KSR v. Teleflex - Has "Inventive Step" Made its Appearance in U.S. Patent Law?

As predicted, the SCOTUS has whittled back the Federal Circuit's teaching, suggestion or motivation (TSM) test. While noting the TSM test is "helpful," the unanimous opinion concluded that the "purpose" or "motivation" behind a patent claim was not controlling - "[w]hat matters is the objective reach of the claim."

Relying on Sakraida and Anderson's-Black Rock (which brought us the "synergism" test), the Court provided a modified "inventive step" test for determining obviousness:

[I]f a technique has been used to improve one device, and a person of ordinary skill in the art would recognize that it would improve similar devices in the same way, using the technique is obvious unless its actual application is beyond his or her skill. Sakraida and Anderson’s-Black Rock are illustrative - a court must ask whether the improvement is more than the predictable use of prior art elements according to their established functions.

(Compare this to Article 56 of the EPC: "An invention shall be considered as involving an inventive step if, having regard to the state of the art, it is not obvious to a person skilled in the art.")

The SCOTUS ruled that the CAFC was being too "rigid" in applying the TSM test, and noted numerous errors in the application of the test:

Specific "problem to be solved" is not the controlling factor

"The first error of the Court of Appeals in this case was to foreclose this reasoning by holding that courts and patent examiners should look only to the problem the patentee was trying to solve . . . The Court of Appeals failed to recognize that the problem motivating the patentee may be only one of many addressed by the patent’s subject matter. The question is not whether the combination was obvious to the patentee but whether the combination was obvious to a person with ordinary skill in the art. Under the correct analysis, any need or problem known in the field of endeavor at the time of invention and addressed by the patent can provide a reason for combining the elements in the manner claimed."

Obviousness may exists for different problems:

"The second error of the Court of Appeals lay in its assumption that a person of ordinary skill attempting to solve a problem will be led only to those elements of prior art designed to solve the same problem . . . Common sense teaches, however, that familiar items may have obvious uses beyond their primary purposes, and in many cases a person of ordinary skill will be able to fit the teachings of multiple patents together like pieces of a puzzle . . . The idea that a designer hoping to make an adjustable electronic pedal would ignore Asano because Asano was designed to solve the constant ratio problem makes little sense. A person of ordinary skill is also a person of ordinary creativity, not an automaton."

"Obvious to try" may still be OK:

"The same constricted analysis led the Court of Appeals to conclude, in error, that a patent claim cannot be proved obvious merely by showing that the combination of elements was "obvious to try" . . . When there is a design need or market pressure to solve a problem and there are a finite number of identified, predictable solutions, a person of ordinary skill has good reason to pursue the known options within his or her technical grasp. If this leads to the anticipated success, it is likely the product not of innovation but of ordinary skill and common sense."

"Common sense" trumps the possibility of hindsight:

"The Court of Appeals, finally, drew the wrong conclusion from the risk of courts and patent examiners falling prey to hindsight bias. A factfinder should be aware, of course, of the distortion caused by hindsight bias and must be cautious of arguments reliant upon ex post reasoning . . . Rigid preventative rules that deny factfinders recourse to common sense, however, are neither necessary under our case law nor consistent with it . . . The extent to which [CAFC hindsight provisions are] more consistent with our earlier precedents and our decision here is a matter for the Court of Appeals to consider in its future cases."

By paring back the TSM test, the Court did not provide much in terms of a bright-line test, but instead gave a number of obviousness considerations that revolve around (1) predictability and (2) recognition of a benefit by one skilled in the art:

• "[A] combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results."

• "If a person of ordinary skill in the art can implement a predictable variation, and would see the benefit of doing so, §103 likely bars its patentability."

• "One of the ways in which a patent’s subject matter can be proved obvious is by noting that there existed at the time of invention a known problem for which there was an obvious solution encompassed by the patent’s claims."

Unfortunately, the decision gave even less guidance for applying the rules at the USPTO (the words "USPTO" or "patent office" are not even mentioned in the opinion, and "examiners" are mentioned only twice in passing). Nevertheless future arguments on obviousness will likely be focused on the "predictability" of alleged combinations, along with the lack of a recognized benefit (see 1.132 declarations).

TSM is not dead as such - The SCOTUS finding of obviousness reviewed the standard Graham factors, and analyzed the scope and content of the prior art, as well as the problems to be solved. The Court rejected the CAFC's rule that the prior art had to "address the precise problem that the patentee was trying to solve" (emphasis added), and allowed the knowledge of the art to come into play. Since the prior art taught every element except for the location of the sensor, Teleflex's best chance appeared to be the lack of motivation to combine. Unfortunately for Teleflex, it wasn't a very strong argument, given the prior art that was cited to the district court.

NOTE: The Court also threw out a rather ominous note regarding the presumption of validity, which some have interpreted as a possible basis for a future challenge:

We need not reach the question whether the failure to disclose Asano during the prosecution of Engelgau voids the presumption of validity given to issued patents, for claim 4 is obvious despite the presumption. We nevertheless think it appropriate to note that the rationale underlying the presumption - that the PTO, in its expertise, has approved the claim - seems much diminished here.

Happy Monday! SCOTUS Releases KSR and Microsoft Opinions Today

To view the KSR v. Teleflex opinion, click here.

To view the Microsoft opinion, click here.

More details will follow . . .

Hearings Begin on The Patent Reform Act 2007

Today at 2:00PM, the House Judiciary Committee (link) will hold hearings on H.R. 1908 (“The Patent Reform Act of 2007") . Congress is aware that there is contention regarding the proposed changes, but has indicated that they want to push the legislation through. Lamar Smith (R-Tex) recently stated that he expects some unhappy people, but "if you wait until you have 100 percent agreement, you'll never launch the boat."

People that are scheduled to appear before the committee, and their prepared statements include:

• Gary L. Griswold, President and Chief Counsel of Intellectual Property 3M Innovative Properties St. Paul Minnesota. Gary will be speaking on behalf of The Coalition for 21st Century Patent Reform. Generally, the coalition supports some of the provisions (first-to-file, prior user rights, pleading of willfulness), and wants to modify and/or add other provisions (modifying the cancellation proceeding "windows," redefining prior art, "best mode" reforms, and inequitable conduct). The coalition is against the provisions on reasonable royalties, Markman interlocutory appeals, venue, and expanding rule making authority for the USPTO. To read Gary's testimony, click here.

• Anthony Peterman, Director, Patent Counsel Dell Incorporated Round Rock, TX. Dell supports most of the provisions, including the "two-window" regime for cancellation proceedings. Additionally, Dell would like to see 35 U.S.C. 271(f) repealed. To read Anthony's testimony, click here.

• Kevin Sharer, Chairman of the Board and CEO Amgen Incorporated Thousand Oaks, CA. Amgen is opposed to the "second window" for cancellation proceedings that would allow challenges throughout the life of a patent. Also, Amgen is opposed to apportionment of damages. To read Kevin's testimony, click here.

• John ("Jay") R. Thomas Professor of Law Georgetown University Law Center Washington, D.C. Jay provides a good synopsis on the propriety of apportioned damages, but recommends that Congress clarify between "reasonable royalties" and "lost profits" when calculating damages. To read Jay's testimony, click here.

• William T. Tucker Executive Director Research and Administration and Technology Transfer University of California Oakland, CA. The university supports many of the provisions in H.R. 1908, but is against the repeal of 271(f) and elimination of "best mode." To read William's testimony, click here.

The hearings will be webcast live over the Internet, and can be viewed here.

Forbes: Blame Hedge Funds and Investors for Recent Patent Trolling

Forbes published an article yesterday that sheds more light on legal financing companies and their impact on patent litigation. The article highlights Robert Kramer, who founded Altitude Capital Partners in 2005, by raising $250 million from hedge funds and others to invest in intellectual property. Since that time, Kramer added an additional $100 million in 9 different "investments" (read: lawsuits).

Most notably, Altitude is backing MercExchange in their battle with eBay (Altitude was recently subpoenaed by eBay to find more information on the scope of their relationship). Other projects include DeepNines patent litigation against MacAfee, and Visto's patent litigation against Microsoft, RIM and Motorola. Visto recently received a $7.6 million verdict against Seven Networks on the same patents.

Another auspicious investor mentioned in the article is Paul Schneck, who runs Rembrandt IP Management, a Bala Cynwyd, Pa. firm. Unlike Altitude, Rembrandt buys up patents and launches lawsuits from scratch. So far, Rembrandt has raised $150 million and has a number of high-profile cases in the till. One of them is based on a patent directed to digital TV communication. The patent was purchased from Paradyne (formerly Lucent) for $1 million, and is now being asserted against Comcast, Time Warner, Walt Disney, ABC, and others. Another patent is based on the treatment of contact lens surfaces, and is being asserted against Bausch & Lomb and Novartis.

Other investment groups include:

Coller Capital, which is a London private equity firm with a $2.6 billion fund. Recently, the group quietly formed Coller IP Capital, which plans to invest $200 million a year in IP.

Northwater Capital, a $9 billion Toronto manager of hedge funds, put together NW Patent Funding last year.

While mindful of the recent anti-plaintiff changes in the courts and in Congress, IP investors are still hopeful that they will be on the winning side of a Microsoft/Alcatel or RIM/NTP verdict. Regardless of any upcoming changes, they have vowed to fight onward. As one patent consultant noted, "they are the arms merchants in the new patent wars."

See Forbes article "Patent Pirates"

See earlier 271 Blog post: "Are Legal Financing Companies Encouraging Trolling?"

Doctrine of Inherency Causes Stir at the CAFC

In Re Omeprazole Patent Litigation (04-1562) April 23, 2007

Astra sued several drug companies to prevent them from seeking permission from the FDA to market generic versions of Prilosec®. After a four-phase district court trial (which included a 52-day bench trial), Andrx Pharmaceuticals was found to infringe Astra's patents.

In an earlier proceeding, Astra filed suit in Korea against CKD, but CKD claimed to have a patent application of its own, which covered similar subject matter. Thereafter, Astra filed a patent application that was partially based on CKD's disclosure, but claimed the application of an enteric coating polymer layer, "thereby forming in situ a separating layer as a water soluble salt product."

The district court agreed that the CKD application did not expressly disclose the claim limitation of "forming in situ a separating layer." Nevertheless, the court that the formation was inherently disclosed based on the disclosure in the CKD application, and Astra's lack of "scientific proof with which to rebut or refute its prior admissions of inherency."

The CAFC agreed with the district court, even though one skilled in the art may not have recognized the inherent characteristics of the prior art:

[A] prior art reference without express reference to a claim limitation may nonetheless anticipate by inherency. See In re Cruciferous Sprout Litig., 301 F.3d 1343, 1349 (Fed. Cir. 2002). Moreover, "[i]nherency is not necessarily coterminous with knowledge of those of ordinary skill in the art. Artisans of ordinary skill may not recognize the inherent characteristics or functioning of the prior art." Id.; Schering Corp. v. Geneva Pharms., 339 F.3d 1373, 1377 (Fed. Cir. 2003) (rejecting the contention that inherent anticipation requires recognition in the prior art). Though [Astra's inventors] may not have recognized that a characteristic of CKD’s Method A ingredients, disclosed in the CKD Patent Application, resulted in an in situ formation of a separating layer, the in situ formation was inherent.

The record shows formation of the in situ separating layer in the prior art even though that process was not recognized at the time. The new realization alone does not render that necessary prior art patentable . . . Despite CKD’s denials, [Astra's inventors] realized and explained that CKD’s OMP tablet’s formation of a separating layer was a natural result flowing from the combination of certain ingredients listed in Method A. That explanation, however, does not make that prior art patentable. The ingredients and protocols CKD gave to the KIPO and Astra in 1993 and 1994 necessarily resulted in in situ formation of a separating layer. Thus, the trial court correctly found inherent anticipation.

Judge Newman's dissent

Newman accused the majority of straying from the principle of inherency, which requires that any information missing from a reference would nonetheless be known to be present in the subject matter of the reference, when viewed by persons experienced in the field of the invention. "However anticipation by inherent disclosure is appropriate only when the reference discloses prior art that must necessarily include the unstated limitation, or the reference cannot inherently anticipate the claims."

Newman also argued that the majority's decision confused the law governing patentability of a newly discovered use of a known composition (which is achieved by "process" claim), with the patentability of the known composition itself:

The claims at issue are not directed to a composition; they are directed to a process for forming a sublayer from known ingredients . . . The Astra process is not described in the prior art, although Astra admitted that it believed that the Korean company Chong Kun Dan Corporation (CKD) had made such a product. It is not disputed that such a sublayer does not form under the conditions in the CKD patent application. No such reaction is described in CKD's Korean patent application, nor the conditions that could have produced such a product. Nonetheless, my colleagues rule that the process discovered by Astra is "inherently anticipated" by the CKD application. That is not the law of either anticipation or inherency. I must, respectfully, dissent.

This could be a good candidate for en banc review. Inherency has long been a sticking point for the CAFC. Some of the CAFC panels have stated that recognition is required, while other panels stated that recognition is not required.

For an excellent paper on inherency, see Dan Burk and Mark Lemley's article, coincidentally titled, "Inherency," published in 2005:

Inherency is also perhaps the most elusive doctrine in all of patent law. The cases appear to flatly contradict each other, are often accompanied by dissents, and in the last three years alone have triggered one abortive en banc rehearing and strong calls for a second. In particular, the courts have split sharply over whether an element can be inherent in a prior art reference even if people of ordinary skill in the art do not appreciate the existence of that element.

In this Article, we argue that this confusion is largely unnecessary. While many courts have recited as gospel the idea that inherency requires knowledge or appreciation of the inherent element, in no case does the application of the inherency doctrine actually turn on knowledge of the element. Rather, the inherency cases are all ultimately about whether the public already gets the benefit of the claimed element or invention. If the public already benefits from the invention, even if they don't know why, the invention is inherent in the prior art. If the public doesn't benefit from the invention, there is no inherency.

Patent Reform Act of 2007 - Argle-Bargle, or Foofaraw?

Early reports are in on Patent Reform Act of 2007, and it's clear that there is something for everyone to dislike about the currently-proposed legislation. Here are some of the highlights:

Prior Art

35 USC § 102: The U.S. patent system would go to a "first-to-file" regime, where the critical date for prior art would become the "effective filing date" of a patent application. Disclosures made by an inventor or joint inventors would be given a one year "grace" period before an application must be filed.

• The on-sale bar is still in force under the legislation, and no grace period applies here. Instead of abolishing the rule, the on-sale bar has been extended to cover secret offers for sale outside the U.S. Public use of the invention would also be exempt from the grace period.

35 USC § 103: Pretty much the same: "claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art."

No More BPAI

The "Board of Patent Appeals and Interferences" would now become the "Patent Trial and Appeal Board." Interference practice would be abolished and replaced with "derivation proceedings." Under a derivation proceeding, one applicant is accusing another of "stealing" the invention and filing a patent application without authorization.

Oaths and Declarations

Companies can get around non-cooperating inventors easier by filing a "substitute statement" in lieu of an oath or declaration when the inventor is under a contractual duty to assign the invention.

Damages

Reasonable royalties under § 284 will be applied

[o]nly to that economic value properly attributable to the patent's specific contributions over the prior art . . . The court shall exclude from the analysis the economic value properly attributable to the prior art, and other features or improvements, whether or not themselves patented, that contribute economic value to the infringing product or process . . . damages may not be based on the entire market value of the infringing product or process.

It appears this provision is one of the least-understood, and most-likely to be litigated ad infinitum in the CAFC. "Properly attributable" does not give much guidance on what specific factors are considered and the weight that each factor carries. It is also unclear what effect settlement agreements with other defendants will have on this calculation.

Willful Infringement

Willfulness will be much more difficult to get, and will be limited in scope. Willfulness will not apply to provisional rights under § 154(d), and must be established in a separate proceeding under clear and convincing evidence. A patentee will no longer be able to plead willfulness until a court has determined that a patent is infringed, not invalid and enforceable.

Willfulness may be found when

1. The defendant received written notice from the patentee that demonstrates infringement in a manner that gives reasonable apprehension of suit (see Sandisk for this one). The notice must also identify "with particularity each claim of the patent, each product or process that the patent owner alleges infringes the patent, and the relationship of such product or process to such claim."
2. The infringer intentionally copied the patented invention with knowledge it was patented, or
3. The infringer continues to engage in conduct that is not "colorably different" from previously infringing conduct.

Under the proposed rules, an "informed good faith belief" will protect an infringer against charges of willfulness. Opinions of counsel, evidence of modifying conduct to avoid infringement, and "other evidence" may be used to prove that a defendant was not willful.

Post Grant Review

A cencellation proceeding has two "windows." The first window for filing a petition is "not later than 12 months after the grant of the patent or issuance of a reissue patent." The second (and more controversial) window is any time that a petitioner "establishes a substantial reason to believe that the continued existence of the challenged claim in the petition causes or is likely to cause the petitioner significant economic harm."

There is no further information on what "substantial reason" would trigger this provision, or how "significant" the harm must be. The decision to grant the petition will be left entirely up to the USPTO Commissioner, which is a politically appointed position (and cause for some concern).

The proceeding will be a more strict type of reexamination request, where the patentee gets one opportunity to amend the patent. Amendments may not enlarge the scope of the claims. No presumption of validity applies, and the burden of proof is a preponderance of the evidence.

Both sides can have a right to appeal. If a final decision is rendered against one of the requesting parties in a civil action, the cancellation proceeding terminates.

Reexaminations - estoppel provision for inter partes reexamination has been removed ("or could have raised"). Also, a judgment by a district court (NOTE: not a "final decision") finding a patent valid terminates a reexamination proceeding on the same prior art. This provision is retroactive, and would capture existing reexamination proceeding if enacted.

Some early criticism

Currently, Hal Wegner has been all over the proposed legislation and provides some good commentary:

• "Despite the pomp and circumstance . . . this bill is dead on arrival . . . there is essentially zero-point-zero chance of enactment for the overall package in its present form."
• Too much power is vested in the USPTO Commissioner. Cancellation proceedings should be independent of the USPTO.
• A better forum for cancellation proceedings would be the Court of Federal Claims. Special Masters could be appointed to conduct reviews much like the current reviews being done in other subject matters.
• Statutorily overrule Lear/Medimmune to provide "licensee estoppel" to bar potential abuse of the "second window" for cancellation proceedings.
• Get rid of § 271(f) - "[t]his section has gotten way out of hand."
• Why are interlocutory appeals for Markman hearings allowed in infringement cases, but not declaratory judgments?

- Preliminary Reports from the blogosphere (will be updated as more posts follow):

Patently-O (part I)

Patent Prospector

Waiting for KSR v. Teleflex? You May Need to Wait a Little Longer . . .

Recently, KSR has become analogous to a band-aid that is about to ripped off the skin of an anxious patent bar. Considering the acerbic tone of the SCOTUS bench during oral arguments, many fear that the decision will amount to a painful wrench on a hairy appendage. Regardless of outcome, people have become restless waiting for the opinion (of course, it didn't help that Justice Scalia quipped in December: "I know how that one comes out, but I'm not going to tell you.").

Is the SCOTUS "late" in issuing the opinion? Not really.

Joe Miller at the Fire of Genius Blog has an excellent breakdown of the SCOTUS's decision making pace for the last term, and explains the following:

Assume the Roberts Court is similar to the Rehnquist Court: Opinions will issue in roughly the order in which they were argued, and majority opinions will be distributed roughly evenly among the justices for each argument session. What does the pattern of argument and opinion dates tell us thus far?

First argument session, beginning 10/2/2006

9 cases argued, with 9 opinions issued to date

(The last case to issue was Global Crossing Telecommunications v. Metrophones Telecommunications, No. 05-705. Justice Breyer wrote the majority opinion.)

Second argument session, beginning 10/30/2006

12 cases argued, with 9 [10] opinions issued to date

(One case remaining is James v. United States, No. 05-9264. The other two are the partial birth abortion cases, Gonzales v. Carhart, No. 05-380, and Gonzales v. Planned Parenthood, No. 05-1382. Justice Kennedy has not authored an opinion from this session yet.) [the Gonzales opinion issued today]

Third argument session, beginning 11/27/2006 [includes the KSR case]

10 cases argued, with 5 opinions issued to date

The authors of the five majority opinions issued to date are Justice Breyer (Gonzales v. Duenas-Alvarez, No. 05-1629, issued 1/17/2007), Justice Thomas (Weyerhauser Co. v. Ross-Simmons Hardwood Lumber Co., No. 05-381, issued 2/20/2007), Justice Scalia (Rockwell Int’l v. United States, No. 05-1272, issued 3/27/2007), Justice Stevens (Massachusetts v. EPA, No. 05-1120, issued 4/2/2007), and Justice Ginsburg (Watters v. Wachovia Bank, No. 05-1342, issued 4/17/2007).

Thus, half of the cases argued before the Court during the same session as KSR have not received opinions. A recent Washington Post article explains that the court is off to a "slower-than-usual pace" in issuing opinions. "The justices have issued 23 decisions so far, a bit behind last year's pace. Of course, at this point, they've also heard fewer cases than last year."

According to Joe, Justice Souter is most likely to author the majority opinion in KSR, followed by Justice Alito:

I assume that Justice Kennedy will have written the Seattle and Jefferson County affirmative action cases, and that the Chief Justice will have written the Ledbetter Title VII case. That leaves KSR and Twombly for Justices Souter and Alito.

Read Joe's post here.

See the SCOTUS Blog: The Pace of the Court's Decisionmaking

NOTE: Of course, the Supreme Court hasn't been predictable as of late. Earlier in the term, legal analysts and reporters noted that the justices were taking far fewer cases than in recent years. Shortly thereafter, the court accepted a slew of new cases in January.

Accordingly, the SCOTUS pace is likely to pick up in the coming months. Besides writing opinions in cases they've heard, the justices are scheduled to hear 16 cases in April, which is the same number as in February and March combined.

The Patent Reform Act of 2007

It's out. You can download it here.

Hat tip: Professor Joe Scott Miller

Patent Reform Legislation Scheduled to be Released Today

Sponsors in both the House and Senate plan to unveil patent reform bills today (2:15 p.m. EST), according to congressional officials. The Coalition for Patent Fairness, will host a media teleconference today, at 3:30 p.m. EDT to discuss the bipartisan, bicameral patent reform legislation scheduled to be introduced this afternoon by Senators Patrick Leahy (D-Vt.) and Orrin Hatch (R-Utah) and Congressman Howard Berman (D-Calif.) and Congressman Lamar Smith (R-Texas). After brief remarks, reporters will have an opportunity to ask questions.

Participants in the teleconference include

• Jon Yarowsky, chief counsel, Coalition for Patent Fairness
• Steve Elmendorf, coordinator, Coalition for Patent Fairness
• Charles Fish, vice president and chief patent counsel, Time Warner Inc.
• Joel Poppen, deputy general counsel, Micron Technology, Inc.

CALL-IN INFO:

1-800-311-9407

1-334-323-7224

Passcode: Patent

Of course, the 271 Blog will provide updates on the legislation as it becomes available

See Washington Post, Patently At Odds

Post-Ebay Decision in D. Del.: Plaintiff Must Show Why Monetary Damages Aren't Enough

Praxair Inc. v. ATMI Inc. (03-1158) District of Delaware, March 27, 2007

After Praxair successfully sued ATMI for patent infringement, Praxair moved for a permanent injunction on ATMI's infringing gas cylinder device. The two companies were in "direct and head-to-head competition" and are the two main mechanical-based systems for the controlled delivery of industrial gases on the market. Praxair argued that this relationship, and ATMI's sale of the infringing product, entitled Praxair to an injunction.

ATMI countered that an injunction would force customers to incur significant costs by shutting down operations to qualify an alternative gas source or to switch to alternate cylinders. While ATMI retained title to most of its cylinders, the customers own the gas stored in the cylinders.

After reviewing the eBay four-factor test, the district court ruled that Praxair has not provided sufficient evidence showing irreparable injury and the inadequacy of legal remedies:

Under eBay, a plaintiff must prove that it is entitled to its statutory right to exclude by demonstrating, inter alia, irreparable injury and the inadequacy of legal remedies. Though the quantum of evidence required is relatively unclear, the court finds that Praxair has not met its burden under eBav to put forward sufficient proof vis-a-vis the broad scope of the relief requested. Praxair generally argues that VAC's presence in the market will cause Praxair to "likely lose additional market share, profits, and goodwill," without further detail. Praxair has not provided or described any specific sales or market data to assist the court, nor has it identified precisely what market share, revenues, and customers Praxair has lost to ATMI . . . While money damages are generally considered inadequate to compensate for the violation of a patentee's right to exclude, Praxair nonetheless had a burden to iterate specific reasons why ATMl's infringement can not be compensated for with a money award.

The court stated that Praxair may renew its motion for injunctive relief following appellate review of the jury verdict.

Download opinion here

Hat Tip: Delaware IP Law Blog

Is it Time to Stop Using the Term "Patent Troll"?

Two articles were recently published in the John Marshall Review of Intellectual Property Law, in which the articles derided use of the term "patent troll." It's derogatory, inaccurate and it sends the wrong message to lesser-funded innovators; say what you will about the patent system, but stop with the name-calling, argue the authors.

The first article, written by Ray Niro, expounds on the Patent Troll Myth article, and argues that use of the word "patent troll" is a veiled attempt by large companies to besmirch independent inventors and their contributions to various technologies. By coining a snappy, but pejorative, term on litigious inventors ("troll"), Niro argues that this tactic has helped large companies to walk over smaller entities:

Famous criminal defense lawyer, Percy Foreman, once claimed that he focused his trials on the bad acts of the victims of heinous crimes to divert the juries’ attention from his clients’ own bad acts. This tactic begot the name “victimology” and maybe, at some point, the juries in Forman’s cases actually thought the victims deserved to die—victimology at its extreme. Examples of victimology abound, including the Menendez brothers’ defense: “We had to kill our parents when we became adults because, as children, they abused us,” and, as O.J. claimed, “The system is out to get me: I was rushed to judgment.” Like O.J. and the Menendez brothers, [a large company has] to make itself appear the victim to divert attention from what [is] really happening.

Niro further adds:

Are “patent trolls” really so dangerous that legislation is needed to reform the patent system? Or, is the now over-used term “patent troll” just a way to disparage individual inventors and the attorneys who take their cases? Worse, is it even possible that the phrase “patent troll” embodies subtle public relations, in which perpetrators of infringement collectively claim to be the victims?

Oddly enough, while the article pleads for less name-calling, a few choice terms are proposed to describe attorneys that defend large corporations against claims of infringement from independent inventors:

[S]uppose someone wanted to bash big-time lawyers whose clients hired them to defend patent infringement lawsuits, claiming an inventor’s patent is invalid, not infringed and procured through inequitable conduct. Let us create a disparaging name for them. How about “Patent Bloodsuckers,” e.g., an animal, such as a leech, that sucks blood? Seem too harsh? . . . Then what about “parasite”? “Parasite” is defined as: An organism that grows, feeds, and is sheltered on or in a different organism while contributing nothing to the survival of its host.

Okay: Let us call them “patent parasites.” They feed on inventors, contribute nothing to innovation, and depend for their survival on the millions of dollars in fees they extract from their clients. So maybe “patent parasite” fits. And maybe we can even create a cartoon of the “patent parasite”— a Dracula-looking character, consumed by a bare desire to attack helpless inventors, he will destroy patents and the innovation they protect all while we, as a Nation, slide gradually toward technical mediocrity. Bad image, yes? If enough people start saying it, some people may start believing it - essentially following the circuitous route that led to the derogatory term “patent troll.”

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

In a more measured approach, the second article was written by student Jennifer Kahaulelio Gregory, who argues that the term "patent troll" is meaningless, since no one can accurately define who is a "troll" and who is merely a "non-practicing entity" (NPE). The article points to examples like Eastman Kodak, who successfully sued Sun Microsystems for $92 mil. on a patent it inherited, and did not practice:

No one has ever called Kodak a Patent Troll, even though it was not “practicing” that particular patent. Many large manufacturers create a strategic advantage by holding unused patents in their patent portfolio, and forcing competitors to come to them for licenses in order to use the patented technology. Also, many individual inventors hold patents on their inventions, but they have neither the expertise, nor the money to manufacture them.

In other words, most patent holders, small or large, are essentially doing the same thing as everyone else when it comes to patent enforcement. Regarding the "waves" of litigation caused by patent holders (NPEs), the article points out that a recent study by the Antitrust Modernization Commission indicates that of patent infringement lawsuits filed in thelast five years, NPEs filed about two percent.

With all the bad press patent holding companies have received over the last 2-3 years, it was only a matter of time before defenders of patent holding companies started to publish articles that responded to criticisms of the enforcement/licensing process. We can anticipate more of these articles to publish in the coming months as congress continues the attempt reform patent law in the U.S.

Download Articles

Raymond P. Niro, Who is Really Undermining the Patent System – “Patent Trolls” or Congress?

Jennifer Kahaulelio Gregory, The Troll Next Door


See also,

James F. McDonough III, The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an Idea Economy.

Article from Robins Kaplan, ""Patent Troll:" A Self-Serving Label that Should be Abandoned"

CAFC Issues Split Decision on the Meaning of "Transverse Holes"

Acumed LLC v. Stryker Corp. (06-1260), April 12, 2007

The CAFC reviewed the district court's finding of willful infringement of Acumed's patent on orthopedic devices for the treatment of fractures to the upper arm. Stryker argued that the district court erroneously construed numerous claim terms, including the term "transverse holes":

An elongated tapered nail for securing fractures of the proximal humerus comprising:

. . . a contiguous butt portion extending proximally from the shank and configured to occupy the humeral cortex;

the butt portion being shorter than the shank and defining a plurality of at least three transverse holes, each defining a hole axis, with the three hole axes angularly offset from each other . . .

The district court defined "transverse holes" as "holes across the butt portion of the nail." Stryker argued that this term should mean holes that are perpendicular to the nail shaft, since every description of the transverse holes in the patent only teaches a perpendicular hole.

While the majority acknowledged that every description in Acumed's patent showed a perpendicular hole, the court refused to read this limitation into the claim under Phillips.

The plain meaning of Claim 1 covers more than the particular embodiment shown in the figures. While the disclosed embodiment possesses "perpendicular" holes, the claim language covers all "transverse" holes—a word that does not necessarily imply right angles. Moreover, the patentees’ description of their preferred embodiment itself implies a difference between the words "perpendicular" and "transverse." The written description states that Figure 2 "illustrates a plurality of transverse holes, each of which is . . . perpendicular to the portion of the nail axis at the butt portion 14 of the nail" . . . This implies that a "transverse" hole need not be "perpendicular" - if it were, the patentee would not have needed to clarify that these holes, in addition to being transverse, were perpendicular to the nail axis. Just as in Phillips, where the asserted claim mentioned "steel baffles" and hence "strongly implie[d] that the term 'baffles’ does not inherently mean objects made of steel," 415 F.3d at 1314, this usage of language is strong evidence that the patentee considered "transverse" and "perpendicular" to have distinctly different meanings.

The intrinsic evidence of the specification therefore suggests that the patentees knew how to restrict their claim coverage to holes passing through at right angles. They could have used the word "perpendicular," as they did in discussing their preferred embodiment. Instead, they chose a different term that implies a broader scope. The intrinsic evidence does not indicate that one of skill in the art would believe the patentees meant "perpendicular" when they said "transverse."

The majority also found that the specification phrase "each of which is defined" does not imply a lexicographic definition, and especially not a definition of "transverse" to mean "perpendicular" (e.g., "the butt portion . . . defining a plurality of at least three transverse holes, each defining a hole axis"; "the curved shank includes a curved portion defining a curved central axis"; "the butt portion defines a central axis").

Also, the majority discounted the fact that the inventor of Acumed's patent filed a related application, where the transverse holes were clearly defined as perpendicular in nature. Relying on Phillips, the majority concluded that "the specification and claims of the ’444 patent itself should be given significantly greater weight. "

Judge Moore's Dissent: In a strongly worded (13 page) dissent, Judge Moore took issue with the manner in which the district court established its claim construction. For one, the claim construction hearing occurred prior to Phillips. Second, Moore pointed out that the district court started the claim construction by turning to a common English language dictionary, published ten years after the issuance of Acumed's patent. Furthermore, there were two definitions for "transverse" offered by the dictionary, and the district court chose the broader definition, because it found no express disavowal of claim scope in the specification. Under Phillips, Moore argued that such an approach was clearly improper.

Moore also argued that the public notice of a patent's scope becomes muddles when courts construe claim terms to have meanings broader that the meaning derived from the intrinsic evidence. Since Acumed's patent only discloses a perpendicular hole, "it is inappropriate to give that term a broader interpretation, particularly where the only support for the broader interpretation is extrinsic evidence—in this case, a dictionary (which supports the narrower construction as well). "

Finally, Moore lets off this parting shot at the majority:

Tellingly, the majority opinion offers no other support—intrinsic or extrinsic—for its construction, and in fact, offers no explanation at all for its conclusion that "the claim language covers all ‘transverse’ holes—a word that does not necessarily imply right angles." What, if not the specification, is the majority using to determine the plain meaning of this term? The district court based its conclusion regarding the plain meaning of transverse on Webster’s Dictionary, which it acknowledged supported both the definition across and perpendicular. In the present case, as in Nystrom, I see no reason why we should adopt one, broader, plain meaning of the term "transverse" when there is another plain meaning that is completely consistent with the intrinsic evidence. When one begins with the patent specification, in my opinion, there is no doubt which of the two meanings of "transverse" is correct.

I'm losing track of this, but Acumed is now the 13th or 14th split decision on a claim construction issue since Phillips (which is almost a 300% increase over the Pre-Phillips days).

USPTO Submits Modified Continuation Rules for Approval

Apparently, the death of USPTO continuation rule changes has been greatly exaggerated. Reports are coming out that the U.S. Patent and Trademark Office is ready to issue "final rules" on changing continuation application practice. Charles Van Horn provides the following report on Patently-O:

USPTO Commissioner for Patents John Doll announced today at a DC Bar meeting that the final rules on continuation and designated claims practices are at OMB (Office of Management and Budget) for approval. The final rules were logged in on April 10 and OMB is expected to complete its review in 90 days, but frequently grants itself an extension of time. The final IDS rules were said to be on the desk of Director Dudas for approval, and will follow the other two packages to OMB in due course. So at this point in time, July-August would be an approximation for publication of the final rules, with 30 days (based on previous PTO statements) to implementation. No details of the final rules were disclosed.

Commissioner Doll has acknowledged that the overwhelmingly negative responses from the patent bar has forced the Office to "modify" the rules. While the office has been mum about the specific "modifications," some of the rumored changes include (1) increasing the number of continuation applications, and/or providing exemptions for RCE's, (2) changing the "representative claim" proposal for initial examination, and (3) changing the rule that all divisional applications be filed at the same time to retain the initial priority date.

Of course, the USPTO has chosen to forego public comment on the modified changes, so there is reason to suspect that these changes will be just as odious the initial proposal.

Commissioner Doll is scheduled to address the American Bar Association's Intellectual Property Section meeting in Washington over the next three days (April 12-14, Arlington VA).

See earlier 271 Blog Post and continuation rule changes here.

See USPTO FAQ page on proposed changes here.

See Report from the Intellectual Property Owner's Association here.

What Hath the SCOTUS Wrought? Willful Infringement In a Post-Ebay World

In the case of Paice LLC v. Toyota Motor Corporation, the E.D. Texas found that Toyota infringed Paice's patent. Since Ebay, permanent injunctions are no longer granted as a matter of course, and the district courts must use the four-factor test to determine a proper equitable remedy.

In Paice, the district court decided that, since Paice did not produce products that competed with Toyota, an injunction was not an appropriate remedy. Instead, the court ordered that each future sale of a subject vehicle by Toyota would require a $25 per vehicle royalty to Paice. This number was based off of a reasonable royalty that the jury determined would have been agreed upon by the parties in a hypothetical negotiation at a time just prior to first infringement.

The problem here is that the Ebay court provided no guidance on what types of remedies are appropriate for the court to consider, and how the remedies are applied.

According to Paice, the reasonable royalty may have been acceptable for "regular" infringement, but it is not appropriate for ongoing, post-verdict, infringement. Since the district court's royalty is tantamount to a compulsory license, Paice argues that such a remedy is contrary to judicial precedence and 35 U.S.C. § 283. Also, Paice argues that since a compulsory license relates to damages, Paice is entitled to a jury trial under the 7th Amendment to determine the appropriate number for future damages:

Toyota erroneously asserts that once Paice made a request for equitable relief, the district court was free to fashion any remedy it chooses, including entry of a compulsory license for future infringement . . . If this position were correct, there would be no limitation on the remedies available because virtually all patent cases include a request for some equitable remedy. The right to a damages trial before a jury would not exist, and yet the law is clear that the Seventh Amendment requires that a district court submit damages to a jury.

***

Toyota's argument assumes that Paice is only entitled to the same reasonable royalty rate the jury calculated for past damages. That amount is what the jury found a willing licensor and willing licensee would have agreed upon in a hypothetical negotiation from the time infringement began to trial . . . It cannot, and should not, be used for calculating a future royalty rate in a prospective compulsory license. This standard fails to take into account the potential for future lost profits, loss of potential value in granting an exclusive license, and the ongoing willful infringement that would occur by Toyota. Though an injunction has not been entered, Toyota's decision to commit ongoing willful infringement of a valid United States patent, because it is so essential to the success of its product, should be considered in setting a royalty rate. A district court may find that it should not permanently enjoin an adjudged infringer from selling infringing goods. However, the infringer should still have to account for its choice to continue willfully infringing if it chooses to do so.

In response, Toyota argues that the license was appropriate under section 283, which authorizes courts to award patentees prospective injunctive relief "in accordance with the principles of equity . . ., on such terms as the court deems reasonable." Since the equitable jurisdiction of the court was properly invoked for injunctive purposes, "[t]he court has the power to decide all relevant matters in dispute and to award complete relief even though the decree includes that which might be conferred by a court of law [i.e., monetary damages]."

Because the prospective damages were awarded as part of the equitable jurisdiction of the court, Toyota argues that Paice is not entitled to a jury trial.

Oral Arguments are scheduled for May 7, 2007 (2006-1610)

See Paice's Brief here.

See Toyota's Brief here.

Taking a Peek Inside Microsoft's Patent Litigation Department

Like many other corporations, Microsoft is looking to beef up its legal department, and is currently seeking a patent litigation attorney to join its staff in Redmond Washington.

Microsoft is so keen on advertising this position that they recently gave access to IP Law & Business to give a little background on their patent department:

• In 1998, Microsoft had less than a dozen patents. Today, that number exceeds 5,000.

• Over the past five years, Microsoft has been a defendant in 96 patent cases. In most of those cases, Microsoft describes the plaintiffs as "patent trolls." Over the same time period, Microsoft was a plaintiff in 11 cases.

• Microsoft's current docket has 40 pending patent cases - 15 of them are in the E.D. Texas.

• Patent litigation is approaching half of the company's legal fees. According to Thomas Burt, Microsoft's corporate vice president and deputy general counsel for litigation, "If you measure it by how much we spend on outside counsel in any given year, 40 percent-plus is patent litigation, 40 percent-plus antitrust, and the rest is everything else."

• Microsoft's in-house patent litigation team is headed by Andrew Culbert, associate general counsel, and has a staff of three patent trial lawyers and three paralegals.

Read Inside the Microsoft War Room from Law.com

Submit your resume to Microsoft here.

Funny quote on Microsoft's job page from a staff attorney: "You know that long string of legal text that pops up when you first start up your system? The one you probably never read? I wrote that!"

Infringement Reversed over Improper Certificate of Correction

Central Admixure Pharmacy Services v. Advanced Cardiac Solutions (06-1307), April 3, 2007

Central Admixture Pharmacy Services (CAPS) sued Advanced Cardiac Solutions (ACS) for infringing a patent on a chemical solution used during heart surgery. When the litigation started, the patent was issued a certificate of correction from the USPTO, where all instances of the word "osmolarity" were replaced with the word "osmolality."

The two terms describe the concentration of a chemical solution contributing to that solution’s osmotic pressure. "Osmolarity" refers to the amount of solute (dissolved chemical) per liter of total solution. At the concentrations involved in the case, osmolarity is measured in milliosmoles per liter (mOsmol/L). In contrast, "osmolality" refers to the amount of solute per kilogram of solvent. It is measured in milliosmoles per kilogram (mOsmol/kg).

The district court interpreted the patent using the corrected "osmolality" term, finding that the certificate of correction was proper as a matter of law. The CAFC disagreed.

A patentee who has made "a mistake of a clerical or typographical nature, or of minor character" may apply to the PTO for a "certificate of correction, if the correction does not involve such changes in the patent as would constitute new matter or would require re-examination" . . . [i]f a certificate of correction broadens a claim, it is only valid if it corrects a "clerical or typographical" error that would have been clearly evident to one of skill in the art reading the intrinsic evidence . . . Since the result is to invalidate a certificate of correction which is part of a duly issued patent, the party seeking invalidation must meet "the clear and convincing standard of persuasion."

Invalidating a certificate of correction for impermissible broadening therefore requires proof of two elements: (1) the corrected claims are broader than the original claims; and (2) the presence of the clerical or typographical error, or how to correct that error, is not clearly evident to one of skill in the art . . . We find that these claims were broadened by the certificate of correction, since the claims as corrected cover less-concentrated solutions which would not be covered under the original claims.

* * *

Since the error corrected here was not clearly evident to one of skill in the art and the result of its correction was to broaden the claims, ACS should be granted summary judgment that the certificate of correction is not valid. The patent therefore continues to read as it did prior to the issuance of the certificate . . . Because the district court’s summary judgments of infringement and willfulness were both explicitly contingent on the validity of the certificate of correction, both of those judgments are vacated. On remand, the infringement inquiry should proceed under the original "osmolarity" versions of the claims.

AFFIRMED-IN-PART, REVERSED-IN-PART, VACATED and REMANDED

NOTE: Oddly enough, the certificate of correction was granted in 2001, but a reexamination certificate was issued in 2005 (see here) - none of the changes from the certificate of correction were implemented in the reexamination.

The Disputed Quality of Software Patents

For the past three years, a conventional wisdom formed that software patents are (1) numerous, (2) poorly examined, and (3) low quality. This "weak-patent" viewpoint has been the argumentum ad populum for anti-software-patent activists in previous years, and has now become the catchphrase at most every software patent symposium being held around the U.S. and abroad.

Many of the commentators perpetuate the notion that software patents are somehow of a "lesser quality" when compared to other technologies. Despite the USPTO's recent hard-line approach, some maintain that patent quality is getting worse when it comes to software:

"Novelty is supposed to be judged relative to 'prior art,' but it is almost impossible for a single human being to root out all relevant prior art. One result has been a steady reduction in patent quality, with patents of dubious novelty being granted routinely" (Hal Varian, professor of business, economics and information management at the University of California, Berkeley).

"The current patent system has given rise to too many low quality patents being issued, and a growing pattern of assertions of weak patents that threaten to damage productive companies and stifle innovation" (congressional testimony from the Business Software Alliance).

In fact, the primary motivation behind the Community Patent Review Project is to curb "excessive numbers of low-quality patents" that are presumed to be predominate in the software arts.

But are software patents, as a class, inferior in quality? Some new research being conducted by John Allison and Ronald Mann from the University of Texas, suggests the answer is "no."

The preliminary research conducted by Allison and Mann empirically analyzed patents held by software firms. Specifically, they examined roughly 34,000 patents held by leading firms that were issued during the five-year period from 1998-2002.

The research addresses the threshold question of exactly what should count as a "software patent." Unlike prior researchers, Allison and Mann examined individual patents to determine which ones involve software inventions. Furthermore, the research makes objective distinctions between the "quality" and "value" of patents. Building on prior research, items such as (1) the number of claims in the patents, (2) the number of prior art references in the patents, (3) the number of forward citations, and (4) the breadth of patent families were analyzed in determining the overall quality (and inherent value) of software patents.

With regard to prior art, Allison and Mann found that the average software patent has 18.5 references cited, while non-software tech patents cite 14.1 references. For non-patent prior art (NPPA), non-software patents cite less than 25% of the NPPA cited in software patents. Moreover, 63.5% of non-software patents cite no NPPA at all, while only 34.5% of software patents fail to cite any NPPA.

With regard to claims, software patents, on average, have more claims than non-software tech patents (22.9 versus 17.8). Software patents also have a slight edge in forward citations as well (1.1 versus 1.0). Also, no discernible difference was determined between patents issued to large entities versus small ones.

In short, the preliminary work of Allison and Mann suggests that the current "concerns" over the quality of software patents, as a class, may be overstated:

In our view, the data are important for two separate reasons. First, the data substantially undermine the traditional story that large firms in the software industry are plagued by a large number of low-quality patents obtained by the smaller firms in the industry. On the contrary, by objective standards, the software patents as a class compare quite favorably to patents that the same firms are obtaining at the same time on non-software inventions. Similarly, the patents obtained by small firms are no worse than the patents of the large firms.

Those findings have in our view twin implications for patent policy. The first is the simplest: they undercut the common suggestions that software patents should be prohibited entirely or should face special hurdles for examination designed to stem the alleged flood of low-quality patents. If in fact there is no flood of low-quality patents, then there is little reason to take aggressive action to respond. The second implication is more speculative, but rests on the idea that the effort of the drafter does not depend substantially on the size or patenting experience of the drafter. To the extent that this is true, our findings undermine the concern that small firms will suffer disproportionately from reforms that raise the bar for patent grants, such as increased examination fees, special procedures for "gold-plated" patents, or additional opportunities for pre-grant opposition. If patent drafting is a routine exercise in which firms of all sizes do a better (or worse) job based on the incentives that the PTO’s procedures present, then this presents a reasonable case for reforms designed to reward applicants that put more effort into their application or who are willing to provide more credible support for their application (as evidenced by a willingness to submit their application to a more onerous process).

Download a draft copy of "The Disputed Quality of Software Patents" here