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October | 2014 – Patently-O

America’s leading patent law source
by Dennis Crouch
Last year I wrote about the patent licensing decision captioned Kimble v. Marvel Enterprises Inc. (9th Circuit 2013)Kimble involved a patent license agreement tied to Marvel’s web-shooter toy sales. On its face, the agreement appears to remain in force so long as Marvel sold the toys.  However, the 9th Circuit held that the license ended once the patent term lapsed.  The 9th Circuit decision was easy because there is a Supreme Court case on point: Brulotte v. Thys Co., 379 U.S. 29 (1964) (licensing agreement unenforceable because it required royalty payments beyond the expiration date of the underlying patent).
Kimble has now pushed the case to the Supreme Court and presents a straightforward petition:
The question presented is: Whether this Court should overrule Brulotte v. Thys Co., 379 U.S. 29 (1964).
SCOTUS-Blog Link.
The basic argument is that the Brulotte improperly imposes a per se limit on contract structure and forces any royalty payments to be amortized only within the term of the patent.  Often, that result does not make business sense. Kimble suggests that the court do-away with the per se rule and replace it with a rule of reason as it has done in other cases – most notably in the area of patent-tying.  See Illinois Tool Works v. Independent Ink, 547 U.S. 28 (2006).
The petition also characterizes Brulotte as “the most widely criticized of [the Supreme] Court’s intellectual property and competition law decisions.”
Three panels of the courts of appeals (including the panel below), the Justice Department, the Federal Trade Commission, and virtually every treatise and article in the field have called on this Court to reconsider Brulotte, and to replace its rigid per se prohibition on post-expiration patent royalties with a contextualized rule of reason analysis.
The Supreme Court requested that the Solicitor General file the views of the US Government and those have just been filed – with a somewhat surprising recommendation against a grant of certiorari.  The SG’s position is that stare decisis should prevail. Hal Wegner writes about the case in his review of top pending patent cases: See Wegner’s Top Ten.
Unduly Extending Patent Term: An important element of the analysis here is whether overturning Brulotte would somehow allows the patentee to extend its patent term and thereby prevent the public from taking advantage of the invention.  Kimble argues “no” — all that the longterm license agreement did was amortize the license value over the life of the product rather than the life of the patent.  Certainly, once the patent expires then no-one can be liable for infringement and any generic (or branded) company can make, use, and sell the invention as it wishes. However, if we look at this case in particular, all of the products on the market using the patented invention are Kimble-licensed products — even though the patent has been expired now for years.  This suggests to me that the post-expiry-license is having a market impact that is reducing the potential customer surplus.  I suspect that in most situations, the most likely post-patent-expiry suppliers of a product are the companies who were supplying that product pre-patent-expiry.  If those entities are required to continue to pay license post-patent-expiry then consumers may never see the benefits typically associated with patent expirations.
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One factor pushing toward grant of certiorari is the underlying subject-matter.  The patent at issue covers a nifty web-shooting toy designed to mimic (in toy form) spider-man’s super powers. See U.S. Patent No. 5,072,856.
Earlier in the week, I wrote about the issue of “multiple-jeopardy“.
This week, the patent-world has also faced “Double Jeopardy” with two patent attorneys competing and winning their rounds on the television show Jeopardy.
Congratulations to Patent Attorney and Blogger Ryan Alley (Ryan Alley IP) on his Jeopardy win this week! Alley made it a “true daily double” by questioning the following answer:
White House counsels John Dean & Kathryn Ruemmler went to this law school not far from Pennsylvania Ave.
His two-day total is $39,800 and he will go again on Friday.
FJ Results: 10-29-14
Also this week, Patnet Neeraj Joshi (the Business Method Man) competed and won on Sports Jeopardy. Watch Joshi’s round here.
by Dennis Crouch
This morning I mentioned one bit of the ongoing software-patent debate to my 9-year-old daughter.  I told her that some people argue that the computer is a different machine when it is running Microsoft Word than when it is running her WarriorCat game.  As an old Newtonian mechanical engineer, that argument never sits well with me. (I think software is patent-eligible on other grounds).  I was surprised that she bought-in to the different-machine argument.
Robin explains:
Sure, the box is the same in both situations. But, Microsoft Word obeys me and the the game thwarts my moves. I see them as very different.  Its brain changes.
Robin did something here that comes naturally for children — to think about the issue from her perspective as a participant in the activity.  The two programs offer very different experiences – and that is what matters to her.  It will be interesting to see whether the court’s approach is the same.
In any event, Happy Halloween from my Woodland Elf & Forest Gnome!
It is fairly difficult to nail-down which patents are “software” patents.  For the chart below, I parsed through all utility patents issued since 1976 and looked for any of the following keywords within an independent claim: computer; processor; software; machine.readable; information; memory; data; virtual; or storage.media.
In a new article, Economist John Winters (OSU) looked at the link between collegiate STEM training (university degree) and innovation-intensity (per capita patenting). The findings are not surprising — locations with more STEM graduates have a higher per capita rate of patenting.  Of importance, Winters found this to be true regardless of whether the graduates were US-native or foreign trained.
Figure 1 above charts the per-capita patenting (log) against the population-share of STEM-graduates.  Each point represents one of the 300+ U.S. metropolitan area in the study.  The outlier at the right is Silicon Valley which has both the highest per-capita patenting rate and the highest population-share of STEM graduates. You’ll note that the per-capita patenting rate is on a log axis and that the SV patenting rate is much greater the chart suggests if thinking linearly.  Winters does not report on the identity of the low-end regions.
Although the paper does not delve into this, the phenomenon here is almost certainly not one of straight causation.  Silicon Valley and Boulder (No. 2 on the list) have both learned how to invest in research and investment likely leads to more local STEM graduates.  In that sense, the solution of ‘getting more STEM graduates’ is unlikely to be a success on its own.
A second problem with the paper is that it talks about ‘innovation’ but simply uses a patent-count measure as a proxy for innovation.  Although innovation is a legally necessary element of a patent, many important innovations are not patented. Further, although per-capita patenting provides a simple and easy to explain measure, it avoids the reality that some inventions are highly innovative and important while others are not.
The Federal Circuit has a rule that currently provides:
No employee of the court may engage in the practice of law. No former employee of the court may participate or assist, by representation, consultation, or otherwise, in any case that was pending in the court during the period of employment. For purposes of this rule, a person serving at the court as an intern, whether in a judge’s chambers or otherwise, is considered an employee of the court, whether such service is for pay, for law school credit, or voluntary.
The Court proposes to add this language:
Cases involving related subject matter: In addition to not participating in any case that was pending in the court during the period of employment, a former employee should also avoid participation in a case that includes any patent that was at issue in a case that was pending during the period of employment if the former employee participated personally and substantially in the pending case. See Canon 3(d) of the Code of Conduct for Judicial Employees (prohibiting disclosure of “any confidential information received in the course of official duties” and noting that a “former judicial employee should observe the same restrictions on disclosure of confidential information that apply to a current judicial employee, except as modified by the appointing authority.”).
(A link to the proposed change is here.)  At the outset, if this means what it says, then, for example, if a clerk at the Court today works personally on a case involving the ‘123 patent, against which a party asserts 30 prior art references in one manner or another, that clerk is precluded from being involved in 31 cases.  That’s nuts.
Assuming (hopefully) that what they mean is personally and substantially involved in a case where the validity, infringement, or enforceability of a patent was in issue, that’s perhaps okay, I guess, given IPR, but I’m not sure I fully appreciate the ramifications.  Thoughts?  (Also, does “should avoid participation in” mean it’s not mandatory?)
If you want to comment, here is the form.
ScreenShot142Card Verification v. Citigroup (N.D. Ill. 2014)
A growing number district court decision have followed the Supreme Court’s Alice Corp. decision by finding the asserted patent claims to be patent-ineligible as unduly encompassing an abstract idea.
In one recent decision, N.D. Ill. Judge Kendall has tepidly bucked the trend by denying a Fed R. Civ. Proc. R. 12(b)(6) motion for failure to state a claim — instead finding the asserted claims plausibly eligible.
The asserted patent claims cover a transaction verification method and the Judge agreed with defendant-Citygroup the general idea of verifying a transaction is an unpatentable abstract idea.  (Claim 1 is pasted below. See Patent No. 5,826,245).
Moving to the second step of Alice, Judge Kendall found that the claims plausibly avoid the mental steps doctrine by requiring “pseudorandom tag generating software” and also plausibly requires a sufficiently concrete transformation so as to ground the abstract idea to a particular inventive implementation.  Notably, for the second step, Judge Kendall did not draw the law from Alice, which seemingly required novelty in the ‘something more’ but instead quoted from the Federal Circuit’s 2013 holding that “additional substantive limitations [are required that] narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.” Accenture Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336, 1341 (Fed. Cir. 2013).  Applying that law to the case, the court ruled that the claimed process of adding random number tags to data in the computer could be seen as “fundamentally altering the original confidential information.”  With this analysis in hand, Judge Kendall denied the defendants’ motion to dismiss for failure to state a claim without prejudice.
The decision here is probably most important for its procedural stance. First, the defendants’ bold move was to file its motion to dismiss as a R. 12(b)(6) motion even before filing its answer to the complaint that would include defenses and counterclaims.  Under Iqbal and Twombly, the complaint must state a claim that is ‘plausible on its face.’  Here, all that the court held was that the claim is plausible.
Although the outcome favored the patentee, the case is also a break from the tradition that a patent’s presumption of validity is generally sufficient to survive such a motion to dismiss. In Ultramercial, the Federal Circuit addressed a similar finding and held that dismissal at such an early stage is only appropriate when “the only plausible reading of the patent [is] that there is clear and convincing evidence of ineligibility.”  Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335 (Fed. Cir. 2013) vacated on other grounds 132 S. Ct. 24131 (2012). Of course, the clear-and-convincing standard is with regard to questions of fact while the eligibility inquiry is a question of law that depends upon few (if any) questions of fact.
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Read the decision here: Kendall101
Claim 1:
A method for giving verification information for a transaction between an initiating party and a verification-seeking party, the verification information being given by a third, verifying party, based on confidential information in the possession of the initiating party, the method comprising:
on behalf of the initiating party, generating first and second tokens each of which represents some but not all of the confidential information,
sending the first token electronically via a nonsecure communication network from the initiating party to the verification-seeking party,
sending the second token electronically via a nonsecure communication network from the initiating party to the verifying party,
sending the first token electronically via a nonsecure communication network from the verification-seeking party to the verifying party,
verifying the confidential information at the verifying party based on the first and second tokens, and sending the verification information electronically via a nonsecure communication network from the verifying party to the verification-seeking party.
Guest Post by Ruben Jacobo-Rubio.  I asked Jacobo-Rubio to write a guest post on his recent article (along with John Turner and Jonathan Williams) on estimating the valuation of Paragraph IV patent litigation.  The basic results here are that brand firms value deterring entry by an order of magnitude more than generic firms value the right to entry.  That economic result helps to explain the incentive for reverse payments. The full paper is available here: http://ssrn.com/abstract=2481908
The 1984 Hatch-Waxman Act attempts to strike a balance between promoting innovation of new brand drugs and facilitating generic entry. One of its key provisions, the Paragraph (iv) Abbreviated New Drug Application (ANDA) certification process, creates a specific role for patent litigation in striking this balance. Specifically, the US Food and Drug Administration (FDA) permits generic firms to rely on brand-firm data on safety and efficacy in seeking approval to sell copies of brand drugs, but does not grant entry unless the generic firm successfully challenges all relevant brand-firm patents. As a reward, the first successful generic challenger receives a 180-day marketing exclusivity upon approval of its ANDA (iv). Effectively, the Paragraph (iv) ANDA process seeks an average level of competition, where early entry occurs against weaker patents that do not hold up in court and later entry occurs against stronger patents (Hemphill 2006).
In recent years, however, brand and generic firms have settled Paragraph (iv) litigations out of court with increasing frequency (FTC 2010). Such settlements often involve delayed generic entry and some form of payment from the brand firm to the generic. Economic theory suggests such settlements may be anti-competitive.
In order to inform the courts and stakeholders at large, we study such patent challenges. Counting only the first challenge, and restricting further attention to cases where first-time entry in the entire molecule market is at stake, we collect a sample of 93 cases litigated during 1988-2012. We begin our data capture by using all patents ever listed for approved drugs in the FDA Orange Book since the beginning of the Act. Next, we do an extensive search for lawsuits, first by using all of these patents, a second search using drug names, and a last search using firm names.
After our extensive data capture, we also develop a novel framework, using an event study of Paragraph (iv) litigation decisions and the probabilistic nature of such decisions, to identify key aspects of the distribution of surplus in the US pharmaceutical industry during the Hatch-Waxman era. We assume that the Efficient Market Hypothesis holds; that is, the stock prices of pharmaceutical firms incorporate all available information about firm value. Thus, when there is a decision in a Paragraph (iv) case, investors price the effect of that decision into their valuation of the firm. For example, the two figures below show the raw effects of decisions on brand and generic firm values. The effects are large, timed just after district-court decisions, and move in predicted directions. This gives us confidence in the event-study approach. We use standard event-study techniques to identify cumulative abnormal returns (CARs) from these decisions.
The CARs and other firm information are insufficient for identifying firms’ stakes in the case, for two reasons. First, investors expect Paragraph (iv) challenges to succeed with some probability. Second, district-court decisions are sometimes reversed on appeal. Hence, the change in market value from a district-court decision reflects a change in the probability of an ultimately successful Paragraph (iv) challenge. It does not pin down the difference in firm value between an ultimate win and an ultimate loss. To identify this latter difference—the value of deterrence for the brand and the value of entry for the generic—we weight the estimated change in the firm’s stock-market value from the event study, using formulas incorporating estimates of the probabilities of brand wins and of the probabilities of appellate reversals.
We find that brand firms value deterring entry, on average, at $4.6 billion. In contrast, generic firms value the right to enter at $236.8 million dollars (all values in 2010 dollars). Hence, the value of entry is only five percent of the value of deterrence. This gap suggests that, by settling their disputes, firms would realize sizable additional surpluses. Indeed, we estimate the average bargaining surplus to be about $2 billion per Paragraph (iv) case. This estimate represents a lower bound for the additional consumer surplus realized by permitting patent challenges under the Paragraph (iv) ANDA process, versus blocking entry for the life of the brand firm’s patents.
Next, we study the effect of a more permissive environment for “pay-for-delay” settlements. On June 27, 2002, an Administrative Law Judge ruled in favor of such a settlement in the closely-watched case Schering-Plough vs. FTC (40 LEXIS 244 [FTC 2002]). Since this decision, eventually upheld by the 11th Circuit Court of Appeals (402 F.3d 1056 [11th Cir. 2005]), there had been a surge in Paragraph (iv) settlements (FTC 2010).
When we divide our sample into cases before and after the 2002 Schering-Plough decision, our estimates show that for cases decided after Schering-Plough, the ex ante probability of an ultimate brand victory is 60%, versus just 40% for earlier cases. In addition, the average value of deterrence falls 60% after Schering-Plough, from about $8.8 billion to about $3.5 billion, while the average value of entry falls nearly 67%, from $532.0 million to $173.5 million. The average bargaining surplus falls from about $4.9 billion to about $1.3 billion, a 73% decrease.
Hence, since 2002 it has become increasingly rare for big-dollar Paragraph (iv) cases to complete patent litigation. They more typically settle. These settlements strongly reduce the (per-case) average consumer surplus delivered by Paragraph (iv) litigation.
The courts have yet to clearly delineate the antitrust implications of reverse payments, but the Supreme Court has made an important step. In a 5-to-3 decision on June 17, 2013 in FTC vs. Actavis et al. (133 US 2223 [2013]), the Court instituted a “rule of reason” for courts to apply to such cases (Hovenkamp). They instructed the 11th Circuit Court of Appeals to hear Federal Trade Commission (FTC) antitrust arguments in the Actavis case, and paved the way for the FTC to make such arguments in other cases.
We hope our study sheds light on the economics of these cases.
In Blonder-Tongue Labs., Inc. v. Univ. of Ill., 402 U.S. 313 (1971), the Supreme Court precluded a patentee from re-asserting a patent that had been found invalid in a separate suit.  Prior to that case, a patentee who lost on validity against one party was not generally precluded from asserting the same patent against another party.  The doctrinal hook in Blonder-Tongue is known as non-mutual collateral estoppel and it allows a new-challenger to take advantage of the success of a prior-challenger. In a new decision, Judge Bryson has applied the doctrine mid-stream to quickly conclude a pending lawsuit by simply precluding the patentee from continuing to assert the patent after another court has ruled it invalid.  DietGoal v. Chipotle, 12-cv-764 (E.D.Tex. 2014).
Risk of Multiple Jeopardy: The case here highlights the difficulty faced by patent assertion entities seeking to enforce their patents against multiple parties.  Each accused infringer has the right to independently challenge a patent’s validity. But, if the patentee loses even one of those challenges, then the patentee will be estopped from further asserting the patent.  Importantly, an invalidity finding in one case operates to shut down both pending and future assertions of the patent.  Prior to the America Invents Act of 2011 (AIA), many patent enforcers had begun joining multiple defendants into single lawsuits and that setup-at least procedurally-helped patentees avoid the multiple-jeopardy risk.  However, the AIA has forced a separation of these lawsuits in a way that again highlights the one-way risk.  Under this new system, parallel infringement actions (same patent, different defendants) are now more likely to be heard in different venues and before different judges in a way that makes alternative outcomes more likely.  And, the rise in post-issuance challenges further removes the risk-decision from the patent holder’s discretion.
Here: Federal Circuit Judge Bryson is sitting by designation in DietGoal v. Chipotle.  The infringement litigation was filed in back in 2012 and involves U.S. Patent No. 6,585,516 that covers a computerized meal planning tool. Claim 2 of the patent is listed below:
The same patent has been asserted in 60 other recent infringement lawsuits.  Importantly, in one-such-case – DietGoal v. Bravo Media – the district court judge found all claims of the patent invalid as impermissibly claiming an abstract idea.  In that decision, Judge Engelmayer (S.D.N.Y.) wrote:
[T]he claims of the ’516 Patent recite nothing more than the abstract concept of selecting meals for the day, according to one’s particular dietary goals and food preferences.
Following that decision in favor of Bravo, the defendants here (Chipotle) asked Judge Bryson to apply issue preclusion to end its case as well.
Collateral estoppel – also known as issue preclusion – applies to bar a party from re-litigating certain issues.  There are typically four elements that must be met before estoppel will attach:
Here, Judge Bryson found that all four of those elements had been met with regard to patent-ineligibility as decided in the prior Bravo case.
In Blonder-Tongue, the Supreme Court noted that estoppel might not apply in “those relatively rare instances where the courts wholly failed to grasp the technical subject matter and issues in suit.” DietGoal here argued, that this was one of those relatively rare instances — especially since the district court in Bravo failed to conduct a claim construction before making its determination. However, according to Judge Bryson, DietGoal failed to indicate how claim construction would have been important to the 101 analysis.  Judge Bryson also cited the several Federal Circuit decisions that
On Appeal: The Bravo decision is on appeal. That said, an important element of collateral estoppel is that it applies after the original district court final judgment – even if an appeal is pending and even if the “later” case was well underway at the time of the prior decision.  Now, assuming that DietGoal can keep this case alive (likely via appeal) until the Bravo appeal is decided, and assuming that DietGoal wins on appeal (which I suspect is unlikely), then Judge Bryson would be forced to reconsider the case on its merits.
Amdocs v. Openet Telecom (E.D.Va. 2014)
In yet another case, a district court has invalidated a set of software patents as unduly abstract under Alice Corp., Mayo, and 35 U.S.C. 101.  In this case, E.D. Va. Judge Brinkema issued a judgment-on-the-pleadings that all of the asserted claims of the four Amdocs patents were invalid as patent-ineligible. The Decision.
In Alice Corp., the Supreme Court outlined a two step process for determining eligibility: (1) determine whether the claim encompasses excluded subject matter and then (2) determine whether the claim includes “something more” sufficient to “transform the nature of the claim into a patent-eligible application.”  As it turns out, neither of these tests are straightforward.
The patents-in-suit here relate to computer software designed for reporting network usage. Claim 16 of Amdocs Patent No. 6,836,797 is on point:
16. A computer program product stored in a computer readable medium for reporting on a collection of network usage information from a plurality of network devices, comprising:
computer code for collecting network communications usage information in real-time from a plurality of network devices at a plurality of layers;
computer code for filtering and aggregating the network communications usage information;
computer code for completing a plurality of data records from the filtered and aggregated network communications usage information, the plurality of data records corresponding to network usage by a plurality of users;
computer code for storing the plurality of data records in a database;
computer code for submitting queries to the database utilizing predetermined reports for retrieving information on the collection of the network usage information from the network devices; and
computer code for outputting a report based on the queries;
wherein resource consumption queries are submitted to the database utilizing the reports for retrieving information on resource consumption in a network; and
wherein a resource consumption report is outputted based on the resource consumption queries.
In applying Alice, Judge Brinkema first examined the claim to determine whether it is directed to an abstract idea.  Brinkema’s particular approach here follows the “gist approach” used by other post-Alice district court decisions.  Notably, to find the abstract idea, Brinkema “look[ed] past the mere claim language” to determine that the claim is “directed to the abstract idea of using a database to compile and report on network usage.”  It is probably important to pause here to consider what considerations make us think that a network usage database creation and report tool is abstract.  Unfortunately, Judge Brinkema does not.
At step two, Judge Brinkema looked for “something more” but found instead that “the claim does not add much” beyond the stated abstract idea.
In claim 16, a generic computer collects, filters, aggregates, and completes network communications information.  The generic computer then stores the information in a database, and queries the database to retrieve reports. Collecting, filtering, aggregating, and completing network information amounts to “electronic recordkeeping,” which is “one of the most basic functions of a computer.” (quoting Alice).  Similarly, storing and querying information in a database, and building reports based on that information, is one of the most basic functions of a database system. Accordingly, claim 16 is directed to a computer functioning in a conventional way, and a database functioning in a conventional way. The claim does not add any specific implementation beyond the abstract idea that information is collected and stored, and reports are generated.
The result then is that the claim is ineligible and thus invalid. The opinion similarly walks through other challenged claims and rejects them.  Throughout the opinion, the Judge’s largest concern appears to be that the claims lack “specific hardware” as well as “any detail” regarding how the claimed functions actually operate.
The Judge was also clear that overall novelty is irrelevant to patent eligibility. “That argument misses the point. The concern of § 101 is not novelty, but preemption.”
A person may have invented an entirely new and useful advance, but if the patent claims sweep too broadly, or only claim the idea that was achieved rather than implementation of the idea, § 101 directs that the patent is invalid. Amdocs’s asserted claims recite such conventional operation, in such a general way, that even if the inventor had developed an actual working system, the patent claims could foreclose fields of research beyond the actual invention. Accordingly, all asserted claims are invalid as patent-ineligible.
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Software?: Although the court made a few pushes for “hardware” in its analysis, it did not make any express statements that software is problematic from an eligibility standpoint. An open question following Alice Corp., is whether any claimed invention would be patent eligible if beginning with the preamble: “A computer program product stored in a computer readable medium…”
The chart above shows a time series for the average “life” of US utility patents.
Prior to 1980, the term of U.S. patents was fairly standard at 17-years from the issue date. The primary caveat related to terminal disclaimers used to avoid double-patenting rejections.  In 1980, Congress added maintenance fees that created a market incentive for patentees to reduce their patent term when the cost of the fees-due was more than the patent value.  After issuance, three additional maintenance fees are due.  Today, those fees are set at: $1,600 at 3.5 years after issue; $3,600 at 7.5 years after issue; and $7,400 at 11.5 years after issue.  In 1995, Congress again changed the patent term by eliminating the 17-year-from-issue calculation and replacing it with a term running for 20-years-from-priority-filing (not counting foreign-national or provisional priority).  In 2000, patent-term-adjustments began that now add substantial term to most issued patents (this replaced the largely ineffective extension regime).
The chart above look groups all the patents according to their year of expiration and then reports the average patent term for each group of expired patents.
The drop in term in this chart is largely due to implementation of maintenance fees. Going forward, the shape of the chart will largely depend upon the fee structure (higher fees => lower terms).
by Dennis Crouch
The US Federal Government does not get a free-pass on patent infringement.  Rather, the Government’s unlicensed use of a privately held patent constitutes infringement and is actionable. However, Congress created a special court to hear the cases (the Court of Federal Claims), and implemented a number of restrictions on both the adjudication process and the substantive rights that all tend to favor the government as defendant.  See 28 U.S.C. § 1498.  Generally, patentees would prefer to litigate in Federal District court.
Further, Congress created a special indemnity that bars lawsuits against government contractors and others doing the work of the Government. Under the statutory indemnity, when a patented invention “is used or manufactured . . . for the United States [Government] . . . the owner’s [only] remedy shall be by action against the United States in the [US] Court of Federal Claims.” 28 U.S.C. § 1498(a).
In Iris Corp. v. Japan Airlines Corp. (Fed. Cir. 2014), the patent at issue basically covers the method of manufacturing an identification document (such as a national Passport) with an in-laminated RFID chip.  US Patent No. 6,111,506.  As required by US Law, Japan Airlines examines passports before allowing its passengers to board international flights leaving the US  The patent holder here is the Malaysian company Iris Corp. who competes in the market for this type of ID technology.
Iris sued in Federal District Court under 271(g) for using the electronic passports that had been made abroad (namely Japan) but in a manner within the scope of the patented claims.  In response, Japan Air and the US Government (as amicus) argue that the indemnity provision of Section 1498 eliminates both (a) the jurisdiction of the District Court and also (b) the liability of Japan Airlines.
Infringement Done for the United States: The legal question on appeal is whether’s Japan Airline’s alleged use of the patented invention was done “for the United States.” The statute spells out a partial definition of “for the United States” as being done “for the Government and with the authorization or consent of the Government.” In its 2009 decision, the Federal Circuit further explained that the infringement must be “for the benefit” of the US and that benefit may not be merely “incidental.”  Advance Software.  The court here finds that, under this framework, Japan Airline’s activities were done for the Government and thus the case falls under Section 1498.
Is Infringement Required?: A critically element of the court’s decision (in my view) was the court’s factual conclusion that “JAL cannot comply with its legal obligations without engaging in the allegedly infringing activities.”
At first this statements appears at odds with the reality that, although the law requires Japan Air to inspect passports, it does not require that the e-chip be used.  Rather, it appears that manual inspection without reliance on the e-chip is also fully acceptable under the law.  The US Government writes: “While there may be some ability for the airline to determine the best way to make the needed comparison, it may not decline to examine the passport.”
One way to reach the court’s conclusion that infringement is required is to recognize that the case is a 271(g) infringement action that would create liability for any use of a product made by the patented process even if the particular-use does not take advantage of the product benefits.  Under that theory, every US-inspection of an e-chipped-passport, regardless of how it is conducted and even if manual, constitutes infringement.
In addition to the fact that infringement was required by federal law in order to participate in the marketplace element, the court here also found it relevant that border security is a core role of the federal government and that Japan Air’s actions here are quasi-governmental. That finding led to the conclusion that the alleged infringement was done for the non-incidental benefit of the US.
Although in this case the US Government agreed that it should be the defendant, and important take-away from this decision is that the company infringing need not have any contractual relationship with the US Government or that the US Government be given any notice of the ongoing infringement.  Rather, under the law, a private company (her Japan Air) is able to decide to conduct its business in a way that infringes a patent but that only creates liability for the Government.
Next stop Court of Federal Claims?: One reason why the patentee sued in district court was that – at the time of the filing – it appeared that 271(g) actions could not be brought against the US under 1498.  The Federal Circuit changed that rule in Zoltek Corp. v. United States, 672 F.3d 1309, 1323 (Fed. Cir. 2012) (en banc).  One question is whether the long delay in filing in the CFC has tripped some statute of limitations for filing suit.
This case would be much more interesting (from my academic perspective) if Japan Air could carry out its required function without infringing, but had made the business decision to inspect the passports in a way that infringed.
[10/25/14 updated to correct minor data collection error] 
by Dennis Crouch
The chart above shows the number of patents in-force at any given point over the past forty years.  Each bar represents a snapshot taken on January 1* of the stated year and totals-up the number of issued but not-yet-expired patents.  The data for each year is divided-up into four groups categorized according to age (years-from-issuance).  You’ll note the growth in young patents and a temporary decrease in older-patents.  The decrease is due to primarily to the establishment of maintenance fees for patents whose applications were filed after December 1980.
There have been a number of studies on the growth of patent enforcement litigation in recent years and some use the number of issued patents in order to calculate a litigation rate.  The problem with that approach is that that the number of patents potentially available for lawsuits in 2014 are not simply the number of patents issued that year, but rather include all patents in-force during the relevant time.
To make the chart, I first found the expected expiration date of each US utility patent going back to the 1950s, taking account of the 1995 changes in patent term calculation and the addition of patent-term-adjustment.  Then, I pulled-in data from the maintenance fee payment system and identified patents that expired early for failure to pay the maintenance fees due. Patent applications filed prior to December 1980 were not required to pay maintenance fees. I also identified patents that were associated with a terminal disclaimer and shortened the term where appropriate.  To do this, I actually guessed at which parent-patent was the likely relevant term — generally using the one with an earlier expiry date — because the actual link is buried in the prosecution history files.  I also did not have data on terminal disclaimers associated with pre-1976 patents. Using an automated process, I went through each of these steps with each patent in order to identify the years where it was in-force.  I should note, however, that I did not account regulatory-approval related patent term extensions or the impact of litigation/reexamination/review/reissue.  Although those processes are very important for particular patent rights, they are very unlikely to impact the general statistics presented here. Mike Brown (Brown & Michaels) has a good overview on his informative website.
* The final bar (2015) is a snapshot for October 23, 2014 (the day that the data was collected).
Job Postings from the past week on Patently-O Jobs:
By Jason Rantanen
Halo Electronics, Inc. v. Pulse Electronics, Inc. (Fed. Cir. 2014) Halo v Pulse
Panel: Lourie (author), O’Malley (concurring opinion), Hughes (joining concurrence)
This opinions contains two important parts: a discussion of 271(a) in the context of multi-national transactions and Judge O’Malley’s concurrence on the issue of willful infringement.  I’ll write more about the 271(a) issue in a separate post, but for now I wanted to focus on the points Judge O’Malley raises.
In this case, Halo accused Pulse of willfully infringing its patent, thus paving the way for enhanced damages under 35 U.S.C. § 284.  That statute reads in relevant part:
When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154 (d).
The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.
Under longstanding Supreme Court precedent, enhancement of damages under this provision requires either willful or bad-faith infringement.
In countering the infringement claim, Pulse argued that the asserted patent was obvious.  Ultimately, the jury rejected Pulse’s argument and found that the “it was highly probably that Pulse’s infringement was willful.”  Slip Op. at 7.  However, both the district judge and the Federal Circuit panel concluded that Pulse’s obviousness defense was not objectively unreasonable, thus precluding a finding of willfulness under In re Seagate‘s two-prong approach (which contains both objective and subjective components).
While concurring as to the panel outcome, Judge O’Malley (joined by Judge Hughes) wrote separately to issue a public call to “the full court to reevaluate our willfuness jurisprudence in light of the Supreme Court’s decisions in Highmark and Octane Fitness.
Judge O’Malley’s concurrence first notes the linking of the standards for exceptional case and willful infringement.  Under Federal Circuit precedent, the test for willful infringement under § 284 parallels that for exceptional case determinations under § 285.  The court has stated this explicitly: “The objective baselessness standard for enhanced damages and attorney’s fees against a non-prevailing plaintiff under Brooks Furniture is identical to the objective recklessness standard for enhanced damages and attorneys’ fees against an accused infringer for § 284 willful infringement actions under [Seagate].”  iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1377 (Fed. Cir. 2011).
This linkage leads Judge O’Malley to three observations:
1) Both the test for willful infringement and the test for exceptional case determinations were based on the Federal Circuit’s interpretation of Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993).  But, in Octane Fitness, the Supreme Court rejected the Federal Circuit’s interpretation of PRE in the exceptional case determination contextIf the two tests are truly in parallel, then the Federal Circuit should revisit the test for willful infringement.
2) The evidentiary standard for willful infringement should also be revisited. “In Octane Fitness, the Supreme Court also rejected the requirement that patent litigants establish their entitlement to attorneys’ fees under § 285 by ‘clear and convincing evidence’.  Id. at 1758.  As we used to do for attorneys’ fees, we currently require patentees to prove willfulness by clear and convincing evidence. See Seagate, 497 F.3d at 1371. As the Supreme Court explained in Octane Fitness, however, the ordinary rule in civil cases, and specifically patent infringement cases, is proof by a preponderance of the evidence.”  Concurrence at 4.
3) The Supreme Court also rejected a de novo standard of review for exceptional case determinations in Highmark.  This is important because, although Judge O’Malley doesn’t directly state it, the “objective” prong of willful infringement is currently treated as a question of law, meaning that it is reviewed under a de novo standard.  If the two standards are truly parallel, this is inconsistent with Highmark.
Finally, under both §§ 284 and 285, “the court” is the entity that makes the determination.  However, the Federal Circuit’s caselaw currently sends some issues of willful infringement to a jury.  In Judge O’Malley’s view, whether this is actually correct as a statutory matter should also be addressed by the court en banc.
I’m largely in agreement with Judge O’Malley.  Like the judge, I see a tremendous tension between the existing willful infringement caselaw and Octane Fitness/Highmark that flows from the treatment of §§ 284 and 285 as being in parallel.
I also think the history here is important – and my sense is that much of the mucky precedent in this area actually comes from the just the last decade.   One important piece of context to keep in mind is the totality of the circumstances analysis that comes after the threshold determination.  Attorney’s fees and enhanced damages are not a binary question, but rather a multi-step inquiry where the initial determination is just the first part.
by Dennis Crouch
Someone who induces infringement is just as liable for infringement as the one who actually commits the underlying act of direct infringement. 35 U.S.C. § 271(b).  However, unlike direct infringement, inducement has a substantial mens rea or scienter requirement that the inducer knew at-the-time that the induced conduct would infringe the particular patent. In Global Tech (2011), the Supreme Court held that the knowledge element can be satisfied by proof that the inducer was willfully blind to the risk of infringement.
In Commil v. Cisco, the Federal Circuit addressed a slightly different question — and that question is now pending before the US Supreme Court:
Does an inducer’s good faith belief that a patent is invalid negate inducement liability?
One way to think about this is to go back to Global Tech and ask what the Supreme Court meant when it said “infringement.”  Was the Court referring only to the elements of proving direct infringement under 271(a) or instead was the Court referring more generally to infringement liability.  While 271(a) is a narrower concept that generally ignores validity issues, the broader concept of infringement liability draws-in defenses that may be available such as invalidity or unenforceability.
An important consideration here is that this good-faith-belief of invalidity is only critical for the discussion if it turns out that the asserted claims are actually valid and enforceable. So, we’re really talking about a good-faith-but-incorrect-belief that the claims are invalid. In this type of situation, I worry about the generation of self serving evidence that fall under the CYA/BS classification.
In any event, the Federal Circuit panel here ruled that “evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.”  [See Rantanen on Commil]. The patentee (Commil) then petitioned for Supreme Court review and the Court asked for the views of the US Government.
In its newly filed amicus brief, the US Goverment (through the Solicitor General) has agreed with the patentee that the Federal Circuit is wrong and that the accused’s invalidity belief is irrelevant to the question of inducement liability.
This Court should grant Commil’s petition for certiorari (No. 13-896) with respect to the first question presented. The court of appeals erred in holding that a person who knowingly induces another to engage in infringing conduct may avoid liability under Section 271(b) by demonstrating that it had a good-faith belief that the infringed patent was invalid. This Court’s review is warranted to prevent defendants from avoiding inducement liability on a ground that is inconsistent with the text, structure, and purposes of the relevant Patent Act provisions.
In its analysis, the SG basically walks through the statute (that separates the notion of infringement from invalidity defenses) and the key cases of Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964) (Aro II) and Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011).  In particular, with Aro II, the patentee had mailed a pre-suit notice letter to the defendant and the Supreme Court in that case seems to have treated that communication as conclusively satisfying the mens rea requirement.
Commil’s petition included a second question and Cisco also submitted its own question – both of these involved the necessity and propriety of ordering a new trial.  The US Government amicus brief recommend that neither of those questions be reviewed.
Read the USG amicus brief here.
Guest Post by Brent M. Dougal and Philip M. Nelson.  Dougal and Nelson are IP Attorneys with Knobbe Martens Olson & Bear LLP.
In today’s age of international commerce, product development often takes place on an international scale.  Many companies have design centers in multiple countries, with design teams that span the globe.  What are the patent implications if an invention is developed in China or some other country outside the U.S. and the company wants to obtain international patent protection?
U.S. law requires that inventors obtain a “foreign filing license” before filing foreign patent applications on inventions that occur in the U.S.  This allows the government to assess, for example, whether the technology could threaten U.S. national security.  Some other countries such as Spain (Article 119-122), Italy, and India also require foreign filing licenses for inventions developed domestically but for which foreign patent protection is sought.  In countries that provide foreign filing licenses, these licenses generally do not issue quickly or efficiently.  Thus, it is advisable to file first in the country of invention to avoid the delay and difficulty of obtaining the foreign filing license. (The US and Canada are notable exceptions to this general rule.)
By contrast, other countries, such as China (Article 20) and Vietnam, have no provisions for obtaining a foreign filing license. These countries require that patent applications on domestic inventions be filed first domestically.  In China, domestic inventions include all inventions occurring in China, whether or not funded by a foreign company.  Failure to file in China may lead to invalidity of a corresponding Chinese application and criminal penalties if the invention relates to security or other vital state interests.  One way a U.S. or English-language company can deal with this requirement is to file a Patent Cooperation Treaty (PCT) application in English with the Chinese Patent Office as the PCT receiving office.
Canada has one of the most unique foreign filing laws.  There a foreign filing license is only required—and indeed, only available—if the inventor is an employee of the Canadian government. Instead of review by a separate government entity as in the U.S., Canadian government employees must obtain permission of the minister of his or her department.
Other countries, including the U.K. and Germany, have limited restrictions related to national security and military applications (requirements for EPO countries can be found here).  Thus, a foreign filing license is only required for select technologies.
The table below summarizes many of the current restrictions, breaking down the listed countries into four main groups:
Foreign Patent Filing Restrictions
Limited to National Security and Military Applications
License Required 
First Filing Must be Domestic
Argentina, Australia, Austria, Brazil, Hong Kong, Indonesia , Ireland, Japan, Liechtenstein, Mexico, Monaco, New Zealand, Philippines, Poland, Portugal, South Africa, Sri Lanka, Switzerland, Taiwan, Thailand, Venezuela
Belgium, Czech Republic, Denmark, Finland, Germany, Israel, Korea, Luxembourg, Netherlands, Slovak Republic, Sweden, United Kingdom
Canada1, France2, India, Italy, Malaysia, Singapore, Spain, United States
Belarus, China, Cyprus3, Greece3, Hungary3, Kazakhstan, Russia, Vietnam4
1 Only required for government employees.
2 Only applies where inventors are French nationals or the company’s principle place of business is France (Article L. 614-18, 614-20). A European patent application can also be filed as the first filing without obtaining a foreign filing license.
3 First filing must be domestic where inventors are nationals (and in some cases permanent residents).
4 Also requires Vietnamese inventors without an obligation to assign to file first in Vietnam.
Though only a limited number of countries have foreign filing restrictions, those that do include many significant markets, not to mention the world’s most populous countries.  As companies continue to expand internationally, their attorneys will need to take an international perspective.  In order to preserve international rights, attorneys should explore inventorship and the foreign filing laws of the country of invention early on in the disclosure and application preparation process.
This discussion is provided without guarantees and is not to be considered legal advice. We highly recommend seeking legal counsel in the country of invention.  The information has been compiled with the assistance of foreign associates from various countries, with some independent verification.
Any invention which may have a military application or could be considered important to national security is likely restricted not only by a country’s patent laws, but also by export laws, which are not addressed here.  We highly recommend seeking legal counsel in the country of invention.
by Dennis Crouch
The Federal Circuit has rejected BMS’s petition for en banc rehearing in its chemical compound obviousness case. However, four additional opinions either concurring or dissenting show that the court does not speak with one-mind on the issue. Obviousness is the central patentability doctrine and thus, even small modifications to the doctrine can have important systemic impacts. En Banc Denial Opinions.  The patent in question – if valid – is worth hundreds of millions of dollars and so we can expect a petition for writ of certiorari to the Supreme Court.
In Bristol-Myers Squibb Company v. Teva Pharmaceuticals USA, Inc., the Federal Circuit panel affirmed a lower court finding that BMS’s patent covering the Hep-B drug entecavir is invalid as obvious. Patent No. 5,206,244. Judge Chen drafted the original opinion that was signed by Chief Judge Prost and Judge Plager.  Prof Rantanen covered the original decision here.
The obviousness approach for newly invented chemical compounds typically involves identifying the closest analog compound (lead compound) and then determining whether it would have been obvious to create that new compound based upon the lead prior art.  Here, the basic holdings of the Federal Circuit were: (1) affirming that “those of ordinary skill in the art would have selected 2′-CDG, a carbocyclic analog, as a lead compound for further development efforts;” (2) affirming that the same PHOSITA would have been motivated to modify the lead compound; and (3) holding that the secondary indicia of non-obviousness were insufficient to transform the obviousness determination.
In its petition for rehearing, BMS presented two primary arguments:
In his opinion discussed below, Judge Taranto sets the stage:
In short, the Bristol-Myers compound, which is a novel molecule, is dramatically different from the prior-art compound in providing practical human benefits: one provides such benefits, the other does not. But that difference was identified only after Bristol-Myers filed for its patent, because the prior-art compound, not having been tested in animals or humans, was not then known to be toxic.
A number of Amici supported the petition, including BIO, Pfizer, Eli Lilly, PhRMA, IPO, and Merck.
The basic issue here is that pharmaceutical companies regularly perform tests to compare their newly-invented drug treatment to the prior art in order to prove that the two are quite different.  However, as a general matter, those tests are performed after the invention and application is already on file.  The companies then have a major concern that this decision will deny the relevancy of those objective but ex post results.
The trouble for the patentee in this case is the statute — that expressly calls for considering what was known by PHOSITA at the time of the invention (pre-AIA; in future we the time is at the effective filing date of the patent application).  Under the statute it seems that post-filing information should only be relevant to showing what PHOSITA would have been thinking back at the critical date.
Although the entire court did not explain its reasons for denying the rehearing, Judges Dyk (joined by Judge Wallach) and Judge O’Malley wrote separate opinions concurring in the denial.
Judge Dyk:
This case presents a question of obviousness, in particular whether evidence postdating the invention can be used to establish unexpected results. The panel holds that it cannot be considered in the circumstances of this case. That position is correct. It is mandated by the statute, which provides that an invention is not patentable if it “would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains.” 35 U.S.C. § 103 (emphasis added).
The patent applicant’s discovery of unexpected results at the time of the invention can help to establish that the invention would not have been obvious to another skilled person. But hindsight bias must be avoided in determining obviousness. And under longstanding Supreme Court authority, the pertinent knowledge is that possessed at
the time of the invention.
You will note that Judge Dyk cites the new-103 rather than pre-AIA 103(a), but that does not significantly change the point he is making here.
Judge O’Malley:
I write to assuage Bristol-Myers Squibb Co.’s (“BMS”) and the amici’s1 fears that this panel decision has rewritten the test for obviousness for pharmaceutical patents. In my view, the concerns expressed are unjustified and mischaracterize the opinion. This case does not forge new ground or set down immutable principles. It simply decides that, on the record before it, the district court did not err in finding the asserted claim of the ’244 Patent invalid as obvious. . . .
Our case law clearly allows the consideration of later discovered differences between the prior art and the invention. . . . These differences inform the obviousness analysis and thus can be considered when assessing what was understood by one of skill in the art at the time of the invention and what expectations may have been reasonable. . . . Like all evidence of objective indicia, the point of considering later-understood evidence regarding the properties
of the invention is to guard against hindsight bias by assessing claims of a motivation to combine as of the time of invention in light of later surprises or developments.
Judge Newman dissented from the denial with an opinion joined by Judges Lourie and Reyna.  Judge Newman, inter alia, walks through the lengthy list of cases that where ex post evidence was relied upon to prove non-obviousness and sees the panel decision here as a major departure.
Judge Taranto’s dissent basically argues that the panel decision was sloppy and, because it can be read in the extreme way suggested by the petitioner, that it should be modified.
AntiCancer, Inc. v. Pfizer, Inc. (Newman, Auth; Reyna; Taranto) is probably not new law, but is of interest.
The District Court relied upon its inherent power to enter an order holding that the patentee could not, in accordance with local rules, supplement its preliminary infringement contentions without first agreeing to pay the accused infringer’s fees it incurred in preparing a motion for summary judgment based upon the lack of specificity of those PICs.  If the patentee chose not to supplement and pay fees, the court ordered summary judgment would be entered against it. The patentee objected; the district court entered summary judgment against it.
The panel unanimously reversed, recognizing that a court can rely on inherent power only where there is bad faith.  Further, the Ninth Circuit’s law required an express finding of bad faith.  Thus, reversal seemed pretty clearly required.
What makes the case interesting is the court tried to put the role of PICs in some context, emphasizing that they  are intended to identify the issues in need of further discovery but are not, themselves, evidence.  Further, because the PICs were due five days after filing an amended complaint, the court emphasized that doing the best that was possible did not require a whole lot where there was a method claim involved and so access to the accused infringer’s method was limited as a practical matter.  Finally, the panel emphasized that the district court should have considered the additional detail provided in the opposition to summary judgment; instead, the district court viewed the fact that additional details were present in the opposition indicated the PICs were incomplete.
My takeaway is that if you’re going to oppose summary judgment, you need to follow Rule 56 and, before discovery at least, come forward with evidence negating an element of the claim.  Local rules can’t trump rule 56.
My wonderful research assistant Lee Ann Hughes prepared the attached chart (link below) examining what courts are doing post-Octane.  Her research showed:
That’s a huge shift, I suspect, from pre-Octane practice.
In the next Landslide magazine, I analyze whether section 285 can directly apply to lawyers (can I make opposing counsel jointly and severally liable with its client?) and explain how clients will be bringing malpractice claims against their lawyers when fees are awarded against them.  Those cases have already been filed, even under the old standard.
Think about how you want to address Octane in fee agreements, in discussions with clients, and other things…
Chart Cases Awarding and Not Awarding Attorneys Fees under Octane UPDATED
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