IP Update, Vol. 9, No. 3, March 2006
March 2006
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Patents / Antitrust - Patent on Tied Product Does Not Give Rise to Presumption of Market Power
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Patents / Inequitable Conduct - No Culpable Intent, No Inequitable Conduct
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Patents / Claim Construction - Orthotic Device Receives Rigid Treatment
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Copyright Infringement - Google Enjoined in Lawsuit Over Image Links
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Trademarks/Counterfeiting - Anti-Counterfeiting Bill Awaits Presidential Signature
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Patents / Rules Changes - USPTO to Bar: We Are Drowning in Continuations
Patent on Tied Product Does Not Give Rise to Presumption of Market Power
By Stefan M. Meisner and Craig P. Seebald
The U.S. Supreme Court unanimously ruled that companies challenging the sale of a patented product tied to another product must affirmatively show that the defendant has market power in the patented product. Illinois Tool Works Inc. v. Independent Ink Inc., 126 S. Ct. 1281 (Mar. 1, 2006) (Stevens, J.).
Trident, a wholly owned subsidiary of Illinois Tool Works, held a patent covering its ink-jet printing device. Trident required licensees of its patents who made, used or sold Trident's ink-jet printing devices to also purchase ink from Trident for the device’s print heads. Independent Ink wanted to sell its own refills for print heads and sued Trident under Sherman Act section 1, claiming that Trident had unlawfully tied its patented device to its unpatented ink. The U.S. Court of Appeals for the Federal Circuit reversed a district court decision, which had dismissed the case on summary judgment, and determined that Trident's patents created a rebuttable presumption that Trident’s patents alone constituted sufficient market power to coerce customers to purchase Trident’s unpatented ink.
As in prior tying arrangement cases involving patented products, the Federal Circuit relied upon Supreme Court precedent (International Salt Co.; Dawson Chemical Co.) to find that Trident’s patent automatically conferred market power. The Supreme Court granted certiorari to re-examine the judicial and legislative treatment of tying arrangements in light of scholarly and economic analysis of the competitive benefits of tying arrangements as well as a shift in enforcement agencies’ treatment of them. While precedent suggested that a patent presumptively conveyed market power, the antitrust enforcement agencies had issued guidelines stating that, in their respective prosecutorial discretion, they would “not presume that a patent, copyright, or trade secret necessarily confers market power upon its owner.”
The Supreme Court decision overturns the Federal Circuit's determination that a patent in the tying product creates a presumption of market power in tying cases. “Congress, the antitrust enforcement agencies and most economists have all reached the conclusion that a patent does not necessarily confer market power upon the patentee,” Justice John Paul Stevens wrote. “Today we reach the same conclusion.” In rendering its decision, the Supreme Court recognized the connection between antitrust jurisprudence and the patent misuse doctrine, an equitable defense to patent infringement that prevents a patent holder from asserting his patent rights when conditioning the purchase of unpatented goods to the sale of its patented goods effectively restrains competition. Relying in part upon Congress’ amendment of the Patent Code to eliminate the presumption of market power in the patent misuse context, the Supreme Court found that “Congress did not intend the mere existence of a patent to constitute the requisite ‘market power.’”
The Court’s decision requires a plaintiff challenging any tying arrangement, including those related to patented products, to prove the defendant has market power. The Court remanded the case to the district court to allow Independent Ink to develop facts and prove, if it can, that Trident has market power in the market for its print heads.
Practice Note
The decision is favorable for parties defending tying claims because claimants can no longer presume market power only on the basis that the tying product is patented. As a result, claimants challenging any tying arrangement must define a relevant market for both the tying and tied products and allege and prove market power in the tying product market, which will include all reasonable substitutes for the tying product. Defendants can defeat tying claims by showing the presence of alternative and competing technologies and products and proving the tying product lacks market power.
No Culpable Intent, No Inequitable Conduct
By Catherine Shiang
Reversing the district court’s finding of inequitable conduct at summary judgment, the U.S. Court of Appeals for the Federal Circuit held that “a failure to disclose a prior art device to the PTO, where the only evidence of intent is a lack of a good faith explanation for the nondisclosure, cannot constitute clear and convincing evidence sufficient to support a determination of culpable intent.” M. Eagles Tool Warehouse, Inc. v. Fisher Tooling Co., 2006 U.S. App. LEXIS 4993 (Fed. Cir. Feb. 27, 2006) (Lourie, J.).
The inventor passed away after the relevant patent application was filed. Thereafter, the U.S. Patent and Trademark Office (USPTO) examiner allowed the asserted claims, noting that the art of record failed to show all of the claimed elements.
The district court granted a summary judgment motion on inequitable conduct. The court found that the patentee's product, Model 220, was material prior art that had not been submitted to the USPTO. The district court inferred the intent to deceive the USPTO solely from the non-disclosure of Model 220. The court reasoned that because the examiner noted few claimed limitations in the prior art and that Model 220 possessed some of the claimed limitations, the patentee must have known of Model 220's relevance. However, the patentee did not disclose Model 220 to the USPTO even after receiving the examiner's statement and did not offer a good faith explanation for its omission. The plaintiff appealed.
The Federal Circuit reversed, reasoning that although the absence of a good faith explanation could constitute evidence to support a finding of culpable intent, the absence of a good faith explanation alone did not constitute clear and convincing evidence warranting an inference of culpable intent. The Court noted the inventor could not provide a good faith explanation because he had passed away.
Practice Note
In support of its holding that the absence of a good faith explanation alone does not constitute culpable intent, the Federal Circuit cited Bruno (see IP Update, Vol. 8, No. 1). In Bruno, the Federal Circuit upheld a finding of culpable intent because Bruno disclosed prior art to the U.S. Food and Drug Administration but not the USPTO and offered no good faith explanation for its non-disclosure.
Orthotic Device Receives Rigid Treatment
By Rachel N. Repka
Addressing the issues of claim construction, the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s grant of summary judgment of non-infringement to the defendants based on limitations to a claim element imposed by the tenets of the claim construction. Schoenhaus v. Genesco, Case No. 05-1278 (Fed. Cir. Mar. 15, 2006) (Michel, J.).
Drs. Schoenhaus and Jay sued Genesco Inc. and Johnston & Murphy, alleging patent infringement, misappropriation of trade secrets, conversion and unjust enrichment. Defendants Genesco and Johnston & Murphy moved for summary judgment with respect to the patent infringement claim. The patent-in-suit involved an orthotic device designed to prevent hyperpronation of the foot. The patent claims a deep rigid heel seat to cup the calcaneus. The district court granted the motion, finding no infringement based on its interpretation of the disputed claim language, and entered judgment in favor of the defendants.
The doctors argued the district court erred in interpreting the disputed terms “orthotic device” and “rigid,” insisting that the term “orthotic device” includes other parts of the actual shoe and not just the insert or immovable insert portion of the shoe. Citing Fin Control Sys v. OAM, the Federal Circuit initially noted that where the same terms appear in different portions of the claims, the terms are presumed to have the same meaning unless it is clear from the specification and file history that the terms were intended to have different meanings at different portions of the claims. On that basis, the Court rejected the plaintiff’s proposed interpretation and held that while their proposed construction may work for one claim, application of that construction to a subsequent claim would render the subsequent claim “nonsensical.”
The plaintiffs also argued the term “rigid” should be construed to include “semi-rigid” as supported by the patent’s specification. The Federal Circuit rejected the proposed interpretation and held that neither the patent specification nor the file history supported that construction. Citing Unique Concepts v. Brown, the Court noted that where a “patent specification includes a description lacking a feature, but the claim recites that feature, the language of the claim controls.” While the patent specification here includes the term “semi-rigid,” the claim simply recites that the orthotic device is “rigid.” By excluding the described semi-rigid embodiment in the specification, the Court concluded that the “plaintiffs surrendered coverage of orthotic devices with semi-rigid heal seats” to the public. Further, the Federal Circuit agreed with the district court’s conclusion that the patentees’ usage of the term “semi-rigid” in the patent specification was insufficient to “‘clearly set forth a different definition’ from the conventional usage of ‘rigid’ by ordinary practitioners in the field.” Moreover, the Court found no support in the file history of the patent to support the plaintiffs’ proposed definition of “rigid.”
Foreign Inventor’s Dispute Regarding a Patent License Agreement Is Dismissed on Jurisdiction
By Kori Anne Bagrowski
The U.S. Court of Appeals for the Federal Circuit affirmed the dismissal of a foreign inventor’s foreign law license on the grounds of lack of jurisdiction and forum non conveniens. Bonzel v. Pfizer, Inc., Case No. 05-1114 (Fed. Cir. Mar. 2, 2006) (Newman, P.).
The plaintiff, Dr. Bonzel, a German citizen residing in Germany, is the named inventor in various patents directed to catheters for use in conjunction with the insertion of stents (which keep coronary arteries open after they have been unblocked) and for use in coronary angioplasty. Dr. Bonzel negotiated a license agreement with Schneider AG, a subsidiary of Pfizer, Inc. The license agreement granted an exclusive worldwide license to Dr. Bonzel’s patent. The agreement was written in German and was to be construed according to German law. The section of the license agreement at issue required notification to Dr. Bonzel of any infringements that Pfizer discovered and also required a portion of the recovery in an infringement action to be paid to Dr. Bonzel. Dr. Bonzel contended the sale of the Schneider companies to Boston Scientific Corp. was part of an infringement settlement, and under the license agreement, he was entitled to a portion of the proceeds from the sale.
Dr. Bonzel originally filed suit in Minnesota state court. The case moved to the federal district court but later remanded based on Dr. Bonzel’s argument that he was merely seeking contract enforcement and remedy for its breach. The state court dismissed the action for forum non conveniens with leave for Dr. Bonzel to refile in Germany. The state court also provided that the forum would be available if Dr. Bonzel could not obtain jurisdiction in Germany. The Minnesota Court of Appeals affirmed the decision.
Seemingly undaunted by the adverse venue determination, Dr. Bonzel tried again to have this action tried by a U.S. court. Dr. Bonzel filed a new action in the District Court of Minnesota alleging issues of patent infringement with the breach of contract claim. The district court also dismissed the case for forum non conveniens for essentially the same reasons as the Minnesota state court. Dr. Bonzel appealed.
The Federal Circuit affirmed, concluding that the district court acted within its discretion. Specifically, the Federal Circuit affirmed that the relevant portions of the complaint were based in contract, not patent law, despite Dr. Bonzel’s references to patent infringement in the second filed case. The Federal Circuit noted that contract obligations do not “arise under” patent law merely because the contract is a patent license agreement. The Federal Circuit agreed with both the Minnesota state court and the district court and found that a contract negotiated and created in Germany and interpreted under German law is best litigated in German courts.
Disclosure of a Product Precludes Future Product-by-Process Claim to Same Product
By Astrid R. Spain
The U.S. Court of Appeals for the Federal Circuit held that GlaxoSmithKline’s product-by-process patent was anticipated by its own product patent. The Court clarified that once a product is fully disclosed in the art, future claims to that same product are precluded even if that product is claimed as made by a new process. SmithKline Beecham Corp v. Apotex Corp., Case No. 04-1522 (Fed. Cir. Feb. 24, 2006) (Dyk, J.) (Newman, J.; dissenting).
SmithKline is the owner of U.S. Patent No. 4,721,723 (the `723 patent), a composition patent directed to the product crystalline paroxetine hydrochloride and sold under the brand label Paxil for treatment of depression. SmithKline also owns various other related patents, including U.S. Patent No. 6,113,944 (the `944 patent), that issued from a later-filed application and claimed the product paroxetine by its process of manufacture.
Apotex submitted an abbreviated new drug application (ANDA) to the U.S. Food and Drug Administration (FDA) seeking approval to market a generic version of Paxil and filed a paragraph IV certification that the `944 patent was invalid. Pursuant to 35 U.S.C. § 271(e)(2), which makes submitting an ANDA an act of infringement, SmithKline brought suit against Apotex, alleging infringement of the `944 patent. The district court granted summary judgment to Apotex that the patent was invalid as anticipated by SmithKline’s earlier `723 patent.
The Federal Circuit commenced its discussion by pointing to the historical purpose of product-by-process claims, which is to allow inventors to claim “an otherwise patentable product that resists definition by other than the process by which it is made.” The Court commenced its analysis citing Scripps Clinic & Research Foundation v. Genentech, Inc. for the proposition that the product-by-process claims at issue were not limited by the process steps within those claims. The Court acknowledged that some commentators, including the district court, perceive a conflict between Scripps and Atlantic Thermoplastics Co., Inc. v. Faytex Corp., where the court read the process steps as claim limitations.
However, in Atlantic Thermoplastics the Court instructed the accused products were made by a different process than claimed in the patent’s product-by-process claim. Thus, the Court in Atlantic-Thermoplastics determined the patent did not extend to cover the product as made by any process. The Court deemed the perceived conflict irrelevant to its decision at bar because it makes no difference whether the ‘944 patent’s product-by-process claims are construed broadly to cover the product made by any process or narrowly to cover only the product made by a dry admixing process. Either way, anticipation by an earlier disclosure of the product itself cannot be avoided. Rather, in view of the undisputed fact that the product of the patent’s claims is paroxetine, the ultimate issue is only whether the prior art disclosure of a product precludes a future claim to that same product even if it is made by an allegedly novel process. Citing a long history of precedent, the Court affirmed that anticipation by an earlier product patent cannot be avoided by claiming the same product more narrowly in a product-process claim. The court further concluded that SmithKline was precluded from making arguments that the product produced by the allegedly novel process was novel for its failure to brief this issue on appeal.
Judge Newman, in a spirited dissent, argued that the fundamentals of claim analysis require that all of the claim limitations limit the claim, adding that “we have so held in myriad decisions. The panel majority's holding that a claim to a product is never limited by the process limitations in the claim is an extraordinarily mischievous holding, for there are thousands of patents with such claims.”
Fixed-Term License Cannot Be Assignment for Purposes of Transferring Standing to Sue
By Matthew F. Weil
The U.S. Court of Appeals for the Federal Circuit has held that a termination provision in the license agreement precludes the agreement from being held the equivalent of an assignment for purposes of determining who has standing to sue. Aspex Eyewear, Inc. v. Miracle Optics, Inc., Case No. 04-1265 (Fed. Cir. Jan. 10, 2006) (Lourie, J.).
Contour and Aspex brought suit under patents originally assigned to Contour by the inventor but that were later the subject of a broad license conveying nearly all rights in the patent, including (purportedly) the right to enforce the patent in court. The defendant argued the grant of rights from Contour to a third party (Chic Optic) was so broad that Contour had effectively lost the right to sue under the patent. The district court agreed, holding that the license (signed before this suit was filed) stripped Contour of standing to sue.
To determine whether an agreement to transfer rights to a patent at issue amounted to an assignment or a license, the Federal Circuit focused on both the intention of the parties and the substance of what was granted. While the Court agreed with the district court that Contour had transferred to Chic certain rights often associated with patent ownership (the exclusive right to make, use and sell products covered by the patent; the right to sue for infringement of the patent; and a virtually unrestricted authority to sublicense its rights under the agreement), Contour retained one indispensable right: barring the patent from being found invalid or unenforceable. As of March 16, 2006, Chic lost possession of its rights, and all rights in the patent reverted back to Contour. By having rights for only a limited portion of the patent term, the Federal Circuit held Chic “simply did not own the patent. It was merely an exclusive licensee without all substantial rights.” For that reason, Contour retained the standing as a patent owner to sue as of the date the complaint was filed.
Even If Novel, Combination of Non-Novel Elements Cannot Support Finding of Design Patent Validity
By Rania C. Sarkis
The Federal Circuit has upheld a finding of no infringement as a matter of law where the only purported “points of novelty” allegedly appropriated by the accused device could all be found in the prior art. Lawman Armor Corp. v. Winner Int’l LLC, Case No. 05-1253 (Fed. Cir. Feb. 22, 2006) (Freidman, J.). The Court agreed with the defendant and the district court that the combination of many non-novel “points of novelty” could not be said, in itself, to create an additional “point of novelty.”
Lawman was the exclusive licensee of a design patent claiming a design for a sliding hood portion of a steering wheel lock assembly. Lawman sued Winner for infringement, and Winner moved for summary judgment of non-infringement based on the “point of novelty” test. Under this test, an accused design can be held to infringe only if it appropriates the “point of novelty” that distinguishes the patented design from the prior art.
In opposing the summary judgment motion, Lawman listed eight points of novelty in the patented design; Winner responded by citing prior art that depicted Lawman’s purported points of novelty in one combination or another. In granting a summary judgment of no infringement, the district court concluded the purported points of novelty were all found in prior art and, as a result, Lawman failed to create an issue of fact that there could be infringement under the “point of novelty” test.
On appeal the Federal Circuit affirmed that prior art disclosed each of the purported points of novelty of the patent design. The Federal Circuit explicitly rejected Lawman’s argument that the patent contained a ninth point of novelty (that is, the combination in a single design of the eight non-novel points of novelty). If the combination of elements found in the prior art were sufficient to constitute a point of novelty of a new design, the Court observed, “it would be the rare design that would not have a point of novelty.”
Copyrights / Design Patents / Summary Judgment
Federal Circuit Raises Bar for Copyright and Design Patent Summary Judgment
By Matthew F. Weil
The U.S. Court of Appeals for the Federal Circuit has reversed a finding of no copyright infringement and no design patent infringement, noting that both of these issues are fact-intensive and often not particularly appropriate to resolution on summary judgment. Amini Innovation Corp. v. Anthony California, Inc., Case No. 05-1159 (Fed. Cir. Mar. 3, 2006) (Rader, J.). With both causes of action, given the subjective component of potential confusion, “conclusions about reasonable jurors are difficult to make on an issue of this factual dimension.”
Amini sued Anthony for infringement of its copyrights and design patent in the “carved ornamental woodwork” of two lines of bedroom furniture. After comparing the parties’ two product lines and taking appropriate evidence, the district court granted summary judgment of no infringement (under both theories). Amini appealed.
On the copyright infringement claims, the Federal Circuit reversed, noting that the similarities between the two product lines were such that a reasonable juror might conclude that there had been infringement. The Federal Circuit noted that the U.S. Court of Appeals for the Ninth Circuit’s inverse-ratio rule (which allows “a lesser showing of substantial similarity if there is a strong showing of access”) made that conclusion plausible and held “[t]he record does not conclusively resolve the question of the access of Mr. Chang, Anthony’s designer, to the protected work before the creation of the Anthony products.”
On the design patent claim, the Court also reversed, underscoring the importance of evaluating the possibility of consumer deception that arises as a result of similarities in the overall design, not of similarities in ornamental features considered in isolation. The Federal Circuit found that the trial court applied a claim construction that focused too narrowly on the isolated ornamental features, while overlooking the fact that the patent also depicted these features in the context of the overall bed view.
The Federal Circuit rejected the trial court’s finding that no reasonable jury could find infringement of Amini’s design patent. The trial court mistakenly analyzed each element separately instead of analyzing the design as a whole from the perspective of an ordinary observer. The trial court was correct to factor out the functional aspects of various design elements, but the Court held that discounting of functional elements must not convert the overall infringement test to an element-by-element comparison.
Google Enjoined in Lawsuit Over Image Links
By James E. Griffith
In the latest chapter of a simmering legal battle between content providers and technology companies, the U.S. District Court for the Central District of California preliminarily enjoined Google Inc. from using its Image Search feature to display thumbnail versions of photographs owned by publisher Perfect 10 Inc. Perfect 10 Inc. v. Google Inc., Case No. CV 04-9484 (C.D. Cal. Feb. 17, 2006) (J. Matz ). The court found that Google’s use of these images was primarily commercial and harmed the plaintiff’s market for the downloading of reduced-sized images on cell phones.
Perfect 10 is a Beverly Hills-based publisher of the adult magazine Perfect 10 and the operator of a corresponding subscription website. Google operates internet search engines, including Image Search. Image Search responds to a user search by displaying a number of reduced-size images organized into a grid. The user can scan the small images and choose one by clicking on it, thereby opening a new browser window displaying the underlying web page from which the thumbnail image originated. Google generates revenue by selling sponsored links and advertising in connection with its searches. Perfect 10 sued Google claiming that the Image Search engine directly and contributorily violated its copyrights by creating and publicly displaying its photographs.
The district court rejected several of Perfect 10’s theories, including its claim for infringing distribution of the images and for vicarious and secondary infringement liability. However, the court found that Perfect 10 was likely to succeed on its claim of direct infringement based on Google’s display and distribution of thumbnail photographs corresponding to Perfect 10’s copyrighted images. Specifically, the court found that the display of the thumbnails impaired Perfect 10’s ability to sell its images for download and use on cell phones, a market that was the subject of an existing license between Perfect 10 and a third party. Moreover, the court rejected Google’s fair use argument, principally because Google’s Image Search service increased user traffic and advertising revenue on Google’s website and was therefore highly commercial.
The district court distinguished its decision from the U.S. Court of Appeals for the Ninth Circuit’s ruling in Kelly v. Arriba Soft Corp. in which the Ninth Circuit found that Arriba’s image search results displaying thumbnail versions of Kelly’s photographs were fair use. The key distinguishing factor the court noted was that Google “offers and derives commercial benefit” from its advertising program. Specifically, Perfect 10 introduced evidence that Google displayed thumbnails from infringing third-party websites, which also appeared to be generating revenue for Google through its advertising program. Should the court’s decision ultimately be appealed to the Ninth Circuit, the appellate court will face the key question of whether search engine operators enjoy more limited fair use rights with respect to their search results when their searches are conducted in coordination with purchased advertising.
Anti-Counterfeiting Bill Awaits Presidential Signature
By Elizabeth Eunjoo Kim
On March 10, 2006, the U.S. Senate sent President Bush a bill that strengthens existing anti-counterfeiting laws. Known as the “Stop Counterfeiting in Manufactured Goods Act,” the bill amends 18 U.S.C. § 2320 to require that counterfeit goods be destroyed and any property used for counterfeiting be forfeited. The bill further amends 18 U.S.C. § 2320 to prohibit trafficking in counterfeit labels, even if the labels are not attached to any goods. House of Representatives Bill H.R. 32/Senate Bill S. 1699.
18 U.S.C. § 2320 codifies the regulations relating to trafficking in counterfeit goods or services. Currently 18 U.S.C. § 2320 allows, but does not require, the destruction of articles that are found to bear counterfeit marks. Also, 18 U.S.C. § 2320 does not mention any forfeiture of property used for counterfeiting, such as equipment or materials used to make counterfeit goods. At present, therefore, counterfeiters can quickly resume counterfeiting activities following a conviction.
H.R. 32/S. 1699 adds mandatory destruction provisions for counterfeit goods, stating “…the court shall order that any forfeited article…bearing or consisting of a counterfeit mark be destroyed.” H.R. 32/S. 1699 also introduces mandatory forfeiture provisions for counterfeit goods and for any property used in counterfeiting. These provisions state that “any article bearing or consisting of a counterfeit mark…and any property used…to commit…the offense [of counterfeiting]…shall be subject to forfeiture …”
Further, H.R. 32/S. 1699 closes a loophole that currently exists in 18 U.S.C. § 2320. This loophole allows counterfeiters to avoid liability by trafficking in counterfeit labels that are not attached to any goods and by separately trafficking in unlabeled goods. In United States v. Giles decided in June 2000, the U.S. Court of Appeals for the Tenth Circuit confirmed the existence of this loophole by ruling that section 2320 does not forbid trafficking in counterfeit labels that are not attached to any goods. H.R. 32/S.1699 now explicitly prohibits the trafficking in "labels, patches, stickers…or packaging of any type or nature, knowing that a counterfeit mark has been applied thereto.”
Representative Joe Knollenberg introduced H.R. 32 in January 2005. On May 23, 2005, H.R. 32 passed the House of Representatives by voice vote. Senators Arlen Spector and Patrick Leahy introduced the Senate companion bill S. 1699 on September 14, 2005. On February 15, 2006, S. 1699 passed in the Senate by unanimous consent. On March 10, 2006, the Senate presented H.R. 32/S. 1699 to President Bush. H.R. 32/S. 1699 will become law when signed by President Bush.
USPTO to Bar: We Are Drowning in Continuations
By Paul Devinsky and Stephen Becker
The U.S. Patent and Trademark Office (USPTO), in an attempt to reduce its considerable backlog, is trying to change the rules governing examination of patent applications. The USPTO proposals, if adopted, will substantially change current practice.
Currently, when a new application is examined, an examiner will typically reject at least some of the claims as not being patentable for various reasons. The filer is then given an opportunity to rewrite the claims and present a written argument explaining the merits of the invention. The examiner may reject the claims again, and another response may be presented. The process usually formally ends with the second round. Further positions to be taken by the filer typically require that the patent application be resubmitted as a “continuation application”: a “recycled” application that enables the filer to try a different approach. Under accepted practice, this process can be repeated as long as the filer develops legitimate new positions to argue.
Traditionally, the USPTO has examined all claims presented in an application, subject only to the requirement that the claims all are directed to a single invention and a filing fee is paid. The filing fee increases substantially as the number of claims grows, in part to cover the cost of examination, and in part simply to discourage filers from presenting a large number of claims. Until recently, a filer for an invention in most technologies could have expected an application to be examined initially within 18 months and a patent issued within two or three years.
Now, however, a mushrooming in the number of filings is causing the backlog to swell out of control; nearly 400,000 new applications were filed in 2005. According to statistics recently published by the USPTO, the current inventory of unexamined patent applications is more than 900,000—a number that is expected to grow. Now the USPTO predicts the amount of time it will take for new applications on business methods to be initially examined to range from anywhere between two years and ten years. Moreover, examination quality has been deteriorating. The USPTO, in an internal audit, determined that about 15 percent of all issued patents contain at least one significant error, and nearly 5 percent contain at least one claim that a court would find invalid. The problem simply is that too many patent applications are being filed in relation to the USPTO’s ability to examine them. This is aggravated by examiners’ inability to pick up new patent applications, because so much of their time is being spent on continuations. According to the USPTO, about one-third of applications under examination are continuations.
In response, the USPTO has proposed rules that limit the number of filings. The first proposal would limit to ten the number of claims that can be presented for examination. The rule would be retroactive to include any application that is currently pending but has not been examined.
The second proposal would limit the number of continuation applications to only one. If a second continuation application is submitted, the filer must show by petition that the issues raised in the continuation could not have been raised earlier. Many continuations filed today would not satisfy this requirement, as issues during applicant/USPTO negotiation simply evolve during the examination process. The USPTO is accepting written comments to the proposals on or before May 3, 2006.
Practice Note
The new rules, if adopted, will have a negative impact on those who file patent applications strategically. Fundamental inventions often are submitted to the USPTO in the form of an initial, broadly presented application with many claims, refined during examination of the original application and its continuations. This strategy is common to universities and corporations doing work in diverse fundamental technologies where practical applications of a fundamental discovery or development may not be initially well-developed but will evolve over time. Patents limited to 10 claims often will fail to meet their strategic objectives.
The proposed rules also escalate the cost of obtaining a patent because they require applicants to provide a prior art search and patentability report. This may price many independent inventors, who may need to start with a good number of claims and rely on multiple continuation practice to achieve a worthwhile patent, out of the patent procurement process. Also at a disadvantage would be non-U.S. corporations, whose patent applications often are the result of an amalgamation of several related applications initially filed in their home countries.
A practical result of the proposal may be simply to multiply the number of separate applications that are filed. That could actually increase, rather than decrease the backlog. Although the USPTO is presenting additional rules to discourage filers from gaming around the proposals, it is expected that filers will work to find ways around them.
The proposed rules will also impose a considerable burden on lawyers. The process of selecting “representative claims” (in existing applications that exceed the claim limit), researching them and drafting a patentability report is rife with pitfalls. Good faith efforts to meet these requirements may be turned around during litigation to make the effort appear negligent, if not deceptive.
