Tag Archives: Venue

Enforcing Contracts between Joint Owners: WARF v. Xenon

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Wisconsin Alumni Research Foundation (WARF) v. Xenon Pharma, Appeal No. 08-1351 (7th Cir. 2010).

WARF and Xenon jointly filed for patent protection for a cholesterol lowering enzyme known as Stearoyl CoA Desaturase (SCD). Warf also granted Xenon rights as an exclusive licensee and Xenon agreed to pay royalties for sales or sublicense fees. Xenon then sublicensed its rights to Novartis but did not pay royalties to WARF. Xenon's argument is based on the law of concurrent patent ownership. Generally, a patent co-owner is not required to share licensing revenue with other co-owners. The district court rejected that argument here — finding that the contract between WARF and Xenon is controlling over the patent law default rule. At trial, a jury awarded WARF one-million-dollars in royalties. That award was reduced then by the judge to $300,000.

The Seventh Circuit has now affirmed the lower court ruling that Xenon breached its license agreement by granting a sublicense without paying WARF its share.

35 U.S.C. 262 makes clear that each Joint owner of a patent right may make use of the rights "without the consent of and without accounting to the other owners." However, §262 has a major caveat in that it only applies "in the absence of any agreement to the contrary." Picking up on that caveat, the Seventh Circuit made clear that the "statutory default rule therefore controls unless there is an agreement to the contrary." The appellate panel went on to confirm that the WARF/Xenon agreement is certainly an "agreement to the contrary" despite the fact that it does not include a specific and explicit revocation of § 262 rights.

The bargained-for exchange between the parties provided that the Foundation would forego its right to separately license the patent in exchange for receiving a share of the profits from Xenon's commercialization of the technology—either directly or via a sublicense to a third party. Xenon received a significant benefit from the agreement—the exclusive right to exploit the technology protected by the joint patent application. Xenon cannot avoid paying royalties or sublicense fees to the Foundation simply by labeling the Novartis transaction a "license" rather than a "sublicense."

Quiet Title: Xenon also filed for its own patents on PPA compounds used to suppress SCD levels. WARF claimed ownership rights in the PPA because one of its scientists had contributed to the project and sued here to quiet title and also sued for conversion. On appeal, the court sided with WARF — finding that the WARF scientist's assignment of rights to Xenon was void because the scientist has already assigned all interest in future inventions to WARF.

Seventh Circuit: WARF originally appealed its case to the Federal Circuit. However, the Federal Circuit transferred the case to the Seventh Circuit based on a lack of subject matter jurisdiction. In a non-precedential opinion, the court held that the dispute did not "arise under the patent laws." [Link] An interesting aspect of that decision was that the court's statement that the Bayh-Dole Act (35 U.S.C. §§ 200-212) is not "patent law" when considering the question of appellate jurisdiction. The Federal Circuit refused to take the jurisdiction issue en banc. Judge Rader penned the following dissent from the en banc denial:

In an extremely short per curiam opinion with far too little explanation, the panel left the impression that it was giving away this court's jurisdiction over a broad swath of claims potentially arising from the Bayh-Dole Act, 35 U.S.C. §§ 200-212. While non-precedential, the panel's opinion nonetheless unnecessarily suggests that this court's jurisdiction to review these cases is limited. I respectfully dissent from this court's denial of rehearing en banc.

The panel concluded, albeit without much analysis, that WARF's complaint did not allege that the Bayh-Dole Act creates a cause of action. Thus it was entirely unnecessary for the panel to opine as to whether the Bayh-Dole Act is a "patent law" or not. And indeed, the Bayh-Dole Act, in my view, is most certainly a patent law. While the panel dismissed the notion that the Bayh-Dole Act's "mere inclusion" in Title 35 does not make it a "patent law," it seems to me that this is actually a pretty good indicator. After all, Title 35 is itself entitled "Patents," and Chapter 18, which encompasses only §§ 200-212, is called "Patent Rights in Inventions Made with Federal Assistance." Also, the language within some of the sections of the Bayh-Dole Act suggests its provenance as a patent law. For example, 35 U.S.C. § 201(d) defines "invention" as "any invention or discovery which is or may be patentable…." Section 201(e) explains that a "subject invention" is an invention conceived of or first reduced to practice by a contractor. "Conception" and "reduction to practice" are familiar patent law terms of art. Also, § 200 states that the Act intends "to use the patent system to promote the utilization of inventions arising from federally supported research or development…." The Bayh-Dole Act is, "at its heart," a patent law, albeit a patent law that employs some government contract rules to facilitate its patent-related policy objectives.

Although this court's panel opinion did not mention it, the reason that the "improvements" clause in this case does not require an infringement analysis is that the WARF/Xenon agreement features no issued patents, just patent applications. Thus, no court need perform a true infringement analysis. See GAF Building Materials Corp. v. Elk Corp., 90 F.3d 479, 483 (Fed.Cir.1996) (no declaratory judgment jurisdiction for infringement/invalidity of a design patent that had not issued when suit was filed; without an issued patent, there can be no infringement and thus no Article III controversy). Unlike GAF, however, this case features an undeniable controversy between the parties. To resolve this dispute, some court will have to compare the claims of the pending patent applications of the WARF/Xenon agreement with the alleged "improvements," and the contract's use of patent infringement parlance to define this term will necessitate some sort of patent analysis, starting with construction of the pending claims. Thus, this is a patent dispute for still another reason.

Internet Law & Electronic Commerce Exam 2009

Patent

Essay 1 (50 points)

Peter recently started a new social networking (“matchmaking”) company named Whistle Stop. Biographical information of users is stored on Whistle Stop servers. In addition, users install a small program (or “APP”) on their mobile phones. The APP works by regularly updating Whistle Stop servers with the location of its users. When one user is in close proximity to another “compatible” user, the mobile phone plays a provocative whistle. The volume and character of the whistle may vary according to the intensity of compatibility. The idea is that the whistle helps promote less formality in meeting and also promotes the likelihood of first-glance butterflies associated with love-at-first-sight. The site’s online address is http://whistlestop.com. The service has been somewhat successful, especially in more urban areas.

(a)   Seeing the success of Peter’s business, Edmund begins a competing business that he calls whistleMATCH available through http://whistlematch.com. Edmund also starts a FaceBook page using his competitor’s name – thus the website http://facebook.com/whistlestop directs users to the whistleMATCH website. What legal avenues are available to Peter to stop what he sees as this unfair competition?

(b) In another genius move, Edmund hires-away one of Peter’s network administrators. The new employee shows Edmund a major flaw in Peter’s security system that allows access to user biographical and location information via the Internet without any password protection. As a way of expanding his growing network, Edmund configures his systems to whistle when one of Peter’s customers is near. Identify the potential legal liabilities raised by this situation.

(c)   It turns out the whistle tune played on the Whistle Stop mobile devices is under copyright. Title to the musical work is held by Lucy while the sound recording rights are owned by the Aslan Corporation. Peter had purchased a digital version of the recording through an online store. Is Peter potentially liable for copyright infringement? What about his users? During installation, a copy of the recording is placed on each mobile device. That recording is then triggered by the proximity signal. Does it help Peter to include a provision in his terms of use that would bar users from suing him (or his company) for copyright infringement?

(d) Diggory is a Whistle Stop customer. However, he went online Friday morning and turned-off his account for 24-hours. You see, Diggory had a romantic date scheduled with Polly and he wanted to avoid any problematic situations. During the date, Polly saw her friend Susan. As Susan approached the couple, her mobile device whistled – indicating mutual compatible between her and Diggory. It is fair to say that the whistle created some tension that lasted for hours. Does Diggory have a cause of action?

(e)   What are the greatest potential legal problems facing this new venture?

Patently-O Bits and Bytes No. 304

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  • Next Monday (December 7, 2009) at 2:00 P.M. in Room 201, the Federal Circuit will hear en banc arguments in the case of Ariad Pharmaceutical v. Eli Lilly. The case questions whether Section 112 of the Patent Act creates a written description requirement that is separate and distinct from the enablement requirement. An audio version of the oral arguments is expected to be available that same day. [Calendar]
  • PATracer reports on the pending Federal Circuit case of Kawasaki v. Bombadier. In that case, Kawasaki had sued to enforce the terms of a settlement agreement. Rather than enforcing the agreement, Judge Folsom of the E.D. Tex. dismissed the lawsuit – holding that his court lacked subject matter jurisdiction over what had become a contract dispute. In the 1994 case of Kokkonen v. Guardian Life, the Supreme Court held that unless incorporated into a court order, disputes over a settlement agreement must stand on its own jurisdictional feet. [LINK]
  • Eriq Gardner asks Can a Science-Fiction Movie Infringe a Tech-patent? His question is prompted by a lawsuit where – you guessed it – a patentee (Carl Burnett & his company Global Findability) has sued Summit Entertainment for making/distributing the Nicholas Cage film entitled “Knowing” in which Cage is portrayed as acting like he is using an allegedly infringing geo-locator. The complaint was filed by the Cahn Samuels firm in Federal Court in Washington DC. In the movie setup, the geo-locating technology is based on information provided in 1958 (and rediscovered in 2008). If pretending to be an infringer is actionable, this reconstructed history may also render the patent obvious… The movie was critically panned, but Cage’s star power still helped bring in almost $80 million in box office revenues.
  • Global Findability’s patent is actually quite interesting. It focuses on a mechanism that converts latitude, longitude, & altitude readings into a “single discrete all-natural number.” I.e., one number to uniquely identify a position anywhere (relative to the earth). [LINK]

 

Federal Circuit Orders Another Case Transferred Out of Texas

Patent, Patent Cases 2009, Pharma,

In re Hoffamann-La Roche

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(Fed. Cir. 2009)(on writ of mandamus)

Novartis sued Roche and its partners in the Eastern District of Texas for infringement of its HIV treatment patent. After being denied by District Court Judge Folsom, Roche petitioned the Federal Circuit for a writ of Mandamus — asking the appellate court to order the case to be transferred to the Eastern District of North Carolina. Following its own TS Tech precedent as well as the 5th Circuit’s Volkswagen case, the Federal Circuit complied and has ordered the case transferred.

Under TS Tech, the appellate court will order a transfer on mandamus when the alternate forum is “clearly more convenient.” Here, the appellate court found that important sources of proof are found in North Carolina (the location where the accused drug was developed); that the trial would impact the ongoing reputation of North Carolina residents (Duke professors); and that several non-party witnesses would be within the subpoena power of the North Carolina court. At the same time, the appellate court saw “no connection between this case and the Eastern District of Texas except that in anticipation of this litigation, Novartis’ counsel in California converted into electronic format 75,000 pages of documents . . . and transferred them to the offices of its litigation counsel in Texas.” Although not completely disregarding these litigation-preparation activities, the appellate court clearly deemed them less important in the venue considerations.

In Defense of Software Patents

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Guest Post by Martin Goetz

 

This article is in response to the editorial “Abandoning Software Patents” by the Ciaran O’Riordan, Director of End Software Patents (posted on PatentlyO on November 6, 2009) which had as its premise that one is trying to protect “software ideas”.< ?xml:namespace prefix ="" o />

 

I wrote this article from a unique perspective as the holder of the first Software Patent in 1968 and with a long history of involvement in the protection of software thru patenting and copyright protection. I am recognized as a pioneer in the Software Products Industry and had a successful career at Applied Data Research (ADR), the first company to market a software product. ADR and I were also directly involved in the filing of amicus briefs in the Prater & Wei, Benson, Johnson, Flook, and Diehr cases. More background information and links to my memoirs are in Wikipedia at http://en.wikipedia.org/wiki/Martin_Goetz.

 

Since the 1960s I have been a strong advocate of the patenting of inventions implemented in software and in 1968 I received the first < ?xml:namespace prefix ="" st1 />US patent for an inventive way of sorting data on a digital computer[1]. At that time there was controversy over whether software was patentable subject matter and that controversy continues today 41 years later. Although the Supreme Court has previously stated that software is patentable subject matter[2], those rulings could be upset by today’s Supreme Court judges in the Bilski case.

 

This article does not argue for or against the patenting of BPMs. Rather, it tries to explain why inventions implemented in software are well within current US Patent Law[3] using examples and analogies that I believe are irrefutable. It also explains why software should be viewed a machine component of a general purpose computer (a machine).

 

 1. What is a Software-Related Invention? It is well recognized that whatever you can design in hardware circuitry (chips) can be developed in computer software (a computer program) to perform the same functions. Handwriting analysis, voice recognition, video frame analysis, data compression, language translations, artificial intelligence, searching techniques, network monitoring and security — to name just a few functions — are examples of where such implementations have been done in both hardware chips, in software, and a combination of both. The patents that have been issued in these nine areas represent inventions that are very-state-of-the art and not at all obvious. In particular, the analysis of handwriting and voice by a computer — whether in hardware circuitry or in software — is very complex and not at all obvious to one skilled in the art.
 
2. Hardware implementations versus software implementations. The choice of implementation for computer functions is a pure economic choice which mainly has to do with cost, speed, and flexibility. Patent applications normally show the preferred implementation and the patent must disclose the invention adequately for one skilled in the art. But the disclosure could be in the form of circuitry for a hardware implementation or a flow chart for a software implementation or a combination of both. Many professionals view software development as building a software machine. The life cycle of computer software is very similar to the life cycle of computer hardware. And its life span can be equally as long.

 

3. Software Product Companies[4] are High Technology Manufacturing Entities. In the 1980s with the advent of PCs, many new PC software companies called themselves Software Publishers. So are software companies more like publishers of books or more like manufacturers of machines? Based on my many years in the software Products Industry[5], here are my arguments why software product companies are manufacturers of high technology products. 

 

Many software products are state-of-the-art products developed in a very competitive, fast moving environment and require rapid response to meet user demand. Secondly, a great deal of capital is often required and many software companies are funded through private investments, venture capital, and through public offerings. Thirdly, there are active research and development activities within these companies. IBM, as an example has reported that it consistently spends well over one billion dollars in research and development specifically in the software area. Lastly, highly skilled personnel are employed in these companies and many have advanced Computer Science college degrees, including PhDs. And because of its complexity, many software products are built using software engineering disciplines.

 

There is six phases in the life cycle of software products: Definition, Design, Implementation, Delivery, Maintenance, and Enhancements. Let’s look a little closely at these phases and you will see how closely they resemble characteristics common to all manufacturing companies. Often, prior to the definition phase there is research as well as competitive analysis. During the definition phase software companies describe its functionality, its specifications, the environment in which it must operate, and its operating characteristics. During the design phase, it develops and defines all its interfaces, breaks down the functionality into modules, and does all the engineering so that the product can be properly implemented, maintained and enhanced during its lifecycle. During the implementation phase the software is debugged, tested, and goes thru quality assurance. During the delivery phase there is alpha and beta testing, documentation, installation, and training. Often software companies OEMs (Original Equipment Manufacturers) the product to other companies where the software becomes a component of a larger system and is re-packaged. During the maintenance phase the company warrants its workmanship, and guarantees the correction of errors and defects. Finally, during the enhancement phase the software is improved, enhanced, upgraded, and new models (releases) are announced.

 

Note these terms indicative of a manufactured product …..research, competitive analysis,  functionality, specifications, operational environment, operating characteristics, interfaces, modules, engineering, implemented, debugged, tested, quality assurance, alpha and beta testing, documentation, installation, training, OEM, component, system, re-packaged, maintenance, warrants, workmanship, guarantees, errors, defects, improved, enhanced, upgraded, and models.

 

It is obvious that software products are not “software ideas”. But is software more like publishing a book or more like manufacturing and maintaining a machine? And if it’s more like a machine how can the Supreme Court deny the patenting of inventions[6] in software?  

 

I believe the Courts should view software as a component of a general purpose computer (a machine) and that software transforms a general purpose computer into a special purpose computer (or machine).


[1] Patent # 3,380,029 Sorting System Issued April 23, 1968

 

[2] The Diamond vs. Diehr landmark decision by the Supreme Court in 1981 opened the door to the patenting of software when the court stated that “processes” were patentable, and that just because an invention used a formula, program, or computer, it was not necessarily unpatentable.

 

[3] The US Patent Law does not mention any industry or field of endeavor and it is generally accepted that “anything under the sun” can be patented.

 

[4]  The Software Industry is made up Software Product and Software Service companies and is recognized as one of the top three manufacturing industries in the world with 2008 revenues of over 700 Billion dollars. See http://en.wikipedia.org/wiki/Software_industry 

 

[5] My tenure in this Industry started in 1954. In 1959 I was one of its founders and spent almost 30 years at Applied Data Research (ADR), a publicly traded 200 Million software company that was acquired by Ameritech in 1986 and sold to Computer Associates (CA) in 1988. Many of ADR’s products initially developed over 30 years ago have been improved by ADR and CA and are still viable today. Today, I am a consultant and investor in software companies.

 

[6] An invention, in lay terms, can be a novel device, material, or technique which is new, inventive, and useful. It has been well established that machines, including computer hardware, contain patentable subject matter.

 

 

Kappos Blog & First-to-File

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Director Kappos has created a new blog that is available via the PTO website. The blog (titled the “Director’s Forum”) looks to be an excellent avenue for the Director to stay in-touch with patent practitioners and patent applicants – both to receive input from the IP community and to serve as a pulpit for PTO proposals. The blog allows comments, although they are moderated.

The first post focuses on how the PTO is attempting to “work for independent inventors.” In one portion, Kappos focuses on legislative patent reform and a move to a first-to-file system:

With regard to the patent-priority system, the bill’s proposal to move to a first inventor to file system really represents only a minimal change to the process we use now. The new system would not create a situation where someone could steal an idea and win a race to the patent office. That person would not be an inventor and would not be eligible for a patent in the first place. Keep in mind that there are stiff penalties in place to protect against that. So the real issue involves the case of simultaneous non-collaborative invention that is currently resolved through the interference system.

The truth is that only .01 percent of all patent applications could be affected by a change to first inventor to file. The interference system is already biased in favor of the first inventor to file and 70 percent of the extremely small number of cases that get into the interference process are decided in favor of the first inventor to file. For more on these and other issues, I would encourage you to read the text of the speech I gave at the Conference on our Web site.

Of course, it is not true that “only 0.01 percent of all patent applications” could be impacted by a change to first-to-file. The problem is that this figure does not take into account the frequency that patent applicants rely on their invention date to avoid prior art by swearing behind a reference. My own studies find that about 1% of applicants attempt to swear-behind prior art. Applicants swear behind more often in applications that might be termed “valuable.” While still small, the 1% frequency is 100 times greater than the PTO’s 0.01% figure (which appears to be based on interference tallies).

The data also ignores the frequency that invention date is relied upon during litigation. My preliminary studies show that invention date is more frequently at issue in infringement litigation than at the PTO.

Notes:

The Role of the Washington DC District Court in Patent Cases

Patent

Stuart Soffer has provided information on an interesting spike in patent litigation filings in the Washington DC Federal District Court (DDC). As the chart below shows, more patent cases against the USPTO have already been filed in DDC in 2009 than in any other year in recent history.

What's Going On: On my review, of 39 of the DDC patent cases filed thus far in 2009 (including those not-against the PTO), all of the cases fell into one of these two categories:

Most of the DDC cases are suits against the PTO. The 2009 spike appears to be largely driven by patent holders asking for a review of PTO calculations of patent term adjustment. See Daido v. Doll, 09-628; Biogen IDEC v. Doll, 09-754; Novartis v. Doll, 09-804. The outcome of these cases will likely be dictated by the Federal Circuit's decision in Wyeth v. Kappos. That case focuses how to calculate an adjustment when the patentee is eligible under both Section 154(b)(1)(A) and Section 154(b)(1)(B). Oral arguments were held in early October, 2009.

The remaining cases involved declaratory judgment actions filed against non-US patent holders under 35 U.S.C. § 293. That section of the Patent Act provides that DDC has in rem jurisdiction over the patent and is a proper venue unless the foreign entity has identified a designated agent in another US jurisdiction. In the case of HTC v. Luzzatto, 08-998, the Taiwanese company HTC sued to invalidate Luzzatto's patent covering a "telephone identification calling apparatus." That case is interesting because the district court refused to dismiss the case against Luzzatto even though he had assigned his rights to the patent to another entity. The court reasoned that Section 293 explicitly creates jurisdiction over the "patentee", and Section 100(d) defines a patentee to include "not only the original patentee to whom the patent was issued but also the successors in title to the patentee."

USPTO Fees: Look for Increases

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Gary Locke (Secretary of Commerce) has again indicated the Obama Administration’s support for the pending patent reform bill S. 515.  [Letter].  The letter also suggests that the PTO should be given authority to raise its fees, including “a limited interim fee adjustment.” 

For many years, the PTO has been funded entirely by user fees.  I hope that the same can continue to avoid such direct Congressional control over PTO spending.  But the PTO clearly needs money, and the alternative of cutting PTO services is likewise highly unappealing.  The third alternative: raise fees.

In the past, I have reported that patent applicant behavior is relatively inelastic to PTO fee changes. Although a 15% increase in fees would reduce the number of applications, the total revenue would increase. 

If the PTO is going to increase fees – how should it structure that increase? Notably, should more the burden be placed on (1) standard application fees; (2) issue and maintentance fees; or (3) luxury fees for excess claiming (20+) extensions of time?  All Universities qualify for the small-entity fee reduction. Does that still make sense?

Notes: The letter from Locke also promotes the idea of worksharing between patent offices when the same invention is being examined in multiple locations.

Lucent v. Microsoft: Damages

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Lucent v. Gateway & Microsoft (Fed. Cir. 2009)

Lucent’s patent-in-suit claims was filed in 1986 and generally focuses on using an on-screen keyboard to enter information into a computer. In 2002, Lucent sued Microsoft and others for infringement. Since then, the patent has expired, but the litigation continues over past damages. Perhaps most notably, this case may serve as a reminder that a twenty year patent term represents a major span in the worlds of business and technology.

The primary infringing portion of Microsoft’s software appears to be the “date picker” function found in Microsoft calendars. In litigation, the jury sided with Lucent and awarded the patent holder with $350 million in damages. Here, I discuss three aspects of the opinion: damages; obviousness; and inducement.

Damages: Most of the action in the Federal Circuit decision revolves around damages. The parties appear to agree that Microsoft sold 110 million accused units with a total sales value of $8 billion. Based on that figure, Lucent requested $561 million in damages based on an 8% royalty rate of Microsoft’s sales revenue. Microsoft argued that the correct licensing rate should result in only $6 million lump sum in damages. On appeal, the Federal Circuit vacated the $350 million dollar award and remanded for a new trial solely on the issue of damages – finding that the original verdict was not supported by substantial evidence.

Reasonable Royalty Calculation: The Patent Act requires that a court award damages at least in the amount of a “reasonable royalty.” The hallmark of that calculation involves a hindsight reconstruction in an attempt to calculate the patentee’s differential “pecuniary condition . . . if the infringement had not occurred.” This is often done through a “hypothetical negotiation” reconstruction based on the Georgia-Pacific factors. See Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970); see also Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 n.13 (Fed. Cir. 1995) (en banc).

Entire Market Value: When a patentee proves that the patent related feature serves as the predominant basis for customer demand, courts allow damages to be based upon the “entire market value” of the product (i.e., 8% of the sales revenue of Microsoft Office) rather than focusing on the incremental value of the innovation. Here, the Federal Circuit held that the “only reasonable conclusion” is that the date-picker function is not a substantial driver of Office sales. “There was no evidence that anybody anywhere at any time ever bought Outlook . . . because it had a date picker.”

Patentees typically prefer to invoke the entire market value rule because it seemingly tends to lead to higher total damage payouts. Of course, the market value only sets a base. Interestingly, the Federal Circuit recognized here that the bar on using the entire market value of a product is rather arbitrary.

Although our law states certain mandatory conditions for applying the entire market value rule, courts must nevertheless be cognizant of a fundamental relationship between the entire market value rule and the calculation of a running royalty damages award. Simply put, the base used in a running royalty calculation can always be the value of the entire commercial embodiment, as long as the magnitude of the rate is within an acceptable range (as determined by the evidence). . . . Microsoft surely would have little reason to complain about the supposed application of the entire market value rule had the jury applied a royalty rate of 0.1% (instead of 8%) to the market price of the infringing programs. Such a rate would have likely yielded a damages award of less than Microsoft’s proposed $6.5 million.

The Court goes on to suggest that the entire market value rule has a place in cases where the invention is only a small portion of the product.

Some commentators suggest that the entire market value rule should have little role in reasonable royalty law. See, e.g., Mark A. Lemley, Distinguishing Lost Profits From Reasonable Royalties, 51 Wm. & Mary L. Rev. (forthcoming 2009) … Amy Landers, Let the Games Begin: Incentives to Innovation in the New Economy of Intellectual Property Law, 46 Santa Clara L. Rev. 307, 362 (2006) … But such general propositions ignore the realities of patent licensing and the flexibility needed in transferring intellectual property rights. The evidence of record in the present dispute illustrates the importance the entire market value may have in reasonable royalty cases.

Georgia Pacific Factors: In its opinion, the Federal Circuit emphasized the flexibility of its jurisprudence in deciding damages with an understanding that actual licensing (much less a hypothetical negotiation) is “complicated” and “inexact.” Ultimately, the case is being sent back for a new trial because the jury’s award was not logically tied to the evidence. (“[T] damages evidence of record was neither very powerful, nor presented very well by either party.”) Most notably lacking are comparable licensing agreements.

First, some of the license agreements are radically different from the hypothetical agreement under consideration for the Day patent. Second, with the other agreements, we are simply unable to ascertain from the evidence presented the subject matter of the agreements, and we therefore cannot understand how the jury could have adequately evaluated the probative value of those agreements.

Damages award vacated

Power Behind the Black Box of Obviousness: In a string of recent cases, the Federal Circuit has reinvigorated the notion that jury verdicts on the question of obviousness will likely be upheld on appeal. Here, Microsoft argued for a particular interpretation of the prior art that it presented. While being sympathetic to Microsoft’s argument, the court held that the defendant’s arguments did not meet the necessary burden.

When the underlying facts are taken in the light most favorable to Lucent, the non-moving party, the evidence reasonably permitted the jury to have decided that Microsoft did not prove by clear and convincing evidence that claim 19 would have been obvious.

Nonobviousness affirmed.

Inducement: Lucent’s case was built on the notion of contributory infringement. Microsoft’s software does not – just by itself – directly infringe Lucent’s asserted method claims. Rather, by selling the software, Microsoft leads its customers to directly infringe. Contributory infringement and inducement both require proof of underlying direct infringement. At trial, Lucent was unable to point to any actual instance where a Microsoft customer used Microsoft products to perform the claimed method. On appeal, the Federal Circuit affirmed the infringement finding by holding that circumstantial evidence was sufficient to support a conclusion that at least one person (other than the experts in the case) used the products in an infringing manner.

As in Moleculon, the jury in the present case could have reasonably concluded that, sometime during the relevant period from 2003 to 2006, more likely than not one person somewhere in the United States had performed the claimed method using the Microsoft products.

Infringement affirmed.

Professor Arti Rai to join the PTO?

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Tech Law Reporter Andrew Noyes today reports on rumors that Duke University Law Professor and occasional Patently-O contributor Arti Rai will be joining the USPTO executive suite as head of external affairs. That position typically leads both intra– and inter-governmental relations. 

Professor Rai’s primary research focus over the past decade has been on the administrative powers of the USPTO and regulatory methods of promoting regulation especially in the areas of health care and biotechnology. In a 2009 article, Professor Rai suggests that the PTO should continue to use the courts to secure additional control over its own rulemaking and procedural authority.

Given the difficulties of securing congressional action—particularly when Congress may be unwilling or unable to separate relatively simple administrative reform from highly contentious issues like damage awards in litigation—the judiciary is probably the more promising venue for conferring such control.

Additionally, Rai argues that the PTO should move forward with inequitable conduct reform.

The progress that could be achieved through inequitable-conduct reform is difficult to overstate. With such reform, interactions with applicants could be regulated in a much more rational manner. In addition to accelerated examination, inequitable-conduct reform could also create opportunities (where appropriate) for more intensive, on-the-record engagement between the examiner and the applicant. For example, in appropriate cases, on-the-record pre-first-office-action interviews that obviate the need for multiple subsequent rounds of negotiation between examiner and applicant might be possible.

Professor Rai has long ties with President Obama. They were law school classmates at Harvard Law School and she worked tirelessly on the campaign. Prior to becoming a law professor, Rai clerked for Judge Patel (N.D. Cal.) and was an associate at Jenner & Block.

Her patent law expertise and close ties to President Obama also place her on a short list of Federal Circuit nominees should a vacancy arise.

Understanding the Role of the Board of Patent Appeals: Ex Parte Rejection Rates on Appeal

BPAI, Patent, , , , , ,

Every proposed patent reform measure includes an expanded role for the US Patent & Trademark Office’s administrative patent court – known today as the Board of Patent Appeals and Interferences, the BPAI, or simply the Board. Even without legislation, the role of the BPAI has expanded greatly in the past few years. The number of ex parte appeals in FY2009 is expected to at least double the record-filing of 6,400 appeals in FY2008. I suggest that two factors have led to this short term dramatic rise in appeals: (1) an increase in rejection-rate by patent examiners; and (2) attempts by the PTO to limit non-appeal avenues for achieving full claim scope. These limits include the PTO’s proposed rules that would curtail the applicant’s ability to file multiple requests for continued examination (RCEs), continuation applications, and a multitude of claims. Although these rules have only been threatened, they impact appeal practice because they may apply to already-pending applications. Although more gradual, two additional influences on the rise in appeals include: (1) the continued perceived value of patent rights and (2) the continued rise in the number of patent application filed each year.

During patent prosecution, an applicant has a right to appeal to the Board after its application is twice rejected. 35 U.S.C. 134. In this short article, I look at how the Board responds to those rejections on appeal. Many appeals involve multiple rejections each of which may be affirmed or reversed. In addition, the Board occasionally introduces a new ground for rejection even after reversing an examiner decision. This analysis opens-up these decisions and provides data issue-by-issue.

My data comes from two primary sources. First, using Westlaw, I downloaded copies of the approximately 6,000 ex parte BPAI decisions issued between January 2008 and May 2009. Using an automated script, I extracted data from each of those appeals, including the holding and the extent of discussion of various issues. (i.e., how often “obviousness” or “enablement” is discussed in the opinion.) In addition, just under 200 ex parte decisions from 2009 were randomly selected and scored by hand to determine how the BPAI decided individual issues within the appeals. Board decisions typically identify a series of issues and then decide each issue. In Ex Parte Cypher, 2009 WL 1162435, 2008-4722, (Bd. Pat. App. Inter. 2009), for instance, the Board identified two issues: “(1) Claims 1-4 … are rejected under 35 U.S.C. § 103(a) as being unpatentable over Loh in view of McFarling. (2) Claims 9-11 … are rejected under 35 U.S.C. § 103(a) as being unpatentable over Loh and McFarling in view of Yeh.” In Cypher, both issues were affirmed. As a consequence, the data for this case reflects that two obviousness issues were raised, both of which were affirmed.

Results:

In the hand-scored sample, the average Board decision considered 2.1 issues (median of two issues). Approximately 61% of decided issues are affirmed on appeal and 39% are reversed. (In this study, fewer than 1% of issues were expressly not decided.) The issue-by-issue analysis fits with the overall holdings for cases on appeal. In the hand-scored sample, 59% of the cases were affirmed as a whole, 12% were affirmed-in-part, and 29% were reversed. (This sample parallels the Board’s own statistics for FY2009 which indicate that 60% of its decisions on the merits are affirmances, 15% affirmance in part, and 25% reversals). Table 1 shows the issue-by-issue results alongside the overall case-holding for the hand-scored sample.

  

Issue-by-Issue Results

Case-by-Case results

Affirmed

61% of issues affirmed

59% of cases affirmed

Affirmed-in-Part

N/A

12% of cases affirmed-in-part

Reversed

39% of issues reversed

29% of cases reversed

Table 1

    

As you might expect, when there is a strong correlation between the overall case holding of an appeal and the holdings on individual issues at issue in the appeal. When the overall case-holding is affirmed, the vast majority of issues are also affirmed. However, in the hand-scored sample, about 10% of cases that were affirmed included some individual issues that were reversed. Often, the reversed issues were rejections argued by the examiner in the alternative. In Ex Parte Mcquiston, 2009 WL 598537, 2008-3224 (Bd. Pat. App. Inter. 2009), for instance, applicant’s claim 1 had been rejected as (1) anticipated by Golds; (2) obvious over Golds; (3) anticipated by Simso; and (4) obvious over Simso. The Board rejected the first three of these rejections, but the claim remained unpatentable as obvious over Simso and the examiner’s decision affirmed as a whole.

Table 2 compares the case-holding with the issue-by-issue analysis based on our hand-scored sample of 200 BPAI decisions. As seen in Table 2, when a case is affirmed-in-part, roughly half (on average) of the issues are affirmed and half are reversed. In cases that were reversed, every issue was also reversed. (?2 P<.01).

Case Holding

Percent of Issued Affirmed

Percent of Issues Reversed

Affirmed

92%

8%

Affirmed-in-Part

51%

49%

Reversed

0%

100%

Table 2

    

Number of Issues on Appeal: In Mcquiston, the applicant needed to address each alternate reason for rejection in order to win on appeal. In most cases, however, each claim is rejected for only a single reason – usually obviousness. See infra. The applicant can then choose how to group issues on appeal. If, for instance, claims 1-10 are each rejected as obvious, the applicant could choose to argue each claim separately or cluster the claims into one or more groups that are then argued as a unit. Chart 1 uses the hand-scored data to presents the likelihood of a particular case-holding as a function of the number of issues on appeal.

When only one issue is presented, the result in the case tracks the result of that issue. As more issues are presented, the likelihood of a split affirmed-in-part decision rises dramatically while the likelihood of either complete affirmance or complete reversal drops. Chart 2 is a cumulative frequency for the number of issues presented on appeal. In our sample, the number of claims ranged from 1 to 8. The median was 2 claims and the mode 1 claim. About 94% of decisions discussed four or fewer issues.

The Board is authorized to offer new grounds for rejection, and did-so in about 4% of the cases in the hand-scored study. The most common new ground was for obviousness.

Obviousness: Obviousness is the bread and butter of patent examinations. In this study, I also show that it is the mainstay of BPAI ex parte appeals. 90% of appeals in my hand-scored study included at least one obviousness issue that was decided on appeal. More than half of the appeals (54%) focused only on obviousness. The closest runner-up issue – anticipation – was an issue in 37% of the appeals. Other issues on appeal (each with a frequency of < 5%) included in descending frequency: written description requirement; indefiniteness, patentable subject matter, obviousness-type double patenting, and enablement.

For applicants, the fact that the majority of issues involve obviousness spells trouble for applicants. In the hand-scored data, the Board affirmed obviousness findings much more often it did for other grounds of rejection. Specifically, the Board affirmed 65% of the appealed obviousness issues, but affirmed only 52% of the appeal issues made on grounds other than obviousness. Table 3 compares these results for the hand-scored sample of 200 cases. (?2 P<.05).

Issue Holding

Obviousness Rejection

Other Grounds of Rejection

Affirmed

65%

52%

Reversed

35%

48%

Table 3

    

The pervasiveness of obviousness issues is further confirmed by the larger sample of 6,000 ex parte decisions issued between January 2008 and May 2009. Using a parsing script, I looked for discussions of obviousness issues by counting the number of times that the terms such as “obvious” and “35 U.S.C. § 103(a)” appeared in each opinion. In that sample, 87% of the decisions discussion obviousness while only 13% do not discuss obviousness. Table 4 shows the roughly parallel results.

  

Hand-Scored Sample

Automatically Parsed Sample

  

(n ˜ 200)

(n ˜ 6,000)

Obviousness at Issue

90% of cases decide an obviousness issue

87% of cases discuss either obviousness or Section 103(a)

No Obviousness Issue

10% of cases do not decide any obviousness issue

13% of cases do not discuss obviousness or Section 103(a)

Table 4

    

In order to ensure that I was picking up an actual obviousness issue, I created a script that looked for cases where obviousness was more intensely discussed, i.e., where obviousness terms were mentioned at least three times. In those cases where obviousness was intensely discussed, the Board affirmed the examiner’s rejections decisions 59% of the time. In cases where obviousness was not discussed at all, the examiner was affirmed in only 37% of cases. Table 5 compares these results for the automatically-parsed sample of 6000 cases. (?2 P<.01).

Case Holding

Obviousness Intensely Discussed

No Discussion of Obviousness

No Discussion of Obviousness or Novelty

Affirmed

59%

37%

22%

Affirmed-in-Part

15%

10%

4%

Reversed

26%

47%

74%

Table 5

      

The far right column of Table 5 provides a compelling statistic. 358 cases in the sample had no discussion of either obviousness or novelty. Of those cases, 74% were reversed on appeal.

Technology Center Specific Results: Patent examination is divided amongst various technology centers. Although the substantive patent laws do not vary across technology lines, patent practice can vary greatly. The BPAI regularly updates a statistical breakdown of its opinions by tech center. [Link]. Table 6 is derived directly from the BPAI statistics for FY2009 through May 2009 and shows the percentage of decisions on the merits from each tech center that arrive affirm, affirm-in-part, or reverse, respectively.

Technology Center

Affirmed

Affirmed-In-Part

Reversed

1600 Biotechnology and Organic Chemistry

59%

15%

27%

1700 Chemical and Materials Engineering

69%

11%

20%

2100 Computer Architecture, Software, and Information Security

63%

13%

24%

2600 Communications

64%

14%

21%

2800 Semiconductors, Electrical and Optical Systems and Components

65%

11%

24%

3600 Transportation, Construction, Electronic Commerce, Agriculture,

47%

22%

31%

3700 Mechanical Engineering, Manufacturing, Products

53%

17%

30%

Table 6

      

Focusing in on obviousness again, it is interesting to see that appeals from Tech Center 1600 (Biotechnology and Organic Chemistry) are the least likely to discuss obviousness. The most appeal decisions emerge from Tech Center 1700 (Chemical and Materials Engineering), and those appeals are the most likely to include a discussion of obviousness. In particular, a discussion of obviousness is found in 92% of TC 1700 appeals but only 76% of TC 1600 appeals. (?2 P<.01). The difference is partially explained by TC 1600’s more rigorous application of the Section 112 issues of written description, enablement and indefiniteness. Table 6 is again derived from the automatically-parsed sample of 6,000 Board decisions. For each tech center, Table 7 indicates the percent of cases that discuss obviousness; both obviousness and novelty; novelty; and neither obviousness nor novelty. This table again highlights (1) the focus of the PTO on obviousness issues (and to a lesser extent novelty issues) and (2) the differences of TC 1600 from the rest of patent practice.

 

Percent of Cases Issue on Appeal

Technology Center

Obviousness+

Obviousness and Novelty

Novelty+

Neither Obviousness Nor Novelty

All

87%

31%

40%

4%

1600 Biotechnology and Organic Chemistry

76%

20%

26%

18%

1700 Chemical and Materials Engineering

92%

29%

34%

3%

2100 Computer Architecture, Software, and Information Security

82%

29%

43%

3%

2600 Communications

89%

31%

39%

3%

2800 Semiconductors, Electrical and Optical Systems and Components

88%

35%

45%

3%

3600 Transportation, Construction, Electronic Commerce, Agriculture,

87%

30%

40%

2%

3700 Mechanical Engineering, Manufacturing, Products

87%

37%

47%

2%

Table 7

        

 

Notes:

  • Thanks to two of my research assistants – Patrick Barnacle and Jaron Brunner – for helping me to score the individual decisions by hand.
  • The BPAI only publishes opinions once the underlying application is either published or issued as a patent. Consequently, this article misses those

Genentech & Volkswagen: Federal Circuit Splits on Venue Transfer Cases

Jurisdiction, Patent, Patent Cases 2009,

In re Genentech (Fed. Cir. 2009)(granting mandamus and ordering transfer) 09-M901.pdf
In re Volkswagen of America (Fed. Cir. 2009)(denying mandamus) 09-M897.pdf

Since deciding TS Tech, the Federal Circuit has received a gaggle of Mandamus petitions – most of them asking the appellate court to order cases transferred out of the Eastern District of Texas to more convenient locations. In a pair of opinions – both authored by Judge Linn and released on the same day – the appellate court has provided additional guidance on deciding these transfer issues.

Genentech – Transfer Granted:

  • Key Witnesses: Genentech identified several witnesses in Northern California and argued it would be more convenient for them to attend trial in that locale. The district court, however gave little weight to Genentech list because the did not identify location of “key” witnesses. On appeal, the Federal Circuit held that at such an early stage of trial, it is unreasonable to require a defendant to show that potential witnesses are “more than relevant” or face denial of transfer.
  • European Witnesses: Several identified witnesses would come from Europe. The Texas court held that it would be more convenient for the European witnesses to travel to Texas than to California because California is further from Europe than is Texas. Here, the district court directly followed the Fifth Circuit’s proportionality test that “[w]hen the distance between an existing venue for trial of a matter and a proposed venue under § 1404(a) is more than 100 miles, the factor of inconvenience to witnesses increases in direct relationship to the additional distance to be traveled.” On appeal, the Federal Circuit noted that the difference in distance should be given less weight when the witnesses are already traveling a great distance.
  • Centralized Location: Although Texas is certainly a more central location, the Federal Circuit held that the factor could not favor a Texas venue because none of the identified witnesses reside in Texas. Rather, the court found that California is more centralized because a number of material witnesses reside within California.
  • Convenience to the Parties: Genentech is in Northern California, Biogen (another defendant) is in San Diego, Sanofi (the plaintiff) is in Germany.
  • Availability of Compulsory Process: If trial is in Texas, there may be several third-party witnesses that could not be compelled to attend because they are in California – outside the long-arm of Texas jurisdiction.
  • Evidence: “In patent cases, the bulk of the relevant evidence comes from the accused infringer.” Here, all of Genentech & Biogen’s relevant evidence is in California.
  • Prior Suit: Genentech has been a plaintiff in the Eastern District of Texas and the district court. On appeal, the Federal Circuit ruled that it would be legal error to consider a prior case that would not otherwise provide for judicial economy.
  • California’s Jurisdiction over Sanofi: There is some question of whether the California court has jurisdiction over Sanofi. The Federal Circuit held that the potential lack of personal jurisdiction in the transferred venue does not weigh heavily against transfer. “There is no requirement under § 1404(a) that a transferee court have jurisdiction over the plaintiff or that there be sufficient minimum contacts with the plaintiff.”
  • Court Congestion: This is a speculative factor and given little weight.

In re Volkswagen – Mandamus Denied:

  • The plaintiff – MHL – is a small company headquartered in Michigan, but registered in Texas.
  • In two lawsuits separate lawsuits (both in the Eastern District of Texas), MHL has sued over thirty US & Foreign automobile companies for patent infrignement.
  • VW has asked that the case be transferred from the Eastern District of Texas to the Eastern District of Michigan.
  • Multiple Lawsuits: The Federal Circuit identified the “existence of multiple lawsuits” involving the same patents and overlapping issues to be “a paramount consideration when determining whether a transfer is in the interest of justice. … Although these cases may not involve precisely the same issues, there will be significant overlap and a familiarity with the patents could preserve time and resources. Because the district court’s decision is based on the rational argument that judicial economy is served by having the same district court try the cases involving the same patents, mandamus is inappropriate under our precedents.”

Comment: In patent cases, these venue games tend to approach the absurd, and I am surprised that the Federal Circuit has taken these cases so seriously. Defendants want to move out of the Eastern District of Texas because they fear trial and the potential major damage award. The “convenient venue” argument is concocted because the Eastern District of Texas is clearly a “proper forum” with personal jurisdiction over the defendants.

MHL is a patent holding company that registered as a Texas business in June of 2007. That registration appears to have served its purpose – to win the Texas venue argument even though the principles of the business are all located in Michigan. On the other side – it looks like the Federal Circuit refused to consider the two most important facts of convenience in the Genentech case. First, in 2006, Genentech sued MedImmune for patent infringement in the Eastern District of Texas. At that time, Genentech calculated that Texas was perfectly suitable even though neither party was located in the state. Yet, the Federal Circuit held that it was legal error for the district court to consider Genentech’s prior activities in the present motion for Venue. The second issues is jurisdiction – it just does not make sense to transfer a case to a new forum without some assurances that the court has personal jurisdiction over the parties.

Disclaimer: I just noticed that my former firm MBHB (who is now a sponsor of Patently-O) is involved in the Genentech case. I do not represent any clients these days. One reason why I have enjoyed having MBHB as a sponsor is that the firm has never tried to exert editorial control over the blog or its content beyond the layout of the firm’s ad.

Bits and Bytes No. 106: Patent Reform

Bits and Bytes, Patent, Patent Legislation, , , ,
  • [UPDATED] Hal Wegner Reports the Following:
    • Phil Kiko of Foley Public Affairs reports that Secretary of Commerce Gary Locke has announced that he has chosen the next Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office. The chosen candidate, who is being vetted, was not named.
  • Congress is Moving Forward with Patent Reform:
    • April 30, 2009 hearing of the House Judiciary Committee.
    • Here are some comments on the testimony:
      • Jack Lasersohn (venture capitalist): Venture capital requires strong and certain patents. The damage reforms create potential problems because sometimes a relatively minor product innovation will dramatically change the market position. “A new coating on a solar cell , that increases it’s conversion efficiency just a little bit, can dramatically shift the market for entire multi-billion dollar solar energy plants. A better drug on a drug eluting stent can shift the entire stent market. In either case, the question is ‘who is entitled to the profits arising from the use of the invention, the inventor or the infringer’?”
      • Dean Kamen (Inventor & Businessman): patents should be strong and policy should be directed to support small innovative organizations.
      • David Simon (Intel): patents are meant to allow manufacturing companies to fight each other – not for non-manufacturing inventors or their assigns to slow-down manufacturers. [This is a very rough paraphrase of Simon’s 13 page rant against non-practising entities.]
      • Philip Johnson (J&J) on behalf of the 21st Century Patent Reformers wants money for the PTO, international harmonization (first-to-file), expanded post-grant review (12–month window), no change to the current damages system, only a codification of Seagate, no changes to venue law.
      • Jay Thomas (Georgetown) argues that patent infringement damages are too unpredictable and that additional rules of evidence and practice can help solve the problem.
      • Mark Chandler (Cisco) supports the reforms to halt the problem of non-practising entities who demand licenses.
      • Bernard Cassidy (Tessera): Please do not change the patent law in ways that hurt small companies. The courts have already done enough through eBay, KSR, Medimmune, Microsoft v. AT&T, Seagate, Bilski, and TS Tech.
      • [WRITTEN TESTIMONY.zip (3794 KB)]
  • Absent from this testimony: Any representative from the Patent Office. At least three candidates are rumored to have been interviewed for the post of PTO Director – including former PTO Director Todd Dickinson and IP Hall of Fame member Mike Kirk. [See updated news above]

Prescriptions for Drafting Assertable Claims

Patent,

Many patent cases are won and lost on claim drafting issues. In the recent Netcraft case, for instance, the claimed included the step of “providing a communications link through equipment of the third party.” In his three “Prescriptions for Drafting Assertable Claims, Ron Slusky shows how to avoid the drafting mistakes found in that claim. Ron Slusky is the author of Invention Analysis and Claiming: A Patent Lawyer’s Guide (ABA). Slusky’s seminars will be in seven venues this year: Chicago, Boston, Santa Clara, Philadelphia, DC, Dallas and NYC.

1. Claim the Invention in All of Its Commercially Significant Settings

An invention should be claimed in all of its commercially significant “settings” in order to prevent others from taking advantage of the inventor’s teachings while avoiding the patent.

A setting is a context in which the inventive concept is manifest—also sometimes called a “perspective” or “point of view”. For example, a cylinder lock invention may manifest itself in how the lock is constructed; in a unique type of key required to operate the lock; in the key-cutting machine that produces the unique type of key; or possibly even in the key blank. Each of these—the lock, the key, the key cutting machine and the key blank—is a separate setting in which the invention should be claimed because any given party may implement the inventive concept in only one particular setting. For example, manufacturers of key-cutting machines or key blanks will not infringe if only the lock itself was claimed. Other multiple-setting examples:

• a) Encoding a video signal (to reduce the amount of data required to represent it); b) decoding the encoded signal.

• a) Peptide; b) cell capable of producing the peptide; c) manufacturing the peptide.

A setting is not the same as a statutory class. For example, the lock invention could be defined within the key-cutting-machine setting by apparatus claims defining the structure of the machine as well as by method claims defining how the machine operates to cut the key.

2. Maintain the Integrity of the Invention Setting Boundary

Having decided to claim the invention in a particular setting, we should take care to restrict the claim to that setting. If something outside the boundary of the setting makes its way into the claim, parties whose activities would otherwise infringe the claim may no longer do so.

The following claim, for example, is intended to define a video compression invention in its encoding—e.g., integrated circuit encoder—setting.

A method comprising
generating a video signal to be encoded, and
encoding the video signal by performing the steps of …

Here the step of “generating a video signal to be encoded” is outside of the intended setting because the integrated circuit typically does not generate the video signal but, rather, receives it from somewhere else, e.g., separate scanning hardware. This is a point that integrated circuit manufacturers will lose no time in pointing out when the patent owner approaches them to take a license.

The solution is to assume that the input signal already exists at the point in time that the claimed method is carried out, thereby putting the actual generating of the input signal outside the boundaries of the claimed subject matter, and thereby restricting the claimed subject matter to the selected setting:

A method for encoding a video signal, the method comprising the steps of…

3. Draft claims that will be directly infringed by individual (as opposed to co-acting) parties

Contributory infringement, inducement and multiple-party direct infringement are all expensive and difficult to prove—and may not be able to be proved at all, even if the inventor’s teachings are being appropriated. Claims therefore should always be drafted to capture the activities of a) individual—as opposed to co-acting—parties who are b) direct infringers, if there is any way to do it (which there almost always is). That goal is largely achieved when the claims define the invention strictly within the boundaries of its various settings. However, we help ensure that our claims capture the activities of individual direct infringers by drafting and reviewing claims with such parties specifically in mind.

For example, infringement of the following internet-based claim invokes the actions of not only the desirable assertion target—the web server operator—but the individual internet user:   

A method comprising
(a) selecting an icon displayed on a screen [user],
(b) transmitting to a web server a signal indicative of the selected icon [user],
(c) receiving the signal at the web server [web server], and
(d) processing the received signal in such a way that …. [web server]

An internet user and a web server operator are unlikely to be adjudged joint direct infringers; neither controls or directs the actions of the other. (See, e.g., BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373, 84 U.S.P.Q.2d 1545 (Fed. Cir. 2007)). And without direct infringement there can be no contributory infringement or inducement. So everyone escapes liability under such a claim.

The solution is to draft a claim strictly limited to the web server setting and, in so doing, draft a claim that reads exclusively on the activities of the web server operator.

A method comprising
(a) receiving a signal indicative of a user-selected screen-displayed icon, and
(b) processing the received signal in such a way that ….

Copyright © 2007, 2009 American Bar Association. All rights reserved. Adapted with permission.

Bits and Bytes No. 101: Patent Bill & the Patent Lobby

Patent, , , ,
  • Reform: Today, the Senate Judiciary Committee met shortly and announced that an agreement is “close” on all of the controversial issues and that the compromise will result in a major overhaul of S. 515. Gene Quinn has instant-comments. Potential changes include: (1) codifying the existing law of damages rather than changing it – except that a judicial check on jury-awarded damages would be added; (2) eliminate “best mode” as a ground for invalidating a patent; (3) lowering the standard for post grant review to an “interesting question” rather than a “substantial new question of patentability.” We should see some language this week.
  • Reform: A reader sent me the following points on the potential agreed-to compromise Bill in the Senate:
    • Damages. The amendment will strike the contentious calculation of reasonable royalty damages provision and will replace it with the gatekeeper language developed by Senators Feinstein and Specter, which will provide more of a role for the judge to identify the appropriate legal standards and relevant factual contentions for the jury.
    • Inter partes reexamination. The amendment will strike the controversial “in public use or on sale” additions on inter partes reexamination.
    • Best mode. The amendment will retain the requirement that a specification contain the best mode of carrying out the invention as part of the patent application, but not allow best mode to be used as means to invalidate a patent.
    • Interlocutory appeals. The amendment will tighten the interlocutory appeals provision. The bill as introduced would have given the district court complete discretion whether to approve an application for interlocutory appeal of a claims construction hearing. This amendment will provide district court with specific standards that it must certify have been met.
    • Willfulness. The amendment tightens the willfulness provision to ensure is in line with the Federal Circuit’s decision in Seagate.
    • Venue. The amendment will strike the current subsection on venue, and replace it with a codification of the Federal Circuit’s recent decision in TS Tech.
  • Lobby Lobby: The IPO reports that “by early afternoon yesterday, 16 paid ‘line sitters’ were already in line in the corridor outside the [committee] room, holding places for lobbyists to be admitted to the room this morning.”
  • Patent Jobs: The Patently-O Job board has picked-up some steam over the past week. Here are some recent job postings.

Patent Reform 2009: More on Damages

Damages, Patent, Patent Legislation, , ,

Guest Post by Richard Cauley. Cauley is the author of the recent Oxford Press book titled Winning the Patent Damages Case: A Litigator’s Guide to Economic Models and Other Damage Strategies. I asked him to provide some thoughts on the damages proposals in the Patent Reform Act of 2009. Cauley.jpg

The damages provisions of the Patent Reform Act of 2009 are not new, nor, in an economic sense, are they particularly controversial. Although their introduction in this legislation may create a political firestorm among those who wish to artificially maximize the economic leverage of patentholders both in court and across the bargaining table, the solutions proposed in the latest attempt at patent reform merely reflect – and attempt to measure – the true economic worth of a patent and the reasonable return to which an inventor is entitled.

What these damages provisions (all of which were contained in the various versions of the failed Patent Reform Act of 2007) attempt to accomplish is to force the court to limit the patentholder’s recovery to the real economic worth of an invention – for example, to a company who might want to license that invention to use in another product or to a consumer who might purchase a product because of that very invention.

Thus, the section limiting the application of the entire market value rule to situations in which the actual invention – the advance over the prior art – forms the basis of consumer demand compensates the inventor only to the extent his invention produces something that people actually want to buy.

This section also ensures that patents on relatively minor components are not given a value in excess of their real economic worth. Where the patent does not cover something critically important to the consumer, the provision limits the patentholder’s recovery to the value of that component to the customer – and precludes a recovery based on the entire product, which may include many other patented components.

Likewise, the section requiring the court to determine whether there is already a “market price” for licensing the patent – in the form of pre-existing licenses for similar patent rights – simply measures how much a prospective licensee would be willing to pay on the open market for the right to use the patent. Of course, this is what the reasonable royalty remedy is supposed to measure.

The purpose of these provisions is obvious. First, they will limit the ability of patentholders, primarily patent trolls, to recover damages in patent litigation far in excess of the actual economic value of those patents. More importantly, however, they will reduce the threat of such inflated damages awards – a threat such plaintiffs use as leverage in licensing campaigns and settlement negotiations to secure recoveries far exceeding the worth these patents really have to the prospective licensees.

The problem with these proposed statutes, then is not their objective – to give patents the value they actually deserve – but the implementation. As written, these provisions are a judicial nightmare. They require the court to conduct a kind of “damages Markman” in which the court must decide, before giving the case to the jury, the economic value of the patent’s “specific contribution over the prior art,” the “basis” for the “market demand” for an infringing process, the “relevant market” for a claimed invention and whether that market has “similar noninfringing substitutes” for the claimed invention. Apparently, the court is also supposed to make the economic decision of which Georgia Pacific factors the jury is allowed to consider.   

The delay which will be caused in an ongoing trial will inevitably be substantial and the opportunities for reversible error in this process will be legion. Although the intent of the drafters of these provisions was certainly praiseworthy– to codify limits on jury’s overvaluing patents in awarding damages – the byzantine rules they set up to implement these objective shows that they certainly have never tried a patent case. Indeed, if the courts would simply follow the judicially- established guidelines already in place, this complex set of regulations would not be necessary.

Hopefully, calmer heads will prevail before these rules are actually imposed on the patent litigation bar and on the courts. There are better and more effective ways of reaching these objectives.

Indeed, it is not surprising that, in another section of the bill – limiting venue for patent cases to districts in which the defendant has a facility – there appears to be no appropriate venue for a patent case against an infringing foreign defendant with no facilities in the United States. Thus, a plaintiff might have jurisdiction over an infringer, but nowhere to sue the company – all dressed up and no place to go.

Links:

Guest Post: Monsanto Company’s View on Patent Reform – Protect Innovation:

Articles and Publications, Guest Post, Patent, Patent Legislation, , ,

PatentLawPic699 David Snively is Monsanto's General Counsel. He read Google's calls for patent reform and penned the following response. Monsanto's business model relies heavily on its ability to protect its innovations through intellectual property and contract in the US and Globally. Monsanto has also been the defendant in numerous patent battles.

Dr. Alan Greenpan's keynote speech on "Markets and the Judiciary" noted that "critical to economic growth is a rule of law, particularly protection of the rights of individuals and property". His remark that for IP law, the constancy of the protection afforded under the Constitution of the United States and our fully-functioning legal system is the basis for the U.S. economy's sustaining lead – even in difficult economic times with broken markets. Our patent system is the envy of the globe and while capable of thoughtful adjustment should not be hijacked by international pirates or corporations seeking to dilute legitimate protection that breeds investment and jobs. This is why Monsanto Company, as a global leader for innovation and technology in agriculture, is joined by trade unions and countless other groups who strive to assure Greenspan's voice is not lost in the din from hedge funds, offshore interests or others seeking short term gain by weakening our great patent system.

I respectfully disagree with the recent blog post by Google's Head of Patents and General Counsel, commenting on the perceived risks from damage awards in patent cases. Monsanto has faced billion dollar damage claims as a wrongly sued patent defendant and also knows the true benefits from avoiding the encouragement of willful infringement based on a smaller party's calculated gain in the face of limited risk of a meaningful award of damages if infringement is established. With full knowledge of all these issues and our substantial alignment with Google and the information technology industry over the legitimate need to curtail patent trolls and a myriad of other concerns – we encourage thoughtful reform. Last year Congress passed without public objection Public Law 110-403 the "Prioritizing Resources and Organization for Intellectual Property Act of 2008" which was designed to significantly enhance government law enforcement resources for combating certain kinds of intellectual property (IP) theft, e.g. criminal counterfeiting and infringement of computer software. The law helps protect investments in the research, development and marketing of certain kinds of innovative American products and services. The information technology industry was rightly bothered that its intellectual property rights were being trampled on by "pirates".

But, according to the financial sector and the information technology industry it seems that too many other people have too many patents that get in the way of too much "innovation" that is being marketed by an industry that doesn't own the rights to the "innovation". Some say that innovation can't stand still while somebody does a patent search to make sure that the "innovation" that is being marketed won't infringe any of those too many patents. So the complaint is "we are getting sued too much by these innovators who are stifling our innovation". Unlike the solution for rampant copyright infringement the perverse solution for rampant patent infringement is to propose "reforms" that would both reduce incentive to invest in research, development and marketing of innovative American products and services and provided impediments for improving patent quality. Dr. Greenspan's Georgetown keynote aptly recalled the copyright situation when he quoted Stephen Breyer from the Harvard Law Review decades prior to becoming a Justice "the case for copyright…rests not upon the proven need, but rather upon the uncertainty as to what would happen if protection were removed. One may suspect the risk of harm is small, but the world without copyright is nonetheless [in the words of Hamlet] 'undiscover'd country' which 'puzzles the will,/And makes us rather bear those ills we have/Than fly to others that we know not of.'

The problems posed by the patent reform bill are many:

  • It would change the calculation of damages that an infringer (pirate) would pay as compensation for trampling on patent rights, encouraging only more callous disregard of patent rights and piracy.
  • It would change the venue provisions in a way that would impose a substantial burden and inconvenience on patent owners by limiting access to the judicial system, encouraging only more callous disregard of patent rights and piracy.
  • "Technical" changes would weaken protection and encourage piracy via removing the estoppels provisions and expanding the prior art basis for engaging in inter partes re-examination, in effect providing a system of post grant review that will serve only to harass patent owners by effectively taking patents out or service for the duration of unlimited re-examinations, encouraging only more callous disregard of patent rights and piracy.

Transparency is critical to society today yet the patent reform bill would not require publication of all patent applications at 18 months reducing the public knowledge of prior art making it harder to avoid investment in patent-free technology and reducing the likelihood that quality patents will issue.

Thoughtful patent reform is needed. There are things to support in the House version of the patent reform bill. For example, the House bill while strangely modifying the damages calculation would authorize a study to see if such a modification is needed. Such studies are available and do not support the anecdotes that say damage awards are out of control.

Patent Reform that discourages investment in research and development and the job growth and economic stimulus that is spawned by thousands of small companies as well as large companies that rely on a robust and strong patent system is bad for America. Monsanto invests over $2M every day in research and is committed publicly to helping double food yield in corn, soy and cotton by 2030 while using 1/3 fewer natural resources and improving the lives of farmers globally. Accomplishing this task of sustainable agriculture requires a patent system and rule of law that Dr. Greenspan says has always been found in the Constitution of the United States.

Patent Reform 2009: Damages

Articles and Publications, Damages, Patent, Patent Legislation, ,

The most contentious portion of the Patent Reform Act of 2009 is the damages provision. The current damages statute gives little guidance to a court. Damages must be “adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer.” 35 U.S.C. §284. The Court may “increase the damages up to three times the amount found or assessed.” Id. The courts have given some flesh to the rough skeleton created by these statutes. One construct is the hypothetical negotiation – asking the counterfactual question of what licensing scheme would these dueling foes have agreed to if they had actually come to a licensing agreement. The Georgia Pacific factors guide the process of deternining a reasonable royalty. In some cases, courts allow a patentee to recover lost profits.

As it turns out, the damages actually awarded in patent cases are generally thought to be much higher than negotiated license agreements.  Part of the difference stems from the reality that patent damages are awarded only on patents that are known to be valid, infringed, and enforceable, and after the risk and expense of litigation have already been taken. In ordinary license negotiations, these risks lower the potential royalty rate and – in contrast – should increased the level of compensation in post-trial damages.  There is some evidence that juries simply tend toward large damage awards.

Stacking Problem: In some technology areas – such as electronics – this creates a potential problem known as royalty stacking. Most electronics products are covered by multiple patents – often dozens of patents. CDMA2000 communication standard, for instance, reportedly invringes at least 924 patents. [LINK] When each patentee is awarded a 5% royalty, it does not take long before the entire revenue is taken just to pay for intellectual property rights. If everyone has blocking rights then no business can get done, and we see the tragedy of the anti-commons. Of course, stacking is only a problem in theory. CDMA2000 is a standard actually used around the world. Producers are making (some) money. Multiple patents covering products have causes prices to be raised, but it is not clear than any market has been destroyed or even that the royalty payments outway the benefit of the innovation.

Uncertainty Problem: Jury verdicts are quite unpredictable, and because the royalty rules are so loose, damages appeals are rarely successful.

The new legislation appears to take on these problems in a way to (1) reduce the average damage award; (2) make damage awards more rational and predictable; and (3) make damages judgment more subject to appellate review.

The practical approach of the legislation is to create a “standard for calculating reasonable royalty” which require a determination of the “specific contribution over the prior art” to determine damages. Some courts already follow the rules set out in the proposed legislation. Thus, legislation advocates may refer to the damages reforms as simply a clarification that limits the actions of rogue courts.

The proposed text reads as follows:

35 USC 284(c)(1) IN GENERAL.-The court shall determine, based on the facts of the case and after adducing any further evidence the court deems necessary, which of the following methods shall be used by the court or the jury in calculating a reasonable royalty pursuant to subsection (a). The court shall also identify the factors that are relevant to the determination of a reasonable royalty, and the court or jury, as the case may be, shall consider only those factors in making such determination.

”(A) ENTIRE MARKET VALUE.-Upon a showing to the satisfaction of the court that the claimed invention’s specific contribution over the prior art is the predominant basis for market demand for an infringing product or process, damages may be based upon the entire market value of that infringing product or process.

”(B) ESTABLISHED ROYALTY BASED ON MARKETPLACE LICENSING.-Upon a showing to the satisfaction of the court that the claimed invention has been the subject of a nonexclusive license for the use made of the invention by the infringer, to a number of persons sufficient to indicate a general marketplace recognition of the reasonableness of the licensing terms, if the license was secured prior to the filing of the case before the court, and the court determines that the infringer’s use is of substantially the same scope, volume, and benefit of the rights granted under such license, damages may be determined on the basis of the terms of such license. Upon a showing to the satisfaction of the court that the claimed invention has sufficiently similar noninfringing substitutes in the relevant market, which have themselves been the subject of such nonexclusive licenses, and the court de termines that the infringer’s use is of substan tially the same scope, volume, and benefit of the rights granted under such licenses, damages may be determined on the basis of the terms of such licenses. ”

(C) VALUATION CALCULATION.-Upon a determination by the court that the showings required under subparagraphs (A) and (B) have not been made, the court shall conduct an analysis to ensure that a reasonable royalty is applied only to the portion of the economic value of the infringing product or process properly at tributable to the claimed invention’s specific contribution over the prior art. In the case of a combination invention whose elements are present individually in the prior art, the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.

”(2) ADDITIONAL FACTORS.-Where the court determines it to be appropriate in determining a reasonable royalty under paragraph (1), the court may also consider, or direct the jury to consider, any other relevant factors under applicable law.

Notes:

  • I’ll use this opportunity to plug a new book by Richard Cauley: Winning the Patent Damages Case (Oxford 2009). Great book, the only problem is the $185 price tag.
  • The Bills have received numbers: H.R. 1260 is sponsored by Rep. Conyers (MI) and co-sponsored by Reps. Berman (CA), Goodlatte (VA), Jackson-Lee (TX), and Smith (TX). S. 515 is sponsored by Sen. Leahy and co-sponsored by Sens. Crapo (ID), Gillibrand (NY), Hatch (UT), Risch (ID), Schumer (NY), and Whitehouse (RI). Both Bills have been referred to their respective Judiciary Committee which are headed by the Bill sponsors.

Back Reading

Patent Reform Act of 2009

Damages, Patent, Patent Legislation, Reexamination, , , , , ,

Patent reform legislation has now been introduced in both the House and the Senate. The provisions call for major reforms and mirror much of the proposed legislation from 2008. If anything, this is not a consensus Bill. File Attachment: SenateBill.pdf (116 KB) File Attachment: HouseBill.pdf (180 KB)

Proposed changes in the Senate Bill include:

  • First to File: Moving to a first-to-file system that credits invention based on the filing date of the patent application rather than on the date of actual invention.   The provision eliminates the one-year grace period for most cases. Thus, any independent third-party publication prior to filing is considered prior art regardless of the date of invention. Likewise, secret prior art (102(e)) cannot be ‘sworn behind’ based on prior invention. This provision obviously hurts folks who delay in filing patent applications.
  • Damages: Must look to the invention’s “specific contribution over the prior art” to determine damages. There is an interesting provision that a reasonable royalty may be calculated as the price of licensing a “similar noninfringing substitute in the relative market.” In some cases, this could push damages to zero if the noninfringing substitute is in the public domain. The provision also codifies that treble damages are limited to instances where a judge finds that an adjudged infringer recklessly continued to infringe after receiving particularly specified written notice sufficient to create declaratory judgment jurisdiction and without relying on reasonable advice of counsel.
  • Expanded Reexamination Proceedings: Reexaminations may be requested based on published prior art, or evidence of prior public use or sale in the US. Inter partes reexaminations would begin to look more like court cases and would be heard by administrative patent judges. The Bill would clarify that parties would be estopped from filing inter partes reexamination requests after a district court judgment.
  • Additional Post Grant Review: Within 12 months of issuance, a third party can file a cancellation petition based on any ground of invalidity (rather than simply prior art). The post grant reviews would also be conducted by the administrative patent judges.
  • Pre-Issuance Submissions: Third parties can submit prior art during examination of the patent as well as a statement regarding the relevance of the art. The art should be submitted the latter of (1) six months after publication or (2) before the first office action on the merits.
  • Patent Litigation Venue: “A party shall not manufacture venue by assignment, incorporation, or otherwise to invoke the venue of a specific district court.” Venue is only proper were (a) defendant is incorporated; (b) defendant has its principle place of business; (c) where the defendant is permanently located and has committed substantial acts of infringement; or (d) where the plaintiff resides if the plaintiff is a nonprofit or individual inventor. The court should transfer venue to avoid evidentiary burdens when transfer can be accomplished without causing undue hardship to the plaintiff.”
  • Interlocutory Appeals: The Federal Circuit will have jurisdiction over interlocutory appeals of claim construction when approved by the lower court.
  • Administrative Patent Judges: The BPAI would become the Patent Trial and Appeal Board (PTAB). Interferences would be gone, however they would be replaced by derivation proceedings as well as reexamination and post-grant trials.
  • PTO Powers: The PTO has power to set its fees, including reducing fees.
  • Oath: Easing the rules to more easily allow rights-holders to file patent applications on behalf of the inventor.
  • Federal Circuit Judges: Making legal it for a Federal Circuit judge to reside more than 50 miles from DC.

As you can see, this is very much the type of reform that companies like Google would like to see. Google is regularly faced with charges of patent infringement and rarely sues for infringement. Some of these changes will benefit the system as a whole, but it is clear that this is not “balanced” reform. The damages provision will almost certainly reduce patent awards. And, perhaps equally important, the damages provision provides adjudged infringers a real cause to appeal jury awards if they did not directly follow the expert testimony.

I believe that the expanded use of reexaminations and post grant review and prior art submissions will be beneficial, and I have faith that the administrative patent judges will be able to handle their newfound responsibilities. That said, these provisions provide challengers with new ways to attack patent rights.

The plaintiff bar in the Eastern District of Texas is quite good, and defendants are doing what they can to escape from their grasp. The venue provision moves in that direction and would thus weaken the value of patents.

The trick with the first to file system is to realize that it is not about some mythical race to invent between competitors. Rather, it is about keying the priority on the date of filing the application rather than the date of invention or even one year prior to filing. This provision weakens patent rights because more materials will be considered prior art. It is possible to switch to a first-to-file system without eliminating the grace period so dramatically – this legislation does not, however meet that standard.

The Bill is sponsored by both Senators Leahy (D-VT) and Hatch (R-UT). Representative Conyers (D-Mich) introduced parallel legislation in the House, the legislation is largely similar, but does contain some differences. (I have not reviewed the House version in detail). Some opposition has already formed. Reps Manzullo (R-IL) an Michaud (D-ME) issued a joint press release titled “New patent bill encourages IP theft, destroys American jobs.” Their focus was on the damages provision.

There are some changes from the 2008 legislation.

  • The Bill does not require that all applications be published at 18 months.
  • Applicants would not be required to search prior art.
  • The 2009 Bill allows public use or sale in the US to be reasons for challenging patents.
  • CHECK 21 provisions are gone.
  • Fee Diversion is allowed in the 2009 Bill. (Oddly, Leahy explained that PTO Examiners perfer a system of fee diversion)
  • The 2009 Bill does not address inequitable conduct.

Links:

Eastern District of Texas as the Best Venue

Jurisdiction, Patent, Patent Cases 2009

Mayer Lebowitz was a noted inventor of security technology. He died in 2005, but the trustee of his estate (Gellman) sued to enforce patent rights against various security companies including ADT, Diebold, Digital Security, Europlex, NAPCO, Numerex, Protection One, and Telular. Gelman lives in Texas and brought suit on behalf of the estate in the Eastern District of Texas – alleging infringement of U.S. patent No. 6,075,451. The ‘451 patent covers the method and electronics for sending alerts via a cellular network. That way, the lines can’t be cut, and installation may be much cheaper.

Judge Ward rejected the defendants motion to transfer Venue to the Northern District of Illinois – finding that the Plaintiff’s Texas location weighed heavily in favor of keeping the case in Texas. Gellman v. ADT Sec. Services, Inc., 2008 WL 4280351 (E.D.Tex. 2008). Following In re TS Tech, Telular has now moved for mandamus – asking the Federal Circuit to order that venue be transferred. In a preliminary ruling on the Motion, Judge Dyk demanded that Gellman brief the matter.

In a parallel case, Judge Ward recently refused to transfer a case that had been filed against a dozen auto manufacturers. MHL TEK, a Texas corporation, sued Audi, VW, Nissan, Hyundai, Kia, BMW, Porsche, Isuzu, etc. The defendants asked that the case be sent to the Eastern District of Michigan, Judge Ward found numerous reasons why Michigan was a poor choice of venue. MHL TEK, LLC, v. NISSAN MOTOR COMPANY, 2009 U.S. Dist. LEXIS 13676 (E.D. Tex. 2009). In his opinion, Judge Ward made the law on venue look quite silly when applied to major multi-party patent cases. For instance, the convenience factor looks at distance to the forum: “For defendants flying in from Germany, the Detroit airport would possibly be closer than the Shreveport airport. For defendants flying in from Asia over the Pacific, the Shreveport airport would possibly be closer than the Detroit airport.” As in the Gellman case, at least one defendant here (VW) has asked for the Federal Circuit to rule on mandamus. Briefing on that motion continues.

Both cases are easily contrasted with Odom v. Microsoft. (AKA Patent Hawk) In Odom’s case, both the patent holder and defendant were located in the Pacific Northwest, and the defendant asked that the case be transferred to the Plaintiff’s home jurisdiction. In both Gellman & MHL TEK, the plaintiffs are located in Texas and the multiple defendants are located throughout the country and the world without any particular site of nexus.