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Patently-O Bits & Bytes by Lawrence Higgins

Patent, ,

Chisum Patent Academy

  • The Chisum Patent Academy will hold its next Advanced Patent Law seminar February 20-22, 2013, in New York City (Midtown Manhattan). Because each three-day Chisum Patent Academy seminar is uniquely limited to ten (10) participants, they offer an unparalleled opportunity for interactive roundtable discussion and debate. Each seminar is led by patent law educators and treatise authors Donald Chisum and Janice Mueller. The New York seminar will focus in great depth on two timely and controversial patent law topics: patent claim interpretation and active inducement. They will also cover America Invents Act developments including the USPTO's final rules on first inventor to file (taking effect three weeks after the New York seminar); preliminary injunctions and design patents; and inequitable conduct decisions post-Therasense. A more detailed description of the topics to be covered and registration details are available on the Academy's website. [Link]

New start-up company (Evtron)

  • Evtron is a new start-up company that specializes in data storage. The company made a storage device (Evtron CELL) that can fit 120 hard disk drives into a storage platform. The design created by Evtron will supposedly make it 60% more efficient in data density, when compared to similar data storage products currently available on the market. NetApp and EMC are the two leading companies in this technology market, with annual revenue between $7 billion and $22 billion. Evtron may be able to compete with these companies but only if they are granted their pending patent and the patent cannot be worked around. The patent application to my knowledge is not currently public. There have been rumors that Facebook may be interested in the technology. This should be a very interesting company to watch, in terms of the patent application, lawsuits that may arise, and the change of the data storage space.

Patent Jobs:

  • Fenwick & West is seeking patent associates with 1-4 years of experience and an EE, CS, CE, or physics background, or equivalent experience to work at their Silicon Valley office. [Link]
  • Armstrong Teasdale is looking for an experienced trademark associate to work at their St. Louis office. [Link]
  • Harrington & Smith is seeking a patent associate with a degree in EE or physics and at least 2 years of experience to work at their Shelton, Connecticut office. [Link]
  • Krieg DeVault is looking for an IP associate with 3-7 years of experience to work at their Indianapolis office. [Link]
  • Harrity & Harrity is searching for patent attorneys/agents with a background in EE, computer science, or physics and a minimum of 2 years of experience to work at their Fairfax, VA office. [Link]
  • Honigman is seeking a patent attorney/agent with a degree in EE or computer science to work at their Oakland Count, Michigan office. [Link]
  • Byrne Poh is looking for a patent attorney/agent with a degree in EE or computer science to work at their New York office. [Link]
  • The Ollila Law Group is seeking a patent attorney with an EE and at least 2 years of experience to work at their Boulder office. [Link]
  • Abel Law Group is seeking a chemical practitioner with 2+ years of experience to work at their Austin office. [Link]
  • Klarquist Sparkman is seeking an IP Litigation Associate with 1-2 years of experience to work at their Portland office. [Link]

Upcoming Events:

  • Santa Clara Law will be hosting its conference Solutions to the Patent Problem this Friday, November 16, featuring industry and government folks such as Kent Walker (Google), Brad Burnham (USVentures), Ben Lee (Twitter), Edith Ramirez (FTC), and Paul Grewal (N.D. Cal) in addition to about 20 academics. The event will be streamed and Wired is running opeds from the conference as part of its Patent Fix series.
  • IBC Legal's 6th Annual Standards and Patents Conference 2012 will be held on November 27-28 in London. The dynamics of the relationship between standards and patents poses a plethora of challenges for patentees, licensees, standard setting organizations, innovators, commercial users and implementers. Guest speakers include Mr. Justice Ford (Jude, Patent Court) and Richard Vary. [Link] (PatentlyO readers save 10% by quoting VIP code: FKW82336PTOL)
  • ACI's 14th Advanced Forum on Biotech Patents will be held on November 28-29, in Boston. ACI's 14th Advanced Forum on Biotech Patents brings together another top-notch faculty of expert biotech patent practitioners who will share their experience and knowledge to help you avoid pitfalls and maximize the value of your intellectual property. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • The ACI's Orphan Drugs and Rare Diseases conference will take place on November 28-29 in Boston. There are an estimated 6,000 rare diseases currently recognized in the U.S. alone; European authorities recognize as many as 8,000 rare diseases. With only approximately 150 treatments for these diseases approved so far according to the FDA's orphan designation database, there is a unique opportunity for companies of all sizes to invest in research and development to try to capture this lucrative market share. Indeed, according to a leading industry report, the orphan disease therapeutics market will continue to see a marked increase in value through the decade, increasing from 2010's $2.3 billion to an estimated $6 billion in 2018. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • ACI's Paragraph IV Disputes conference will be held on December 4-5 in San Francisco. An experienced faculty of renowned litigators and judges will guide you through every stage of a Paragraph IV challenge. Additionally, in the wake of major developments in pay-for –delay, learn what the FTC deems foul and fair in the settlements of Paragraph IV disputes in order to draft and structure settlements that will receive FTC approval. [Link] (PatentlyO readers use code PO 200 a discount)
  • C5's 5th Annual Forum on Biotech and Pharma Patent Litigation is scheduled for January 29-30 in Amsterdam. [Link] (PatentlyO readers use code PO10 for a 10% discount)

Contact Lawrence.Higgins@patentlyo.com with leads for future Bits and Bytes.

Patently-O Bits & Bytes by Lawrence Higgins

Patent, ,

Chisum Patent Academy

  • The Chisum Patent Academy will hold its next Advanced Patent Law seminar February 20-22, 2013, in New York City (Midtown Manhattan). Because each three-day Chisum Patent Academy seminar is uniquely limited to ten (10) participants, they offer an unparalleled opportunity for interactive roundtable discussion and debate. Each seminar is led by patent law educators and treatise authors Donald Chisum and Janice Mueller. The New York seminar will focus in great depth on two timely and controversial patent law topics: patent claim interpretation and active inducement. They will also cover America Invents Act developments including the USPTO's final rules on first inventor to file (taking effect three weeks after the New York seminar); preliminary injunctions and design patents; and inequitable conduct decisions post-Therasense. A more detailed description of the topics to be covered and registration details are available on the Academy's website. [Link]

New start-up company (Evtron)

  • Evtron is a new start-up company that specializes in data storage. The company made a storage device (Evtron CELL) that can fit 120 hard disk drives into a storage platform. The design created by Evtron will supposedly make it 60% more efficient in data density, when compared to similar data storage products currently available on the market. NetApp and EMC are the two leading companies in this technology market, with annual revenue between $7 billion and $22 billion. Evtron may be able to compete with these companies but only if they are granted their pending patent and the patent cannot be worked around. The patent application to my knowledge is not currently public. There have been rumors that Facebook may be interested in the technology. This should be a very interesting company to watch, in terms of the patent application, lawsuits that may arise, and the change of the data storage space.

Patent Jobs:

  • Fenwick & West is seeking patent associates with 1-4 years of experience and an EE, CS, CE, or physics background, or equivalent experience to work at their Silicon Valley office. [Link]
  • Armstrong Teasdale is looking for an experienced trademark associate to work at their St. Louis office. [Link]
  • Harrington & Smith is seeking a patent associate with a degree in EE or physics and at least 2 years of experience to work at their Shelton, Connecticut office. [Link]
  • Krieg DeVault is looking for an IP associate with 3-7 years of experience to work at their Indianapolis office. [Link]
  • Harrity & Harrity is searching for patent attorneys/agents with a background in EE, computer science, or physics and a minimum of 2 years of experience to work at their Fairfax, VA office. [Link]
  • Honigman is seeking a patent attorney/agent with a degree in EE or computer science to work at their Oakland Count, Michigan office. [Link]
  • Byrne Poh is looking for a patent attorney/agent with a degree in EE or computer science to work at their New York office. [Link]
  • The Ollila Law Group is seeking a patent attorney with an EE and at least 2 years of experience to work at their Boulder office. [Link]
  • Abel Law Group is seeking a chemical practitioner with 2+ years of experience to work at their Austin office. [Link]
  • Klarquist Sparkman is seeking an IP Litigation Associate with 1-2 years of experience to work at their Portland office. [Link]

Upcoming Events:

  • Santa Clara Law will be hosting its conference Solutions to the Patent Problem this Friday, November 16, featuring industry and government folks such as Kent Walker (Google), Brad Burnham (USVentures), Ben Lee (Twitter), Edith Ramirez (FTC), and Paul Grewal (N.D. Cal) in addition to about 20 academics. The event will be streamed and Wired is running opeds from the conference as part of its Patent Fix series.
  • IBC Legal's 6th Annual Standards and Patents Conference 2012 will be held on November 27-28 in London. The dynamics of the relationship between standards and patents poses a plethora of challenges for patentees, licensees, standard setting organizations, innovators, commercial users and implementers. Guest speakers include Mr. Justice Ford (Jude, Patent Court) and Richard Vary. [Link] (PatentlyO readers save 10% by quoting VIP code: FKW82336PTOL)
  • ACI's 14th Advanced Forum on Biotech Patents will be held on November 28-29, in Boston. ACI's 14th Advanced Forum on Biotech Patents brings together another top-notch faculty of expert biotech patent practitioners who will share their experience and knowledge to help you avoid pitfalls and maximize the value of your intellectual property. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • The ACI's Orphan Drugs and Rare Diseases conference will take place on November 28-29 in Boston. There are an estimated 6,000 rare diseases currently recognized in the U.S. alone; European authorities recognize as many as 8,000 rare diseases. With only approximately 150 treatments for these diseases approved so far according to the FDA's orphan designation database, there is a unique opportunity for companies of all sizes to invest in research and development to try to capture this lucrative market share. Indeed, according to a leading industry report, the orphan disease therapeutics market will continue to see a marked increase in value through the decade, increasing from 2010's $2.3 billion to an estimated $6 billion in 2018. [Link] (PatentlyO readers register for with PO 200 for a discount)
  • ACI's Paragraph IV Disputes conference will be held on December 4-5 in San Francisco. An experienced faculty of renowned litigators and judges will guide you through every stage of a Paragraph IV challenge. Additionally, in the wake of major developments in pay-for –delay, learn what the FTC deems foul and fair in the settlements of Paragraph IV disputes in order to draft and structure settlements that will receive FTC approval. [Link] (PatentlyO readers use code PO 200 a discount)
  • C5's 5th Annual Forum on Biotech and Pharma Patent Litigation is scheduled for January 29-30 in Amsterdam. [Link] (PatentlyO readers use code PO10 for a 10% discount)

Contact Lawrence.Higgins@patentlyo.com with leads for future Bits and Bytes.

A Rush to File Ex Parte Reexaminations and Now a Lull

Patent, , ,

By Dennis Crouch

Historically about two thirds of ex parte reexaminations were filed by third-party filers. In recent years, that figure has risen so that now around 90% of ex parte reexamination requests are filed by third-parties. The America Invents Act of 2011 (AIA) made only a very limited change to the ex parte reexamination structure. The greatest change, however, came about on September 16, 2012 when the USPTO instituted a new fee regime that boosted the cost of ex parte reexaminations from $2,520 to $17,750.

In the days leading up to September 16, 2012 there was a rush to file these ex parte reexamination requests in order to beat the fee deadline. The 200 or so requests filed in the final week is equivalent to about four months of filing in more ordinary weeks. With that in mind, it is not surprising that the post-September-16 filings are at a much lower rate – about one third of the pre-implementation rate for the past seven weeks.

By new year (January 2013), any gap created by the rush to file should be dissipated. However, I don’t expect for the ex parte reexamination filings to be back to their normal pre-AIA rate because of the new high-cost of filing ex parte reexaminations and because supplemental examination is now a better alternative for the majority would-be owner-filed reexaminations. The one caveat is that the new increased expense of inter partes review may push some challengers toward the ex parte approach.

Notes

  • Upcoming – A review of recently filed supplemental examination requests.
  • If you are worried that the drop in filing post-implementation will harm the USPTO’s bottom line, don’t worry. The PTO’s CFO should see the raise in fees as a very good business move. The PTO now has two thirds less work coming-in but each bit of work receives seven times more revenue. More money for less work is never a bad thing (unless you are the customer).
  • Eight Points about September 16, 2012
  • A Rush to File at the End of Inter Partes Reexaminations

International Copyright Exhaustion: Supreme Court to Decide Whether Copyright Holders Can Block Imports

Patent, ,

By Dennis Crouch

Kirtsaeng v. John Wiley & Sons, Inc. (Supreme Court 2012)

Oral arguments are being held this morning in the Kirtsaeng copyright case involving international exhaustion. The case has direct implications on international patent law considerations.

Kirstaeng purchased legitimate copies of Wiley textbooks in various foreign countries and then imported those into the US for resale. The international versions of the textbooks vary somewhat from the US version (e.g., the foreign version covers evolution and is printed on cheaper paper). However, Kirtsaeng was able to find a substantial US market for the books and used the revenue to fund his own education. Copyright includes the exclusive right of distribution, and resale of a product is typically seen as a form of distribution. 17 U.S.C. 106. A separate provision also bars importation of copyrighted works without permission of the copyright holder. 17 U.S.C. 602(a)(1). However, the copyright statute also includes an exception known as copyright exhaustion or the first sale doctrine. 17 U.S.C. 109. The statute provides:

[T]he owner of a particular copy … lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.

Patent law has an equivalent doctrine. Notably, however, the patent law doctrine of exhaustion is not bound by any statute but does stem from parallel common law origins. The exhaustion doctrine allows for a robust secondary market for goods.

In this case, Wiley wants to use its US copyrights to block Kirtsaeng from reselling his books. Kirtsaeng argues that he purchased non-counterfeit authorized copies of the books and that Wiley’s copyrights are therefore exhausted. Wiley, in turn, focuses on the statute and argues that the US copyright is not exhausted because the foreign-made books were not “lawfully made under this title” where “this title” refers to the US Copyright Act. In its appellate decision, the Second Circuit agreed with Wiley and held that the foreign sale did not trigger the Section 109 exception. The decision supports a notion of country-by-country price discrimination of works protected by copyright (or patent). Unfortunately for US consumers, the price of these goods is typically higher in the US than abroad. In addition to price discrimination, the law is also being used to control access to goods in various countries. In many cases, these ideas have been implemented as mechanisms for preventing important of goods that do not – at first glance – appear to be protected by intellectual property. In the Supreme Court cases of Costco v. Omega and Quality King Distribs., Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998), the asserted copyrights were unrelated to the value of the product being sold. In Costco, the protected copyright was a small symbol on the under-side of the watch while in Quality King, the protected copyright was the shampoo bottle label. (On remand, the district court dismissed Omega’s action on the ground of copyright misuse.)

The Supreme Court is hearing oral arguments in the case this morning. In 2010 the court heard Costco v. Omega. In that case, however, the court was deadlocked 4-4 (thus affirming the copyright holder’s position). The ninth justice that will sit on this case is Justice Kagen who had recused herself in 2010 – apparently after working on the case as Solicitor General. In her absence, the DOJ has supported the copyright holders in arguing against international exhaustion.

In my view, Wiley likely has the better argument based on a straight reading of the statute. However, the implementation of Section 109 was largely a codification of the 1908 Supreme Court decision in Bobbs-Merrill Co v. Straus. And, it appears that international copyright exhaustion was on the mind of Congress at that time. Further, we already know that if the text of the statute is construed as copyright holders suggest, then the statute does not entirely define the scope of exhaustion. For instance, authorized sales within the US are seen as exhausting the copyright even if the work was not “lawfully made” in the US. In my mind, this opens the door to a potential atextual expansion of the exhaustion doctrine.

There are several interesting briefs filed in the case. The IPO, AIPLA, ABA all support the copyright holders rights to block importation of goods that the copyright holder sold abroad. For the most part, these organizations say that their arguments are “limited to the Copyright Act” and should not be read into “other fields, such as trademark and patent law” which “involve distinct statutory schemes and implicate separate policy concerns.”

A group of law professors led by Jason Shultz filed an amicus brief and argues that the Wiley’s argument “runs contrary to the statutory context in which § 109(a) appears, the common-law backdrop against which Congress legislated, and analogous principles of patent law as well.” Federal Circuit precedent on the topic runs parallel to the Wiley decision finding no international exhaustion. See Jazz Photo Corp. v. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001) and Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368 (Fed. Cir. 2005). Interestingly, the brief rejects the Jazz Photo cases as against the weight of past and present Supreme Court precedent on the topic.

Mark Lemley filed a brief on behalf of Powell Books, et al. that runs in parallel with a brief filed by a group of art museums. Both briefs argue that their respective operations (selling used books and showing artwork) have long relied upon international exhaustion. If copyrights are not so exhausted, both business models will suffer greatly.

Notes:

Good Things Come in Threes? DOJ, FTC and EC Officials Wax Eloquent About FRAND

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Guest Post By Professor Jorge L. Contreras

For years, developers of standards in the information and communications technology (ICT) sector have committed to license patents that are essential to those standards on terms that are "fair, reasonable and nondiscriminatory" (FRAND). This February, I summarized the reasons that these vague but somewhat reassuring commitments have become so prevalent in the industry. Since then, the litigation over FRAND commitments has only intensified. In April, I summarized the major pending lawsuits that revolve around allegations that FRAND commitments have been violated. One of these, Microsoft v. Motorola (W.D. Wash.) is scheduled to go to trial on this issue in November, and Judge Robart has suggested (some would say threatened) that he may define FRAND for the parties if they can't reach agreement before then.

Against this backdrop, regulators in the U.S. and Europe have actively pursued a FRAND clarification program of their own. As I noted in February, the U.S. Department of Justice (DOJ) appears to have persuaded Microsoft, Apple and Google to release a trio of "voluntary" statements describing their interpretations of FRAND. This public display occurred in connection with DOJ's review (and approval) of major patent acquisition transactions by each of these parties. The European Commission, which approved Google's acquisition of Motorola Mobility shortly thereafter, also exhibited a keen interest in Google's view of FRAND commitments.

Six months later, there has been another flurry of FRAND clarifications. This time, however, guidance is being offered not by companies, but by the regulators themselves (or, rather, by senior agency officials speaking "on the record" at public events). These include the following speeches by officials of the DOJ, FTC and EC:

  • Jon Leibowitz, Chairman of the FTC, at the Georgetown Global Antitrust Enforcement Symposium (September 19),
  • Joseph Wayland, Acting Asst. Attorney General in the Antitrust Division of DOJ, at the Fordham Competition Law Institute (September 21),
  • Joaquin Almunia, Vice President of the European Commission responsible for Competition Policy, also at Fordham (September 20),
  • Fiona Scott-Morton, DOJ Deputy Asst. Attorney General for Economic Analysis, at the National Academies of Science (NAS) Symposium on Management of Intellectual Property in Standard Setting Processes (October 3),
  • Howard Shelanski, Director of FTC Bureau of Economics, also at NAS (October 4), and
  • Renata Hesse, Deputy Attorney General in the Antitrust Division of DOJ at the International Telecommunications Union (ITU) Patent Roundtable (October 10)

It is no coincidence that these officials each came forward with comments regarding FRAND within a few weeks of each other. As suggested by Dr. Scott-Morton, this effort was at least loosely coordinated within the three agencies, each of which is actively involved in matters involving the licensing of patents essential to industry standards. For example, the FTC has initiated an investigation of Google/Motorola in relation to its FRAND licensing practices and submitted a public statement to the ITC in Microsoft's case against Motorola (now resolved), the EC has launched FRAND-related investigations of both Google/Motorola and Samsung, and the DOJ is reported to have opened an investigation into Samsung's practices in this area. But despite the clear desire by these three agencies to send a message to the industry regarding FRAND, the scope of that message is not entirely clear. Below is a brief summary of the FTC, DOJ and EC officials' statements regarding FRAND:

Injunctive Relief. If the agency viewpoints share on one thing, it is a strong aversion to injunctions that seek to block the use of a standard after a FRAND commitment has been made. However, even here the extent of agency accord is unclear. For example, Mr. Almunia declares that "the worst-case scenario is when a company willing to take a license for standard-essential patents is hit by an injunction" (Almunia, p.6), yet he does not indicate whether, or on what basis, such an injunction might be limited. The FTC's position on injunctive relief is more restrained, and Chairman Leibowitz only notes that such relief may be "in tension" with the FRAND commitment (Leibowitz, p.7). This statement is consistent with the FTC's earlier comments to the ITC, suggesting that if a patent holder has made a "reasonable royalty offer" that has subsequently been refused by an infringer, relief in the form of an exclusion order might be appropriate. The most steadfast opponent of injunctive relief in the face of a FRAND commitment appears to be DOJ, which tipped its hand back in February when it applauded Apple's and Microsoft's statements "that they will not seek to prevent or exclude rivals' products from the market", while viewing Google's more qualified commitment as "less clear". Mr. Wayland refers to these earlier statements (Wayland, p.7), and to his testimony before the Senate Committee on the Judiciary, which held hearings on ITC exclusion orders in September (Wayland, p. 10-11). With respect to ITC exclusion orders he echoes the FTC's position, which has generally disfavored injunctive relief for FRAND-committed patents due to the increased leverage that negotiating in the "shadow" of such an injunction can give to the patent holder (FTC 2011 Report, p.225-26). But like the FTC in its recent public comments to the ITC, he indicates some tolerance for such injunctions when a potential licensee has not negotiated reasonably or is beyond the reach of the U.S. courts (Wayland, p.10-11). However, it is FTC Chairman Leibowitz who makes the boldest statement regarding injunctive relief, suggesting not only that such relief should not be granted in the face of a FRAND commitment, but that even seeking such relief could amount to unfair competition under Section 5 of the FTC Act (Leibowitz, p. 9). He thus warns companies that violating their FRAND commitments could lead to enforcement actions by the agency.

Antitrust and Competition Law Claims. Several of the agency officials suggest that violation of FRAND commitments could, under certain circumstances, constitute violations of antitrust or competition law. Mr. Almunia, for example, while acknowledging that the recent smartphone patent wars are "primarily patent cases, not competition cases", goes on to suggest that "this state of belligerence may encourage a company to use its patents as weapons to harm legitimate competitors" (Almunia, p.5). Ms Hesse of DOJ notes the "risks to competition" that may arise from collaborative standards-setting and so-called "patent hold-up" (Hesse, p.5). And Mr. Wayland unambiguously states that "the [Antitrust] division is ready to enforce the antitrust laws against standard-setting activities that harm competition" (Wayland, p.8). Mr. Almunia likewise indicates that the EC is "willing to provide clarity to the market through our enforcement" (Almunia, p.6).

But perhaps the most interesting comments regarding antitrust remedies are Chairman Leibowitz's statements regarding the "unfair methods of competition" that may result from seeking an injunction in the face of a FRAND commitment (Leibowitz, p.9). As noted above, he suggests that such conduct may run afoul of Section 5 of the FTC Act "which, as all of us in this room understand, Congress intended to extend well beyond the reach of the antitrust laws" (Id.). Chairman Leibowitz thus hedges his bets: even if antitrust doctrines are not sufficient to prosecute FRAND violations, the agency has tools beyond antitrust that it may use to correct such behavior (an argument that, perhaps, arises from the FTC's 2008 reversal by the D.C. Circuit in its antitrust case against Rambus, Inc. for abuse of the standardization process).

Magnitude of FRAND Royalties. Not surprisingly, the agency representatives do not speak much about the complex question of the magnitude of FRAND royalty rates. Historically, the FTC has maintained that appropriate royalties for standards-essential patents should be based on the ex ante value of the patented technology prior to adoption of the standard (FTC 2011 Report, p.22-23). Obviously, determining such a royalty in hindsight can be challenging, and perhaps Judge Robart's upcoming judicial intervention in Seattle may shed light on how best to conduct this analysis. Another nettlesome question regarding the magnitude of FRAND royalties arises from the comparative value of the many different patents that may cover the same standard (sometimes ranging in the thousands). In this regard, Chairman Leibowitz offers an interesting observation, possibly alluding to the pending disputes over Motorola's proposed royalty: "When the allegedly infringing component is, say, only one of 15,000 patents used in a smart phone or a tablet, is it fair to demand two percent of the entire sales price? To ask that question is to answer it."

SDO-Based Solutions. Unlike the FTC and EC representatives, the DOJ officials strongly encourage SDOs to implement policies that are likely to alleviate some of the risks and uncertainty currently associated with FRAND commitments. Both Mr. Wayland and Ms. Hesse reflect favorably on DOJ's 2007/2008 Business Review Letters approving the "ex ante" licensing disclosure policies proposed by VITA and IEEE (Wayland, p.8-9, Hesse, p.7-8). Such policies permit (in the case of IEEE) and require (in the case of VITA) that patent holders disclose their "most restrictive" licensing terms (including royalty rates) before adoption of a standard. Ms. Hesse notes that "[w]e saw then, and continue to see now, the potential benefits to competition from the implementation of such an approach" (Hesse, p.8). In addition to ex ante licensing disclosure, Mr. Wayland, Ms. Hesse and Dr. Scott-Morgan of DOJ all suggest concrete steps that SDOs should consider in relation to FRAND (Wayland, p.9; Hesse p.9-10; Scott-Morgan, p.1-4). These are summarized below (based primarily on Ms. Hesse's presentation, which is the most detailed and occurred latest in time).

  1. Identify Excluded Patents. Identify patented technology that will not be offered on FRAND terms and "consciously determine" whether or not such technology should be included in a standard.
  2. Transfer. Ensure that FRAND licensing commitments bind subsequent purchasers of patents. (This requirement was also advocated by Microsoft, Apple and Google in their February statements).
  3. Cash-Only. Require that patent holders offer FRAND licenses on "cash-only" terms (presumably to eliminate (a) perceived abuses arising from "bundling" of non-essential patents with standards-essential patents, and (b) inherent barriers to entry for market entrants lacking their own patents to use as cross-licensing barter with other patent holders).
  4. Limit Injunctions. Limit participants' right to seek injunctions after a FRAND commitment has been made. (This limitation was also advocated by Microsoft, Apple and Google in their February statements).
  5. Arbitration. Set guidelines for FRAND royalty rates, or establish an arbitration or other mechanism for resolving disputes over the level of FRAND royalties.
  6. Accuracy of Disclosure. Ensure that disclosure of "essential" patents is accurate and not overly broad (only suggested by Hesse, p.10).

The "inherent ambiguity" of FRAND commitments (Hesse, p.6) undoubtedly requires clarification, either by the parties making such commitments or, lacking that, by courts and regulatory agencies. The recent statements by agency officials at the DOJ, FTC and EC represent a good first step toward such clarification. At this point, there appears to be a developing consensus among private industry and the agencies that FRAND commitments should "travel with the patents" after they are sold, and that injunctive relief should be limited after a FRAND commitment is made. In other areas, however, there does not appear to be a high degree of consensus among the agencies and additional work by all stakeholders (SDOs, patent holders, product vendors and regulators) will be required before a common understanding of FRAND is finally developed. I agree with the DOJ commenters that SDO-based solutions are the most likely avenues toward widespread alleviation of FRAND uncertainty, and have proposed a slightly different set of recommendations for SDO policy reform. Barring this, however, the decision will be left to the courts.

Is the New Supplemental Examination a Complete Replacement for Owner Initiated Ex Parte Reexamination?

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By Dennis Crouch

This essay focuses on supplemental examination but, perhaps surprisingly, the essay does not consider inequitable conduct inoculation. The ability of supplemental examination to cure inequitable conduct has received a significant amount of attention. However, supplemental examination is likely to have a broader value for patent owners. In particular, supplemental examination offers an expanded and beneficial avenue for patent owners to subtly enter ex parte reexamination. In its official estimates, the USPTO predicts that patent owners will entirely stop filing ex parte reexaminations. Rather, in the USPTO’s estimation, 100% of the cases that would have been filed as owner-filed reexaminations will now be filed as supplemental examinations. The USPTO writes:

[T]he Office estimates that it receives approximately 110 requests for ex parte reexamination filed by patent owners annually. In view of the benefits to patent owners afforded by supplemental examination under 35 U.S.C. 257(c), the Office is estimating that all 110 requests for ex parte reexamination that would have been filed annually by patent owners will instead be filed as requests for supplemental examination. However, the Office is also estimating that more than 110 requests for supplemental examination will be filed annually due to a combination of: (1) the benefits to patent owners afforded by supplemental examination; (2) the fact that the “information” that may form the basis of a request for supplemental examination is not limited to patents and printed publications; and (3) the fact that the issues that may be raised during supplemental examination may include issues in addition to those permitted to be raised in ex parte reexamination (e.g., issues under 35 U.S.C. 112).

See Changes To Implement the Supplemental Examination Provisions of the Leahy-Smith America Invents Act and To Revise Reexamination Fees; Final Rule, 77 Fed. Reg. 48827 (2012). Although not suggested by the USPTO, there is some thought that the supplemental reexamination will also take some demand away from the current reissue system.

As a starting point on this topic, it is useful to remember that ex parte reexamination has been left virtually unchanged by the America Invents Act (AIA). The greatest exception is not a process change but rather a seven-fold increase in the price-tag for filing a request for ex parte. This takes the price from $2,500 to almost $18k. Ex parte reexaminations will still be conducted by examiners in the central reexamination unit (CRU) and the Board (now the PTAB) will handle first level appeals. The AIA “clarifies” the law that adverse decisions from the PTAB may be appealed only to the Court of Appeals for the Federal Circuit and that the patentee has now right to file a civil action in district court to overturn an adverse decision during the reexamination.

The reissue process was also left untouched except that the AIA removes the “without any deceptive intention” language from 35 U.S.C. § 251. The reissue statute now reads as follows:

Whenever any patent is, through error without any deceptive intention, deemed wholly or partly inoperative or invalid, by reason of a defective specification or drawing, or by reason of the patentee claiming more or less than he had a right to claim in the patent, the Director shall, on the surrender of such patent and the payment of the fee required by law, reissue the patent for the invention disclosed in the original patent, and in accordance with a new and amended application, for the unexpired part of the term of the original patent. No new matter shall be introduced into the application for reissue.

However, unlike reexaminations, reissue fees associated with reissue applications have been kept low – remaining mostly equivalent to fees associated with original prosecution. For patents in litigation (or likely to be litigated) the fee differential will be a relatively minor factor in the ultimate choice. However, that fee differential could be quite important for more average patents – those part of a large portfolio but that would become more valuable if given a secondary review. Since this post is getting quite long, I’m going to save the comparison between supplemental examination and reissues for a different post.

Comparing Supplemental Examination with Ex Parte Reexamination: The process of supplemental examination is quite similar to that of ex parte reexamination. You can think of ex parte reexamination as having two main parts: (1) request stage; and (2) examination stage. At the request stage, the USPTO must decide whether the reexamination request raises patentability issues that are significant enough to warrant full reexamination. If the issues presented are not significant enough then the reexamination request is denied and the case is over. However, if the issues are deemed significant then the patent is fully reexamined. That reexamination can result in claims being cancelled, amended, or confirmed as patentable. In many ways, supplemental examination can be seen as simply changing name of the request stage. For supplemental examination, the request stage is the supplemental examination. In that stage, the USPTO is simply conducting a cursory review to determine whether the issues presented in the supplemental examination request raise a substantial new question of patentability. If not, then the supplemental examination is concluded (with a certificate). If substantial questions are raised then a full reexamination is ordered and conducted. As in the request stage of ex parte reexaminations, supplemental examination is completed very quickly (3-months) and without any additional outside input beyond the request itself.

Supplemental examination offers four primary benefits for a patent owner as compared with directly filing a request for ex parte reexamination:

  • When a patent owner files a reexamination request on its own patent, it has to first convince the USPTO that its patent has a problem. With supplemental examination, the patentee need not make any such statement. Rather, the supplemental examination request simply points to material that should be considered with minor explanation and the PTO makes the judgment as to whether the submitted material raises any substantial new questions of patentability. This helps patentees avoid potential prosecution history issues that often trap patentees in the reexamination process. This may also mean that the supplemental examination document request is less expensive to prepare.
  • In ordinary circumstances, Ex parte reexaminations are instituted based upon printed publications or patents. Supplemental examination can be used to raise all sorts of issues based upon “any supporting document” or legal issue (such as patentable subject matter).
  • If the PTO concludes that no substantial question of patentability is raised by the request then, with supplemental examination, it issues a “supplemental examination certificate” that the patentee can take and show to a district court judge and jury. While the decision in supplemental examination is effectively the same as a denial of a request for ex parte reexamination, the cognitive impact is different. In the ex parte reexamination scenario, the PTO merely denied a request to review the case. On the other hand, in the supplemental examination scenario, the PTO actually conducted a supplemental examination; determined that the submitted issues do not raise a substantial question of patentability; and issued an official certificate saying as much.
  • As discussed elsewhere, the supplemental examination also provides the inoculation against inequitable conduct charges.

There are some downsides to supplemental examination, but in most cases it will be a better option when compared with an owner-requested ex parte reexamination.

Trans-Border Active Patent Inducement under Akamai

Patent,

By Dennis Crouch

This post discusses Professor Holbrook’s new essay on the extraterritorial consequences of the recent Akamai decision.

In Akamai v. Limelight, an en banc Federal Circuit (CAFC) expanded the scope of liability for actively inducing patent infringement (inducement). Under the old rule, an active inducement charge required proof that an induced third party actually practiced the patented method. Akamai loosened that constraint a bit. Under the new rule, actively inducing infringement of a patented method no longer requires underlying infringement by the third party. The court replaced that element with a requirement of proof that each step of the patented method be performed. Thus, the difference between the old and the new is that active inducement no longer follows the single infringing actor rule that is *still* applied in the context of direct infringement. Under the new rule, a defendant could be held liable for active inducement even when it took three different actors to collectively perform the patented-steps. The statutory basis for active inducement is 35 U.S.C. §271(b) (“Whoever actively induces infringement of a patent shall be liable as an infringer.”). At least as interpreted, the statute does not provide any help in understanding which of these two interpretations (old & new) are correct.

Akamai raises a host of further more detailed question about application of the newly revised doctrine.     

In his most recent essay, Professor Timothy Holbrook (Emory) focuses on one of his specialties – international application of the patent laws – and considers how the new law of inducement applies in the international and trans-border patent infringement context.

The crux of Holbrook’s essay begins with the statutory definition of direct patent infringement that uses the phrase “within the United States” as a territorial limitation on patent infringement actions. 35 U.S.C. § 271(a). The old rule of active inducement was linked to this definition and thus included an implicit territorial limitation as well. In Akamai, the court decoupled active inducement from the direct infringement definition of 271(a) and challenges whether (and how) a territorial limitation will be applied moving forward.

One suggestion is that the Federal Circuit should rely upon its control-and-beneficial use doctrine developed in NTP v. Research-in-Motion, 418 F.3d 1282 (Fed. Cir. 2005), to determine whether the territorial limits of the patent laws bar an inducement action. However, NTP is a deeply unsatisfying opinion and has little basis in the law, and such an extension of that opinion would have even less basis in law. Holbrook suggests that when portions of the induced activity occurs in another country, the court should focus on whether the patentee bringing the infringement action has a parallel patent in that other country. If so, then the inducement action can move forward. On the other hand, the absence of such parallel patents suggest that the trans-border inducement action unduly extends US law. Holbrook writes:

The baseline principle would be as follows: if there would not be infringement of the patent in the foreign country, then there would be no infringement of the United States. As I have advocated elsewhere, this approach takes into account potential conflicts with foreign law, which is one of the justifications for the presumption against extraterritoriality.

I should note that Holbrook has offered his solution more broadly as a replacement for the NTP test.

For patentees, the interesting result of Professor Holbrook’s approach is that provides an additional incentive for patentees obtain foreign patent protection because that protection bolsters their US patent rights. In this sense, it gives an edge to non-US innovators who are already much more likely to obtain foreign rights than are US based entities. The approach also offers a straightforward avenue for someone to receive the benefit of practicing the invention without paying royalties and without infringement liability. The approach would be to identify countries where the patent is not protected and induce performance of some steps of the method there. However, in most cases that approach is likely too far-fetched for most situations.

Read the essay: Timothy Holbrook, The Potential Extraterritorial Consequences of Akamai, forthcoming in the Emory International Law Review (2012) online at http://ssrn.com/abstract=2154277.

Patent Maintenance Fees

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By Dennis Crouch

I have written before that about 50% of patents expire prematurely because the patent owners choose to not pay the maintenance fees. In many ways this is a good thing in that it clears-the-deck of patents whose owners may know of their worthlessness but that still require analysis and consideration by anyone conducting a freedom-to-operate search. And, by the time that maintenance fees are due (especially the 2nd or 3rd stage fees), the patentee should have a good sense of the market value of particular patent rights and can thus make an informed decision about whether or not to pay the fees due. Professor Rochelle Dreyfus wrote about this briefly in her 2006 article titled Pathological Patenting. Dreyfus wrote that “application fees should be low enough to attract patenting by all inventors and maintenance fees should be high enough to encourage abandonment of noncommercial patents.” Rochelle Dreyfus, Pathological Patenting: The PTO as Cause or Cure, 104 Mich. L. Rev. 1559 (2006).

A major percentage of USPTO revenue is generated through these maintenance fee payments. Since those payments require no additional USPTO work beyond the fee processing, the several hundred million dollars in maintenance fee payments can be used to subsidize the examination of more recently filed patent applications. In 2008 and 2009, the USPTO saw a major drop in maintenance fee payments that can be correlated with the economic downturn. The payments have risen again and are hovering around the all-time highs. The USPTO is in the midst of a major revision of its fee structure based upon its newfound authority and responsibility under the America Invents Act (AIA). As part of those changes, the USPTO has suggested an increase in the maintenance fee payments, including a 55% increase in amount charged for the 3rd stage maintenance fee. In a recent whitepaper on fees, the USPTO Director’s official advisory committee (PPAC) agreed with an increase in maintenance fees but suggested that the 3rd stage fee increase could negatively impact USPTO revenue.

The maintenance fees set forth in the NPRM are reasonable since by this point in the process, patentees should have a better sense of the value of their Intellectual Property (IP), although the PPAC still questions the increase proposed for the third stage maintenance fee. Given the percentage of patentees who currently pay for this stage, the concern is that revenues will decrease more than projected when fewer patentees elect 3rd stage maintenance. As the USPTO has noted, the AIA Fee Setting authority does not contemplate a once-and-done approach, but careful (at least yearly) review of fees and the observed behaviors of both applicants and Office personnel in response to the fees. PPAC encourages such continual review, especially with respect to things like responses to the 3rd Maintenance Fee and potential future course-corrections.

The chart below provides a time series of maintenance fee payments grouped according to fee payment deadline. Maintenance fees are due at three points following patent issuance: 3 ½ years; 7 ½ years; and 11 ½ years and the current fees are $1,130, $2,850, and 4,730 respectively (with 50% discounts for small-entities). In each case, the patentee is given an additional six-months to pay the maintenance fee (with a late-penalty surcharge). Thus, the USPTO does not officially record the patent as expired until the 4 year; 8 year; or 12 year mark respectively. It is those expiry deadlines that are represented in the chart below. Even after expiry, the USPTO generously allows expired patents to be revived. Those revivals are taken into account in the chart.

The chart shows three different series. The top series represents the percentage of patents where the first fee was paid. The middle series represents the percentage of patents where the second fee was paid. Obviously, in order to be eligible to pay the second fee, the patentee must have also paid the first fee. The lower series represents the percentage of patents where the third fee was paid.

From the chart, we can see that the percentage of payments for the second and third fee have fully recovered from the 2008-09 downturn and are at their highest points in the past decade. Payment for the first maintenance fee payment is still slightly below the pre-downturn rate. I expect another drop once the USPTO implements the new fee structure in early 2012. The chart above is important for USPTO revenue, but it doesn’t tell the whole story since the number of issued patents has been rising over the past 12 years, as we move forward USPTO revenue may increase even if fee payment percentages decrease.

Patent Expiry: An important element of any freedom to operate search involves the question of whether or not particular patents have expired and thus freely available in the public domain for subsequent commercialization. Unfortunately, our current patent information system does a very poor job of linking patent expiration to search results. In addition, the USPTO’s loose revival allowances (that make it easy to revive abandoned patents) mean that the data could not currently be relied on even if available. We still have some work to do.

Outside the Box Innovations v. Travel Caddy

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By Jason Rantanen and Dennis Crouch

Outside the Box Innovations LLC (Union Rich) v. Travel Caddy  (Fed. Cir. 2012) Download 09-1171
Panel: Newman (concurring in part and dissenting in part), Prost, O'Malley (opinion for the court Per Curiam)

A major criticism of the inequitable conduct doctrine has been that patents could be held unenforceable based upon even "minor and inadvertent errors" that occurred during prosecution of a patent.  A major purpose of the Supplemental Examination provision of the America Invents Act was to provide an avenue for correcting the potential unenforceability of patent rights due to those errors. While the AIA was percolating through Congress, however, the Federal Circuit issued its en banc opinion in Therasense v. Becton Dickinson.  Under the revised legal framework for inequitable conduct articulated in Therasense, it is highly questionable whether these "minor" violations continue to meet the materiality requirement of inequitable conduct. 

Unsurprisingly, post-Therasense, the Federal Circuit has been skeptical of these types of claims.  Last fall, in Powell v. Home Depot, 663 F.3d 1221, the Federal Circuit affirmed a district court determination that the patentee did not commit inequitable conduct by failing to update a Petition to Make Special as this was "not the type of unequivocal act, 'such as the filing of an unmistakably false affidavit,' that would rise to the level of affirmative egregious misconduct.'" (PatentlyO discussion here). In Outside the Box Innovations v. Travel Caddy, the Federal Circuit continues in the direction set by Powell, although it does not appear to be ready to completely abandon the notion that certain "minor" violations can constitute inequitable conduct – perhaps maintaining a bit of the "bark" of inequitable conduct despite curtailing its "bite." 

Small Entity Fees and Inequitable Conduct

The USPTO offers a major price-break for “small entities” – a 50% reduction in fees if the patent owner qualifies for “small entity status.”  In practice, small entities can actually be quite large. The usual rule is that the organizational structure be less than 500 employees.   Small entities can lose their status, however, by inter alia licensing the patent to a non-small entity.  See Ulead Systems, Inc. v. Lex Computer & Management Corp., 351 F.3d 1139, 1142 (Fed. Cir. 2003).  (It's worth noting that the America Invents Act offers an even more aggressive price reduction of 75% for "micro entities," which the USPTO plans to implement in early 2013.)

Prior to Therasense, the Federal Circuit had held that inequitable conduct could arise when a large entity pays only the small entity fees.  See Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1231-33 (Fed. Cir. 2007).  Here, the patentee (Travel Caddy) paid the small entity fee when it should have paid the large entity fee (based upon licensing affiliates). The district court held the patents unenforceable. On appeal, the Federal Circuit reversed not on the ground of materiality, but on the basis of a lack of intent.  The court thus deferred to another day the question of whether the false statement associated with the small entity fee payment could rise to the level of "affirmative egregious misconduct," leaving it intact, if somewhat dinged up:

[A] false affidavit or declaration is per se material. Although on its face, it appears that a false declaration of small entity status would fall within the definition of an “unmistakably false affidavit,” particularly since a party that claims entitlement to small entity status does so in a sworn written declaration, we need not decide that question.[] Even if a false assertion of small entity status were per se material, the requirements of Therasense are not met here because there was no clear and convincing evidence of intent to deceive the PTO.  Specifically, there was no evidence that anyone involved in the patent prosecution knew that a patent license had been granted to a large entity and deliberately withheld that information in order to pay small entity fees.

Slip Op. at 13. 

Writing in dissent, Judge Newman argued that the majority did not go far enough in its reversal because the filing of the small entity statement by affidavit should not render the incorrect statement “per se material.”  Judge Newman also argued that a contingent patent license to a distributor should not necessarily defeat the small entity status.

Failure to Inform Patent Office of Pending Litigation

Manual of Patent Examining Procedure §2001.06(c) states that "Where the subject matter for which a patent is being sought is or has been involved in litigation, the existence of such litigation and any other material information arising therefrom must be brought to the attention of the U.S. Patent and Trademark Office."  The application leading to Patent No. 6,991,104 was a continuation of the application that led to Patent No. 6,823,992.  On September 23, 2005, a declaratory judgment was filed seeking a declaration of noninfringement of the '992 patent; Travel Caddy did not inform the patent examiner of the existence of this litigation prior to the '104 patent's issuance on January 31, 2006. 

The Federal Circuit reversed the district court's pre-Therasense finding of both materiality and intent on this theory of inequitable conduct as well. On materiality, the Federal Circuit ruled that the failure to disclose the existence of a litigation "when there was no citation of prior art, nor any pleading of invalidity or unpatentability in the ’992 complaint as it existed during pendency of the ’104 application" did not constitute "clear and convincing evidence" of materiality.  Slip Op. at 7.  On intent, "the record contains no suggestion of how the withholding of the information concerning the ’992 litigation could have deceived the examiner and no suggestion of deliberate action to withhold it in order to deceive the examiner."  Id. at 8. 

Experts Need Not Be Lawyers: In a somewhat bizzare ruling, the district court excluded an expert offered by one of the parties on the ground that he was not a lawyer.  "To be sure, many lawyers have technical training, but it is technological experience in the field of the invention that guides the determination of obviousness, not the rhetorical skill or nuanced advocacy of the lawyer."  Slip Op. at 19.  The Federal Circuit concluded that this constituted an abuse of discretion, and that the error had a "substantial influence" on the outcome of the case.

Claim Construction: The opinion also includes a detailed discussion of claim construction procedure in the context of a prior interpretation by a CAFC panel reviewing a denial of a preliminary injunction (although no final resolution of the issue is reached), and addresses issues of claim construction generally.  Judge Newman dissented from the opinion on these issues as well.

USPTO Funding Secured Through March 2013

Patent

by Dennis Crouch

The USPTO does not receive any funding from general taxation sources. Rather, the agency is fully funded by the fees paid by patent applicants and patent owners.  Unfortunately, this link between fees and USPTO spending is based upon tradition and the usual approach rather than any actual requirement that the fee revenue be available for office expenditures.  The result is that Congress maintains the USPTO purse strings. 

In a bipartisan vote, the Senate recently passed the Continuing Appropriations Resolution, 2013.[1] That resolution was necessary because fiscal year 2013 begins October 1, 2012 and executive agency spending had only been appropriated through fiscal year 2012. 

The continuing resolution is a six-month gap filler and allows the USPTO and many other federal agencies to continue to spend money at the rate set for fiscal year 2012.

President Obama had asked for a increase in USPTO appropriations and that particular issue would likely receive bipartisan support.[2] The problem for the USPTO is that it is continually swept up as a small part of the contentious budget debate that often results in across-the-board solutions.  One reason for this is that federal budget accounting counts USPTO revenue as government revenue and USPTO spending as government spending. Thus, cuts in USPTO spending are in-fact budget cuts.[3]

Taking a step back, why shouldn’t some portion of the USPTO revenue be used for general government spending, i.e., deficit reduction or market infrastructure expenditures?  In particular, how is taking 10% from the USPTO worse increasing income, payroll, or business profit taxes – especially since a significant number of patent owners are foreign entities that pay no other federal taxes.  USPTO maintenance fees (renewal fees) are essentially property taxes – perhaps they should be treated as such.

 

[1] Continuing Appropriations Resolution, 2013, at http://thomas.loc.gov/home/gpoxmlc112/hj117_eh.xml.

Guest Post: The Problematic Origins of Nationwide Patent Venue.

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Guest Post by Professor Tun-Jen Chiang of George Mason University.

Patent litigators are all familiar with the Eastern District of Texas. The reason that this otherwise-unexceptional district is able to dominate patent litigation comes down to a little known case, VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), which created nationwide venue for virtually every patent case.

Some background is in order. 28 U.S.C. § 1400(b) allows a patent infringement action to be brought, inter alia, where the defendant "resides." Intuitively, one would think that residence refers to the state of incorporation or principal place of business, and under that version few defendants reside in East Texas.

28 U.S.C. § 1391(c) adds a wrinkle. It states: "For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction." By the plain language of the statute, a corporation that makes any sales in East Texas is then deemed to reside there. This is the basic analysis of VE Holdings.

But the Supreme Court decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957) is very much to the contrary. Fourco dealt with the prior version of § 1391(c), which stated: "A corporation may be sued in any judicial district in which it . . . is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes." The respondent in Fourco specifically argued that old § 1391(c) was clear and deemed a corporation to "reside" wherever it did business. The Supreme Court nonetheless held it did not apply to § 1400(b):

We think it is clear that § 1391 (c) is a general corporation venue statute, whereas § 1400(b) is a special venue statute applicable, specifically, to all defendants in a particular type of actions, i.e., patent infringement actions. In these circumstances the law is settled that [h]owever inclusive may be the general language of a statute, it will not be held to apply to a matter specifically dealt with in another part of the same enactment. . . .

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).

The Federal Circuit in VE Holdings distinguished Fourco because the statutory language had changed. See 917 F.2d at 1579. But the change in language was immaterial to the underlying rationale of Fourco: the new § 1391(c) was and is still a "general corporation venue statute," and § 1400(b) was and is still a "special venue statute applicable, specifically, to . . . patent infringement actions."

What we have is the familiar situation where the Federal Circuit tosses aside a Supreme Court decision by invoking a slim excuse. See KSR Int'l Co. v. Teleflex Inc., 550 U.S. 398 (2007). Until very recently the Supreme Court indulged this. But the Court seems to have changed, and this would be a good time to revisit VE Holdings.

I should add one thing, which is that one can very much question whether Fourco itself is correctly decided. But this is, of course, not a question the Federal Circuit should arrogate upon itself to decide.

Access to Courts: Federal Circuit Issues Preliminary Rejection of Judge Koh’s Stance on Open Access to Trial Documents

Patent,

By Dennis Crouch

Apple v. Samsung, App. No. 12-1600 (Fed. Cir. 2012)

Despite their many disputes, there is one thing that both Apple and Samsung agree upon – that the trial and motion exhibits filed under seal with district court Judge Koh should remain under seal. Earlier this summer, Judge Koh ordered the unsealing of many of those up-to-now secret exhibits.

In an emergency appeal, the Federal Circuit has temporarily reversed Judge Koh’s decision and ordered that the exhibits remain sealed until the conclusion of the appeal relating to unsealing of the records. It is an odd appeal in that both parties want the court to seal the documents. Our adversarial appellate system does not work that well when the parties agree with each other but disagree with the judge. At the district court, Reuters News Service intervened to ask the court to unseal the records. However, Reuters has announced that it will not participate in the appeal. The First Amendment Coalition attempted to intervene in the appeal, but that attempt has been denied by the Federal Circuit. Thus, it appears that no one will be arguing the other side.

I have not yet located the merits briefs for the appeal. Perhaps after reading those briefs I will understand how the Federal Circuit has Appellate Jurisdiction over the case. The vast majority of appeals from district court patent decisions can be classified in one of three boxes:

  • Appeals from a final decision (Not applicable here because the district court has not yet finalized the case);
  • Appeals from an order to grant or deny injunctive relief (Seemingly not applicable here in that a district court’s order telling its own clerks to allow access to the records does not fit within any normal definition of an injunction); and
  • Interlocutory mandamus appeals (Potentially applicable here, however, the Federal Circuit clerks ordinarily give these cases a special “M” docketing number – something that was not done here).

In the first two situations, an appellant has an immediate right to bring the appeal. Before the court will grant writ of mandamus, the appellant must provide sufficient justification for hearing the case immediately rather than waiting for all the issues in the case to be decided. This is obviously not an exhaustive list of potential avenues for appellate jurisdiction, but it does not appear that this appeal fits any of these three major avenues.

So, as it stands, the Federal Circuit has granted a temporary stay that will keep the documents under seal for the duration of this particular appeal. In the upcoming weeks, more complete briefing will take place and then the court will issue a final decision on whether or not Judge Koh’s order releasing the documents somehow violates her judicial discretion. The stay was decided in a per curium opinion by what is likely the three-member panel that will eventually decide the appeal. However, the court did not release the names of the three appellate judges who participated in the decision.

Notes:

 

Supplemental Examination: Inequitable Conduct Amnesty and Beyond

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By Dennis Crouch

Introduction to Supplemental Examination: The new supplemental examination procedure is a creation of the America Invents Act (AIA) and is effective as of September 16, 2012. At its most basic, the new procedure allows a patent owner to seek a low-level review of an issued patent to make sure that it was properly issued based upon some newly submitted information. If – on initial review – PTO agrees that the patent is still viable despite the new information the USPTO will conclude the review and issue a certificate indicating that the information presented in the request does not raise a substantial new question of patentability. On the other hand, if the USPTO finds a substantial new question of patentability, then the USPTO will order a full (ex parte) reexamination.

Inoculating Against Inequitable Conduct: Supplemental examination is often tied to inequitable conduct because the new statute indicates that a patent cannot be held unenforceable for failure-to-disclose (or mis-disclosure of) information during a prior examination once that information is considered in a supplemental examination. Professors Jason Rantanen and Lee Petherbridge have identified supplemental examination as an "amnesty program." They write in the Michigan Law Review that:

New § 257 is thus a patent amnesty program. It encourages patent applicants to use any number of strategies that would never have been countenanced under pre-AIA law to obtain patents, and it offers to cure all but the most extreme through filing a supplemental examination request. For example, potential descriptions of a claimed invention in a prior art printed publication, or possible instances of prior patenting of the claimed invention by another, that are known to a patent applicant, and that might have a high probability of barring a patent or limiting claim scope, may not be disclosed during the initial examination. Similarly, sales and public uses that are known to a patent applicant and that may have a high probability of barring the patentability of a claimed invention may be withheld at least until supplemental examination if the applicant likes (and perhaps longer depending on an applicant's risk tolerance). Even the use of false data to obtain the patent in the initial examination can be exonerated by filing a supplemental examination request, which by the statutorily required process can be expected to produce a director's certificate within three months.

Jason Rantanen and Lee Petherbridge, Toward a System of Invention Registration: The Leahy-Smith America Invents Act, 110 Mich. L. Rev. First Impressions 24 (2011).

To be clear, the strategies identified by Rantanen and Petherbridge would violate the professional ethics of a patent attorney or patent agent who deliberately chose that strategy. The argument here is that the supplemental examination rules (coupled with Theresense, Excergen, and their progeny) provide a marginal incentive to applicants to avoid fully complying with the duties of candor and good faith in all dealings with the USPTO. They write "the analysis provided here relates to the marginal effects of a supplemental examination system." In the end, however, it is unclear whether the new incentive will actually change any behavior. I.e., will the availability of supplemental examination mean that some important evidence will now be buried that would have otherwise been disclosed?

There are two statutory exceptions to the inoculation and both relate to times where the patentee waited too long to request the supplemental examination. The statute labels these prior enforcement allegations and prior allegations. Basically, the supplemental examination (and any subsequent reexamination) must be completed prior to the filing of a lawsuit where inequitable conduct may be raised as a defense. In addition, the supplemental examination must be filed prior to the inequitable conduct being alleged in a pleading or Paragraph IV certification. If the patentee fails either prong then the amnesty fails and a court will have power to adjudge the inequitable conduct.

Timing of Declaratory Judgment Actions: The distinction between the two exceptions can be seen in the context of declaratory judgment (DJ) actions. DJ actions are regularly filed in cases where would-be accused infringers take the preemptive measure of asking a court to declare a patent not-infringed, invalid, or unenforceable. Most (but certainly not all) DJ actions filed in the past few years are primarily venue contests and are filed shortly after the original complementary infringement action.

In thinking about supplemental examination amnesty in the context of DJ actions, it is easiest to begin with the understanding that, with two exceptions, the patent cannot be held unenforceable due to inequitable conduct once the patent properly passes through the supplemental examination amnesty program. In the ordinary infringement litigation filed by the patentee, one of the exceptions block the inoculation in cases where the litigation if filed prior to completion of the supplemental examination. This conclusion is based upon the statutory provision explaining that the inoculation "shall not apply to any defense raised [in infringement litigation] unless the supplemental examination, and any reexamination ordered pursuant to the request, are concluded before the date on which the action is brought." Notice here that the exception to inoculation specifically applies to "any defense." In the declaratory judgment context, the inequitable conduct allegation is not filed as a "defense" but rather as part of the complaint. This means that the § 257(c)(2)(B) exception does not apply to declaratory judgment actions. However, the § 257(c)(2)(A) exception will apply to declaratory judgment actions – leading to the conclusion that supplemental examination will provide amnesty against DJ inequitable conduct actions so long as the request for supplemental examination is filed prior to the filing of a DJ pleading that particularly alleges the inequitable conduct. Here, it appears that to satisfy the filing trigger, the request must meet the requirements set forth in the USPTO's implementation regulations. The USPTO will not grant a filing date to applications that fail to follow those guidelines.

Timing of Supplemental Examinations. In the paragraphs above, I identified instances where the inequitable conduct amnesty is triggered by either the filing of a supplemental examination request or else the completing of the supplemental examination. In many cases, the difference between those two will be minimal. The USPTO has announced its intention to complete all supplemental examination reviews within three months. That interpretation follows the statutory guidance that "Within 3 months after the date a request for supplemental examination meeting the requirements of this section is received, the Director shall conduct the supplemental examination and shall conclude such examination by issuing a certificate indicating whether the information presented in the request raises a substantial new question of patentability." This three-month deadline means that the USPTO will likely be sticklers for the filing requirements and may also mean that the USPTO will frequently order reexamination. The major exception to this quick timeline is that the supplemental examination will not be considered complete for amnesty purposes if a SNQ is raised in a way that triggers the automatic reexamination.

Statutory Provision Section 257: The new supplemental exam procedure is codified at 35 U.S.C. § 257 and reads as follows:

§ 257. Supplemental examinations to consider, reconsider, or correct information

(a) REQUEST FOR SUPPLEMENTAL EXAMINATION.—A patent owner may request supplemental examination of a patent in the Office to consider, reconsider, or correct information believed to be relevant to the patent, in accordance with such requirements as the Director may establish. Within 3 months after the date a request for supplemental examination meeting the requirements of this section is received, the Director shall conduct the supplemental examination and shall conclude such examination by issuing a certificate indicating whether the information presented in the request raises a substantial new question of patentability.

(b) REEXAMINATION ORDERED.—If the certificate issued under subsection (a) indicates that a substantial new question of patentability is raised by 1 or more items of information in the request, the Director shall order reexamination of the patent. The reexamination shall be conducted according to procedures established by chapter 30, except that the patent owner shall not have the right to file a statement pursuant to section 304. During the reexamination, the Director shall address each substantial new question of patentability identified during the supplemental examination, notwithstanding the limitations in chapter 30 relating to patents and printed publication or any other provision of such chapter.

(c) EFFECT.—

(1) IN GENERAL.—A patent shall not be held unenforceable on the basis of conduct relating to information that had not been considered, was inadequately considered, or was incorrect in a prior examination of the patent if the information was considered, reconsidered, or corrected during a supplemental examination of the patent. The making of a request under subsection (a), or the absence thereof, shall not be relevant to enforceability of the patent under section 282.

(2) EXCEPTIONS.—

(A) PRIOR ALLEGATIONS.—Paragraph (1) shall not apply to an allegation pled with particularity in a civil action, or set forth with particularity in a notice received by the patent owner under section 505(j)(2)(B)(iv)(II) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(2)(B)(iv)(II)), before the date of a supplemental examination request under subsection (a) to consider, reconsider, or correct information forming the basis for the allegation.

(B) PATENT ENFORCEMENT ACTIONS.—In an action brought under section 337(a) of the Tariff Act of 1930 (19 U.S.C. 1337(a)), or section 281 of this title, paragraph (1) shall not apply to any defense raised in the action that is based upon information that was considered, reconsidered, or corrected pursuant to a supplemental examination request under subsection (a), unless the supplemental examination, and any reexamination ordered pursuant to the request, are concluded before the date on which the action is brought.

(d) FEES AND REGULATIONS.—

(1) FEES.—The Director shall, by regulation, establish fees for the submission of a request for supplemental examination of a patent, and to consider each item of information submitted in the request. If reexamination is ordered under subsection (b), fees established and applicable to ex parte reexamination proceedings under chapter 30 shall be paid, in addition to fees applicable to supplemental examination.

(2) REGULATIONS.—The Director shall issue regulations governing the form, content, and other requirements of requests for supplemental examination, and establishing procedures for reviewing information submitted in such requests.

(e) FRAUD.—If the Director becomes aware, during the course of a supplemental examination or reexamination proceeding ordered under this section, that a material fraud on the Office may have been committed in connection with the patent that is the subject of the supplemental examination, then in addition to any other actions the Director is authorized to take, including the cancellation of any claims found to be invalid under section 307 as a result of a reexamination ordered under this section, the Director shall also refer the matter to the Attorney General for such further action as the Attorney General may deem appropriate. Any such referral shall be treated as confidential, shall not be included in the file of the patent, and shall not be disclosed to the public unless the United States charges a person with a criminal offense in connection with such referral.

(f) RULE OF CONSTRUCTION.—Nothing in this section shall be construed—

(1) to preclude the imposition of sanctions based upon criminal or antitrust laws (including section 1001(a) of title 18, the first section of the Clayton Act, and section 5 of the Federal Trade Commission Act to the extent that section relates to unfair methods of competition);

(2) to limit the authority of the Director to investigate issues of possible misconduct and impose sanctions for misconduct in connection with matters or proceedings before the Office; or

(3) to limit the authority of the Director to issue regulations under chapter 3 relating to sanctions for misconduct by representatives practicing before the Office.

As mentioned above, the effective date of the new supplementary examination procedure is September 16, 2012 and applies to all patents.

Costs and Fees for Supplemental Examination: The USPTO has indicated that its plans are to – for the most part – charge a fee for supplemental examination that is roughly equivalent to its expected cost for conducting the supplemental examination. In a prior post, Professor Rantanen explained: "The cost for filing a supplemental examination request remains steep: $5,140 for the initial request plus $16,120 for the ex parte re-examination fee. Both must be paid at the time of initial request, and the $16,120 will be refunded if no re-examination is ordered." In a proposed change in the fee structure, the USPTO has suggested that it lower the costs by a small amount and also allow for a 50% and 75% reduction in fees for small-entity and micro-entity patent owners. Those new fees will not be effective until early 2013.

Regulatory Process: As instructed by the statute, the USPTO has promulgated a set of rules that more fully govern the process of supplemental examination.

Other Purposes of Supplemental Examination: There are strong suggestions that supplemental examination may be useful outside of the inequitable conduct situation. In particular, patentees may want to ensure that defendants can't argue in court that the best references were never seen by the USPTO. Other patentees may rely on supplemental examination as a mechanism for entering reexamination without having to first admit that something is wrong with the patent. I'll save consideration of these strategies for a later post.

Federal Circuit Again Supports USITC Jurisdiction for Pure-Enforcement NPEs; Court Again Splits on Claim Construction

Patent, ,

by Dennis Crouch

InterDigital v. USITC and Nokia (Fed. Cir. 2012)

InterDigital is a publicly traded company whose primary revenue comes from patent licenses.  The majority of 3G mobile handset manufacturers pay royalties to the company.  After conducting its investigation, the US International Trade Commission (USITC) found that Nokia did not infringe InterDigital’s patents.  On appeal, the Federal Circuit has reversed based upon the USITC’s improper and unduly narrow construction of the claim terms “code” and “increased power level.”

The USITC was designed to protect US industry from “unfair” foreign competition.  Thus, the staute includes a “domestic industry” requirement that must be satisfied as a precondition of enforcing patent rights through the USITC.  In the appeal, Nokia argued that InterDigital could not satisfy the domestic industry requirement.  That argument was rejected by the USITC and on appeal as well.  The Federal Circuit held particularly that “patent licensing alone” can be sufficient to satisfy the US industry requirement and that the statute does not require that any actual articles covered by the patent be manufactured in this country. “That is, the domestic industry requirement is satisfied if there is a domestic industry based on substantial investment in the patent’s exploitation where the exploitation is achieved by various means, including licensing.” (internal formatting removed).

Writing in dissent, Judge Newman would have sided with the accused infringer and held the patent not-infringed.  Newman writes:

The panel majority’s enlargement beyond the invention described in the patents, in disregard of the protocols of claim construction, simply adds uncertainty to the patent grant. In today’s technology-based commerce, rational economics requires that the patent provide a reliable basis for investment. The patentee is in control of the specification that describes the invention. The panel majority’s theory that “the inventors’ failure to include a reference to the alternative embodiment in the specification does not justify excluding that embodiment from the coverage of the claims” is a departure from routine rules of the meaning of legal documents, and in negation of the notice purpose of the patent claim. From this unsound approach to claim construction, and its incorrect conclusion on the facts of this case, I respectfully dissent.

Judge Newman’s suggestion here is to give claim terms a narrow definition when the patentee uses an ambiguous term and does not provide any limiting definition to that term. 

Selling Patents

Patent,

InterDigital just sold 1,700 worldwide patents and pending applications to Intel for $375 million in cash –  boosting Intel’s mobile circuitry patent portfolio.  InterDigital was able to transform a substantial number of its fairly non-liquid assets (patents) into cash.  On the purchase, InterDigital’s stock price immediately jumped about 28%.  The price change represents an increase of Company valuation of around $260 million.  One way to look at this price jump is as a reflection in the ongoing difficulty in monetizing patent rights.  Before the deal, investors seemingly valued the patents at only 1/3 of their eventual cash value — largely because it would have been much too speculative to predict that the patents could actually be sold for the price asked.

Patent2011072

The chart above shows InterDigital’s stock price jump immediately following the deal’s announcement. The chart below looks at InterDigital stock prices for the past six months. The sale date and price jump is seen at the far right.  As is obvious, the sale does not make-up for the huge loss in valuation that the company has seen over the past few months. 

Patent2011073

Although every story is unique, it is reflective upon a fact that business leaders know — although patents are valuable and useful assets, it is exceedingly difficult to rely on patents as a company’s primary revenue source. Kodak knows this well.  The company is in bankruptcy and is in the process of selling its final few assets — mainly intellectual property rights that it could not previously fully monetize during.

 

 

Selling Patents

Patent,

InterDigital just sold 1,700 worldwide patents and pending applications to Intel for $375 million in cash –  boosting Intel’s mobile circuitry patent portfolio.  InterDigital was able to transform a substantial number of its fairly non-liquid assets (patents) into cash.  On the purchase, InterDigital’s stock price immediately jumped about 28%.  The price change represents an increase of Company valuation of around $260 million.  One way to look at this price jump is as a reflection in the ongoing difficulty in monetizing patent rights.  Before the deal, investors seemingly valued the patents at only 1/3 of their eventual cash value — largely because it would have been much too speculative to predict that the patents could actually be sold for the price asked.

Patent2011072

The chart above shows InterDigital’s stock price jump immediately following the deal’s announcement. The chart below looks at InterDigital stock prices for the past six months. The sale date and price jump is seen at the far right.  As is obvious, the sale does not make-up for the huge loss in valuation that the company has seen over the past few months. 

Patent2011073

Although every story is unique, it is reflective upon a fact that business leaders know — although patents are valuable and useful assets, it is exceedingly difficult to rely on patents as a company’s primary revenue source. Kodak knows this well.  The company is in bankruptcy and is in the process of selling its final few assets — mainly intellectual property rights that it could not previously fully monetize during.

 

 

Guest Post: Popularity of Delaware Is On the Rise

Patent

Guest Post by Professor Paul Janicke

Now that the new patent statute has put an end to qui tam actions and limited the joinder of defendants accused of infringement, we can once again take a meaningful count of patent suit filings, almost all of which are now infringement actions or DJs for noninfringement or invalidity. I ran a study of cases filed in the six-month window beginning October 1, 2011, shortly after the litigation parts of AIA became effective, through the end of March 2012.

There were 2,483 suits filed in that period, or at an annual rate of nearly 5,000 new cases. [Source: Lexis Courtlink.] The increase over earlier years, where the largest number of new patent case filings was just over 3,000, is undoubtedly due primarily to the AIA’s restraints on joining non-cooperating accused infringers in a single civil action. So there may not be more patent litigation going on, but only more files being opened with fewer defendants per action.

We should expect to see venue shifts over prior years, as accused infringers are able to move their cases to districts that are more convenient to them, generating considerably more work for the Judicial Panel On Multidistrict Litigation to sort out where the early proceedings should occur.

Perhaps for these reasons we now see Delaware approaching the top of the list for most new filings. Eastern Texas is still first with 407 filings in the six-month period, but Delaware is a close second with 388. Northern California is a distant third with 194. (The next three are Central California (169), Northern Illinois (142), and New Jersey (90). Delaware has always been a somewhat busy patent forum. However, its share of total national patent suit filings has moved up rather dramatically: in 1995 it had 3.69% of the national total of 1,626 cases; 4.53% in 2005; 6.11% in 2008; and now for the six-month window reported here its share has jumped to 15.63%. Several commentators have noticed in the past two or three years that results in Delaware are generally good for patentees. Litigants apparently agree.

Self-Replicating Technologies

Patent, , , , ,

Guest Post by Jeremy Sheff. In view of the pending Monsanto case, I asked Professor Sheff to provide some of his thoughts on the patenting of self-replicating technologies –  DC.  This essay is cross-posted on PrawfsBlawg.

Self-replicating technologies, once the subject of theory and fantasy, are now upon us. The original self-replicating machine—the living organism—has already been harnessed by biotechnology engineers and, more to the point, their lawyers.  The next wave of self-replicating technologies, be they nanomedical robots or organic computers, are not far behind. Rather than triggering a “grey goo” apocalypse, these technologies are, at present, raising far more prosaic issues of intellectual property and antitrust law.

Those issues have now apparently caught the attention of the Supreme Court.  A few weeks ago, the Court called for the views of the solicitor general on the certiorari petition in the case of Bowman v. Monsanto.  This is the latest in a series of cases in which the Federal Circuit has addressed the application of the doctrine of patent exhaustion to the genetic engineering technology embodied in Monsanto's "Roundup-Ready" herbicide-resistant seeds.  Seeds are the prototypical self-replicating technology, and a number of similar herbicide-resistant crops are in the pipeline of the largest agribusiness concerns.  In each of the Roundup-Ready cases, a farmer has argued that Monsanto's patent rights do not extend to the second generation of soybeans grown from a patented first-generation seed.  In each case, the Federal Circuit found for Monsanto and against the farmers.

Patent exhaustion (or "first sale") doctrine serves as a limit on patent rights, and provides that once a patentee has made an authorized sale of an embodiment of its patented invention, its patent rights with respect to that embodiment are exhausted, and the purchaser is free to use or re-sell the embodiment as it sees fit.  Like analogous doctrines in copyright and trademark, it is motivated by competition concerns.  Its aim is to enable the creation of downstream or secondary markets in patented articles, and to prevent patentees from using their intellectual property rights to gain market power in markets other than the market for the patented technology.  When the Supreme Court last spoke on the issue, it rebuked the Federal Circuit for giving these pro-competitive policies insufficient weight.  It seems to be considering an encore in the Roundup-Ready cases.  For reasons I'll explain after the jump, I think that would be a mistake.

The Federal Circuit's analysis of patent exhaustion in the Roundup-Ready cases is admittedly not a model of the judicial craft.  Framing the issue as a formal question whether a second-generation soybean is a different "article" than the first generation seed from which it grew, the court's main justification for its result was the bare assertion that any alternative result would "eviscerate" Monsanto's patent.  But this is a question-begging explanation, and there are other, better reasons why a patentee's sale of a single embodiment of its self-replicating technology ought not to exhaust patent rights with respect to the second, third, or nth generation of the technology that is propagated from that first embodiment.  Moreover, these reasons are consistent not only with the reasons for granting patent rights in the first place, but with the pro-competitive principles that justify limiting those rights through exhaustion doctrine.

To get at these reasons, I propose a thought exercise.  Let's imagine that the Roundup-Ready cases came out the other way–that purchasers of Roundup-Ready seed from Monsanto were free, as a matter of patent law, to use all subsequent generations of soybeans grown from those first purchased seeds however they saw fit.  What would we expect the Monsantos of the world to do?  How do we believe their behavior might be influenced by this new legal framework?

One possible answer to this question is: not at all.  It may be that the additional revenues to be derived from selling additional embodiments of a self-replicating technology to the same customer are trivial (perhaps due to the structure of demand), and that the prospect of any one customer re-selling a subsequent generation of the technology to another potential customer of the patentee is remote.  Nanomedicine, particularly personalized nanomedicine, may one day prove that this is a possible result.  But in the agriculture context, it strikes me as unlikely.  

Where the technology at issue is an input for the production of a commodity, and the demand for that technology is broad and essentially undifferentiated, I would expect that the possibility of re-sale of nth generation seeds by the patentee's customers would significantly eat into the patentee's revenue stream, potentially making it impossible for the patentee to recoup the investment in research and development required to develop the technology in the first place.  This is the classic free-rider problem that patent law is supposed to prevent: we preserve the incentive to engage in costly research and development by giving the inventor a limited-time monopoly.  Other scholars have noted that this free-rider rationale is particularly salient for inherently self-disclosing inventions (inventions that are easy to copy once they have been introduced to the public).  I would add that self-replication exacerbates the problem of self-disclosure: the patentee selling an embodiment of its invention would not only be teaching competitors how to practice the invention, it would in essence be building their factories as well.

So there are sound justifications grounded in the innovation policies underlying patent law for the Federal Circuit's rulings in the Roundup-Ready cases.  But of course, patent exhaustion doctrine is concerned not only with innovation policy, but also with competition policy.  This brings me back to my earlier question: how would we expect the Monsantos of the world to react to the free-rider problem if patent law did not protect them against competition from nth generation copies of their own first-generation products?  I can imagine two possible strategies a technologist might pursue to circumvent the free-rider problem: contract and secrecy.  And I think both of these alternatives are inferior to the patent solution crafted by the Federal Circuit on competition grounds.

Take the contract approach, which has been explicitly advocated by Yee Wah Chin, one of the attorneys representing the interests of Monsanto's farmer customers.  To avoid the problem of free-riders Monsanto might, for example, restrict sales of its seeds to customers who sign a license agreement in which the customers undertake to monitor the uses of nth generation embodiments.  So, a farmer might have to agree to sell his soybean crop only to buyers who have their own license agreement with Monsanto, or to Monsanto itself.  Or Monsanto could include field-of-use restrictions in its licenses, as Ms. Chin proposes: "Monsanto could have licensed seedmakers to sell seed embodying Monsanto technology on condition that the second-generation seed be either consumed or sold to buyers who agree to either consume the seed or isolate that seed from other seed and sell the seed only for consumption."  

This does not strike me as a pro-competitive result, for a few reasons.  First, it incentivizes Monsanto to extend its influence into downstream markets–such as the market for commodity soybeans and their derivative products–in ways that it would have little incentive for under the Federal Circuit's approach.  This downstream market creep is precisely the type of expansion of patent rights that exhaustion doctrine is supposed to prevent, out of fear that the patentee's interests are not likely to be consistent with the efficient functioning of those downstream markets.  Second, and perhaps more importantly, forcing Monsanto to look to contract rights to protect its investment in research and development shifts the costs of monitoring and enforcing the Roundup-Ready patents from Monsanto itself onto its customers, who are likely to face higher monitoring costs.  

We must remember, Monsanto's customers are largely farmers, who lack Monsanto's economies of scale, its greater expertise with its own technology, and its understanding of the functioning of the markets for that technology.  Moreover, shifting enforcement responsibility from the patentee to its customers is likely to create agency costs where they would not otherwise exist.  A farmer who is paying Monsanto a premium for Roundup-Ready seeds probably has far weaker incentives to vigorously monitor for violation of Monsanto's license terms than does Monsanto itself, which is reaping the premium.  Finally, in the event that a customer breaches these monitoring obligations, either maliciously or negligently, Monsanto's technology could fall into the hands of a competitor who is not in privity of contract with Monsanto and thus (absent any unfair competition type of claim) would be free to use the nth generation seed (in which Monsanto's patent rights are exhausted) to compete with Monsanto.  An individual farmer is likely to be judgment-proof in the face of the claims Monsanto might make should such a competitive threat emerge outside the reach of its licensing provisions, which once again leads us to the original problem: how would we expect Monsanto to respond to this risk of free-riding?

This brings me to the last alternative to the Federal Circuit's solution in the Roundup-Ready cases: secrecy.  Monsanto might seek to prevent free-riding by refusing to release its technology to public view, and relying on trade secret protection to protect against free-riding.  But in order to preserve its secret (a prerequisite of trade secret protection),  Monsanto would have to ensure that nothing it released into the market disclosed its genetic technology.  As I noted above, self-replication can be seen as a heightened form of self-disclosure, and so this type of secrecy would be fairly hard to maintain.  Indeed, I think the only plausible way of doing so would be to pursue a course of comprehensive vertical integration.  Monsanto would not only have to be in the business of propagating seeds, but also in the business of cultivating and harvesting soybeans, and processing them into useful products (oil, animal feed, industrial adhesives, tofu, you name it) that do not reveal the genetic material at the core of Monsanto's invention.  Even if this were technically possible (a big if), the effect on all sorts of markets, both for inputs and outputs of the soybean market, is likely to be catastrophically anti-competitive.  Where the alternative is such drastic shocks to competition in the market for, e.g.,  miso paste, soy-fed livestock, and arable land, the Federal Circuit's decisions in the Roundup-Ready cases start to look surprisingly pro-competitive.

The big question in my mind, then, is not whether the Federal Circuit's reached the right result in the Roundup-Ready cases.  Given the factual setting of those cases, I think the answer to that question is a relatively uncontroversial yes.  The real question, to me, is whether the same holds true for self-replicating technologies other than seeds for agricultural commodities.  I already noted above one type of self-replicating technology–personalized nanomedicine–that may not present the same incentives for patentees, their customers, and their competitors, as do herbicide-resistant soybeans.  Given how little we can presume to know about the future development of other self-replicating technologies, it is likely unwise to try to set a rule today to govern the rights of downstream users for all such technologies that may arise tomorrow.  And for this reason alone, it may be worth getting some discussion of the issue from the Supreme Court, which seems particularly sensitive (almost to a fault) to the hazards of establishing brittle legal rules to govern the unknown future of technology.  If the analysis that emerges is more substantive and functionally-minded than the under-argued, formalist analysis of the Federal Circuit (admittedly, another big if), I would be happy to see the Court take the case, if only to put the type of issues I've discussed in this post on the table.

Supreme Court: District Courts must Review PTO Factual Findings De Novo in Cases Challenging Board Decisions

Patent,

By Dennis Crouch

Kappos v. Hyatt (Supreme Court 2012)

This case involves a patentee’s right to a file a civil action in district court challenging the USPTO’s refusal to grant a patent. 35 U.S.C. § 145. In a unanimous decision, the Supreme Court has affirmed the Federal Circuit ruling that the patent applicant’s presentation of new evidence to the district court requires that court to make de novo factual findings that consider both the new evidence and the administrative record. The USPTO had asked that the court to apply a higher standard of deference to agency factual findings.

This ruling has two major caveats:

  • Deference will be given to PTO factual findings if the applicant fails to present any new contradictory evidence at the trial.
  • Although it must undertake a de novo review, a court can give less weight to newly presented evidence based upon its consideration of “the proceedings before and findings of the Patent Office.”

In its brief, the USPTO argued that the standard employed here would “encourage patent applicants to withhold evidence from the PTO intentionally with the goal of presenting that evidence for the first time to a nonexpert judge.” The Supreme Court rightfully rejected that scenario as “unlikely” in most cases. There are two reasons for this: (1) as the Court notes, this strategy would serve to undermine their chances of directly obtaining a patent from the USPTO based upon the speculative strategy of having a court find the invention patentable; and (2) in my estimation, some amount of new evidence (such as expert testimony and test results) can always be obtained after trial. This is especially true because of the limited manner in which testimony can be presented to an examiner or in an ex parte appeal to the Board.

In this particular case, however, Hyatt has some reason to sandbag because his application was filed pre-1995 and covers basic building blocks of the modern computer. The delay in issuance likely means additional revenue sources that may persist for 17 years from the issue date.

This result here is appropriate in our current world where ex parte appeals to the PTO Board have become a standard and regular aspect of patent prosecution. Those appeals have become somewhat commodified and many firms offer a fixed price. This makes business sense under Hyatt because the applicant still has a chance to fully press its case and present additional evidence after losing at the Board.

Justice Thomas penned the majority opinion.

In a concurring opinion, Justice Sotomayor (joined by Justice Breyer) offered some thought as to particular times when a district court may offer less weight to evidence presented only at trial. Justice Sotomayor primarily discussed the 1927 deliberate suppression case of Barrett Co. v. Koppers Co., 22 F. 2d 395, 396 (3rd Cir. 1927). In that case, the patent applicant refused to allow their witnesses to answer questions from the chief examiners. The appellate court in that case ruled that the applicant was estopped from later introducing evidence that it had purposely withheld. Learned Hand wrote in a later case that estoppel should not apply when the suppression was merely negligent. Relying on these cases, Justice Sotomayor wrote her suggestion that

when a patent applicant fails to present evidence to the PTO due to ordinary negligence, a lack of foresight, or simple attorney error, the applicant should not be estopped from presenting the evidence for the first time in a §145 proceedings.

Although not expressly stated, I suspect that the purpose of “keeping costs low” would fall within Justice Sotomayor’s category of permissible suppression. Of course, these suggestions from Sotomayor are not part of the majority opinion, which did not cite Barrett or the Learned Hand decision of Dowling v. Jones, 67 F. 2d 537 (2nd Cir. 1933).

In application of this rule to the facts here, Justice Sotomayor began with the presumption that new evidence should be allowed and found that the USPTO had not (yet) met its burden to show wrongful suppression.

AIA Changes The Role of the Eastern District of Texas

Patent

Jim Pistorino has updated his annual BNA report on patent lawsuit case filings. His biggest finding is that the new joinder provisions of the America Invents Act (AIA) appear to have had a major impact on the distribution of new lawsuit filings.

The new joinder rules became effective for all patent lawsuits filed on or after September 16, 2011 [updated to fix typo] and limit the ability of a plaintiff to join multiple unrelated defendants in a single action.  In addition to potential cost savings of a single-suit, the joining of geographically diverse defendants in a single suit is thought to make it more difficult for one of the defendants to force a transfer of venue. Thus, the idea behind limiting the joinder of unrelated defendants is that it may allow courts to more easily transfer venue and thus shift filing focus away from the Eastern District of Texas.

The punch line here from the preliminary data through December 2011 is that (1) post-AIA filings have dropped in the Eastern District of Texas and risen in other districts, namely Delaware; (2) more cases are now being filed in Delaware than any other district; (3) more defendants are being sued in Delaware than any other district. Prior to AIA, E.D. Texas was the clear leader in these categories; and (4) overall the number of defendants being sued has decreased.

Read the article: 2011 Trends in Patent Case Filings by James C. Pistorino and Susan Crane.