Friday, August 31, 2007

Brakes Applied to Congressional Patent Reform

Marge: Homer, the plant called. They said if you don't show up tomorrow, don't bother showing up on Monday.

Homer: Woo-hoo! A four-day weekend!


After an exhausting August, all eyes cautiously looked towards September, where the next installment of "Who Wants to Reform the Patent System?" was being prepared in Congress.

For those that have followed this saga, it was clear that the way in which Congress dealt with wholesale reform wasn't working. Worse yet, there was no coordination between the different branches - In Re Seagate provides one standard for willfulness; Patent Reform Act provides another. The PTO wants Examination Support Documents (ESD) under the 5/25 regime; the 2nd manager's amendment to the Reform Act wants ESD's for all applications.

More and more organizations have come forward to oppose the Patent Reform Act, and it appears their efforts are paying off. Yesterday, Republican leader John Boehner and Whip Roy Blunt sent a letter to Nancy Pelosi, asking for a cool-off period on the Patent Reform Act:

While our patent system is in need of reform, we are very concerned that the bill in its present form picks winners and losers among industries with different business models in a way that has never before been attempted in patent law or practice.

Unquestionably, improving our patent system and the quality of patents is of paramount importance. However, those improvements cannot come at the cost of some domestic industries over others. There is no doubt that the bill's sponsors have worked hard on the legislation, but a bill of this importance and impact should not be rushed to the floor for quick passage. In our current political climate it is rare to find an issue that unites groups from the AFL-ClO to Eagle Forum in opposition to a bill they view as undermining the patent system that created quality jobs and American innovation. With manufacturers, labor unions, universities, biotech companies, high tech innovators, independent inventors, and others all expressing concerns about the patent bill in its present form, it is a strong and clear signal that more work needs to be done to reach consensus on patent reform.

Read/download the letter here (link)

Have a great Labor Day weekend!

USPTO's KSR Guidelines Coming Soon to an Office Near You

Sources from the PTO have said that the initial phase of KSR training is nearly complete. The final guidelines have apparently been approved by OMB, and it is likely that the training material will be published in the next Official Gazette. Stay tuned.

Wednesday, August 29, 2007

CAFC: Evidence of Unexpected Results Must be Considered by PTO

In Re John B. Sullivan (2006-1507) August 29, 2007 (link)

The applicants appealed a decision by the BPAI, finding their application obvious. The subject matter of the appeal relates to an antivenom composition used to treat venomous bites from a rattlesnake.

The PTO reasoned that two prior art references rendered the claims obvious, and added that limitations recited towards snakebite victims were for an "intended use", and that functional language related to the composition "would have been expected by a person of ordinary skill in the art at the time the invention was made to neutralize the lethality of the venom of a rattlesnake."

Interestingly, the applicant submitted three declarations which argued non-obviousness, but the PTO "gave them no weight because they only relate to the use of the claimed composition."

While finding that a prima facie case of obviousness was made, the court found error in the PTO's refusal to consider the declarations:

The Board failed to consider each of these declarations. The Board stated in a footnote that the declarations of record relate only to the use of the claimed composition as an antivenom, and thus the Board expressly declined to give any meaningful consideration to them. Sullivan, No. 2006-0220, slip op. at 13 n.7. As stated above, when an applicant puts forth relevant rebuttal evidence, as it did here, the Board must consider such evidence. The claimed composition cannot be held to have been obvious if competent evidence rebuts the prima facie case of obviousness. By failing to consider the submitted evidence, the Board thus committed error. That is not to suggest that the Board’s finding of obviousness must be overturned in light of the evidence; rather, the Board must give the declarations meaningful consideration before arriving at its conclusion.

Moreover, the Board was mistaken to assert that the declarations only relate to the use of the claimed composition. The declarations do more than that; they purport to show an unexpected result from use of the claimed composition, how the prior art taught away from the composition, and how a long-felt need existed for a new antivenom composition. While a statement of intended use may not render a known composition patentable, the claimed composition was not known, and whether it would have been obvious depends upon consideration of the rebuttal evidence. Had the Board considered or reviewed the declarations in any meaningful way, it might have arrived at a different conclusion than it did.

With regard to "intended use," the CAFC provided this important language:
The issue here is not whether a claim recites a new use, but whether the subject matter of the claim possesses an unexpected use. That unexpected property is relevant, and thus the declarations describing it should have been considered by the Board.


USPTO Shorts

PTO Notes Spike in Denials of JPO/EPO Filings:

Over the last few months, the USPTO has had to deny a significant percentage of the requests coming from the Japan Patent Office and the European Patent Office due to the lack of authorization from the applicant to release a copy of the unpublished US application (e.g., Form SB-39). These Offices have strict deadlines for submission of priority documents, and failure to supply the documents on a timely basis can have unfortunate consequences. To ensure successful transmission of your priority document(s) to an Office of Second Filing, please submit such authorization as early as possible during the prosecution of your US application.

E-Office Action Pilot Moves Forward:

The USPTO is hosting a pilot program for customers to evaluate and comment on the usability and functionality of the e-Office Action program. As an alternative to receiving new outgoing correspondence related to a patent application in paper via postal mail, this program sends the pilot participant an e-mail notification to directly access outgoing documents in Private PAIR. The pilot will be entering Phase IV on August 31, 2007, and USPTO will open registration in the pilot to a limited number of new participants at this time. If you are interested in participating in the e-Office Action pilot, please e-mail the PAIR team with your Customer Numbers at .


kar·ma (noun) - the cosmic principle according to which each person is rewarded or punished in one incarnation according to that person's deeds in the previous incarnation.

Federal contractor T.R. Systems has filed suit against IBM over a damaged server worth $1.4 million. From an article in Information Week:

T.R. Systems says its workers were moving the server from a freight truck into its warehouse in Alexandria, Va., when the mishap occurred. "The rear wheels of their forklift hit the raised surface at the entry door of the warehouse, causing the forklift to rock, and subsequently causing the server to rock," T.R. Systems says in court papers filed last month. "As a result of the rocking motion, the base of the pallet and the crate broke and the crate fell onto the curb, damaging the server packed inside," the contractor states in papers filed in U.S. District Court in Alexandria, Va.

T.R. Systems claims IBM refused to take back the damaged server or send technicians to inspect or repair it. As a result, the company claims it was forced to purchase a replacement server from IBM following the October incident. The server was ultimately bound for T.R. Systems' customer the U.S. Patent and Trademark Office. (Link)

Monday, August 27, 2007

The "5/25 Rule", "Representatitve Claims", and the USPTO

One of the most controversial aspects of the continuation rule changes is the "5/25 Rule", which essentially limits applications to 5 independent claims, and 25 claims total for each application. If an applicant exceeds this amount, an Examination Support Document (ESD) must be filed. There is unanimous consensus over the view that ESD's are too burdensome and costly to be used under most circumstances.

What is interesting is that the 5/25 Rule appears to be worse than the "Representative Claims" approach previously proposed by the USPTO. Ironically, the 5/25 Rule was enacted by the PTO to replace Representative Claims "in response to public comments" (click here). One wonders what comments were being considered when the 5/25 Rule was enacted.

The Representative Claims approach was proposed in the original changes (link), and was rationalized this way: since PTO examination is usually centered around the independent claims and broader dependent claims, there is little benefit in having examiners analyze, search, and cite prior art on narrow dependent claims that the applicants weren't going to respond to anyways.

Warts and all, there was some logic behind this approach - by having applicants specify which claims they wanted to fight over, the examination would arguably be more focused. And because you could specify up to 10 "representative claims," applications could technically have an unlimited number of claims, as long as the independent claims numbered 10 or less. According to the PTO, the pre-selection of 10 claims would only affect 1.2% of all applications:

The Office’s PALM records show that only 2,522 (866 small entity), or about 1.2 percent of all nonprovisional applications, included more than ten independent claims. Thus, this proposal will allow for the examination of every independent claim in 98.8 percent of the applications filed since January 1, 2005, without any additional effort by the applicant.
With the "5/25 Rule", this metric has obvious changed. But how much? the PTO again states:
Under the changes being adopted in this final rule, less than eight percent of the applications filed in fiscal year 2006 would have required either the cancellation of one or more independent claims or an examination support document. In addition, less than twenty-five percent of the applications filed in fiscal year 2006 would have required either the cancellation of one or more dependent claims or an examination support document.
This begs the question: why were the rules amended to encompass more applications and have less flexibility for the applicants? And, is the number of affected applications being underreported?

Dennis Crouch over at Patently-O has done some initial legwork and found the following:

Patent Applications Published on August 16, 2007
More than 25 claims = 27%

Patents Issued on August 21, 2007
More than 25 claims = 18%

While being a tiny snapshot, this initial finding confirms (more or less) the PTO's numbers, but nonetheless reflects almost a twenty-fold increase in the number of affected applications.

But wait, there's more.

In a patent searchers online forum (forwarded by Greg Aharonian), Roy Zimmerman of Medtronic did some digging via IFIPAT on STN, where number of claims are range searchable, and published applications are a defined file segment. He found that, between 2002-06, 1,288,664 patent applications were published by the PTO.

Of those, 372,879 patent applications across all technological areas had more than 25 claims, or 29%.

When it comes to medical devices and pharma, the affected applications jump significantly:
  • Medical devices (classes 607 or 623) - 46% exceeded 25 claims
  • Pharma (classes 424 or 514) - 43% exceeded 25 claims
  • Biotech (class 800) - 47% exceeded 25 claims
Presuming that only 100k of the affected applications require ESD's, filed at a cost of $10k each, this results in one billion dollars of added costs to patent applicants to comply with the 5/25 rule alone.

As a side note, the PTO's proposed annual budget for FY2008 (link) is $1.9 billion dollars . . .

Thursday, August 23, 2007

About The USPTO Continuation Rules Webinar . . .

For the many that participated in the USPTO's webinar, the 271 Patent Blog will be providing free ibuprofen (or an analgesic of your choice) for all attendees - email me for a free dose.

All-in-all, the webinar was minimally helpful - for the most part, the webinar was a ver batim read from the USPTO slides (for a copy, click here), delivered in a late-night infomercial format:

(Voice 1): "Could you explain to the practitioners listening out there, if applicants have to show original support for claims in a CIP application?"

(Voice 2): "Yes they do! Under the rules, applicants must identify the claims in a CIP application that are supported by the prior-filed application . . ."

There was some useful information during the Q&A, but it is clear that there is a lot of material to digest before anyone is minimally comfortable with the rule changes. It would have helped if the presentation didn't sugar-coat some of the more serious ramifications of the rule changes (raise your hand if you noticed that some questions weren't actually answered when asked).

For example, regarding the continuation "limit", it was repeatedly stated that, if a continuation was found to be improper, "priority would not be granted, and prior art documents could be considered up to the filing date of the original filing date of the continuation."

It sounds rather innocuous, but the reality is that the application is dead in the water: unless your continuation filing date is less than one year after original publication, your own application will become a 102(b) reference.

One question I wanted to ask was about the petition and showing - "could you provide one or two examples of a proper 'showing' that would justify the filing of an additional continuation?" To be honest, I can't imagine what an applicant could say that would be convincing. The PTO's been eerily quiet on this topic, and apparently has no interest in giving guidance on this.

The other problem was with the Examination Support Documents and their effect on the PTO. Presumably, examiners will be charged with referencing/cross-referencing claims from different applications. If there are families of applications, Examiners will now have to spend time slogging through multiple applications, looking for "substantial overlap", patentably indistinct claims, divisional rejoinders, and potential "15/75" violations before they can even begin to search for prior art. If examiners are already pressed for time in examining applications, I have no idea how they will deal with these changes.

It also appears that cross-referencing applications is now considered a "material" part of USPTO examination. I wonder how McKesson v. Bridge Medical will view the applicant that failed to properly cross-reference all related filings on an issued patent?

Lawsuit Launched in ED Va. To Block Continuation Rules

We heard about the threats, and it didn't take long for someone to follow through. Yesterday, Dr. Triantafyllos Tafas filed a declaratory judgment action in the E.D. Va., arguing that the new continuation rules are null and void, and is also seeking a preliminary and permanent injunction prohibiting the USPTO from putting the new rules changes into effect.

The complaint alleges that the USPTO exceeded its Congressionally-delegated rulemaking authority and that the new rule changes specifically violate Section 120, 132, and 365 of the Patent Act. It is further asserted that USPTO failed to comply with the Administrative Procedure Act in promulgating the new rule changes. The suit also alleges that the USPTO has engaged in retroactive rulemaking and has failed to consider USPTO-induced reasons for multiple continuation filings.

From the complaint:

The Revised Rules should be preliminarily and permanently enjoyed and declared null and void because, among other things, they violate: (1) Sections 2, 120, 13 1, 132 and 365 of the Patent Act (35 U.S.C. §§ 1 et seq.) by exceeding the rule making authority delegated to the Defendants by Congress; (2) Sections 553(c) and 706(2) of the APA (5 U.S.C. §§ 553(c) and 706(2)) by, among other things, purporting to enact rules with retroactive effect; failing to consider all the relevant matter presented as required by 5 U.S.C. §553(c); and, by promulgating rules that are arbitrary, capricious, an abuse of discretion, otherwise not in accordance with law, contrary to Plaintiffs constitutional rights and in excess of the USPTO's statutory jurisdiction and authority; and (3) Article I, Section 8, C1. 8 and the Takings Clause of the Fifth Amendment of the United States Constitution.
Read a copy of the complaint here (link)

Wednesday, August 22, 2007

Paying the Piper - USPTO Fee Raises Announced for Sept. 30

The USPTO has announced that certain fees will be raised, starting September 30. Some notable fees include:

§ 1.16 National application filing, search and examination fees.
(a) Basic fee for filing each application under 35 U.S.C. 111 for an original patent, except design, plant, or provisional applications:

(1) For an application filed on or after December 8, 2004:

By a small entity (via EFS) ......... $75.00
By a small entity (§ 1.27(a)) ........ $155.00
By other than a small entity ....... $310.00

(d) Basic fee for filing each provisional application:

By a small entity (§ 1.27(a)) ........ $105.00
By other than a small entity ....... $210.00

(h) In addition to the basic filing fee in an application, other than a provisional application, for filing or later presentation at any other time of each claim in independent form in excess of 3:

By a small entity (§ 1.27(a)) ........ $105.00
By other than a small entity ....... $210.00

(i) In addition to the basic filing fee in an application, other than a provisional application, for filing or later presentation at any other time of each claim (whether dependent or independent) in excess of 20:
By a small entity (§ 1.27(a)) ........ $25.00
By other than a small entity ....... $50.00

(k) Search fee for each application filed under 35 U.S.C. 111 on or after December 8, 2004, for an original patent, except design, plant, or provisional applications:
By a small entity (§ 1.27(a)) ........ $255.00
By other than a small entity ....... $510.00

§ 1.17 Patent application and reexamination processing fees.

(e) To request continued examination pursuant to § 1.114:
By a small entity (§ 1.27(a)) ........ $405.00
By other than a small entity ....... $810.00

Download the fee schedule here (link)

Tuesday, August 21, 2007

And We're Off! Final Continuation Rules Published

From the PTO Summary:

The Office is revising the rules of practice to require that any third or subsequent continuing application that is a continuation application or a continuation-in-part application, and any second or subsequent request for continued examination in an application family, be filed to obtain consideration of an amendment, argument, or evidence, and be supported by a showing as to why the amendment, argument, or evidence sought to be entered could not have been previously submitted.

The Office is also revising the rules of practice to provide that an applicant must provide an examination support document that covers all of the claims in an application if the application contains more than five independent claims or more than twenty-five total claims.

The Office is also revising the rules of practice with respect to multiple applications that have the same claimed filing or priority date, substantial overlapping disclosure, a common inventor, and common ownership.

It's 129 pages long . . . details will follow

Final Rule:

Changes to Practice for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications, Final rule (21Aug2007)

In Re Seagate - CAFC Clarifies Attorney-Client Waiver, and then Some . . .

In Re Seagate Technology LLC (misc. docket no. 830), August 20, 2007 (link)

Seagate was sued by Convolve in the SDNY for patent infringement. After the lawsuit was filed, Seagate obtained outside counsel opinions on the patents, and relied on the advice of counsel defense to rebut charges of willful infringement. As a result, the district court held that Seagate waived the attorney-client privilege for all communications between it and any counsel, including its trial attorneys and in-house counsel. It further determined that the waiver began when Seagate first gained knowledge of the patents and would last until the alleged infringement ceased. The court also determined that protection of work product communicated to Seagate was waived.

In a rare en banc unanimous opinion, the CAFC set out and answered the following questions:

QUESTION #1: Should a party’s assertion of the advice of counsel defense to willful infringement extend waiver of the attorney-client privilege to communications with that party’s trial counsel? See In re EchoStar Commc’n Corp., 448 F.3d 1294 (Fed. Cir. 2006).

ANSWER: The CAFC concluded that, normally, the waiver does not apply to trial counsel:

[W]e conclude that the significantly different functions of trial counsel and opinion counsel advise against extending waiver to trial counsel. Whereas opinion counsel serves to provide an objective assessment for making informed business decisions, trial counsel focuses on litigation strategy and evaluates the most successful manner of presenting a case to a judicial decision maker . . . fairness counsels against disclosing trial counsel’s communications on an entire subject matter in response to an accused infringer’s reliance on opinion counsel’s opinion to refute a willfulness allegation.

* * *

[W]e hold, as a general proposition, that asserting the advice of counsel defense and disclosing opinions of opinion counsel do not constitute waiver of the attorney-client privilege for communications with trial counsel. We do not purport to set out an absolute rule. Instead, trial courts remain free to exercise their discretion in unique circumstances to extend waiver to trial counsel, such as if a party or counsel engages in chicanery.

QUESTION #2: What is the effect of any such waiver on work-product immunity?

[W]e hold that, as a general proposition, relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel. Again, we leave open the possibility that situations may arise in which waiver may be extended to trial counsel, such as if a patentee or his counsel engages in chicanery. And, of course, the general principles of work product protection remain in force, so that a party may obtain discovery of work product absent waiver upon a sufficient showing of need and hardship, bearing in mind that a higher burden must be met to obtain that pertaining to mental processes.
QUESTION #3: Given the impact of the statutory duty of care standard announced in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983), on the issue of waiver of attorney-client privilege, should this court reconsider the decision in Underwater Devices and the duty of care standard itself?

ANSWER: In Underwater Devices, the CAFC fashioned a standard for evaluating willful infringement:
"Where . . . a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity."
After reviewing SCOTUS precedence since Underwater Devices, the CAFC concluded:

Underwater Devices sets a lower threshold for willful infringement that is more akin to negligence. This standard fails to comport with the general understanding of willfulness in the civil context . . . and it allows for punitive damages in a manner inconsistent with Supreme Court precedent . . . Accordingly, we overrule the standard set out in Underwater Devices and hold that proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness. Because we abandon the affirmative duty of due care, we also reemphasize that there is no affirmative obligation to obtain opinion of counsel.

[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 (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer. We leave it to future cases to further develop the application of this standard.

Gajarsa (concurring opinion, joined by Newman):
I write separately to express my belief that the court should take the opportunity to eliminate the grafting of willfulness onto section 284. As the court’s opinion points out, although the enhanced damages clause of that section "is devoid of any standard for awarding [such damages]," this court has nevertheless read a willfulness standard into the statute . . . Because the language of the statute unambiguously omits any such requirement, see 35 U.S.C. § 284 ("[T]he court may increase the damages up to three times the amount found or assessed."), and because there is no principled reason for continuing to engraft a willfulness requirement onto section 284, I believe we should adhere to the plain meaning of the statute and leave the discretion to enhance damages in the capable hands of the district courts.


The CAFC opined that preliminary injunctions may be the best (and only?) place to flesh out post-filing willfulness, and the failure/success of the injunction will likely determine the chances that willfulness will subsequently be found:

[W]hen an accused infringer’s post-filing conduct is reckless, a patentee can move for a preliminary injunction, which generally provides an adequate remedy for combating post-filing willful infringement . . . A patentee who does not attempt to stop an accused infringer’s activities in this manner should not be allowed to accrue enhanced damages based solely on the infringer’s post-filing conduct. Similarly, if a patentee attempts to secure injunctive relief but fails, it is likely the infringement did not rise to the level of recklessness.

We fully recognize that an accused infringer may avoid a preliminary injunction by showing only a substantial question as to invalidity, as opposed to the higher clear and convincing standard required to prevail on the merits . . . However, this lessened showing simply accords with the requirement that recklessness must be shown to recover enhanced damages. A substantial question about invalidity or infringement is likely sufficient not only to avoid a preliminary injunction, but also a charge of willfulness based on post-filing conduct.

Monday, August 20, 2007

Here Come the Continuation Rule Changes!

From the USPTO (link):

USPTO to Publish Measures to Improve Patent Quality

Claims and Continuations Rules will improve effectiveness and efficiency of patent examination

The Department of Commerce’s United States Patent and Trademark Office (USPTO) will publish tomorrow in the Federal Register new rules that will allow the agency to continue to make the patent examination process more effective and efficient by encouraging applicants to use greater precision in describing the scope of their inventions. The new rules will be effective on November 1, 2007.

“Patent quality is the shared responsibility of applicants and the USPTO,” noted Jon Dudas, Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office. “Higher quality applications result in a more effective examination. These rules better focus examination and will bring closure to the examination process more quickly, while ensuring quality and maintaining the right balance between flexibility for applicants and the rights of the public. The U.S. patent system plays a tremendous role in motivating innovation, and these changes to examining patent applications will help ensure that America remains on the leading edge in the knowledge driven global economy.”

The new rules have been modified, relative to the rules that were originally proposed early last year, in response to the extensive comments the USPTO received from the public. Under the new rules, applicants may file two new continuing applications and one request for continued examination as a matter of right. Also, under the new rules, each application may contain up to 25 claims, with no more than five of them independent claims, without any additional effort on the part of the applicant. Beyond these thresholds, however, the new rules require applicants to show why an additional continuation is necessary or to provide supplementary information relevant to the claimed invention to present additional claims.

Placing conditional boundaries on a previously unbounded process provides for more certainty and clarity in the patent process. The result is that application quality will be improved and piecemeal or protracted examination will be avoided, enhancing the quality and timeliness of both the examination process and issued patents.

The new rules are available today to anyone who visits the Federal Register office and will be available tomorrow, August 21, 2007, no later than noon, in the Federal Register column on our News & Notices page . In the coming weeks, the USPTO will be conducting outreach on these new rules to better inform external stakeholders of their content and to answer questions. A webinar on the new rules is scheduled for Thursday, August 23, 2007. More information on this webinar and other upcoming information sessions will be published on Rule Changes to Focus the Patent Process in the 21st Century.


From an internal USPTO e-mail:

Highlights of Final Rules on Claims and Continuations:

1. Each initial application is limited to 2 continuing applications and 1 RCE. Additional continuing applications/RCEs may be filed upon petition. This was changed from the proposed rule in which each application was limited to one continuing application.

2. Divisional applications may be filed only in response to a restriction requirement having been made by the Office. Divisional applications may be filed during the pendency of the initial application or any of its continuing applications. In the proposed rule, divisional applications were limited to being filed only during the pendency of the initial application. Each divisional application is also limited to 2 continuing applications and 1 RCE. Additional continuing applications/RCEs of a divisional application may also be filed upon petition.

3. The claims in each application may not exceed 5 independent claims or 25 total claims absent the applicant assisting the examination process through the filing of an Examination Support Document (ESD). This is a change from the proposed rule where an application could be filed with any number of claims but the applicant must elect 10 representative claims for examination absent the filing of an ESD.

4. The applicant must submit the serial numbers of all other applications filed within two months having the same assignee and at least one inventor in common. For those applications that additionally have a common effective filing date and substantially overlapping disclosures, the rule creates a rebuttable presumption of obviousness-type double patenting between them. This will enhance the examination process by saving examiner resources since the examiner will not have to research information that the applicant is in the best position to easily provide prior to examination.

Future of the Supreme Court = Justice Kennedy

On July 11, Legal Times held a panel discussion at the Georgetown University Law Center to analyze the Supreme Court's 2006-07 term. One of the panel members was Thomas Goldstein, who argued the KSR case for the Respondent Teleflex (and who is also an author of the SCOTUS blog). When asked about the direction the SCOTUS has taken, and the future direction of the Court, Goldstein responded that the key lies with Justice Kennedy:

In terms of who is in charge, Justice Kennedy is in charge. Don't have any doubts about this. If Justice Kennedy ever tells you you must do something, you must comply. In the 24 5-4 decisions, he was in the majority in all of them, every single one. In the 72 cases decided this term, he was in the majority in 70. Two times, I don't know, he just felt like dissenting. You know, just to mix it up a little bit.

It is his world, and you just live in it. And that is a dominant, dominant theme. We were unable to identify in modern historical terms any sort of parallel. If you look to Justice O'Connor, for example, and we used to think of her as holding sway in the Court, she would be in the majority in roughly two-thirds of the 5-4 decisions over the last 10 years. Justice Kennedy, for his part, by the way, was in the majority one-half to two-thirds of the 5-4 decisions over the last 10 years. Suddenly, it is all of them.

There has not been a term since the mid-1960s that a justice dissented two or fewer times, and so that really gives you a sense that Justice Kennedy's vote is more centrally important than any other justice in the history, the modern history, of the Supreme Court.
Read the edited transcript from here (link)

Friday, August 17, 2007

WIPO's 2007 Patent Report Released

The World Intellectual Property Organization (WIPO) released its 2007 report this week, summarizing the state of patent filings around the world. Overall, there was a 4.7 percent average annual increase in patent filings worldwide from 1995 to 2005, mostly due to the “explosive growth” of patent filings in Northeast Asia.

"Explosive growth" indeed: China launched itself into third place, leaving it behind only the United States and Japan, and closely followed by Korea. Between 1995 and 2005, China’s patent filings have increased by 834% percent, and Korea's filings have increased by 101%.

Between 2004 and 2005, the biggest increases in patent filings occurred in China (+32.9%), Thailand (+18%), Korea (+14.8%), Hong Kong (+14.6%), and the U.S. (+9.5%). Interestingly, the UK and France were the few countries that experienced a drop in patent filings of 6.5% and 2.1%, respectively.

This year's report features a new statistic that follows patent filings by technical fields. The biggest gainers for 2004-05 were:

Medical technology (+32.2%)
Audio-visual technology (+28.3%)
Information technology (+27.7%)
Optics (+24.2%)
Semiconductors (+22.5%)
The technical fields experiencing the biggest drops were:

Materials processing, textiles, paper (-11.2%)
Macromolecular chemistry, polymers (-9.5%)
Chemical and petrol industry, basic material chemistry (-8.8%)
Chemical engineering (-7.2%)
Machine tools (-5.2%)
Of course, the continued increase in patent filings is straining the capabilities of patent offices worldwide. The report states that

These changes do not come without a cost. The workload at certain patent offices has increased faster than the capacity to examine patent applications. The United States of America had more than 900,000 patents pending in 2005. The Japanese Patent Office also had more than 800,000 patents pending in 2005, although it must be noted that this is largely due to changes in the time limit for request for examination, which has created a temporary increase in the examination workload in Japan.
It is likely that this report will be part of the effort to rekindle patent harmonization discussions among WIPO members. WIPO has already prepared a new study on patent harmonization, for which an indicative draft outline was sent out for reactions last July. It appears that WIPO is becoming more focused on reducing duplicative efforts among the different national offices:
Among the questions raised by this increase in workload is the extent of duplication of effort within the system. Worldwide, 38% of patent applications are by non-resident applicants. These applications are usually preceded by prior applications in the country of residence of the applicant and, often, by parallel applications in other countries. Each of these applications may be subject to a separate search and examination in each patent office.
Download the WIPO report here (HTML, PDF)

Thursday, August 16, 2007

New Economic Reports Out on IP & Innovation

Two economic reports were recently published, analyzing the effects of IP on innovation, productivity and competitiveness. Not surprisingly, each report concludes that strong IP regimes are a prerequisite for robust innovation and growth.

The first report, entitled "Economic Effects of Intellectual Property-Intensive Manufacturing" was written by Robert Shapiro and Nam Pham under the auspices of the non-profit, non-governmental organization World Growth. Shapiro was formerly a principal economic advisor to Bill Clinton, and senior economic advisor to Al Gore and John Kerry. Pham was formerly a vice president at Kemper Investments, economist for the World Bank, and consultant to the Department of Commerce and FTC. Both are currently lead economic advisers in their own respective consulting firms.

Economists trace 30 percent to 40 percent of all U.S. gains in productivity and growth over the course of the 20th century to economic innovation in its various forms. Today, some two-thirds of the value of America’s large businesses can be traced to the intangible assets that embody ideas, especially the intellectual property (IP) of patents and trademarks. Needless to say, the report concludes that "promoting and protecting new intellectual property should be a high priority for U.S. policymakers."

The report looks at the performance of IP-intensive industries vs. non-IP-intensive industries, and finds that IP-intensive industries hold distinct advantages:

• From 2000 to 2004, IP-intensive manufacturing produced much more value per employee than non-IP intensive manufacturing — some $181,000 per worker, per year, compared to less than $106,000 — and in the most IP-intensive industry, pharmaceuticals, an average worker produced more than $425,000 in value every year.

• From 2000 to 2004, IP-intensive manufacturing paid much higher wages, on average, than non-IP intensive manufacturing — nearly $51,000 per worker compared to just over $35,000 — and in the most IP-intensive industry, an average worker earned almost $66,000 a year.

• Manufacturing employment contracted sharply from 2000 to 2004, with both IP-intensive and non-IP intensive industries shrinking their workforce, on average, by 15 percent to 16 percent. The one manufacturing area that expanded its workforce was the most IP-intensive: Jobs in pharmaceutical companies increased by more than 8 percent over this period.


A second report, titled "The means to compete: Benchmarking IT industry competitiveness", was issued by the Economist Intelligence Unit under the sponsorship of the Business Software Alliance. The index and report are the first attempt to compare countries' performance in building an environment for IT industry competitiveness; 64 countries are covered across seven regions.

One interesting aspect of this report is that it placed less emphasis on the legal infrastructure, and more on the IT infrastructure, R&D, and support for IT industry development. In this related report from the Economist, the top patent-granting countries (per millions of people, 2002-05 average) are:

(1) Japan - 1,213 patents/mil.
(2) Switzerland - 500 patents/mil.
(3) United States - 350 patents/mil.
(4) Sweden - 330 patents/mil.
(5) Finland - 310 patents/mil.
(6) Germany - 300 patents/mil.
(8) Taiwan - 275 patents/mil.
(10) Israel - 190 patents/mil.
(15) South Korea - 110 patents/mil.
(18) Britain - 100 patents/mil.

The top-ranked countries for IT industry competitiveness are:
(1) Unites States
(2) Japan
(3) South Korea
(4) United Kingdom
(5) Australia
(6) Taiwan
(7) Sweden
(8) Denmark
(9) Canada
(10) Switzerland
(11) Singapore
(12) Netherlands
(13) Finland
(14) Norway
(15) Ireland
(16) Germany
(17) New Zealand
(18) France
(19) Austria
(20) Israel


- Download the full report, "Economic Effects of Intellectual Property-Intensive Manufacturing" (link)

- Download the full report, "The means to compete: Benchmarking IT industry competitiveness" (link)

Wednesday, August 15, 2007

The "KSR Effect" Hits the E.D. Texas, Joint Infringement Liberally Applied

AdvanceMe Inc v. RapidPay LLC, (6:05-cv-424), August 14, 2007

AdvanceMe filed suit against multiple defendants, including RapidPay, alleging infringement of U.S. Patent No. 6,941,281 (“the ‘281 patent”). Claim 1 from the '281 patent reads as follows:

1. A method for automated payment, comprising:

at a merchant, accepting a customer identifier as payment from the customer and electronically forwarding information related to the payment to a computerized merchant processor;

at the computerized merchant processor, acquiring the information related to the payment from the merchant, authorizing and settling the payment, and forwarding at least a portion of the payment to a computerized payment receiver as payment of at least a portion of an obligation made by the merchant; and

at the computerized payment receiver, receiving the portion of the payment forwarded by the computerized merchant processor and applying that portion to the outstanding obligation made by the merchant to reduce such obligation.


During litigation, a number of prior art references were put forward, and one of the references was found to anticipate. Nevertheless, Judge Davis went further in pointing out that the claims were obvious as well:

The patent-in suit, simply put, is a computerized method for securing debt with future credit card receivables. While the patent inventor, Barbara Johnson, implemented an aggressive marketing and business development program that brought this financing method to widespread use, she did not invent a new business method. Rather, Johnson built on long-established prior art, packaged the idea in a
new way, and marketed it aggressively.

There are multiple prior art references, not considered by the PTO when issuing the
patent, that render the patent invalid, especially in light of the Supreme Court’s recent ruling in KSR Int’l Co. v. Teleflex, Inc. In KSR, the Supreme Court opined “[w]hen a work is available in one field of endeavor, design incentives and other market forces can prompt variations of it, either in the same field or a different one. If a person of ordinary skill can implement a predictable variation, § 103 likely bars its patentability.” 127 S. Ct. 1727, 1740 (2007). The [prior art was] available in the field at the time of the purported invention. Johnson merely implemented a predictable variation of these existing methods in establishing her invention. While Johnson’s work exhibits excellent entrepreneurship, it does not entitle AdvanceMe to a legal monopoly on this method of providing financing to small businesses. Rather AdvanceMe must continue to compete in the marketplace for its share of the market, which will benefit the economy and consumers as a whole.


The claims in the '281 patent require actions by multiple parties (merchant, merchant processor, payment receiver). The defendants argued that, since none of them alone performed all the steps of the claims, they could not be liable for direct infringement. Taking the more liberal approach to joint infringement, the court stated that

A showing of “agency” or “working in concert” is not required in order to establish a
sufficient connection between the defendant and the third party or parties performing the patent method’s steps . . . The sufficient connection can be shown
through a contractual relationship between the defendant and the third party or parties performing the steps of the patented method.

* * *

Both Reach and MMT [co-defendants] directly infringe the asserted claims of the ‘281 patent. Under Reach and MMT’s programs, all of the elements of the patent claims are performed either by Reach or MMT, the merchants that enter into contracts with Reach or MMT, the merchant processors that enter into contracts with Reach or MMT, or agents or instrumentalities of these entities.

Interestingly, the opinion did not mention BMC v. PaymenTech, where the lower court dismissed BMC's joint-infringement claims. This case is currently before the CAFC (No. 2006-1503), and was recently noted in the PharmaStem case ("The viability and scope of that theory of liability is a subject of considerable debate.")

• Download the (54-page) opinion here (link)

• Michael Smith just tracked this case for his "Recent Rulings for Defendants" list, and notes: "For those of you keeping score, that drops the 2007 win rate for plaintiffs to 33% and the two-year win rate to 57%."

• David Goldin is the President & CEO of AmeriMerchant, who was one of the defendants in this case. David is a blogger as well, and used the blog to solicit prior art against the '281 patent(link), which apparently was a big help in the case (link).

Tuesday, August 14, 2007

Court Dismisses Inventorship/Copyright Claim Against NTP

Oren Tavory v. NTP, Inc., E.D. Va. (3:06–CV–628), July 17, 2007

Not long after NTP obtained a $612.5 million settlement against RIM, Tavory filed suit in the E.D. Va., asking to be joined as an inventor with respect to NTP's "BlackBerry" patents, and also alleged copyright infringement and unjust enrichment.

After dismissing the claim of unjust enrichment, the Court granted Summary Judgment in favor of NTP on inventorship and copyright infringement. Needless to say, the Court was not moved by Tavory's story:

There are few coincidences in life, and the timing of Tavory’s assertions is far too convenient to avoid suspicion. Not only did the Plaintiff wait until after the death of Mr. Campana, who would surely have been a material witness, to stake his claim, the copyright registration was not filed until after NTP had entered into a nine-figure settlement with respect to the patents Tavory says infringe his rights. Despite these serious infirmities, the most damning evidence has been rendered by the Plaintiff himself. He has been deposed twice. On the first occasion, in 2002, Tavory testified that he could not remember whether he wrote the Push Software at Mr. Campana’s direction, or to what extent he was involved in the authorship of the source code. (Pl.’s 2002 Dep. passim.) Four years later, the Plaintiff sat for another deposition, this time in connection with the present matter. In spite of the fact that it was then 2006, and that he was testifying about events that had happened 16 years previously, Tavory’s memory was much clearer.

View/download the opinion here (link)

N.D. Cal.: Litigation History Alone is Proper Basis for DJ Jurisdiction

Monolithic Power Systems, Inc. v. O2 Micro Int'l, N.D. Cal. (07-2363 CW), Aug. 13, 2007

Monolithic (MPS) and O2 have had a long history of suing each other for patent infringement. In an earlier litigation, where O2 sued MPS for patent infringement, the Court dismissed with prejudice O2 Micro's claim against MPS, pursuant to a stipulated dismissal signed by the parties.

The stipulation, signed by the Court, provides:

O2 Micro covenants not to assert or reassert its ‘129 patent against named defendants for infringement by MPS full bridge inverter controllers (and products incorporating said controllers) made, used, imported, offered for sale or sold previously or currently having product designations [list of products accused of infringing O2's patents].
After the Court signed this stipulation, however, MPS designed and marketed new power inverter controller products, not previously accused of infringing the '129 patent. MPS did not believe that these products infringe. But, it believed that, because O2 takes a narrow view of the stipulated dismissal, the covenant not to sue does not cover these new products and, therefore, it is laboring under the shadow of threatened infringement litigation.

O2 argued that it had not even accused MPS's new products of infringing the '129 patent and that, therefore, MPS has no basis for filing the declaratory judgment action and the Court does not have subject matter jurisdiction over it.

The Court disagreed, noting that "[w]hether O2 Micro has publicly accused MPS's new products, which are not covered by the Stipulated Dismissal, is not dispositive to determining whether an actual controversy exists."

In the opinion, the Court concluded that the litigious history between O2 and MPS was sufficient to confer jurisdiction:

In Bridgelux, Inc. v. Cree, Inc., 2007 WL 2022024, at *9 (N.D. Cal.), the court did not, as O2 Micro suggests, find that there was no actual controversy merely because the defendants had never accused the plaintiff of infringing their patents. Rather, in concluding that, under all of the circumstances, there was no actual controversy, the court pointed out that the plaintiff provided no evidence that the defendants "had ever sued anyone" on their patents. Further, in SanDisk Corp., the Federal Circuit declined to hold that the patentee's statement that it had "absolutely no plan whatsoever to sue" the plaintiff eliminated the justiciable controversy created by patentee's actions; rather, the court concluded that the patentee "engaged in a course of conduct that shows a preparedness and willingness to enforce its patent rights" despite that statement. 480 F.3d at 1383.

O2 Micro has sued numerous parties, including MPS, accusing them of infringing the '129 patent. O2 Micro has accused MPS of infringing its '722 and '615 patents as well. Such suits indicate "an assertion of rights and a willingness to pursue litigation" regarding the patent-in-suit. Cingular Wireless v. Freedom Wireless, Inc., 2007 WL 1876377, at *3 (D. Ariz.). The Federal Circuit explains that "related litigation involving the same technology and the same parties is relevant in determining whether a justiciable declaratory judgment controversy exists on other related patents." Teva Pharms., 482 F.3d at 1344-45. And, in Cingular Wireless, the court concluded that "the assertion of rights, evidenced through a prior lawsuit between the same parties regarding the same technology, coupled with Defendant's knowledge of the relationship between Plaintiffs, and solidified through the express press release statement indicating an intent to sue alleged patent infringers, presents enough evidence to establish the case or controversy required for declaratory judgment jurisdiction." 2007 WL 1876377 at *9.

Read/download the opinion here (link)

Friday, August 10, 2007

Next Stop - Chip Away the Presumption of Validity?

When the FTC released their report in October 2003, titled "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy" (link), a big commotion was made over the proposition that the "clear and convincing" standard was not justified:

[A]s many have noted, the PTO is underfunded, and PTO patent examiners all too often do not have sufficient time to evaluate patent applications fully. These circumstances suggest that an overly strong presumption of a patent’s validity is inappropriate. Rather, courts should require only a “preponderance of the evidence” to rebut the presumption of validity.
At the time, many practitioners scoffed at this proposal, and dismissed it as an academic pipe-dream. Since then, this concept has been gaining ground, and has found at least a modicum of traction at the Supreme Court:

"Assuming that we sweep [the TSM test] aside and say it's been incorrect, what happens to the presumption of validity of, of patents which the courts have been, have been traditionally applying? Does it make any sense to presume that patents are valid which have been issued under an erroneous test for the last 20 years?"

- Justice Scalia, KSR v. Teleflex, oral arguments (p.23)

"We need not reach the question whether the failure to disclose [prior art] during the prosecution of [the patent in suit] 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."

- KSR v. Teleflex, slip. op. (p. 22-23)
Now, Doug Lichtman and Mark Lemley have released a draft paper titled "Rethinking Patent Law's Presumption of Validity" where they advocate the abolition of the "clear and convincing" standard for all patents. Instead, they propose the introduction of a 2-tiered patent system, where only the applicants that apply for "gold-plated" patents would get this presumption.

The notion of "gold plated" patents has been previously proposed (Lichtman et al., "What to do About Bad Patents?"), and can be summed up this way:
[B]ecause legitimate inventors need as much certainty as the law can give them, we would 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. 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. That would allow the Patent Office to focus its resources, thus benefiting from the signal given by the applicant’s own self-interested choice.
The draft paper explores these options and provides some interesting responses to many of the criticisms of this regime.

Notably (perhaps disturbingly?) the paper notes that a first step towards disclaiming the presumption begins in the USPTO, and calls for the Office to actively engage in dulling the presumption:
First, the PTO should disclaim the strong presumption currently recognized in favor of its work. The presumption is for the most part a judicially created rule of deference under which courts acknowledge what they understand to be the PTO’s desire to have its earlier evaluation respected. The PTO should speak up and disavow that desire. Specifically, the PTO should instruct patent examiners to do exactly what they do today but also to include, upon patent issuance, boilerplate language welcoming the courts to revisit the question of patent validity in the event an issued patent ends up in litigation. The PTO obviously cannot, and in any event should not, reject the statutory baseline; that is, challengers should still have the burden of bringing forward evidence that the patent was wrongly issued. However, the PTO should politely decline the heavier presumption that courts today recognize as a matter of course. To the extent that the PTO has valuable arguments and insights to contribute, it can do that by influencing how the issued patent reads and what documents are in the file. The PTO need not wield its influence through the use of a heavy presumption

Read "Rethinking Patent Law's Presumption of Validity" (link)

See "Want to Do About Bad Patents?" (link)

Thursday, August 09, 2007

Let the Good Times Roll! IDS Rule Changes Submitted to OMB For Review

On July 27, the USPTO (very quietly) slipped in the IDS rule changes for OMB review:

RIN: 0651-AB95

Agenda Cycle: 200704

Title: Changes to Information Disclosure Statement Requirements and Other Related Matters

Abstract: The U.S. Patent and Trademark Office (Office) amends its regulations on information disclosure statement (IDS) requirements and other related matters to improve the quality and efficiency of the examination process. These changes would enable the examiner to focus in on the relevant portions of submitted prior art at the very beginning of the examination process, give higher quality first actions, and minimize wasted steps. This action would make the following changes relating to submissions of IDSs by applicants: Impose a requirement for the personal review of, and to provide information about, certain citations; eliminate the fees for, but permit only timely, IDS submissions; and only permit the filing of an IDS after the mailing of a notice of allowance if a claim is admitted to be unpatentable and a narrowing amendment is also submitted. The Office would also: permit third parties to submit prior art up until the mailing of a notice of allowance after application publication; no longer permit an IDS to meet the submission requirement for a request for continued examination (RCE); permit, after payment of the issue fee, certain amendments and petitions so applicants will not have to file a continuation application or an RCE for such items; and revise the protest rule to better set forth options that applicants have for dealing with unsolicited information received from third parties.

View submission here (link).

Whither Thee, E.D. Texas?

"Okay, so what am I doing? I'm chasing this guy... No, he's chasing me."

- Memento (2000)

LegalMetric has released a study analyzing the fastest districts, along with percentage of cases filed by division, case win rates by division, appeal affirmance rates by division, and average time to termination on the merits by division.

This year, a number of surprises appear in the study.

The press release from LegalMetric reveals that the five fastest patent districts (measured in terms of average time to judgment) are:

• The Eastern District of Virginia

• The Central District of California

• The Middle District of Florida

• The Western District of Wisconsin, and

• The Western District of Washington.

Courts with fewer than 30 cases terminated by judgments (either in favor of the patentee or the accused infringer) were not considered.

One of the biggest shocks is that the Eastern District of Texas does not come close to making the top five (it ranks 18th).

What's even more interesting is that LegalMetric reportedly told Michael Smith from the EDTexweblog that the win rate in favor of patentees in the Eastern District of Texas is 44%. Unfortunately, the methodologies used in developing this number aren't known, so there's no way to currently verify the accuracy of this number.

View the the LegalMetric press release here (link).

Hostile Shareholder Takeover, Patent Style

An interesting story surfaced yesterday over the patent portfolio of Redwood City-based Ampex Corporation, and its relationship with investment fund ValueVest.

For those that may not be familiar with Ampex, the company was responsible for releasing the first commercial tape recorders in 1944. After failing to transition into the digital arena, the company was bought out in 1987. As far as products go, the company's output didn't improve - today, the company's sole product is a data storage device used in defense systems and manufactured in Colorado.

But in the patent world, Ampex sat on a lucrative portfolio that included one patent that claimed to cover basic digital imaging. Three years ago, Ampex went on the offensive with their patents, and reported profits of $47.1 million in 2004 on revenues of $101.5 million. In 2004, Ampex posted the single largest gain of any Silicon Valley stock, rising from 68 cents to $39.50.

Seeing an opportunity, ValueVest began buying stock in Ampex in April 2005, just a few months after its spectacular stock run. Today, the investment fund claims to hold 13.7% of Ampex's stock. Shortly after its buying binge, ValueVest partnered with M-CAM, Inc., a company "specializing in intellectual property finance, monetization and enforcement", to evalute Ampex's portfolio.

They liked what they saw.

M-CAM controls a proprietary database and search engine to analyze patents and their strength or weakness regarding commercial validity and potential value. It is rumored that M-CAM has partnered with PUBPAT, and used their software to target Forgent’s JPEG patents, Pfizer’s Lipitor patent, Microsoft’s FAT patent, WARF’s stem cell patents and others. Supposedly, after analyzing the Ampex patent portfolio, M-Cam has decided to join with Ampex to enforce their patents (see press release here).

Recently, ValueVest has become impatient with Ampex, claiming that not enough "value" is being extracted from the portfolio. In a recent 13D/A filing, ValueVest stated that "the market price of the Company's Shares does not fully reflect the underlying value of the Issuer's assets and businesses."

ValueVest has considered buying Ampex, but the negotiations didn't pan out. Now, what appears to be a first move of its kind, ValueVest has made a hostile bid for Ampex - not for the entire company, but just for its portfolio of 450 patents (which is technically considered an unsolicited term sheet).

ValueVest wants to buy the patents, create a new company, and invest fresh money to research which patents could form the basis of new products or a potential litigation strategy. On July 20, ValueVest disclosed in a filing with the SEC that it had offered to buy Ampex's patent portfolio for $7 million. Based on its current market capitalization, Ampex is worth about $32.6 million.

• Read "Stakeholder makes play for control of Ampex patent portfolio," San Jose Mercury News (link)

• See SEC Investor article "ValueVest Sees Value in Ampex IP" (link)

Complex Work Units (CWU) Pilot at the USPTO

The PTO is seeking your help for a Complex Work Units Pilot Program being scheduled for the end of the year:

From the PTO:

The United States Patent and Trademark Office (USPTO) is seeking participants for a Complex Work Units (CWUs) Pilot Program scheduled for late 2007. CWUs are chemical structure drawings, mathematical formulae, protein crystal data, and table data, which often add significant complexity and cost to the examination and publication of patent applications in which they are contained.

The CWU Pilot Program will be conducted in an effort to:

• Investigate filing practice options for CWUs

• Gather information about existing CWU formats and their use in the Intellectual Property community

• Evaluate rule changes to allow applicants to submit CWU files

• Determine other acceptable file types

The pilot will allow applicants to submit original source files for CWUs through EFS-Web or on a CD, supplementing the traditionally-filed application parts. The CWU source file submissions will not be considered when calculating the application size fee, which will reduce the cost of filing for pilot participants.

The USPTO is requesting participants in an effort to gather more information about CWUs from the intellectual property community.

If you have any questions or would like to participate in CWU Pilot activities, please send an e-mail to

Tuesday, August 07, 2007

$1.5B Verdict Against Microsoft Overturned, New Trial Granted

On January 29, 2007, a jury trial commenced on issues pertaining to audio coding patents U.S. Patent Nos. 5,341,457 and RE 39,080 (“the ‘457 patent” and “the ‘080 patent,” respectively). On February 22, 2007, the jury returned a verdict in favor of Lucent finding the patents valid and infringed by Microsoft. Damages were assessed at $1.54B dollars.

Yesterday, in a 43-page opinion, Judge Rudi Brewster ruled on over 20 post-trial motions filed by Microsoft seeking to overturn the verdict, or to grant a new trial. On the issues of infringement and damages for the '457 patent, all motions were granted, With regard to the '080 patent, Microsoft's JMOL for infringement was denied, but Judge Brewster held that, since Fraunhofer is a co-owner of the '080 patent, Lucent lacked standing to bring the action, and Microsoft's license defense insulated them from liability.

Ownership and License of the '080 Patent:

Among the affirmative defenses raised by Microsoft, two related to the ownership of the ‘080 patent. Microsoft asserted that the ‘080 patent was co-owned by Fraunhofer Gesellschaft (“Fraunhofer”), a German research company. As such, Microsoft contended that Lucent lacked standing to bring suit against Microsoft for infringement of the ‘080patent. Microsoft also asserted the defense of license, contending that it had a license from Fraunhofer to practice the ‘080 patent.

Under a 1989 research agreement between AT&T and Fraunhofer (“the JDA”), the court found that Fraunhofer was a co-owner of the ‘080 reissue patent, since the JDA was never terminated:

The JDA between Fraunhofer and AT&T covered collaborative work during the period of the stay of Karlheinz Brandenburg at AT&T. This period began in April 1989 and ended in June 1990. All work done on digital audio coding during this period was classified as “New Work” and would be jointly owned by AT&T and Fraunhofer. In 1991, the period covering New Work was extended by AT&T and Fraunhofer to cover work that continued after the expiration of the JDA and the departure of Brandenburg. The parties agreed to extend the period indefinitely, until one of the parties gave notice to terminate the arrangement. No evidence was presented that the parties ever terminated the agreement. Hence, the combined effect of the JDA and the extension letter defines the period of New Work as beginning in April 1989 at the arrival of Brandenburg and continuing indefinitely thereafter.

Instead of partitioning the claims into separate applications, AT&T/Lucent decided lump together "New Work" claims (which traced back to Fraunhofer) with separately-developed claims. The court found this fatal to Lucent's case:

[B]y filing claims to New Work in the same application as claims to Existing Technology, the patent is jointly owned by AT&T and Fraunhofer. AT&T cannot cause Fraunhofer to forfeit its ownership rights to New Work simply by filing AT&T’s Existing Technology in the same patent application. If anything is forfeited, it is AT&T’s rights to exclusive ownership of the entire ‘938 patent. AT&T forfeited that right when it chose to file all four claims in one application. Lucent made a similar decision when it applied for the reissue that became the ‘080 patent and chose to keep claim four in the same application with claims one and three, all with one priority claim. The Court therefore FINDS that under the JDA, the ‘938 patent and its reissue, the ‘080 patent, are jointly owned by AT&T and Fraunhofer.

Since Microsoft had already obtained a license from Fraunhofer, "Microsoft as a licensee cannot be liable for infringement of the ‘080 patent. 35 U.S.C. § 271."

Infringement of the '457 Patent:

According to the court, there was no direct evidence that Microsoft's HQ encoder performed the patented methods presented at trial. Even Lucent’s expert testified that he had never observed the HQ encoder running, he had not made a CD encoded by the HQ encoder, and he could not explain how a user would select and run the HQ encoder. Instead, Lucent argues that its
proof of infringement centered on circumstantial evidence that the HQ encoder would run automatically when the fast encoder failed and therefore carry out the claims of the ‘457 patent.

After reviewing the record, the court ruled that the circumstantial evidence was not enough to show infringement, since too much speculation existed over the actual operation of the HQ encoder:

In essence, Lucent offered circumstantial evidence that proved at most that the HQ encoder was possibly capable of running. What it failed to show, circumstantially or otherwise, was that HQ had actually ever run and performed the claimed method. This evidence is insufficient as a matter of law to demonstrate infringement of a methods claim. While Lucent argues that “the record was replete with evidence that the HQ encoder will be invoked as a result of common conditions that occur routinely in practice,” as the Federal Circuit noted in E-Pass Technologies, Inc. v. 3Com Corp., 473 F.3d 1213, 1223 (Fed. Cir. 2007), if it was so common and so routine, certainly Lucent could have introduced evidence of at least one instance where the HQ encoder had run.

KSR Changed Everything? Not Really:

Microsoft tried dangling KSR before the court, but Judge Brewster wouldn't bite:

[T]he Court is unpersuaded that KSR’s “broad implications” warrant reopening discovery and searching for new prior art. Although Microsoft points out that this Court allowed reopening of discovery in Groups 4 and 5, the circumstances differ here. Groups 4 and 5 had not started trial before the KSR ruling came out, whereas the Group 2 trial has been completed. Additionally, an examination of district court and Federal Circuit rulings on obviousness since the KSR decision does not support Microsoft’s requested upheaval. In sum, Microsoft has not offered any meritorious reason why obviousness on the ‘080 patent should be re-tried or why the jury’s
verdict as to non-obviousness of the ‘080 patent was not support by sufficient evidence. Therefore, the motions for judgment as a matter of law and for a new trial on obviousness are DENIED.

Damages and the Entire Market Value:

The court found two major problems in applying the entire market value rule to Microsoft. The first was the failure of the evidence to establish a link between the cost of the computers (rather than the operating system, Windows Media Player, the MP3 codec or some other “unit”) and the customer demand or value of the patented technology. The second "and probably even more
troublesome problem is the failure to establish that the patented features themselves produced any customer demand or value of the product."
Here, the Court finds no evidence adduced at trial that establishes that the patented features of either the ‘457 or the ‘080 patents were critical to MP3 or that they established the basis for the customer demand or value of MP3, let alone were critical or provided value to the whole computer. The evidence cited by Lucent from the trial record shows only that MP3 capabilities overall were a commercially important feature. According to Lucent’s expert Dr. Jayant, MP3 technology originated from many sources and the MP3 standard specifies many aspects of audio compression. Although Jayant pointed out what he considered important in the MP3, the key technology he identified related to the decoding of the bit stream syntax (which allows decoders from different manufactures to interpret and play back the audio signal); he did not identify either the invention of the ‘080 patent or the ‘457 patent as critical to MP3. Additionally, the evidence demonstrated that although the inventions of these patents could be used with the MP3 standard, they were not required or critical to practice the MP3 standard.

Royalty Rate:

With regard to the royalty rate, the court denied Microsoft's JMOL, but granted a new trial, noting that
[I]t is not so much that the jury lacked any evidence on which to base a reasonable royalty rate, but that the evidence provided limited guidance . . . although a plethora of licensing agreements were admitted into evidence, the majority of these which advocated a royalty rate in the 0.5% range lacked sufficient relevance to the technology at issue here, the relevant date of the hypothetical negotiation and/or the scope of a license that would be negotiated between these parties.
View/download the opinion here (link).

Monday, August 06, 2007

KSR Training Continues at the USPTO

Since the release of the post-KSR memo from the USPTO, the Office has started training examiners on post-KSR obviousness, and has submitted a final draft to the OMB for final review (link).

While the final draft has not been release yet, a draft summary has been working its way through the blogosphere. While the draft copy has not been 100% verified, internal USPTO contacts note that the alleged Summary is "consistent" with information being provided during the current training of PTO personnel.

The proposed guidelines, if followed, appear to place more responsibility on the Examiner to explain the reasons for combining references:

When formulating an obviousness rejection, an examiner should expect that a person of ordinary skill in the art will exercise ordinary creativity, common sense and logic.

Examiners should ensure that the written record includes findings of fact concerning the teachings of the applied references and when necessary, the general state of the art.

Office personnel fulfill the critical role of factfinder when resolving the Graham inquiries. It must be remembered that while the ultimate determination of obviousness is a legal conclusion, the underlying Graham inquiries are factual. When making an obviousness rejection, Office personnel must therefore ensure that the written record includes findings of fact concerning the state of the art and the teachings of the references applied. In certain circumstances, it may also be important to include explicit findings as to how a person of ordinary skill would have understood prior art teachings, or what a person of ordinary skill would have known or could have done. Factual findings made by Office personnel are the necessary underpinnings to establish obviousness.

Office personnel may rely on their own technical expertise to describe the knowledge and skills of a person of ordinary skill in the art.

The Summary also provides exemplary rationales for finding obviousness, which include:

A. Combining prior art elements according to known methods to yield predictable results (see III.A. of the guidelines);

To reject a claim based on this rationale, Office personnel must resolve the Graham factual inquiries. Then, Office personnel must articulate the following:

(1) a finding that the prior art included each element claimed, although not necessarily in a single prior art reference, with the only difference between the claimed invention and the prior art being the lack of actual combination of the elements in a single prior art reference;

(2) a finding that one of ordinary skill in the art could have combined the elements as claimed by known methods, and that in combination, each element merely would have performed the same function as it did separately;

(3) a finding that one of ordinary skill in the art would have recognized that the results of the combination were predictable; and

(4) whatever additional findings based on the Graham factual inquiries may be necessary, in view of the facts of the case under consideration, to explain a conclusion of obviousness.

The rationale to support a conclusion that the claim would have been obvious is that all the claimed elements were known in the prior art and one skilled in the art could have combined the elements as claimed by known methods with no change in their respective functions, and the combination would have yielded nothing more than predictable results to one of ordinary skill in the art at the time of the invention. [I]t can be important to identify a reason that would have prompted a person of ordinary skill in the relevant field to combine the elements in the way the claimed new invention does." If any of these findings cannot be made, then this rationale cannot be used to support a conclusion that the claim would have been obvious to one of ordinary skill in the art.

B. Simple substitution of one known element for another to obtain predictable results (see III.B. of the guidelines);

The rationale to support a conclusion that the claim would have been obvious is that the substitution of one known element for another would have yielded predictable results to one of ordinary skill in the art at the time of the invention. If any of these findings cannot be made, then this rationale cannot be used-to support a conclusion that the claim would have been obvious to one of ordinary skill in the art.

C. Use of known technique to improve similar devices in the same way (see III.C. of the guidelines);

[To reject a claim based on this rationale, Office personnel must articulate the following:]

(1) a finding that the prior art contained a "base" device (method, or product) upon which the claimed invention can be seen as an "improvement;"

(2) a finding that the prior art contained a comparable device (method, or product) that was improved in the same way as the claimed invention;

(3) a finding that one of ordinary skill in the art could have applied the known "improvement" technique in the same way to the "base" device (method, or product) and the results would have been predictable to
one of ordinary skill in the art; and

(4) whatever additional findings based on the Graham factual inquiries may be necessary, in view of the facts of the case under consideration, to explain a conclusion of obviousness.

The rationale to support a conclusion that the claim would have been obvious is that a method of enhancing a particular class of devices (methods, or products) was made part of the ordinary capabilities of
one skilled in the art based upon the teaching of such improvement in other situations. One of ordinary skill in the art would have been capable of applying this known method of enhancement to a "base" device (method, or product) in the prior art and the results would have
been predictable to one of ordinary skill in the art. The Supreme Court in KSR noted that "if the actual application of the technique would have been beyond the skill of one of ordinary skill in the art, then using the technique would not have been obvious." If any of these findings cannot be made, then this rationale cannot be used to support a conclusion that the claim would have been obvious to one of ordinary skill in the art.

D. Applying a known technique to a known device ready for improvement to yield predictable results (see III.D. of the guidelines);

E. "Obvious to try" - choosing from a finite number of identified, predictable solutions, with a reasonable expectation of success (see III.E. of the guidelines);

F. Some teaching, suggestion, or motivation in the prior art that would have led one of ordinary skill to modify the prior art reference or to combine prior art reference teachings to arrive at the claimed invention. To reject a claim based on this rationale, Office personnel must resolve the Graham factual inquiries. Then, Office personnel must articulate the following:

(1) a finding that there was some teaching, suggestion, or motivation, either in the references themselves or in the knowledge generally available to one of ordinary skill in the art, to modify the reference or to
combine reference teachings;

(2) a finding that there was reasonable expectation of success; and

(3) whatever additional findings based on the Graham factual inquiries may be necessary, in view of the facts of the case under consideration, to explain a conclusion of obviousness.

The most problematic portion of the guidelines involves the statement that the claim may be "seen" by the examiner as an "improvement" over existing devices or methods - which arguably applies to most patent applications. Examiners have apparently been availing themselves of this technique in recent rejections.

Download the document here (link).

For additional comments on the PTO document, see the Patent Prospector's post here (link).

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