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 . . .