Archive for July, 2009

Kappos Confirmation Hearing

July 29, 2009

kapposThe Senate Judiciary Committee conducted a confirmation hearing this morning for David Kappos’ nomination to be the Director of the PTO.  Kappos provided a statement to the Committee that included the following hightlights.

  • The PTO needs a stable and sustainable funding model.  Kappos hates fee diversion.  He would like the ability to set fees as PTO Director.  He proposes to “refashion the fee system” and set fees as a relationship of the amount of work being done by the PTO.
  • He appears to be more interested in reform at the PTO rather than in pending patent reform legislation.The PTO needs to address patent pendency concerns.  There were questions about permitting expedited examination for some of the categories that previously qualified for petitions to make special.  This practice was changed or eliminated when the PTO implemented the accelerated examination program.
  • Kappos would like to re-make the examiner “count” system.  He is aware that this is a majore morale issue among the examining corps.  The count system limits the amount of time that examiners can spend on a particular application and provides incentives for examiners to promote RCEs and continuing applications.
  • Kappos is aware that his consitutents as PTO Director would include not only large corporate entities, such as IBM, but also small and independent inventors, venture and start-up groups, public interest groups, and many others.

The hearing was rather brief and also included several other nominees for Federal judgeships.

Kappos seems to be saying the right things at this point.  I assume his reference to fees proportionate to the amount of work required by the PTO means a large increase in fees for extra claims and longer applications.

It is not known when the Committee will vote on the nomination, but it may be soon.  Thanks to Brian Fletcher of PatentabilityBlog for his summary of the hearing.  Kappos statement is here.

Stay Requested in PTO Rules Litigation

July 27, 2009

The parties in Tafas v. Doll have filed a motion for a stay of the en banc proceedings.  The parties are requesting that the proceedings be stayed until 60 days after the Senate confirmation of the new Director of the PTO.

Under the current schedule, the PTO’s brief is due August 5, 2009.  The motion for stay requests the delay to give the new PTO Director

an opportunity to examine the rules at issue in this case and determine what course the USPTO should take in the future with respect to those rules, including whether to rescind the rules.

The motion suggests the legal issues in the case could be significantly altered, or rendered moot, by the decision of the new Director.

These motions are typically granted.  Courts generally do not want to expend judicial resources when it may not be necessary.  The PTO is not currently enforcing the rules, nor does it plan to do so in the near future.

Given that the order granting the petition for rehearing en banc vacated the disastrous March 20 panel opinion, this may be the best possible outcome.  There was no guarantee of a favorable outcome to patent applicants at the Federal Circuit.

Thanks to Hal Wegner for pointing out this motion.

Kappos Confirmation Hearing Set for Next Week

July 23, 2009

The Senate Judiciary Committee has set the confirmation hearing for David Kappos for Wednesday, July 29.  Kappos has been nominated to become Director of the PTO and Under Secretary of Commerce for Intellectual Property.  The Committee also released the completed questionnaire associated with the nomination, as well as several letters supporting the nomination.

It is still unclear whether Kappos will be confirmed before September.  It is a bit surprising that the confirmation hearing will take place prior to Congress’ August recess given that it is mired in the confirmation vote on Judge Sotomayor and other issues, such as health care reform.  The hiring of Nick Godici to aid in the transition also seemed to signal a later confirmation of Kappos.  Given the wide-spread support Kappos has received and the crises at the PTO, earlier confirmation is better than later.

Patent Reform Update: Analysis of Administrative Challenges

July 21, 2009

Earlier this year, patent reform advocates were in high spirits that 2009 would finally bring reform to a patent system that has resulted in a huge backlog of patent applications and long wait times for patents.  The only seriously contentious issue during the Senate Judiciary Committee hearings seemed to be the damages reform issue.  Meaningful debate did not occur on the other issues at the committee, as Chairman Sen. Patrick Leahy (D-VT) was in an extreme hurry to pass the bill.

On the damage apportionment issue, Scott Shane, Professor of Economics at Case Western, wrote a paper on how the changes to damage apportionment would hurt the patent system and the economy.  Sen. Jeff Sessions (R-AL), the new ranking member of the Judiciary Committee, asked Prof. Shane to take a look at the post-grant opposition and expanded inter partes reexamination provisions of the bill.  Yesterday, Prof. Shane issued his report on how these changes would affect the patent system.  Prof. Shane reaches the following conclusions on the proposed changes to the process for administratively challenging a patent:

  1. Increase the length of patent pendency. Under the proposed changes, the length of time between patent application and patent issuance would increase from 32 months to 40 months.
  2. Increase the costs of defending patent validity by an estimated $2.2 billion over the current cost of litigation.
  3. Reduce investment in R&D.  Reducing the value of patents significantly reduces investment in R&D.  The proposed changes would lead to an annual reduction of $4.4 billion in industrial R&D.
  4. Compromise certainty about patent validity. The new post-grant review and expanded inter partes reexamination processes would make uncertain the validity of approximately $1.4 billion to $1.7 billion of patents issued annually, totaling $8.1 billion to $10.3 billion of patents over the six years it takes to get an outcome of the average review case.
  5. Decrease the disclosure of knowledge necessary for others to build on innovation. Patent disclosures are a source of information which increase U.S. innovation.   
  6. Hinder efforts of U.S. universities to transfer their inventions to the private sector. Weakening patent protections through expanded administrative challenges would jeopardize over $1 billion annually due to a reduction in the amount of university technology that would be commercialized by industry.
  7. Increase strategic patenting behavior by large, established firms. Strategic efforts to hinder the performance of competitors by forcing them to defend their patents against multiple challenges, beginning with reexamination and review proceedings and ending with litigation, are a likely outcome of the proposed changes. 

Moreover, the proposed legislation will not have many of the beneficial effects the proponents of the legislation claim it will have.  In particular, the proposed legislation:  

  1. Will not improve patent quality;
  2. Will not reduce the cost of patent litigation;
  3. Will not speed the determination of patent validity.

Much of Prof. Shane’s analysis resulted from a study of the European Patent Office (EPO) post-grant opposition system.  His conclusion that the average application pendency will increase by 25% is based on the fact that examiners would need to spend time focusing on oppositions that would normally be spent examining applications.  Otherwise, the PTO would need to shift resources from the examining corps to administrative law judges to conduct opposition proceedings.  Either way, absent additional funding, application pendency will increase.  His paper doesn’t consider that additional funding would result from opposition filings.  Based on his assumption (from the EPO) that opposition proceedings take 8 times more examiner time than patent applications, however, the fees for filing an opposition would need to be substantial ($8000-10,000+) to off-set the time requirements.

Prof. Shane estimates that direct legal costs in post-grant oppositions would run about $150,000 per case, thus increasing the cost of achieving patent validation.  Many companies may simply choose to keep their inventions as trade secrets rather than incur the additional costs.  This would result in reduced R&D investment and reduce the market for universities to transfer their patents to the private sector.

Based on behavior in Europe, Prof. Shane argues that post-grant oppositions will not actually be used to weed out “bad” patents, those that are invalid and should not have been issued.  Instead, large companies use opposition proceedings strategically to delay and hinder enforcement by smaller companies.  In many cases, a non-infringement defense is stronger than an invalidity challenge, thus leaving the “bad” patents in the market.

Post-grant opposition proceedings are slow and take a long time.  Estimates for EPO cases show a median duration of 3.1 years with an average of 4.0 years.  A quarter of all cases last longer than 6.2 years.  These times include opposition and appeal.  Thus, he argues that the purported benefits of post-grant opposition proceedings will not happen.

The Manufacturing Alliance on Patent Policy has issued a press release on Prof. Shane’s paper. 

IPWatchdog believes that this means that patent reform is on life support and near death.  Anything that will increase average pendency by 25% will not pass in Congress.  He also reviews how the PTO manipulates pendency times by counting RCEs as new applications.  Thus, average pendency is really longer than 32 months.

PTO Inter Partes Reexamination May Give Insight on Post-Grant Opposition

July 20, 2009

Hal Wegner sent around an interesting note on inter partes reexamination proceedings at the PTO that includes these statistics

Since the inter partes reexamination procedure was implemented in FY2000, 544 requests for reexamination have been filed.  So far, the PTO has acted on 465 of these requests.  The PTO has granted the request for reexamation, finding a new question related to patentability, in 439 (94%) cases, while denying the request only 26 times. 

Of these 439 granted cases, only 44 have been completed with the issuance of a reexamination certificate.  The average pendency from filing date to issuance of the certificate is 34.9 months.  In 31 of the 44 cases (70%), all claims have been canceled.  In only 4 cases was patentability of all of the claims confirmed, with the other 9 cases resulting in at least some claim amendments.

It took accused infringers a long time to warm up to inter partes reexamination.  In the first three fiscal years after the procedure was implemented, only five requests were filed.  Since then, the number has increased significantly, although it is still not widely used. reexam

What This Means for Post-Grant Opposition

The current patent reform bills pending in Congress, including the bill passed by the Senate Judiciary Committee, contain various forms of post-grant opposition procedures.  Critics of post-grant opposition procedure point out that there are few safe-guards to prevent harassment of patentees with multiple and serial requests that would delay infringement suits to enforce the patents and leave a cloud over the patent until the conclusion.

The current standard for reexamination grant by the PTO is a “substantial new question” related to patentability.  The PTO is granting 94% of requests for reexamination under this standard.  The Senate bill includes a different standard for post-grant opposition requests–an “interesting question” releated to patentability.  This certainly sounds like a lower standard.  Does this mean the PTO will grant 100% of such requests under the “interesting question” standard?

The purpose of post-grant oppositions is to knock out “bad” patents, or patents that should not have been granted, without the expense and delay of a full trial and appeal in court.  Inter partes reexamination does not appear to alleviate the problem of delay:  34.9 months is way too long for a patent that might otherwise be enforced to hang in limbo.  Courts typically grant stays for patents undergoing reexamination.  On the other hand, since only 9% of these patents emerge from reexamination unchanged, the patents should not have been properly enforceable in the first place. 

Assuming a patent term of about 17 years from issuance (probably too long given the increasing pendencies of US patent applications), 34.9 months is over 15% of the term of the patent.  Filing more than one request may effectively kill the patent term even if the patent is eventually upheld.

To contrast with the US procedure, Hal Wegner points out that post-grant opposition proceedings in Japan take 7 months to conclude within the JPO.  Such proceedings are handled by the equivalent of the US Board of Patent Appeals and Interferences (BPAI) that accounts for about 30% of the JPO workforce; but the BPAI only accounts for about 1% of the US PTO workforce.  Clearly, if post-grant opposition proceedings become part of US patent law, many more resources will be needed to implement these proceedings and to make them efficient and expedient.

In the meantime, given the nearly 35 month delay and over 90% success rate of inter partes reexamination requesters, the current system appears to be a great tool for potential infringers to use to delay or prevent patentees from enforcing their patents.

PTO Puts Peer-to-Patent Program on Hiatus

July 14, 2009


BNA (subscription service) is reporting that the PTO has put the Peer-to-Patent Program that it touts as being “highly successful” on hiatus.  The program began as a pilot project in 2007 and was extended for a second year last summer.  Last week, the program issued its Second Anniversary Report.

The Peer-to-Patent Program is a way for applicants to submit their patent applications to have them posted on the program’s website.  Volunteers who have registered to review the applications can then submit prior art that they consider pertinent to the patentability of the application.  This prior art is then forwarded to the examiner who ultimately examines the case.  The examiner can decide whether to use the prior art forwarded from the program in addition to doing his own search.

For the first year, the program was limited to technology center 2100, which covers computer architecture, software, and information security.  In the second year, the program was expanded to include patent applications in class 705, business methods and e-commerce.

According to the report, 71 applications were included in the program during its first year and 187 applications during the two years.  The program includes 2,600 registered peer reviewers who can submit prior art on the applications.  The largest number of applications and reviewers hail from IBM, Microsoft, Hewlett-Packard, Sun, Intel, and GE.

So far, only 66 Office Actions have been issued on applications that were included in the program, with only 18 of those where the examiner used prior art submitted under the program.  Thus, in 27% of the peer-reviewed applications that have had Office Actions issued, the examiners have found the submitted prior art to affect the patentability of the pending claims of the application.

Will the Program Be Revived in the Future?

The demise of Peer-to-Patent is based on a lack of funding during the economic downturn.  The program’s funding had come largely from corporate and foundation grants, with more than half coming from Omidyar Network.  The PTO’s economic woes keep it from picking up the tab for the program.  David Kappos of IBM, who has been nominated to be the next Director of the PTO, is an advocate of Peer-to-Patent, so it’s certainly possible the program will be revived if the funding can be worked out. 

But should it?

Peer-to-Patent and the PTO have been touting the merits and benefits of the program since before it was implemented.  In theory, it does seem to be a good idea.  Who better than competitors to have knowledge of the best prior art to assist the PTO in examining patent applications?

In reality, the numbers are pretty paltry.  Given the huge backlogs and pendency times in the two art units involved in the program, clearly 187 applications in two years is a very small percentage.  If the program is so great, why aren’t many more applications involved?  One would think most applicants would want their applications in the program.

The 2,600 reviewers sounds like a good number, considering the 187 applications involved.  What happens if the number of applications goes to 1,870 or 18,700?  Would that many more reviewers join to participate?  Only a small percentage of the reviewers are submitting prior art.  The report notes that the average reviewer spends about two hours reviewing the application and those that did participate generally reviewed two applications.

Perhaps there is a way to make a program like Peer-to-Patent work.  Patent applicants would need stronger incentives to participate, such as the chance to move up in the examination queue or the like.  Reviewers may also need to be incentivized with a small reward to increase participation.  The current project is simply too small and the participation too meager to warrant the PTO to try to continue or to revive it given its current financial situation.

Another Court Invalidates Computer-Aided Method Claims

July 13, 2009

Another district court has used In re Bilski‘s machine-or-transformation test to invalidate a method claim that included the aid of a computer.  In Dealertrack, Inc. v. Huber, et al., Doc. No. 06-2335 (C.D. Cal. 2009), the plaintiff asserted that U.S. Patent No. 7,181,427 was infringed by the defendant.

Claim 1 of the ‘427 patent states:

1. A computer aided method of managing a credit application, the method comprising the steps of:

receiving credit application data from a remote application entry and display device;

selectively forwarding the credit application data to remote funding source terminal devices;

forwarding funding decision data from at least one of the remote funding source terminal devices to the remote application entry and display device;

wherein the selectively forwarding the credit application data step further comprises:

sending at least a portion of a credit application to more than one of said remote funding sources substantially at the same time;

sending at least a portion of a credit application to more than one of said remote funding sources sequentially until a finding source returns a positive funding decision; sending at least a portion of a credit application to a first one of said remote funding sources, and then, after a predetermined time, sending to at least one other remote funding source, until one of the finding sources returns a positive funding decision or until all funding sources have been exhausted; or;

sending the credit application from a first remote funding source to a second remote finding source if the first funding source declines to approve the credit application.

The claim is a “computer-aided method.”  The court ruled that the computer does not include hardware or a database that is specially programmed to perform the claimed method, but instead described the claim-related machines as “any device, e.g., personal computer or dumb terminal.”  This was a part of the court’s claim construction ruling issued over a year before.  The court cited a growing number of district courts and Board of Patent Appeals and Interferences (BPAI) decisions that are ruling against patent owners and applicants on this issue.

Thus, we wait with hopeful anticipation that the Supreme Court will fix the Federal Circuit’s mess yet again.

Court Dismisses Patent Marking Lawsuit

July 13, 2009

I previously did a guest post at on the false marking lawsuit Pequignot v. Solo Cup Co. that was pending in the Eastern District of Virginia.  The plaintiff alleged that Solo Cup falsely marked its products with expired patent numbers.

The court had denied several motions to dismiss filed by Solo Cup based on the fact that Solo Cup marked that the products “may be covered” by patents and that the plaintiff did not have standing to sue for false marking.  The court noted that the statute permits any person to sue on behalf of the government.

As I noted in the article, the higher burden that the plaintiff faced was to prove that Solo Cup marked its products falsely with “an intent to deceive.”  Judge Leonie Brinkema has now dismissed the case because Pequignot has not provided any evidence of the intent to deceive. 

Patently-O is reporting that during oral argument the judge indicated that the ruling would “get [the] case teed up for the Federal Circuit” on appeal.  Because there is little caselaw in this area, she does not know the standard that should be used to judge the intent to deceive and hopes the Federal Circuit will provide guidance.

Nicholas Godici to Aid PTO in Transition to New Director

July 10, 2009

GodiciIn what can only be classified as a vote of no confidence in current Acting Director John Doll, Secretary of Commerce Gary Locke has appointed former PTO Director Nicholas Godici to serve as a consultant to the PTO for a period of up to 180 days.  Godici has been hired “to look at ways to strengthen the management structure of the USPTO and provide an up-to-date assessment of the challenges the office faces.”

Godici spent 33 years working at the PTO as an examiner, supervisory examiner, group director, and finally as Commissioner for Patents from 2000-2005.  He was Acting Director of the PTO from January-December 2001.  Since 2005 he has been an executive advisor at the law firm Birch, Stewart, Kolasch, Birch, LLP.  He was one of the authors of the U.S. Chamber of Commerce report containing recommendations for reforming the PTO and the patent system in December 2008.

It is interesting to note that Godici left the PTO at about the same time that things began to really go south in terms of management and problems.  Given the confirmation hearings in the Senate for Judge Sotomayor that begin next week, as well as several other big issues facing the Senate and its upcoming August recess, it is unlikely that the new PTO Director will be confirmed until September or later. 

This appointment signals the recognition of the delay in installment of a new Director by the Obama Administration and acknowledgement that such a delay in new management would further harm the patent system and also negatively affect the economy.  This seems to be a very good development.

PTO Rules Litigation Schedule

July 10, 2009

The order by the Federal Circuit granting the petition to rehear Tafas v. Doll en banc has set the following schedule for the case:

  • Appellants may file additional briefs by August 5.
  • Appellees may file additional briefs within 20 days of service of the Appellants’ briefs.
  • Appellants may file reply briefs within 7 days of service of Appellees’ briefs.

Thus, briefing should be done by early to mid-September.  Amicus briefs are to be filed pursuant to Federal Circuit rules.

The court has set argument for the case on Wednesday, October 7.

What does this mean?  Given that the panel decision, now vacated, had three separate opinions and three separate rationales for the decision, it is really difficult to predict what the court will do with the case.  It is possible that the court will follow Judge Bryson’s instructions for permitting the PTO’s continuation rules to remain in effect.  Hopefully, the judges with experience in patent matters will understand the implications of the new rules better than Judge Prost’s opinion did.  The new PTO Director should be confirmed by the time argument takes place in this case.  It is still not clear what effect this will have on the PTO’s prosecution of the case.