The 271 Patent Blog

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

2011-06-09T10:28:00.000-05:00

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

2011-05-31T22:23:00.000-05:00

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

2011-05-25T20:39:00.000-05:00

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"

2011-04-19T15:21:00.000-05:00

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

2011-04-18T21:51:00.000-05:00

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.?

2011-03-16T22:28:00.000-05:00

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"

2011-03-15T21:50:00.000-05:00

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

2011-03-07T21:57:00.000-06:00

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)

2011-03-03T10:04:00.001-06:00

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

2011-02-23T21:58:00.000-06:00

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

2011-02-22T22:07:00.000-06:00

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

2011-02-16T14:43:00.001-06:00

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"

2011-02-15T13:57:00.000-06:00

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

2011-02-14T10:22:00.003-06:00

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

2011-02-09T19:20:00.000-06:00

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

2011-02-09T13:33:00.001-06:00

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

2011-01-27T08:52:00.000-06:00

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

2011-01-26T12:07:00.000-06:00

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

2011-01-24T10:48:00.000-06:00

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

2011-01-19T15:29:00.000-06:00

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

2011-01-19T14:28:00.000-06:00

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)

Thomson Reuters Releases "2010 State of Innovation Report"

2011-01-13T12:19:00.000-06:00

Thomson Reuters released their annual "State of Innovation Report," where 12 technology areas were reviewed for patent activity, including:

Computers & Peripherals
Automotive
Telecommunications
Semiconductors
Pharmaceuticals
Medical Devices
Petroleum & Chemical Engineering
Domestic Appliances
Food Tobacco & Fermentation
Aerospace
Agrochemicals & Agriculture
Cosmetics

To measure patent activity, Thomson studied the first instance or invention for published patent applications and granted patents in 2010, counting each invention only once, in the country where protection was first sought.

Some noteworthy findings from the report:

• Aerospace patent activity increased by 25% overall from 2009 to 2010, driven by a 108% increase in Space Vehicle and Satellite Technologies, a sector within the Aerospace industry. The top three companies leading in this subsector were Japanese manufacturer Sharp, followed by Korean manufacturers LG and Samsung.

• Semiconductor patent activity decreased by 9% from 2009 to 2010 overall, driven by double-digit decreases in three Semiconductor subsectors: Integrated Circuits; Discrete Devices; and Memories, Film and Hybrid Circuits.

• Computers & Peripherals retained the leading position as the most innovative technology area in 2010 with the highest volume of patent activity: 212,622 unique inventions, despite a 6% decline in total volume from
2009.

• Automotive moved up to the second position in 2010 from fourth in 2009 based on overall volume of patent activity, surpassing the Telecommunications and Semiconductors industries.

To download a copy of the report (free registration required), click here (link).

Tech Insiders Pessimistic About Comprehensive Patent Reform in 2011

2011-01-11T10:19:00.000-06:00

With the new Congress sworn in, reporters are turning to trade group leaders to see what their views are on upcoming legislation. While certain "tech-related" bills (e.g. updating the Electronic Communications Privacy Act) are expected to move forward this year, pessimism abounds for more controversial legislation, such as "comprehensive" patent reform:

[I]t may be difficult to pass wide-ranging legislation such as patent reform and some cybersecurity bills introduced over the past two years, with competing interests able to bottle up more controversial pieces of complex bills. [Dean Garfield, president and CEO of ITI] expects that targeted, stripped-down bills will have a better chance of passage.

"I think the chance of having a comprehensive anything in 2011 with this Congress is slim to none," he said.

But if lawmakers want to break off pieces of recent proposals on patent reform or cybersecurity, more limited efforts might have a chance of passing, added Charlie Greenwald, vice president of communications at TechAmerica, a tech trade group. In patent reform, an effort to end the transfer of fees from the U.S. Patent and Trademark Office to the general fund, or a proposal to revamp the fee structure, might have more traction than comprehensive patent reform, he said.

"The challenge for patent reform has never been amongst political parties but rather amongst large industries central to the U.S. economy, not least of which is technology," said Greenwald, explaining the difficulty of patent reform moving through Congress.

See Computer World, "Congress may be able to tackle tech issues in 2011" (link)

2010 Sees Record Jump for Patents Issued in the USPTO (and IBM Received Almost 6,000 of Them)

2011-01-10T09:35:00.001-06:00

While the number of patents issued in 2009 was off from previous years, a recently-published report from IFI Claims Patent Services suggests that 2010 made up for the difference, and then some. In fact, the USPTO issued an all-time high of 219,614 utility patents in 2010, up 31 percent from 2009, which would be the most significant annual increase on record.

As usual, IBM continues to lead the pack with a whopping 5,896 patents, up 20% from 4,914 in 2009. Samsung came in second with 4,551 patent (+26%) Microsoft is third with 3,094 (+6.5%). All of the companies but one in the Top 50 are up over the previous year, most shattering records and many posting double-digit percentage gains.

Big gainers in 2010 include:

Apple, +94%
Qualcomm, +84%
NEC, +74%
SAP, +70
GM Global Technology, +68%
Hynix Semiconductor, +65%
Silverbrook Research, +58%
3M Innovative Properties, +53%
Toyota, +50%
Brother, +45%
Hon Hai Precision Industry, +44%
LG Electronics, +40%

US companies also reclaimed the lead on the total number of U.S. patent granted after losing out to foreign companies the previous 2 years. In 2010, U.S. companies obtained 50.3% of granted patents, compared with 49% in 2009.

High-tech patents also dominated areas with the heaviest new patenting activity:

Multiplex Communications (US class 370) -- 3.3% of total
Solid-State Devices and Transistors (US class 257) -- 3.1%
Semiconductors (US class 438) -- 2.7%
Drug Compositions (US class 514) -- 2.1%
Data Processing and File Management (US class 707) -- 2%
Computers and Processing Systems (US class 709) -- 2%
Biotechnology (US classes 435 and 530) -- 2%

The top-50 patent assignees for 2010:

RANK	COMPANY	2010 Patents
1	International Business Machines Corp	5896
2	Samsung Electronics Co Ltd (Korea)	4551
3	Microsoft Corp	3094
4	Canon K K (Japan)	2552
5	Panasonic Corp (Japan)	2482
6	Toshiba Corp (Japan)	2246
7	Sony Corp (Japan)	2150
8	Intel Corp	1653
9	LG Electronics Inc (Korea)	1490
10	Hewlett-Packard Development Co L P	1480
11	Hitachi Ltd (Japan)	1460
12	Seiko Epson Corp (Japan)	1443
13	Hon Hai Precision Industry Co Ltd (Taiwan)	1438
14	Fujitsu Ltd (Japan)	1296
15	General Electric Co	1225
16	Ricoh Co Ltd (Japan)	1200
17	Cisco Technology Inc	1115
18	Honda Motor Co Ltd (Japan)	1050
19	Fujifilm Corp (Japan)	1041
20	Hynix Semiconductor Inc (Japan)	973
21	Broadcom Corp	958
22	GM Global Technology Operations Inc	942
23	Micron Technology Inc	917
24	Siemens AG (Germany)	873
25	Xerox Corp	858
26	Denso Corp (Japan)	853
27	Texas Instruments Inc	829
28	Honeywell International Inc	824
29	Sharp K K (Japan)	818
30	Toyota Jidosha K K (Japan)	802
31	Infineon Technologies AG (Germany)	774
32	Brother Kogyo K K (Germany)	771
33	Nokia AB Oy (Finland)	760
34	Silverbrook Research Pty Ltd (Australia)	752
35	LG Display Co Ltd (Korea)	738
36	Semiconductor Energy Laboratory Co Ltd (Japan)	734
37	Mitsubishi Denki K K (Japan)	700
38	Koninklijke Philips Electronics N V (Netherlands)	685
39	NEC Corp (Japan)	680
40	Boeing Co	662
41	Qualcomm Inc	657
42	SAP AG (Germany)	649
43	Oracle America Inc/Sun Microsystems Inc*	646
44	Bosch, Robert GmbH (Germany)	593
45	Fuji Xerox Co Ltd (Japan)	574
46	Apple Inc	563
47	Du Pont de Nemours, E I & Co	509
48	Sanyo Electric Co Ltd (Japan)	504
49	3M Innovative Properties Co	496
50	Freescale Semiconductor Inc	494

For more information, see "IFI CLAIMS Announces Top Global Companies Ranked By 2010 U.S. Patents" (link).

IFI also offers a "Patent Intelligence and Technology Report" containing further details. The data may be accessed under a free trial period - for more information, click here (link)

Thursday Shorts

2011-01-06T15:15:00.000-06:00

CHINA PUBLISHES AMBITIONS "NATIONAL PATENT STRATEGY" FOR NEXT DECADE: If you thought China's ascendance in the patent world was impressive over the last ten years, wait 'till you see the next ten, according to a recently published government document. In 2009, China received about 300K applications for utility patents (the USPTO received about 480K applications in the same time). The Chinese government now wants to blow that number up to 1 million by 2015. During the same time, China intends to roughly double its number of patent examiners, to 9,000 (the USPTO has about 6.3K examiners). After viewing the 5 and 10 year numbers, Director Kappos reportedly referred to the targets as “mind-blowing numbers.”

To lift its patent count, China has introduced an array of incentives including cash bonuses, better housing for individual filers and tax breaks for companies that are prolific patent producers. Even at its current pace, China is expected to overtake US patent filings by 2012.

See NYT, "When Innovation, Too, Is Made in China" (link)

See also

IAM Blog, "China's national patent strategy poses challenges for policy makers and businesses alike" (link)

The Intangible Economy, "China's new patent strategy" (link)

JAPAN LOOKING TO SLASH PATENT FEES IN HALF: The Ministry of Economy, Trade and Industry plans to cut the corporate tax rate for foreign firms as part of measures to attract more business. The METI is also studying allowing individuals to defer payment of income taxes on equity warrants issued by overseas parent companies as well as cutting patent-related fees by half (link).

USPTO FUNDING ISSUES CONTINUE: At the end of 2010, a temporary funding bill was approved keeping the government running through March 4 2011 at 2010 funding levels. The problem is that the temporary bill does not take into account the PTO's 15% hike on fees and the agency's ability to have full access to its fees. The PTO asked for $2.322 billion for 2011 (up from $2.016B in 2010), but will have to wait until April to receive further funding. The IPO has estimated that this glitch will likely end up costing the USPTO $200M. For more, see here (link).

CAFC Nixes 25% "Rule of Thumb" Application For Estimating Patent Damages

2011-01-05T09:52:00.006-06:00

Uniloc USA, Inc. v. Microsoft Corp., No. 2010-1035 (Fed. Cir., January 4, 2011)

35 U.S.C. §284 provides that on finding infringement, damages shall "in no event [be] less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court." In litigation, a reasonable royalty is often determined on the basis of a hypothetical negotiation, occurring between the parties at the time that infringement began.

The 25 percent rule of thumb is a tool that has been widely used to approximate the reasonable royalty rate that the manufacturer of a patented product would be willing to offer to pay to the patentee during a hypothetical negotiation. In a nutshell, the application of the rule works like this:

Estimate the infringer's (licensee's) expected profits for the product during the infringing period,
divide the expected profits by the expected net sales over that period to arrive at a profit rate (e.g., 16%),
multiply the profit rate (16%) by 25% to arrive at a running royalty rate (16% X 25% = 4%), and
apply the royalty rate to the infringer's net sales to get the royalty payment.

The rule is based on the assumption that the infringer/licensee should retain a majority (i.e., 75%) of the profits, because it has undertaken substantial development, operational and commercialization risks.

According to its proponents, the veracity of the 25 percent rule has been "confirmed by a careful examination of years of licensing and profit data, across companies and industries." Earlier empirical studies concluded that, across all industries, the median royalty rate was 22.6% and that the data supported the use of the 25% rule "as a tool of analysis." A survey of licensing organizations in 1997 found that 25% of them used "the 25% rule" as a starting point in negotiations.

In the case of Uniloc, Microsoft was found to infringe Uniloc's patent directed to software "product key" technology that helped prevent "casual copying" of software products. The jury awarded Uniloc $388M in damages. The damage award was based on the testimony of Uniloc’s expert, Dr. Gemini. Gemini opined that the damage calculation was based on the value of a product key ($10) multiplied by 25% of the value of the product (Windows XP, Microsoft Word), resulting in a baseline royalty rate of $2.50 per license issued.

During litigation, Microsoft challenged the 25% rule and attempted to exclude Gemini’s testimony. The district court noted that "the concept of a ‘rule of thumb’ is perplexing in an area of the law where reliability and precision are deemed paramount," but rejected Microsoft’s position because the rule has been widely accepted.

On appeal, the Federal Circuit dismissed the 25% rule outright:

The admissibility of the bare 25 percent rule has never been squarely presented to this court. Nevertheless, this court has passively tolerated its use where its acceptability has not been the focus of the case, or where the parties disputed only the percentage to be applied (i.e. one-quarter to one-third), but agreed as to the rule’s appropriateness. Lower courts have invariably admitted evidence based on the 25% rule, largely in reliance on its widespread acceptance or because its admissibility was uncontested.

This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.

The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party. Relying on the 25 percent rule of thumb in a reasonable royalty calculation is far more unreliable and irrelevant than reliance on parties’ unrelated licenses, which we rejected in ResQNet and Lucent Technologies.. . . Lacking even these minimal connections, the 25 percent rule of thumb would predict that the same 25%/75% royalty split would begin royalty discussions between, for example, (a) TinyCo and IBM over a strong patent portfolio of twelve patents covering various aspects of a pioneering hard drive, and (b) Kodak and Fuji over a single patent to a tiny improvement in a specialty film emulsion.

It is of no moment that the 25 percent rule of thumb is offered merely as a starting point to which the Georgia-Pacific factors are then applied to bring the rate up or down. Beginning from a fundamentally flawed premise and adjusting it based on legitimate considerations specific flawed conclusion.

ENITRE MARKET VALUE RULE

In addition to challenging the 25% rule, Microsoft challenged the calculation of damages using the entire market value of Office and Windows and caomparing the calculated royalty to the total revenue Microsoft earned through the accused products. Microsoft argued that Uniloc’s use of the entire market value rule was improper because it was undisputed that Product Activation did not create the basis for customer demand or substantially create the value of the component parts. Microsoft also argued that Gemini’s testimony tainted the jury’s damages deliberations.

The court agreed with Microsoft:

The Supreme Court and this court’s precedents do not allow consideration of the entire market value of accused products for minor patent improvements simply by asserting a low enough royalty rate . . . This case provides a good example of the danger of admitting consideration of the entire market value of the accused where the patented component does not create the basis for customer demand. As the district court aptly noted, "[t]he $19 billion cat was never put back into the bag even by Microsoft’s cross-examination of Mr. Gemini and re-direct of Mr. Napper, and in spite of a final instruction that the jury may not award damages based on Microsoft’s entire revenue from all the accused products in the case." . . . This is unsurprising. The disclosure that a company has made $19 billion dollars in revenue from an infringing product cannot help but skew the damages horizon for the jury, regardless of the contribution of the patented component to this revenue.

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

* USPTO Announces First Satellite Office In Detroit *

2010-12-16T21:16:00.000-06:00

"Take him to . . . Detroit!"
- Dr. Klahn, Kentucky Fried Movie (1977)

Commerce Secretary Gary Locke announced today that the USPTO will be opening a satellite office in Detroit, Michigan. Detroit is the first of (hopefully) a larger number of satellite offices planned for the agency, and is initially slated to house 100 examiners, plus a smaller number of support and administration personnel. Detroit beat out more than a dozen other cities across the nation to get the satellite office - congratulations!

While a specific site has not been selected yet, Commerce Department officials expect to sign a lease as soon as February, with hiring to begin in the spring. As residents of the area know very well (I was born and raised there), it would be shocking if the agency selects a location in the city itself (God forbid). Likely candidates would be locations in the northern suburbs (Troy, Rochester), or possibly on the west side, near the airport.

Why Detroit? Because of research and development done by the auto industry, Michigan has more applicants than most other states (see here for the USPTO statistics). Also, real estate prices are dirt cheap - the home value index of Detroit properties are almost half that of properties in, say, New Orleans or Des Moines, Iowa.

Most of the hiring for the office will be done from the Detroit area and that announcements for vacancies should be posted on the agency’s website -- www.uspto.gov – and on the federal government’s employment site - www.usajobs.opm.gov – in early spring.

See Detroit Free Press: "Eureka! Patent Office picks Detroit" (link)

See also Gene Quinn at the IP Watchdog: "Detroit, Michigan Announced as First Regional Patent Office"

(link)

* Intellectual Ventures Launches Massive Litigation Across 3 Industries *

2010-12-08T14:19:00.001-06:00

"Gentlemen, you can't fight in here - This is the War Room!
-- President Merkin Muffley (Dr. Strangelove, 1964)

For some, this was a surprise. For most everyone else, it was a matter of "what took so long?"

From this morning's newswire:

Today Intellectual Ventures ("IV") enforced its rights and filed patent infringement complaints in the U.S. District Court of Delaware against companies in the software security; dynamic random access memory (DRAM) and Flash memory; and field-programmable gate array (FPGA) industries.

"Over the years, Intellectual Ventures has successfully negotiated license agreements with some of the top technology companies in the world. However, some companies have chosen to ignore our requests for good faith negotiations and discussions," stated Melissa A. Finocchio, Chief Litigation Counsel, Intellectual Ventures. "Protecting our invention rights through these actions is the right choice for our investors, inventors and current licensees."

Despite the creation of a "Patent Defense Fund" (to protect against patent trolls, don't-you-know) and assurances that IV is "opposed to litigation" (for more on that, see here), IV has decided to launch 3 lawsuits involving over 10 patents in the following industries:

Software Security - defendants include Check Point Software, McAfee, Inc., Symantec and Trend Micro. To view the complaint, click here.

DRAM / Flash RAM Memory - defendants include Elpida Memory Inc., and Hynix Semiconductor. To view the complaint, click here.

Field-Programmable Gate Arrays (FPGA) - defendants include Altera Corp., Lattice Semiconductor and Microsemi. To view the complaint, click here.

Interestingly, IV refers to itself in the complaint as "Intellectual Ventures I" and "Intellectual Ventures II" and notes that "[a] significant aspect of Intellectual Venture's business is managing the two plaintiffs in this case, Plaintiff Intellectual Ventures I and Plaintiff Intellectual Ventures II." No explanation is given as to how this split is arranged from a business perspective.

However, IV does mention that it "has purchased more than 30,000 assets and . . . has earned nearly $2 billion by licensing these patents to some of the world's most innovative and successful technology companies who continue to use them."

IV also describes itself as a scientific research entity that "has a staff of scientists and engineers who develop ideas" and "has invested millions of dollars developing such ideas . . . [and] has also invested in laboratory facilities to assist with the development and testing of new ideas."

This could be significant, since research entities are given a little more slack when seeking injunctions in a post-eBay world. In CSIRO v. Buffalo Technology, Inc., E.D. Tex. (6:06-CV-324), June 15, 2007, the district court made the following "irreparable harm" determination on CSIRO (a non-practicing entity) when it granted a permanent injunction:

The majority opinion in eBay rejected the conclusion that “a ‘plaintiff’s willingness to license its patents’ and ‘its lack of commercial activity in practicing the patents’ would be sufficient to establish that the patent holder would not suffer irreparable harm if an injunction did not issue.”

CSIRO has shown that its harm is not merely financial. While CSIRO does not compete with Buffalo for market share, CSIRO does compete internationally with other research groups—such as universities—for resources, ideas, and the best scientific minds to transform those ideas into realities. CSIRO’s reputation is an important element in recruiting the top scientists in the world. Having its patents challenged via the courts not only impugns CSIRO’s reputation as a leading scientific research entity but forces it to divert millions of dollars away from research and into litigation costs. Delays in funding result in lost research capabilities, lost pportunities to develop additional research capabilities, lost opportunities to accelerate existing projects or begin new projects. Once those opportunities have passed, they are often lost for good, as another entity takes advantage of the opportunity. Delays in research are likely to result in important knowledge not being developed at all or CSIRO being pushed out of valuable fields as other research groups achieve critical intellectual property positions. Thus, the harm of lost opportunities is irreparable. They cannot be regained with future money because the opportunity that was lost already belongs to someone else.

Hang on to your hats . . .

PwC Publishes 2010 Patent Litigation Study

2010-12-07T09:00:00.001-06:00

PriceWaterhouseCoopers (PwC) recently published its annual 2010 Patent Litigation Study, and this year's publication has some interesting data:

• Despite a small uptick of granted patents in 2009, the number of filed patent actions dropped to 2,744, a decrease of over 6% from 2008. This broke a 3-year trend of growth in case filings, since the last drop in 2005. NPEs are involved in almost 20% of reported decisions

• Annual median damages continue to hold steady - between 1995 and 2009, median damages ranged between $2.4M to $10.5M. However, damage awards for NPEs averaged more than triple those for practicing entities since 2001 ($12.9M vs. $3.9M).

• NPEs continue to be vulnerable to summary judgment - overall, NPEs have a 31% success rate versus 40% for practicing entities. In instances when a final decision is made at summary judgment, NPEs are successful only 13% of the time (vs. 20% for practicing entities). However, both have about a 2/3 win rate at trial.

• NPEs have increased their success rate over the last 4 years. In 2005, NPEs suffered from a decade-low success rate of 23%. In 2009, the success rate jumped to 48%.

• Declaratory judgment actions increase win rates fort alleged infringers. However, the increased win rate is only significant when the patent holder is an NPE.

• Despite the large volume of patent cases, median time-to-trial holds steady: 69% of cases reached trial within 3 years from the filing date of the initial complaint.

The Fastest Jurisdictions (Median Time-To-Trial, In Years):

ED Virginia -- 0.93
WD Wisconsin -- 1.07
MD Florida -- 1.71
D. Delaware -- 1.89
SD Texas -- 2.00
ED Texas -- 2.04
SD Florida -- 2.27
CD California -- 2.28
ND Texas -- 2.42
D. Minnesota -- 2.45
SD New York -- 2.50
D New Jersey -- 2.71
ND California -- 2.95
ND Illinois -- 3.42
D. Massachusetts -- 3.64

The Most "Patent Friendly" Jurisdictions:

ED Virginia
D. Delaware
ED Texas
MD Florida
CD California
SD Texas
WD Wisconsin
ND California
ND Texas
ND Illinois
D Minnesota (tie)
D. New Jersey (tie)
D Massachusetts
SD New York
SD Florida

Top 5 Districts by Overall Success:

MD Florida -- 59.1% overall, 80% trial success rate
ED Texas -- 55.3% overall, 66.7% trial success rate
D. Delaware -- 47.3% overall, 64.5% trial success rate
CD California -- 47% overall, 72.4% trial success rate
ED Virginia - 45.9% overall, 70.6% trail success rate

Bottom 5 Districts by Overall Success:

SD Florida -- 26.5% overall, 42.9% trial success rate
D. New Jersey -- 32.2% overall, 57.9% trial success rate
SD Texas -- 32.4% overall, 66.7% trial success rate
WD Wisconsin -- 32.4% overall, 40% trial success rate
ND California -- 33% overall, 71.1% trial success rate

For more details, you can download a free copy of the PwC study here (link)

Tuesday Shorts

2010-11-30T12:58:00.000-06:00

UK Announces "Patent Box" Tax Cut - The UK government has published a new paper outlining details of its corporate tax reform program. The reforms are designed to increase the tax competitiveness of the UK by reducing rates. One of the features highlighted in the reform include a so-called "patent box" that lowers the tax rate on profits from successful product launches that result from a patent registered and then manufactured in the U.K to 10%, compared with the main corporation tax rate of 28%. In response, GSK announced that it will be investing $779M for building a new biopharmaceutical manufacturing plant in the UK.

Google Joins Forces With EPO to Provide Translation Services - The EPO and Google have signed a Memorandum of Understanding where the EPO will use Google's machine translation technology to translate patents into the languages of the 38 countries that it serves. In return, it will provide Google with access to its translated patents, enabling Google to optimize its machine translation technology. Google technology will be used to translate patents originating in Europe as well as patents originating in other regions of the world (link).

How Complete is the USPTO Online Search Database? Despite previous concerns over gaps in the USPTO patent search database, Michael White at the "Patent Librarian's Notebook" blog ran a few quick tests on the PTO's website to see how complete the patent listings were. What did he find? The listings are quite complete - out of nearly 4 million documents, he only found a 12 document discrepancy, or % 0.00003. You can read more about his test and methodologies used here (link).

Supreme Court Prepares to Chop Down "Clear and Convincing" Standard for Proving Patent Invalidity

2010-11-29T21:02:00.002-06:00

In the case of Microsoft Corp. v. i4i Ltd., patentee i4i was awarded a $290M judgment against Microsoft and an order barring the infringing sale of Word in the U.S. The patent was directed to a method for editing documents using XML, a language that tells a computer how text should appear. I4i's invention claimed a technique that stores the content and the XML codes separately, making it easier for users to work alone with either the content or the codes.

During litigation, Microsoft submitted allegedly invalidating prior art (in the form of a prior public sale by i4i), which was not considered during prosecution at the USPTO. Microsoft argued that, since the prior art was not considered, the "clear and convincing" standard of proving invalidity was not in play, and that a lower standard of proof should be applied. The district court rejected this argument, as did the Federal Circuit.

On petition to the Supreme Court, Microsoft presented the following question:

The Patent Act provides that “[a] patent shall be presumed valid” and that “[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.” 35 U.S.C. § 282. The Federal Circuit held below that Microsoft was required to prove its defense of invalidity under 35 U.S.C. § 102(b) by “clear and convincing evidence,” even though the prior art on which the invalidity defense rests was not considered by the Patent and Trademark Office prior to the issuance of the asserted patent. The question presented is:

Whether the court of appeals erred in holding that Microsoft’s invalidity defense must be proved by clear and convincing evidence.

Today, the Supreme Court granted certiorari and agreed to hear the case, making it (in the words of Hal Wegner) "the most important Supreme Court patent case of the new century."

NOTE 1: At least a few Justices have appeared to be sympathetic to Microsoft's argument in the past - as recently as KSR v. Teleflex, the Supreme Court noted (in dicta):

We need not reach the question whether the failure to disclose Asano during the prosecution of Engelgau voids the presumption of validity given to issued patents, for claim 4 is obvious despite the presumption. We nevertheless think it appropriate to note that the rationale underlying the presumption - that the PTO, in its expertise, has approved the claim - seems much diminished here.

NOTE 2: For reasons unknown, Justice Roberts has recused himself from this case.

NOTE 3: I4i Chairman Loudon Owen stated to Bloomberg News that Microsoft’s argument has a “simplistic appeal” that “does not take into consideration at all what the patent office actually does . . . What it’s going to result in is tremendous uncertainty for anyone who owns a patent . . . It would be a sea change in the operations of the patent office and would be a dramatic body blow to the health of the U.S. patent industry and the value of patents.”

Effect on patent practice: In the meantime, the USPTO applicants will likely inundate the USPTO with prior art submissions. As the issue before the Supreme Court deals with prior art not considered by the Patent Office, the trick will be to cover as many areas as practicable to minimize the risk of being exposed to the effects of this case.

Wednesday Shorts

2010-11-17T09:50:00.000-06:00

Not So Fast, One-Click-Patent . . . : Last month, Amazon scored a big victory when the

Federal Court of Canada overturned the Patent Commissioner's decision to refuse a patent to Amazon.com for its “one click” business method patent (link). On Monday the federal Department of Justice filed the Notice of Appeal that challenges the Federal Court's ruling (link).

Anti-Gene-Patent Fever Spreads to Australia - On May 12, 2009, the ACLU and the Public Patent Foundation (PUBPAT) filed a now-famous lawsuit in the U.S. charging that patents on two human genes associated with breast and ovarian cancer are unconstitutional and invalid. The lawsuit was filed against the USPTO, as well as Myriad Genetics and the University of Utah Research Foundation, which hold the patents on the genes, BRCA1 and BRCA2. The lawsuit charges that patents on human genes violate the First Amendment and patent law because genes are "products of nature" and therefore can't be patented.

In June of this year, a similar lawsuit was filed in Australia challenging the validity of a patent directed to BRCA1 (known as Patent 686,004) which is held by companies including Myriad Genetics Inc and Melbourne-based Genetic Technologies Ltd. The lawsuit is spearheaded by national consumer organization Cancer Voices Australia and a Brisbane woman with breast cancer, and both argue that biotech "monopoly" on cancer genes is unlawful (link).

Celebrating the Bayh-Dole Act (Officially) - on November 16, 2010, the House passed H.CON.RES.328 "Expressing the sense of the Congress regarding the successful and substantial contributions of the amendments to the patent and trademark laws that were initially enacted in 1980 by Public Law 96-517 (commonly referred to as the 'Bayh-Dole Act') on the occasion of the 30th anniversary of its enactment."

One Year Later: Round Rock Research LLC - In December 2009, former Kirkland & Ellis litigator John Desmarais helped form NPE Round Rock Research LLC and bought 4,500 patents from Micron Technology Inc. Licensing and litigation efforts began tout de suite, and shortly thereafter a rumor was floated that the patents were part of a $280 million patent licensing deal with Samsung. In addition to Samsung, Round Rock is rumored to be in current negotiations with Sony, Apple and Nokia. On top of that, Round Rock is currently involved in litigation against HTC.

So who is behind Round Rock and how are they doing? Joff Wild From IAM magazine has been sleuthing about and had the following report from his blog:

My information, which comes from an excellent source, is that [Round Rock] was organised through a company called Gemas Capital Inc, which was established in June 2009 by Zahid Rahimtoola, who is the chief financial officer of IP Value. In 2009 Round Rock signed a deal with IP Value to help commercialise its patent portfolio. IP Value's two investors are both financial heavyweights - General Atlantic and Goldman Sachs; though whether they backed Round Rock is not known. Whoever did is laughing all the way to the bank if what I have been told is correct. Apparently, they have recouped their money already.

USPTO Looks to Streamline Appeals by Amending BPAI Rules

2010-11-16T12:27:00.000-06:00

Yesterday, the USPTO announced proposed changes to the rules governing ex parte patent appeals before the Board of Patent Appeals and Interferences. (BPAI). According to Director Kappos, “we hear often from stakeholders that the patent appellate process is too complicated and burdensome . . . the goal of this proposed rulemaking is to simplify the appellate process in a way that reduces the burden on appellants and examiners to present an appeal to the Board.”

The notable changes in the proposed rule, as compared to the current Board rule, are:

(1) The Board would presume that an appeal is taken from the rejection of all claims under rejection
unless cancelled by an amendment filed by appellant;

(2) the Board would take jurisdiction upon the filing of a reply brief or the expiration of time in which to file such a reply brief, whichever is earlier;

(3) the requirements to include statements of the status of claims and grounds of rejection to be reviewed on appeal and the requirements to include a claims appendix, an evidence appendix and a related proceedings appendix would be eliminated from the appeal brief;

(4) the Board may apply default assumptions if a brief omits a statement of the real party-in-interest or a statement of related cases;

(5) for purposes of the examiner’s answer, any rejection that relies upon new evidence shall be designated as a new ground of rejection;

(6) the appellant can await a decision on a petition seeking review of an examiner’s failure to designate a
rejection in the answer as a new ground of rejection prior to filing a reply brief and thereby avoid having to file a request for extension of time in which to file the reply brief; and

(7) the examiner’s response to a reply brief would be eliminated.

Last, but not least, the proposed 2008 Final Rule on Appeals would be rescinded.

Comments on the proposed rules should be submitted to BPAI.Rules@uspto.gov by January 14, 2011.

Read/download the Fed. Reg. Notice here (link)

Unbridled "Optimization" Term in Software Patent Claim Leads to Finding of Indefiniteness

2010-11-10T14:52:00.000-06:00

Data Retrieval Technology v. Sybase, Inc. et al., No. 3-08-cv-05481 (N.D. Ca., Nov. 8, 2010)

DRT sued defendants on patents directed to computer-implemented methods for retrieving information stored in databases without the need for human analysis of the source data. One of the claims in the patent recited a driver that automatically obtains information about the data structure of a data source "wherein said information about the data structure leads to optimization of a new database in which information from said first database is to be stored."

One of the defendants moved for summary judgment of invalidity under 112(2), arguing that the claimed optimization feature rendered the claim insolubly ambiguous. Under DRT's proposed claim construction, a database would be "optimized" when its performance “with respect to a given characteristic” is superior to that of the data source from which it was created. The problem here was that a specific "characteristic" was not provided in the patent.

The district court found this fatal to the patent:

The fundamental flaw here is that no such characteristic is in fact given. Thus, if one could identify a single characteristic of a database that is superior to that of the original source, the database would be “optimized” within the meaning of the claim. As DRT’s expert Paul Bertucci stated in his deposition, “[t]here are hundreds of [] potential characteristics” of a database that may be improved. . . . Further, Mr Bertucci admitted in his second declaration that “the process of optimization involves tradeoffs - i e, one design/configuration may provide improved performance for certain types of queries while at the same time, diminishing performance for other types of queries and database operations.”

It is clear that DRT’s proposed construction of “optimization” fails to define any meaningful limitation. . . . The claim [] requires that the new database be “optimiz[ed],” id, but under the proposed construction any such database could be considered optimized. One must only identify one of the hundreds of possible characteristics of the new database that performs better than that of the original data source. And because optimization necessarily involves tradeoffs, a database that is demonstrably inferior to the original data source with respect to the most important characteristics would still be superior with respect to some characteristic and therefore “optimized.” A competitor would have no way to know whether a process for transforming a data source into a new database led to “optimization” and would be subject to an infringement suit if the patent holder could locate a single characteristic of the database that is superior to that of the data source. Accordingly, DRT’s proposed construction is indefinite.

With regard to a narrowing construction of "optimization", the opinion noted that

The court is unable to adopt any narrowing construction of “optimization” that is consistent with the language of the claim. DRT notes that “the patent provides a number of examples of characteristics for which a database may be optimized” and suggests that “the claim term is further limited when read in light of the specification by the examples provided by the specification.” This suggestion fails to grasp “the distinction between using the specification to interpret the meaning of a claim and importing limitations from the specification into the claim.” Phillips, 415 F3d at 1323. Although the specification can be used to help define unclear claim terms, it cannot be used to limit them. The patent specification provides examples of “different systems which are optimized for different purposes,” specifically those “optimized for data entry or storage vs speed or flexibility or data analysis and reporting, optimized for accounting data vs company data, and the like.” ’392 Patent at 1:34-37. But DRT does not argue that these examples actually define “optimize,” which, as discussed above, means to improve performance with respect to any of a large number of possible characteristics. . . . Informatica’s motion for summary judgment of indefiniteness is supported by clear and convincing evidence and is accordingly GRANTED.

Read/download the opinion here (link)

Source: Docket Navigator

Fed. Cir. Removes Limitations on New Evidence in §145 Civil Actions Against USPTO

2010-11-09T10:28:00.002-06:00

Hyatt v. Kappos, 2007-1066 (November 8, 2010) (en banc)

When Applicants are dissatisfied by a USPTO action, there are 2 avenues for potential relief: (1) appeal to the Federal Circuit, and (2) file a §145 civil action in district court. While an appeal limits review of an application to the evidence of record, §145 actions afford an applicant the opportunity to introduce new evidence after the close of administrative proceedings.

In Hyatt v. Kappos, the applicant filed a mammoth application in 1995 ultimately containing 238 pages, 40 drawings, and 117 claims. The application claimed priority to a chain of applications dating back to 1975.

The examiner issued a final office action that contained an avalanche of rejections - all told, 2,546 separate rejections were made of Hyatt's 117 claims. Hyatt appealed, and the BPAI reversed 93% of the rejections, but maintained rejections directed to written description, noting that "merely pointing to the occurrence of isolated words in the specification . . . did not adequately establish that the specification contained written description for the particular combination of elements that made up each limitation."

Hyatt filed a civil action under 35 U.S.C. §145 to the District Court for the District of Columbia, asking the court to reverse the BPAI's rejections. In support of the action, Hyatt filed a written declaration in which he identified portions of the specification that one of skill in the art would understand to describe the limitations challenged by the USPTO.

The district court rejected the declaration, and granted summary judgment to the PTO.

The court found that the Board’s written description rejections were substantively identical to, albeit more detailed than, the rejections issued by the examiner. The court found that the Board’s written description rejections were substantively identical to, albeit more detailed than, the rejections issued by the examiner. . . . Because Mr. Hyatt’s declaration was directed to those written description rejections, the court concluded that he could have presented the declaration earlier, "certainly by the time his patent application was considered by the Board." Finding that Mr. Hyatt had no explanation for why he failed to offer his declaration during the proceedings before the Board, the court determined that "[Mr.] Hyatt's failure to explain why he didn’t submit his declaration earlier is negligent, and the district court need not consider evidence negligently submitted after the end of administrative proceedings."

On appeal to the Fed. Cir., the majority ruling noted that "it is clear from the record that Hyatt willfully refused to provide evidence in his possession in response to a valid action by the examiner" and affirmed the district court.

After en banc review, the majority opinion (6-2-1) vacated the earlier ruling and remanded the application:

We hold that 35 U.S.C. § 145 imposes no limitation on an applicant’s right to introduce new evidence before the district court, apart from the evidentiary limitations applicable to all civil actions contained in the Federal Rules of Evidence and Federal Rules of Civil Procedure. In doing so, we reject the Director’s proposal that only "new evidence that could not reasonably have been pro-vided to the agency in the first instance" is admissible in a § 145 action. . . .While the proceedings before the Patent Office do not limit the admissibility of new evidence in the district court, they may be considered by the district court if they cast doubt on the reliability of late-produced evidence, as with inconsistent statements or new recollections of previously forgotten events. As with any evidence introduced in a civil action, the district court as factfinder may give less weight to evidence introduced by an applicant in a § 145 action if the district court questions its credibility or reliability. Because the district court abused its discretion when it excluded Mr. Hyatt’s declaration under the wrong legal standard, we vacate the decision of the district court and remand.

The majority further held that, while evidence of record is reviewed using the "substantial evidence" standard of the Administrative Procedure Act (APA), "new" evidence submitted by the applicant would be reviewed de novo.

The ruling is important for applicants in that it provides flexibility for the submission of evidence during appeals. One of the issues raised in the dissent was that applicants were now free to withhold evidence from the USPTO in hopes that a de novo review on the withheld evidence would yield more favorable results. While the majority opinion acknowledged this possibility, the court remarked that "[a]lthough we agree that encouraging full disclosure to administrative tribunals is sound policy, Congress—not the Federal Circuit—must decide how best to do this."

Moreover, as the majority opinion recognized, intentionally withholding evidence is not a good tactic when considering the substantial costs involved:

To deter applicants from exactly the type of procedural gaming that concerns the Director, Congress imposed on the applicant the heavy economic burden of paying "[a]ll the expenses of the proceedings" regardless of the outcome. 35 U.S.C. § 145. An applicant has every incentive to provide the Patent Office with the best evidence in its possession, to obtain a patent as quickly and inexpensively as possible. "It would be counterintuitive for an applicant to deliberately withhold non-cumulative evidence that would help persuade the BPAI. Indeed, the fact that the vast majority of applicants pursue an on-the-record appeal instead of a § 145 action indicates that applicants generally consider the evidence before the Patent Office to be sufficient.

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

Chisum: Gottschalk v. Benson is a "Failure"

2010-11-04T12:36:00.001-05:00

Donald Chisum released an interesting article titled "Patenting Intangible Methods: Revisiting Benson (1972) After Bilksi (2010)" where he cogently points out that most of the problems pertaining to patentable subject matter can be attributed to the Supreme Court's decision in Benson, and that the decision "served noone's interest . . . Its ambiguity allowed software patent proponents to subvert any bar that software patent opponents desired [and] also deterred legitimate inventors of software-implemented inventions from applying for patent protection."

Chisum provides some interesting background information on the state of technology heading into the Benson decision:

Through the 1960's, programming (software) for the giant computers was perceived as a service that a computer vendor, such as IBM, would provide so as to adapt a computer system to a customer's particular needs. There was essentially no distinct software industry or market, and it was not in the interest of the vendors that there be one. A big vendor did not relish being subject to copyright or patent claims by smaller companies and independent inventors. Hence, in that era, IBM opposed both copyright and patent protection for software. Subsequently, as its interests changed, IBM changed its positions. In a dispute with a Japanese rival, Fujitsu, over mainframe computer operating systems, IBM championed copyright protection for software in the United States and around the world. With its development of the "PC" personal computer, IBM pursued patents on the PC system and successfully licensed them.

And the PTO

Pre-1972, policy and practice in the Patent Office favored IBM's no-patents-on-software position. Supporting the position was a recommendation in 1966 by a "President's Commission on the Patent System."

And who was responsible for the Benson patent? Bell Laboratories of AT&T, one of the few large, non-vendor entities doing independent research applicable to computer programming.

When the Benson opinion was announced, Chisum noted that an interested observer should have had immediate concerns:

First, the opinion came down on November 20, 1972, only a month after argument (October 16, 1972), hardly long enough for a thoughtful deliberation . . . Second, and more importantly, the author of the opinion was Justice William O. Douglas. Justice Douglas was notoriously hostile toward the patent system. That Justice Douglas was unreasonably biased against patents is supported by the fact that two provisions of the 1952 Patent Act were intended to correct hyperbolic statements in Douglas opinions.

Chisum then takes on the oft-quoted sentence from Benson: "Phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work."

How did the Court derive this supposedly well-established triple exclusion? First, the "phenomena of nature" exclusion comes from decisions such as the 1948 Funk case. But the Court makes no attempt to explain how a natural phenemenon exclusion relates to the algorithm claims in question. If a newly created algorithm is a "phenomenon of nature," so must be all human inventive activity. That cannot be true. Humans are indeed "part of nature," but there could be no patent system if all human inventions are phenomena of nature.

Second, the Court refers to "mental processes" as unpatentable but cites no authority, even though there was extensive prior case law on the "mental steps doctrine" in the lower courts.

Third, and most distressingly, the Court's exclusion of "abstract intellectual concepts" stems from an out-of-context combination of two statements from old cases that did not even involve intangible processes. The first statement--"an idea of itself is not patentable"--is from the 1874 Rubber-Tip Pencil decision. The second statement--"a principle, in the abstract" is not patentable--is from the 1852 Le Roy opinion. The tenor of the two cases is, contrary to the implication of Benson, a positive one: that an "idea" or a "principle" is patentable when applied to create a novel and useful process or product even though the idea or principle itself is not patentable because it is either well known or too abstract. Rubber-Tip Pencil held that a patent on attaching a rubber eraser to a pencil was invalid for lack of novelty. The Benson-quoted phrase--"An idea of itself is not patentable"--was meant, in context, to say that a "good idea" for a product (good from a business or marketing point of view) did not meet the patentability requirements if the product itself lacked novelty (or was an obvious modification of the prior art from a technical point of view).

Finally,

The Court, per Justice Douglas, concluded the short opinion with a discussion of the then-raging debate on patenting computer programs. It quoted the Presidential Commission recommendation against patenting computer programs. It noted that "extending" the patent laws to cover "these programs" was a matter not for the courts but for Congress . . . Congressional action was not forthcoming. In the 38 years since Benson, Congress has not directly addressed patent eligible subject matter.

Read/download the paper here (link)

See also Donald S. Chisum, "Weeds and Seeds in the Supreme Court's Business Method Patents Decision: New Directions for Regulating Patent Scope" (link)

CAFC Denies En Banc Review of "Distorted" Law of Double-Patenting

2010-11-01T15:00:00.000-05:00

Sun Pharma. Ind. Ltd. v. Eli Lilly and Co., No. 2010-1105, (Nov. 1, 2010, Order)

Eli Lilly filed a first application describing a new class of chemical compounds having antiviral utility, including the compound named gemcitabine. Thereafter, Lilly filed a continuation-in-part application disclosing but not claiming the anticancer utility of gemcitabine, and on the same day Lilly filed a separate application (ultimately issuing as the '826 patent) having a different inventive entity, describing and claiming the use of gemcitabine to treat cancer.

Nevertheless, the Federal Circuit struck down the ’826 patent this past July on double-patenting grounds, holding that a patent is invalid if it claims a method of using a chemical compound if that method was described (even if not claimed) in an earlier patent.

This decision was seen as a "dramatic expansion" of the double patenting doctrine. The judicially-created double patenting doctrine prevents a patentee from receiving two patents for one invention. However, when a second patent covers matter described in a prior patent, the second patent is still valid so long as the invention is patentably distinct from the invention claimed in the first patent. By applying the doctrine in this case, it was argued that the CAFC limited Eli Lilly to one patent for two inventions.

Eli Lilly filed for en banc review, and the Federal Circuit denied the motion by a narrow 5-4 margin. A dissenting opinion authored by Newman (and joined by Rader, Lourie and Linn) argued that the law of double patenting "has become distorted by divergent statements":

Until recently it was beyond dispute that the law of double patenting is concerned only with what is patented—that is, what is claimed. To determine whether there is double patenting it is the claims that are compared; thus, obviousness-type double patenting occurs when the claims of a later patent are an obvious variant of the claims of an earlier patent. The specifications of the patents are irrelevant to the double patenting analysis, other than to guide in construing the claims. A double patenting analysis occurs only when the earlier patent is not prior art against the later patent.

* * *

“Obviousness-type double patenting is a judicially created doctrine intended to prevent improper timewise extension of the patent right by prohibiting the issuance of claims in a second patent which are not ‘patentably distinct’ from the claims of a first patent.” Braat, 937 F.2d at 592. The panel failed to explain how Lilly’s claims to the use of gemcitabine to treat cancer, discovered after gemcitabine’s antiviral use was disclosed in the original application, improperly extend the patent right to gemcitabine as a compound, let alone how these claims would “shock one’s sense of justice.” For purposes of this case, there is no dispute that Lilly would be entitled to a separate patent on the anticancer use if Lilly had not included the disclosure of anticancer use in the specification of the continuation-in-part filed the same day. Such disclosure does not “improperly extend” any patent.

The amici curiae explained that particularly for biological/pharmaceutical products, new uses may be discovered as research continues after the initial filing. . . . A change of law “in ways that negatively impact the patentability of important later-discovered uses” serves no public purpose in areas in which commercial development requires patent protection. If the majority of the court now believes, as a matter of policy, that the law should be changed in this new direction, en banc treatment is particularly appropriate, for the court’s rule is that the earlier precedent prevails unless overruled en banc. A situation in which the court ignores this rule, and applies whatever law the panel prefers, is an indictment of the ability of this court to provide stable law in the areas entrusted to us.

The denial of Eli Lilly’s petition for rehearing en banc leaves the innovation community without guidance on which the trial courts, and the users of the patent system, can rely. I respectfully dissent.

Read the dissenting opinion here (link)

Commerce Dept. Continues to Drop Hints on Establishing Regional Patent Offices

2010-10-27T11:10:00.000-05:00

Secretary of Commerce Gary Locke was in Detroit for an export conference this week and participated in a roundtable discussion with local small business owners at the Detroit Regional Chamber. Just prior to leaving, Locke dropped a hint that the Dept. of Commerce was looking to open regional patent offices, and that one of them may be in Detroit.

From Crain's Detroit Business:

The U.S. Commerce Department is considering opening regional offices of the U.S. Patent and Trade[mark] Office as part of its work to help President Barack Obama meet his goal of doubling exports within five years.

When asked how Michigan's manufacturing-heavy industrial base would play a role in meeting that goal, Locke brought up the possibility of a local patent office.

There are currently no regional patent offices in the U.S.

"We're also looking at, for instance, having regional offices for our patent offices. We know that there's a lot of innovation occurring here in Michigan and the Detroit area, so Detroit is a candidate for a separate patent office," Locke said, while scrambling to get to the airport as Tuesday's windstorm hit metro Detroit.

He said it now takes almost three years for an applicant to get a decision on a patent. "Our goal is to get that down to one year. But a key of that is allowing the patent examiners to talk with the innovators and inventors instead of just trading letters and correspondence or e-mails," Locke said.

Forming regional patent offices is seen as a vital step in decentralizing and improving the patent examination process. Judge Michel has been a very vocal supporter of regional patent offices, and provided the following commentary during an interview (Aug. 2010) with Gene Quinn at the IP Watchdog:

Almost every federal agency I know of has regional offices. The patent office is the odd man out. This isn’t something we don’t know how to do. We do this every year, every day, in practically every agency in the country. They all have regional offices other than the patent office. This is not a hard problem to engineer. This is a question of authority: you have to have the authority to do it. I’m told he doesn’t have the legal authority to open an office in Detroit or Los Angeles, or wherever it might be. Congress has to give it to him or he can’t do it. It’s that simple.

[L]ook at those parts of the country where there are thousands of unemployed engineers who are experienced, competent people, many of whom are experienced in the patent system as well as their scientific or engineering discipline. They’d make the perfect patent examiner and you could solve an employment problem and a backlog problem very efficiently by hiring those experienced people where they are now. Detroit, Houston, wherever it is. Maybe several different places. I think it’s an obvious good idea. Of course it has challenges to it. Anything involving growth and expansion has challenges but I think it would pay off in a very short timeframe and be an extremely efficient way to solve a series of problems. And it’s kind of shocking that these things aren’t even being discussed.

Are regional offices needed? You bet. The PTO has been kicking this idea around for the last five years or so, but no one knows exactly how serious the Office (or Congress) is on the subject. In 2006, the PTO highlighted the "consideration of establishing regional offices" as a main part of the Strategic Plan; in 2010, there's barely a mention of it . . .

USPTO, EPO Work on Establishing Common Patent Classification System

2010-10-25T16:07:00.000-05:00

The USPTO's classification system has been different from the International Patent Classification System (IPC) because (a) the USPTO's classification system came first, and (b) WIPO decided to take a different classification path when developing the IPC. As a result, two sets of classification codes are used during examination.

That is about to change. The USPTO and the EPO (which observes the IPC) announced today that they are working on a joint classification system that "will be more detailed than the IPC to improve patent searching. As a result, the two offices would move closer to eliminating the unnecessary duplication of work between the two offices, thus promoting more efficient examinations, while also enhancing patent examination quality."

This effort is part of a larger harmonization effort being pushed by "Five IP Offices" or "IP5." The USPTO and EPO issued a joint statement stating that

In view of the significant benefit to stakeholders of developing a transparent and harmonized approach to a global classification system for patent documents; in order to make the search process more effective; and in the belief that cooperation between their two offices will facilitate progress in undertaking classification harmonization projects under the IP5 Common Hybrid Classification initiative, the USPTO and the EPO have agreed together to work toward the formation of a partnership to explore the development of a joint classification system based on the European Classification system (ECLA) that will incorporate the best classification practices of the two offices. This system would be aligned with the World Intellectual Property Organization (WIPO) classification standards and the International Patent Classification (IPC) structure. Accordingly, they have initiated discussions on governance and operational aspects of such a partnership.

Read the USPTO press release on the joint classification effort here (link)

Visit the IP5 website here (link)

The IP5 also posted a presentation given to the WIPO General Assembly discussing upcoming projects that include

- IP5 Common Hybrid Classification
- IP5 Common Documentation
- Common Application Format
- Common Access to Search and Examination Results
- Common Training Policty and Mutual Machine Translation
- Common Examination Practice Rules and Quality Management and
- Common Search and Examination Support Tools

You can download the entire presentation (74 pages) here (link)

Blame Canada! Amazon Wins Argument at the CA Federal Court Over "One-Click" Patent

2010-10-14T16:44:00.002-05:00

After a decade-plus battle at the Canadian Patent Office and Patent Review Panel, the Canadian Federal Court made the following ruling on business method patents:

At its core, the question is whether a “business method” is patentable under Canadian law. For the reasons which follow, the Court concludes that a “business method” can be patented in appropriate circumstances.

In making the ruling, the Federal Court made some interesting, almost State-Street-like, findings:

There are thus three important elements in the test for art as articulated by Wilson J.: i) it must not be a disembodied idea but have a method of practical application; ii) it must be a new and inventive method of applying skill and knowledge; and iii) it must have a commercially useful result: Progressive Games, Inc. v. Canada (Commissioner of Patents), 177 F.T.R. 241 (T.D.) at para. 16, aff’d (2000), 9 C.P.R. (4th) 479 (F.C.A.).

The practical application requirement ensures that something which is a mere idea or discovery is not patented – it must be concrete and tangible. This requires some sort of manifestation or effect or change of character. However, it is important to remain focused on the requirement for practical application rather than merely the physicality of the invention. The language in Lawson must not be interpreted to restrict the patentability of practical applications which might, in light of today’s technology, consist of a slightly less conventional “change in character” or effect that through a machine such as a computer.

Also there was this also-interesting interpretation of Bilski:

Jurisdictions with patent regimes similar to our own have also struggled to pin down what is required to bring an idea or a discovery beyond simply that. As mentioned above, the US Supreme Court delivered the decision in Bilski/USSC quite recently, squarely addressing patentable processes. While the decision does not answer all questions of US patentability of business processes, it appears that the US Supreme Court rejected the “machine or transformation” test as in violation of the expansive interpretation which should be given to §101 (the equivalent to our s. 2) – they saw nothing in the statute or in the plain meaning of language which would require “process” to be tied to a machine or an article. In essence, they rejected the type of physicality advocated by the Commissioner. The majority called it “a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101” (slip op. At 8). Four of the justices went on to discuss the changing nature of technology and the limitations posed by this type of thinking:

The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age – for example, inventions grounded in a physical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age.

Furthermore,

Read the entire opinion here (link)

There is no basis for the Commissioner’s assumption that there is a “tradition” of excluding business methods from patentability in Canada.

The Court finds that a purposive construction of the “system claims” (e.g. claim 44 and its associated dependant claims) clearly discloses a machine which is used to implement Amazon.com’s one-click ordering system. The described components (e.g. a computer) are essential elements in implementing an online ordering process. This is not merely “a mathematical formula” which could be carried on without a machine or simply a computer program. A machine is patentable under s. 2 of the Patent Act. The Commissioner herself found that “in form” the claims disclosed such an invention; it was only when she took a second step to subjectively consider the “substance” that she found otherwise. As discussed, this is unsupported in law. The Court therefore finds the machine claims to be patentable subject matter.Turning to the process claims, the Commissioner clearly erred by “parsing” the claims into their novel and obvious elements in order to assess patentability. When viewed as a whole it is clear that the claimed invention is a process which uses stored information and ‘cookies’ to enable customers to order items over the internet simply by ‘clicking on them’. It is accepted that the “one-click” method is novel; the Court finds that an online ordering system which facilitates this adds to the state of knowledge in this area.

The new learning or knowledge is not simply a scheme, plan or disembodied idea; it is a practical application of the one-click concept, put into action through the use of cookies, computers, the internet and the customer’s own action. Tangibility is not an issue. The “physical effect”, transformation or change of character resides in the customer manipulating their computer and creating an order. It matters not that the “goods” ordered are not physically changed.

It is undisputed that this invention has a commercially applicable result and is concerned with trade, industry and commerce. Indeed, its utilization in this very realm seems to be at the root of the Commissioner’s concern.

In light of the above, the Court finds the process claims to be a patentable as an art and process. As discussed at length earlier in this decision, there is no need to continue the analysis once this has been determined. There is no exclusion for “business methods” which are otherwise patentable, nor is there a “technological” test in Canadian jurisprudence. Even if there was some technological requirement, in this case the claims, when viewed as a whole, certainly disclose a technological invention.

Legislation Introduced to Curb False Marking Claims

2010-10-10T19:47:00.000-05:00

Congressman Bob Latta (R- Bowling Green) recently introduced H.R. 6352, the Patent Lawsuit Reform Act of 2010.

If passed, H.R. 6352 would strengthen the vague language to revert back to the pre-Forest Group decision and assess one $500 fine if found guilty of deceiving the public under Section 292 and not allow for the interpretation of being 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.

“Because 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,” Latta stated after introducing the legislation.

H.R. 6352 has been referred to the House Judiciary Committee.

Read the press release here (link)

While the US Government Printing Office has not released text of the legislation yet, you can track the bill's progress here (link)

Does GM Now Have a "Pass" to Use IP From Other Car Makers?

2010-10-05T10:34:00.001-05:00

From the abstract of Adam Mossoff's latest essay:

"This essay explains how a 2006 court decision arising from the manufacture of the F-22 Raptor fighter jet paves the way for government-owned General Motors to steal intellectual property. In Zoltek v. U.S., the Court of Appeals for the Federal Circuit held that a loophole in the Tucker Act (28 U.S.C. § 1498) prevented owners of patented processes from suing the federal government for certain types of unauthorized uses of their patents. The Zoltek court also held that patents are not secured as constitutional "private property" under the Takings Clause of the Fifth Amendment. At the time, many judges and lawyers thought that these statutory and constitutional loopholes for patent-owners were insignificant; at worst, they argued, this benefits only military contractors and the like.

Fast forward four years and the federal government now owns the "new GM." It was inconceivable in 2006 that Uncle Sam soon would be in the business of making cars, not to mention in the businesses of banking and insurance, setting salaries of CEOs, purchasing mortgages, etc., etc. This dramatic turn of events means that court decisions that once seemed exceedingly narrow have acquired new breadth and scope. This essay thus explores how Zoltek justifies extensive infringement of U.S. patents by GM and other firms now working for the federal government. Although it is arguable that denying patent-owners their constitutional rights is insignificant in any situation, the events since 2006 at least suggest that many people spoke too soon when they claimed that Zoltek was of little import or concern."

Read/download "How the 'New GM' Can Steal from Toyota"

Using R&D Tax Credits to Fund Patent Portfolio Development

2010-10-01T11:58:00.000-05:00

The Research and Development (R&D) Tax Credit was created by Congress as part of the Economic Recovery Tax Act of 1981 to encourage U.S. industries to invest in R&D activities, and to stimulate innovation through tax incentives. While the tax credit initially benefited Fortune 500 companies, more recent changes to the tax code have allowed almost any manufacturing or technology company to take advantage of the credit.

While the application process is quite vigorous, innovative companies have found it worth the effort: depending on the state and country, tax credits can range from 6% to 50% of qualified R&D expenditures. To be eligible, an activity must:

Have a "permitted" purpose, i.e., one in which the company is developing a new product or process;
Must be "technical" in nature, i.e., involving research and development in a particular field of science;
Eliminate uncertainty by attempting to overcome a technological obstacle; and
Involve a process of experimentation that is geared towards eliminating the uncertainty.

Broadly speaking, U.S R&D tax credits are approximately 6% of eligible expenditures. When combined with state credits, the total credit can be increased to around 10%. The R&D tax credit earned can be offset against current, future, and past taxes paid. Most profitable companies receive a refund in installments or prior taxes paid upon filing their first R&D tax credit claim. After that, the company applies its credits against taxes it otherwise owes.

Under the product R&D credit, the term “product” includes a formula, invention, patent, pilot model, process and technique. For the purpose of the credit, R&D expenditures the IRS has stated that it “generally include all expenditures incident to the development or improvement of a product,” which includes costs of obtaining a patent, such as attorney’s fees related to the patent.

While some companies have used this credit to their advantage in IP management, many others have not. Given that potentially significant changes will happen next year in Congress on the credit, now would be a good time as any to see how these creadits could potentially bolster your patent filing strategies (and budgets!).

See MDDI Magazine, "Uncovering Value In R&D Tax Credit Processes Through Strategic IP Management"

See also MedCity News: "Minnesota’s R&D tax credit: the best little tool you never heard of"

A medical device firm, for instance, can claim a credit for the money it pays to a contract manufacturer that makes the prototypes and the labs that tests the devices. It can also receive a credit for fees it pays to intellectual property lawyers to obtain a patent, even if they’re unsuccessful.

Bombshell Study: Heavily Litigated NPE Patents Overwhelmingly Lose at Trial

2010-09-22T22:24:00.028-05:00

To date, litigated patents were viewed as "strong" patents - the types that defendants were supposed to avoid taking to trial. Moreover, litigated patents were seen as more valuable, since they managed to survive an all-out attack on validity by a presumably well-financed defendant. Earlier studies (John R. Allison et al., Valuable Patents, 92 Geo. L.J. 435 (2004) looked at litigated patents, and found that they differed from non-litigated patents in that they (1) include more claims, (2) cite more prior art, (3) are cited more often by later patents, and (4) come from larger "families" of patents/continuations. Each of these factors are now used in conventional methodologies to determine the private value of patents.

John Allison, Mark Lemley and Joshua Walker recently took on the task of identifying every patent that was litigated eight or more times between 2000 and February 2009, including cases still pending, and compared the outcomes of the cases against patents that were litigated only once. In the course of their analysis, they found 106 such patents, which have been litigated in a total of 2,987 different patent assertions in 478 different cases, often against multiple defendants.

What did they find? Serial patent litigants, and particularly NPE's (aka "trolls"), for a lack of a better phrase, "get creamed" when they go to trial:

[T]o our great surprise, we find that the willingness of these patentees to litigate their cases to judgment is a mistake. Far from being stronger than other litigated patents, the most-litigated patents that go to judgment are far more likely to be held invalid or not infringed. The differences are dramatic. Once-litigated patents win in court almost 50% of the time, while the most-litigated – and putatively most valuable – patents win in court only 10.7% of the time.

The results are equally striking for patents owned by non-practicing entities (NPEs), and for software patents. NPEs and software patentees overwhelmingly lose their cases, even with patents that they litigate again and again. Software patentees win only 12.9% of their cases, while NPEs win only 9.2%.

[S]tatistical tests bear this out. We compare the proportion of win rates, testing the null hypothesis that there is no difference between the most-litigated and once-litigated patent outcomes. We test the proportions in several ways, both including and excluding settlements in the denominator of decided cases, and both including and excluding default judgments as plaintiff wins. No matter which test we use, the differences are highly statistically significant – the most-litigated patentees were more likely to lose.

Also,

Considering only the patents themselves, the proportions of initial ownership by large and small entities are almost equal in the most- and once-litigated data sets: 53.5% of most-litigated patents and 47.8% of once-litigated patents were issued to large entities. The picture is quite different, however, when one looks at the proportion of actual assertions in litigation, where large entities account for a surprisingly small percentage of the most-¬litigated patents. Because small entities are disproportionately represented in the actual litigation of most-¬litigated patents . . . patents that were initially issued to large entities represent only 22.4% of the assertions in the most-¬litigated group, compared to 47.8% of the once-¬litigated group.

[W]hen the cases do not settle, large patent plaintiffs are significantly more likely than small ones to win, without regard to how the data are sliced. When we combine the two data sets, large entity plaintiffs win 53.1% of the cases decided on the merits (55.9% if default judgments are included), while small entity plaintiffs win only 12.3% of their cases (23.1% if default judgments are included).

Other interesting findings:

- Just 16.7% of the assertions of the most-litigated patents were made by product-producing companies.

- Software patents constituted 20.8% of the once-litigated patents but 74.1% of the most-litigated patents.

- Owners of non-software patents are far more likely to win their cases than are software patent owners (37.1% versus 12.9% overall)

- The number of defendants per case is a negative predictor of settlement - the more defendants there are per case, the less likely the case is to settle. Also, the more defendants there are per case the more likely those defendants are to win.

The study concludes:

We designed this study to explore the effects of repeat play on litigation behavior, contributing to a literature on the economics of civil procedure as well as the substance of patent law. But what we found was dramatic and unexpected: The patents and patentees that occupy the most time and attention in court and in public policy debates – the very patents that economists consider the most valuable – are astonishingly weak. Non-¬practicing entities and software patentees almost never win their cases. That may be a good thing, if you believe that most software patents are bad or that NPEs are bad for society. But it certainly means that the patent system is wasting more of its time than expected dealing with weak patents. And it also suggests that both our measures of patent value and our theories of litigation behavior need some serious reconsideration.

Read/download "Patent Quality and Settlement among Repeat Patent Litigants" (link)

Merely Being a "Sophisticated Company" Does Not Impute an "Intent to Deceive" for False Marking Claim

2010-09-21T15:33:00.002-05:00

Herengracht Group LLC v. WM Wrigley, No. 10-21784-CIV (September 16, 2010)

Herengracht sued Wrigley for false patent marking under 35 USC 292(a) for the marking of Hubba Bubba Bubble Tape with a patent that expired on May 5, 2008.

In the complaint, Herengracht alleged that Wrigley owned the patent and employed the inventors, and thus knew "since at least 1988 that the [] Patent would expire on May 5, 2008." Furthermore, Herengracht imputed knowledge of the expiration of the patent on Wrigley based on Wrigley's "accounting and budgeting," alleging that Wrigley paid maintenance fees on the patent until 2008.

Herengracht further alleged that Wrigley is "a sizeable and sophisticated company, with approximately 16,000 employees and yearly revenues of over $5 billion" and experience with patent matters. Herengracht suggested that Wrigley's in-house legal department, in addition to "large firms as outside counsel" had some responsibility for Wrigley's knowledge of the expiration of the patent. Herengracht also named four Wrigley in-house lawyers whose Internet webpages list practice areas of intellectual property, alleging that these individuals are responsible for ensuring that Wrigley complies with patent laws.

Wrigley moved to dismiss Herengracht's complaint under 12(b)(6) for failure to plead an intent to deceive the public by marking their product with an expired patent.

The district court granted the motion, with Judge Gold stating that

Taking all factual allegations as true, as I must on a 12(b)(6) motion to dismiss, Herengracht's allegations center upon Wrigley's knowledge of the patent expiration as assignee of the '175 Patent, by employing inventors of the '175 Patent in May 1988 when the patent application was filed, through paying maintenance fees on the '175 Patent until 2008, vis-a-vis its status as a "sophisticated company," and by employing in-house counsel with patent backgrounds. These circumstances are inadequate allegations of Wrigley's intent to deceive the public under Rule 8, and fall considerably short of the heightened pleading requirements of pleading fraud under Rule 9(b).

Where a qui tam relator alleged that the defendant was "a sophisticated company and has many decades of experience applying for, obtaining, and/or litigating patents," there was inadequate pleading of "intent to deceive." Simonian, supra, 2010 WL 2523211 at *'3 (N.D. III. 2010).

Interestingly, Gold also called out Herengracht for essentially lifting arguments from the pleadings of other false-marking plaintiffs (Simonian, Brinkmeier) and incorporating them into the present case:

I note that Herengracht's allegations are a near-verbatim recitation of [the language used in the Simonian case] . . . By failing to allege more than simply Wrigley's sophistication and experience and knowledge regarding patents, Herengracht has failed to plead an actual intent to deceive.

Herengracht's attempt to base Wrigley's intent to deceive on allegations of its sophistication as a company, as well as in-house counsel and outside retained counsel's experience with patents, is also misplaced. I note that these allegations - proffered in support of Wrigley's intent to deceive - are also particularly similar to the allegations at issue in a recent case, Brinkmeier v. BIC, supra, 2010 WL 3360568. In Brinkmeier v. BIC, also a qui tam case, the relator alleged that: (1) "as [the defendant] well knows, after a patent issues, a maintenance fee must be paid or else the patent will expire;" and (2) "[a] sophisticated company such as BIC likely would not inadvertently include expired patents in its patent markings[.]" . . . However, the court in Brinkmeier v. BIC determined that "allegations that [defendant] is sophisticated and employs experienced counsel do not suggest intent to deceive," granting the motion to dismiss.

Likewise, in this case, Herengracht bases its allegations regarding Wrigley's intent to deceive on the same arguments. For example, Herengracht alleges that Wrigley, "a sizeable and sophisticated company, with approximately 16,000 employees and yearly revenues of over $5 billion," has "decades of experience with applying for, obtaining, licensing, and litigating patents, and knows that patents expire." . . . Herengracht further alleges that Wrigley paid a total of $5,970 in maintenance fees following the issuance of the '175 patent. . . . Accordingly, Herengracht's allegations of sophistication and experience are insufficient to demonstrate the requisite "intent to deceive" standard under 35 U.S.C. § 292.

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

Patents, Entrepreneurial Performance and VC Financing

2010-09-20T21:14:00.000-05:00

Jerry Cao (Assistant Professor, of Finance Singapore Management University) and Po-Hsuan Hsu (Assistant Professor of Finance, University of Connecticut) recently looked at patent data for VC-backed firms in the U.S. from 1976 through 2005 to empirically examine the signaling effect of start-up firms’ patents on entrepreneurial performance and financing patterns of venture capitalists (VCs).

From their findings:

Not only does patenting play an important signaling role between VCs and entrepreneurs, but our results show that start-up companies’ patenting prior to any VC investment is credible by leading to higher IPO success rates. Accordingly, entrepreneurs tend to wait for patent filing before asking for VC money and tend to file more patents when the degree of information asymmetry is higher. Consequently, patenting start-up firms not only attract larger and more experienced VCs in first VC financing round, but also receive significantly larger amounts in first rounds or all rounds of investment, and experience longer investment incubation periods. All these findings are consistent with the signaling role of patents in equilibrium. Patent filing also helps to enhance entrepreneurs’ control in start-ups: new ventures with prior patents are significantly less likely to be acquired in trade sale than those without patents.

Read/download the full study here (link)

Senators Make Last-Ditch Plea to Pass Patent Reform Legislation

2010-09-15T16:26:00.000-05:00

"No matter how big a guy was, Nicky would take him on. You beat Nicky with fists, he comes back with a bat, you beat him with a knife, he comes back with a gun, and if you beat him with a gun, you better kill him, ’cause he’ll be coming back and back, until one of you is dead."

- Sam 'Ace' Rothstein (Robert DeNiro): "Casino"

After being stalled for months, a bipartisan group of 25 senators today urged Senate Majority Leader Harry Reid to bring the Manager's Amendment to S.515 of the Patent Reform Act to the Senate floor "for consideration as soon as possible."

According to the letter,

The bipartisam Managers' Amendment to S.515 released by the Judiciary Committee would speed the patent application process, reduce the three-year wait that inventors must endure before obtaining their patents and securing the funding needed to place new products on the market. This comprehensive patent reform legislation would also allow the public to bring forward relevant information to the USPTO during the patent examination process and after the patent has been granted, improving the clarity and quality of patents and providing greater confidence in their validity and enforceability. The Managers' Amendment would also move the U.S. patent system into greater harmony with the rest of the world and bring greater predictability to patent infringement litigation, enabling inventors and businesses to dedicate more resources to inventing and bringing those inventions to market.

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

See Also TechDailyDose: "Senators Call For Action On Stalled Patent Bill" (link)

WIPO Report Suggests "Signs of Recovery" in IP Filings and Innovation

2010-09-15T12:39:00.001-05:00

A new report by the World Intellectual Property Organization (WIPO) analyzing IP trends in 2008 and 2009 suggests that innovative activity and demand for IP rights dipped during the global economic crisis, but began to recover this year.

As the world economy started to slow sharply in 2008, an estimated 1.91 million patent, 3.3 million trademark, and 660,000 industrial design applications were filed across the world. Compared to 2007, these figures represent a slowdown in the growth of patent and industrial design applications and an actual decline in the number of trademark applications . . . Beyond 2009, there are grounds for optimism as patent applications filed under the Patent Cooperation Treaty (PCT) system and international trademark registrations filed under the Madrid system have returned to growth.

Data on R&D expenditure compiled for the report show that, on average, companies started to reduce their R&D budgets from early 2009 onward. While 2007-08 registered a slowdown in R&D expenditure, 2008-09 showed an actual decrease (-1.7%) in R&D expenditures.

On the patent side of things,

There was considerable growth in demand for energy-related patents – fuel cells, solar, wind and geothermal energy. Patent applications filed under the PCT System for those technologies increased from 584 applications in 2000 to 3,424 applications in 2009.

There was a slowdown in the growth of patent grants in 2008. The total number of grants across the world is estimated at 780,000 in 2008, representing a 0.6% increase from 2007. The slowdown is largely explained by a substantial drop in grants at the patent offices of the Republic of Korea (-32.5%). Without the substantial growth of grants in China, there would have been a contraction of total worldwide patent grants in 2008.

Around 6.7 million patents were in force across the world in 2008, representing a 5.3% increase over 2007. Patents in force in China and the Republic of Korea saw double-digit growth at 24% and 10.1%, respectively. Residents of Japan and the US owned around 48% of total patents in force in 2008

With regard to individual patent office growth rates,

China = 8.5% (2009), 18.2% (2008)

EPO = -7.9% (2009), 3.8% (2008)

France = -3.6% (2009), -2.4% (2008)

Germany = -4.5% (2009), 2.3% (2008)

Japan = -10.8% (2009), -1.3% (2008)

Republic of Korea = -5.0% (2009), 1.1% (2008)

Russian Federation = -7.8% (2009), 6.1% (2008)

United Kingdom = -3.9% (2009), -6.5% (2008)

United States of America = 0.0% (2009), 0.0% (2008)

To download the complete 145-page report, plus numerous other statistics, click here (link)

See also

WIPO press release: "Signs of Recovery Emerge after Economic Crisis Hits Innovation & IP Filings" (link)

USPTO, EPO Announce Extension of Patent Prosecution Highway

2010-09-13T13:24:00.000-05:00

The EPO and USPTO today announced that they intend to extend the trial period for the Patent Prosecution Highway (PPH) Program until January 28, 2012, effective October 2010. This is the second extension of this pilot program between the two examining authorities.

Under PPH agreements, an applicant receiving a favorable ruling from one nation's patent office on at least one claim in an application may request that the corresponding application filed with the other nation advance out of turn for examination. By coordinating patentable results between both nations' offices, applicants can expect to obtain patents in both nations more quickly.

View the EPO notice on the latest extension here (link)

View the original USPTO notice here (link)

Updated USPTO requirements for participation in the U.S.-European PPH is available here (link)

Lemley on Fixing the U.S. Patent Office

2010-09-08T13:24:00.000-05:00

What WON'T work:

Preventing Fee Diversion: "[S]topping fee diversion is hardly a panacea. In the last several years, the UPTO has been fully funded – that is, Congress didn’t divert fees. Nonetheless, the backlog grew. The addition of 10-20% of operating revenue wasn’t enough even to enable the PTO to hold steady."

Increasing PTO Fee-Setting Authority: "[I]t is likely not a good idea simply to spend more money to weed out bad patents. Most of that money will be wasted on applications that are of no consequence to anyone. And because of the structure of the examination system, it might not even succeed in weeding out bad patent applications. Even if it did, however, the current fee structure makes patent quality self-limiting . . . the more bad patents [the USPTO] rejects, the fewer patents will pay maintenance fees, and the less money it will have to conduct a detailed examination."

Retaining Patent Examiners: "There may well be benefits to reducing examiner attrition. But the evidence suggests that weeding out bad patents is not among them. Empirical research by Lemley and Sampat shows that the longer examiners spend at the PTO, the less searching they do, the less likely they are to issue initial rejections or demand claim amendments, and the more likely they are to ultimately grant a patent. (Lemley & Sampat, 2010). It is the most junior examiners who are most likely to reject applications. The reason is not precisely clear, but may have to do with increased workloads on senior examiners, or with acculturation into a corps whose ethos is to grant rather than deny patents."

Outsourcing Patent Searches: "[R]ecent empirical evidence suggests that it might not work. [A recent study] found that [examiners] rely almost exclusively on art they find for themselves, not art submitted by applicants. And that doesn’t appear to reflect either applicants drafting around the art they found or the weakness of that art; U.S. examiners largely ignored even art that was submitted because it was found important by a foreign patent examiner during examination of a counterpart application. (Cotropia et al., 2010). If examiners are psychologically primed to rely principally on things they find for themselves, it won’t help to have others provide them with the best art. And it might even hurt, causing examiners not to focus on the best prior art."

What MIGHT Work:

"Second Pair of Eyes":

Shortly after the Federal Circuit held business methods patentable in 1998, the PTO was inundated with business method patent applications. Most of those applications went to class 705. Indeed, by 2001 class 705 had the largest application volume. In response to this flood, the PTO initiated a specific “quality control” measure in this class in March 2000: the “second pair of eyes” review (SPER), under which applications are subjected to mandatory assessment by more than one examiner before being allowed. (Allison & Hunter, 2006). Requiring two examiners to agree seems to have had a dramatic effect: a 2009 study found that class 705 has the lowest grant rate among high volume classes. (Lemley & Sampat, 2008). One possible explanation for the low grant rate in this class is that the second pair of eyes is working, and that the grant rate reflects better rigor during examinations, rather than application volume. The fact that SPER leads to more rejections in Class 705 doesn’t mean it is an unalloyed success . . . Interestingly, the PTO recently shut down the SPER program in business methods. Too much success, it seems, carries its own risks.

Changing Examiner Incentives:

[PTO] human resource policies could be brought to bear, training examiners to search better, or giving them more time, or finding other ways to debias them. And it seems obvious – though likely politically infeasible – that the rules should not treat allowances differently than rejections. (Katznelson, 2010). These are good ideas, and they are worth exploring further. But implementation may be politically difficult. And some of the possible explanations point in different directions: should we give examiners more time to search, or less, for example?

Tiered Review (AKA "Gold Plated Patents"):

The Patent Office should focus its examination resources on important patents and pay little attention to the rest. But it is difficult for the government to know ahead of time which patents are likely to be important. There are two groups, however, that have better information about the likely technological and commercial value of inventions: patent applicants and competitors. To harness information in the hands of patent applicants, we could give applicants the option of earning a presumption of validity by paying for a thorough examination of their inventions. Put differently, applicants should be allowed to “gold plate” their patents by paying for the kind of searching review that would merit a presumption of validity. (Lemley et al., 2005) An applicant who chooses not to pay could still get a patent. That patent, however, would be subject to serious—maybe even de novo—review in the event of litigation. Most likely, applicants would pay for serious review with respect to their most important patents but conserve resources on their more speculative entries.6 That would allow the Patent Office to focus its resources, thus benefiting from the signal given by the applicant’s own self-interested choice.

Read/download: Mark A. Lemley, "Can the Patent Office Be Fixed? (link)

"Visualize" Patent Statistics Through New USPTO Site

2010-09-07T21:51:00.000-05:00

The Office announced today the launch of the beta version of a USPTO Data Visualization Center on its Web site that introduces the"patents dashboard." This tool is intended to give the public access to traditional measures of pendency as well as several new pendency tracking measures.

The dashboard introduces six new measures of pendency designed to give a better overall picture of the contributions of different parts of the examination process to application pendency. For example, the traditional measure of total pendency measure ends with the filing of an RCE. Now a new measure, called “Traditional Total Pendency Including RCEs,” looks at pendency of applications from filing of the original application to ultimate disposal of that same application, including any additional time attributable to RCE filings. Similar measures are provided relative to divisional applications and other types of continuation practice. The site also provide information about pendency for applications in appeal practice.

While a work in progress, the site will be a very handy tool for those looking to get PTO statistics for research and/or client counseling. Ironically, the "dashboard" presents statistics in the likeness of a speedometer gauge, which gives the impression that the "faster" you go, the "slower" the USPTO operates. This observation is not lost on Director Kappos, who remarked in his blog

We hope you find the car dashboard metaphor helpful and attractive. While we recognize that data visualization experts may prefer other formats, the dashboard metaphor conveys information succinctly, and gives us all something to start with. However we appreciate that all metaphors have their limits -- for instance the speedometer format is certainly not intended to convey that a higher backlog is better.

The PTO intends to further refine the dashboard and is seeking input about ways we can improve it. A dedicated mailbox has been set up for comments and the Office intends to monitor all feedback carefully.

Visit The USPTO Data Visualization Center

Read remarks from Director Kappos in his recent blog entry.

CAFC: Dislosure That Merely Allows PHOSITA to "Envision" the Claimed Invention Fails Written Description

2010-09-07T13:14:00.000-05:00

Goeddel v. Sugano, No. 2009-1156 (September 7, 2010)

This case is directed to an interference between Goeddel and Sugano on inventions relating to modified DNA that codes the 166 amino acid sequence of mature hFIF (Human Fibroblast Interferon). At the USPTO, Sugano was given priority based on a Japanese application filed in 1980. The application provided some information regarding sequencing, but did not specifically disclose the claimed sequence until a CIP was filed in 1990. Goeddel's application was filed in 1989.

The BPAI found that, despite the fact that a complete description of the claimed sequencing was not present in Sugano's 1980 application, one skilled in this field "should have been able to envision" the DNA molecule. Referring to the high level of skill in this field, the BPAI held that although not explicitly described, a person of skill in the field would conclude that Sugano was in possession of the invention of the interference counts.

Sugano did not dispute that the Japanese Application did not explicitly disclose the claimed DNA encoding, but argued that it was "unnecessary to spell out every detail of the invention in the specification,” since patent applications are “written for a person of skill in the art, and such a person comes to the patent with the knowledge of what has come before.”

The Federal Circuit rejected Sugano's argument and reversed the BPAI:

The Board erred in ruling that priority is established if a person of skill in the art could “envision” the invention of the counts. . . . [Federal Circuit precedent] does not hold that envisioning an invention not yet made is a constructive reduction to practice of that invention . . . Precedent in evolving science is attuned to the state of the science, but remains bound by the requirement of showing “that the inventor actually invented the invention claimed.”

The Board’s decision that the Japanese Application constitutes constructive reduction to practice of the subject matter of these interferences is not in accordance with law, for the Japanese Application does not meet the criteria of §112, first paragraph, as to this subject matter. The award of priority to Sugano is reversed. The cases are remanded for appropriate further proceedings.

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

USPTO Issues Updated KSR Guidelines on Obviousness

2010-09-02T19:56:00.000-05:00

The USPTO recently published a 15-page notice updating the 2007 KSR Guidelines. The update reviews all of the most relevant Federal Circuit caselaw (over 20 cases) dealing with obviousness since KSR, and distills the rulings down to a reader-friendly format that concludes each case with a handy "teaching point."

In a nutshell, the update covers (1) principles of obviousness, (2) the impact of the KSR decision, (3) obviousness examples from Federal Circuit cases, which includes

Combining prior art elements
Substituting one known element for another, and
The "obvious to try" rationale

Finally, the update includes Federal Circuit cases discussing consideration of evidence in cases of obviousness.

The USPTO is also seeking comments from the public, and is "especially interested in receiving suggestions of recent decisional law in the field of obviousness that would have particular value as teaching tools." Comments concerning the 2010 KSR Guidelines Update may be sent by email to KSR_Guidance@uspto.gov.

The 2010 update is a fantastic teaching tool, and should be read by every practitioner. Some highlights from the update:

The Principles of Obviousness:

It is important for Office personnel to recognize that when they do choose to formulate an obviousness rejection using one of the rationales suggested by the Supreme Court in KSR and discussed in the 2007 KSR Guidelines, they are to adhere to the instructions provided in the MPEP regarding the necessary factual findings.

[I]t remains Office policy that appropriate factual findings are required in order to apply the enumerated rationales properly. If a rejection has been made that omits one of the required factual findings, and in response to the rejection a practitioner or inventor points out the omission, Office personnel must either withdraw the rejection, or repeat the rejection including all required factual findings.

The Impact of KSR:

Office personnel as well as practitioners should also recognize the significant extent to which the obviousness inquiry has remained constant in the aftermath of KSR.

[W]hen considering obviousness, Office personnel are cautioned against treating any line of reasoning as a per se rule . . . for example, automating a manual activity, making portable, making separable, reversal or duplication of parts, or purifying an old product may form the basis of a rejection. However, such rationales should not be treated as per se rules, but rather must be explained and shown to apply to the facts at hand. A similar caveat applies to any obviousness analysis. Simply stating the principle (e.g., ‘‘art recognized equivalent,’’ ‘‘structural similarity’’) without providing an explanation of its applicability to the facts of the case at hand is generally not sufficient to establish a prima facie case of obviousness.

Combining Prior Art Elements:

Even where a general method that could have been applied to make the claimed product was known and within the level of skill of the ordinary artisan, the claim may nevertheless be nonobvious if the problem which had suggested use of the method had been previously unknown. [In re Omeprazole Patent Litigation, 536 F.3d 1361 (Fed. Cir. 2008)]

Office personnel should note that in this case the modification of the prior art that had been presented as an argument for obviousness was an extra process step that added an additional component to a known, successfully marketed formulation. The proposed modification thus amounted to extra work and greater expense for no apparent reason. This is not the same as combining known prior art elements A and B when each would have been expected to contribute its own known properties to the final product.

[M]erely pointing to the presence of all claim elements in the prior art is not a complete statement of a rejection for obviousness. In accordance with MPEP § 2143 A(3), a proper rejection based on the rationale that the claimed invention is a combination of prior art elements also includes a finding that results flowing from the combination would have been predictable to a person of ordinary skill in the art. MPEP § 2143 A(3). If results would not have been predictable, Office personnel should not enter an obviousness rejection using the combination of prior art elements rationale, and should withdraw such a rejection if it has been made.

Substituting One Known Element for Another:

[I]f the reference does not teach that a combination is undesirable, then it cannot be said to teach away. An assessment of whether a combination would render the device inoperable must not ‘‘ignore the modifications that one skilled in the art would make to a device borrowed from the prior art.’’

"Obvious to Try":

Some commentators on the KSR decision have expressed a concern that because inventive activities are always carried out in the context of what has come before and not in a vacuum, few inventions will survive scrutiny under an obvious to try standard. The cases decided since KSR have proved this fear to have been unfounded. Courts appear to be applying the KSR requirement for ‘‘a finite number of identified predictable solutions’’ in a manner that places particular emphasis on predictability and the reasonable expectations of those of ordinary skill in the art.

[T]he Federal Circuit cautioned that an obviousness inquiry based on an obvious to try rationale must always be undertaken in the context of the subject matter in question, ‘‘including the characteristics of the science or technology, its state of advance, the nature of the known choices, the specificity or generality of the prior art, and the predictability of results in the area of interest.’’

Read/download the USPTO's 2010 KSR Updates here (link)

Read/download the original 2007 KSR guidelines here (link)

Visit the USPTO KSR Examination Training Materials site here (link)

Licensing Executives Society Annual Meeting in Chicago: Sept. 26-29

2010-09-01T15:55:00.000-05:00

The LES is expecting over one thousand of the world’s leading intellectual property (IP), licensing and business development professionals a the upcoming Licensing Executives Society (USA & Canada), Inc., Annual Meeting at the Chicago Sheraton Hotel & Towers September 26-29. Themed ‘Deals, Deals and more Deals’ the meeting will focus on the critical role IP plays in today’s most successful business strategies and will explore ways to leverage IP to maximize deal-making and profitability.

Attendees will be able to tailor the meeting to suit their needs by attending interactive plenary discussions and selecting from over 50 workshops designed to focus not only on issues that are timely and relevant to individual industry sectors, but that also encourage cross-sector discussions.

Plenary Highlights

The SuperFreakonomics of IP Licensing – Do Patents Slow Innovation? - Steven Levitt, co-author of the New York Times best-seller Freakonomics and its recent follow-up SuperFreakonomics, will present a keynote address on the unintended impact of the patent system on innovation. He will also discuss his groundbreaking research on the effects of incentives on economics and market behavior as they relate to innovation. A book signing will follow Mr. Levitt’s presentation.

Is the U.S. Patent System Under Siege: Congress, the PTO, the FTC and the Supreme Court -The Honorable Judge Paul Michel, retired Chief Judge of the United States Court of Appeals for the Federal Circuit will look at the many challenges facing the U.S. patent system including the reform legislation currently pending in Congress, the USPTO’s efforts to reduce backlogs and improve the quality of issued patents, and increased scrutiny by the Supreme Court and FTC.

IP as a National Responsibility: A Global Outlook for Strategies, Policies and Laws -- Economist and Former Vice Presidential Candidate Pat Choate, will join John Whealan, Associate Dean of Intellectual Property Law at George Washington University Law School and Suzanne Michel, Deputy Director of FTC’s Office of Policy Planning to discuss how the United States, Europe, Asia and developing countries might leverage IP to secure future wealth and what this could mean for commercial collaboration across national boundaries.

IP100 Recap: IP Hot Topics 2010 -- Over the course of 2010, LES has hosted innovative IP100 forums comprised of high-level IP leaders who have analyzed several hot IP topics. This panel will revisit the topics, review previous findings and discuss what we’ve learned from the world-class IP100 panels about best practices in licensing. Key ‘take-aways’ will be included in a white paper available after the meeting for attendees.

Highly Anticipated Announcements

Groundbreaking Royalty Rate Survey Results -- LES will release two highly anticipated survey reports that address elusive gaps in industry-specific data on deal terms:

Global BioPharma Royalty Rates and Deal Terms Survey
CEEM Royalty Rate and Deal Terms Survey.

The new data will provide valuable benchmarks for all aspects of deal-making across the life sciences, chemicals, energy and related industries.

IP Deals of Distinction Award -- LES will present its annual Deals of Distinction™ Awards to the best IP deals of the year in five industry sectors.

Frank Barnes Mentoring Award -- The LES Foundation will present the Frank Barnes Mentor Award to recognize an LES member who has made significant contributions to the field of licensing through their professional mentorship.

For more information, visit the LES website.

[Blogger Note - I will be attending the meeting and look forward to seeing you there!]

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

2010-08-31T15:18:00.000-05:00

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

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

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

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

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

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

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

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

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

Read/download the opinion here (link)

Arti Rai Departing From The USPTO

2010-08-27T16:38:00.000-05:00

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

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

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

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

2010-08-27T16:11:00.001-05:00

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

Today, Martin LaMonica reports from CNET:

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

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

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

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

Read "Green-tech patent program off target pace"

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

2010-08-27T10:14:00.001-05:00

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

Brun took considerable interest in this patent and concluded that, in his opinion, the patent covered basic concepts on how electronic invoices received from multiple sources and in multiple formats are converted into a standardized format. Accordingly, Brun led the charge on a campaign to oppose the patent after it was issued.

The campaign had an apparent impact - in a short while, 29 parties launched 19 oppositions in the EPO against the patent. Needlees to say, the patent owner (the "proprietor" in EPO-speak) was not happy with the innundation of opposition requests. Under the EPO rules, costs may be apportioned among the parties:

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

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

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

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

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

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

Hat tip: the blogging team at the PatLit blog.

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

2010-08-24T11:46:00.000-05:00

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

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

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

The "Machine-or-Transformation" Test:

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

The "Machine" Prong:

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

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

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

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

"Transform an Article" Prong:

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

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

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

2010-08-19T10:30:00.000-05:00

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

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

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

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

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

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

* * *

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

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

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

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

Read/download the decision here (link)

Hat Tip: the excellent Patents Post-Grant Blog

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

2010-08-18T14:01:00.001-05:00

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

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

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

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

The CAFC disagreed:

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

On the issue of the re-design:

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

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

Obviousness

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

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

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

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

Read/download the opinion here (link)

RIP Patent Reform 2010?

2010-08-17T19:37:00.000-05:00

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

- Anonymous

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

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

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

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

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

BPAI Informative Opinion Addresses "Broadest Reasonable Interpretation"

2010-08-17T13:39:00.000-05:00

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

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

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

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

The BPAI quickly shot down this reasoning:

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

Read/download the opinion here (link)

Study: Applicant-Submitted Art is Largely Ignored by Examiners

2010-08-16T11:45:00.000-05:00

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

In short, the findings are quite disturbing:

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

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

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

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

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

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

Other findings from the study:

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

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

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

2010-08-11T08:47:00.001-05:00

From Mobile Business Briefing:

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

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

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

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

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

How Do Economic Downturns Affect Patent Litigation?

2010-08-10T16:46:00.000-05:00

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

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

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

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

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

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

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

2010-08-09T22:31:00.001-05:00

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Newman's Dissent:

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

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

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

USPTO's Short-Term Bilski Approach: "Reject First, Ask Questions Later"

2010-07-07T09:43:00.000-05:00

After the Bilski decision was rendered by the Supreme Court, the USPTO issued a press release, stating that the PTO "will be issuing guidance further interpreting the decision as soon as possible" and that the PTO will be issuing interim guidance for the examining corps in the meantime.

The interim guidelines state that the machine-or-transformation test should continue to be used as a "tool", but if there is no "clear indication" that the invention is something other than an abstract idea, the examiners should reject the application. At this point, applicants have the burden to explain why the invention is not an abstract idea:

Examiners should continue to examine patent applications for compliance with section 101 using the existing guidance concerning the machine-or-transformation test as a tool for determining whether the claimed invention is a process under section 101. If a claimed method meets the machine-or-transfonnation test, the method is likely patent·eligible under section 101 unless there is a clear indication that the method is directed to an abstract idea. If a claimed method does not meet the machine-or-transformation test, the examiner should reject the claim under section 101 unless there is a clear indication that the method is not directed to an abstract idea. If a claim is rejected under section 101 on the basis that it is drawn to an abstract idea, the applicant then has the opportunity to explain why the claimed method is not drawn to an abstract idea.

Of course, this approach to examination appears to be contrary to Oetiker which held that "the examiner bears the initial burden, on review of the prior art or on any other ground, of presenting a prima facie case of unpatentability.” In re Oetiker, 977 F.2d 1443, 1445 (Fed. Cir. 1992) (see MPEP 2106(IV)(D)).

Read download the memo here (link)

Hat tip: Hal Wegner

Leahy Post-Bilski Comments and Patent Reform

2010-07-01T10:27:00.001-05:00

As the summer recess approaches, it is all but certain that Congress will (again) postpone efforts to enact patent reform. Since the manager's amendment (S. 515) was forwarded to the Senate in April, very little has been done in advancing the legislation. Senate Judiciary Committee Chairman Patrick Leahy is understandably frustrated over the lack of any progress, stating in a recent interview "I don't know why this hasn't gotten floor time . . . This has nothing to do with ideology. We need an updated patent system to create and protect jobs, and it wouldn't add a penny to the deficit."

For whatever reason, Leahy apparently believes that the manager's amendment is a "done deal" in the Senate, and will be passed quickly, once the Senate has a chance to vote on it:

Leahy noted that the bill has three Republican co-signers, along with three Democrats. As a result, he predicted that once it gets floor time, the bill could get passed in just three days -- a blink of an eye compared to the marathon sessions it took to get stimulus, health care and financial reform passed.

What is even more interesting is that Leahy has openly come out against business method patents after Bilski, and appears to be under the impression that patent reform legislation can "fix" what Bilski could not. From Leahy's website:

In Bilski v. Kappos, the Court unanimously affirmed the judgment of the Federal Circuit that the application for a patent on a business method should be rejected. The Court’s opinion, joined by only five of the Justices, however, needlessly left the door open for business method patents to issue in the future, and I am concerned that it will lead to more unnecessary litigation.

Since the debate over comprehensive patent reform began many years ago, the Supreme Court has demonstrated an increased interest in patent law cases. The Court’s decisions have moved in the direction of improving patent quality. While today’s decision will take time to analyze and may not have advanced the law and created the stability and certainty that it could have, it appears to continue this trend, which is consistent with the goal of patent reform legislation pending in Congress. The courts, however, are constrained by the text of our outdated statutes, and it is time for Congress to act.”

In the meantime, scholars, attorneys and businesspeople have continued to publish critiques of pending patent reform legislation, pointing out that many aspects of the Patent Reform Act have unintended, and potentially adverse, consequences. Most recently, Medical Innovation & Business ran a special edition on patents and patent reform, which included articles such as:

Patent Reform: Effects On Medical Innovation Businesses
Kaswan, Renee; Boundy, David; Katznelson, Ron

Alternatives to Legislative Patent Reform

Conversations with Two Chief Judges

Dowd, Matthew J.

Patent Reform's Weakened Grace Period: Its Effects On Startups, Small Companies, University Spin-Offs And Medical Innovators

Boundy, David E.; Marquardt, Matthew J.

Would Derivation Proceedings Be The Same As Derivation Interferences?

Gholz, Charles L.

Post-Grant Review-Our Next Nightmare? VC Perspective

Neis, John

Post-Grant Review of U.S. Patents: Will Past Be Prologue?

Noonan, Kevin E

The Gatekeeper Patent Damages Compromise of S. 515

Johnson, Philip S.

The Proposed Interlocutory Appeals Provision of Patent Reform: Is It Dead Yet?

Reines, Edward; Greenblatt, Nathan

While patent reform is not a partisan issue, it is certainly a regional and industry-specific issue, and both parties are split on it.

To read these, and other articles from Medical Innovation and Business on patents and patent reform, click here (link)

SCOTUS Bilski Decision: "Do No Harm"

2010-06-28T15:03:00.002-05:00

Bilski v. Kappos, No. 08–964 (June 28, 2010)

The Supreme Court struck down Bilski's patent application directed to a procedure for instructing buyers and sellers how to protect against the risk of price fluctuations. In its analysis, the Court essentially found that existing statues and case law were sufficient to conclude that the application merely claimed an abstract idea.

35 U.S.C. §101

The Court stated at the outset that interpretation of the statute, unless otherwise defined, would be interpreted using the words of the statute "taking their ordinary, contemporary, common meaning." Furthermore, the opinion added that "[t]his Court has more than once cautioned that courts ‘should not read into the patent laws limitations and conditions which the legislature has not expressed.'"

THE FEDERAL CIRCUIT'S "MACHINE-OR-TRANSFORMATION TEST"

The Court of Appeals incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test. It is true that Cochrane v. Deener, 94 U. S. 780, 788 (1877), explained that a “process” is “an act, or a series of acts, performed upon the subject-matter to be transformed and reduced to a different state or thing.” More recent cases, however, have rejected the broad implications of this dictum; and, in all events, later authority shows that it was not intended to be an exhaustive or exclusive test.

This Court’s precedents establish that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible “process.”

DEFENDING COMPUTER SOFTWARE PATENTS

The Court's opinion clearly recognized computer software as patent-eligible subject matter:

[I]t was once forcefully argued that until recent times, “well-established principles of patent law probably would have prevented the issuance of a valid patent on almost any conceivable computer program.” . . . But this fact does not mean that unforeseen innovations such as computer programs are always unpatentable. . . .Section 101 is a “dynamic provision designed to encompass new and unforeseen inventions.” . . . A categorical rule denying patent protection for “inventions in areas not contemplated by Congress . . . would frustrate the purposes of the patent law.”

DEFINING PATENTABLE SUBJECT MATTER

On this issue, the Court was careful to not specify any bright-line test on patentable subject matter:

It is important to emphasize that the Court today is not commenting on the patentability of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection. This Age puts the possibility of innovation in the hands of more people and raises new difficulties for the patent law. With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck.

BUSINESS METHOD PATENTS: THE GOOD

The Court's opinion clearly indicated that there was no categorical exemption for business method patents

The term “method,” which is within §100(b)’s definition of “process,” at least as a textual matter and before consulting other limitations in the Patent Act and this Court’s precedents, may include at least some methods of doing business. The Court is unaware of any argument that the “‘ordinary, contemporary, common meaning,’” of “method” excludes business methods. Nor is it clear how far a prohibition on business method patents would reach, and whether it would exclude technologies for conducting a business more efficiently.

BUSINESS METHOD PATENTS: THE BAD

Clearly, a significant number of Justices (Stevens, Ginsburg, Sotomayor, Breyer) have issues with business method patents and would like to see them banished from patent law. In Stevens' concurring opinion, he states:

The breadth of business methods, their omnipresence inour society, and their potential vagueness also invite a particularly pernicious use of patents that we have long criticized. As early as the 19th century, we explained that the patent laws are not intended to “creat[e] a class of speculative schemers who make it their business to watch the advancing wave of improvement, and gather its foam in the form of patented monopolies, which enable them to lay a heavy tax upon the industry of the country, without contributing anything to the real advancement of the arts.”

These many costs of business method patents not only may stifle innovation, but they are also likely to “stifle competition,” . . . Even if a business method patent is ultimately held invalid, patent holders may be able to use it to threaten litigation and to bully competitors, especially those that cannot bear the costs of a drawn out, fact-intensive patent litigation. That can take a particular toll on small and upstart businesses. Of course, patents always serve as a barrier to competition for the type of subject matter that is patented. But patents on business methods are patents on business itself. Therefore, unlike virtually every other category of patents, they are by their very nature likely to depress the dynamism of the marketplace.

CONCLUSION

In essence, the opinion simply negates the "machine-or-transformation" test as the sole test for patent eligibility. In a way, the opinion could potentially lead to the broadening of patentable subject matter eligibility, since courts could undertake other "tests" for their determination (although the likelihood of this is pretty low).

Interestingly, the breadth of the ruling is an open question. As Tom Goldstein pointed out in the SCOTUS blog,

Justice Kennedy seemingly suggested that the Court favored the basic patent eligibility “of inventions in the Information Age,” including to some extent with respect to “software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.” But that part of the opinion is only a plurality – not controlling – because Justice Scalia did not join that discussion and did not explain his reasons for declining to do so.

The 271 Patent Blog

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

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

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

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

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

Secretary Locke Leaving Commerce Dept.?

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

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

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

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

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

Wednesday Shorts - Patents and Politics

Lawmakers Approve Plans for "EU Patent"

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

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

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

CAFC Note on Incorporating Information By Reference

EPO Filings Up 10% in 2010

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

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

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

Thomson Reuters Releases "2010 State of Innovation Report"

Tech Insiders Pessimistic About Comprehensive Patent Reform in 2011

2010 Sees Record Jump for Patents Issued in the USPTO (and IBM Received Almost 6,000 of Them)

Thursday Shorts

CAFC Nixes 25% "Rule of Thumb" Application For Estimating Patent Damages

*** USPTO Announces First Satellite Office In Detroit ***

*** Intellectual Ventures Launches Massive Litigation Across 3 Industries ***

PwC Publishes 2010 Patent Litigation Study

Tuesday Shorts

Supreme Court Prepares to Chop Down "Clear and Convincing" Standard for Proving Patent Invalidity

Wednesday Shorts

USPTO Looks to Streamline Appeals by Amending BPAI Rules

Unbridled "Optimization" Term in Software Patent Claim Leads to Finding of Indefiniteness

Fed. Cir. Removes Limitations on New Evidence in §145 Civil Actions Against USPTO

Chisum: Gottschalk v. Benson is a "Failure"

CAFC Denies En Banc Review of "Distorted" Law of Double-Patenting

Commerce Dept. Continues to Drop Hints on Establishing Regional Patent Offices

USPTO, EPO Work on Establishing Common Patent Classification System

Blame Canada! Amazon Wins Argument at the CA Federal Court Over "One-Click" Patent

Legislation Introduced to Curb False Marking Claims

Does GM Now Have a "Pass" to Use IP From Other Car Makers?

Using R&D Tax Credits to Fund Patent Portfolio Development

Bombshell Study: Heavily Litigated NPE Patents Overwhelmingly Lose at Trial

Merely Being a "Sophisticated Company" Does Not Impute an "Intent to Deceive" for False Marking Claim

Patents, Entrepreneurial Performance and VC Financing

Senators Make Last-Ditch Plea to Pass Patent Reform Legislation

WIPO Report Suggests "Signs of Recovery" in IP Filings and Innovation

USPTO, EPO Announce Extension of Patent Prosecution Highway

Lemley on Fixing the U.S. Patent Office

"Visualize" Patent Statistics Through New USPTO Site

CAFC: Dislosure That Merely Allows PHOSITA to "Envision" the Claimed Invention Fails Written Description

USPTO Issues Updated KSR Guidelines on Obviousness

Licensing Executives Society Annual Meeting in Chicago: Sept. 26-29

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

Arti Rai Departing From The USPTO

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

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

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

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

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

RIP Patent Reform 2010?

BPAI Informative Opinion Addresses "Broadest Reasonable Interpretation"

Study: Applicant-Submitted Art is Largely Ignored by Examiners

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

How Do Economic Downturns Affect Patent Litigation?

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

USPTO's Short-Term Bilski Approach: "Reject First, Ask Questions Later"

Leahy Post-Bilski Comments and Patent Reform

Abstract:

SCOTUS Bilski Decision: "Do No Harm"

* USPTO Announces First Satellite Office In Detroit *

* Intellectual Ventures Launches Massive Litigation Across 3 Industries *