Archive for May, 2014

Senate to Slow Down Troll Legislation

May 22, 2014

Yesterday, Sen. Patrick Leahy (D-VT) issued a press release where he states that he has taken the currently pending patent troll legislation off the Senate Judiciary Committee agenda.

Sen. Leahy notes that while there is general agreement that patent trolls abuse is a problem, there has been no agreement on how to combat the problem.  The interested parties have not been able to reach a consensus on the best way to proceed.  Thus, Chairman Leahy has decided to wait to consider the issue until at least later this year.

The House passed the Innovation Act in December.  Since then, there has been a significant amount of debate by the relevant parties on the issues.  Many have pointed to problems with the legislation as not addressing the real problems with patent trolls, as being too broad so as to encompass many legitimate companies, and others.  And, probably due to the lack of leadership at the agency, the PTO has not yet weighed in on the issues.

After passing the America Invents Act with little input from many of the affected parties, this time the Senate appears to be doing it right.  Let’s get all the input and have a proper debate before rushing this through.

Reduced PTO Fees

May 20, 2014

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 included 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, 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 or Micro Entity.

Supreme Court Rules on Patent Litigation Fees

May 5, 2014

USSupremeCourtWestFacadeLast week, the Supreme Court issued its decisions in Octane Fitness, LLC v. Icon Health & Fitness, Inc. and Highmark, Inc. v. Allcare Health Management Systems, Inc.  The question before the Court in the former case was the correct standard for an “exceptional case” under which a court may award attorneys’ fees and costs to the prevailing party.  In the latter case, the question was the correct standard of review on appeal.

Octane Fitness

As I discussed previously, section 285 of the Patent Act permits a trial court to award attorneys’ fees to the prevailing party in “exceptional” cases.  What exactly constitutes an exceptional case?

The Federal Circuit had set a rather high standard for fee shifting under this provision.  That court held that a case is exceptional only in the circumstances where either (1) there has been some material inappropriate conduct, such as litigation misconduct or inequitable conduct at the PTO, or (2) the litigation has been brought in subjective bad faith and the allegations are objectively baseless.  These are indeed high standards to meet.

Now, the Supreme Court has stepped into the fray by unanimously holding that the Federal Circuit’s standard for when a case is “exceptional” is too high.

We hold, then, that an “exceptional” case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.  District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances.

The Court held that the Federal Circuit’s standard is so high that it makes § 285 largely superfluous.  Finally, the Court rejected the Federal Circuit’s requirement that the party seeking fees must prove its entitlement to them by clear and convincing evidence.

Highmark

Octane Fitness largely foreshadowed the outcome in Highmark.  The determination of when a patent case is “exceptional” appears to be largely fact specific, rather than a matter of law.  Unfortunately, when dealing with appeals, the Federal Circuit often misses this distinction, preferring that it review most anything de novo, i.e., without regard to the factual determinations by the district court.

A unanimous Supreme Court also reversed the Federal Circuit in this case.  The district court determination of whether a case is “exceptional” should be reviewed by the Federal Circuit for abuse of discretion.  This is a standard that gives more deference to the trial court.  This means that the appellate court cannot simply substitute its own opinion for that of the district court.  Instead, the appellate court may review the determination of the district court only when there is an error of law or a clear error of the facts.  Otherwise, the determination is within the discretion of the district court.  That makes sense given that the district court judge actually reviewed the evidence and observed the actions by the parties and witnesses at trial.

Fee Shifting

Patent Trolls.  We’ve talked about them a fair amount.  Many have argued that fee shifting is the way to deter spurious lawsuits brought by such entities.  Several members of Congress seem to agree.

At least partially in response to the Federal Circuit’s restrictive interpretation of  § 285, the House of Representatives passed the Innovation Act that seeks to change patent litigation in the US to a loser pays system in nearly all cases.  The Innovation Act would amend § 285 to state that a court “shall award” attorneys’ fees and expenses to the prevailing party unless the losing party’s position was “reasonably justified” or other special circumstances would make an award unjust.

The Supreme Court seems to have cleaned up this mess.  The discretionary standard seems better than an absolute standard.  These cases are not always cut and dry; sometimes they are close.  The proposed statutory revisions might have a chilling affect on parties in bringing legitimate cases.  Under the Supreme Court’s opinions, district courts can still use their discretion to sanction parties that bring bad cases.

My wife, Professor Kristen Osenga, wrote a piece at Prawfsblawg on this particular issue.