Deconstructing IBM's "Public Patent Review"

A lot of attention has been lavished over IBM's decision to publish their patent applications prior to filing with the USPTO. Many commentators opining on this decision have been borderline giddy, and speculate that this could be the beginning of a new era in the arena of software patents. Unfortunately, there have been precious few details over how this project is supposed to work, and how it expects to achieve the lofty goal of "[curbing] the rising wave of patent disputes and patent litigation."

Furthermore, all the reporting to date seems to be based off of the same talking points provided to the press that exclusively focus on the boundless benevolence of this gesture. As a business that overwhelmingly files the greatest amount of patents each year, and expects to be paid handsomely for that effort, IBM must be doing more than merely creating goodwill among the numerous open-source clients they service.

After receiving e-mails on this topic, the 271 patent blog followed-up with readers and patent attorneys to get opinions on what they think IBM may be up to. The early feedback points to two theories of motivation: the first is rooted in practicality, and the second theory carries an ambition to change patent examination entirely.

(1) Playing the "Spoiler" - Under the program, when IBM decides to file a patent application, the draft or disclosure is published immediately (presumably under the Peer-To-Patent system, which doesn't exist yet). After publication, the public is invited to provide comments and assistance to ensure that anticipated or obvious patents don't issue. By promoting a more "open" patenting process, the thinking goes that the risk of litigation will be lower, which in turn saves money spent on litigating patent disputes.

• 271 Blog Comment: it would appear that IBM's doing the industry a big favor by possibly converting a lot of 102(e) art into 102(b) art. A patent filed more than a year before another patent still gives the subsequent patentee some wiggle room to swear behind the first patent. If the patent publishes more than a year before, the second patent's dead. I like this aspect of the program, especially in light of the current level of patent pendency at the USPTO. This could also be helpful in uncovering "secret" prior art (i.e., patents that haven't published yet) when preparing patent applications.

• Reader comment #1: "putting the litigation issue aside, IBM's position will become even more dominant before the USPTO, and publishing their patents is a clever way of strengthening that position. And when you consider the anticipated flood of Chinese and Indian patents that could threaten IBM's dominance, this is a good way to hold them back, at least temporarily."

• Reader comment #2: "do they seriously expect inventors and putative competitors to 'assist' them in acquiring 'high quality' patents by gift-wrapping invalidating art to them? Many of the "no software patents" loudmouths don't know what they're talking about, and their PR spokespersons are only marginally better. Any company that participates in this program should have their head examined."

• Reader comment #3: "I suppose the risk of prematurely publishing a patent is outweighed by the fact that they will make other patentees more tentative about filing their own patents, and possibly running up their costs, too."

(2) Putting IBM's Entire Portfolio on an Accelerated Examination Schedule at the USPTO - After reading between the lines of the news reports, there are at least some suggestions that indicate that IBM, and other institutional filers, may be contemplating a heavier reliance on the accelerated examination program at the USPTO. Under the program, applicants basically vet the prior art, and provide a report of what they found and how it relates to the claims. In exchange, the USPTO gives the application priority, and blasts it through examination, promising a full examination on the merits within one year's time.

InternetNews reports:

IBM also committed itself to providing technical experts to spend thousands of hours annually reviewing published patent applications submitted to patent offices. For example, IBM experts will assist the USPTO in verifying the patentability of submissions as part of the USPTO Community Patent Review pilot.

And from Public Radio's "Marketplace":

This year the U.S. patent office has a backlog of 700,000 applications. Big Blue's new policy is part of a pilot program from the government to trim application waiting time. Microsoft, GE, Hewlett-Packard and others will also participate in the peer review of patent applications. In exchange, their applications move to the top of the heap.

This all seems consistent with an accelerated examination program that would be implemented on an unprecedented scale. If this is the case, considerable pressure would mount on the rest of the industry to follow suit - because of the sheer number of applications given priority in the USPTO, non-accelerated applications would run the risk of being delayed even longer than they already are.

• Reader comment: "if this is what they are planning to do, then this will be murder on the PTO and the other applicants. If 6000+ applications [from the listed companies] in a TC get fast-tracked, where does that leave the remaining applicants in terms of pendency? You would have no choice but to start accelerating all of your applications, unless you want to get lost in the heap. And what about the examiners? POPA [PTO examiner's union] will go nuts over this."

Stay tuned . . .


Other Blogs following this issue:

Patent Prospector - "IBM Patent Exposure"

IPBiz - "IBM to put patent filings on-line, but does this really matter?"

Håkan Lans Is Back at The Federal Circuit (and Sweden Will Be Watching)

In one of the strangest, and most controversial patent infringement cases in recent history, Håkan Lans (aka Uniboard Aktiebolag) returns to the Federal Circuit on October 6, where the court will determine his fate on the disastrous enforcement effort regarding U.S. Patent No. 4,303,986 (Panel J: Friday, October 6, 2006, 10:00 A.M., Courtroom 203 - 2006-1070 Lans v. Gateway 2000) .

A prolific inventor and a folk hero in his native Sweden, Lans was granted the '986 patent in 1981, which covered Video Graphics Array (VGA) technology. In 1989, Lans agreed to license the ’986 patent to IBM. However, for tax reasons, Lans wanted to have his shell company, Uniboard, grant the license. To assure that Uniboard possessed the rights it was purporting to license, IBM requested that Lans first execute an assignment of the ’986 patent to Uniboard. Lans executed the assignment to Uniboard personally and then, on behalf of Uniboard, executed the license to IBM. Lans soon obtained licenses from others, including Hitachi, HP, and Apple.

In 1996, Lans sent letters to the computer industry accusing numerous companies of infringing the ’986 patent. The letters identify Lans as “the inventor and owner” of the ’986 patent, but did not mention Uniboard.

In 1997, Lans personally sued numerous companies for infringement of the ’986 patent. The complaint did not include Uniboard as a plaintiff. During discovery, the defendants found out about the assignment, and concluded that Lans had no business asserting the patent claim, because he wasn't, in fact, the owner.

And that's when everything started to unravel for Lans.

The computer companies moved for summary judgment that Lans lacked standing to sue because he did not own the ’986 patent. Lans moved under FRCP Rules 15 and 17 to amend the complaint to substitute Uniboard for himself as plaintiff. The district court denied the motion for leave to amend and granted summary judgment for the computer companies.

Under Rule 15, the district court held that Lans could not amend the complaint to create standing because, without standing, there was no action to amend. The district court also found that its denial of leave to amend created no prejudice for Lans since Uniboard remained free to file suit against the computer companies.

Under Rule 17, the district court again found that Lans could not create standing where none existed before amendment. Despite Lans’s contention that he had forgotten about the assignment, the district court found that Lans’s bringing the action in his own name was not due to an honest and understandable mistake.

In November 1999, six days after the district court granted summary judgment in the first case, Uniboard (aka Lans) re-filed the lawsuit against the computer companies.

This time, the computer companies moved to dismiss the complaint for failure to state a claim on which relief may be granted. The computer companies noted that the ’986 patent had expired on January 9, 1999 (11 months earlier). The computer companies argued as well that § 287(a) precluded any damages because Uniboard’s licensees had not properly marked patented products and Uniboard had not properly notified the computer companies of infringement before expiration of the ’986 patent.

The district court held that the notice Lans gave the computer companies in his personal capacity was insufficient because § 287(a) requires that the patentee give notice, which he wasn't at the time. Accordingly, the district court held that it could not provide Uniboard any relief and dismissed Uniboard’s complaint. The Federal Circuit affirmed the decision.

Furthermore, the district court determined that Lans had intentionally deceived his lawyers regarding the ownership of the patent. The court ordered Lans to pay court expenses including those of the remaining defendants (Gateway and Dell).

When Lans sued his own lawyers later for malpractice, the same judge found against him and decided he should pay their costs too. The exact amount has not been calculated, but it's estimated that Lans could be on the hook for as much as $100 million.

The case has attracted a lot of attention in Europe and, obviously, in Sweden. Margot Wallstrom, vice-president of the European Commission (and a blogger as well), has already asked the World Trade Organization to look into the case, and is questioning whether non-American patent holders are properly protected in American courts.

• See Macworld UK - "Swedish inventor gets day in court"
• Erik Moberg - "The Judgment against Hakan Lans - A Planned Judicial Crime?"

More interestingly, Judge Kimberly Moore published a paper in 2003, titled "Xenophobia in American Courts." Judge Moore found that, while domestic and foreign parties won at equal rates with judges, in patent jury cases between domestic and foreign parties, the domestic party won 64% of the time, with the foreign party winning in the remaining 36% of cases.

"Reserving" Infringement OK When Discovery Becomes Sticky

Kemin Foods, L.C. v. Pigmentos Vegetales del Centro S.A. de C.V. ("PIVEG") (05-1479) - September 25, 2006

The patents in suit include process and product claims pertaining to purified lutein that is extracted from plants. Lutein is a carotenoid (i.e., an organic, naturally occurring pigment) that Kemin and PIVEG incorporate in dietary health supplements that they manufacture and distribute.

While Kemin won on infringement of another patent in the same suit, Kemin unsuccessfully argued in the district court that PIVEG infringed certain product claims of U.S. Patent No. 5,382,714 . During trial, Kemin intended to pursue an allegation of infringement of a process claim ’714 patent, but was effectively precluded from doing so by a pretrial order striking a supplemental expert report proffered by Kemin.

In its original complaint, Kemin broadly alleged that PIVEG was infringing on its patents, "including without limitation claim 1" of the '714 patent. During the course of litigation, Kemin listed claims 1, 2, and 4 of the ’714 patent, but "reserved" the right to pursue claim 5 (the process claim) pending further discovery:

To date . . . discovery regarding PIVEG’s actual process has been unreliable at best and is the subject of a motion to compel by Kemin. Thus, it is possible that PIVEG may use a water/alcohol mixture, as the solvent in its process, thereby infringing the method of claim 5 of the ’714 patent. Accordingly, as discovery is ongoing, Kemin reserves the right to assert claim 5 of the ’714 patent when PIVEG’s process is known. There are no additional claim construction issues that arises [sic] with respect to claim 5 of the ’714 patent which are not already addressed [by the briefing on the claims already specifically asserted].

Kemin apparently had difficulty obtaining information about PIVEG’s process in making the allegedly infringing process. Pursuant to a corporate policy, PIVEG maintained no documentation of its process for purifying lutein. The only documentary evidence PIVEG provided Kemin was a two-page document prepared at the request of PIVEG’s litigation counsel. As part of discovery, Kemin was permitted to visit PIVEG’s manufacturing facility, which is located in Mexico. When Kemin visited the facility, however, various parts of PIVEG’s process were either not operating at all or were not operating under normal conditions.

As a result, the district court ordered a second inspection, and this time the site visit suggested some inconsistencies between PIVEG’s actual process and its two-page process document. Kemin’s supplemental expert report explained that analysis of samples collected during the second visit suggested—for the first time—that PIVEG’s process might be covered under claim 5 (PIVEG subsequently claimed they changed their process after the second visit)

Oddly enough, the magistrate judge would have none of it, and admonished Kemin for the late timing of the "additional claim" raised by the supplemental expert report. Apparently. the magistrate judge believed the claim was being raised in the supplemental expert report for the first time in the litigation. Needless to say, the Federal Circuit reversed:

We see nothing more Kemin could have done to keep claim 5 alive during the pretrial phase of the litigation. Kemin repeatedly advised the court and PIVEG that once it obtained information about PIVEG’s process, that information might implicate claim 5. In the Markman briefing, Kemin took account of claim 5. And as soon as it obtained sufficient information about PIVEG’s process, Kemin provided a detailed analysis of its claim 5 infringement contentions. Under these circumstances, we conclude that the magistrate judge should not have granted PIVEG’s motion to strike Kemin’s supplemental expert report.

Because the supplemental expert report was the primary—perhaps even the sole—evidentiary basis for Kemin’s claim 5 infringement allegation, the effect of the magistrate’s decision was to preclude Kemin from pursuing its allegation of infringement of claim 5. That outcome is potentially significant, because in order to avoid the effect of the ’564 patent injunction, PIVEG asserts that it has switched to a new process. Yet according to Kemin, even if that process falls outside the injunction, it still might infringe claim 5 of the ’714 patent. Thus, we vacate the judgment as it applies to claim 5 of the ’714 patent, and we remand for the district court to consider Kemin’s supplemental expert report and Kemin’s related allegation that PIVEG infringes claim 5 of the ’714 patent.

This case is a rather amusing read. Almost every stock legal theory related to patent law was asserted in this case, including unfair competition and antitrust - Kemin even managed to obtain a 35 U.S.C. 295 presumption at one point, based on PIVEG's conduct (see Dennis Crouch's Patently-O post on this case here). At one point, PIVEG argued with the court about who should have been deemed the "prevailing party" for the purposes of FRCP 54(d), even though PIVEG was found to have infringed and subject to an injunction.

Oh, and the damages going into appeal? $58,775.

Another worthwhile note is that claim construction was not an issue in this case, leaving the court with the more deferential "clearly erroneous" and "substantial evidence" standards for review. With the one exception, almost all of the lower court's findings were affirmed on appeal in all respects.

Stay Granted After 8 Years on Reexamination Request

One of the main advantages that reexaminations provide is that invalidity contentions can be tried in a cheaper forum using a broader claim construction regime, and you have an opportunity to short-circuit the plaintiff's litigation by staying the litigation at the district court. However, trying to guess whether or not a stay will be granted can become a confusing matter.

Generally, courts consider the following factors in determining whether to grant a stay: (1) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party; (2) whether a stay will simplify the issues in question and trial of the case; and (3) whether discovery is complete and whether a trial date has been set. Xerox Corp. v. 3Com Corp., 69 F. Supp. 2d 404, 406 (W.D.N.Y. 1999).

In most cases, reexamination requests filed within a year or so will generally support a stay, if the docket isn't moving particularly fast, and if the judge is not so keen on keeping the case:

Tap Pharm. Prods., Inc. v. Atrix Labs., Inc., 2004 WL 422697, at *1 (N.D. Ill. March 4, 2004) - "Plaintiffs have known from the start of this case three months ago that the pending reexaminations could create grounds for a stay. As of yet, this case has not progressed beyond the initial pleadings stage; the parties have not engaged in any discovery and have not filed any other substantive motions.”

Ralph Gonnocci Revocable Living Trust v. Three M Tool & Mach. Co., 68 U.S.P.Q.2d 1755, 1758 (E.D. Mich. 2003) - "This action has been pending for less than a year. Undoubtably the parties have spent considerable time and resources thus far - substantial discovery has been conducted and the parties have submitted witness lists and three lengthy summary judgment motions. Yet far more time and resources remain to be spent before this matter is concluded. Two responses to motions for summary judgment must be submitted, the Court has not begun to review those motions, and much remains to be done by the parties and the Court to prepare this case for trial.”

Softview Computer Prods. Corp. v. Haworth, Inc., 2000 WL 1134471, at *3 (S.D.N.Y. Aug. 10, 2000) - "[A]lthough there has been a great deal of activity in this litigation to date, much remains to be done before the case is ready for trial. Discovery is not yet completed, extremely voluminous summary judgment motions have been served, the Markman hearing has not yet been held and the Pretrial Order has not yet been prepared.”

Robert H. Harris Co. v. Metal Mfg. Co., 1991 WL 217666, at *4 (E.D. Ark. June 21, 1991) - “[T]his action has been pending less than a year. Although it is set for trial next month, the Court is not persuaded that this a case which has ‘run an overly protracted course’ . . . The parties appear not to have engaged in expensive discovery or extensive pretrial preparation.”

Emhart Indus., Inc. v. Sankyo Seiki Mfg. Co.,1987 WL 6314, at *3 - “[S]ubstantially no trial preparations have been carried out -- there is no pretrial order in place and no trial schedule has been set.”

But sometimes, courts reach a point where enough is enough:

Toro Co. v. L. R. Nelson Corp., 223 U.S.P.Q. 636, 638 (C.D. Ill. 1984) - "This suit has been pending in litigation for almost 3 1/2 years. Before the motion for stay was filed, the court had under advisement a motion by defendant for summary judgment, which may well be dispositive of the issue of validity of asserted claims 14 and 15. Those factors militate against a stay at this stage of the proceedings. The pendency of this suit does not necessarily preclude any further proceedings which the Patent Office may choose to pursue. It is the opinion of the court that its granting of a stay order would accomplish little, other than the delay of disposition of a suit which has, until now, run an overly protracted course."

Readers may recall that in last month's EchoStar case, the court granted a stay based on a seemingly late-filed reexamination request (3+ years) based off of a countersuit.

This prompted me to do some leisurely digging, and I was quite surprised when I came accross this 2004 Southern District of Iowa case (Middleton v. 3M No. 4:03-cv-40493), where a stay was granted off of an ex-parte reexamination request that was filed over 8 years after the lawsuit began:

In the present case, the litigation has been ongoing for over eight years. The trial date is set and is scheduled for [less than 2 months time]. In addition, several motions for summary judgment remain pending that may be dispositive of some or all of the issues remaining in the case. Discovery is completed, and the parties are most likely well into their trial preparation. Thus, the parties have already spent a considerable amount of time and money on the pending litigation. On its face, these facts seem to weigh against granting a stay.

However, these facts should be weighed against the benefits of issuing a stay. As argued by [defendant], the following factors weigh in favor of issuing a stay: (1) a stay will be the most efficient use of judicial resources by preventing duplication of effort; (2) the reexamination may simplify and narrow the issues in the case; and (3) the Court will be able to benefit from the expertise of the PTO. Moreover, a stay issued pending reexamination “is not for such a protracted or indefinite period” as reexamination proceedings are to “‘be conducted with special dispatch.’” . . . Thus, while some courts have denied a stay based on the end of discovery and the proximity of trial . . . the ultimate determination is within the Court’s discretion based on a weighing of the benefits of issuing a stay versus any added expenses resulting from the stay.

I'm wondering if this is some sort of record . . .

Incidentally, in case you're wondering, yes, the reexamination proceeding is still pending at the USPTO.

Friday Shorts

• IEEE Scandal Leads to 802.20 Overhaul: IEEE ordered the complete reorganization of the 802.20 Working Group, when it was discovered that the chairman of the group was a paid consultant of one of the members, and steered adoption of certain standards towards patented technologies.
• Software Patents Hit Record High: Real Geek blog reports that US Patent and Trademark Office made a new record for the number of software patents awarded in a single year. The agency issued 893 new patents yesterday, pushing the total to 30,232 in this year.
• Are "IP Specialists" or "Supreme Court Specialists" Better? Law.com (free subscription) reports on the upcoming oral arguments for KSR International Co. v. Teleflex Inc., and notes that non-IP litigators versed in Supreme Court practice have traditionally been chosen as lead counsel over IP litigators. Patent litigator James Dabney, who will represent KSR before the Supreme Court, claims that IP litigators are the way to go.
• Asian Patents are on the Rise in the U.S. : the Intellectual Property Office of Singapore (Ipos) is reporting that the proportion of patents granted by the U.S. Patent and Trademark Office that originated from Asia grew from 23 percent in 1995 to 30 percent last year. China and India led the pack with the fastest growing number of registered patents.

"Consisting Essentially Of" Precludes Infringement; Recapture Requires an Objective Review of Surrendered Matter

Kim v. ConAgra Foods, Inc. (05-1414) September 20, 2006

Yon Ja Kim, holder of reissue patent Re. 36,355 appealed the district court’s JMOL judgment of noninfringement of claim 5 and its dependent claims and claim 10 in favor of ConAgra Foods, Inc. The court also considered ConAgra's cross-appeal which asserted that the patent was invalid.

The patent in this case related generally to breadmaking, and specifically to oxidizing agents used during the breadmaking process to strengthen dough, increase loaf volume, contribute to fine crumb grain, and increase shelf life. Claim 5 of the patent read as follows:

Claim 5. A potassium bromate replacer composition consisting essentially of, by weight:

(a) about 0.001 to 0.03 parts ascorbic acid as an oxidant per 100 parts flour,

(b) about 0.015 to 0.2 parts food acid per 100 parts flour, said food acid selected from the group consisting of acetic acid, citric acid, fumaric acid, lactic acid, malic acid, oxalic acid, phosphoric acid, succinic acid, tartaric acid, fruit juice, fruit juice concentrate, vinegar, wine, and mixtures thereof, and

(c) flour.

Kim contends that the jury charge rested on an incorrect construction of the phrase "[a] potassium bromate replacer composition" in both claims 5 and 10 of the ’355 patent. Kim conceded that "potassium bromate replacer" is a claim limitation, but argued that a "potassium bromate replacer" is simply a "potassium bromate substitute," which she in turns describes as a composition that is present when potassium bromate is not.

The district court concluded, after reviewing the specification, that in order to infringe, the bread must (a) contain the ingredients in the proportions recited in the claims, and (b) the ingredients "must perform essentially the same function in the production of that bread as would potassium bromate." The Federal Circuit agreed with the district court, noting that the specification makes clear that the claimed potassium bromate replacer is an oxidizing agent and, as such, must carry with it the associated functional elements (strengthening the dough, increasing loaf volume, etc.).

On the issue of infringement, the Federal Circuit found that the addition of the term "consisting essentially of" was detrimental to the finding of infringement:

Since the accused products included the same ingredients as the patented composition, Kim simply assumed that they had the same effects on dough as did the patented composition.

However, with respect to a "consisting essentially of" claim, there is no infringement where the accused product contains additional, unclaimed ingredients that materially affect the basic and novel properties of the invention. See PPG Indus. v. Guardian Indus. Corp., 156 F.3d 1351, 1354 (Fed. Cir. 1998). Here, ConAgra’s 7-Grain and Whole Wheat products contained additional ingredients beyond ascorbic and food acids, such as vital wheat gluten, ferrous sulfate, and dough strengthening enzymes.

ConAgra agrued that these additional ingredients materially affected functionality. Kim argued that they did not. However, during trial, Kim did not support this conclusion with any examinations or tests of the actual accused products. Under these circumstance, the Federal Circuit concluded that Kim did not prove infringement.

Incidentally, the transitional phrase "consisting essentially of" replaced "comprising" during prosecution via Examiner's Amendment to overcome prior art so the case would be allowed.

ConAgra further alleged that Kim's reissue patent was invalid for violating the recapture rule. The reissue procedure allows a patentee to broaden the scope of an existing patent to include subject matter that had been erroneously excluded from that patent. However, the recapture rule prevents a patentee from regaining through reissue the subject matter that he surrendered in an effort to obtain allowance of the original claims.

The court looked at Federal Circuit precedence that was cited to suggest that recapture required a subjective review of the surrendered subject matter (i.e., a "deliberate decision to surrender specific subject matter" and "intentionally omitting or abandoning" the claimed subject matter). The court ruled that subjective tests were not applicable in this regard:

It is clear that in determining whether "surrender" of subject matter has occurred, the proper inquiry is whether an objective observer viewing the prosecution history would conclude that the purpose of the patentee’s amendment or argument was to overcome prior art and secure the patent. This is because the recapture rule is aimed at ensuring that the public can rely on a patentee’s admission during prosecution of an original patent . . . Thus, if the objective public observer can discern a surrender of subject matter during the prosecution of an original patent in order to overcome prior art and obtain the patent, then the recapture rule should prevent the reissuing of that patent to claim the surrendered subject matter.

Under this analysis, the court found that, after viewing the prosecution history, the broadened claims did not violate the recapture rule (although it appears under the subjective test they would have).

Dissent (Schall): Judge Schall provided an interesting dissent on claim interpretation, finding that the language of the specification and the prosecution history clearly showed that the patentee acted as her own lexicographer in defining what "potassium bromate replacer" meant, and under Phillips, that definition should govern ("[o]ur cases recognize that the specification may reveal a special definition given to a claim term by the patentee that differs from the meaning it would otherwise possess. In such cases, the inventor’s lexicography governs.")

Without exception, the patentee consistently defined "potassium bromate replacer" as "a slow acting oxidant that is functional throughout the entire manufacturing process" throughout the specification and prosecution. Judge Schall found this a compelling reaon to dissent, and hold that the lower court's judgment should be vacated and remanded under his claim construction.

In the majority opinion, the court pointed out that "[n]either party urged this construction in the district court or in this court. While we may have the authority to adopt claim constructions which have not been proposed by either party . . . we should be hesitant to do so."

Have Patents Killed the Software Industry in the U.S.? Hardly.

In the early 90's, the software industry in the U.S. decried the rise of software patents, claiming that patenting would doom small companies and stifle growth in the industry. Even large companies, such as Oracle and Adobe voiced their opposition to software patents in testimony before the USPTO, stating that "existing copyright law and available trade secret protections . . . are better suited to protecting computer software developments."

Anti-patent activists, particularly in the EU, have used many of these comments as fodder for their quest to eliminate software patents altogether. They have even gone a step further in their rhetoric, suggesting that it will be impossible for software companies to operate once software patents are recognized, since larger sompanies will swamp the smaller sompanies with patent filings and litigation.

However, a current study being conducted by Robert P. Merges, demonstrates that this viewpoint is mostly wrong - patents have not killed the software industry, they have not led to a slowdown in entry, and they appear to have had a negligible impact, if any, on industry structure.

Professor Merges looks at several industry metrics and reaches the following conclusions:

Industry Structure and Concentration - anti-patent commentators previously alleged that, because of software patents, the software industry would become more concentrated over time. The idea was that strong patent protection over "backbone" software would tend to "lock in" a dominant product, and hence the company that owned it. However, this view ignores the dynamic sources of growth in the industry, and underestimates how real and effective this competition is in the fields where it operates. For every "backbone" product – such as an operating system program – there are many applications and ancillary products that connect to the backbone. For these products, ownership rights do not appear to create "lock-in" conditions on anything like the scale envisioned in the early 1990s:

Industry concentration statistics tell the story here. The conventional measure of concentration, the Herfindahl-Hirschman index (HHI) ranges from 0 to 10,000; the HHI for the software industry as a whole is less than 244 for software, compared to an average of 334 for U.S. manufacturing industries. What this means is that the top 20 sellers of pre-packaged software generate 61% of total industry revenues. This compares very favorably to other industries, many of which are considered quite competitive: autos, airlines, and personal computers, for example. There is evidence of significant turnover over time as well – a key indicator of a dynamic industry. Of the top ten software companies in 1990, five did not make the list in 2000, either because they went out of business or were acquired. This is remarkable turnover compared to some industries, such as pharmaceuticals, where similar comparisons from 1990 and 2000 show that eight of ten firms made both lists (and the ones that did not were acquired by others that did)

Comparative Data on Patents and Innovation - to determine how patents relate to these trends, one area of study looked at comparative data concerning differences between the domestic software industries of various countries. Previous research has shown that as a foreign country moves up the learning curve in the software industry, inventors in the software industry from that country receive more patents. Accordingly, software firms in Israel, Ireland and India were studied to see if the patenting trends hold:

Software firms in India and Ireland are less innovative than elsewhere. Routine service-type programming is the norm in India, while in Ireland, the industry is dominated by subsidiaries of foreign firms who add minor value to the parent company software, and who are located in Ireland partly for tax reasons. Israeli
firms, which are perceived as being the source of more innovative software, patent much more heavily than their Indian and Irish counterparts. While a number of reasons might explain this pattern, it is certainly consistent with the view that patents correlate closely with R&D and innovation – which would tend to refute the early 1990s argument that patents are anathema to software innovation. In addition, it can be said that the Israeli software industry is in no sense highly concentrated. So the comparative data once again supports the notion that predictions concerning the concentration-increasing effects of software patents have failed to materialize.

Entry to Market - since the software industry claims large sources of innovation from both large and small companies, a steady flow of new entrants would indicate a robust industry that seeks to establish innovative ideas or products. After reviewing the level of startup activity between 1970 and 1998, and considering the venture capital funding amounts between 1995 and 2005, Professor Merges findings indicate that software startups and financing activity have continued to do quite well.


Other studies on Software Patents:

Ronald J. Mann, Do Patents Facilitate Financing in the Software Industry?, Texas Law Review, Vol. 83, p. 961, 2005

James E. Bessen and Robert M. Hunt, An Empirical Look at Software Patents, FRB of Philadelphia Working Paper No. 03-17

Ronald J. Mann and Thomas Sager, Patents, Venture Capital, and Software Start-Ups, U of Texas Law, Law and Econ Research Paper No. 57

"Two-fer" From the E.D. Tex. - Jury Finds Patent Invalid and Not Infringed

Hyperion Solutions Corporation v. Outlooksoft Corporation (2:04-cv-00436) - OutlookSoft Corporation, a provider of performance management software, is announcing that it has prevailed in a patent infringement suit brought against the company in December 2004 by Hyperion Solutions in the U.S. District Court for the Eastern District of Texas.

Tried before Judge Ward, the jury reportedly returned a verdict that Outlooksoft did not infringe the patents in suit, and that they showed by clear and convincing evidence that the patents asserted by Hyperion (US Patents 4,989,141 and 5,189,608) were invalid.

This was a tough case to follow, since many of the court filings were sealed, but the verdicts are noteworthy. This is now the second defense win in a row in Judge Ward's court in Marshall (the first one being Sensormatic v. WG Security Products, Inc. - see here). Michael Smith from the Eastern District of Texas Federal Court Practice Blog has commented that of the 26-28 most recent patent verdicts, this is the first invalidity finding by a jury.

If You Think There's Fury Over Business Method Patents and the Internet, You Should Start Watching the Telecoms

At one point or another, every industry experiences some controversy over a patent holder that claims to be the gatekeeper for key technologies in that industry - for JPEG, it is Forgent; for streaming media it is Acacia; for MP3's it is Sisvel; for DIMM/RIMM memories, it is Rambus.

But for CDMA and W-CDMA - controversy, thy name is Qualcomm.

The San Diego company, which began 21 years ago as a tiny startup with no real product and an office over a pizza parlor, experienced a meteoric rise between 1999 and 2004 when the company championed "code division multiple access" (CDMA) technology, along with a corresponding patent portfolio, that by some estimates, covers 80 percent of the CDMA standard. Qualcomm built its business, in part, around the model of suing competitors and licensing its technology. Almost a third of its $5.7 billion in revenue in fiscal 2005 came from royalties. Much of the rest comes from selling chips for cell phones.

While CDMA accounts for only 20% of the present cellphone market (with GSM being the predominant standard), next-generation cellphones, which will be equipped to transmit music, video and games at high speeds, will rely heavily on wideband spread-spectrum 3G mobile telecommunication air interfaces (W-CDMA), which Qualcomm is rumored to hold nearly a 35% patent stake in. Industry analysts estimate 5 percent of the sale price of a cell phone can be attributed to Qualcomm's technology. As the holder of 4,800 patents and pending patents - many related to making multimedia cell phones work - Qualcomm is on the verge of collecting royalties on virtually every handset sold in the world.

However, not everyone is happy over Qualcomm's success. In fact, Qualcomm's dominance has created a fast-growing "enemies" list in the telecom industry over the company's licensing practices. In the words of Dave Mock, author of "The Qualcomm Equation," Qualcomm has become "the most-hated American corporation," second only to Microsoft.

Like Microsoft in the 1990s, Qualcomm has come under attack by competitors who allege that Qualcomm is using it's patent muscle to squeeze out competition. Furthermore, industry-standard members have claimed that Qualcomm is overcharging on royalties and giving price breaks to cell phone makers who also agree to buy Qualcomm's chips for their phones.

Over the past 3 years, a barrage of lawsuits, countersuits, and ITC/FTC complaints have been filed, asking numerous governments to step in to force Qualcomm to license at a cheaper rate:

- On July 2005, Broadcom, an Irvine, Calif.-based microchip manufacturer sued Qualcomm in the U.S. District Court in New Jersey alleging anti-trust violations. It accuses Qualcomm of charging cell-phone makers who use its chips lower royalties than cell-phone makers who use a competitor's chips (the case was recently dismissed).

- Six separate complaints were filed last fall in the European Commission by Broadcom, Ericsson, NEC, Nokia, Panasonic Mobile Communications and Texas Instruments, asking for an investigation of what the companies describe as Qualcomm's "anti-competitive conduct."

- Complaints were filed in the Fair Trade Commission of South Korea by Texas Instruments and Broadcom. The companies argue that Qualcomm is using its market dominance to demand excessive royalty rates.

- Besides the antitrust lawsuit, Broadcom and Qualcomm are embroiled in five lawsuits in which they accuse each other of infringing on patents. Last year, Broadcom also filed a complaint with the U.S. International Trade Commission is alleging that Qualcomm has engaged in unfair trade practices by selling chips that infringe on Broadcom patents.

The biggest showdown will be between Qualcomm and Nokia. Each company holds patented technology that the other needs, and cross-licenses have been made to allow Nokia and Qualcomm to use each other's intellectual property. However, those licenses are set to expire April 9, 2007.

In the meantime, the legal wrangling continues - a week after Nokia filed its complaint with the European Commission last fall, Qualcomm sued Nokia, accusing it of infringing on 12 patents. Then in June, Qualcomm complained to the United States International Trade Commission that Nokia was importing and selling cell phones that infringe on six Qualcomm patents. Nokia responded by announcing that it will stop designing and manufacturing handsets that use Qualcomm's technology in early 2007. The move was considered a blow to Qualcomm because, as the largest cell phone manufacturer, Nokia could have helped spread the use of Qualcomm technology.

If Qualcomm and Nokia can't reach agreement by the April deadline, "then both of us will be infringing on the other's intellectual property," noted Jacobs, Qualcomm's CEO.

- See Kathryn Balint's excellent article in the Paramus Post, which provides a detailed account of the issues surrounding Qualcomm's licensing controversy, along with insightful commentary by industry analysts following these issues.

USPTO - A Good Place to Begin a Career?

BusinessWeek released a report recently on the top 50 “Best Places to Launch a Career.” The federal government placed six agencies in the top 50 - the State Department ranked highest at no. 6.

The CIA ranked 32nd and the Peace Corps and the IRS ranked 38th and 39th, respectively. NASA placed 41st and the Comptroller of the Currency placed 48th.

The United States Patent and Trademark Office just missed the cut, placing 51st.

Federal Circuit Clarifies Means-Plus-Function (Sort Of)

MIT v. Abacus Software (05-1142) - September 13, 2006

In what looked like an absolute mess of a case, MIT sued Abacus Software, Corel, Microsoft, Roxio and 200 other defendants in the Eastern District of Texas for allegedly infringing U.S. Patent 4,500,919 regarding a color processing system for producing copies of color originals. During litigation, the court issued a Markman order that was adverse to the patentee. After summary judgment was denied to both sides in the action, everyone stipulated to entry of final judgment of non-infringment of the ‘919 patent based on the Court’s claim construction, and took the case to the Federal Circuit on appeal.

At issue was claim 1:

1. A system for reproducing a color original in a medium using a selected multiplicity of reproduction colorants, the system comprising in serial order:

a.) a scanner for producing from said color original a set of three tristimulus appearance signals dependent on the colors in said original;

b.) display means connected to the scanner for receiving the appearance signals and aesthetic correction circuitry for interactively introducing aesthetically desired alterations into said appearance signals to produce modified appearance signals; and

c.) colorant selection mechanism for receiving said modified appearance signals and for selecting corresponding reproduction signals representing values of said reproducing colorants to produce in said medium a colorimetrically-matched reproduction.

The term "scanner" was at the center of a battle-of-the-textbooks spat since the term wasn't sufficiently defined in the specification. Turning to dictionaries, the Federal Circuit concluded that, to qualify as a "scanner" for the purposes of the '919 patent, the device must have "relative movement between the scanning element and the object being scanned."

The court also had to consider whether the "color original" that the scanner scans must be "placed on or in close proximity to the scanner." In this regard, neither the specification nor the dictionaries were of much help. Looking at the lower court's reliance on the ‘919 specification, expert testimony, and technical references, the Federal Circuit agreed that scanners require close proximity between the color original and the scanner.

MIT next argued that the district court erroneously held the phrase "colorant selection mechanism" as a means-plus-function limitation under section 112 ¶ 6. The phrase appears in the patent together with a description of its functions, "receiving said modified appearance signals" and "selecting corresponding reproduction signals representing values of said reproducing colorants to produce in said medium a colorimetrically-matched reproduction." The Federal Circuit concluded that, despite the lack of "means" language, the phrase "colorant selection mechanism" should be construed as a means-plus-function limitation:

The generic terms "mechanism," "means," "element," and "device," typically do not connote sufficiently definite structure. In Personalized Media Commc’ns, LLC v. Int’l Trade Com’n, 161 F.3d 696 (Fed. Cir. 1998), we addressed the claim term "digital detector." We contrasted the term "detector," which recited sufficient structure to avoid 112 ¶ 6, with "generic structural term[s] such as ‘means,’ ‘element,’ or ‘device,’" which do not. Id. at 704. Similarly, in Lighting World, Inc. v. Birchwood Lighting, Inc., 382 F.3d 1354 (Fed. Cir. 2004), we recognized that Section 112 ¶ 6 does not apply to "a term that is simply a nonce word or a verbal construct that is not recognized as the name of structure and is simply a substitute for the term ‘means for.’" Id. at 1360.

Here the patentee used "mechanism" and "means" as synonyms. See ‘919 patent,
claim 3, col. 15 l. 51 (referring to "colorant selection means") (emphasis added); id., claim 14, col. 17 ll. 1-2 (same). At least one dictionary definition equates mechanism with means. See The Random House Webster’s Unabridged Dictionary 1193 def. 2 (2d ed. 1998) (defining "mechanism" as "the agency or means by which an effect is produced or a purpose is accomplished") . . . The term "mechanism" standing alone connotes no more structure than the term "means."

[I]n contrast, the term "colorant selection," which modifies "mechanism" here, is not defined in the specification and has no dictionary definition, and there is no suggestion that it has a generally understood meaning in the art. We therefore agree with the district court that "colorant selection mechanism" does not connote sufficient structure to a person of ordinary skill in the art to avoid 112 ¶ 6 treatment

Next, the Federal Circuit considered whether the term "aesthetic correction circuitry" connotes sufficient structure to avoid 112 ¶ 6 treatment. The majority concluded that it did:

In contrast to the term "mechanism," dictionary definitions establish that the term "circuitry," by itself, connotes structure. Webster’s Third New International Dictionary, 408-09 (1968 ed.) (defining "circuit" as "the complete path of an electric current including any displacement current" and "circuitry" as "the detailed plan of an electric circuit or network (as of a radio or television receiver)"); see also Linear Tech. Corp. v. Impala Linear Corp., 379 F.3d 1311, 1320 (Fed. Cir. 2004) ("Technical dictionaries, which are evidence of the understandings of persons of skill in the technical arts, plainly indicate that the term ‘circuit’ connotes structure…

In two of our prior cases we concluded that the term "circuit," combined with a description of the function of the circuit, connoted sufficient structure to one of ordinary skill in the art to avoid 112 ¶ 6 treatment . . . The claim language here too does not merely describe a circuit; it adds further structure by describing the operation of the circuit. The circuit’s input is "appearance signals" produced by the scanner; its objective is to "interactively introduce[e] aesthetically desired alterations into said appearance signals"; and its output is "modified appearance signals." ‘919 patent, col. 15, ll. 29-41. This description of the operation of the circuit is sufficient to avoid 112 ¶ 6.

Chief Judge Michel dissented from this part of the claim construction, and provided a 14 page opinion, where 6 of those pages were spent explaining why "aesthetic correction circuitry" should be interpreted as a means-plus-function claim:

The district court correctly interpreted "aesthetic correction circuitry" as a means-plus-function claim despite the absence of the term "means for" in view of the presence of functional language because the limitation fails to recite sufficiently definite structure, as our precedent requires. Thus, the presumption against application of section 112, paragraph 6 was overcome. Indeed, on this record, I find it overcome as a matter of law.

The parties agree that "the term ‘circuit[ry],’ by itself connotes some structure" to one skilled in the art . . . The issue, however, is whether the "aesthetic correction circuitry" limitation "recite[s] sufficiently definite structure," . . . which is required to avoid section 112, paragraph 6 in a claim using functional language, even in the absence of "means for."

This "definite structure" requirement is well-established in our precedent. "To invoke this statute [section 112, paragraph 6], the alleged means-plus-function claim element must not recite a definite structure which performs the described function" . . . [W]e were shown no evidence that any technical dictionaries suggest to the artisan a sufficiently definite structure for "aesthetic correction circuitry" or even list such a term. Nor did experts from either side opine that one skilled in the art would understand "aesthetic correction circuitry" to connote sufficiently definite circuit structure.

VACATED-IN-PART, DISMISSED-IN-PART, and REMANDED

One interesting side-note about this case is that the court seems to be growing more impatient with parties taking liberties with the de novo standard of review. The opinion in this case made no secret of the court's discontent with increased requests to move earth, moon and sky every time claim contruction becomes an issue - you know you're in for a rough ride when the court opens the substantive part of the opinion with the following statement:

This case once again involves an effort by parties to a patent infringement case to have this court opine on a range of claim construction issues even though the judgment of the district court is not based on the resolution of those issues. We decline that invitation and limit our consideration to issues presented by the judgment under review. An appeal is not an opportunity to bring before the appellate court every ruling with which one of the parties disagrees without regard to whether the ruling has in any way impacted the final judgment. The fact that this is a patent case does not invoke a different legal regime.

Patent Battle Heats Up For Lithium Iron Phosphate Batteries

In the world of batteries, Lithium-ion batteries are dominant in laptops, cell phones, and other mobile devices because of their ability to store lots of energy in a small, light package. However, if the batteries are damaged or or experience an internal short, the unstable materials in the battery release oxygen, oxidizing other materials in the battery, which in turn produces more heat. The cycle continues in a process called "thermal runaway," which in some cases can lead to a violent explosion. This is theorized to be the reason for the recent battery recalls for laptop computers.

In the new lithium-ion phosphate batteries, cobalt oxide is replaced with iron phosphate, which is considered to be a much more stable material. Manufacturers of lithium-ion phosphate batteries have even released videos showing batteries getting nails rammed into them without any sort of explosion.

Not surprisingly, these new batteries have started to appear in many industrial applications, and are odds-on favorites as a battery of choice for electric and hybrid vehicles (they're already being used in the Segway). It's estimated that the market for these types of batteries will approach billions in the years to come.

One company that manufactures these and other similar batteries is A123 Systems Inc., which has already released lithium phosphate batteries for use in Black & Decker's new line of DeWalt 36-volt power tools. In the meantime, the Board of Regents of the University of Texas, which owns U.S. Patents 5,910,382 and 6,514,640 (both titled "Cathode materials for secondary (rechargeable) lithium batteries") joined Hydro-Quebec, who is the exclusive licensee, in suing A123 Systems, Black & Decker and China BAK Battery, Inc. for allegedly infringing the two patents. The case was filed in the Northern District of Texas, Dallas Division.

There are reports that A123 Systems has already started an offensive of their own on a newly issued patent, but this has not been verified by the 271 Patent Blog.

In the complaint, the Board of Regents claims to have invented the core technology for lithium iron phosphate batteries through the research of Dr. John Goodenough and others within UT's Material Science and Engineering Department. Claim 1 of the '382 patent reads as follows:

Claim 1. A cathode material for a rechargeable electrochemical cell, said cell also comprising an anode and an electrolyte, the cathode comprising a compound having the formula LiMPO4, where M is at least one first-row transition-metal cation.

The Board of Regents is seeking a preliminary injunction, along with unspecified damages. You can view the complaint here.

See MIT article on A123 System's battery technology here.

See patent mapping of A123 System's technology here (January 2006), courtesy of tecpatents.com.

Valuing Patents and the "Patent Paradox": Why Do Companies Patent Anyways?

Dennis Crouch over at Patently-O brought up this interesting question the other day regarding patent valuation: "Would you or your clients be willing to invest time and/or money in developing a new innovation that had only a small chance of reaping huge rewards if you knew that the expected (and most likely) return would less than your original investment? "

The question is based upon the premise that patents have essentially become "lottery tickets," where patentees file scores of arguably negligible patents on the infinitesimal hope that a few of them will have an extremely high payoff.

It is a valid question that plays into the modern phenomenon referred to as the "patent paradox": if patents on inventions have little or no expected economic value, why do individuals and commercial corporations patent so heavily? Or, if patents are valuable after all, where does their value lie?

Professors Gideon Parchomovsky and R. Polk Wagner at the University of Pennsylvania published an excellent paper titled "Patent Portfolios" which addresses this very issue. Empirical studies analyzing the value of patents suggest that the average value of an issued patent is surprisingly small. In fact, the vast majority of U.S. patents spend more time collecting dust than revenue for their respective owners. According to a previous study by Mark Lemley, the total number of patents litigated or licensed for a royalty (as opposed to a cross-license) is on the order of five percent of issued patents. Worse yet, data about renewal rates reveal that nearly half of U.S. patents are abandoned before the 10 year mark, and two thirds will lapse before the full 20 year statutory term.

From an economic standpoint, a 1986 study of over 1 million European patents conducted by economics professor Ariel Pakes concluded that, on average, 50 percent of patents in France, Germany, and the U.K. are worth less than $2,189, and that 90 percent of the patents have a value of less than $25,000. A similar study conducted in 1998 by Mark Schankerman echoes Pakes’ findings. Using renewal data, Schankerman estimated the mean patent value at $4,313 for pharmaceutical patents, $4,969 for chemical patents, $15,120 for mechanical patents and $19,837 for electronics patents.

Hence the paradox - if these numbers are so bleak, why has patenting continued to increase dramatically year after year? A number of legal scholars and economists have previously provided some theories for this behavior:

The Lottery Theory of Patents (F.M. Scherer) - "spectacular prizes will be awarded to a small number of winners . . . but you can't win if you don't play!" Although the metaphor has some merit, there are some obvious limitations. Unlike lotteries, which are completely random, the inventive process is knowledge based, where the level of knowledge in the art plays a key role in determining the likelihood for success. Also, success in patenting isn't a binary proposition - "losing ticket" patents can prove valuable when combined with other patents or technologies. Moreover, even corporations that have not captured any lucrative patents may nevertheless benefit from the research they conducted as it puts them in a better position to compete for other inventions.

The Defensive Patenting Theory - the flipside of the lottery ticket theory - while the lottery ticket theory views patents as high-risk investments, the defensive patenting theory views them as a type of insurance. The value of patents under this theory lies in a protective "nuclear option" as the subject matter of potential litigation.

Patents as Internal Metrics (R. Levine) - Recognizing that patents are a relatively ineffective means for capturing value, economist Richard Levine, alone and together with others, has suggested that patents may serve important intra-firm purposes; specifically, that patents might be used to measure employee productivity. In the context of R&D, it is virtually impossible to directly measure employee effort, and the only quantifiable parameter is results. A natural way to approximate successful results is to look at patent filings. Therefore, patents are valuable insofar as they serve as a metric for evaluating employee productivity.

Professors Parchomovsky and Wagner address these and other theories in their paper and find that each theory, by itself, provides an incomplete answer to the patent paradox. In fact, the professors found that viewing individual patents for determining "value" was not the best approach. Rather, when one looked to the portfolio, instead of the individual patents, real value could be identified:

The fundamental argument here is that the real value of patents lies not in their individual significance, but instead in their aggregation into a patent portfolio—a strategic collection of distinct-but-related individual patents that, when combined, confer an array of important advantages upon the portfolio holder. We find that the benefits of patent portfolios are substantial enough to encourage patenting behavior irrespective of the expected value of the underlying individual patents themselves; the marginal expected gain in value of adding an additional patent to a well-crafted
patent portfolio will almost invariably exceed the marginal costs of acquisition. We argue that this theory provides the best explanation yet for modern patenting trends, which show a propensity for firms to patent even where the net expected value of obtaining the individual patent is likely to be zero (or even less). Under the patent portfolio theory, such decision-making is rational because individual patents are required inputs for the construction and maintenance of a patent portfolio. That is, in the modern patenting environment, the prosecution of an individual patent is best understood as a means to the commercially-desirable end of a patent portfolio, rather than the end itself.

The paper goes on to provide some case studies of the portfolio theory of patents (Qualcomm, IBM, Gemstar), and illustrates how a collection of closely-related patents defining a patent portfolio can operate much like a ‘superpatent’:

[i]n much the same way that the holding of a U.S. patent grants the right to exclude others from within the scope of its claims, the holding of a patent portfolio will allow the holder to exclude others from the collective scope of its claims. Where such patents are both (patentably) distinct yet cover coterminous subject matter, the breadth of the right to exclude conferred by a patent portfolio is essentially the sum of the individual patent rights. But the scale advantages of patent portfolios are more than merely additive. The broader protection conferred by patent portfolios offers a range of benefits to the holder different in kind as well as size from a simple collection of unrelated individual patents.

This is a highly-recommended article for corporate counsel looking to understand the various approaches to patenting strategies, or for any person looking to make sense of modern-day patenting practice.

Of course, there are numerous patentees, both big and small, that occasionally "go for broke" on a few patent filings, but this is a perfectly rational approach when taken in the context of an established (or emerging) patent portfolio. To the extent possible, portfolios should be something more than an exclusive collection of mere incrementally-improving patents . . .

Ocean Tomo Showcases Patents Offered for October 25-26 Auction

In preparation for Ocean Tomo's "Fall 2006 Live Intellectual Property Auction," to be held on October 25-26 in New York City, numerous lots of patents are being promoted in an effort to create interest in the auction (for a FAQ on the auction, click here).

IP selected from over 3,500 submissions will be placed on the auction block for buying from the general public. Sellers in the auction include IBM, Motorola, 3Com Corporation, Agere Systems Inc., AIG, BellSouth, CREE, Dow Agro Sciences and Eastman Chemical, as well as small to mid-sized companies, investment firms and notable professional inventors.

Currently, Ocean Tomo lists 65 lots of IP, subdivided into the following categories:

• Consumer Products/Consumer Electronics
• Financial Services
• Display Technology
• Aerospace
• Energy/Utilities
• Manufacturing/Logistics
• Digital Media/Entertainment
• Telecommunications
• Location Based Applications
• Medical/Life Sciences/Telemedicine
• Applied Sciences
• Semiconductor/MEMS/Memory
• Internet/Web Services
• Trademarks/Brands/Domain Names
• Master Recordings/Copyrights

Some notable patents include:

U.S. Patent Number 5,699,527, entitled "Method and System for Processing a Loan." Filed in 1995, during the early days of online commerce, the patent discloses systems and methods for the execution of electronic and online loan applications, loan processing and real-time monitoring. The systems and methods disclosed increase the efficiency, speed and accuracy of loan processing by financial institutions by automating and streamlining the loan application process. This patented technology allows a loan application to be processed, monitored and ensured of regulatory compliance, while minimizing the amount of physical paperwork and manual interaction previously necessitated in loan processing (see more information here).

US Patent Number 5,486,998, entitled "Process Stabilizing Process Controller." The patent alleges to have an early priority (1993) in the field of artificial intelligence. The patent pertains to manufacturers using volatile materials, including, those in the Semiconductor, Automotive and Chemical industries. Ocean Tomo claims the technology disclosed in the '998 Patent may be used by any manufacturing company striving to maintain safety and quality, as well as any company needing to monitor the interaction of volatile materials with environmental changes.

US Patent Numbers 4,890,320 and 4,995,078, both entitled "Television Broadcast System for Selective Transmission of Viewer-Chosen Programs at Viewer- Requested Times." These two patents claim an early priority in the field of Video-On-Demand ("VOD"), and disclose systems and methods where a central location holds a collection of preferred programs which are available for transmission to a private television upon user request (for more information, see here).

Other listing include patents on media image indexing, UV sterilization, and patents on cordless phone technology owned by Agere.

Last, but not least, Ocean Tomo will be auctioning the copyright and an original reel-to-reel recording of a never-before-released Jimi Hendrix song, the master recording rights to 33 songs recorded by Hendrix in conjunction with Curtis Knight, and the rights, title and interest in the entire Jimi Hendrix music catalog as claimed by the estate of Michael Frank Jeffery.

District Court Grants Enhanced Damages, But Denies Injunction in Cordis Case

Doctor Jan K. Voda, a native of Czechoslovakia, sued Florida-based Cordis Corp. in the Western District of Oklahoma on October 2003, claiming that the company infringed three of his patents directed to guiding-catheters for performing angioplasty (U.S. Patents 5,445,625, 6,083,213, and 6,475,195). Voda immigrated to the United States in the late 1970s to practice medicine and develop his inventions. He has patented a number of catheters and other medical devices used in cardiology, including guiding catheters, specially shaped flexible rods, for removing blockages in the coronary artery.

In May, a federal jury decided that Cordis infringed upon the patents held by Voda and awarded him a 7.5 percent royalty, totaling an estimated $10 million over the life of the patents. The jury also found that the infringement by Cordis was willful. Accordingly, Voda moved, among other things, for treble damages and a permanent injunction.

On the issue of treble damages, the district court relied on Read Corp. v. Portec Inc. for establishing whether damages should be increased, and to what extent:

Courts consider several factors when determining whether an infringer has acted in bad faith and whether damages should be increased. They include:

(1) whether the infringer deliberately copied the ideas or design of another;

(2) whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed;

(3) the infringer's behavior as a party to the litigation;

(4) defendant's size and financial condition;

(5) closeness of the case;

(6) duration of defendant's misconduct;

(7) remedial action by the defendant;

(8) defendant's motivation for harm; and

(9) whether defendant attempted to conceal its misconduct.

Based on the totality of circumstances, the court concluded that Voda's damages should be increased, but not trebled. Issues that supported the finding of increased damages included the fact that the jury found deliberate copying by Cordis, and that no remedial measures were taken - in fact, Cordis indicated it would continue to produce and market the infringing devices without change even after the jury verdict. While Cordis relied on an opinion of counsel defense, the jury found that the timing of the opinions, along with the thoroughness of information and the independence of counsel, precluded Cordis from negating willfulness.

On the other hand, the court noted that there was no evidence of litigation misconduct by Cordis, and found that Voda's eight-year delay in bringing suit was a material factor in reducing damages.

On the injunction, the court followed the four-factor test established in eBay Inc. v. MercExchange, L.LC., and found that Voda could not demonstrate either irreparable injury or that monetary damages would be inadequate to compensate him. Voda's patents were under an exclusive license to Scimed at the time the lawsuit was pending. However Scimed declined to sue Cordis when the opportunity arose, leaving Vordis alone in enforcing the patents. This was a significant factor to the court in denying injunctive relief:

[O]ther than the presumption of irreparable harm, plaintiff identifies no harm to himself; rather, he relies on alleged harm to a non-party, Scimed . . . The court concurs with defendant that such harm is irrelevant because Scimed elected not to sue to enforce the patent rights. As patents have 'the attributes of personal property', the person seeking a permanent injunction must demonstrate harm from infringement of those rights that is personal as well.

The court also finds plaintiff has not established that monetary damages are inadequate to compensate him. Plaintiff argues he granted Scimed an exclusive license to his patented inventions and defendant's continuing infringement will damage his relationship with Scimed. This argument, however, is simply the other side of the right-to-exclude coin and is not sufficient to justify granting injunctive relief. Plaintiff's request for a permanent injunction is therefore denied.

NOTE: The Voda v. Cordis case has been named one of the "Top Ten Pending Patent Cases" by Hal Wegner over the issue of trans-border patent enforcement. In this same case, on supplemental jurisdiction grounds, Voda asked the court for leave to amend his complaint to assert infringement of four counterpart patents granted in Canada, France, Germany, and the UK. On August 2 2004, the district court accepted Voda's request. Cordis appealed this order, and oral hearing before the Federal Circuit took place on January 12 2006. The Federal Circuit has not issued an opinion yet (for more on this issue, see here and here).

Searching for Prior Art on Google Just Got Better

Google has introduced an early version of the News Archive Search which lets users search newspapers, magazines and other publications back over 300 years, including scads of articles not previously available via the search engine.

The service retrieves links to articles for historical keywords, and sorts them into timelines. Some of the search results link to “pay-per-view” articles, but Google claims it won’t collect the fees. When a snippet of a "pay" article is shown for free on Google, the site then directs users to the sites of the content providers, where they may be charged a fee to see the full story. Newspapers such as the Washington Post, as well as news aggregators, like the Dow Jones’ and Factiva, show up in archive search results, but none of the media companies apparently pays for placement in archive searches.

This will be a useful tool in information gathering, and is potentially huge for future searching.

Kimberly Moore Nominated to Federal Circuit

The Senate unanimously confirmed GMU Professor Kimberly Moore to the Federal Circuit. At 38, she will be one of the youngest appellate judge currently serving (the youngest judge appointed to a U.S. court of appeals was William Howard Taft, who was 34 when he was commissioned a judge of the Sixth Circuit court of appeals on March 17, 1892.)

While not registered as a patent attorney, judge Moore has experience as an electrical engineer while working at the Naval Surface Warfare Center, and was a clerk to the Honorable Glenn L. Archer Jr., chief judge of the United States Court of Appeals for the Federal Circuit. She holds a B.S. in electrical engineering and an M.S., both from Massachusetts Institute of Technology, and earned her J.D. at Georgetown University Law Center.

Many practitioners remember her article, coauthored with professor Lemley, titled “Ending Abuse of Patent Continuations” that was recently cited by the USPTO as justification for proposing changes to continuation practice. Judge Moore has also cowritten a textbook titled "Patent Litigation & Strategy" with Judge Michel and Raphael Lupo, and is the author of numerous other articles on intellectual property topics.

Many commentators have welcomed the addition of Moore to the bench, and understandably so, given her broad experience and keen intellect (see Patently-O, Volokh Conspiracy). However, at least one commentator has his reservations (see Promote the Progress).

Revisiting Champerty and Patent Enforcement Agreements

cham‧per‧ty [cham'-per-tee]
noun Law.

a sharing in the proceeds of litigation by one who agrees with either the plaintiff or defendant to help promote it or carry it on.

[Origin: 1300-50; ME champartie, equiv. to champart (<>camp1) + part share, see part) + -ie -y3]

It's not something that comes up often in patent litigation, but it can warrant a second look by litigators in the increasingly common world of patent litigation financing. The common law doctrine of champerty was developed centuries ago to prohibit contractual or other arrangements designed to "foment litigation." Essentially, champerty covered agreements between "a stranger to a lawsuit and a litigant by which the stranger pursues the litigant's claim as consideration for receiving part of judgment proceeds."

Champerty originally stemmed from medieval concept of a legal or equitable "chose in action," where assignees of an action were not allowed to sue in their own name. Since the 1900's, champerty was recognized less and less frequently, until many states either narrowed the doctrine to the point of irrelevancy, or abolished it altogether (California, New Jersey, Massachusetts are such examples). For other states, however, the extent to which courts apply champerty is in flux, although the trend of avoiding champerty persists.

Last week, this little gem was passed around Greg Aharonian's newsletter, which prompted cries of "champerty" from some of the readers:

Dear Friend,

A pawn-sized U.S. tech company is about to deal one of the Earth's biggest automakers a checkmate of "Bobby Fischer" proportions in federal court...

And the anticipated settlement - whether awarded in front of a jury or in an out-of-court action - could well go down in history as the largest ever handed down in a patent infringement case. I wouldn't be surprised if it topped several billion dollars in total monies changing hands before it's all said and done.

And should it win (it looks all but guaranteed, as you'll see in a minute), this off-the-radar electro-tech innovator will instantly rise to king-sized status within its market segment . . .

[I]magine how much an international hybrid car leader would pay to settle a valid patent claim that's suddenly standing between it and billions in profit.

Then imagine how much you'll get paid if you're holding more than a few shares of this company's stock when it happens. But you'll have to hurry. . .

I expect massive gains of at least 2,000% on the heels of a hush-hush out-of-court settlement between this industry king and the pawn who corners it - and SOON.

For those that may be familiar with the case, this letter refers to the lawsuit which Solomon filed against Toyota, alleging that hybrid technology in the Toyota Prius and Toyota Highlander gasoline-electric hybrids infringes on Solomon's US Patent 5,067,932. In this case, Oliver Street Finance, LLC, has agreed to pay all legal fees and expenses in exchange for a portion of any recovery Solomon receives in the litigation equal to the greater of 40% of the recovery or the actual amount of legal fees and expenses.

In states where champerty is recognized, the application of the doctrine is generally limited to agreements that have as their "sole or primary purpose" the prosecution of litigation. If the instigation of litigation is not the sole purpose of the agreement (i.e., litigation coupled with "licensing development" pursuant to an assignment), it should not be champertous.

One state that recognizes champerty, albeit in a very limited sense, is New York (see New York Judiciary Law § 489). New York is one of the very few jurisdictions that has found specific IP agreements champertous in the recent past:

Refac Int'l, Ltd. v. Lotus Dev. Corp. 131 F.R.D. 56 (S.D.N.Y. 1990) - found assignment champertous where a five-percent interest in the patent was contracted in exchange for Refac's obligation to sue at least two alleged infringers within one month. The patent was subsequently invalidated for inequitable conduct by the Federal Circuit, but no opinion was given on appeal with regard to the agreement itself.

American Optical Co. v. Curtiss, 56 F.R.D. 26 (S.D.N.Y. 1971) - the assignment of certain IP that was expressly conditioned on the assignee bringing suit was champertous, and therefore void.

However, in cases where the financier took some (minimal) care in ensuring that the agreement wasn't solely based on litigation alone, the courts have found the agreements non-champertous.

Litigation financing is becoming more common and is definitely a controversial practice in the eyes of many defendants (one author recently described it as the "Wild West of Finance"). On the plaintiff's side, it is seen as a means to protect the rights of "the little guy" that would otherwise be unable to enforce protectable interests.

Some have even questioned whether lawsuits should be freed from champerty altogether, where a form of venture capitalism would exists, allowing investors to back all forms of litigation:

[D]o we want to allow strangers to invest in lawsuits at all? The distinction drawn between our current system of contingency fee arrangements and [financing companies] is fetishistic - it's a distinction without a difference. So, too, is the supposed distinction between supporting an appeal and supporting a lawsuit from its moment of conception. If we think that it is good that plaintiffs have access to cash-and we should, given the realities of the modern legal world-then our rules should not discriminate when it comes to who can accept money, and when it can be accepted.

Second, do we want to allow lawsuits to be assigned? I think the courts that permit "soft," limited forms of champerty have to ask themselves why they won't go hardcore. Why not allow [financing companies] not only to fund the lawsuit, but also to own all its proceeds and to control its lawyers and whether it settles? If [plaintiffs] would rather be passive observers to the suit (retaining, perhaps, a stake large enough to insure that they will bother to show up in court and testify even if they live beyond the court's subpoena power), then why not allow [the financing company] to pay them for transferring their control to her? In the case of many smaller suits, it is possible that the lawyering and settling might be much better after such a transfer, than it would be if the original plaintiffs remained in control.