Archive for May, 2013

Flurry of Bills to Reduce Litigation by Patent Trolls

May 28, 2013

It appears that Congress has had enough of the litigation tactics by so-called patent trolls, non-practicing entities (NPEs) that accumulate patents with the goal of licensing or otherwise asserting them against companies that make and sell products.

As noted earlier, the SHIELD Act in the House in February (and in the last Congress) to require losing NPEs to pay the costs of litigation.  A few weeks ago, a new business method review bill was introduced in the Senate.

Now, several more bills have been or shortly may be introduced in Congress.

End Anonymous Patents Act

Rep. Ted Deutch (D-FL) introduced the End Anonymous Patents Act, H.R. 2024, that would require parties that apply for or acquire patents to publicly reveal the real party in interest.  The bill is designed to prevent NPEs from using shell corporations to hide the real owners of patents.  The real party must be revealed when a patent application is filed, when maintenance fees are paid, and when ownership is transferred.  Damage awards would be limited to the time period from which this requirement is met.

Patent Abuse Reduction Act

Sen. John Cornyn (R-TX) introduced the Patent Abuse Reduction Act, S. 1013, that would add a number of new requirements for patent litigation.

The bill would require a heightened pleading requirement where complaints would be required to identify asserted patent claims and accused products “with heightened specificity.”  Complaints must detail the plaintiff’s principal business and its right to assert the patent, as well as an indication of other suits where the patent has been asserted.

The bill includes dramatic limits on discovery.  Discovery will generally not commence until after a claim construction ruling and will be limited to “core evidence” such as conception of the invention and invalidating prior art.  Requests for additional discovery, such as e-mails and other electronic evidence, must be approved by the court and requires that the requesting party pay for such discovery.

The bill includes a presumption of an award of attorneys’ fees to the prevailing party.  The court should award such fees to the prevailing party unless “the position and conduct of the non-prevailing party was objectively reasonable” or “exceptional circumstances make such an award unjust.”

Another Bill on Horizon

IP360 (subscription) is reporting that House Judiciary Committee Chairman Bob Goodlatte (R-VA) and Senate Judiciary Committee Chairman Patrick Leahy (D-VT) are circulating a draft bill that is also aimed at ending abusive litigation tactics.

The bill sounds similar to S. 1013 in that it would impose the heightened pleading requirements and limits on discovery.  The bill would also permit manufacturers to intervene in infringement suits that target their customers.  This targeting tactic is sometimes used to pressure manufacturers into settlement.

Finally, this bill includes provisions to encourage settlement of patent infringement suits, changes to post-grant review under the AIA, and requires the PTO to conduct outreach to assist small businesses accused of patent infringement (adding more requirements to the PTO sounds like a great idea after Congress diverts more PTO fees).

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There is enough rumbling on Congress to predict that something might pass this year.  The question is whether Congress can agree on what that should be.  House Judiciary Committee Ranking Member John Conyers (D-MI) and House Intellectual Property Subcommittee Ranking Member Melvin Watt (D-NC) are urging Congress to wait to act until a planned report on patent litigation from the Government Accountability Office is received by Congress.

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PTO Should be Exempt From Sequestration

May 24, 2013

Earlier this week, the American Intellectual Property Law Association (AIPLA) sent a letter to the Director of the Office of Management and Budget (OMB) arguing that the PTO should be exempt from sequestration that is affecting the federal government.

As noted previously, the PTO is facing another budget crisis due to cuts in its funding from sequestration.  This is despite the fact that the PTO relies on no tax revenue, but is funded by user fees.

In its letter, the AIPLA argues that this distinction should exempt the PTO from these budget cuts.  During negotiation for passage of the America Invents Act, the understanding by all parties that any fees collected in excess of the congressional appropriation would be placed in a reserve fund and that only the PTO would have access to the fees.  The budget cuts due to sequestration undermine this understanding and result in a return to fee diversion.

The AIPLA continues in the letter that AIA implementation is at an early and critical stage.  Benefits are just starting to be seen with additional hiring and new procedure implementation.  In other words, this is a particularly bad time for the Administration to begin taking fees away from the agency.  The AIA provided the agency with the authority to set its own fees; sequestration severely undermines that authority.

The AIPLA argues that the sequestration statute does not apply to the PTO because PTO fees are not taxes that the government collects as part of its sovereign power, but are instead business-like transactions with the public.  The public is not required to pay PTO fees as they are taxes.  Rather, PTO fees are paid with the understanding that the PTO will provide examination services.  Thus, sequestration does not apply to such fees.

Finally, even if sequestration applies to the PTO, the sequestered fees should be placed in the reserve fund for use by the PTO and not into the general coffers of the federal government.  Again, the understanding and agreement of all parties was that the AIA would end fee diversion as practiced on the PTO for the last 20 years.

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When will we learn?  The removal of the specific language to end fee diversion from the AIA should have been a strong signal that this would happen.  “Trust me” does not work when dealing with congress or the federal government.

Supreme Court to Review Burden of Proof in Declaratory Judgment Actions

May 21, 2013

Yesterday, the Supreme Court agreed to hear the appeal of the declaratory judgment plaintiff in Medtronic Inc. v. Boston Scientific Corp.  The question presented in the case is as follows:

In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is “not required … to break or terminate its … license agreement before seeking a declaratory judgment in federal court that the underlying patent is … not infringed.”

The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.

Federal Circuit Decision

Medtronic licensed patented technology related to cardiac resynchronization therapy (CST) from Mirowski Family Ventures (MFV).  Nearly from the start of the relationship, the parties disagreed as to which products were covered by the patents and whether the patents were valid.  In 2003, Medtronic challenged the validity of a licensed patent while paying royalties into an escrow account.  The parties ultimately settled the case.  The settlement agreement indicated that MFV would inform Medtronic as to which products were covered by the patents.  If Medtronic disagreed, it could retain the license while bringing a declaratory judgment action to have the court decide the issue.

In late 2007, Medtronic filed just such a declaratory judgment action of non-infringement and invalidity of the patents.  Because it continued in the license agreement, MFV could not counterclaim for infringement.  The parties disputed whether the burden to prove infringement rested on MFV, as is typically the case for the patent owner, or if, given the stature of the case, Medtronic bore the burden to prove non-infringement.  The district court sided with Medtronic and found the MFV did not meet its burden of proving infringement of the Medtronic products.

On appeal, the Federal Circuit recognized that the case is not the typical patent infringement situation where the patent owner files the initial complaint, nor is it the typical declaratory judgment case where the patent owner files the compulsory infringement counterclaim.  In those situations, the patent owner quite clearly bears the burden of proving infringement.

Now that the Supreme Court has indicated that counterclaims can be filed in the absence of ceasing royalty payments, patent owners cannot always file infringement counterclaims in the face of a declaratory judgment action.  Does the patent owner still bear the burden of proving infringement or has it shifted to the declaratory judgment plaintiff?

The Federal Circuit reversed the district court and allocated the burden of proof to the declaratory judgment plaintiff.  The court clearly struggled with how to handle the burden in light of MedImmune.  The court ultimately reasoned that MedImmune would become not simply a shield to keep licensees from large damage awards from non-payment of the license, but also a sword to haul the patent owner into court where the patent owner must prove infringement.  It is the licensee and not the patent owner who seeks relief from the court and a change in the status quo.  If neither party presented evidence, the court should not upset the status quo of the license agreement.  Thus, fairness requires them to bear the burden of proof.

The Supreme Court has now agreed to resolve this dilemma of its own making during its October 2013 term.

Chen Closer to Federal Circuit Confirmation

May 16, 2013

Last month, PTO Solicitor Raymond Chen had his hearing before the Senate Judiciary Committee.  Today, the Committee unanimously reported the nomination favorably to the full Senate.  Hopefully, the full Senate will vote on his nomination in the coming weeks (or months or years).

The Federal Circuit currently includes 10 active judges, although the court has 12 judicial seats.  Todd Hughes was nominated at the same time as Raymond Chen.  He has not yet received a hearing before the Senate Judiciary Committee.

Chen’s nomination seems to be proceeding with incredible speed compared to recent nominations.

HT:  Hal Wegner

Supreme Court Affirms Federal Circuit in Seed Patent Exhaustion Case

May 13, 2013

In a rare affirmance of the Federal Circuit, the Supreme Court found no exhaustion in the seed patent case.  Bowman v. Monsanto Co.

Justice Kagan, writing for a unanimous Court, held that the doctrine of patent exhaustion only restricts a patent owner’s rights to a particular article sold.  It does not limit the patent owner’s right to keep others from making additional copies of the patented invention.

Exhaustion protected Bowman as to his ability to use the patented seeds as he saw fit.  It does not, however, protect him from charges of infringement should he decide to “make” new seeds.  This is what the Court said he did.  He planted the original seeds and harvested new ones from the resulting plants.  The act of making the new seeds was an act of infringement not protected by patent exhaustion.

More details are available in my preview post for the Supreme Court’s current term.

Federal Circuit En Banc on Patentable Subject Matter

May 10, 2013

A Federal Circuit panel had reversed a district court opinion that related to patent eligibility of computer-related claims.  The details of the patent are related in my earlier post, but the salient issue is that the patent included method, system, and computer-readable media claims.  The panel divided over the issue with Judges Linn and O’Malley reversing the district, while Judge Prost dissented.  The court agreed to hear the case en banc.

Today, the 10 member en banc court overruled the panel decision and affirmed the district court.  If you were looking for precedent, however, you will be disappointed.  Here is the entire per curiam opinion:

Upon consideration en banc, a majority of the court affirms the district court’s holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101.

An equally divided court affirms the district court’s holding that the asserted system claims are not directed to eligible subject matter under that statute.

In other words, a majority of the court holds that the method and computer-readable media claims are not patent eligible, but they can’t agree on the reasoning.  The court divided 5-5, however, on the patent eligibility of the system claims.  In such a case, an appellate court affirms the lower court; the tie goes to the runner so to speak.

After that brief opinion, however, an additional 120+ pages are allocated to concurring and dissenting opinions that apparently could not garner a majority.

Judges Lourie, Dyk, Prost, Reyna, and Wallach

Judges Lourie, Dyk, Prost, Reyna, and Wallach filed a concurring opinion where they laid out the analysis they would use for the claims at issue.

First, it must be determined whether the claims fit within one of the four statutory classes:  process, machine, manufacture, composition of matter.  Next, does the claim pose the risk of preemption of an abstract idea?  The claim must include an inventive concept, a genuine human contribution.

In applying this analysis to the claims-at-issue, this group of 5 judges would hold that none of the claims are patent eligible.

Chief Judge Rader and Judges Linn, Moore, and O’Malley

Next, Chief Judge Rader and Judges Linn, Moore, and O’Malley filed an opinion concurring-in-part and dissenting-in-part.  Chief Judge Rader and Judge Moore agree with the majority that the method and computer-readable media claims are not patent eligbile, while Judges Linn and O’Malley would find all of the claims to be patent eligible.

This opinion notes that the exceptions to patent eligibility are “laws of nature, natural phenomena, and abstract ideas.”  In crafting these exceptions, the Supreme Court was concerned with the “monopolization of the basic tools of scientific and technological work” and impede innovation more than promote it.

The opinion notes that claims must be “meaningfully limited.”  For computer-related claims, this means that the otherwise abstract idea must be performed in a “specific way” on the computer or be performed on a “specific computer.”  The computer must perform a meaningful role in the performance of the invention.  The court must be careful not to consider novelty, obviousness, or section 112 issues when determining patent eligibility.

Judge Moore filed an opinion dissenting-in-part that was joined by Chief Judge Rader and Judges Linn and O’Malley.

Judge Moore is very concerned that the exception to patent eligible subject matter is getting too large and that a very large number of currently valid patents may be implicated.  She describes the court as “irretrievably fractured” over the issue of patent eligibility.  The Supreme Court only seems to review cases where it is going to rule the claims to be patent ineligible.  She seems to urge them to review this case and hold otherwise.

She is extremely critical of Judge Lourie’s opinion.  She indicates that he strips away all known features from the claims in his search for an “inventive concept.”  This is, of course, continuing the confusion between § 101 and §§ 102 and 103 of the Patent Act.

Judge Newman

Judge Newman filed an opinion concurring-in-part and dissenting-in-part.  Judge Newman is concerned over the added uncertainty to patentees now that patent eligibility seems to be a completely separate litigation issue.  She decries the division over the issue on the court and that it will not provide any guidance to patent owners.  She would hold all of the claims in this case to be patent eligible.

Judges Linn and O’Malley

Judges Linn and O’Malley filed a dissenting opinion.  They note that no claim construction analysis was conducted in this case and it comes to the court on a grant of summary judgment of patent ineligibility.  The defendant in the case has agreed to a much narrower construction of the claims than they have been given by the court.  Based on the sparse record, they would hold all of the claims to be patent eligible.

Finally, Chief Judge Rader provided “additional reflections” where he reviews other patent eligibility cases with which he has been involved.  He leaves us with a mantra to ponder:

When all else fails, consult the statute!

Business Method Review Bill Introduced

May 8, 2013

SchumerSen. Charles Schumer (D-NY) has introduced a bill in the Senate that would expand the AIA’s temporary review of business method patents in the financial services industry.  The bill would simply delete the sunset provision in the AIA and replace the “financial product or service” language in the AIA with “an enterprise, product, or service.”  The intent, presumably, is to expand the current PTO review to include business method patents in any industry, not just the financial services industry.

The bill is designated as S. 866 and has been referred to the Senate Judiciary Committee.

While the bill does not use the term “patent trolls” at all, Sen. Schumer recently issued a press release where he indicated that he intended to introduce legislation to crack down on patent trolls.  These entities are costing “legitimate companies” billions of dollars per year.  He asserts that the expanded potential to have patents reviewed by administrative experts at the PTO will save legitimate companies on litigation costs.

Some might suggest that this legislation can have a very different effect from that intended by Sen. Schumer.  If the patent makes it through the PTO review a second time (and they usually do for reexamination), the patent may actually be viewed more strongly by juries.  The patent has not only survived initial review by the PTO, but it has also withstood the additional scrutiny of the new review procedure.

Penny Pritzker Nominated as Commerce Secretary; PTO Director Next?

May 7, 2013

PritzkerPresident Obama has nominated Penny Pritzker to replace John Bryson who resigned as Secretary of Commerce last June.  Pritzker is a billionaire business executive, entrepreneur, civic leader, and philanthropist.

Pritzker has served in numerous roles in the Obama Administration, including as a member of the President’s Council on Jobs and Competitiveness and on the President’s Economic Recovery Advisory Board.  More importantly, she was involved extensively in each of the president’s campaigns serving as finance chair in 2008 and as co-chair of Obama for America in 2012.

This nomination may not easily pass the Senate.  Pritzker was also considered for the Commerce position in 2008, but withdrew her name amid controversies surrounding her and her families finances.

It is likely that President Obama will not nominate a new PTO director until the Commerce Secretary position is solidified.  David Kappos left the PTO in January.  Teresa Stanek Rea has been Acting Director since that time.