissatisfied with the final written decision [to] appeal the decision pursuant to sections 141 through 144”); 35 U.S.C. § 141 (permitting “[a] party to an inter partes review … who is dissatisfied with the final written decision … [t]o] appeal the Board’s decision only to the United States Court of Appeals for the Federal Circuit”).

The statute further requires the PTAB to issue a final written decision “with respect to the patentability of any patent claim challenged by the petitioner.”  35 U.S.C. § 318(a) (emphasis added).  The set of “claim[s] challenged by the petitioner” depends on which claims the petitioner includes in the petition, not on a later decision by the PTAB.  The statutory language leaves little doubt the final written decision—the appealable one—must address the patentability of every claim challenged in the petition.

This is not how the PTAB has implemented IPR and CBM.  For example, in the very first IPR, the PTAB reviewed a petition that challenged claims 1-20 of a patent, instituted review only on three claims, and did not address the patentability of the other 17 challenged claims in the final written decision.  Garmin Int’l Inc. v. Cuozzo Speed Techs. LLC, Case IPR2012-00001, paper 59, pp. 2, 49  (Final Written Decision of Nov. 13, 2013).   Even the PTO’s regulations that govern IPR trials contradict the statute. These regulations permit the PTAB to “authorize [inter partes] review to proceed on all or some of the challenged claims” 37 C.F.R. § 42.108(a).  Because the regulations violate the statute, the PTO exceeded its authority in promulgating them, opening up the PTO to a potential challenge under the Administrative Procedures Act.

While the PTAB’s practice of partial institution may help complete trials within the required one-year period, the practice violates the statute and strips petitioners of a statutory appeal right as to excluded claims.  In addition, the problems arising from partial institution of IPR and CBM review will spill over into litigation, as excluded claims return to district courts, presumably without estoppel.  35 U.S.C. § 318(e)(2) (limiting estoppel in civil actions to “an inter partes review of a claim in a patent under this chapter that results in a final written decision”).  Partial institution also complicates decisions on whether to stay a litigation pending the PTO proceeding.  And even if a court does stay a an infringement suit to let the PTAB resolve the petitioner’s arguments, the court may later need to review the same arguments as to the non-instituted claims, and may reach a different or even inconsistent result.

Fortunately, the PTAB can address this problem without impairing its ability to quickly resolve cases.  Even under current partial institution practice, decisions whether to institute review already address all challenged claims, identifying some claims that are likely invalid and other claims for which the petitioner has not met its burden.  If the PTAB instituted on all challenged claims as it should, that would allow the parties to decide how much of the existing page and time limits to use on each challenged claim.  These limits would still prevent trials from ballooning out of control.  PTAB judges can continue to focus their efforts on the claims identified as likely unpatentable.  And by the end of the trial, if the PTAB judges have not changed their opinions that some claims should survive, they would only need to carry the analysis about those claims forward from the institution decision into the final written decision.  By instituting review of all challenged claims and including patentability analysis of all challenged claims in the final written decision, the PTAB would restore the right to appeal the final written decision as to all challenged claims.

[fn 1] Citations provided here are for IPR proceedings; the parallel sections governing CBMs and PGRs contain similar language.

Bad Client Review on Avvo or Whatever? Think Twice Before Responding

Ethics,

Here in Georgia they just affirmed disciplinary action against a lawyer who, among other things, revealed client confidences in responding to a client’s negative review on an Internet site.  The case is here.  There are quite a few of those.

I may have mentioned this before, but one thing that some lawyers are doing is:  having clients, on intake, assign copyright to any reviews to the lawyer; then, if a negative review is posted, they send a take-down notice to the site.  Voila.

Welcome to the 21st Century.

Update:  Professor Eric Goldman responded to an email I’d sent out to a bunch of IP Professors with the following, which he allowed me to share:

 

The SF Bar Association also issued an ethics opinion on lawyers responding to client reviews. http://www.sfbar.org/ethics/opinion_2014-1.aspx

Building on my work with Jason and the Berkeley students, I wrote a short article on how doctors should respond to patient reviews: http://www.forbes.com/sites/ericgoldman/2013/11/21/how-doctors-should-respond-to-negative-online-reviews/ Much of that discussion is extensible to client reviews of lawyers.
It would be highly inadvisable for lawyers to try the Medical Justice copyright-assignment-in-unwritten-reviews hack. The request basically sets up a conflict between the lawyer and the client at the relationship’s outset. After all, almost any independent lawyer would not advise the client to sign such an assignment.
There are also likely to be statutes limiting businesses’ ability to contractually restrict their customers’ reviews. California is currently considering AB2365 requiring any such restriction to be “knowing, voluntary and intelligent.” See my discussion about the bill (and its limitations) http://www.forbes.com/sites/ericgoldman/2014/04/30/california-moving-to-protect-consumer-reviews/ It would not surprise me if there’s a federal bill on this topic as well.
Eric.

Eric Goldman
Professor, Santa Clara University School of Law
Director, High Tech Law Institute
Email: egoldman@gmail.com
Personal website: http://www.ericgoldman.org
Blogs: http://blog.ericgoldman.org ** http://blogs.forbes.com/ericgoldman/ ** http://blog.ericgoldman.org/personal/
Twitter: http://twitter.com/ericgoldman

 

Fee Shifting as a Risk Management Exercise

Fee Shifting, Patent, , ,

By Dennis Crouch

I have written before that patent plaintiffs may welcome more fee-shifting so long as they are balanced in the way that they apply both to plaintiffs and defendants. In Octane Fitness, the Supreme Court followed this pathway – giving trial court judges discretionary authority to determine which cases are sufficiently “exceptional” to warrant an attorney fee award.

Because of the expense, unpredictability, and potential delays of patent litigation, patent assertion entities spend a considerable amount of time managing and hedging against downside risks. They do this by finding contingency fee attorneys and partners willing provide substantial up-front monies in order to fund an enforcement campaign. Still, in the wake of Octane Fitness, some assertion entities have at least informed their investors of potential risk. Spherix Inc, for instance, recently filed a quarterly report remarking on the topic:

Recent rulings also create an increased risk that if the Company is unsuccessful in litigation it could be responsible to pay the attorney’s fees and other costs of defendants by lowering the standard for legal fee shifting sought by defendants in patent cases.

Link.

Of course, for masters-of-risk-management, the increased risk of owing attorney fees upon losing a case is just another risk to be managed.

Athena Fee Shifting Protection (FSP): A new product being offered by Athena FSP is designed to help in this regard. In return for a percentage share of any eventual award or settlement, Athena FSP will promise to pay any attorney fee award lodged against their partner. For patent assertion entities, this model eliminates the downside risk of losing a fee shifting award by reducing the potential upside by a few points. (Note: the standard policy limit is $3m).

Although Athena FSP’s product looks like insurance, the company wants to ensure that its product is not regulated as insurance. One difficulty with insurance is that state regulators typically enforce a rule against providing insurance for intentional torts — and losing on an exceptional-case finding has many parallels to intentional torts. Because of the upside-only payout, a better analogy may be to think of Athena FSP as an investor who, instead of paying cash for shares, takes a percentage of revenue in return for co-signing the loan.

I asked Athena’s Director Ashley Keller whether there is some fear that judges will be more likely to award fees in their cases since the partnership with Athena FSP seems designed as a plan toward malfeasance. The well-considered retort is twofold: Athena’s approach is to conduct an extensive deep dive into the potential lawsuit as a way to vet the case and only partner in situations where an exceptional case award is quite unlikely. That vetting process can then serve as evidence that an outside entity was willing to put significant money at risk based upon its thorough analysis that the case was not exceptional. In other words, if this was an insurable risk then it shouldn’t be seen as exceptional.

Guest Post: Federal Circuit Blocks Trademark for Being Disparaging to Muslims

Patent, , ,

Guest Post by Professor Mark Bartholomew (SUNY-Buffalo). I asked Professor Bartholomew to comment on this Geller after noting his recent article on Trademark Morality. DC

In re Geller (Fed. Cir. 2014)

Section 2 of the Lanham Act contains a variety of limitations on trademark registration. Some are widely used—for example, the prohibition on merely generic marks. Others rarely come into play, including a registration bar for any mark containing “matter which may disparage.” In its first ever interpretation of this statutory provision, the Federal Circuit affirmed a decision of the Trademark Trial and Appeal Board (TTAB) that denied federal registration to the mark STOP THE ISLAMISATION OF AMERICA. The Federal Circuit agreed with the TTAB that the mark would be disparaging to a substantial composite of the American Muslim community. The stakes are high here because the Federal Circuit is the typical route for appeals of TTAB decisions, and a highly anticipated decision from the TTAB on disparagement involving the WASHINGTON REDSKINS mark is due soon.

Pamela Geller and Robert Spencer tried to register their STOP THE ISLAMISATION OF AMERICA mark in connection with services of “understanding and preventing terrorism.” Geller and Spencer are known for their criticism of Islam, particularly their opposition to the construction of a mosque and Islamic Center near the former site of the World Trade Center. Organizations started by Geller and Spencer, including Stop the Islamisation of America, have been designated as hate groups in the United Kingdom and attracted widespread criticism in this country. This background appeared to influence the Federal Circuit’s view as to whether Geller and Spencer’s mark was disparaging.

The Federal Circuit began its analysis by endorsing the TTAB’s two-prong test for disparagement inquiries. Under the first prong of that test, a court must determine the likely meaning of the mark in question. Under the test’s second prong, the court examines whether the likely meaning refers to an identifiable group and, if so, whether that meaning is disparaging to a substantial composite of that group. The Federal Circuit spent most of its time on the first prong, examining the evidence for the TTAB’s finding that “Islamisation” has a public meaning referring to conversion or conformance to Islam. It endorsed the TTAB’s use of online dictionaries, but also ratified its consideration of essays posted by Geller and Spencer on their own website as well as anonymous reader comments posted on the same website. With regard to the essays, the Federal Circuit read them as advocating suppression of the entire Islamic faith, rather than merely critiquing particular political groups like the Muslim Brotherhood. The essays called for opposing mosque-building, which the Federal Circuit implied was tantamount to an attack on Islam itself. With regard to the website comments, the TTAB cited posts like “Islam is evil” and “There’s only one thing you can do and that’s say no to Islam and the Islamization of America.” Geller said that these were “cherry-picked anonymous comments” deserving of no evidentiary weight. Nevertheless, the Federal Circuit affirmed the use of such evidence in determining the likely meaning of the applicants’ mark. From there, it was not surprising that the court, in evaluating the test’s second prong, found that STOP THE ISLAMISATION OF AMERICA refers to American Muslims and that this group would be offended by a mark associating Islam with terrorism.

In many ways, the Federal Circuit’s opinion is not surprising. The reported decisions evaluating whether marks are disparaging or “scandalous” (another registration prohibition under Section 2) reveal longstanding concern over marks that can offend the sensibilities of particular religious or ethnic groups. For example, a 1938 case heard by the Federal Circuit’s predecessor, the Court of Customs and Patent Appeals, involved the mark MADONNA in connection with wine. Denying registration, the CCPA relied on its own intuition that intoxicating liquors like wine cause various “evils” while the Madonna in Christianity “stands as the highest example of the purity of womanhood, and the entire Christian world pays homage to her as such.” In re Riverbank Canning Co., 95 F.2d 327 (C.C.P.A. 1938).

What In re Geller suggests, however, is current judicial discomfort with the disparagement provision of the Lanham Act and an attempt to build a larger doctrinal edifice to justify its existence. The two-prong test endorsed by the Federal Circuit looks like scaffolding meant to make the disparagement analysis seem more rigorous than it really is. After all, once the court determined the likely definition of STOP THE ISLAMISATION OF AMERICA, it seems like the determination that the mark was disparaging to American Muslims was pretty obvious. The Geller decision also authorizes an expansion in the amount of evidence that should be brought to bear in determining whether a particular group is being disparaged. Do we really want examiners at the PTO building lengthy cases regarding the likely interpretation of a potentially disparaging term by doing things like sifting through anonymous reader comments? It might be better to simply rely on dictionary definitions, which in this case would have been enough to conclude that the applicant’s mark was meant to “stop” an entire religion.

In a recent article, I maintain that judges frame trademark decisions (and intellectual property law decisions in general) in the seemingly neutral language of efficiency and economic analysis but, beneath the surface, there are often hotly contested moral considerations that drive judicial outcomes. Today, it is not considered appropriate for judges to apply moral intuition to their decisions, particularly in the utilitarian-based world of intellectual property law. But this happens all the time in trademark law, from findings of infringement to mark validity to geographic restrictions. But it is usually done behind the scenes. Section 2(a)’s prohibition on disparagement, however, offers a seemingly blank check for judges to engage in just this sort of unfettered analysis of right and wrong. The legalistic approach adopted in Geller shows that the Federal Circuit is nervous about cashing this blank check. Disparagement issues will continue to appear, but it is likely that courts will decide these issues only reluctantly and with a preference for anchoring determinations in seemingly neutral doctrinal frameworks and comprehensive sources of “likely meaning.”

Spouses of Inventors as Co-Owners

Ethics, , , , , , ,

I’ve written about this issue:  in a community property state, does the spouse of an inventor own the patent?  The answer every “family law” expert I know of says yes; every patent lawyer says “no.”  It’s come up in at least one CAFC opinion, and now came up tangentially in a non-prec opinion that did not decide the issue.  That case, Taylor v. Taylor Made Plastics, Inc., is here. (Why does the opinion call James Taylor “James T.” and his wife “Mary T.”?)

Here’s my article on this, which I think I posted a few months ago somewhere. Someday this is going to matter, big time, or not!

DRAFT

A Fifty-Fifty Split:  What if the Spouse of Every Inventor in a Community Property State has an Undivided Interest in an Invention?

By David Hricik*

I. Introduction

If you think the title raises a wild possibility, consider what happened in a recent case appealed to the Federal Circuit.  After being sued for infringement, the defendant had the ex-wife of the inventor effectively grant to it any interest she had in the patent-in-suit.  As a result, the defendant argued that there could be no infringement, both because lack of standing and because it had acquired an undivided interest in the patent.

It almost worked.

The Federal Circuit recognized that under California law the patent was “presumptively community property in which [the wife] had an undivided half interest.”  Fortunately for the accused infringer, the wife had not listed the patent as community property when she was divorcing, and so the court held that res judicata precluded her from arguing that she in fact had an interest in the patent.

But, the odd facts of that case should not give great comfort.  It is important to recognize that if something is community property, it means it belongs to both spouses.  If the spouse of every inventor in a community property state has an undivided equal interest in every patent granted during marriage to the other spouse, then employers of inventors may need to obtain assignment of both spouse’s interests for the employer to have full title. If that is the law, then many patent infringement suits can proceed only if the spouse of the inventor is joined as a party.  If that is the law, many companies do not own, outright, the patents that they believe they do.

This article shows, first, that every court that has addressed the issue has held that a patent issued during marriage to one spouse is community property.  Second, many states hold that property rights can arise prior to issuance, and sometimes even at the time of conception.  Third, it shows that the general rule appears to allow just one spouse to alienate personal community property, but with some exceptions.  Finally, it describes the implications for this body of law on patent practitioners.

2. Basic Community Property Law

No federal statute addresses ownership of a patent application, let alone an “idea” that has simply been conceived: state law would apply. Likewise, the question of who has title to even an issued patent is a question of state law.

Eleven states currently follow community property law:  Alaska, Arizona, California, Hawaii, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin. Obviously, the laws of these states likely vary significantly on some issues, but a few basic points seem true among them all:

The statutes of several community property states provide that each spouse has a present, vested, one-half ownership interest in community property with equal management…. The equal management statutes give each spouse managerial rights over community property.  A spouse may prevent the disposition of certain community assets by the other spouse. Further, either spouse may contract debts during the marriage that may be satisfied with community property.

The concept expressed in the first sentence is worth repeating, since those unfamiliar with community property law often think of it as mattering only upon divorce. This is dangerously incorrect: when something is community property, each spouse owns it – then and there, not just in divorce court.  Also, it is important to emphasize that the community presumptively owns all property acquired during marriage, each spouse holding an undivided equal interest.[6]

With these basic principles in mind, the first question is what is “property” under these statutes, and does it include intellectual property and, most particularly, inventions, patent applications, and patents?

2. “Property” Includes Patents, and Sometimes Applications and Even Intangible Intellectual Property. 

As one would expect, “property” is construed very broadly.[7]  As one court stated:

The word “property” is in law a generic term of extensive application. It is not confined to tangible or corporeal objects, but is a word of unusually broad meaning. It is a general term to designate the right of ownership and includes every subject of whatever nature, upon which such a right can legally attach. It includes choses in action and is employed to signify any valuable right or interest protected by law and the subject matter or things in which rights or interests exists.[8]

An issued patent is, of course, by federal statute to be treated as personal property under state law.[9]  Thus, presumptively a patent acquired by one spouse during marriage belongs to the community, not separately to the inventor.[10]

Numerous divorce courts have divided patents issued during marriage as “property” under community property statutes[11]  Typically these courts assume a patent issued during marriage is community property and do not analyze whether that assumption is correct.[12]   Occasionally a court engages in at least a minor amount of analysis.  For example, a Florida appellate court stated that “[c]ourts outside Florida have reached the same logical conclusion — a patent is personal property that may be the subject of equitable distribution when the inventor and his or her spouse dissolve their marriage.”[13] The Kansas Supreme Court is the only court to have engaged in a lengthy analysis of the question, stating in part:

Vincent believes that the interest in the patents does not have the qualities listed [in the definition of property.] This is not self-evident….

[I]ntellectual property, once it has been created, is less inextricably related to its creditor than other assets now characterized as marital property, such as pensions and professional goodwill. Unlike pensions and professional goodwill, rights in intellectual property are highly transferable, and title may be placed in the name of one who did not originally produce them.[14]

The point here is that state courts either assume or readily conclude that patents issued during marriage are community property.

In some states, a spouse has interests even before the patent issues, depending on which approach to the “inception of title” doctrine the jurisdiction takes:

Arguably, inception [of title] may occur at any of three times:  (1) when the concept is sufficiently developed to generate a plan to build the invention [i.e., conception]; (2) when the invention is actually built [i.e., actual reduction to practice]; or (3) on the effective date of the patent [i.e., constructive reduction to practice].[15]

Courts have applied each view, though often not using the bracketed terms of art that patent practitioners would find comforting.

As an example of the first view, a California court divided patents that had been “perfected” during marriage but issued afterward.[16]  In addition, in a rare case that provided somewhat extended discussion, a Florida appellate court reasoned that a patent application was property that was subject to equitable division because it had been “deemed sufficiently well developed to submit to the federal patent authorities on a non-provisional basis.”[17]

As an example of the third view, a Washington appellate court held that a patent issued during the marriage was community property even though the invention had been conceived prior to marriage.[18]

Some courts adopt a muddled view that seems to reflect both the third and first views.  For example, the Supreme Court of Hawaii stated that “a patent does not exist until it is granted,” and so there was no property right “unless and until the patent issues.”[19] Nonetheless, it recognized that in making equitable division trial courts should determine “whether there was value in the pre-patent intangible intellectual property and the patent itself.”[20]

This shows that patents, and in some states applications and even merely conceived inventions, are “property.” All property acquired during marriage is presumptively community property, belonging to both spouses, not just the inventor.

The approach of state courts and state divorce lawyers to this question stands in stark contrast to common patent practice, at least as I know it.  In my experience patent practitioners do not obtain assignments from an inventor’s spouse.  Similarly, a key treatise on acquisitions makes no mention of spousal rights even as a part of due diligence during acquisition of patents.  I have never seen litigated the question of whether an inventor’s spouse must be joined as an indispensable party to a patent infringement brought by the inventor’s assignee.

The incongruity between how patent lawyers and divorce lawyers look at spousal rights is significant:  if the state courts are right, then spouses may have rights in patents that assignees may think they own outright.  If the spouse has an undivided equal interest in the patent, then they have the unfettered right to do exactly what the assignee can: sue, license, or otherwise enforce the patent.  Either state divorce courts or patent lawyers have it wrong.

Whether those rights exist means turns on the myriad facts that can arise, as well as application of particular state law. This article cannot examine all the permutations, but instead next includes several scenarios that may commonly arise where state courts have found that the spouse holds an ownership interest.  It concludes by describing potential avenues to reduce the uncertainty that may face assignees, attorneys, inventors, and spouses.

II. Federal Statutes Governing Ownership of Patents and Common Practice

The Constitution of the United States rejects the proposition that inventions should at least initially belong to anyone other than their creator.  In light of this, federal statutes provide that a patent must be applied for in the name of the inventor.  If nothing further is done, the patent will issue in the inventor’s name.  At that point, state law determines ownership.  “It is important to note that only inventorship, the question of who actually invented the subject matter claimed in a patent,’ is a question of federal patent law.  ‘Ownership, however, is a question of who owns legal title to the subject matter claimed in the patent, patents having attributes of personal property.’”  Consequently, for example, absent written assignment, an inventor’s employer will not own any patent naming the employee as the inventor.  This is true even if the employee uses only the employer’s equipment to make the invention and is paid a general salary while conceiving of or reducing to practice the patented invention.

State law determines whether there is an obligation of assignment and its scope.  By federal statute, assignments are to be construed under state law.  Thus, the Supreme Court has held that state courts “may try questions of title, and may construe an enforce contracts relating to patents.”  Similarly, state intestacy laws govern ownership of patents of deceased inventors, and foreign intestacy laws govern patents owned by foreign individuals.

There are other circumstances where state law determines ownership of an invention.  The point here is that nothing in the Patent Act, at least,  indicates that state marital property law should not also apply.  Thus, absent operation of state law to the contrary, the inventor owns the patent.

As a result, it is routine for corporations and other entities that employ those likely to invent patents to require that employees assign any ownership rights to the entity. The assumption is that because the inventor has assigned his invention to the entity, the entity holds full legal title, and thus is the not just the only party with standing to enforce the patent, but also the only party necessary to enforce the patent. All rights, lawyers and assignees believe, belong to the assignee.

Consistent with this practice and beliefs, in my experience no patent lawyer seeks assignment of any right from any inventor’s spouse.  The form assignment used by patent practitioners that originated with the USPTO does not do so. Thus, if the spouse has an interest, then on its face the typical form and practice do not accomplish assignment of the spouse’s interest, especially – for reasons that will become clear —  if the assignment is obtained after the patent has issued.  The next question is: does the spouse have an interest?

III. State Court Application of Community Property Laws to Patent Ownership

The precise contours of each particular community property state are beyond the scope of this article.  No doubt in particular circumstances those facts will matter greatly.  However, three basic principles seem to apply across the jurisdictions, with no doubt differences at their margins but not at their core.

First, the community presumptively owns all property acquired during marriage, each spouse holding an undivided equal interest in the whole.   While it is just that – a presumption – nonetheless it is the starting point.

Second, with narrow exceptions addressed below, one spouse cannot alienate community property; only both spouses can.  For example, a Louisiana statute provides:

A spouse may not alienate, encumber, or lease to a third person his undivided interest in the community or in particular things of the community prior to the termination of the regime.

Under this statute, any contract not signed by both spouses to alienate community property is void.

Again, the statutes and case law do vary.  Washington has a similar statute, but requires that both parties sign any agreement conveying community property only if it is real property.  Thus, it may be that in some community property states patents may be alienable by only the inventor.

Third, with respect to personalty, “property” is construed very broadly.  As one court stated:

The word “property” is in law a generic term of extensive application. It is not confined to tangible or corporeal objects, but is a word of unusually broad meaning. It is a general term to designate the right of ownership and includes every subject of whatever nature, upon which such a right can legally attach. It includes choses in action and is employed to signify any valuable right or interest protected by law and the subject matter or things in which rights or interests exists.

Patents are, of course, by federal statute to be treated as personal property under state law.  Thus, presumptively a patent acquired by one spouse during marriage belongs to the community, not separately to the inventor.  As next shown, that is in fact the result that the courts have uniformly reached in the family law context, when addressing divorce, alimony, or child support.

While patents are personal property and treated as such by state courts, there is less agreement on whether intangible intellectual property that leads to or could lead to a patent is community property.  The “inception of title” doctrine is a critical concept in community property states, and perhaps should be to patent lawyers, because if title is obtained prior to marriage, that property is separately owned. Thus, for example, if a husband conceives of an invention during marriage, and then gets divorced, the spouse may have an interest in any resulting patent.  Conversely, if title only arises when the patent issues, then the spouse would have no interest in patents issued after divorce from an employed inventor.

The state courts have recognized that inception of title to patent rights can occur before a patent issues:

 Arguably, inception [of title] may occur at any of three times:  (1) when the concept is sufficiently developed to generate a plan to build the invention [i.e., conception]; (2) when the invention is actually built [i.e., actual reduction to practice]; or (3) on the effective date of the patent [i.e., constructive reduction to practice].

Courts have adopted the second view.  For example, a Washington appellate court held that a patent issued during the marriage was community property even though the invention had been conceived prior to marriage.  A California court likewise divided patents which had been “perfected” during marriage.  In a rare case that provided somewhat extended discussion, a Florida appellate court reasoned that a patent application was subject to equitable division because it had been “deemed sufficiently well developed to submit to the federal patent authorities on a non-provisional basis.”  Thus, a spouse can have an interest in patent applications filed during marriage, not just patents issued during marriage.

Some courts adopt a muddled view that seems to reflect both the third and first views.  For example, the Supreme Court of Hawaii stated that “a patent does not exist until it is granted,” and so there was no right protected “unless and until the patent issues.” Nonetheless, it recognized that in making equitable division trial courts should determine “whether there was value in the pre-patent intangible intellectual property and the patent itself.”  Further, it held that a trade secret became community property when the trade secret had presently existing value.  “[O]ne ‘owns’ a trade secret when one knows of it….”  This holding could, of course, create a conflict between the spouses over whether to file for a patent application or to maintain protection of the invention only as a trade secret. The employer’s interests may conflict with the spouse’s.

Numerous courts have divided patents issued during marriage as “property” under community property without needing to address whether inception of title could have occurred earlier.  Several cases have simply assumed that patents are community property subject to division by just dividing them.

Typically these courts assume a patent issued during marriage is community property and do not analyze whether that assumption is correct.   Occasionally a court engages in at least a minor amount of analysis.  For example, a Florida appellate court stated that “[c]ourts outside Florida have reached the same logical conclusion — a patent is personal property that may be the subject of equitable distribution when the inventor and his or her spouse dissolve their marriage.”  The point here is that frequently state courts either assume or readily conclude that patents issued during marriage are community property.

The Kansas Supreme Court is the only court to have engaged in a lengthy analysis of the question, stating:

Vincent believes that the interest in the patents does not have the qualities listed [in the definition of property.] This is not self-evident. The business plan, which is built on the patented concept, undoubtedly will be used in an effort to raise capital for the enterprise. Thus, there is a sense in which the patents may be said to have loan value. Another, perhaps more typical, arrangement is for a patent holder to enter into a licensing agreement with a manufacturer/distributor for use of a patent. Consideration under the licensing agreement might be a lump sum. An initial fee and royalties is another likely form for consideration to take.

The court went on to state that:

  [I]ntellectual property, once it has been created, is less inextricably related to its creditor than other assets now characterized as marital property, such as pensions and professional goodwill. Unlike pensions and professional goodwill, rights in intellectual property are highly transferable, and title may be placed in the name of one who did not originally produce them.

Thus, state courts either assume, conclude, or have held that patents issued during marriage are community property.  The most-cited treatise by these courts as indicating that patents are community property does not aggressively take that position, instead discussing the cases and stating among other things that “a spouse would expect to share as fully in intellectual property acquired during marriage as in any other variety of property.”

Finally, while obviously income from patents that are community property belongs to the community, the majority of courts that have addressed the issue have also held that income received during a marriage from even separately owned patents is community property.

III. Federal Law Allowing for Prosecution by Persons With a Proprietary Interest in the Application May Permit Spouses to Control or Interfere with Prosecution.

While it is clear that an assignee of the entire interest in application may prosecute it, federal law sometimes permits even those with merely a “proprietary interest” to continue and even undertake prosecution, at least where the inventor refuses to do so. Specifically, Section 118 of the Patent Act states:

Whenever an inventor refuses to execute an application for patent, or cannot be found or reached after diligent effort, [1] a person to whom the inventor has assigned or agreed in writing to assign the invention or [2] who otherwise shows sufficient proprietary interest in the matter justifying such action, may make application for patent on behalf of and as agent for the inventor on proof of the pertinent facts and a showing that such action is necessary to preserve the rights of the parties or to prevent irreparable damage; and the Director may grant a patent to such inventor upon such notice to him as the Director deems sufficient, and on compliance with such regulations as he prescribes.

The PTO has interpreted this statute to permit heirs, for example, to not only continue prosecution upon the death of an inventor, but to file an application for an inventor who dies prior to filing the application.  The heirs thus must have a proprietary interest in the application or patent.

Does a spouse in a community property state?  The meaning of “proprietary interest” would seem to encompass rights of a spouse in a community property state.  “A ‘proprietary’ interest at the very least suggests some element of ownership or dominion….”  Given, as shown above, that a spouse in a community property state may have an undivided equal interest in the patent, that interest would clearly qualify as “ownership or dominion.”  Thus, federal law would seem to permit spouse to control prosecution if the inventor dies.

IV. Possible Ways to Defeat a Spouse’s Interest

A. Federal Preemption of State Community Property Law

Courts have uniformly held that state law determines ownership of patents – in every context in which the issue has arisen.  Federal law thus is held to apply, and so there is no conflict, and nothing to preempt state law.

In fact, the few courts that have analyzed whether federal law preempts state law have each rejected preemption, though without rigorous analysis.   Divorce lawyers believe there is no conflict between state and federal law.  As a leading commentator wrote:

The federal statute on the transfer of patents, 35 U.S.C. § 261, states generally that patents constitute property and that they are subject to assignment. Courts considering the issue have held that an inventor’s creditors can reach the inventor’s patents, although with somewhat more difficulty than other types of assets. 60 Am. Jur. 2d Patents § 1168 (1987). Given these points, there is general agreement that federal law does not prevent a court from treating a patent as divisible property in a divorce case.

Significantly, state courts have not analyzed this question at length, but instead seem to accept the proposition that patent law does not preempt state community property law.  State courts regularly divide patents among divorcing spouses — despite federal statutes and the Constitution and the obvious federal source of patent rights.

There is a distinction between the cases that apply state law relied upon by these courts and applying state law in this context:  in the other instances, the state law determines who owns a patent or application from the inventor, while application of community property law divests sole ownership from the inventor.

B. The Exception for Sole Management Community Property

Some states allow one spouse to alienate certain property, even if community property.  The Washington Statute quoted above, for example, requires both spouses to consent to alienation of real, but not personal, property.

Other states recognize similar doctrines, including recognizing that some community property is, nonetheless, subject to the “sole management” of one spouse.  Under this doctrine, it may be that an invention qualifies as “sole management” community property, and so assignment by the spouse is not required

C. Estoppel

Estoppel likely would not be a useful tool at least in those states that require that both spouses engage in the conduct that gives rise to the estoppel.  So, for example, in an Arizona case the fact that the husband engaged in conduct that might have estopped him from denying an agreement to sell property did not mean that the wife, or the community was estopped.  While facts could of course give rise to an estoppel against both, in routine transactions that seems unlikely.

IV. Application of State Law to Common Fact Patterns

As explained in the introduction, accused infringers have raised ownership interests in spouses as a defense to standing in a few cases, but have lost due to procedural issues.  The case law suggests that there may be more opportunities for this defense, and some thorny issues concerning ownership of existing patents that lawyers and owners of intellectual property need to consider.

Suppose, for example, that an inventor acquires a patent while married.  If the buyer fails to obtain assignment from the spouse, then the buyer may acquire merely an undivided equal interest with the inventor’s spouse.

Or, suppose that the employee is subject to an obligation to assign any patent issued during assignment.  The spouse may have an interest in a patent application filed on that invention before the obligation to assign the patent arises.  Again, the purported assignor may own only an equal undivided interest in the patent.

There are myriad fact patterns that could arise.  State law may provide the answer to some of them, indicating that the spouse has no interest, or that the inventor alone can alienate the property.  But where state law indicates that the spouse has an interest, then only if state law is preempted or the spouse assigns its interest can the assignee feel comfortable in believing it owns full and clear title.

V. Conclusion: What to Do?

As noted at the outset, this article was intended to raise the issues arising from the conflicting approaches of divorce lawyers and patent lawyers to patent ownership.  It may be that state laws will need to be reformed to exclude patents from community property, or to allow for the inventor to alienate all rights without its spouse’s consent.  It may be that a condition of employment must be that the spouse either relinquish any community property rights or to permit the inventor to alienate any intellectual property rights without permission.

In pending cases, there may be standing defenses that can be raised, since the plaintiff may not have full title.  Further, particularly thorny issues may face corporations that have acquired intellectual property from inventors or from small companies in bulk without due diligence on these issues.

 

Opportunity Lost: Economic Analysis in Apple v. Motorola

Patent, , ,

This is a Guest Post from Professor David McGowan of the University of San Diego School of Law. McGowan is co-director of USD’s Center for Intellectual Property Law & Markets.

Two years ago Judge Posner wrote an opinion in Apple v. Motorola
that caught the attention of economic experts and the lawyers who work with them. He excluded expert reports on both sides of the case, notably imagining a conversation in which one of Apple’s experts reported his methodology to a client, to be rewarded with a resounding “Dummkopf! You’re fired.”

Judge Posner made three central points, each plausibly grounded in what he saw as the requirement that economic experts employ in litigation the practices clients would demand from a business consultant. The first point was that such experts must add value; they may not simply recite contentions advanced by other experts. The second point was that economic experts may not extrapolate opinions from irrelevant comparisons. The third was that such experts must consider all economic options available to an accused infringer.

These points were sound and they implied a broader critique. Judge Posner plainly felt that customary practices in the economic analysis of patent cases are deficient and should be reformed. He rightly noted that when two opinions differ by a factor of 140, a difference present in this case and unsurprising to those who litigate such cases, something fundamental is wrong. His opinion was transparently an exercise in what he saw as swamp draining.

After an initial wave of schadenfreude rippled through the expert ranks everyone had the same question: Will this approach stick? Last Friday came the answer: No. The Federal Circuit’s opinion reversing Judge Posner sees no swamp, and that is unfortunate.

Although notionally applying regional (7th) circuit law to the Daubert questions Judge Posner decided, the court’s opinion establishes principles likely to influence future patent cases in any forum. None of these principles is compelled by Daubert or by the rules of evidence. Together they are likely to worsen economic analysis in patent cases.

The Federal Circuit’s opinion rejects each of Judge Posner’s central points. On the first point the court seemed to chide Judge Posner when it warned against a court imposing “its own preferred methodology” at the expense of plausible alternatives, an ironic comment for a field in which experts routinely slog through the Georgia Pacific factors–a test articulated by a district court. The court held “questions regarding which facts are most relevant or reliable to calculating a reasonable royalty are `for the jury.'” Such questions are a large part of what a “method” is in this context, so we may expect looser constraints on methodology in the future.

The Federal Circuit’s opinion does not explain what value an economist adds by repeating an engineer’s statement about a competitor’s costs. To add value, one would think, an economic consultant would analyze market data. In this regard Judge Posner’s literary flourish proved costly. The Federal Circuit quoted, and seemed put off by, the dummkopf passage. The court held “[t]he district court’s decision states a rule that neither exists nor is correct. Experts routinely rely upon other experts hired by the party they represent for expertise outside of their field.” Quite true. That, in part, was why Judge Posner perceived a systemic rather than an idiosyncratic problem.

The Federal Circuit’s opinion is more significant on Judge Posner’s second point and third points—extrapolations from comparisons and consideration of alternatives. Judge Posner excluded one expert’s opinion in part on the ground that his figures with respect to one phone feature (turning a page with a tap rather than a swipe) actually aimed at another feature (which interpreted an imperfectly vertical swipe as a vertical swipe), which in turn were extrapolated from the price difference between a computer mouse and a trackpad. Judge Posner held the mouse-trackpad difference “tells one nothing about what they will pay to avoid occasionally swiping unsuccessfully because their swiping finger wasn’t actually vertical to the screen,” the function that was itself a proxy for the relevant damages figure. The Federal Circuit disagreed, noting that both the trackpad and the swipe feature involve finger gestures to communicate commands and that one of the client’s engineers vouched for comparability. Imagine that.

The Federal Circuit relegated the comparability question largely to the jury:

[I]f the Trackpad is not an accurate benchmark, Motorola is free to challenge the benchmark or argue for a more accurate benchmark. But such an argument goes to evidentiary weight, not admissibility, especially when, as here, an expert has applied reliable methods to demonstrate a relationship between the benchmark and the infringed claims.

The net result? If your technical expert tells your damages expert two technologies are comparable, everything else is for the jury. This aspect of the holding exemplifies what will no doubt be the most common lesson taken from the case:
unless an expert is filmed throwing darts at numbers, even the most cogent criticisms will be held to go to weight rather than admissibility.

This aspect of the opinion threatens to bleed into the use of licenses rather than technology to derive a royalty. With respect to a separate issue the court held that “whether [asserted] licenses are sufficiently comparable such that Motorola’s calculation is a reasonable royalty goes to the weight of the evidence, not its admissibility.” Taken literally that rule could undo much of the work the Federal Circuit has been doing in cases such as Laser Dynamics, which held that “[w]hen relying on licenses to prove a reasonable royalty, alleging a loose or vague comparability between different technologies or licenses does not suffice.” Does it now suffice because it is a jury issue?

The Federal Circuit applied a similar approach to consideration of alternatives. Judge Posner’s point was that a consultant asked to minimize costs from infringement would be derelict if he or she considered only non-infringing ways to implement a function and ignored the possibility that the function could be deleted profitably. The Federal Circuit was unimpressed:

[t]hat a party may choose to pursue one course of proving damages over another does not render its expert’s damages testimony inadmissible. Nor is there a requirement that a patentee value every potential non-infringing alternative in order for its damages testimony to be admissible.

Taken as a general rule (and the trackpad discussion certainly invites such a reading), the language will encourage fanciful comparisons at the expense of economically more probable options. Litigants will draw such comparisons in an effort to anchor jurors on a high or low number. Opinions that differ by a factor of 140 will be even more common than they are now. Not good.

Are the methods of patent damages analysis really so elastic that a difference of 140x bespeaks no cause for concern? Must we tolerate in innovation policy practices no one would rely on to decide any important question in their own lives? The Federal Circuit’s decision implies that the answer is yes. Its opinion will ensure that we will see plenty more such differences. It could have been, and should have been, otherwise.

Naming Yourself as an Inventor

Ethics,

Following up to comments and requests below…  I wrote an article about this a while ago, which you can find here (save a little room).  In addition, the case law and analysis is also updated and dealt with in our book on prosecution ethics).  Finally, then-Director Moatz’s paper is here (MoatzPTO Day), where he talks about it.  There is at least one subsequent disciplinary case, too, that I recall, but couldn’t find.

Here are two OED cases related to this issue:

 

http://e-foia.uspto.gov/Foia/ReterivePdf?system=OED&flNm=0697_DIS_2012-02-08

http://e-foia.uspto.gov/Foia/ReterivePdf?system=OED&flNm=0065_DIS_2004-10-20

 

And some more:

 

In re Watkins, (Dir. U.S. Pat. & Trademark Off. Proc. No. D06-04 June 18, 2008); Va. State B. v. Lynt, in the Circuit Court for the City of Alexandria, Va. (Chancery No. CH04001593, Sept. 15, 2004), related proceeding, In re Lynt (Dir. U.S. Pat. & Trademark Off. Proc. No. D05-05 undated).

Guest Post by Prof. Sichelman: Stop Bashing Academics: Why Mark Lemley, Peter Menell, and Rob Merges are Highly Qualified to Teach and Write about Patent Law

Patent, , , , , , , ,

Guest Post by Prof. Ted Sichelman, University of San Diego, School of Law

Recently, Hal Wegner has been circulating and commenting upon the qualifications of patent law professors. For example, he lists whether patent law professors at the Top Ten IP programs as ranked by US News & World Report are licensed to practice at the USPTO, have an “understanding” of international/comparative patent law, or clerked at the Federal Circuit (see below). According to Wegner, these “credentials” are “particularly” and “uniquely” valuable (in some cases, “essential”) for professors to make “optimum” patent policy reform proposals, especially those concerning PTO practice and international harmonization.

(To provide some background, I provided Wegner a list of names of all professors in the U.S. who currently teach and write about patent law at US News ranked and unranked IP programs, with the understanding that he would circulate the list to his readers. After I sent Wegner my list, without my input, he annotated it (along with other names) with various credentials and provided commentary and alternative lists, such as the one reproduced below. Because I believe Wegner’s analysis is flawed—and given my initial participation—I feel personally obligated to respond.)

NaplesNotably absent on Wegner’s list above are any professors from Stanford, Berkeley, and George Washington (GW), the top ranked IP programs in the nation. (The same holds true for many other schools, both in and outside of the top 10. I focus on the top three schools to underscore the problems with Wegner’s approach.) Rather than effectively denigrate these programs, Wegner should have recognized the transformative role that these schools have played historically (for GW) and more recently (for all three schools) in elevating patent law to a prominent place in the academy and developing unparalleled educational opportunities for future patent professionals and scholars. (more…)

Patent Glossary Pilot Program

Patent,

By Dennis Crouch

In a new pilot program, the USPTO will offer expedited processing of patent applications that include a proper Glossary-of-Terms that define the terms used in patent claims.

Details: The pilot program is limited only to computer-related inventions (Tech Centers 2100, 2400, 2600, and the Business Methods area of 3600) and may be limited to 200 applications that petition to participate. The program runs from June-December 2014. At the time of filing, the application must include a glossary of terms within the specification that presents “positive statement[s] of what [each] term means. A glossary definition cannot consist solely of a statement of what the term does not mean, and cannot be open-ended.” The glossary is not required to define every word found in the claim set. However, it should provide definitions for key claim terminology, terms with a special definition, abbreviations, relative terms, terms of degree, and functional terminology (including means-plus-function limitations).

The pilot program is intended to provide some information about how patent applicants would use the glossaries and whether they will be useful in both better facilitating examination and result in patents with more clarity of scope. On the examination point, many patent attorneys complain that patent examiners apply unduly broad meaning to patent claim terms during the examination process. The glossary would ideally serve to head-off that initial confusion and round of prosecution that is often wasted in merely understanding the claims as submitted.

It will be interesting to see how patent applicants work within this new proposal.

Links:

Federal Circuit to Take on Corporate Law Question of CEO Liability for False Submissions

Patent, ,

By Dennis Crouch

US v. Trek Leather (Fed. Cir. 2014) (en banc rehearing)

The Federal Circuit today granted the US Government’s petition for en banc rehearing of a case stemming from the United States Court of International Trade. The USCIT is an Article III court formerly known as the US Customs Court that hears cases involving customs, duties, and anti-dumping rules. Appeals from the USCIT are heard by the Federal Circuit Court of Appeals – about fifty per year.

Although the meat of this case is the statutory interpretation of 19 U.S.C. § 1592, patent professionals (and corporate attorneys in general) will likely be interested in the veil piercing aspects of the case. The case is also an important reminder that someone’s status as a director or owner of a limited liability entity does not immunize that person from individual tort liability. See, e.g., Frances T. v. Village Green Owners Assn., 42 Cal.3d 490 (1986).

Briefly, Trek Leather’s president and majority owner, Mr. Harish Shadadpuri submitted false entry documents to Customs & Border Patrol (CPB) that undervalued the men’s suits being imported with the result being an under-collection of customs duties owed. The money-owed was later paid, but the US Government also filed suit under section 1592 – asking that Mr. Shadadpuri be personally fined for the misrepresentation. The USITC court awarded summary judgment to the US Government based upon a finding that Shadadpuri had been grossly negligent in his statements. On appeal, the Federal Circuit reversed – finding that the statute did not permit veil piercing of this sort. In particular, the appellate panel held that section 1592 penalties could not be imposed upon a person who was acting in his capacity as officer of a corporate “importer of record” for negligently filling out entry papers required of the corporation, absent a piercing of the corporate veil or a showing of fraud. (Opinion by Judge O’Malley). Judge Dyk dissented and argued that both the plain language of the statute and its legislative history would permit this action even absent veil piercing or fraud.

Here, the statute is fairly clear: “no person, by fraud, gross negligence, or negligence—(A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of (i) any document … which is material and false.” 19 U.S.C. § 1592(a)(1). The statute seems to suggest that, since Shadadpuri is a person, then he would be liable for the submission. This result would also comply with the traditional notions of common law tort liability that would find the individual actor liable for negligence (even if someone else is also liable under an agency or joint tortfeaser doctrine). The majority opinion of the Federal Circuit recognized the section 1592 argument, but looked to other sections of Title 19 that discussed only the “importer of record” being the party who submits the entry documents – the result being that (by construction of law) the submission by Shadadpuri should be seen as coming only from his company Trek Leather and not from Shadadpuri personally.

The en banc rehearing will focus on the following set of questions:

A) 19 U.S.C. § 1592(a) imposes liability on any “person” who “enter[s], introduce[s], or attempt[s] to enter or introduce” merchandise into US commerce by means of fraud, gross negligence, or negligence by the means described in § 1592(a). What is the meaning of “person” within this statutory provision? How do other statutory provisions of Title 19 affect this inquiry?

B) If corporate officers or shareholders qualify as “persons” under § 1592(a), can they be held personally liable for duties and penalties imposed under § 1592(c)(2) and (3) when, while acting within the course and scope of their employment on behalf of the corporation by which they are employed, they provide inaccurate information relating to the entry or introduction of merchandise into the United States by their corporation? If so, under what circumstances?

C) What is the scope of “gross negligence” and “negligence” in 19 U.S.C. § 1592(a) and what is the relevant duty? How do other statutory provisions in Title 19 affect this inquiry?

Amicus briefs may be filed without leave in the case.

Sarah Harris as Next USPTO General Counsel

Patent,

By Dennis Crouch

According to Pam MacLean at Reuters, Sarah Harris has now been tapped by USPTO Deputy Director Michelle Lee as the next USPTO General Counsel. Bernie Knight left the position in August of 2013 for private practice and Will Covey has been acting GC. Covey is expected to now return to his role as Director of the Office of Enrollment and Discipline.

Article: http://www.reuters.com/article/2014/03/05/uspto-harris-idUSL1N0M21MD20140305

Harris is most recently the Deputy General Counsel for AOL in charge of Intellectual Property and has spent time in-house at several high-tech companies.

General Counsel is seen as the principal legal advisor to the USPTO Director and generally supervises court representation for the agency. Although the role does deal with substantive IP issues, it delves deeply into all sorts of additional issues involving government contracts, employment issues, etc.

From the article:

“The disappointing aspect of this news is that we’re building up a leadership structure in the USPTO without actually having an appointed director in charge,” said Dennis Crouch, a patent attorney and author of the Patently O blog, which covers U.S. patent law issues.

Crouch praised the Harris appointment, saying, “she will bring strong pragmatic leadership in that role.”

Ordinarily, a director would first be named and then given some authority to build his or her team. That was the approach that David Kappos was able to use to great success. It may be more difficult to now find a USPTO leader who fits easily into this already-forming team of supporting cast members.

My exhaustive (and last, really I promise!) post about why 101 is not a defense, nor properly raised in CBM proceedings

Ethics, , , , , , , , 
This is from a declaration I filed in a patent case.

I.               Because Section 101 is not “specified” as a “condition for patentability,” and, further, is not a condition for patentability, a “violation” of Section 101 may not be raised in a covered business method proceeding.

The starting point of my analysis is a consideration of the statutory limitation on grounds that can be raised in a CBM proceeding. As part of a limited transitional program, Congress expressly and plainly limited the grounds that can be asserted in a CBM proceeding to a small subset of those than those that can be raised in patent infringement suits.  Specifically, although 35 U.S.C. § 282 lists defenses in patent suits, under the AIA in CBM proceedings only the defenses listed in subsections (b)(2) and (b)(3) can be raised.  37 C.F.R. § 42.304.  It is clear that subsection (b)(3) does not cover Section 101, since it cites only to sections 112 and 251.

As a consequence, the only potential basis for Section 101 to be a defense – and therefore a proper basis for CBM Review – is if it is within subsection (b)(2), which states: “(2) Invalidity of the patent or any claim in suit on any ground specified in part II [of Title 35] as a condition for patentability.”  35 U.S.C. § 282(b)(2).

            Unless Section 101 is “specified” in “part II” as a “condition for patentability,” it is not a proper basis for instituting a CBM proceeding.  Sections 100 to 212 are in part II of the Patent Act.  Thus, Section 101 is in part II.  However, of those one hundred and twelve separate sections, two are “specified” as “conditions for patentability” – sections 102 and 103.  Their titles state:

102.  Conditions for patentability; novelty.

103.  Conditions for patentability; non-obviousness subject matter.

Thus, plainly sections 102 and 103 each is “specified” as a “condition for patentability.”  Just as plainly, Section 101 is not “specified” as a “condition for patentability:”

101.  Inventions patentable.

In my opinion, the words “specified” as “a condition for patentability” in subsection 282(b)(2) point to only two sections of the one hundred and twelve sections in part two: sections 102 and 103.  Congress knew how to specify a condition for patentability by putting the words “condition for patentability” in the title: Section 101 is not specified as a condition for patentability. Any other reading of subsection 282(b)(2) renders the word “specified” superfluous, and it also renders the phrase “conditions for patentability” superfluous.  Either result violates a basic tenet of statutory interpretation.  Just as it is improper to read “in part II” out, it is improper to read these other express limitations out of the statute.

Even putting aside the fact that only two statutes in part II are specified as “conditions for patentability,” and assuming courts are free to allow defenses to be raised under subsection 282(b)(2) even though they are not specified as “conditions for patentability,” it is clear that, in substance, Section 101 is not a “condition.”

First, reading the statute as a whole (which proper analysis requires), there is no doubt that Congress knew how to write a “condition for patentability.” In substance, sections 102 and 103 are express conditions for patentability.  Section 102 begins, “A person shall be entitled to a patent unless . . . .”  Section 103 states that “a patent for an invention may not be obtained  . . . if the differences” would have been obvious at the time of the invention.  Section 102 conditions patentability on novelty; section 103 conditions patentability on non-obviousness.

In stark contrast, Section 101 permissively states that “[w]hoever invents or discovers any new and useful process . . . or any new and useful improvement thereof, may obtain a patent therefor,” but doing so is “subject to the conditions and requirements of this title.” Thus, Section 101 grants permission to an inventor to apply for a patent, subjecting issuance to the conditions and requirements of the title.  Further, Section 101 does not limit the person’s entitlement to a patent, unlike Section 102 and 103.  It is in my opinion that Section 101 does not “condition” patentability on the invention falling within Section 101: if Congress had wanted to condition patentability on Section 101, it perhaps could have done so, but it plainly did not.

Further, the same legislation that codified the transitional CBM proceeding expressly describes Section 101, not as providing a condition for patentability, but as merely setting forth “categories of patent-eligible subject matter.”  AIA § 18(e).  Consistent with this, Congress authorized the PTO to rely on certain prior art to invalidate a claim under sections 102 and 103, AIA § 18(c), but the statute never mentions Section 101 as a basis for invalidity.

For these reasons, it is in my opinion clear that, although it is in part II of the Patent Act, Section 101 is not specified as a “condition for patentability” and it is in substance not a condition.  Consequently, it is not a ground for review in the CBM proceeding sought by defendant herein.

In my opinion, the clarity of the text ends the inquiry.  The text of the statute is not ambiguous. Nor is it absurd to conclude that Congress chose not to make “ineligible subject matter” a basis for CBM:  indeed, given the Congressional purpose of speedy review of covered business method patents, a Section 101 inquiry would bog down the PTO in the myriad factual issues underlying the inquiry – many of which involve facts external to the PTO, such as whether the patent “preempts” other methods (i.e., whether there are non-infringing alternatives), what was “routine” or “conventional” in the art, and other facts not likely to be shown entirely by prior art. Omitting Section 101 is far from absurd but instead matches the purpose and intent of Congress to create a speedy, certain proceeding.  See generally, Ultramercial, LLC v. Hulu, LLC, 772 F.3d 1335 (Fed. Cir. 2013) (identifying some of the factual inquiries inherent in the question of eligible subject matter).

Even assuming, nonetheless, that it is proper to look beyond the text, in my opinion it is proper to look to the purpose of the statute and legislative intent.  Both confirm the plain meaning of the statute.

The purpose of the statute confirms that the CBM procedure was adopted to address shortcomings with the PTO’s ability in the late 1990’s to find prior art, and that was Congress’s intent.  The House report makes clear that the purpose was to deal with the perception that in the late 1990’s, the PTO had not found the best prior art to apply under sections 102 and 103:

A number of patent observers believe the issuance of poor business-method patents during the late 1990’s through the early 2000’s led to the patent ‘‘troll’’ lawsuits that compelled the Committee to launch the patent reform project 6 years ago. At the time, the USPTO lacked a sufficient number of examiners with expertise in the relevant art area. Compounding this problem, there was a dearth of available prior art to assist examiners as they reviewed business method applications. Critics also note that most countries do not grant patents for business methods.

The Act responds to the problem by creating a transitional program 1 year after enactment of the bill to implement a provisional post-grant proceeding for review of the validity of any business method patent. In contrast to the era of the late 1990’s-early 2000’s, examiners will review the best prior art available….

H. Rep. 112-98, at p. 54 (June 1, 2011) (emphases added).  Thus, the committee report[1] shows that the purpose of the amendments is consistent with the text:  to allow those charged within infringement to show that the invention was not new or would have been obvious in light of “the best prior art available.”  The report emphasized the lack of “a sufficient number of examiners with expertise in the relevant art area.”  Nothing in the House report mentions the failure to recognize “abstract ideas” or the failure to properly apply Section 101.  Further, it is absurd to suggest that in the late 1990s lack of access to prior art or lack of sufficient examiners with familiarity with prior art had any impact on the ability to determine what is a “law of nature,” or “abstract idea,” or the like.  If anything, this shows that Congress enacted the CBM proceeding for the purpose of responding to the problem of difficulty in finding prior art and experts in the fields of business methods.

Beyond this, the legislative history of the AIA on this transitional program is, like almost all legislative histories, murky.  I have reviewed the remarks made on the Floor of the Senate, and there is no doubt that a few members of Congress mentioned business method patents.  A fair reading is that at least some members of Congress thought the source of the problem to be addressed was with “abstract” patents, while others believed the failure to consider the most pertinent prior art was the source of the problem.  What controls is the language Congress enacted, not my speculation about the intent of a handful of elected representatives.

For the reasons shown above, in my view the text and committee report focus on prior art under sections 102 and 103.  As enacted, in my opinion the AIA does not allow review of covered business methods for “eligible subject matter” in terms of Section 101.[2]

II.             Arguments I Considered but Found Incorrect.

I understand the PTO’s position is that Section 101 can be a basis for instituting a CBM Review. E.g., SAP Am., Inc. v. Versata Dev. Group, Inc., CBM2012-00001 (Jan. 9, 2013).  Director Kappos justified the PTO’s position, not by focusing on the text, but by stating:  “This interpretation is consistent with both the relevant case law and the legislative history.”[3]  The PTO in its decision in Versata relied upon the same grounds. For the following reasons, this interpretation is incorrect.

First, these authorities simply do not address the text of the statute.  The statute is not ambiguous.  It is not absurd.  There is no reason whatsoever to move beyond the plain text.

Second, the Supreme Court case relied upon to support these views is Graham v. John Deere Co., 383 U.S. 1 (1966).  That famous case about Section 103 had nothing to do with whether “eligible subject matter” was a condition for patentability, and did not decide that issue. Instead, in dicta analyzing the “condition for patentability” in Section 103, the court noted:

The Act sets out the conditions of patentability in three sections. An analysis of the structure of these three sections indicates that patentability is dependent upon three explicit conditions: novelty and utility as articulated and defined in § 101 and § 102, and nonobviousness, the new statutory formulation, as set out in § 103.  The first two sections, which trace closely the 1874 codification, express the ‘new and useful’ tests which have always existed in the statutory scheme and, for our purposes here, need no clarification. The pivotal section around which the present controversy centers is § 103 . . . .

383 U.S. at 12-13. The statement actually undermines the argument that “eligible subject matter” is a condition for patentability. Graham explains that the Patent Act of 1793 had only two conditions for patentability:  utility and novelty (both of which were once in the same statute, a precursor to sections 101 and 102).  Id. at 10 (“Although the Patent Act was amended, revised or codified some 50 times between 1790 and 1950, Congress steered clear of a statutory set of requirements other than the bare novelty and utility tests reformulated in Jefferson’s draft of the 1793 Patent Act”).  The Graham Court recognized that in 1952 Congress had added a third condition, non-obviousness.  See id. at 14 (“Patentability is to depend, in addition to novelty and utility, upon the ‘non-obvious’ nature of the ‘subject matter sought to be patented’ to a person having ordinary skill in the art.’”) (quoting Section 103).

For these reasons, even if Graham is misapprehended as a definitive interpretation of Section 101, the Court’s opinion suggests that “eligible subject matter” is not a condition for patentability.  If Graham stated that utility, novelty, and non-obviousness were conditions for patentability, then the Court’s statement that there are “three conditions”[4] means “eligible subject matter” is not one:  if “eligible subject matter” were also a condition for patentability, then there would be four, not three, conditions.

I have also seen others avoid the text but instead cite to dicta in Dealertrack, Inc. v. Huber, 674 F.3d 1315 (Fed. Cir. 2012) and to dicta in a footnote in Aristrocrat Techs., Austl. PTY LTd. v. Int’l Game Tech., 543 F.3d 657, 661 (Fed. Cir. 2008).  Neither case decided whether Section 101 was a condition for patentability.  Although the merits of a Section 101 issue was decided in Dealertrack, the patentee did not contend that Section 101 was not a statutory defense, and the court did not decide that issue.  Further, dicta in both cases traces directly back to the dicta from Graham.  But loose language can be found in other cases saying exactly the opposite.  For example, the Federal Circuit has stated: “The two sections of part II that Congress has denominated ‘conditions of patentability’ are § 102 . . . and § 103 . . . .”  Myspace, Inc. v. GraphOn Corp., 672 F.3d 1250, 1260-61 (Fed. Cir. 2012).   The Supreme Court made essentially the same observation in Diamond v. Diehr, 450 U.S. 175, 190-91 (1981).

The important fact to me is that none of these cases parse the statutory text, or just examine the purpose and legislative history of the AIA discussed here.  Ignoring the actual text in favor of what courts have said a statute says is obviously incorrect.  In that regard, the Supreme Court has overridden judicial interpretations of statutes that failed to adhere to the text, and has done so even after decades of having lower courts adhere to those incorrect constructions.  See Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177 & 191 (1994) (overruling six decades of case law implying a cause of action), superseded on other grounds by 15 U.S.C. § 78(t)(e). Whatever a court says a statute says, the Constitution makes paramount what the enacted text actually says.

I have also considered whether this analysis improperly relies upon titles to interpret the text.  I agree it is generally improper to use the title to interpret text, at least where the title contradicts or is inconsistent with the substantive text.  But that principle has no application here:  Congress in the text of subsection 282(b)(2) limited the grounds upon which a CBM proceeding may be based to those “specified” in “part II” as “conditions for patentability.”  Thus, the statutory text of Section 282 says to look for things “specified” in “part II” as “conditions for patentability.”  Consequently, I am not using the title of any statute to interpret the meaning of Section 101:  I am applying the plain text of subsection 282(b)(2).  I am not using the title to interpret the text with respect to either “specified” as a “condition for patentability” just as I am not with respect to the statute’s use of “specified” in “part II.”  Further, as shown above, I use only the text of the statutes to conclude that Sections 102 and 103 are conditions, but Section 101 is not.  Reading those three statutes in pari materia (together), it is clear sections 102 and 103 are conditions, but Section 101 is not.  The titles confirm the interpretation of the text, but they are not the source of it.

I have also considered other aspects of the legislative history.  For example, then-Director Kappos observed:  “a key House Committee Report states that ‘the post-grant review proceeding permits a challenge on any ground related to invalidity under section 282.’ H.R. Rep. No.112-98, at 47 (2011).”[5]  Yet, it is undeniable that the text of the adopted statute points to only two subsections of Section 282, and so this sentence from that report flatly contradicts the enacted statute.  A sentence in a committee report that directly contradicts the plain language does not control.  As with most bills, the legislative history of the AIA contains many statements that are not the law, and a few that contradict the statute.

Others have pointed to this statement from a senator from Arizona, Senator Kyl:  “section 101 invention issues” were among those “that can be raised in post-grant review.”  157 Cong. Rec. S1375 (daily ed. Mar. 8, 2011).  Relying on this statement for the proposition that eligible subject matter is covered by the text is doubly problematic.  Foremost, “section 101 invention issues” is not in the enacted text. Further, the Supreme Court has long and repeatedly rejected relying upon one legislator’s statement as having been presented to Congress and enacted into federal law.  Doing so jeopardizes the Constitutional requirements of enactment and presentment.  This is especially true where, as here, that statement contradicts the plain text as well as other more weighty evidence of legislative intent, coming in the form of Senate reports from the AIA, Congressional reports on the 1952 Act, and Federico’s commentary, discussed above.  Those sources – which, if entitled to any weight, are entitled to more weight than one Senator’s floor statement – contradict Senator Kyl’s subjective interpretation of the statute.  Again, however, I believe none of this matters here.

To sum up, in my opinion dicta in cases does not control.  Dicta in cases that do not analyze the statutory text do not control.  A committee report that flatly contradicts the enacted text does not control.  And one Senator’s opinion is not enacted statutory text.


[1]     The Supreme Court has cautioned against giving weight even to committee reports, admonishing courts that “judicial reliance on legislative materials like committee reports, which are not themselves subject to the requirements of Article I [of the U.S. Constitution], may give unrepresentative committee members – or, worse yet, unelected staffers and lobbyists – both the power and the incentive to attempt strategic manipulations of legislative history to secure results they were unable to achieve through the statutory text.”  ExxonMobil Corp. v. Allapattah Serv., Inc., 545 U.S. 546, 568 (2005).  Here, the committee report simply confirms the plain text; it is not being used to interpret the text.

[2]     As explained above, courts view legislative history, particularly more modern legislative history such that accompanying the AIA, with skepticism.  Thus, I only note that the Senate report from 1952 and persuasive commentary by P.J. Federico confirm the plain meaning.  First, both reports from 1952 Act state: “Section 101 sets forth the subject matter that can be patented, ‘subject to the conditions and requirements of this title.’  The conditions under which a patent may be obtained follow, and section 102 covers the conditions relating to novelty.” H. Rep. 1923, S. Rep. 1979 (82d Cong. 2d Session) (emphasis added).  It is a perversion of the English language to read “the conditions under which a patent may be obtained follow” Section 101, but nonetheless in Section 101.  Second and consistent with the plain text and these reports, Federico wrote that Section 4886 – which Congress in 1952 split up into what became sections 101, 102, and (in a sense at least) 103 – had “specified the subject matter for which a patent could be obtained and recited conditions for patentability.  In the new code, this section has been divided into two sections, section 101 relating to the subject matter for which a patent may be obtained, and section 102 which defines statutory novelty and states other conditions for patentability.”  P.J. Federico, Commentary on the New Patent Act (emphasis added) (available at http://ipmall.info/hosted_resources/lipa/patents/federico-commentary.asp).  Thus, as a principal architect of the act, Federico recognized that while Section 4886 had both “identified the subject matter for which a patent could be obtained,” and “recited conditions for patentability,” under the 1952 Act “section 101 relat[ed] to the subject matter for which a patent may be obtained” but “section 102 defines novelty and states other conditions for patentability [e.g., statutory bars to patentability].”  Id.  Further, Federico’s description is consistent with the reviser’s note to the 1952 act, which stated that the “existing statute is split into two sections, section 101 relating to the subject matter for which patents may be obtained, and section 102 defining statutory novelty and stating other conditions of patentability.”

[3] http://www.uspto.gov/blog/director/entry/ptab_and_patentability_challenges

[4]     383 U.S. at 17.

[5]     http://www.uspto.gov/blog/director/entry/ptab_and_patentability_challenges

More About the OED Jurisdictional Reach

Ethics,

Blogged below, the OED in recent years has reversed the position it took in 1985 about the scope of its rules, emphasizing that, now, they apply to even conduct that has nothing to do with practice before the Office.  Let me parse through some of the issues this creates, and I no doubt will do more later.

The first one is a due process issue.  A lawyer should be on notice that the USPTO rules apply to his conduct, no matter what.  Given the adoption of Section 10.1 (discussed in the earlier post), and repeated formal responses during the notice & comment period in adopting the 1985 rules, that notice seems lacking.  Statements by the OED director in speeches probably aren’t enough, I’d say.

The due process issues are much, much deeper, however.  A recent case helps explain why.  The USPTO, like (I think) every state, allows for “reciprocal discipline.”  This means that if, say, Texas brings a disciplinary case against me, and I’m found guilty (or agree to guilt), the USPTO could (if I were registered, but I’m not) discipline me, too.   I could avoid reciprocal discipline only by a sticking too a few very narrow paths above the reciprocal discipline chasm.  See Selling v. Radford, 243 U.S. 46 (1971); 37 C.F.R. 11.24(d)(1).

One path requires showing that the state proceeding against me lacked due process.  Matter of Brufsky, Proc. No. D2013-12 (USPTO OED Feb. 2, 2014).  Among other things, due process requires that the lawyer have notice of the charge against him, have the opportunity to present evidence, testify, cross-examine witnesses, and present argument.  Id.  

Showing a lack of due process is a pretty tall order where the state has good attorney-disciplinary procedures in place and follows them.  The lawyer in Brufsky tried and failed.

Now switch things to what the OED director has said lately — that the USPTO can discipline a lawyer when the conduct has nothing to do with practice before the Office.  The OED director’s slides recount a case where a lawyer got sanctioned for discovery violations and that resulted in discipline — by an agreed order — of the lawyer by the OED for violating one of its rules.  See In re Hicks.  Can the USPTO apply Selling to this set of facts?

I’d say no.  Unfortunately, Hicks was an agreed case (because the client wanted to avoid fighting — more on that below), but the OED order reads as if fact-findings made under Rule 37 and statements made by the Federal Circuit about his brief being misleading were sufficient.

First, there was no notice (I’d say) that Hicks had notice that his conduct could subject him to anything except the sanctions specifically authorized by Rule 37 for a discovery violation.  Further but in this regard, even if he was on notice that he might be disciplined, a lawyer representing a client before a tribunal (in my hypo, the court hearing the car wreck case) is, ordinarily, required to follow only the tribunal’s ethical rules. So, Hicks had notice only that he was subject to discipline for violating whatever rules that federal court had chosen.  Consequently, for due process to be met, the OED would have to show that Hicks had violated a rule applicable in federal court (probably the forum state’s rules).  The agreed order refers only to the USPTO Rules.

Second, so far as I’m aware a lawyer faced with a Rule 37 motion can’t take the deposition of opposing counsel or other witnesses, or cross-examine anyone.  There’s usually no live hearing on a Rule 37 motion — maybe oral argument.

Third, the premise of Selling and the USPTO regulations is that a proceeding occurred where the lawyer knew that discipline was a potential remedy.  That’s not often the case in Rule 37 motions.

So, just something to chew on.

Friday, speaking in San Antonio on a generalized ethics symposium, but I’m speaking about prosecution bars and the role that ethics rules should play in informing their scope. I’m betting a dollar no one will have a clue what I’m talking about.

Patent Reform 2014: Via Executive Action

Patent, , ,

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.

The Value of Open Data for Patent Policy

Patent, , ,

Guest Post by Christopher A. Cotropia, Professor of Law and Austin Owen Research Fellow, University of Richmond School of Law; Jay P. Kesan, Professor and H. Ross & Helen Workman Research Scholar, University of Illinois College of Law; and David L. Schwartz, Associate Professor and co-Director of the Center for Empirical Studies of Intellectual Property at Chicago-Kent College of Law

Harlan Krumholz, one of the nation’s leading medical researchers, recently wrote an important New York Times Op-Ed piece called Give the Data to the People. Dr. Krumholz praised Johnson & Johnson for making all of its clinical trial data available to scientists around the world. This included not only the conclusions in published articles, but also unpublished raw data. Companies are often reluctant to share raw data because their competitors may benefit. In the medical field, there are also patient privacy concerns. But releasing the raw data permits other researchers to learn from and build upon existing data. It also offers other researchers the ability to replicate and verify the findings of important medical studies. Dr. Krumholz concludes: “For the good of society, this is a breakthrough that should be replicated throughout the research world.”

We believe that Dr. Kumholz’s call for more publicly available data is applicable to empirical legal studies. It is especially critical, in our view, to the study of patent assertion entities (“PAEs,” which some refer to as patent trolls). There is an important public policy debate underway about the role of PAEs within patent law. There have been reports in the press about PAEs – including a high profile report by the President’s Council of Economic Advisors
– that relied upon confidential data. In his State of the Union address, President Obama called on Congress to enact patent reform legislation. The main basis for the reform is alleged abuses by “patent trolls.” Unfortunately, much of the raw data about patent litigation is not publicly available.

As academic researchers, we are interested in data about PAEs. We have previously studied and written an article about patent infringement lawsuits filed in 2010 and 2012. Because of the importance of the debate about PAEs, we released the raw data from our study to the public (here) to permit others to evaluate and study. Others have downloaded and commented on our data to us, and we have gone back and verified particular classifications in some instances. We believe more publicly available data is necessary.

Why is more information about PAE litigation not public? After all, the underlying data relates to litigation in the federal courts, and thus does not implicate privacy concerns like in the medical context. However, most of the raw data has been gathered and coded by private companies. For-profit businesses legitimately desire to use the information within their business and to prevent competitors and others from using commercially valuable information. That said, we believe corporate owners should release as much of the raw data (not merely descriptive statistics) as they can. To the extent that the raw data is not released or shared, society should be extremely cautious before relying upon it to make important public policy decisions.

Perhaps more importantly, we call upon academic researchers to gather and release more data. The data should be gathered and released in a form most useful to others. For instance, there is a debate about the definition of a PAE. Some believe that it excludes original owners – for instance, universities and individual inventors – while others believe PAEs include any non-operating company. Ideally, the raw data should be coded and released on a granular level. That way, future researchers can analyze the data relying upon different definitions, rather than only the definition used by the original researcher.

In sum, we ask that other researchers release more raw data on PAEs, which will permit both robustness checks on the results, as well as future empirical research on the topic. The time for more transparency has come.

Patent,

The White House has pre-announced that it will be making a major announcement on “strengthening the IP system” on February 20, 2014. Speculating, the topic will likely focus on either executive actions (through the PTO) for accomplishing patent reform or perhaps announcement of a USPTO director.

OED’s jurisdictional reach: 1985 versus 2014

Ethics,

Back in 1985, when the PTO was for the first time going to adopt ethics rules specific to prosecution, a lot of people wrote comments concerned that the PTO was going to try to regulate practice beyond that before the Office.  In response, the PTO did several things, all of which made it clear that it was not seeking to regulate practice not before the Office and to eliminate any doubt to the contrary.

First, it adopted 37 CFR 10.1.  In part, that provision states:  “This part governs solely the practice of patent, trademark, and other law before the Patent and Trademark Office.”

Second, in response to concerns that it was trying to regulate conduct not before the Office it said (several times, but here are two):

  • “The PTO’s intent to regulate only conduct related or relevant to practice before the PTO.”
  • “The preamble of § 10.1 indicates that Subpart 10 governs solely the practice of patent, trademark, and other law before the PTO.”

Third, in response to (many, many) comments saying “you should put ‘with respect to practice before the Office’ in specific rules,” that the PTO didn’t need to do so in light of its addition of 10.1.

So, it was clear that the PTO did not intend to regulate, and was not intending to regulate, conduct not before the Office.  The PTO made that abundantly clear (I could put up a string cite of similar quotes from the notice & comment to the 1985 rules’ adoption.)

In recent speeches by OED Director Covey, he took this position:  “Practitioners are subject to discipline for not complying with USPTO regulations, regardless of whether their conduct was related to practice before the Office.”  (Copies of these slides are here.)

I know that the OED has taken an extremely broad view of its jurisdiction. The slides themselves point to some cases. (Note:  I’m not talking about reciprocal discipline — e.g., Texas disbars me; the PTO can, too.  I’m talking about a practitioner who does something in federal court, say, and he gets sanctioned; the PTO can discipline that lawyer for that.  This has zero to do with reciprocal discipline and the protections afforded by states in disciplinary proceedings.)

Someone help me reconcile these two positions.  No statute changed between 1985 and 2014, so you don’t get an easy answer.