Last year the Board of Patent Appeals and Interferences decided over 7,000 ex parte cases. In about half of those decisions, the examiner rejections were entirely affirmed. After losing at the Board, an applicant has two primary avenues for challenging the Board’s decision: (1) Appeal to the Court of Appeals for the Federal Circuit under 35 U.S.C. § 141; or (2) File a civil action in district court under 35 U.S.C. § 145.
By the time that the BPAI appeal is complete, the average applicant will have spent over $25,000 on the application and prosecution process. That substantial figure is an indicator that the potential patent right is probably seen as valuable. It turns out, however, that that well under 1% of applicants who have a right to further action actually exert their right to appeal or to a civil action.
There are several likely reasons why the rate is so low:
BPAI Rehearing: The first reason for low appeals is likely that the BPAI has been fairly good at granting rehearing requests when there is a clear and easily identifiable mistake in their opinion.
Low Likelihood of Success: Under Zurko, the Federal Circuit is required to give deference to the USPTO’s findings of facts and only overturn those findings when “unsupported by substantial evidence.” This standard is difficult to overcome. In the district court, new evidence is reviewed de novo.
Money & Expertise: Both appeals to the Federal Circuit and civil actions in the district court can be quite expensive relative to ordinary prosecution costs. In addition, because most patent prosecutors have only limited federal court experience, a litigation or federal circuit specialist would likely need to be brought onboard the team.
Alternative Approach: The courts are typically asked to answer a yes/no question on claim validity. However, patent applicants recognize that a patent with slightly narrower scope (through amendment) may be almost just as valuable as the original broad claims. With that in mind, many applicants return to the original examiner with proposed claim amendments that lead quickly to allowance.
What other reasons explain the low rate of using the courts to challenge USPTO decisions.
Many patent applicants have expressed some concern regarding the potential federal government shutdown after Friday, April 8th. The basic problem is that a federal agency is not supposed to spend any money without congressional authority to spend the money. This limit comes directly from the US Constitution, which says “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Article I, Section 9. That said, it is generally thought that essential federal employees can continue to work. For the most part, however, USPTO employees would not qualify as “essential.”
Although the USPTO is fully user-fee funded, the agency still sends its revenue the Treasury and then draws money from the Treasury when needed. Thus, the USPTO will clearly be affected by the shutdown.
I contacted USPTO leaders regarding their contingency plain. The Office has crafted a short-term solution based on the fact that a portion of their monies-in-hand are not linked to the current fiscal year budget. Therefore, the lack of appropriations for the rest of FY2011 does not limit the USPTO’s right and ability to spend that money. The Office’s projection is that this funding source can take the agency through six business days. If the shutdown occurs at COB Friday, then the office would have funds through Monday, April 18. After that, the Office intends to continue to accept new application electronically.
The Office does not intend to offer any grace period for applicant deadlines missed during the shutdown.
At 10 am this morning, the Court of Appeals for the Federal Circuit will hear oral arguments in high profile gene-patent case of Association for Molecular Pathology, et al. v. USPTO. In a sweeping opinion, Southern District of New York Judge Robert Sweet held the Myriad Genetics gene patent claims invalid as merely claiming products of nature.
The patents cover the BRCA1 and BRCA2 gene mutations that, when present, indicate a high likelihood of developing breast cancer. In addition to claims to the isolated genes themselves, challenged claims are also directed toward methods of isolating the genes in order to test for whether the mutation is present. These patents have led to more than a billion dollars in revenue for Myriad Genetics and the University of Utah.
The court rejected the patentee’s claims to have invented the isolated BRCA1/2 gene as a product of nature — holding that the “isolated” form does not alter the fundamental quality of DNA as it exists in the body nor the information that it encodes. In addition, the court found the methods of comparison invalid under the Federal Circuit’s now defunct machine or transformation test.
In an e-mail, Hal Wegner correctly suggested that the key threshold question for this case will be whether Federal Circuit will reject the case on jurisdictional grounds. The ragtag group of declaratory judgment plaintiffs is led by the ACLU and the Public Patent Foundation.
More than two-dozen friend-of-the-court briefs were filed. Most notably, the U.S. Government in its brief argues that isolated but otherwise unmodified genomic DNA is not patentable.
Survey and Disclaimer: I thought that I had solved this, but the survey software that I used for last week's survey failed by allowing individuals to post multiple times and without recording their IP addresses. However, based on the diversity of responses, there are reason to believe that the survey results were not overwhelmed by multiple-voting. In addition, the divide between those for and against a first-to-file system mimics prior survey results. The survey was open for about 20 hours and received 500 during that time.
Results: The first chart below shows the almost even-split between those who support a first-to-file regime as compared with those who do not. Interestingly, most respondents had a strong opinion – with 70% expressing either strongly negative (voting "1") or strongly positive (voting "5"). Self identified patent prosecutors tended to show less support to first-to-file than self-identified patent examiners and patent litigators. Regardless of the level of support for the first-to-file regime, the vast majority of responses indicated support for retaining a filing grace period for an inventor's own pre-filing activities.
Most responses also indicated support for allowing third parties to submit prior art and commentary during prosecution and to limit false marking litigation. There was little support for special rules that would govern the litigation business method patents (such as limiting venue and providing for interlocutory appeals).
Perhaps most interesting, very few of the responses supported the use of "secret" prior art in analyzing the question of obviousness. As I have previously discussed, most countries around the world only use publicly available prior art to judge the question of obviousness or inventive step. Rather, around the world, prior art that was not publicly available at the time of filing is used only for novelty and priority issues. In the US, secret prior art is regularly used for obviousness analysis. The primary source of the secret prior art is currently defined under Section 102(e) of the Patent Act and covers patent applications that were pending, but not yet publicly available. Any true effort at international harmonization would deal with this issue as well. Several responses explicitly indicated that, if adopted, the US first-to-file regime to attempt to be uniform with Europe. "The hybrid approach will only complicate and cost more in lawyer fees"; "The SECRET PRIOR ART would be a total disaster !!! and make the US one of the least patent friendly jurisdictions on the planet."
Few responses offered support for giving the USPTO substantive rulemaking authority. However, there was strong support for greater fee setting authority. Examiners were most in-favor of heightened USPTO authority while patent prosecutors were the most wary.
Finally, as many know, the current reexamination system has been criticized because it only allows reexaminations based on patents and published documents. Responses showed a lukewarm support for broad post-grant review system that could reach "any patentability question."
Representatives Lamar Smith, Bob Goodlatte, and Darrell Issa have introduced their version of the America Invents Act (AIA) to the House of Representatives. H.R. 1249. [AIA.pdf] The AIA closely tracks the Senate’s bill on comprehensive patent reform (S. 23) that was passed in the Senate earlier this year on a 95-5 vote. Parallel changes include a switch to a first-to-file system (with the retention of a limited one-year grace period); establishment of a modified inter partes reexamination and post grant opposition system; providing USPTO with fee-setting authority; neutering of the false marking provision; allowing pre-issuance submissions by third-parties; creating a supplemental examination system to correct inequitable conduct; and elimination of best mode failure as an invalidity defense.
The statute continues to include a substantial error in its codification of the grace period. Namely, the grace period only applies to “disclosures” and not to other commercialization activities such as sales and offers for sale. In addition, it is unclear whether the grace period would apply situations such as the original public use case of Pennock v. Dialogue, 27 U.S. 1, 23, 7 L. Ed. 327 (1829). In that case, the Supreme Court ruled that the inventor could not obtain a patent on its hose-making process because the inventor had sold the product (hoses) for several years before filing for patent protection.
Some key differences from the Senate version that will lead to substantial debate include:
Details of the Post Grant Opposition Provisions…
Prior User Rights: Whether “prior user rights” should be expanded to accompany the switch to a first-to-file regime. This issue arises when, for instance, a manufacturing company is using a particular process as a trade secret before another party invented and patented the process. Under our current first-to-invent regime if the prior-user was sued for infringement, the patent would likely be invalidated under Section 102(g). See Dunlop Holdings Ltd v. Ram Golf Corp., 524 F.2d 33 (7th Cir. 1975). The invention-date priority contests of Section 102(g) are eliminated in a first-to-file system, raising the question of whether a non-patent-filing manufacturer should be given some prior user rights that would continue to allow these trade-secret uses. Currently, the patent statute also has a prior user right codified in Section 273. That section, however, is limited purely to business method patents. The proposed legislation would expand Section 273 to cover all patents.
Special Business Method Proceedings, venue restrictions, interlocutory appeals, and attorney fee shifting.
Automatic stay of litigation for inter partes reviews.
Elimination of Tax Strategy patents (by considering the subject matter within the prior art).
Codification of Knorr Bremse (failure to present advice of counsel cannot be used as evidence of willful infringement).
In re Verizon Business Network Services Inc. (Fed. Cir. 2011) Download 10-m956 order Panel: Lourie, Gajarsa, and Linn (author)
The Federal Circuit continues to grant mandamus petitions relating to venue transfer where the basis for denying the request is tenuous. In Verizon, the defendants requested a transfer from the Eastern District of Texas to the Northern District of Texas, Dallas Division. Although several party witnesses resided within 100 miles of Dallas, and no witness resided within 100 miles of Marshall, the district court declined to transfer venue on the basis that several years earlier the court had handled a lawsuit involving the same patent and had construed 25 of the patent's terms.
Given that it was clear that trial in Dallas would be more convenient for the witnesses, the crux of the writ turned on whether the district court's familiarity with the patent was a plausible basis for denying transfer. The CAFC concluded it was not. Distinguishing its recent ruling in In Re Vistaprint Ltd., 628 F.3d 1342 (Fed. Cir. 2010), the panel held that "[t]o interpret § 1404(a) to hold that any prior suit involving the same patent can override a compelling showing of transfer would be inconsistent with the policies underlying § 1404(a)." Slip Op. at 6. The court continued:
In Vistaprint, we denied mandamus to overturn a denial of transfer and determined that the district court properly considered both its previous experience construing claims of the patent at issue and co-pending litigation before the district court involving the same patent and underlying technology. In this case, there is no assertion that there is an additional pending lawsuit in the Eastern District involving the patent and technology. Absent that, we deem the Eastern District's previous claim construction in a case that settled more than five years before the filing of this lawsuit to be too tenuous a reason to support denial of transfer.
A patent's twenty year term is cut short when a patent holder fails to pay regular maintenance fees. In the US, maintenance fees are due 3.5, 7.5, and 11.5 years after issuance. The USPTO provides an additional 6-month grace period before the patent is considered abandoned. The current fee schedule requires a payment of $980 for the first maintenance fee; $2480 for the second fee; and $4,110 for the third fee. Qualified "small entities" receive a 50% reduction in fees. Small entities typically include universities, non-profit organization, and businesses with fewer than 500 employees.
Although the USPTO does not provide any ongoing services to patent holders, the maintenance fee revenue is used to fund ongoing patent office expenses (such as the examination of new patents). In fact, more than one-third of the USPTO's two-billion-dollar annual revenue comes from maintenance fee payments. For manufacturers and non-patent-holders, the maintenance fees are useful because they encourage patent holders to drop their patent rights.
Using USPTO records of maintenance fee payments, I looked at how fee payments have varied over time. The graphs below show the percentage of patents abandoned four years after issuance. These are patents that issued and then the patentee failed to pay the first maintenance fee due. In order to better visualize the trends, I used a 12-month moving average in the charts — thus, the data point for January 2011 represents abandonments for February 2010 through January 2010. The second chart divides the results between small and large entities.
Two initial thoughts on these results:
Over the past two years, the abandonment rate has been rising. This rise is more notable for patents held by large entities. For large entities, the abandonment rate is the highest in the past decade.
Even though they have much lower maintenance fee charges, small entities are much more likely to abandon their patent applications.
Over 1,000 false marking lawsuits have been filed in the past two years. The flash of opportunism was triggered by recent court rulings that the statutory-authorized $500 fine per offence could be calculated on a per-article basis. Thus, the false-marking of one million paper cups could result in a maximum $500 million fine. The false marking statute – 35 USC 292 – sets a maximum fine but does not set a minimum. Thus, it is also possible for a court to set the fine at well under a penny per offense.
Although most of the lawsuits are still pending, about 180 settlements have been reached. Justin Gray of GrayOnClaims and the Foley firm has been tracking these settlements through the use of FOIA requests and has made the settlement information public. Although patent settlements are not usually publicly available, false marking settlements become public because of the punitive fine received by the US government.
Of the settlements reported thus far, the average value is $53,404 and median is $40,000. This takes the total settlement value to just under $10 million. The lowest settlement has been $500 and the largest $350,000. Of course, it may well be that the largest potential settlements are still pending.
As the chart shows below, settlements have been on the rise over the past few months.
A few plaintiffs dominate the settlements. The top-five settlement plaintiffs are associated with over half of all settlements and settlement value. Patent Group LLC has settled the most cases thus far (37) while Promote Innovation LLC has the most revenue ($899,000). Patent Group LLC self identifies only as a Texas limited liability corporation represented by Ken Good of Tyler Texas. Promote Innovation LLC is also a Texas LLC represented by the Antonelli firm of Houston (former Weil Gotshal attorneys).
I pulled up the docket for Promote Innovation’s case against Roche. The complaint alleges that Roche falsely has continued to mark its ACCU-CHEK diabetes monitoring kits as covered by patents that were held unenforceable due to inequitable conduct back in 2005. See Roche Diagnostics Corp. v. Apex Biotechnology Corp, 374 F. Supp. 2d 673 (S.D.Ind 2005) (holding the patent and is progeny unenforceable).
Earlier today, I testified in Congress before the House of Representatives Judiciary Committee’s Subcommittee on Intellectual Property, Competition, and the Internet. [Link] The IP subcommittee will have jurisdiction over any patent reform measures introduced to the House. The other two witnesses were Professor Dan Burk (UC Irvine) and Andrew Pincus (Mayer Brown, representing BSA). The focus of today’s hearing was on the changes that have occurred in patent law since the patent reform process began in 2004. I.e., what is left for Congress to reform? Our written and recorded testimony is available online here: http://judiciary.house.gov/hearings/hear_03102011_2.html.
Questioning was extensive and included questions from subcommittee Chairman Goodlatte (R-VA), Vice-Chairman Watt (D-NC), and Representatives Conyers (D-Mich), Nadler (D-NY), Chu (D-CA), Reed (R-NY), and Adams (R-FL). Representatives Coble (R-NC) and Quayle were also in attendance.
My written Testimony Follows:
Committee on the Judiciary< ?xml:namespace prefix ="" o />
United States House of Representatives
Subcommittee on Intellectual Property, Competition and the Internet
Hearing
“Review of Recent Judicial Decisions on Patent Law”
We are likely nearing a turning point in a decade-long process of patent reform.Although there is still clearly a strong demand for legislative measures, much has changed since the landmark FTC and NAS point-by-point criticisms of the patent law system were released in 2003 and 2004 respectively.[1] Likewise, much has changed in the six years since the Patent Reform Act of 2005 was introduced in the House of Representatives.[2]Perhaps in response to these external pressures, the Federal Courts have taken a more active role in shaping patent policy from the bench and have particularly addressed many of the concerns raised by the various patent reform initiatives.
In most areas of law, court-developed doctrines mature quite slowly.Over the past decade, however, patent law has been a dramatic counter-example.The courts have substantially altered many longstanding patent doctrines in the course of a few short years.[3]Several factors combine to explain this phenomenon.First, unlike most other federal legal questions appealed to regional Circuit Courts of Appeal, virtually all patent law related appeals from across the country are heard by the Court of Appeals for the Federal Circuit (the “Federal Circuit”).The national reach of the Federal Circuit means that a ruling by the court has an automatic nationwide impact in much the same way that decisions by the United States Supreme Court have a nationwide impact.However, unlike the Supreme Court, the Federal Circuit hears hundreds of patent cases each year.Over the past ten years, the funneling of patent appeals to the Federal Circuit has resulted in the court hearing over four thousand patent infringement appeals in addition to its review of patent decisions from the United States Patent and Trademark Office (the “Patent Office”) and the International Trade Commission.[4]The large number of cases provides the court with the opportunity to rapidly shift the law, even when each case presents only an incremental change. In addition to the means to effect change, it is apparent that both the Federal Circuit and the Supreme Court have taken an interest in shaping patent law policy.[5]Finally, unlike many Federal statutes, the Patent Act as codified in Title 35 of the United States Code is a relatively sparse statute that leaves tremendous leeway for interpretation.
Over the past six years, the Supreme Court granted certiorari and issued a number of important patent decisions that:
·Make it easier to invalidate (or reject) a patent on obviousness grounds, KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007) (eliminating technical hurdles for proving an invention obvious and instead applying a “common sense” analysis for assessing patentability);
·Make it more difficult for a patent holding company to obtain injunctive relief to stop ongoing infringement, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (holding that even an adjudged infringer should not be automatically enjoined from continuing to infringe; rather an injunction should only issue after consideration of the traditional four-factor test for equitable injunctive relief);
·Make it easier for a manufacturer to obtain a declaratory judgment of non-infringement, MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) (holding that declaratory judgment (“DJ”) jurisdiction may exist even if the patent holder could not have sued the DJ plaintiff for infringement; apprehension that patentee will sue for infringement is not a necessary element for Article III jurisdiction);
·Solidify our understanding of the scope of patentable subject matter available for business method patents, Bilski v. Kappos, 130 S. Ct. 3218 (2010) (invalidating Bilski’s claimed invention – a method of hedging against the occurrence of bad weather – as an unpatentable abstract idea);
·Limit the doctrine of export infringement under 35 U.S.C. § 271(f), Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007) (holding that Microsoft could not be held liable for exporting software code because the exported source code does not qualify as a “component” under the statute); and
·Provide roadmaps for stronger patent licensing agreements, see Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617 (2008) (patent “exhausted” under first sale doctrine because patentee did not restrict licensee’s sales to third party purchasers) and Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006) (holding that in antitrust tying cases, courts should not presume that a patent confers market power).
During this time, the Federal Circuit has also actively addressed patent reform issues with decisions that:
·Attempt to implement venue reform in a way that limits unreasonable forum shopping, In re TS Tech United States Corp., 551 F.3d 1315 (Fed. Cir. 2009) (on writ of mandamus, ordering case transferred out of venue that had no meaningful ties to the patent infringement case);[6]
·Rationalize patent damage awards, Uniloc USA, Inc. v. Microsoft Corp., ___ F.3d ___, 2011 U.S. App. LEXIS 11 (Fed. Cir. 2011) (holding that the 25% Rule for calculating patent damages is “fundamentally flawed” and that total product revenue cannot be considered in the reasonable royalty analysis unless the Entire Market Value Rule applies.) and Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009) (requiring a proof that purported “comparable” licenses used for calculating a royalty rate are, in fact, comparable); Wordtech Systems, Inc. v. Integrated Networks Solutions, Inc., 609 F.3d 1308 (Fed. Cir. 2010).
·Limit enhanced damages, In re Seagate, 497 F. 3d 1360 (Fed. Cir. 2007) (limiting the potential for treble damages to cases where the adjudged infringer’s actions were at least “objectively reckless”) (see Chart 1);
·Expand the false marking doctrine, Forest Group Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009);
·Limit inequitable conduct pleadings, Exergen Corporation v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009) (requiring that inequitable conduct pleadings include “specific who, what, when, where, and how of [any] material misrepresentation or omission”); and
As we sit here today, the courts also have a number of important cases pending resolution. Among others, these include:
·A challenge to the presumption of validity associated with issued patents, Microsoft Corp. v. I4I Ltd. P’ship, 131 S. Ct. 647 (2010) (certiorari granted on the issue of whether the presumption of validity associated with an issued patent must always be overcome with clear and convincing evidence);
·A challenge to the patentability of genetic material, See Ass’n for Molecular Pathology v. United States PTO, 2010 U.S. Dist. LEXIS 35418 (S.D.N.Y. 2010) (holding BRCA gene patents invalid for being directed to a law of nature);
·A Constitutional challenge to the False Marking provisions of the Patent Act, Unique Prod. Solutions, Ltd. v. Hy-Grade Valve, Inc., 2011 U.S. Dist. LEXIS 18237 (N.D. Ohio 2011) (holding the False Marking statute unconstitutional) and United States ex rel. FLFMC, LLC v. Wham-O, Inc., Fed. Cir. App. No. 2011-1067 (pending appeal challenging Constitutionality of the statute);[8]
·A question regarding the mens rea requirement for inducing infringement under 35 U.S.C. § 271(b), Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 458 (2010) (grant of certiorari);
·A major challenge to the implementation of the judge made law of inequitable conduct, TheraSense, Inc. v. Becton, Dickinson & Co., 374 Fed. Appx. 35 (Fed. Cir. April 26, 2010) (en banc order requesting briefing); and
·A challenge to patent ownership rights under the Bayh-Dole Act, Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S. Ct. 502 (2010) (grant of certiorari).
For better or worse, the courts have substantially shifted the playing field over the past six years. And, the cases currently pending and in the pipeline appear poised to continue this process.Of course, the courts have limited power and cannot make statutory amendments or offer funding to the Patent Office. It is safe to say, however, that the courts have addressed (or are addressing) virtually all of the legitimately raised patent reform issues that fall squarely within their purview. Within this dynamic, an important ongoing role of Congress is at least to ensure that the courts are making the right policy choices.
Patent Office Backlog: A key issue of patent law policy that has not been adequately addressed in the past six years is the growing backlog of patent applications pending at the Patent Office.Although the current Patent Office management team is quite focused on reducing the backlog, their efforts have not been overwhelmingly successful to-date.As seen in Chart 2 (below), the overall backlog of patent applications pending at the USPTO has increased more than 30% since 2005.The forced delay is troubling for patent applicants because the exclusive patent right is only enforceable once the patent issues, and typically only against post-issuance infringement.The multi-year prosecution delay is also troubling for potential competitors and customers because the patent right may eventually spring-forth to re-capture exclusive rights that had been in public use for years.
Even more dramatic, is the twenty seven fold (~2700%) increase in the backlog of cases awaiting decision at the Board of Patent Appeals and Interferences (BPAI). (Chart 3).The long and growing backlog of appeals more than doubles the expected duration of the patent prosecution process for the almost 50% of patent applicants that achieve at least a partial victory on appeal.
These backlogs likely cannot be directly corrected by the courts. Instead, every effort must be made to ensure that the Patent Office is enabled and encouraged to right its own ship.In the short term, the Patent Office will need to hire more examiners; re-work its failing information technology system; and apply effective negotiation theories to the examination process.In the longer term, world patent offices must work-share when examining duplicate patent applications that have been filed in multiple countries.[9]In addition, there are some relatively easy steps that can be taken to help ensure that patent applications are filed in a way that make them easier to examine.This may include (1) requiring applicants to better delineate their invention and its purposes and (2) more rigorously enforcing the requirement that claims be clearly drafted in a way that relates to the invention as disclosed.
Obviousness and the Backlog: The bulk of time spent in the patent examination process and in appeals to the BPAI revolves around the issue of obviousness.[10]In other words, the backlogs can be largely attributed to time spent arguing the difficult issue of obviousness. Unfortunately, nothing in the proposed legislation does anything directly to alleviate this burden.Although the process of examining patents for obviousness may seem to be one best left to the administrative agency, the Patent Office is bound to follow the examination processes laid out by the courts in KSR v. Teleflex[11] and Graham v. John Deere Co.[12]Because so much time and energy is spent on this issue during the examination process, it may be one where increased substantive rulemaking authority would allow the Patent Office to create a more manageable approach to the statutory question.
Foreign Inventor Influence on the US Patent System: Through a number of reciprocal international agreements such as Paris Convention, the US has promised citizens of other countries access to the US patent system.[13]Under these agreements, an innovative Japanese company seeking exclusive rights in the US market could obtain US patent protection and enforce those rights in US courts against US competitors.Despite this offer of rights, the bulk of issued US patent have always been based on US originated inventions.This practical statistic meant that, historically, US patent reform primarily impacted US companies and US inventors.Over the past six years, the statistic changed, and for the first time in history, the majority of US patents are now being issued on foreign-originated inventions. (Chart 4).
For some, this decline in US-centric dominance of the US patent system will serve as a sign that US innovation could use additional encouragement. In addition, however, the decline may signal a need to change our outlook on the role of patent rights in US policy. Certainly, the offer of patent rights encourages innovation and disclosure of new inventions.However, this incentive is felt around the world – encouraging companies in Australia or Germany to innovate in their home countries in order to capture an exclusive slice of the US market.[14]In this framework, patent reform is much more than a domestic policy issue. Rather, it becomes an issue of rooted in international trade and international relations.This is not a new concept, but one that should be kept in mind as the legislation moves forward.
Rise in Patent Reexamination Filings: The US has two primary post-grant opposition processes already in place: (1) inter partes reexamination and (2) third-party requested (or prompted) ex parte reexamination.Prior to 2005, it appeared that many potential defendants and accused infringers were reluctant to use the post-grant opposition processes.That reluctance has largely evaporated – in part because of the USPTO’s successful implementation of a Central Reexamination Unit (CRU) composed of elite and highly trained patent examiners in sufficient quantity to have a high response rate.[15]In addition, patent law professionals have seen that reexamination can be an effective and relatively inexpensive alternative to litigation.At this point, high-dollar patent infringement lawsuits are usually associated with a parallel reexamination of the patents in-suit – so long as the defendant has a credible obviousness argument based on published materials.Table 1, shows the rise in popularity of reexaminations over the past few years.
Percent Change in Number of Reexamination Requests
Inter Partes Reexamination Requests
53
903
1704%
Ex Parte Reexamination Requests
1,719
3,272
190%
A notable limitation of the current reexamination system is that reexaminations are only allowed to consider certain invalidity arguments (obviousness and anticipation) and apply a limited set of prior art (patents and printed publications).Many countries offer broader latitude in their opposition proceedings, although some of those countries completely divide duties between the administrative agency (handling invalidity issues) and the court (handling infringement).[17]The dramatic shift in usage of available post grant options gives me pause to consider whether the proposed reforms in 2005 offered a permanent solution to what was merely a temporary problem.
A more straightforward approach to issues now before the Committee is to identify elements of prior patent reform measures that have not been addressed by the courts. These include:
(1)Easing the USPTO’s ability to set fees for its services and to retain all fees collected;
(2)Moving from a “first-to-invent” system to a “first-to-file” system;
(3)Expanding prior-user rights;
(4)Requiring that all patent applications be published by the USPTO;
(5)Allowing pre-issuance protests (or prior art submissions) by third parties;
(6)Expanding the scope of post-grant reexamination or adding an additional post-grant opposition proceedings;
(7)Eliminating the “best mode” requirement; and
(8)Easing the rules for assignee submission of patent filings without the inventor’s express permission.
Each of these reform measures have their own potential benefits and detriments that vary according to the implementation approach chosen.
Thank you for this opportunity to present my remarks.
Dennis Crouch
March 10, 2011
[1] Federal Trade Commission, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, A Report by the Federal Trade Commission, October 2003; Nat’l Res. Council of the Nat’l Acads., A Patent System for the 21st Century (Stephen A. Merrill et al. eds., National Academies Press).
[3] See William C. Rooklidge & Alyson G. Barker, Reform of a Fast-Moving Target: The Development of Patent Law Since fee 2004 National Academies Report, 91 J. Pat. & Trademark Off. Soc’y 153 (2009).
[4] Federal Circuit Statistics, Filings of Patent Infringement Appeals from the U.S. District Courts at http://www.cafc.uscourts.gov.
[5] Polk Wagner & Lee Petherbridge, Is the Federal Circuit Succeeding? An Empirical Assessment of Judicial Performance, 152 U. Pa. L. Rev. 1105 (2004) (“since its inception, the [Federal Circuit]—with some assistance from the Supreme Court—has moved aggressively in support of its widely perceived mandate”); Paul R. Michel, Assuring Consistency and Uniformity of Precedent and Legal Doctrine in the Areas of Subject Matter Jurisdiction Entrusted Exclusively to the U.S. Courts of Appeals for the Federal Circuit: A View from the Top, 58 AM. U. L. REV. 699, 702 (2009); Craig Allen Nard & John F. Duffy, Rethinking Patent Law’s Uniformity Principle, 101 Nw. U. L. Rev. 1619 (2007); Dan L. Burk & Mark A. Lemley, The Patent Crisis and How the Courts Can Solve It (2009)
[6] The TS Tech decision appears to have had a major impact on patent venue jurisprudence. In the two years since the case was decided, its analysis has been followed by almost four dozen different courts.See, for example, Promote Innovation LLC v. Leviton Mfg. Co., 2011 U.S. Dist. LEXIS 16294 (E.D. Tex. Feb. 17, 2011) (granting accused infringer’s motion to transfer venue from the Eastern District of Texas to the Eastern District of New York).
[7] The Tafas decision was vacated pending rehearing en banc and eventually dropped after the USPTO retracted its planned implementation of rules that would limit both the number of claims that an applicant could file per patent application and the number of continuation applications an applicant could file based on a single invention disclosure. See also, Arti K. Rai, Growing Pains in the Administrative State: The Patent Office’s Troubled Quest for Managerial Control, 157 U. PA. L. REV. 2051 (2009).
[10] Dennis Crouch, Understanding the Role of the Board of Patent Appeals: Ex Parte Rejection Rates on Appeal, University of Missouri School of Law Legal Studies Research Paper No. 2009-16 (2009) at http://ssrn.com/abstract=1423922. (90% of BPAI appeals involve a question of obviousness).
[12] 383 U.S. 1 (1966) (setting out the process of the obviousness inquiry as used in both courts and the Patent Office).
[13]Paris Convention for the Protection of Industrial Property, art. 2.
[14] See Commonwealth Sci. & Indus. Research Organisation v. Buffalo Tech., 542 F.3d 1363 (Fed. Cir. 2008) (Australian government entity suing on its US software related patent in the Eastern District of Texas).
[15] Gregory Novak, Concurrent Reexaminations as a Strategic Patent Litigation Defense Tool, 1020 PLI/Pat 797 (2010) (“since the inception of the Central Reexamination Unit (CRU), reexamination proceedings are producing favorable results [for the third-party] in a more timely manner”).
[17] To my knowledge, no one has studied the potential impact of increasing the scope of US reexamination practice or adding a broader layer of post grant opposition.
NYTimes has published a front page article by Duffy Wilson titled “Patent Woes Threaten Drug Firms.” The article begins with a case study of Pfizer whose Lipitor money-stream ($10 billion-per-year) will be severely reduced when its patent expires. Of Course, Pfizer is not alone, the article cites ten blockbuster drugs with patents expiring in 2011 – those ten have a combined annual revenue of over $50 billion. The problem for big-pharma is that their years of record profits have not translated into a replacement line of blockbuster drugs and the drug companies have cut more than 100,000 jobs in the past two years.
Wilson writes “consumers should see a financial benefit as lower-cost generics replace the expensive elite drugs, but may suffer in the long term if companies reduce research and do not produce new drugs that meet the public’s needs.” Already, 75% of prescriptions are to generic drugs, and patented drug prices are under severe pressure from health insurers.
Of course, Pfizer is not an overly sympathetic entity. “In 2009, Pfizer paid the largest criminal fine in the nation’s history as part of a $2.3 billion settlement over marketing drugs for unapproved uses.”
By Oskar Liivak Assistant Professor, Cornell Law School
As Jason Rantanen’s post describes, Centocor claimed but failed to disclose any fully humanized antibodies. Abbott consistently pushed this argument and they won. It was the simplest and most direct way to dispose of the case. This approach necessarily left other important issues undecided, however. Both Eli Lilly and I separately filed amicus briefs in favor of Abbott and we both argued for a decidedly more aggressive, alternative argument for written description invalidity. As the Court in Centocor disposed of this case by simpler means, clear judicial resolution of our arguments will have to wait for another day.
This post highlights those remaining issues, why we should still care about them, and how they are tied to a much larger ongoing struggle in patent law – can a patent claim cover more than what was actually invented (i.e. conceived and disclosed) by the inventor? I think the answer is clear – it cannot – but not every patent attorney or CAFC judge agrees. I think this is perhaps the most important ongoing debate in patent law. § 112 as applied to antibodies is but one battlefront in this larger fight.
ABANDONING THE ANTIBODY EXCEPTION The arguments in both of our briefs would have resolved the case in favor of Abbott but would have also resolved a very problematic ambiguity relating to the written description for antibodies generally – the so-called ‘antibody exception.’ The PTO’s written description guidelines seem to suggest that disclosure of an antigen alone can provide § 112 support for any antibody that binds to that antigen. See U.S.P.T.O., Written Description Training Materials Revision 1 March 25, 2008 at 45-46. Cases like Noelle v. Lederman, 355 F.3d 1343 (Fed. Cir. 2004), have cited these guidelines but the guidelines have yet to be really at the center of a case – even here in Centocor the CAFC distinguishes them. The trouble is that those PTO guidelines are in tension if not complete conflict with written description as described in Ariad v. Eli Lilly, 598 F.3d 1336, 1354 (Fed. Cir. 2010) (en banc). With the rapid growth of and enormous revenues associated with antibody related therapies, patent law must clarify this issue.
The crux of the argument is simple. I believe that the disclosure requirements of § 112 limit claims to the subject matter actually invented by the inventor and disclosed by the specification. Ariad at 1351. If we consistently applied this rule for disclosure in light of today’s understanding of protein structure, disclosure of a well characterized antigen alone would not provide support for an antibody that binds to that antigen. And disclosure of one actual antibody provides § 112 support only for that antibody—not the entire genus of antibodies that binds to the antigen. This view is in direct conflict with the antibody exception. Here is the argument.
Ariad reaffirmed that § 112 “requires … that the specification must … show that the inventor actually invented the invention claimed.” Id. As best I can surmise, to invent something a person must conceive it. Conception is how patent law decides when something is invented; conception is how patent law decides who invents something; and it should be the way patent law determines what the something is that was invented. From the perspective of conception (namely a “definite and permanent idea of the complete and operative invention, as it is hereafter to be applied in practice”) the antibody exception and the broad claims it would allow start to look totally absurd.
The problem is, as put by Eli Lilly in their amicus brief, “[e]ven with today's most advanced scientific tools, it is impossible to predict the actual structure … of a not-yet-known antibody based on the structure of an antigen or even the structure of another antibody that binds that same antigen.” Though my own scientific background was not in immunology (it was in the more general field of three dimensional protein structure determination) I agree with Eli Lilly. Even given the three dimensional structure of an antigen, no person today can conceive (without actually going into the lab and making one) an antibody that will bind to that antigen. Furthermore, even once we make one antibody that does bind to an antigen, that alone does not allow for the conception of any other antibodies (much less every antibody) that will also bind to that antigen.
As the Federal Circuit determined, Centocor’s “application only provides amino acid sequence information … for a single mouse variable region.” Slip Op. at 14. That meager though still useful (seehttp://en.wikipedia.org/wiki/Infliximab) disclosure pales in comparison to the broad genus of variable regions that were claimed. Asserted claims 2 and 3 covered any antibody with a human constant region and a human variable region that binds and neutralizes TNFα in a similar location as the deposited antibody. There is nothing in the specification that evidences conception of any other variable regions beyond the one deposited variable region. That disparity between the solutions disclosed versus the solutions claimed is why I viewed this case as being nearly identical to the over-reaching patentees in The Incandescent Lamp case, 159 U.S. 465 (1895). Where a solution to a technical problem is found through trial and error (even sophisticated, elegant trial and error like for antibodies) without further discovering how to extrapolate to other solutions from the one found solution, then claims cannot exceed that one particular solution. See id. at 472. As a result I argued that the asserted claims are invalid under § 112 because they claim variable regions (whether humanized or not) that Centocor certainly did not invent or disclose.
From a policy perspective some might worry that this will provide incredibly narrow and worthless claims in a rapidly growing and important field. I am not so sure. It will certainly allow others to produce their own antibodies to the same antigen as the other antibodies will likely differ in actual variable region structure. The narrow claims still prevent outright piracy and copying of your particular antibody but they also leave room for competition. With tens of thousands of dollars a year for treatment for these drugs, a little fair competition doesn’t sound bad. Lastly, the big question is the ability for generic biologic producers to piggy back on the testing data for the initial biologic. I don’t see a problem from narrow claim scope in this regard either. Though it depends on the details of the generic approval process for biologics, roughly speaking I wouldn’t want safety and efficacy data from one antibody to be used to confirm the safety and efficacy of structurally different antibodies even if they bind to the same antigen.
When § 112 and its usage of ‘the invention’ is rightfully tied to the subject matter actually invented (i.e. conceived and disclosed), then the shortcomings of the antibody exception become quite apparent. In fact, when viewed in that light (which I think is the only way to interpret the statute) I cannot fathom a scenario by which the PTO could have possibly drafted the antibody related written description guidelines that have led to the antibody exception.
THE INVENTION AS THE EMBODIMENTS CONCEIVED AND DISCLOSED But therein lies the problem: not everyone in patent law thinks about the statutory appearances of the invention in § 102, § 112, and more importantly § 271, as tied to the subject matter actually invented (i.e. conceived and disclosed). For some the invention is just a short-hand reference for whatever subject matter the applicant claims because “the claims … define the invention….” Innova/Pure Water, Inc. v. Safari Water Filtration Sys., Inc., 381 F.3d 1111, 1115 (Fed. Cir. 2004). The difference between these two views is critically important yet patent law has never confronted this confusion directly. In fact, ask yourself, how do you conceptually and practically define the ‘invention’ in 35 U.S.C.? I think some of our most pressing debates are fueled by talking past each other. We are often thinking differently about the invention without actually being aware of the disagreement.
The fight over the disclosure requirements evidenced in Ariad and Centocor is just one visible battle between these two world views. Another important flashpoint is claim interpretation. Just a month ago on Jan. 24 (as noted here on Patently-O) in IP Frontline, Hal Wegner described the ongoing problems with claim interpretation. Discussing Arlington Indus. v. Bridgeport Fittings he pointed to the “festering sore” in Federal Circuit jurisprudence over the proper conceptual relationship between the claims and the specification. He noted that “[u]ntil there is a final resolution of this debate there will never be clarity in claim construction at the Federal Circuit.” That festering sore is another important instance of this broader fight over the proper conceptual relationship between claims, the invention, and the specification. In a recent article, I further detail this controversy and its proper resolution. For those interested in that broader discussion see Oskar Liivak, Rescuing the Invention from the Cult of the Claim (http://ssrn.com/abstract=1769270).
I thank Kevin E. Collins and Jason Rantanen for very helpful and insightful comments.
In re Microsoft Corporation (Fed. Cir. Order 2011) Panel: Newman, Friedman, Laurie (per curium)
The Federal Circuit's decision in In re Microsoft, which granted Microsoft's request for a writ of mandamus ordering the Eastern District of Texas to transfer the case to Washington State, originally issued as a nonprecedential order in early November; the CAFC reissued it as precedential today. The order adds another piece to the now fairly substantial body of law surrounding review of denials of requests to transfer venue. Allvoice Develop-ments, a company operated from the United Kingdom, sued Microsoft in the Eastern District of Texas for infringing Patent No. 5,799,273. Microsoft, which is headquartered in the Western District of Washington (where a substantial portion of its employees and operations are located), requested a transfer of venue to Washington State.
In denying Microsoft's motion to transfer venue, the district court relied on the existence of a local Allvoice office in Tyler, as well as Allvoice's incorporation under the laws of Texas. The court also weighed the witness factor against transfer because Allvoice had identified potential non-party witnesses in New York, Massachusetts and Florida who, the court found, would find Texas more convenient for trial. Although the court found that the sources of proof factor weighed in favor of transfer, it did so only slightly because Allvoice said that its documents were maintained in its office in the E.D. Texas.
On appeal, the Federal Circuit granted Microsoft's request for a writ, likening this case to In re Genentech, Inc., 566 F.3d 1338 (Fed. Cir. 2009), and concluding that the district court abused its discretion by denying transfer. The CAFC first noted that there was a vast disparity with respect to the convenience of witnesses: all individuals identified by Microsoft as having material information relating to the patents reside within 100 miles of the W.D. Wash.; all but two of the witnesses identified by Allvoice reside outside Texas, and even those two witnesses appear to be relatively peripheral.
Particularly notable, however, was the CAFC's refusal to consider Allvoice's presence in the E.D. Texas. "Allvoice’s argument … rests on a fallacious assumption: that this court must honor connections to a preferred forum made in anticipation of litigation and for the likely purpose of making that forum appear convenient." Slip Op. at 5. Thus, just as transferring thousands of pages of relevant documents to the offices of litigation counsel in Texas in order to assert that the location of those documents favored non-transfer was entitled to no weight in In re Hoffmann-La Roche Inc., 587 F.3d 1333 (Fed. Cir. 2009), so too is the existence of an office created solely for the purpose of manipulating venue a meaningless fact for the venue analysis. Nor did the CAFC ascribe any weight to extra step of incorporating under the laws of Texas, noting that it was done sixteen days before filing suit.
Uniloc USA, Inc. v. Microsoft Corp. (Fed. Cir. 2011) Panel: Rader, Linn (author), Moore
Uniloc v. Microsoft involves a host of issues, although one stands out as particularly noteworthy. While "passively tolerat[ing]" the 25 percent 'rule of thumb' (a method for calculating a reasonable royalty for purposes of infringement damages) in past cases, the CAFC held today that the rule "is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation," thus precluding its use for damages calculations.
Uniloc is the owner of Patent No. 5,490,216, an early patent covering a mechanism for combating "casual copying" of software, where users install copies of a software program on multiple computers in violation of applicable software licenses. In general terms, the patented invention involves the creation of a registration number generated by the software on the user's computer. The number is sent to the vendor's system, which uses an identical algorithm to create a remote license ID. If the numbers match when the application boots, the program enters a "use mode;" if they do not, it enters a "demo mode."
In the suit against Microsoft, Uniloc alleged that the Product Activation feature for Microsoft's Word XP, Word 2003, and Windows XP software programs infringed the '216 patent. A jury agreed, finding that Microsoft not only infringed the patent, but did so willfully. The jury also rejected Microsoft's invalidity defenses and awarded Uniloc $388 million in damages. Following the trial, the district court granted Microsoft's motion for JMOL of noninfringement and lack of willfulness (and in the alternative, ordered a new trial on these issues), but denied its request for a JMOL on invalidity. The court also ordered a new trial on the issue of damages. On appeal, Uniloc challenged the district court's noninfringement, willfulness, and damages rulings, while Microsoft cross-appealed the denial of its JMOL on invalidity. The Federal Circuit affirmed the district judge's rulings on willfulness, damages and invalidity, but reversed on the question of infringement, both with respect to JMOL and the grant of a new trial.
Damages The damages section of the opinion is by far the most significant portion. At trial, the jury awarded Uniloc $388 million in damages, relying on the testimony of Uniloc's expert, who opined that damages should be $564,946,803 based on a hypothetical negotiation between Uniloc and Microsoft and the Georgia-Pacific factors. Using an internal Microsoft document relating to the value of product keys, the expert applied the 25 percent "rule of thumb" to the minimum value reported ($10 each), obtaining a value of $2.50 per key. After applying the Georgia-Pacific factors, which he concluded did not modify the base rate, he multiplied it by the number of new licenses to Office and Windows products, producing the $565 million value. He confirmed his valuation by "checking" it against the total market value of sales of the Microsoft products (approximately $19 billion, noting that it represented only 2.9% of the gross revenue of the products.
The 25 Percent Rule: On appeal, the CAFC first rejected the use of the 25 percent rule to calculate patent damages. "The 25 percent rule of thumb is a tool that has been used to approximate the reasonable royalty rate that the manufacturer of a patented product would be willing to offer to pay to the patentee during a hypothetical negotiation." Slip Op. at 36, citing Robert Goldscheider, John Jarosz and Carla Mulhern, USE OF THE 25 PER CENT RULE IN VALUING IP, 37 les Nouvelles 123, 123 (Dec. 2002). Under the rule, "licensees pay a royalty rate equivalent to 25 per cent of its expected profits for the product that incorporates the IP at issue." Id., quoting Goldscheider et al. Included in the court's discussion of the rule is an extensive survey of the relevant literature (covering no less than nine articles), as well as an acknowledgement that the "court has passively tolerated its use where its acceptability has not been the focus of the case." Slip Op. at 39. However, the court recognized that it never squarely addressed the use of the rule.
Treating the issue as one of first principles, and after considering the relevant Supreme Court caselaw, the CAFC concluded that, as an abstract theory untied to particular factual circumstances of a given case, the 25 percent rule simply cannot be used for damages calculations:
This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.
Slip Op. at 41. The court based its reasoning on the Daubert standard for expert testimony, concluding that general theories are only permissible if the expert adequately ties the theory to the specific facts of the case. Under Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) and General Electric Co. v. Joiner, 522 US 136 (1997), "one major determinant of whether an expert should be excluded under Daubert is whether he has justified the application of a general theory to the facts of the case." Slip Op. at 43.
Applying this principle, the CAFC criticized the application of the 25 percent rule because there was no link between the rule and the specific case:
The meaning of these cases is clear: there must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party.
Slip Op. at 45. In addition, the court pointed to the lack of testimony by Uniloc's expert suggesting that the starting point of a 25 percent royalty had any relation to the facts of the case, and thus the use of the rule was "arbitrary, unreliable, and irrelevant," failing to pass muster under Daubert and tainting the jury's damages calculation. Id. at 47.
Entire Market Value Rule: The CAFC also rejected the expert's application of the entire market value rule, which he used as a check on the total damages. "The entire market value rule allows a patentee to assess damages based on the entire market value of the accused product only where the patented feature creates the 'basis for customer demand' or 'substantially create[s] the value of the component parts.'" Slip Op. at 48. Here, however, there was no evidence that the patented component created the basis for customer demand, as required by the rule: "This case provides a good example of the danger of admitting consideration of the entire market value of the accused where the patented component does not create the basis for customer demand." Slip Op. at 51.
Infringement In opposing Uniloc's challenge on the issue of infringement, Microsoft argued that several grounds supported affirmance of the district court's grant of JMOL of noninfringement. The CAFC rejected each argument in turn, concluding that substantial evidence supported the jury's finding of infringement.
Standard of Review: One issue that sophisticated parties often dispute is the relevant standard that applies when reviewing jury verdicts. This appeal was no different – Microsoft contended that the jury verdict should be reviewed de novo, while Uniloc argued that it should be reviewed for substantial evidence. The CAFC responded by distinguishing situations where "the parties conceded that under one claim construction there was infringement and under the other there was none, and were arguing only over which claim construction was appropriate." Slip Op. at 15. In these cases, de novo review applies. On the other hand, where "the claim construction itself is not contested, but the application of that claim construction to the accused device is," the court applies the substantial evidence standard. Id.
Comment: This distinction reinforces a basic principle of Federal Circuit appellate practice: Parties challenging a jury verdict on the issue of infringement will likely want to frame the dispute on appeal as a question of claim construction; parties defending the verdict will likely want to frame it as a question of application of an accepted construction to the accused product or method. Of course, whether a party will be able to frame the question in a particular way depends largely on how the issue was set up in the district court – which itself is ideally part of counsel's long term strategic thinking.
Applying this standard, the Federal Circuit concluded that the jury's verdict of infringement was supported by substantial evidence, rejecting Microsoft's arguments to the contrary. The court also rejected Microsoft's argument that a critical "means-plus-function" limitation should be read narrowly. To the contrary, the court held, it should be read broadly, applying language from IMS Tech., Inc. v. Haas Automation, Inc., 206 F.3d 1422, 1436 (Fed. Cir. 2000) stating that "when in a claimed 'means' limitation the disclosed physical structure is of little or no importance to the claimed invention, there may be a broader range of equivalent structures than if the physical characteristics of the structure are critical in performing the claimed function."
Expert Testimony, redux: Also of note is the court's ruling with respect to expert testimony as it pertains to infringment. Although the district court rejected the testimony of Uniloc's expert as "incomplete, oversimplified and frankly inappropriate," the CAFC concluded that this rejection was improper because the district court had already fulfilled its gatekeeping function under Daubert when it explicitly noted that the expert was "qualified." Thus, it was up to the jury "to evaluate the weight to be given to the testimony of dueling qualified experts." This application of Daubert seems to be somewhat in tension with the court's treatment of expert testimony in the damages context, which focused on the content of the testimony, not the qualifications of the person giving it.
Joint Infringement: The CAFC also rejected Microsoft's joint infringement argument. Rather than implicating joint conduct, the court ruled, Uniloc's claim was structured so as to capture infringement by a single party by focusing on one entity. "That other parties are necessary to complete the environment in which the claimed element functions does not necessarily divide the infringement between the necessary parties. For example, a claim that reads “An algorithm incorporating means for receiving e-mails” may require two parties to function, but could nevertheless be infringed by the single party who uses an algorithm that receives e-mails." Slip Op. at 29.
Willful Infringement: On the issue of willfulness, the CAFC continued to apply its objective super-threshold for proving willfulness. "If the accused infringer's position is susceptible to a reasonable conclusion of no infringement, the first prong of Seagate cannot be met." Slip Op. at 32. Particularly obtuse is the court's triple-negative articulation of the factual holding: "Uniloc has not presented any evidence at trial or on appeal showing why Microsoft, at the time it began infringement, could not have reasonably determined that [Microsoft's algorithms] did not meet the “licensee unique ID generating means,” “licensee unique ID,” or “registration system”/“mode switching means” limitations."
Presumption of Validity: in addressing Microsoft's cross-appeal of the denial of its motion for JMOL and a new trial on invalidity, the court declined to back away from the "clear and convincing" standard for invalidity. Rejecting Microsoft's argument that its burden was to show invalidity simply by a preponderance of the evidence – as opposed to clear and convincing evidence – because the prior art reference was not before the PTO, the court continued to apply the higher standard. "Until changed by the Supreme Court or this court sitting en ban, this is still the law." Slip Op. at 55. Applying this standard, the court rejected Microsoft's argument that it was simply practicing the prior art, and thus a finding of infringement necessitated a finding of invalidity.
In re Vistaprint Ltd. (Fed. Cir. 2010) Panel: Gajarsa, Schall (author), and Moore
In a counterpoint to its recent decision in In re Acer, this morning the Federal Circuit denied a request for a writ of mandamus seeking transfer of venue out of the Eastern District of Texas. The underlying action was bought by ColorQuick, LLC, which holds a patent relating to the preparation of production data for printing, against Vistaprint Limited and OfficeMax Incorporated. As in Acer, none of the parties resided in Texas: Vistaprint, a foreign corporation, has a wholly-owned subsidiary in Massachusetts; OfficeMax is a Delaware corporation with its principal place of business in Illinois; and ColorQuick is a New Jersey corporation. Both the panel and author in this appeal were identical to the panel and author that granted the writ in In re Acer.
In denying the request for a writ, the CAFC acknowledged the lack of residency, but ruled that the district court did not abuse its discretion in denying transfer. The panel first noted that although a trial court has broad discretion in transfer decisions pursuant to 28 U.S.C. § 1404(a), "that is not the same as saying that it may accord weight simply as it pleases." Slip Op. at 4. Applying that standard, the panel concluded the district court's weighing of factors in this case did not amount to a "patently erroneous result." Id. (quoting In re Volkswagen of Am., Inc., 545 F.3d 304, 310 (5th Cir. 2008) (en banc)). Specifically, the CAFC concluded that the district court had not abused its discretion in weighing two factors relating to judicial economy: that the trial court had gained substantial experience in construing the claims of the same patent during a prior litigation and that there was a related case currently pending before the same court.
The CAFC also rejected the petitioners' argument that it is always improper for a district court to deny transfer based on judicial economy when all of the convenience factors clearly favor transfer. While the court noted the importance of the convenience factors, it also recognized that "§ 1404(a) commits the balancing determination to the sound discretion of the trial court based not on per se rules but rather on an 'individualized, case-by-case consideration of convenience and fairness.'" Slip Op. at 6-7 (quoting Van Dusen v. Barrack, 376 U.S. 612, 622 (1964)). In this specific case, the CAFC could not conclude that "the trial court's balancing was so unreasonable as to warrant the extraordinary relief of mandamus." Id. at 8.
Note: The opinion's final footnote appears to summarize the panel's overarching view on mandamus petitions directed to the venue transfer issue. It states:
Our holding today does not mean that, once a patent is litigated in a particular venue the patent owner will necessarily have a free pass to maintain all future litigation involving that patent in that venue. However, where, as here, the trial court performed a detailed analysis explaining that it is very familiar with the only asserted patent and the related technology, and where there is a co-pending litigation before the trial court involving the same patent-in-suit, and pertaining to the same underly-ing technology and accusing similar services, we cannot say the trial court clearly abused its discretion in denying transfer.
In re Acer America Corporation (Fed. Cir. 2010) Panel: Gajarsa, Schall (Author), and Moore
In 2008, MedioStream, a company headquartered in the Northern District of California, brought a patent infringement suit in the Eastern District of Texas against twelve hardware and software companies, five of which are also headquartered in the Northern District of California. The defendants moved to transfer venue to the Northern District of California pursuant to 28 U.S.C. 1404(a), which authorizes transfer "[f]or the convenience of parties and witnesses, in the interest of justice." The district court denied the motion, primarily because one of the defendants, Dell, Inc., is headquarted in Round Rock, Texas, relatively close to (albeit outside) the Eastern District of Texas. The defendants petitioned the Federal Circuit for a writ of mandamus.
On appeal, the Federal Circuit agreed with the Petitioners, concluding in a precedential opinion that the district court abused its discretion in denying the request to transfer venue. Particularly important in the panel's analysis was the fact that a substantial number of party witnesses reside in or near the Northern District of California, and requiring them to travel to the Eastern District of Texas would result in substantial expenses for airfare, meals, lodging, and the loss of productivity from time spent away from work, as well as the personal costs imposed on the witnesses. While it was possible that more than one Dell employee might testify, that number was likely to be insignificant in contrast with the substantial number of party witnesses that would be required to travel to Texas. Similarly weighing in favor of transfer to California was the venue's ability to compel testmony through subspoena power, the presence of a significant portion of the evidence in the Northern District of Caliornia (and none in the Eastern District of Texas), and the local interest of the Northern District flowing from the residence of many of the parties in that district.
Summary: In a 6-2-1 en banc decision, the Federal Circuit has reversed its prior precedent and held that a patent applicant must be allowed to introduce new evidence in a Section 145 civil action filed to challenge a USPTO refusal to grant patent rights and that the issues implicated by the new facts must be considered de novo.
[W]e hold that the only limitations on the admissibility of evidence applicable to a § 145 proceeding are the limitations imposed by the Federal Rules of Evidence and Federal Rules of Civil Procedure. Therefore, we hold that the district court applied the wrong legal standard for the admissibility of evidence in a § 145 proceeding and abused its discretion when it excluded Mr. Hyatt's declaration. . . .
The particular significance of a § 145 civil action is that it affords an applicant the opportunity to introduce new evidence after the close of the administra-tive proceedings—and once an applicant introduces new evidence on an issue, the district court reviews that issue de novo.
However, the Court also wrote that an applicant may still be barred from presenting new "issues" in the civil action and that, when no new evidence is presented, that BPAI findings and rulings should be given deference under the Administrative Procedures Act.
Impact: This decision could be seen as relieving some pressure on applicants to ensure that their cases for patentability are exhaustively presented to the USPTO's internal Board of Patent Appeals and Interferences (BPAI). The decision is especially important in light of the growing role of BPAI appeals in the ordinary course of patent prosecution. In its argument, the USPTO suggests that a strategic applicant may now choose hold-back some evidence from the BPAI appeal in order to overcome the APA deference if the case goes to the District Court.
Statute in Question: 35 U.S.C. § 145 creates a right to a "civil action" in Federal District Court against the USPTO Director whenever an applicant is "dissatisfied with the decision of the Board of Patent Appeals and Interferences in an appeal under section 134(a)." In the alternative, an applicant may appeal directly to the Court of Appeals for the Federal Circuit.
Background: Gil Hyatt is a well-known inventor and successful patentee. Hyatt filed a civil action in 2003 after the BPAI sustained written description and enablement rejections for seventy-nine of Hyatt's claims. The examiner had issued "2546 separate rejections of Mr. Hyatt's 117 claims" based on the doctrines of inadequate "written description, lack of enablement, double patenting, anticipation, and obviousness." The Board reversed all of the examiner rejections except for the § 112 p1 arguments. Complicating this case is the fact that the application's claimed priority date is 1975. Hyatt has aggressively pushed the bounds of USPTO practice. This decision is one of more than a dozen Federal Circuit decisions focusing on Hyatt's patent rights. When California pursued Hyatt for tax revenue for his patent licenses, Hyatt took the case to the Supreme Court and eventually won a $388 million judgment against the state of California for invasion of privacy.
After the Board affirmed a set of written description and enablement rejections, Hyatt filed a Section 145 civil action and included a declaration offering new evidence of enablement and written description. The district court excluded that inventor-declaration from evidence based on Hyatt's "negligence" in failing to previously submit the information to the PTO. In a 2009 panel decision, the Federal Circuit held that the district court had properly excluded the new evidence – holding that the district court may properly exclude evidence that Hyatt should have produced to the PTO. That opinion was penned by former Chief Judge Michel and Joined by Judge Dyk. Judge Moore wrote a vigorous dissent that supported a patent applicant's right to a full civil action including the right to submit additional evidence when challenging a PTO decision.
Judge Moore wrote the en banc decision that was joined by Chief Judge Rader and Judges Lourie, Bryson, Linn, and Prost. Judge Dyk dissented and was joined by Judge Gajarsa. Judge Newman Concurred-in-Part – arguing that the civil action should not give deference to PTO factual determinations.
A key to the majority decision is the notion that a Section 145 civil action is not an appeal, but rather a new, separate lawsuit filed to force the PTO to act. In its analysis, the court began with a focus on the 150-year history of the civil action right (and its predecessor Bill in Equity) and the reality that new evidence has always a part of those remedies. See, e.g., Gandy v. Marble, 122 U.S. 432 (1887) (explaining that the [predecessor] § 4915 suit in equity was "not a technical appeal from the Patent Office, nor confined to the case as made in the record on that office"). The court then reviewed the current text of the statute, implications of the APA, and various policy arguments before reaching its conclusions.
In a 37-page dissent, Judge Dyk argued that the majority made an improper leap from (1) the correct premise that new evidence should be admissible in the civil action to (2) the incorrect conclusion that the law provides no meaningful limits on the introduction of new evidence regardless of what was presented at the BPAI.
Appellate specialist Aaron Panner argued the case on behalf of Hyatt. The USPTO's case was argued by Beth Brinkman of the DOJ. In the original panel, the late Ken Bass has argued for Hyatt and Bill Jenks for the Government. Michael L. Martinez represented Hyatt in the civil action.
I recently looked at some historical litigation trends and was surprised to learn that the number of patent lawsuits filed annually was roughly constant over the past decade. This year, of course, there are a large number of qui tam complaints being filed for false marking (largely by a small handful of plaintiffs); however, the number of infringement cases will not be dramatically different than 2009.
The relative constancy of litigation activity is a bit perplexing and certainly incongruent with the patent-system-gone-awry stories so commonplace in the popular media. I thought there was an "NPE problem" spinning out of control. I thought costs were spinning out of control. Well, they might be, but it's not reflected in increased lawsuit filings. I pulled back-data from PACER to produce the chart below, which shows the number of patent lawsuits and defendants in those lawsuits as a percentage of their levels in 1990.
There are some striking observations here. * The total number of patent litigations filed increased about 300% between 1990 and 2002, but has been nearly constant for the rest of this decade. (Many others have shown this previously. See, e.g. Shrestha, 2010) * The number of cases with more than one defendant followed a similar trend (data not shown). * The number of named defendants increased nearly 600% between 1990 and 2010.
In short, the number of cases filed per year is constant, but the number of defendants keeps growing.
I don't know why this is. The most obvious hypothesis is that it's driven by an increase in many-defendant filings by NPEs. That is, maximizing the ratio of defendants named to cases filed will 1) maximize potential revenue and 2) decrease costs for an NPE or contingency counsel. I can't think of many reasons that a practicing entity would behave similarly.
Numerous sources report that the number of NPE lawsuits is growing and now make comprise about 1/5th of all filings. For example, according to PatentFreedom, NPE lawsuits increased from less than 100 per year in 1998 to roughly 500 in 2009. (There were about 2,600 total cases that year). Also, Colleen Chien showed that in the IT sector NPE suits account for 1 in 6 cases. Given these statistics, it would be interesting to if those cases account for a disproportionate fraction of the named defendants. (This is somewhat more complicated to show.)
If the number of defendants is growing, costs are certainly growing as well. Assuming each case costs each defendant $1MM (many studies show it's higher), defendants would be spending an extra $400MM/yr on litigation each year.
Where's that money go? Certainly attorneys capture some of it. Below I've overlaid the number of attorneys assigned to patent litigations over the years. As you can see, the growth in attorneys outstrips both cases and defendants.
(All this data is available in PACER, so you can verify my numbers. Also the raw data are online. There are a few obvious caveats, e.g. I haven't removed cases in which multiple subsidiaries of the same company are named in the same suit. About me: I work for the Rockefeller-funded non-profit PIPRA where I teach scientists and entrepreneurs in developing economies about IP. I also own the website PriorSmart, which publishes a daily patent complaint alert. It's free, and includes PDFs of the pleadings. You can sign up here if you'd like to get it.)
Is it me, or has there been a noticeable uptick in publicity about copyright infringement claims in 2010? There is the prolific new so-called "copyright troll," Righthaven LLC, which has sued more than 120 parties on behalf of its sole newspaper client, the Las Vegas Journal-Review (including against some high-profile defendants, such as politician Sharron Angle). The Fox network has been defending against claims that it violated a plaintiff's copyright when it ran footage of Bernard Madoff, and now the Fox network (in an unrelated claim) is suing politician Robin Carnahan for alleged unauthorized use of Fox clip in a political ad. Some blame the poor economy, some blame the lawyers, some blame a heated election season. Maybe it is all of those reasons, or none of those. But at the end of the day, it doesn't appear that anything has really changed in the substantive copyright law.
Although the nuances of copyright law can be sometimes challenging to understand and interpret, at its heart copyright law stands for a relatively simple proposition – don't copy. The copyright laws are not an act of "judicial activism" to codify a common-sense grammar school lesson. Instead, these laws find their basis in the U.S. Constitution: Article I authorizes Congress to "Promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." Some of the comments in the blogosphere – including some rather nasty and ad hominem attacks against the "copyright troll of 2010" Righthaven LLC – seem to overlook that the easiest way to avoid copyright infringement claims is to avoid copying.
So, why all the angst related to enforcement of IP laws, now particularly centering on the concept of a copyright troll? In part, there are some of the same criticisms that have long been aimed at so-called "patent trolls": opportunistic lawyers, recoveries that are disproportionate to the "sweat of the brow" of the actual inventor/author, a drag on corporate profitability, etc. However, there are significant differences between a so-called patent troll and a so-called copyright troll.
First, the stakes and business model so far for the copyright cases seem to be quite different from the patent model. Righthaven's model, at least so far, has seemed to be a high-volume of cases that often individually settle in the range of a few thousand dollars.
Second, the policy issues are different. Revenue problems have cause newspapers to disappear at an alarming rate, and copyright revenue gives troubled businesses a new revenue stream from an existing asset. On the other hand, even those bloggers who infringe a copyright are usually creating knowledge, and there may be other counterconsiderations.
Third, some forms of clearinghouse model for copyright licensing/enforcement have existed for decades. For example, ASCAP, BMI, Copyright Clearance Center and others have generated revenue for themselves and for copyright owners by pursuing users of copyrighted works.
Fourth, it seems that courts may have a significant role in influencing policy when it comes to so-called "copyright trolls." For example, the courts have latitude in setting statutory damages in copyright cases within a wide range spanning $200 to $300,000; the exercise of that discretion can directly affect whether a so-called troll's business model will be profitable.
Most of all, though, parties being sued by Righthaven seem to feel a sort of "gotcha" moment. Sure, these defendants saw the copyright notices on the newspapers and websites whose content they allegedly copied, and they knew at some level that copying often has some element of "wrong" to it. But perhaps they figured that there was a safe harbor in doing what everyone else seemed to be doing. Compare the rumored – and often very dangerous – "rules of thumb" about things like the percent of content that can "safely" be copied, the supposed "free pass" that comes from a direct link to the original (copyrighted) article, the breadth of applicability of the fair use defense, and so on.
Perhaps the one aspect of the Righthaven model that many defendants feel most indignant about is that they were sued before receiving a cease-and-desist demand. As another example of the many disconnects between expectations and reality in IP enforcement, a demand letter is not a prerequisite to a complaint. There is no guaranteed "free bite at the apple" when it comes to infringement, and for good reason. Indeed, what would be the value of opinion counsel in the IP arena if the ultimate outcome were that liability only starts to accrue after a party elects to continue infringement after being actually warned of potential claims? Cease-and-desist demands have a place in certain infringement scenarios; however, they are sometimes a waste of time and money, and there is a strong deterrent to infringement when a defendant cannot escape liability for past acts simply by ceasing accused conduct when directly asked by the IP owner. Righthaven has apparently decided that such warning letters do not fit into its business model, which seems to be its prerogative.
The other major factor that contributes to the sense of "gotcha" is undeniably the role of the internet, email and related technologies. In short, acts of infringement can be publicized to the world at the speed of light, via a few keystrokes. Infringement over the internet is also much easier to identify, via increasingly-sophisticated searching and tracking technologies. It comes as no surprise that Righthaven reportedly uses a proprietary technology to identify suspected infringements before offering to buy the underlying copyrights from the copyright owner.
It will be interesting to see whether the Righthaven model, or some other models of so-called "copyright troll," will be sustainable. So far, to my knowledge, none of the 120+ Righthaven defendants has litigated what appear in some cases to be potentially valid "fair use" theories. Indeed, so far, Righthaven reportedly has been willing to settle individual cases for a few thousand dollars, which is far less than it would typically cost a defendant to secure copyright counsel and answer a federal complaint (both without any guarantee of success). I have heard rumblings that some defendants are pursuing discussions to form a defense coalition of sorts, to share costs and to combine expertise and effort. I will be curious to see how Righthaven handles serious defenses to the complaints, and whether pursuing active litigation fits Righthaven's business model.
In the meantime, the publicity surrounding this so-called "copyright troll" and the other high-profile copyright infringement claims of 2010 have served a useful purpose in reminding the public (and even non-copyright lawyers) about best practices regarding copyright law. Said differently, this is a very good time for clients to revisit their copyright practices. Maybe the economy and the election cycle have motivated more parties to enforce their copyrights, and maybe there could be a sustainable entrepreneurial enforcement model for a new kind of "troll," but the copyright law – as always – still prevents copying.
In an effort to promote repatriation of jobs, H.R. 5980 was introduced on July 29, 2010. The Bill proposes replacing the 18-month publication of U.S. patent applications in their entirety with a requirement that the U.S. Patent & Trademark Office (USPTO) publish only the abstract of an application until it issues as a patent. This change would detrimentally impact the ability to monitor competitors’ pending applications (provided the full text of the applications were not otherwise still available via Public PAIR, an on-line resource provided by the USPTO that supplies free access to all patent documents exchanged between patent applicants and patent examiners upon publication of an application).
The proposed shift would potentially impact companies that have come to depend on access to published patent applications as a source of lawful competitive intelligence and freedom-to-practice planning.
With knowledge that only an application’s abstract will be made available to the public, it would likely just be a matter of time before applicants become more evasive in the drafting of patent abstracts. Even today, patent abstracts rarely provide meaningful detail as to the scope of the claims of a patent application, and are limited by USPTO regulations to 150 words or less. 37 CFR 1.72(b).
While a change to the statutory term of U.S. patents and a judicially-created “prosecution laches” defense eliminated most concerns over “submarine” patents (where an applicant would keep at least one of a chain of patent applications pending before springing an issued patent on an unsuspecting party or industry), limiting public access to only the abstract of a pending application would invite a return to such undersea tactics in patent prosecution.
To the extent publishing only the abstracts of patent applications has any potential to reduce the loss of American jobs, this protection is illusory in most situations. Many patent applications on products having significant commercial potential are filed not only in the United States, but also in foreign countries (and/or internationally under the Patent Cooperation Treaty). Most foreign countries already require publication of the entire patent application 18 months from the earliest priority filing date, so publishing only the abstract in the U.S. would merely invite interested third parties to search for foreign counterpart applications published in their entirety.
For applicants concerned about foreign competitors learning of the details of their inventions prior to issuance of their patents, U.S. patent law already provides an avenue even more secure than limiting publications of applications to abstracts as proposed in H.R. 5980. So long as an applicant agrees at the time of filing a U.S. application to forego foreign patent filings in countries that publish applications 18 months after filing, the application may include a request for non-publication. The USPTO will then maintain the entire application in secrecy until the application issues as a patent. The option of foregoing foreign filings in exchange for non-publication of a U.S. patent application was proposed to assuage concerns over the disparate impact pre-grant U.S. publication might have on small businesses. This was known as the Kaptur Amendment and was initially limited to “small entities” (i.e., entities with fewer than 500 employees, universities and independent inventors), but the small entity requirement was ultimately removed.
Alternatively, 35 U.S.C. Section 154(d) provides provisional rights to obtain a reasonable royalty for infringement occurring prior to the issuance of a patent, beginning as early as the date of publication of the application. Recovery of pre-issuance royalties requires the infringed claims ultimately issuing in a patent to be substantially identical to claims of the published application and requires actual notice to the infringer of the published patent application. If claims are substantially amended during prosecution, an applicant may, for a fee, electronically request republication of the application with the amended claims. H.R. 5980 would limit provisional rights to claims of published PCT applications that later mature into U.S. patents. Ironically, this disparity would favor foreign applicants of US patents (who typically file PCT applications prior to filing a US national phase application) over US inventors who opt not to file a PCT application. Foreign patentees in some situations would effectively have a longer term to collect patent damages than their US counterparts.
Another problem with the “Patent Protection” proposal of H.R. 5980 is that it runs contrary to commitments the United States made to Japan under the U.S.-Japan Letters of Agreement signed August 16, 1994 by then-Commerce Secretary Richard H. Brown and Japanese Ambassador Takakazu Kurizama. In exchange for U.S. commitments to publish applications 18 months after filing, expand the grounds for requesting patent reexamination, and permit increased third party participation in reexaminations, Japan agreed to eliminate dependent patent compulsory licenses, end third party pre-grant oppositions, and offer an accelerated examination procedure. It took five years for mandatory publication of applications to become law with passage of the American Inventors Protection Act of 1999.
Though mandatory publication of U.S. patent applications is barely a decade old, H.R. 5980’s bid to substitute abstracts for full publication of U.S. applications would return a cloak of secrecy to some U.S. patent applications. However, for patent applications also filed abroad, the reality is that corresponding applications filed in other countries would still be published in their entirety. Given the ubiquitous access to published foreign patent applications made possible by the Internet, publishing only patent abstracts in the U.S. would not provide a meaningful obstacle to foreign companies seeking to capitalize on U.S. ingenuity.
Jeremy R. Kriegel is a partner at Marshall, Gerstein & Borun LLP in Chicago. This article expresses the views of the author, and does not necessarily reflect the views of Marshall, Gerstein & Borun or its clients.
Golden Hour Data Systems, Inc. v. emsCharts, Inc. and Softtech (Fed. Cir. 2010)
Opinion by Judge Dyk and joined by Judge Friedman. Dissent by Judge Newman.
After trial, Judge Ward (E.D.Tx.) rejected the jury verdict of infringement and granted JMOL for the defendants — holding that no single party had infringed each element of the asserted claims. The lower court also held the asserted patent unenforceable due to inequitable conduct during prosecution.
Joint Infringement: EMS delivers web-based medical charting. Softtech’s software coordinates air-flight information. The two companies formed a “strategic partnership” and signed a distribution agreement that would allow their two products to combine as a package. The products were then sold as a package.
Patent law doctrine allows a finding of direct infringement only when a single entity is responsible for practicing each element (or step) of a claimed invention. Federal Circuit law holds that two or more entities can avoid liability for infringement so long as (1) each entity is responsible for practicing only a subset of the claimed elements and (2) no single entity exercises “control or direction” over the entire infringing process. Here, as in other Federal Circuit cases, such as Muniauction v. Thomson and BMC v. Paymentech, the Federal Circuit continued this doctrinal line — holding that the claim against emsCharts must fail because the plaintiff presented insufficient evidence for the “jury to infer control or direction.”
In BMC, Judge Rader acknowledged that strict adherence to the “control or direction” requirement highlighted an easy avenue for avoiding infringement. “This court acknowledges that the standard requiring control or direction for a finding of joint infringement may in some circumstances allow parties to enter into arms-length agreements to avoid infringement. Nonetheless, this concern does not outweigh concerns over expanding the rules governing direct infringement.”
Dissenting from this opinion, Judge Newman argued that, despite Muniauction and BMC, the law of joint infringement does not strictly require that a single entity have control of the operation. Rather, a “collaborative effort as here . . . is not immune from infringement simply because the participating entities have a separate corporate status.” Here, the two companies “combined their procedures into an integrated system that met all of the limitations of claims 1, 6-8, and 15-22, thus finding joint infringement and inducement to infringe these claims. The panel majority acknowledges that the defendants in collaboration infringed the claims, but without discussion overturns the jury verdict.”
Inequitable Conduct: The court also addressed inequitable conduct. Golden Hour had failed to submit an un-dated brochure that included undisclosed information that contradicted statements made by the applicant regarding a prior art AeroMed system.
Golden Hour first suggested that it had no duty to disclose the brochure because it was not clearly prior art. The Federal Circuit rejected that argument because the duty of disclosure is not limited to prior art. As stated in the MPEP, “[t]here is no requirement that the [submitted] information must be prior art references in order to be considered by the examiner.” MPEP § 609 (2008).
On materiality, the court held that the brochure was clearly material because it contradicted a statement made by the applicant in the specification. In finding the contradiction, the court looked to English grammar. The specification stated that the AeroMed system “does not” provide comprehensive integration. According to the court, the present-tense representation indicates the applicant’s contention that the AeroMed system will not provide comprehensive integration at any time “throughout the pendency of the application.” (DDC Says: What is Judge Dyk thinking?).
On intent to deceive the PTO, the court held that intent could be inferred if there was evidence that either of the prosecuting attorneys actually read the brochure (but if they did not read the reference then they would only be guilty of gross negligence). Here, the court did not find evidence that the attorneys actually read the reference and therefore vacated the inequitable conduct decision for lack of intent to deceive. (The appellate court suggests that inequitable conduct will likely be found again on remand.).
In Dissent, Judge Newman wrote:
As for materiality, I do not share the conclusion that the undated AeroMed brochure, obtained at a trade show (the Association of Aeromedical Services) a few weeks after this patent application was filed, and found not to be invalidating prior art, was so clearly and convincingly “material to patentability” that failure to provide a copy of the brochure while quoting its front page, invalidates the patent that was found valid over the entire content of the brochure. The record does not show that the brochure was published before the Golden Hour patent application was filed. The defendants provided no documentary evidence of any publication date, and the district court did not find the brochure to be prior art; their only evidence was the “uh-huh’s” of the brochure’s author, quoted at footnote 1 of the majority opinion.
The record showed that when the brochure came into Golden Hour’s possession at the trade show, it was given to Golden Hour’s patent attorney, who referred to it in the Invention Disclosure Statement filed with the PTO, including quotation of the cover page but not the inner page. At the trial, the full brochure was in evidence, and stressed by the defendants, and the jury found that it was not invalidating. In view of the majority’s ruling that deceptive intent was not established in the district court, and the jury’s verdict of validity despite the brochure, the charge of inequitable conduct should be laid to rest.
NYTimes has published a front page article by Duffy Wilson titled “
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