Leahy, Hatch Address Patent Reform Act for 2008

On December 18, Senators Patrick Leahy and Orrin Hatch briefly addressed the Senate version (S. 1145) of the Patent Reform Act during a floor speech. While the speeches were not very detailed, they suggested two things - (1) the Senate wants to move as quickly as possible on the Patent Refrom Act, and (2) the pending legislation will have numerous changes before it is put up for a vote.

From the speeches:

LEAHY: In July, after several extensive and substantive markup sessions, the Senate Judiciary Committee reported S. 1145 favorably and on a clear and strong bipartisan vote. In the course of our committee deliberations, a great many changes were made to improve and perfect the bill. These improvements included changes on the key issues of enhancing patent quality, clarifying rules on infringement and compensation of inventors, and improving the ability of the Patent and Trademark Office to do its job well.

HATCH: [T]he current law has not seen a major revision since 1952. Much has changed since then. The courts have struggled valiantly to interpret the law in ways that make sense in light of change. but that piecemeal process has left many areas unclear and some areas of the law out of balance. So action by the Congress is needed, and needed urgently.

LEAHY: I agree with my distinguished colleague that now is the time to enact patent reform, and we are in good company in that belief. Our leadership has committed to taking up S. 1145 as early in the new year as possible, and we commend that commitment. I fully recognize that when the bill was reported by the Judiciary Committee, a number of members expressed a strong view that the bill should be further perfected before it comes to a vote on the floor of the Senate. I made a commitment to the members of the Judiciary Committee at the markup that I would work closely with each of them, and other Members of the Senate, to make further improvements in the bill. I reaffirm that commitment.

View the complete transcript here (link)

Public Interest Groups File Amicus in *Support* Of Continuation Rules in ED Va.

Eleven Public Interest groups recently filed a collective amicus brief in the E.D. Va., supporting the PTO's position on the continuation rule changes. The brief borrowed heavily from Lemley & Moore's 2004 paper titled "Ending Abuse of Patent Continuations" and the FTC's 2003 report to conclude that limiting continuations will help the public interest:

To be sure, while there is indeed a strong public interest in supporting innovation, that does not mean that incentives for patents should always be raised without considering the corresponding cost to society. Congress has intentionally implemented a patent system that balances the incentives provided to patentees with the benefit to the public of the disclosure and ultimate dedication of the resulting inventions to society. Thus, the public interest lies in an efficiently functioning patent system, not one that is subject to abuse and manipulation. Since the Final Rules will help the USPTO achieve this goal, they are in the public interest.

Interestingly, the brief suggests that patent applicants and practitioners are not entirely within the purview of the "public interest":

[A]rguments regarding the public interest made by patent holders and patent attorneys should be carefully scrutinized, because they are, in fact, the special interests that benefit from the patent system and what benefits them personally may not actually benefit the public interest.

Read/download the brief here (link)

Read PubPat press release here (link)

Members of the "Public Interest Amici" include:

• The Public Patent Foundation ("PUBPAT"),
• Computer & Communications Industry Association ("CCIA"),
• The AARP,
• Consumer Federation of America (“CFA”),
• Essential Action,Foundation for Taxpayer and Consumer Rights (“FTCR”),
• Initiative for Medicines, Access &Knowledge (“IMAK”),
• Knowledge Ecology International (“KEI”),
• Prescription Access Litigation(“PAL”),
• Public Knowledge (“PK”),
• Research on Innovation (“ROI”), and
• Software Freedom LawCenter (“SFLC”)

Happy Holidays From the 271 Blog!

U.S. Patent 7,258,592 - "Santa Claus visit kit"

1. A kit for creating an illusion that suggests a Santa Claus visit in a premises, said kit comprising:

a) items revealed to a child audience comprising

i) a displayer Christmas diorama that, when assembled, at least partly bounds a region in which small items can be placed, said diorama having a plurality of panels, a first image being imprinted on one of said panels;

ii) amusement items for use by at least a member of said child audience in carrying out steps that said child audience is invited to believe will assist Santa Claus in making said visit; and

b) items at least temporarily concealed from the child audience, said concealed items comprising means for making boot print resembling marks to mark an illusionary trail of Santa Claus in said premises and a card having a second image, the second image being similar to the first image but also containing a representation of Santa Claus.

------------------------------------

The 271 will be taking a short break over the holidays to experiment with single malt scotch from Japan (yes, Japan - the country is now the second largest producer of single malt in the world), drinking a toast to Franklin Pierce (the first president to decorate an official White House Christmas tree), and finally getting around to making "figgy pudding" (link) after all those years wondering what the heck Bing Crosby was singing about . . .

Cheers!

Litigation Statistics Suggest China's IPR Progressing for Plaintiffs

Will Lewis, student at the University of San Diego School of Law, engaged in some recent number-crunching to get a sense on the state of IP enforcement in China. Basically, Lewis took IP cases from the Beijing Courts, Guangzhou Intermediate People's Court, Jiangsu Courts, and Zhejiang Courts, segregated cases having domestic-only parties from cases having at least one foreign entity, and tabulated the outcomes of the cases. A summary of his findings appear below:

Bejing Cases

Lewis' analysis looked at cases from Beijing No. 1 Intermediate People's Court, Beijing No. 2 People's Court, and Beijing High People's Court between November 2005 and January 2007. In total, 24 of the published patent cases were litigated to a final judgment in the lower courts, where the patent holder prevailed 67% of the time. However, on administrative review (i.e. appeal), the reviewing court found the patent at issue invalid 52% of the time, valid 27%, partially valid 6%, and remanded 15% of the cases.

In the 15 patent cases that damages are reported, the average damage award was RMB 158,457 plus injunctions. The largest damage award was RMB500,000 for infringement of a patent. The company who won this award claimed RMB37,500,000 in damages.

Guangzhou Cases

Here, foreign patent holders prevailed in 100% of the 3 published cases (domestic disputed were adjudicated in favor of the patentee in 71% of 14 published cases).

Of the 3 patent case involving at least one foreign party, the average damage award was RMB56,666 plus an injunction.

Jiangsu Cases

Again, foreign patent holders prevailed in 100% of the 3 published cases. However, the Jiangsu courts had a heavier domestic docket, but also found in favor of the patentee in 71% of 84 published cases.

Injunctions were issued in all three of the decisions for foreign patent holders, but the damages award was reversed on appeal for one of the cases. The average damages award for other two cases was RMB275,000.

Zhejiang Cases

Here, the courts only heard 2 cases involving a foreign patent holder and found in favor of the patentee 505 of the time. With regard to domestic cases, Zhejiang appeared to have a heavy patent dockets, publishing 107 cases, where the patentee prevailed in 86% of the cases.

To view all the findings, click here (link)

Overall, Lewis concluded that (1) the winning rates are similar whether the plaintiff is domestic or foreign; (2) trade secret is the most difficult IPR to protect; (3) a higher percentage of cases involving foreign parties went to trial than cases involving only domestic parties; and (4) IP rights appear to have a surprisingly good chance of being protected, with the plaintiff prevailing over 75% of the time over all IP disciplines (patent, trademark, copyright).

• See also, Mei Ying Gechlik, "Protecting Intellectual Property Rights in Chinese Courts: An Analysis of Recent Patent Judgments," Carnegie Paper No. 78, January 2007 (link)

ED Va.: Continuations Count as "Original Applications" For the Purposes of the AIPA

Cooper Technologies Co. v. John W. Dudas (1:07cv853) (November 30, 2007)

Cooper sued for infringement on two patents, where one patent (filed in 2003) was the last of a series of continuations dating back to 1994. The defendant filed an inter-partes reexamination request with the PTO, seeking to invalidate the continuation patent.

Cooper argued that, under the American Inventor's Protection Act (AIPA), inter-partes reexamination was not appropriate for the continuation patent, because the "original application" (i.e., the first application from which the continuation stemmed from) was filed prior to the enactment of the AIPA (November 29, 1999). Neither the AIPA nor the legislative history defined the phrase "issues from an original application."

However, the PTO defined the term in an OG publication, and in the MPEP, stating that an "original application" included, among other things, first-filed application and continuation applications. In MPEP 201.04(a), the term is defined as "an application which is not a reissue application."

Cooper sought review of the PTO's definition under the APA, arguing that the PTO's interpretation of the AIPA was arbitrary, capricious, and contrary to law and that its implementation of the AIPA constituted improper rulemaking. Accordingly, Cooper argued that the granting of the inter-partes reexamination was erroneous.

The district court disagreed with Cooper for two reasons. First, the court noted that the original application was abandoned, thus no patent could have "issued from" that application. Also, previous holdings from the CAFC (Bristol-Myers Squibb Co. v. Pharmachemie B.V. 361 F.3d 1343 (Fed. Cir. 2004)) made clear that a continuation application begins "a new proceeding in which all the original claims . . . [are] once again presented for examination."

Second, the court noted that the 5th edition of the MPEP (1983) defined an "original application" as "an application which is not a reissue application. An original application may be a first filing or a continuing application." According to the court:

Given this consistent usage, the Court must presume that the Patent Office's definition in the MPEP has entered the modern parlance of patent law. See Patlex Corp. v. Mossinghoff, 758 F.2d 594, 606 (Fed. Cir. 1985) (noting that the detailed rules and regulations in the MPEP "describe procedures on which the public can rely"). It must also presume that Congress was aware of this definition and that it adopted it in the AIPA. See 2A Sutherland Statutory Construction § 47.29 ("In the absence of legislative intent to the contrary, or other overriding evidence of a different meaning, technical terms or terms of art used in a statute are presumed to have their technical meaning.")

Accordingly, the Court finds that the Patent Office's interpretation of "original application" in the AIPA is fully consistent with the term's established meaning in patent law.

Read/download the opinion here (link)

USPTO: Telework Is the Answer

Deborah S. Cohn, acting PTO chief administrative officer, writes in the Federal Times:

We have seen that a successful telework program can result in greater employee productivity and performance, reduced traffic congestion and air pollution, and reduced real estate costs. Telework also provides options for individuals with disabilities, assists employers with recruitment and retention efforts and allows for continuity of operations in case of an emergency or disaster. Teleworking can greatly improve the quality of life for employees by reducing their commuting time and costs, giving them more control over their schedules and assisting them in achieving a balance between work and their personal lives.

The numbers help tell the story. As of Oct. 19, 3,609 PTO employees were participating in some form of telework. This represents 40.7 percent of our total work force and 45.7 percent of total eligible employees, making PTO’s telework program among the largest and most progressive within the federal government. What’s more, on an annual basis, PTO employees who telework collectively save more than 613,000 gallons of gas, save more than $1.8 million in fuel costs and reduce emissions by more than 9,600 tons, according to Telework Exchange estimates.

Study Shows USPTO Backlog Is Tied More to Non-Final Actions, and Not Continuations

George Mason University Assistant Professor of Systems Engineering & Operations Yifan Liu and J.D. Candidate Ayal Sharon reviewed the backlog problem at the PTO, and applied a "queueing theory" analysis to filings to determine where the problems may lie.

Queueing theory enables mathematical analysis of several related processes, including arriving at the back of a queue, waiting in the queue (essentially a storage process), and being served by the server(s) at the front of the queue. Applying a "priority queue" analysis, the process works to:

• add an element to the queue with an associated priority;
• remove the element from the queue that has the highest priority, and return it; and
• (optionally) peek at the element with highest priority without removing it.

Turning their analysis to PTO pendency, the authors made the following assumptions:

(1) A priority queue processes higher priority items first, giving them a shorter queuing delay – but at only at the expense of longer queuing delays for lower-priority arrivals. Since the USPTO gives higher priority to RCEs and continuing applications than to regular new applications, large numbers of RCEs and continuing applications should result in disproportionate waiting times for regular new applications.

(2) At the very least, a limit on the number of continuing applications would be desirable because continuing applications can produce multiple generations of unlimited numbers of high priority offspring. RCEs and multiple non-final office actions both contribute to the risk of starvation, but pose less potential risk than continuing applications because they do not produce parallel offspring (branching feedback).

Did the study validate the PTO's assertion that pendency would be reduced? Erm . . . not quite:

. . . the [current] USPTO model is saturated and is overwhelmed. Some sort of policy change is needed to lower the total traffic intensity.

. . . based on the current statistics, the results from limiting continuing applications seem similar to the results from limiting RCE applications. Prohibiting second and later generations of continuation application, as the only policy change, will not have much impact. It may help somewhat to prohibit all continuations, but the system will remain saturated, and as with eliminating RCEs, it is unfair to the applicants.

This is not to say that the USPTO does not need safeguards to prevent an excessive use of continuation applications from becoming a workload problem in the future. A policy limiting continuation applications would be similar to the “admission control policies” used to limit the number of arriving items in computer operating system priority queues. What this analysis shows, however, is that based on current statistics, such a policy will not currently have much of an effect.

. . . we find that the excessive number of non-final rejections per application is the main cause of the system’s saturation. The sensitivity analysis performed in appendix IV supports this conclusion. This number of excessive non-final rejections in each round of prosecution dwarfs the number of second and later RCEs and continuation applications. Reducing the number of non-final rejections per application is the most effective way to improve the throughput of the USPTO. This will help reduce the primary burden on the system — the large number of regular amended cases that remain alive in the system due to repeated non-final rejections.

. . . if we keep the current policies on RCE, continuations, and nonfinal rejections, we would need to increase the number of examiners by a factor of 1.2230 in order to decrease the total intensity from 1.2230 to 1. This would mean hiring 4215 x 0.2230 = 940 new examiners.139 (The USPTO goal for fiscal years 2005 and 2006 was to do exactly that.)

Hiring additional examiners is a problematic solution. Our hiring calculations are based on a on a "steady state" assumption that the growth rate of applications will remain proportional to the growth rate of the examining corps. However, for many years the incoming rate of applications has been rising, and is expected to continue to rise in the future. This means that the number of patent examiners would need to grow at least at a rate proportional to growth rate of new applications, ad infinitum. An exponential growth in hiring is not a sustainable solution. The USPTO has recognized that hiring is not a viable long-term solution to the problem.

We were surprised by the results of the simulation. We expected the results to show starvation of the priority queue, caused by the RCEs and continuations. Instead, we got the unexpected result that the large number of non-final rejections per round of prosecution is the major cause of the backlog of applications.

Given the limitations of time and scarcity of data, our model was very simple in terms of mathematical complexity. A more detailed analysis was beyond the scope of this modest student note. The authors hope that this note will encourage further research along these lines, both inside and outside the USPTO.

View/download the study here (link)

Hat tip: I/P Updates

AUTM Releases Report on University Tech Transfer

The Association of University Technology Managers (AUTM) has released its latest survey on technology licensing and related activity for U.S. academic and nonprofit institutions and technology investment firms.

According to the report, university tech transfer is booming. Universities received $45 billion plus in R&D expenditures at U.S. academic centers and technology transfer had record staffing levels, with total employees exceeding 1,800. After sampling technology transfer activities of members, the report provided the following statistics, claiming that AUTM members:

• Managed 18,874 new invention disclosures

• Filed 15,908 total U.S. patent applications

• Saw 3,255 U.S. patents issued

• Signed 4,963 new licenses

• Managed 12,672 licenses and options that are yielding active income. Each single license represents a one-on-one relationship between a company and a university, hospital or research institution that earns income on products.

• Had 697 new products introduced to the market in 2006 from active licensees;

• Introduced more than 4,350 new products into the market in the nine years from FY1998 to FY2006. That is 1.32 new products based on academic inventions introduced every single day over the last nine years.

• Launched 553 new startup companies in 2006. That is 2.2 new companies for every working day of the year.

• 5,724 new spinouts since 1980 — more than one company every two days during 9,498 days of innovation.

Despite filing more applications than in preceding years, universities secured fewer patents because of delays at the US Patent and Trademark Office. US patent applications from university tech transfer offices grew nearly 8 per cent to 15,908, but patents issued slipped slightly to 3255. Overall, the number of patents issued was down roughly 17 per cent after peaking in 2003.

Download the AUTM report here (link)

See also, "Patent delays mar bumper year for US tech transfer" (link)

OMB Approves IDS Rule Changes for PTO

The OMB completed its review of the IDS Rules and published its approval on RegInfo.gov (link). From the website:

Title: Changes to Information Disclosure Statement Requirements and Other Related Matters

Abstract: The U.S. Patent and Trademark Office (Office) amends its regulations on information disclosure statement (IDS) requirements and other related matters to improve the quality and efficiency of the examination process. These changes would enable the examiner to focus in on the relevant portions of submitted prior art at the very beginning of the examination process, give higher quality first actions, and minimize wasted steps.

This action would make the following changes relating to submissions of IDS's by applicants:

• impose a requirement for the personal review of, and to provide information about, certain citations;
• eliminate the fees for, but permit only timely, IDS submissions; and
• only permit the filing of an IDS after the mailing of a notice of allowance if a claim is admitted to be unpatentable and a narrowing amendment is also submitted.

The Office would also

• permit third parties to submit prior art up until the mailing of a notice of allowance after application publication;
• to no longer permit an IDS to meet the submission requirement for a request for continued examination (RCE);
• to permit, after payment of the issue fee, certain amendments and petitions so applicants will not have to file a continuation application or an RCE for such items; and
• to revise the protest rule to better set forth options that applicants have for dealing with unsolicited information received from third parties.

Despite multiple challenges (see here and here), the OMB largely ignored the evidence showing a "substantial" economic impact. Also, just as in the continuation rule changes, the rules have not been shown to the public. The rules are expected to go into effect late January.

See earlier OG Notice (July '06) on the IDS Rules (link)

- Executive Summary (link)

- Detailed Summary (link)

See PTO PPT Presentation ('06) on IDS Rule Changes (link)

- The 4 time period for submitting IDS (link)

- Application prosecution timeline (link)

Applicants Question PTO's Focus on "Compact Prosecution" In Upcoming Reform Measures

One of the most important aspects of patent prosecution and application pendency is the the concept of "compact prosecution", which is described in MPEP § 2106(II):

It is essential that patent applicants obtain a prompt yet complete examination of their applications. Under the principles of compact prosecution, each claim should be reviewed for compliance with every statutory requirement for patentability in the initial review of the application, even if one or more claims are found to be deficient with respect to some statutory requirement. Thus, USPTO personnel should state all reasons and bases for rejecting claims in the first Office action. Deficiencies should be explained clearly, particularly when they serve as a basis for a rejection. Whenever practicable, USPTO personnel should indicate how rejections may be overcome and how problems may be resolved. A failure to follow this approach can lead to unnecessary delays in the prosecution of the application.

In the recently-proposed changes to BPAI practice, the PTO received a fair number of comments (link) that were negative towards the proposed rules. One of the biggest sticking points for applicants was the perceived lack of quid-pro-quo on the burdens imposed on applicants versus examiners.

While appeals provide for a variety of different outcomes, the most often outcome (including pre-appeal brief activity) is the reopening of prosecution. In effect, the reopening of prosecution grants a "mulligan" to the examiner on a bad rejection, and leaves the door open for further rejections. This, according to one comment, is a big problem:

The Proposed Rules fail to address several factors which unduly prolong patent prosecution. These factors include repeated reopening of prosecution by the examiner after an appeal brief is filed, as well as after a decision by the Board in which all of the original rejections presented by the examiner were reversed. Such repetitive reopening of prosecution has the effect of preventing judicial review of agency action. Such repetitive reopening of prosecution is also contrary to fundamental legal principle that an administrative agency cannot avoid review of its actions by continuously keeping open activity which prevents judicial review.

As evidence, the commentator pointed to application no. 09/077,337 as a classic example of abuse. The history of the application is as follows:

02/17/00 - 1st non-final rejection.
04/24/01 - Restriction.
06/19/01 - 2nd non-final rejection.
09/18/01 - 1st Appeal Brief.
01/31/02 - 3rd non-final rejection.
03/11/02 - 2nd Appeal Brief.
10/01/02 - 1st Suspension.
06/17/03 - 4th non-final rejection.
07/15/03 - 5 th non-final rejection.
09/19/03 - 3rd Appeal Brief.
11/29/05 - BPAI decision - Examiner reversed.
02/08/06 - 2nd Suspension.
04/25/07 - Request for information under 37 CFR § 1.105.

At wit's end, the Applicant commented in the latest response with the following:

As evidenced by the extraordinary amount of prosecution carried out by the Office, it appears that the Office had long ago internally decided that this application was never to mature into a patent. Thus, as the Office's illegal withholding of application allowance is expected to continue, the Office will predictably not be satisfied no matter how Applicants respond to the current Request for information.

View the response in its entirety here (link)

See 09/077,337 image file wrapper here (link)

While this application appears to be a more extreme case, other Applicants have shared this frustration over "reopening abuse."

See Joe Butscher, "Pre-Appeal Brief Panels Should Allow More Applications Rather Than Reopening Prosecution" IP Today, July 2007 (link)

Peterlin Lawsuit Dismissed in the DC District Court

Aharonian v. Gutierrez (07-1224) December 6, 2007

Earlier this year, Aharonian and other plaintiffs complained that the appointment of Margaret
Peterlin to the position of Deputy Under Secretary of Commerce for Intellectual Property and Deputy Director of the United States Patent and Trademark Office was unlawful because she is not a “citizen of the United States who has a professional background and experience in patent or trademark law.” 35 U.S.C. § 3(b). The DOC responded that, for a variety of reasons, the complaint was non-justiciable.

In an opinion issued last week, Judge Robertson dismissed the complaint.

Two of plaintiffs’ three claims appear to be brought directly under 35 U.S.C. § 3(b), the statute which structures the United States Patent and Trademark Office (USPTO) and creates the office of the Deputy Director which is held by Ms. Peterlin. Defendant argues that there is no private cause of action under this statute, and plaintiffs have functionally conceded this argument by failing to respond . . . Nor would a response have made much difference: neither the text nor the legislative history of the statute evinces anything approaching the congressional intent required to establish a private cause of action – that is, intent to create both a private right and a private remedy.

One of plaintiffs’ three claims invokes Administrative Procedure Act (APA), which unlike 35 U.S.C. § 3(b), does provide a cause of action for persons aggrieved by final agency decisions that are arbitrary, capricious, or contrary to law. A claim alleging violation of the standard in 35 U.S.C. § 3(b) is unreviewable under the APA, however, because 35 U.S.C. § 3(b) lacks standards that a court could meaningfully use in evaluating this type of high-level personnel decision. Because the only statutory standard is vague and highly subjective, the decision whom to appoint Deputy Director must be considered “committed to agency discretion by law.”

[I]f Congress had intended the extraordinary situation in which judicial review would reach to the very qualifications of agency officers for their policymaking positions, its statute would not be drawn “in such broad terms that . . . there is no law to apply.”

View/download the opinion here (link)

USPTO's Patent Advisory Committee Releases Annual Report

The Patent Public Advisory Committee (PAC) was created to advise Congress on the policies, goals, performance, budget and user fees of the USPTO with respect to patents. The Committee is charged with preparing an annual report that is submitted to the Secretary of Commerce, the President, and the Committees on the Judiciary of the Senate and the House of Representatives.

The 2007 Report is focused on "practical challenges facing both the USPTO and the patent system of which it is a part." Specifically, broad categories of issues addressed were (1) patent quality, (2) pendency and (3) flexibility.

Quality:

PAC states:

The Committee believes that "Quality" is dependent upon five essential components. These are: (a) providing a meaningful definition of quality; (b) accessing the best prior art; (c) accessing the best information available to the applicant; (d) assessing the appropriate level of examination resources necessary for highly complex applications; and (e) attracting and retaining the most qualified workforce.

Pendency:

Here, PAC places a large share of blame on the applicants:

Candidly, a further cause of ever-increasing pendency is clearly applicants’ behavior itself. From the filing of the nth continuation application, to the presentation of an excessive number of claims, to the late filing of information disclosure statements (IDS), to the failure to file any illuminating information, or the inclusion of large numbers of less relevant references in such statements, applicants severely and directly impact an examiner’s ability to perform focused, timely and quality examinations. Such behavior must be brought under control in a manner that is fair to applicants.

To battle existing pendency problems, the PAC report provides some recommendations including exploration of a "market-based examination model," and granting "full faith and credit" to foreign search reports, stating that the "USPTO set a goal of achieving full utilization of foreign prior art searches, and expanded IPC search capability within six months of the date of this report."

Flexibility:

The Committee strongly recommended the adoption of legislation permanently ending diversion of user fees for non-USPTO expenditures. Additionally, the Committee strongly recommended that Congress pass legislation giving the USPTO authority to set and adjust patent fees.

Hot on the heels of the PTO's announcement that allowance rates have dropped, the Committee projected out the loss in revenue from issue/maintenance fees, and found that, by FY 2013, the PTO would be short around $1.1 billion.

Of course, there is much more in this report, and it definitely qualifies as a "must-read" for anyone interested in U.S. patent policy heading into 2008.

View/download the report here (link)

Are Opinions of Counsel Truly "Irrelevant" Under Seagate?

That's the question being asked in the case of Dell v. Lucent Technologies (E.D. Tex, 4:03-cv-347), where Lucent has filed a Motion In Limine to preclude Dell from mentioning to the jury that Lucent did not rely on an opinion of counsel in defense of Dell's willful infringement allegations.

According to Lucent, the absence of an opinion of counsel is "irrelevant" under Seagate. Additionally, Lucent suggested that Dell should be precluded from mentioning that Lucent failed to obtain an opinion of counsel because the jury might be confused into thinking that Lucent had an obligation to obtain such an opinion:

Because Lucent’s decision not to rely on an opinion of counsel in defense of Dell’s willful infringement allegations is irrelevant to any issue before the jury, any reference to that decision is inadmissible. Fed. R. Evid. 402. Moreover, because any suggestion by Dell that Lucent did not obtain an opinion of counsel will only serve to confuse and mislead the jury into believing that Lucent had an obligation to obtain an opinion, any such suggestion should also be precluded under Federal Rule of Evidence 403. Accordingly, Lucent respectfully requests that the Court preclude Dell from mentioning or suggesting that Lucent did not obtain an opinion of counsel.

In response, Dell argues that the lack of an opinion is relevant, and should be submitted to the jury:

Whether Lucent knew or should have known of the objectively high risk of infringement is a subjective inquiry to which an opinion of counsel is relevant. If Lucent had obtained an exculpatory opinion of counsel, it would surely argue that its having done so demonstrates that it did not know of a high risk of infringement. The reverse is also true; from Lucent’s failure to seek legal advice the jury can infer that Lucent recklessly disregarded a high risk of infringement. The jury is therefore entitled to hear that Lucent did not obtain an opinion of counsel, and to consider this fact along with the other relevant facts and circumstances.

View Dell's Motion In Limine here (link)

View Lucent's Response here (link)

BIO Submits USPTO's Annual Report to Congress

After releasing the 2007 annual report, the PTO remarked in the report that the Office achieved "record breaking year-end numbers that reveal historic improvement in the quality of patent and trademark reviews and subsequently the quality of issued patents and registered trademarks" (see earlier 271 Blog post here).

While the PTO's claims were subject to much debate, the Biotechnology Industry Organization (BIO), perhaps playing a bit of "I'll-see-your-ten-and-raise-you-twenty", decided to submit the annual report to Congress for consideration in the ongoing debate over the Patent Reform Act of 2007. According to a statement issued by BIO to Congress:

As the Senate continues to debate legislation aimed at improving the U.S. patent system, it is clear that the current system continues to promote American ingenuity and innovation - as evidenced by the high number of new patent applications and issuances in 2007. And, despite the record number of new applications, the PTO is reporting marked improvement in the quality of patents issued, demonstrating a more rigorous process of patent examination.

We urge the Senate to consider these trends as it debates patent reform legislation. While there are ways to even further improve patent quality, such as through meaningful inequitable conduct reform and more objectivity and transparency in the patent examination process, these trends reported by the PTO undermine the calls for draconian "reforms" to the patent system. To the contrary, it is clear that the fundamentals of our current system are sound, and improving over time. These fundamentals should not be undermined in the guise of 'reform'. Proposals that encourage infringement and weaken the certainty and predictability of patents must be rejected. Such proposals would discourage investment in innovative industries such as biotech, in which it often takes more than a decade and hundreds of millions of dollars to bring a product to market.

The Senate should reject such proposals and tread carefully and deliberately when considering patent reform. We pledge our support to continue to work with the full Congress to ensure the U.S. patent system continues to provide the framework required to maintain America's global leadership in innovation.

Read "BIO Urges Senate To Consider PTO Reform on Improved Patent Quality" (link)

See also FDA News (subscription) : "BIO: PTO Report Shows Need for More Limited Patent Reform" (link)

W.D. Wisconsin: "Significant Support" for Non-Infringement Vitiates Willfulness

Franklin Electric Co., Inc. v. Dover Corp. (05-C-598-S), November 15, 2007

Franklin sued Dover for infringing its patents related to underground tanks. The district court found in favor of Dover on summary judgment, ruling that Dover's products did not infringe. On appeal (link), the CAFC reversed the district court's claim construction and remanded for further proceedings.

In the remanded case, Franklin reasserted willful infringement, claiming that (1) Dover made previous attempts at licensing the technology from Franklin's predecessor prior to the lawsuit, (2) no advice of counsel was obtained, and (3) Dover ignored Franklin's letters accusing it of infringment. In light of Seagate, the district court found that, as a matter of law, no willfulness could be inferred:

Defendant points primarily to this Court’s first summary judgment decision as conclusively establishing that there was not an objectively high likelihood of infringement. Plaintiff points to defendant’s failure to seek advice of counsel prior to selling the accused devices, defendant’s efforts to obtain a license from plaintiff’s predecessor, customer demand for a waterproof system and letters from the patentee accusing defendant of infringement. Plaintiff argues that this evidence establishes willfulness.

All of the evidence advanced by plaintiff goes to the second component of the Seagate test – what defendant knew or should have known with respect to the likelihood of infringement. That plaintiff accused defendant of infringement or defendant sought a license has no bearing on whether there was an objectively high likelihood that its product infringed. It goes to the defendant’s knowledge and state of mind, which Seagate holds irrelevant to the objective inquiry. The infringement analysis in the first summary judgment decision goes to the objective inquiry of the likelihood of infringement. Regardless of the contrary decision of the Appeals Court, the analysis establishes defendants’ conduct in selling its product was not reckless in the sense that there was an “objectively high likelihood” that its actions were infringement. Given the significant support in the language of the patent, the specification and prosecution history for defendant’s noninfringement position, plaintiff cannot meet its burden to prove objective recklessness by clear and convincing evidence.

View/download the opinion here (link)

LES Launches Certified Licensing Professional (CLP) Program

The Licensing Executive Society has created a Certified Licensing Professional (CLP) certification, which is is a professional designation intended to distinguish those who have demonstrated "experience, proficiency, knowledge and understanding of licensing and commercialization of intellectual property through involvement in patenting, marketing, negotiation, legal, and intellectual asset management."

The goal of the CLP program is to elevate the licensing profession by establishing a standard of knowledge that will differentiate professionals that have taken the steps necessary to become certified.

To become a CLP, a candidate must: (1) Satisfy the CLP Standards which includes passing a written examination, (2) Submit the CLP application, and (3) Pay an application fee.

To qualify, candidates must possess a bachelor's degree or higher from an accredited university, and have at least 3 years of professional level experience involving the development, use,
transfer, marketing, and/or management of intellectual property within the prior 8 years.

For more information, see the LES website (link)

See LES Power-Point presentation on the CLP program (link)

IRS Looking at New Taxable Category Based on Patents

From

Federal Register / Vol. 72, No. 186 / Wednesday, September 26, 2007 / Proposed Rules:

[T]he IRS and Treasury Department continue to be concerned about the patenting
of tax advice or tax strategies and believe that adding a new category of reportable transaction to the section 6011 regulations for patented transactions will assist the IRS and Treasury Department in obtaining disclosures of tax avoidance transactions and in providing effective tax administration. Under the new category of reportable transactions, the ‘‘patented transaction’’ is a transaction for which a taxpayer pays (directly or indirectly) a fee in any amount to a patent holder or the patent holder’s agent for the legal right to use a tax planning method that the taxpayer knows or has reason to know is the subject of the patent. A patented transaction also is a transaction for which a taxpayer (the patent holder or the patent holder’s agent) has the right to payment for another person’s use of a tax planning method that is the subject of the patent.

View the notice here (link)

Patent Litigation Should be Flat for 2007; But are the Number of Defendants Rising?

After peaking in 2004, with 3,075 patent cases, patent litigation took a dip in 2005 (2,720 cases), only to tick up slightly in 2006 (2,830 cases). It's looking like 2007 will be a flat year for patent litigation, with the likelihood that the number of cases will dip from 2006.

So far, according to data obtained from Justia, 2007 has seen 2,577 patent-related cases filed in the district courts around the United States. Broken down by month, the filings appear as follows:

• January - 201 complaints filed


• February - 181 complaints filed


• March - 262 complaints filed


• April - 219 complaints filed


• May - 265 complaints filed


• June - 280 complaints filed


• July - 225 complaints filed


• August - 222 complaints filed


• September - 214 complaints filed


• October - 288 complaints filed


• November - 220 complaints filed

One of the patent litigation trends that doesn't receive much coverage is the number of defendants that are named per case. While I haven't seen any hard data on this, it appears that the number of defendants per case may be rising.

Anecdotally, two recent cases illustrate this phenomenon. The first, filed in the ED Tex. on Nov. 27, is Harthcock v. MIPS Technologies Inc et al. (2:2007-cv-00515), where 91 defendants were named. It appears that the patentee sued the allegedly infringing manufacturer, along with every single one of the manufacturer's customers, and every single one of the manufacturer's customers' retailers. According to the Patent Troll Tracker, counting each defendant separately across all cases, the filings on Nov. 27 resulted in 113 new patent infringement suits in the ED Tex. This single day resulted in more companies being sued than have been sued in all of 2007 so far in Detroit, Dallas, ED VA, Minnesota, Boston, or Philadelphia.

The second is Technology Patents LLC v. Deutsche Telekom AG et al. (8:2007-cv-03012), filed on Nov. 8 in the District Court for the District of Maryland, in which 131 defendants were named in a lawsuit directed to SMS technology (see more from the Maryland IP Law Blog here). Considering the defendants individually, these two cases alone represent almost 10% of all patent litigation filed for the entire U.S. (I realize there are statistical anomalies in this approach, but you get the point).

While this is not a new phenomenon, it appears that defendant "clustering" should increase in the coming year, especially in light of the CAFC's Sandisk ruling that expanded the scope of DJ actions. In the case of non-practicing entities, the earlier practice of cherry-picking defendants one-by-one has now become increasingly risky. Also, as Jim Skippen, chief executive of Wi-LAN commented recently, there are "significant economies of scale" in suing multiple defendants.

See 271 Blog "Patent Litigation Statistics" (link)

See 271 Blog post on PWC Patent Litigation Survey (link)

See also 271 Blog post: Kesan & Ball, "How Are Patent Cases Resolved? An Empirical Examination of the Adjudication and Settlement of Patent Disputes" (link)

Disclaimed or Not Disclaimed? That is (Still) the Question . . .

Elbex Video Ltd. v. Sensormatic Electronics Corp. (2007-1097) November 28, 2007

During litigation, the district court granted SJ of noninfringement, where part of the decision was based on prosecution history estoppel. Specifically, one claim recited:

receiving means for receiving said video signals and said 1st code signals . . .

said receiving means including a monitor for displaying images corresponding to the video signals received in said receiving means . . .

The district court found that during prosecution before the PTO, the inventor had limited the "receiving means" to a "monitor" that receives the video and first code signal. The district court concluded that "whether by mistake or otherwise," the inventor "agreed" to limit the "‘receiving means’ to a structure through which a video monitor receives the 1st code signal from a camera." This "agreement" appeared in a response to an office action.

Interestingly, the response to the office action appeared to have errors that were inconsistent with the specification and the putative operation of the disclosed device. Although the district court acknowledged that obvious errors in statements made before the PTO are not necessarily binding, it concluded that the patentee's statement was nevertheless binding, since the prosecution statements "would not have been viewed by one of ordinary skill in the art to be obvious errors."

The CAFC reversed, finding that the statements did not amount to a clear and unmistakable surrender of claim scope:

First, the statement in the prosecution history is unsupported by even a shred of evidence from the specification. The specification never suggests that the monitor of the receiving means receives first code signals and returns a corresponding code to the cameras . . . There is nothing in the specification to suggest that the first code signal ever reaches the monitor.

Second, read in isolation, the statement in the prosecution history could be argued to be a disclaimer. When the prosecution history as a whole is considered, the inventor’s response to the PTO is not as clear . . . two paragraphs after the alleged disclaimer, the inventor also included [an additional statement] to distinguish a reference relied on by the PTO examiner . . . This statement, unlike the alleged disclaimer, is fully supported by the written description and provides further indication that the earlier statement in the same document was not a clear and unmistakable surrender.

Third, reading the specification and remainder of the intrinsic record as a whole would lead those skilled in the art to the conclusion that the inventor’s statement that the monitor received the first code signals and, "based upon" that code, transmits a second code signal "back to the camera" was not a clear and unmistakable surrender of claim scope . . . This prosecution statement if taken literally would result in an inoperable system . . . Even Sensormatic’s own technical witness testified that he "ha[d] trouble figuring out how [transmitting the code signals to and from the monitor] would work."

AFIIRMED-IN-PART, REVERSED-IN-PART, and REMANDED

Judge Cote's Dissent (sitting by designation):

I believe that when the prosecution history and the patent are considered together, the evidence is clear and unambiguous that Elbex’s reference to a "monitor" in its response to the PTO Office Action was a strategic choice and an unmistakable surrender of claim scope. Elbex made significant revisions to Claim 1 in what became the ‘085 patent in order to obtain the patent, and is now trying to recapture what it chose to abandon in the proceedings before the PTO. I would affirm.

Japan Claims Dominant Position in Fuel Cell Patents

Earlier this year, the Japanese Patent Office (JPO) published a report on fuel cell-related patent applications, and found that, in the current push to create a hydrogen-based society, Japan has taken a commanding lead in terms of patent applications filed.

How big? Well, according to the report, two out of three fuel cell patent applications (67%) from 1998 to 2004 were made by Japanese companies, totaling 32,209 patents. Compared to the US and Europe, Japan filed 2.5 times more patents than US applicants and 2.9 times more than European applicants.

More than 15 percent of the filings were made by three Japanese auto manufacturers, Nissan, Toyota and Honda, which filed 1,980, 1,546 and 1,526 applications, respectively.

Regarding the type of technology, most of the applications featured proton-exchange membrane fuel cells (81-83 percent), solid-oxide fuel cells (10-12 percent) and direct methanol fuel cells (5-7 percent).

Read "Japanese Automakers Round Out Top 3 in Fuel Cell Patent Application" (link)

USPTO Back in Court on Continuation Rule Changes

Dr. Tafas, GlaxoSmithKline and the PTO are scheduled to be back in court today, arguing over whether the depositions of Jon Dudas, John Doll, John Love and Robert Bahr should be allowed to take place. Additionally, the plaintiffs are seeking an order to compel document production from the PTO based on the fact that the Administrative Record is not complete due to the fact that certain documents have been withheld on the basis of privilege, as admitted by the PTO when the Administrative Record was certified.

The hearing will not only help resolve issues of discovery, but will also impact scheduling of the case. The preliminary schedule appears below.

Moving summary judgment briefs
If no discovery - Thursday, December 20, 2007
If discovery is ordered - Friday, January 25, 2008

Amici in support of GSK’s motions
If no discovery - Thursday, December 20, 2007
If discovery is ordered - Friday, February 1, 2008

Opposition briefs
If no discovery - Thursday, January 24, 2008
If discovery is ordered - Monday, March 3, 2008

Reply briefs
If no discovery - Thursday, February 7, 2008
If discovery is ordered - Friday, March 21, 2008

Hearing
If no discovery - Friday, February 15, 2007
If discovery is ordered - Friday, April 4, 2008 or Friday, April 11, 2008

For more information (and for additional juicy tidbits), read the blow-by-blow coverage at the PLI bog here and here.

UPDATE: The court denied the motions for discovery from the bench at the conclusion of the hearing earlier today. Thus, the Patent Office will not be required to provide a privilege log and can simply claim a blanket and unsubstantiated privilege at least in this case challenging the claims and continuations rules. Also, according to the earlier schedule, Summary Judgment motions will be due for Tafas and GSK on or before December 20, 2007. It is unclear whether that will also be the date by which Amici must also file. See more from PLI here.

N.D. Cal.: "Close" Case VItiates Willful Infringement under Seagate

Informatica Corp. v. Business Objects Data Integration, Inc. (02-03378) N.D. Cal., October 29, 2007

Jury trial in this patent infringement case commenced on March 12, 2007 and concluded with a verdict in favor of Informatica in the amount of $25,240,000 on April 2, 2007. On August 16, 2007, the Court denied Defendant’s Renewed Motion for JMOL and granted Defendant’s Motion for New Trial on damages unless Plaintiff accepted the Court’s remittitur in the amount of $12,115,200. On September 10, 2007, Informatica accepted the remittitur.

In the meantime (Aug. 20), the CAFC decided In re Seagate (link), which raised the threshold for finding willful infringement. On August 28, Defendant BODI filed a Renewed Motion for Judgment as a Matter of Law or in the Alternative, for the Court to Decline Enhancement of Damages or to Grant a New Trial on Willfulness based on the Seagate decision.

While the court denied BODI's motions, Judge Laporte went ahead to deny any enhancement of damages in the case.

Informatica argued that the district court did not have jurisdiction over the motion because it was not filed within the prescribed time (10 days) after the entry of judgment. The court rejected this argument, stating that no final judgment was made that divested the court of jurisdiction:

[T]he Court has not yet rendered a decision on all the issues as required for a final judgment that may not be revisited unless a party files an appropriate motion within ten days. Moreover, acceptance of Plaintiff’s argument that the Court may only set the amount of enhanced damages at something greater than zero, but may not reconsider Plaintiff’s entitlement to any amount even in light of an intervening change in the law, would elevate form over substance and ignore the wise admonition of Rule 1 of the Federal Rules of Civil Procedure to construe the Rules “to secure the just, speedy and inexpensive determination of every action.” Indeed, the parties agree that if and when the final judgment in this case is appealed to the Federal Circuit, the appellate court will scrutinize the jury’s finding of willfulness under Seagate. The result could be an unnecessary remand and retrial of willfulness under the new legal standard, hardly a speedy or inexpensive result.

On the issue of willful infringement, the court viewed the evidence "in the light most favorable to Plaintiff and drawing all reasonable inferences in its favor," and found that BODI nevertheless willfully infringed Informatica's patent. Nevertheless, in light of Seagate, the court denied any enhanced damages:

Although willful infringement may authorize the award of enhanced damages, “a finding of willful infringement does not mandate that damages be enhanced, much less mandate treble damages.” . . . In this case, the jury found willfulness based on now-obsolete case law. In Seagate, the Federal Circuit overruled the due care standard for evaluating willful infringement adopted in Underwater Devices Inc. v. Morrison-Knudsen Co. . . . and applied by the jury in this case to determine Defendant’s willfulness. Instead, the Seagate court held that “proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness.”

Considering the totality of the circumstances in light of Seagate, which significantly raised the bar for a finding of willfulness, the Court now declines to award any enhancement in this case. Even at the time when the Court determined that a modest enhancement was appropriate, one of the primary Read factors [Read Corp. v. Portec, Inc., 970 F.2d 816, 826 (Fed. Cir. 1992)] weighing against a substantial enhancement was the closeness of the case.

Under the Seagate standard, the issue of willfulness becomes even closer; had the Seagate standard been used in this case, Plaintiff might well have lost on willfulness. Moreover, the Court has since determined and Plaintiff accepted a remittitur that represented the high end of damages that a jury might have awarded . . . Based on the totality of the circumstances and in light of Seagate, the Court does not award any enhanced damages in this case.

Read/download the opinion here (link)

The Aftermath of eBay V. MercExchange

Andrew Beckerman-Rodau from Suffolk University looked at 28 district court cases after the Supreme Court's eBay decision to determine how courts handled permanent injunctions. These cases were reviewed to see if the following factors affected the decision whether to grant or deny a permanent injunction for patent infringement:

• Direct competition between patent owner and infringer
• Non-practicing entity asserting patent rights
• Willful infringement
• Venue
• Complex invention problem
• Willingness of patent owner to license patent
• Likelihood of future patent infringement

Beckerman-Rodau broke down each factor in light of the district court holdings:

Direct competition - The existence or non-existence of direct competition between the patent owner injunctions and the patent infringer appears to be the most significant predictor of whether a permanent injunction will be granted. In most every case in which a permanent injunction was issued the litigants were direct marketplace competitors.

Indirect Competition - the current crop of district court cases suggest that the patent owner would be entitled to an injunction against other companies selling competing products (e.g., product activation software) but not against a company that incorporated a patented product to a larger product but who did not directly compete with the patent owner.

Non-Practicing Entities (NPE's) - In almost every case in which a court denied a permanent injunction for patent infringement the patent owner was a non-practicing entity. The one exception to the general rule is CSIRO v. Buffalo Technology, where the court found it significant that CSIRO was a non-profit organization. Thus, nonprofit enterprises such as universities and research institutes - which typically engage in very basic research - may be able to obtain permanent injunctions despite being non-practicing entities. In contrast, for-profit commercial entities will routinely be denied such relief for infringement of their patents.

Willful Infringement - "['W]illful infringement does not appear to be a significant factor in predicting or explaining judicial decisions that grant or deny permanent injunctions. Of the thirteen cases in which the court found willful infringement, permanent injunctions were granted in nine cases and denied in four cases. Moreover, in the fifteen cases in which the there was no finding of willful infringement, a permanent injunction was granted in thirteen cases and denied in two cases."

Venue - The choice of venue did not appear to affect whether a court will issue or deny a permanent injunction. According to Beckerman-Rodau, "choosing a specific federal circuit or a specific district within a particular circuit, at least based on the limited judicial opinions to date, does not predict the remedy for infringement."

Complex Invention Problem - Justice Kennedy specifically mentioned the situation "when a patented invention is but a small component of the product the companies seek to produce" and stated that in such a situation, "legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest." Beckerman Rodau found that this factor was not determinative of whether or not an injunction would issue. This factor was specifically mentioned in only three cases. In one of these cases a permanent injunction was granted and in two of these cases it was denied.

Willingness of Patent Owner to License - Again, this came out as a wash. This factor was specifically mentioned in only six cases. In three of those cases a permanent injunction was granted and in three of those cases it was denied.

Likelihood of Future Infringement - here, the study found that it may be beneficial for a patent owner to demonstrate a likelihood of future infringement in order to obtain a permanent injunction. This factor was specifically mentioned in only ten cases, but in nine of those cases, a permanent injunction was granted for patent infringement while it was only denied in one.

• Read/download Beckerman-Rodau, "The Aftermath of eBay V. MercExchange, 126 S. Ct. 1837 (2006): A Review of Subsequent Judicial Decisions" (link)

Giving Software Patents a Break

With the curent anti-patent climate running through the media like a bad cold, it's not often that defenders of software patents take a stand and swat at some of the piffle being promoted by activist groups and other anti-software patent organizations. It's almost impossible to read any press coverage on software patent disputes that doesn't include obligatory language from an activist explaining that the mere fact that these disputes exist are proof positive that "the patent system is broken."

In a refreshing twist, John Keit from Chadbourne & Park published a timely and well-written op-ed piece in Business Week, titled "Give Software Patents a Break." From the article:

Unlike the relatively high regard given hardware patents, the view of software as substandard intellectual property is misguided and potentially harmful to inventors and entrepreneurs. By weakening this alleged barrier to innovation and competition, these detractors are hurting the very underdogs they aim to empower. In reality, smart patent lawyers will always find ways to protect software innovations for well-heeled corporations. But startups that can't afford the legal expertise will have less incentive to invest in intellectual property if it can't be guarded with a strong patent.

The bad news is that this drive against software patents may make them more expensive to obtain. The good news is that this effort is destined to fail.

One needs to understand that there is fundamentally no difference between software and hardware; each is frequently expressed in terms of the other, interchangeably describing the same thing. For example, many microprocessors are conceptualized as software through the use of hardware description languages (HDL) such as Bluespec System Verilog and VHDL. The resulting HDL software code is downloaded to special microprocessors known as FPGAs (field programmable gate arrays), which can mimic a prospective chip's design and functions for testing. Eventually, the HDL code may be physically etched into silicon. Voilà! The software becomes hardware.

Nevertheless, anti-patent sentiment has become such a common theme in tech circles like Slashdot.com that the mere mention of the word "patent" sends readers into a Fred Flintstone fit ("bet, Bet, BET!") extolling their evils. This is a neurotic reaction to patent law.

Read the article in its entirety here (link)

Oddly enough, Slashdot has been eerily silent on this (link)

R.I.P Patent Reform 2007

It appears that passing the Patent Reform Act will not happen in 2007. Despite various comments claiming that "lawmakers are committed to passing the legislation before the end of the 110th Congress", the Patent Reform Act will probably go to the Senate floor after Congress returns from the holidays in early 2008, claims Matthew Sandgren, counsel to Sen. Orrin Hatch (R-Utah).

The biggest sticking point? The "2nd window" of post-grant review, and apportionment of damages. Presumably, much hay will be made over the possible vesting of rulemaking authority in the PTO. At this point, it is likely that the GSK case will survive through summary judgment before Congress decides one way or the other.

USPTO Releases Fiscal 2007 Year-End Results

It's out - all 146 pages!

According to the PTO, the Office achieved "record breaking year-end numbers that reveal historic improvement in the quality of patent and trademark reviews and subsequently the quality of issued patents and registered trademarks."

In FY 2007, USPTO's patent examiners

• Examined 362,227 applications - the highest number in history.
• Quality compliance was 96.5 % - equaling last year's results, "the best in a quarter century."
• Patent examiner decisions were upheld by the USPTO's patent appeals board 69 % of the time, up from 51 % in 2005.

The PTO seems to be pleased that applications are being rejected. Just as Thomas Blackstone said that "it is better that ten guilty men escape than one innocent suffer," the PTO's current mood appears to be that "it is better to reject ten legitimate inventions than to issue one bad patent."

- One of the highlights touted by the PTO is that, in 2000, a record high of 72 percent of all patent applications became patents. In contrast, 51 percent of patent applications were granted in FY 2007.

- Pendency remains a problem: average pendency is 25.3 months from filing to first action, and 31.9 months until issue or abandonment

- Regarding the Accelerated Examination program, the Office notes that, in the first year of the program, 24 patents were issued (paradoxically, the report doesn't disclose how many applications under the AE program were filed).

- The PTO intends to make 101 issues a tops priority. According to the report, "[b]ecause the boundaries of patent eligibility in certain areas remain ambiguous, we anticipate that the Federal Circuit will issue precedential opinions in these appeals in the next year. These opinions will provide guidance to our patent examiners on evaluating the fundamental issue of what types of claimed inventions qualify for patent protection."

- Reexaminations have jumped to an all-time high. From 2006-07, ex parte reexaminations went from 511 t0 643 (369 of those had known litigation pending). Inter partes reexaminations went from 70 to 126 (81 had known litigation pending).

The must-read report can be downloaded here (link)

NOTE: In the meantime, the continuation rule battle rages on - Dennis over at Patently-O (link) discusses the PTO's response to the Tafas/GSK complaint. As expected, the PTO asserts that they acted within the Patent Act, and that the plaintiffs lack standing. The PTO is asking that all summary judgment briefs be filed prior to the Christmas Holiday. The next hearing is scheduled for tomorrow (November 16).

SDNY: "Poor Legal Judgment" Is not a Basis for Rule 11 Sanctions

Capital Bridge Co. Ltd. v. IVL Technologies Ltd., S.D.N.Y. (Case No. 04-CV-4002), October 26, 2007

Capital Bridge (CB) obtained a patent on a wireless, portable, hand-held karaoke device, where users can select songs and musical accompaniment using a keypad on the device and to wirelessly broadcast their voices and music to multiple FM receivers that are tuned to the correct station. The patent was allowed at the PTO only when the claims were amended to include "wireless" transmission. Some of the dependent claims referred to transmission through an antenna. Capital attempted to broaden the claims through reissue, but was rebuked by the PTO for attempting to recapture surrendered subject matter.

The defendants manufacture various hand-held karaoke machines and sell them to national retailers and international distributors. However, the devices do not use wireless transmission. In order to operate, the devices are connected by wires to a television. Also, the devices only send signals to a single receiver.

Capital sent cease-and-desist letters to IVL and its customers. IVL responded (two times) by pointing out the apparent differences between the products and the patent claims. Capital sued, and promptly lost on Summary Judgment. IVL sought sanctions soon thereafter.

The court noted some of Capital's behavior during litigation

- Early in litigation, Capital argued the existence of a laboratory test, performed in Korea (and using Korean law), showing infringement by devices "believed to be" the defendants. Defendants responded by pointing out that the accused devices were already widely available for purchase for less than $100. The explicit findings of the test was not initially given to the court, and additional discovery was requested by Capital.

- When the test was finally produced, technical report explicitly stated that the “wirelessly transmitting” limitation of the ‘553 patent was not infringed by Defendants’ devices.

- During litigation, Capital's reissue application was rejected. Accordingly, Capital modified the infringement claim to state that wireless and wired transmissions were covered under the doctrine of equivalents. When asked how they arrived at this conclusion, Capital requested additional discovery.

- At a later judicial conference, Capital Bridge indicated that it had conducted no further inspection of Defendants’ devices other than the previously-disclosed Korean technical report, despite the fact that the Court’s previous Order required production of the allegedly infringing devices and their electrical schematics.

Despite all of this, the court found that sanctions were not warranted in this case. The plaintiff's litigating attorney (Wamsley) filed a declaration with the court, explaining that RF transmission through wire was thought to be "equivalent" to wireless transmission, and thus constituted sufficient pre-filing investigation to escape sanctions:

IVL bases its allegations that Capital Bridge failed to conduct a reasonable pre-filing assessment on the fact that the technical report written by Mr. Sang Mock Lee, in which he applied Korean patent law to compare the claims of the ‘553 patent against Defendants’ allegedly infringing devices, constituted the entirety of Capital Bridge’s pre-filing inquiry. While the Court would be inclined to agree with Defendant that such an inquiry alone would be insufficient to satisfy Plaintiff’s duty, the Court is not as willing as Defendant to disregard the Declaration of Brian L. Wamsley as a complete fabrication. Taking into account the Wamsley Declaration, in which Mr. Wamsley recounts in substantial detail his pre-filing inquiry and good faith basis for bringing the suit, Plaintiff establishes, albeit just barely, that it conducted a sufficient pre-filing investigation.

The court went on to chide the plaintiff over the investigation, but nevertheless concluded that "poor legal judgment" could not be a basis for sanctions:

Although the Court shares Defendant’s skepticism regarding the thoroughness of Mr. Wamsley’s purported pre-filing inquiry – especially in light of Mr. Wamsley’s inability to articulate a cognizable infringement theory at the August 2, 2005 conference, as well as the explicit finding in the Korean technical report that the “wirelessly transmitting” limitation of the ‘553 patent was not infringed by Defendants’ devices – it must be given considerable deference as a patentee asserting infringement is entitled to a presumption of good faith.

[F]urthermore, while the Court continues to view as “absurd” Plaintiff’s contention that the wired transmission of Defendants’ devices is functionally equivalent to the wireless transmission claimed by the ‘553 patent, . . . and while the Federal Circuit’s summary affirmance of summary judgment for Defendants is significant, the Court cannot conclude that Capital Bridge’s decision to continue its infringement action following the limited discovery granted by the Court was the result of anything other than poor legal judgment.

View the opinion here (link)

A New Era of IP: Looking at Emerging Business Models in IP

It has become incresingly clear over the last couple of years that the "old economy" model for monetizing and managing IP assets has matured into a more robust model. Since the early 90's, only a select group of large patent holders controlled the majority of IP rights, leaving smaller players with little recourse in establishing and protecting innovative IP rights.

According to Raymond Millien (PCT Capital LLC), and Ron Laurie (Inflexion Point Strategy LLC), we are now living in an era of "IP for the masses"where the IP marketplace operates according to the Golden Rule -- those with the gold (i.e., IP rights) can now make the rules. This new era is characterized by the rise of “market-maker” intermediaries who seek to make IP a liquid asset class and, of course, profit from it. In a recent paper presented at the Sonoma Conference last month, Millen and Laurie take a look at these intermediaries:

Patent Licensing and Enforcement Companies (PLECs) - (Acacia Research, Lemelson Foundation, LPL) These are entities that own one or more patent portfolios, attempt to license them through targeted letter-writing campaigns, and then file patent infringement suits against those letter recipients who refuse to enter into non-exclusive licenses. Those that practice this business model are often called (rightly or wrongly) “patent trolls.”

Institutional Patent Aggregators/IP Acquisition Funds - (Coller IP Capital, Intellectual Ventures) These are entities that operate in a sort of private equity fashion. That is, they typically operate as general partners of a limited partnership and raise money either from large technology companies or from the capital markers (institutional investors (and sometimes high-net-worth individuals). The investors are promised above average ROI from selective, targeted or large-scale patent purchases with the goal of instituting licensing programs and/or employing various arbitrage strategies.

IP/Technology Development Companies - (AmberWave, InterDigital, MOSAID, Qualcomm, Rambus, Tessera) These are entities that engage in R&D activities and produce IP (including both patents and knowhow) much like traditional operating companies; however, the developed technology is not used to manufacture products in the form of physical goods. Rather, the IP associated with the technology is licensed by these entities to one or more operating companies so that the operating company may bring products and services employing the technology and IP to the marketplace.

Licensing Agents - (General Patent Corp., IPValue, ThinkFire) These are entities that function as intermediaries by attempting to assist patent owners in finding licensees. Entities that function under this business model often call themselves “IP advisory,” “IP management” or “technology transfer” firms. While the amount, quality and depth of services vary, to some degree in shape or form, they all earn retainer and/or success fees by assisting patent owners find licensees.

Litigation Finance/Investment Firms - (Altitude Capital, Rembrandt IP Mgmt.) These are entities that are a cross between IP Acquisition Funds and PLECs. That is, like IP Acquisition Funds, they operate as general partners of a limited partnership and raise money from large institutional investors and high-networth individuals. Like PLECs, however, their stated goal is to acquire a financial interest in patent portfolios for assertion.

Patent Brokers - (Iceberg, Inflexion Point, iPotential, Ocean Tomo, Pluritas,ThinkFire) These are entities that function essentially the same as Licensing Agent model discussed above. The key distinction, however, is that they seek to assist patent owners in finding buyers rather than licensees. Also, unlike licensing agents they operate both on the sell-side and the buy-side.

IP-Based M&A Advisory - (Analytic Capital, Blueprint Ventures, Inflexion Point, Pluritas) These are entities that operate in a traditional investment banking model – advising technology companies in their merger and acquisition (M&A) activities and earning fees based on the value of the entire deal (or apportioned according to the value of the IP within the deal).

IP Auction Houses - (IPAuctions.com, IPA GmbH, Ocean Tomo) These entities are auction houses that hold multi-lot, live auctions for patents with the intent of providing a marketplace for facilitating the exchange of such historically illiquid assets. Such auctions enable sellers to offer one or more patents according to a predetermined set of terms and conditions and allows the auction house to charge listing fees, attendance fees, buyers’ premiums and/or sellers’ commissions.

On-Line IP/Technology Exchanges/Clearinghouses - (The Dean’s List, Tynax, Yet2.com) These are entities that function like the business to-business (B2B) web sites that became the rage during the late 1990’s dot com boom. These entities, however, offer web platforms and interfaces specialized for patent and other IP assets. Essentially, this model can be thought of as online classifieds like Craig’s List, but for IP.

IP-Backed Financiers - (IPEG Consultancy BV, Paradox Capital) These are entities that provide financing for IP owners, either directly or as intermediaries, usually in the form of loans (debt financing), where the security for the loan is either wholly or partially IP assets (i.e., IP collateralization). Thus, these parties often function as intermediaries between borrowers and
commercial lending institutions, such as banks.

Royalty Stream Securitization Firms - (alseT IP, UCC Capital) These are entities that counsel, assist and/or provide capital to patent owners performing IP securitization financing transactions (which resemble the more common mortgage-backed securities). In such transactions, the patent owner sells the patents underlying the transaction to a bankruptcy remote entity (a “BRE”), and the BRE grants a license back to the patents to the original patent owner. The BRE in turn issues notes (i.e., IP-backed securities) to investors to raise cash to pay the original patent owner the agreed-upon purchase price. The notes are then backed by the expected future royalties to be earned from licensing the underlying patents (to the original patent owner and/or third parties). At the end of the transaction, the original patent owner has essentially raised funds much more cheaply than a loan backed by its traditional assets.

Patent Rating Software and Services - (1790 Analytics, The Patent Board, PatentRatings, Patent Café) These are entities that provide advanced patent search and analytics software tools that allow patent owners, attorneys, investors and other players in the IP marketplace to obtain various intelligence and data points about a single patent or patent portfolio.

There's much more in this paper, which also looks at additional emerging business models. It's a fascinating paper that adds an important perspective on the emerging IP market. The paper also adds the following comment in the conclusion:

[N]either U.S. Supreme Court decisions such as eBay, nor any of the so-called “anti-patent troll” legislative proposals floating through Congress, will make such intermediary entities such as PLECs, IP outsourcing companies, licensing agents, merchant banks, exchange operators and the like go away. With as much as three-quarters of the value of publicly traded companies in America coming from intangible assets, and global IP licensing revenue now being measured in the hundreds of billions of dollars, there is simply too much economic justification for such entities to exist. In fact, new players implementing the IP business models described herein will come into existence. And, new IP business models will also come into existence. Why? Quite simply, the business of IP (i.e., IP marketplace) itself is not immune to
innovation!

To read/download the paper ("A Summary of Established & Emerging IP Business Models"), click here (courtesy of Patent Troll Tracker)

Comments Posted on USPTO Regarding New BPAI Rule Changes

The comments are in on the PTO's proposed BPAI rule changes - they are not favorable.

Comments from Intellectual Property Organizations and Government Agencies:

(1) American Bar Association (ABA)
(2) American Intellectual Property Law Association (AIPLA)
(3) Bar Association District Columbia (BADC)
(4) Intellectual Property Owners Association (IPO)
(5) Intellectual Ventures (IV)
(6) Minnesota Intellectual Property Law Association (MIPLA)
(7) National Association of Patent Practitioners (NAPP)
(8) Washington State Patent Law Association

Comments from Corporations and Associations:

(1) 3M Innovative Properties Company (3M IPC)
(2) Alkermes, Inc.
(3) Amylin Pharmaceuticals, Inc.
(4) BIOCOM
(5) Ceres
(6) Eastman Kodak Company
(7) Eli Lilly and Company
(8) IBM Corporation
(9) Microsoft Corporation
(10) Wyeth

To see more, click here (link)

CAFC Adds More Twists to Incorporation by Reference - Improper Language Invalidates Patent

Zenon Environmental, Inc. v. United States Filter Corporation (06-1266) , November 7, 2007

During litigation, USFC challenged the validity of a Zenon patent (the '319 patent) that was the sixth patent to issue from a series of continuation and CIP applications related to skein and gas distribution systems for water treatment filtration. Specifically, USFC argued that an intervening patent (the '250 patent) in the chain did not incorporate all the elements of an earlier patent (the '373 patent). The parties agreed that the earlier patent disclosed each and every element of the asserted patent. Accordingly, Zenon argued that the earlier patent was invalidating art under 35 USC 102(b).

The CAFC agreed with USFC (in a 2-1 decision), after looking at the incorporating language in the intervening patent:

The vertical skein is not the subject matter of this invention and any prior art vertical skein may be used. Further details relating to the construction and deployment of a most preferred skein are found in the parent U.S. Pat. No. 5,639,373, and in Ser. No. 08/690,045, the relevant disclosures of each of which are included by reference thereto as if fully set forth herein.

The district court found this language to be sufficient to incorporate the entire disclosure. However, after noting that incorporation by reference is a matter of law (which is reviewed de novo), the CAFC reversed:

Such an interpretation is inconsistent with the plain language of the statement. The plain language expressly limits the incorporation to only relevant disclosures of the patents, indicating that the disclosures are not being incorporated in their entirety. Moreover, the plain language indicates that the subject matter that is being incorporated by reference pertains to the details relating to the construction and deployment of a vertical skein. Thus, we must look, as one reasonably skilled in the art would, to the grandparent patents to determine what the patentees meant by details relating to the construction and deployment of a vertical skein. (Emphasis added).

* * *

Turning to the written description, the ’373 patent expressly states that the vertical skein consists of three distinct elements, viz., fibers, a pair of headers, and a permeate collection means. Id. at col.1 ll.31-38. Thus, by definition, a skein does not include a gas distribution system . . . As such, a reasonable person of ordinary skill in the art would understand that the gas distribution system covered by the ’373 patent is not a detail relating to the construction and deployment of a vertical skein, but rather is a separate and distinct element of the invention, and thus was not incorporated by reference in the ’250 patent.

Thus, the majority held the patent anticipated by the earlier patent.

Judge Newman's dissent:

The issue in this case is simple. The issue is not whether the invention claimed in the '319 patent could have been claimed in the '373 grandparent; nor is the issue one of priority as against a competing claimant; nor is the applicant reaching out for a broad incorporation of background technology from unspecified parts of unrelated publications. Here, the applicant simply invoked the expedient of incorporating a prior disclosure in a chain of applications on the same subject matter. The gas distribution system described in the '319 patent is the same as that of the '373 patent, with continuity of disclosure that includes an incorporation by reference.

The panel majority's holding casts doubt on the reliable use of this expedient, lest an earlier patent become an invalidating reference against its successors in the chain of filings. The majority's rejection of the factual foundations of incorporation by reference and creation of a new area of de novo appellate authority, raise new risks of patent drafting. The apparent requirement that all subject matter must be reproduced in all continuing applications adds nothing to the knowledge disclosed to the public, adds nothing to the information provided to the patent examiner, and adds nothing to compliance with 35 U.S.C. '120; it simply adds costs and pitfalls to inventors, as they attempt to walk new judicial tightropes.

Another Business Method/Patentable Subject Matter Challenge at the CAFC

This week is turning into the "patentable subject matter blog" - over at Patently-O, Dennis posted the most recent challenge to the USPTO's position on patentable subject matter. Specifically, the applicant is challenging the 101 rejection given to the following exemplary claim in the application (09/387,823):

Claim 24. A paradigm for marketing software, comprising:

a marketing company that markets software from a plurality of different independent and autonomous software companies, and carries out and pays for operations associated with marketing of software for all of said different independent and autonomous software companies, in return for a contingent share of a total income stream from marketing of the software from all of said software companies, while allowing all of said software companies to retain their autonomy.

For starters, the Appellant's Brief points out that the PTO, through their Interim Guidelines, is erroneously analyzing patentable subject matter by limiting the analysis only to two specific tests:

The Guidelines allow for two and only two tests for subject matter patentability: 1) concrete useful and tangible result, and 2) transformation of something to a different state or thing . . . However, with all due respect, it is believed that the Guidelines have improperly and overly narrowly interpreted the holdings of these cases. These tests were intended to be non exclusive tests for subject matter patentability. They were not intended to be the ONLY allowable tests for subject matter patentability. In fact, the provision of a single test would seem contrary to Supreme Court cases, e.g. Chakrabarty, supra. This is supported by the plethora of Recent Supreme Court
cases expressing their view that there cannot be rigid rules for patentability. See Ksr International Co.v Teleflex Inc, 550 U. S. ____, 127 S.Ct
1727(2007).

Also, the Appellant's Brief provides an interesting distinction for "pure" business method patent claims (i.e., a method for performing a business transaction) over business methods that rely on mathematical algorithms. Specifically, the Appellant asserted that showing a “concrete, useful and tangible result” is only relevant to a claim that recites a law of nature or mathematical algorithm:

Page 15 of Appellee’s brief attempts to establish that a Concrete, Useful and Tangible result is required in order for a claimed process to be subject matter eligible. With all due respect, however, this has never been required unless the claim recites, directly or indirectly, a law of nature/mathematical algorithm. These present claims do not recite such a law of nature/ mathematical algorithm.

Appellee’s brief, page 15, subheading 3, appears to contend this point -- by stating that the “useful concrete and tangible result” test is about “the eligibility of machines and machine-implemented methods employing mathematical algorithms” (emphasis added). This is further confirmed on page 18 of Appellee’s brief. All of the cases cited in favor of the Appellee's arguments, however, were in the context of a claim that recited a mathematical algorithm.

Changes in legal and financial obligations certainly is an invention under the sun that was made by man, and should be patentable for these reasons.

There's much more in the briefs that should ultimately provide much-needed clarification in the world of business method patents. Oral arguments are set for December 5th, with a decision likely in February or March of 2008.

View Appellant's Blue Brief here (link)

View PTO's Red Brief here (link)

View Appellant's Reply Brief here (link)