USPTO Breaks New Ground with 300,000 Patents Issued This Fiscal Year



Fiscal Year 2014 has just ended for the Federal Government and – as expected – we have a new record number of US patent grants. For the first time, the USPTO has issued more than 300,000 utility patents in one fiscal year. Don’t worry, there remain more than 1,000,000 applications pending in the pipeline and more than 25,000 appeals remain pending before the Patent Trial and Appeal Board. During the fiscal year, the 8,300 patent examiners ‘disposed of’ more than 600,000 cases which in some circles will be calculated as an allowance rate of about 50%.*

Although I reported a rumored pull-back of allowed applications following the Alice Corp. decision in June 2014. However, the numbers do not reflect any dramatic reduction in the number of patents granted during this time period.

An important aspect of this new set of patents is that most corporate-owned U.S. patents are actually owned by foreign corporations stemming from inventions first created outside of the U.S.  I believe that shift in who is directly benefiting from patent rights is an important element of the current US political-economy of patent law. Namely, while only US-operators are being sued for patent infringement, patent ownership is often vested in non-US operators.

* The USPTO identifies a case as being disposed of if it (1) issues as a patent (or when allowed), (2) is abandoned, or (3) is the subject of a request for continued examination (RCE). Because I see RCE filings as simply a part of the prosecution process, I do not think it should be used in calculating allowance rate.  Result being that the allowance rate is effectively increased to about 70%.


Doctrine of Equivalents: What Elements Are you Narrowing?

Capture2Millipore v. AllPure (Fed. Cir. 2014)

Patent cases are incredibly expensive to litigate.  However, in a series of recent cases courts have appeared more willing to dismiss cases on summary judgment or even on the pleadings.  This case follows that trend with a holding that the defendant does not infringe the asserted patent claims — neither directly nor under the doctrine of equivalents.  In a prior generation patentees could typically get to a jury with an allegation of infringement doctrine of equivalents. However, the court has simultaneously tightened the rules for DOE infringement and loosened the rules summary judgment — result being that infringement under the doctrine of equivalents is now regularly a summary judgment issue.

Millipore’s U.S. Patent No. 6,032,543 covers an aseptic system designed to add & remove fluid from a container without contamination.  The asserted claims require, inter alia, a “removable, replaceable transfer member . . . comprising a holder, a seal for sealing said aperture, a hypodermic needle . . . wherein the seal has a first [bellows-shaped] end . . . and a second [self sealing membrane] end.” Now, it turns out that the accused AllPure TAKEone industrial aseptic sampling system has all these elements – a holder, a seal with the bellow and membrane ends, and the needle.  In addition all of these parts are removable and replaceable.


AllPure’s key difference from the patented claim is that the collection of these parts are not removable as a unit but rather may only be removed by dis-assembly.  In construing the claims, the district court wrote: ““the [remove] implies movement or separation of something as a whole, whereas [disassemble] implies deconstruction. . . What Millipore characterizes as removal of a transfer member from the magazine part is, in fact, disassembly of a transfer member.”  Based upon that characterization of the patent and the accused device, District Court Judge Woodlock (D. Mass) found that the claims were not infringed.

On appeal, the Federal Circuit has affirmed — finding that the claimed “removable” transfer member requires that the transfer member be removable as a unit.

We agree with AllPure and the district court. If a transfer member does not exist when the device is disassembled, as even Millipore’s counsel admitted, then there is no genuine issue of material fact over whether the TAKEONE device contains a “removable, replaceable  transfer member” as is literally required by claim 1.

Doctrine of Equivalents: Section 271 of the patent act identifies an infringer as someone who “without authority makes, uses, offers to sell, or sells any patented invention.”  Although the “patented invention” is defined by patent claims, courts have long allowed patentees to enforce their exclusive rights to stop activity that is just-outside the literal scope of the claims. This doctrine of equivalents (DOE) has been with us for over 150 years  See Winans v. Denmead, 56 U.S. 330 (1853)(‘The exclusive right to the thing patented is not secured, if the public are at liberty to make substantial copies of it, varying its form or proportions.’).  However, the doctrine has been substantially limited by the all-elements-rule, Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17 (1997), prosecution history estoppel, Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722 (2002), and the doctrine of vitiation. see Wright Medical Technology, Inc. v. Osteonics Corp., 122 F.3d 1440 (Fed. Cir. 1997).

Narrowing Amendment Estoppel: In this case (as in most patents), the applicant had amended its claims during prosecution following a rejection by the patent office examiner to specify the portions of the seal (bellow-shaped and membrane ends).  Although at the time the applicant also made a broadening amendment, this particular amendment was seen as narrowing and designed to recite limitations not found in the prior art.  In particular, following the amendment the patentee argued that “none of the references show or disclose a seal formed like the present one.”  A narrowing amendment is seen as a no-no for the doctrine of equivalents since allowing DOE would essentially allow the patentee to regain patent scope that had been given-up during the prosecution process.  Under Festo, a narrowing amendment during prosecution creates a rebuttable presumption of prosecution history estoppel (PHE) with the result of estopping the patentee from claiming equivalents (DOE) to recapture the narrowed scope.  Here, the appellate panel found that presumption had not been overcome and thus that the patentee was estopped from claiming equivalents.

Narrowing of Sub-Assembly = Narrowing of Whole Assembly: A problem with the defendant’s argument here (and what Judge Prost failed to explain) is the linkage between the narrowing amendment and the asserted equivalents.  In particular, the narrowing amendment added limitations to the definition of the seal sub-assembly but the claimed equivalent was focused on the nature of the whole accused assembly as being disassemblable rather than removable as claimed. The only clue offered by the court is one phrase indicating that the amendment “narrows the seal limitation, which in turn narrows the transfer member limitation.”

Hierarchy of Elements: The battle over a hierarchy of limitations is common in modern doctrine of equivalents. Typically, the battle plays out in terms of the all-elements rule that requires the accused infringer practice each element of the asserted claim either literally or by equivalent.  For patentees, this type of equivalents is typically easier to prove when each “element” is seen as a grouping of limitations – such as the “removable, replaceable transfer member” – and defendants typically look to further granularize the invention so that the “removable” limitation itself would be an element that must satisfy the function-way-result test.   In this case – involving prosecution history estoppel – the patentee would have been better off with the more granularized framework in order to logically separate the “removable” limitation from the narrowed seal limitations.  However, the appellate court glosses-over all of this analysis in its short decision with the unfortunate result of leaving district courts to do the same.

Patenting Software in the US as compared with Europe

Guest post by Shubha Ghosh and Erika Ellyne

This post compares and contrasts the United States approach to patentable subject after last term’s Alice v CLS decision, with that in the European Union. The bottom line is that the EU may be now more favorable to software claims than the US.

In its 2014 Alice decision, the US Supreme Court Court makes clear that a two step test applies to determination of when an invention is patentable subject matter. First, the reviewer of the patent, whether patent examiner or judge, must determine if the patent covers an excluded area from patenting, such as an abstract idea or law of nature. If the patent covers an excluded area, the reviewer moves on to the second stage: whether there is an inventive concept that is an application of the abstract idea or law of nature. This two part test is a capstone to the Court’s prior decisions in Bilski v. Kappos (2010)(business method patents) and Prometheus v. Mayo (2012)(medical diagnostic and treatment patents).

By contrast, software is more easily patentable in Europe despite the existence of an express provision on the excludability of software. Article 52 of the EPC famously recites a list of ‘non-inventions’ that are excluded ‘as such’. The reading of this last condition has lead to a de minimis application of the provision. ‘Technical character’ is synonymous with invention in the EPO Board of Appeals’ (BoA) case law; any demonstration and degree of ‘technical character’ passes the patent eligibility threshold. The role of the technical feature is irrelevant; to the point that the mere use of technical means, such as a computer, renders a patent claim eligible (even the inclusion of the term ‘email ‘has ‘transformed’ a previously ineligible claim into an eligible one).

The European approach has been to adopt a formalistic rather than substantive approach; making patent eligibility a derisively low threshold. The US, on the other hand, has actively rejected this type of formalistic approach; neither adding the words ‘apply it’ to excluded subject matter nor the recitation of a computer can render the ineligible eligible. In Europe, the patent eligibility standard has become a question of drafting, a practice abhorred by patent Courts on both side of the Atlantic. In the end the standard is of little to no effect, looking at the context of its application no mixed claims (which recite a non invention along with other man made subject matter- where most questions arise) are ever rejected.

A technical application test can potentially help overcome the gaps/superficiality left open by the technical character test. The US approach suffers from its own ambiguities; the first branch of the US test, the determination of what is an ‘abstract idea’/subject matter is vague and in need of clarification/objectification. The European notion of ‘technical’, which is used in opposition to abstract in European case law as well, despite its numerous short comings could serve as a road map to a more developed test for abstraction. That is a subject for another day.

There are those that would counter that this is a determination for inventive step, that there is confusion here between eligibility and obviousness. It is true that in Europe, much of what is caught out under the US eligibly standards is further culled in the inventive step stage. However, in the inventive step assessment, much of inventive step is not about obviousness at all, but identification of the ‘invention’: the technical solution. The ‘problem solution’ approach usually proceeds first by the identification of the invention, the technical solution, to then derive the problem thereof. In this identification of the ‘technical solution’ a very controversial point is what extent ‘non technical features’, i.e. subject matter found under 52.2, can contribute to the technical effect/solution. At this stage, there is in fact a re-formulation of the invention; the main point of the tasks is a question of defining the invention not of ‘obviousness’ per se. The non-obvious determination is actually more a methodology than a veritable measure of ‘obviousness’ as such.

Shubha Ghosh is the Vilas Research Fellow & George Young Bascom Professor of Business Law at the University of Wisconsin School of Law where he is also the Associate Director of the Initiatives for Studies in Transformational Entrepreneurship (INSITE). Erika Ellyne is a law graduate and doctoral candidate at the Vrije Universiteit Brussel (Free University Brussels)

Patent Invalid for Unduly Preempting the Field of “Automatic Lip Synchronization For Computer-Generated 3D Animation Using a Rules-Based Morph Target Approach”

by Dennis Crouch

McRO (Planet Blue) v. Activision Blizzard, et al. (C.D. Cal. 2014) Decision PDF

In his second major Section 101 decision in as many weeks, Judge Wu (C.D. Cal) has relied upon Alice Corp. (2014) to invalidate all of McRO’s asserted patent claims.  The case is quite important because it is one of the first major applications of Alice Corp. to invalidate non-business-method claims.  Here, the invention is directed toward a specific technological problem that had troubled the field of animation – automatically animating lip synchronization and facial expression of animated characters. See U.S. Patent Nos. 6,307,576 (“‘576 Patent”) and 6,611,278 (“‘278 Patent”).  The appeal will be interesting and may serve as one of the Federal Circuit’s first opportunities to draw a new line in the sand.

The problem addressed by the invention is that it has been historically quite difficult to match-up animation audio and video — so that the character’s mouth and face are moving to match the sound overlay.  Historically, this has been very expensive and time consuming to do well. What you might call the ‘gist’ of the invention is simply a data transformation — from an audio signal to a visual animation output.  The details are a bit more technical. According to claim 1 of the ‘278 patent, the invention operates by first creating a set of phoneme sequences keyed to a pre-recorded audio sequence. Then, those phenome sequences are used to create a set of morph-weight-set streams (based upon a set of factors provided by the animators).  Those morph-streams are then used as input sequences for the animated characters to provide both timing and movement of facial expressions, including emotion.   The inventions claim priority back to 1997.

1. A method for automatically animating lip synchronization and facial expression of three-dimensional characters comprising:

obtaining a first set of rules that defines a morph weight set stream as a function of phoneme sequence and times associated with said phoneme sequence;

obtaining a plurality of sub-sequences of timed phonemes corresponding to a desired audio sequence for said three-dimensional characters;

generating an output morph weight set stream by applying said first set of rules to each sub-sequence of said plurality of sub-sequences of timed phonemes; and

applying said output morph weight set stream to an input sequence of animated characters to generate an output sequence of animated characters with lip and facial expression synchronized to said audio sequence.

In writing about this patent claim, Judge Wu noted that – in isolation – it appears tangible and specific rather than abstract.

They are tangible, each covering an approach to automated three-dimensional computer animation, which is a specific technological process. They do not claim a monopoly, as Defendants argue, on “the idea that the human mouth looks a certain way while speaking particular sounds,” “applied to the field of animation.” Further, the patents do not cover the prior art methods of computer assisted, but non-automated, lip synchronization for three-dimensional computer animation.

Further, the defendants raised a defense of non-infringement – explaining that their particular method of automated lip synchronization is not even covered by the patents. Thus, Judge Wu writes: “At first blush, it is therefore difficult to see how the claims might implicate the ‘basic underlying concern that these patents tie up too much future use of’ any abstract idea they apply.”

However, Judge Wu recognized that the Supreme Court’s analysis of Alice Corp was not done in a vacuum but rather made reference to what was already known in the the art and asked whether the claimed invention extended that knowledge with an inventive concept that goes beyond a mere abstract idea.  In Judge Wu’s words the Section 101 eligibility of “the claims must be evaluated in the context of the prior art.”

Judge Wu’s approach was to identify the point-of-novelty for the claimed invention and then consider whether that point-of-novelty was itself an abstract idea.  That approach was made easy because the patents admitted that many elements of the invention were already part of thee prior art.  However, the patents claimed the new elements as the use of rules that define morph sets as a function of the phonemes which the court sees an an abstract idea that cannot be patented because it would allow the patentee to “preempt the field of automatic lip synchronization for computer-generated 3D animation … using a rules-based morph target approach.” Thus, the claims are invalid.

Judge Wu does show some sympathy to the patentee here — indicating that it appears to be a nice and important invention – just one that is not patent eligible.

But a § 101 defect does not mean that the invention was in the prior art. The invention here may have been novel, but the claims are directed to an abstract idea. And the patent’s casual – and honest – description of the prior art was made at a time when, under the then-prevalent interpretation of the law, such admissions were unlikely to be harmful. One
unintended consequence of Alice, and perhaps of this and other decisions to come, is an incentive for patent applicants to say as little as possible about the prior art in their applications.

Although he does not cite the Supreme Court’s 1946 decision in Halliburton v. Walker, Judge Wu does offer closing remarks that hearken back to the principle that patent claims must be specific at the point-of-novelty.  He writes: “This case illustrates the danger that exists when the novel portions of an invention are claimed too broadly.”

There are many interesting aspects to the decision, but I wanted to post these initial thoughts before moving forward.

Law Schools and Clinical IP Hiring

By Jason Rantanen

Last month, the American Bar Association’s governing body approved a requirement that all law students at ABA-accredited law schools take a minimum of six credit hours of clinical or other “experiential” coursework during law school.  Since most law schools in the United States are accredited by the ABA, this new skills requirement will have a broad reach.

At the same time, several law schools have begun to ramp up their clinical intellectual property programs.  And despite the general downturn in faculty hiring over the past few years, there is substantial activity in this particular area.  Here are some of the current openings for clinical IP faculty:

Clinical Professor, Center for Intellectual Property Research, Indiana University – Bloomington Maurer School of Law.  From the posting: “Indiana University Maurer School of Law (Bloomington) invites applications for a full-time faculty position in the school’s new intellectual property law clinic, a part of the Center for Intellectual Property Research.”

Clinical Professor and Director, Indie Film Clinic, Benjamin N. Cardozo School of Law of Yeshiva University.  From Prof. Burstein: “Cardozo seeks a director for its Indie Film Clinic, which provides pro bono legal and business services — drafting and negotiating formation, acquisition, chain of title, and sales agreements and offering advice on licensing and fair use — for emerging and independent filmmakers in New York City.  The clinic director will design and oversee all aspects of the clinic’s teaching and client-service missions, including working with partner organizations, supervising students in all aspects of business representation, and preparing and teaching a seminar component of the clinic.”  More details available here: Indie Film job description

Transactional clinician, Boston College Law School.  Boston College is searching for a transactional clinician, with IP within the search area.  More details here: BC Clinical opening

Clinical Professor, Intellectual Property and Transactional Law Clinic, University of Richmond School of Law.  From Prof. Cotropia: “The University of Richmond School of Law seeks a full-time clinical faculty member to develop, run, and teach our Intellectual Property and Transactional Law clinic, which provides non-litigation legal services to small businesses, entrepreneurs, non-profits, authors, and artists.  The focus of the clinic is business formation, business transactions, and intellectual property issues, but the Clinical Professor will play a major role in determining the clinic’s specific emphasis and operation. ”  Details here:

Director, Intellectual Property and Technology Law Clinic, University of Southern California Gould School of Law.  From the posting: “Applicants will be considered for continuous appointment to the Law School’s clinical professor track.  The Director will be responsible for all aspects of running the IPTL Clinic, including: course planning and teaching; curriculum development; individual case and project work; client selection; intensive supervision and mentoring of law students in representing clients; and clinic administration. Clinical faculty members also typically teach one non-clinical course per year in addition to the clinic.”  To learn more, visit the IPTL Clinic and read the job posting.

YODA: You Own Devices Act

A magical aspect of intellectual property is in the way that rights can pervade a system without the need for the rights-holder to physically engage with the supply chain. Someone may have personal property rights in their chattel, but IP rights control aspects of how that chattel can be used or transformed.  For example, although I own my computer, there are certain ways I might use my computer that would infringe patents or copyrights held by others. In this framework, IP rights can be thought of as a form of regulation – albeit with increased private involvement.

Ordinarily, when someone purchase goods, the purchase comes with all rights to use that good. However, the sale of goods with underlying IP rights certainly does not pass all rights in the IP.  The exhaustion (first-sale) doctrines of copyright and patent laws provide some linkage by giving the purchaser of goods certain use-rights to the underlying intellectual property. However in the computer-related fields required end-user-license-agreements (EULAs) have now become the industry standard for limiting ownership rights — especially for digitally delivered media. Rather than “owning” the media, in many cases these contracts purport to only give users a limited and personal license.  The common law tradition is to strike-down substantial use restrictions as effectively being unreasonable restraints on the market. However, it seems that the underlying IP rights have served as a basis for courts to favor “freedom of contract” over the traditional unreasonable-restraint-of-trade doctrines.

Representative Blake Farenthold (R-TX) has proposed a partial fix in his bill known as YODA: the You Own Device Act.  The key provision focuses on copyright law and would add the following to Section 109 of the Copyright Act:

(1) IN GENERAL.—Notwithstanding section
106 or section 117, if a computer program enables any part of a machine or other product to operate, the owner of the machine or other product is entitled to transfer an authorized copy of the computer program, or the right to obtain such copy, when the owner sells, leases, or otherwise transfers the machine or other product to another person. The right to transfer provided under this subsection may not be waived by any agreement.

The EFF has praised the bill, but has also called for particular digital-first-sale rights and rights to access and modify software stored on your devices, and

Facebook’s Privacy Patent

What do you think of Facebook’s new patent in terms of Section 101? The patent (No. 8,844,058) issued on September 24, 2014 covers a social-networking data privacy method that basically allows users to specify what data a third-party App can share with others and that information is conveyed to the App. Claim 1:

A method comprising:

maintaining privacy settings for a first user of a social networking system, the privacy settings comprising a setting specifying which data about the first user a third party application may share with other users in the social networking system, the third party application maintained by an entity distinct from the social networking system;

receiving from the third party application, in response to use of the third party application by a second user, a request for information about the first user;

determining by a processor whether the setting specifying which data about the first user the third party application may share with other users in the social networking system allows the second user access to the requested information; and

communicating, to the third party application, which data about the first user the third party application may share with other users in the social networking system.

The patent includes two additional independent claims that are parallel, but claim the associated computer system and software (stored on a memory).  The software was claimed as a “non-transitory computer readable medium storing one or more programs” in order to avoid a prior iteration of Section 101.

It seems to me that this case will be on the 101 chopping block.

Software Business Method Patent Fails Again

Open Text v. Alfresco Software, 13-CV-04843-JD, 2014 WL 4684429 (N.D. Cal. Sept. 19, 2014) Open Text SA v Alfresco Software Ltd

Citing Alice Corp. as the deciding factor, Judge Donato has invalidated a set of challenged claims in U.S. Patent Nos. 7,647,372 and 7,975,007 owned by Open Text. Here, Open Text has only asserted claim 38 of the ‘372 patent and claim 22 of the ‘007 patent — both claims are now adjudged invalid.  As you’ll see below, the claims are so poorly and ambiguously drafted as to make an invalidity determination likely on other grounds as well.

[T]he Court finds that the challenged claims are directed to a very simple abstract marketing idea that uses generic computer and Internet technology, and contain no additional inventive concept.

The two companies in the lawsuit compete in a growing market for enterprise-wide information management (EIM).  Claim 38 at issue is directed toward the software in the form of a “computer readable storage medium” containing a set of instructions.  Basically, we have a claimed computer program that creates a group of “participants” based upon whether someone interacted with a web site, then it designates a subset of participants and executes an “instruction” associated with an “action” performed “in conjunction” with each member of the subset. Seriously? The claim reads as follows (with its independent claim).

37. A computer readable storage medium for facilitating a network based dialogue, comprising instructions translatable for:

assembling a set of first corresponding participants, wherein assembling the first set of corresponding participants comprises executing a first instruction of a first program in conjunction with each of the first corresponding participants, wherein the first instruction is operable to determine the occurrence of a first specified event in conjunction with each of the first corresponding participants;

assembling a set of second corresponding participants, wherein each of the set of second corresponding participants is in the set of first corresponding participants; and

executing a second instruction in conjunction with each of the second set of corresponding participants, wherein the second instruction is associated with a first action to be performed in conjunction with each of the set of second corresponding participants.

38. The computer readable storage medium of claim 37, wherein the first specified event is an interaction with a web site.

Following Alice Corp., the district court first identified the abstract idea embodied by the claim.

[The claims] recite a very simple computer-driven method to engage in the commonplace and time-honored practice of interacting with customers to promote marketing and sales.” Claim 38 … claims a storage medium containing software that identifies whether each participant in a set of participants has interacted with a website, assembles a set of second participants that are a subset of the first group, and performs an second action with that subset. This describes the most basic and widely-understood principle of marketing: identify potential or current customers and engage with them to improve their customer experience. On its face, asking a customer about his or her experience and replying “Thank You” to those who respond positively and, “I’m sorry, what can we do better?” to those who respond negatively is an unpatentable abstract idea.

With that unpatentable abstract idea in mind, the court then considered (and rejected) the notion that the claim provides an “inventive concept” or “something more” that would positively transform its eligibility.

The additional steps must be more than “well-understood, routine, conventional activity” or just computerizing the abstract idea. . . .

The asserted claims … fail to transform the abstract idea into a patent-eligible invention. The asserted claims in both patents implement the basic marketing scheme on a generic computer system without any meaningful limitations. Open Text’s counsel conceded at the hearing that the patents could be implemented on a generic computer. Open Text argues that the asserted claims “contain limitations tying them to specific ways of using computers.” But as the Court in Alice Corp. and the Federal Circuit have concluded, “[a]t best, that narrowing is an attempt to limit the use of the abstract … idea to a particular technological environment, which has long been held insufficient to save a claim in this context.” buySAFE. For example, although claim 37 of the ‘372 patent—from which claim 38 depends ––––recites a “computer readable storage medium,” this adds nothing of substance to the basic, patent-ineligible marketing scheme. … Nor does claim 38’s requirement that participants be identified based on their interaction with a website compel a different result: simply identifying a criterion for selecting participants is a prime example of attempting to save a claim by limiting it to a particular technological environment.


Here, the court purposefully characterized the invention in the business method context with the unpatentable abstract idea being a longstanding principle of marketing.  What remains to be seen is how courts will react to software patents whose abstraction are not focused on old business ideas.


Does Obviousness Type Double Patenting Survive the AIA?

by Dennis Crouch

In Abbvie Inc. v. Kennedy Institute, the Federal Circuit confirmed that the judicially created doctrine of obviousness-type double patenting (OTDP) continues to be a viable defense following the Uruguay Round Agreements Act (URAA) even though the change to a priority-date-based patent term greatly reduced the potential for abuse. Looking forward, the decision begs the question as to whether the OTDB doctrine has been eliminated as to patents examined under new the America Invents Act of 2011 (AIA). For the first time the rewritten patent statute particularly defines what evidence counts as prior art — now leaving little room for the judiciary to create further categories.  

Obviousness-type double patenting (OTDB) has long been an element of patent law that operates to prevent a patent applicant from chaining-together a time-series of multiple patents in order to extend the exclusive rights beyond the expected 20-year term.  Historically, the potential term expansion was made possible by filing a second or subsequent patent application (often a continuation application) that issues several years after the original patent.  Because the patent term was 17-years from the issue date, later-issued patents would have additional patent term beyond the expiry date of the first-issued patent. The OTDP doctrine operates to block this outcome of extended patent term whenever the invention claimed in the extended-term-patent would be obvious (not patentably distinct) in light of the invention claimed in the first-expiring patent.  In that situation, the extended-term patent is held invalid or unenforceable unless the patentee had submitted a “terminal disclaimer” that disclaims the potential extra term and also links the two patents together as if they were one big patent. Writing on this topic in a 1963 CCPA decision, Judge Rich noted:

The public should also be able to act on the assumption that upon expiration of the patent [the public] will be free to use not only the invention claimed in the patent but also any modifications or variants thereof which would have been obvious to those of ordinary skill in the art at the time the invention was made, taking into account the skill of the art and prior art other than the invention claimed in the issued patent.

See MPEP 804.

Declining Policy Concerns: Much of the need for the OTDB doctrine evaporated with the 1995 patent term transformation enacted with the URAA. Under the new law, US patent term is now calculated from the application priority date rather than the issue date with the result being that the a divided application no longer necessarily extends the patent term.

Of course, there are some caveats to the notion that OTDB is now an unnecessary relic: First, the term of a patent may be adjusted or extended due to a variety of factors with the result that family member applications may have differing expiry dates. The second source of potential term-separation comes from the statutory definitions of prior art that excludes certain prior applicant disclosures from the scope of prior art. These prior-art exclusions include certain pre-filing disclosures by the applicant as well as prior applications on file with the PTO that are not yet published as of the application latter filing date. The first situation (PTA) was a focus of Gilead Sciences v. Natco Pharma (Fed. Cir. 2014) and the second situation was the focus of AbbVie.

In AbbVie, the patentee held two separate patents both covering aspects of a rheumatoid arthritis treatment. Although both patents were part of the same patent family, only one claimed priority to a certain earlier application. It turns out that the early priority date was not needed because no intervening prior art had been identified. Under the 20-year term rules, the two patents were scheduled to have two different expiry dates.  In the appeal, however, the Federal Circuit affirmed that the second patent was invalid for obviousness type double patenting because it was not patentably distinct from the claims of the first patent.

An interesting aspect of the decision involves the court’s attempt to ground the doctrine in statute rather than the judicial creation heritage that Judge Rich had accepted and recognized.  Judge Dyk writes:

While often described as a court-created doctrine, obviousness-type double patenting is grounded in the text of the Patent Act. . . .  § 101 forbids an individual from obtaining more than one patent on the same invention, i.e., double patenting. As this court has explained, “a rejection based upon double patenting of the
obviousness type” is “grounded in public policy (a policy reflected in the patent statute).”

Although the policy notion may be grounded in Section 101, the court explains that the practical application of the doctrine “looks to the law of obviousness generally” and is “analogous to an obviousness analysis under 35 U.S.C. § 103.”  (quoting Amgen).

While unimportant for the AbbVie decision, the particular grounding of the doctrine may be important going forward because the law of obviousness has been rewritten as part of the America Invents Act of 2011.

The AIA redefines prior art in a number of particular ways. Notably for this discussion, the law spells out the scope of prior art along with certain “exceptions.” These exceptions include disclosures originating from the inventors (Section 102(b)); as well as prior patent applications from the same patent-owned and that were still unpublished by the latter filing date (Section 102(b)(2)(c)). Section 102 has also been rewritten to expressly state that it is defining “prior art” — presumably the entire scope of potential prior art.  When the obviousness provision in Section 103 refers to “prior art” it is now clear that we are talking about prior art as defined in Section 102 with the exceptions as noted.

Although a seeming small change in the statute, these alterations repeatedly make clear that certain prior disclosures by an inventor/owner simply don’t count as prior art either for novelty or obviousness purposes. At the margins there continues to be potential for applicants to “play games” with the filing system in order to extend their effective patent term. However, that potential is so reduced from ages past and the statute now defines prior art at such an explicit level of detail that we leave little room for a judicially created doctrine that further eliminates patents.

Creating versus Eliminating Prior Art: At this point, it would be rather odd for the court to create additional forms of prior art that extend beyond the statute.  What is unclear is whether the courts will be willing to apply the rewritten statute in a way that eliminates old forms of prior art that are no longer part of the statute.  Like OTDP ‘prior art,’ the court will be faced with a similar situation involving prior secret sales or non-public commercial uses by the patentee that previously served as prior art but that do not seem to fit within the re-written definition of Section 102.

One problem with the doctrine is that it is slowly developing. The first challenges may come from a patent applicant who refuses to file a terminal disclaimer in order to get its patent allowed.

= = = = =

I should say that Congress potentially recognizes that double patenting doctrine is potentially problematic and Rep. Goodlatte has proposed an amendment that would codify double patenting.

What would you ask a District Judge?

By Jason Rantanen

On Friday, October 3, I will be moderating a panel of three district court judges at the Iowa Intellectual Property Law Association annual conference.  This gives me a great opportunity to seek the collective wisdom of the new, higher quality commenting section!  So if there’s a question that you’re dying to pose to a typical district court judge about intellectual property law, or even practice before the court generally, I’d love to hear it.

Other speakers at the conference include: Tom Irving of Finnegan on Section 101 and 112 issues, Chris McKee of Banner and Witcoff on inter partes review, Alan Datri of the Office of the Deputy Director General at WIPO on the International Design System, Jim Voegeli, Assistant Chief Intellectual Property Counsel at 3M on trademark policing programs, and John White of PLI and Berepato & White on post-AIA Sections 102 and 103 at the PTAB.

More information available here:

The enfant terrible?

The Green Bag at first appears as an oxymoron – known as an “entertaining journal of law.”  The published articles often rely heavily on satire to make their points. Hastings Professor Robin Feldman has a new article coming out in the Green Bag titled “Coming of Age for the Federal Circuit.” Her article though is quite serious and which begins as follows:

This has been a watershed year for the Federal Circuit. The Chief Judge, who had gained a reputation for commenting publicly about pending legislation and cases, resigned after a scandal involving the appearance of favoritism towards a lawyer who appears before the court. The Circuit fared no better in the more traditional measure of approval from the court above. The Supreme Court granted certiorari in six patent cases arising out of the Federal Circuit this term—the largest number the Justices have accepted since the Circuit’s creation in 1982. Moreover, in case after case this year, the Justices soundly and unanimously rejected the Federal Circuit’s logic. . ..

Characterizing these struggles as a debate about rules and standards misses the heart of the conversation that is occurring. Rather, a strong message echoes through the six Supreme Court decisions. It is a message about restraint, about carefully constructed logic, and about coming into the fold of judicial decision-making. This is not to suggest that the Supreme Court itself is always successful in following these aspirational goals. Nevertheless, the message is clear. This is a coming of age for the Federal Circuit–or at least the Supreme Court seems determined to coax, cajole and, when necessary, club the Federal Circuit into coming of age.

This article examines the messages evident in recent Supreme Court decisions and evaluates whether the Court appears to be gaining ground. Although some indications are positive, others suggest that the Federal Circuit may not be entirely ready to relinquish its role as the judiciary’s enfant terrible.

Read it here.

In Memoriam: Donald Quigg

Longtime patent leader Donald Quigg has passed away.  His patent experience dates back to the 1940s and he spent years as the Chief Patent counsel for Phillips Petroleum in Bartlesville before joining the US Patent Office as Deputy Commissioner and later was the head of the Patent Office from 1985-1990.  His law degree was from the University of Missouri in Kansas City, which earned in 1940.

Federal Circuit Defies Supreme Court in Laches Holding

by Dennis Crouch

SCA Hygiene v. First Quality (Fed. Cir. 2014)

Rather than focusing on a single event, allegations of patent infringement generally involve a series of actions that each constitute an infringement.  Courts identify each act (making, using, selling, …) as a separate and actionable infringement of the patent.  This notion of repeated acts of infringement (the “separate-accrual rule”) is only occasionally important, but comes up most often in the context of the impact of delays in pursuing court action with the effect of making delays look less egregious.

The Patent Act includes a six-year limitation on collecting back-damages. 35 U.S.C. 286. The old equitable doctrine of laches has also traditionally been available to cut-off damages when the patentee unreasonably and inexcusably delayed in bringing suit.  Under the Federal Circuit’s 1992 en banc Aukerman decision, courts generally apply the same six-year timeline for laches – finding that a six-year delay in filing suit creates a presumption of unreasonable delay that, when coupled with detrimental reliance leads to a laches finding.  Although it only creates a presumption of unreasonableness, in my experience, this six-year delay makes laches much much more likely to be found. Laches then has the ordinary result of cutting-off all pre-suit damages. However, based on the aformentioned theory of individualized acts of infringement, a remedy remains available for infringement that occurs after the lawsuit is filed as well as the potential for further equitable relief to stop future infringement.

Laches is based on a tradition of equity and has no direct tie-in to the patent statute itself. Likewise, Laches is not found in the list of defenses under Section 282 nor identified as an aspect of the statutory limitation on damages. Of course, that is the tradition of equity — existing for times when the law fails.

Putting this entire area somewhat astir is the Supreme Court’s 2014 copyright laches decision in Petrella v. Metro-Goldwyn-Mayer, 134 S.Ct. 1962 (2014).  In similar manner to patent law, the copyright statute has a three-year statute of limitations on filing suit.  In the case, the (alleged) copyright holder had delayed for 18-years in filing suit.  The statute-of-limitations cut-off all but the last three years of recovery and the lower court found that laches blocked recovery for those remaining three years.  However, in Petrella the Supreme Court revived the copyright claim and held instead that laches should not apply because Congress has taken fully spoken on the issue with its statute.

Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window. . . .  [L]aches is a defense developed by courts of equity; its principal application was, and remains, to claims of an equitable cast for which the Legislature has provided no fixed time limitation. See 1 D. Dobbs, Law of Remedies 104 (1993) (“laches . . . may have originated in equity because no statute of limitations applied, . . . suggest[ing] that laches should be limited to cases in which no statute of limitations applies”). Both before and after the merger of law and equity in 1938, this Court has cautioned against invoking laches to bar legal relief. See Holmberg v. Armbrecht, 327 U. S. 392 (1946) (in actions at law, “[i]f Congress explicitly puts a limit upon the time for enforcing a right which it created, there is an end of the matter,” but “[t]raditionally . . . , statutes of limitation are not controlling measures of equitable relief “); Merck & Co. v.Reynolds, 559 U. S. 633 (2010) (quoting, for its current relevance, statement in United States v. Mack, 295 U. S. 480 (1935), that “[l]aches within the term of the statute of limitations is no defense [to an action] at law”); County of Oneida v. Oneida Indian Nation of N. Y., 470 U. S. 226, n. 16 (1985) (“[A]pplication of the equitable defense of laches in an action at law would be novel indeed.”).

An important element of the holding is the ongoing separation of legal and equitable remedies — with the notion that laches may still be obtained to block equitable remedies, but not to bar a traditional legal remedy such as past-damages.

In Petrella, the Supreme Court limited its particularly holding to copyright law and noted that “[w]e have not had occasion to review the Federal Circuit’s position” on laches in patent cases. Of course, the parallels between copyright and patent are strong in this situation and so we would expect the Federal Circuit to seriously consider whether Petrella should be applied to overrule Aukerman.

SCA v. First Quality: In 2003, SCA sent a C&D letter to First Quality in 2003 regarding patented adult diapers. However, in 2004, SCA filed for ex parte reexamination that was completed in 2007 with a confirmation of patentability. Finally, in 2010, SCA filed the lawsuit against First Quality.  By that time (beginning in 2006) First Quality had greatly expanded its use of the underlying concepts of the invention (it doesn’t leak).  Rather than deciding the lawsuit, the district court dismissed the case based upon the delay finding both laches and equitable estoppel.

On appeal, the Federal Circuit has affirmed – most notably holding that the Petrella decision has no impact on the adjudication of laches in patent cases.  However, rather than addressing the clear and obvious tension, the court simply wrote:

Petrella notably left Aukerman intact. See id. at
1974 n.15 (“We have not had occasion to review the Federal Circuit’s position.”). Because Aukerman may only be overruled by the Supreme Court or an en banc panel of this court, Aukerman remains controlling precedent.

While clinging to the Aukerman approach, affirmance was easy because the six-year delay creates a strong presumption of unreasonable delay.  However, the court did reverse the summary judgment of equitable estoppel because there was no evidence of the required affirmative act such as a misleading communication leading to detrimental reliance on the notion that the defendant’s infringement would be permissible.

The decision here is notable for its glaring reticence. The panel of Judges Reyna, Wallach, and Hughes are all relatively new and perhaps expect en banc review of this issue.  Many (perhaps most) other judges on the court would have made their mark rather than simply passing.

Although I believe, on balance, that Petrella controls here, the case is not open-and-shut because there are important distinctions as you move from copyright to patent. Notably, the copyright statute of limitations is a more direct and total limit on filing suit while in patent law the statute only limits the collection of too-far-back damages. Thus, in this situation, Congress seems to have spoken more fully in the copyright realm. Additionally, the three versus six year limit appears important because, in the time-scale of lawsuits and three years is a relatively short time while six-years begins to allow for much more unreasonableness and detrimental reliance.  That time differential is further compounded by the fact that three years is quite a small bit of the copyright term (5%) while six-years is often more than 1/3 of the patent term — suggesting that a patentee’s should move more quickly.

If anything, this issue will be interesting to watch.

Bits and Bytes from Dennis Crouch

Recent Job Postings:

Design Patents §103 – Obvious to Whom and As Compared to What?

Guest Post by Paul Morgan

This is an increasing important and not fully resolved legal issue which should logically be addressed in the pending Fed. Cir. appeal of the nearly $1 billion infringement damages award in Apple v. Samsung, re the Apple design patents held infringed.   That award seems to have inspired increased design patent assertions and design application filings.  In that case Judge Koh had even called the application of the Supreme Courts controlling KSR decision on §103 an “open question” as to design patents!  Apple, Inc. v. Samsung Electronics Co., Ltd., Case No.: II-CV-01846-LHK, Slip Op. at 19 (N.D. Cal. Dec. 2, 2011).   These issues could also arise soon in PTO IPR PTAB decision appeals to the Fed. Cir.  The PTAB has already issued a final written decision in the first IPR against a design patent. Munchkin, Inc. and Toys “R” US, Inc. v. Luv N’ Care, Ltd, IPR 2013-00072 (Paper No. 28) (April 21, 2014).

In contrast to utility patent litigation, in design patent litigation summary judgments for non-infringement are relatively rare, while summary judgments for §103 obviousness are more common.  This is so even though they have the very same §103. Yet the Supreme Court’s controlling §103 guidelines in KSR Int’l Co. v. Teleflex Inc, 550 U. S. 398 (2007) have been strangely totally ignored or not applied in many subsequent design cases.  Instead, unique old Fed. Cir. case law is still being applied in making §103 design prior art comparisons and combinations, as discussed below.  Perhaps this reportedly high rate of design patent §103 summary judgments logically correlates with the prior study and report on this blog at: showing that design patent applications are issued with only rare §103 rejections by PTO design patent application examiners?  That is, prior art is rarely being applied at the examination stage.  Again, this is opposite from PTO utility patent application examination, even though under the very same §103 standard.  A recent example of a Fed. Cir. sustained §103 summary judgment of two design patents in suit isMRC Innovations v. Hunter Mfg. (Fed. Cir. 2014).

Is another reason for relatively less non-infringement than §103 summary judgments in design patent cases due in part to the usual absence of any verbal claim distinctions, plus the Egyptian Goddess “ordinary observer” test?   The “ordinary observer” test for designpatent infringement must also be contrasted with the traditional judicial view of design patent “claims scope” as narrow – see, e.g., cases cited in the article “Functionality and Design Patent Validity and Infringement”, 91 Journal of the Patent and Trademark Office Society (JPTOS) 313, May, 2009, by Perry J. Saidman of the DesignLaw Group.  But is the scope of design patents now being treated consistently with the black-letter case law that claims in litigation must have the same scope for infringement and validity?  Is there a problem with lack of legal guidance of how prior art is to be treated in defining a design patent’s claim scope for, or before, an “ordinary observer” infringement test?  [It has been argued that this was a jury instruction defect in the above Apple decision.]

In what seems like a remarkably begrudging semi-admission [which may be due to its particular panel members], the panel in Titan Tire Corp. v. Case New Holland, Inc. 566 F.3d 1372, (Fed. Cir. 2009) said that “it is not obvious that the Supreme Court necessarily intended to exclude design patents from the reach of KSR.”  However even this Fed. Cir. panel held that: “Our precedents teach that ‘the ultimate inquiry under section 103 is whether the claimed design would have been obvious to a designer of ordinary skill who designs articles of the type involved.’ Durling v. Spectrum Furniture Co., 101 F.3d 100, 103 (Fed. Cir. 1996) (citing In re Rosen, 673 F.2d 388, 390 (CCPA 1982)).”

Yet the patent statute at §171 is perfectly clear that design patents have the very same §103 as other patents.  §103 requires “..that the claimed invention as a whole would have been obvious .. to a person having ordinary skill in the art to which the claimed invention pertains” [emphasis supplied].  For design patents  that has to be a person having ordinary skill in the art of industrial product design, not the non-skill level of any lay person, such as a jury member.    [This §103 requirement should, of course, not be confused with a §102 novelty test.]

The prior en banc Federal Circuit “Egyptian Goddess” decision on design patent infringement, Egyptian Goddess, Inc. v. Swisa, Inc. 543 F.3d 665 (Fed. Cir. 2008), notes, just after referring to “the hypothetical ordinary observer who is conversant with the prior art” test fordesign patent infringement, that: “We emphasize that although the approach we adopt will frequently involve comparisons between the claimed design and the prior art, it is not a test for determining validity, but is designed solely as a test of infringement.”  Unfortunately this en  banc Egyptian Goddess decision did not clarify that statement further.

In High Point Design LLC v. Buyers Direct, Inc., (Fed. Cir. 2013) a Fed. Cir. panel had to face up to the District Court below having been mislead by one of the Court’s own prior design patent decisions, and had to re-clarify its §103 “obvious to whom” case law.  Key text in this High Point Design decision includes:

The use of an “ordinary observer” standard to assess the potential obviousness of a design patent runs contrary to the precedent of this court and our predecessor court, under which the obviousness of a design patent must, instead, be assessed from the viewpoint of an ordinary designer. See Apple, 678 F.3d at 1329 (“In addressing a claim of obviousness in a design patent, ‘the  ultimate inquiry . is whether the claimed design would have been obvious to a designer of ordinary skill who designs articles of the type involved.’”) (quoting Durling, 101 F.3d at 103); Titan Tire Corp. v. Case New Holland, Inc., 566 F.3d 1372, 1380–81 (Fed. Cir. 2009) (same); In re Borden, 90 F.3d 1570, 1574 (Fed. Cir. 1996) (“The central inquiry in analyzing an ornamental design for obviousness is whether the design would have been obvious to ‘a designer of ordinary skill who designs articles of the type involved.’”) ..

Although High Point Design cites prior Fed. Cir. decisions which note §103, its does not base the decision directly on this controlling statute, as it could and should have!   Instead, this High Point Design footnote 2 below unsuccessfully attempts to explain-away a priorconflicting, erroneous “ordinary observer” invalidity test decision, but ends up by noting that it cannot, in any event, overrule even earlier Fed. Cir. decisions:

2 We do not believe our decision in International Seaway Trading Corp. v. Walgreens Corp., 589 F.3d 1233, 1240 (Fed. Cir. 2009), cited by the district court, compelsa contrary conclusion. The International Seaway court may in fact have had the “designer of ordinary skill” standard in mind when it used the term “ordinary observer.” In any event, the court could not rewrite precedent setting forth the designer of ordinary skill standard. See Vas Cath, Inc. v. Mahurkar, 935 F.2d 1555, 1563 (Fed. Cir. 1991); Newell Cos., Inc. v. Kenney Mfg. Co., 864 F.3d 757, 765 (Fed. Cir. 1998).

This High Point Design decision should, finally, end part of the debate over the proper “obvious to whom” test for design patent obviousness.  [Prior §103 design patent decisions include In re Nalbandian, 661 F.2d 1214, 1215-16 (CCPA 1981) and In re Carter, 673 F.2d 1378 (CCPA 1982), both cited in MPEP Section 1504.03, and the above Walter E. Durling v. Spectrum Furniture Company, Inc., 101 F.3d 100, 103 (Fed. Cir. 1996).]

* * * *

However, High Point Design still leaves another important unresolved §103 issue for design patents, one serious enough that it may end up in another Supreme Court challenge if the Fed. Cir. does not address it.  I have labeled this the “as compared to what”? question.    Because High Point Design does not even mention KSR and instead continues to apply an additional and unique “obviousness” analysis requirement for design patents from old pre-KSR case law.  An additional requirement that is not in §103 and does not seem consistent with KSR or even some other §103 combination of references case law.   Specifically, High Point Design states:

When assessing the potential obviousness of a design patent, a finder of fact employs two distinct steps: first, “one must find a single reference, a something in existence, the design characteristics of which are basically the same as the claimed design”; second, “[o]nce this primary reference is found, other references may be used to modify it to create a design that has the same overall visual appearance as the claimed design.” Durling v. Spectrum Furniture Co., 101 F.3d 100, 103 (Fed. Cir. 1996) (internal quotations omitted); see also Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1329 (Fed. Cir. 2012). Under the first step, a court must both “(1) discern the correct visual impression created by the patented design as a whole; and (2) determine whether there is a single reference that creates ‘basically the same’ visual impression.” Durling, 101 F.3d at 103.”

Another way in which this above unique old special §103 test for design patents is sometimes expressed is a requirement to “first find a Rosen reference” (In re Leon Rosen, 673 F.2d 388, 391 (CCPA 1982)).  [That may be quite difficult in some cases.]  Note particularly the above High Point requirements for first finding a single reference that has “basically the same” design characteristics and visual impression, and only modifying it with other references to create “the same overall visual appearance.” Does that seem appropriate for a normal §103 analysis?  Does this old judicially created §103 analysis for design patents not significantly reduce §103-usable or combinable prior art?  How is that consistent with the controlling Sup. Ct. KSR §103 guidance for combining references, completely ignored in High Point Design?  Has anyone suggested any reason why KSR does not apply to design patent §103 analysis?

In this respect, here are some specific §103-KSR issues to consider.  Is not the designing of costly consumer products intended to be sold by the millions [like smart phones] an “art” in which the §103 “ordinary skill” level of product designers would be expected to be especially high?   Furthermore, do not professional product designers normally work on many different products and use product appearance design ideas from many different fields and products, far more than for utililty patents?  To express that another way, should not “non-analogous art” arguments against combining art for a 103 rejection be even less effective for design patents after KSR than for utility patents?

* * * * *

I have no stake in any of these interesting legal issues.  I simply think members and professional organizations of the patent bar as well as legal academics should be doing more pro bono thinking about them.  Hopefully the Federal Circuit will provide clearer guidance in future decisions.


Important Damages Opinion: VirnetX v. Cisco and Apple

By Jason Rantanen

VirnetX, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2014)  Virnetx v Cisco
Panel: Prost (author) and Chen

Plaintiffs VirnetX and Science Applications International Corporation obtained a successful verdict against Apple based on infringement by its Facetime and VPN On Demand products.  The two accused products are programs that run on Apple’s iOS platforms (e.g.: iPhones, iPads, iMacs, MacBooks, etc.).  FaceTime is a videoconferencing platform (similar to Skype) and VPN On Demand is a feature that allows iOS users to establish secure virtual private networks.  The patents involved were Nos. 6,502,135 and 7,490,151, which were asserted with respect to VPN On Demand, and 7,418,504 and 7,921,211, which were asserted against FaceTime.   The jury found the four patents were valid and infringed, awarding damages of $368,160,000.  Apple appealed.

On appeal, the Federal Circuit upheld the jury verdict of no invalidity and infringement as to most of the ‘135 and ‘151 claims (i.e.: the ones being asserted against VPN On Demand).  However, it reversed as to a doctrine-of-equivalents finding on one claim of the ‘151 and as to claim construction of a term in the ‘504 and ‘211 patents (i.e.: the ones being asserted against Facetime), thus resulting in a remand as to those claims.

The most important legal aspect of the court’s opinion, however, relates to damages.  At trial, VirnetX’s expert offered three reasonable royalty theories: one that began with the lowest sales price of each iOS device containing the accused feature and applying a 1% royalty to that base, and two that relied on the “Nash Bargaining Solution,” a mathematical theorem proved by Nobel Laureate John Nash.

“Smallest Salable Unit”: A key issue in calculating the infringement damages for complex technological products is whether it is appropriate to use the value of the entire device in the damages calculation.  Generally speaking it is not appropriate to do so: “when claims are drawn to an individual component of a multi-component product, it is the exception, not the rule, that damages may be based upon the value of the multi-component product.”  Slip Op. at 27.  Rather, “‘[a] patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts.'” Id., quoting Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1268 (Fed. Cir. 2013) (emphasis added by court).  This is due to the general requirement that damages must be actually attributable to the infringing features within a reasonable degree of precision.

However, there is a line of cases suggesting that royalties may be based off of the “smallest salable patent-practicing unit.”  It was this line of cases that the district court presumably drew upon when it issued the relevant jury instruction:

In determining a royalty base, you should not use the value of the entire apparatus or product unless either: (1) the patented feature creates the basis for the customers’ demand for the product, or the patented feature substantially creates the value of the other component parts of the product; or (2) the product in question constitutes the smallest saleable unit containing the patented feature.

On appeal, the Federal Circuit held that the “smallest salable unit” case law does not mean that “when the smallest salable unit is used as the royalty base, there is necessarily no further constraint on the selection of the base.”  Id. at 28.  Rather, “the smallest salable unit approach was intended to produce a royalty base much more closely tied to the claimed invention than the entire market value of the accused products.” Id. at 29.  Thus,

“Where the smallest salable unit is, in fact, a multi-component product containing several non-infringing features with no relation to the patented feature (as VirnetX claims it was here), the patentee must do more to estimate what portion of the value of that product is attributable to the patented technology. To hold otherwise would permit the entire market value exception to swallow the rule of apportionment.”

Id.  Since the VirnetX’s expert relied on the iOS devices as the “‘smallest salable units,’ without attempting to apportion the value attributable to the VPN On Demand and Facetime features,” the legal error was not harmless.  Put another way, VirnetX sought to have the jury use the sales price of an iPhone when calculating infringement of its patents that covered two specific components of that product, without demonstrating that those components drove customer demand for the phones.

Royalty Base * Royalty Rate Theory:  For similar reasons, the Federal Circuit reversed the district court’s ruling to allow the expert’s testimony that used the sales price of iOS devices as the royalty base.  The accused products included both hardware and software components; the expert “made no attempt to separate software from hardware, much less to separate the FaceTime software from other valuable software components.”  Slip Op. at 31.  This was particularly problematic, since in his Nash Bargaining Solution approaches, the expert did attempt to break out the patentable contributions to the devices.  More, “a patentee’s obligation to apportion damages only to the patented features does not end with the identification of the smallest salable unit if that unit still contains significant unpatented features.”  Id. at 32.  Thus, it did not matter that Apple did not sell FaceTime separately on many of its iOS products: 

There is no “necessity-based exception to the entire market value rule.” Id. at 70. On the contrary, a patentee must be reasonable (though may be approximate) when seeking to identify a patent-practicing unit, tangible or intangible, with a close relation to the patented feature.

Id.  Apple also challenged the expert’s 1% royalty rate, which relied on six allegedly comparable licenses and VirnetX’s “policy” of licensing its patents for 1-2%.  The Federal Circuit concluded that reliance on the six challenged licenses was permissible.

Nash Bargaining Solution Theories: In addition to its ruling on the “smallest salable unit” issue, the Federal Circuit also rejected the invocation of the Nash Bargaining Solution as a model for reasonable royalty damages.  As described by the court, this theorem states that “under the conditions stated in the premises, where two person bargain over a matter, there is a ‘solution’…in which ‘each bargainer get[s] the same money profit.”  (The Nash Bargaining Solution).  The Nash Bargaining Solution is invoked to support the argument that the parties would have split between themselves the incremental profit associated with the patent technology.

Here, VirnetX’s expert used the Nash Bargaining Solution to support royalty rate that allocated 45% of the profits from the Facetime feature to VirtnetX.  (For these calculations, the expert used a much lower valuation of the feature than in the first approach discussed above).

The Federal Circuit held that the Nash Bargaining Solution may not be invoked “without sufficiently establishing that the premises of the theorem actually apply to the facts of the case at hand.”  Id. at 38.  That was not done here; rather, the use of the Nash Solution was as much an inappropriate “rule of thumb” as the “25 percent rule of thumb” rejected in Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1320 (Fed. Cir. 2011):

The Nash theorem arrives at a result that follows from a certain set of premises. It itself asserts nothing about what situations in the real world fit those premises. Anyone seeking to invoke the theorem as applicable to a particular situation must establish that fit, because the 50/50 profit-split result is proven by the theorem only on those premises. [The expert] did not do so. This was an essential failing in invoking the Solution.

Slip Op. at 38-39.  Indeed, “even if an expert could identify all of the factors that would cause negotiating parties to deviate from the 50/50 baseline in a particular case, the use of this methodology would nevertheless run the significant risk of inappropriately skewing the jury’s verdict.”  Id.

Is VPN Software Patent Eligible?

VirnetX v. Cisco and Apple (Fed. Cir. 2014)

An E.D. Texas jury sided with the patentee VirnetX — finding that the four asserted patents are not-invalid and that Apple’s VPN-On-Demand and FaceTime products infringe.  The jury then awarded $350 million in damages.  On appeal, Apple presented a number of winning arguments that, in the end, result in only a partial victory because some of the claims remain valid and infringed.  After altering claim construction of the term “secure communication link”, the jury will re-determine whether FaceTime infringes and recalculate damages.

Before getting into the merits (in a separate post), we might pause to consider the subject matter eligibility of asserted claim 1 of Patent No. 7,418,504:

1. A system for providing a domain name service for establishing a secure communication link, the system comprising:
a domain name service system configured
to be connected to a communication network,
to store a plurality of domain names and corresponding network addresses,
to receive a query for a network address, and
to comprise an indication that the domain name service system supports establishing a secure communication link.

At a high level of abstraction, the invention is designed to implement private communication which, at that generalized level would likely be seen as an abstract idea.  The particular implementation steps included in the claim here are themselves written in broad functional language whose implementation were well known and conventional aspects of DNS systems as of the 1998 application date.  Now, the court does not sua sponte raise the 101 issue here and so we do not know the answer.

Amending 101?

Some have been considering a statutory overruling of Mayo and Alice Corp. What would this amendment do?:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title. Patent eligibility extends to the full extent permitted by the Constitution.