Tag Archives: Venue

Michel & Nothhaft: Inventing Our Way Out of Joblessness

Articles and Publications, Fees, Patent,

Judge Paul Michel and Hank Nothhaft (Tessera CEO) have written an important OP-ED for the New York Times. They argue that an important way for the US government to stimulate entrepreneurship and job growth is by giving the USPTO a large bolus of money ($1 billion) to put its affairs in order:

This would enable the agency to upgrade its outmoded computer systems and hire and train additional examiners to deal with the threefold increase in patent applications over the past 20 years. Congress should also pass pending legislation that would prohibit any more diverting of patent fees and give the office the authority to set its own fees.

. . . .

To be sure, not every patent creates a job or generates economic value. Some, however, are worth thousands of jobs — Jack Kilby’s 1959 patent for a semiconductor, for example, or Steve Wozniak’s 1979 patent for a personal computer. It’s impossible to predict how many new jobs or even new industries may lie buried within the patent office’s backlog. But according to our analysis of the data in the Berkeley Patent Survey, each issued patent is associated with 3 to 10 new jobs.

In addition, the pair suggests an “innovation tax credit” for each patent received by a small business:

To encourage still more entrepreneurship, Congress should also offer small businesses a tax credit of up to $19,000 for every patent they receive, enabling them to recoup half of the average $38,000 in patent office and lawyers’ fees spent to obtain a patent. Cost, after all, is the No. 1 deterrent to patent-seeking, the patent survey found.

For the average 30,000 patents issued to small businesses each year, a $19,000 innovation tax credit would mean a loss of about $570 million in tax revenue in a year. But if it led to the issuance of even one additional patent per small business, it would create 90,000 to 300,000 jobs.

Taken together, fully financing the patent office and creating an innovation tax credit could mean as many as 2.5 million new jobs over three years, and add up to 600,000 more jobs every year thereafter.

It only makes sense to help innovative small businesses make their way to the patent office and, once there, find it ready to issue the patents that lead to new jobs.

I have quibbles with the numbers used by the authors. However, I do think that they are on the right track in a few respects — especially with the idea that investing in incentives to innovate is a much more cost-effective and stable policy approach as compared with hiring folks to do government work.

Notes:

  • As academic quibbles: 
    • The statement that “each issued patent is associated with 3 to 10 new jobs” cannot be derived from the Berkeley Patent Survey.  However, I don’t see that figure as unreasonable or unlikely. It would be helpful to see how the authors calculated this figure.
    • In addition, it is important to recognize that patents are just one step along the road toward job creation. The idea is that patents can provide confidence and stability in business potential ventures.  That confidence and stability leads to investment and job creation.

Patenting by Entrepreneurs: The Berkeley Patent Survey (Part I of III)

Guest Post, Inventors, Inventorship, Patent, Survey, , ,

Guest Post by Robert Merges and Pamela Samuelson, UC Berkeley School of Law; Ted Sichelman, University of San Diego School of Law

Why do entrepreneurs and startup companies file for patents? Why not? How often do startups acquire patents from others? How important are patents in fostering innovation at startups? In helping them raise financing? In providing leverage in cross-licensing negotiations? Are entrepreneurs and startups subject to patent thickets?

These and many related questions were the subject of the Berkeley Patent Survey—the most comprehensive survey to date in the United States, probably worldwide, on how patents are used by and affect entrepreneurs, startups, and early-stage high technology companies. Funded by the Ewing Marion Kauffman Foundation—and conducted by us, along with Robert Barr (Executive Director of the Berkeley Center for Law & Tech and former VP of IP at Cisco) and Stuart Graham (then a professor at Georgia Tech's College of Management, and currently Chief Economist of the USPTO)—the survey collected responses from over 1,300 companies less than ten years old (hereinafter, "startups") in the biotechnology, medical device, software, and hardware/IT sectors.

In this first post of three, we briefly review three major findings from our initial analysis of the survey about the frequency of patenting among high-tech startups, why startups seek patents, and how they rate patents and other strategies for attaining competitive advantage. In the next post, we'll discuss some reasons startups give for not seeking patents and why they sometimes license-in patents from other companies. In the last post, we'll specifically address startup perceptions about the incentives that patents provide for engaging in innovation as well as the perceived importance of patents in securing outside investments. The investment incentive role of patents has been not only a subject of enduring interest in the patent field generally, but also an important topic of interest of late at the Department of Commerce and PTO. (For those interested in more information, a detailed discussion of the survey results is available here; a focused analysis on the drivers of startup patenting, here; and some background on the genesis of the survey, here.)

First, startups hold many more patents and applications than previously believed. Instead of asking companies how many patents and applications they actually hold—like we did—earlier studies solely used the PTO databases to determine portfolio size. Unfortunately, these databases are unreliable, because the assignee records—particularly for patents acquired from founders and third parties—are incomplete. Our more complete data shows that about 40% of our respondents hold patents or applications, with the figure rising to about 80% for startups funded by venture capital firms.

As expected, this figure varies widely by industry—for example, 97% of venture-backed biotechnology companies hold patents or applications, while only 67% of venture-backed software startups do. And among the general population of software startups responding, the rate was only about 25%. In terms of raw numbers, among biotechnology companies, those with patents and applications have about 13 on hand, with the number rising to about 20 for medical device companies, and falling to about 7 for software companies. In sum, many startups are filing for patents and hold greater numbers than previously believed, though most software companies have never filed for patents.

Second, startups report that they primarily file for patents to prevent against copying of their innovative products and services (see Fig. 1 below). This holds true across all industries and by a variety of other company characteristics, such as age and revenues.

Respondents also note that filing for patents to improve their chances of securing investment and generating a liquidity event (such as an IPO or being acquired) are between moderately and very important reasons to file. In addition, the respondents state that a moderately important reason to file patents is for strategic reasons, such as defending against and preventing patent lawsuits as well as increasing negotiating leverage.

Figure 1: Reasons to File for Patents

Our third major finding concerns startup executives' perceptions of the effectiveness of patents and other methods of providing competitive advantage. Interestingly, responses vary widely (see Fig. 2 below). Biotechnology companies rate patents as the most effective means of capturing competitive advantage, more effective than first-mover advantage (though the differences are not statistically significant), trade secrecy, reverse engineering, copyright, and other means. Software companies, on the other hand, rank patenting dead last in providing competitive advantage.

Figure 2: Measures of Capturing "Competitive Advantage" from Inventions

In sum, the 2008 Berkeley Patent Survey has found that startups are patenting more than previous studies have suggested; that patents are being sought for a variety of reasons, the most prominent of which is to prevent copying of the innovation; and that there are considerable differences among startups in the perceived significance of patents for attaining competitive advantage, with biotech companies rating them as the most important strategy and software companies rating them least important.

Our next post will delve into reasons high tech entrepreneurs gave for not seeking patents for recent innovations and for licensing of patents from other companies.

Why do Applicants File So Many Requests for Continued Examination?

Patent, Patent Applications,

Of the patents issued thus far in 2010, more than 25% carry the baggage of a file history with at least one request for continued examination (RCE) and that rate is expected to rise. RCEs are also filed in a significant number of patent applications that are eventually abandoned. 

Patent Office management sees the high RCE rate as a symptom of a breakdown in the prosecution system. In their view, after two rounds of negotiation, the parties should have arrived at final positions — either by identifying appropriate patent-worthy claims or else by determining that no-such patentable subject matter exists. At that point, further negotiation with the same examiner makes little sense in the ordinary case. If the applicant and examiner come to an agreement then the case is concluded, otherwise the applicant appeals to a higher authority.

The Problem of RCEs: Although RCEs do generate USPTO revenue, they are troublesome because they frustrate the USPTO's goal of reducing the large backlog of 730,000+ unexamined patent applications. Furthermore, the current RCE fee of $810 ($405 for small entities) do not cover PTO expenses associated with the ongoing examination. The cost differential is made-up with maintenance and extension fees. In most of the RCE'd cases, the applicant and examiner eventually do reach an agreement without an appeal to the Board — but only after more rounds of discussion. This re-working of applications raises costs for patent applicants, delays patent issuance, prevents work on the backlog of cases, and generally makes all the parties look silly.

PatentlyO063No Solution Yet: Historically, the patent examiners count system provided some incentive for examiners to induce the filing of RCEs. The count system has been modified to reduce that incentive. Despite this disincentive, RCE filings do not appear to have dropped in any significant way.  Another growing RCE disincentive involves patent term adjustment (PTA). The long examination backlog is leading to unprecedented PTAs that can add additional months and years to the term of a patent. Although the filing of an RCE cuts-off the ongoing accumulation of (type-B) PTA, folks are continuing to file RCEs.

Explaining why RCEs are Filed: Although not universal, the broadest independent claims of a patent application are often narrowed during prosecution. It is important to recognize, however, that the narrowing amendments typically involve the inclusion of limitations already found in dependant claims. In the negotiation context, the dependent claims begin to look like pre-set negotiable points. It obviously takes time to reach some mutual agreement between the applicant and the PTO. Perhaps the usual case does need more than two rounds. However, my sense is that the high RCE numbers persist because initial office action rejections regularly fail to directly address the claimed invention and (consequently?) necessary claim amendments are not proffered by the applicant until after the final rejection. At that point, an RCE may be required. Of course, even in the best of times RCEs are sometimes unavoidable — such when prompted by the late discovery of important prior art. The additional time delay of RCEs may be helpful in other cases such as when limitations that distinguish the invention from the prior art are buried in the specification.

The PTO is looking for ways to reduce RCEs and more generally reduce the re-working of applications. To that end, I would like to ask two general questions that will help me create a follow-on survey:

  1. What is your explanation for the large number of RCE filings?
  2. What can the PTO do help prosecution conclude more quickly (on average) and reduce the number of RCE filings? (examiner behavior, PTO procedures, negotiation techniques, patent application format…)
  3. Do some patent attorneys disagree with my notion that the amendment process is a negotiation?

Patent Grants Remain at All-Time High

Patent

The USPTO issues patents each Tuesday morning at 12:01 am. In the past several weeks, I have reported on the rising number of patents being issued each week. The past seven-weeks rank as the top-seven weeks of all time in terms of the number of utility patents issued.

PatentlyO058

Policies and Procedures: Over the past year, the PTO has increased its weekly patent grant count by more than 30%. During that time, the PTO did not increase its budget or hire a significant number of patent examiners. The difference appears to come from two avenues: (1) changes in PTO policies and procedures that provide patent examiners more opportunity to find patentable claims and (2) changes in patent applicant behavior in favor of accepting narrower claims.

The Backlog: The rising number of grants is at least slowing the growth of the application backlog. However, it does not appear to be sufficient to actually shrink the backlog. About 8,750 utility applications are filed each week — a figure greater than the average weekly final disposals (issued patents + abandoned applications). Using the increased grant-count and a 60% allowance rate, I calculate about 7,600 such final disposals each week.  

Patent Maintenance Fee Data

Patent

Over 30% of USPTO revenue is derived from maintenance fees that are paid by patent holders. Under the current fee structure, three post-grant maintenance fees must be paid in order to keep a patent from prematurely expiring. A large entity pays $980 3.5 years after issuance; $2,480 7.5 years after issuance; and $4,110 11.5 after issuance. If the fee is not paid then the patent will expire at the next 4, 8, or 12 year mark. This is easy-money for the USPTO because because it does not involve any agency operational budget other than the expense of actually collecting the fee.

I used the USPTO’s new maintenance-fee data to create the charts below that show historic maintenance fee payments. The first chart might be designated a “survival rate” chart. In particular, the chart shows the percent of patents whose maintenance fees were paid at each of the the four (blue), eight (red), and twelve (green) year marks.

The graph generally shows that the rate of patent maintenance fee payments has been declining for about the past year-and-a-half.

PatentlyO056

Of the 100,000+ patents issued in 1997, fewer than 50% are still in-force.

Federal Circuit Denies Apple’s Motion to Transfer Venue out of Texas

Patent

In re Apple (Fed. Cir. 2010)

In a split decision, a Federal Circuit panel has denied Apple’s petition for a writ of mandamus that had asked the court to transfer Apple’s litigation out of the Eastern District of Texas.   

Three weeks before filing suit, the patent holder formed “Personal Audio LLC” in Beaumont, Texas and then assigned the patent rights to the new company and transferred files relating to the patents to that location (which happen to be the office of its litigation counsel). Personal Audio LLC then sued Apple, Sirius XM, and others.

In its decision on mandamus, the Federal Circuit disagreed with the lower court that the Texas court had a particular interest in adjudicating the dispute because Personal Audio was a local company. Rather, the Federal Circuit noted that the “company’s presence in Texas appears to be both recent and ephemeral—its office is apparently the office of its Texas litigation counsel, and it appears not to have any employees in Texas.”

Still, the Federal Circuit refused to order a transfer because the defendants could not show that their chosen venue of Massachusetts was clearly better “particularly in light of the fact that none of the defendants is headquartered there.”

Change of venue DENIED.

The majority opinion was filed by Judges Mayer and Bryson per curiam. Judge Lourie dissented without opinion.

* * * * *

The company PatentFreedom recently reported that Apple faced more NPE patent lawsuits during 2004-2009 than any other company. [LINK]

Vegas Trade Show Satisfies Minimum Contacts Test

Patent,

PatentLawPic986Patent Rights Protection Group v. Video Gaming Technologies (VGT), (Fed. Cir. 2010)

Patent Rights holds patent rights to several slot-machine patents and sued a host of companies for infringement. The Nevada-based district court dismissed the suits against VGT and SPEC for lack of personal jurisdiction. In particular, the district court held that personal jurisdiction would be “unreasonable.”

Although patent law is nationalized and litigation is handled in federal courts, the courts are only empowered to take action against defendant have sufficient contacts with the state where the court is located. This analysis of minimum contacts falls under the rubric of “personal jurisdiction” and has been well developed by the US Supreme Court in cases such as Burger King (1985) and International Shoe (1945). Here, the personal jurisdiction question is whether the defendants’ contacts with the Nevada are sufficient such that exertion of power by a Nevada-based court “would comport with ‘fair play and substantial justice.’ i.e., whether exercising jurisdiction would be reasonable.” (Nevada’s long-arm statute extends to the Constitutional limits.)

VGT and SPEC had only de minimis sales of their products in Nevada. However, both companies had attended several Las Vegas trade shows.

Writing for the unanimous court, Judge LINN [updated to correct typo] held that it would not be “prohibitively burdensome” for either defendant to defend this suit in Nevada. “Indeed, their admitted presence at numerous trade shows in Nevada indicates that, despite their arguments to the contrary, neither company faces a particularly onerous burden in defending itself in Nevada.” Here, the court concluded that exhibiting products at a Vegas trade show (“one of the world’s larger gaming markets”) was likely done with the prospect of commercial benefit and that use of a Nevada business opportunity satisfies the minimum contacts test.

On remand, the district court will likely consider further elements of the personal jurisdiction test (specific vs general jurisdiction) as well as venue.

Director Kappos Testimony to Congress

Patent,

On May 5, 2010, Director Kappos testified to the House Judiciary Committee. The prepared testimony included three specific USPTO goals:

  • By the year 2014, reduce the average time to first office action on the merits for patent applications to 10 months;
  • By the year 2015, reduce total average pendency for patent applications to 20 months; and
  • Create an IT infrastructure that permits end-to end electronic processing in patent and trademark IT systems. 

To reach these goals, the PTO is focusing on several specific initiatives:

International worksharing: The USPTO, EPO and JPO have agreed to use PCT search and examination results in their worksharing approach.  Director Kappos sees that option as having “the potential to dramatically increase the number of applications eligible for [Prosecution Highway] processing.”  The prosecution highway “concept is fairly straightforward.”

[W]hen an office determines that one or more claims are patentable in one application, the applicant may request fast-track examination of the same or similar claims in the second, related application filed with the second office. To have the request for fast-tracking accepted, the applicant must make available to the second office the relevant work of the first office as well as any necessary translations. By restricting the scope of claims presented to the second office, and by requiring the applicant to make the relevant work from the first office available to the second office, the PPH promotes a high degree of reutilization of first office work. The PPH also respects the principle of sovereignty noted above because each office maintains responsibility for the final determination of patentability in accordance with applicable law.

Hiring: The USPTO is looking to hire 1000 additional patent examiners over the next two years. The bulk of these examiners would preferably be experienced IP professionals but could be part of a “nationwide workforce.”   With the absence of funding, the PTO has hired only nine (9) examiners during FY2010 and 127 examiners have left their positions.

Funding: Director Kappos would hope for fee setting authority to allow for an “interim fee adjustment on patent fees to provide resources in the intermediate term; and an operating reserve to ensure adequate reserves to address multi-year budget plans and fluctuations in revenues.”

In his testimony, Damon Matteo, Chairman of the PPAC also indicated that “temporary” administrative fee-setting authority may well be the best first-step in patent office reform. 

We believe that to assure adequate funding levels for the long term, the USPTO needs authority to set and adjust fees administratively, so that it can properly establish and align fees in a timely, fair and consistent manner to recover the actual costs of USPTO operations and without going through the inherently long delays in the legislative process. This will afford the USPTO the opportunity to reform its funding model holistically to operate in a more businesslike fashion. After a period of time, or once the USPTO is on firmer fiscal footing, the fee-setting authority can be revisited.

Documents:

Patent Litigation Forum Shopping

Patent

Professor Mark Lemley has released a draft of his new study on patent forum shopping titled “Where to File Your Patent Case.” Professor Lemley suggests three primary factors that influence a patentees choice of forum: (1) likelihood of winning; (2) likelihood of getting to trial; and (3) speed of getting to trial. Professor Lemley used the Stanford IP Litigation Clearinghouse database to classify these factors for 25 most-active district courts. (http://ssrn.com/abstract=1597919).

Win Rate: “The variation in win rates ranges from a high of 55% in the Northern District of Texas to a low of 11.5% in the Northern District of Georgia.” Interestingly, Lemley finds that “the Eastern District of Texas, while it has a higher than average plaintiff win rate, is not in the top five districts. And the districts that are in the top five (the Northern District of Texas, the Middle District of Florida, the District of Nevada, the District of Delaware, and the District of Oregon) are not normally thought of as plaintiff patent jurisdictions of choice. Indeed, accused infringers often choose the District of Delaware, filing declaratory judgment actions there. Conversely, patent plaintiffs often file suit in districts like the District of New Jersey that have a surprisingly low win rate.”

Best Venues: When you add-in speed and likelihood of trial, Lemley argues that the best districts include the Middle District of Florida, District of Delaware, Eastern District of Virginia, and the Western District of Wisconsin. The best districts for accused infringers include Eastern District of Wisconsin, the Southern District of Ohio, or the District of Columbia because patent cases in those districts move slowly and more-frequently end with summary judgment in favor of the accused infringer.

Caveats: Prof Lemley hints at a few caveats to his study. Namely, the win-rate in the Eastern District of Texas might be lower than Delaware because of the cases filed there. I.e., patentees with low-quality patents might be more likely to flock to Texas rather than Delaware. 

Read the Paper: http://ssrn.com/abstract=1597919

Note: The data provided here by Prof Lemley is similar to that used by patentees when deciding where to file and in arguing change-of-venue motions.  It is unlikely that the parties are making ignorant choices.  Rather, patentees are deliberately filing cases in the Eastern District of Texas despite these statistics.  The next step in this analysis is to query why?

PatentLawPic984

The heat-map above shows patent litigation filings for the past year and was provided by the Stanford IP Litigation Clearinghouse.

False Marking Fine Set at Point Above Gross Revenue

Patent,

Forest Group v. Bon Tool (S.D. Tex 2010)

In a 2009 decision, the Federal Circuit remanded the Bon Tool case with instructions to the district court to recalculate the false marking fine owed to the defendant-counter-claimant.  In particular, the Federal Circuit held that each falsely marked article represented a separate and distinct act of false marking, each subject to a fine of up to $500.

On remand, Judge Atlas of the Southern District of Texas determined that the false-marking fine should at least recapture all of the revenue generated from the sale Forest’s falsely-marked products.  Here, Forest had sold falsely marked stilts “at prices between $103.00 and $180.00.”  The court then set the false-marking fine at the highest price-point of $180 per article.  Because only 38 pair of falsely marked stilts were sold, the total fine was relatively small — less than $7,000. Half of the fine will be given to the US Government and half collected by Bon Tool.

The Court finds that the appropriate fine in this case is $180.00 per article, the highest point of the price range. This will deprive Forest of more than it received for the falsely-marked stilts, fulfilling the deterrent goal of § 292’s fine provision. Based on the $180.00 per article fine for the 38 falsely-marked stilts of which there was evidence at trial, the Court imposes against Forest a fine of $6,840.00 pursuant to § 292.

Judge Atlas based her decision on the Federal Circuit’s three stated policy goals of: discouraging mis-marking; encouraging enforcement; and avoiding “disproportionately large penalties.”  Bon Tool had asked for the maximum $500 per offense.  Forest argued that the fine should be limited to its profits on the falsely-marked products of $2,400.

Edward DuMont Nominated to the Court of Appeals for the Federal Circuit

Patent,

The White House has announced the nomination of Edward (Ed) DuMont to the Court of Appeals for the Federal Circuit to replace Chief Judge Paul Michel who will be retiring May 31, 2010. The Senate must confirm the nomination along with the still-pending nomination of Judge O’Malley.

DuMont is a partner at WilmerHale and is an appellate specialist. He previously spent close to ten years at the Department of Justice primarily in the office of the Solicitor General and also worked in corporate transactions at Sullivan & Cromwell.

DuMont clerked for Judge Richard Posner on the Seventh Circuit in Chicago in the mid-1980’s and also spent a year in working as a lawyer at a firm in Thailand. DuMont holds a BA (history) from Yale and a JD from Stanford. He is originally from Northern California, but has worked on the East Coast for the past twenty years.

DuMont has worked on several patent appeals, often alongside former US Solicitor General Seth Waxman. Recent patent appeals including Tivo v. Echostar, Princo v. ITC (pending en banc rehearing), Airgo IP v. ArvinMeritor, Agfa Corp. v. Creo Prods., Purdue v. Endo, US Philips v. ITC.

The Federal Circuit courthouse at 717 Madison Place is less than a half-mile walk from DuMont’s current office on Pennsylvania Avenue. Like President Obama, DuMont is just shy of 50-years-old.

Although filling Chief Judge Michel’s spot, Mr. DuMont would not automatically become the next Chief Judge. Rather, that position will move to Judge Rader who is the next most-senior active judge who has not yet reached the age of 65.

Patently-O Bits and Bytes: Patent Public Advisory Committee Nominations

Patent, , ,
  • Patent Public Advisory Committee Nominations: The PPAC includes a group of nine voting members appointed for three-year terms on a rolling-basis by the Secretary of Commerce. 35 U.S.C. 5. Director Kappos and Commissioner Stoll are making this an exciting time to be part of the USPTO and I have real hope for positive change on the patent side of the office over the next three years. That said, there is a tremendous amount of work to be done. Although my skills may not be so unique, I now have the time and the energy to be a part of that effort and am planning to submit my nomination shortly. (Nominations are due June 11, 2010).
  • Patent Public Advisory Committee and Open Government: Current members of the PPAC include Damon Matteo, Chair (chief intellectual property officer of the Palo Alto Research Center); Louis J. Foreman (CEO of Enventys and co-creator of Everyday Edisons on PBS); Scott Kieff (Professor at GWU); Marc Adler (independent IP strategist); Steve Pinkos (government lobbyist); Maureen Toohey (solo practitioner patent attorney); Benjamin Borson (solo practitioner patent attorney); Esther Kepplinger (director at Wilson Sonsini); Steven Miller (chief IP counsel for P&G). The terms of Scott Kieff and Louis Foreman will be complete at the end of 2010. I do believe that it is important to have a patent law professor as part of the PPAC – if only because our public pronouncements are not limited by our clients (we ordinarily do not have any clients) or our employers.
  • Patent Public Advisory Committee and Open Government: Thousands of attorneys, agents, inventors, and patent examiners read Patently-O on a daily basis. I also personally communicate with dozens Patently-O readers each week on matters of patent examination policy. One of my goals as a PPAC member would be to use these communication lines to shed more public light on patent office practices and to bring suggestions directly to the PTO from folks in practice. Although the PTO examiner union-chief takes part in PPAC discussions, that often confrontational avenue of communication usually misses many important examiner issues. As the current PTO administration realizes, the management of examiner moral and training has a critical role in overall PTO performance. I believe that I could add an important channel of information on that front as well. In the past, patent office directors have not appointed individuals to the PPAC who had a broad public voice on patent law issues and an established avenue of communication. I hope that historic closing-door approach has changed.
  • False Marking: Rep. Darrell Issa has introduced a bill in the House of Representatives (H.R. 4954) that would retroactively eliminate jurisdiction for false marking complaints except for cases where the complainant has “suffered competitive injury as a result of the violation.” (Hat tip Hal Wegner). The Bill is co-sponsored by Representatives Boucher (D-Va), Coble (R-NC), Cohen (D-Tenn), Conyers (D-Mich), Franks (R-Ariz), Lungren (R-Cal), and Smith (R-Tex).
  • False Marking: Two false marking case resources FalseMarking.net (MBHB) and Justin Gray’s Info (Foley).

Dr. Michelson Supports Patent Reform

Patent, ,

Gary Michelson forwarded the following letter which he has also mailed to members of Congress. Dr. Michelson became a billionaire as a result of a settlement of his infringement lawsuit against Medtronic.

* * * * *

March 17, 2010

I am writing in regard to the patent reform legislation currently before you.

Abraham Lincoln had it right when he said the patent system was the engine of the American economy. Those few words inscribed by our founding fathers in Article I, Section 8 of the Constitution of the United States says it beautifully “to promote the Progress of Science and the useful Arts.”

All politics aside, one would be hard pressed to find support in our history that government can either tax its way out of a recession, or tax its way out of a budget deficit without crushing job formation -the most pressing economic problem of our time. History has shown that it is possible to have vibrant job growth and to simultaneously reverse deficit spending by growing the economy. You cannot increase productivity by simply telling the man with a shovel to dig twice as hard. But one person with a word processor can replace twenty people with typewriters. That is more work done for the same amount of effort, raises productivity and the standard of living, and makes businesses more profitable so they can employ more people. It may well be that in the 1990s, it was the permeation of computers throughout the business world that substantially contributed to the economic growth of those times.

I would submit to you that the next engine to produce that kind of economic growth is currently trapped in the patent office. The United States now competes economically against the rest of the world. We cannot afford to have technology, that if unleashed and nourished would fuel our economy, labor slowly through the patent office while the rest of the world races on.

Companies will not invest in uncertainty. The power of the patent gives small entrepreneurs and large companies alike the certainty that they require to invest their time and money. This creates jobs and frequently a better way of achieving the same result or a better result. Sometimes the better way is the thing itself.

The United States patent system is in desperate need of the reform legislation presently before you.

Some people have grabbed the pulpit and have claimed to speak for the individual inventor. But, grabbing that mantle for themselves and making such proclamations doesn’t make it so.

I have been an independent inventor for the last quarter century. I am the single named inventor on over 900 issued patents or pending applications throughout the world, and just shy of 250 issued patents in the United States alone. Many of the inventions contained in these patents have resulted in highly successful best of kind or entirely new products. One of my licensees estimated that their sales of products incorporating my technologies would exceed five billion dollars ($5,000,000,000.00) and affect the lives of millions of people. Imagine the number of jobs that must be created to design, manufacture, sell and service these previously non existent products.

I mentioned people’s lives effected. Let me be more precise. I am a board certified orthopedic surgeon fellowship trained in and specializing in spinal surgery. Recently the Paralyzed Veterans of America recognized me as the outstanding medical researcher in the field of spinal disorders. My inventions which are in the field of spinal disorders have made such procedures faster, safer, more effective and less expensive. On occasion they have freed people from wheelchairs, lifted them from disability, allowed them to return to being mothers and fathers and husbands and wives, and to go from welfare to work.

Presently we are blessed with a new Director of the United States Patent and Trademark Office (U.S.P.T.O.) who left a job that was the envy of the intellectual property world. He brought with him a unique understanding of ultra large scale information technologies and computers that is so essential to the present and future functioning of the Office, as well as an in depth working knowledge of best practices from the competitive world of free enterprise. This is what will be required to reinvigorate the Patent Office, and to clear up the massive three year backlog of 800,000 pending patent applications. However, the able and dedicated people who staff the patent office cannot effectively execute the people’s business with their hands tied behind them and lacking the resources to do so.

I strongly implore you on behalf of myself, independent inventors like me, and for the good of our country to support the patent reform legislation before you. And if upon reflection you recognize how truly vital the Patent Office is to the future of our country then I would ask you to do more and to consider the issue of “revenue diversion”.

The U.S.P.T.O. is unique in American government in that it costs the taxpayer nothing while providing the best dollar for dollar value in the intellectual property industry. The U.S.P.T.O. should have the authority to set its fees so that they are appropriate to the services provided and “in the aggregate” sufficient to fully optimize the functioning of that office, and to reasonably budget for the capital expenditures that will be required in the future for it to continue to do so.

There is an old saying that the best time to plant a shade tree was fifty years ago. The next best time is right now. Now is the time to act.

Thank you for your consideration of this vital issue. Please do not hesitate to contact me if I may be of service to you in this matter.

Sincerely yours,

Gary K. Michelson, M.D.

* * * * *

Dale Carlson writes “Scrap the Patent Bill“

Cost of the Patent Backlog and the Proposed Solution

Patent

The UK Patent Office has released a commissioned study examining the “economic impact of delays in processing patents.” The report (prepared by the consulting company London Economics) suggests that the delays (1) reduce the incentive to innovate; (2) increase the likelihood of filing applications on non-patentable inventions (for the benefit of patent pending status); and (3) the monopoly power held by the owners of non-patentable applications. The estimate of these costs on the world economy is $11.5 billion dollars per year. [Link][Link] The article has a number of major problems, but its bottom line does not seem clearly wrong.

The political motivation behind the study is to push toward greater cooperation between the patent offices in examining co-pending applications. 

The bulk of the calculated “costs” are associated with applicants who need a fast-patent-grant.  That problem could be largely solved better structuring elective accelerated and deferred examination.  In that system, applicants who value a rapid grant would have access to that avenue (for a fee) while others willing to wait could do so.

Patent Reform Act of 2010: An Overview

Patent,

The Senate has revived interest in the patent reform act with a substitute bill entitled the “Patent Reform Act of 2010.” The new bill is very similar to its predecessor, the Patent Reform Act of 2009.

First-To-File: The proposed reform would largely eliminate US’s unique first-to-invent priority system. The bigger deal is that the proposal would eliminate the one-year grace period unless the inventor was the “first-discloser.” A “derivation” proceeding would replace interferences.

False Marking: The proposed reform would eliminate the right of “any person” to file a false marking claim. Rather, those claims would be limited to individuals who have “suffered a competitive injury.” This change would apply to eliminate standing of already-filed cases.

Damages: The damages revision is no longer as major. Under the proposed revision, a court would be required to “identify the methodologies and factors that are relevant to the determination of damages, and the court or jury, shall consider only those methodologies and factors relevant to making such determination.” The parties would also be required to “state, in writing and with particularity, the methodologies and factors the parties propose for instruction to the jury in determining damages … specifying the relevant underlying legal and factual bases for their assertions.” The provision would also provide a right for summary judgment on damages if one party’s contentions lack evidentiary basis and only the approved-of methodologies would be allowed in court. It is already the law that the jury may only consider relevant information – this approach looks to primarily create a greater likelihood for appeal. The provision generally creates a better situation for accused infringers, but it does not necessarily limit damage awards.

Trial: Right to split trial into segments infringement & validity; damages; willfulness. This approach tends to favor defendants.

Willful Infringement: Spell out that the enhanced damages are for “willful infringement” that is at least objectively reckless by clear and convincing evidence. (current statute reads “the court may increase the damages up to three times the amount found or assessed.”). The statute would make clear that “knowledge alone” is not sufficient for a finding of willful infringement and that any “close case” should be decided against willfulness.

Post-Grant Review: The statute would provide for a whole new system of post-grant reviews that would be handled directly by the patent appeals board. [I will write more on this later]. The proposal also calls for a new “supplemental examination” to ensure that the patentee has fulfilled the duty of disclosure.

Pre-Issuance Submissions of Prior Art by Third Parties: These would be allowed.

Litigation Venue: Cases should be transferred to venues that are “clearly more convenient.”

Fee Setting Authority: The USPTO would be given authority to adjust its fees so long as the fees are “in the aggregate set to recover the estimated cost to the Office for processing, activities, services and materials relating to patents and trademarks, respectively.”

Federal Circuit Judicial Residency: Judges for the Federal Circuit would no longer be required to live in the DC area.

Micro-Entity: A new type of entity defined as a “micro entity” that has fewer than 5 patent applications that would qualify for even further reduced fees.

Best Mode Requirement: The best mode requirement would remain as part of the law. However, failure to fulfill the best mode requirement would no longer be an invalidity defense nor could it serve as a basis for holding a patent unenforceable.

USPTO Budget Shortfall Causes: Maintenance Fees

Patent

A major reason for the current USPTO budget shortfall is the dropping rate of renewal. According to the USPTO annual reports, the "maintenance fees have traditionally been the largest category of patent fees." Renewal rates are charged in three-stages. The first-stage payment of $980 is due 3.5 years after issuance. The second-stage payment of $2,480 is due 7.5 years after issuance. And, the third-stage payment of $4,110 is due 11.5 years after issuance.

In FY2009 renewal rates dropped for each stage. Most troubling for future PTO revenue, the first-stage renewal rate for FY2009 was the lowest in a decade. The graph below is based on historic USPTO Annual Reports.

Avoiding Declaratory Judgment Jurisdiction

Patent,

Patentees now proceed with caution when approaching a potential licensee. The Supreme Court’s 2007 MedImmune v. Genentech decision broadened the availability of declaratory judgment actions even when the potential licensee has no apprehension of suit. In a recent IP Today [$$$] article, Kristen Doyle provides five tips to help patentees avoid declaratory judgment jurisdiction:

  1. File suit prior to sending a demand letter. (The suit typically need not be pursued for 3-4 months).
  2. Send bland demand letters that avoid infringement allegations, threats of litigation, or even for licensing fees and that are signed by non-lawyers. Doyle could find not post-MedImmune decision that finds DJ jurisdiction based only on a letter that merely identified a patent and stated that the patent was available for licensing.
  3. Establish a definite negotiation period.
  4. Ask for a confidentiality agreement when negotiating.
  5. File the litigation in the “most logical venue.”

USPTO Fees 2011: Justifying the Fee Increase

Patent,

It is clear that the USPTO needs funding to address its backlog of yet-to-be-examined patent applications and to revitalize its information technology infrastructure. An increase in funding is largely in the interest of the patent community. The primary downside is that most of the proposed increase will be paid by the patent community as well. Three forms of increased funding are currently on the table:

  1. Increase substantially all fees by 15%.
  2. Allow the USPTO to set its own fees.
  3. Allow the USPTO to retain and spend its collected fees even if they are over-budget

Fifteen Percent of What: Although a 15% increase in fees is significant. The current prosecution fees for a large entity total to $2,900. This includes Filing, Search, Examination, Publication, and Issue Fees. Many applicants pay additional fees for late responses, appeals, petitions and RCEs. The median fees paid for a large entity is probably closer to $4,000 and a 15% increase would be $600. For small-entities, the fees are reduced by 50%. Of course, the majority of the cost of patent prosecution is not found in USPTO fees, but rather in the cost of hiring patent attorneys & agents as well as the time spent by inventors and managers. For a large entity, the total cost of preparing an application and prosecuting the application through to issuance easily runs over $25,000. In that scenario, the $600 increase may be better seen as a 2.4% increase.

Trusting the USPTO: Some applicants may be worried that USPTO would rapidly increase fees if it were given the right to set its own fees. Perhaps the office would buy-into Tim Wilson’s $50,000 application fee proposal. I do not believe that fear is grounded in reality. Here, I point to three practical limits on the PTO’s power. First, as proposed, the fee increase would be limited to increases that allow the office to recoup its costs. Second, if the PTO raises a large excess amount in fees the extra revenue will almost certainly be taken by Congress. Knowing that, the PTO is unlikely to greatly increase fees. Finally, the current director David Kappos appears sympathetic to patent applicants and is unlikely to take actions that are truly adverse to that community as a whole.

Why not Cuts: The difficult case for the PTO is to explain why two-billion-dollars is not enough? (See tables below). I.e., should the needed money come from redirecting unhelpful spending rather than increasing revenue?

Redirection – An Office Full of Examiners: A particular thought that comes-to-mind is the potential that everyone on the patent-side who is qualified to be examining patent applications should be examining patent applications. This means that supervisors, technology center directors, quality-assurance specialists, legal advisors, international liaisons, patent attorneys, judges, petitions officers, and commissioners could all have examination dockets. Even if small, these folks are – for the most part – have a history of being productive examiners and would contribute to reducing the backlog. In addition, a refocus and reconnection on the core role of examination may also help the office both improve quality and its spirit.

The following two charts are taken from the USPTO FY2009 Annual Report:

Note: A note on my $25,000 prosecution budget above. That is my own anecdotal estimate. This includes (1) the time spent by in-house inventors and managers in writing-up the invention and selecting which inventions to patent along with patenting bonuses paid to the inventors; (2) attorney time in drafting and prosecuting the patent application; and (3) fees paid to the USPTO. Is this accurate?

Obama FY2011 Proposed Budget for the USPTO (Including at Least a 15% Increase in Fees)

Patent,
  • USPTO estimates $2.322 billion in revenue for FY2011. FY2009 USPTO revenue was $1.901 billion and FY2010 revenue is projected at $2.003 billion. 
  • The jump in expected revenue is largely based on a proposed 15% increase in user fees. According to the budget statements, the increase is “intended to be an interim measure.”  However, I would not expect fees to drop again any time soon.
  • Justifying this increase, the administration indicates that it has set a “high priority goal” of reducing “patent pendency for first action and for final actions from the end of 2009 levels of 25.8 and 34.6 months respectively by the end of 2011, as well as the patent backlog.”
  • USPTO would also be given full access to its fee collections up-to $100 million over-budget.
  • USPTO would also be given authority for FY2011 to increase fees beyond the 15% at its discretion.
  • A Wall Street Journal article cites Commerce Department officials as indicating that the increased funding will allow the PTO to “reinstate overtime and hire 1,000 new examiners.”  Director Kappos has also indicated that updates of the USPTO IT system is necessary. [Link]
  • The budget also estimates $36 million for the Court of Appeals for the Federal Circuit.
  • Read the Budget here.

 

Director Kappos on the USPTO’s (lack of) Funding

Patent,

PatentLawPic878In a recent e-mail to PTO employees, Director Kappos explained a real problem associated with PTO funding for the next year — that 1.9 billion dollars will not be enough for FY2010.  Although that seems like a lot of money, the PTO’s technology infrastructure is in dire need of an overhaul and the agency needs to hire additional examiners to reduce the current backlog of over one million pending applications.  It appears likely that the PTO will collect over two billion dollars in user fees for FY2010, but the current funding rules would force the agency remit any amount over $1.887 billion to the US Treasury. 

To recap, the PTO is (1) entirely funded by by user fees and (2) has significant financial needs to address shortfalls in serving its users. In this situation, the agency should at least be authorized to spend the fees that it collects.

== Kappos Letter ==

Dear Team:

I wanted to share my thoughts with you about a topic of great import to the USPTO and its mission. As you’ve read in the press, we have been engaged in ongoing discussions with members of Congress and their staff regarding our budget for the current fiscal year, which began on October 1, 2009. In addition, we have been providing technical assistance to Congress in connection with patent reform legislation, which is geared toward placing the USPTO on a sustainable funding model.

Innovation is the engine of our economy, and an efficient USPTO facilitates the timely delivery of innovative goods and services to market. What we do here at the USPTO is therefore of paramount importance to economic recovery and job creation.

As you know, the USPTO has been struggling in the last year to put itself on solid financial footing. Declines in fee revenue during the recession have adversely impacted our budget – and as a consequence forced us to make hard choices – including halting virtually all hiring, limiting overtime, and postponing critical repairs to our information technology infrastructure.

As part of the annual appropriations process, our financial team was asked to provide Congress with projected fee income for the 2010 fiscal year. This information was provided in September based on the data available at that time, when agency collections were at their low point. Congress used that projection of $1.887 billion in setting our budget for the 2010 fiscal year. That budget forces us to maintain operations on a bare-bones basis, but provides insufficient resources for us to replace employees who leave the agency, improve infrastructure or continue some of the improvements we have started to implement.

In addition, in the last two years, Congress had provided the USPTO a buffer of $100 million above our appropriation, which we were authorized to retain and spend to the extent fee income exceeded our appropriation (up to the $100 million buffer amount). That provision was removed from our fiscal year 2010 appropriation, due (we have been advised) to changes in Congressional Budget Office accounting which made it more difficult for our appropriators to provide the $100 million buffer this year.

The good news is that fee collections have begun to increase, and our current FY10 projections are more than $100 million above the $1.887 billion appropriations amount. We are actively working with Congress and the Administration to find ways to retain funds in excess of the $1.887 billion spending cap so that we can begin to backfill departing employees, improve our infrastructure, and continue to implement reforms.

But let me be clear about this: Hiring large numbers of people is not the silver-bullet solution to our problems, and we intend to hire conservatively and smartly. Most of you are aware that we have launched many reforms since I came on board last August, and we are now aggressively implementing them and looking for new ways to be more efficient on a constant basis. However, there is simply no way to get the backlog under control in a reasonable period of time without significant hiring given current attrition rates. You can run the numbers yourselves using the Patent Pendency Model and I would encourage you to do that.

Our infrastructure needs are also dire – so dire that President Obama referenced the USPTO’s antiquated IT systems in his remarks last week on modernizing government. We must improve those systems to become an efficient 21st century agency – and to be able to effectively serve the innovation community and the American economy.

It is therefore imperative that we work with Congress to develop long-term financial solutions that will establish a sustainable budget for USPTO over multiple years. Providing the USPTO with fee-setting authority as included in the pending patent reform legislation would be part of that plan. But, for the current year, we have immediate and urgent funding needs that require short-term assistance.

For your reference, I’ve attached a copy of the letter I sent to the relevant Congressional committee members on January 4, 2010.

Addressing our financial challenges so that the Agency can function effectively is my highest priority. I remain dedicated to working with our stakeholders, the Department of Commerce and members of Congress to ensure that we are able to perform our mission properly in the short-term – and to develop and adopt a sustainable funding model that will allow us to serve this country’s innovators in the future.

I want to thank you for your hard work and dedication during this challenging period for the agency. I very much look forward to hearing any thoughts you might have on this matter. Please share any comments via the Director’s Blog. I will be sure to keep you posted on any significant new developments with respect to our budget.

Regards,

David Kappos