Consumer Groups File CAFC Amicus Brief in Support of USPTO Rule Changes

A coalition of consumer advocacy and public interest groups recently filed an amicus brief at the CAFC, arguing that the PTO's "continuation rule changes" would curtail abusive behavior by patent applicants and improve patent quality.

The brief continues the same themes raised in earlier amicus briefs at the district court, that endless continuations harm the public good and hinder innovation. While being light on substantive legal analysis, the brief manages to poke some thumbs into the eyes of those seeking to block the continuation rules.

These excuses [for opposing the rules] lack any technological or economic merit, because any claims desired and deserved by a patent applicant can and should be included in the original application, an amendment to it, or any of the continuation applications allowed under the Final Rules as a matter of right without justification. The failure to do so would be caused by the patent applicant's own delay in recognizing what it is they want to claim, and not by the USPTO or its Final Rules.

* * *

[T]here have been several patents that were used to preclude competition in markets worth billions of dollars that were later proven to be undeserved.
One industry where this phenomenon repeatedly occurs is the pharmaceutical
industry . . . consumers of pharmaceuticals are especially prone to the negative effects of poor patent quality, as markets with monopolies maintained by undeserved patents force consumers to spend much more on drugs than they would if the market was subject to competition unrestrained by invalid patents.

* * *

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

The groups joining in filing the Public Interest Amici brief are: The Public Patent Foundation (“PUBPAT”), AARP, Computer & Communications Industry Association (“CCIA”), Consumer Watchdog (Formerly the Foundation for Taxpayer and Consumer Rights), Essential Action, Initiative for Medicines, Access & Knowledge (“I-MAK”), Prescription Access Litigation (“PAL”), Public Knowledge (“PK”), Research on Innovation (“ROI”), and Software Freedom Law Center (“SFLC”).

Download the brief in its entirety here, courtesy of PubPat.

Peterlin Resigns from USPTO

From a USPTO press release:

Margaret J.A. Peterlin, deputy under secretary of Commerce for Intellectual
Property and deputy director of the United States Patent and Trademark Office
(USPTO), has announced that she will be leaving the USPTO in August with plans
to pursue employment opportunities in the private sector.

More at Government Executive.com (link)

Judge Plager: Regrets "Unintended Consequences" of State Street

Recently, CAFC Senior Judge Jay Plager spoke at a symposium at George Mason University, where he called for a "rethinking" of several aspects of patent law by returning to its origins in property law.

According to BNA,

[Plager] called for a renewed focus on setting recognizable patent ownership boundaries and on strengthening the notice function that patents are intended to serve. Such a reevaluation might require a reassessment of whether software and business methods are patentable subject matter, Plager said. It might lead to limiting a patent’s scope to what was known at the time of the application filing, and to an abandonment the doctrine of equivalents as a basis for patent infringement liability.

Also,

Plager said he regretted the unintended consequences of the decisions in State Street Bank and AT&T. Those rulings led to a flood of applications for software and business method patents, he noted. If we “rethink the breadth of patentable subject matter,” he said, we should ask whether these categories should be excluded from patent protection.

See post from Technological Innovation and Intellectual Property blog here.

Wednesday Shorts

USPTO Issues Warning on Patent Drafting Outsourcing: The PTO issued a "reminder" in today's Federal Register that foreign patent prosecution remains subject to 15 CFR 730-744, and that technology exports must be pre-approved approval by the Bureau of Industry and Security (BIS) at the Department of Commerce. Penalties include patent invalidation, fines up to $10k, and imprisonment of not more than 2 years. Read the notice here.

Litigation Support Outsourcing May Waive Fourth Amendment Protections As Well: Over at the Electronic Discovery Law Blog, a very interesting case is discussed where a law firm has filed a federal lawsuit seeking declaratory and injunctive relief in order to determine whether the electronic transmission of data from the United States to a foreign legal services provider waives Fourth Amendment protection with respect to the data that is electronically transmitted. Read the blog post here. See the amended complaint here.

Patent SNAFU's - A Class Action Frontier? This is the question being asked by Law.com in Monday's story about chip manufacturer rivals engaged in a patent fight, where the chief scientist of one company admitted that he developed the patented technology while he was the rival's employee. Of course, this meant the patent belonged to the rival. The company's stock dropped 40% when the news broke. A securities class action suit followed. The judge gave preliminary approval last week for the company to pay $13.5 million to settle the suit.

Indian Drugmaker Openly Plans for Release of Copycats: Cipla Ltd, India’s second largest drug maker by sales, may launch copycat versions of 20 patented drugs of leading global drug makers, after securing similar-sounding trademarks for its copy brands.

Cipla “may launch these generic brands in the market as and when the opportunity arises”, claimed a company executive, who didn’t want to be named. “It doesn’t necessarily mean the company doesn’t respect a patent regime, but the move will benefit poor patients who cannot afford an essential drug just because of a patent, which is not always as justified as it seems.”

Read more from WSJ's LiveMint.com publication here.

Patentee's Litigation Deemed "A Collosal Waste of Time"; Sanctions Granted

Advanced Magnetic Closures, Inc. v. Rome Fastener Corp., S.D.N.Y. (98 Civ. 7766), July 17, 2008

Adbanced Magnetic Closures (AMC) sued Rome Fastener ("Romag") in 1998 for infringing a patent on a magnetic snap fasteners commonly used in the fashion industry to secure the flaps on ladies’ handbags. Romag countered that (1) they did not infringe, and (2) they already held an earlier patent that covered the same concept. Additionally, Romag charged AMC with inequitable conduct, alleging that the inventor listed on AMC's patent (Bauer) was not the true inventor, and that material information was withheld from the PTO during prosecution. Furthermore, Romag alleged that AMC engaged in various litigation misconduct that warranted sanctions.

After viewing the record, the district court found inequitable conduct and misconduct throughout the litigation. Accordingly, the court unleashed its fury on AMC:

The primary thrust of this litigation was AMC’s claim that Romag had infringed Bauer’s ‘773 Patent—a patent that issued upon inequitable conduct. Thus, every aspect of this litigation that was connected in some way to the validity of the ‘773 Patent—from the fraudulent inventorship claim in the initial application to the use of a knowingly inaccurate expert report—was nothing more than a tissue of lies. Bauer made a strategic business decision to preserve his economic investment in the magnetic snap industry, concealed the true identity of the ‘773 snap inventor, and used AMC to bully the handbag industry with a sham patent. When one of AMC’s targets finally stood up and challenged the bona fides of the ‘773 Patent, AMC stubbornly persisted in litigation for almost ten years, burdening three separate district court judges with complex scientific arguments and concepts. Once engaged, AMC routinely obscured the origins of key documentary evidence and concealed that its expert’s analysis was without foundation. On the eve of trial, AMC was forced to withdraw the expert on whom it unjustifiably and exclusively relied for more than six years, after it became obvious that his opinion controverted both scientific evidence and its key argument at trial. In a brazen demonstration of willfulness, AMC proceeded to trial without an expert, empanelling a jury for three days without even the remotest possibility of success on its infringement claim. In short, AMC’s infringement claim was a colossal waste of time for everyone involved and it would be unfair to burden Romag with the costs of litigating this claim.

See a copy of the opinion here (link)

On a somewhat unrelated, but nevertheless fitting case for the "don't-let-this-happen-to-you-in-litigation" category, see Michael Smith's blog entry on Saffran v. Boston Scientific Corp., 2:05cv657-TJW (E.D. Tex. July 9, 2008), where BSC's motion for JMOL was denied with an exclamation point by Judge Ward, where he stated "[t]he court has never had counsel so recklessly disregard its orders before this trial. The court repeatedly warned BSC against violating its orders, but counsel for BSC paid little, if any, heed to the court’s instructions and warnings." (link)

USPTO Files CAFC Appeal Brief: Tafas v. Dudas

As expected, the USPTO continues its appeal after the district court ruled that the PTO lacked authority to limit the number of claims and continuations that applicants could file. OnJuly 18th, the PTO submitted a brief to the CAFC that presented the following 3 issues:

1. Whether the USPTO’s revised rules of practice for patent cases are within the scope of the Office’s statutory rulemaking authority.
2. Whether the revised rules conflict with the Patent Act.
3. Whether the USPTO must provide public notice and comment for rules that are not subject to notice and comment under the Administrative Procedure Act.

At the outset, the PTO continues to debase continuations as a legitimate prosecution strategy:

Continuation and continuation-in-part applications and RCEs play a major role in [increasing backlogs at the PTO]. As a percentage of all filings, continuation applications and RCEs increased from little more than a tenth (11.4%) in 1980 to nearly a third (29.4%) in 2006. . . . As the USPTO spends more time reviewing applications “that are a repetition of prior applications that have already been examined,” it is necessarily diverted from reviewing “new applications disclosing new technology and innovations.”

While the PTO decries backlogs in and of themselves, the PTO fails to give any historical context for these backlogs, or provide any comparative data from other patent offices. Just recently, James Malackowski and Jonathan Barney published a study on patent quality (see here), which concluded that current pendency rates were not at all unusual:

While exceedingly long pendency delays would be a fair cause for concern, the current average pendency of 3.4 years is comparable to those found in other major patent offices around the world. It is also not without precedent in the U.S. For example, in 1952-another period of rapid economic and technological development-average patent pendency reached over 3.6 years. Increasing pendency delays are probably more fairly characterized as an indication of a growing patent system than a broken patent system.

Also, the PTO continues to argue that Final Rule 78 “do[es] not set a per se limit on the number
of continuing applications,” since the only consequence for failing to make a "requisite showing" is that the new filing does not receive the benefit of the initial application’s filing date. However, this is precisely the point: since most applications will publish before a first office action, and since it is likely that the prosecution will continue for at least a year after publication, the applicant's own disclosure will bar subsequent filings under 35 U.S.C. 102(b).

The USPTO's arguments are summarized below:

1. The Final Rules are within the scope of the USPTO's rulemaking authority under the Patent Act. The Act's primary grant of rulemaking authority, Section 2(b)(2), authorizes the Office to issue rules that "govern the conduct of proceedings in the Office," "facilitate and expedite the processing of patent applications," and "govern the recognition and conduct of agents, attorneys, or other persons representing applicants or other parties before the Office." The USPTO correctly determined that the Final Rules fit within these grants of rulemaking authority. By setting filing and documentation requirements, the rules regulate the conduct of proceedings in the Office and the conduct of attorneys and other representatives, and by discouraging unnecessarily repetitive filings and providing examiners with needed information, they facilitate and expedite the processing of patent applications.

In holding that the Final Rules are ultra vires, the court made no effort to measure the Final Rules against the actual terms of Section 2(b)(2), nor did the court give the USPTO's interpretation of that provision the deference required by Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and its progeny. Instead, the court held that the Office is confined to issuing procedural rules and that the Final Rules are impermissibly substantive. But the cases on which the district court relied do not engraft a rigid procedural/substantive distinction onto Section 2(b)(2). And even if they did, the Final Rules would still pass muster, for they regulate the procedures used in proceedings before the Office rather than the substantive criteria for the awarding of patents. The district court's conclusion that the rules are substantive rather than procedural rests on APA cases that do not involve that distinction at all, and the court's standards for measuring the "substantiveness" of rules are at odds with the Supreme Court's jurisprudence under the Rules Enabling Act.

The court compounded these errors by erroneously holding that Section 2(b)(2)(B), which provides for the USPTO to issue rules "in accordance with" 5 U.S.C. § 553, requires the Office to engage in notice-and-comment rulemaking even when Section 553 expressly provides that notice and comment are not required.

2. In the course of its ultra vires analysis, the district court held that the Final Rules are inconsistent with other provisions of the Patent Act. That holding is likewise incorrect. The court mischaracterized the effects of the Final Rules, misconstrued the statutory provisions, misunderstood the judicial precedents concerning those provisions, and failed to give the USPTO's construction of the provisions the deference required by Chevron.

The district court held that Rules 78 and 114 conflict with Section 120 and 132(b), respectively, because the rules place "hard limits" on the number of continuation applications and RCEs that an applicant may file, while the statutory provisions entitle applicants to make an unlimited number of such filings. But the rules do not in fact limit the number of continuation applications and RCEs that may be filed; they simply require an applicant to show the need for further filings once a threshold number of filings has been made. And even if the rules did impose fixed limits, they would not conflict with Sections 120 and 132(b). Section 120 was enacted by Congress simply to provide a statutory basis for continuation practice, not to vest applicants with the right to file an endless stream of continuation applications.

Likewise, Section 132(b), which directs the Office to issue regulations providing for continued examinations, does not entitle applicants to file an endless series of RCEs. The district court held that Rules 75 conflicts with Section 112 ¶2 by limiting the number of claims that may be included in a single application. But Rule 75 places no limit whatsoever on the number of claims in an application, and Section 112 ¶ 2 does not address the permissibility of such a limit in any event. The court also held that Rule 75 and 265 conflict with the provisions of the Patent Act that assign the USPTO the burden of examination and the burden of establishing a prima facie case of unpatentability. But there is no conflict between those provisions and the rules, which merely require applicants to provide information about their claims and prior art so examiners can discharge their burdens more accurately and efficiently.

Download a copy of the brief here, courtesy of Patently-O.

Trouble Ahead for the USPTO's Appeal Brief Rules?

If anyone thought that the manner in which the USPTO Appeal Brief Rules were implemented was, well, a bit "askew", there appears to be evidence that your instincts were correct. Last Friday, David Boundy circulated a Federal Register Notice that apparently was not publicized on any of the PTO's list of Federal Register Notices.

The notice, appearing in June 9, 2008 Federal Register, Vol. 73, No. 111 (link), requests public comment for the PTO's estimate for paperwork burdens for the Appeal Rule. This notice was followed by another notice, appeaing in June 10, 2008 Federal Register , Vol. 73, No. 112 (link), which spelled out the Final Rulemaking for the Appeal Rule.

The rub here is that the PTO's request for public comment was published one day before the notice of Final Rulemaking. Normally, Paperwork Reduction Act clearance is performed by an agency at the time that a new rule is published as a Notice of Proposed Rulemaking, and the agency submits the rule to OMB shortly thereafter for review under Executive Order 12,866. However, in this case, the PTO had already certified to the OMB that the "total economic burden" was essentially zero ("[t]his rulemaking has been determined to be not significant for the purpose of Executive Order 12866"), and made no request for Paperwork Approval until the day before the publication of the Notice of Final Rule.

This suggests that the PTO may lack the authority to enforce the rule, because the PTO failed to timely seek OMB approval under the Paperwork Reduction Act. Additionally, the OMB requires that the PTO's burden estimates be in compliance with the PTO's own Information Quality Guidelines. If OMB finds that the PTO's estimates lack any of these characteristics, OMB can deny the PTO the authority to implement or enforce the Appeal Rule. For example, under the Information Quality Guidelines, the PTO must base its rulemaking notices on information that is "objective" and "reproducible." If the PTO relies on mere "belief," that would be grounds for the OMB to deny approval to the PTO's Paperwork Reduction Act Request.

Some interesting statistics from the PTO's June 9 Notice:

Estimated Time Per Response: The USPTO estimates that it takes the public approximately 5 to 30 hours to complete this information, depending on the brief, petition, or request. This includes the time to gather the necessary information, prepare the briefs, petitions, and requests, and submit them to the USPTO.

Estimated Total Annual Respondent Cost Burden: $239,907,450. The USPTO believes that associate attorneys will complete these briefs, petitions, and requests. The professional hourly rate for associate attorneys in private firms is $310. Using this hourly rate, the USPTO estimates that the total respondent cost burden for this collection is $239,907,450 per year. Once the notices of appeal and requests for oral hearing before the BPAI are moved into this collection, the USPTO estimates that the annual respondent cost burden will increase by a minimum of $1,772,890.

Comments for the latest notice are due by August 8, 2008, any should be submitted to Susan Fawcett at the USPTO. You may submit comments by any of the following methods:

• E-mail: Susan.Fawcett@uspto.gov. Include ‘‘0651–00xx Board of Patent Appeals and Interferences Actions comment’’ in the subject line of the message.
• Fax: 571–273–0112, marked to the attention of Susan K. Fawcett.
• Mail: Susan K. Fawcett, Records Officer, Office of the Chief Information Officer, Customer Information Services Group, Public Information Services Division, U.S. Patent and Trademark Office, P.O. Box 1450, Alexandria, VA 22313–1450. Federal e-Rulemaking Portal: http://www.regulations.gov/.

Since PTO submissions may be "summarized" to the OMB, you may request that your comments not be summarized. In any case, it is recommended that comments be cc:'ed to the OMB as well:

• David_Rostker@omb.eop.gov Desk Officer, Dept. of Commerce Office of Information and Regulatory Affairs Office of Management and Budget Washington, D.C. 20503

"Blockbuster" Academic Studies on KSR, Obviousness

Professor Joseph Scott Miller of the Lewis & Clark Law School ( and author of the Fire of Genius Blog) has put together a special issue of the law journal that focuses upon the many aspects of the KSR Supreme Court obviousness ruling. Thus publications include:

• Gregory N. Mandel, Another Missed Opportunity: The Supreme Court’s Failure to Define Nonobviousness or Combat Hindsight Bias in KSR v. Teleflex, 12 Lewis & Clark L. Rev. 323 (2008)

- Arguing that the KSR Court never defined what obviousness requires. Also, despite recognizing the problem of hindsight bias in nonobviousness analysis, the Court appeared to misconstrue the problem. As a result, "nonobviousness decisions will continue to be systematically biased with respect to the legal inquiry required by section 103."

• John F. Duffy, A Timing Approach to Patentability, 12 Lewis & Clark L. Rev. 343 (2008).

- Arguing that a “timing approach” to patentability that considers the free and open competition to innovate present before patenting will reliably generate all obvious innovations quickly once the market and technological conditions make the innovation both valuable and obvious.

• Rebecca S. Eisenberg, Pharma’s Nonobvious Problem, 12 Lewis & Clark L. Rev. 375 (2008).

- Recent CAFC cases having obviousness challenges to pharmaceutical patents suggest that the pharmaceutical industry does indeed have a nonobviousness problem, but that problem is not KSR. Rather, the problem is that many of the patents that the industry relies upon are invalid for obviousness under time-honored patent doctrine.

• Rochelle Cooper Dreyfuss, Nonobviousness: A Comment on Three Learned Papers, 12 Lewis & Clark L. Rev. 431 (2008).

- This paper addresses three areas where improvements could be made in the law on nonobviousness. First, the quantum of inventiveness required for patentability should reflect the capabilities of the ordinary artisan. Second, the asymmetry in the error rate of nonobviousness determinations should be taken into account in setting the standard of nonobviousness. Third, the concept of nonobviousness—or, better, inventive step—should be operationalized by considering the opportunities, risks, and nonpatent incentives the inventor faced at the time of the innovation.

Other papers include:

• Vincenzo Denicolò, Economic Theories of the Nonobviousness Requirement for Patentability: A Survey, 12 Lewis & Clark L. Rev. 443 (2008).

• R. Keith Sawyer, Creativity, Innovation, and Obviousness, 12 Lewis & Clark L. Rev. 461 (2008).

• Colleen M. Seifert, Now Why Didn’t I Think of That? The Cognitive Processes that Create the Obvious, 12 Lewis & Clark L. Rev. 489 (2008).

• Steven M. Smith, Invisible Assumptions and the Unintentional Use of Knowledge and Experiences in Creative Cognition, 12 Lewis & Clark L. Rev. 509 (2008).

• Janet Davidson and Nicole Greenberg, Psychologists’ Views on Nonobviousness: Are They Obvious?, 12 Lewis & Clark L. Rev. 527 (2008).

• Michael J. Meurer and Katherine J. Strandburg, Patent Carrots and Sticks: A Model of Nonobviousness, 12 Lewis & Clark L. Rev. 547 (2008).

• Joseph Scott Miller, Level of Skill and Long-Felt Need: Notes on a Forgotten Future, 12 Lewis & Clark L. Rev. 579 (2008).

View the entire listing here (link)

Special thanks to Hal Wegner for forwarding this information.

Rethinking the Role of the ITC In Patent Cases

When Section 337 of the 1930 Trade Act was enacted, its original purpose was to protect US businesses against unfair foreign competition. Coupled with government subsidies, tariffs and seizures, US businesses were provided with potentially potent weapons for stifling foreign encroachment on US business interests. However, with ongoing growth in free trade, protectionist measures such as subsidies and tariffs have fallen into disfavor. IP, on the other hand, has gained popularity as a form of trade regulation.

It is not surprising then, that the ITC has become a successful venue for patent holders who want to block foreign competition through the use of 337 actions. But the court's success has prompted some to question whether the venue is overly protectionist, in violation of international law, and biased in favor of patent plaintiffs.

In a recent paper, Colleen V. Chien, Professor of Law at the Santa Clara University School of Law, published a draft paper titled "Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission," which looks at these issues. While her findings suggest that the ITC is neither "protectionist" nor "pro-plaintiff", professor Chien thinks that the role of the ITC needs to be changed.

The paper analyzed nationalities of complainants (plaintiffs) and respondents (defendants), and found that instances of "purely domestic" actions against "purely foreign" respondents were quite rare. Instead, it was most likely that a domestic complainant would file actions against a "mixed bag" of domestic and foreign entities:

Section 337 cases have been brought against purely foreign defendants in only a small minority (14%) of recent cases. Complainants initiated investigations against a combination of foreign and domestic defendants more often than they did against just foreign defendants (72% foreign and domestic defendants vs. 14% foreign defendants). Cases were equally likely to be brought against purely domestic defendants and purely foreign ones (15% domestic defendants vs. 14% foreign defendants).

On the other hand, US entities overwhelmingly initiated Section 337 investigations. Domestic complainants brought 79% of the cases in the dataset with only 15% of the cases initiated by foreign complainants. (Table 2) Thus, while purely foreign respondents were uncommon, so were purely foreign complainants. However, the relatively low rate of foreign plaintiffs is not limited to the ITC: 87% of district court patent cases are brought by domestic plaintiffs, and only 13% by foreign plaintiffs, despite roughly equal rates of patenting.

With regard to being "pro-plaintiff" the paper notes that, in 65% of ITC cases, there is a parallel proceeding in the district courts. While "pure" ITC proceedings favor plaintiffs more so than district courts (58% vs. 35%), cases having parallel proceedings drops the gaps considerably (54% vs. 50%).

Also, analysis of the parallel proceedings provided some other interesting statistics. ITC litigants are less inclined to settle: only 70% of district court cases settle, compared to 42% of ITC investigations. Comparing parallel proceedings, the paper found that ITC investigations were nearly six times more likely to be adjudicated (41% adjudication rate) than their district court counterparts (7% adjudication rate).

Nevertheless, there is increasing overlap between ITC proceedings and district court cases. In some cases, litigants use both venues to relitigate the same issues. Accordingly, the paper provides some recommendations for reducing duplication: (1) Reduce overlap between the venues, and (2) Harmonize the venues.

Read/download the paper here (link).

USPTO Patent Quality - It's Not As Bad As You Think

Over the past five years, there has been an obsession within the patent community to find ways to increase "patent quality." No matter how you define it, most people agree that there have been periods where the PTO appeared dodgy in its role as a gatekeeper for "high quality patents." Sometimes, the criticism heaped on the PTO was fully justified. Other times, it was not.

Recently, James Malackowski and Jonathan Barney from Ocean Tomo published a fascinating article titled "What Is Patent Quality? A Merchant Banc's Perspective" in the June issue of Les Nouvelles (LES). The article studied many issues related to patent quality and found that many specific problems attributed to the PTO were somewhat overblown. And on the overall issue of patent quality, the article suggests that it may actually be on the rise.

Many critics of the PTO have claimed that the Office is simply overburdened, and cannot handle the flood of incoming applications. The authors reject this position:

Over the past five years U.S. patent filing rates grew at an average annual rate of about 6.4 percent, reaching a peak of about 9.5 percent growth in 2005 and moderating back down to about 7.1 percent growth in 2007.5 The average growth rate in patent filings over the previous five years is actually lower than the average growth rate over the previous ten years (about 7.9 percent) and is only slightly higher than the average growth rate over the previous 20 years (about 6.7 percent).

The most recent peak of 9.5 percent growth in patent filings experienced in 2005 may, at first blush, seem alarmingly high. But it is not unique or even particularly extraordinary when viewed from a historical perspective. Over the past 40 years annual growth in patent filing rates reached similar peaks in 1968 (9.1 percent), 1988-1989 (averaging 9.3 percent), 1995 (11.9 percent) and 1997-2001 (averaging 10.8 percent). Viewed within this proper historical context, the recent surge in the rate of patent filings is nary a blip in the road. Whatever implications can ultimately be drawn from the latest surge of activity, it can hardly be characterized as an overwhelming flood of crisis proportions as frequently described by some in the patent reform camp.

Also, with regard to pendency rates, the study found nothing unusual when viewed from a historical context:

While exceedingly long pendency delays would be a fair cause for concern, the current average pendency of 3.4 years is comparable to those found in other major patent offices around the world. It is also not without precedent in the U.S. For example, in 1952-another period of rapid economic and technological development-average patent pendency reached over 3.6 years. Increasing pendency delays are probably more fairly characterized as an indication of a growing patent system than a broken patent system.

As for prior art citations,

U.S. utility patents issued in 2007 actually cited significantly more prior art, on average, than patents issued five years ago, including 41 percent more U.S. patent documents, 36 percent more foreign patent documents, and 23 percent more non-patent documents.

While this significant growth in prior art citations may not be conclusive evidence of increased search thoroughness or search quality, it is certainly suggestive evidence and is plainly inconsistent with the notion that search thoroughness and search quality have somehow declined in recent years. Even common sense tells us that the most ubiquitously available search tools today (e.g. Google®) can access references that a decade ago would have remained undiscovered. The statistical data appears consistent with the conclusion that examination search thoroughness and search quality is as good or better today than it was five years ago.

Also, regarding the charge that the PTO continues to issue overly broad patents, the study, again, finds that this charge isn't necessarily warranted. Recognizing that claim breadth cannot be precisely measured mechanically or statistically, the study counted the average number of words per independent claim (since each word theoretically introduces an additional legal limitation). Here's what the study found:

[W]e find that patents issued in 2007 had an average word count per independent claim of 160.1. This reflects approximately a 4.4 percent increase over the average per claim word count of 153.3 among patents issued in 2003. As a point of reference, applications published in 2007 contained an average per independent claim word count of 111.1, indicating a substantially broader claim-scope 'ask' relative to what the Patent Office ultimately granted-patent examiners requiring 42.1 additional limiting words, on average. This latter statistic is roughly consistent with previous years' data. Taken together, the data appears consistent with the conclusion that examiners are not granting patents with broader claims, but are granting claims of approximately the same scope or slightly narrower scope (having 6.8 more limiting words on average) than five years ago.

Read/download the study here (courtesy of Joff Wild, IAM Magazine)


- In related news, IBM announced that it will join forces with the University of Tokyo, Columbia University, the University of Munich, and others to establish a technique that can be used worldwide to evaluate patent applications for problems before they are submitted. IBM intends to offer the service free of charge to corporations around the world (see press release here).

- Jon Dudas has been named one of the “Top 50 Most Influential People in IP” by Managing Intellectual Property magazine, noting that "[h]is quality initiatives have been upheld as producing ‘historic improvement’ in the quality of both patent and trademark reviews and issued patents and trademarks” (link)

CAFC: Web-Based Implementation Deemed Obvious; Joint Infringement Nixed

Muniauction, Inc. v. Thomson Corp., July 14, 2008 (2007-1485)

After a jury trial, the district court ruled that Thomson wilfully infringed Muniauction's patent related to conducting original issuer auctions of financial instruments. The district court awarded enhanced damages, and entered a permanent injunction against Thomson. Shortly after trial, the Supreme Court issued KSR International Co. v. Teleflex, Inc., however the district court did not modify their finding that Muniauction's patent was not obvious.

While the appeal was pending, the CAFC issued two opinions relevant to this case: (1) In re Seagate (changing the standard of willful infringement from one akin to negligence to that of objective recklessness) and (2) BMC Resources (where steps of a method claim are performed by multiple parties, the entire method must be performed at the control or direction of the alleged direct infringer). Thomson argued that these cases rendered the patent invalid and/or established that Thomson did not infringe as a matter of law.

Obviousness

On the issue of obviousness, the CAFC found that Muniauction's patent was disclosed in the prior art, except that the prior art did not discuss the use of a web browser for performing the claimed features.

The CAFC noted that the patent specification identified the invention as using a "conventional Internet browser" and "conventional web browsing software." Accordingly, the CAFC acknowledged that this terminology "denotes a reference to web browsers in existence at the time of the alleged invention."

The CAFC also cited various patent and prior art publications that generally disclosed the use of Internet browsers for electronic auctions, and thus, indicated the obviousness of the claimed combination. Furthermore, citing Leapfrog Enterprises, the CAFC found that "adapting existing electronic processes to incorporate modern internet and web browser technology was similarly commonplace at the time the [] patent application was filed."

On secondary considerations, the CAFC noted that "[a] nexus between the merits of the claimed invention and evidence of secondary considerations is required in order for the evidence to be given substantial weight in an obviousness decision." Finding that Muniauction's evidence of secondary considerations lacked the requisite nexus to the claims, the CAFC ruled the patent was obvious as a matter of law.

Noninfringement

The only theory of infringement put forward by Muniauction was that of so-called joint infringement, which was addressed in BMC Resources v. Paymentech:

[W]here the actions of multiple parties combine to perform every step of a claimed method, the claim is directly infringed only if one party exercises "control or direction" over the entire process such that every step is attributable to the controlling party, i.e., the "mastermind." . . . At the other end of this multi-party spectrum, mere "arms-length cooperation" will not give rise to direct infringement by any party.

Muniauction's patent recited the feature of "inputting data associated with at least one bid for at least one fixed income financial instrument into said bidder’s computer via said input device." Since Thomson did not "input" data, nor "control" or "direct" users to perform the acts, the CAFC found there to be no infringement as well:

Under BMC Resources, the control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method . . . In this case, Thomson neither performed every step of the claimed methods nor had another party perform steps on its behalf, and Muniauction has identified no legal theory under which Thomson might be vicariously liable for the actions of the bidders. Therefore, Thomson does not infringe the asserted claims as a matter of law.

REVERSED-IN-PART AND VACATED-IN-PART

From the footnotes:

Footnote 3:

Because the ’099 patent is itself silent regarding how to actually implement the methods claimed therein with a web browser, Muniauction’s argument therefore might suggest that the claims present an enablement issue, rather than support a
conclusion of nonobviousness. See, e.g., Sitrick v. Dreamworks, LLC, 516 F.3d 993, 999 (Fed. Cir. 2008) ("The ‘enablement requirement is satisfied when one skilled in the art, after reading the specification, could practice the claimed invention without undue experimentation.’")

Footnote 4:

We further note that our conclusion as to the nexus between this award and the claims is consistent with the long-established rule that "[c]laims which are broad enough to read on obvious subject matter are unpatentable even though they also read on nonobvious subject matter." In re Lintner, 458 F.2d 1013, 1007 (CCPA 1972) (citing In re Mraz, 455 F.2d 1069, 1073 (CCPA 1972)).

Are Royalties Too High in High-Tech? Recent Study Says "No"

Over the past few years, a lot of attention has been paid to the level of royalties that are charged by holders of IP rights, especially when patents are essential to an industry standard. The FTC and the DoJ have been especially active trying to control IP costs among various standardized industries.

Recently, Damien Geradin, professor of Competition Law and Economics at Tilburg University, published a paper titled "What's Wrong With Royalties In High Technology Industries?" to see if something is indeed "askew" with high-tech royalties. At the outset, Geradin reviews 4 hypothetical scenarios to see how differently situated patent holders and market participants are positioned to potentially exploit their holdings:

(1) The essential IP is held by 5 vertically-integrated (VI) firms: in the typical case, the 5 VI firms will cross-license, and no royalty will be exchanged, and the 5 firms compete on the downstream market for the relevant product. Alternately, the firms may charge a royalty and pass the royalty cost down to downstream consumers.

(2) The essential IP is held by 5 VI firms and 5 pure manufacturers need a license to compete downstream: Here, the 5 VI firms will typically grant cross-licenses to each other, but the manufacturers would face a cumulative royalty burden.

(3) The essential IP is held by four vertically-integrated firms plus one pure upstream firm and five pure manufacturers need a license to compete downstream: Since the upstream firm will typically be unwilling to agree on a royalty-free cross license (since the IP will be the upstream firm's main source of revenue), each of the VI firms would face a smaller cumulative royalty burden to the upstream firm, while the manufacturers would face a cumulative royalty to the VI and upstream firms.

(4) The essential IP is held entirely by a pure upstream firm and four vertically-integrated firms and five pure manufacturers need a license to compete downstream: Since the upstream firm holds all the IP, the VI firms and the manufacturers would all be in the same boat.

Geradin analyzes each of these scenarios, and concludes that concerns over IP costs on high-tech standard are overblown - "these concerns often reflect a number of misconceptions and a fair amount of misinformation when it comes to evaluating the royalties that are paid by standard implementers." Geradin concludes:

First, there is a great deal of confusion between the minimum cumulative royalty rate, the maximum cumulative royalty rate and the average cumulative royalty rate that apply to the implementation of a standard. While scholars, policy-makers and industry officials have referred to royalty rates as high as 30% in some sectors, they usually fail to mention that those cumulative rates are not common, but instead apply to implementers that have not technologically contributed to the creation of the standard. Those with essential IP tend pay much lower rates and in some cases do not pay any royalty at all. As we have seen above, it is not illegitimate in itself that firms which did not engage in relevant R&D pay two-digit royalty figures to be entitled to implement the technologies developed by others. Risk should, after all, have its rewards. Thus, relying on the highest cumulative royalty rates (e.g., 30%) paid only by a limited number of industry players to argue that royalty rates are generally too high and that reforms are needed to lower them cannot be taken seriously.

Second, there is no automatic connection between the level of cumulative royalty rates and the prices paid by end consumers. This is because the downstream producers’ ability to pass on such rates depends on a number of market factors, as indicated above. More generally, unless cumulative royalties were extremely high, the prices paid by end consumers are much more likely to be influenced by the degree of downstream competition. Thus, high average cumulative royalty rates may simply arise from the fact there are many players on both upstream and downstream markets, and thus a great deal of competition in the market for the relevant product. As end consumer prices must be the focus on competition authorities, one goal should be to ensure that (efficient) pure manufacturers are not excluded from the downstream market.

Third, pure upstream firms and vertically-integrated firms do not have similar incentives. While vertically-integrated firms compete downstream and can thus have incentives to restrict competition at that level, pure upstream firms have no incentives to reduce downstream competition. Quite the contrary, since royalty rates are their main or only source of revenues, their focus is on increasing downstream output and thereby maximizing royalty payments. Upstream firms not only are lacking incentives to discriminate, but on the contrary may adopt strategies designed to encourage or facilitate entry on the relevant downstream market (for instance, by providing technological support and other forms of relevant assistance to new entrants).

Finally, the reforms that have been proposed to modify the FRAND regime should be based on accurate information and should be evaluated to determine that they will not cause problems that are worse than the alleged diseases they offer to treat. Along these lines, competition authorities should refrain from regulating royalties, a complex task these authorities are not well placed to undertake. Instead, their focus should be to protect and promote downstream competition.

Read/download the paper here.

C.D. Cal.: Patentee Must Make Affirmative Act For DJ Jurisdiction

Panavise Products, Inc. v. National Products, Inc., CV 08-1300 ABC (May 30, 2008)

Panavise was releasing a product that they feared could infringe National Products (NP) patent. Viewing the litigation history of the patent, Panavise saw that they had sued other unrelated parties in the past (6 suits involving 12 entities), and made public statements declaring that the patent was "essential" to the technological area. Also, during a trade show in which the product was displayed, Panavise learned that NP personnel were also in attendance.

Accordingly, Panavise filed for a DJ action. NP moved to dismiss, claiming that (a) they never communicated with Panavise regarding the patent, and (b) they never saw the product, or even learned of it, until the DJ action. The district court agreed with NP and dismissed the action:

[I]t is clear that no case or controversy can exist in a patent action for declaratory relief in the absence of an act by the defendant. For example, in Sandisk, the court stated that “declaratory judgment jurisdiction generally will not arise merely on the basis that a party learns of the existence of a patent owned by another or even perceives such a patent to pose a risk of infringement, without some affirmative act by the patentee.” Sandisk, 480 F.3d at 1380-1381 (emphasis added). That is exactly the situation here: Plaintiff merely learned that Defendant owns a patent and is concerned that its own device may infringe Defendant’s patent, but Defendant has taken no affirmative act in relation to Plaintiff’s device; indeed, Defendant did not know of Plaintiff’s device and has yet to see it. Sandisk further states that “Article III jurisdiction may be met where the patentee takes a position that puts the declaratory judgment plaintiff in a position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do,” id. (emphasis added), thereby reinforcing the notion that no case or controversy can exist where the defendant has taken no position. It is undisputed that Defendant has taken no position with respect to Plaintiff and/or the 811 series device.

That Defendant has sued other unrelated persons for infringement of the ‘420 patent does not constitute action toward this plaintiff and the 811 series device, and therefore does not contribute to the existence of a case or controversy between these parties. Without Defendant even knowing about Plaintiff’s device, it is not apparent that the parties have “adverse legal interest[s]” and that the dispute is “definite and concrete.” Rather, Plaintiff is seeking what MedImmune forbids: “an opinion advising what the law would be upon a hypothetical state of facts.” MedImmune, 127 S.Ct. at 77. Indeed, the cases Plaintiff cites in support of its position all involve a defendant communicating with the plaintiff about plaintiff’s device. Plaintiff has directed the Court to no case in which a case or controversy was found in the absence of any act by the defendant directed toward the plaintiff and/or plaintiff’s device.

Download the opinion here (link)

Hat tip: Patent Appeal Tracer

BPAI Weighs In Again On Computer-Implemented Inventions and Section 101

Ex Parte Wasynczuk, No. 2008-1496, June 2, 2008 (Informative Opinion)

In a rather interesting appeal, the PTO applicant appealed a section 101 rejection on two sets of claims, where a system claim (claim 1) recited a "computer-implemented system" and a method claim (claim 9) recited a "computer-implemented method for simulating operation of a physical system."

Starting with the method claim, the BPAI found that the method of simulating operation of a physical system involved no transformation of an article to a "different state or thing", but nevertheless qualified as a "process" under section 101:

Appellants' claims are similar to the method claims rejected in Comiskey in that the claims do not transform any article to a different state or thing. The simulation data produced by the claims, while perhaps "useful" in one sense, is simply not the product of any transformation as understood in the case law. Contrary to Appellants' contention that a computer-simulated physical system is a real world thing, we find otherwise. Appellants' claims are directed to simulating using models (i.e. modeling) of physical systems (FF 3). These models are mathematical representations of physical systems (FF 5). That Appellants have claimed the invention in prose form (as simply "simulating") and have only mentioned exemplary mathematical techniques used to perform the simulation (FF 5) does not convert the simulating into anything more than simply solving purely mathematical representations of physical systems. We also note that the claimed simulating does not receive information from a real world physical system nor does it output data that controls a real world physical system. We do not find a transformation of any article to a different state or thing.

However, unlike the method claims in Comiskey, Appellants' claims recite a process that employs one of the other statutory categories. Specifically, claim 9 recites that the first simulating step is performed on "a first physical computing device" and the second simulating step is performed on "a second physical computing device" which we conclude is "a particular apparatus" to which the process is tied, not simply a generic computing device for performing the steps. Appellants' Specification describes this embodiment which uses two computing devices (FF 7) as well as a second embodiment, not covered by this claim, which uses a single computer (FF 8). Because the claim recites a particular apparatus, (1) the method operates on another class of statutory subject matter such that the method is a patentable "process", and (2) the method is not directed to an abstract idea. Unlike in Benson, this claim is directed to a particular machine implementation of the mathematical algorithm that does not encompass every substantial practical application of an abstract idea. Benson, 409 U.S. at 71-72. Accordingly, the claims meet the conditions set forth in the case law of the Supreme Court and the Federal Circuit.

Regarding the system claim, one would think that the argument would be open-and-shut for the applicant. Think again, dear reader:

The Supreme Court has held that "[e]xcluded from such patent protection are laws of nature, natural phenomena, and abstract ideas." . . . Clever claim drafting cannot circumvent these principles. That is, even when a claim appears to apply an idea or concept as part of a seemingly patentable process, one must ensure that it does not in reality seek patent protection for that idea in the abstract.

[U]nlike claim 9, we do not find a particular machine being recited in claim 1. Instead, the sole structural limitation recited is the "computer-implemented system" of the preamble of claim 1. As Appellants have set forth by example, the claimed computer is not any particular apparatus (FF 6). Rather, we find that the computer or processor is essentially any conventional apparatus that performs the claimed functions. Thus, we conclude the system of claims 1-8,29, and 31-33 cover ("preempt") every substantial practical application of the abstract idea. We conclude that these claims are so broad that they are directed to the "abstract idea" itself, rather than any practical implementation of the concept.

AFFIRMED-IN-PART

USPTO: Reexaminations May Not Be "Specially Expedited"

Reexamination Control No. 90/008,972: After a Reexamination Request was granted on US Patent 5,253,341, the patentee filed a petition to suspend the rules under 37 C.F.R. 1.183 so that the reexamination proceedings would be handled on a "specially expedited basis" in light of concurrent litigation, and in light of the fact that an earlier reexamination on the same patent took seven years. While recognizing that 35 U.S.C. section 305 authorizes all reexamination proceedings to be conducted "with special dispatch," the Office noted that "The Office does not treat ex parte reexamination proceedings on a 'specially expedited basis.'"

From the PTO:

Although the petitioner patent owner points out that this is a reexamination proceeding having concurrent litigation, the Office does not take a reexamination proceeding out of tum based solely on the existence of concurrent litigation. Current statistics (through December 31, 2007) show that 26% of the ex parte reexamination requests filed and 52% of the inter partes reexamination requests filed involved patents that were also subject to litigation. Thus, it does not appear that the existence of concurrent litigation involving a patent for which reexamination has been requested presents an extraordinary situation. In addition, although the petitioner patent owner states that the first reexamination proceeding took more than seven years to conclude, the '972 reexamination stands on its own merits and will be conducted with special dispatch within the Office.

It is to be noted that to treat a given ex parte reexamination proceeding on a "specially expedited basis," e.g., ahead of other ex parte reexamination proceedings filed earlier than that given ex parte reexamination, (and potentially ahead of other prior filed inter partes reexamination proceedings as well) , would be to relegate some of the prior filed reexamination proceedings to an inferior status in derogation of the statutory mandate that such proceedings be conducted with special dispatch within the Office. It is further to be noted that the '972 reexamination proceeding is not the only reexamination proceeding pending in the Office that is the subject of one or more litigation proceedings.

Nevertheless, the PTO provided the patentee with an alternative, in case the reexamination proceeding took too long:

If, during subsequent prosecution of the '972 reexamination proceeding, petitioner patent owner feels that prosecution is being inordinately delayed, a petition under 37 CFR 1.181 directed to the Director of the Central Reexamination Unit requesting the exercise of supervisory authority would be the appropriate vehicle to address the situation on an as-needed basis in each individual instance. Waiver of the rules would not be necessary.

Download a copy of the PTO decision here (link).

Congress Prepares Fix for BPAI Appointments

Recently, House IP subcommittee chairman Howard Berman introduced H.R. 6362, which would amend title 35 to "provide that the Secretary of Commerce, in consultation with the Director of the United States Patent and Trademark Office, shall appoint administrative patent judges and administrative trademark judges, and for other purposes." The amendments include the following provisions:

(c) AUTHORITY OF THE SECRETARY.—The Secretary of Commerce may, in his or her discretion, deem the appointment of an administrative patent judge who, before the date of the enactment of this subsection, held office pursuant to an appointment by the Director to take effect on the date on which the Director initially appointed the administrative patent judge.

(d) DEFENSE TO CHALLENGE OF APPOINTMENT.— It shall be a defense to a challenge to the appointment of an administrative patent judge on the basis of the judge’s having been originally appointed by the Director that the administrative patent judge so appointed was acting as a de facto officer.

View/download a copy of H.R. 6362 here (link).