Archive for August, 2013

GAO Report Finds Patent Trolls are Not the Problem With Litigation

August 26, 2013

Last week, the General Accounting Office (GAO) provided a report that was requested by Congress on patent litigation in the US.

The report found that the number of patent lawsuits was fairly steady from 2000 to 2010 and increased by about a third in 2011.  Most stakeholders opined that this increase was due to the impending passage of the America Invents Act that significantly changed the patent system, including the fact that multiple defendants could no longer be easily joined into a single lawsuit.

The number of defendants in such lawsuits increased by 129% from 2007 to 2011.  Only about 19% of the lawsuits were brought by non-practicing entities (patent trolls), but about 89% of the increase in defendants were involved in lawsuits encompassing software-related patents.

While Congress had anticipated that reports such as this would confirm its hysteria related to patent trolls, this turned out not to be the case at all.  The increase in litigation by patent trolls (called Patent Monetization Entities) was considered to be not statistically significant.

GAO FIG

The question remains of where these non-practicing entities get their patents.  The report indicates that it is as would be expected.  They acquired the patents from a variety of sellers, including universities, individual inventors, failed companies, or operating companies.  Some acquired their own patents from the PTO with minimal R&D efforts, some previously produced patented products but now simply asserted the patents, and some sued on behalf of individual inventors who lack the resources to bring their own lawsuits.

Instead, the report seemed to focus on patent quality.  The PTO needs to pay more attention to trends in patent litigation, including the increase in software-related litigation where the claims seem to be overly broad and difficult to determine the scope.  Terminology in many patents is unclear and many entities do not understand what a patent claims.

The report also noted several other reasons for increasing patent litigation.  There is a perception that damage awards can also be disproportionately high compared to the actual contribution of the patent to a product as a whole.  Companies are also beginning to understand that patents are more valuable than previously thought.

PTO Initiatives

The report credited several PTO initiatives to address perceived problems with patent quality.  First, the PTO has implemented guidelines and training to assist examiners with understanding claim definiteness.  The PTO is working to implement more consistent terminology in software-related patents.  Updates to the patent classification system, including attempts to harmonize with Europe should improve patent searching and planning.  New PTO initiatives should provide greater transparency in patent ownership.  These are in addition to the PTO’s attempts to improve patent quality by testing and review.  New post-grant review procedures under the AIA should also aid in patent quality.

Conclusion

The report concludes that, while the focus of patent litigation discussion has been on non-practicing entities, this focus is not necessarily appropriate.  The real increase is in lawsuits involving software-related patents. regardless of who is asserting the patents, whether practicing or non-practicing.

Critics of the report are, of course, dismissing it as not addressing the issues that Congress requested.  Hopefully, the report will be used by Congress as it debates (or not) some of the bills regarding patent litigation that are currently pending in that body.  Some of these bills seek to shift fees, limit discovery, or similar items.

The AIA was passed as a bellweather tremendous change and improvement in the patent system.  The AIA, however, does little to address the real issues surrounding the patent system:  patent quality and patent pendency.  These issues require improvements at the PTO.  The agency has done what it can, but it really needs additional resources.  As long as Congress continues to steal or sequester money from the PTO, improvement there will be difficult.

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Small/Micro-Entities

August 22, 2013

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.

Micro-Entity

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 that go into effect in March.  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, not including provisional or non-US 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 3 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 3 times the average gross income for the previous calendar year.

Finally, for applications where the applicant receives the majority of his income from an institution of higher learning or where the applicant is under an obligation to assign or license the application to an institution of higher learning, micro-entity status applies.  This is regardless of the income level or number of applications previously filed by the applicant.

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.

Supplier’s Offer to Make Product is Invalidating Sale

August 16, 2013

Earlier this week, the Federal Circuit held that a supplier’s offer to make a product more than one year before the patent application was filed is an invalidating sale.  Hamilton Beach Brands, Inc. v. Sunbeam Products, Inc.

Hamilton Beach sued Sunbeam Products for infringement of U.S. Patent No. 7,947,928.  The ‘928 patent claimed as effective filing date of March 1, 2006 (this date was in dispute, but is taken as correct for purposes of the court’s opinion).  Hamilton Beach marketed a commercial embodiment of the ‘928 patent as the Stay or Go® slow cooker.

On February 8, 2005, Hamilton Beach issued a purchase order to its foreign supplier for manufacture of 2,000 Stay or Go® slow cookers to be shipped to its Tennessee facility and billed to its Virginia facility.  On February 25, 2005, the supplier replied, via email, that it received the order and would begin manufacture of the slow cookers once it received Hamilton Beach’s release.  The “release” referred to in the email was in reference to the corporate agreement between Hamilton Beach and the foreign supplier.  Hamilton Beach was required to give a certified review and approval of any final product to the supplier before the supplier could ship the final product.  Hamilton Beach did not respond to this email for several months.

The Federal Circuit held that the message from the foreign supplier to Hamilton Beach was an “offer” to sell the later patented product to Hamilton Beach.  Because Hamilton Beach had sent specifications to the supplier as to the details of the product, it was considered by the court to be “ready for patenting.”  As the offer was made more than one year before March 1, 2006, it met both prongs of the on-sale bar and invalidated the claims of the ‘928 patent.  All it would have taken for the parties to have entered into a binding contract was acceptance of the offer (by providing the release) by Hamilton Beach.

Hamilton Beach argued that the product was not “ready for patenting” as of February 25, 2005.  The court did not do a complete limitation-by-limitation review of the claims to determine whether the product referenced in the offer met each of the claim limitations.  There were a number of problems with the product that were still being worked out.  At that time, the product did not contain a crucial claim limitation and its engineers were still working on perfecting the product.

The court was not convinced.  Hamilton Beach had also marketed the product to its retail customers and provided “a veritable tome” of documents with specifics of the product, including CAD drawings and the like, that showed that the product was “ready for patenting” prior to the critical date.  There was clearly sufficient detail to permit one of ordinary skill in the art to have made and used the invention.

Based on this analysis, the court held the claims to be invalid under the Patent Act’s on sale bar.

Judge Reyna dissented.  He argued that the sale between Hamilton Beach and its supplier was not a “commercial sale.”  Instead, the sale was experimental in nature, as Hamilton Beach was seeking to perfect the product.  It continued to change the product specifications due to a series of design failures that were specifically remedied by one of the claimed features of the patent.  He is also worried about how this case will affect small enterprises and individual inventors who lack the ability to manufacture prototypes in house.  A single offer for experimental purposes may be a bar to obtaining a patent for the new invention.

Obama Administration Overrules ITC

August 9, 2013

Typically, when a patent owner believes that his patent is being infringed, a remedy is obtained by filing an infringement action in federal court against the alleged infringer.  The court then determines the factual and legal issues in the case and, in the even of infringement, awards appropriate monetary and injunctive relief to the patent owner.

Alternatively, if the alleged infringing goods are being imported into the US, the patent owner can file an action with the US International Trade Commission (ITC) for infringement.  The ITC conducts the proceedings and determines the factual and legal issues in the case.  In the event of infringement, however, the ITC cannot award monetary damages, but rather awards the patent owner an exclusion order to exclude infringing goods from being imported into the US.  These exclusion orders are enforced by US Customs and Border Control agents.

Due to differing legal standards, it is generally easier for a patent owner to obtain an exclusion order at the ITC than it is to get an injunction in federal court.  For at least this reason, the ITC has become a hot venue for patent infringement cases.

Another quirk in the ITC procedure is that the President has the power to veto or overrule any exclusion order issued by the ITC.  This power is very rarely exercised.  The last time the president had overruled the iTC was in 1987 in a case involving Samsung computer memory chips.

Samsung v. Apple

Samsung and Apple have been involved in extensive smart phone and tablet patent litigation in recent years.  Although Apple is a US company, many of its products are imported from China.  Recently, the ITC had ruled that Apple’s iPhone 4 infringes several of Samsung’s patents.  The ITC therefore issued an exclusion order.  Last week, the US Trade Representative issued a letter of disapproval of the ITC’s order.  The Trade Representative has been delegated this authority by the president.

In the letter, the Trade Representative argues the the exclusion order would be against the public interest.  His determination was based on Samsung’s voluntary commitment to the Fair, Reasonable, and Non-Discriminatory (FRAND) licensing of its standard essential patents.

Analysis

On the one hand, this decision is fairly outrageous.  How would the US react if one of its companies sought to enforce its IP rights in another country only to have the central federal government overrule a determination of infringement?  How can the US seek to get China, India, South Korea, Brazil, and other countries to enforce IP rights for US companies if the Obama Administration is going to overrule federal agency determinations of infringement?

On the other hand, the decision signals to the ITC that it needs to take the public interest into consideration and carefully consider the implications of any potential exclusion order prior to its issuance.  A full record of such considerations should be developed, as ITC orders are subject to appeal to the Federal Circuit.

While this decision basically ends Samsung’s case at the ITC against Apple, the litigation will continue in the federal courts where Samsung may still be entitled to a remedy for the infringement.

Raymond Chen Confirmed to Federal Circuit

August 5, 2013

Last week, the Senate finally confirmed PTO Solicitor Raymond Chen to a seat on the Federal Circuit.  The vote was 97-0.  Chen was nominated in February and brings extensive IP experience to the court.

Judge Chen provides the court with 11 active judges, 1 short of its statutory allowance.  DOJ attorney Todd Hughes’ nomination remains outstanding.  The Judiciary Committee reported his nomination favorably in July.

Current Federal Circuit Judges

The senior active judge on the court is Pauline Newman.  Judge Newman, 86, was appointed to the court by President Reagan in 1984.  She hasn’t given any indication that she may retire.

Judge Alan Lourie, 78, has been on the court since 1990.  He is also eligible for senior status.

Chief Judge Randall Rader, 64, would be eligible for senior status in 2014.

Judge Timothy Dyk, 76, has also been on the court since 2000.  He is eligible for senior status.

Judge Sharon Prost, 62, has been on the court since 2001.  She will be eligible for senior status in 2016.

Judges Kimberly Moore, 45, Kathleen O’Malley, 57, and Jimmie Reyna, 60, each have a number of years before they will be eligible for senior status.

Judge Evan Wallach, 64, has been on the court since 2011.  By virtue of his service on the Court of International Trade, he will be eligible for senior status in 2014.

Judge Richard Taranto, 56, joined the court earlier this year.

Judges Mayer, Plager, Clevenger, Schall, Bryson, and Linn continue to serve the court as judges with senior status.