THE POINT OF NOVELTY

Why so quiet?

2011-12-21T08:06:00.000-08:00

Sadly, it has been a while since I posted on the Point of Novelty.

The reason for the hiatus is two-fold: First, I have just been really busy since the beginning of October; Second, and perhaps more on point, it has bee a fairly quiet couple of months for significant developments in IP law. The Federal Circuit has only issued three precedential patent opinions so far this month and only three in November, and none of those cases excited me enough to sit down and write about them.

The lack of activity over the last two months suggests that we may see a flurry of activity early in the new year and I expect to get back on track with more regular posts. Until then, I wish you all a very happy holiday season and a wonderful new year.

Patent Reform Bill Becomes Patent Reform Law

2011-09-16T09:31:00.000-07:00

No surprises here, but now its official. President Obama has signed the America Invents Act and has now officially brought us patent reform. As of today, the old qui tam false marking cases are dead. As of today, multi-defendant patent cases will be less frequent. As of today, the clock is ticking to when the other significant provisions of the new law go into effect. If nothing else, it should be interesting. Stay tuned.

Highlights of the America Invents Act

2011-09-15T12:29:00.000-07:00

I didn't get around to writing up a summary of the changes that are coming when H.R. 1249 gets the President's signature this week. Fortunately, many others have. Here is a link to one such write up put together by Ken Levitt and Ryan Fortin in Dorsey's Minneapolis office. Thanks guys!

Unintended Consequences from Patent Reform- Joinder and the Race to the Courthouse

2011-09-15T06:54:00.000-07:00

One of the many features of the America Invents Act, is anew statute addressing joinder in patent cases. (Added as 35 U.S.C. 299). Under this new section of the Patent Act, aplaintiff will no longer be able to group unrelated defendants together simplybecause they are accused of infringing the same patent. Once President Obama signs the patent reform bill intolaw (which is expected to happen tomorrow), there will need to be a legitimate factual nexus among the variousdefendants – which in most cases will require making, using or selling the sameproduct.

What this means for plaintiffs’ is that in more cases thannot, new cases will have only one defendant per complaint instead of the largecollection of defendants that are now common in most patent cases. This won’t stop the case from being filed, ofcourse, but will result in a modest increase in transaction costs for filing acomplaint since for 10 defendants a plaintiff will need to file 10 complaintsand pay $3500 in filing fees instead of $350. (We should expect to see a spike in the number of patent cases filednext year, since the “typical” case filed recently will now require multiplefilings). This change should also makeit easier for individual defendants seeking to transfer the case from a venuethat it has little or no connection to, since (in theory) it no longer needs toconsider the potential ties other defendants may have to the plaintiff’s chosenforum. On the downside, it may also makethe logistics of joint defense groups slightly more complicated as defendants’will need to coordinate across a number of related cases instead of actingwithin a single case. (As a practicalmatter, I expect that most judges will likely be inclined to consolidate the related cases atleast for purposes of discovery, minimizing the logistical complications.)

So, what are the unintended consequences referred to inthe title of this post? It may becoincidence (if you believe in such stuff), but the number of multi-defendantcases filed since the Senate passed the patent reform bill seems unusuallyhigh. PriorSmart litigation alerts so far this week show 88 new complaints with 515 defendants, including today's report of 18 new complaints against a whopping 196 defendants. It looks like plaintiffs areracing to the court house to get there last multi-defendant complaints filedbefore President Obama signs the bill into law and changes the rules of thegame. No one is being sued who wouldn’teventually be sued anyway, but they may be seeing the lawsuit a bitsooner. Welcome to the brave new world of patent reform.

Does First Inventor To File REALLY favor Big Business?

2011-09-14T09:38:00.000-07:00

Patent reform is now a reality. The bill is in the hands of President Obama and it’sexpected that it will be signed into law on Friday. One of the significant and controversial changesin the America Invents Act is that patents will now be awarded to the firstinventor to file, rather than the first inventor. Every time first-to-file has been proposedfor the U.S., many commentators would cry out that first-to-file is bad forsmall companies and individual inventors since large corporations have theresources needed to get applications on file fast. Clearly, big corporations have financialresources, but does that really mean that they have an edge in a first-to-filesystem?

In a race to the patent office, speed and agility will beat a premium. Currently at many large companies,the large budget – those resources that the commentators all fear- comes with aprice. Layers of corporate bureaucracy make theprocess from invention to filing fairly long. Many months, sometimes years maypass before an application is filed. For these large companies to succeed in afirst-to-file paradigm, the process currently used to identify inventions,gather and evaluate invention disclosures from inventors, approve a disclosurefor filing, prepare the application, and approve the application for filing needto be reviewed and streamlined. These companies are currently built for power,not speed, and need to change their thinking or suffer a disadvantage in thefirst-to-file system.

In contrast, small companies, should be able to movequickly to get applications for important inventions on file. Budget will, of course, play a part in thedecision to move forward, but its certainly not the only (or main) factor thatwill determine who has the advantage in the new first inventor to fileparadigm. The reduced patent office feesavailable for small entities, the strategic use of provisional patentapplications, and a lower cost “Track 3” filing system that will be rolled out by the patent office that will allowapplicants to pay a lower fee to file while deferring examination for a laterdate, should provide small entities with the tools needed to insure that thefirst inventor to file system serves them well.

In short, I don’t believe that the first inventor to filesystem will inherently favor big entities over small. It will ultimately favor those that adaptbest to the new system. Ladies andgentleman, start your engines – the race to the patent office is on.

Steve Jobs: Visionary and Prolific Inventor on Design Patents

2011-08-25T09:23:00.000-07:00

In the wake of Steve Jobs' announcement that he is stepping down as C.E.O. of Apple, today's New York Times has an interesting interactive piece illustrating over 300 patents in which Mr. Jobs is a named inventor.
Given Apple's ability to consistently deliver sleek consumer products with a unique look and feel over the years, it is not too surprising that a majority of these patents are design patents, rather than utility patents. Creative industrial design has been a hallmark of Apple, and Apple recognized that this key aspect of its innovation was worthy of protection.

The lesson from Steve Jobs: If you invest in distinguishing your product in the market place with unique industrial design, you should also protect that investment through design patent protection.

Parallel Networks: Judge Davis Grants Summary Judgment in Favor of 99 Defendants

2011-08-19T08:04:00.000-07:00

Following up on my June 9 post regarding the Parallel Networks case, Judge Davis has now issued an order granting summary judgment in favor of 99 of the 112 defendants in these related cases. This decision is a vindication of the defendants' position and, more importantly, justifies the use of the expedited process Judge Davis used in this case. For a more comprehensive write up on this order, see Michael Smith's EDTexweblog.

Federal Circuit Rejects Computer Readable Media Claims under Section 101

2011-08-19T07:51:00.000-07:00

The ebb and flow regarding the scope of patentable subjectmatter for computer-related inventions continues this week with the FederalCircuits decision in Cybersource Corp. v. Retail Decisions, Inc.

In Cybersource, two claims of U.S. Patent No. 6,029,154 (“the‘154 patent”) were invalidated by the district court under 35 U.S.C. § 101 forfailure to recite patent-eligible subject matter. One of the claims, Claim 3 was directed to a “methodfor verifying the validity of a credit card transaction” and recited threesteps, including “obtaining information…”, “constructing a map of credit cardnumbers…,” and “utilizing the map…to determine if the credit card transactionis valid.” Claim 2 was directed to “computerreadable medium containing programming instructions” and recited “execution ofthe program instructions by one or more processors of a computer system” in thebody of the claim. The Federal Circuitaffirmed.

The decision with respect to the naked method claim (claim 3)is not too controversial. The outcomewith respect to Claim 2, however, represents a significant shift in thepatent-eligible subject matter landscape. Why, you ask? Because for thelast 15 years, patent practitioners in the computer arts have relied on In re Beauregard, 53 F.3d 1583 (Fed.Cir. 1995) for the proposition that claims drawn to “computer readable media”were patent-eligible articles of manufacture, not methods subject to the vagariesof Section 101. (“TheCommissioner now states ‘that computer programs embodied in a tangible medium,such as floppy diskettes, are patentable subject matter under 35 U.S.C. § 101 and must be examined under 35 U.S.C. §§ 102 and 103.’) (Note - therewas no actual holding from the Federal Circuit in In re Beauregard, simply a remand. Since the Commissioner ultimately agreedwith Beauregard’s position, there was no longer acase or controversy and thus no jurisdiction before the Federal Circuit.) TheFederal Circuit has now dispelled this long-held reliance:

Cybersource contends that, by definition, atangible, man-made article of manufacture such as a ‘computer readable mediumcontaining program instructions’ cannot possibly fall within any of ht threepatent-eligibility exceptions the Supreme Court has recognized for ‘laws ofnature, physical phenomena, [or] abstract ideas.” [citation omitted] We disagree. Opinion at 16.

With those two words, the validity ofclaims in thousands of issued patents to computer-related inventions are now in doubt.

One linefrom this opinion that I find somewhat disturbing is that “[r]egardless of whatstatutory category (‘process, machine, manufacture, or composition of matter’35 U.S.C. § 101) a claims language is crafted to literally invoke, we look tothe underlying invention for patent-eligibility purposes.” In every other context we need to look at theclaim language, all of the claim language, in order to define the “invention.” Under the Cybersource analysis, courts may now ignoreexpress limitations in the claim (such as “computer readable media” or “one ormore processors”) to determine an “underlying invention” that is broader thanwhat is actually claimed in order to invoke Section 101. Creating a double standard for the Section 101 analysis just doesn’tfeel right.

Verylittle is certain about the scope of patent-eligible subject matter for computer-related inventions in view ofthe Cybersource decision except this: wehave not seen the end of this issue. Mybet is that en banc review is in our nearfuture.

8 Million U.S. Patents and Counting

2011-08-17T08:19:00.000-07:00

The United States Patent and Trademark Office reached another milestone when it issued U.S. Patent No. 8,000,000 this week.

According to the USPTO website, "[u]nder the current numbering system for patents, number 1 was issued in 1836. A million patents later, number 1,000,000 was issued by the United States in 1911. The U.S. Patent and Trademark office issued patent number 8,000,000 on August 16, 2011."

The rate of patent grants has certainly been accelerating over the last 20 years. U.S. Patent No. 7,000,000 issued on Valentines day in 2006, just over 5 years ago. It took about 15 years to get from U.S. Patent 4,000,000 to 5,000,000 (which issued in 1991) and about 75 years to get from U.S. Patent No. 1 to U.S. Patent No. 1,000,000!

The Need For Patents Drives Google Acquisition of Motorola Mobility

2011-08-15T12:26:00.000-07:00

Several weeks ago, I noted that patents were being associated with big money --make that really big money -- in several important events. That trend continues this week with Google's announcement that it is seeking to acquire Motorola Mobility in a transaction valued at $12.5 Bil. (This comes about a month after Google came up short in the $4.5 Bil Nortel patent auction.) It is well understood that a strong patent portfolio can serve as a deterrent to litigation from a competitor that fears a counterclaim, or as a tool to settle patent litigation through cross-licensing deals. It is no secret that a significant driving force behind this move is Google's need to strengthen its patent portfolio, especially in the wireless area. (It is being reported that Motorola's active patent portfolio includes over 14,000 issued patents, and a pipeline of thousands of pending applications.) As noted by Larry Page (on Google's blog) "[o]ur acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies."

Motorola has a long history of investing in technology and supporting that investment with patent protection. If there was ever any doubt that a strong intellectual property program contributes to the core value of an enterprise, those doubts should be dispelled in view of the large premium (more than 60% over Friday's closing price) being offered by Google in this deal. In the fiercely competitive cell phone handset and tablet market, Google needs to strengthen its defensive patent position to compete effectively and is looking to do so by gaining access to a patent portfolio developed over the years by an enterprise that has long recognized the value in protecting its innovation.

Federal Circuit Affirms Sanctions and Attorney Fees Against NPE

2011-08-09T09:11:00.000-07:00

As a young lawyer preparing for one of my first hearings, Iasked my mentor for some last minute advice. He said “follow two simple rules and you will be fine. Rule # 1 - don’t piss off the judge.” Well, that was simple enough, so I asked“OK, so what’s Rule # 2?” He peered over hisbifocals and said with a laugh, “Rule # 2 - make sure that you never forgetRule # 1!” Apparently, Jean-Marc Zimmermanand his client Eon-Net didn’t receive this sage advice. Last week, in Eon-Net et al v. Flagstar Bancorp 2009-1308, the Federal Circuit affirmed the district court’s award of$489,150.48 in attorney fees and costs under 35 U.S.C. § 285 as well as$141,984.70 in sanctions under Fed. R.Civ. P. 11.

The case, which is one of about a hundred filed by Eon-Net,has a long procedural history, including a previous trip up to the FederalCircuit following an initial sanctions award. Following remand from the Federal Circuit, the district court engaged inclaim construction proceedings, and found that the written description limitedcertain claim terms as needing to originate from “hard copy documents” (asopposed to electronic files or information entered via a user interface). The parties stipulated to non-infringementunder this construction and Flagstar moved for a finding that the case wasexceptional under §285. The districtcourt granted this motion “on what it found were Eon-Net’s pursuit of baselessinfringement claims, Eon-Net’s improper purpose of bringing the lawsuit againstFlagstar to obtain a nuisance value settlement, Eon-Net’s destruction ofevidence, and Eon-Net’s offensive litigation tactics.” Opinion 8-9. The court also invited Flagstar to renew its previous motion forsanctions (which, of course, it did). Thecourt then granted the motion for sanctions under Rule 11 “concluding thatEon-Net and its counsel failed to perform a reasonable pre-filing investigationand that their claim construction positions were unsupportable.”

One point that is noteworthy is that the claim language doesnot expressly limit the claim to“hard copy documents.” Instead, thisconstruction comes from the specification’s repeated reference to “hard copydocuments” and characterizing the invention as relating to “hard copy documents.” The Federal Circuit noted that “[i]n total,the term “hard copy document” appears over 100 times in the common disclosureof [the asserted patents.]” AlthoughEon-Net tried to argue that this was merely a preferred embodiment, the FederalCircuit disagreed and found that “[t]his is not a case where a district courtimproperly imported a limitation from the specification or where the questionof what the specification teaches about the claims presents a close call; here,the specification unequivocally compels the constructions adopted by thedistrict court.” Opinion at 15-16.

Exceptional Case Finding

In finding a case to be exceptional, “[l]itigationmisconduct and unprofessional behavior may suffice, by themselves, to make acase exceptional under §285.” Opinion at17. (citations omitted). This first test goes directly to my mentor’sRule # 1. “Absent litigation misconductor misconduct in securing the patent, sanctions under §285 may be imposedagainst the patentee only if both (1) the patentee brought the litigation inbad faith; and (2) the litigation is objectively baseless.” Opinion at 17. This second test is far harder standard tosatisfy.

So, how did Eon-Net break Rule # 1? First, by destroying potentially relevantevidence. Eon-Net’s principal, Mitchell Medina, testified that “with regard todocument retention, collection, and production that ‘I don’t save anything so Idon’t have to look’ and further testified that his companies “‘have adopted adocument retention policy which is that we don’t retain any documents’ becausethose companies ‘have evolved into patent enforcement companies which are involved in the business of litigation.” Second, by failing to meaningfully engage inthe court’s claim construction process by failing to offer a construction forany of the disputed claim terms and than submitting misleading extrinsicevidence to the court. Third, byoffering ridiculous discovery responses, such as “the skill in the art requiredis that sufficient to converse meaningfully with Mitchell Medina.” Although Eon-Net argued that these weremerely “flippant, facetious remarks not intended to offend,” offend theyclearly did!

Objectively Baseless Litigation and Bad Faith

The district court found that Eon-Net’s allegations wereobjectively baseless based on the claim construction that limits the claims to“hard copy documents.” The FederalCircuit agreed, finding that “because the written description clearly refutesEon-Net’s claim construction, the district court did not clearly err in findingthe Eon-Net pursued objectively baseless infringement claims.” Opinion at 21.

In addressing Eon-Net’s bad faith in pursuing thelitigation, the district court held that the case has “’indicia of extortion’because it was part of Eon-Net’s history of filing nearly identical patentinfringement complaints against a plethora of diverse defendants, where Eon-Netfollowed each filing with a demand for quick settlement at a price far lowerthan the cost to defend the litigation.” Opinion at 22. Specifically,Eon-Net had filed over 100 complaints and offered immediate settlement in therange of $25K to $75K depending on a defendant’s sales. “[T]hose low settlement offers-less than tenpercent of the cost that Flagstar expended to defend suit – effectively ensuredthat Eon-Net’s baseless infringement allegations remained unexposed, allowingEon-Net to continue to collect additional nuisance value settlements.” Opinion at 23.

Rule 11 Sanctions

In imposing sanctions against Eon-Net and Zimmerman,the district court found that the pre-filing investigation wasinsufficient. Significantly, it is notdisputed that “Eon-Net’s counsel did examine portions of Flagstar’s websiteand, based on his experience, concluded that it worked in a manner that infringedthe ‘697 patent.” Opinion at 26. The Federal Circuit found this was notenough. “A reasonable pre-suitinvestigation, however, also requires counsel to perform an objectiveevaluation of the claim terms when reading those terms on the accused device.” Opinion at 26. The district court found that Eon-Net’s claimconstruction positions “borders on the illogical” and in affirming thesanctions award, the Federal Circuit did not find this position to be clearlyerroneous. Opinion at 26.

Observations & Take Aways

What does all this have to do with my mentor and Rule #1? Given the facts of this case, and theapplicable standard of review, if the district court had DENIED Flagstar’smotion for attorney fees and sanctions, it is very unlikely that the FederalCircuit would have disturbed that finding. Clearly, the plaintiff behaved in a way that offended the court onseveral fronts, starting with the basic business model and extending to thedisrespectful attitude exhibited to the court by Mr. Medina. One or the other might have been tolerated –together these factors were fatal. Atthe end of the day, had Mr. Medina and Eon-Net’s counselpursued this litigation strategy in a manner that didn’t offend the court, itis likely that he wouldn’t now be forking over $600K in sanctions. To paraphrase Rodney Dangerfieldin “Back to School,” always follow Rule # 1, or you may wind up stepping in #2.

FINAL NOTE- With over a hundred cases filed and most settling in the $25-75K range, one can make an educated guess that gross revenue to Eon-Net has been somewhere in the $3-5 Mil range. It makes one wonder if the $600K in sanctions, while clearly significant, is really an effective deterrent.

"A Million dollars isn't cool. You know what's cool? A Billion dollars!"

2011-06-30T06:39:00.000-07:00

What does this quote from the movie "The Social Network" have to do with patent law?

You don't often hear "cool" being used in connection with patents and patent litigation, but lately we have been hearing Billion bantered about with incredible frequency. Some notable examples include:

Projections of the potential settlement value to Kodak of the current ITC action against Apple and Rim, which the Commission is set to act on this week.
The ultimate price of the Nortel patent portfolio, which has a $900 Million "stalking horse" bid from Google, and significant interest from several cash-rich companies that could easily drive the final price well over a Billion dollars.
The damages calculation of $2.6 Billion offered by Oracle's expert, now being disputed, in a case against Google involving the Android operating system.

If there was any doubt about the continued value and vitality of patents as a tool for promoting innovation and advancing competitive business interests, these examples from this week's news should put that doubt to rest. Maybe, just maybe, I can convince my kids that patents really are "cool."

Ackerman comments on Kodak ITC action in Marketplace

2011-06-22T06:32:00.000-07:00

In the category of gratuitous self promotion, here is a link to a public radio broadcast (heard today on NPR) in which I provided some commentary to Marketplace on the Kodak ITC action involving cell phone cameras. http://marketplace.publicradio.org/display/web/2011/06/22/am-kodak-battles-smartphones-over-camera-technology/

I thought I gave some better sound bites during the interview, and the one quote they used comes out a bit in a vacuum without the context surrounding the quote, but I didn't have any input to the editing.

-Paul

The Supreme Court's Decision in Microsoft v. i4i - No Change

2011-06-09T08:21:00.000-07:00

In Microsoft Corp. v. i4i, 10-200, the Supreme Court considered the issue of the appropriate standard of proof that is applicable when a party seeks to invalidate a patent. The Federal Circuit has consistently held that the presumption of validity imposed a clear and convincing evidence standard. Moreover, this standard applied even when the prior art relied upon by the defendant was not previously considered by the patent office. Microsoft argued that the preponderance of evidence standard should apply to invalidity defenses, at least in those cases where a defendant presented evidence that was not considered by the patent office. The Supreme Court rejected this argument and has unequivically held that the clear and convincing standard applies to assertions of patent invalidity. In short, the decision can be summed up in two words - No Change.

And that concludes the patent law Supreme Court Watch for this term.

Parrallel Networks – Recognition of a Patent Defendant’s “Hobson’s Choice” in the E.D. Texas

2011-06-09T06:46:00.000-07:00

And the Start of a Trend to Help Defendants Deal With It?

Two (fairly) recent procedural orders from the Tyler Division of the Eastern District of Texas reflect a new approach to case management in patent cases, where defendant’s often face the no-win dilemma of settling a claim that they believe has little or no merit, or spending more than the settlement demand in defense costs to prove that it was not liable.

Imagine you’re a defendant in a “typical” multi-defendant patent case brought by a non-practicing entity. You look at the patent and the file history and try to make sense of the infringement allegation, but you can’t – no matter how you look at it, the claim is meritless. The plaintiff contacts you and offers to resolve the case with you for only $500K if you settle early, before both sides are forced to expend resources litigating the case. You know that it will cost over $1 Million to get through the discovery phase and claim construction proceedings and another million or more to get through summary judgment and trial. Given the ominous possibility of spending millions in legal fees to prove that your company did not infringe the plaintiff’s patent (and still have some risk that the judge or jury won’t agree), the $500K offer starts looking like a “reasonable” business resolution to the dispute, even though you are sure that the claim has no merit.

This scenario plays out on a regular basis in cases brought by non-practicing entities. The problem has been particularly acute in the Eastern District of Texas, a forum known to favor trials over summary judgment as the best tool for resolving disputes. The Local Patent rules, intended to efficiently and fairly move cases to trial simply do not provide a built in mechanism for a defendant to dispose of a weak case without spending hundreds of thousands or millions of dollars in defense costs. Plaintiff’s recognize and exploit this dilemma – filing suit against dozens, sometimes over a hundred, defendants, knowing full well that most, if not all, will settle for substantial amounts regardless of the merits of the claim.

Thus, the Hobson’s choice – pay the plaintiff and remove the risk, or pay defense counsel (maybe more than the settlement offer) and accept the risk of success.

Judge Davis faced this dilemma head-on in Parallel Networks v. Abercrombie & Fitch, et (6:10-cv-111) and to his credit, fashioned a procedural remedy to address this problem. (See Memorandum Opinion and Order, D.I. 338, March 15, 2011). In Parallel Networks, the plaintiff (a NPE) filed suit against 124 defendants in four related cases. In response to J. Davis’ inquiry, plaintiff’s counsel admitted that its litigation strategy involved offering defendants a substantial discount on potential liability to entice early settlement. The magnitude of the settlement offer was based less on a risk-based assessment of potential damages, but on the certainty of incurring significant defense costs. J. Davis noted that “[p]laintiff’s strategy presents Defendants with a Hobson’s choice: spend more than the settlement range on discovery, or settle for what amounts to cost of defense, regardless of whether a defendant believes it has a legitimate defense.” Defendants’ counsel argued for a limited claim construction/summary judgment proceeding in which the parties would only address three (3) claim limitations that defendants’ argued as being case dispositive. J. Davis granted this request and significantly limited discovery until this motion is resolved. (A hearing is set for June 21, 2011). The parties will be bound by the court’s construction of the three claim terms, but will not otherwise be prejudiced by this early summary judgment motion.

A month later, in Whetstone Electronics, LLC v. Xerox Corp., (6:10-cv-278) Magistrate J. Love, also in Tyler, followed suit and granted a similar order. (See Order, D.I. 156, April 7, 2011). A Markman hearing on the three selected terms in this case is scheduled for July 13, 2011.

If these summary procedures successfully resolve these cases (in other words, if the defendants’ cases are as strong as they have suggested to the court) Parallel Networks may signal the start of a trend towards case management of multi-defendant cases in which the defendants have a meaningful procedure available to dispose of meritless cases without being driven to resolution solely by the cost to defend the case, regardless of the merits. To insure that this happens, however, defendants have an obligation to the court to deliver the goods. If, in every case, the defendants call for an expedited summary proceeding and fail to deliver clear positions where no questions of fact preclude summary judgment, it would not be surprising for the court to conclude that these procedures are not justified and revert to more traditional case management.

*** I started this post back in April, after the Whetsone order, but didn't get around to finishing it then. Its not "hot news" anymore, but its still important so I thought it was worth posting now, even if its a bit late.

-Paul

The Supreme Court Interprets the Bayh-Dole Act as Not Automatically Conveying Inventions to Contractors

2011-06-07T07:21:00.000-07:00

Yesterday, the Supreme Court issued its second patent related decision of the term in The Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, 09-1159, a case addressing the issue of ownership of inventions made with government research funding. A 7-2 majority of the Court, lead by Chief J. Roberts, held that the Bayh-Dole act does not alter the fundamental proposition that ownership of an invention initially vests with an inventor, and as such, title does not automatically vest in a contractor, such as a university, when an invention is made with the support of federal funding.

This case involved competing agreements with an inventor: an agreement between the inventor and the university in which the inventor “agrees to assign” later made inventions and a second agreement with Roche in which the inventor immediately assigned a specific invention.

The “agree to assign” language did not operate as an immediate conveyance and the Supreme Court held that the "Bayh-Dole act does not automatically vest title to federally funded inventions in federal contractors or authorize contractors to unilaterally take title to such inventions." As a result, Stanford was out of luck.

One significant take-away from this decision is that recipients of federal research funding cannot rely solely on the Bayh-Dole act and should review the language in employee and research agreements with respect to assignment of future inventions. Language in these agreements that impose an obligation in the future, such as "agrees to assign," should be replaced with affirmative language, such as "hereby does assign."

The Supreme Court Redefines the Knowledge Element of Inducement

2011-06-07T07:16:00.000-07:00

The Supreme Court issued its opinion in Global Tech Appliances v. SEB S.A., 10-6 on May 31, 2011. The Global Tech case redefines the standard for the intent element of inducement under 35 U.S. C. 271(b).

Relying primarily on the Court’s longstanding ruling in Aro Mfg. Co. v. Convertible Top Replacement, Co., 377 U.S. 476 (1964)(“Aro II”), which addressed the knowledge requirement for contributory infringement under 35 U.S.C. 271(c), an 8-1 majority held that “induced infringement under 271(b) requires knowledge that the induced acts constitute patent infringement.” Slip Opinion at 10. The Court rejected the Federal Circuit’s “deliberate indifference to a known risk” standard, but affirmed the lower court’s finding of inducement without proof of actual knowledge by the infringer “because the evidence in this case was plainly sufficient to support a finding of Pentalpha’s knowledge under the doctrine of willful blindness.” Id. (emphasis added). Thus, the Supreme Court articulated a knowledge requirement for inducement that can be satisfied with constructive knowledge under the “willful blindness” doctrine.

The Court held further held that willful blindness has

two basic requirements:

(1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact.

Opinion at 13.

The Court found that Pentalpha, which inter alia, had substantially copied a competitor’s product, and then had its patent attorney conduct a freedom to operate search for this product without informing him that the design was copied from a competitor. From this, the Court concluded that the “evidence was more than sufficient for a jury to find that Pentalpha subjectively believed there was a high probability the SEB’s fryer was patented, that Pentalpha took deliberate steps to avoid knowing that fact, and that it therefore willfully blinded itself to the infringing nature of Sunbeam’s sales.”

Justice Kennedy, the lone dissent, agreed that inducement has a knowledge component, but disagreed that “willful blindness” was an appropriate substitute for actual knowledge.

With the Supreme Court offering a degree of clarity that inducement requires knowledge that the “induced acts constitute patent infringement,” (which is consistent with Federal Circuit precedent since DSU) proving inducement in the course of patent litigation will often prove to be a challenge for patent owners. Moreover, a factually well founded and competent opinion of counsel indicating that the induced acts do not constitute infringement of a valid patent should provide a strong defense to allegations of inducement.

En Banc Federal Circuit "Tightens" Inequitable Conduct Doctrine

2011-05-25T15:49:00.000-07:00

The Federal Circuit issued its much anticipated en banc ruling today in Therasense v. Becton Dickinson.

This case presented questions directed to what conduct could constitute inequitable conduct before the patent office and what standards should apply to prove inequitable conduct. Although the majority did not fundamentally alter the core principals of the inequitable conduct doctrine, in remanding the case to the district court, it did take steps to "tighten" a doctrine it viewed as having "plagued not only the courts but also the entire patent system." Opinion at 23.

The majority stated that “to prevail on the defense of inequitable conduct, the accused infringer must prove that the applicant misrepresented or omitted material information with the specific intent to deceive the PTO.” Opinion at 19. The majority also affirmed that both materiality and intent must be established by clear and convincing evidence. Id. Although this does not reflect a significant doctrinal change, there are significant changes made in Therasense as the “court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.”

Some highlights of this "tightening" include:

With respect to Intent:

Because an accused infringer must establish a “specific intent to deceive the PTO,…the accused infringer must prove by clear and convincing evidence that the applicant knew of the reference, knew it was material, and made a deliberate decision to withhold it.” Opinion at 24 (emphasis added).
“A district court should not use a ‘sliding scale,” where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa.” Opinion at 25.
A district court may still use indirect and circumstantial evidence to establish intent, but “the specific intent to deceive must be ‘the single most reasonable inference able to be drawn from the evidence.’…Hence, where there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.” Opinion at 26.
“The absence of a good faith explanation for withholding a material reference does not, by itself, prove intent to deceive.” Id.

With respect to materiality:

"[T]he materiality required to establish inequitable conduct is but-for materiality. When an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” Opinion at 27.

But, in assessing materiality, the district court should apply the reference the way an examiner would, i.e., “the court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction.” Opinion at 28
The but-for test has an exception: “When the patentee has engaged in affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit, the misconduct is material.” Opinion at 29.
“This court does not adopt the definition of materiality in PTO Rule 56.” Opinion at 32. Thus a reference is not "material" simply because it may be “inconsistent with a position taken by the applicant” or if it could “compel a conclusion that a claim is unpatentable…before any consideration is given to evidence which may be submitted in an attempt to establish a contrary conclusion of patentability.” Opinion at 33. The but-for materiality standard is narrower than the various incantations of Rule 56 over the years and to be satisfied, a reference must compel a finding of invalidity after all relevant evidence is considered (such as secondary considerations of non-obviousness or arguments why the rejection is improper).

These changes should allow attorneys who engage in patent prosecution to breath a little easier. Inequitable conduct is far from a dead doctrine following Therasense (as some had hoped), but by raising the standards for both materiality and intent, and eliminating the "sliding scale" whereby intent can be inferred from the omission of a highly material reference, the Federal Circuit has limited the application of this doctrine.

(In future posts, I may discuss the concurring and dissenting opinions, but for the sake of time (mostly mine) I limited this post to the highlights of the 37 pg. majority opinion.)

Dorsey & Whitney Successfully Defends Against False Marking Claim

2011-04-25T07:35:00.000-07:00

In re BP Lubricants Provides Defense to False Marking Claims

As reported last month, BP Lubricants was expected to provide a difficult barrier for many false marking plaintiff's. A recent win in the Northern District of Texas, by my Dorsey colleagues Tom Vitt and Dustin Adams in North Texas Patent Group, Inc. v. Manhattan Group LLC, in which the complaint was dismissed with prejudice, demonstrates that this is indeed the case.

Dustin Adams has provided a great write up on this case that can be accessed at the following link. Link to full article

Congratulations to Tom and Dustin on the win and many thanks to Dustin for the contribution to the blog.

Federal Circuit Issues Writ of Mandamus in In Re BP Lubricants

2011-03-15T09:55:00.000-07:00

Applies Heightened Pleading Requirements

to False Marking Cases

The Federal Circuit issued an Opinion and Order in In Re BP Lubricants USA Inc. today ( Misc. Docket No. 960) granting in part BP Lubricant’s petition for a writ of mandamus.

The issue before the Court was whether the district court properly denied BP’s motion to dismiss a false marking case where the allegations of intent to deceive were no more than general statements that BP "new or should have known" about its patents having expired. BP argued that a complaint alleging false marking must satisfy the heightened pleading requirement of Fed. R. Civ. P. 9(b) as interpreted by the Federal Circuit in Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009).

Recognizing that the case presented a question of first impression, and that district courts have been split on the issue, the Federal Circuit granted review and issued a writ of mandamus. The Court agreed with BP that false marking cases must be plead with particularity under Rule 9(b) and that “Excergen’s pleading requirements apply to all claims under Rule 9(b), not just inequitable conduct cases.” Opinion at 7. In those cases where false marking allegations are based on an expired patent, “a complaint must in the § 292 context provide some objective indication to reasonably infer that the defendant was aware that the patent expired.” A statement that the patent owner “knew or should have known that the patent expired” is not sufficient.

The plaintiff in BP Lubricant’s will be given leave to amend its complaint. It remains to be seen, however, whether the plaintiff will be able to meet the heightened pleading requirement it now faces.

The guidance provided by the Federal Circuit in In re BP Lubricants significantly raises the bar for pleading alleged violations under § 292 and should provide defendants facing these claims with a more solid foundation on which to base a motion to dismiss.

Texas Data v. Target: Transfer Motions in False Marking Cases in The Eastern District of Texas

2011-02-03T09:28:00.000-08:00

In 2010, we witnessed a bit of a new trend in the Eastern District of Texas. A number of cases were transferred out of the district. In the case of patent infringement actions, this was often with the help of the Federal Circuit issuing a writ of mandamus. In the context of the recent wave of false marking cases, however, it was not uncommon for the district court to grant a defendant’s motion to transfer under 28 U.S.C. 1404(a). Once recent exception is Texas Data Co. L.L.C. v. Target Brands, Inc., 10-CV-269, (E.D. Tex.), a false marking case in which Judge Ward denied defendant’s motion to transfer. (Memorandum Opinion and Order, January 12, 2011, D.I. 43, “Opinion”). Transfer motions tend to be very fact specific, and Texas Data is no exception. Judge Ward’s 27 page opinion provides a thorough discussion of the law governing transfer motions in the Eastern District of Texas (5th Circuit law) and the facts of the case before him. Although Judge Ward has historically been reluctant to transfer cases out of his district, Texas Data clearly turns on its own facts and does not appear to signal a new direction for venue motions in false marking cases.

Facts:

In Texas Data, the products that are allegedly improperly marked with an expired patent number are training pants that are sold by Target, a retailer which is based in Minnesota. The products was made for Target by Kimberly-Clark in a factory that is located in Paris, Texas in the Eastern District of Texas. Kimberly-Clark also has its headquarters in Irving, Texas. The packaging for the product, which allegedly has the improper patent marking printed on it, was made by Bemis, in a factory located in Longview, Texas, also in the Eastern District of Texas. Target provided evidence to establish that although the product and packaging were manufactured in the Eastern District of Texas, the decision to mark the product was primarily made in Kimberly-Clark’s facility in Neenah, Wisconsin, which is in the jurisdiction that Target sought to transfer to.

Movant’s Burden In False Marking Cases:

Target argued that less deference should be given to plaintiff’s in false marking cases. Judge Ward rejected this argument and held “that the burden of proof in a false marking case should be the same as the burden set forth in [In re Volkswagen of Am., Inc. (“Volkswagen II”), 545 F.3d 304 (5th Cir. 2008) en banc.] Opinion at 6.

In the Fifth Circuit, a defendant seeking to transfer a case must show “good cause” in order for the court to grant the motion. This burden is met when the moving party can demonstrate that the “transferee venue is ‘clearly more convenient’ than plaintiffs’ chosen forum.” Judge Ward notes that “plaintiff’s choice of venue is not an independent factor to be considered in the transfer analysis; instead deference to the plaintiff’s choice of venue is accounted for in the ‘clearly more convenient’ burden on the movant.” Opinion at 7.

Motion Denied:

In the analysis of the private factors and public factors set forth in Volkswagen II, the court did credit the fact that witnesses and other evidence related to the issue of “intent to deceive” was more likely to be found in Wisconsin and Minnesota, but also found that relevant evidence and witnesses relevant to other issues, such as damages, would be found in the Eastern District of Texas. In denying the transfer motion, the court held that

[i]n balancing the Gilbert convenience factors in this case, the Court observes that two factors slightly weigh in favor of transfer and one factor slightly weighs against transfer. Therefore, Target has not met its burden in showing the Eastern District of Wisconsin is ‘clearly more convenient than the Eastern District of Texas. Opinion at 27.

Given the competing facts in Texas Data, this case does not stand out as a beacon of change for transfer motions in the Eastern District of Texas. The detailed opinion does, however, merit review for anyone considering bringing a motion to transfer out of the Eastern District of Texas.

The "First Sale Doctrine" in Copyright Cases - Omega S.A. v. Costco

2011-01-07T07:42:00.000-08:00

Normally, the Point of Novelty stays on point with patent issues. But, today we digress a bit...

A good discussion of Omega S.A. v. Costco Wholesale Corp., which addresses the issue of the first sale doctrine in the context of copyright cases can be found in an article recently written by my Dorsey colleagues, Bob Wasnofski and Jose Hernandez. Here is a sample of the article:

On December 13, 2010, the Supreme Court issued a split decision (due to Justice Kagan’s recusal) in Omega S.A. v. Costco Wholesale Corp., 562 U.S. ___ (2010), thereby affirming the 9th Circuit ruling that the “first sale doctrine” does not serve as a defense to copyright infringement where one imports into the United States genuine, foreign-made copies of a copyrighted work without the authorization of the copyright owner. As it was a split decision, however, it does not serve as nationwide precedent. Nevertheless, in the 9th Circuit, the “first sale” defense can be used only in situations where the disputed copies of a copyrighted work are either made or previously sold in the United States with the authority of the copyright owner. As such, copyright owners of foreign-made copies are afforded significant protection in the 9th Circuit against the importation of “grey market” goods, allowing them greater control over the distribution and price of their products.

Click here to read the full article.

25% “Rule of Thumb” Rejected in Determining Patent Damages

2011-01-04T13:18:00.000-08:00

Over the last several years, we have seen more and more damages experts rely on a so-called "25% rule" as a starting point in determining a “reasonable royalty” in patent cases. The 25% rule was applied as a “rule of thumb” that allowed an accused infringer to retain 75% of the profits and awarded 25% of the infringer's profits to the patent holder. This 25% figure would typically be used as a starting point that would then be massaged using the Georgia Pacific factors to arrive at some final royalty rate, that was often very close to the 25% value. The problem with this approach is that while it sounds like a “reasonable” division of profits at some superficial level, and is certainly expedient in arriving at some starting point for analysis, it is universally divorced from reality in any specific case. Nonetheless, the 25% rule kept finding its way into articles, court decisions and expert reports...until now.

In Uniloc USA v. Microsoft Corp., 2010-1035, a case involving a patent on a software registration and copy protection system for products such as Microsoft Word, the Federal Circuit squarely rejected the use of this analytical fiction as being improper under Daubert. The Court held that:

This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue. Opinion at 41

In criticizing the 25% rule, the court pointed out that “[t]he rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party."

The Court recognized that the 25% rule was being used as a "starting point" rather than a final calculation but found that this made no difference:

In short, Gemini’s starting point of a 25 percent royalty had no relation to the facts of the case, and as such, was arbitrary, unreliable, and irrelevant. The use of such a rule fails to pass muster under Daubert and taints the jury’s damages calculation. Opinion at 47

The court specifically reaffirmed use of the Georgia Pacific factors as an analytical tool in determining a reasonable royalty rate but emphasized that “there must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case.”
The Court also rejected Uniloc’s use of the “entire market rule” as a “check” to show how the royalty rate arrived at using the 25% rule was "reasonable." In rejecting the use of the entire market value rule in this case, the Federal Circuit again emphasized that “damages based on the entire market value of the accused product [are appropriate] only where the patented feature creates the ‘basis for customer demand’ or ‘substantially create[s] the value of the component parts.’” The court found that Uniloc had offered no evidence that customer demand was driven by the patented software registration feature.

The elimination of the 25% rule may make the damages analysis more complicated in many cases, especially for plaintiff's experts seeking an easy way to justify a high valuation for a particular patent. It will, however, help to insure that the royalty rates that are offered by damages experts are based on facts that are applicable to the case at hand and are rationally based on the value of the patented invention.

Some Things To Watch For In 2011

2010-12-29T07:12:00.000-08:00

With 2010 winding down, it’s a good time to look ahead a bit and see what 2011 may have in store for us folks practicing IP law.

False Marking Cases

In 2010, we saw the surging tide of false marking cases. This cause of action, that was asserted less than a dozen or so times leading up to 2010, was the basis for over 600 cases filed during the year. What could 2011 bring? Probably, more of the same, but some potential changes may help:

• In In re BP Lubricants USA Inc., BP Lubricants filed a petition for a writ of mandamus to the Federal Circuit seeking to overturn the denial of its motion to dismiss the complaint for failing to sufficiently plead intent. The complaint had allegations that many of us are all too familiar with now, including vague allegations that “’upon information and belief,’ that defendant is a ‘sophisticated company’ which ‘knows, or should know’ that the patent at issue had expired.” (DOJ Brief In Support of Petition at 4.). In a somewhat surprising move, the Department of Justice (“DOJ”) filed an amicus brief in support of BP’s petition. The DOJ's brief urges the Federal Circuit to hold that the intent element of a false marking action needs to satisfy the heightened pleading requirement of Fed. R. Civ. P. 9(b) and that under this standard, the complaint in the BP case is insufficient as a matter of law.

The BP case squarely presents the question of the requirements for pleading a false marking case. If the Federal Circuit adopts the position urged by BP and the DOJ, in 2011 defendants will have valuable precedent to use in seeking early dismissal of a large number of the false marking “troll” cases that are supported by nothing more than bland, generic allegations of what a company “should know” about its expired patents.

• In 2010, several legislative proposals were made that would have effectively ended the majority of false marking cases. These proposals were lumped in with patent reform legislation which stalled in Congress. Will 2011 include a legislative solution to the false marking problem?

Patent Reform Legislation

• In 2010 (as in many years prior), it looked like progress was being made on patent reform legislation and there was some momentum in Congress for a patent reform bill. During IPO’s annual meeting in September, one Congressional staffer even suggested that a vote on the pending bills was possible in 2010. That didn’t happen. Will 2011 be the year that patent reform legislation finally makes it through Congress?

The Supreme Court

• As noted in an earlier post, the Supreme Court has taken up three patent cases for its current term. Clearly, the most significant of these cases is Microsoft v. i4i which has the potential to fundamentally alter patent litigation by changing the standard of proof required to establish patent invalidity. A change from the “clear and convincing” standard to the “preponderance of the evidence” standard would greatly impact all phases of patent litigation, from pre-filing due diligence through trial and appeal. This is clearly poised to be the most significant event in patent law in 2011! Then again, many thought that Bilsky had that same potential, and looking back now, we know that didn’t happen. Only time will tell.

The stage is set for 2011 to be an interesting year for patent law.

I hope that everyone has a very Happy New Year and that 2011 brings excitement, fun and prosperity to all!

The Supreme Court is Set to Significantly Re-Shape Patent Rights and Litigation

2010-12-03T07:59:00.000-08:00

The Court Agrees to Hear Three Patent Cases in 2011

The Supreme Court has agreed to hear three patent cases in its upcoming term. The first case touches upon the standard for establishing intent in the context of inducement of infringement. In October, the Supreme Court granted certiorari in Global-Tech Appliances Inc. v. SEB S.A. on the question of “whether the legal standard for the ‘state of mind’ element of a claim for actively inducing infringement under 35 U.S.C. 271(b) is ‘deliberate indifference of a known risk’ that an infringement may occur or instead ‘purposeful, culpable expression and conduct’ to encourage an infringement.” The difference in these standards, essentially the difference between “known” and “should have known,” will significantly effect the way that businesses deal with third party patents from the point of conducting clearance searches and obtaining opinions all the way through trial.

The second case on the Supreme Court docket is Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems. In this case, the Supreme Court will consider ownership rights to inventions that were made with government funding under the Bayh-Dole Act. Although this case addresses a fairly narrow question, it could prove to be a significant case to universities and research institutions which rely heavily on federal research grants to sponsor wide ranging research projects which are the source of many inventions.

The third case, Microsoft v. i4i Ltd. 10-290, could prove to have a fundamental impact on every patent case, as it deals with the core issue of the burden of proof for establishing invalidity of a patent claim.

On November 29, 2010, the Supreme Court granted Microsoft’s petition for a writ of certiorari on the question “did the court of appeals [for the Federal Circuit] err in holding that Microsoft’s invalidity defense must be proved by clear and convincing evidence?” As noted in a previous posting, Microsoft's petition was supported by numerous amici.

At trial, Microsoft’s invalidity defense was based on a lack of novelty due to a prior sale of the patentee’s own earlier software. This prior art was not before the patent office during examination and was not considered by the patent examiner. Despite the fact the patent office never had the opportunity to consider this prior art, the patent benefited from the “presumption of validity” and the district court (bound by Federal Circuit precedent) rejected Microsoft’s request for a jury instruction seeking to prove invalidity only by a “preponderance of the evidence." The Federal Circuit affirmed, setting the stage for Microsoft's petition.

The Microsoft case has the potential to significantly change the nature of patent litigation and level the playing field between plaintiffs and defendants. If the Supreme Court reduces the burden of proof for proving invalidity on issues that were not before the patent examiner to a preponderance of evidence, defendants will face a far less daunting task in establishing a successful invalidity defense. Considering the less stringent standard for establishing obviousness under the Supreme Court’s holding in KSR, lowering the burden of proof required to establish an invalidity defense would certainly reduce perceived strength of every issued patent.

Another False Marking Case Bites The Dust

2010-11-03T14:55:00.000-07:00

False Marking Case Dismissed With Prejudice for Failure to State a Claim under Rule 12(b)(6)

In Shizzle Pop, LLC v. Aviva Sports, Inc. et al., Judge Klausner dismissed Shizzle Pop’s claims for false patent marking, with prejudice. 10-CV-02574 (C.D. Cal., Order dated Nov. 3, 2010. D.I. 54). Following a first successful motion to dismiss, the plaintiff was given leave to amend its complaint to plead facts that would “state with particularity the ‘intent to deceive’ element of Section 292.” Order at 1. Plaintiff filed an amended complaint, which had a number of generalized allegations based on “information and belief.” Ruling on defendants’ motion to dismiss the amended complaint, the court found that “plaintiff has lengthened its conclusory statements, but still fails to allege any facts or information that supports its ‘beliefs.’” Order at 4. The court further found that the complaint

“…contains no information supporting the belief that Defendants were acting with an intent to deceive. Further factual detail is needed to survive a motion to dismiss under Rule 9(b). For this reason, the Court grants Defendant’s motion to Dismiss for failure to state a claim with prejudice.” Order at 4.

Congratulations to my Dorsey partner Tom Vitt and his team for a job well done!

Microsoft, and a Large Group of Powerful "Friends," Ask The Supreme Court to Eliminate the Clear and Convincing Evidence Standard for Patent Invalidity

2010-10-05T08:23:00.000-07:00

In Microsoft Corp. v. i4i, U.S., No. 10-290, Microsoft is seeking certiorari on the question of whether the "clear and convincing" standard is appropriate in challenging patent validity in civil litigation. For most issues in civil litigation, such as the question of patent infringement, the party asserting the claim only needs to meet the lower “preponderance” standard. The question then, is why should patent validity be treated differently between private litigants, and should this always be the case? For example, if the presumption of administrative correctness and deference to the USPTO are the justifications for the heightened evidentiary standard, why should the heightened standard apply when the prior art used to challenge a patent’s validity was not considered by the examiner during prosecution? These and other questions are being addressed by a powerful collection of amici that have submitted eleven briefs supporting Microsoft’s bid for high court review of this fundamental question of patent law.

As reported by BNA, the list of amici and their counsel include:

• 36 law, business, and economics professors, filed by Mark A. Lemley of the Stanford Law School;

• Acushnet Co., General Motors LLC, Pregis Corp., and SAP America Inc., by James W. Dabney and John F. Duffy of Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C.;

• Apple Inc., by Deanne E. Maynard of Morrison & Foerster, Washington, D.C.;

• CTIA—The Wireless Association, by Michael K. Kellogg of Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, D.C.;

• Electronic Frontier Foundation, Public Knowledge, the Computer & Communications Industry Association, and the Apache Software Foundation, by Michael Barclay of the EFF, San Francisco;

• Facebook Inc., Intuit Inc., Netflix Inc., Newegg Inc., Toyota Motor Corp., and Trimble Navigation Ltd., by John D. Vandenberg of Klarquist Sparkman, Portland, Ore.;

• Google Inc., Verizon Communications Inc., Dell Computer Corp., Hewlett-Packard Co., HTC Corp., and Wal-Mart Stores Inc., by Paul D. Clement of King & Spaulding, Washington, D.C.;

• Intel Corp., by Dan L. Bagatell of Perkins Coie Brown & Bain, Phoenix;

• The Securities Industry and Financial Markets Association and the Clearing House Association, by John A. Squires of Chadbourne & Parke, New York;

• Teva Pharmaceuticals USA Inc., the Generic Pharmaceutical Association, and Cisco Systems, by Henry C. Dinger of Goodwin Procter, Boston; and

• Yahoo! Inc., by William C. Rooklidge of the Howrey law firm in Irvine, Calif.

This is clearly an issue that is worthy of attention as the outcome could represent a fundamental change in patent law. i4i’s responsive brief is due on October 29, 2010, and a second wave of amicus briefs in support of the clear and convincing standard will likely follow.

A NEW “STANDARD” FOR INFRINGEMENT

2010-09-23T08:54:00.000-07:00

Proof of Compliance With A Standard May Establish Infringement

In a decision that will likely impact the wireless and telecom sectors for years to come, the Federal Circuit clearly held that “a district court may rely on a an industry standard in analyzing infringement.” Fujitsu Ltd. et al. v. Netgear, Inc., 2010-1045, September 20, 2010. Rather than requiring proof infringement for each individual accused product,

“if a district court construes the claims and finds that the reach of the claims includes any device that practices a standard, this can be sufficient for a finding of infringement. We agree that claims should be compared to the accused product to determine infringement. However, if an accused product operates in accordance with a standard, then comparing the claims to that standard is the same as comparing the claims to the accused product.”

In other words, the Federal Circuit held that proof a standard compliance can be sufficient circumstantial evidence to establish infringement.

To defend against an allegation of infringement based on a practicing-the-standard theory, “an accused infringer is free to either prove that the claims do not cover all implementations of the standard or to prove that it does not practice the standard.” Further, the Federal Circuit recognized “that in many instances, an industry standard does not provide the level of specificity required to establish that practicing that standard would always result in infringement.” In some cases, “the relevant section of the standard is optional, and standards compliance alone would not establish that the accused infringer chooses to implement the optional section.” In such cases, the plaintiff cannot rely on the standard alone to establish infringement.

From a plaintiff’s perspective, the cost and complexity of proving infringement when an industry standard is involved may now be greatly reduced. Rather than proving that numerous complex devices meet every element of the claim, the patent owner now must establish that the relevant portion of the standard in question (1) always infringes the claim, i.e. “a patent covers every possible implementation of a standard,”; (2) is mandatory for compliance with the standard, and (3) the accused device is compliant with the standard. The significant advantage for the plaintiff is that elements (1) and (2) need only be proven once, rather than for each accused product. In cases like Fujitsu, which dealt with the 802.11 wireless standard and involved a large number of accused products, this results in a significantly lower burden for the plaintiff to carry.

Fujitsu reiterates that it is not enough for a plaintiff to establish that an accused device is "capable of infringement; the patent owner must show evidence of specific evidence of direct infringement." Thus, when a feature in the standard may be switched on and off or is optional for compliance, proof of compliance with the standard is not enough. The plaintiff must then prove that the switchable or optional feature was actually implemented and used in the accused device.

Since there are a large number of cases pending, and likely many more coming, involving industry standards featuring devices, such as cell phones, Wi-Fi, Wi-Max and Bluetooth compliant devices, this will certainly be an issue presented time and time again in the foreseeable future.

False Marking FAQ

2010-09-20T12:31:00.000-07:00

Over the last nine months, we have seen a significant surge of false patent marking cases. Indeed, twenty new cases were filed in the EDTX on Friday alone! The case law developments that have been fueling this trend have been reported here as they happened, but I just put together an FAQ on the topic that provides a high level summary of the issues and risks of false marking in one place. Consider it a false marking 101 article. The article is available at http://www.dorsey.com/eu_ip_businessesbeware_091610/

Federal Circuit Holds That “Any Person” Has Standing to Bring False Patent Marking Claims

2010-09-10T09:51:00.000-07:00

But Foreshadows Possible Defenses

In Stauffer v. Brooks Brothers, Mr. Stauffer’s claims of false patent marking under 35 U.S.C. 292 were dismissed by the district court for lack of standing. In a not-so-surprising but long awaited decision, the Federal Circuit held that “even though a relator may suffer no injury himself, a qui tam provision [i.e. 35 U.S.C. 292] operates as a statutory assignment of the Untied States’ rights, and ‘the assignee of the claim has standing to assert the injury in fact suffered in by the assignor.’” Stauffer v. Brooks Brothers, 2009-1428, -1430, -1453 (Fed. Cir., August 31, 2010). What exactly is the necessary “injury in fact” suffered by the United States? “[A] violation of that statute [35 U.S.C. 292] inherently constitutes an injury to the United States… . Because the government would have standing to enforce its own law, Stauffer, as the government’s assignee, also has standing to enforce section 292.” Opinion at 9 (emphasis added). To the extent that there remained much doubt, it is now clear - anyone can bring a false marking claim and no specific individualized injury is required.

What is perhaps more interesting than the issues decided in Stauffer are the issues that were mentioned, but left for another day. First, the Stauffer opinion discusses a constitutional challenge to 35 U.S.C. 292 under the “take care” clause of Article II of the Constitution that was raised by amicus Ciba Vision. After introducing this potential challenge, the opinion states:

While Ciba raises relevant points, the district court did not decide, and the parties did not appeal, the constitutionality of section 292. Thus, we will not decide its constitutionality with the issue having been raised or argued by the parties. (emphasis added)

While not clearly foreshadowing the outcome, the Federal Circuit is clearly sending out an invitation to take on this issue head on in future cases. Given the relatively thin procedural safeguards set out in Section 292, this is certainly a live issue that has the potential to put an end to the continuously growing number of false marking cases as we know them.

Second, in the remand order, the opinion states:

We remand for the court to address the merits of the case, including Brooks Brothers’ motion to dismiss pursuant to Rule 12(b)(6) ‘on the grounds that the complaint fails to allege an ‘intent to deceive’ the public – a critical element of a section 292 claim – with sufficient specificity to meet the heightened pleading requirements for claims of fraud imposed’ by Rule 9(b).

As reported previously, a number of district courts have already dismissed cases for failing to meet the heightened pleading standard of Rule 9(b), so this issue will likely be presented to the Federal Circuit in the not-to-distant future. If the Federal Circuit ultimately confirms that the heightened pleading standard is indeed required for false patent marking cases, the ability for "any person" to adequately plead a claim of false marking should be greatly diminished.

Secondary Considerations are Primary in the Post-KSR Obviousness Analysis

2010-08-24T14:11:00.000-07:00

Two recent Federal Circuit cases emphasize the importance of the so-called “secondary considerations of non-obviousness” in deciding the question of patent validity. In Transocean v. Maersk Contractors, the Federal Circuit reversed the district court’s grant of summary judgment of obviousness because the district court did not give any weight to “significant objective evidence of nonobviousness” presented by the patentee, Transocean. The Federal Circuit held that:

The district court erred by failing to consider Transocean’s objective evidence of nonobviousness…While it is true that we have held in individual cases that objective evidence of nonobviousness did not overcome the strong prima facie case – this is a case-by case determination. [citations omitted] To be clear, a district court must always consider any objective evidence of nonobviousness presented in a case.

Opinion at 11.

Two days after deciding Transocean, the Federal Circuit decided Geo M. Martin Co. v. Alliance Machine Sys. Int’l LLC, 2009-1132, -1151 (Fed. Cir., August 20, 2010). In Geo M. Martin, the Court affirmed the district court’s JMOL holding (following a hung jury) that the asserted claims were obvious as a matter of law. In this case, the district court properly considered the “secondary considerations” of non-obviousness, but concluded that they did not overcome the strong prima facie showing of obviousness. For several points argued by the patentee, such as commercial success, failure of others, and industry praise, the Federal Circuit found insufficient evidence of a nexus between the alleged “secondary consideration” and the claimed invention. In addition, the patent owner argued that alleged copying by others also supported a finding of non-obviousness. The timing of the alleged copying, however, had the opposite impact on the Court. Rather than supporting non-obviousness, both the district court and Federal Circuit found the evidence supported acts of “simultaneous invention” and that “simultaneous inventions, made ‘within a comparatively short space of time,” are persuasive evidence that the claimed apparatus ‘was the product only of ordinary mechanical or engineering skill.’” [citations omitted] Opinion at 20. When all was said and done, “[b]alancing all of the secondary considerations, this court agrees…the [patentees] evidence of non-obviousness, even if fully considered by a jury, would fail to make a difference in this case.” Opinion at 21.

These cases do not break significant new ground on the law of obviousness, but do provide continuing guidance as to the growing importance of secondary considerations of non-obviousness in determining patent validity.

** One final note: Congratulations to my Dorsey & Whitney partners Tom Vitt and Sri Sankaran, who successfully represented Alliance Machine Systems in the Geo M. Martin case.

Where In The World Is The “Offer to Sell”?

2010-08-20T08:34:00.000-07:00

It Doesn’t Matter for Liability Under 35 U.S.C. 271(a)

In Transocean v. Maersk Contractors, 2009-1556 (Fed. Cir., Aug. 18, 2010) the Federal Circuit dealt squarely with the issue of an offer to sell made outside the U.S. for use of a product in the United States. The facts were largely undisputed. A contract was entered into in Norway by two U.S. companies for the use of an oil drilling ship within the U.S. waters in the Gulf of Mexico. The ship was made outside the U.S. pursuant to the contract. The ship was later modified to be non-infringing (pursuant to an earlier order entered in a different case), so use of the actual modified ship was found not to be an act of infringement. However, the contract contemplated the unmodified design and this design was therefore the subject of the “offer to sell.”

The Federal Circuit held that:
Opinion at 19. Thus, it is now clear: It doesn’t matter where the offer is made, only where the future sale is contemplated. If that contemplated sale is directed to the U.S., liability for infringement under 35 U.S.C. 271(a) may attach for the offer. Of course, if there is only an offer and no actual infringing sale, damages may become a difficult question. That, however, is a question for another day.

In order for an offer to sell to constitute infringement, the offer must be to sell a patented invention within the United States. The focus should not be on the location of the offer, but rather the location of the future sale that would occur pursuant to the offer.

Although not an issue squarely presented in Transocean, the language of this opinion suggests that an “offer” that is made within the United States, but contemplates performance outside the United States would not be within the scope of 35 U.S.C. 271(a). In reaching its holding, however, the Court noted the policy considerations that underlie it holding. The Court stated that “[a company making an offer outside the U.S.] would generate interest in its product in the U.S. to the detriment of the U.S. patent owner, the type of harm that offer to sell within the U.S. liability is meant to remedy.” Despite this policy guidance, it would seem that, at least in some cases, an offer made in the U.S. for a sale contemplated outside the U.S. could also have a negative impact on the U.S. patent owner, yet under a fair reading of Transocean may not be actionable.

A “Golden Hour” for Defendants Accused of Joint Infringement

2010-08-11T12:24:00.000-07:00

After a 27 page discussion on inequitable conduct, Judge Dyk dedicated a mere two paragraphs affirming a district court grant of JMOL that rejected a jury finding of infringement of both method claims and system claims. Golden Hour Data v. emsCharts, 2009-1306 -1396 (Fed. Cir. August 9, 2010). For both the method and system claims, the Federal Circuit majority agreed with the district court that “that the evidence of control or direction was insufficient for the jury to infer control or direction.” Opinion at 27.

The claims of Golden Hour’s patent (U.S. Patent No. 6,117,073) are directed to an “integrated data management system for tracking a patient incident.” Claim 1, a system claim, requires (1) a dispatch module and (2) a billing module. Claim 15, a method claim, required steps of (1) collecting flight information, (2) collecting patient information from a clinical encounter, and (3) integrating the patient information and flight information.

The first defendant, emsCharts, developed a client billing module. The second defendant, Softtech, provided a flight dispatch and information module. “The two companies formed a strategic partnership, enabled their two programs to work together, and collaborated to sell the two programs as a unit.” Opinion at 7-8. According to an emsCharts press release, the defendants’ “partnership allows emsCharts to combine their existing product line with Softtech’s CAD [Computer Aided Dispatch] technology, enabling them to deliver a complete pre-hospital data solution for Emergency Medical Services.” J. Newman dissent at 5. Although the press release uses the term “partnership” and the majority refers to it as a “strategic partnership,” the opinion does not further elaborate on any actual legal relationship between Softtech and emsCharts with regard to the integrated system.

With respect to sales of the integrated system, the majority stated that “[s]uch a sale might well create liability on the part of emsCharts for the sale of the patented system, whether or not emsCharts controlled Softtech. The problem is that by agreement, claims 1 and 6-8 were submitted to the jury only on a joint infringement theory. Such a verdict can only be sustained if there was control or direction of Softtech by emsCharts.” Opinion at 28. Despite acknowledging the “strategic partnership” between the parties, the majority held that the necessary “control or direction” was still lacking.

The majority first considered the process claims and relied on Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1329 (Fed. Cir. 2008) and BMC Resources, Inc. v. Paymentech, L.P, 498 F.3d 1373 (Fed. Cir. 2007), for the well established proposition that “control or direction” of one party by another is required for joint infringement of process claims. Without elaboration (or citation), however, the majority then extended this test to the system claims as well.

In her dissent, J. Newman suggests that “a collaborative effort as here, a “strategic partnership” to sell the infringing system as a unit, is not immune from infringement simply because the participating entities have a separate corporate status.” Dissent at 5. Judge Newman does not cite any precedent for this position, however.

Although only two paragraphs long (less than half the length of this post), Golden Hour is interesting for two reasons. First, it clearly applies the “controlling party” or “mastermind” standard for joint infringement to system claims as well as process claims. (This was suggested in BMC Resources, but not clearly part of the holding). Second, it is a case where two parties accused of joint infringement clearly worked closely together to integrate and sell the accused system and yet the resulting “strategic partnership” between the defendants was still not deemed close enough by the majority to support a jury verdict of joint infringement.

Recent District Court Decisions Hold False Marking to Heightened Pleading Requirements

2010-07-08T12:19:00.000-07:00

Recent decisions from the Federal Circuit have not provided defendants with any “silver bullets” to obtain early dismissal of cases alleging false patent marking. To the contrary, these decisions (which established that the fine for false marking is based on each article marked and confirmed that a product marked with an expired patent number is indeed an unpatented article), may serve to embolden relators and result in them bringing additional false marking cases. Although the standard for pleading false marking cases has not yet been addressed by the Federal Circuit, recent district court decisions have been holding false marking allegations to a higher pleading standard under Fed. R. Civ. P. 9(b) and dismissing cases that fail to meet this standard. These district court cases may provide some hope to defendants in false marking cases.

In a Memorandum Opinion dated June 17, 2010 in Simonian v. Cisco Systems, 10-CV-1306 (N.D. Ill), Judge Der-Yeghiayan dismissed Mr. Simonian’s complaint on Cisco’s motion to dismiss under Rule 12(b)(6). In dismissing the complaint, the Court acknowledged that there was no binding precedent on point, but reasoned that false marking allegations are fraud-based claims and therefore “are subject to the heightened pleading requirements of Rule 9(b).” Opinion at 6. With respect to the intent prong of the false marking claims, Mr. Simonian alleged, upon information and belief, that Cisco is “a sophisticated company and has many decades of experience applying for, obtaining, and/or litigating patents.” The court found that this general allegation was “unsupported by specific facts,” and that “Simonian has failed to plead specific facts showing Cisco’s knowledge of the mismarking or its intent to deceive the public.” Opinion at 8. As such, the Court held that “Simonian’s complaint does not meet the heightened pleading requirements of Rule 9(b)” and dismissed the complaint. The court dismissed Simonian’s claims without prejudice, however, and specifically provide that Mr. Simonian may file a motion for leave to file an amended complaint. (Simonian has since filed a motion seeking leave to file an amended complaint and Cisco has filed are opposition to this motion, which is now before the court.)

Similarly, in Advanced Cartridge Technologies v. Lexmark, Int’l., Judge Merryday dismissed Advanced Cartridge Technologies’ false marking allegations for failing to meet the pleading requirements with respect to intent under Rule 9(b). Advanced Cartridge Technologies v. Lexmark, Int’l, 10-CV-486 (M.D. Fl.), see Order dated June 30, 2010 (“Order”). In this case, the complaint simply stated that “defendant knows, or reasonably should know, that marking the Cartridge Products with patents that do not cover the Cartridge Products, or patents that are invalid or expired, will deceive the public.” See Order at 2. As to this allegation, the court concluded that “[p]roviding only sparse factual detail, the complaint utterly fails to ‘state with particularity the circumstances constituting fraud.’” Order at 2. As with the Simonian case, the plaintiff/relator was given leave to file an amended complaint to attempt to remedy the inadequate pleadings.

Because these cases were dismissed without prejudice, the plaintiff/relator has been given a second bite at the apple. It remains to be seen whether these plaintiff’s will be able to plead sufficient facts, even upon information and belief, to meet the heightened pleading requirement under Rule 9. It will also be interesting to see if other courts follow these cases in holding false marking cases to the heightened pleading standards under Fed. R. Civ. P. 9(b) and whether this will provide a substantial change in litigating false marking cases.

Bilksi Comes Out With A Wimper, Rather Than With A Bang

2010-06-28T13:22:00.000-07:00

After receiving dozens of amicus briefs and pondering the case for close to seven months following oral argument, the Supreme Court has finally released its much anticipated decision in Bilsky. Bilski v. Kappos, 561 U.S. ___(2010). In short, the Court affirmed the judgment of the en banc Federal Circuit that the claims of the Bilski patent are not directed to patent eligible subject matter. In doing so, however, the Court specifically rejected the Federal Circuit's “machine or transformation test” as the sole test for patent eligibility for process or method claims. Instead, it viewed Bilski’s claims as “abstract ideas” that are outside the scope of patent eligible subject matter.

This result is not too surprising to this commentator. As I mentioned last June when cert was granted, "[the Supreme Court's] past decisions over the years on the question of patentable subject matter, however, tend to avoid bright line standards and lean towards a more liberal scope of patentable subject matter, but certainly don’t embrace the scope of “anything under the sun made by man” as the Court once suggested.
The following quotations are from the syllabus and/or opinion of the Court and reflect the Court's holding.

"The machine-or-transformation test is not the sole test for patent eligibility under §101. The Court’s precedents establish that although that test may be a useful and important clue or investigative tool, it is not the sole test for deciding whether an invention is a patent-eligible “process” under §101."

"[T]he Federal Circuit incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test. Recent authorities show that the test was never intended to be exhaustive or exclusive."

"Section 101 similarly precludes a reading of the term “process” that would categorically exclude business methods. The term “method” within §100(b)’s “process” definition, at least as a textual matter and before other consulting other Patent Act limitations and this Court’s precedents, may include at least some methods of doing business."

"Section 273 thus clarifies the understanding that a business method is simply one kind of“method” that is, at least in some circumstances, eligible for patenting under §101."

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

"[I]n deciding whether previously unforeseen inventions qualify as patentable “process[es],” it may not make sense to require courts to confine themselves to asking the questions posed by the machine-or-transformation test."

"Even though petitioners’ application is not categorically outside of §101 under the two broad and textual approaches the Court rejects today, that does not mean it is a “process” under §101."

"Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court’s decisions in Benson, Flook, and Diehr, which show that petitioners’ claims are not patentable processes because they are attempts to patent abstract ideas. Indeed, all members of the Court agree that the patent application at issue here falls outside of §101 because it claims an abstract idea."

"The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea."

"Petitioners’ remaining claims are broad examples of how hedging can be used in commodities and energy markets. Flook established that limiting an abstract idea to one field of use or adding token post solution components did not make the concept patentable. That is exactly what the remaining claims in petitioners’ application do."

"Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr."

"And nothing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past."

More to come regarding the concurring opinions of Justice Stevens (joined by Justices Ginsburg, Breyer and Sotomayor) and Justice Breyer (joined by Justice Scalia) in a later post.

[Many thanks to Randall Berman, an associate with Dorsey & Whitney, for his assistance in quickly preparing this post]

False Marking Cases Are Likely to Live Another Day

2010-06-11T09:45:00.000-07:00

Articles Marked With Expired Patent Numbers Are
"Falsely Marked," But Intent Will Be More Difficult For Relators to Establish

As reported in earlier posts, the number of false patent marking cases exploded following the Federal Circuit’s holding in The Forest Group v. Bon Tool, 590 F. 3d 1295 (Fed. Cir. 2009) that held that every falsely marked product constitutes a separate offense subject to fine under 35 U.S.C. 292. The vast majority of the recently filed false marking cases are based on the theory that a product marked with an expired patent number is an “unpatented article.” This issue was squarely presented in Pequignot v. Solo Cup, where the district court held that this was indeed the case. Many false marking defendants have been anxiously awaiting the Federal Circuit decision in Pequignot hoping that the Federal Circuit would reverse the finding of the district court with respect to expired patents and provide an opportunity to quickly defeat or dismiss many of these cases. Those folks will now be disappointed. In its June 10, 2010 decision, the Federal Circuit unequivocally held that “articles marked with expired patent numbers are falsely marked.” (See http://cafc.bna.com/09-1547.pdf)

Of course, finding that a product is falsely marked is not the end of the inquiry. In order to be liable for false marking, the marker must act “for the purpose of deceiving the public.” Under the Federal Circuit’s holding in Clontech Labs. v. Invitrogen, this intent element can be satisfied if it is proven that the statements about marking were false and the marking party knew the statements were false. It is here where Solo prevailed and where the Federal Circuit provided some helpful guidance to those accused of false marking. First, the Federal Circuit clearly held that Clontech only establishes a presumption of intent and that such a presumption can be rebutted with evidence of good faith. Second, the burden of proof needed to rebut the Clontech presumption is only a preponderance of evidence. Finally, the court agreed that when ‘the false markings at issue are expired patents that had previously covered the marked products, the Clontech presumption of intent to deceive is weaker” and therefore easier to rebut. In this case, Solo was able to rebut the Clontech presumption by establishing that the marking at issue was made for legitimate business reasons not related to “deceiving the public” and that it had acted consistently with the advice of counsel it had received. As both the district court and Federal Circuit noted, “Pequignot has provided not a scintilla of evidence that Solo ever ignored its counsel’s advise or, more importantly manifested any actual deceptive intent.”

In addition to expired patent numbers, Solo also marked certain packaging materials used for both patented and unpatented articles using the language that the products “may be covered” and referenced a website where more specific patent information could be found. The Federal Circuit noted, in dicta, that “it is highly questionable whether such a statement could be made ‘for purposes of deceiving the public,’ when the public would not reasonably be deceived into believing the products were definitely covered by a patent.” In finding no intent to deceive the court noted that Solo proffered evidence to rebut a presumption of intent, including “provid[ing] the consumer with an easy way to verify whether a specific product was covered; the consumer could ‘contact www.solocup.com’ for details.” Thus, while the broad language was still an act of “false marking,” there was ample evidence to rebut a presumption of intent to deceive the public.

Some takeaways from Pequignot:

• Marking with expired patents is “false marking.” This case is not a silver bullet that will result in false marking cases being dismissed en mass.

• If marking is false, and known by the marker to be false, there is a rebuttable presumption of intent to deceive the public.

• The presumption of intent to deceive the public can be rebutted with a preponderance of evidence establishing good faith reasons for the marking and/or reasons mitigating bad faith

• Referring to a collection of products and patents and indicating that the product “may be covered” still results in “false marking” but for a relator to establish that a marker had the requisite intent to deceive with such equivocal language should be difficult.

Federal Circuit Further Refines Design Patent Analysis Post-Egyptian Goddess

2010-03-10T08:10:00.000-08:00

Over the last few months, the Federal Circuit has issued three precedential opinions that provide further guidance (or some might say misguidance) regarding the analysis of design patents in the post Egyptian Goddess era.

Claim Construction and Functional Elements in Design Patents

NO INFRINGEMENT

On March 9, 2010, the Federal Circuit decided David A. Richardson v. Stanley Works, Inc. (2009-1354) and addressed the manner in which functional elements of a design patent should be addressed in claim construction and infringement of design patents. The patented design and a representative drawing of the accused "fubar" product are illustrated above. The district court construed Richardson's design patent by noting that what was claimed was that "shown and described in the '167 patent." The district court then continued by identifying those elements that were ornamental and excluding those elements that were deemed functional. Having so construed the claim, the district court held that the accused "fubar" did not infringe Richardson's design patent.

The Federal Circuit affirmed. With respect to claim construction, the Federal Circuit rejected the Richardson's position that Egyptian Goddess effectively overruled cases such as OddzOn Prods. v. Just Toys, Inc., 122 F.3d 1396 (Fed. Cir. 1997) where the court held that "[w]here a design contains both functional and non-functional elements, the scope of the claim must be construed in order to identify the non-functional aspects of the design as shown in the patent." The court further stated that "[a] claim to a design containing numerous functional elements, such as here, necessarily mandates a narrow construction." The court went on to discount the contribution of a myriad of functional elements in the claimed design and agreed with the district court's conclusion that "[f]rom the perspective of an ordinary observer familiar with the prior art, the overall visual effect of the Fubar is significantly different from the Stepclaw [patented design]." From this ordinary observer's point of view, this holding had way more analysis than was needed to affirm - the two designs shown above are just too different.

Invalidity of Design Patents
On December 17, 2009, the court decided International Seaway Trading Corp. v. Walgreens Corp. (2009-1237), and held that the test for anticipation of a design patent is the same as the test for infringement, which is the "ordinary observer" test. The point of novelty test, abolished from the infringement analysis in Egyptian Goddess, is now a thing of the past in the validity context as well. As a result, a piece of prior art need not be exact to anticipate a design patent claim, it must only satisfy the standards of the "ordinary observer" test. "Just as 'minor differences between a patented design and an accused article's design cannot, and shall not, prevent a finding of infringement,' [cite omitted] so too minor differences cannot prevent a finding of anticipation."

Although dicta, the International Seaway court also discussed the test for obviousness of design patents. Here, the court stated that '[f]or design patents, the role of one skilled in the art in the obviousness context lies only in determining whether to combine earlier references to arrive at a single piece of art for comparison with the potential design or to modify a single prior art reference. Once that piece of prior art has been constructed, obviousness, like anticipation, requires application of the ordinary observer test, not the view of one skilled in the art." This sounds like something new. Indeed, in setting out this proposition, the court did not cite any precedent. Further, the "ordinary observer" test in this context may be viewed as inconsistent with the language of 35 U.S.C. 103(a) which states that a "patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." As noted above, the discussion regarding obviousness is properly viewed as dicta. It will be interesting to see how the law of obviousness of design patent claims develops in future cases, or if it become essentially moot in view of the broader play that the "ordinary observer" gives to the anticipation analysis.

Will differences in the insole design prevent anticipation?

The subject matter in Int'l Seaway was a design for foam clogs. The Federal Circuit held that the district court incorrectly omitted certain features (the insole design illustrated above) from its validity analysis, based on whether those features would be visible during "normal use." The Federal Circuit held that "normal use should not be limited to only one phase or portion of the normal use lifetime of an accused product," such as the time when a shoe is being worn. Instead, "normal use in the design patent context extends form the completion of manufacture or assembly until the ultimate destruction, loss, or disappearance of the article." Noting that the insole design depicted in the patent would be visible at various points in the life cycle of the article, the Federal Circuit found that it was an error for the district court to ignore these features in the validity analysis simply because they were not visible when the shoe was being worn. The court remanded for the district court "for further proceedings on the limited issue of whether the differences in the insole patterns between the prior (Crocs) are and the patented designs bar a finding of anticipation or obviousness." This remand order is somewhat troubling. As noted in J. Clevenger's dissent, "the ordinary observer test requires assessment of the designs as a whole." "[T]he differences in the inner sole designs must be appreciated in conjunction with all of the design differences." J. Clevenger aptly concludes that "[p]artial judgments of anticipation on segments of a design prohibit assessment of designs as a whole, in violation of long-standing law... ." Although preaching a "design as a whole" analysis, the majority's holding and remand order is clearly fostering an approach that will encourage a district court's "dissection of a design as a whole into its component pieces."

Claim Construction and Domestic Industry for Design Patents
On February 24, 2010, the Federal Circuit issued its opinion in Crocs, Inc. v. Int'l Trade Commission (2008-1596). In this case, the court reversed ITC determinations of no infringement and no domestic industry of Crocs' design patent. Despite earlier warnings from the Federal Circuit that construing a design patent claim in words, rather than by simple reference to the figures, was a risky proposition, the ITC issued a narrow claim construction that focused on areas of difference between the claimed design and the accused product. The Federal Circuit criticized the commission’s "concentration on small differences in isolation distracted from the overall impression of the claimed ornamental features." Instead, "[t]he proper construction requires a side-by-side view of the drawings of the [patent design] and the accused products." Despite some obvious differences apparent (to me at least) in some to these comparisons, the court found that "these side-by-side comparisons...suggest that an ordinary observer, familiar with the prior art designs would be deceived into believing the accused products are the same as the patented design." Unfortunately, the Federal Circuit opinion does not reference the "prior art designs," so it is not clear how to evaluate the differences between the claimed design and the accused products. (An example of the images shown in the Federal Circuit opinion are shown below in the first two images (side view). The top view illustrated below as compared with Fig. 6 of the patent where not part of the Federal Circuit's side-by-side comparison. I don't know that I would be deceived here, but I suppose that reasonable "ordinary observers" are free to differ.)

"NEARLY IDENTICAL" - DESIGN PATENT INFRINGED

With respect to the domestic industry requirement, the court found that Crocs' products were indeed within the scope of the design patent and those products therefore satisfied the "technical prong" of the domestic industry requirement.

False Marking Revisited - The New Wave of Patent Prospecting Is On

2010-03-03T06:57:00.000-08:00

In my December 30, 2009 post, I speculated that “the holding in the Forest Group may still create an incentive for more qui tam actions being brought for false marking. After all, even a fraction of a penny applied to a billion items can still amount to millions of dollars in potential recovery. [The holding in Forest Group] may invigorate a new class of litigation prospectors… .” A short two months later, it is clear that this is indeed the case.

Based on case filings as reported by Justin Gray, on his Gray on Claims blog, ( http://www.grayonclaims.com/false-marking-case-information ), during the period from September 5, 2007 through November 13, 2009, only ten cases were filed alleging false patent marking. In the two month period since December 30, 2009, at least 69 false marking cases have been filed. These cases have been filed by twenty two (22) different plaintiffs. One plaintiff, Mr. Simonian, is the named party in 28 cases, another, Dr. Hollander, is the named plaintiff in seven cases. Most, if not all, of these cases are based on a manufacturer marking product with patents that are now expired.

Clearly, false marking is an area that will continue to be exploited by a new breed of plaintiffs during 2010. As I said just before the new year, given this “new class of litigation prospectors, the time is right to review your patent marking and clean up any marking that may no longer be applicable.”

Fine for False Marking: Per offense = $$ Per Article

2009-12-30T07:00:00.000-08:00

False marking gained a bit of publicity this year with a number of qui tam suits being filed against companies who allegedly violated 35 U.S.C. 292 by marking products with expired patents. (See e.g., Public Patent Foundation, Inc v. Cumberland Packing Corp, 09-cv-04360. S.D.N.Y.; Perquignot v. Solo Cup Co., 07 cv 897, E.D.Va.).

The elements of a false marking claim are fairly straight forward: (1) marking an unpatented article with the word “patent” or other indication that the article is patented and (2) intent to deceive the public. Under Section 292, the penalty for false marking is that the party “shall be fined not more than $500 for every such offense.” Section 292 also includes a qui tam provision that provides that “any person may sue for the penalty, in which event one-half shall to the person suing and the other to the use of the United States.” What was unclear, until now, was whether “every such offense” was to be applied on a per article basis or as a single fine for a continuous act of marking. The difference is clearly huge. Would a defendant such as Cumberland Packing Corp. be facing a single fine of up to $500 or facing this fine for each and every one of the billions of packets of Sweet n’ Low that it sold?

In The Forest Group, Inc. v. Bon Tool Company, 2009-1044, the Federal Circuit resolved the debate and held that “per offense” means per article marked, and not a single fine for continuous false marking. In tempering this holding somewhat, the Federal Circuit noted the statute requires a fine of “not more than $500” and “by allowing a range of penalties, the statute provides district courts the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for small, inexpensive items produced in large quantities. In the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty.”

Even with the guidance provided that would support fines of only “a fraction of a penny per article,” the holding in the Forest Group may still create an incentive for more qui tam actions being brought for false marking. After all, even a fraction of a penny applied to a billion items can still amount to millions of dollars in potential recovery. With the new year approaching, and new guidance from the Federal Circuit that may invigorate a new class of litigation prospectors, the time is right to review your patent marking and clean up any marking that may no longer be applicable.

Reflections On The Erosion of Method Claims

2009-11-09T13:21:00.000-08:00

It wasn’t that long ago that patent practitioners held the view that means-plus-function claims were the broadest and best way to protect an invention. Over time, many learned (the hard way) that this isn’t true anymore. With means-plus-function claims being construed narrowly in view of the specification, it became increasingly popular to include method claims to cover the process taking place in the described apparatus. After all, what could be better than not being limited by any structural limitations? Well, as it turns out, the last couple of years have not been particularly kind to method claims.

Patentable Subject Matter:

Today the Supreme Court is hearing oral argument in Bilsky, a case that many feel will significantly redefine the scope of patentable subject matter for method claims. (And providing motivation for today's musings.) Bilsky is the culmination of at least a two year trend at the Federal Circuit where 35 U.S.C. 101 has been increasingly applied as the basis for denying patent protection for claims directed to methods. The Federal Circuit's now infamous “machine or transformation test,” set forth in Bilsky represents a considerable narrowing of patentable subject matter for methods. Clearly, those post-State Street feel good days for business method patents are behind us for the moment. But, Bilsky and Section 101 is a subject all its own (and the subject to countless other posts and articles), so lets move on to some other issues.

Infringement of Method Claims

Divided Infringement:
Last year, in Muni-Auction v. Thomas, 532 F. 3d 1318 (Fed Cir. 2008) the Federal Circuit addressed the issue of infringement of a method claim when two or more entities were required to act in order to perform all of the steps of a claimed method. In the patent in dispute in Muni-Auction “at least the inputting step of claim 1 is completed by the bidder, whereas at least a majority of the remaining steps are performed by the auctioner’s system.” Id. at 1328. In finding that there was no direct infringement (and therefore no predicate for third party liability based on inducement or contributory infringement) the Federal Circuit looked to the relationship between the bidder and the auctioner. The court held that:

Accordingly, where the actions of multiple parties combine to perform every step of a claimed method, the claim is directly infringed only if one party exercises “control or direction” over the entire process such that every step is attributable to the controlling party, i.e., the “mastermind.” [Citation omitted] At the other end of this multi-party spectrum, mere “arms-length cooperation” will not give rise to direct infringement by any party.

* * *
Under BMC Resources, the control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method.

Although the holding in Muni-Auction is consistent with earlier cases on the issue of divided infringement, such as BMC Resources v. Paymentech, L.P., 498 F.3d. 1373 (Fed. Cir. 2007), this decision seems to raise the bar regarding the nature of the relationship required in order to find liability under a “divided infringement” theory. Under Muni-Auction, to establish infringement of a method claim under a divided infringement theory, one must not only show that the entities involved perform all of the steps within the scope of the claim, but must also establish a close legal relationship among those entities.

Steps performed Abroad:

In August, an en banc Federal Circuit addressed whether a method claim could be infringed under 35 U.S.C. 271(f). The Court held that “because one cannot supply the step of a method, Section 271(f) cannot apply to method or process patents.” Cardiac Pacemakers v. St. Jude Medical, 2007-1296 (Fed. Cir., August 19, 2009). The court further held that “271(f) does not encompass devices that may be used to practice a patented method.” Id. at 30. Thus, a device built in the United States that is capable of performing a patented method, but does not actually perform that method in the United States, does not infringe a claim to the patented method under 35 U.S.C. 271(a) or (f). Again, without direct infringement, there is no basis for assertions of third party liability based on threats of inducement or contributory infringement.

Going back a few years, in NTP v. Research in Motion, the Federal Circuit held that “a process cannot be used ‘within’ the United States as required by section 271(a) unless each of the steps if performed within this country.” 418 F.3d 1282, 1318 (Fed. Cir. 2005)(en banc)(emphasis added). In contrast, the Court also held that “use of a claimed system under section 271(a) is the place at which the system as a whole is put into service, i.e., the place where control of the system is exercised and beneficial use of the system obtained.” Id. at 1317 (emphasis added). Unlike the method claim, for the system claim, the Federal Circuit upheld the finding of infringement even though one component of the claimed system was not present in the United States.

Conclusion

Whether the Supreme Court limits or expands the scope of patentable subject matter in Bilsky, it is apparent that the scope of method claims have already been limited. For those who thought (or just hoped) that method claims were the next best thing since means-plus-function claims…well, just like with means-plus-function claims, this was a good theory put to rest by subsequent case law. Its now time to adapt again.

Common Sense Practice Note: Things that today are considered "conventional wisdom" may not always have been considered "conventional" in the past, and may not always be considered "wisdom" in the future. For patent practitioners, the best strategy remains timeless - keep applying for claims of varying format, varying subject matter and varying scope, since one never knows what tomorrow may bring.

The 5 W’s (and How) – Not Just for Journalism Anymore

2009-08-12T09:20:00.000-07:00

The Federal Circuit Heightens the Pleading Requirement for Inequitable Conduct

Sometime during grade school we learned that good journalistic writing needed to address “the five Ws”- who, what, when, where and why – and sometimes how. This is still true for good journalism. It is now also true for pleading the defense of inequitable conduct.

In Excergen Corp. v. Wal-Mart Stores, Inc. et al. the Federal Circuit recently addressed the requirements for pleading inequitable conduct under the heightened specificity requirements of Fed. R. Civ. P. 9(b). (2006-1491, 2007-1180, August 4, 2009, http://www.cafc.uscourts.gov/opinions/06-1491.pdf). The two elements of inequitable conduct are that (1) an actor within the duty of candor committed a material omission or made a materially false statement to the patent office, and (2) the omission or false statement was made with the specific intent to deceive the patent office. With respect to the first element, materiality, the Excergen court held “that in pleading inequitable conduct in patent cases, Rule 9(b) requires identification of the specific who, what, when, where and how of the material misrepresentation or omission committed before the PTO.” In addition, the Excergen court held that “a pleading of inequitable conduct under Rule 9(b), must include sufficient allegations of underlying facts from which a court may reasonably infer that a specific individual (1) knew of the withheld material information or of the falsity of the material misrepresentation , and (2) withheld or misrepresented this information with a specific intent to deceive the PTO” (emphasis added).

Under this heightened pleading standard, a general allegation against all individuals within the scope of the duty of candor, such as “Excergen, its agents and/or attorneys,” fails to address the “who” element with sufficient specificity and was deemed inadequate. In short, the court wants names (but also noted that these may be redacted from the public filing, if appropriate). For the “what” and “where” requirements, the pleading must now specifically identify not just a withheld reference, but those specific portions of the withheld reference that are considered material. General averments of “materiality” or that a reference is “not cumulative to the information already of record,” are insufficient. For materiality, the pleading now must “identify the particular claims limitations, or combination of claim limitations, that are supposedly absent from the information of record.” This, the court says, is “necessary to explain both ‘why’ the withheld information is material and not cumulative, and ‘how’ an examiner would have used this information in assessing the patentability of the claims.” Finally, the pleading must allege that the specific individual(s) identified “knew of [the] specific information that is alleged to be material [to the asserted patent] and then decided to deliberately withhold it from the relevant examiner.”

It is not news that inequitable conduct is a defense that requires pleading with specificity. Nonetheless, the heightened pleading requirements outlined in Excergen that provide a framework for meeting this requirement will be welcomed by many who view inequitable conduct as a defense that is raised too often, too early, and many times too vaguely. In practice, however, rather than significantly limiting the number of inequitable conduct allegations being made, Excergen is more likely to impact the timing and scope of these allegations. To address the five W’s (and “how”), defendants will require additional fact discovery before filing the amended pleading with the inequitable conduct defense. The allegations will still come, they will likely come later in the case and should be more thoroughly defined.

The Federal Circuit Reviews the Standard for Preliminary Injunctions in Design Patent Cases

2009-06-24T11:37:00.000-07:00

Titan Tire Corporation et al. v. Case New Holland Inc., et al. 2008-1078

In Titan Tire, the Federal Circuit affirmed the trial court’s denial of a preliminary injunction (“PI”) in a design patent case. (www.cafc.uscourts.gov/opinions/08-1078.pdf) The opinion begins with a recitation of the four factors required to obtain a preliminary injunction which “are of longstanding and universal applicability.” That is, the movant “must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.” Although a movant must satisfy all four factors in every case, the focus of Titan Tire was on the first factor. More particularly, the opinion provides an in-depth discussion regarding the respective evidentiary and procedural burdens for establishing (or defeating) a showing that a patent holder “is likely to succeed on the merits” in the face of a validity challenge to the asserted patent. Although Titan Tire is a design patent case, the discussion with respect to the burdens encountered in a PI motion are equally applicable to utility cases as well.

The court begins its analysis with the truism that “the patentee seeking a preliminary injunction in a patent infringement suit must show that it will likely prove infringement, and that it will likely withstand challenges, if any, to the validity of the patent.” When an alleged infringer is challenging patent validity in its defense of a PI, “the burden is on the challenger to come forward with evidence of invalidity, just as it would be at trial.” (Well, almost “as it would be at trial.” As discussed below, the accused infringer does not need to present “clear and convincing” evidence of invalidity to defeat a motion for a preliminary injunction.) After the accused infringer presents some evidence sufficient “to persuade the trial court that the patent is invalid, at this stage it is the patentee, the movant, who must persuade the court that, despite the challenge presented to validity, the patentee nevertheless is likely to succeed at trial on the validity issue.” In this context, “[w]hile it is not the patentee’s burden to prove validity, the patentee must show that the alleged infringer’s defense lacks substantial merit.”

How much evidence does an accused infringer need to present for a successful invalidity challenge during a preliminary injunction hearing? Clearly, the accused infringer needs to come forward with enough evidence (something more than a “mere scintilla”) to persuade the court that its invalidity defense has “substantial merit.” The court unequivocally stated, however, that “the alleged infringer at the preliminary injunction stage does not need to prove invalidity by the ‘clear and convincing’ standard that will be imposed at trial on the merits.” Instead, this heightened evidentiary burden is merely “a consideration for the judge to take into account in assessing the challenger’s case at the preliminary injunction stage.”

Obviousness of Design Patents

After discussing the standard for determining whether an invalidity defense is sufficient to defeat a PI motion, the court continued with a discussion of the standard for determining invalidity of a design patent.

Obviousness for design patents, like utility patents, is governed by 35 U.S.C. 103. When combining multiple references for an obviousness defense, the inquiry is “whether one of ordinary skill would have combined the teachings of the prior art to create the same overall visual appearance as the claimed design.” As discussed in Titan Tire, this typically involves identifying a “primary reference;” that is “something in existence, the design characteristics of which are basically the same as the claimed design.” Then, “other ‘secondary’ references ‘may be used to modify it to create a design that has the same overall visual appearance as the claimed design.’” Finally, to properly combine the references, the "secondary references must be 'so related [to the primary reference] that the appearance of certain ornamental features in one would suggest the application of those features to the other.'" Citations omitted. After reviewing this standard, the court reviewed the prior art of record and affirmed the district court’s holding that the accused infringer's invalidity defense had sufficient merit to defeat the PI.

Although dicta, the court pointed out that current test for obviousness of design patents may have similar flaws as the “point of novelty” test for infringement that was eliminated by the Federal Circuit's en banc decision is Egyptian Goddess. The court did not, however, take the opportunity to take on this issue. Instead, it simply pointed out that gyptian Goddess expressly states that “it is not a test for determining invalidity, but is designed solely as a test of infringement.” After noting this limitation, the Titan Tire court simply warns that “it is not clear to what extent, if any, the doctrine applicable to obviousness should be modified to conform to the approach adopted by this court in Egyptian Goddess.”

Another interesting, but unanswered question, is the role of the Supreme Court’s decision in KSR in determining obviousness in the context of design patents. In particular, Titan Tire objected to the trial court’s reference to the passage in KSR that the “predictable use of prior art elements according to their established functions” would be indicative of obviousness since, it argued, design patents do not have functional elements. The Federal Circuit stated that “it is not obvious that the Supreme Court necessarily intended to exclude design patents from the reach of KSR,” but found that this question need not be resolved to dispose of the present case.

What are the take aways from Titan Tire?

Preliminary injunctions represent extraordinary relief and are difficult to obtain. (Of course, we new that already). The Federal Circuit’s discussion in Titan Tire is likely to make it easier to defeat a PI motion based on a reasonably presented invalidity defense.
The ordinary observer test of Egyptian Goddess does not have any bearing on the validity of design patents. The rational behind eliminating the “point of novelty” test, however, may continue to influence the validity inquiry in the future.
We should expect to see KSR-based arguments raised more often in the context of design patents.

En Banc Decision Clarifies Scope of Product-By-Process Claims and Highlights Philosophical Divide in the Federal Circuit

2009-06-03T11:55:00.000-07:00

En banc decisions from the Federal Circuit are rare. They serve to clarify the law, typically being invoked when conflicting precedent has been identified and needs to be reconciled. As such, en banc decisions are important. On May 18, 2009, the Federal Circuit issued its decision in Abbott Laboratories et al. v. Sandoz et al., 2007-1400, 1446 (http://www.cafc.uscourts.gov/opinions/07-1400.pdf). Most of the decision was panel-only. However, the Court, acting sua sponte, took on one issue en banc. That issue was the “proper interpretation of product-by-process claims.”

The Majority Holding

First, the law. The majority noted conflicting precedent from Federal Circuit panel decision regarding whether the process recitations in a product-by-process claims were properly construed as claim limitations. In other words, would an identical product, made by a different process, infringe a product-by-process claim? Making a long story short, the majority held that process recitations in a product-by-process claim are indeed claim limitations and if a product is made by a different process, there is no infringement.

Judge Newman’s Dissent

Judge Newman’s dissenting opinion, joined by J. Laurie and J. Mayer, is a 38 page dissertation taking issue with both the process used by the Federal Circuit in dealing with this issue en banc, and the substance of the majority’s holding.

Judge Newman is perhaps the Federal Circuit’s most consistent supporter of a strong patent system. Her opinions demonstrate a high level of respect both for patents and the patent bar. This dissent is fully consistent with these values.

First, the dissent is clearly unhappy with the perceived short-cutting of the en banc process in this case. For example, Judge Newman notes that the parties were not invited to brief or argue the en banc question and neither were amici. The dissenting opinion states that the Federal Circuit ran afoul of Fed. R. App. Proc. 34 and 35, as well as its own internal operating procedures, in taking on this issue without seeking such input. In Judge Newman’s view, those constituents likely to be effected by this change in the law should have been provided an opportunity to be heard.

Turning to the substance of the dissent, Judge Newman methodically dissects each case relied on by the majority and effectively points out why those cases fail to support the bright line test adopted by the majority. Rather, long standing authority, she points out, supports evaluating a product-by-process claim under a “rule of necessity” that traditionally allowed a patentee to claim the product by describing the process of manufacture when there was no known way of characterizing an otherwise novel product. Since both patentability and infringement were measured by the scope of the product, Judge Newman characterizes this approach as “pragmatic, fair, and just, for it attuned patent law and practice to the realities of invention.”

Practical Impact

From a practical standpoint, this decision will have limited impact since the use of product-by-process claims tend to be rare. (Indeed, its not even clear that they were appropriate in the case before the court since there were other claims involved that claimed the product based on measurable properties, rather than the process steps used to make the product). Nonetheless, the majority holding seems to present yet another small, but measurable, erosion of patent rights that are now available to inventors.

Federal Circuit Decides that “Have Made” Rights are Implied, Unless Expressly Omitted

2009-06-02T17:46:00.000-07:00

When a patent license grants the rights to “make, use and sell” a patented product, and reserves “all rights not expressly granted to [a licensee],” does the licensee have the right to have the licensed product made by another on its behalf? That question was answered in Corebrace LLC v. Star Seismic LCC, Fed. Cir. 2008-1502 (May 22, 2009)(www.cafc.uscourts.gov/opinions/08-1502.pdf) which held that: “A grant of a right to ‘make, use, and sell’ a product, without more, inherently includes the right to have a third party make the product. A clear intent shown in a contract to exclude ‘have made’ rights can negate what would otherwise be inherent.” Simply stated, “have made” rights are in, unless they are expressly carved out of the license.

Corebrace makes it clear that this implied “have made” right is not a “sublicense” right (which was expressly prohibited in the license granted to Star Seismic). Instead, this implied right emanates from a Court of Claims decision which stated that “[a license to make, use, and sell] is not restricted to the production by the licensee personally or use by him personal or sales by him personally. It permits him to employ others to assist him in the production and in the use and in the sale of the invention.” Carey v. United States, 326 F.2d 975, 979 (Ct. Cl. 1964).

PRACTICE POINTS IN VIEW OF COREBRACE:

As a patentee, if you do not want to extend “have made” rights, the license grant should include unambiguous language that explicitly preclude such rights.

As a licensee, despite the clear holding in Corebrace, it is still good practice to expressly include “have made” rights in the license grant. Patent licenses are contractual rights that are evaluated under state law. In Corebrace, the governing law was Utah. Since the Supreme Court of Utah was silent on this issue, the Federal Circuit looked to its own precedent to decide this issue. A case originating from a different state could end up with a different result.

What about the third-party supplier? In Corebrace, the action was between the patentee and the licensee. The third-party manufacturer supplying Star Seismic was not a party to the action. Although Star Seismic was conferred implied “have made” rights, it is not clear (at least to me) that this implied right would extend upstream and protect the third-party manufacturer who is making the product. Authorized sales by the licensee clearly “exhaust” patent rights with respect to downstream purchasers, but does an authorized purchase have the same effect upstream? If the purchase is authorized, does that imply that the sale is also authorized? Those are questions for another day...please let me know your thoughts on this.

Bilsky Taken Up By Supreme Court

2009-06-02T06:44:00.000-07:00

Will the Scope of Patent Eleigible Subject Matter be Redefined?

In a decision that is viewed as a bit of a surprise to many, the Supreme Court has granted certiorari in Bilsky v. Doll, U.S. No. 08-964, to review the en banc Federal Circuit decision which held that “[a] claimed process is surely patent-eligible under §101 if it is (1) ties to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” (In re Bilsky, 545 F.3d 943 (Fed. Cir. 2008))

The Bilsky decision, which appears to define a bright line test for patent eligible subject matter, fails to provide guidance in some important areas. For example, is a general purpose computer operating with unique software a “particular apparatus”? Also, can the transformation of data alone qualify as “transform[ing] a particular article into a different state or thing"? With these questions unanswered, the impact of Bilsky’s “machine-or-transformation” test has been most significant in the software and business method sectors, with §101 rejections being more common from the USPTO and §101 now being a real and viable defense in patent litigation. Indeed, the court in the Middle District of Florida just recently invalidated an asserted patent under 35 U.S.C. § 101 in the case of Every Penny Counts, Inc. v. Bank of America Corp., 07-CV-0042.

The Supreme Court agreed to hear two questions:

(1) Whether the Federal Circuit erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. §101, despite this Court's precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas.”

(2) Whether the Federal Circuit's “machine-or-transformation” test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business.” 35 U.S.C. §273.

Where will this lead? Good question. The Supreme Court has not been particularly kind to patent owners and broad patent rights in its recent decisions. Then again, the Supreme Court has not been particularly kind to the Federal Circuit either. Its past decisions over the years on the question of patentable subject matter, however, tend to avoid bright line standards and lean towards a more liberal scope of patentable subject matter, but certainly don’t embrace the scope of “anything under the sun made by man” as the Court once suggested. Merely taking the case, however, means that a definitional moment in the area of patentable subject matter is likely on the horizon. Now, its time for the waiting to begin and for the amici to enter the fray.

A Holding of Invalidity Deserves a Complete Analysis

2009-04-28T08:37:00.000-07:00

Last week, in Steven Ritchie et al. v. Vast Resources, Inc. (2008-1528, -1529) the Federal Circuit summarily reversed the findings of the district court and held that the asserted patent (RE 38,924, http://www.google.com/patents?id=LasVAAAAEBAJ&dq=RE38924) was invalid as being obvious. (Yes, I know that it is far more appropriate to say that the asserted or challenged claims were found invalid, but in this case, the Court doesn't mention which claims were on appeal or which claims were actually held to be invalid.)

The subject matter of the patent is somewhat low tech –OK, its a sex toy made of a type of slippery glass known as “borosilicate glass.” Notwithstanding the apparent simplicity of the underlying . . . umm . . . technology, before reaching the Federal Circuit, the patent survived both initial examination and re-issue proceedings at the USPTO and was found to be valid and infringed at the district court.

Judge Posner, sitting by designation, wrote the opinion that was joined by Chief Judge Michel and Judge Bryson. (The opinion can be found at http://www.cafc.uscourts.gov/opinions/08-1528.pdf). Judge Posner clearly had some fun writing this opinion, which includes a number of jokes directed at the subject matter of the patent. I enjoyed reading the opinion. Unfortunately, in the end, the opinion is long on wit and generalities about obviousness, but is extremly limited with respect to providing any real guidance on the application of the obviousness inquiry post-KSR.

In this opinion, there is very little discussion of the actual claim limitations in question, how the prior art was applied to those limitations, or the actual basis for deciding why a person of ordinary skill in the art would arrive at the conclusion that the differences between the prior art and the claimed invention were indeed obvious. From the opinion, the reader merely knows that both sex toys and borosilicate glass are well known. It is quite possible that the conclusion reached by the Federal Circuti is correct, but that conclusion simply does not flow from the information provided in the opinion.

Finding a patent claim invalid is a significant holding. As such, a finding of invalidity in the first instance by the Federal Circuit should be supported by a more thorough analysis that clearly supports the holding. Even patents directed to sex toys deserve an informed analysis regarding the Graham factors before finding a patent invalid! In my own humble opinion, the obviousness inquiry should not be relegated to an amorphous analysis akin to pornography, e.g., an “I know it when I see it” approach.

Without question, some patents are directed to subject matter that is obvious and those claims should be invalidated. When those cases are presented, the Federal Circuit would better serve patent owners, defendants, district courts and the patent bar by providing an analysis that informs the process and clearly justifies the result.

TransCore LP v. Electronic Transaction Consultants Corp.

2009-04-21T07:00:00.000-07:00

Patent Exhaustion and Legal Estoppel

Previous Settlement Leaves Patent Owner “Exhausted”

In June 2008, the Supreme Court decided Quanta Computer, Inc. v. LG Electronics and reaffirmed that the doctrine of patent exhaustion is alive and well and is fully applicable to method claims. (For a more thorough discussion on Quanta, see http://www.dorsey.com/eupdate_quanta_v_lg_electronics_inc_070108/). The Federal Circuit has now taken the opportunity to further bolster the patent exhaustion doctrine in the recently decided case of TransCore LP v. Electronic Transaction Consultants Corp., 2008-1430.

The facts of TransCore can be briefly summarized as follows. The patent owner, TransCore, was involved in a litigation in 2000 against Mark IV Industries. That action was resolved by a settlement agreement in which Mark IV paid TransCore $4.5M in exchange for an “unconditional” covenant not to sue under a denominated list of ten (10) U.S. Patents and the foreign counterparts thereof. After listing the specific patents within the covenant, the settlement agreement provided that “This Covenant Not To Sue shall not apply to any other patents issued as of the effective date of this Agreement or to be issued in the future.” The defendant, Electronic Transaction Consultants (ETC), purchased product from Mark IV and was sued for infringement of three patents that were previously asserted against Mark IV as well as one later issued patent, U.S. Patent No. 6,653,946 (“the ‘946 patent”). The district court granted summary judgment in favor of ETC finding that patent exhaustion precluded the assertion of the previously litigated patents and that TransCore was legally estopped from asserting the later issued ‘946 patent.

TransCore presents two significant issues. First, does a covenant not to sue that was provided as part of an earlier settlement agreement create an “authorized sale” that triggers patent exhaustion? Second, should the patent owner be estopped from asserting a later-issued patent, if that later-issued patent would limit the value of a right previously granted for valuable consideration?

With respect to the first issue, the Federal Circuit held that the fact that the right conveyed was described as a covenant not to sue, rather than a license grant, was a distinction without a difference in the context of the exhaustion analysis. By granting an unconditional covenant not to sue, the patent owner authorized the original defendant, Mark IV, to make, use and sell products under the asserted patents without threat of suit. This authorization was sufficient to exhaust TransCore’s rights against downstream purchasers, such as ETC. The comparative analysis between a covenant not to sue and a patent license provided in the TransCore opinion is worth reading, but the result, which favors substance over form, is not particularly controversial in view of Quanta.

The second issue is somewhat more problematic. The ‘946 patent was described by the Court as “a related patent that was pending before the Patent and Trademark Office but had not yet issued at the time of the TransCore-Mark IV settlement.” In the district court, “TransCore did not dispute that…the ‘946 patent was broader than, and necessary to practice, at least [one patent] that was included in the TransCore-Mark IV settlement agreement.” On this basis, the Federal Circuit held that “in order for Mark IV to obtain the benefit of its bargain with TransCore, it must be permitted to practice the ‘946 patent to the same extent it may practice [the patents listed in the settlement agreement].” As a result, TransCore was “legally estopped from asserting the ‘946 patent against Mark IV in derogation of the authorizations granted to Mark IV [under the settlement agreement].” Thus, the Corut held that Mark IV had an implied license to the later issued ‘946 patent and this implied license inured to the benefit of ETC.

Given the unambiguous language of the covenant not to sue, this result is somewhat troubling. The “benefit” Mark IV bargained for in the settlement agreement was TransCore’s forbearance of suit under a clearly defined set of patents. The parties certainly could have included language that would have embraced related patents, such as continuations, continuations-in-part and divisional applications, but chose not to do so. The parties also could have agreed to include pending applications, but chose not to do so. To the contrary, the parties expressly agreed to a covenant not to sue covering a closed-end list of U.S. and foreign patents and included language expressly excluding later issued patents. The parties valued this agreement at $4.5M.

The patent owner certainly received consideration for the covenant that was granted. However, it is entirely reasonable to believe that the amount of consideration was determined after a thoughtful analysis by both parties as to what was, and was not, included in the agreement. Was there a “derogation of rights” in this case that needed to be cured by imposing an implied license, or simply a party disappointed at the result of the limited bargain that it entered into? What is troubling here is that the Court’s holding in this case seems to result in a significant expansion of the rights that were actually conveyed, contrary to the express language of the agreement.

Can patent owners avoid this result in the future? In drafting language for license agreements and covenants not to sue, parties, especially patent owners, must take heed of the recent decisions in Quanta and TransCore, and use carefully crafted language in order to specifically define what is, and is not, authorized activity. Even then, there is clearly a risk that the doctrines of patent exhaustion or implied license may be imposed to limit the patent owners actions against third parties.

POINT OF NOVELTY

2009-04-16T07:37:00.000-07:00

The world of patent law is in transition. The last few years have seen unprecedented levels of patent litigation spurred on by many substantial verdicts and an increase in the number of non-practicing entities looking to acquire and assert patent rights.

In what would appear to be a response to this trend, the Supreme Court has, among other things, made it easier to invalidate patents and harder to get injunctions when a patent is found to be infringed. As a trial lawyer who represents both patent owners and companies that need to defend themselves against accusations of infringement, this trend cannot be considered either clearly bad or good- but it is a significant legal and economic issue and must be understood.

This blog will follow and evaluate current trends in patent law and policy and try to offer insight as to how these trends impact the ability to obtain and enforce patents.

(Yes, I know that there is no longer a "point of novelty" test in patent law. But the concept, a single differentiating point, seemed to be as a good title for this blog as any.)

The views expressed in this blog are mine alone and should not be attributed to Dorsey & Whitney LLP, its attorneys, or its clients.