New Patent Reform Bill Introduced In Senate (Seriously!)

"And I beheld when he had opened the sixth seal, and, lo, there was a great earthquake; and the sun became black as sackcloth of hair, and the moon became as blood"

-- Revelation 6:12

As the Horsemen of the Apocalypse plod through the financial markets, Congress, suffices to say, has has a rough patch heading into the final days of the current Session of Congress. So it came as quite a surprise (at least to yours truly) that Senate Minority Whip Jon Kyl (R-AZ) introduced the latest Patent Reform Act last night.

Early reports indicate that the bill "departs substantially from the one sponsored by Judiciary Chairman Patrick Leahy and Sen. Orrin Hatch, R-Utah. The Kyl bill resulted from months of meetings with critics of the Leahy language."

Interestingly, members from the Coalition for Patent Fairness were absent from the talks leading to the latest version of the bill. While there is practically zero chance that this bill will pass in the current session, members of the Senate continue to stress that patent reform will be a "top priority" for 2009.

In short, the bill:

- Increases PTO authority on a number of administrative fronts (money, etc.).

- Introduces "applicant quality controls" (i.e., prior art search w/ analysis), but does not make them mandatory. Instead, section 123 of the bill provides that "the Director may, by regulation, offer incentives to applicants who submit a search report, a patentability analysis, or other information relevant to patentability."

- Modifies inequitable conduct, so that, if inequitable conduct is found during litigation, a court order must contain "findings of fact setting out with specificity the information relating to the conduct at issue not previously considered by the Director and upon which the court based its order." The patentee then would have to file a reissue within 2 months thereafter, and take the matter up with the PTO. If there is "probable cause" that inequitable conduct has occurred, the Director will be authorized to impose civil sanctions of up to $150,000 for each act of misconduct, or up to $1M for a "pattern of misconduct."

- Provides a 9-month "first window" for opposition, where issues related to 35 USC 101-103 AND 112 may be considered. No "lawsuit threat" showing is required for oppositions.

- Provides a "second window" for opposition, where only 102 or 103 considerations based on patents or printed publications will be allowed.

- Applies post-opposition estoppel to any subsequent litigation.

- Requires economic analysis for determining damages. Subject to specific exemptions, "the amount of a reasonable royalty shall not be determined by the use of a standard or average ratio for the division of profits, an industry average rate for royalties, or other methods that
are not based on the particular benefits or advantages of the use of the invention."

- Includes a "Check 21" exception: "With respect to the use by a financial institution of a check collection system that constitutes an infringement under subsection (a) or (b) of section 271, the provisions of sections 281, 283, 284, and 285 shall not apply against the financial institution with respect to such a check collection system."

Read/download a copy of the latest draft here, courtesy of Hal Wegner.

Study Over Impacts of Erroneous Litigation Vs. Settling Published

Last month, the Journal of Empirical Legal Studies issued a press release over a study that suggested that a majority of plaintiffs making the wrong decision to go to trial ended up with a verdict that was less money than the settlement offer. You can read previous coverage by the 271 Blog on this topic here.

Following the press release, the Journal has now published the article, and it can be read/downloaded for free here.

Happy Anti-Software Patent Day

A global coalition of more than 80 software companies, associations and developers has declared the 24th of September to be the "World Day Against Software Patents".
According to Benjamin Henrion, initiator of the StopSoftwarePatents coalition effort,

The aim behind StopSoftwarePatents is to gather a worldwide coalition of businesses and civil society in order to get laws which clearly exempt software from patentable subject matter. This is the best solution for getting rid of 'patent trolls' and uncontrollable legal risks generated by software patents. The day the software industry forms a clear front against software patents will be the beginning of the end for the 'patent trolls'.

See the press release here, along with a link to a draft petition (making reference to the "American disease" of patent law).

More at endsoftwarepatents.org

UPDATE: Apparently, it appears that the entire patent system is "stifling science" - read more at BBC News (link)

CAFC: Improper Revival of Abandoned Application Is No Defense For Infringement

Aritocrat Technologies Australia PTY Lmtd. v. International Game Tech., September 22, 2008 (08-1016)

Aristocrat accused IGT of patent infringment, where the patents-in-suit were revived in the USPTO after being abandoned for paying the national filing fee one day late. During litigation, IGT argued that the PTO improperly revived the applications under the "unintentional" standard, instead of the "unavoidable" standard. The district court agreed that the patents were "improperly revived" and invalidated the patents.

On appeal, the CAFC turned to 35 U.S.C. 282, which catalogs defenses for patent infringement: (1) noninfringement, (2) invalidity, and (3) "any other fact or act made a defense by this title." Under section 282(2), an invalidity defense may be based "on any ground . . . as a condition for patentability."

After review, the CAFC did not hold revival of an abandoned application a condition for patentability. In fact, only sections 101-103 apply:

It has long been understood that the Patent Act sets out the conditions for patentability in three sections: sections 101, 102, and 103 . . . While there are most certainly other factors that bear on the validity or the enforceability of a patent, utility and eligibility, novelty, and nonobviousness are the only so-called conditions for patentability.

* * *

The salient question . . . is whether improper revival is "made a defense" by title 35. We think that it is not. Congress made it clear in various provisions of the statute when it intended to create a defense of invalidity or noninfringement, but indicated no such intention in the statutes pertaining to revival of abandoned applications . . . Rather, these provisions merely spell out under what circumstances a patent application is deemed abandoned during prosecution and under what circumstances it may be revived. Because the proper revival of an abandoned application is neither a fact or act made a defense by title 35 nor a ground specified in part II of title 35 as a condition for patentability, we hold that improper revival may not be asserted as a
defense in an action involving the validity or infringement of a patent.

REVERSED AND REMANDED

Breathing room for prosecutors - quoting from Magnivision, Inc. v. Bonneau Co., 115 F.3d 956 (Fed. Cir. 1997), the CAFC stated:

"Procedural lapses during examination, should they occur, do not provide grounds of invalidity. Absent proof of inequitable conduct, the examiner’s or the applicant’s absolute compliance with the internal rules of patent examination becomes irrelevant after the patent has issued . . . Imperfection in patent examination, whether by the examiner or the applicant, does not create a new defense called ‘prosecution irregularities’

Thus, absent some inequitable conduct, prosecution irregularities should not be the focus in subsequent litigation:

There is good reason not to permit procedural irregularities during prosecution, such as the one at issue here, to provide a basis for invalidity. Once a patent has issued, the procedural minutiae of prosecution have little relevance to the metes and bounds of the patentee’s right to exclude. If any prosecution irregularity or procedural lapse, however minor, became grist for a later assertion of invalidity, accused infringers would inundate the courts with arguments relating to every minor transgression they could comb from the file wrapper. This deluge would only detract focus from the important legal issues to be resolved—primarily, infringement and invalidity.

First-To-File in the U.S., Small Entity Inventors, and Grace Periods

University of Virginia law professor Margo A. Bagley has published a draft paper titled "The Need for Speed (and Grace): Issues in a First-Inventor-to-File World" that looks at various issues and concerns over a first-to-file regime (FITF) proposed recently in the Patent Reform Act. A refreshing aspect of the paper is that it is less concerned on the merits of "whether" the U.S. should switch to FITF and more on "when" and under what circumstances the change should happen to be most beneficial to small entity inventors in the U.S. and beyond:

Small entity inventors include those in universities and other non-profit organizations. The patenting activity of university inventors is of particular interest not only because it is increasing but also because it is associated with entrepreneurship. According to the Association of University Technology Managers (AUTM), its members, more than 80% of whom are colleges and universities, received over $45 billion in research support, filed 15,908 U.S. patent applications (compared to 10,687 in 2001), received 3255 patents, and launched 553 start-up companies in 2006 alone. In fact, since 1980, when the Bayh-Dole Act supporting university-industry technology transfer was passed, AUTM members have founded over 5,724 new companies, or more than one company every two days.

* * *

Because academic researchers have traditionally focused on basic research, as opposed to applied research, inventions generated in universities and disclosed to Technology Transfer Offices (“TTOs”) for patent protection are often embryonic and have only speculative commercial value. University TTOs, having limited funds and an increasing number of invention disclosures, must decide which inventions to prosecute with little information on potential commercialization success. For example, in 2006, AUTM members received 18,874 new invention disclosures from researchers but filed only 11,622 new patent applications.

Interestingly, while the US remains alone in not having FITF, foreign knowledge tranfer offices view this as a good thing. According to ProTon Europe (link), the pan-European network of knowledge transfer offices and companies affiliated with universities and other public research organizations:

European universities and other public research organizations still file on average 5 times less patent applications than their U.S. counterparts, although the total research budgets are comparable. The lower propensity to patent is attributable to 2 main factors: . . . .

The fact that the U.S. patent system is much more favourable to universities than the European system. In addition to lower cost and single language, the U.S. universities are taking advantage of the protection of inventors by the first-to-invent principle, a grace period of one year, the continuation-in-part system, provisional applications, 50% reduction in filing and maintenance fees, no maintenance fees before grant, wider patentable inventions, etc. There is no question that the U.S. universities could not have achieved the reported benefits for the U.S. economy in terms of new products, new companies, and new jobs with the patent system available in Europe.

Thus, through a robust grace period, small entities can get time for commercialization assessments, revenue generation, and academic discourse. However, in order to be truly effective and "harmonized," Bagley argues that FITF in the U.S. must also be accompanied by grace periods in "absolute novelty" jurisdictions, like the EU:

A U.S. move to FITF is unlikely to signal “the end of the world” for small entity inventors, but it does not seem to offer enough benefits, as currently proposed, to justify its potential harms. Nevertheless, if the U.S. is to move to a FITF patent regime, when should it do so? Only when such a move will provide a clear advantage for small entities by facilitating the adoption of a one year grace period outside of the U.S.

[A] move by the United States to a FITF system will likely have negative ramifications for small entity inventors. Delaying a move to FITF until it can be used to facilitate the adoption of a one-year grace period in other countries will allow the United States to make the bitter pill of the race to the patent office considerably easier for many researchers and entrepreneurs to swallow by providing them with something very useful in return. The adage “haste makes waste” surely applies here: a hasty move to FITF may waste our best hope for obtaining from other countries the grace period that is so critical for small entity innovation, academic discourse and prompt dissemination of information.

Read/download a copy of Professor Bagley's draft paper here (link).

Wednesday Shorts: Myhrvold Stalks, EPO Strikes, Lehman Sinks

Nathan Myhrvold and Intellectual Ventures Set for Big Patent Play: over the last few years, Intellectual Ventures (IV) has amassed a whopping 20,000-plus patents and patent applications related to everything from lasers to computer chips. IV now ranks among the world's largest patent-holders -- and the company is ready to press tech giants to sign some of the costliest patent-licensing deals ever negotiated. From the Wall Street Journal: "Tech Guru Riles the Industry By Seeking Huge Patent Fees."

Also read transcript from WSJ interview here. According to Myhrvold, "All of this fear is from people who have guilty knowledge of their own actions. There are lots of major tech companies that grew from zero to gigantically successful in a very short period of time without investing in their own inventions. They got there by using other people's inventions."


EPO Patent Examiners Preparing for Revolt: Tomorrow, EPO examiners are preparing to go on strike for a day, claiming that the EPO Administrative Council "puts profits before patent quality." Furthermore, the examiner union is claiming that "the confidence of the workforce in the EPO President, Alison Brimelow, and her Vice-Presidents is very low. According to internal staff survey conducted in June 2008, only 6% of the workforce have confidence in the management qualities of this body. And only 9% of the patent examiners believe that Brimelow and the Vice-Presidents actively promote patent quality.”

But is the union being completely honest here? Joff Wild, over at the IAM blog, has the complete story here.


RFID Patents Surge In Korea: According to Korea Intellectual Property Office (KIPO), the number of patents filed for RFID technologies has grown by 60%. In 2001, about 70 applications were filed. That number grew to 186 in 2003, 892 in 2005 and 1,201 in 2007. The most active assignees are ETRI (293 patents), Samsung Electronics (209 patents), SK Telecom (140 patents) and LG Innotek (117 patents). Read more here.


Lehman Brothers - What About their Patent Portfolio? after last night's creditors committee meeting, there is a distinct possibility that Lehman will file a motion to approve a break-up fee and bid procedures for an asset sale. So what will they do with their patents and patent applications? Good question.

It appears that Lehman "proper" has only 9 issued patents, but possesses a much larger collection of patent applications (70+). Also, Lehman holds approximately 11 patents as a collateral agent for a company called Serena Software International, and an additional 10 patents as a security agent for Danish company CFS Slagelse A/S. See the PTO listing of Lehman patents and patent applications here. Total Lehman patent holdings are estimated to be over 500 patents and patent applications.

Interestingly, in December 2007, the PTO issued US Patent 7,310,618, titled "Automated loan evaluation system", which disclosed a system that would “… remove some of this guesswork and provide a reliable, fair, and consistent evaluation for all loans, including sub-prime loans.” The assignee? Lehman Brothers Inc. (Hat Tip: Best Mode Blog)

Most Litigious NPE's of All Time

Joff Wild over at the IAM Blog recently chatted with Dan McCurdy, chairman of PatentFreedom and CEO of Allied Security Trust, who is issuing a list of the most litigious non-practicing entities (aka "patent trolls") for the next issue of IAM Magazine.

Who are the most trigger-happy NPE patentees? According to McCurdy the most active companies in the U.S. are:

(1) Acacia Technologies (link) - 308 cases total, 239 cases since 2003;

(2) Rates Technology Inc. - 130 cases total, but only 38 cases since 2002;

(3) Millennium IP (link) - 99 cases total, 90 cases since 2003;

(4) Cygnus Telecommunications Technology - 69 cases total, 31 cases since 2003;

(5) General Patent Corp International (link) - 66 cases total, 36 cases since
2003;

(6) Plutus IP (link) - 59 cases total (all of those filed since 2003);

(7) Papst Licensing GmbH - 59 cases total, 31 cases since 2003;

(8) F&G Research - 56 cases total, 51 cases since 2003;

(9) Ronald A Katz Technology Licensing (link) - 54 cases total, 48 cases since 2003;

(10) Catch Curve (link) - 53 cases total, 36 cases since 2003.

Favorite NPE jurisdictions include:

1) E.D. Texas (surprise!)

2) N.D. California

3) C.D. California

4) S.D. New York

5) N.D. Illinois

Also, the research found that, for the 2007 year, 16.6% of all U.S. patent litigation involved NPEs. In 1997, the figure had stood at 2.4%.

See Joff Wild "Acacia tops troll litigaition league" (link)

USPTO Issues Dual Memos on 112 Rejections

Earlier in the year, the CAFC issued its opinion in Halliburton Energy Services, Inc. v. M-I LLC, 514 F.3d 1244 (Fed. Cir. 2008), where the court stated "[w]e note that the patent drafter is in tlle best position to resolve the ambiguity in the patent claims, and it is highly desirable that patent examiners demand that applicants do so in appropriate circumstances so that the patent can be amended during prosecution rather than attempting to resolve the ambiguity in litigation."

Taking this language to heart, the PTO issued dual memorandums "to remind the examining corps of the appropriate use of indefiniteness rejections-under 35 U.S.C. 112, second paragraph."

To wit:

The essential inquiry pertaining to this requirement is whether the claims set out and describe a particular subject matter with a reasonable degree of clarity and particularity. Definiteness of claim language must be analyzed, not in a vacuum, but in light of the content of the particular application disclosure, the teachings of the prior art, and the claim interpretation that would be given by one having ordinary skill in the pertinent art at the time the invention was made . . . providing a definition of a claim term in the written description does not preclude a finding of indefiniteness of the claim term. The clarity of the provided definition of a term in a claim must also be evaluated from the perspective of one of ordinary skill in the art. If an examiner, when evaluating a claim term's disclosed definition, concludes the definition is not clear and precise and one of ordinary skill in the art would consider the term indefinite (e.g., the definition's broadest reasonable interpretation results in more than one meaning and/or interpretation), then a rejection under 35 U.S.C. 112, second paragraph, would be appropriate.

Also, with regard to 112, as it applies to means-plus-function claims:

A rejection under 35 U.S.C.112, second paragraph, is appropriate if there is no disclosure (or insufficient disclosure) of structure, material, or acts for performing the claimed function. A bare statement that known techniques or methods can be used would not be a sufficient disclosure.

[F]or a computer-implemented means-plus-function claim limitation that invokes 35 U.S.C. 112, sixth paragraph, the corresponding structure is required to be more than simply a general purpose computer or microprocessor. The corresponding structure for a computer-implemented function must include the algorithm as well as the general purpose computer or microprocessor. The written description of the specification must at least disclose the algorithm that transforms the general purpose microprocessor to a special purpose computer programmed to perform the disclosed algorithm that performs the claimed function. Applicant may express the algorithm in any understandable terms including as a mathematical formula, in prose, in a flow chart, or in any other manner that provides sufficient structure. See MPEP 2181 for examples where the courts held that the corresponding structure is adequate for the computer-implemented means plus-function claim limitations. A rejection under 35 U.S.C. 112, second paragraph, is appropriate if the written description of the specification discloses no corresponding algorithm.

Read/download "Rejections under 35 U.S.C. 112, second paragraph, when examining means (or step) plus function claim limitations under 35 U.S.C. 112, sixth paragraph" (link)

Read/download "Indefiniteness rejections under 35 U.S.C. 112, second paragraph" (link)

EPO Publishes Helpful Presentations From September Program

The Organization for Economic Co-operation and Development and the European Patent Office recently held a conference on Sept. 3-4 in Vienna, titled "Patent Statistics for Decision Makers" that addressed issues such as patent valuation, patent strategies, business dynamics, and technology markets.

The EPO has been kind enough to make many of the presentations available for download (link), and all of them are worth a read. Some of the papers include:

• Ciaran McGinley, Controller, EPO, "Shining a Light" (link), arguing that the situation with patents is akin to global warming

• Roger J. Burt (Senior Counsel, Intellectual Property Law, IBM Europe): Patent strategies? Just-in-case;

• Nils Omland (WHU Otto Beisheim School of Management): The use of patent data to measure patent value: an overview;

• Jun Suzuki (National Graduate Institute For Policy Studies) [Authors: A. Goto (Japan Fair Trade Comission), K. Motohashi (University of Tokyo), Y. Naito (Artificial Life Laboratory), J. Suzuki, S. Tamada (Kansei Gakuin University and RIETI)]: Patent citations in Japan: database construction for inventor and examiner citations;

• Hugo Pillu (ERASME, Ecole Centrale Paris): Measure of international knowledge flows thorough input-based patent citation indicator;

• Alessandro Sterlacchini [Authors: F. Schettino, A. Sterlacchini, F. Venturini (Universita Politecnica delle Marche)]: Inventive productivity and patent quality: evidence from Italian inventors;

• Bart Leten [Authors: R. Belderbos, S. Kelchtermans, B. Leten (KU Leuven)]: Usage of, or involvement in science: what matters for firm technological performance?; and

• Peter Hingley (European Patent Office) [Authors: S. Bas (LMU Munich), P. Hingley]: Number and sizes of applicants at the EPO.

Forbes: Top Patent Revenue-Generating Universities

Continuing the recent media focus on universities and patents, Forbes has a great article on IP cash cows, and which universities are "bottling the most milk" from their patent portfolios:

(1) New York University

2006 Research Expenditures: $210 million
2006 Research-Related Income: $157 million
Yield: 75%

(2) Wake Forest University

2006 Research Expenditures: $146.3 million
2006 Research-Related Income: $60.5 million
Yield: 41%

(3) Stevens Institute of Technology

2006 Research Expenditures: $28 million
2006 Research-Related Income: $4.56 million
Yield: 16%

(4) Ohio University

2006 Research Expenditures: $24 million
2006 Research-Related Income: $3.26 million
Yield: 13%

(5) Brigham Young University

2006 Research Expenditures: $26 million
2006 Research-Related Income: $3.07 million
Yield: 11.7%

(6) University of Rochester

2006 Research Expenditures: $355 million
2006 Research-Related Income: $38 million
Yield: 11%

(7) University of Minnesota

2006 Research Expenditures: $594 million
2006 Research-Related Income: $56 million
Yield: 9.4%

(8) University of Florida

2006 Research Expenditures: $459 million
2006 Research-Related Income: $42.9 million
Yield: 9.3%

(9) Stanford University

2006 Research Expenditures: $699 million
2006 Research-Related Income: $61.3 million
Yield: 8.7%

(10) Northwestern University

2006 Research Expenditures: $348 million
2006 Research-Related Income: $29.9 million
Yield: 8.6%

(11) Mount Sinai School of Medicine

2006 Research Expenditures: $269 million
2006 Research-Related Income: $20.1 million
Yield: 7.5%

(12) University of Massachusetts

2006 Research Expenditures: $404.9 million
2006 Research-Related Income: $27.2 million
Yield: 6.7%

(13) University of Utah

2006 Research Expenditures: $246.5 million
2006 Research-Related Income: $16.3 million
Yield: 6.6%

(14) University of California

2006 Research Expenditures: $3.04 billion
2006 Research-Related Income: $193.4 million
Yield: 6.4%

(15) University of South Alabama

2006 Research Expenditures: $20.6 million
2006 Research-Related Income: $1.2 million
Yield: 5.9%

For all the details, read "Universities That Turn Research Into Revenue" (link)

Also See "In Pictures: 15 Top Patent-Revenue-Generating Universities" (link)

Why Academia Takes Profits Over Wonder

"In academia’s continuing pursuit of profit, the wonder of simple serendipitous discovery has been left on the curb."

- Janet Rae-Dupree, "When Academia Puts Profit Ahead of Wonder", New York Times, September 6, 2008 (link)

Over the weekend, the NYT's hand wringing editorial over the "corporatization" of university research has sparked debate in the patent community (see Patently-O, Patent Docs, Patent Hawk, IPBiz). While there are considerable points of argument over the merits of the article and the Bayh-Dole Act, the fact remains that some universities are are getting paid on their patents. Big time.

The Deal published a recent article titled "A Seller's Market," which looked at private equity investors and hedge finds, who are joining established players in funding pharmaceutical research. While the equity-academia relationship has been around for a little while, some recent activity has produced eye-popping numbers that prompted one investment manager to state that "the real biotech boom of the late '80s and early '90s has now come to fruition." From the article:

• Children's Hospital Foundation, the parent company of the Children's Hospital of Philadelphia, sold its royalty interest in sales of the oral gastroenteritis vaccine RotaTeq to Royalty Pharma of New York for $182 million in cash.

• Earlier this year, in the biggest college royalty deal to date, Northwestern University sold a portion of its worldwide royalty stake in the blockbuster pain drug Lyrica to Royalty Pharma for $700 million in cash, earmarking the proceeds for the scientists responsible for the chemical compound, the university's endowment, financial aid, research and construction of new buildings and laboratories.

• Since 2004, money spent on royalty deals with research institutions has skyrocketed almost eightfold, says Jim Webster, an early investor in healthcare royalties and managing partner and co-founder of Capital Royalty LP in Houston. In 2004, these institutions monetized royalty interests totaling about $260 million. That jumped to $750 million in 2005 and to $1.9 billion in 2007. "There are not many royalty monetizations less than $50 million," he says. Since 2004, private equity involvement in university research has boomed.

The money keeps coming, and new players continue to emerge:

• With its 15 employees scouring for deals, Paul Capital has bought royalties from a handful of research houses, including Aston University and Imperial College . . .The firm closed its first fund in April 2000 with about $300 million in equity capital commitments and three years later closed its second fund with about $650 million in capital. Paul Capital buys royalties not only from universities and other institutions but also from companies. It looks at the quality, remaining patent life and safety profile of the product and how it has performed in the marketplace . . . Capital Royalty in Houston got its start in 2003 after Webster and Harry Loveys left Toronto-based Drug Royalty Corp. (now DRI Capital Inc.) to help start the firm. The firm has established a $325 million fund for doing deals.

• Cowen, the newest royalty shop, formed its practice in January 2007, and the firm employs seven professionals, a chief financial officer and two support staffers. It began raising its first fund in November 2007 and in nine months closed on more than $500 million in capital commitments. The fund was oversubscribed by $150 million. The firm has done five royalty deals so far -- all with companies -- and committed more than $260 million in capital, though its founders, previously employed at Paul Capital Healthcare, have done deals with nonprofits and universities.

Read Cheryl Meyer, "A seller's market" in its entirety here (link)

Beating NPE Patent Holders At Their Own Game

Electronics Design, Strategy, News (EDN) magazine published an article yesterday, titled "If You Can't Beat Patent Trolls, Join Them," which covers the latest in the manufacturers-vs.-NPE's battles:

Stuck in apparent stalemate on the legislative side, large companies have formed two new organizations—Allied Security Trust (AST) and PatentFreedom LLC—that use market forces rather than laws to ward off trolls. Both entities emerged from discussions among large companies and IP experts, particularly at ThinkFire, an intellectual property advisory firm that counts Hewlett-Packard and Cisco Systems among its clients. Those two companies as well as others formed AST last year.

* * *

AST, a Delaware statutory trust, was launched in March 2007, but just came out of stealth mode in July . . . The trust buys patents on the open market, grants licenses to its members, and then sells the patents—with those licenses attached—back into the market.

* * *

PatentFreedom, a limited liability company, is a subscription service that provides detailed information on NPEs. As McCurdy sees it, operating companies are at a disadvantage because of the secretive nature of trolls. While NPEs can gather all sorts of information about the large well-known public companies that are their targets, the targets often have very little information on the NPEs

PatentFreedom’s goal is to correct this “asymmetry of information,” said McCurdy. The company had a dozen subscribers as of August and McCurdy expects that number to triple by the end of the year. Annual subscriptions range from $50,000 to $75,000 a year, a drop in the bucket for operating companies. The company also has a lower cost “pay-as-you-go” model for those companies that aren’t frequently targeted by NPEs.

PatentFreedom has identified more than 125 entities with some 800 subsidiaries holding more than 9,000 patents. “And we are confident that there are more than 20,000 US patent families now owned by trolls,” said McCurdy. “We just haven’t found them all yet.”

The article also included this little tidbit:

[N]ot all large companies think patent trolls are threats . . . It simply depends on a given company’s business strategy . . . In fact, some large operating companies even finance trolls and/or use trolls to their own advantage, according to Steve Hoffman, CEO of ThinkFire. Although he won’t name any names, he said he knows of some operating companies that sell their patents to trolls so the trolls can do the dirty work—asserting the patents against competitors without the operating company being involved.

Read the article here (link).

PTO General Counsel Toupin Continues to Promote AQS for IPO Annual Meeting

Hal Wegner distributed an interesting presentation this morning from PTO GC James Toupin which confirms that (1) despite a potential "changing of the guard" in the coming elections, the PTO continues to push for the same reform measures, and (2) despite mounting criticism, the PTO continues to see no problems with the tactics used for instituting reform.

The presentation confirms yet again that allowance rates have been plummeting since 2003. Continuation filing rates have tripled since 1998 (including RCE's), while CIP filings continue to remain steady. Average first action pendency is at 25 months, while average total pendency is about 32 months. As usual, the applicants are mostly blamed for these problems.

What is interesting is the PTO's rationale for requiring mandatory IDS's (i.e., Applicant Quality Submissions (AQS)). According to the presentation, 37 C.F.R. 11.18 (b) requires that papers filed with the PTO are certified "to the best of the party’s knowledge, formed after an inquiry reasonable under the circumstances" to be for a proper purpose and nonfrivolous.

Now - get this - the PTO's position is that (1) “reasonable inquiry” includes reviewing prior art submitted, and (2) applicants should not make filings "to create unnecessary delay includes not filing continuations to keep application pending."

While the MPEP states that "reasonable inquiry" does not create any new duty on the part of an applicant to conduct a prior art search (MPEP 410), the PTO posits that this section was "written when applications were not published and patents were not online." Accordingly,

[The] USPTO may by rule impose obligations on applicants that would not be required under inequitable conduct doctrine. In re Bogese, 303 F.3d 1362 (Fed. Cir. 2002), [and] [a]gencies are entitled to deference in promulgating rules notwithstanding prior court interpretations of statute independent of agency interpretations. National Cable & Telecommunications Assn v. Brand X Internet Services, 545 U.S. 967 (2005).

Download a copy of the presentation here (link)

CAFC: Prior Art Recycling Permitted For Reexamination

In Re Swanson, September 4, 2008 (07-1534)

In 1997, the CAFC decided In re Portola Packaging, holding that “prior art previously considered by the PTO in relation to the same or broader claims" would preclude reexamination requests on the same art.

In 2002 Congress amended § 303(a) to include an additional sentence, explaining that the amendment “overturns the holding of In re Portola Packaging" and that "[t]he existence of a substantial new question of patentability is not precluded by the fact that a patent or printed publication was previously cited by or to the Office or considered by the Office."

Swanson's (aka Abbott's) Case: Abbott Laboratories (“Abbott”) licensed Swanson's patent, and sued Syntron Bioresearch, Inc. for infringement. Syntron countered that Swanson's patent was invalid, and cited prior art that included a reference ("Deutsch") that was considered by the PTO during the original prosecution.

The district court held the patent was not invalid based on the prior art. Syntron appealed. The CAFC agreed with the district court and held that Swanson's patent was not invalid. Syntron then went to the PTO with the same art seeking reexamination. Despite the fact that (1) the prior art was previously considered in the PTO, (2) the district court considered the same art, and (3) the CAFC agreed with the district court, the PTO nevertheless found a "substantial new question of patentability" under § 303, and subsequently invalidated the patent.

On appeal, the CAFC agreed that, despite the court proceedings dealing with the same issues, the PTO had the right to institute reexamination proceedings anyways:

The the statutory language, legislative history, and different purposes underlying reexamination and federal court proceedings suggest that the determination of a substantial new question is unaffected by these court decisions . . . the legislative history for both the original and amended reexamination statute suggest that Congress was concerned only with the consideration of issues in prior PTO examinations, not prior civil litigation . . . Not once in the legislative history did Congress refer to references or issues addressed in prior civil litigation.

* * *

Section 303’s language and legislative history, as well as the differences between the two proceedings, lead us to conclude that Congress did not intend a prior court judgment upholding the validity of a claim to prevent the PTO from finding a substantial new question of validity regarding an issue that has never been considered by the PTO. To hold otherwise would allow a civil litigant’s failure to overcome the statutory presumption of validity to thwart Congress’ purpose of allowing for a reexamination procedure to correct examiner errors, without which the presumption of validity never would have arisen.

With regard to art before the PTO:

Section 303(a) now mandates that “the existence of a substantial new question of patentability is not precluded by the fact that a patent or printed publication was previously cited by or to the Office or considered by the Office.” Thus, under § 303(a) as amended, a reference may present a substantial new question even if the examiner considered or cited a reference for one purpose in earlier proceedings. Nothing in the statute creates an exception to this rule for references considered in the context of a rejection of prior claims. Indeed, such an exception would overwhelm the rule and thwart a central purpose of the amendment, to overrule In re Portola Packaging.

[T]he 2002 amendment removes the focus of the new question inquiry from whether the reference was previously considered, and returns it to whether the particular question of patentability presented by the reference in reexamination was previously evaluated by the PTO. As was true before the amendment, an “argument already decided by the Office, whether during the original examination or an earlier reexamination” cannot raise a new question of patentability.

* * *

Determining the scope of an examiner’s previous consideration of a reference will generally require an analysis of the record of the prior proceedings to determine if and how the examiner used the reference in making his initial decisions. As we believe that this inquiry is most accurately viewed as a question of fact, we will review the Board’s findings regarding the scope of consideration of a reference during prior examinations for substantial evidence.

AFFIRMED

Light Reading For Labor Day: 2007 Annual US Court Report

When you're not preoccupied wiping BBQ sauce from your hands (and children's faces) this weekend, the Statistics Division for the Administrative Office of U.S. Courts released its annual report (all 416 pages) on "Judicial Business of the United States Courts."

Some interesting findings:

• After rising 14 percent in 2006, filings in the Federal Circuit fell 13 percent in 2007 (down 227 appeals) to 1,545, almost the same as total filings in 2003. The decreases appear to be related primarily to reductions in non-patent appeals (e.g., Merit System Protection Board, CAVC, etc.).

• As of September 30, 2007, 34 cases appealed from the USPTO were pending at the CAFC, as compared to 51 cases pending the year before.

• The Eastern District of Texas received more than 250 cases related to patents and reported higher filings of contract cases and prisoner petitions.

• In the district courts, 2,896 patent cases were launched in 2007, which is a slight bump (2.3%) from the 2,830 cases filed in 2006. To date, the biggest year for patent cases was 2004, where 3,075 cases were filed.

• Pendency of patent cases appears to be up: 353 patent cases were pending 3 years or more in 2006, as compared to 408 cases in 2007.

What was somewhat surprising was that, in general, little has changed in terms of the raw number of cases filed, terminated, and pending.


Read/download the entire report here (link)

See AmLaw Daily "Federal Court Statistics for 2007 Suggest Civil Courts Functioning As Expected" (link)

Patent Reform Touches DNC in Denver

From the "Tech Daily Dose" for Congressional Daily:

Rep. Zoe Lofgren, D-Calif., told a crowd in Denver on Tuesday that it is crucial for Congress to pass legislation to update the U.S. patent system next year -- even if the measure is a scaled back version of the broad, controversial language that was in play during the 110th Congress. The House passed its patent bill but a companion stalled in the Senate.

Lofgren, who represents the Bay Area and is a key member of the House Judiciary Committee, said a new effort should begin with "things we know we can agree on." A proposal that would curb judicial "venue-shopping" for favorable courts is critical as is language to address patent abuses, she said. "How do you legally set a framework that prevents abuses and allows for a vigorous system that protects intellectual property?" Lofgren asked aloud. "It's not easy to come up with solutions."

Read the short article here (link)

USPTO Seeks Volunteers for "Continuing Education for Practitioners" Program

From a recent USPTO news release:

The USPTO is developing a Continuing Education for Practitioners (“CEP”) system for on-line delivery of educational materials to patent practitioners, and is seeking help in piloting the on-line system. The CEP system is built on the recognition that a smoothly operating patent system requires well-qualified USPTO personnel working hand-in-hand with up-to-date patent practitioners. The goal is to increase efficiency, reduce pendency, and improve quality in the patent process. Additional information concerning the CEP system and the pilot test is provided below.

The CEP System

The CEP program would present brief educational materials concerning recent USPTO rule changes, revised patent examination guidelines, or the like. The practitioner would respond to one or more verification questions or prompts after reviewing the educational materials. The verification questions will be drawn directly from the training material and the practitioner will have ready access to the educational material while responding to the verification questions. In other words, the verification questions are designed to verify the practitioner has reviewed the materials; they are not a test of knowledge or skills.

The total time spent reviewing the educational materials and responding to verification questions should be approximately one hour. Practitioners would be required to complete one CEP program per year. As envisioned, the system would automatically notify practitioners of the training requirements, send appropriate reminder notices, and track completion. No fee will be charged to access the training materials; a fee would accrue only for failing to timely complete the training.

You may volunteer or submit questions on the pilot program by sending an e-mail to OEDonline@uspto.gov. The e-mail should include the name, registration number, telephone number, and e-mail address for the volunteer. Telephone inquiries concerning the pilot test may be directed to Bill Griffin (571-272-4097) in the Office of Enrollment and Discipline.

View the news release here.

Pending Study Suggests Plaintiffs Should Settle, Rather Than Litigate

While it isn't patent-specific, a somewhat controversial study will be published in the Journal of Empirical Legal Studies that looked at 2,054 cases that went to trial from 2002 to 2005 to see if parties are better off settling rather than going to trial.

Of course, one of the problems with such a study is that you can only make one-way determinations when evaluating litigation decisions. In other words, the only useful data would be refused settlement offers (that aren't sealed) compared to related jury verdicts. Nevertheless, some potentially interesting findings were made:

Generally, defendants were "wrong to go to trial" less often than plaintiffs - for defendants, the choice to litigate was wrong in 24 percent of cases, while plaintiffs were wrong in 61 percent of cases. In just 15 percent of cases, both sides were right to go to trial.

However, while defendants were wrong less often, the price for being wrong was substantially greater - getting it wrong cost plaintiffs about $43,000. For defendants, the cost was $1.1 million.

[M]ost of the plaintiffs who decided to pass up a settlement offer and went to trial ended up getting less money than if they had taken that offer. “The lesson for plaintiffs is, in the vast majority of cases, they are perceiving the defendant’s offer to be half a loaf when in fact it is an entire loaf or more,” said Randall L. Kiser, a co-author of the study and principal analyst at DecisionSet, a consulting firm that advises clients on litigation decisions.

As part of the study, which is the biggest of its kind to date, the authors surveyed trial outcomes over 40 years until 2004. They found that over time, poor decisions to go to trial have actually become more frequent.

The study has attracted the attention of the New York Time, that wrote in a recent article:

[T]he study tried to account for that possibility and found that factors like the years of experience, rank of a lawyer’s law school and the size of a law firm were less helpful in predicting the decision to go to trial. More significant was the type of case.

For example, poor decisions by plaintiffs to go to trial “are associated with cases in which contingency fee arrangements are common,” according to the report. “On the defense side, high error rates are noted in cases where insurance coverage is generally unavailable.”

The findings are consistent with research on human behavior and responses to risk,
said Martin A. Asher, an economist at the University of Pennsylvania and a co-author. For example, psychologists have found that people are more averse to taking a risk when they are expecting to gain something, and more willing to take a risk when they have something to lose.

“If you approach a class of students and say, I’ll either write you a check for $200, or we can flip a coin and I will pay you nothing or $500,” most students will take the $200 rather than risk getting nothing, Mr. Asher said.

But reverse the situation, so that students have to write the check, and they will choose to flip the coin, risking a bigger loss because they hope to pay nothing at all, he continued. “They’ll take the gamble.”

Read NYT: "Study Finds Settling Is Better Than Going to Trial" (link) (graphic)

See ABA Journal: "Most Plaintiffs Who Reject Settlement Offers Do Worse at Trial" (link)

CAFC: "Original" Applications Include Continuations For the Purposes Of Inter Partes Reexam

Cooper Technologies Co. v. Director U.S. Patent and Trademark Office, (08-1130), August 19, 2008

Pursuant to section 4608 of the American Inventors Protection Act of 1999 (AIPA), the inter partes reexamination procedure is available for "any patent that issues from an original application filed in the United States on or after" November 29, 1999

Cooper challenged the propriety of an inter-partes reexamination request on a continuation patent, filed after November 29, 1999, whose parent applications were filed before that date. According to Cooper, the continuation did not qualify as an "original application" for the purposes of the AIPA. The PTO argued that "oringal applications" included continuations and other related applications

The CAFC looked to legislative and PTO rulemaking histories to determine whether PTO pronunciations on the meaning of "original application" were "procedural" or "substantive." The CAFC clearly found that the PTO's remarks were procedural, thus deserving of increased, Chevron-type deference on review.

In this case, the Patent Office’s interpretation of "original application" does not effect any change in existing law or policy; rather, it is a prospective clarification of ambiguous statutory language regarding a matter of procedure. It is therefore "interpretive"- rather than "substantive" . . . Because the Patent Office is specifically charged with administering statutory provisions relating to "the conduct of proceedings in the Office," 35 U.S.C. § 2(a)(2)(A), we give Chevron deference to its interpretations of those provisions.

Under the two-step Chevron analysis, the reviewing court (1) must "always first determine ‘whether Congress has directly spoken to the precise question at issue.’" When a phrase is not a defined term in a statute, and when the statutory context does not provide any "concrete indication of Congress’s intended meaning," the reviewing court (2) examines "whether, in its own interpretation of its responsibilities under the Act, the agency charged with the everyday administration of the provision applies ‘a permissible construction.’"

On the term "original application," the CAFC found that the term as used in the statute did not have an "established meaning in patent law." Citing numerous ambiguities in the PTO's documentation and the legislative history, the court could not find anything in the legislative history that makes Congress’s intended meaning of "original application" clear.

Turning to the PTO's interpretations of "original application," the CAFC found the PTO's interpretations permissible:

Reissue

The Patent Office [points out] that its interpretation of section 4608 does not foreclose inter partes reexamination of reissue patents, but simply limits those proceedings to reissues of original applications filed after November 29, 1999. Such reissues are deemed by operation of law to replace the surrendered originals and, thus, are entitled to treatment as original patents. See 35 U.S.C. § 252. We agree that this interpretation is reasonable.

Continuations

Cooper argued that allowing inter-partes reexaminations on continuations would violate 35 USC § 120 which states "An application . . . shall have the same effect, as to such invention, as though filed on the date of the prior application . . . or on an application similarly entitled to the benefit of the filing date of the first application." The CAFC disagreed with Cooper:

Cooper’s argument misconstrues section 120. The title of section 120 is "Benefit of earlier filing date in the United States." . . . The "effect" described in section 120 is the benefit of the earlier filing date - i.e., the benefit for purposes of priority and section 112; the statute itself makes this clear in the clause "or on an application similarity entitled to the benefit of the filing date of the first application." . . . Nothing in section 120 guarantees that a continuation filed after the effective date of the AIPA will be exempt from inter partes reexamination, just because its parent application
is . . . Construing section 120 . . . we held "[i]n essence, ‘having the same effect’ means having the benefit of the filing date of the earlier filed application" - i.e., the benefit of priority.

[W]e conclude that the Patent Office’s interpretation of section 4608 is permissible and therefore entitled to deference. Under the Patent Office’s construction, "original application" includes continuation applications.

AFFIRMED

Gary Odom, a.k.a. Patent Hawk, Sues Microsoft for Patent Infringement

Gary announced yesterday on his patent blog site Patent Prospector, that he has filed a complaint in the Eastern District of Texas, accusing Microsoft of infringing U.S. Patent 7,363,592, titled "Tool Group Manipulations."

Download a copy of the complaint here.