One Method Feature in Apparatus Claim Destroys Validity

Rembrandt Data Technologies, LP v. AOL LLC et al., No. 08-cv-1009 (E.D. Va., August 2, 2009, order) (B. Lee)

Notorious NPE Rembrandt sued AOL and a host of other companies over patents relating to dial-up modem technology. At the summary judgment phase, defendants moved the court to find that one of the claims was invalid under section 112 on the grounds that it is "fatally flawed" for mixing a method and apparatus claim in relevant part, the claim reads:

A data transmitting device for transmitting signals corresponding to an incoming stream of bits, comprising:

first buffer means for . . .
fractional encoding means for . . .
second buffer means for . . .
trellis encoding means for trellis encoding the frames from said second
buffer means; and
transmitting the trellis encoded frames.

Both parties admitted that the claim contained an error. However, Rembrandt relied in part on the Fed. Cir. ruling that "[a] district court can correct a patent only if (1) the correction is not subject to reasonable debate based on consideration of the claim language and the specification; and (2) the prosecution history does not suggest a different interpretation of the claims." Novo Indus., L.P. v. Micro Molds Corp., 350 F.3d 1348, 1357 (Fed. Cir. 2003).

Rembrandt argued the claim should be edited to change "transmitting the trellis encoded frames" to "a transmitter section for transmitting the trellis encoded frames." According to Rembrandt, the edit is justified "because the error is so plain and known by anyone in the field there can be no question that the claim as written includes an obvious error."

Defendants argued that the proposed edit "would significantly alter the meaning of one element, changing it from a method step to an apparatus step. This is beyond the ordinary types of corrections allowed by courts . . . there is no evidence to support Rembrandt's assertion that a 'typographical' error occurred. The application claim . . . issued in the identical form as the applicants submitted it to the Patent Office. [The claim], therefore, was invalid from [the] day the application was filed."

The district court agreed with the defendants:

Rembrandt has failed to demonstrate that the language at issue is anything other than what it submitted to the Patent and Trademark Office. Edits by district courts are generally made in instances where the change is extremely minor and/or obvious. This is neither. The impact of the change proposed by Rembrandt would have a colossal effect, and is far from minor or obvious. The Court therefore grants Canon's Motion for Summary Judgment with respect to the '236 claim based on the invalidity of the claims stemming from the mixture of apparatus and method claims because it would be improper for the Court to undertake the revision proposed by Rembrandt as it is not minor, obvious, free from reasonable debate or evident from the prosecution history.

Read/download the order here (link).

NOTE: There was also an interesting issue regarding infringement, where the accused modems were capable of operating in an infringing manner, but middleware prevented them from doing so during normal operation. The district court followed the Federal Circuit's Telemac Cellular ruling to hold that "the fact that an accused 'device is capable of being modified to operate in an infringing manner is not sufficient, by itself, to support a finding of infringement.'"

Want to Improve Patent Quality? Tweak the Incentives for Low-Quality Patents First

One of the biggest issues facing patent prosecution today is the notion of "patent quality." Everyone wants "quality" patents, but no one can agree on how such patents may be defined, nor can anyone agree on the best way to achieve an appropriate level of quality across the board. While there are many proposals to "fix" the process, it may be that, unless more fundamental issues are addressed, many of the existing proposals will be doomed from the start.

Improving patent quality is generally viewed as an administrative problem. In other words, by improving matters such as funding levels, regulatory, judicial and bureaucratic processes, improvements in patent quality are likely to follow. However, this approach largely ignores the point that the modern patent system affirmatively encourages low patent quality - the incentives at work are such that we cannot reasonably expect anything other than very large numbers of low-quality patents

R. Polk Wagner, professor at the University of Pennsylvania Law school, takes a look at these incentives in a new paper titled "Understanding Patent-Quality Mechanisms." In the paper, Wagner suggests that only by understanding the mechanisms of patent quality - the incentive structure that no only discourages "good" patent behavior but also encourages "bad" patent behavior - will we make any real progress in improving the current situation.

Wagner identifies a series of powerful incentives that lead to lower quality patents:

(1) incentives that encourage patentees to draft patent applications that effectively obscure the true scope of the invention and its relationship to the prior art;

(2) incentives that lead the administrative agencies (the USPTO and other patent offices) to conduct relatively ineffective examinations of many patents; and

(3) incentives that compel modern innovative firms to adopt a high-volume, low-quality patenting strategy.

With regard to the first incentive, Wagner properly points out that patent applicants must necessarily be futurists when an application is written. A properly-written application must take into account the potential market(s), technological advancements and alternatives that may (or may not) materialize many years in the future. This timing-based incentive creates strong interests in deferring a careful analysis of the patent (especially with regard to claim scope) for as long as possible, or at least retaining as broad a range of possibilities for as long as one can. This inherently leads to a number of problems:

First, a patentee will almost certainly seek substantial vagueness, thus gaining flexibility to effectively alter the scope and description of the patent according to changing circumstances. Second, because of legal rules which penalize detailed descriptions, the less description the patentee can provide the better she will be. Both of these strategies—creating vagueness and providing a lack of description—have important costs to the patent system. At best, they make it much harder to evaluate the scope and validity of a patent, and make it much more likely that mistakes will be made. In many cases, they allow patentees to exploit the dual-stage-analysis process noted above to obtain a patent under one understanding of the language (e.g., a narrow understanding) and later assert that same patent in a way that broadens the scope of coverage. And, in all cases, they yield patents that are substantially less likely to comport with the statutory standards of validity—that is, low-quality patents.

These problems can be exacerbated by the rules themselves: although 35 U.S.C. § 112 requires clear and adequate disclosure as well as clear and distinct claim language, the USPTO rejects fewer patent applications for § 112 disclosure problems than for prior art problems and virtually never provides a detailed analysis of claim language, meaning that serious § 112 analysis is left for litigation. Also, the statutory presumption of validity encourages patentees to pursue a flexible view of their patent: narrow during prosecution, when the risk of rejection because of prior art is higher, and broader during litigation, when patent scope is of paramount importance. Moreover, the Federal Circuit's treatment of claim construction as a process that interprets claims "in a contextual, holistic manner, without any established process or framework" virtually guarantees that the final analysis of claim scope will only occur after appeal to the Federal Circuit.

With regard to administrative incentives, the PTO has openly taken the position that higher throughput has been a perpetual goal of the office: deny more patents more quickly, and grant more patents more quickly. While the PTO's allowance rate has dropped over the past few years, the number of patents issued has risen as well.

Most importantly, Wagner argues that rational patentees adopt a high-volume, low-quality patenting strategy because it maximizes the possibility of gaining an advantage from the current patent system. Such a strategy can be advantageous in the modern innovation economy for a number of reasons: having many patents, even if their quality is low, can (1) provide much-needed marketplace power in a world where individual patents become increasingly less certain in scope and validity; (2) hedge against the difficulties in predicting the future by casting a broader net - with many patents in a particular field, less emphasis is placed on the need for any individual patent to endure into the future; and (3) hedge against changes in the law itself.

Using this strategy, patentees are often encouraged to seek more patents than necessary, but expend fewer resources on each patent. Also many patentees file for defensive purposes, or file patents only as signals of innovative acumen - in such cases, the bare minimum required to squeak through the PTO would be sufficient. Thus, reliance on the PTO to help improve quality would be misplaced:

The basic problem with viewing patent quality as an administrative issue is that, given the incentives, there is relatively little that the USPTO (or any patent office) can do to change them. First, as long as the balance of interests tips in favor of high-volume, low-quality patenting behavior, we should expect to see those sorts of patents irrespective of the administrative process used . . . There are real limits to how much quality the USPTO can “add” to a filed application: it can reject claims or request revisions, but the power of language remains in the patentee’s hands. In patent prosecution, it will often be a case of “garbage-in, garbage-out”: if the filed application is low quality, the chances are that any granted patent will be low quality as well.

Wagner's paper goes on to examine various proposals (increasing examiner headcount, improving search tools, public access to prosecution, post grant review) and weighs the pros and cons of each proposal. The paper also proposes some alternate proposals:

(1) encouraging early clarity by having the PTO conduct meaningful claim construction analysis with the applicant during examination,

(2) impose further "penalties" on significant amendments made during prosecution,

(3) weakening the presumption of validity,

(4) set yearly quotas or tradable patent application rights, and

(5) impose a PTO "quality panel" that randomly selects patents to evaluate their validity, and apply penalties for invalid patents on that basis.

Of course, the controversial nature of these proposals are not lost on Wagner, and he acknowledges "that patent quality is far from an easy problem to fix, and in many cases the cures may be worse than the problem itself . . . I ultimately conclude that there is no easy answer or simple fix. But at least if we understand the problem fully—here, the mechanisms that
underlie low-quality patents—we can begin to address it, and, more importantly, avoid making changes that will only make matters worse."

- Read/download R. Polk Wagner, "Understanding Patent Quality Mechanisms" (link)

- See also, R. Polk Wagner and Gideon Parchomovsky, "Patent Portfolios" (link)

USPTO Publishes Interim Guidelines for Subject Matter Eligibility

Recognizing that "the state of the law with respect to subject matter eligibility is in flux," the USPTO has published interim examination instructions while waiting for the Supreme Court to decide Bilski. The PTO has indicated that the instructions "supersede previous guidance on subject matter eligibility that conflicts with the Instructions, including MPEP 2106(IV), 2106.01 and 2106.02."

The PTO's approach is unremarkable and reasonably straightforward. Examiners are instructed to distill section 101 analysis down to 2 steps:

(1) Is the claim directed to one of the four patent-eligible subject matter categories: process, machine, manufacture, or composition of matter?

Here, items such as transitory forms of signal transmission, legal contractual agreements, and a game defined as a set of rules are deemed non-statutory. Interestingly, the USPTO has also adopted the EU-like position that "a computer program per se" is also not patentable. Claims that cover bot statutory and non-statutory embodiments are also not patentable.

(2) Does the claim wholly embrace a judicially recognized exception, which includes abstract ideas, mental processes or substantially all practical uses (pre-emption) of a law of nature or a natural phenomenon, or is it a particular practical application of a judicial exception?

Just as before, abstract ideas, mental processes, laws of nature and natural phenomena are not patentable. However, a claim that is limited to a particular practical application of a judicially recognized exception is eligible for patent protection. A “practical application” relates to how a judicially recognized exception is applied in a real world product or a process, and not merely to the result achieved by the invention.

The instructions are a mere 8 pages long (compared to the 2005 guidelines that clocked in at 59 pages) and easy to follow. There are even some handy flowcharts that simplify the process further.

Download the memo and examination instructions here (link)

USPTO Looking for Deputy Commissioner For Patent Examination Policy

From the USAJobs Site:

DEPUTY COMMISSIONER FOR PATENT EXAMINATION POLICY

SALARY RANGE: 117,787.00 - 177,000.00 USD /year

OPEN PERIOD: Friday, August 21, 2009to Monday, September 21, 2009

SERIES & GRADE: ES-1220-0/0

POSITION INFORMATION: This is a Full-Time General position in the Senior Executive Service. This position is located in the Office of the Commissioner for Patents of the U.S. Patent and Trademark Office, Alexandria, Virginia.

DUTY LOCATIONS: vacancy(s) in one of the following locations: 1 vacancy - Alexandria, VA
WHO MAY BE CONSIDERED: Applications will be accepted from all groups of qualified individuals. (U.S. citizenship required)

JOB SUMMARY:

The United States Patent and Trademark Office (USPTO), a progressive organization dealing with intellectual property issues around the world, is seeking a high performing professional to join its Senior Executive Team as the Deputy Commissioner for Patent Examination Policy.
The USPTO is a fully user fee-funded organization with an annual budget in excess of $1.9 billion and approximately 9,000 employees comprised largely of engineers, scientists, and attorneys. The USPTO operates as a performance-based organization; has received an unqualified audit opinion for thirteen consecutive years; formulates a performance-based budget; relies on performance-based contracting; has an award-winning performance reporting program; and is transitioning to electronic end-to-end processing of both patent and trademark applications. The USPTO is located at its new state-of-the-art headquarters in Alexandria, VA.

KEY REQUIREMENTS:

Selectee is subject to a 1 year SES probationary period
Selectee is subject to a Federal Executive Personnel Financial Disclosure.
Successful completion of a background investigation is required.

Read more here (link)

Daily Shorts

USPTO Vows to Cut Pendency in Half - Commerce Secretary Gary Locke affirms that patent pendency rates are "unacceptable." According to Locke, ""[w]e've heard the concerns of America's innovators, and I've directed the PTO to pursue an aggressive agenda to cut the time it takes to process patent applications in half, build the public's confidence and get things right." No timetables were provided on when the reduction would realized.

Milwaukee Journal Sentinel: "Patent delays harmful to U.S. economy, commerce secretary says" (link)

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

U.K. Study Concludes "Ignorance" on Patent Protection - A poll of 2,000 businesspeople conducted by the U.K. IPO revealed that 84 per cent believed that investing in innovation was "crucial" to a company’s success and 22 per cent said that protecting IP had been "the best decision they had made." Despite this, many incorrectly answered fundamental questions on patent protection.

From FT.com: "Business owners ignorant about patent protection" (link)

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

USPTO Looking for Your Comments on Reexaminations - on August 10, the USPTO issued a Federal Register Notice regarding patent reexaminations (link) to obtain more information from practitioners that would be used for subsequent PTO policies. Comments to the PTO may be submitted to Susan.Fawcett@uspto.gov (Subject: A0651-00XX Patent Reexaminations comment). See coverage at Patently-O here (link)

While the notice appears rather generic, it is worthwhile to note that the information collected may be used to potentially block harmful rule changes - under OMB procedure, rules that (1) impose burdens on the public that are disproportionate to their practical utility to the agency, (2) require duplicative filings, and/or (3) are ambiguous will not be approved. Once a member of the public raises issues in a letter, the burden is on the agency to show that the paperwork burdens it proposes to impose on the public are reasonably necessary to efficient function of the agency.

Groups are currently being formed to provide the necessary information. David Boundy, VP and AGC of Intellectual Property at Cantor Fitzgerald , is looking for a person (or persons) willing to lead a response to the PTO's request - feel free to contact David at dboundy@cantor.com

CAFC Affirms That Patent Ownership (and Standing) Can Vest Through Operation of Law

Sky Technologies, LLC v. SAP AG, No. 2008-1606 (August 20, 2009)

Sky's predecessor ("Ozro") executed an IP security agreement, where certain patents were used as collateral to secure loans. Ozro defaulted on the loan and the patents were foreclosed at public auction.

During foreclosure proceedings, one of Ozro's founders ("Conklin") started a new company ("Sky"), and entered into negotiations to transfer ownership of the patents. Conklin, as an individual, signed a settlement agreement to transfer ownership - at no point after foreclosure did Ozro execute a written agreement assigning all of its rights, title, or interests in the patents.

Sky subsequently filed suit on the patents against SAP, where SAP moved to dismiss Sky’s complaint for lack of standing. The district court held the patents-in-suit were transferred from Ozro through the foreclosure proceedings, but because the parties complied with the Massachusetts Uniform Commercial Code (“UCC”) foreclosure requirements by placing the patent collateral up for sale at a public auction and notifying Ozro of the sale, title was transferred as of the date of the foreclosure by operation of law.

On appeal, the Fed. Cir. affirmed that patent ownership is determined by state, not federal law. The Federal Patent Act requires that all assignments of patent interest be in writing. However, even though a transfer of patent ownership, if through an assignment, must be in writing, “there is nothing that limits assignment as the only means for transferring patent ownership. . . . [O]wnership of a patent may be changed by operation of law.” Akazawa v. Link New Technology International, Inc., 520 F.3d 1354 (Fed. Cir. 2008).

We find that Akazawa controls in the instant case, and that the district court’s reliance on its reasoning was appropriate because transfer of patent ownership by operation of law is permissible without a writing. Akazawa says nothing about permitting assignments without a writing; rather, this court made it clear that if assignment is the method of transfer of patent ownership, it must be done in writing, pursuant to § 261. . . . However, assignment is not the only method by which to transfer patent ownership. As noted below, foreclosure under state law may transfer patent ownership. Here, XACP’s foreclosure on its security interest was in accordance with Massachusetts law; therefore, Sky received full title and ownership of the patents from XACP providing it with standing in the underlying case.

On the issue of preemption, the Fed. Cir. noted

Section 261 speaks only to assignments of patents; there exists no federal statute requiring a writing for all conveyances of patent ownership. Therefore, no federal law preempts the use of the Massachusetts UCC foreclosure provisions to transfer patent ownership by operation of law. Consequently, Appellants’ preemption argument lacks merit.

Read/download the opinion here (link)

Employee Allegedly Assisted in Bilking $500k From the USPTO

Michael H. Reid, A Fort Washington-area clergyman, has pleaded guilty to conspiring to steal nearly $500,000 from the U.S. Patent and Trademark Office, with possible help from a USPTO employee. From the Washington Examiner:

According to court documents, the unnamed patent office employee was a financial analyst who had access to accounts in which customers deposited funds that later could be drawn down to pay application expenses. That analyst has not been charged, and the investigation is ongoing, a federal prosecutor said.

One of the patent employee's tasks was to process requests for funds from customers who had completed the application process, documents said. In his guilty plea, Reid said the patent office employee identified accounts that had gone dormant. She then changed the name on the accounts to Redeemed Music House and wired the cash to the company's bank account.

Court documents show that the patent worker stole a total of $534,338 over 32 transfers, 27 of which were to Reid. It is unclear from documents where the other $80,000 went.

In September 2008, the patent office contacted Reid and asked him to repay one of the refunds issued to him, he said in his guilty plea. Reid did so, paying back nearly $7,000.

In May, patent office agents interviewed Reid, and he admitted to receiving the cash from the patent office employee and returning the bulk of it to her in cash payments of less than $10,000 so as to avoid filing bank reports.

Reid pleaded guilty Aug. 10 and faces up to 20 years in prison and a $250,000 fine. No sentencing date has been set, court records show.

Read the article here (link)

Supreme Court Asked to Yank Obviousness From the Purview of Juries

Medela AG v. Kinetic Concepts, Inc. (petition for a writ of certiorari)

Question presented: Whether a person accused of patent infringement has a right to independent judicial, as distinct from lay jury, determination of whether an asserted patent claim satisfies the “non-obvious subject matter” condition for patentability.

Medela defended against allegations of patent infringement by arguing that the asserted patent was invalid for obviousness. The district court provided the jury with lengthy instructions, along with jury interrogatories that asked the jurors to answer "yes" or "no" on whether Medela proved by clear and convincing evidence that the invention was obvious. The jury answered "no" to 37 questions related to obviousness. The jury was not asked to provide, and did not provide, any explanations of the "no" answers.

On appeal to the Federal Circuit, the court stated that “[t]he scope and content of the prior art are factual questions to be determined by the jury,” but because the jury made no findings on those mat­ters, the Federal Circuit applied its highly deferen­tial standard of review: “This court reviews these factual determinations, ‘whether explicit or implicit within the verdict, for substantial evidence.’” Stating that the court " must assume that the jury found that the prior art does not dis­close ‘treating a wound with negative pressure’ with­in the meaning of the patents," the CAFC upheld the jury verdict (see CAFC opinion here).

It its petition, Medela argues that "Federal Circuit precedent broadly and improperly abrogates any right to independent judicial, as dis­tinct from lay jury, determination of whether an as­serted patent claim satisfies the nonobviousness ­requirement of 35 U.S.C. § 103(a)."

More specifically, Medela argues that Federal Circuit Precedent

[C]onflicts with two en banc decisions of other circuits, both of which were unanimous in rejecting the very sort of jury procedure that was used in this case and in many other cases.

[C]onflicts with, or is in deep tension with, this Court’s precedents on obviousness, which have repeatedly described obviousness as “a legal determi­nation,” KSR Int’l Co. v. Teleflex Inc, 550 U.S. 398, 427 (2007), stated that obviousness analysis was to be conducted by “a court, or patent examiner”, and instructed that “this analysis should be made explicit” so as “[t]o facilitate review.”

[I]s difficult or impossible to reconcile with settled principles of federal administrative law, under which the power to “pass on the validity of an administra­tive order” is reserved exclusively to courts, not ju­ries, even in actions where a right to trial by jury ex­ists and the invalidity of the administrative action is a legal defense to the action. See Cox v. United States, 332 U .S. 442, 453 (1947).

Read/download a copy of the petition here (link)

See also, "High Court Cert Petition Argues Judges Should Decide Patent Validity" (link)

Revisiting the Presumption of Validity

Of all the proposed reforms in patent law, one of the most controversial reform measures involves the level of deference courts should give to PTO decisions. More specifically, ever since the Federal Trade Commission's 2003 report (link) on innovation recommended abolishing the presumption of validity of issued patents, a slow but steady measure of support has grown since then (e.g., see "gold plated patents") .

Most recently, Alan Devlin, writing for the Southwestern University Law Review penned "Revisiting the Presumption of Patent Validity" where he expands on previous studies, and provides additional reasoning the "clear and convincing" presumption is validity is not so great:

Who are we kidding with the presumption? Devlin correctly points out that the presumption emanates from the congressional command via 35 U.S.C. § 282 that "[a] patent shall be presumed valid." However, the level of deference to be applied has been left to judicial interpretation - while the current "clear and convincing evidence" standard is settled law, previous standards, such as "a preponderance of the evidence," "substantial evidence," and "clear and cogent showing" have been employed. Essentially, the Federal Circuit explained that the current level of deference is due to a "qualified government agency presumed to have properly done its job . . . [where examiners] are assumed to have some expertise in interpreting the references and to be familiar from their work with a level of skill in the art and whose duty it is to issue only valid patents."

Devlin argues that the ex parte nature of the prosecution process creates informational asymmetries that compromise examiners' ability to distinguish high- and low-quality patents. Additionally, the levels of PTO funding, coupled with the large number of patent applications received each year, leads to an examination process having a "strikingly terse review." The average time spent on a given application by an examiner has been subject to a number of calculations, where the assessed time lies between 16-18 hours. Devlin posits that "[i]t is difficult to understand how a sufficiently detailed examination can take place over a time frame of less than twenty hours . . . especially when one considers the extent of the prior art and the oft-encountered complexity of many claims."

How good is the presumption anyways? Devlin points out that roughly half of all litigated patents are judicially determined to be invalid despite the presumption. Other statistical studies found that 46% of patents litigated on the basis of anticipation were invalidated.

More importantly, Devlin argues that the PTO itself places little stock in its work product. Inter partes and ex partes reexaminations see the PTO revisiting its earlier assessment of an awarded patent and it proceeds without any preconceived presumption as to the validity of its earlier determinations. The same is true of reissuances. Devlin then poses the following:

[I]f the PTO considers its prior decisions to be unworthy of any presumption as to their accuracy, why should the courts? What makes the question all the more intriguing is that the extent of the current presumption is entirely judge-made. The PTO did not request it, and Congress has not required it. Combined with the preceding analysis pertaining to capacity and resource constraints, in addition to the numerous other impediments to effective PTO ex parte review, the presumption must surely be revisited.

As the presumption of validity did not arise from congressional mandate, no legislative action is required for its elimination. Either the Federal Circuit or Supreme Court should hold that one seeking to invalidate a patent face no more than a burden of proof on the balance of probabilities. Alternatively, the PTO itself should emphasize the presumption it deems appropriate given the level of scrutiny it has been able to subject applications to. Given the non-existent presumption that the PTO holds itself to in revisiting its prior decisions, it should request that the courts do likewise, at least insofar as the prosecution process continues to operate in its current form.

Devlin then throws his support behind the concept of a "gold-plated patent," where an applicant would be required to conduct a comprehensive search of prior art, and submit to a "far higher fee" to fund the necessary PTO labor. Additionally, "gold-plated" patents would be barred from any continuations.

While this concept was previously introduced by professors Lichtman and Lemley (see below), Devlin proposes some twists. For one, applicants would be required to search and report only on "analogous arts", where the determination of analogous art is made the same way as for obviousness. Consequently, under Devlin's proposal, a primary initial factor in proving invalidity should be whether "the defendant can point to an anticipatory reference in the analogous art." Furthermore, such invalidation could only take place on the basis of "analogous art that was reasonably within the inventor's potential purview." This way, holders of "gold-plated patents" would have a minimized risk of invalidation based on obscure patents or publications that may cover areas entirely unrelated to the field within which a given invention is discovered.

Devlin concludes:

The two-tier approach would significantly improve the quality of patents granted with presumed validity, would allow for cheaper capitalization and marketing of valuable products by such patentees, would largely deny trolls ownership of strong patents, and would enable the courts to more cheaply, accurately, and effectively invalidate default patents mistakenly granted by the PTO. Combined with a new law depriving obscure prior art of its preclusive force, the gains from implementing such a two-tier system would be compelling. The shortcomings associated with this system are worthy of legitimate debate, but have been shown to be largely unworthy of prohibitive concern.

Read/download Alan Devlin, "Revisiting the Presumption of Patent Validity" (link)

See also, Douglas Lichtman and Mark A. Lemley, "Rethinking Patent Law's Presumption of Validity" (link)

Willful Infringement and Injunctions at the E.D. Tex.

i4i Ltd. v. Microsoft, No. 6:07CV113 (E.D. Tex., August 11, 2009, order) (L. Davis)

In May, a jury found that Microsoft willfully infringed i4i's patent relating to the processing of XML documents with custon XML elements, and awarded i4i $200M in damages. A flurry of post-trial motions followed, among which was a motion by i4i for a permanent injunction, and a JMOL motion by Microsoft to negate the finding of willful infringement.

On the issue of willful infringement, Microsoft argued that the fact that pretrial summary judgment was granted on certain asserted claims, i4i's voluntary dismissal of other claims, and defenses asserted at trial precluded willfulness liability entirely under Seagate.

Judge Davis disagreed:

Microsoft’s arguments are premised on an overly broad reading of Seagate. It argues that the objective prong of the willfulness analysis is met if and only if a defendant failed to present valid defenses during the infringement proceedings . . . most disturbingly, Microsoft’s arguments invite the Court to adopt a view of willful infringement that would allow an accused infringer to stay willfully ignorant despite a high likelihood that its actions infringe a valid patent. Such a view would allow an infringer to escape a finding of willfulness regardless of its conduct at the time the infringement began as long as it presented many defenses after a formal action was filed. Such a view is inconsistent with both Seagate and generally accepted legal principals regarding “objective” legal analysis.

On the subjective prong, Judge Davis focused on whether Microsoft "knew or should have
known" of the likelihood that their actions would infringe:

As Microsoft does not argue (and did not argue to the jury) that any of these “defenses” would have been apparent and considered by a reasonable person in Microsoft’s position prior to its infringing activity, these arguments are irrelevant and inappropriate. Furthermore, the pretrial summary judgment and i4i’s voluntary dismissal of accused products are irrelevant to the remaining claims that the jury found were valid and the remaining products that the jury found were willfully infringing. Additionally, Microsoft’s remaining defenses of invalidity were rejected by the jury and i4i presented sufficient evidence to support its infringement and validity positions.

Second, Microsoft argues that i4i presented insufficient evidence under the subjective prong of Seagate. Microsoft effectively argues that anything short of a “cease-and-desist” letter would be ineffective to put it on notice of an objective risk of infringement. In fact, i4i presented sufficient evidence, both direct and circumstantial, that Microsoft was aware of the likelihood that its activities were infringing.

On the issue of i4i's motion for a permanent injunction, the court applied the 4-factor eBay test and found that an injunction was warranted:

First, i4i has overwhelmingly shown that it has been irreparably injured by Microsoft’s continuing infringement of the ‘449 patent and could not be compensated with monetary damages. The fact that there is direct competition in a markplace weighs heavily in favor of a finding of irreparable injury . . . Simply because i4i adapted to a market where Microsoft fills 80% of the market space does mean that i4i has not suffered an irreparable injury. The evidence shows that i4i lost a, perhaps irretrievable, opportunity in the early days of the custom XML market. See PX 172. This continuing loss of market share and brand recognition is the type of injury that is both incalculable and irreparable.

[T]he balance of hardships also favors i4i. As i4i notes, Microsoft is the world’s largest software company with yearly revenues exceeding $60 billion. . . . i4i’s business is comprised almost exclusively of XML authoring products based off of the ‘449 patent . . . Thus, the evidence clearly indicates that while custom XML is a small fraction of Microsoft’s business, it is central to i4i’s.

[Wi]th regard to the public interest, i4i does not request that Microsoft disable infringing WORD products that are sold prior to the effective date of any injunction. i4i also indicated at the hearing, that it would be amenable to Microsoft providing support to customers who purchased infringing WORD products before the effective date of its proposed injunction. Thus, i4i’s proposed injunction would have little effect, if any, on the daily operations of Microsoft’s current customers. In addition, where products do not relate to a significant compelling public interest, such as health or safety, this factor weighs in favor of an injunction.

To read more, download the (65-page) opinion here (link)

BPAI: Applicants Must Do More Than Recite Missing Features To Traverse Prior Art

Ex Parte Belinne, No. 2009-004693 (10 August 2009) (Informative Opinion)

The appeal involved an invention relating to activating services when configuring a "build to order" system. The Examiner rejected the claims as anticipated over a single prior art reference ("Lee"), and provided citations to allegedly disclosed features. The Appellants argued that the Examiner "failed to explain how the relied upon prior art reference discloses an element of the claim."

A good portion of Appellant's arguments consisted of a re-recitation of claimed features, where purportedly missing features were highlighted:

Lee does not teach or suggest a computer implemented system for enabling configuration of an information handling system which includes a configurator, a service activation module for enabling a user to activate a service for use on an information handling system, and a database where database receives information from and supplies information to the configurator and the service activation module, all as required by claim 1. Accordingly, claim 1 is allowable over Lee. Claims 2 - 6 depend from claim 1 and are allowable for at least this reason.

According to the BPAI, "[t]he Appeal Brief presents no other arguments beyond those quoted above." Not surprisingly, the BPAI objected to this type of argumentation:

In our review, we find that the Examiner has made extensive specific fact finding, as detailed supra, with respect to each of the argued claims. Appellants' argument, as detailed supra, repeatedly restates elements of the claim language and simply argues that the elements are missing from the reference. However, Appellants do not present any arguments to explain why the Examiner's explicit fact finding is in error. Arguments not presented in the Appeal Brief "will be refused consideration by the Board, unless good cause is shown" ' (i.e., are waived). In contrast, the Examiner findings address each claim limitation raised on appeal by Appellants and also these findings reference specific teachings in Lee as showing these claim limitations.

Weighing as a whole the Appellants' arguments, which are not supported by further explanation, that the elements are missing and the Examiner's specific and detailed findings, we reach a conclusion that Appellants have not shown error in the Examiner's finding of anticipation based on Lee regarding claims 1- 16.

Read/download the opinion here (link)

Fed. Cir. Limits Admissibility of Evidence Withheld During Examination at the PTO

Hyatt v. Acting Director, Patent and Trademark Office, No. 07-1066, August 11, 2009

Hyatt appealed a decision from the District Court for the District of Columbia that upheld the PTO's rejection of Hyatt's patent as not being supported by adequate written description. Hyatt's application was originally filed with a 238-page specification, 40 pages of drawings and 15 claims. The original 15 claims were subsequently cancelled, and 117 new claims were added.

The examiner objected to the amendments claiming that no support was provided in the specification, and further rejected the claims, among other things, for lack of adequate written description. For some of the rejected features, the examiner specified the deficiencies; for most other features, the examiner simply stated that they were "not enabled" or "not described in the specification."

Ultimately, the issue went up to appeal, where Hyatt presented 36 pages of general argument that the rejections should be reversed. However, Hyatt did not separately address—and did not indicate where in the specification support could be found for—any of the claim limitations the examiner determined lacked support. Hyatt also argued that lists of twenty-nine publications had been incorporated by reference into the specification and provided enabling disclosure. Hyatt did not correlate any of this information with particular limitations.

The BPAI sided with the examiner on most of the rejection. When Hyatt filed a request for rehearing, he provided extensive new arguments and citations purportedly detailing where disputed limitations derived written description support. The Board denied his request, holding that the new arguments "could and should have been presented during the original appeal briefing."

Hyatt filed a district court action pursuant to 35 U.S.C. § 145 against the Director, but the district court found Hyatt had been "negligent" in failing to submit the arguments to the PTO during examination or in a timely manner to the Board on appeal.

On appeal to the Federal Circuit, the court noted that "this court has never squarely addressed the issue of exactly what standard governs district courts in ruling on the admissibility of evidence withheld during examination in the PTO." According to Hyatt, plaintiffs in a § 145 action are entitled to submit additional evidence without limitation. The PTO argued that evidence not submitted to the PTO through the negligence, or at least the gross negligence, of the applicant is properly excluded.

After a painstaking review (35+ pages) of the legislative and judicial history of § 145, the court concluded:

[I]t has been the general practice of federal courts for over eighty years in certain circumstances to exclude evidence which a party could and should have introduced before the Patent Office but did not despite an obligation to do so. Our own cases likewise have not adopted a de novo standard for trial. We have said that "[c]learly, the applicant does not start over to prosecute his application before the district court unfettered by what happened in the PTO." . . . On the other hand, it is beyond question that in appropriate circumstances new evidence may be submitted to the district court in a § 145 action (subject, at least, to the Federal Rules of Evidence).

* * *

In light of the hybrid nature of § 145 actions, we have held that in the absence of new evidence, a district court must review the decision of the Board for substantial evidence, but for factual questions where new evidence is before the district court, the district court makes de novo findings. . . . However, admitting new evidence without restriction would defeat the purpose of the APA, as applicants could then always submit new evidence whenever they desired de novo review; allowing new evidence unnecessarily will convert deferential review "into effectively de novo review."

There is long history of excluding evidence not submitted to the PTO, and of a consensus that evidence may be excluded if it was not submitted to the PTO at least due to fraud, gross negligence, bad faith, or intentional suppression . . . The Director argues in favor of a negligence standard, although he also argues that Hyatt's conduct amounts to gross negligence.

[W]e note, however, that the terminology of negligence (and gross negligence) is somewhat inapposite to the issue of admissibility. Negligence (which is roughly the absence of diligence) implies a duty. While patent applicants do have certain duties to the PTO, including duties of disclosure, beyond a certain point, how much more evidence to submit is in large part a determination for which a patentee and his agents must use good judgment. While there are certainly many factors which could go into such a decision, a duty to the PTO may not necessarily be one of them. We believe a semantic shift away from negligence will help focus attention on the factors that are pertinent to whether an applicant should be allowed to introduce evidence before the district court over an objection by the Director.

Hyatt was obligated to respond to the examiner's written description rejection . . . by explaining where in the specification support for each of these limitations could be found . . . Hyatt could have declared where in his specification the written description support for each of the disputed limitations resided. After the examiner stated that he had read through the specification and could find no support for certain claim limitations, all Hyatt needed to do was show the examiner where in the specification support existed—something that should have been simple for him, the person most familiar with the specification. The Board noted, "It is far easier for appellant to describe where the limitation he wrote is disclosed than for the Office to prove that the limitation is not disclosed."

On these facts, the district court's exclusion of Hyatt's new evidence must be affirmed. The district court found that Hyatt was "negligent" in failing to submit the evidence disclosed in the Hyatt declaration to the PTO because he was obligated to do so, he had a fair opportunity to do so, and he failed to give an adequate explanation for his failure to submit it. . . . However, it is clear from the record that Hyatt willfully refused to provide evidence in his possession in response to a valid action by the examiner. Such a refusal to provide evidence which one possessed was grounds in Barrett to exclude the withheld evidence.

AFFIRMED

Judge Moore, DISSENTING:

"The majority takes away this patent applicant’s fundamental right to a "civil action to obtain [a] patent" as granted by Congress in 35 U.S.C. § 145. Today the majority decides that a patent applicant may not introduce the inventor’s declaration in a § 145 proceeding before the district court because the inventor had an "affirmative duty" or "obligation" to disclose this evidence to the PTO. His failure to fulfill his affirmative duty, by not disclosing evidence he could have disclosed to the PTO, results in such evidence being excluded from the district court § 145 proceeding. The district court made no fact findings indicating willful withholding or intentional suppression; in fact, the district court did not even conclude that Mr. Hyatt’s conduct amounted to gross negligence, but rather excluded the evidence under a negligence "could have" standard. Nor did the PTO even argue, at any stage of these proceedings, that Mr. Hyatt’s conduct in this case was willful or intentional. Nonetheless, the majority concludes that the applicant "owed," the PTO all evidence he possesses that is responsive to a rejection and that failure to fulfill this newly created "affirmative duty" amounts to willful withholding as a matter of law. There are only two possible ways to interpret the majority’s willful withholding determination. Either the majority is engaging in appellate fact finding or it is determining that breach of its newly created affirmative duty is willful withholding as a matter of law."

Is The CAFC Pro-Patent? Maybe Not, Claims Study

Manasseh Zechariah, economist and assistant professor at Johnson & Wales University College of Business, decided to take groups of decisions from the CAFC, and run variables related to those decisions through different theoretical models to see what came out. Here are some highlights from the study:

• Cases that gets litigated at the trial court which were brought by the patentee are more likely to be decided in favor of the infringer on appeal, as opposed to cases brought to trial by the infringer (i.e., declaratory judgments). Also, a case is likely to be lost at the appeals court by the litigant who brought the case to trial in the first place. However, Zechariah notes that the study does not take into account cases that have not gone through trial (e.g., summary judgment).

• A pro-patent decision by a lower court is more likely to be decided pro-patent by the CAFC if it is appealed. Similarly, an anti-patent decision by a lower court is more likely to be decided anti-patent by the CAFC.

• Overall, the CAFC is likely to rule anti-patent relative to the trial courts on average, but different technology classes of patents are treated differently. While chemical, mechanical and computer patents are more likely to receive an anti-patent ruling, the CAFC has been mostly pro-patent for drug patents.

• Republican appointed judges are more pro-patent than democratic judges.

• In general, patent cases are not likely to be appealed once they have gone through the trial stage. Chemical, electrical and drug patents have higher rates of appeal, but computer patents are less likely to be appealed.

From Zechariah's abstract:

The enforcement of patent rights affects the scope of the monopoly rights provided by them and hence the incentives they provide. Greater likelihood of a pro-patent decision by the enforcement mechanism provides a larger scope of monopoly rights. I investigate the likelihood of a pro-patent decision by the Court of Appeals for the Federal Circuit in patent cases to see how it varies with characteristics of the patent, the litigants and the litigation itself. This model corrects for the fact that not all patent cases get appealed after trial by incorporating a selection model for the appeal of cases. I also incorporate the litigants’ uncertainty about appealing a case using a heteroscedastic selection model. I estimate the model using simulated maximum likelihood and use the GHK simulation method. Results show that overall the Court of Appeals for the Federal Circuit is an anti-patent court. However, significant differences exist between different classes of patents with drug patents being more likely to be decided pro-patent than software patents. The Court of Appeals for the Federal Circuit is found to defer to the decisions of the lower court. We also see an increased likelihood of a pro-patent decision by the appeals court with an increase in the proportion of republican judges on the bench.

Read "An Empirical Analysis of the Adjudication of Patent Cases by the Court of Appeals for the Federal Circuit" (link)

CAFC (Really) Tightens Pleading Requirements for Inequitable Conduct

Exergen, Corp. v. Wal Mart Stores, Inc., No. 06-1491, August 4, 2009

Defendant SAAT appealed the denial of their motion for judgment as a matter of law ("JMOL") after a jury found that SAAT willfully infringed. SAAT also appealed the denial of its motion for leave to amend its answer to allege that the asserted patents are unenforceable due to inequitable conduct.

On the inequitable conduct issue, the district court found that SAAT's pleading failed to allege inequitable conduct "with particularity" under Rule 9(b). The pleading, which alleged inequitable conduct over 7 paragraphs, cited specific documents that "Exergen failed to cite", along with examples of "arguments made to the PTO were contradicted by statements from Exergen’s own website."

To plead the "circumstances" of inequitable conduct with the requisite "particularity" under Rule 9(b), the pleading must "identify the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO." Moreover, although "knowledge" and "intent" may be averred generally, a pleading of inequitable conduct under Rule 9(b) must include "sufficient allegations of underlying facts from which a court may reasonably infer that a specific individual (1) knew of the withheld material information or of the falsity of the material misrepresentation, and (2) withheld or misrepresented this information with a specific intent to deceive the PTO."

Turning to SAAT's pleading, the CAFC agreed with the district court that the allegations were deficient with respect to both the particularity of the facts alleged and the reasonableness of the inference of scienter.

First, the pleading refers generally to "Exergen, its agents and/or attorneys," . . . but fails to name the specific individual associated with the filing or prosecution of the application issuing as the ’685 patent, who both knew of the material information and deliberately withheld or misrepresented it. The pleading thus fails to identify the "who" of the material omissions and misrepresentation.

[S]econd, the pleading fails to identify which claims, and which limitations in those claims, the withheld references are relevant to, and where in those references the material information is found—i.e., the "what" and "where" of the material omissions.

[T]hird, the pleading states generally that the withheld references are "material" and "not cumulative to the information already of record," . . . but does not identify the particular claim limitations, or combination of claim limitations, that are supposedly absent from the information of record. Such allegations are necessary to explain both "why" the withheld information is material and not cumulative, and "how" an examiner would have used this information in assessing the patentability of the claims.

Going further on deceptive intent,

With regard to the withheld patent references, the pleading states that "Exergen was aware" of the ’808 and ’998 patents in general, and that Exergen had become aware of them during prosecution of Exergen’s own prior applications. . . . The pleading, however, provides no factual basis to infer that any specific individual, who owed a duty of disclosure in prosecuting the ’685 patent, knew of the specific information in the ’808 and ’998 patents that is alleged to be material to the claims of the ’685 patent. A reference may be many pages long, and its various teachings may be relevant to different applications for different reasons. Thus, one cannot assume that an individual, who generally knew that a reference existed, also knew of the specific material information contained in that reference.

[D]eceptive intent in this case was pleaded solely on "inform[ation] and belie[f]." . . . Pleading on "information and belief" is permitted under Rule 9(b) when essential information lies uniquely within another party’s control, but only if the pleading sets forth the specific facts upon which the belief is reasonably based. Here, SAAT’s pleading provides neither the "information" on which it relies nor any plausible reasons for its "belief." Moreover, the circumstances that SAAT has alleged, even if true, do not plausibly suggest any "deliberate decision to withhold a known material reference" or to make a knowingly false misrepresentation—a necessary predicate for inferring deceptive intent. . . . The mere fact that an applicant disclosed a reference during prosecution of one application, but did not disclose it during prosecution of a related application, is insufficient to meet the threshold level of deceptive intent required to support an allegation of inequitable conduct.

This appears to be the CAFC's biggest step in tightening inequitable conduct practice in patent cases, noting that

[T]he district court was correct not to draw any permissive inference of deceptive intent with regard to the ’998 patent, lest inequitable conduct devolve into "a magic incantation to be asserted against every patentee" and its "allegation established upon a mere showing that art or information having some degree of materiality was not disclosed."

Read/download the opinion here (link)

CAFC Pushes Back on PTO Actions

In Re McNeil-PPC, Inc., 2008-1546, July 31, 2009

McNeil owns a patent claiming a tampon for feminine hygiene with a solid fiber core in which the core is denser than the radially projecting "ribs" and the ribs are narrower at their bases than their distal ends. McNeil requested that the PTO reexamine its patent based on an unexamined Japanese application (Sasaki). The PTO rejected the patent as anticipated and obvious over Sasaki. McNeil appealed.

One of the issues surrounded McNeil's request for reconsideration, which the BPAI considered "untimely." While the first page of the Board's decision is marked "May 30, 2008", the image file wrapper ("IFW"), listed the "Mail Room Date" of the decision as June 2, 2008. McNeil filed the Notice of appeal on August 1, 2008.

McNeil presented a declaration from Jeffrey Nase, a now-retired member of the Board from 1996 to 2006, who had been employed by the PTO continuously before that going back to 1973.

The CAFC found Nase's declaration convincing:

The following is a summary of Nase's declaration: Historically, the date the PTO mailed a document was the date that triggered any response period. It is unclear why the opinion says "Decided: May 30, 2008" but was not mailed until June 2—perhaps the mail room was slow, or perhaps one of the members of the Board panel decided to revise the opinion or reconsider it over the weekend of May 31 and June 1, 2008. Before August 2006, the date decided was hand-stamped on the front of opinions; beginning only in August 2006 did the Board decision have the date decided typed on the front. Nase opines that if the PTO had intended this minor formatting change to have substantive effect, there would have been public notice (which there was not).

* * *

Because the "Transaction History" page appears inaccurate, and because Nase's declaration provides the most plausible explanation for the conflicting evidence of when the Board took action on McNeil's request for reconsideration and is corroborated by the IFW entry, we find that the Board issued its decision on McNeil's request on June 2, 2008, and that the Board therefore decided this case on June 2, 2008, not May 30. McNeil's appeal is therefore timely.

On the merits of the rejection, the CAFC found that the PTO missed the boat regarding the claim language:

It is not entirely clear, however, that the Board understood McNeil's claim. In its initial decision, the Board stated, "We find that Sasaki's Figures 8 and 10 reasonably appear to depict the ribs of its tampon as being compressed less at their distal ends than at their ends proximal to the drawstring at the center of the drawn fiber strips." . . . McNeil's claim, however, states that the ribs are less dense than the core, not that the distal ends of the ribs are less dense than the proximal ends . . . the Board quoted a claim of Sasaki, which stated that "compressed masses [are] formed at equal intervals along the axial line direction on the outside circumferential surface of the tampon." . . . Sasaki makes no comparison between these "compressed masses" and any core. In fact, it is not clear that Sasaki contains a "core" at all. Instead, Figure 8 is drawn in such a way that suggests Sasaki's tampon is composed of six ribs and no core. There is not substantial evidence, indeed, no evidence, that Sasaki discloses [the claimed features].

The Board's rejection of claim 1 as anticipated lacks substantial evidentiary support and is therefore reversed. Because claims 1, 3, and 4 stood or fell together, the rejections of claims 3 and 4 are also reversed.

Download a copy of the opinion here (link)

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

Jorge Taylor v. USPTO, 2009-1133, August 4, 2009 (Nonprecedential)

Taylor was a pro se inventor that obtained a patent on a chemical sealant device for repairing flat tires. When it came time to pay the maintenance fee, Taylor alleged that the PTO informed him by phone that his required fee was $1,030, which he paid by check. It turned out that the correct fee was supposed to be $1,040, and not $1030. Also, Taylor used the wrong form for transmitting his payment, and sent the payment to the Applications Branch rather than the Maintenance Fee branch.

After cashing the check, the PTO surmised that the PTO employee who processed the form may not have recognized this filing as an attempt to pay a maintenance fee, and may have processed it as a regular application filing fee.

When it came time to pay the 11 1/2 year fee, the PTO informed Taylor that the patent expired, and refused to accept his petitions to revive the application. The CAFC found that the PTO's handling of the application was "arbitrary and capricious":

The unrebutted record shows that the PTO did not inform Mr. Taylor that his January 2001 payment of $1030 was deficient by $10. Instead, the record shows that the PTO cashed Mr. Taylor’s check and still proceeded to consider his patent expired. These actions are inconsistent with the PTO’s obligation under MPEP § 2531 to provide a “Notice of Non-Acceptance of Patent Maintenance Fee” to the “fee submitter,” here Mr. Taylor.

[A]lthough the MPEP “does not have the force of law,” . . . it “has been held to describe procedures on which the public can rely.” . . . In this case, the MPEP notice to the fee submitter of maintenance fee insufficiency accords with the most basic notions of fairness and procedural due process. This court finds that the Office’s course of action in accepting Mr. Taylor’s deficient payment on the one hand, while on the other hand expiring his patent without notifying him under MPEP § 2531 that his payment was inadequate, was arbitrary and capricious. . . . In this case, equity would counsel that the PTO should reinstate Mr. Taylor’s patent upon receipt of his payment for all outstanding maintenance fees. This relief will remedy, to this court’s best estimation, the PTO’s arbitrary and capricious actions.

Read/download the opinion here (link)