Archive for May, 2012

Supreme Court Sends Internet Monetization Method Back to Federal Circuit

May 22, 2012

Yesterday, the Supreme Court issued a GVR (grant-vacate-remand) order to the Federal Circuit in WildTangent v. Ultramercial.

The petition for a writ of certiorari is granted [G]. The judgment is vacated [V], and the case is remanded [R] to the United States Court of Appeals for the Federal Circuit for further consideration in light of Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. ___ (2012).

Last fall, the Federal Circuit, per Chief Judge Rader, ruled that the claimed method of monetizing and distributing copyrighted products over the Internet is a patent eligible process.  Given the Supreme Court’s convoluted reasoning in Mayo v. Prometheus, there are many patents that may now be at risk.

The attack on patent eligibility continues . . .

PTO Overrules Federal Circuit

May 18, 2012


Baxter International is the owner of U.S. Patent No. 5,247,434, which relates to a hemodialysis machine.  In 2003, a Baxter competitor, Frenesius, filed a declaratory judgment action arguing that the patent’s claims were invalid.  The case was tried to a jury, which agreed that the claims were obvious at the time of the invention.  The district court disagreed, granting Baxter’s motion for judgment as a matter of law.  Several means-plus-function limitations were held to be absent from the cited prior art. 

In 2009, the Federal Circuit affirmed the district cout’s judgment, holding that there was not sufficient, much less clear and convincing, evidence that the claim limitation “means for delivering dialysate” was found in the cited prior art.  Interestingly, Judge Dyk filed a concurring opinion where he advocated a stay of the litigation pending the reexamination proceeding.  He seemed to foreshadow this case.

It is entirely possible that the U.S. Patent and Trademark Office will finally conclude that [the] claims . . . of the ’434 patent are also invalid.

Judge Newman also filed a concurring opinion where she argued that stays of litigation are within the court’s discretion.  Given that reexamination proceedings are now taking over 3 years to be finally resolved by the PTO, if litigation stays were mandatory, they could be used as a delay tactic by infringers.  She did respond to Judge Dyk’s assertion in a footnote.

Our colleague in concurrence appears to believe that a PTO decision on reexamination will override a judicial decision reached after trial and appeal. That is incorrect. All that can be accomplished is delay.

Little did she know . . .


Simultaneously with the litigation, the PTO began reexamination proceedings on the ‘434 patent in 2006.  The examiner rejected the claims as obvious based on the same primary prior art reference combined with some secondary references.  While the reexamination was pending at the Board of Appeals, the Federal Circuit issued its 2009 opinion affirming the validity of the claims in the Frenesius litigation. 

The BPAI affirmed the examiner’s rejection.  Specifically, the Board held that due to the lower standard of proof required to prove invalidity in a reexamination proceeding than in litigation, and that the PTO must use the broadest reasonable claim interpretation, the Board was not board by the Federal Circuit’s decision.  Baxter appealed the Board’s reexamination decision to the Federal Circuit.

Federal Circuit, Part II

The Federal Circuit affirmed the Board’s rejection of the claims, specifically agreeing with the Board’s analysis of the different burdens of proof.

More fundamentally, the PTO in reexamination proceedings and the court system in patent infringement actions “take different approaches in determining validity and on the same evidence could quite correctly come to different conclusions.”

Thus, because the two proceedings necessarily applied different burdens of proof and relied on different records, the PTO did not err in failing to provide the detailed explanation now sought by Baxter as to why the PTO came to a different determination than the court system in the Fresenius litigation.

One wonders what was the point of the first litigation if it can simply be overruled by the PTO in a proceeding that largely relies on the same evidence presented to a district court whose decision was affirmed by the Federal Circuit.  It seems like a waste of judicial and PTO resources to be able to relitigate the same or nearly the same issue again at the PTO.  Due to res judicata (law of the case, claim preclusion, issue preclusion, etc.), this cannot be done in successive court proceedings.  The Federal Circuit blames Congress.

[T]he fact is that Congress has provided for a reexamination system that permits challenges to patents by third parties, even those who have lost in prior judicial proceedings.

Only Judge Newman returned to the panel from the litigation appeal.  In the reexamination appeal, she provides a vigorous dissent.  She seems incredulous that the court should permit an administrative agency to nullify a decision of a federal court.  She is not aware of any counterpart in other areas of the law where an agency can override a court decision.  She supports reexamination as an efficient and economical alternative to litigation, but does not believe it was intended to negate the results of litigation.

Even the differences in burdens of proof should not permit an agency to disregard or overturn a court’s final decision.  Obviousness is a question of law.  If the court erred in its earlier decision, the remedy is judicial reopening, not agency disregard.

America Invents Act Implications

This issue is going to arise more often in the future due to the America Invents Act.  Inter Partes Review and Post Grant Review proceedings may lead to more determinations of validity by the PTO.  When these are filed after or in conjunction with litigation, there may be more disparate validity determinations. 

In this really what Congress intended?  Infringers and competitors can get multiple attempts to invalidate patents?  If they lose in one venue, they can simply re-file the case in another venue?  What a waste of judicial and PTO resources.

Small Entity Status

May 14, 2012

Under PTO rules, a “Small Entity” is entitled to pay certain PTO fees associated with patent prosecution at a reduced rate, usually 50%.  As the PTO raises filing and post-issuance fees, it is important to determine just who qualifies as a Small Entity.

In the early 1980s, Congress substantially raised many of the PTO fees associated with patent prosecution and introduced some new fees that had not previously been charged, such as issue fees and maintenance fees.  To help off-set the burden this would cause for smaller or non-profit parties, Congress also introduced the Small Entity Status.

PTO rules define a Small Entity as an individual inventor or inventors, a small business concern, or a nonprofit organization.  In order to qualify as one of these three types of entities, none of the rights associated with a patent or patent application may have been assigned or licensed to any party that would not qualify for Small Entity Status, nor must there be any obligation on the part of the small entity to make such an assignment or license.  All of the rights in the patent or patent application must be held by a small entity.

In other words, IBM cannot set up a small holding company for all of its patents in order to qualify for Small Entity Status if it wishes to retain any rights in the patents.  Nor can IBM pay Small Entity Fees and wait until the patent issues to assign it to the company if the inventor(s) had an obligation to assign the invention to the company at the time of filing.

An individual inventor is anyone who has not assigned his patent application to a business or other organization.  The rules define a Small Business Concern as a company having fewer than 500 employees.  The rules define a Nonprofit Organization as a university, 501(c)(3) organization, or a scientific or educational organization under any state law or in a foreign country.  If an individual inventor, small business concern, or nonprofit organization licenses the patent or patent application to a company that doesn’t qualify for Small Entity Status, the full price fees must be paid at the PTO.

Previously, the PTO required the applicant or assignee to sign a verification of Small Entity Status.  Now, the simple written assertion of such status or even the payment of Small Entity Fees is sufficient.  This puts more of the burden on the patent applicant and the patent attorney to verify Small Entity Status.

If a small entity pays large entity fees, the small entity may request a refund of the overpayment.  Conversely, if Small Entity Fees are paid by an entity that is actually a large entity, it can usually be corrected by simply paying the required deficiency, if the incorrect amount was paid in good faith.  The rules do warn, however, that fraudulently paying Small Entity Fees when the applicant is not entitled payment of such fees can result in the resulting patent being held unenforceable due to inequitable conduct.

The PTO notes applicants have a contiuing duty to conduct a thorough investigation of the facts surrounding a claim of Small Entity Status.  The facts should especially be revisited at the times of paying the issue fee and maintenance fees.  For example, a patent issued to a Small Entity may have been licensed to a non-small entity between the time of its issuance and the time to pay a maintenance fee, or the company itself might have grown to more than 500 employees, making Small Entity Status inappropriate.


The America Invents Act includes provisions for a new entity called a “micro-entity” that would pay certain fees at a 75% reduction of the normal amount.  To qualify as a micro-entity, certain conditions must be met.

For unassigned applications, the entity must not include any inventors that have been named on 5 or more patent applications.  Thus, “micro-entities” are newer inventors.  The application must not be licensed or the inventors must not be legally obligated to license or assign the application.  Each inventor must have an income of less than 2.5 times the average gross income reported by the Department of Labor for the previous calendar year.

For assigned applications, the inquiry is similar.  None of the inventors must be named on 5 or more patent applications.  The application can only be assigned to an entity with 5 or fewer employees.  And the assignee must have an income of less than 2.5 times the average gross income for the previous calendar year.

Thus, micro-entities will be a very small group of applicants, but it can result in significant savings on PTO fees.

When paying PTO fees, it is important to stay up-to-date on whether the applicant qualifies as a Small Entity.

BPAI Backlog

May 7, 2012

In his latest blog post, PTO Director David Kappos addresses the backlog of ex parte appeals of patent applications and reexaminations.  He notes that the backlog has increased dramatically, while the BPAI is diverting resources to prepare for the new post-grant review and inter partes review proceedings that go into effect September 16, 2012.

The problem is immense, and getting worse.  The board seems to be handling its docket of contested cases and reexaminations.  Ex parte application appeals, however, are another matter.  As of March 2012 (half way through FY2012), the board had disposed of 4,310 ex parte appeals from patent applications.  That’s a pretty good pace of 718 per month.  Unfortunately, 6,722 appeals were filed during that same time frame, an average of 1,120 per month.  So, a net 402ex parte appeals from patent applications are being added to the board’s docket each month.  The backlog of 23,963 appeals at the end of FY2011 has grown to 26,375 as of March.  The pendency from filing to board decision for these applications is 83.8 months or nearly 7 years.

Some have argued that a large part of the problem is that many appeals are sent to the BPAI prematurely or unnecessarily.  Director Kappos notes that the PTO had the Office of Patent Quality Assurance review 1,300 pending appeals to see if this was the case.  He notes that a low percentage of cases contained deficiencies and were not ready for board disposition.  This seems to mean that the PTO was satisfied that there is not a high number of unnecessary appeals.

As noted, the BPAI has disposed of 4,310 ex parte patent application appeals as of March 2012.  Of that number, 2,029 (47.1%) were affirmed, 1,465 (34.0%) were reversed, 602 (14.0%) were “affirmed-in-part” (and presumably reversed-in-part), 121 (2.8%) were dismissed, and 93 (2.2%) were “administrative remands”.  Presumably, the dismissals were cases where the applicant failed to prosecute the appeal or respond to some request from the board.  The “administrative remands” were probably cases where some deficiency in the appeal caused it to be returned to the tech center or examiner. 

Reviewing the cases actually decided on the merits, 50.5% of the appeals (2,067 out of 4,096) were reversed, at least in part, while only 49.5% (2,029) were completely affirmed.  This percentage seems too high.  Applicants who have important inventions may want to take their chances on appeal when the percentage of reversals (at least in part) is over 50%.  A reversal-in-part means that applicants at least get another shot with the examiner on some of the claims, and may get an outright allowance.

Director Kappos does not seem to think this percentage too high.  He instead focuses on the emphasis on examiner interviews and the Ombudsman Program to help alleviate the need for appeals.