SCOTUS Speaks: Patents May Only be Invalidated Under "Clear and Convincing" Standard

This morning the Supreme Court released it's opinion in Microsoft v. i4i, and provided "clean sweep" support (10-0) that patents may only be invalidated under "clear and convincing" evidence.

Held: Section 282 requires an invalidity defense to be proved by clear and convincing evidence.

The Court rejected the "preponderance of the evidence" standard, noting that, while §282 provides no express articulation of the standard of proof, common-law terms in the statute are assumed to have a common law meaning.

Here, by stating that a patent is“presumed valid,” §282, Congress used a term with a settled common-law meaning.  Radio Corp. of America v. Radio Engineering Laboratories, Inc., 293 U. S. 1 (RCA), is authoritative. There, tracing nearly a century of case law, the Court stated, inter alia, that “there is a presumption of [patent] validity [that is] not to be overthrown except by clear and cogent evidence,” id., at 2. Microsoft’s contention that the Court’s pre-Act precedents applied a clear-and-convincing standard only in two limited circumstances is unavailing, given the absence of those qualifications from the Court’s cases. Also unpersuasive is Microsoft’s argument that the Federal Circuit’s interpretation must fail because it renders superfluous §282’s additional statement that “[t]he burden of establishing invalidity . . . shall rest on the party asserting” it. The canon against superfluity assists only where a competing interpretation gives effect “ ‘to every clause and word of a statute.’ ” Duncan v. Walker, 533 U. S. 167, 174. Here, no interpretation of §282 avoids excess language because, under either of Microsoft’s alternative theories - that the presumption only allocates the burden of production or that it shifts both the burdens of production and persuasion - the presumption itself would be unnecessary in light of §282’s additional statement as to the challenger’s burden.

The Court also rejected the argument that a preponderance standard must at least apply where the evidence before the fact finder was not before the PTO during the examination process.

It is true enough that, in these circumstances, “the rationale underlying the presumption—that the PTO, in its expertise, has approved the claim - seems much diminished,” KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 426, though other rationales may still animate the presumption. But the question remains whether Congress has specified the applicable standard of proof. As established here today, Congress did just that by codifying the common-law presumption of patent validity and, implicitly, the heightened standard of proof attached to it. The Court’s pre-Act cases never adopted or endorsed Microsoft’s fluctuating standard of proof. And they do not indicate, even in dicta, that anything less than a clear-and-convincing standard would ever apply to an invalidity defense. In fact, the Court indicated to the contrary.

However, while not endorsing any particular methodology, the Court did note that unconsidered evidence may be given more weight during trial via jury instructions:

Simply put, if the PTO did not have all material facts before it, its considered judgment may lose significant force.  And, concomitantly, the challenger’s burden to persuade the jury of its invalidity defense by clear and convincing evidence may be easier to sustain. In this respect, although we have no occasion to endorse any particular formulation, we note that a jury instruction on the effect of new evidence can, and when requested, most often should be given. When warranted, the jury may be instructed to consider that it has heard evidence that the PTO had no opportunity to evaluate before granting the patent. When it is disputed whether the evidence presented to the jury differs from that evaluated by the PTO, the jury may be instructed to consider that question. In either case, the jury may be instructed to evaluate whether the evidence before it is materially new, and if so, to consider that fact when determining whether an invalidity defense has been proved by clear and convincing evidence. Although Microsoft emphasized in its argument to the jury that S4 was never considered by the PTO, it failed to request an instruction along these lines from the District Court. Now, in its reply brief in this Court, Microsoft insists that an instruction of this kind was warranted.  That argument, however, comes far too late, and we there-fore refuse to consider it.

Read/download the opinion here (link)

SCOTUS: Inducement to Infringe Requires "Actual Knowledge" of Patent; "Deliberate Indifference" Not Enough

Global-Tech Appliances, inc. v. SEB S.A., No. 10-6, May 31, 2011

Global Tech, an Hong-Kong appliance maker, sold a deep-fryer to 3rd parties that was an alleged copy of one patented by SEB.  SEB subsequently sued Global Tech for actively inducing purchasers of the fryers to sell or offer to sell them in violation of SEB’s patent rights. The jury found for SEB on the induced infringement theory, and the District Court entered judgment for SEB.  On appeal, the Fed. Cir. affirmed, ruling that inducement to infringe may be established without actual knowledge of the patent through a showing of a "deliberate indifference" to a risk that the patent does in fact exist.

On appeal to the Supreme Court, the question presented was "whether the legal standard for the state of mind element of a claim for actively inducing infringement under 35 U.S.C. § 271(b) is 'deliberate indifference of a known risk' that an infringement may occur, as the Court of Appeals for the Federal Circuit held, or 'purposeful, culpable expression and conduct' to encourage an infringement."

The Court answered that induced infringement under 271(b) requires knowledge of the patent that is infringed, and "deliberate indifference" (or recklessness) to the existence of the patent is insufficient to confer liability.  However, defendants cannot escape liability if they engage in "willful blindness" towards the patent.

Turning to the decision in Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U. S. 476 (1964) ("Aro II"), the Court stated

Aro II concerned §271(c), which states in relevant part: 

"Whoever offers to sell or sells . . . a component of a patented [invention] . . . , constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer." (Emphasis added.)

 [T]he "holding in Aro II has become a fixture in the law of contributory infringement under[section] 271(c)," . . . so much so that SEB has not asked us to overrule it, [].  Nor has Congress seen fit to alter §271(c)’s intent requirement in the nearly half a century since Aro II was decided. In light of the "‘special force’" of the doctrine of stare decisis with regard to questions of statutory interpretation, [] we proceed on the premise that §271(c) requires knowledge of the existence of the patent that is infringed.

Based on this premise, it follows that the same knowledge is needed for induced infringement under §271(b). As noted, the two provisions have a common origin in the pre 1952 understanding of contributory infringement, and the language of the two provisions creates the same difficult interpretive choice. It would thus be strange to hold that knowledge of the relevant patent is needed under §271(c) but not under §271(b). 

Accordingly, we now hold that induced infringement under §271(b) requires knowledge that the induced acts constitute patent infringement.

To establish knowledge, the Court stated that "deliberate indifference" to the existence of the patent will not be enough for liability.  In the absence of direct evidence, "willful blindness" must be shown:

[W]e agree that deliberate indifference to a known risk that a patent exists is not the appropriate standard under §271(b). We nevertheless affirm the judgment of the Court of Appeals because the evidence in this case was plainly sufficient to support a finding of Pentalpha’s knowledge under the doctrine of willful blindness. 

Given the long history of willful blindness and its wide acceptance in the Federal Judiciary, we can see no reason why the doctrine should not apply in civil lawsuits for induced patent infringement under 35 U. S. C. §271(b). 

While the Courts of Appeals articulate the doctrine of willful blindness in slightly different ways, all appear to agree on two basic requirements: (1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact.  We think these requirements give willful blindness an appropriately limited scope that surpasses recklessness and negligence. Under this formulation, a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts. See G. Williams, Criminal Law §57, p. 159 (2d ed. 1961) ("A court can properly find wilful blindness only where it can almost be said that the defendant actually knew"). By contrast, a reckless defendant is one who merely knows of a substantial and unjustified risk of such wrongdoing, see ALI, Model Penal Code §2.02(2)(c) (1985), and a negligent defendant is one who should have known of a similar risk but, in fact, did not, see §2.02(2)(d).

Read/download the opinion here (link)

Prosecutors Rejoice! Federal Circuit "Tightens the Standards" En Banc for Inequitable Conduct

Therasense, Inc. v. Becton, Dickinson and Company, No. 2008-1511 (May 25, 2011)

Therasense (now Abbott) obtained a patent from the USPTO after a 13-year prosecution history, where the application was repeatedly rejected over a prior Abbott patent.  At one point, Abbott submitted new claims in the application along with a declaration arguing distinctions between the new claims and the features disclosed the prior patent.  The tactic worked, and the application was allowed.

Several years earlier, Abbott was prosecuting the prior patent in the EPO and submitted briefs arguing the meaning of features, where the arguments were inconsistent with the declaration submitted in the later US patent.  The EPO briefs were not disclosed to the USPTO.  When this fact was brought up in litigation, Abbott's patent was declared unenforceable for inequitable conduct.  The Federal Circuit affirmed.

On en banc review, the Federal Circuit admitted that the "sliding scale" between intent and materiality "conflated and diluted" the doctrine of inequitable conduct.

Left unfettered, the inequitable conduct doctrine has plagued not only the courts but also the entire patent system. Because allegations of inequitable conduct are routinely brought on “the slenderest grounds,” . . .  patent prosecutors constantly confront the specter of inequitable conduct charges. With inequitable conduct casting the shadow of a hangman’s noose, it is unsurprising that patent prosecutors regularly bury PTO examiners with a deluge of prior art references, most of which have marginal value.

[W]hile honesty at the PTO is essential, low standards for intent and materiality have inadvertently led to many unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality. This court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.

With that, the court immediately dove into the "tightened" standard.

INTENT

To prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO. . . . A finding that the misrepresentation or omission amounts to gross negligence or negligence under a “should have known” standard does not satisfy this intent requirement. . . . “In a case involving nondisclosure of information, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference.” . . .  In other words, the accused infringer must prove by clear and convincing evidence that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it.

Death of the "sliding scale":

A district court should not use a “sliding scale,” where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa. Moreover, a district court may not infer intent solely from materiality. Instead, a court must weigh the evidence of intent to deceive independent of its analysis of materiality. Proving that the applicant knew of a reference, should have known of its materiality, and decided not to submit it to the PTO does not prove specific intent to deceive. See Star, 537 F.3d at 1366 (“the fact that information.

Inferring intent:

Because direct evidence of deceptive intent is rare, a district court may infer intent from indirect and circumstantial evidence. . . . However, to meet the clear and convincing evidence standard, the specific intent to deceive must be “the single most reasonable inference able to be drawn from the evidence.” . . . Indeed, the evidence “must be sufficient to require a finding of deceitful intent in the light of all the circumstances.” . . . Hence, when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.

[B]ecause the party alleging inequitable conduct bears the burden of proof, the “patentee need not offer any good faith explanation unless the accused infringer first . . . prove[s] a threshold level of intent to deceive by clear and convincing evidence.” . . . The absence of a good faith explanation for withholding a material reference does not, by itself, prove intent to deceive.

MATERIALITY

This court holds that, as a general matter, the materiality required to establish inequitable conduct is but-for materiality. When an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art. Hence, in assessing the materiality of a withheld reference, the court must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference. In making this patentability determination, the court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction.

Rejection of PTO Rule 56 in the courts:

This court does not adopt the definition of materiality in PTO Rule 56. As an initial matter, this court is not bound by the definition of materiality in PTO rules.  . . . While this court respects the PTO’s knowledge in its area of expertise, the routine invocation of inequitable conduct in patent litigation has had adverse ramifications beyond its effect on the PTO.

The first prong of Rule 56 is overly broad because information is considered material even if the information would be rendered irrelevant in light of subsequent argument or explanation by the patentee. Under this standard, inequitable conduct could be found based on an applicant’s failure to disclose information that a patent examiner would readily agree was not relevant to the prosecution after considering the patentee’s argument. Likewise, the second prong of Rule 56 broadly encompasses anything that could be considered marginally relevant to patentability. If an applicant were to assert that his invention would have been non-obvious, for example, anything bearing any relation to obviousness could be found material under the second prong of Rule 56. Because Rule 56 sets such a low bar for materiality, adopting this standard would inevitably result in patent prosecutors continuing the existing practice of disclosing too much prior art of marginal relevance and patent litigators continuing to charge inequitable conduct in nearly every case as a litigation strategy.

Conduct should not give "unfair benefit" to patentee:

Because inequitable conduct renders an entire patent (or even a patent family) unenforceable, as a general rule, this doctrine should only be applied in instances where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim. . . . After all, the patentee obtains no advantage from misconduct if the patent would have issued anyway. . . . Moreover, enforcement of an otherwise valid patent does not injure the public merely because of misconduct, lurking somewhere in patent prosecution, that was immaterial to the patent’s issuance.

The "egregious misconduct" exception:

Although but-for materiality generally must be proved to satisfy the materiality prong of inequitable conduct, this court recognizes an exception in cases of affirmative egregious misconduct [e.g., where patentee “deliberately planned and carefully executed scheme[s]” to defraud the PTO and the courts.] . . . Because neither mere nondisclosure of prior art references to the PTO nor failure to mention prior art references in an affidavit constitutes affirmative egregious misconduct, claims of inequitable conduct that are based on such omissions require proof of but-for materiality.

Read/download the opinion here (link)

Majority opinion: Rader, Newman, Lourie, Linn, Moore and Reyna
Dissenting: Bryson, Gajarsa, Dyk and Prost
Concurring in part, dissenting in part: O'Malley

DISSENT:

[T]he court has consistently held that the PTO’s Rule 56 sets the proper baseline for determining materiality, although there has been some variation in our decisions with regard to which version of the PTO’s rule applies in particular cases.

The appropriate cure for departures from the principles of inequitable conduct that were put in place at the time of Kingsdown would be to reaffirm those principles, as summarized above. The majority, however, has taken a far more radical approach. With respect to the issue of materiality, the majority has adopted a test that has no support in this court’s cases and is inconsistent with a long line of precedents dating back to the early years of this court. The effect of the majority’s new test, moreover, does not merely reform the doctrine of inequitable conduct, but comes close to abolishing it altogether.

How Much Does the "Clear and Convincing" Standard Matter? Study Suggests "Not Much"

In the case of Microsoft v. i4i, some of Microsoft’s amici contended that the clear and convincing evidentiary standard has a “compelling effect on jurors” and that it is “tremendously difficult to persuade a jury to go against the decision of the Patent Office.”

Etan S. Chatlynne, Stephen Kenny and Lucas Watkins decided to test this assertion by looking at validity challenges from two data sets: cases from 1966-1982 (the "Graham v. Deere-to-CAFC" period) and cases from 2008-2010 (the "KSR" period).  More importantly, before 1982, rebutting a patent’s presumption of validity generally required clear and convincing evidence.  However, the standard would shift to a preponderance of the evidence if a validity challenger introduced “unconsidered evidence” (i.e. prior art not before the PTO during examination).  Since 1982, rebutting a patent’s presumption of validity has required clear and convincing evidence in all instances.

The authors analyzed the validity challenges from the first data set (1966-1982) to determine whether: 1) the court instructed the jury to apply one of the evidentiary standards; 2) the court discussed unconsidered evidence that a jury could have considered in evaluating invalidity; and 3) the jury determined that the validity challenger satisfied its evidentiary burden for at least one claim.  Unconsidered evidence raised the inference that the jury applied a clear and convincing evidentiary standard, while a finding that there was unconsidered evidence raised the inference that the jury applied a preponderance of the evidence standard.


For the second data set (2008-2010), the authors analyzed the challenges to determine whether: 1) the challenger introduced unconsidered evidence; and 2) the jury determined that the validity challenger satisfied its evidentiary burden for at least one claim. For this data set, evidence was deemed unconsidered if it was: 1) discussed in the Federal Circuit opinion, the district court opinion, or a party’s brief; and 2) not listed on the front of the asserted patent.

What did they find?

Challengers that introduced unconsidered evidence:

• 1966-1982 - 32% of patents challenged on unconsidered evidence were invalidated on a "preponderance of the evidence" (8 out of 25 times).
• 2008-2010 - 34% of patents challenged on unconsidered evidence were invalidated on a "clear and convincing" standard (13 out of 38 times)

Challengers that did not introduce unconsidered evidence:

• 1966-1982 - 13% of patents challenged were invalidated under "clear and convincing" standard (6 out of 45 times). 
• 2008-2010 - 0% of patents challenged were invalidated under "clear and convincing" standard (0 out of 5 times)

Note the authors:

[I]rrespective of the evidentiary standard, such challengers [using unconsidered evidence] in both periods established the factual bases of invalidity approximately one third of the time.  This indicates that the clear and convincing evidentiary standard may not be as significant a driver in invalidity outcomes as some have suggested.

The study concludes

The comparison herein of data from periods separated by more than twenty-five years surely implicates additional factors such as changes in applicable practice, procedure, search technology and much of the surrounding body of legal rules, including the change made by the Supreme Court to the legal standard for obviousness in KSR.  These factors could impact this investigation in ways the authors could neither determine nor account for.

Nevertheless, subject to the validity of the assumptions employed, this investigation suggests that a challenger’s likelihood of establishing the factual bases of invalidity are driven more by the likely greater impact of unconsidered evidence than by a shift to a preponderance of the evidence standard. Whether this means that the clear and convincing evidentiary standard has a “compelling effect on jurors” and that it is “tremendously difficult to persuade a jury to go against the decision of the Patent Office,” the authors cannot say. The data, however, suggest that a shift to a preponderance of the evidence standard will not significantly affect a validity challenger’s ability to establish the factual bases of invalidity to a jury.

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

SCOTUS Hears Oral Arguments on "Clear and Convincing Standard" for Patent Validity

Today the Supreme Court heard oral arguments in the case of Microsoft v. i4i, where Microsoft argued that attempts to invalidate patents using prior art not considered by the USPTO should be judged by a "preponderance of the evidence" instead of the more demanding "clear and convincing" standard.

The SCOTUS bench consisted of only 8 Justices, as Chief Justice Roberts recused himself from the case; Justice Scalia sat in on his behalf.

First up was Thomas Hungar, who argued on behalf of Microsoft.  After stating (four sentences in) that "it was error to require clear and convincing proof of invalidity in this case," Justices Ginsberg, Scalia and Kagan began peppering Hungar with questions regarding the 1934 SCOTUS case of Radio Corp. of America v. Radio Engineering Laboratories (link), where Justice Cardozo stated

"Even for the purpose of a controversy with strangers, there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence."

and

"[The] presumption of validity [is supported by] the familiar principle, repeatedly applied in our decisions, that the concurrent findings of the courts below will be accepted by this court 'unless clear error is shown.'"

and

"[I]t is said that 'the presumption of the validity of the patent is such that the defense of invention by another must be established by the clearest proof - perhaps beyond reasonable doubt." 

and

"This court held the view when these patents were last before it that the evidence was insufficient to overcome the presumption of their validity in any clear or certain way. If our estimate of probative values had been different, the invention must have gone to Armstrong, no matter though other courts or administrative officers had been persuaded to the contrary. The evidence that was insufficient at that time to evoke a clear conviction that the patents were invalid is the same in all essentials as the evidence before us now."

JUSTICE GINSBURG: It would be hard to argue, Mr. Hungar, that it makes no sense, but it made sense to Cardozo and Judge Rich.

JUSTICE SCALIA: So, you're contradicting Cardozo?

JUSTICE KAGAN: But Justice Cardozo certainly didn't limit his holding in the way you suggest. The language of that opinion is extremely broad. And if you read that opinion, no one would gather from that opinion the kinds of limits that you're suggesting on it.

Hungar countered that the holding in RCA was addressing the issue of priority in a prior invention and that "the RCA case didn't address the question that was discussed in KSR . . . that the preponderance standard should govern across the board."

HUNGAR: To the extent that -- that Justice Cardozo was discussing a heightened standard in the limited context of priority inventions, we think that that's not consistent with section 282, which, of course, came later . . . every single one of the cases that [Cardozo] cites there, without exception . . . is a priority of invention case, The Barbed Wire Patent case being the leading example which had explained this rationale for a heightened concern in that specific context. But you don't have cases applying -- Supreme Court cases applying the heightened standard in other contexts. And, indeed, you have many cases decided after RCA that don't mention any heightened standard in viewing invalidity questions.

Hungar then turned to section 282 of the 1952 Patent Act and argued that there was no congressional intent to codify the RCA holding, and "when you don't have a clear rule to be codified, the default rules of statutory construction apply . . . [which is] the preponderance standard."

To which Justice Ginsburg replied

JUSTICE GINSBURG: [I]t is true that the Federal Circuit has been consistent now since almost the beginning, since that court came on the scene, and it does have a monopoly on appeal in patent cases since 1984. Because the -- the Federal Circuit has consistently taken this position [on the clear and convincing standard], one would have expected that there would have been bills proposed to change it. Were there any?

Justice Sotomayor added that jury instructions could possibly address Microsoft's concerns:

JUSTICE SOTOMAYOR: [H]aving read some of those cases that you've cited that you claim weakened or eliminated the burden of proof standard, most of them didn't quite eliminate it. Virtually all of them added an instruction to the jury of some sort that said that the application of the standard should take into account the fact that the PTO did not consider evidence -- did not consider the prior art relied upon in the invalidity challenge.

You didn't ask for such an instruction in this case; is that correct? And if you didn't, why isn't that adequate to convey the point that you're trying to convey, that a jury should, in fact, consider that the PTO never got to see that prior art? . . . [O]ther judges . . . give a clear and convincing standard, and they add a separate instruction that tells the jury, in applying that standard, you should consider the fact that the PTO did not see this evidence.

Justice Breyer seemed to agree with Sotomayor and further added that, if you like the preponderance of the evidence standard, then the USPTO is the place to be.

JUSTICE BREYER:  I know your proposal. But we have also seen in these briefs the following proposal:  One, somebody who thinks there is [an] error, go back to the Patent Office and ask for reconsideration. That's pretty good. We get the experts to look at it again.

And then that's coupled with: Tell the district judges to stick very closely to their job, allow the clear and convincing standard to apply to facts, and by that we mean brute facts, and let them decide the brute facts, but let the judge decide whether that amounts to obviousness, novelty, or any of the other prerequisites.

Now, I've gotten that out of the amicus briefs, some of which say they support you but they really don't. . . . [W]hat struck the thought in my mind that careful instructions limiting the juries to brute facts and giving the judge the notion, the job of characterizing that -- you heard what I said -- that that will go a long way towards curing the problem you're worried about.

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

Next was Seth Waxman, who argued for i4i, noting that congress was "well aware of the clear and convincing evidence standard, and it has done nothing whatsoever to change it, even make any effort to consider making such a sweeping change in long-standing doctrine."

Which led to the following exchange with Justice Alito:

JUSTICE ALITO: I have three problems in seeing your interpretation in the language of section 282. First, the statute says the burden of establishing invalidity of a patent, et cetera, et cetera, shall rest on the parties asserting such invalidity. If Congress wanted to impose a clear and convincing burden, why in the world would they not have said that expressly in that sentence?

Number two, if the first sentence, "a patent shall be presumed valid," means that -- is talking about the burden, then it's superfluous, because that's dealt with in the second sentence ["The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity"].

And, third, the phrase "shall be presumed valid" doesn't seem to me at all to suggest clear and convincing evidence. A presumption normally doesn't have anything to do with clear and convincing evidence. Most presumptions can be disproved by much less than clear and convincing evidence. So how do you read that in  your position into the language of the statute?

WAXMAN: Well, as to presumptions generally, I found particularly persuasive your opinion for the Third Circuit in GI Holding. But more -

JUSTICE ALITO: I've gotten a lot smarter since then.

(Laughter.)

With regard to the jury instructions and standards of proof, Waxman had this interesting point:

WAXMAN: I'm not aware of any instance in Anglo-American jurisprudence, and certainly Microsoft and its amici have not cited one in which the jury is told that depending on the weight you ascribe to the evidence you heard, you should apply a different standard of proof.

The issue goes to the weight of the evidence. I mean, imagine a case in -- a regime in which you said, well, you've heard eyewitness testimony.  If you, ladies and gentlemen of the jury, find that the eyewitness really had an unimpeded view, the standard is preponderance, but if you think that the view was impeded or obscured, the standard is clear and convincing evidence.

Waxman went further and proposed a jury instruction "that the burden of proof is clear and convincing evidence, but you may find that burden more easily met if you find that there was, in fact, evidence relating to validity that was not, in fact, considered by the PTO when it issued this property right."  This elicited a response from Justice Sotomayor, who pointed out that "it's not clear and convincing evidence if you phrase it that way, that it's something less than that."  Scalia added that the instruction "would require determining what it was that the Patent Office considered" and that such a circumstance "would better be avoided."

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

Next up was Malcolm Stewart, Deputy Solicitor General, Department of Justice, on behalf of the United States, as amicus curiae, supporting i4i.  Early in the argument, Justice Sotomayor repeated Justice Alito's question regarding the language of section 282: " If Congress was intending to sweep up in the use of the word 'presumption' the need to overturn it by clear and convincing evidence, why did you need the second sentence saying that the other side now bore the burden of persuasion?"

Stewart replied:

STEWART: I think there is a belt and suspenders quality to the statute, no matter how you parse it, but I think that Microsoft has essentially the same problem, because they have constructed a theory under which the second sentence does something that the first has not, does not, but they haven't constructed any theory as to why the first sentence is not superfluous. That is, given the second sentence to the effect that the burden of establishing invalidity is on the challenger, there's no more work to be done by the first sentence.

Judging from the oral arguments alone, it appeared that Ginsburg, Sotomayor and Breyer (and to a lesser extent Kagan) were not hell-bent on overturning the "clear and convincing" standard.  While Scalia was not particularly active, it would not be unreasonable to expect him (and probably Justice Thomas, who did not comment during oral arguments) to maintain the status quo as well.  Being that i4i needs only four Justices to "win" (since a 4-4 tie would maintain the Federal Circuit's ruling), there is a good likelihood that it will prevail.

Read/download a copy of the oral transcript here (link)

See also:

Wall Street Journal:  "Microsoft Takes Patent Fight to Supreme Cour" (link)

PC Magazine: "Microsoft, i4i Argue Patent Rights at Supreme Court" (link)

Financial Post: "Chairman of i4i confident Microsoft defeated" (link)

Computer World: "Patent expert gives Microsoft edge after Supreme Court hearing" (link)

Secretary Locke Leaving Commerce Dept.?

Press reports indicate that Commerce Secretary Gary Locke is expected to become the next US ambassador to China, taking over for Jon Huntsman.  In a March 9 press release, President Obama stated

In replacing Ambassador Huntsman, I can think of nobody who is more qualified than Gary Locke.  More than 100 years ago, Gary’s grandfather left China on a steamship bound for America, where he worked as a domestic servant in Washington State.  A century later, his grandson will return to China as America’s top diplomat.

[A]s Commerce Secretary, Gary oversaw a Census process that ended on time and under budget, returning $2 billion to American taxpayers.  He’s earned the trust of business leaders across America by listening to their concerns, making it easier for them to export their goods abroad, and dramatically reducing the time it takes to get a patent.  When he’s in Beijing, I know that American companies will be able to count on him to represent their interests in front of China’s top leaders.

Locke enjoys overwhelming support from various groups, and is expected to breeze through the confirmation process.

For more, see

Just-Style.com, "US: Apparel industry backs Locke as top China diplomat" (link)


AGIPNews: "Locke Nomination for China Ambassadorship Encouraging for Copyright Holders" (link)

China Hearsay: "Gary Locke to be Next US Ambassador to China. And There Was Much Rejoicing" (link)

Fed. Cir. Takes False Marking Down Another Peg, Holds Claims Must Be Pled "With Particularity"

In re BP Lubricants UA Inc., Misc. Docket No. 960 (Fed. Cir., March 15, 2011)

BP's CASTROL motor oil products are distributed in a unique bottle design for which BP received a design patent.  The patent expired in 2005, but BP continued to mark its bottles with the patent numbers.  Respondent Thomas A. Simonian (a patent attorney) filed a qui tam relator complaint under 35 U.S.C. §292.

BP attempted to dismiss Simonian's complaint in the district court under FRCP Rule 9(b), which provides:

In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, in-tent, knowledge, and other conditions of a person’s mind may be alleged generally.

When the district court concluded the complaint stated an actionable claim, BP petitioned the Federal Circuit for a writ of mandamus seeking to dismiss the complaint.  The Fed. Cir. granted the petition in this regard, noting that FRCP Rule 9(b)'s particularity requirement for false marking was "one of first impression for this court."

Simonian's complaint asserted mostly "upon information and belief" that: (1) BP knew or should have known that the patent expired; (2) BP is a sophisticated company and has experience applying for, obtaining, and litigating patents; and (3) BP marked the CASTROL products with the patent numbers for the purpose of deceiving the public and its competitors into believing that something contained or embodied in the products is covered or protected by the expired patent.

The Federal Circuit found this sort of pleading deficient:

A plaintiff is not empowered under the Rules “to plead the bare elements of his cause of action, affix the label ‘general allegation,’ and expect his complaint to survive a motion to dismiss.” . . . Instead, a complaint must in the § 292 context provide some objective indication to reasonably infer that the defendant was aware that the patent expired . . . Because the relator’s complaint here provided only generalized allegations rather than specific underlying facts from which we can reasonably infer the requisite intent, the complaint failed to meet the requirements of Rule 9(b).

* * *

First, relator contends that asserting in the complaint that BP is a “sophisticated company and has experience applying for, obtaining, and litigating patents” is enough under Rule 9(b). This court disagrees. That bare assertion provides no more of a basis to reasonably distinguish a viable complaint than merely asserting the defendant should have known the patent expired. Conclusory allegations such as this are not entitled to an assumption of truth at any stage in litigation.

Second, relator contends that a false marking inherently shows scienter. This argument is also unpersuasive. In Merck & Co., v. Reynolds, 130 S. Ct. 1784, 1793 (2010), the Supreme Court stated “[w]e recognize that certain statements are such that, to show them false, is normally to show scienter.” The Court gave as an example one claiming “I am not married” when in fact the person is married. Id. However, in other contexts where the relationship between factual falsity and state of mind is not nearly as apparent, Merck rejected this proposition. Id. This situation clearly falls into the latter category, requiring more than a mere statement.

Third, relator contends that unlike the inequitable conduct claim featured in Exergen, false marking is “anonymous” and is not an individualized fraud. . . . Overlooked by the relator is that the naming of specific individuals is not the only way to set forth facts upon which intent to deceive can be reasonably inferred. In an amicus brief, the United States points out that a relator can, for example, allege that the defendant sued a third party for infringement of the patent after the patent expired or made multiple revisions of the marking after expiration. None of these or similar assertions are present in the complaint here.

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

FTC Issues 300-Page Report on IP Marketplace; Provides over 50 Recommendations for Improving Patent System

In 2008-2009, the Federal Trade Commission (FTC) held 8 days of hearings across the country on the U.S. patent system and its effect on innovation.  After compiling public comments and conducting additional research, the FTC released a new report today titled The Evolving IP Marketplace: Aligning Patent Notice and Remedies With Competition: A Report of the Federal Trade Commission.

The report supplements the earlier (2003) report titled To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, and continues to maintain many of the criticisms of the patent system, namely, (1) too many patents are ambiguous, (2) too many patents have an indeterminate scope, (3) too many patentees are exploiting the courts solely for monetary purposes, and (4) too many infringers are paying "excessive" awards.

A fair amount of the 2011 report is a bit "old hat" in that it rehashes the same issues discussed in the 2003 report.  However, the new report places a greater focus on patent "notice" and asks for a much harder line on patentees in the area of section 112 and on defining claim scope.

Some of the recommendations are benign

"[i]n assessing indefiniteness, the PTO should adhere to the principle articulated in Miyazaki,"

but then slide into the slightly odd

"patent applicants [should] be required either (i) to designate a dictionary for use in assigning meaning to terms not defined in the application or (ii) to acknowledge acceptance of a PTO designated default dictionary for that purpose,"

and ultimately the really odd:

"[d]eterminations regarding whether a disclosure requires undue experimentation should give recognition to the competitive significance of the time required for experimentation; when product life-cycles are short, greater disclosures may be needed in order to be competitively meaningful."

As before, the FTC is urging that the USPTO to employ more "Rule 105" Requirements for Information (see MPEP 704.10), which allows the PTO to require the submission of information “reasonably necessary to properly examine or treat the matter” and also require information “reasonably calculated to lead to such relevant information."

On the damages side, the FTC again calls for a "prior art subtraction" in damages, and also recommends the application of a "prior use" (or "intervening rights") defense in the cases of continuations.  Also, instead of prohibiting continuations outright, the FTC recommends

[T]he enactment of legislation to protect from infringement actions third parties who (i) infringe patents only because of claim amendments (or new claims) following a continuation and (ii) developed, used, or made substantial preparation for using, the relevant product or process before the amended (or newly added) claims were published.

Of course, there are many proposals in this report that are sure to spark considerable debate.  One interesting side note is that the FTC has altered its nomenclature to distinguish between NPE's and "patent assertion entities":

This report uses the term “patent assertion entity” rather than the more common “non-practicing entity” (NPE) to refer to firms whose business model focuses on purchasing and asserting patents. Taken literally, the term NPE encompasses patent owners that primarily seek to develop and transfer technology, such as universities and semiconductor design houses. Patent assertion entities do not include this latter group.

Needless to say, the FTC is not a big fan of PAEs:

The business model of PAEs focuses on purchasing and asserting patents against manufacturers already using the technology, rather than developing and transferring technology.  Some argue that PAEs encourage innovation by compensating inventors, but this argument ignores the fact that invention is only the first step in a long process of innovation. Even if PAEs arguably encourage invention, they can deter innovation by raising costs and risks without making a technological contribution.

Read/download a full copy of the report here (link)

Byproduct of Patent Reform Act - More Satellite Offices (Denver, You May Be Next)

Yesterday, Colorado senators Mark Udall and Michael Bennet slipped in an amendment to S.23, authorizing the USPTO to create "three or more" regional satellite patent offices across the country in the next three years.  The Senate passed the amendment on a voice vote.  As a side note (and by sheer coincidence), the PTO passed over Denver and selected Detroit for its first satellite office back in December.

See Denver Business Journal: "U.S. Senate OKs amendment to add patent offices" (link).

Debate on patent reform continues today in the Senate, and a vote is expected shortly after.  Between February 28 and March 2, twenty-nine amendments have been proposed for the legislation, with more likely to follow.  To view the amendments to date, see here (link) and here (link).

Stay tuned . . .

POOF! $1.67B Verdict Overturned by Federal Circuit, Patent Invalidated Over Written Description

Centocor Ortho Biotech Inc et al v. Abbott Laboratories et al., No. 2010-1144 (Fed. Cir., Feb. 23, 2011) 

In 2009, Johnson & Johnson's biotech unit Centocor was awarded a $1.67B damages award for infringement of a patent on a genetically engineered antibody that blocks the action of a type of immune system cell ("TNF" or tumor necrosis factor).  Generally, TNF is considered the "messengers" of the immune system, and stimulates inflammation, a key problem in immune system disorders.

On Appeal, Centocor's patent was challegend for invalidity for lack of written description and in view of an Abbott patent that disclosed the claimed antibody, but was antedated by Centrcor's 1994 parent application by the lower court.  A brief synopsis of Centcor's patent family follows:

Centocor filed a patent application disclosing both its A2 mouse antibody and the chimeric antibody in 1991 . . . Centocor subsequently filed a series of continuation-in-part (“CIP”) applications. In 1993, [and] the U.S. Patent and Trademark Office (“PTO”) rejected certain pending claims in a CIP application because they encompassed antibodies with “less than an entire mouse variable region.” . . . Instead of responding to the rejections, Centocor filed a new CIP application and abandoned the pending application. In due course, the PTO issued the same rejection. Again, instead of responding, Centocor abandoned its application and filed three substantially identical CIP applications in 1994. These 1994 CIP applications added new matter that Centocor now [relied] on as evidence of written description to support the asserted claims. Although Centocor made these few additions, it did not present claims to human variable regions when it filed the 1994 CIP applications.

While Centocor focused its efforts on making a chimeric antibody, Abbott pursued an alternative path and sought to engineer a fully-human antibody. Abbott decided to work with collaborators to construct a fully-human antibody from scratch, and ended up filing a patent application disclosing a high affinity, neutralizing, fully-human antibody to human TNF-α in 1996, which ultimately issued as a patent.

After the grant of Abbott’s patent and after regulatory approval of Abbott's drug Humira®, Centocor filed its claims to fully-human antibodies. Because the patent family disclosing Centocor’s own chimeric antibody was still pending in 2002, Centocor filed the claims as part of a thirteenth application in the family, explicitly claiming human variable regions and fully-human antibodies.

After reviewing the "four corners" of Centocor's 1994 parent, the Federal Circuit concluded that there was inadequate written description to cover fully-human antibodies.

Contrary to Centocor’s assertions, very little in the ’775 patent supports that Centocor possessed a high affinity, neutralizing, A2 specific antibody that also contained a human variable region. The overwhelming majority of the ’775 patent describes the A2 mouse antibody and the single chimeric antibody that Centocor made based on A2’s mouse variable region . . . However, the mouse variable region sequence does not serve as a stepping stone to identifying a human variable region within the scope of the claims.  The undisputed trial testimony indicated that the sequence of Centocor’s mouse variable region was “very different” from the sequence of a human variable region like the one in Abbott’s fully-human antibody.

[Centocor's expert] was able to point to only a few sentences sprinkled throughout the ’775 patent that mention human antibodies or human variable regions at all . . . [A second expert]  testified that references in the patent addressing phage display “describe[] very general library technologies that could be used to make antibodies, including human antibodies,”. . . but they do not teach how to isolate or use such antibodies. The fact that a fully-human antibody could be made does not suffice to show that the inventors of the ’775 patent possessed such an antibody.

* * *

In view of the lack of written description in the specification for fully-human, A2 specific, neutralizing, high affinity antibodies, Centocor’s argument that an inventor need not physically make an invention to claim it misses the mark. Indeed, we have repeatedly indicated that the written description requirement does not demand either examples or an actual reduction to practice. . . . What it does demand is that one of skill in the art can “visualize or recognize” the claimed antibodies based on the specification’s disclosure.  In other words, the specification must demonstrate constructive possession, and the ’775 patent’s specification fails to do so.  Centocor’s asserted claims to fully-human antibodies “merely recite a description of the problem to be solved while claiming all solutions to it.”  The actual inventive work of producing a human variable region was left for subsequent inventors to complete.

REVERSED

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

Are Patent Damages "Excessive?" New Study Suggests That They Aren't

As part of the ongoing debate over patent reform, Michael Mazzeo, Jonathan Hillel and Samantha Zyontz set out to empirically analyze damage awards from 1995 to 2008 and establish if a systematic or pervasive problem of "excessive" damages exist.

From the Abstract:

In their arguments for patent reform, proponents have cited cases with very large damage award amounts as evidence of pervasive “excessive” damages. This paper uses economic value of patents as a benchmark for comparison to conduct a systematic empirical analysis of patent damage awards to get a more complete understanding of the scope of the potential problem of “excessive” damage awards. We build a dataset consisting of information about damage awards in a comprehensive list of 340 cases decided in US federal courts between 1995 and 2008, supplemented with information about the litigants, their lawsuits and the economic value of the patents-at-issue. Our findings demonstrate that the largest awards dominating the conversation come from isolated cases: damage awards in the largest eight cases represent over 47% of total damages in our database. We build an econometric model based on our supplementary data that explains nearly 75% of the variation in observed damage award amounts, suggesting the awards are highly predictable and correlated with economic value of patents. We argue that the empirical results do not establish an argument for substantial patent reform based on a pervasive problem with “excessive” damages. 

Some interesting findings:

-  The number of cases with patent damage awards have increased recently, but are still quite small - between 2006 and 2008, there were less than 50 cases each year awarding damages; in 2002 there were slightly more than 30 and in 1997 there were about 17 cases.  According to the authors, "the small number of patent infringement cases in which damages are awarded may give reason to question the hyperbolic claims by some that patent litigation damages have significant deleterious effects on research and development activities in the United States."

-  Median damages between 1995 and 2008 have held relatively steady, with occasional ups-and-downs - in 2003, the median damage award peaked at $10.41M; in 2007 it sank to a low of $1.11M.

-  Once again, juries continue to be associated with larger damages awards.

-  The Federal Circuit has been more active in reviewing patent damage awards.  None of the eight largest damage awards have gone unchallenged.  While 2 of the cases are still ongoing, none of the other six awards have stood.

This excellent paper goes through previous studies on patent damages, recent patent damages case law (yes, even the Uniloc v. Microsoft decision, which abolished the 25% rule), and even reviews the different legislative proposals for limiting reasonable royalties, and is a must-read for anyone involved or interested in patent reform.  While the document is still in draft form, the authors are welcoming comments.

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

Wednesday Shorts - Patents and Politics

Patent Reform Now Part of Snappy-Sounding Agenda - as part of a rebranding strategy, patent reform is being packaged in the Senate as part of a larger "competitiveness agenda" (or "innovation agenda," depending who you ask) that includes bills to expand/renew research and development tax credits, advance job-training and worksharing, develop a Clean Energy Deployment Administration and strengthen cybersecurity.  According to Sen. Reid, first up is completion of a bill to modernize air traffic control system, followed by the patent reform bill (link 1) (link2).  Meanwhile, Rep. Bob Goodlatte (R-Va.) has indicated that he will be taking the lead for the GOP in the House efforts to draft a companion patent reform bill.

UPDATE: Reid said he plans to bring the bill to the Senate floor after lawmakers return from a week-long recess set to start on Friday (link)

White House Tech Office Launches R&D "Dashboard" - not to be outdone by the USPTO, the White House’s science and technology office announced the launch of the beta version of its R&D Dashboard, a website to track where federal funding for research and development is going and what impact it’s having.  In a nutshell, the Dashboard tracks the first infusion of federal cash (the “award”) and proceeds to track whether federal funding led to significant outcomes, such as publications and patent applications (link).

Using CFIUS To Block Patent Deals by Foreign Corporations -  Chinese company Huawei paid $2M for server technology firm 3Leaf Systems,where the deal included several patents and 15 3Leaf employees.  Shortly thereafter, US lawmakers sent letters to Commerce Secretary Gary Locke and Treasury Secretary Timothy Geithner, expressing concerns that Huawei posed a "serious risk" to US national security as a result of the deal.  These concerns were communicated to the Committee on Foreign Investment in the United States (CFIUS), who yesterday recommended that Huawei divest itself from the deal.  Huawei declined to act on the recommendation.  The matter has now been forwarded to President Obama for a decision (link1) (link2) (link3).

Lawmakers Approve Plans for "EU Patent"

Since about 2000, lawmakers have made numerous attempts at creating an "EU patent" that is more streamlined and efficient than the existing regime.  Currently, the EPO is not part of the EU, and includes 38 member countries.  When applications issue from the EPO, each application gets partitioned into a bundle of patent applications that need to be prosecuted in each respective country.  According to recent estimates, companies can end up paying 18,000 euros ($24,300), including 10,000 euros for translating a patent in only 13 countries.

Today, The European Parliament gave its consent to "enhanced cooperation" for a single EU patent, thus clearing the way to genuine EU-wide patent protection for inventions.   Importantly, the "enhanced cooperation" measure under the Lisbon Treaty provides a fast-track for the legislation, allowing nine or more EU countries to push ahead with a measure, even if it has not been agreed by all 27.  Currently, Spain and Italy are opposing the new law, which provides that applications may be filed using the English, German and French languages.


The approved plans still need the approval of EU ministers at a forthcoming meeting. Once approved, the commission will begin to draft formal laws for the new system.

See

Bloomberg, "EU Lawmakers Back Plans to Establish Patent System"

Financial Times, "EU lawmakers set to back single patent"

BBC News, "EU plans cheaper European patents regime"

Empirical Study on Willfulness Post-Seagate - The More Things Change, The More They Stay the Same

When the In re Seagate decision was issued by the Federal Circuit in 2007, the court set a higher threshold for demonstrating willful infringement in patent cases and introduced a two-part test for willfulness:

[T]o establish willful infringement, a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. The state of mind of the accused infringer is not relevant to this objective inquiry. If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk . . . was either known or so obvious that it should have been known to the accused infringer.

 Seagate changed willful patent infringement in three significant ways: (1) the burden of proof for establishing willfulness fell on the patentee, instead of the accused infringer, (2) the abandonment of the "affirmative duty of care" eliminated the requirement that an accused infringer must produce an opinion of counsel at rial, and (3) if an accused infringer relied on opinion of counsel, the waiver of attorney-client privilege typically did not extend to trial counsel.

 After Seagate, numerous litigators, commentators and bloggers predicted remarked that the Seagate decision created an "extraordinarily high burden" for proving willfulness and would "almost certainly . . . make proof of willful infringement much more difficult for patentees."

Now that 3 years have passed, how has Seagate affected willfulness in the courts?  Christopher Seaman from Chicago-Kent College of Law decided to take a look at this question and empirically evaluate the effects of Seagate.

And what did Seaman find?

(1) Despite a healthy uptick in decisions on pretrial motions, most willfulness claims are still decided at trial.

Before Seagate - 16.1% (pretrial), 77.4% (trial), 6.6% (posttrial)
After Seagate - 26.5% (pretrial), 65.3% (trial), 8.2% (posttrial)


(2)  Seagate itself only had a modest effect on findings of willfulness.

Before Seagate - 48.2% (66 of 137 cases)
After Seagate - 37.4% (64 of 171 cases)

Seaman also looked at the Knorr-Bremse decision, which eliminated the "adverse inference" rule for an accused infringer's failure to produce an opinion of counsel.  Interestingly, when this decision is combined with Seagate, the effect of willfulness is more pronounced:

Before Knorr-Bremse - 63.8%
After Knorr-Bremse, but before Seagate - 48.2%
After Seagate - 37.4%

(3)  Seagate dramatically reduced findings of willfulness by a judge, but had no effect on jury findings.

Before Seagate Jury - 60.2%
After Seagate Jury - 61.9%

Before Seagate Judge - 53.9%
After Seagate Judge - 15.5%

(4)  E.D. Tex. had the highest number of willfulness decisions; the District of Minnesota had the lowest.

Looking at districts with at least ten decisions, Seaman broke down the districts on willfulness and found

E.D. Tex - 52.3%
N.D. Ill. - 46.2%
N.D. Cal. - 43.8%
D. Del. - 41.9%
D. N.J. - 38.5%
E.D. Va. - 36.4%
C.D. Cal. - 30.8%
D. Mass. - 30.0%
W.D. Wis. - 30.0%
D. Minn. - 27.3%

(National Average = 42.2%)

(4) Producing opinions of counsel had almost no effect on willfulness.

After Seagate, when accused infringers offered an opinion of counsel as a defense, they were found willful 43% of the time (13 of 30 cases). When an opinion of counsel was not offered, however, willfulness was found at nearly the same rate—44% of the time (47 of 106 cases).

(5)  A "substantial defense to infringement" appears to be the most effective way to defeat willfulness.

One of the factors for determining willfulness is whether the accused infringer has a "substantial," "legitimate," or "credible" defense to the patentee's claims.  Thus, a substantial noninfringement defense, even if unsuccessful, may be sufficient to defeat a willful infringement finding.  Likewise, credible invalidity arguments can support a finding of no willfulness.  And other potential defenses, such as the existence of a license, may prevent a willfulness finding as well.

From the data, it appears that a substantial defense to infringement is the single best way to defeat a willfulness claim. The low odds ratio for this factor (0.121) suggest that an accused infringer is several times less likely to be found willful if it can establish that it had a substantial or credible defense to the patentee's infringement claim. Specifically, when a substantial defense existed, willfulness was found only 13% of the time (5 of 40 cases), compared to 57% of the time when no substantial defense was found (55 of 96 cases).217 This relationship is highly statistically significant (p = .000).

(6)  Evidence of copying remains an important consideration for willfulness after Seagate.

When a patentee offered evidence of copying by the accused infringer, willfulness was found almost two-thirds (62.7%) of the time. In contrast, when there was no evidence that the accused infringer had copied, willfulness was found less than a third (29.9%) of the time.  Copying was particularly important when judges made the final decision on willfulness, as the absence of any evidence of copying almost always (92.3%) resulted in a finding of no willfulness.

(7)  Attempts to "design around" a patent, by itself, was insufficient to prevent a willfulness finding.

Surprisingly, willfulness findings were slightly higher (51.7%) when the accused infringer offered evidence that it had designed around the patented technology, as opposed to 42.1% of the time when such evidence was not offered.  Seaman explains that this outcome may be tied to the fact that a "design around" defense is usually invoked by accused infringers as a defense to deliberate copying - nearly two-thirds of cases (65.5%) where the accused infringer attempted to prove a "design around" also included evidence of copying.


(8)  Enhanced damages were reduced for juries, but not judges

Jury Finds Willfulness Before Seagate - 81.1%
Jury Finds Willfulness After Seagate - 47.6%

Judge Finds Willfulness Before Seagate - 85.7%
Judge Finds Willfulness After Seagate - 87.5%

With regard to the amount of enhanced damages, less than a third of enhanced damages awards during the entire study period (both before and after Seagate) were for treble damages. In fact, most (over 70%) enhanced damages awards were for double damages or less.  The mean enhancement was found to be 207%.


- Read/download a copy of Christopher B. Seaman, "Willful Patent Infringement and Enhanced Damages After In re Seagate: An empirical Study" (link)

Tell the White House (Directly!) How "Obstacles to Innovation" Can Be Removed

The White House has started a great new program called "Advise the Advisor," where a member of the President’s senior staff posts a short video on issues being considered by the White House.  In turn, the public gets an opportunity to post advice, feedback and opinions about key issues (provided your post is 2500 words or less).

According to the web site, "we’ll read through as much of your feedback as possible and post a summary of what you had to say a few days after the video is posted."

 Today's topic:

• How is American innovation affecting your community?
• What are the obstacles to innovation that you see in
  your community? And what steps can be taken to remove them?

See the video and get more information here (link)

Patent on "Collateralized Loans" Survives Bilski, Despite Failing the MOT Test

H&R Block Tax Services, Inc. v. Jackson Hewitt Tax Service, Inc., 6-08-cv-00037 (E.D. Tex., February 2, 2011)

During litiation, Jackson Hewitt (JH) challenged numerous patents asserted by H&R Block, alleging that they were directed to non-statutory subject matter, and thus unpatentable under 35 U.S.C. § 101.  One of the patents is directed to "a system and method for distributing payments to individuals and, more particularly, to a system and method for allocating a portion or all of an individual’s payment into a spending vehicle.”

Specifically, claim 1 of the disputed patent (the '862 patent) recites:

A computerized system for distributing spending vehicles comprising:

a payment due from a governmental entity;

an assignable right to receive said payment from said governmental entity, said assignable right held by an individual;

a spending vehicle offered by a third party sponsor to said individual in exchange for at least a portion of said individual’s right to receive said payment due;

an assignment of at least a portion of said individual’s right to receive said payment to said third party sponsor in exchange for said spending vehicle;

wherein information associating said payment with said spending vehicle from said third party sponsor is stored in and retrieved from a computer to facilitate processing of said spending vehicle and said spending vehicle is issued to said individual in an amount for spending by said individual of said at least a portion of said payment, said governmental entity is electronically notified to transfer said at least a portion of said payment to said third party sponsor, and said at least a portion of said payment is received by said third party sponsor.

JH argued that the claims in the patent are very similar to the invalidated claims in Bilski, since they are directed to financial relationships, which are abstract ideas.  Also, the "computer" claimed in the patent merely stores and retrieves data, thereby making it an insignificant extra-solution component that does not meet the requirements of patentability under Flook.  Finally, JH argued that invention merely limits the invention to the field of “government payments,” which is unacceptable under the Supreme Court’s decision in Bilski.

H&R countered that

(1)  Bilski allows specific applications of business concepts that do not preempt uses of the concept in other fields;

(1)  The claims provide meaningful limits on the exchange of financial products, by limiting the entities eligible to exchange financial products (i.e., “individuals”) and the financial product is limited to a spending vehicle that must be offered by a third party sponsor;

(3)  The patent is limited by the computer disclosed in the disputed claims, and the system must be “capable of notifying a government entity to transfer payment so that [the] third party sponsor may receive the payment;" and

(4)  The claim limitations do not preempt the use of exchanging financial products in other fields of use.

Surprisingly, the district court agreed with H&R:

Although an abstract intellectual concept - collateralized loans - certainly underlies the ‘862 patent, it differs in important ways from the patent at issue in Bilski. Where the Bilksi patent’s independent claims disclosed the abstract idea of hedging, independent Claim 1 of the ‘862 patent describes a particular application of an abstract idea, particularly, the application of collateralized loans to the field of assignable government payments in exchange for something of value. See Diehr, 450 U.S. at 187 (approving the patentability of the application of an abstract idea).

Limiting the concept of collateralized loans to the specific field of assignable government payments in exchange for something of value is not merely a field of use limitation prohibited by Flook. The ‘862 patent imposes a meaningful limit that prevents the preemption of all uses of collateralized loans in the field.  . . . Particularly, the ‘862 patent limits the invention by disclosing a “spending vehicle.”   The ‘862 patent clearly provides that a spending vehicle is an “[a]lternative to cash payments,” thereby limiting the applicability of the ‘862 patent to the use of non-cash collateralized loans in the field of assignable government payments in exchange for something of value.

Contrary to Jackson Hewitt’s arguments, the spending vehicle limitation is not a token or accessory. . . . In Ultramercial, the court analyzed the patentability of an invention that claimed a method for distributing copyrighted products over the internet. . . . After determining the invention failed the machine-or-transformation test, the court determined the patent at issue disclosed an abstract idea.  In rejecting the claims, the court stated that the patent lacked meaningful limits: “That the exchange (advertisement for media) is carried over the Internet, through a facilitator, using passwords and activity logs, does not limit the patent in a meaningful way.”  The court stated that these token limitations did not prevent the preemption of using advertisements as an exchange or currency in other fields.

Unlike the proposed limits in Ultramercial, the disclosed spending vehicle is a meaningful limitation. The spending vehicle limitation leaves the door open for cash-collateralized loans to be applied to all forms of government payments (e.g., Social Security checks, 401(k) distributions, dividend payments, tax refunds, payroll checks or deposits, private payment arrangements, etc.), because the type of loans claimed in the ‘862 patent are limited to the use of spending vehicles rather than cash. . . Thus, the spending vehicle limitation is meaningful because it does not preempt all uses of collateralized loans in the particular field of assignable government payments in exchange for something of value.

Accordingly, the Court finds that the claims of the ‘862 patent imposes a meaningful limit, and therefore, the ‘862 patent is valid under 35 U.S.C. § 101

However, the Court found that one of the patents failed Bilski, since it "[merely describes] the process of advancing money based on an income tax refund. The Court can conceive of no other way to manifest this financial relationship in this particular field. Thus, these purported limits, like the recited computer, do not meaningfully limit the patent."

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

See earlier 271 Blog coverage here (link) - interestingly, the district court previously rejected the '862 patent under 35 U.S.C. § 101 . . .

CAFC Note on Incorporating Information By Reference

Fifth Generation Computer Corp. v. IBM, No. 2010-1201 (Fed. Cir., January 26, 2011) (nonprecedential)

On appeal, 5th Generation and IBM tussled over the the construction of the term "root bus controller" in a patent directed to a binary tree parallel computing system.  The district court construed the term to mean "a controller at the highest order position of the binary tree computer system."  5th Generation argued that the term should have a broader construction to mean “any bus controller that is the highest level bus controller in the tree or subtree.”

5th Generation's argument heavily relied on information incorporated by reference in the specification of the disputed patent (the '024 patent), where the two patents (the "Stolfo patents") incorporated by reference allegedly supported the proposed construction.  The Fed. Cir. generally agreed that incorporation by reference could serve this purpose:

We agree with Fifth Generation that the ’024 patent specification does not need to expressly recite concepts disclosed in the earlier Stolfo patents in order to incorporate them into the later patent specification. The clear incorporation by reference suffices to serve that purpose here. See Zenon Envtl., Inc. v. U.S. Filter Corp., 506 F.3d 1370, 1378 (Fed. Cir. 2007) (“Incorporation by reference provides a method for integrating material from various documents into a host document . . . by citing such material in a manner that makes clear that the material is effectively part of the host document as if it were explicitly contained therein.”).

However,

[W]e do not agree with Fifth Generation that every concept of the prior inventions is necessarily imported into every claim of the later patent. See Modine Mfg. Co. v. U.S. Int’l Trade Comm’n, 75 F.3d 1545, 1553 (Fed. Cir. 1996) (“[I]ncorporation by reference does not convert the invention of the incorporated patent into the invention of the host patent.”) . . . Here, the ’024 patent claims are clear in claiming a complete computer system, including specific functionality of the single root bus controller within that computer system. In light of such clear claim language, it is inappropriate to look to the incorporated references to arrive at a stretched reading of those claim limitations. Interactive Gift Express, 256 F.3d at 1331 (“If the claim language is clear on its face, then our consideration of the rest of the intrinsic evidence is restricted to determining if a deviation from the clear language of the claims is specified.”); see also Unique Concepts, Inc. v. Brown, 939 F.2d 1558, 1563 (Fed. Cir. 1991) (“When the language of a claim is clear, as here, and a different interpretation would render meaningless express claim limitations, we do not resort to speculative interpretation based on claims not granted.”).

[W]e also agree with IBM that the Stolfo patents in fact show that Fifth Generation’s inventor did not claim independent subtree systems in the ’024 patent in the manner now proposed by Fifth Generation. Fifth Generation asserts that the invention claimed in the ’024 patent was merely an enhancement of the inventions claimed in the earlier patents assigned to Fifth Generation. Therefore, under Fifth Generation’s own assertion, at the time of the filing of the ’024 patent, its inventors had claimed subtrees, at least as part of a larger binary tree computer system, in the earlier patents, and yet the ’024 patent inventor, employed by the same company, did not do so in the later patent, thereby demonstrating that such systems are not within the ’024 patent claims’ scope . . . Thus, we conclude that the district court’s construction of the term “root bus controller” requiring that it be the highest order bus controller of the binary tree system was correct.

Read/download the opinion here (link)

EPO Filings Up 10% in 2010

In this short-but-sweet news release, the EPO has announced:

The EPO received 232,000 European patent filings in 2010, 10% up on the 2009 figure (211,000). 39% of these filings originated from the 38 member states of the European Patent Organisation, 26% from the US, 18% from Japan and 5% from each of South Korea and China.

In 2010, the EPO granted 58,100 patents, 11% more than in 2009 (52,400).

"These figures clearly indicate that demand for patent protection is on the rise again, after the economic downturn of the previous two years", says EPO President Benoît Battistelli.

The EPO expects a further increase for the current year.

Compared to the US,

EPO Filings = 232,000, up 10%
US Filings = not published yet

EPO Grants = 58,100, up 11%
US Grants = 291,614, up 31%

This trend follows the trends being reported by other patent offices, although the "mere" 11% uptick in patent grants appears to lag behind others, such as the USPTO and SIPO.  Of course, the EPO hasn't published the full report yet, so stay tuned . . .

Consumer Watchdog Alleges Google Has "Inappropriately Benefitted" From Ties to Administration, USPTO

Today, Consumer Watchdog, self-described as "a nonprofit, nonpartisan consumer advocacy organization" sent Rep. Darrell Issa (R-CA) a 32-page report arguing "how Google has inappropriately benefited from its close ties to the Obama Administration."

On the "full disclosure" front, Consumer Watchdog has been a longtime (and relentless)  critic of Google, and recently received flak on it's criticism of Google's privacy policies and decision to run a Times Square jumbotron advertisement in September portraying Google as a massive invader of privacy, and caricaturing its ex-CEO Eric Schmidt as a "creepy, high-tech ice cream vendor who profiles children" (link1, link2).

In its latest salvo, CW released a report, culminated from a six-month study, alleging multiple questionable relationships between Google and NASA, the Dept. of Homeland Security, the Federal Communications Commission, and others.  Interestingly, CW implicates the USPTO as well, arguing that that the Office's 2009 deal with Google to publish patent and trademark information for free gives Google "inequitable advantages" over rivals:

Google now has a head start on its rivals in the fiercely competitive cloud computing market, thanks in part to deals inked with the US Patent and Trademark Office and the General Services Administration in the past year. In both cases, Google enjoyed the benefits of support from federal chief information officers. In both cases, a few people involved in the process voiced objections.

Google’s successes started in November 2009 when the USPTO announced its intention to give a sole‐source contract to the search engine to make patent and trademark information available to the public for free. 

Google’s rivals in the field of patent and trademark publishing complained in writing about the contract.  The USPTO then opened the contract to bidding ‐‐ on the condition the service be provided for free. USPTO CIO John Owens continued to push for approval of Google telling company officials in an email in December 2009, “I have quite a bit of pressure to get this deal signed.” Owens didn't explain from where that pressure was coming.

None of the publishing firms bid on the contract.  The no‐cost nature of contract would have an “anticompetitive effect,” said an industry group, the Coalition for Patent and Trademark Information Dissemination.  The arrangement, said a spokesman in a letter to USPTO, would give Google “inequitable advantages in timing, branding and inside technical information” that “are clearly in violation of existing statutes, and would result in unfair competitive advantage over other resellers of patent and trademark information.”

The reason for the group’s concern boils down to the way Google seems to be copying tactics pioneered by Microsoft in order to gain advantages in certain markets. When a company gives away something for free, it is obviously subsidizing the product or service. If that free good or service is obtained on an exclusive basis, it could constitute an illegal advantage. In the case of the PTO, the arrangement seems to raise questions about whether Google, by subsidizing access to certain government information, could ultimately gain a monopoly over that information as other companies find it impossible to compete.

The USPTO officials pushed to get the contract signed before a scheduled meeting between Secretary of Commerce Gary Locke, Director of Patents David Kappos, and Google CEO Eric Schmidt in February 2010.  When the contract was announced, PTO procurement chief Kate Kudrewicz told her contracting officer, “President Obama will be very pleased to hear this news.” Also copied on the e‐mail were Google executives Andrew Young and John Orwant.

To read/download the full report, click here (link)

To read CW's letter to Rep. Issa, click here (link)

China Patent Grants up 40%, Filings Up 25% in 2010

Not long after the announcement came out that the USPTO granted a record number of patents in 2010, China's SIPO officially announced today that the number of patents granted in China in 2010 was 40 percent higher than in 2009, receiving over 1.2 million patent applications and approving 814,825 requests among them last year. The application number was over 25 percent more than that in 2009.

It's important to note however, that China has three types of patent applications: (1) invention patents, (2) utility model patents, and (3) design patents.  Invention patent applications are equivalent to US non-provisional patent applications, while utility model patent applications (aka "petty patent" applications) do not experience substantive examination.  According to SIPO's statistics, utility model patents and design patents together outnumber invention patents by a 5-to-1 ratio.

On the domestic-vs-foreign front, invention patents accounted for over 85 percent in each year's foreign applications since 2005, while domestic applications for invention patents accounted for 26 percent during the same period.

While details are sketchy at this point, the number of foreign applications for invention patents in 2010 apparently rose about 15 percent from 2009, although the number of approved foreign applications dropped 12.3 percent.


However, domestic applications experienced a large leap -- Chinese applications took over 59 percent of all invention patents granted in 2010. The figure was 50.9 in 2009, exceeding foreign applicants' share for the first time.

This statistic is particularly interesting, since it comes hot on the heels of the Chinese government announcing that the country aims to quadruple both patent applications in foreign countries and domestic patent applications for every one million people. The annual patents transaction financial target is to reach 100 billion yuan (US$15 billion) by 2015.

-- Read SIPO Press Release "China Grants More Patents in 2010" (link)

Visit SIPO's statistics page here (link)

-- See also People's Daily, "SIPO: quality, not numbers, key to patents and innovation" (link)

If at First You Don't Succeed . . . HR 243 (Re)Introduced In House to Curb False Marking Claims

Earlier this month (Jan. 7), Rep. Robert Latta (R-OH) introduced HR 243 in an attempt to stem the tide of false marking litigation in the U.S.  The legisltation is intended to revert Section 292 back to the pre-Forest Group CAFC decision and assess one $500 fine if an entity is found guilty of deceiving the public through false marking, and not allow entities to be fined for each product on the market. The legislation will also require the individual bringing the lawsuit to have suffered a competitive injury as a result of the violation.

The legislation is identical to H.R. 6352, which was perviously referred to the House Judiciary Committee in September 2010.  Under the legislation, section 292 would be amended (hat tip to the Patent Docs for posting the amended language) to state:

(a) . . . Whoever marks upon, or affixes to, or uses in advertising in connection with unpatented articles the word "patent" or any word or number importing the same is patented, for the purpose of deceiving the public; or

Whoever marks upon, or affixes to, or uses in advertising in connection with one or more articles the words "patent applied for," "patent pending," or any word importing that an application for patent has been made, when no application for patent has been made, or if made, is not pending, for the purpose of deceiv­ing the public --

Shall be fined not more than $500, in the aggregate, for all offenses in connection with such articles.

(b) A person who has suffered a competitive injury as a result of a violation of this section may bring a civil action in the appropriate district court of the United States against the person violating this section for recovery of not more than $500 in damages to compensate for the injury.

According to an earlier statement by Latta, “[b]ecause of the Forest Group decision, this legislation is now needed to help companies fend off frivolous lawsuits and strengthen current law.  During this time of economic uncertainty, companies should not have to worry about expending additional resources on lawsuits based on one court’s interpretation of current law.”
Read/download a copy of H.R. 243 here (link)