Wednesday, August 30, 2006

Reexamination Stays Litigation in E.D. Tex. - EchoStar Technologies v. TiVo

In what may be seen as an unusual move, Magistrate Judge Caroline Craven ordered a stay in EchoStar's countersuit against TiVo in the E.D. Tex., pending reexamination of the patents-in-suit - U.S. Patent Nos. 5,774,186 ("Interruption Tolerant Video Program Viewing"), 6,208,804 ("Multimedia Direct Access Storage Device and Formatting Method"), and 6,529,685("Multimedia Direct Access Storage Device and Formatting Method").

This case is the second patent infringement case concerning DVR technology involving EchoStar and Tivo. In the first case, EchoStar was found to infringe TiVo's patent after a jury trial and was assessed $89 million in damages. In the meantime, EchoStar retaliated by countersuing TiVo. In turn, TiVo filed ex partes reexamination requests on the '186 and '804 patents and an inter partes reexamination of the '685 patent, and followed these requests with a motion to stay.

EchoStar opposed the motion on four grounds: (1) TiVo's reexamination requests were not timely, (2) the possibility of issue simplification is remote, (3) discovery in the case was nearing completion, (4) staying the litigation would place EchoStar at a "huge tactical disadvantage." EchoStar also pointed out that the E.D. Texas has traditionally refused to grant motions to stay and favored hearing cases in their entirety without waiting on the USPTO (side note: pendency of patent cases before the E.D. Tex. average at least 6 months shorter than reexamination proceedings at the USPTO).

The court rejected these arguments, and seemed to take issue with the perception that the court "routinely" denies motions to stay:

[T]he Court reminds Plaintiff that each motion to stay pending reexamination filed in this Court is considered on a case by case basis with each cause of action presenting distinct circumstances; there exists no policy or rule in this district to 'routinely' deny such motions.
More interesting was the weight the court gave to the '685 patent being an inter partes reexamination, and the estoppel restraints that accompany such a request. The language of the order suggests that, because of the estoppel provision, inter partes reexamination requests will be given greater deference when considering a motion to stay:

[P]laintiff fails to consider the potential effect of Defendants' inter partes reexamination request. The statute governing inter partes reexamination provides for full participation by a third party at all stages of the proceedings. See 35 U.S.C. § 311, et. seq. Unlike an ex partes reexamination, an inter partes reexamination allows the third-party requester "to file written comments addressing issues raised by the action of the Office or the patent owner's response thereto[.]" Id. at § 314(b)(2). In addition, the third-party requester may appeal to the Patent Board of Appeals and may appeal from the Board's decision to the Federal Circuit if the Board affirms a finding of patentability or reverses an examiner's finding of unpatentability. Id. at § 315(b)(1). Moreover, the third-party requester may participate as a party if the patent owner appeals to the court from an unfavorable decision regarding patentability. Id. at § 315(b)(2).

However, and of particular import here, the statute imposes estoppel restraints on a third-party requester. That is, a third-party requester is estopped from relitigating the same issue "which the third-party requester raised or could have raised during the inter partes reexamination proceedings." Id. § 315(c); see also Middleton, Inc. v. Minnesota Mining and Mfg. Co., 2004 WL 1968669, *10 (S.D. Iowa, 2004). In addition, the third-party requester will be estopped from seeking review of factual determinations made in the inter partes reexamination. Id. Thus, an inter partes reexamination can have no other effect but to streamline ongoing litigation. For these reasons, courts have an even more compelling reason to grant a stay when an inter partes reexamination is proceeding with the same parties, which is precisely the case here.

[W]hat is more, this case presents an issue which distinguishes it from those cases cited by Plaintiff in that Defendants have requested an inter parties reexamination of one the patents at issue in this case. As the Court has pointed out, this will have a dramatic effect on future litigation. Lastly, the Court notes that if, after reexamination, Plaintiff's patents are again upheld, Plaintiff's rights will only be strengthened, as the challenger's burden of proof becomes more difficult to sustain. See Custom Accessories, Inc. v. Jeffrey-Allan Indus., Inc., 807 F.2d 955, 961 (Fed.Cir.1986) (holding that upon reissue, the burden of proving invalidity is "made heavier") (quoting Interconnect Planning Corp. v. Feil, 774 F.2d 1132, 1139 (Fed.Cir.1985)). To this end, and given the particular circumstances of this case, the court cannot find any undue prejudice to Plaintiff.

Another interesting aspect of this case is that, to date, none of the reexamination requests have been granted yet by the USPTO (see here, here and here). Nevertheless, the court went ahead with the stay:

While recognizing the merits of Plaintiff's position, on balance, the Court finds that the equities weigh in favor of staying this matter pending reexamination. First, the Court is not persuaded that a stay would unduly prejudice Plaintiff Although Plaintiff correctly notes that Defendants have not acted with dispatch in seeking reexamination and that Plaintiff has undoubtedly pursued an extremely burdensome discovery program, Plaintiff cannot say that its future costs associated with this litigation will be affected by the grant or denial of a stay. Further, the Court does not weigh in on the tactical effects on separate litigation. This matter stands on its own.

Monday, August 28, 2006

GWIN Inc. Launches Attack on Sports Handicapping Industry

Las Vegas-based GWIN, Inc. provides sports handicapping analysis and advice to sports bettors worldwide through the wholly owned subsidiary, Global SportsEDGE, Inc. The company provides professional handicapping advice on professional football/basketball/baseball games, college football and basketball games, hockey, NASCAR, and golf via television, radio and the Internet.

GWIN has also become the recent owner (assignment recorded 8/4/2006) of US Patent 6,260,019, titled "Web-based prediction marketplace." The patent was acquired right when the company announced a debt restructuring for an equity transaction. One week later, the company followed up with an announcement stating that (1) lawyers have been retained, and (2) lawsuits were ready to be filed on the newly-acquired patent.

Yesterday, GWIN followed-through, and filed six infringement actions against its competitors, based on the '019 patent (which appears to be the only patent held by the company). The patent was filed on March 5, 1999 and issued 0n July 10, 2001.

The '019 patent deals generally with web-based handicapping, and also provides a "marketplace" in which handicappers ("suppliers") are compensated based on the number of consumers who view their predictions. Claim 25 is particularly noteworthy:

25. A method of obtaining prediction information, the method comprising:

viewing performance information reflective of the outcome of at least one past prediction made by at least one prediction supplier;

viewing which prediction information is available from at least one prediction supplier,

electing to purchase prediction information from a selected prediction supplier;

viewing said purchased prediction information; and

crediting an account of the selected prediction supplier.

This patent could be a potential headache for the sports-betting industry, and a veritable cash-cow for GWIN, particularly when you consider that an estimated 8 million Americans gamble $6 billion online annually . . .

(See House Report 109-552, which provides various information on on-line sport betting) .

Thursday, August 24, 2006

Should Obviousness in Patent Cases be Bifurcated to Avoid Hindsight Bias? (Part 2 of 2)

Professor Mendel's studies in hindsight bias determined that, once an outcome of an invention is known, individuals are cognitively incapable of properly discounting it when making a non-obviousness determination. So what can be done to correct this bias?

In a commercial litigation context, studies found that juror bias was significantly reduced when the defense attorney told mock-jurors that the plaintiff’s strategy was to have the jurors be "Monday morning quarterbacks," and that the jurors should avoid using hindsight in judging the defendants. Oddly enough, these results could not be replicated in a case dealing with non-obviousness. Other debiasing attempts (e.g., educating the jurors, increasing incentives or motivations for avoiding hindsight, using different types of jury instructions) proved unsuccessful as well.

The only approach found to substantially reduce hindsight bias is to conduct an obviousness determination starting from the prior art and problem to be solved, rather than concentrating on the invention first. In essence, the approach mirrors the European patent approach under Art. 52(1), which requires an "inventive step," rather than a "non-obvious" requirement (the standards are otherwise quite similar). And in order to obtain such an analysis in court, the issue of obviousness should be bifurcated:

In order to ameliorate the hindsight bias, a patent trial should operate to the maximum extent as if the invention does not exist. This solution cannot be implemented where the trial is heard by a judge, but can be applied in jury trials, which currently represent over seventy percent of patent trials.

Under this proposal, the issues for trial would be bifurcated. The non-obvious issue often would be tried first, at least for trials in which the same jury is expected to hear all issues. Pre-trial hearings, out of the jury’s presence, would determine the analogous, relevant prior art. Such hearings would determine the admissibility of any expert testimony concerning the level of ordinary skill in the art and what a PHOSITA would know how to do. The pre-trial hearings would also be used to identify what problem the inventor was working on or what problem the invention solved.

Once the evidence probative of the non-obviousness issue is determined, the non-obvious stage of the trial would commence. The parties and their experts would be prohibited from mentioning or identifying the invention during trial. They could only present evidence of the prior art, the skill level and knowledge of a person having ordinary skill in the art, and the problem the inventor was working on. Following trial, the jury would deliberate on whether the advances sought were obvious to a person having an ordinary level of skill in the art.

It is important to note here that, under the proposal, the initial determination doesn't necessarily address whether or not the inventor's solution was obvious. Rather, it starts with the basic question of whether or not any solution to the prioblems was obvious to a PHOSITA. If the jury answers in the negative, then the Graham obviousness requirements are satisfied - the inventor’s specific solution cannot be obvious if no solution was obvious.

Professor Mander goes further:

If the jury concludes that a solution was obvious, a second non-obvious question must be put to the jury. Simply because the jury concluded a solution to the problem was obvious does not mean that the inventor’s particular solution was obvious. Where the jury concludes that some solution was obvious, it would be informed of the invention, and then deliberate concerning whether the invention was obvious. In addition, a second special verdict form could be given to the jury with detailed instructions for deciding the non-obvious issue. The form would direct the jury to consider reasons that the invention might not have been achieved or was not obvious, and would instruct the jurors to write out these alternatives. Similar requirements have reduced the hindsight bias in other contexts.

Though informing the jury of the invention may introduce some bias, the efforts made up to this point should ameliorate it to the greatest extent possible, and it is impossible to evaluate a specific invention without informing the jury of it. This reworking of a patent trial would go a long way towards ameliorating the hindsight bias and would produce substantially less
biased decisions than current jurisprudence. It also identifies a new benefit of jury trials — juries can be shielded from invention knowledge, judges cannot.

Wednesday, August 23, 2006

Should Obviousness in Patent Cases be Bifurcated to Avoid Hindsight Bias? (Part 1 of 2)

In one of the first studies of its kind, Professor Gregory Mandel from the University of Albany published an empirical analysis on the effects of hindsight bias in patent law, and made a number of surprising findings. Specifically, Professor Mandel found that

(1) the hindsight bias distorts patent decisions far more than anticipated, and to a greater extent than other legal judgments;

(2) neither the Federal Circuit's "suggestion" test nor the Supreme Court's Graham requirements solve the hindsight problem;

(3) the admission of secondary consideration evidence does not cure the hindsight bias;

(4) jury instructions that explicitly identify and warn against the hindsight bias do not ameliorate its impact; and

(5) the hindsight problem pervades patent law to an extent not previously recognized - it biases decisions under the doctrine of equivalents, claim
construction, the on-sale bar, and enablement.

An interesting aspect of the paper was that the approach used by the author was based more on a psychological analysis of subjects under test conditions, rather than relying solely on case law to divine possible instances of hindsight. One of the problems that the research identified was that a non-obvious validity requirement requires a decision-maker to first make a determination based on ex post information (i.e., that the invention was achieved) before making an ex ante judgment (i.e., whether or not the invention was obvious at the time it was made). Since the large majority of obviousness determinations start from the point of a known outcome - the invention itself - and then attempt to reconstruct the state of the art back to the time the invention was made, the effect on the qualitative judgment of obviousness becomes inherently skewed by hindsight reasoning.

A series of tests were conducted on mock jurors, where fictitious inventions were presented under various controlled conditions to see what effects hindsight had on the mock jury's conclusions. The test affirmed the findings of prior hindsight bias research revealing that individuals tend overestimate both the likelihood of a known outcome occurring, and the foreseeability of the outcome when judging obviousness:

Participants who were not informed of the invention were substantially more likely to judge a solution non-obvious than participants who were informed what the invention was. The magnitude of the hindsight bias in these patent scenarios was striking, and is greater than that reported for other legal judgments. Ex post knowledge of invention deeply affected participants' conclusions regarding whether an invention was non-obvious ex ante.

Equally significant, debiasing instructions based on actual model jury instructions did not ameliorate the hindsight bias. This finding is consistent with a study of the hindsight bias in tort law, which found no significant effect from hindsight debiasing instructions. It is also consistent with a variety of research on jury instruction indicating that the instructions often fail to produce their desired results, that jurors have an extremely low level of recall and comprehension of instructions, and that intended improvements to jury instructions often actually reduce juror understanding.

In addition to the hindsight bias, the study indicates that hindsight condition participants who concluded that an invention was obvious are more confident in their answer than foresight participants.

The study also found that jurors were just as susceptible to hindsight bias regardless of whether they were answering individually, or answering as a collective jury. Judges were also found equally prone to hindsight bias - while judges may be more generally versed in patent proceedings, they are likely not any more "familiar" with prior art non-obviousness determinations than juries are (testimony before the House Subcommittee on Courts alleged that the average district court hears only one patent trial every seven years).

And what about PTO examiners? Well, they fared slightly better (.2 standard deviation units) than judges or juries, but were still significantly prone to hindsight bias.
In sum, the results of the experiment reported here and the existing empirical data indicate that non-obvious decisions, whether by judge, jury, or PTO examiner, are routinely subject to a significant hindsight bias. As a result, patent validity decisions may be both unjust and inefficient. The decisions are unjust to the extent statutorily deserving inventors are denied patents or patent scope because the hindsight bias makes non-obvious inventions appear obvious. Validity decisions are inefficient to the extent the improper rejection of patents due to the hindsight bias reduces inventors' incentive to innovate below the socially optimal level. These conclusions, if unresolved, have powerful implications for patent law, innovation, and
competition, and therefore for the economy and society as a whole.

Tuesday, August 22, 2006

Study Shows Ivy League Judges Have Highest Affirmance Rate in Patent Cases

When HR 5418 was introduced to Congress last May, there was excited anticipation over the prospect of having a patent system where litigants would be assigned one of an number of select judges deemed to be the most "experienced" in patent cases. The theory underlying this system is that the more experience a judge has, the greater the likelihood will be that they reach the correct result at the trial level.

Almost 4 months after HR 5418 was introduced, legal research company LegalMetric LLC published excepts of a report after reviewing the appeal record of all judges that have heard 100 or more patent cases.

And what did they find? Experienced judges have an affirmance rate on appeal that is identical to the affirmance rate for all judges in patent cases (60% in a sample of over 1400 appeals).

However, when it came to educational background, the numbers shifted: judges with B.S. or M.S. degrees had a higher affirmance rate on appeal (67%). The judges with the highest affirmance rates were those with Ivy League degrees (71%).

All together now: "Faaair Harvard, we join in thy Jubilee throng . . ."

GETTING A PEEK AT THE USPTO'S PEER-TO-PATENT SOFTWARE: In response to criticism over "bad" software patents, the USPTO has partnered with IBM and a host of other industry leaders to create the Peer to Patent Project which will ultimately provide a software patent search tool for examiners to more effectively parse software code, articles, technical papers, etc. provided by third parties. The idea was launched by professor Beth Noveck from New York Law School on her blog last July, which was followed by an article in Wired News, which in turn attracted the attention of IBM (along with Microsoft and Hewlett-Packard) who decided to sponsor the idea.

But how is the software going to be implemented, and how will third parties participate? Think "Wikipedia." Nicholas Varchaver from CNN spoke with Professor Noveck, along with USPTO Commissioner John Doll, and provided this short article on the software. By using a Wiki approach to establish knowledge in the art and to make previously-hard-to-find documents more publicly accessible, outsiders can weigh in during the patent-review process, as online encyclopedia Wikipedia does, to increase the information available to a patent examiner.

According to the article,

Working with IBM and the Patent Office, Noveck developed a system that will not only permit, for example, an inventor to show that an allegedly new idea is already in practice but also lets reviewers rate one another's submissions, much as they do on eBay and Amazon.

Patent examiners will be given only the ten highest-rated pieces of input, and attempts to sabotage a competitor's application by submitting phony material should theoretically be avoided.
Noveck speculates that a test-launch for the software could occur as early as 2007, and, depending on the results, be followed by a PTO-wide implementation.

It's going to be interesting to see how this approach will work. Ironically, many practitioners have been complaining recently over examiners using Wikipedia in office actions, where the information that the examiner relied upon was allegedly incorrect, and sometimes false. Comedian Stephen Colbert recently did a bit on the concept of "Wikiality," where users of Wikipedia change entries in the databases to reflect their own concept of reality, regardless of whether or not that reality is based on truth or reason (to view the video, click on any of the segments listed on YouTube here). After encouraging users to falsify entries in the system, Wikipedia made corrections in the system and banned Mr. Colbert from the site . . .

As a side note, tech-savvy opponents of the controversial Blackboard patent have jumpstarted a DIY effort and started a wiki to collect invalidating art. It is very likely that, in the months to come, many more ad-hoc wikis will be created by individual groups to test this approach for finding prior art.

Monday, August 21, 2006

SHEDDING LIGHT ON THE DARK WORLD OF NONPRECEDENTIAL OPINIONS: Since the Judicial Conference and the Supreme Court announced that, starting January 1, 2007, nonprecedential opinions may be cited in court documents, a concern immediately arose over how this would affect patent practice before the Federal Circuit (see Federal Circuit's rule-change proposal here).

Basically, two forms of non-precedential judgments exist: Rule 47.6 basis for Nonprecedential Dispositions, and Rule 36 Judgment of Affirmance Without Opinion.

Under Rule 47.6, the court would typically provide a relatively short opinion for the public record, but the opinion is not citable as precedent. An opinion will be deemed non-precedential when it is "one determined by the panel issuing it as not adding significantly to the body of law. " Such rulings provide the holding for an opinion, but often gloss over the rationale for the holding in light of existing precedent.

Under Rule 36, appeals may be summarily disposed without stating an opinion, or otherwise providing any indication why the lower court's judgment is affirmed. Most often, a Rule 36 disposition gets rid of frivolous (or near-frivolous) appeals.

Practitioners and academics have historically been opposed to the practice of issuing nonprecedential opinions, since they claim this deprives a public need for properly understanding (and ultimately critiquing) decisions made by the court, and saps the potential for participating in such decisions via amici. In contrast, the Federal Circuit has unanimously and urgently supported the practice, claiming that valuable judicial resources would otherwise be wasted on cases not "worthy" of precedential opinions.

Professor Hal Wegner has provided an important update to his 2005 paper titled "The Non-Precedential Claim Construction Black Hole" that explores in detail the effect of non-precedential opinions on the Federal Circuit and patent jurisprudence. While most people haven't lost sleep over the issue of non-precedential opinions in federal practice, there is an important catch to keep in mind when the new citation rules take effect: most of all patent decisions in appeals from the trial courts are non-precedential opinions (this study on federal appellate decisions estimates that 80% of all federal appellate decisions are non-precedential). And even when you ignore the appeals that were "Rule 36'ed" in the Federal Circuit, there remains a large body of judicial decisions waiting to be unleashed that is confusing and often times contradicts itself. Coupled with the already dizzying body of claim construction rulings, and you have a recipe for potential disaster.

According to Professor Wegner, claim construction was most prone to abuse from the practice of nonprecedential dispositions. The evidence of this is found in the high level of 2-1 split rulings on claim construction issues that were released as nonprecedential decisions. This begs the question: if these cases are so apparently lacking in merit or controversy, then why is 1/3 of the bench dissenting?

Also, since Phillips v. AWH was decided, Professor Wegner found that roughly one opinion per month has been rendered by the court with a 2-1 split vote on claim construction. Worse yet, even when cases are published as precedential, the Federal Circuit has shown difficulty in agreeing on arguably simple terms in mechanical cases. In the Dorel v. Graco child car-seat case, no consensus could be reached on the meaning of the term "removably attached." In Agfa v. Creo, the same problem existed for the meaning of the term "stack."

Which brings Professor Wegner to the money quote: "[i]f three judges with a cumulative forty-five years on the bench can't reach agreement on a simple term - 'removably' attached - in a simple mechanical technology, then what hope does an otherwise skilled and experienced trial judge have in dealing with her or his first patent case?"

Wednesday, August 16, 2006

WHEN AGENCIES COLLIDE - THE IRS TESTIFIES TO CONGRESS IN OPPOSITION TO TAX STRATEGY PATENTS: A few weeks ago, the Select Revenue Measures Subcommittee of the House Ways & Means Committee held a hearing on "tax strategy patents." The problem? Patents on tax planning were creating a Hobson's choice for tax professionals: use one method for sheltering taxable income, and you run the risk of breaking the law; use another method, and you could be held liable for patent infringement.

BusinessWeek ran an interesting article about John Rowe, who's the executive chairman of health insurer Aetna. Rowe set up two trusts and funded them with nonqualified stock options per the suggestion of his advisers. The so-called "Grantor Retained Annuity Trust" (GRATs) would pay Rowe an annual income for a specific time and reserve whatever is left for family members to avoid a significant amount of gift taxes. One estimate valued Rowe's funds at $28.5 million.

Earlier this year, a company called Wealth Transfer Group sued Rowe in U.S. District Court in New Haven CT, claiming that he infringed US Patent 6,567,790, titled "Establishing and managing grantor retained annuity trusts funded by nonqualified stock options." The patent was filed in December 1, 1999 and was granted May 20, 2003. Claim 1 of the '790 patent reads as follows:

1. A method for minimizing transfer tax liability of a grantor for the transfer of the value of nonqualified stock options to a family member grantee, the stock options having a stated exercise price and a stated period of exercise, the method performed at least in part within a signal processing device and comprising:

establishing a Grantor Retained Annuity Trust (GRAT);

funding said GRAT with assets comprising stock options, the stock options having a determined value at the time the transfer is made;

setting a term for said GRAT and a schedule and amount of annuity payments
to be made from said GRAT; and

performing a valuation of the stock options as each annuity payment is made
and determining the number of stock options to include in the annuity
payment.


While Rowe admitted that a law firm and a financial planner were involved in the creation of the accused GRAT, neither was named in the suit.

So far, the PTO lists 43 issued patents, and 62 patent applications related to tax planning. As of mid-year, fiscal year 2006, the allowance rate for business method applications (which include tx planning) was approximately 20%, which is lower than the overall USPTO patent allowance rate of approximately 54% at mid-year. In fiscal year 2005, the USPTO hired 36 patent examiners in the business method area for a total of 132 examiners. The goal for fiscal year 2006 is to have a total of 160 examiners in this area by the end of the year.

The IRS claims to have reviewed many of the tax patents and applications and concluded that they were not "abusive" tax strategies that would invite further IRS scrutiny (and potentially invalidate the patent under the rarely-used "illegal" or "immoral" utility requirement). However, the IRS was very explicit in pointing out that a US patent on tax strategy does not carry with it an IRS "seal of approval."

Needless to say, The IRS has many concerns for such patents, noting that patent protection on tax strategies will limit the use of approaches used by taxpayers that are simply trying to comply with the law. Put simply, the IRS believes that taxpayers and their advisors should not have to perform due diligence to determine how they can legally file a tax return.

It is doubtful that the IRS's testimony will sway Congress to act in any meaningful way on tax-strategy patents. As this article points out, the IP landscape is rife with patents that deal directly with methods and products that are regulated by safety/emissions, FCC, and FDA laws. Many different types of patentable inventions involve a manner of complying with the law, but they are not prohibited from being patented for that reason.

See Bloomberg Wealth Manager article from May 2005 on tax planning patents here.

Testimony on the Wealth Transfer Group patent here.

Patent Prospector blog take on IRS testimony here.

Tuesday, August 15, 2006

IS AN ATTACK ON STATE STREET IN THE WORKS? Since the Supreme Court punted on the question of patentable subject matter in LabCorp v. Metabolite, and in light of the back-handed comments made by some of the Justices to the patentee in Ebay v. MercExchange (Chief Justice Roberts: "I may not be a software developer, but as I read the invention, it's displaying pictures of your wares on a computer network and, you know, picking which ones you want and buying them. I -- I might have been able to do that"), patent pundits have been abuzz on whether or not the Supreme Court is preparing to change 35 U.S.C. 101 after a 25-year hiatus (LabCorp was seen as the first chance to do so). The last time the Supreme Court decided a case on patentable subject matter was Diamond v. Diehr, back in March of '81.

Currently, at least three Justices (Breyer, Stevens and Souter) have openly expressed reservations about the current state of 35 U.S.C. 101 in the dissent from the dismissal order in LabCorp:

At most, respondents have simply described the natural law at issue in the abstract patent language of a "process." But they cannot avoid the fact that the process is no more than an instruction to read some numbers in light of medical knowledge. Cf. id. at 192 (warning against "allow[ing] a competent draftsman to evade the recognized limitations on the type of subject matter eligible for patent protection"). One might, of course, reduce the "process" to a series of steps, e.g., Step 1: gather data; Step 2: read a number; Step 3: compare the number with the norm; Step 4: act accordingly. But one can reduce any process to a series of steps. The question is what those steps embody. And here, aside from the unpatented test, they embody only the correlation between homocysteine and vitamin deficiency that the researchers uncovered. In my view, that correlation is an unpatentable "natural phenomenon," and I can find nothing in claim 13 that adds anything more of significance.
In the eBay concurrence, Justice Kennedy (who was joined by Breyer, Stevens and Souter) expressed skepticism about business-method patents in general:
In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.
Given the context of these and other remarks made by the Justices, it appears that the Court has found it appropriate to introduce a notion of "balance" in the law's approach to patentable subject matter (i.e., when does patent protection go too far?). Also, as professor Joseph Miller stated in his excellent The Fire of Genius blog, the decisions over recent terms suggest that a generalist (rather than specialist) approach to patent law doctrine is currently favored by the Court ("[o]ccasional decisions by courts with broader jurisdiction will provide an antidote to the risk that the specialized court may develop an institutional bias." Holmes Group, Inc. v. Vorando Air Circulation Systems).

Other commentators have picked up a number of other aspects of the LabCorp decision that hint that the Supreme Court may be tilting towards a more restrictive approach to patents: the reliance on (technologically) "old" case law (Gottschalk, Funk Bros, Parker v. Flook), and the selective citation of arguably "anti-patent" academic articles.

It is likely that considerable time will pass before the Supreme Court gets to revisit this issue again. But when they finally get the opportunity, chances are that some type of change will be in the works.

Monday, August 14, 2006

SHOWDOWN AT THE ONE-CLICK CORRAL - CORDANCE CORP. SUES AMAZON OVER THE 1-CLICK ORDERING SYSTEM: Cordance Corporation filed a complaint on August 8 in the District Court of Delaware, alleging that "Amazon has infringed, induced infringement of, and contributed to the infringement of [US Patent 6,757,710], and continued to do so, including without limitation by implementing its '1-Click' ordering system." Cordance alleges willfulness and is further seeking injunctive relief. According to the Seattle Post Intelligencer, Cordance currently has only 6 employees.

Cordance patent 6,757,710 is titled "Object-based on-line transaction infrastructure" and was issued on June 9, 2004. The patent claims priority from 3 continuations dating back to September 1997, and a continuation-in-part dating back to February 29, 1996. Currently, one continuation exists at the USPTO claiming priority from the '710 patent (see family history here).

Carrying the weight of a 122-page specification, the patent only has 9 claims, with 2 being independent. Claim 1 reads as follows:

1. A computer implemented method comprising:

providing a customer data storing information for a customer usable to automatically complete an on-line purchase of an item from a seller;

providing the customer with information from the seller with respect to an item;

receiving from the customer an indication to initiate a purchase transaction for
purchasing the item including metadata associating said customer data with said
transaction;

in response to the received indication, automatically completing the purchase of an item from the seller by by processing said metadata associating said customer data so as to complete the purchase transaction.

Amazon's "one-click" patent (US Patent 5,960,411) was filed on September 12, 1997, and does not claim priority to earlier patent applications. Claim 1 reads as follows:

1. A method of placing an order for an item comprising:

under control of a client system, displaying information identifying the item;

and in response to only a single action being performed, sending a request to order the item along with an identifier of a purchaser of the item to a server system;

under control of a single-action ordering component of the server system, receiving the request;

retrieving additional information previously stored for the purchaser identified by the identifier in the received request; and generating an order to purchase the requested item for the purchaser identified by the identifier in the received request using the retrieved additional information; and

fulfilling the generated order to complete purchase of the item whereby the item is ordered without using a shopping cart ordering model.

As an interesting side note, Amazon's '411 patent was not cited as prior art in Cordance's '710 patent. However, a parent of Cordance's '710 patent (US Patent 6,345,288) was cited in Amazon's '411 patent during the original examination. Also, none of Cordance's other patents were made of record in the reexamination proceedings on the '411 patent that is currently taking place in the USPTO.

What's even more interesting is that, due to the notoriety of Amazon's patent, a rather sizable body of prior art has been collected over the years by the IT community in an attempt to "bust" Amazon. It would seem ironic then, if this art is ultimately used to save Amazon from infringement in the end.

Needless to say, this will be a closely-watched case by anyone dealing with e-commerce . . .

THE BATTLE FOR 35 U.S.C. 101 RAGES ON AT THE USPTO: One might think that after the BPAI's decision in Ex Parte Lundgren and the Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility, rejections based on non-statutory subject matter were all-but-dead at the USPTO.

Well, they're not.

In fact, it's now worse than ever.

Anyone in the electronic/software arts can tell you that, over the last 6 months or so, rejections from the USPTO based on 35 U.S.C. 101 are legion and are being spontaneously introduced at all stages of prosecution. In the overwhelming majority of cases, the rejections are almost reflexive in nature, and contain incorrect applications of law (e.g., "claim 1 is clearly aimed at a method executed in a processing device, but does not recite a processor or memory. Applicant's claims merely recites an abstract idea that produces no useful, concrete, or tangible result).

Through numerous conversations with USPTO personnel, it appears that there is a concerted push by PTO management to have examiners aggressively question applications on 101 and 112(1) grounds. While Internet/business method applications are targeted most aggressively, non-Internet software methods are a close second, followed by methods performed in telecommunications systems (apparently division multiplexing has raised someone's ire . . .). Also, foreign-origin applications are being scrutinized more closely on issues of enablement.

While the PTO has taken a more hard-line approach to 35 U.S.C. 101, applicants also continue to test the limits of the statute. Recently, the IPO has jumped into the fray by filing an amicus brief to the Federal Circuit on behalf of inventor Petrus Nuijten, who filed an application directed to the digital watermarking of signals. The rub in this case is that one of the claims (claim 14) is to the signal itself, which was rejected by the examiner and the BPAI, claiming that, because the claimed signal lacked physical properties, it did not fall within the four categories of patentable inventions, and was otherwise an unpatentable abstract idea.

The BPAI decided that if signals fall within any category of Section 101, they are "manufactures." As such, manufactures should be limited to tangible articles, and electrical signals per se are intangible energy and not tangible items. As a result, the Board concluded that "to the extent [some of the] claims might be construed to imply an electrical signal . . . an electrical signal per se does not fit within any of the statutory categories of 35 U.S.C. 5 101."

While the application isn't published yet, the claim reads as follows:

14. A signal with embedded supplemental data, the signal being encoded in accordance with a given encoding process and selected samples of the signal representing the supplemental data, and at least one of the samples preceding the selected samples is different from the sample corresponding to the given encoding process.
In the brief, the IPO argues that "[t]he category of manufactures is not limited to tangible things, and, even assuming it is, electrical signals are tangible, man-made things. Therefore, electrical signals, as manufactures, clearly constitute patentable subject matter."

To see further details, view the IPO's brief here.

Thursday, August 10, 2006

BACK TO THE GRIND!

If you can't annoy somebody, there's little point in writing.
-- Kingsley Amis

After a short hiatus turned into a much, much longer one, and after a few months of living an (unexcusable) life free from blogging, but consumed by working, the 271 blog is back in business. A big "thank you" to everyone that continued to send e-mails during the break and I hope to reconnect with everyone in the months to come. New posts will be coming soon, and I hope to be firing on all cylinders by next week.

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