Tag Archives: Venue

Director Lee: IP is a Necessary Key Piece of President-Elect Trump’s Promised Economic Growth and Job Creation

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Today, USPTO Director provided her first Post-Election speech that includes some thoughts on IP policy after Obama.

I believe the incoming administration must and will continue our effort to promote innovation fueled by a strong and robust IP system. Support for IP in the United States has a long history of bipartisanship, and there’s no reason to imagine that changing with a new president and a new Congress, both of whom have economic growth as a top priority. . . .

I’m optimistic the incoming administration will share our appreciation of the importance of intellectual property as a driver of economic growth. As I look ahead, I foresee legislative patent reform changes will continue to be discussed in Congress, though those conversations will likely occur later in the term after some of the other priorities including filling a Supreme Court vacancy, immigration and tax reform are addressed, and any legislative patent reform will likely be more targeted, rather than the comprehensive reforms we’ve seen in prior Congresses. I would hope any legislative proposal will take into account the numerous positive changes that have occurred recently in the patent system including: through the courts, including on attorneys fees, pleading requirements and discovery limits, and at the USPTO through the PTAB and the agency’s efforts to improve the quality of patents in our system. As far as issues, I predict legislative discussions may include venue reform and possibly changes to Section 101 and PTAB. On venue, with nearly half of the patent cases filed in 2015 filed in a single district out of 94 federal judicial districts, it is easy for critics to contend that plaintiffs seek out this district preferentially for the wrong reasons. And the mere perception that there are advantages to be gained by forum-shopping challenges the public’s faith in the patent system. So there will be continuing pressure for legislative (and likely judicial) action on the issue of venue. The scope of any legislative reform remains is to be determined, but I predict that the focus will be on more targeted, rather than comprehensive reform as we saw these past couple Congresses. Further, I anticipate that the USPTO’s work across the globe to ensure that other countries have strong IP protections adequate enforcement mechanisms and remedies, and appropriate technology transfer (or licensing and competition) policies, will continue in the next Administration particularly in such countries as China and others. This is a President-elect that has promised economic growth and job creation in our country, and IP will necessarily be a key piece to achieving that goal. . . .

I firmly believe that the USPTO is healthy, well-functioning and poised to successfully handle whatever challenges and opportunities lie ahead.  . . . When President Obama was inaugurated in 2009, his focus was on leading this nation’s recovery from the Great Recession. One of his first acts was to ask the Smithsonian to provide for display in the Oval Office some patent models that demonstrated past American innovation that led to new jobs and new industries. The president said that throughout our history, Americans solved problems through innovation and IP. He wanted to see reminders of that every day as he encountered the challenges he faced. The Smithsonian provided him with three models: Samuel Morse’s telegraph (1849),  John Peer’s gear cutter (1874), and Henry Williams’ steamboat wheel (1877). As I stood behind the President in the Oval Office earlier this year when he signed the Defend Trade Secrets Act, I couldn’t help but notice those three models along the wall to my left—still there almost eight years later—and feel extraordinarily humbled and honored. I feel that same honor and humility today standing before all of you and reflecting on just how much we have accomplished under this administration.  I’ve been fortunate to lead the USPTO at a time when intellectual property issues have been front and center on the consciousness of the American public and President and to have had the opportunity to help guide the direction in a small way. My hope is that the President-elect keeps the patent models from Morse, Peer and Williams in his office as a reminder of the importance of intellectual property to the economic prosperity that I know he wants for our country.

Read the full remarks here.

Supreme Court Patent Cases: Post Sale Exhaustion

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by Dennis Crouch

Substantive Patent Law: Newly filed petition in Merck & Cie v. Watson Labs raises a core substantive patent issue – does the on sale bar apply to secret sales? The defendant asks:

Whether the “on sale” bar found in § 102(b) applies only to sales or offers of sale made available to the public, as Congress, this Court, and the United States have all made clear, or whether it also applies to non-public sales or offers of sale, as the Federal Circuit has held.

The Merck petition is focused on pre-AIA patents.  The PTO (and patentees) are arguing more forcefully that the AIA certainly intended to exclude secret sales from the scope of prior art in cases now pending before the Federal Circuit.

The second new substantive patent law case is Google v. Arendi that challenge’s the Federal Circuit’s limitations on the use of common sense in the obviousness analysis.  In its decision, the Federal Circuit limited KSR to combination patents and held that “common sense” cannot be used to supply missing limitations.  Google argues that the Federal Circuit’s approach is contrary to the broad and flexible obviousness analysis required by KSR.  Patentees bristle term “common sense” – they see an overly flexible analysis as providing opportunities to invalidate patents without evidence.  The question: “Did the Federal Circuit err in restricting the Board’s ability to rely on the common sense and common knowledge of skilled artisans to establish the obviousness of patent claims?”

As these new petitions were being filed, the Supreme Court has also denied the pending obviousness, anticipation, and eligibility petitions.  In addition, Cooper v. Square has also been denied.

Civil Procedure: In J&J v. Rembrandt, the defendant J&J won at trial. However, Rembrandt later learned that J&J’s expert had testified falsely and the Federal Circuit ordered the case re-opened under R.60(b)(3) that empowers district courts to revisit final judgments after a showing of “fraud …, misrepresentation, or misconduct by the opposing party.”  The various circuits follow different standards and procedures for analyzing process and J&J has asked the Supreme Court to reconcile these (in its favor).  Another CivPro petition was also filed by Eon Corp that questions whether an appellee needed to file a R.50 JMOL motion to overturn a jury verdict that was based upon a faulty legal conclusion by the district court (here claim construction).  The Question Presented is:

Whether the Federal Circuit erred in ordering entry of judgment as a matter of law on a ground not presented in a Rule 50 motion in the district court, even though the ground presented a purely legal question.

Both J&J and Eon are only marginally patent cases, the core procedure case now pending is TC Heartland that would substantially upset the status quo of patent lawsuit concentration in E.D. Texas. Briefing continues in TC Heartland. In recent weeks a set of seven amici briefs were filed on the top side.

Next week Supreme Court conference includes review of the most likely-to-be-granted petition of Impression Products, Inc. v. Lexmark International, Inc. that focuses on important questions of post-sale exhaustion of patent rights.  The setup – If I buy a used product that was made and sold by the patentee, do I still need to worry that I might get sued for patent infringement?  The Federal Circuit says yes. The Supreme Court is likely to add some caveats to that.  The US Government (Obama Administration via DOJ) has argued that the case should be reviewed and that the Federal Circuit’s position should be rejected. Both parties then filed supplemental responsive briefs.  Lexmark’s best argument here is that these principles are well settled and that Congress can take on the role of tweaking them if needed.

Upcoming Supreme Court Oral Argument: Life Tech (export of components) set for December 6, 2016.

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TC Heartland Law Professor Amicus Brief

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In TC Heartland, the accused infringer has asked the Supreme Court to reset the law of venue and give effect to the statutory statement that infringement actions be brought either (1) “in the judicial district where the defendant resides” or (2)” where the defendant has committed acts of infringement and has a regular and established place of business.”  28 U.S.C. § 1400(b).   In its 1957 Fourco decision, the Supreme Court affirmatively answered this question.  However, Fourco has been undermined by subsequent Federal Circuit decisions.  Thus, the question presented again is the same as what was originally asked in Fourco: “Whether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by 28 U.S.C. § 1391(c).”

From a policy perspective, the case is seen as a vehicle for defendants who do not like being sued in the Eastern District of Texas and into more venues perceived as more defendant friendly.

A group of 50+ law and economics professors led by Mark Lemley, Colleen Chien, Brian Love, and Arti Rai have filed an important brief in support of the TC Heartland petition that I have copied below.  Their position is (1) the Federal Circuit has erred on interpreting the law; and (2) the permissive venue result has fueled many of the problems of our patent system.

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INTEREST OF AMICI[1]

Amici are 53 professors and researchers of law and economics at universities throughout the United States. We have no personal interest in the outcome of this case, but a professional interest in seeing patent law develop in a way that encourages innovation and creativity as efficiently as possible.

SUMMARY OF ARGUMENT

28 U.S.C. § 1400(b) provides that a defendant in a patent case may be sued where the defendant is incorporated or has a regular and established place of business and has infringed the patent. This Court made clear in Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 223 (1957), that those were the only permissible venues for a patent case.  But the Federal Circuit has rejected Fourco and the plain meaning of § 1400(b), instead permitting a patent plaintiff to file suit against a defendant anywhere there is personal jurisdiction over that defendant.  The result has been rampant forum shopping, particularly by patent trolls. 44% of 2015 patent lawsuits were filed in a single district: the Eastern District of Texas, a forum with plaintiff-friendly rules and practices, and where few of the defendants are incorporated or have established places of business.  And an estimated 86% of 2015 patent cases were filed somewhere other than the jurisdictions specified in the statute. Colleen V. Chien & Michael Risch, Recalibrating Patent Venue, Santa Clara Univ. Legal Studies Research Paper No. 10-1 (Sept. 1, 2016), Table 3. This Court should grant certiorari to review the meaning of 28 U.S.C. § 1400(b) because the Federal Circuit’s dubious interpretation of the statute plays an outsized and detrimental role, both legally and economically, in the patent system.

ARGUMENT

1. The Federal Circuit’s Expansive and Incorrect Interpretation of 28 U.S.C. § 1400(b) Allows Patentholders to Sue Anywhere in the Nation

Section 48 of the Judiciary Act of 1897 limited jurisdiction in patent cases to districts that the defendant inhabited or had a place of business and committed infringing acts. Act of March 3, 1897, c. 395, 29 Stat. 695. In 1942, this Court confirmed that “Congress did not intend the Act of 1897 to dovetail with the general provisions relating to the venue of civil suits, but rather that it alone should control venue in patent infringement proceedings.” Stonite Prods. Co. v. Melvin Lloyd Co., 315 U.S. 561, 563 (1942).

In 1948, Congress enacted 28 U.S.C. § 1400(b), specifying that “patent venue is proper in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” In 1957, this Court confirmed that patent venue should not be interpreted with reference to the general jurisdiction statute, holding that “28 U.S.C. 1400(b) . . . is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. 1391(c).” Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 223 (1957).

In 1990, the Federal Circuit declined to apply this Court’s longstanding precedent and decided that the general venue statute should define interpretation of the patent venue statute.  It made this decision on the basis of a ministerial change Congress made in 1988 to 28 U.S.C. § 1391. VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1583 (Fed. Cir. 1990). That statutory language changed the wording in 28 U.S.C. § 1391, from defining residence “for venue purposes” to defining residence “for purposes of venue under this chapter.” There was no indication that Congress intended this change to impact the patent venue statute.

The Federal Circuit’s conclusion that Congress’s ministerial change overruled this Court’s longstanding precedent is incorrect for at least two reasons.  First, it violates fundamental rules of statutory construction.  It is well-established that Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes.” Whitman v. American Trucking Assns., Inc., 531 U.S. 457, 468 (2001) (citing MCI Telecomm. Corp. v. American Tel. & Tel. Co., 512 U.S. 218, 231 (1994); FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159-60 (2000)).

Second, the Federal Circuit’s interpretation renders the second half of § 1400(b) largely superfluous.  That section provides:

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

The term “resides” in § 1400(b) must mean something different than having “a regular and established place of business.” Otherwise, there would have been no reason to include both provisions in the venue statute, or to link them through the disjunctive term “or.”  In Brunette, this Court, interpreting 28 U.S.C. § 1400(b) as well as 28 U.S.C. § 1391(d), confirmed that where a corporation “resides” is where it is incorporated. Brunette Mach. Works v. Kockum Indus., 406 U.S. 706, n.2 (1972).

Instead of parsing § 1400(b) carefully, the Federal Circuit has chosen to read the § 1391(c)(2) definition of corporate residence for general venue purposes into the specific patent venue provision.  In relevant part, § 1391(c)(2) provides that corporate defendants:

shall be deemed to reside . . . in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question . . . .

For patent infringement cases, the relevant aspect of personal jurisdiction is typically specific jurisdiction, which focuses on whether the defendant’s suit-related conduct establishes a “substantial connection” with the judicial forum in question.  Walden v. Fiore, 134 S.Ct. 1115, 1121 (2014).  But a corporation will have established a suit-related “substantial connection” with, and thus be subject to jurisdiction in, any district in which it “has committed acts of infringement and has a regular and established place of business.” So the Federal Circuit’s decision to read the § 1391(c) definition of “resid[ing]” into § 1400(b) renders the second half of the latter section superfluous as to corporations, a category which includes virtually all patent defendants.  A judicial reading that renders half of a statutory provision superfluous is strongly disfavored.  United States v. Jicarilla Apache Nation, 131 S.Ct. 2313, 2330 (2011) (“‘As our cases have noted in the past, we are hesitant to adopt an interpretation of a congressional enactment which renders superfluous another portion of that same law.’” (quoting Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 837 (1988))); Babbitt v. Sweet Home Chapter of Communities for a Great Oregon, 515 U.S. 687, 698 (1995) (noting “[a] reluctance to treat statutory terms as surplusage”).

The Federal Circuit’s expansive, and we believe incorrect, interpretation of 28 U.S.C. § 1400(b) effectively allows patent owners to file suit in any federal district where an allegedly infringing product is sold.  In re TC Heartland, LLC, No. 2016-105, at 10 (Fed. Cir. Apr. 29, 2016) (holding that jurisdiction is proper in a patent suit “where a nonresident defendant purposefully shipped accused products into the forum through an established distribution channel and the cause of action for patent infringement was alleged to arise out of those activities”).  The widespread availability of products over the internet means, in effect, that patentholders can bring their suits in any district in any state in the country.

2. Permissive Venue has Fueled and Enabled Forum Shopping and Selling, Patent Trolls, and Case Concentration

The Federal Circuit’s expansive interpretation of 28 U.S.C. §1400(b) has harmed the patent system in three distinct ways. It has led to forum selling and forum shopping, it has contributed to the growth of opportunistic patent litigation by patent trolls, and it has led to undue case concentration.

Patent lawyers today spend a great deal of time figuring out the best districts in which to file patent cases, and for good reason. The district in which you file your patent case has consequences for how much your case will cost, how long it will last, and whether you will prevail in court. Mark A. Lemley, Where to File Your Patent Case, 38 AIPLA Q.J. 401 (2010); Brian J. Love & James C. Yoon, Predictably Expensive: A Critical Look at Patent Litigation in the Eastern District of Texas, Stan. Tech. L. Rev. ___ (forthcoming, 2016).

The choice of venue enabled by the Federal Circuit’s liberal interpretation of the statute has created an incentive for courts to differentiate themselves in order to compete for litigants and “sell” their forum to prospective plaintiffs. See J. Jonas Anderson, Court Competition for Patent Cases, 163 U. Pa. L. Rev. 631 (2015); Daniel M. Klerman & Greg Reilly, Forum Selling, 89 S. Cal. L. Rev. 241 (2016).

Among district courts, the Eastern District of Texas is the clear forum of choice for patent plaintiffs. It has been the most popular venue for patent cases in eight of the last ten years. Chien & Risch, supra at 3.  Whether intentionally or not, judges in the Eastern District of Texas have adopted rules and practices relating to case assignment, joinder, discovery, transfer, and summary judgment that attract patent plaintiffs to their district. Klerman & Reilly, supra; Matthew Sag, IP Litigation in U.S. District Courts: 1994-2014, 101 Iowa L. Rev. 1065 (2016) (detailing evidence of “forum selling” and five advantages to plaintiffs of filing suit in the Eastern District of Texas).

A study of all patent cases filed from 2014 to June 2016 quantifies some of the advantages. Love & Yoon, supra.  Compared to their colleagues across the nation, judges in the Eastern District of Texas take 150 additional days on average to rule on motions to transfer, id. at 15, and are 10 percentage points less likely to stay the case in favor of an expert adjudication on the validity of the patent by Patent and Trademark Office (PTO) in inter partes review, id. at 26., despite the fact that patents asserted in the Eastern District of Texas are challenged in inter partes review more often than patents asserted in any other district. Saurabh Vishnubhakat, Arti Rai, & Jay Kesan, Strategic Decision Making in Dual PTAB and District Court Proceedings, 31 Berkeley Tech. Law J. 45, 109 (2016).  At the same time, judges in the Eastern District of Texas have adopted discovery rules that begin earlier, end sooner, and require broader disclosure than just about anywhere else in the country. Love and Yoon, supra at 19-22 (comparing discovery and other pretrial deadlines applicable in the Eastern District of Texas and District of Delaware).  In combination, relatively early and broad discovery requirements and relatively late rulings on motions to transfer ensure that defendants sued in the Eastern District of Texas will be forced to incur large discovery costs, regardless of the case’s connection to the venue.

However, not all types of plaintiffs choose to take advantage of the leverage that these rules and procedures make possible.  Patent assertion entities (PAEs), or patent “trolls” use patents primarily to gain licensing fees rather than to commercialize or transfer technology. Colleen V. Chien, From Arms Race to Marketplace: The Complex Patent Ecosystem and Its Implications for the Patent System, 62 Hastings L.J. 297 (2010) Trolls make particular use of the advantages provided by the Federal Circuit’s permissive approach to forum shopping. Since 2014, over 90 percent of patent suits brought in the Eastern District of Texas were filed by trolls established for the purpose of litigating patent suits.  Love & Yoon, supra at 9. By contrast, operating companies, individuals, and universities are more likely to sue in other districts.  Chien & Risch, supra at 3-4, 40.

The troll business model explains this difference in behavior. As the FTC’s recent report describes, “litigation PAEs” sign licenses that are “less than the lower bounds of early stage litigation costs,” a finding “consistent with nuisance litigation, in which defendant companies decide to settle based on the cost of litigation rather than the likelihood of their infringement.” Federal Trade Commission, Patent Assertion Entity Activity: An FTC Study, https://www.ftc.gov/reports/patent-assertion-entity-activity-ftc-study.   Rather than a decision on the merits and damages commensurate with the value of patented technology, litigation PAEs instead seek to leverage the high cost of litigation to coerce nuisance-value settlements keyed not to the merits of the lawsuit, but the cost of litigation.  Mark A. Lemley & A. Douglas Melamed, Missing the Forest for the Trolls, 113 Colum. L. Rev. 2117 (2013). Further, unlike operating companies that sell products, litigation PAEs generally lack customers and regular operations and therefore have the flexibility to incorporate and file suit based solely on litigation considerations, through shell companies or otherwise.

While forum shopping in general impairs the operation of law, disadvantages those who lack the resources to engage in forum shopping, and creates economic waste, Jeanne C. Fromer, Patentography, 85 N.Y.U. L. Rev. 1444, 1464-1465 (2010), the rise of the troll business model exacerbates these problems in patent litigation, creating a particularly urgent need for the Court to hear this case. This Court has previously warned against the problems of abusive patent litigation.  More than a century ago, it worried about the rise of “a class of speculative schemers who make it their business to watch the advancing wave of improvement, and gather its foam in the form of patented monopolies, which enable them to lay a heavy tax upon the industry of the country, without contributing anything to the real advancement of the arts.”  Atlantic Works v. Brady, 107 U.S. 192, 200 (1883).  And in Commil v. Cisco, this Court said:

The Court is well aware that an “industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.” eBay Inc. v. MercExchange, L. L. C., 547 U. S. 388, 396 (2006) (KENNEDY, J., concurring). Some companies may use patents as a sword to go after defendants for money, even when their claims are frivolous.

576  U.S. __, 135 S.Ct. 1920 (2015).

Because troll suits now dominate patent litigation nationwide, their filing patterns have led to an overall concentration of 44% of all patent cases in the Eastern District of Texas in 2015. Among cases initiated 2014 through 2016, one U.S. District Judge on the Eastern District of Texas—Judge Rodney Gilstrap of Marshall, Texas—was assigned almost one quarter of all patent case filings nationwide, more than the total number of patent cases assigned to all federal judges in California, New York, and Florida combined.[2]

This level of concentration is a problem for the legal system whatever one thinks of the decisions of the Eastern District of Texas and regardless of how fair and capable the judges there are. Simply from a logistical standpoint, the current caseload in the Eastern District of Texas is problematic.  If even 10 percent of the 1,686 patent cases assigned to Judge Gilstrap in 2015 go to trial, he will need to preside over three to four patent trials per week every week for an entire year to avoid creating a backlog.

Further, when Congress decided to consolidate patent appeals in the newly-created United States Court of Appeals for the Federal Circuit, it deliberately chose to include both appeals from the United States Patent and Trademark Office and the district courts, so the new court would not hear only appeals from patent owners.  And it considered and rejected proposals to create a specialized district court to hear patent cases.  But the Federal Circuit’s interpretation of § 1400(b) has in practice created just such a court.

The current distribution of patent litigation filings is the result of strategic behavior by a specific type of patent enforcer, not an artifact of proximity to the original locus of invention or alleged infringement. Forum-shopping plaintiffs will naturally gravitate towards whatever district seems to have the most favorable rules. The effect of the Federal Circuit’s decision to expand patent venue beyond the scope of the statute and this Court’s decisions has been to create a de-facto specialized patent trial court, one chosen by litigants on one side rather than by Congress.

CONCLUSION

The Federal Circuit’s permissive venue rule has fundamentally shaped the landscape of patent litigation in ways that harm the patent system, by enabling extensive forum shopping and forum selling, supporting opportunistic patent litigation by patent trolls, and creating undue case concentration.  This Court should grant certiorari in order to curb abuse of venue based on its misinterpretation of § 1400(b).

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[1] No person other than the amici and their counsel participated in the writing of this brief or made a financial contribution to the brief. Letters signifying the parties’ consent to the filing of this brief are on file with the Court.

[2] According to Lex Machina, between January 1, 2014 and June 30, 2016 Judge Gilstrap was assigned 3,166 new patent suits, more than the combined total of all district courts in California, Florida, and New York: 2,656. Love & Yoon, supra, at 5 (collecting these statistics).

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Signed, Professor John R. Allison (Texas); Professor Margo Bagley (Emory); Professor James Bessen (BU); Professor Jeremy Bock (Memphis); Professor Daniel H. Brean (Akron); Professor Michael A. Carrier (Rutgers); Professor Michael W. Carroll (American); Professor Bernard Chao (Denver); Professor Tun-Jen Chiang (George Mason); Professor Colleen V. Chien (Santa Clara); Professor Andrew Chin (UNC); Professor Robert Cook-Deegan (ASU); Professor Rochelle Dreyfuss (NYU); Dr. Dieter Ernst (Honolulu); Professor Robin C. Feldman (Hastings); Professor Lee Fleming (Berkeley); Professor Brian Frye (Kentucky); Professor William Gallagher (Golden Gate); Professor Shubha Ghosh (Wisconsin); Professor Eric Goldman (Santa Clara); Professor Bronwyn H. Hall (Berkeley); Professor Yaniv Heled (Georgia State); Professor Christian Helmers (Santa Clara); Professor Joachim Henkel (Technische Universität München); Professor Susan Helper (CWRU); Professor Tim Holbrook (Emory); Professor Herbert Hovenkamp (Iowa); Professor William Hubbard (Baltimore); Dr. Xavier Jaravel (Stanford); Professor Dennis S. Karjala (ASU); Professor Peter Lee (UC Davis); Professor Mark A. Lemley (Stanford); Professor David K. Levine (WashU); Professor David S. Levine (Elon); Professor Doug Lichtman (UCLA); Professor Yvette Joy Liebesman (SLU); Professor Orly Lobel (USD); Professor Brian Love (Santa Clara); Professor Phil Malone (Stanford); Professor Michael J. Meurer (BU); Dr. Shawn Miller (Stanford); Professor Matthew Mitchell (Toronto); Professor Susan Barbieri Montgomery (Northeastern); Professor Sean Pager (Michigan State); Professor Arti K. Rai (Duke); Professor Jacob H. Rooksby (Duquesne); Professor Jorge R. Roig (Charleston); Professor Matthew Sag (Loyola Chicago); Professor Pamela Samuelson (Berkeley); Ana Santos Rutschman (DePaul); Professor Lea Bishop Shaver (Indiana); Professor John L. Turner (Georgia); Professor Jennifer Urban (Berkeley); Professor Eric von Hippel (MIT).

Supreme Court Update: Extending the ITC’s Reach Beyond US Borders

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by Dennis Crouch

Constitutional Challenge to Inter Partes Review: Although the Constitutional issues in Cooper v. Lee and MCM v. HP were law-professor-interesting, they were not substantial enough for certiorari.  The Supreme Court has now denied the Cooper and MCM petitions — leaving the IPR regime unchanged.  Although Cooper v. Square is still pending, its chances are slight. The Supreme Court has also denied certiorari in Encyclopaedia Britannica (malpractice), Gnosis (appellate review), and GeoTag (case-or-controversy).

A new 101 Challenge: In its first conference of the term, the Supreme Court denied all of the pending petitions regarding patent eligibility.  However, Trading Technologies has filed a new petition asking whether a new card game is categorically unpatentable so long as it uses a standard deck (rather than a novel deck) of cards.  My post on the case asks: Does the Patent Statute Cabin-in the Abstract Idea Exception?  That question references Section 100 of the Patent Act that expressly allows for the patenting of new use of a known manufacture.

Extra Territoriality of Trade Secrecy Law: On the trade secrecy front, Sino Legend has petitioned to review the Federal Circuit’s affirmance of the International Trade Commision’s ban on Legend’s importation of rubber resins used for tire production. The underlying bad-act was a trade secret misappropriation that occurred in China and the question on appeal asks: Whether Section 337(a)(1)(A) permits the ITC to adjudicate claims regarding trade secret misappropriation alleged to have occurred outside the United States.  A Chinese court looked at the same case and found no misappropriation.

Design Patent Damages: Oral arguments were held earlier this week in Samsung v. Apple. During the arguments, all parties agreed that (1) the statute does not allow for apportionment of damages but rather requires profit disgorgement; (2) the article-of-manufacture from which profits can be calculated may be a component of the product sold to consumers; and (3) the determination of what counts as the article-of-manufacture is a question of fact to be determined by the jury.   The only dispute then was on the factors that a jury should be considered and when the “inside gears” of a product should ever be included in the calculation.

Upcoming Supreme Court Oral Argument: SCA Hygiene (laches) on November 1; Star Athletica (copyright of cheerleader outfit) on October 31.

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Guest Post: Recalibrating Patent Venue

Patent

In the following guest post, Professors Colleen V. Chien (Santa Clara) and Michael Risch (Villanova) follow up on their earlier work calling for patent venue reform. They have written a full article on the topic available on SSRN: http://ssrn.com/abstract=2834130. — DC

Earlier this year, we presented some initial results of our study of what might happen if patent venue reform took place. Since then, Senator Flake (R-Az) introduced the VENUE Act of 2016, and last month, petitioners, led by a group including James Dabney and John Duffy, filed a petition for writ of certiori in the TC Heartland case in the Supreme Court. Amicus briefs are due October 17, 2016 and Kraft’s brief is due on November 16, 2016.

To support these deliberations, we examined the history of the patent venue law and presented some statistics about plaintiff venue preferences for the Eastern District (for even more statistics on this point see the new paper by Brian Love and James Yoon). Additionally, we empirically modeled both reforms by randomly selecting 939 cases from 2015, and making our best guess as to where cases would have been filed under the proposed rules, assuming they would have been filed at all. Since 2015, the overall number of patent cases has declined, about 20% YTD based on data from Lex Machina (4,216 cases by this time last year vs. 3,369 today). The Eastern District of Texas has made a number of changes and its share is also down from 44% in 2015, to 35% 2016 YTD (30% in 1Q, 36% in 2Q, and 38% in 3Q); the next closest district (Delaware) has seen about 9% of filings, based on data from Lex Machina.

In modeling different venue reform choices, we do not purport to claim that any venue reform would be, on balance, welfare enhancing, nor can we know with certainty where or if cases would be filed. However, we do make one thing clear: a patent system in which so much rides on where a lawsuit is filed is deeply flawed, and, as we have said before, we hope that policymakers will take the opportunity to clarify what has been a complicated area of law.

A draft of the complete paper is available here. In brief, however, TC Heartland reform would require cases to be filed either where the defendant is incorporated or where the defendant has a place of business and is infringing. VENUE Act would add the location of the original inventors as well as anywhere the patent owner performed R&D on the patent (patent assertion entities are, by definition, excluded). To model these provisions we gathered relevant case and location information; we also gathered information on industries, plaintiffs, and defendants of different sizes to understand the differential impacts of reform.

In brief, we looked to see the following under the conditions of each reform: 1) could the plaintiff have filed in the district that the case is already in? 2) if not, could the plaintiff have sued in a district in which it has sued in the last two years? 3) if not, could the plaintiff have sued in a district popular among plaintiffs like it in the last five years? 4) if not, we assume that the plaintiff would sue at the defendant’s primary place of business. Option 1 means “no change” – the case would stay put. Options 2, 3, and 4 mean, “change”—the case would have been filed in another district and the model where the suit would end up based on the proposed venue rules. Note that the 2nd and 3rd assumptions bias our model towards the currently concentrated status quo. Patentees might well pick other favorite districts if they can find a basis for venue there.

Applying this methodology, we found a few interesting things.

First, 86% of cases were filed outside the defendant’s primary place of business,[1] including 80% of cases brought by operating companies and  90% of cases brought by NPEs. When we considered any of defendant’s place of business, cases were filed outside of where the defendant had a location 83% of the time. This suggests that, in general, permissive venue leads to plaintiffs filing where it is convenient or advantageous, which is usually not where the defendant is located.

Second, we find that if TC Heartland reform had been in effect, 52% of operating companies would have to pick a different district than they had originally chosen. For NPEs, 60% would have to pick a different district. If the VENUE Act were passed, however, the change from the status quo would be a lot less dramatic for operating company plaintiffs – only 18% would have to move their case while the rest could have been filed as is. NPE plaintiffs would have been impacted differently, particularly under the VENUE Act, with PAEs most impacted. The reason for this is relatively straightforward: the VENUE Act allows operating companies (and failed companies or individuals) to sue where they do research and development, but does not allow PAEs to do the same. Furthermore, operating companies are more likely to sue where they do research and development, while NPEs are more likely to sue in the Eastern District of Texas.

Third, we find that cases would be more geographically distributed, but our reported distributions are likely in the eye of the beholder and sensitive to our assumptions particularly about the prioritization of familiar districts by plaintiffs, which might not hold in practice. That said, we believe that one thing is clear: cases would leave the Eastern District of Texas. The following table shows the top 5 districts before and after reform as we modeled it:

Final Districts – OpCo π Final Districts – NPE π
District Actual Case Prediction Heartland Prediction VENUE Act Actual Case Prediction Heartland Prediction VENUE Act
E.D.Tex. 7.8% 4.6% 5.0% 64.1% 19.0% 19.1%
D.Del. 10.0% 18.9% 11.0% 7.3% 25.8% 23.1%
D.N.J. 10.3% 12.1% 10.7% 0.9% 2.4% 2.0%
C.D.Cal. 7.5% 14.2% 9.6% 2.1% 2.6% 2.4%
N.D.Cal. 5.0% 2.8% 3.9% 3.0% 17.3% 16.6%

Fourth, Heartland and VENUE Act reform would affect companies of different sizes differently. In general, Heartland would require suits to be filed where the defendant is located much more often than the VENUE Act (on the order of ~65% to ~45% depending on company size). Smaller defendants would benefit more from TC Heartland venue reform than would larger defendants, because of their relatively smaller footprints.

Fifth, we found that manufacturing and biopharma defendants would benefit the least from venue reform. For biopharma, the result is complicated. Contrary to conventional wisdom, all of the cases are not in New Jersey, though as shown in the table above, many of them are. Instead, because reform allows for suit where parties are incorporated, many cases would remain in Delaware, where they are already located. Industries that would see the most benefit from Heartland reform would be in high tech and consumer/durable goods manufacturing. These are often companies with only one place of business, which limits where they could be sued. High tech, especially, is a sector that is often sued by NPEs, so their cases would be relocated under either Heartland or the VENUE Act. On the other hand, manufacturing industries are often sued by operating companies and thus, they would see much less benefit under VENUE Act reform than they would under Heartland.

Despite its limitations, we believe that this study provides valuable insight into patent venue. Examination of venue by industry, comparison of the differences between the options (including who wins and who loses), and analysis about where cases might wind up will hopefully provide fruitful information for anyone involved in patent practice and policy. The full paper has much, much more analysis, with a representative sample of the types and sizes of companies being sued in addition to detailed discussion of how each reform proposal will affect parties by plaintiff type, geography, and defendant industry and size.

 

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[1] We found that, for a random sample of 99 of our defendants’ other litigations, 80% were filed outside the defendant’s primary place of business

Fees Rising: USPTO Proposes New Fees in Search of New Revenue

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The USPTO has issued a notice of proposed rulemaking (NPRM) on patent and PTAB fees with the goal of raising revenue in order to improve patent quality and examination timeliness. Public comments are due by December 2, 2016.

The proposal includes:

  • Major increase in inter partes review fees – from $23,000 to $30,500 (petition + institution).  Similar increases for PGR and CBM.
  • Large fee increase for patent applications with > 3 independent claims or > 20 dependent claims
  • Large fee increase for design patent search, examination, and issue fees — hopefully the PTO will increase its quality on that front.
  • New fee for sequence listing submissions of > 300 MB ($1000) and > 800 MB ($10,000).
  • Ex parte appeals +25% (up to $3,500)
  • Standard fees for utility applications are relatively steady => only about 10% increase.

 

Read More and Comment:

Supreme Court Patent Cases – September 28 Update

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by Dennis Crouch

Cooper v. Lee and Cooper v. Square are both ask the same question: whether 35 U.S.C. §318(b) violates Article III of the United States Constitution, to the extent that it empowers an executive agency tribunal to assert judicial power canceling private property rights amongst private parties embroiled in a private federal dispute of a type known in the common law courts of 1789, rather than merely issue an advisory opinion as an adjunct to a trial court.”  The issues here are also parallel to those raised in MCM Portfolio v. HP (“Does IPR violate Article III of the Constitution?”).  The cases received a boost this month with the Court’s call for response (CFR) in Cooper v. Square.  Square had previously waived its right to respond, but its response is now expected by October 11, 2016.  Under Supreme Court R. 37, the Call for Response reopens the period for filing of an amicus curiae brief in support of petitioner. (~ due October 8, 2016).  Eight Amici Curiae briefs were filed in MCM and two in Cooper v. Lee.  In general, each brief additional brief incrementally increases the odds of certiorari.  Statistical analysis also suggests that a call for response significantly increases the odds of certiorari being granted.

I wrote earlier this week about the new IPR process challenge in Ethicon where the patentee has challenged Director Lee’s delegation of institution decision authority to the PTAB.  The case is one of statutory interpretation but uses the separation-of-function doctrine as an interpretive guide. The same question is also presented in LifeScan Scotland, Ltd. v. Pharmatech Solutions, Inc.  Both petitioners (Ethicon and LifeScan) are owned by J&J.

The final new petition is a personal jurisdiction case: Mylan v. Acorda.  The Hatch-Waxman setup involved Mylan preparing and filing its abbreviated new drug application that created a cause of action for infringement under 35 U.S.C. 271(e)(2). Although the ANDA preparation occurred in West Virginia and the filing in Maryland, the infringement lawsuit was filed by Acorda in Delaware.  Mylan asks: “Whether the mere filing of an abbreviated new drug application by a generic pharmaceutical manufacturer is sufficient to subject the manufacturer to specific personal jurisdiction in any state where it might someday market the drug.”  The argument builds on the non-patent decision Daimler AG v. Bauman, 134 S. Ct. 746 (2014). In the pro-business case of Daimler, the Supreme Court reduced the scope of general personal jurisdiction to states where the defendant company is incorporated or has its personal place of business.

 

In the claim construction front, the Supreme Court also called for a response in Google v. Cioffi. In that case Google suggests an interpretative principle of “strictly construing” amended claim language against the patentee. [GoogleCioffiPetition]

On the merits side – we have three patent cases pending oral arguments.  First-up is the design patent damages case of Apple v. Samsung.   Although not a party, the Solicitor General has requested to been granted leave to participate in oral arguments.   Its brief, the SJ argued (1) Section 289 does not permit apportionment but rather requires award of the infringers profits on the relevant article of manufacture; but (2) the article of manufacture can be a “component” rather than a finished product sold to end-users.  In the end, the SJ argues that the jury should have been tasked with determining the appropriate article-of-manufacture and that the case should be remanded to determine whether a new trial is warranted.  Briefing continues in both SCA Hygiene (laches) and Life Tech (Component Export liability).

 

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Supreme Court Patent Cases: Malpractice, Obviousness, and Venue

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by Dennis Crouch

The Supreme Court will begin granting and denying petitions in early October.  Meanwhile, several new petitions are now on file.  Last week I wrote about the TC Heartland case as a mechanism for limiting venue. Without any good reason, the Federal Circuit overruled a 1957 Supreme Court case that had strictly limited patent venue as spelled out in the patent venue statute 1400(b).  See VE Holdings (explaining its overruling of Fourco Glass). A result of VE Holdings is the expansive venue availability that facilitated the rise of E.D. Texas as the most popular patent venue. TC Heartland simply asks the Supreme Court reassert its Fourco holding – something that could almost be done with a one-line opinion: “REVERSED. See Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957).”  The best arguments for the Federal Circuit’s approach are (1) the reasoning of Fourco itself is a bit dodgy; and (2) VE Holdings is well settled doctrine (decided 26 years ago) and Congress has revised the statutory provisions several times without amending.  As a side note, several members of Congress have suggested they will act legislatively if SCOTUS fails to act.

Two new petitions (Grunenthal v. Teva and Purdue v. Epic) stem from the same Federal Circuit OxyContin case and focus on anticipation and obviousness respectively.  Grunenthal v. Teva questions how ‘inherently’ operates for anticipation purposes.   Purdue suggests that – despite the final sentence of Section 103, that the actual circumstances of the invention should be available to help prove non-obviousness (but still not be available to prove obviousness).   Another new petition includes the BPCIA case Apotex v. Amgen that serves as a complement to the pending Sandoz case questioning the requirements and benefits of providing notice of commercial marketing.

Finally – Encyclopedia Britannica v. Dickstein Shapiro is a patent prosecution malpractice action.  The lower court held the lawyers harmless since Alice would have invalidated the patents even if drafted to perfection. The petition asks whether Alice Corp can excuse patent prosecutors from alleged prosecution errors made well prior to that decision.

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Patent Venue at the Supreme Court: Correcting a 26 Year Old Legal Error

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TC Heartland v. Kraft Foods (Supreme Court 2016) [Petition for Writ of Certioari]

Patent litigation continues to be concentrated in a small number of venues.  This case is potentially a big deal because it could eliminate this concentration — especially patent cases in the E.D.Texas.  Both the PTO and Congress appear in favor of venue reforms, but statutory reforms will likely wait until the Supreme Court decides TC Heartland.

Background: The scope of patent venue is codified in 28 U.S.C. § 1400(b) and limits venue to judicial districts “where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”  At first glance, this venue statute would seem to significantly limit venue — For instance, few patent infringement defendants actually reside or have a place of business in the E.D. Texas.  That narrowness was confirmed in the Supreme Court’s decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957).  The issue in Fourco Glass involved the parallel statute of 28 U.S.C. § 1391 (titled “Venue generally”) that broadly defined a corporation’s residence to include “any judicial district in which it is … licensed to do business or is doing business.” Despite the seeming broadening statutory definition, the Supreme Court held that the more general Section 1391(c) could not be used to expand venue beyond what was contemplated in Section 1400(b).  Rather, the court held that “where the defendant resides” in § 1400(b) is limited to “the state of incorporation only.” Fourco Glass.

We hold that 28 U.S.C. § 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. § 1391(c).

Id.

In 1988 Congress amended 1391(c) to expand the definition of residency “for all venue purposes” to include “any judicial district in which such defendant is subject to the court’s personal jurisdiction.” Based upon that change, the Federal Circuit determined in 1990 that Fourco Glass had been implicitly overruled and that the new provision of 1391(c) now does redefine and greatly expand Section 1400(b) even though the legislative history of the 1988 amendment did not discuss patent venue. VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).

The chart below from the cert petition shows the 1988 statutory change that the Federal Circuit found sufficient to indicate an overruling of Fourco Glass.

1391cComparison

It is this 1990 combination of 1400(b)/1391(c) that is now the status quo – venue is proper in any any federal court that has personal jurisdiction over the accused infringer.*

TC Heartland challenges the VE Holding interpretation offering broad venue.  It writes:

The question in this case is thus precisely the same as the issue decided in Fourco: Whether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by 28 U.S.C. § 1391(c).

The Supreme Court previously decided patent venue in Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561 (1942) and also held that the specific patent venue provisions should prevail and remain unmodified by the general venue provisions.

I’ll be happy if TC Heartland wins because it will make it much easier for me to watch patent cases here in Missouri.

The new petition is filed by James Dabney and John Duffy who were the forces behind KSR v. Teleflex.

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* The one major caveat is that Congress again amended 1391(c) in 2011 and the associated legislative history suggests a Congressional recognition that “VE Holding is the prevailing law.”  Update and Correction – On suggestion from a reader, I followed chased down the above quote – it does not actually come from the Congressional Record but instead is Judge Moore’s conclusion found in the TC Heartland case.  The opinion states:

In fact, before and after these [recent] amendments, in the context of considering amending the patent venue statute, Congressional reports have repeatedly recognized that VE Holding is the prevailing law.

For its conclusion, the court cites several Congressional reports that I have not read: “See H.R. Rep. No. 110–314, at 39–40 (2007); S. Rep. No. 110–259, at 25 (2008); H.R. Rep. No. 114–235, at 34 (2015) (stating that “Congress must correct” our holding in VE Holding by amending § 1400); cf. Venue Equity and Non-Uniformity Elimination Act of 2016, S. 2733, 114th Cong. § 2(a) (2016).”  An important note with this is that the court did not identify any record contemporaneously with the 2011 report that suggests a conscious choice to keep VE Holding as the prevailing law.

Letter to Congress from 28 Law Professors & Economists Urging Caution on the VENUE Act

Patent,

In July 2016, I discussed a letter from 45 professors arguing for statutory reforms to limit venue in patent infringement cases.  The letter focused on the “staggering concentration of patent cases in just a few federal district courts” and offered the the positive conclusion that such a concentration is “bad for the patent system.”  In the abstract, concentration of cases is not necessarily bad — here though, the particular arguable “badness” is that the high concentration of cases is in the Eastern District of Texas rather than Silicon Valley, New York, Chicago, or Delaware.

Now, a competing group of law professors has offered their suggestion – urging caution in terms of patent venue reform, especially with regard to the pending VENUE Act. Venue Equity and Non-Uniformity Elimination Act, S.2733, 114th Cong. (2016).   The proposed VENUE Act would allow patent actions to be brought only in judicial districts where:

  • the defendant has its principal place of business or is incorporated;
  • the defendant has committed an act of infringement of a patent in suit and has a regular and established physical facility that gives rise to the act of infringement;
  • the defendant has agreed or consented to be sued;
  • an inventor named on the patent conducted research or development that led to the application for the patent in suit; or
  • a party has a regular and established physical facility and has managed significant research and development for the invention claimed in the patent, has manufactured a tangible product alleged to embody that invention, or has implemented a manufacturing process for a tangible good in which the process is alleged to embody the invention.

Under the current statutory framework (as interpreted), venue is proper in any jurisdiction where the court has personal jurisdiction over the defendants.  For any large company operating in the US, this current approach leads to the results that venue for a patent infringement case is proper in any federal court across the country – including those located in the Eastern District of Texas.

The new letter argues that the venue limiting proposals are basically serving as a mechanism of weakening the power of patent holders: “The reality is that the major proponents of changing the venue rules are primarily large high-tech companies and retailers with an online presence sued in the Eastern District of Texas that would rather litigate in a small number of more defendant-friendly jurisdictions.”

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[Read the Full Letter]

Dear Chairman Grassley, Ranking Member Leahy, Chairman Goodlatte, and Ranking Member Conyers:

As legal academics, economists, and political scientists who conduct research in patent law and policy, we write to express our concerns about the recent push for sweeping changes to patent litigation venue rules, such as those proposed in the VENUE Act.[1] These changes would vastly restrict where all patent owners could file suit—contrary to the general rule that a plaintiff in a civil lawsuit against a corporate defendant can select any court with jurisdictional ties to the defendant.[2]

Given the recent changes in the patent system under the America Invents Act of 2011 and judicial decisions that have effectively weakened patent rights,[3] we believe that Congress should adopt a cautious stance to enacting additional changes that further weaken patent rights, at least until the effects of these recent changes are better understood.

Proponents of amending the venue rules have an initially plausible-sounding concern: the Eastern District of Texas handles a large percentage of patent infringement lawsuits and one judge within that district handles a disproportionate share of those cases. The reality is that the major proponents of changing the venue rules are primarily large high-tech companies and retailers with an online presence sued in the Eastern District of Texas that would rather litigate in a small number of more defendant-friendly jurisdictions.

Indeed, the arguments in favor of this unprecedented move to restrict venue do not stand up to scrutiny. Specifically:

  • Proponents for the VENUE Act argue that “[t]he staggering concentration of patent cases in just a few federal district courts is bad for the patent system.”[4] As an initial matter, data indicates that filings of patent lawsuits in the Eastern District of Texas have dropped substantially this year—suggesting a cautious approach until trends have stabilized.[5]
  • Contrary to claims by its proponents, legislative proposals like the VENUE Act would not spread lawsuits throughout the country. In fact, these same proponents have found that restricting venue in a manner similar to the VENUE Act would likely result in concentrating more than 50% of patent lawsuits in just two districts: the District of Delaware (where most publicly traded corporations are incorporated) and the Northern District of California (where many patent defendants are headquartered).[6] Instead of widely distributing patent cases across numerous districts in order to promote procedural “fairness,” the VENUE Act would primarily channel cases into only two districts, which happen to be districts where it is considered much more difficult to enforce patent rights.[7]
  • Proponents for the VENUE Act have argued that the Eastern District of Texas is reversed more often by the Federal Circuit than other jurisdictions, claiming that in 2015 the Federal Circuit affirmed only 39% of the Eastern District of Texas’s decisions but affirmed over 70% of decisions from the Northern District of California and District of Delaware.[8] These figures are misleading: they represent only one year of data, mix trials and summary judgment orders, and fail to take into account differences in technology types and appeals rates in each district. In fact, a more complete study over a longer time period by Price Waterhouse Coopers found that the Eastern District of Texas affirmance rate is only slightly below the national average for all districts.[9]
  • The Federal Circuit recently confirmed in In re TC Heartland (Fed. Cir. Apr. 29, 2016) that 28 U.S.C. § 1400(b) provides that a corporate defendant in a patent case—like corporate defendants in nearly all other types of cases—may be sued in any district in which personal jurisdiction lies. Constitutional due process requires a “substantial connection” between the defendant and forum.[10] Thus, contrary to its title and the claims of its proponents, the VENUE Act does not re-establish a “uniform” litigation system for patent rights by requiring substantial ties to the forum. Instead, the Act thwarts the well-established rule that plaintiffs can bring suit in any jurisdiction in which a corporate defendant has committed substantial violations of the law.[11]
  • The VENUE Act would raise costs for many patent owners by requiring them to litigate the same patent against multiple defendants in multiple jurisdictions, increasing patent litigation overall. In recent years, the America Invents Act’s prohibition on joinder of multiple defendants in a single lawsuit for violating the same patent has directly resulted in increased lawsuits and increased costs for patent owners.[12] Moreover, the VENUE Act would also result in potentially conflicting decisions in these multiple lawsuits, increasing uncertainty and administration costs in the patent system.
  • The VENUE Act encourages the manipulation of well-settled venue rules across all areas of law by the self-serving efforts of large corporate defendants who seek to insulate themselves from the consequences of violating the law. By enacting the VENUE Act, Congress would send a strong signal to corporate defendants that they can tilt the substantive playing field by simply shifting cases to defendant-friendly jurisdictions.

Innovators and their investors have long been vital to a flourishing innovation economy in the United States.  Startups, venture capitalists, individual inventors, universities, and established companies often rely heavily on patents to recoup their extensive investments in both R&D and commercialization.  We urge you to exercise caution before enacting further sweeping changes to our patent system that would primarily benefit large infringers to the detriment of these innovators and, ultimately, our innovation economy.

[Footnotes]

[1] S.2733, Venue Equity and Non-Uniformity Elimination Act of 2016,  https://www.congress.gov/114/bills/s2733/BILLS-114s2733is.pdf.

[2] See 28 U.S.C. § 1391(c)(2). See generally Ferens v. John Deere Co., 494 U.S. 516, 527 (1990) (“a plaintiff . . . has the option of shopping for a forum with the most favorable law”).

[3] These include, among others: (1) administrative procedures for invalidating patents created by the America Invents Act, which have had extremely high invalidation rates, leading one former federal appellate judge to refer to these procedures as “death squads,” and (2) several decisions by the Supreme Court and the Federal Circuit that have drastically curtailed patent rights for many innovators. See Adam Mossoff, Weighing the Patent System: It Is Time to Confront the Bias against Patent Owners in Patent ‘Reform’ Legislation, Washington Times, March 24, 2016, http://www.washingtontimes.com/news/2016/mar/24/adam-mossoff-weighing-the-patent-system/.

[4] Colleen Chien & Michael Risch, A Patent Reform We Can All Agree On, Wash. Post, June 3, 2016, https://www.washingtonpost.com/news/in-theory/wp/2015/11/20/why-do-patent-lawyers-like-to-file-in-texas/.

[5] See Michael C. Smith, “Hot But No Longer Boiling“ – EDTX Patent Case Filings Down almost Half; New Case Allocation and Procedures (No More Letter Briefing for SJ motions), EDTexweblog.com, July 21, 2016, http://mcsmith.blogs.com/eastern_district_of_texas/2016/07/edtx-patent-case-filing-trends-new-case-allocation-and-procedures.html.

[6] Colleen Chien & Michael Risch, What Would Happen to Patent Cases if They Couldn’t all be Filed in Texas?, Patently-O, March 11, 2016, https://patentlyo.com/patent/2016/03/happen-patent-couldnt.html. This study also finds that 11% of cases would continue to be filed in the Eastern District of Texas, concentrating nearly two-thirds of all cases in three districts. See id. The authors of this study are presently expanding their investigation to an enlarged data set, which will also capture additional aspects of the VENUE Act. Neither the data nor their results are available yet. However, we have no reason to believe that the expanded data or analysis will produce results other than what has already been shown: a high concentration of patent cases in a small number of districts.

[7] See PricewaterhouseCoopers LLP, 2015 Patent Litigation Study (May 2015) (“PWC Study”), http://www.pwc.com/us/en/forensic-services/publications/assets/2015-pwc-patent-litigation-study.pdf.

[8] Ryan Davis, EDTX Judges’ Love of Patent Trials Fuels High Reversal Rate, Law360 (Mar. 8, 2016), http://www.law360.com/articles/767955/edtx-judges-love-of-patent-trials-fuels-high-reversal-rate.

[9] See PWC Study, supra note 7 (finding an average affirmance rate of 48% for all districts, compared to an affirmance rate of 42% for the Eastern District of Texas).

[10] See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).

[11] See generally Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947) (“[T]he plaintiff’s choice of forum should rarely be disturbed.”).

[12] See Christopher A. Cotropia, Jay P. Kesan & David L. Schwartz, Unpacking Patent Assertion Entities (PAEs), 99 Minnesota Law Review 649 (2014), http://www.minnesotalawreview.org/wp-content/uploads/2015/02/REVISEDSchwartzetal_MLR.pdf.

 

Supreme Court Challenge to ITC’s Broad Authority

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by Dennis Crouch

DBN (formerly DeLorme) v. US International Trade Commission (Supreme Court 2016)

In addition to district court infringement litigation, U.S. law offers a second avenue for patent enforcement – the United States International Trade Commission (USITC).  In today’s free-trade environment, the USITC’s role is somewhat counter — protecting of U.S. industry.  A substantial portion of USITC work involves enforcement actions to prohibit importation into the U.S. of “articles that … infringe a valid and enforceable” patent. See 19 U.S.C. 1337.

Despite the statutory language “articles that . . . infringe”, in Suprema an en banc Federal Circuit held that the USITC has the power to block importation based upon an inducement theory of infringement — even if the imported products themselves are not infringing. (6 – 4 en banc decision)

In a well written petition, DBN has challenged the holding of Suprema – asking “Whether the International Trade Commission’s jurisdiction over the importation of ‘articles that … infringe a valid and enforceable’ patent extends to articles that do not infringe any patent.”

The case also involves an interesting separation of powers issue — although the USITC found the patent enforceable, a district court found the patent invalid.  DBN terms this a “zombie patent” penalty.  In the case, the ITC first issued the exclusion order and the patent was later found invalid.  In that interim, DBN violated the exclusion order and the ITC assessed a $6 million contempt penalty that is being challenged in the second question presented: “Whether the Federal Circuit erred in affirming the Commission’s assessment of civil penalties for the domestic infringement of a patent that has been finally adjudicated to be invalid.”

USITC Procedure sets up the USITC as the party prosecuting the case rather than the patentee. As such, the agency is the named respondent and will be represented by the Solicitor’s Office. I expect that the patentee BriarTek will also weigh-in.  The patent at issue is U.S. Patent No. 7,991,380 and covers an emergency satellite communication system.  The asserted claims were found invalid as anticipated and/or obvious.  That holding was then affirmed on appeal by the Federal Circuit.

Venue Challenges Part 2

Patent,

While law professors call for venue patent reform, the TC Heartland venue and personal jurisdiction challenge appears to still have legs.  In April 2016, the Federal Circuit rejected the mandamus action, but the Supreme Court recently granted TC Heartland’s delay petition – allowing its petition for writ of certiorari to be filed by September 12, 2016.  In the case, TC Heartland argues that the statute itself (28 U.S.C. § 1400(b)) limits where patent claims can be brought and that the Federal Circuit has unduly broadened venue in ways that harm the system.  [SCT Docket]

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28 U.S.C. § 1400(b) provides the venue requirements for patent cases – limiting proper venue to (1) “the judicial district where the defendant resides” or (2) “where the defendant has committed acts of infringement and has a regular and established place of business.”   This appears to be quite narrow in that few defendants actually reside or have an established place of business in the Eastern District of Texas.  The catch, however, comes in the form of 28 U.S.C. § 1391(c). That provision expansively defines the term “reside” — indicating that “except as otherwise provided by law . . . [a defendant] shall be deemed to reside . . . in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.”  Section 1391(c) appears to completely gut the limits of 1400(b) to indicate that venue is proper whenever a court has personal jurisdiction.  TC Heartland argues that the statute should be interpreted differently – namely that the express limits of 1400(b) should take precedence over the broad definition of 1391(c) as suggested by the “otherwise provided by law” exception.

 

Law Professors Call for Patent Venue Reform

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A group of 45 professors sent the following letter to Congress arguing for statutory reforms to limit venue in patent infringement cases.  One focus of this move is to direct intention toward a focused and limited action rather than another round of comprehensive patent reforms.  This type of limited reform could come as part of a late-session omnibus package.

– Dennis

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The undersigned patent law academics and economics experts write to express our support for patent venue reform.  Changes to the venue rules are necessary and urgent to address the significant problem of forum shopping in patent litigation cases.

As Colleen Chien and Michael Risch recently wrote for the Washington Post, “[t]he staggering concentration of patent cases in just a few federal district courts is bad for the patent system.”[1]  It is imperative that Congress address patent venue reform to return basic fairness, rationality, and balance to patent law.  Specifically, venue reform that treats plaintiffs and defendants equally by requiring a substantive connection to the venue on the part of at least one party is critical to ensure fairness and uniformity in patent law.

As a result of current venue rules, though there are 94 federal judicial districts, a single district is home to nearly half of all patent cases.  Of the 5,819 patent cases filed in 2015, nearly half— 2,541 cases—were filed in the Eastern District of Texas,[2] and 95% of those cases were filed by non-practicing entities (NPEs).[3]  And the Eastern District of Texas’s percentage of patent cases has been steadily increasing over the last several years, rising from 11% in 2008 to 44% in 2015.4  By comparison, the Northern District of California, home of Silicon Valley, saw only 228 patent cases filed in 2015.[4]

A single judge in the Eastern District of Texas had 1,686 patent cases filed assigned to his docket in 2015—in other words, a single judge handled two-thirds of the patent cases in that district, and nearly one-third of all patent cases nationwide.  If all of those cases were to go to trial, that single judge would have to complete 4 to 5 trials every day of the year (including weekends)—not counting any time for motions or other hearings.  The burden of this overwhelming number of cases leads, unsurprisingly, to a high reversal rate on appeal.  The United States Court of Appeals for the Federal Circuit affirmed only 39% of the decisions from the Eastern District in 2015.[5]

One reason for the disproportionate number of patent filings in the Eastern District of Texas is that the district employs procedural rules and practices that attract plaintiffs, including by delaying or denying the ability of defendants to obtain summary judgment to terminate meritless cases early.[6]  For example, the district requires parties seeking summary judgment in patent cases to first seek permission before filing any summary judgment motion, the effect of which is to delay and deter early resolution of cases.[7]

While parties can seek transfer out of the district, some NPEs have opened offices in the district simply for the purpose of bolstering their arguments to stay in their preferred venue.  The average grant of transfer in this venue took over a year (490 days), and the average denial of a transfer motion took 340 days, meaning that even cases that are ultimately transferred remain pending in the district for nearly a year.[8]  Local discovery rules permit discovery to go forward even while a motion for transfer is pending, so even successfully moving to transfer only partially relieves the expense of litigating in a distant venue and the burden on the court.

The disproportionate number of patent plaintiffs—and NPEs in particular—bringing cases in a single venue ultimately results in wasted judicial resources, as more of those cases are overturned on appeal.  For accused infringers, the costs of innovation are increased when they have little or no connection to the venue and are forced to litigate from a distance.  The harm caused by abuse of the system and the resulting loss of trust in the uniformity and justness of the U.S. patent law system is unmeasurable.

This type of dynamic is bad for patent law, and bad for United States innovation.  It is thus critical that Congress act now to pass targeted patent venue reform.

[Read the PDF Letter]

= = = = =

[1] Colleen Chien and Michael Risch, A Patent Reform We Can All Agree On, Wash. Post, (June 3, 2016, 3:07pm).

[2] Data from Lex Machina (analysis as of June 7, 2016).

[3] Joe Mullin, Trolls made 2015 one of the biggest years ever for patent lawsuits, arstechnica (Jan. 5, 2015). DocketNavigator Analytics, New Patent Cases Report,  (report run June 2, 2016).

[4] Lex Machina, Patent Litigation Year in Review 2015, at 5 (Mar. 2016).

[5] Ryan Davis, EDTX Judges’ Love of Patent Trials Fuels High Reversal Rate, Law360.com (Mar. 8, 2016).

[6] Daniel Klerman and Greg Reilly, Forum Selling, 89 S. Cal. L. Rev. 241, 252-53 (Jan. 2016) (“Eastern District judges are particularly hostile to summary judgment in patent cases. Patent litigators, but not other litigants, are required to seek permission before filing summary judgment motions . . . and are prohibited from moving for summary judgment if permission is denied.”)

[7] See, e.g., Judge Rodney Gilstrap, Sample Docket Control Order—Patent.

[8] Lex Machina, Patent Litigation Year in Review 2015, 10 (Mar. 2016).

Guest Post: 35 USC 289—Grant of Certiorari in Samsung v Apple = The Opportunity for a Better-Crafted Standard for Awarding Total profits

Patent, , , , ,

Guest post by Gary L. Griswold.  Mr. Griswold is a Consultant residing in Hudson, WI and was formerly President of and Chief Intellectual Property Counsel for 3M Innovative Properties Company. The paper reflects the views of the author. He wishes to thank Bob Armitage and Mike Kirk for their excellent contributions to the essay.

In August, 2015, I published an article on Patently-O entitled “35 USC 289-After Apple v Samsung, Time for a Better-Crafted Judicial Standard for Awarding “Total Profits.” [i] The article appeared before the Supreme Court granted certiorari in this appeal.[ii] My use of the word “after” was, thus, a bit premature. The crafting of a new judicial standard may actually be accomplished over the next several months, as the Supreme Court considers the damages issue in Apple v. Samsung case later in its current term.

The statutory basis for awarding damages in this case is no “small-change.” 35 USC 289 provides the design patent holder with the infringer’s “total profits” on the “article of manufacture” to which the patented design “has been applied”[iii]. My August article referenced a Patently-O article by Professor Rantanen that included an analysis of the Federal Circuit’s Apple v Samsung decision and its ramifications, suggesting that the section 289 damages provision could induce “an explosion of design patent assertions and lawsuits.”[iv] Indeed, section 289 holds the potential for design patent procurement and assertion to become the next big “patent assertion entity” business model.

Some commentators have suggested that design patents, being sought and accumulated differently from utility patents, are not likely to stimulate much PAE interest. Whatever merit in that view, it needs to be tempered with the realization that greed is the mother of all of this type of business-model invention. One need only reflect on the fact that more than 1,000 qui tam actions for false marking were filed by opportunistic plaintiffs following the 2009 Federal Circuit decision in Forest Group, Inc. v. Bon Tool Co. before such actions were thankfully banished by the “Leahy-Smith America Invents Act.”[v] The prospects for design infringement revenue generation based on the “total profits”-recovery provision in 35 USC 289 could make successful design patent assertion a staggeringly profitable business. The potential for such an outcome as well as an example of such assertion was referenced in the briefs relating to the Apple v. Samsung certiorari petition[vi].

The possibility of a surge in design-patent PAE activity is almost certainly one of many reasons why the Supreme Court granted certiorari—and why it should not squander the opportunity presented in the Apple v. Samsung appeal to provide a reasoned and principled demarcation between those fact patterns where a “total profits” remedy is clearly warranted and those where it is not.

In deciding this appeal, the Supreme Court may focus on what constitutes an “article of manufacture” under section 289. The statute provides a design patent infringer “shall be liable to the [design patent] owner to the extent of [the infringer’s] total profit” if the infringer “applies the patented design … to any article of manufacture.” [vii](emphasis added) But, the patented design is not necessarily synonymous with the article of manufacture itself.

Indeed, for section 289 purposes, an “article of manufacture” has been held to be the entire substrate to which the patented design is applied. For example, it has been held that a boat becomes the “article of manufacture” when the patented design is for the windshield applied to the boat[viii]. Other examples of “articles of manufactures” whose total profits might be subject to a section 289 recovery include (1) a large agricultural combine, when the patented design is for a tire tread applied to a tire used on the combine; (2) an automobile, when the patented design is for the automobile’s rear taillights; and (3) an HDTV, when the patented design is for a semiconductor used in the television.

In my earlier articles, I described such “total profits” recovery scenarios as a problem in need of a judicial solution. I suggested eliminating access to section 289 “total profits” recoveries in situations where a consensus exists that a remedy of this type would be entirely unwarranted. My approach would interpret section 289 as authorizing a total-profits recovery only “if the patented design is substantially the basis for customer demand for the entire article”.[ix] If it is the basis for consumer demand, the section 289 total-profits recovery would apply to the article; if not, a recovery of total profits would not be available for the article.

This approach bears some similarity to the determination of utility patent damages under the entire market value rule[x]. A utility patent on a boat windshield does not allow the value of the boat to be used as the basis for determining a reasonable royalty absent a demonstration that the windshield was the basis for the customer demand for the boat.

In addition, the “customer demand” limitation is consistent with the apparent rationale for enacting section 289 in the first place. Current section 289 and its predecessors replaced a Supreme Court decision[xi] that provided limited damages to design patent owners even where the infringers had applied the patented design to an article of manufacture in order to create the customer demand for the article of manufacture. In such a situation, forcing the copyist to turn over its total profits obtained on the infringing article represents good policy.

However, even under a “customer demand” limitation, section 289 is no timid remedy. It would not involve any form of “apportionment” of the profits to be awarded to the design patent holder on the ground that some proportion of the profits might be attributable to non- design patented factors. Apportionment is not consistent with the Congressional intent when section 289 and its predecessors were enacted.

Moreover, even if the section 289 remedy is unavailable, the patent owner is not left without the right to recover damages. All the remedies otherwise available for patent infringement remain, whether or not a section 289 “total profits” recovery can be secured as long as there is no double recovery of damages[xii].

The Apple v. Samsung case is of particular importance because imposing the “customer demand” standard on section 289 recoveries does not require another act of Congress. The courts are free to interpret statutes to effectuate the purpose Congress had in enacting them. Under section 289, Congress did nothing to preclude the courts from determining what qualifies—and does not qualify—as an “article of manufacture.”

The Federal Circuit sees this judicial flexibility otherwise. It (incorrectly) saw its hands as having been tied by Congress in Apple v. Samsung, stating: “We are bound by what the statute says, irrespective of policy arguments that may be against it”[xiii]. Fortunately, the Supreme Court has the opportunity to see the situation differently.

The Supreme Court may—and should—see it differently. It can define an “article of manufacture” as being limited to objects for which the patented design is substantially the basis for customer demand. Courts have acted similarly in the past to assure that application of a statute will not result in foreseeable outcomes which are clearly inappropriate and manifestly unintended. The emergence of the “entire market value” rule is a good example of where the alleged “infringing product” cannot be reflexively used as the basis for a damages calculation where the “patented invention” is a mere component or feature of the product and not the product itself.

The Court will have, however, some competing approaches to consider in the course of deciding this appeal. Another possible approach to interpreting section 289 is the so-called “separate product” exception. This exception to a section 289 recovery limits the availability of total profits to the smallest separately sold product to which the patented design is applied. While this exception has the potential to limit the possibility of some of the ludicrous outcomes noted above, it is no panacea. For example, it fails to exclude a section 289 recovery where a design patented graphical user interface (GUI) is used in an electronic device which does not involve a separately sold product. This is a serious deficiency because of the difficulty in finding any policy rationale for awarding total profits on an electronic device simply because a design on a GUI used in it is patented.

Apple has, nonetheless, suggested in its responsive brief to “Defendant-Appellants’ Petition for Rehearing en banc” what amounts to a more generalized rendition of a “separate product” exception: “As the panel correctly recognized, this distinctive design was not severable from the inner workings of Samsung’s smartphones, see Op.27-28, in a way that a cupholder is analytically distinct from the overall look-and-feel of a car.”[xiv] (emphasis added) While “severability” appears to be a more general “exception” criterion than simply being a “separate” product, the “severability” approach does not appear to address the deficiency explained above for the “separate product” exception.

If there is a concern with the “customer demand” limitation, it would be whether the limitation is so broad that it swallows most or all of the “total profits” rule. Indeed, there are many factors which cause a purchaser to acquire a particular article of manufacture—most notably its functional aspects. However, to apply the “customer demand” approach, one begins with the customer looking for something in a product space and then making the specific decision to purchase. Everyday products with new, ornamental designs such as specially shaped paper clips are a good example.[xv] While they have a known function, they are most likely purchased for their appearance. An option would be to only consider the ornamental features of a product to determine whether they were substantially the basis for customer demand, but that may well be too narrow and could lead to a total profit remedy for minor differences from an ornamental perspective.

The Supreme Court would not have granted certiorari without a sense that its guidance was needed to properly titrate a powerful damages provision. It can best do so by allowing section 289 to remain a viable incentive to create and commercialize new designs, but then limiting the articles of manufacture qualifying for a “total profits” recovery to those where the patented design is substantially the basis for customer demand for the article of manufacture. Such a holding would secure section 289 as both a distinguishing and distinguished feature of U.S. design patent law.

[i] Griswold, Gary. “35 USC 289 – After Apple v. Samsung, Time for a Better-Crafted Judicial Standard for Awarding “Total Profits”? Patently-O. August 14, 2015. https://patentlyo.com/patent/2015/08/griswold-patent-damages.html

[ii] See U.S. Supreme Court Orders List from March 21, 2016 at 2. http://www.supremecourt.gov/orders/courtorders/032116zor_h3ci.pdf

[iii] 35 U.S.C. § 289:

“Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties.

Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement.”

[iv] Rantanen, Jason, “Apple v. Samsung: Design Patents Win.” Patently-O. May 18, 2015. https://patentlyo.com/patent/2015/05/samsung-design-patents.html

[v] Laurie Rose Lubiano, “The America Invents Act applies the brakes to the false marking bandwagon.” LEXOLOGY, January 3 2012. http://www.lexology.com/library/detail.aspx?g=401c9bea-d643-4521-bc7d-c63d5b4a25f5

[vi] Samsung Petition for a Writ of Cert. Case No. 15-777. at 36-38. http://www.scotusblog.com/wp-content/uploads/2016/01/15-777_PetitionForAWritOfCertiorari.pdf

[vii] 35 U.S.C. § 289

[viii] Order on Motion for Partial SJ, In re Pacific Coast Marine Windshields Ltd. v. Malibu Boats LLC, Case No. 6:12-cv-33 (M.D. Fl. August 22, 2014)

[ix] See Griswold, https://patentlyo.com/patent/2015/08/griswold-patent-damages.html; See also Griswold, Gary. “35 USC § 289 – An Important Feature of U.S. Design Patent Law: An Approach to its Application.” IPO Law Journal. April 6, 2015. http://www.ipo.org/wp-content/uploads/2015/04/griswold_an-approach.pdf

[x] See Cornell University v. Hewlett-Packard Co., 609 F.Supp. 2d 279, 288-89 (N.D.N.Y. 2009):

(1) The infringing components must be the basis for customer demand for the entire machine including the parts beyond the claimed invention, (2) the individual infringing and non-infringing components must be sold together so that they constitute a functional unit or are parts of a complete machine or single assembly of parts, and (3) the individual infringing and non-infringing components must be analogous to a single functioning unit. It is not enough that the infringing and non-infringing components are sold together for business advantage. Notably, these requirements are additive, not alternative, ways to demonstrate eligibility for application of the entire market value rule.

See also Virnetz, Inc. v. Cisco Systems, Inc., 113 F.3d 1308, 1326 (Fed. Cir. 2014) (Judge Prost: “we recently affirmed that ‘[a] patentee may assess damages on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.”)

[xi] See Dobson v. Dornan, 118 U.S. 10, (1886); Dobson v. Hartford Carpet Co., 114 U.S. 439 (1885); Dobson v. Bigelow Carpet Co., 114 U.S. 439 (1885); Bigelow Carpet Co. v. Dobson/Hartford Carpet Co. v. Same, 10 F. 385,386; 1882 U.S. App. LEXIS 2295 (E.D. Pa. 1882).

[xii] 35 U.S.C. § 289, paragraph 2: “Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement.”

[xiii] Apple v. Samsung, Fed. Cir. Opinion at 27, fn. 1.

[xiv] See Brief in Opp’n to Rhg, Apple v. Samsung, Case No. 2014-1335; 2015-1029 at 27-28 (Fed. Cir. July 20, 2015)

[xv] See, e.g., Design Patent No. USD647,138: https://docs.google.com/viewer?url=patentimages.storage.googleapis.com/pdfs/USD647138.pdf

 

Federal Circuit Continues Broad Venue Allowance in Patent Cases

Patent, ,

by Dennis Crouch

In its petition for writ of mandamus, TC Heartland raised a set of interesting venue and personal jurisdiction claims – basically arguing that both the statute and Supreme Court precedent strongly limit where patent claims can be brought.

In its new decision, however, the Federal Circuit panel has rejected the petition – finding that “Heartland’s arguments are foreclosed by our longstanding precedent.”  This result was expected – likely even by Heartland’s counsel Prof John Duffy and Jim Dabney – and the long game has seemingly always been focused on en banc review and a potential supreme court review.  An eventual win by Heartland would result in a major shake-up of patent litigation by greatly reducing the concentration of patent cases – especially those in the Eastern District of Texas.

The basic setup:

Heartland alleged that it is not registered to do business in Delaware, has no local presence in Delaware, has not entered into any supply contracts in Delaware or called on any accounts there to solicit sales. But Heartland admitted it ships orders of the accused products into Delaware pursuant to contracts with two national accounts.

Based upon this setup, Heartland argues (1) that it does not “reside” in Delaware for venue purposes according to 28 U.S.C. § 1400(b); and (2) that Delaware district court lacks specific personal jurisdiction over it for this civil action.

Unfortunately for Heartland, these same arguments were raised and resolved by VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).  Although Heartland presented an argument that an amendment to the statute overruled VE Holdings, that argument was flimsy and rightly rejected by the appellate panel.  Rather, the real argument – now to be presented en banc – is that VE Holdings was wrongly decided and represents a misinterpretation of both the statute and Supreme Court precedent.

I previously explained the primary argument as follows:

In the dispute, Heartland has asked the court to reconsider its interpretation of the patent venue statute 28 U.S.C. § 1400(b) and order that the limiting elements of the provision be given effect.  Under the proposed interpretation, a patent infringement case could only be filed in districts either (1) the defendant resides or (2) the defendant has both committed acts of infringement and has a regular and established place of business. This proposal stems directly from the language of 28 U.S.C. § 1400(b) which requires either (1) residency or (2)  a combination of infringing acts plus a regular-place-of-business as a prerequisite to proper patent venue. For the past several decades the limits of § 1400(b) have been given essentially no weight after being undermined by 28 U.S.C. § 1391(c). This broadened provision undermines § 1400(b) by providing a very broad definition of the term “resides” — indicating that that “except as otherwise provided by law,” a defendant will be deemed to “reside” in any venue where the defendant is subject to that court’s personal jurisdiction in the action at hand. When § 1400(b) and § 1391(c) are read together, it appears that patent cases can be filed in any venue with personal jurisdiction over the defendant.  The point of the TC Heartland mandamus action is that those two provisions should not be read together, but instead, the more traditional and limited definition of “residency” should apply when interpreting 1400(b).

On TC Heartland’s side is Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957).  In that case, the Supreme Court ruled that “28 U.S.C. § 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. § 1391(c).”  This statement was reiterated by the Supreme Court in Brunette Mach. Works Ltd. v. Kockum Indus., Inc., 406 U.S. 706 (1972) (“Congress placed patent infringement cases in a class by them-selves, outside the scope of general venue legislation.”).  Congress then amended the statute which led the Federal Circuit to hold that Fourco no longer held sway.

 

 

 

Venue and Personal Jurisdiction Updates

Patent,

The world continues to spin as we await a decision in the TC Holdings mandamus venue action.

  • A group of Senators have introduced the VENUE Act (Venue Equity and Non-Uniformity Elimination Act of 2016). (S.2733).  The Bill would basically limit the venues where patent infringement claims can be brought.  EFF says: Pass the Venue Act
  • In Acorda Therapeutics v. Mylan Pharma (Fed. Cir. 2016), the Federal Circuit found that, by filing an ANDA with the FDA, a Generic manfacturer opens itself to nationwide personal jurisdiction for patent infringement. [Patently-O Discussion]
  • Sitting by designation in a district court case, Federal Circuit Judge Bryson has rejected a defendant’s contention that VE Holdings had been overruled by the 2011 amendments to the patent venue statute. Script Security Solutions, L.L.C. v. Amazon.com, LLC, No. 2:15-CV-1030-WCB, 2016 WL 1055827,  (E.D. Tex. Mar. 17, 2016) (Thanks to Robert Matthews for this update).

En Banc: Does a Confidential Manufacturing Supply Contract Trigger the On Sale Bar?

Patent,

by Dennis Crouch

More to come on this case, but I wanted to provide readers with the filed briefs below.

The Medicines Co. v. Hospira (Fed. Cir. 2016) (en banc)

Briefing is now complete in the en banc challenge to the ‘no-supplier-exception’ to the on-sale bar.  The en banc question here focuses on when a manufacturing supply contract crosses-the-threshold into impermissible “on sale” activity and raises the on-sale bar of 35 U.S.C. § 102(b) (pre-AIA). Although the patents at issue in this case involve pre-AIA law, the same “on sale” language is found in the revised statute. If the post-AIA statute is interpreted so that sales still include ‘secret sales’ then the decision here will continue to be of substantial importance. (Note that the U.S. Government argues that pre-AIA precedent is wrong and that secret sales should not trigger the on sale bar even pre-AIA).

The following questions are presented for the en banc panel:

1. Do the circumstances presented here constitute a commercial sale under the on-sale bar of 35 U.S.C. § 102(b)?

(a) Was there a sale for the purposes of § 102(b) despite the absence of a transfer of title?

(b) Was the sale commercial in nature for the purposes of § 102(b) or an experimental use?

2. Should this court overrule or revise the principle in Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001), that there is no “supplier exception” to the on-sale bar of 35 U.S.C. § 102(b)?

The parties here include MedCo (the Patentee) who (prior to filing the patent application) hired Ben Venue Mfg. to actually produce ‘validation batches’ of its bivalirudin drug. Hospira is challenging the patent and is seeking approval to market a generic version.

The original panel found that the sale constituted an invalidating on-sale bar. Of interest here, the “sale” was Ben Venue’s “sale of services” to manufacture the patented product-by-process rather than sales of the product themselves.  The original panel found no principled distinction between these concepts – thus applying the on sale bar.  Because the ‘sales’ at issue were associated with MedCo’s ‘validation batches,’ the patentee has also now argued experimental use.

Party Briefs:

Friend of the Court Briefs: 

  • US Amicus Brief (secret sales and secret offers should not be seen to trigger the on sale bar).
  • AIPLA Amicus Brief (transfer of title is not required for an on sale bar trigger)
  • BIO Amicus Brief (the original panel’s interpretation is bad policy)
  • Gilead Amicus Brief (only “arm’s length sales between two entities” qualify for the on sale bar; here that does not apply when an inventor controls (through contract) the activities of the manufacturer).
  • HIPLA Amicus Brief (experimental use continues to be an exception to the patent negating effect of on sale activity)
  • IPO Amicus Brief (Contract manufacturing is not a ‘sale’)
  • Miller Patti Pershern Amicus Brief (for AIA patents, this ‘flaw’ in the system has been corrected because only prefiling public sales activity triggers the patent prohibition)
  • Prof Morris Amicus Brief (focus should be on whether the inventor made a sale, here the inventor was the buyer and there is no “on buy” bar; on sale activity should not be termed ‘prior art.’)
  • PRMA Amicus Brief (Parties should be permitted to outsource manufacturing prior to filing for patent protection).

Guest Post: What Would Happen to Patent Cases if They Couldn’t all be Filed in Texas?

Patent

Colleen Chien, Santa Clara University Law School and Michael Risch, Villanova University Charles Widger School of Law[1]

Today, the Federal Circuit heard oral argument in the mandamus petition brought in the TC Heartland case. At stake is where patentees can properly bring their cases, a question that has received an inordinate amount of attention–even from comedic TV shows–in light of the high concentration of patent filings in just a handful of venues.

We have followed this case with interest because, as we have written before, we believe that revising venue may be a reform that the patent system’s diverse stakeholders can agree upon. Although the reasons that plaintiffs flock to Eastern Texas and a few other districts are contested, we believe that a system that incentivizes skating rinks outside of courthouses to curry favor with local juries is far less defensible.

How did we get here? For nearly 90 years, it was settled law that special rules limiting venue governed patent lawsuits. Congress changed the general venue law in 1988, and the Federal Circuit interpreted this as removing the special rule (28 U.S.C § 1400)’s restrictions, enabling plaintiffs to choose, essentially freely, among district courts where to file their patent suits.

Where might we be headed? Petitioners now argue under a variety of theories that the restrictions in 28 U.S.C. § 1400(b) in effect be reinstated, and given greater effect. Other than our concerns about the end result, we take no position at this time on the legal merits of any particular argument. In any event, it’s not our opinion that matters. If the Federal Circuit agrees, patent venue would revert to either (1) defendant’s residency (place of incorporation) or (2) a combination of infringing acts plus a regular-place-of-business. Congressional proposals are expected to both broaden and narrow this definition, though we caution against the development of proposals that make it difficult for the plaintiff to determine appropriate venue without undertaking substantial discovery in the first place or that makes the determination of “real” places of business uncertain.

But the Federal Circuit will not wait for Congress. How significant would a reversion to § 1400 be? Although impossible to predict with certainty, we think it is worthwhile to consider, so we performed an analysis that attempts to model that venue rule. We considered what would have happened in 2015, had the proposed interpretation been in effect then. Last year patent plaintiffs filed 44% of their cases in the Eastern District of Texas. Where would they have filed (assuming that they would have filed at all) had the previous interpretation of Section 1400 rule been in place? That is to say, where would patent plaintiffs file if they couldn’t all go to Texas?

To carry out our analysis, we chose 500 cases at random, corresponding to 665 defendants, filed in 2015. We then carried out three steps, as described in greater depth here. First, we approximated where each named defendant could be sued according to the more restricted reading of the statute, using place of business and incorporation data provided by complaints and facility/location information provided by Reference USA, a widely-used database of business data. Second, we identified, based on where the case was actually filed, and also where the plaintiff had sued in the past, the likely venue of suit. That is, if a plaintiff sued all over the country, then we assumed it would continue to do so. But if a plaintiff sued only in one district, we assumed they would sue again in that district if it could legally do so. Third, we compared the results of the first two steps and determined the percentage of 665 plaintiff-defendant pairs (“cases” for short) that reflected the following “matches”:

  • An exact match – P could have filed the case as is;
  • A plausible match – P could have filed in “Ps preferred venue” – any venue P filed in in 2014-2015;
  • No match – but P could have filed in the P class’ preferred venue – one of the top 5 venues of OpCos or NPEs; or
  • No match – none of the above.

The resulting analysis suffers from a few limitations. First, our data sources are likely to contain a modest number of errors and only roughly approximate permissible defendant venues. Second, though we assume that infringement took place in each district where the defendant has a location, this assumption may not hold in every jurisdiction. Third, outside of “exact” matches, it’s hard to tell with certainty where plaintiffs would choose to file – though we assume that plaintiffs plausibly would file where they have before, due to greater familiarity with the court, and that certain matches were “preferred” because we assume that P would prefer to file where others in the P’s class have filed in the past, other factors may trump. Finally, our dataset is small – only 500 cases – though we are in the process of extending the analysis. Still, we believe that the results from this initial analysis are instructive, and share them below.

As shown in Figure 1, we find that though approximately 30% of “cases” would have been able to be filed as they were, 70% of them would not have able to be filed as is. While 8% could have been filed where the plaintiff had filed before, in 62% of cases, plaintiffs would have to file in a jurisdiction they had never filed before, though 41% of the time, a jurisdiction preferred by other plaintiffs of the same time was available.

Figure 1

Figure 1

Applying codings for entity type provided by Unified Patents in Figure 2, we find that the rule change would have a greater impact on NPE plaintiffs (26% would have been able to file in the same district vs. 40% of OpCos) than OpCo plaintiffs, but that many OpCos – about 50% – would also have had to file outside of their past venues. This makes intuitive sense as plaintiffs often prefer to file in their home court, that, even if not generically plaintiff friendly, nonetheless are more convenient and represent areas where the plaintiff’s witnesses, as well as employees, are located.

Figure 2

Figure 2

Where would the cases go? We used the steps described above to determine likely venues for all but the “no match” cases, with the results shown in Figure 3. For the reasons described above – principally that we cannot be sure where plaintiffs would sue, particularly outside of their own past patterns – the data presented here are suggestive, rather than definitive, of projected patterns. With these caveats in mind, it appears that the Delaware would be the top venue, capturing 33% of the cases, followed by the Northern District of California with 21% of cases, and the ED Tex, with 11% of the cases.

Figure 3

Figure 3

CONCLUSION

So, where does this leave us? Many cases would have to move, and not just those filed by NPEs. Even so, a decent number of cases could have stayed in the same location. That Delaware and Northern California would be the most popular is unsurprising given how many defendants are incorporated in Delaware or headquartered in Silicon Valley. Perhaps more surprising is that Eastern Texas remains third on the list, albeit with a much smaller percent of cases. These cases would likely be filed against retailers selling patented goods from stores located in that district, though there were some defendants in our sample that were headquartered there.

In conclusion, changes to venue rules would likely cause real changes to venue locations. Not all the cases would move to Delaware (as some might have expected), but a decent number likely would. Though some plaintiffs would be inconvenienced, there would be much more diversity in patent venues, with many districts seeing more cases than they have in some time, and a few districts seeing many fewer. While we leave analysis of the legal merits to others, we are literally and figuratively of two minds with respect to this outcome. On the one hand, ending the Eastern District of Texas hegemony would be a good thing. On the other hand, one of us has litigated patent cases in unpopular districts and warns that defendants should be careful what they wish for; there is a reason why so many “specialist” district court proposals have been made.

To the extent that some percentage of patent cases have been made possible solely because of favorable venue, we would expect to see dynamic effects as well, should the Federal Circuit recalibrate patent venue to its nearly century old equilibrium. If Congress doesn’t like the result, it can always act.

[1] We thank Lex Machina for providing us with case data, Unified Patents for providing us with entity codings, and research assistants Reuben Bauer, Emma Stone, Campbell Yore, Max Looper, Amanda Garger, Christie Larochelle, for help with coding.

US Patent Applicants Heading to the EPO

Patent

By Dennis Crouch

At the recent Mizzou-USPTO symposium there was some discussion about whether the European Patent Office (EPO) has positioned itself as a more favorable patent venue than the US.  Most practitioners will agree that the US is now more restrictive in terms of subject matter eligibility and the new pan-European patent enforcement court makes those patents obtained in Europe more all the more valuable.  Today, the EPO released a set of data that makes these prognostications appear to ring true.

The first chart below shows that the number of EPO patent applications coming from the US grew substantially over the past year (up 16.4%).  Top US-based EPO filers include United Technologies (UTX), Qualcomm, GE, Intel, Microsoft, J&J, and Honeywell – with these top seven collectively representing about 20% of the US-based EPO applications filed in 2015.  Some major U.S. filers (such as AT&T and GM) did not make the list.  UTX was not patent powerhouse in recent decades, but has ramped-up filings over the past few years. The growth in applications from the US almost accounts for the entire increase in filings over 2014.

EPOUSGrants

Although these are year-to-year changes, it is important to consider that the impacts will linger in the system for the next 20 years.

Patentlyo Bits and Bytes by Anthony McCain

Patent,

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