CAFC: "Any Person" Has Standing To Assert False Marking Claim

Stauffer v. Brooks Brothers, Inc., 2009-1428 (Fed. Cir., August 31, 2010)

Stauffer purchased bow ties manufactured by Brooks Brothers, and subsequently launched a qui tam action under 35 U.S.C. § 292 alleging that Brooks Brothers had falsely marked its bow ties, based on expired patents that were listed in the markings.

The district court dismissed Stauffer’s complaint pursuant to Rule 12(b)(1) for lack of standing and pursuant to Rule 12(b)(6) for failure to allege an intent to deceive the public with sufficient specificity to meet the heightened pleading requirements for claims of fraud.

On the standing issue, the district court ruled that all plaintiffs, including qui tam plaintiffs, must establish (1) that they have suffered an injury in fact (2) that is causally connected to the defendant, and (3) that is likely to be redressed by the court. The court further noted that the qui tam provision of section 292(b) operates as a statutory “assignment” of the rights of the United States, so Stauffer must prove that the government, rather than he, satisfies the requirements for standing, including that it has suffered an injury in fact.

The Federal Circuit reversed the district court and sided with Stauffer:

We agree with the government and Stauffer that Stauffer had standing to sue Brooks Brothers. “The question of standing to sue is a jurisdictional one, which we review de novo.” . . . Under Vermont Agency [529 U.S. 765 (2000)], a qui tam plaintiff, or relator, can establish standing based on the United States’ implicit partial assignment of its damages claim to “any person,” . . . In other words, even though a relator may suffer no injury himself, a qui tam provision operates as a statutory assignment of the United States’ rights, and “the assignee of a claim has standing to assert the injury in fact suffered by the assignor.”

Contrary to the district court’s decision . . . Stauffer’s standing as the United States’ assignee does not depend upon the alleged injury to the United States being proprietary, as opposed to sovereign. We therefore express no view as to whether section 292 addresses a proprietary or a sovereign injury of the United States, or both . . . as either one would confer standing on the government, and therefore Stauffer.

[W]e also need not address whether Stauffer’s alleged injuries to himself or his asserted injuries to competition give him standing, either individually or as a member of the public. Stauffer’s standing arises from his status as “any person,” and he need not allege more for jurisdictional purposes . . . The standing doctrine is intended to require that the plaintiff is a proper person to bring the suit; it does not require that the plaintiff properly allege all of the elements of his claim. Thus, “standing does not depend on the merits of the plaintiff’s contention that particular conduct is illegal”; it instead requires a claim to an injury of a legally cognizable right.

While the case was reversed and remanded on the issue of standing, Stafford will still have the onerous task of proving scienter under Section 292(a), which provides that "[w]hoever marks upon, or affixes to . . . any unpatented article, the word 'patent' or any word or number importing that the same is patented, for the purpose of deceiving the public."

Read/download the opinion here (link)

Arti Rai Departing From The USPTO

Hal Wegner has just broke the news that Arti Rai, Administrator for External Affairs, is leaving the PTO to an unspecificed position that has not been announced by the government.

As Administrator for External Affairs, Rai served as a policy adviser to the Under Secretary of Commerce for Intellectual Property and oversaw the office's work with Congress on major legislation to reform patent law and practice, coordinate informational and educational events on piracy and counterfeiting, and implementing international intellectual property treaties.  Rai was sworn into this position on October 9, 2009.

For those interested, the government has posted a job opening for this position, which can be viewed here (link)

USPTO's "Green" Technology Fast-Track Program Off to a Slow Start

Last December, the USPTO launched a pilot program to accelerate the examination of certain “green” technology patent applications.  Under the pilot program, for the first 3,000 applications related to green technologies in which a proper petition is filed, the agency will examine the applications on an accelerated basis.  (For more info, see here and here).

Today, Martin LaMonica reports from CNET:

As of Thursday . . . a USPTO representative said there have been 1,477 requests for accelerated status, well short of the pace first expected.  . . . The green-tech program doesn't have a big backlog of patent applications, which is a growing problem at USPTO overall. By mid-August, there were only 53 applications awaiting review, with over 700 granted and the rest dismissed or denied.

Jennifer Rankin Byrne, director of public affairs at the USPTO, said the USPTO is pleased with the pilot program, is considering whether to extend it another year, and would like to see more participation.

In response to the low number of applications after the first six months, the USPTO in May loosened the requirements to take advantage of the fast-track process. Rather than having to fit into a specific classification, patent petitioners now need to fall into four general areas of renewable energy, technology to improve environmental quality, energy conservation, or greenhouse gas reduction.

But even with easing the limitations on patent classifications, there hasn't been a dramatic increase in acceleration requests since May, when about 950 had been submitted.

Read "Green-tech patent program off target pace"

Can The Actions of a Blog Be a Basis for Getting Costs in an EPO Opposition?

Mikkel Hippe Brun, who operates the blog Schemaworks, writes about various technical, policy and patent issues issues surrounding the IT industry.  Recently, he became aware of a patent directed to a "Communication Routing Apparatus."  In a nutshell, the patent describes a middleware product (e.g. an ESB) where the ESB acts as an intermediary messaging hub between many IT-systems.  The patent is directed to protocol/content conversion between senders, the hub and receivers.  To date, the patent owner, which is a relatively small company, has not made any overt attempts to litigate or license the patent

Brun took considerable interest in this patent and concluded that, in his opinion, the patent covered basic concepts on how electronic invoices received from multiple sources and in multiple formats are converted into a standardized format.  Accordingly, Brun led the charge on a campaign to oppose the patent after it was issued.
 
The campaign had an apparent impact - in a short while, 29 parties launched 19 oppositions in the EPO against the patent.  Needlees to say, the patent owner (the "proprietor" in EPO-speak) was not happy with the innundation of opposition requests.  Under the EPO rules, costs may be apportioned among the parties:

Each party to the proceedings must bear the costs it has incurred. However, an Opposition Division may, for reasons of equity, order a different apportionment of such costs, which may have been incurred during the taking of evidence, in oral proceedings or under other circumstances.

The patent owner viewed the actions of the opponents, particularly in light of Brun's campaign, as "abusive" and argued to the EPO that the door has now opened for the awarding of costs.  From the proprietor's EPO response:

19 notices of oppositions have been filed naming 29 parties. It is believed that the large number of oppositions is due to a blog created by one Mikkel Hippe Brun which can be seen at http://blog.schemaworks.com/

For example, the blog has EPO Form 2300 available as a download to enable opponents to launch oppositions.

Whilst it is accepted that any person may give notice of opposition under Art. 99 EPC, it is submitted that setting up a blog to inundate the proprietor with oppositions is an abusive process which puts the proprietor as a relatively small company at a significant disadvantage. The proprietor requests that the Opposition Division bear this in mind during the opposition procedure, particularly with regard to requests for extension of time and an award of costs, if deemed appropriate.

While the success of this argument is certainly a long-shot, it does highlight some of the concerns US practitioners have on a post-grant regime: what, if any, protections should be put in place to protect smaller companies against such a scenario?

Hat tip: the blogging team at the PatLit blog.

Advertising-Based Content Distribution Patent Fails Bilski Test in District Court

Ultramercial, LLC v. Hulu LLC, No. CV 09-06918 (C.D. Cal., August 13, 2010)

Ultramerical brought suit against Hulu for alleged infringement of a patent directed to distributing copyrighted products over the Internet.  Specifically, the ('545) patent allows Internet users to view copyrighted material free of charge in exchange for watching certain advertisements.  A computer or a server acts as a gateway between the Internet user and the copyrighted material. An advertisement sponsor may purchase advertising space for a particular copyrighted material (e.g., TV show). Upon attempting to stream a “free” television show episode, for example, the Internet user will be presented with advertisement. The user cannot view the copyrighted material until the ad is fully displayed.

After reviewing the claims, the district court held the patent invalid for non-statutory subject matter under Bilski.

The "Machine-or-Transformation" Test:

It is important to note, however, that even after the Supreme Court’s decision in Bilski, the machine or transformation test appears to have a major screening function–albeit not perfect– that separates unpatentable ideas from patentable ones. Indeed, four of the Justices, listed on Justice Stevens’s concurring opinion, would have taken the machine or transformation test to its logical limit to hold that business methods are categorically unpatentable. . . . Joining a concurring opinion, Justice Scalia . . . would agree with Justice Breyer that “not [] many patentable processes lie beyond [the] reach [of the machine or transformation test].” . . . In sum, at least five (and maybe all) Justices seem to agree that the machine or transformation test should retain much of its utility after the Supreme Court’s decision in Bilski. Therefore, even though the machine or transformation is no longer the litmus test for patentability, the Court will use it here as a key indicator of patentability.

The "Machine" Prong:

The parties agreed that there were only three points identified as a possible reference to a machine.  One independent claim recited a "method for distribution of products over the Internet via a facilitator,” while a dependent claim recited "wherein media product accessed by the consumer is downloaded to a memory of a personal computer of the consumer.”

The Court finds that none of the three satisfy the machine prong of the test . . . there is no reason to read “facilitator” as a machine such as a computer. Indeed, the patent specification suggests the contrary: the schematics in the patent specification depict the facilitator as a person. Moreover, the ‘545 patent explains that the facilitator may “communicate through . . . telephony, facsimile, courier, mail or even person-to-person meeting.” The specification makes it clear, therefore, that the ‘545 patent is not aimed at a computer-specific application; it is a broad claim to the concept of exchanging media for advertisement viewing.

Neither does the “Internet” recitation save the patent. First, this Court agrees with the District Court in the Northern District of California that held the Internet is not a machine. CyberSource Corp. v. Retail Decisions, Inc., 620 F. Supp. 2d 1068 (N.D. Cal. 2009) (“[T]he Internet is an abstraction.” “One can touch a computer or a network cable, but one cannot touch ‘the internet.’”).

Finally, the mere act of storing media on computer memory does not tie the ‘545 invention to a machine in any meaningful way. Since Plaintiff does not argue this point, the Court will not address it in detail. It suffices to say, however, that the argument would have been too farfetched and hence futile.

"Transform an Article" Prong:

There can be little dispute that the ‘545 patent does not transform an article. . . . None of the patent claims disclose a transformation. . . . [T]he mere transfer of data from one memory disk on one computer to another memory space in a second computer is not “transformation of article” under § 101. And the parties have not pointed out a case that held otherwise.  That is not surprising: the nature of the computer memory does not vary based on what is stored in it.  And even if storing content on a computer memory constituted transforming an article, Plaintiff’s argument would still fail because such “transformation” is merely incidental to the ‘545 patent claims.

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

BPAI's "Administrative Estoppel": Untraversed PTO Findings May Be Barred in Later PTO Proceedings

Ex Parte Smith, Appeal No. 2009-014595 (BPAI, Aug. 17, 2010)

Smith filed a patent application in 1998 directed to a method and system for securing passwords and personal identification numbers.  In 2001 a continuation was filed, and later that year, a CIP was filed which ultimately issued as the '336 patent.

During prosecution of the '336 patent, the examiner did not give claims priority beyond the CIP date, ruling that the application did not give adequate support under 35. U.S.C. § 112 for certain terms.  Smith responded that the claims were supported, and provided arguments specific to one of the claims.  The other claims, and specific claim terms, were not addressed in the response.  The Examiner ultimately withdrew the originally rejected claim, but maintained the remaining rejections.

Smith filed an RCE, and the application was ultimately allowed.  In the Reasons of Allowance, the Examiner reiterated that the earlier applications failed to provide adequate support.

Roughly 4 years later, Smith filed a reexam on the '336 patent, and the Examiner rejected certain claims based on a reference ("Jules") that predated the CIP date, but was filed after the parent applications.  Smith attempted to remove Jules as valid prior art based the '336 patent's priority.  The BPAI refused to consider these arguments.

Filing a Board appeal does not, unto itself, entitle an appellant to de novo review of all aspects of a rejection. If an appellant fails to present arguments on a particular issue – or, more broadly, on a particular rejection – the Board will not, as a general matter, unilaterally review those uncontested aspects of the rejection. See, e.g., Hyatt v. Dudas, 551 F.3d 1307, 1313-14 (Fed. Cir. 2008) (the Board may treat arguments appellant failed to make for a given ground of rejection as waived).

* * *

An applicant’s statement to the examiner is a compelling disclaimer of scope such that a patent may not be entitled to an earlier priority date. . . . That is because arguments made to persuade an examiner to allow an application trump an ambiguous disclosure that otherwise might have sufficed to obtain an earlier priority date.

[D]uring the course of reexamination prosecution, the Examiner denied Appellant’s claim to benefit of priority to the [parent] patent, and found no support in the [parent] patent for each of the claims in the '336 patent that recite the term “graphical image.”  However, we find no need to make a determination as to whether the [parent] Patent provides support for the contested subject-matter during this reexamination, and instead find that Appellant is estopped from disqualifying Jules as intervening art since Appellant failed to traverse the Examiner’s findings regarding priority during the original prosecution of the '336 Patent and in fact did not raise any issues regarding benefit of priority to the [parent] patent in the Request for Ex Parte Reexamination by Patent Owner.

In making this determination, we find that during the original prosecution of the '336 patent, the Examiner made specific unambiguous priority findings during a First Office Action, a Final Office Action, and again in the Examiners Reasons for Allowance. In response to these priority findings, Appellant did not contest the findings other than to correct the Examiner’s apparent clerical error.  Thus, in overcoming the prior art during the prosecution of the '336 patent without attempting to traverse the Examiner’s priority findings, the Appellant forwent opportunities to persuade the Examiner that there may be support for the contested subject-matter in an ambiguous disclosure that otherwise might have sufficed to obtain an earlier priority date.

Further, while we realize that a patentee’s silence in the face of the Examiner’s Reasons for Allowance should not be treated as an acquiescence, we do find these facts compelling, and thus cannot be ignored when combined with the Appellant’s silence in the responses to formal office actions during the original prosecution. As a result, we find that it would be reasonable to infer from this that Appellant did not contest the Examiner’s priority findings, and indeed is not rightfully entitled to benefit from the [parent] patent’s earlier effective filing date for the claims presently at issue. Thus, we find that based upon Appellant’s silence and the prosecution history in toto, it would be reasonable for a competitor to believe that the applicant had disavowed priority  . . . based on the original Examiner’s priority findings.

Read/download the decision here (link)

Hat Tip: the excellent Patents Post-Grant Blog

CAFC: Overseas Contract Requiring Delivery and Performance in the U.S. Constitutes a "Sale" under Section 271(a)

Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA Inc., No. 2009-1556 (August 18, 2010)

Transocean sued Maersk on patents relating to an improved apparatus for conducting offshore drilling.  The lower court granted summary judgment of noninfringement in favor of Maersk.  One of the issues involved the finding that Maersk contracted with another U.S. corporation (Statoil) to use an accused rig in the "operating area" of the U.S. Gulf of Mexico, and that Statoil had the right to use the rig outside the operating area with certain limitations.  The contract, which was signed in Norway, mentioned Transocean's patents and reserved the right for Maersk to make "alterations" to the rig "in view of court or administrative determinations throughout the world."

At the same time, Transocean successfully sued another competitor (GSF) for infringement of the same patent claims.  When GSF redesigned their rigs to get around Transocean's patents, the district court in that case held that the new design did not infringe.  Before delivering the rig to the U.S., Transocean modified its rig according to the noninfringing design.

Maersk maintained that the district court correctly held that because the negotiations and execution of the contract took place outside of the U.S., this could not be an offer to sell under § 271(a).

The CAFC disagreed:

[W]e hold that a contract between two U.S. companies for the sale of the patented invention with delivery and performance in the U.S. constitutes a sale under § 271(a) as a matter of law. Maersk USA’s first argument, that the location of negotiation and contracting should control is contrary to our precedent in Lightcubes. There, we held that a sale does not only occur at a “single point where some legally opera-tive act took place.” Lightcubes, 523 F.3d at 1369-70. We may also consider other factors such as the place of performance . . . Maersk USA’s argument that Statoil could use the rig outside the U.S. ignores the plain language of the contract, which includes an “Operating Area” of the U.S. Gulf of Mexico.  It also ignores the fact that Maersk did in fact deliver the rig to U.S. waters.

On the issue of the re-design:

[Maersk's] remaining arguments regarding the right to alter the final design and the fact that the rig was not complete at the time of contracting do not change the result. Maersk USA and Statoil signed a contract and the schematics that accompanied that contract could support a finding that the sale was of an infringing article under § 271(a). The fact that Maersk USA, after the execution of the contract, altered the rig in response to the GSF injunction is irrelevant to this infringement analysis. The potentially infringing article is the rig sold in the contract, not the altered rig that Maersk USA delivered to the U.S.

Finally, we reject Maersk USA’s claim that the entire apparatus must have been constructed and ready for use in order to have been sold. Our precedent establishes that a contract can constitute a sale to trigger infringe-ment liability. See NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1319 (Fed. Cir. 2005). A “sale” is not limited to the transfer of tangible property; a sale may also be the agreement by which such a transfer takes place. Id. In this case, there was a contract to sell a rig that included schematics. On summary judgment, we must draw all justifiable inferences in favor of the non-movant, Transocean. Transocean argues that these schematics show sale of the patented invention. This is a genuine issue of material fact sufficient to withstand summary judgment.

Obviousness

The district court also found all claims obvious as a matter of law in light of two prior art references (Horn in view of Lund).  On appeal, the CAFC agreed that Horn and Lund established a prima facie case of obviousness.  However,

Although we hold that Horn in view of Lund present a prima facie case of obviousness, this is not the end of the analysis. At the district court, Transocean presented significant objective evidence of nonobviousness. First, Transocean presented evidence of industry skepticism. A Transocean competitor, in an article discussing simultaneous drilling operations, stated that dual drill strings would be a “radical departure” from conventional systems and that there was a high potential for underwater collision.  Others in the field described dual activity as “not being realistic” for the same reasons.  Second, Transocean presented evidence of industry praise for its dual activity rig.  An industry publication called the invention one of the top 50 innovations in offshore drilling history. Transocean also cites other examples of praise from clients and competitors, including Maersk USA. Third, Transocean presented evidence that its implementation of the dual activity invention has been a commercial success. It showed that its dual activity rigs command a higher licensing premium than standard rigs. Finally, Transocean presented evidence that the success of its invention caused others to copy it, including Maersk USA.

[W]e hold that the district court erred by failing to consider Transocean’s objective evidence of nonobviousness.  Our case law is clear that this type of evidence “must be considered in evaluating the obviousness of a claimed invention.” . . . While it is true that we have held in individual cases that objective evidence of nonobviousness did not overcome the strong prima facie case – this is a case-by-case determination. . . . To be clear, a district court must always consider any objective evidence of nonobviousness presented in a case.

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

Read/download the opinion here (link)

RIP Patent Reform 2010?

"I used to be indecisive; now I'm not sure."

      - Anonymous

Well, in the on-again-off-again world of patent reform, it appears that Congress has its finger on the "off" switch.  From a recent EE Times article:

Backing for a draft patent reform bill in the U.S. Senate appears to have waned while support is rising for a more recent proposal to give the patent office more funds to deal with its historic backlog of applications.

Observers say neither initiative is likely to pass in the current Congress though change is urgently needed.  A patent reform bill that passed out of the Senate Judiciary Committee last year has lost key industry backing, say several sources. A separate bill introduced in May to bolster funding for the patent office faces "a civil war" between warring House committees, said one observer.

"The prospects are fairly limited," for all the proposed bills, said Paul Michel, former  Chief Judge of the U. S. Court of Appeals for the Federal Circuit .

Read EE Times, "Support for patent office rises as reform bill wanes" (link)

BPAI Informative Opinion Addresses "Broadest Reasonable Interpretation"

Ex Parte Givens, Appeal 2009-003414 (BPAI, August 6, 2009)

While the application was decided over a year ago, the USPTO has decided to publish the decision as an informative opinion, presumably as an attempt to push back on the practice of applying a "broadest reasonable interpretation" too liberally.

The issue in this case is straightforward.  Appellant filed an application on a method and apparatus for reducing noise associated with acoustic sensor outputs.  During examination, the claims were rejected under § 102(e) over the Lin reference.

While the Appellant argued that Lin did not disclose a "sub-band spectral subtractive routine," the Examiner countered that Appellant did not provide a specific definition of “sub-band spectral subtractive routine” and thus, giving the term its broadest reasonable interpretation, included any adaptive filter.

The BPAI quickly shot down this reasoning:

We cannot agree [with the Examiner].  Appellant’s Specification explains that “sub-band spectral subtraction algorithms are . . . known to those skilled in the art” in paragraph [0023], sets forth the sub-band spectral subtractive mechanism in paragraph [0032], and also sets forth the function that implements the sub-band spectral noise reduction algorithm . . . Although Appellant’s Specification does not specifically define the term “sub-band spectral subtractive routine,” this is a specific claim term for a specific type of filtering (Spec. ¶[0032]). Any interpretation that fails to give weight to “sub-band,” “spectral,” “subtractive,” and “routine” deprives the words in this claim term of their normal meaning. Thus, the “sub-band spectral subtractive routine” does not include just any adaptive filter, but rather refers to a specific filtering routine. Further, the output from Lin’s LMS based adaption circuit is fed to a summer . . . not a sub-band spectral subtractive routine. A summer is an additive circuit and not a subtractive circuit. Also, Lin does not describe the summer as operating on a sub-band. Thus, because Lin does not disclose each and every element of Appellant’s invention, Lin does not anticipate claims 1-15.

Read/download the opinion here (link)

Study: Applicant-Submitted Art is Largely Ignored by Examiners

Patent law both imposes a duty on patent applicants to submit relevant prior art to the USPTO and assumes that examiners use this information to determine an application's patentability. In a recently-published paper, Christopher Cotropia, Mark Lemley and Bhaven Sampat tested the validity of these assumptions by studying the use made of applicant-submitted prior art by delving into the actual prosecution process in over a thousand different cases.

In short, the findings are quite disturbing:

We find, to our surprise, that patent examiners effectively ignore almost all applicant-submitted art, relying almost exclusively on prior art they find themselves. This is not simply because the applicant has “drafted around” the art they submitted. Even late-submitted art is ignored by examiners. Either applicants submit uniformly weak prior art, or examiners simply ignore what they receive and focus on the art they find themselves. Based on our further examination of the data, the latter explanation seems more likely.

These findings have significant implications on a number of important legal and policy disputes:

(1)  Outsourcing patent searches - if examiners only pay attention to the art they find for themselves, the effectiveness of outside submissions may be questionable.

(2)  Presumption of validity - should the law presume a patent valid over art that the examiner has not given much consideration?

(3)  Inequitable conduct - the findings suggest that the most common form of inequitable conduct - the willful failure to submit prior art to the USPTO - may be less of a problem than previously thought; not because applicants don't try to deceive the USPTO, but because any effort to do so seems wasted.

(4)  Patent valuation - "citation counts" are often used as a prominent measure of a patent's strength.  If counts become inflated due to repeated submissions by an applicant, the strength (i.e., value) of the patent may become overstated.

Other findings from the study:

• Over three-quarters of the submitted art against which patentability is evaluated comes from applicants. Most of the art (63%) is previous U.S. patents.
• Examiners account for a much larger share of citations to U.S. patents versus other types of art. Examiners account for 34% of citations, versus 6.2% for non-patent art and 6.1% for foreign patents. This is consistent with prior suggestions that patent examiners primarily search prior U.S. patents.
• 17 % of the patents in the sample were issued with no rejections.
• Of the references examiners use to reject claims, only 12.7% come from the applicants, while 87.2% come from examiners.
• Over 90% of the U.S. patents used in rejections emanate from examiner searches, rather than from applicants.
• Examiners used only 2.9% of the applicant-submitted foreign patents and 1.1% of the applicant-submitted non-patent art.

To read/download a draft copy of the study, see "Do Applicant Patent Citations Matter? Implications for the Presumption of Validity" (link)

South Korea Launches "Largest-Ever" Antitrust Probe on Patent Abuse

From Mobile Business Briefing:

South Korea’s antitrust body has launched an extensive investigation into possible patent-related abuses by a range of local and foreign-owned IT and telecoms firms, the government said this week. According to a JoongAng Daily report, the investigation is the largest of its kind ever undertaken in the country. “With the increase in patent conflicts in the IT world, there are growing concerns about patent abuse,” the FTC said in a statement. “In the IT industry, patents are often more critical than in other sectors and can determine whether a company fails of succeeds.” The investigation is set to last six to eight weeks and will target 40 domestic and 19 foreign firms involved in semiconductors, computers and mobile telecommunications products

“Companies with market dominance and widespread technologies that have become industry standards will be targeted,” said Kim Jun-beom, director of the FTC’s market supervision team. “Foreign companies that have a large influence on the domestic market also will be targeted.” Although the government's specific targets are unknown, experts say the probe will likely cover large domestic firms such as Samsung, LG and Hynix Semiconductor. The investigation is thought to be part of a crackdown by the government on alleged abuses by large corporations, including alleged unfair practices toward smaller companies. “Local small and midsize enterprises have suffered considerable damage from patent-related abuses by large domestic and foreign companies,” Kim said.

The probe is intended to establish a "fair" marketplace by rooting out practices believed to prevent follow-up technology development and help protect smaller companies from allegedly unfair business practices. 

The probe is scheduled to last until Sept. 17 for domestic companies, and will continue through the end of the same month for multinational companies.

See also, Asia Pulse, "S. Korean Antitrust Watchdog Probing IT Firms Over Patent Abuse" (link)

How Do Economic Downturns Affect Patent Litigation?

In the arena of patent litigation, two competing theories attempt to explain how the macroeconomic environment influences motives to file suit. On one hand, the decline in revenues associated with falling demand encourages firms to reduce litigation in IP suits as a method of reducing costs and maintaining profitability.  On the other hand, the very decline in profits spurs firms to extract greater revenue from dormant assets by litigating more aggressively against perceived infringers.  In other words, the relative rate of return on investing in patent litigation rises during downturns, thereby making it more attractive as a business strategy.

Until now, there has been no systematic study of how macroeconomic conditions affect the rates of patent litigation.  Alan Marco & Ted Sichelman recently took on the task of analyzing this topic and have published their findings in a paper titled "Do Economic Downturns Dampen Patent Litigation?"

In general, Marco and Sichelman found that patent litigation rates may rise or fall following an economic decline depending on the relative shifts in macroeconomic factors driving the downturn. For example, economic declines characterized mostly by drops in GDP, but for which credit remains freely available, are associated with increases in patent litigation rates. On the other hand, declines characterized by the converse situation - as in the current recession - are associated with decreases in litigation rates.

Until the study undertaken here, practicing attorneys disputed whether economic downturns increased or decreased patent litigation rates. One camp - relying on data from all but the current recession - argued that downturns increased litigation, because the rate of return from patent litigation increased relative to selling products and services. In other words, litigation substitutes for traditional sales during downturns. Another camp - emphasizing litigation declines in the current recession - contended that capital constraints present in downturns reduce overall litigation rates.

In the first study of its kind, we resolve this debate by showing that both theories are very likely correct. Specifically, declines in GDP and the NASDAQ index are associated with significant increases in overall patent litigation. This result provides support for the substitution theory. In contrast, increases in the TED spread, a measure of macroeconomic financial risk, as well as T-bill rates are associated with declines in overall litigation rates. This finding supports the capital constraint theory. As such, our study indicates that overall patent litigation rates may rise or fall depending on the nature of the economic downturn. When productivity declines and decreases in sales dominate capital effects, litigation will tend to rise, and vice-versa.

Read/download "Do Economic Downturns Dampen Patent Litigation?" via SSRN (link)

CAFC: Inconsistent Characterization (and Partial Disclosure) of Disputed Prior Art May Lead to Inequitable Conduct

Golden Hour Data Systems, Inc. v. emsCharts, Inc., No. 2009-1306 (August 9, 2010)

Golden Hour filed a patent application directed to computerized systems and methods for information management services in connection with emergency medical transport.  When the application was filed, the specification acknowledged that certain technology ("the AeroMed system") was the closest art.  Specifically, the Background stated that

Although others have attempted to remedy this conflict, no fully integrated medical systems have been developed. For example, the [AeroMed system] provides computer software for dispatching emergency crews to accident scenes and managing flight information. However, it does not provide comprehensive integration of the flight information with a clinical diagnosis, billing system and administration system.

Shortly after the application was filed, Golden Hour filed an IDS containing a statement that

Applicants are aware of AeroMed Software, computer software for Air Medical Dispatch, Flight Program Management, Medical Charting, Continuing Education Tracking, Transfer Center, Physician’s Referral Lines, and Custom Applications. AeroMed Software is a product of Innovative Engineering of Lebanon, New Hampshire.

The language for this comment was apparently taken from the cover of an undated brochure describing the AeroMed system.  Importantly, the brochure contained a disclosure indicating that the system was capable of providing "comprehensive integration of the flight information with a clinical diagnosis, billing system and administration system."  However, this portion of the brochure was never submitted to the USPTO.

During litigation, the lower court found the non-disclosure to be inequitable conduct on motion for JMOL, and noted that the information inside of the brochure was inconsistent with the disclosure in the IDS, and inconsistent with how the inventor and prosecution counsel had described the AeroMed system in the original application. Therefore because the prosecution counsel "selected that part of the brochure to disclose that did not threaten patentability” and “excluded . . . the entire teaching that would have been a serious obstacle to patentability,” the district court found that “[t]here can be no question” that the withheld information is “highly material.”

Furthermore, the lower court found that “[s]uch selectivity is strong evidence of intent to mislead the patent office about the relevant prior art system as described by its competitor.”  The court therefore concluded that “the single most reasonable inference to be drawn is that Golden Hour intended to deceive the patent office.”

On appeal, Golden Hour argued that the brochure was undated.  As such, the MPEP would have precluded an examiner from considering the brochure.  The CAFC rejected this argument:

The MPEP itself contradicts this reading. The sections on which Golden Hour relies do not limit an IDS to the submission of prior art references, and the MPEP states that “[t]here is no requirement that the information [identified in an IDS] must be prior art references in order to be considered by the examiner.” MPEP § 609 (2008). Further, our prior cases make clear that information may be material even if it does not qualify as prior art.

[S]econd, the brochure and the information contained therein were material because they contradicted other representations to the PTO, even if the brochure was not itself prior art. In the specification, applicants described the AeroMed system in existence as of the time of the application . . . By not correcting the statement in the specification, applicants continued to maintain its truth in direct contradiction to what is disclosed in the AeroMed brochure. Given the importance of integrated billing to the patentability of the invention, information inconsistent with or contrary to the application’s representation of the capabilities of AeroMed’s billing system in the specification would have been important to a reasonable examiner . . . We therefore affirm the district court’s finding that the information in the brochure not produced to the PTO was highly material.

[SIDE NOTE]: In an interesting twist, the brochure was submitted as prior art during litigation, and was found not to be invalidating prior art.

However, on the issue of intent, the CAFC stated that the "key question" was whether the inventor and/or prosecuting attorney "in fact read the brochure."

If one or both read the brochure and deliberately did not disclose the damaging information on the inside, their actions would give rise to an inference of intent to deceive. However, if they did not read the brochure (and did not do so to avoid learning of damaging information), those actions regarding the failure to dis-close the information on the inside of the brochure would at most, amount to gross negligence. Gross negligence is not inequitable conduct.

[T]he district court did not actually find that either [the inventor and/or prosecution counsel] was aware of the inside contents of the brochure. As findings of intent so often turn on a district court’s credibility determinations . . . it is essential that the court provide detailed factual findings with respect to crucial facts - such as whether [either] read the entire brochure; whether, knowing the information to be mate-rial, they deliberately withheld it; or whether they deliberately refused to read the entire brochure in order to avoid learning damaging information.

[I]t might seem unlikely that a patent practitioner would make representations as to the brochure in an IDS without reading the entire brochure and would not be interested in reading the entire brochure to deter-mine whether there was anything in it that might disclose its prior art status.

But this also is not a situation in which a finding of deceptive intent is compelled. It is not our task to make factual findings. Therefore we must remand to the district court for it to make detailed factual findings in the first instance.

AFFIRMED-IN-PART, VACATED-IN-PART AND REMANDED

Newman's Dissent:

I do not share the conclusion that the undated AeroMed brochure, obtained at a trade show . . . a few weeks after this patent application was filed, and found not to be invalidating prior art, was so clearly and convincingly “material to patentability” that failure to provide a copy of the brochure while quoting its front page, invalidates the patent that was found valid over the entire content of the brochure. The record does not show that the brochure was published before the Golden Hour patent application was filed. The defendants provided no documentary evidence of any publication date, and the district court did not find the brochure to be prior art; their only evidence was the “uh-huh’s” of the brochure’s author.

[A]t the trial, the full brochure was in evidence, and stressed by the defendants, and the jury found that it was not invalidating. In view of the majority’s ruling that deceptive intent was not established in the district court, and the jury’s verdict of validity despite the brochure, the charge of inequitable conduct should be laid to rest. At most, this charge was deemed viable only because of inconsistencies in the law, inconsistencies that this court has presented for resolution in the pending en banc case of Therasense, Inc. v. Becton, Dickinson & Co. . . . It is sufficiently likely that the reasoning applied in this case could be affected, that this appeal should be held pending completion of the en banc proceedings.

 Prior 271 Blog coverage of the Golden Hour case may be found here (link)