Is the USPTO a "Rubber Stamp"? Errr, Not Quite . . .

Mark Lemley (Stanford) and Bhaven Sampat (Columbia) have released a draft copy of a recent study entitled "Is the Patent Office a Rubber Stamp?" The research was partly inspired by earlier studies (Quillen & Webster, 2002) that claimed that as many as 97% of all applications are eventually granted as patents. While these numbers have since been refuted, criticism of the PTO's perceived laxness during examination abounds, despite the (surprising?) fact that no one actually knows what percentage of patent applications actually issue as patents.

However, because of recent changes in the law regarding publication and PTO administrative procedure, Lemley and Sampat were able, for the first time, to track what happens to the vast majority of patent applications during prosecution. Significantly, they also had access for the first time to patent applications that are abandoned without a continuation.

And what did they find?

We find that the PTO rejects a surprisingly high percentage of patents. While more than two-thirds of all applications result in at least one patent, a significant number of applications are rejected and then finally abandoned by the applicant. We also find that the likelihood of obtaining a patent varies significantly by industry in surprising ways. For example, patents are much more likely to be granted in the chemical and pharmaceutical industries than in software and computer fields, despite the fact that most of the complaints about bad patents show up in the IT industries.

Also,

[D]espite a variety of reforms that might be thought to reduce the use and abuse of continuation applications, we find a high use of continuation applications of various types. The extent and nature of the use casts significant light on the purposes of continuation applications, suggesting that different industries use continuations for different purposes. Even given the existence of a new and quicker procedure for continuing to fight with the examiner, many applicants persist in using the older continuation procedure in order to delay issuance of their patents or because they are seeking to construct a multi-patent fence.

Currently, the PTO claims the allowance rate historically has been about 66%, which dropped to 54% recently. However, this number doesn't account for continuations. Under Lemley's and Sampat's analysis, parent and child applications were separately analyzed, and it was found that, when continuation applications are taken into account, the PTO has a grant "range" between 68.4% and 78.1%.

Not surprisingly, the first reaction a patent examiner has to an application is a non-final rejection - 86.5% of the PTO’s first office actions are non-final rejections. Only a tiny percentage (0.04%) began with final rejections, and 13.5% granted patents on the first office action without any argument or negotiation.

After a final rejection, patents are much more likely to be rejected if the applicant won’t amend (13.6% abandoned if the applicant amended versus 50.0% abandoned if they didn’t amend). Nevertheless, more than half of applications that received a final rejection have ultimately resulted in a patent, and another 20% are still pending.

When looking at specific industries, the paper notes that applications in the IT industries – computer hardware, software, communications, semiconductors, and electronics - make up more than 50% of all published applications. However, they have one of the lowest allowance rates in the PTO. Broken down by art unit, the numbers come out this way:

(ab = abandoned, all = allowed, p = pending)

• 1600 Biotech and Organic Chemistry:
31.5% (ab), 58.1% (all), 10.4% (p)

• 1700 Chemical and Materials Engineering:
24.2% (ab), 73.3% (all), 2.5% (p)

• 2100 Computer Architecture, Software:
27.2% (ab), 46.7% (all), 26.1% (p)

• 2600 Communications:
22.6% (ab), 59.6% (all), 17.7% (p)

• 2800 Semiconductors, Optical Systems:
16.8% 8(ab), 81.8% (all), 1.4% (p)

• 3600 Transportation, Construction:
33.3% (ab), 57% (all), 9.7% (p)

• 3700 Mechanical Engineering:
26.9% (ab), 71% (all) 2.1% (p)

Regarding software patents, about 13 percent of the applications in the study's sample were considered "software." The odds that a software patent is finally abandoned are virtually the same as those for a non-software patent – 23.7% of software patents, and 24.7% of non-software patents. But strikingly, grant rates in software are lower than overall grant rates: 51 percent versus 69 percent.

The paper noted this "surprising" finding:

While few should be surprised at the existence of industry-specific differences in patent grants, many people should be surprised – as indeed we are – at which industries have the highest grant rates. The received wisdom is that the problem of bad patents "rubber-stamped" by the PTO is largely confined to the IT industries. In fact, however, what we find is rather more complex. IT is hardly monolithic, and indeed includes the art units with both the highest and the lowest grant rates. The industry in which the grant rate is lowest is the computer industry, the very one in which many people would have said bad patents were most common. Similarly, the PTO rejects the highest share of applications in the field of business methods, from which a disproportionate number of complaints about the patent system arise.

While the study is in draft form, you can bet that this will be an oft-cited paper in the ongoing patent/PTO reform debate.

To view the study, click here (link).

New BPAI Rules Released For Ex Parte Appeals

The PTO published in today's Federal Register new rules that tighten the appeals process before the BPAI. The proposed rules apply only to ex parte appeals. Included in the appeals rules are

(1) Page limits;

(2) New format for appeal briefs, with new headings, including "table of authorities",

(3) Restrictions on "new" arguments made in the appeal - "each rejection for which review is sought shall be separately argued under a separate heading,"

(4) "Any finding made or conclusion reached by the examiner that is not challenged would be presumed to be correct";

(5) Sanctions - a sanction may be imposed against an appellant for misconduct, including: failure to comply with an order entered in the appeal or an applicable rule, advancing or maintaining a "misleading or frivolous request for relief or argument and engaging in dilatory tactics."

The PTO has released these rules in full anticipation of a surge in appeals:

The Board is currently experiencing a large increase in the number of ex parte appeals. In FY 2006, the Board received 3,349 ex parte appeals. In FY 2007, the Board expects to receive more than 4,000 ex parte appeals. In FY 2008, the Board expects to receive over 5,000 ex parte appeals. These rules are proposed to change procedures in such a way as to allow the Board to continue to resolve ex parte appeals in a timely manner.

The schedule for commenting has been set until September 28, 2007. No public hearings will be held. Comments may submitted by letter, fax or e-mailed at BPAI.Rules@uspto.gov.

View proposed rules here (link)

MercExchange v. eBay Remand - Injunction Denied, Partial Stay Granted

MercExchange v. eBay, (E.D. Va.), July 27, 2007, case no. 02:01cv736

In the remanded case, the district court considered MercExchange's motion for a permanent injunction, and eBay's motion for a stay, pending the outcome of the reexamination.

Judge Friedman first considered the motion stay the proceedings, given that the '051 and '265 patents were initially rejected by the USPTO. After reviewing the facts surrounding each patent, the court granted a stay for the '051 patent, but denied the '265 patent, due to "vastly differing procedural postures":

[T]he court has considered the timing of eBay’s request for reexamination; namely, that reexamination was sought by eBay after the jury reached a verdict on the ’265 patent in favor of MercExchange. Thus, even in light of the non-final PTO actions indicating that all claims of the ’265 patent are invalid as obvious, the court is not inclined to stay the post-trial proceedings as doing so would create the incentive for adjudicated infringers to seek to circumvent an otherwise enforceable jury verdict by utilizing an alternate forum.

* * *

[U]nlike the advanced stage of the litigation involving the ’265 patent, the ’051 patent never reached the jury as prior to the 2003 infringement trial on the ’265 and ’176 patents, the court granted summary judgment in favor of eBay on the ’051 patent, finding such patent unenforceable for failing to provide an adequate written description. This court’s grant of summary judgment was thereafter reversed by the Federal Circuit, but as five years have passed since discovery was conducted on such dispute, it does not appear that the parties are presently prepared for trial. Likewise, the fact that a large portion of the trial evidence will involve experts further indicates that both plaintiff and defendants will need to expend significant additional time and resources to prepare for trial.

Regarding the permanent injunction, the court found that MercExchange failed to satisfy most of the SCOTUS 4-prong test:

Irreparable Harm:

The court found it significant that MercExchange entered licensing negotiations with multiple parties, including UBid.com, during and after the litigation with eBay. Because the evidence showed that MercExchange was primarily interested in money, the court ruled against it in this regard. Interestingly the court also also distinguished between patentees that used their inventions as a "sword" versus those that use them as a "shield":

This court recognizes and concurs with such utility and further recognizes that a patent holder’s decision to establish a licensing program does not negate the possibility that such patent holder will suffer damage to its goodwill, reputation, research and development opportunities, or ability to bring a unique product to market. However, the majority of the utility achieved by such licensing programs results from the fact that patent holders are still seeking to develop their patent, they are just opting to do so in partnership with others. In contrast, here, MercExchange’s modus operandi appears to be to seek out companies that are already market participants that are infringing, or potentially infringing, on
MercExchange’s patents and negotiate to maximize the value of a license, entered into as a settlement to, or avoidance of, litigation. Such consistent course of litigating or threatening litigation to obtain money damages by a company of two employees,
the inventor of the patents a former patent attorney, indicates that MercExchange has utilized its patents as a sword to extract money rather than as a shield to protect its right to exclude or its market-share, reputation, goodwill, or name recognition, as MercExchange appears to possess none of these.

Adequate Remedy at Law:

Again, since MercExchange was "only in it for the money," so to speak, the court found this factor weighed against Mercexchange.

Although the court recognizes that MercExchange has every right to utilize its patents in such manner, such behavior suggests that an injunction against eBay may also be used to obtain similar ends. Utilization of a ruling in equity as a bargaining chip suggests both that such party never deserved a ruling in equity and that money is all that such party truly seeks, rendering monetary damages an adequate remedy in the first instance.

Balance of the Hardships:

Recognizing that forced royalties are an "imperfect solution," the court found that royalties were nevertheless the best option. Noting that this factor "favors neither party," the court stated that too much uncertainty lingered over the validity of the patents, especially in light of KSR. If the patents are found to be ultimately invalid, the "equitable calculus" would change.

The Public Interest:

On this prong, the court noted that it "weighs slightly against entry of an injunction." Being careful not to issue any categorical rules, the court considered the type of patent involved, the impact on the market, the impact on the patent system, and any other factor that may impact the public at large.

When considering the type of patent involved, the court ran with Justice Kennedy's concurring eBay opinion and KSR to disparage business method patents:

[T]he ’265 patent is a business method patent that appears to rely upon combining non-unique elements into a unique combination. The questionable nature of many business method patents has both forced the PTO to implement a second level review policy . . . See eBay, 126 S. Ct. at 1842 (Kennedy, J., concurring) (recognizing that the “potential vagueness and suspect validity of some [business method patents] may affect the calculus under the four-factor test”). Furthermore, the validity of patents constituting nothing more than a combination of elements depicted in prior art producing a predictable result was recently called into question by a unanimous Supreme Court in KSR, 127 S. Ct. at 1739. Here, although the ’265 patent is presently valid and enforceable, the court must recognize that such patent never underwent a “second look” review by the PTO and that interim findings from the PTO during reexamination have twice indicated that every claim in the ’265 patent is invalid as obvious. Although this court does not ground its opinion in
speculation regarding the final outcome of such reexamination, it would be futile to attempt to craft forward looking equitable relief without considering foreseeable future events.

Also, in a footnote, the court looked at the use of litigation financing companies (Altitude Capital), and noted that money used for funding litigation, instead of development of the patents, weighed against injunctive relief:

Altitude Capital invested such funds to purchase an interest in MercExchange’s litigation recovery. Specifically, $4 million of such investment was distributed to MercExchange’s three members, and a large portion of the remainder was used to fund litigation or set aside as a reserve to pay MercExchange’s two employees salaries of $240,000 a year; little appears to have been devoted to developing the patents. Although the court accepts MercExchange’s sensible explanation that such investment, although substantial, was insufficient to enter the market as a freestanding competitor to eBay, it nevertheless appears to represent a bypassed opportunity to attempt to develop MercExchange’s patents.

View the opinion here (link)

Manufacturing and Labor Strike Back on Patent Reform

Amidst of a flurry of lobbying activity (one lobbyist joked that every shop in town was represented in the House Judiciary Committee room during the bill's markup) , Congress held informal meetings with diverse groups, including members of the manufacturing industry.

Manufacturing has been irked over the cool reception they've perceived during the Congressional hearings. William J. Jones, chairman of Cummins-Allison Corp. stated the following in an op-ed piece in the Chicago Tribune:

At the recent Senate hearing, not a single manufacturing firm was invited to testify -- even though technological innovation and industrial advancement are closely intertwined. Indeed, U.S. manufacturers undertake 60 to 70 percent of the nation's research and development and hold 60 percent of its patents.

Also, Bill Heming, Chief IP Officer of Caterpillar, reportedly

[w]alked into the House Manufacturing Caucus to talk about the controversial patent reform bill with a Tonka-sized model of his company's Caterpillar bulldozer still wrapped in its store packaging. He placed the toy tractor on the dais in front of him and told lawmakers and staff that if the legislation passes, it would be far easier for foreign companies to rip off American innovators -- including the men who long ago developed Caterpillar's flagship bulldozer.

Now, the AFL/CIO has gotten into the mix, by issuing a letter to John Conyers (D-MI) and Lamar Smith (R-TX), voicing their opposition to key provisions in the Patent Reform Act:

Recently we have heard from a number of manufacturers regarding their concerns with certain sections of H.R. 1908 and the effect it will have on the U.S. patent system. Many of our union members work in manufacturing, and we want to make sure that patent law reforms do not undermine our leadership in innovation, and that they help the American economy produce good new jobs and products at home.

The National Academies of Science WAS) has suggested a set of improvements for the patent system. However, the Patent Reform Act of 2007, while offering some needed changes, does not reflect the body of improvements suggested by NAS and would, in some ways, weaken our patent system. We are concerned in particular that two sections of the proposed legislation, the post-patent review process and apportionment of damages, may have a negative impact on innovation and research . . . We urge you to take the concerns of the manufacturing sectors of these issues into account in developing the final version of the Patent Reform Act of 2007, H.R. 1908.

Read the AFL/CIO letter here (link)

See The Politico article, titled "Tech v. Tech: The Patent War" (link) - the article has a nice table of lobbying group tactics and allies on Capitol Hill.

Survey: The USPTO - is it a "Best Place to Work"?

The Partnership for Public Service and American University’s Institute for the Study of Public Policy Implementation has released the "Best Places to Work" rankings based on data received from the Office of Personnel Management’s (OPM) biannual Federal Human Capital Survey. The 2007 rankings reflect the data from OPM employee surveys taken during summer 2006.

How did the USPTO rank? Not so hot. Overall, it ranked in at no. 172 out of 222 agencies. In other words, 77 percent of federal agencies ranked higher than the USPTO on indices such as pay and benefits and matching employee skills to agency mission.

In the Pay and Benefits category, the PTO came in at 187 of the total 222 agencies scored. However, the employee dissatisfaction reflected in this ranking came from data collected before the special rate pay increase in December 2006.

Another sore spot is the disappointing ranking in the Work/Life Balance index, where PTO fell near the bottom (at 169 out of 222). This category “measures the extent to which employees consider their workloads reasonable and feasible, and managers support a balance between work and life.” Employees may be receiving pay and benefits that meet their career targets, but they may believe they’re working too many hours of required unpaid overtime in exchange.

However, the PTO scored as one of the top federal agencies in the Family Friendly Culture and Benefits category, with a ranking of 28. This category “measures the extent to which employees believe family-friendly flexibilities are offered to them, including telecommuting and alternative work scheduling, along with personal support benefits like child care subsidies and wellness programs.”

Interestingly, and perhaps paradoxically, employees ranked the PTO's Strategic Management, highly, at 58. This category "measures the extent to which employees believe that management ensures they have the necessary skills and abilities to do their jobs, is successful at hiring new employees with the necessary skills to help the organization, and works to achieve the organizational goals with targeted personnel strategies and performance management."

POPA has noted that the demographics of OPM’s 2006 Human Capital Survey don’t tell the true story of PTO employee opinion. According to POPA, "of the 1,105 USPTO respondents to OPM’s survey, 50 percent were managers/supervisors. In reality, of the nearly 8,000 employees in 2006, perhaps 1,000 fell in that category."

To view the rankings, click here (link)

To view POPA's take on the rankings, see the July newsletter (link)

Continuation Rule Changes Update

From the IPO (link):

"At a conference in New York yesterday, a speaker from the USPTO said the new patent rules on continuation applications and numbers of claims are expected to be published in August and in effect in October. IPO believes the rules are likely to be less severe than those that were published for comment in 2006."

From the USPTO (link):

"On July 9, 2007, OMB concluded its review of the Continuations and Claims rule changes. The final rules will be made public when they are published in the Federal Register, which is expected to be later this summer. The rules will become effective at least 60 days after publication in the Federal Register, and no earlier than October 1, 2007"

The abstracts of the rules currently available on the Federal Regulatory Information Web site (link1) (link2) reflects the abstracts of the Continuations and Claims notices of proposed rule-making that were published in January, 2006."

An internal USPTO team is currently working on details of implementing the rule changes. Examiners and managers will be given information and training on the new rules once they are published in the Federal Register. Additionally, management is currently discussing with POPA the appropriate process for negotiating any impacts the rules package may have.

Indian Article on Patent Reform Stirs Controversy

As the Patent Reform Act moves its way through Congress, many companies (especially pharmaceutical companies) have turned to the foreign press to get a pulse on "outsider" views of the Act. While many of the foreign press reports provide relatively straightforward reporting on the Act's progress, a few reports have started to surface, where representatives of foreign companies have opined on ways they can benefit from the reform measures.

One particular article from The Economic Times of India raised alarm in the pharma industry, and even prompted Congressmen Michael Michaud (D-ME) and Donald Manzullo (R-IL) to send a "Dear Colleague" letter to fellow members, stressing that "[f]oreign competitors welcome the proposed change in U.S. patent law."

While the article shouldn't be surprising, it does confirm the fears of many opponents of the current reform measures - low-cost countries are looking at ways to knock out patents so the skids may be greased for easier entry into U.S. markets. One quote from the Indian Pharmaceutical Alliance's secretary general DG Shah stated the following:

“This provision will subject many existing US patents to an immediate threat of invalidation as it makes easier to show the obviousness of the invention. Seeking invalidation of patent is likely to be a part of the patent strategy that Indian generics companies may follow in the US. Companies could either make use of this provision or opt for the existing process of litigation or a mix of both depending on legal advice on a case to case basis.”

Traditionally, the Indian pharmaceutical industry has been characterized by a core competency in generics manufacturing and relatively immature capabilities in R&D. However, according to a recent report by ABM's Pharmaceutical Processing, this outlook has evolved substantially since the 1990s and Indian companies have been making investments towards expanding drug discovery and development capabilities. Also, the acceptance of patent laws and the rise of contract manufacturing have led to the diversification of revenue streams, enabling Indian pharma companies to experience high market growth.

Other notable facts in the report:

- In 2005, the Indian pharmaceutical industry was valued at $4,660m, representing an increase of 8.3% over previous year of sales.

- $4,304m. A surge in growth is expected to take place between 2006 and 2008, attributable to the opportunities presented by contract research and manufacturing sourcing (CRAMS).

• See Michaud/Manzullo letter here (link).

• Read The Economic Times article "Local cos can eye patents in US" (link)

• Order a copy of "The Indian Pharmaceutical Market to 2011: Competitive Dynamics and Major Players" here (link)

- Special thanks to David Vandagriff for bringing this article to the 271 Blog's attention.

Inventorship/Ownership Issues Lead to Invalidity by Double-Patenting

In Re Metoprolol Succinate Patent Litigation (06-1254), July 23, 2007

Companies Astra and Lejus Medical AB had a dispute over the ownership of a Lejus patent (the '318 Patent), which was originally developed by ex-Astra employees. When the ownership dispute was settled, Lejus agreed to divide claims to "metropol succinate" and to a "pharmaceutical composition" having metropol succinate as an active substance, and assigned those claims to Astra. Curiously, inventorship issues were never resolved.

Lejas subsequently filed a CIP off of the disputed patent (the '167 Patent), and followed with another continuation (the '154 Patent). The applications were then assigned back to Astra. Astra did not mention the inventorship dispute to the USPTO.

Astra filed suit on the two patents, and the defendants argued that the original Lejus patent ('318) created obviousness-type double patenting against the subsequent patents. Also, the defendant's argued that Astra's failure to disclose the inventorship dispute was inequitable conduct. The district court granted SJ in favor of the defendants on both counts. Due to the inventorship/ownership issues, Astra was unable to file a terminal disclaimer on the subsequent patents.

On appeal, Astra only challenged the invalidity of the '154 patent. The district court found the ’154 Patent to be a genus of the species claimed by the ’318 Patent. Since the species claimed by the ’318 Patent issued prior to the genus claimed by the ’154 Patent, the district court concluded that the ’154 Patent was "void for double patenting because it is not patentably distinct f[ro]m" Claim 8 of the ’318 Patent.

The CAFC agreed, stating that the critical inquiry remains whether the claims in a prior application define an obvious variation of the invention claimed in the patent:

[I]n this case, Claim 1 of the ’154 Patent claiming a compound (A1) is an obvious variation of Claim 8 of the ’318 Patent claiming a composition comprised of one compound of an enumerated list (A1, A2, A3, etc.), an inner layer (B), and an outer layer (C). Specifically, it would have been an obvious variation of Claim 8 of the ’318 Patent to omit the inner layer (B) and the outer layer (C).

The court also added in a footnote:

Moreover, the omission of the known elements from the composition in this case is "the product not of innovation but of ordinary skill and common sense." KSR Int’l Co. v. Teleflex Inc., 550 U.S. ----, 127 S. Ct. 1727, 1742 (2007).

Regarding the inequitable conduct, the CAFC reversed the finding of enforceability, stating that disputed material facts precluded summary judgment.

Judge Schall's Dissent:

Allowance of claim 1 of the ’154 patent to metoprolol succinate will not result in the improper extension of the patent for the invention claimed in the ’318 patent. That is because in this case, each patent is capable of being practiced by itself, without infringing the other. The public can practice the invention in claim 8 of the ’318 patent when it expires by using any of the ten active ingredients recited in the claim other than metoprolol succinate. While some may find it desirable to use metoprolol succinate as the active ingredient in claim 8 of the ’318 patent, and those individuals will be unable to do so until the ’154 patent expires, that does not result in the "extension" of claim 8 in the ’318 patent, or in any recognized form of double patenting.

Future Plans for (Potentially) Infringing Activity Not Sufficient for DJ Jurisdiction

Benitec v. Nucleonics, Inc. (06-1122), July 20, 2007

Benitec sued Nucleonics on a patent related to RNA-based disease therapy. During litigation, Benitec's efforts hit two snags: (1) Nucleonics obtained testimony that supported allegations of inventorship fraud, and (2) the Supreme Court decided Merck v. Integra Lifesciences, which expanded the pharmaceutical research exception of 37 U.S.C. § 271(e)(1).

Regarding the alleged inventorship fraud, Nucleonics counterclaimed for a declaratory judgment seeking invalidity and unenforceability of Benitec's patent.

Realizing the Merck decision limited the chances of success, Benitec successfully argued to dismiss the complaint without prejudice. As a result, the district court also dismissed Nucleonic's counterclaims, which spared Benitec the trouble of defending the validity of the patent.

Benitec provided a covenant not to sue Nucleonics on the patent. However, Nucleonics was also interested in expanding its business efforts beyond human health to animal husbandry and veterinary products (which are not covered under the safe harbor provision of § 271(e)(1) ). Thus, Nucleonics appealed the dismissal to the CAFC.

Under Medimmune (which was decided after oral arguments in this case), a party seeking to base jurisdiction on the Declaratory Judgment Act bears the burden of proving that the facts alleged, "‘under all the circumstances, show that there is a substantial controversy, between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'"

While Medimmune addressed DJ jurisdiction directly, this case was different in that the DJ jurisdiction arose in a counterclaim setting. Since Nucleonics was already charged with infringement, there was a clear case or controversy adequate to support jurisdiction at that time.

But since the safe harbor provision negated Benitec's ability to sue Nucleonics, and considering that Nucleonics had no near-term plans to file an NDA, the CAFC found that DJ jurisdiction was divested in this case:

The parties have now both taken the position that Nucleonics’s present activities related to the human medical application of RNAi are, in light of § 271 and the Supreme Court’s decision in Merck, not infringing and cannot become infringing until after Nucleonics files a new drug application ("NDA") with the U.S. Food and Drug Administration ("FDA"). Nucleonics took this position, which the dissent does not mention, even before the decision in Merck. Benitec acknowledged lack of infringement later when it moved to dismiss its infringement claims. Nucleonics does not even anticipate filing an NDA before "at least 2010-2012, if ever." Therefore, Nucleonics’s activities of developing and submitting information to the FDA related to human application of RNAi does not present a case or controversy of sufficient immediacy and reality to warrant declaratory judgment jurisdiction over the enforceability of the ’099 patent. The fact that Nucleonics may file an NDA in a few years does not provide the immediacy and reality required for a declaratory judgment.

With regard to Nucleonic's expansion into animal testing, again, the CAFC found that DJ jurisdiction was not warranted, since there was little evidence that showed (a) what exactly Nucleonics was doing, and (b) that Nucleonics was capable of infringing Benitec's patent.

We recognize that Nucleonics would like to remove any concerns it or its potential investors might have over possible infringement of the Benitec patent. We do not express an opinion on whether Nucleonics’s animal work could ever be the subject of an infringement suit. We merely hold that Nucleonics did not carry its burden of showing an existing justiciable controversy . . . We also recognize that Nucleonics wishes to receive the benefit of a ruling on the validity and scope of Benitec’s patent now, while Nucleonics undertakes any nascent animal work. There is currently, however, no "substantial controversy, between [Benitec and Nucleonics], of sufficient immediacy and reality to warrant the issusance of a declaratory judgment." MedImmune, 127 S. Ct. at 771. And there may never be.

Judge Dyk's dissent:

In my view, the patentee here has not come close to meeting its burden to show that there will be no future controversy. Even if we were to assume that there is no longer any possible controversy concerning Nucleonics’s research on human drugs, there is a possibility that Nucleonics may in the future make human drugs that Benitec would challenge as infringing . . . While I agree with the majority that the future controversy would not satisfy the sufficient immediacy and reality test for the filing of a new suit today, Benitec has made no effort to demonstrate that the controversy between the parties will not recur . . . Here Benitec’s success in defeating declaratory jurisdiction will have the effect of inhibiting Nucleonics’s ability to raise funds and conduct research and development. Nucleonics has stated that the threat of litigation has "hampered its efforts to obtain funding and to continue its business activities." . . . Benitec has not satisfied its burden to eliminate any future controversy concerning infringement of the ’099 patent.

AFFIRMED

Damn the Torpedoes! Patent Reform Moving Ahead in House, Senate

Today the full House Judiciary Committee voted to advance the Patent Reform Act of 2007 to a full vote. The full committee follows a Judiciary Subcommittee on Courts, the Internet and Intellectual Property mark-up that was recently released. The Senate Judiciary Committee is scheduled to continue its debate tomorrow (Thursday).

Rep. Howard Berman released a statement saying "the time to reform the system is way past due . . . I hope to take this bill to the full House for a vote before we break for August recess."

A second Manager's Amendment was released which purportedly "addressed the concerns" of critics. You be the judge. Some highlights of the second mark-up:

Broadedning of Prior User Rights:

Prior user rights is a defense to infringement if the accused infringer was commercially using the invention 1 yr. before the patent application is filed. Currently, the defense may be asserted only by the person who performed the acts that constitute the defense. This change broadens standing to include affiliates of that person.

PTO Funding:

Under existing law, the significant patent and trademark fees are set by statue. Thus, it takes an act of Congress to change such fees, which causes delay and complicates this process. In order to keep up with the hundreds of thousands of patent and trademark applications filed each year, the PTO needs to be able to set its own fees. This change gives the Director authority to do so, with several conditions that provide notice and input from Congress, the PTO's advisory committees and the public.

Marking:

Currently, the law requires that patented “articles” must be “marked” in order to give constructive notice to the public so as not to infringe. Failure to mark prohibits the patentee from obtaining back damages prior to giving “actual” notice to the infringer (e.g., by way of letter or the filing of a complaint). However, some patents (e.g., method patents and in particular business method patents) have no such marking requirements. They can receive 6 years of back damages in every case. This bill reduces that number to 2 years from actual notice.

Secret Prior Art:

In addition to patents and printed publications, prior art includes all information that was available to the “public” before the application was filed. Current law uses the phrase “public use or on sale” to categorize this type of information. As a result, there has been much litigation, and thus uncertainty, over whether, e.g., secret collaboration agreements between companies constitutes prior art under this definition. The amendment would add “otherwise available to the public” to make clear that secret collaborative agreements, which are not available to the public, are not prior art.

And of course, everyone's favorite provision - "Applicant Quality Submissions"

Ready? (Deep breath . . .)

The Director shall, by regulation, require that applicants submit a search report and other information and analysis relevant to patentability. An application shall be regarded as abandoned if the applicant fails to submit the required search report, information, and analysis in the manner and within the time period prescribed by the Director. Applicants from micro-entities, as defined in section 124 of this title, shall not be subject to the requirements of any regulations promulgated pursuant to this section.

From the Patently-O comment board: "I say file in the PCT, designate the US as the searching authority, nationalize back into the US and submit of the ISR and IPER. Let the USPTO try to argue that their own search isn't good enough."

View/download 2nd Manager's Amendment here (link)

View/download (Lehy) Manager's Amendment here (link)

SDNY Finds PTO Acted Unlawfully in Reviving "Unintentionally Abandoned" Application

New York University v. Autodesk, Inc. (06 Civ. 5274) July 13, 2007

NYU asserted two patents against Autodesk, which traced back to a parent application (the '799 Application). During prosecution of the parent application, the file was in the process of being transferred from one law firm to another. A Final Office Action was issued by the PTO, and no response was received by the 6 month date. When the PTO called the new firm, the responsible attorney (who left the new firm weeks later) confirmed abandonment, and the confirmation was recorded by the examiner.

Some six months later, a petition to revive was filed, where the petition only stated that "Applicant's failure to file a response was unintentional." The petition was subsequently granted by the PTO, without further comment.

During litigation, Judge Rakoff ruled that the abandonment was not "unintentional," and that the patent should have never issued. According to Rakoff, once a deliberate act is made towards abandonment, without anything more, an application is dead for good:

Examiner Burwell’s note directly contradicts NYU’s statement. The note suggests that as of December 5, 1997, if not earlier, [the prosecuting attorney] and NYU were on notice that the PTO had deemed the ‘799 application abandoned and that some action would be necessary to revive the application. In light of that notice, without more, no reasonable factfinder could find that NYU’s decision not to take action –- and instead to “delay” seeking revival –- for the entire period between July 14, 1997 and November 4, 1998 was “unintentional” under 37 C.F.R. § 1.137(b)(3).

Also, since the PTO "entirely failed to consider" the examiner's file when reviving the application, Rakoff ruled that the agency's actions were "arbitrary and capricious":

Here, the PTO’s decision more than meets these criteria for arbitrary and capricious action. The PTO “entirely failed to consider” Examiner Burwell’s note in the PTO’s own records, which was an “important aspect of the problem” because it directly contradicted NYU’s claim of unintentional delay. Further, the PTO’s “explanation for its decision” –- that it was relying on NYU’s statement in the petition to revive –- “runs counter” to NYU’s confirmed abandonment, evidenced by Examiner Burwell’s note, and does not remotely constitute the “satisfactory explanation” that State Farm requires.

Accordingly, the PTO’s decision to revive the ‘799 application was arbitrary and capricious and is hereby “h[e]ld unlawful and set aside.” 5 U.S.C. § 706(2)(A). Further, because neither the ‘053 patent nor the ‘132 patent should have issued . . . NYU’s Complaint alleging infringement of these patents must be dismissed.

This case now joins at least two other district court cases which held that confirming abandonment is a deliberate act, which negates the possibility of reviving "unintentionally" abandoned applications without a satisfactory explanation:

Lawman Armor Corp. v. Simon, 2005 WL 1176973 (E.D. Mich. 2005)

Field Hybrids, LLC v. Toyota Motor Corp., 2005 WL 189710 (D. Minn. 2005)

Also, it is interesting that the district court did not consider remanding the case to the PTO for further findings. Lee Thomason from the ISinIP Blog makes the following comments:

In the typical APA review case, the lack of support for the agency’s decision always leads to a remand, not a final decision by in the District Court. “If that finding is not sustainable on the administrative record made, then the Comptroller’s decision must be vacated and the matter remanded to him for further consideration.” Camp v. Pitts, 411 U.S. 138 (1973) and Vt. Yankee, 435 U.S. at 549. Where the agency’s lack of a sufficient explanation overwhelms the district court’s review, then remand is typical under the APA. “If the record before the agency does not support the agency action, if the agency has not considered all relevant factors, or if the reviewing court simply cannot evaluate the challenged agency action on the basis of the record before it, the proper course, except in rare circumstances, is to remand to the agency for additional investigation or explanation.” Florida P. & L. Co. v. Lorion, 470 U.S. 729, 744 (1985).

View/download the opinion here (link)

Medical Technique Patents in the Spotlight

While the software community has decried independent programmers that sue large companies on their patents, it appears that this practice has spread to other technological areas as well. Recently, a trend has emerged where doctors are obtaining their own patents, and then asserting them against medical device companies in court. While such litigation has been around for a while, some are speculating that the practice is on the rise.

The most notable example is the case of Medtronic v. Michelson, where doctor Gary Michelson (via his licensing firm, Karlin Technology Inc.) received a $1.35 billion dollar settlement over his patented implants and spinal surgery techniques. Recently, the CAFC upheld an infringed patent on a surgical method for removing a claw from a domesticated cat (Young v. Lumenis).

And doctors suing other doctors was not unheard of, either. In the 1995 case of Pallin v. Singer, eye surgeon Dr. Samuel Pallin sued several of his peers for the infringement of a medical procedure patent covering a new cataract surgery technique. During this litigation, the American Medical Association House of Delegates voted to condemn the patenting of medical and surgical procedures, and prompted Congress to attempt to outlaw the practice. While legislation was enacted to prohibit method infringement lawsuits against doctors, medical device makers can be liable for inducing infringement of a method by a doctor.

Legal and academic organizations such as the American Association of Orthopedic Surgeons estimate that 100 medical process patents are issued each month, which is double the amount in the 1980s. When the USPTO was contacted by the National Law Journal, a spokesman commented that "because we are seeing an increase in medical/surgical method applications," more hires are being sought.

• Read "As Medical Patents Surge, So Do Lawsuits", The National Law Journal (link)

• See also "Patients v. Patents? Policy Implications of Recent Patent Legislation", St. John's Law Review (link), and "Should Patenting of Surgical Procedures and Other Medical Techniques by Physicians be Banned?", IDEA (1996) (link)

• Follow patent-related news storied on Surgery Litigation & Law Weekly (link)

Senate Marks Up Patent Reform Act

Yesterday, the Senate was hoping to complete the panel's markup of the The Patent Reform Act (S. 1145), but managed to work only two amendments after adopting a manager's amendment that eliminated the provision that would have given the Patent and Trademark Office substantive rule-making authority.

The committee rejected, 7-11, an amendment that would provide the CAFC with greater discretion in considering interlocutory appeals.

However, panel members adopted, 12-6, an amendment that would further limit venue (oddly enough, John Cornyn of Texas, usually one of strongest critics of forum shopping in lawsuits, opposed the amendment).

Highlights of the mark up includes provisions that:

1) Prohibit patent holders from "manufacturing venue" by assignment/incorporation to establish venue for a specific district;

(2) Expand venue restrictions to apply not just to claims for infringement but to declaratory judgment actions as well;

(3) Provide that venue for a US infringer will be (a) where infringer resides (the principal place of business or state of incorporation) or (b) where infringer has committed "substantial" acts of infringement and has a "regular and established physical facility" (previously referred to as "regular place of business");

(4) Provide that venue for a foreign infringer will be (a) the foreign corporation's residence, which is where its main U.S. subsidiary is located or (b) where the foreign corporation has committed "substantial" acts of infringement AND has a "regular and established physical facility";

(5) Provide a "safe harbor" for universities from venue reform restrictions by allowing venue for university plaintiffs to be where the university resides ;

(6) provides a safe harbor for individual inventor plaintiffs who qualify as a micro-entity by allowing venue where the individual resides.

View/download the venue mark-up here (link).

Is the Win Rate for Plaintiffs Slipping at the E.D. Texas?

If you've read any of the multitude of articles on patent litigation at the E.D. Texas, you almost can't help walking away with the conclusion that defendants just can't win in the jurisdiction:

• Sam Williams, A Haven for Patent Pirates,Technology Review - "patent plaintiffs whose cases go to trial in Marshall win 88 percent of the time . . . compared with 68 percent nationwide. "


• Julie Creswell, So Small a Town, So Many Patent Suits - The New York Times - "patent holders win 78 percent of the time, compared with an average of 59 percent nationwide."


• Susan Decker, Texas district is heaven for patent holders under siege, The Seattle Times - "inventors and other patent owners have won jury verdicts 90 percent of the time since 1994."

Not so fast, says Michael Smith over at EDTexWeblog.com:

As anyone that actually works in the patent docket can tell you around here, that just isn't true. Defendants have won half of the patent cases tried in the Eastern District this year, and the plaintiff's win rate in 2006 and 2007 combined is still only 66%. [Many patent cases] often show defense wins on summary judgment or other rulings.

Accordingly, he's created a new tab in his blog for "Patent Cases: Recent Rulings for Defendants" (link). Adds Michael:

[The listing] isn't exhaustive, and isn't meant to indicate any predisposition by any of the judges or the district as a whole . . . It's just meant to give readers the ammunition to explain to their elected officials, and to anyone else that is interested, that defendants can and do win here, and that the outcomes have a lot more to do with the facts of the case and the quality of the lawyering than they do any perceived tendencies by the judges or juries.

Erroneous "Skill in the Art" Triggers Obviousness

Daiichi Sankyo Co., Ltd. v. Apotex, Inc. (06-1564) July 11, 2007 (non-precedential)

Daiichi held a patent drawn to a method for treating bacterial ear infections by topically administering the antibiotic ofloxacin into the ear. During litigation, a dispute arose over the skill in the art when considering obviousness. Apotex argued that the skill in the art would be:

"a person engaged in developing new pharmaceuticals, formulations and treatment
methods, or a specialist in ear treatments such as an otologist, otolaryngologist, or otorhinolaryngologist who also has training in pharmaceutical formulations."

Instead, the district court concluded that a person of ordinary skill in the art

"would have a medical degree, experience treating patients with ear infections, and knowledge of the pharmacology and use of antibiotics. This person would be . . . a pediatrician or general practitioner—those doctors who are often the ‘first line of defense’ in treating ear infections and who, by virtue of their medical training, possess basic pharmacological knowledge."

When considering the prior art, the district court concluded that the teachings fell outside the skill in the art of an otologist with only basic pharmacological knowledge, and held the patent nonobvious. The CAFC disagreed.

The inventors of the ’741 patent were specialists in drug and ear treatments—not general practitioners or pediatricians. At the time of the invention, Inventor Sato was a university professor specializing in otorhinolaryngology; Inventor Handa was a clinical development department manager at Daiichi, where he was involved with new drug development and clinical trials; and Inventor Kitahara was a research scientist at Daiichi engaged in the research and development of antibiotics. Additionally, others working in the same field as the inventors of the ’741 patent were of the same skill level.

[M]ost of the written description details the inventors’ testing ofloxacin on guinea pigs and their findings that ototoxicity did not result from the use of their compound. Such animal testing is traditionally outside the realm of a general practitioner or pediatrician. Finally, while a general practitioner or pediatrician could (and would) prescribe the invention of the ’741 patent to treat ear infections, he would not have the training or knowledge to develop the claimed compound absent some specialty training such as that possessed by the ’741 patent’s inventors.

[T]he district court’s error in determining the level of ordinary skill in the art of the ’741 patent tainted its obviousness analysis. In view of the correct level of skill in the art and the evidence of record, we conclude that as a matter of law the ’741 patent is invalid as obvious.

REVERSED

Interestingly, KSR was not invoked in the opinion. This is now the 7th opinion (eight, if you count the Pfizer v. Apotex denial of en banc) on obviousness from the CAFC after KSR. So far, the CAFC has not explained in any of the opinions how KSR may have changed the outcome of a case, even though most of the lower court decisions came before KSR. Including Daiichi, the outcomes at the CAFC favor obviousness by a 6-1 margin:

Syngenta Seeds, Inc. v. Monsanto Co. - affirmed obviousness

Leapfrog Enterprises, Inc. v. Fisher-Price, Inc. - affirmed obviousness

Omegaflex, Inc. v. Parker-Hannifin - reversed SJ of non-obviousness

Takeda Chemical Indus. v. Alphapharm Pty., Ltd. - affirming non-obviousness

Frazier v. Layne Christensen Co. - affirming JMOL on obviousness

Pharmastem Therapeutics, Inc. v. Viacell, Inc. - reversing jury verdict and JMOL of non-obviousness

JPO Officially Added to PTO Priority Document Exchange Program

From the USPTO:

Effective on July 28,2007, the Japan Patent Office (JPO) will become the second foreign intellectual property office participating with the USPTO in a priority document exchange agreement (participating foreign intellectual property office) . . . Thus, the USPTO will have the ability to begin electronically retrieving JPO priority documents from the JPO through the Priority Document Exchange (PDX) system. Similarly, the JPO will also gain the ability to electronically retrieve US priority documents from the USPTO through the PDX system.

For US applications filed under 35 U.S.C. 111(a) on or after July 28,2007, the USPTO will automatically attempt to electronically retrieve a copy of any JPO priority document without the need for the applicant to file a request to retrieve in a separate document (e.g., form PTO/SB/38) if the US application claims foreign priority to the JPO application and identifies the JPO application in the oath or declaration under 37 CFR 1.63(c) or in an application data sheet under 37 CFR 1.76.

View the notice here (link).

More Whispers on PTO Rule Changes

It's easy to grin, when your ship comes in,
And you've got the stock market beat.
But the man worthwhile, is the man who can smile,
When his shorts are too tight in the seat.

- Judge Smails, CaddyShack (1980)

After yesterday's report on the OMB's approval of the PTO rule changes, more information is slowly leaking out on the changes (see Patently-O post here).

According to the most recent information, two sets of rules have been approved. The rules are rumored to be "softened" versions of the original proposals. According to the IPO, "The rules have not yet been made public, but are understood to contain compromise limitations on continuations and claims that are less severe than those originally published and opposed by IPO and other groups in 2006. "

Recent information reported by Hal Wegner speculates the new rules would include:

The "2+1" Limit on Continuations/RCE’s:
Each applicant gets 2 continuations and 1 RCE per application. The rules will be applied retroactively for cases that have not yet received a first action on the merits.

The "3+1 Transition Rule":
For cases that have not received a first action by the time of the new rules, a "bonus" continuation will be allowed, i.e., a total of one (1) RCE and three (3) continuations.

The "25/5" Claim Limits:
Twenty-five (25) total claims, including up to five (5) independent claims.

The new rules are expected to be published in the next month or two, and be effective around October (give-or-take a month).

OMB Gives Green Light to Continuation Rule Changes

The Office of Information and Regulatory Affairs (OIRA) has completed its review of the proposed PTO rule changes. Despite a litany of alleged improprieties regarding the manner in which the proposed changes were introduced, the OIRA has concluded that they are "consistent with change."

Unfortunately, no further information is given, which appears to be consistent with OMB procedure. According to OMB Watch, exact changes are typically difficult to document:

Unfortunately, this is difficult to assess from data reported by OIRA. All rules changed and then approved by OIRA are labeled “consistent with change.” A change for clarity, such as the insertion of a comma, is reported in the same manner as a change in substance that affects the very nature of the regulation. This label needs more specificity to distinguish the various types of changes OIRA makes.

Under Executive Order 12866, issued by President Clinton and still observed by the Bush administration, agencies are to document changes made to their rules while under review at OIRA. Yet this documentation is inconsistent and frequently inadequate. In a 1998 report, the General Accounting Office found complete documentation of OIRA changes for only 26 percent of the 122 regulatory actions it reviewed, covering EPA, the Dept. of Transportation (DOT), Housing & Urban Development (HUD), and DOL.

To view the brief conclusions of the regulatory review, click here and here.

According to David Boundy, who spearheaded the initial challenge, two avenues are being explored for further challenges. Quoting from David:

Note that OMB concluded that the rules, as amended, were not "economically significant." Perhaps they were modified to the point that they're no longer offensive. We'll see." We are exploring two avenues -

(a) Congressional oversight. Several senators and congressmen have said "Get back to me when the executve branch is done. I understand the problem, and if it still exists at the end of executive branch review, let me know, and we'll see." So I need to hear from you to add weight to our request. The more districts/states we can show to be affected, the more offices we can approach.

(b) Administrative Procedure Act judicial review. We got another reply to another FOIA request yesterday, July 9 (coincidence?) - which confirms that the PTO did absolutely NO analysis of any significant issue, and is still hiding documents. (There are several documents that we know to exist, which PTO is still hiding.) We expect that this will not go over well with a court.

If you wish to help or participate in any way, please feel free to contact David at DBoundy@Cantor.com

CAFC Flexes It's Muscle on Obviousness, Infringement

PharmaStem Therapeutics, Inc. v. Viacell, Inc. (05-1490) July 9, 2007

PharmaStem sued Viacell and 5 other defendants over broad patents related to stem cell medical treatment for persons having compromised blood and immune systems. After a 3 week jury trial, the jury returned a verdict in favor of PharmaStem, finding that the patents were not obvious and infringed. After the defendants filed JMOL motions to overturn the verdicts, the district court reversed the finding of infringement, but maintained that the patents were not invalid. Prior to, and during, the litigation, PharmaStem's patents survived 3 reexamination requests.

In a controversial split opinion, the CAFC upheld the JMOL on infringement and sua sponte held that the patents were invalid for obviousness.

Infringement:

One of the sticking points in the litigation was language in the claims that required that the recited composition contained stem cells "in an amount sufficient to effect hematopoietic reconstitution of a human adult."

Each of the defendants are in the business of servicing families with newborn infants in which blood from the infant's umbilical cord is collected and cryopreserved for possible later use. The problem was that PharmaStem could not show enough evidence that the defendants' cord blood contained a "sufficient" supply of stem cells to effect successful reconstitution of an adult. An expert provided testimony based on the defendants' marketing materials, but did not consider any data regarding the composition of the cord blood units. Accordingly, the expert's testimony was excluded.

In a more interesting move, the CAFC also determined that the method claims could not be infringed because all the steps were not performed by the same party - the defendants were responsible for collecting and cryopreserving cord blood samples, while transplant physicians unrelated to the defendants thawed the cord blood and used it for transplanting. Also, since the defendants never "owned" the blood, there was no contributory infringement:

While cord blood is certainly a product, the transaction between the defendants and their clients is plainly not the sale of "a material or apparatus for use in practicing a patented process," as is required by section 271(c) with respect to method patents. The evidence at trial showed that the cord blood remained the property of the families throughout the period in which the defendants stored it. The defendants were never owners of the blood, but instead were merely bailees; they were not free to dispose of the blood as they chose, but were contractually obligated to preserve it pending the families’ need for it at some point in the future. On those occasions when the cord blood was needed, the defendants provided the blood to transplanters in satisfaction of their contractual obligation to ship the families’ cord blood samples to a transplanter upon direction. Neither that transaction nor any earlier transaction between the families and the defendants constituted a "sale" of the cord blood.

Obviousness:

The CAFC came out of the gate framing the obviousness issue as one revolving around the "reasonable expectation of success":

The idea of using cryopreserved cord blood to effect hematopoietic reconstitution was not new at the time the inventors filed the applications that matured into the ’681 and ’553 patents . . . Accordingly, this is not a case in which there is any serious question whether there was a suggestion or motivation to devise the patented composition or process.

The more difficult question is whether the prior art would have given rise to a reasonable expectation of success in creating the process claimed in the ’553 patent and the composition claimed in the ’681 patent. In addressing that question, the parties focus on whether the inventors had a reasonable expectation that cord blood could be successfully used in transplants for hematopoietic reconstitution.

PharmaStem brought forward testimony asserting that those working in the transplant field did not believe blood would be suitable as a transplant tissue. However, the CAFC dismissed this evidence in light of statements made in the patentees own specification:

The problem with Dr. Bernstein’s testimony about the prior art references is that it cannot be reconciled with statements made by the inventors in the joint specification and with the prior art references themselves . . . [In the patentee's specification], the inventors acknowledged that it was previously known that the properties of cord blood are quite different from those of adult blood and that hematopoietic stem cells had been found in cord blood in much greater concentrations than in adult blood.

[C]ontrary to Dr. Bernstein’s contention that the prior art did not disclose the presence of stem cells in cord blood, the inventors cited several prior art references and stated flatly that "hematopoietic stem cells have been demonstrated in human umbilical cord blood." Moreover, the inventors noted that the prior art references showed that the concentration of stem cells in cord blood was "at a much higher level than in the adult." Nor can those statements in the specification be dismissed as
reflecting a careless use of the term "hematopoietic stem cell."

* * *

Accordingly, PharmaStem’s argument that stem cells had not been proved to exist in cord blood prior to the experiments described in the patents is contrary to the representation in the specification that the prior art disclosed stem cells in cord blood. Admissions in the specification regarding the prior art are binding on the patentee for purposes of a later inquiry into obviousness . . . Nor is there any unfairness in holding the inventors to the consequences of their admissions, as their characterization of the prior art as showing the presence of stem cells in cord blood is hardly unreasonable.

And then, the CAFC dropped the big one:

While the inventors may have proved conclusively what was strongly suspected before—that umbilical cord blood is capable of hematopoietic reconstitution—and while their work may have significantly advanced the state of the science of hematopoietic transplantations by eliminating any doubt as to the presence of stem cells in cord blood, the mouse experiments and the conclusions drawn from them were not inventive in nature. Instead, the inventors merely used routine research methods to prove what was already believed to be the case. Scientific confirmation of what was already believed to be true may be a valuable contribution, but it does not give rise to a patentable invention . . . Good science and useful contributions do not necessarily result in patentability.

PharmaStem also put forward secondary considerations in support of non-obviousness, but the CAFC was not receptive, stating that "there was no indication that the praise for the inventors’ work was based on any inventive contribution they made, as opposed to their proof, through laboratory work, that fetal blood contains large numbers of stem cells. As noted, the former is a basis for patentability; the latter is not. "

With regard to the reexamination, the CAFC viewed the analysis in the reexamination certificate as "flawed," based on similar reasons used to reverse the jury verdict.

Judge Newman's dissent: in a 31 page opinion (!!) Judge Newman took the majority to task over most every issue, stating that, while there was room to disagree over the jury's verdict, the majority opinion went too far in reversing infringement and non-obviousness. Also, Judge Newman came close to accusing the majority of exceeding its appellate authority by re-trying the case on appeal. Some notable quotes follow:

The discoveries of these inventors were met with universal acclaim and widespread utilization, including the founding of many commercial enterprises, all of which are reported to have licensed the patents except for these defendants. Unimpressed by these considerations, my colleagues on this panel now reconstruct these inventions by selection and inference, with perfect hindsight of the discoveries.

* * *

The panel majority scours the prior art for clues that could fit the eventual achievement, and then rules that the achievement was obvious, no matter that it eluded the others whose work is now compiled by this court so as to invalidate these patents.

* * *

My colleagues ignore not only the scientific experts who testified at the trial, but also the PTO examiners who conducted the three reexaminations . . . My colleagues do not explain where the PTO went wrong; instead, they rearrange the past, criticize the acclaim heaped on these inventors, and propose that if the people in this field knew what this court knows, they would not have been so impressed.

* * *

The question is whether the jury's verdict is sustainable on the evidence presented, not whether we could have or would have gone the other way on the evidence presented.

* * *

It is often far easier to recognize the problem than to find and demonstrate the solution. The patent law recognizes that advances of great power may be based as much on persistent and skilled investigation as on the flash of creative genius, for both serve to transcend that which was previously achieved . . . Scientific methodology usually starts with a hypothesis based on what is already known; the record shows that several scientists mentioned the idea of rebuilding destroyed blood cells. However, none achieved this long-sought goal, and the record shows the extreme skepticism concerning even the possibility of this achievement.

* * *

The district court ruled that PharmaStem had not proved infringement because PharmaStem did not separately analyze the stem cell content of each sample of cord blood . . . Every defendant testified that the blood it collected and stored was analyzed for cell content at the time of collection. The jury was not instructed that such evidence was inadequate and inadmissible -- as the district court ruled post-trial. On the evidence presented, this is not a sound basis for rejecting the jury's verdict. The tardy rejection of the testimony of PharmaStem's expert witness, Dr. Hendrix, is an inappropriate application of Daubert and its succeeding cases, on which the panel majority relies, for there was no criticism of the expert's scientific credentials or her analysis of the prior art and the state of the science.

* * *

The principles of patent infringement are not negated when the steps of a method claim are performed by more than one entity. There was no instruction as to legal impossibility of liability as to the '553 patent, and no objection was raised to the verdict questions. We are not told whether the legal theory of sale or rent was aired at the trial, but it is apparent that the jury was fully apprised of the nature of the accused activities, as reflected in the jury questions . . . It is irrelevant whether any steps of a method claim can be viewed as a "service;" infringement requires only that the steps be performed.

State of the CAFC, and New Statistics Page

Chief Judge Paul Michel pronounced the state of the Court to be “very good” in his State of the Court message delivered on June 28th to the 9th Federal Circuit Bar Association Bench & Bar Conference in Cambridge, Maryland (link). While Judge Michel was upbeat about the court's capability to handle existing cases, there was some concern over the increase of complex cases:

Several trends, visible over the last ten years that add to the court’s workload have continued. Filings of patent infringement appeals, for example, have steadily increased. Even more significantly, patent cases have become more complex and hence time-consuming. Meanwhile, MSPB cases, which tend to be much simpler, and were previously the largest portion of pending cases, no longer are. At the end of May, our pendencies were: veterans: 420; patent infringement: 343; and personnel 241. Total filings have been rising steadily, if modestly. Thus, our docket continues to grow, with an increasing proportion of difficult cases.

We have been hearing more appeals, more rapidly, by scheduling more panels each month. From September through June, a different visiting district judge has sat with the court each month. Two will sit during July, August, and September. In fact, visiting judges have been scheduled through the summer of 2008.

CAFC Statistics Page: The CAFC also released a statistics page for 1997-2006 (link). The statistics are broken down into the following listings:

Appeals Filed, by Category, FY 2006 (link) - patent (29%) and trademark (2%) cases make up 31% of the CAFC's workload.

Adjudications by Merits Panels, by Category, FY 2006 (link) - Patent (33%) and Trademark (1%) cases make up 34% of adjudications.

Appeals Filed and Terminated, by Category, FY 2006 (link) - 453 patent appeals were filed from the district courts, with 259 being adjudicated on the merits (57%); 42 patent appeals were filed from the USPTO, with 17% being adjudicated on the merits (40%).

Appeals Terminated on the Merits, FY 2006 (link) - of the district court cases (which include some non-patent cases), 60% were affirmed on the merits (167 of 278), 20% were affirmed-in-part (56 of 278), and 13% were reversed (36 of 278).

Ten Year Historical Caseload 1997-2006 (link) - about 400 appeals were filed in 1997 and 2001 for district court cases (both patent and non-patent). The number of filings have increased steadily since then, to about 525 for FY 2006

Historical Patent Filings 1997-2007 (link) - in 1997, 330 patent infringement appeals were filed. In 2006, the number of patent infringement appeals reached 453 (tying the number of cases heard in 2002). In 2007, 429 patent infringement appeals are projected.

Historical Caseload 1983-2006 (link) - in 2006, almost 1800 appeals were filed. While there is an upward trend in the caseload, the largest caseload continues to be 1985, where over 2400 appeals were filed.